1. Shale Oil & Gas —A Key Driver for
Reshoring in the Tri-State Area
Taylor Robinson
President, PLG Consulting
www.PLGConsulting.com
11

2. Topics
» About PLG Consulting
» Shale Oil & Gas 101
» Shale impact to the US
reindustrialization
» Wrap up
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3. About PLG Consulting
» Boutique consulting firm with team members throughout the US
 Established in 2001
 Over 80 clients and 200 engagements
 Significant shale development practice since 2010
» Consulting services
 Strategy & optimization
 Assessments & best practice benchmarking
 Transportation assets & infrastructure development
 Supply Chain design & operationalization
 M&A/investments/private equity
» Specializing in these industry categories:
 Energy
 Bulk commodities
 Manufactured goods
 Private Equity
www.PLGConsulting.com 3

4. Is The Shale Boom Different Than
Recent Energy Booms?
» Other recent energy “boom” events with major supply chain challenges….
» Common characteristics
 New technology breakthroughs and/or dramatic market shifts
 Speed to market is paramount -- supply chain strategies an afterthought
 Rush of capital and new players
 Continuous change and evolution required to improve efficiency
Previous two energy booms did not improve the cost of energy without
government incentives
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5. Two Technology Breakthroughs Together:
Hydraulic Fracturing & Horizontal Drilling
Great YouTube video by
Marathon on fracing:
Http://www.youtube.com/watc
h?v=VY34PQUiwOQ
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6. US Shale Plays
Marcellus & Utica
- Large plays
- Great location
- Big potential
- Dry & wet
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7. Shale Oil & Gas High Level
Supply Chain
Materials Fuel
Upstream Midstream Downstream
• Proppants Gasoline Distillates
• Clean water Exploration
• Chemicals Crude
Transportation Jet Fuel Residuals
Oil
Production
(Well Site)
Processing
Equipment
• Drilling Rigs
• OCTG (Pipe) Refining Chemical
Crude/ Gathering
• Cement Feedstocks
Gas
Mixture
Process
Natural
Product
Gas
Logistics Flow
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8. Shale Oil or Gas -- Which is more important
to US industry competitiveness?
Energy Cost per Million BTU
» Natural Gas is 4X cheaper than oil on a
BTU-basis
 Not expected to change for the foreseeable future
 Gas is more plentiful on most shale plays
» Gas drives an increasing share of the US
electricity generation capacity
» Gas by products are the “building blocks
of manufacturing”
» Gas’ cost advantages will drive new Source: EIA
innovation to convert gas to more fuels Net Generation by Energy Source (2012)
 New long-haul trucks now available with natural gas
Net Generation by Energy
engines (CNG) 1600 37% (48% in 2007)
 BNSF testing conversion to natural gas-fired trains (LNG) 1400
 Natural gas to liquid diesel conversion plants in planning 30% (21% in 2007)
(Shell, Sasol) Megawatt Hours (Thousand) 1200
 Siluria Technologies converting natural gas into jet fuel 1000
 Increases gas demand 800 19%
12%
» Cleaner burning fuel 600
 30% less carbon emissions than oil 400
 53% less than coal 200
<1%
0
Coal Natural Gas Nuclear Renewables Petroleum 8
www.PLGConsulting.com Source: EIA

9. Downstream Supply Chain
Petrochemical
Refined Processing Polymers
Crude
Products Olefins
Polybutadiene Polypropylene Polyethylene
Chemical
Ethylene Propylene Butylene
Feedstocks
Petrochemicals
Natural Manufacturing
Gas Power Aromatics Ammonia
Many
Others Intermediates become
consumer and
Generation industrial products
Industrial
Use
Process
Consumer
Product Use
Consumers
Logistics Flow
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10. Natural Gas & Petrochemical
Downstream Products
Feedstock/
Intermediary
Low-Density Food packaging, film, Finished
Polyethylene trash bags, diapers, toys
Products
House wares, crates,
High Density
drums, food containers,
Polyethylene
bottles.
Siding, windows,
Ethylene
Vinyl Chloride PVC frames, pipe, medical
Dichloride
tubing
Antifreeze Pantyhose,
Natural Gas, Ethylene Ethylene carpets, clothing
Fibers
OIl Oxide Glycol
PET
Miscellaneous Bottles, film
Ethane, Ethyl Polystyrene
Styrene
Naphtha, etc. Benzene SAN Insulation, cups
SBR
Linear Latex Instrument lenses,
Detergents house wares
Ethylene Alcohols Miscellaneous
Vinyl Acetate Tire, hose
Adhesives, coatings, textile/
paper. finishing, flooring Medical gloves,
Miscellaneous carpeting,
coatings
www.PLGConsulting.com 10

11. Impact Of Shale Gas to US Industry --
Electricity Cost Competitiveness
» Shale gas boom makes electricity costs lower A
Average Cost of Electricity (2012)
for US industries
35 31¢
 Reduced energy costs felt throughout supply chain 30¢
30
 Large users are achieving greater even lower costs by buying
25
¢/kWh
natural gas directly from wells with long term contracts 18¢
20
 Some processes only become economically viable with lower costs 13¢
15
9¢
10 7¢
4¢ 3¢
» Steel example -- Direct Reduction Iron (DRI) 5
 Shale gas strips oxygen from iron core to make high purity pellets 0
 Produces higher quality steel vs. scrap steel
 DRI pellets cost ~$270/ton vs. scrap steel cost ~$390/ton
 At least five new DRI steel plants being considered in the U.S. by:
– Nucor/Encana, Bluescope Steel/Cargill, Essar Global Ltd.
 Nucor signed a 20 year supply agreement with Encana Gas & Oil
» Reciprocal Growth and Other Industry Impacts
 Shale gas creates demand for OCTG steel pipe for wells
 Increased demand for U.S. steel creates greater demand for U.S.
gas
 Other energy-intensive industries will have great advantages and
are anticipating further expansions in the US
– Chemicals
– Glass Three iron-ore storage domes stand near Nucor's direct-reduced iron plant in Convent, La.
www.wsj.com - Feb 1, 2013
– Castings
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12. Gas Feedstock
Cost Competitiveness
Relative Profit Margins for Producing Ethylene from
» Gas feedstock (ethane) makes ethylene Ethane and Naphtha
very competitive
 Ethylene is feedstock for a broad range of chemical
products – a “building block” of manufacturing
 >70 cents per pound more profit per pound from ethane
production compared to naphtha
 Ethane-to-Naphtha cracker ratio
– Was 70%/30%
– Likely to reach 95%/5%
» Production capacity for ethylene set to
expand in U.S. -- abundant supply
 Investment in ethylene production has already increased by
33% domestically
 Production capacity expected to rise by up to 35% in
coming years
 Investments in the repair and expansion of existing
crackers also increasing
 Ethane exports will grow fueling more demand for gas
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13. The Graduate
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14. Pre-Shale Plastics Supply Chain
Lordstown
Assembly Plant
Component
Manufacturing
Resin
Plants
Resins
ship via
rail
Cracker
Refineries
Imported crude
via vessel
(Naptha-based)
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15. Potential Plastics Supply Chain
Potential Scenario HDPE Calculated Cost
HDPE Calculated Cost
Lordstown 2500
Assembly Plant
2018
2000
1500
$/Ton
1266
Component Resin Cracker 1000
Manufacturing Plants 692
526
500
0
Asia US Saudi US Recent
Gas Wells Historical
Sources: CMAI, TopLine Analytics, and Alembic analysis, 2012
» Local gas feedstock … local cracking …. local resin processing …. Local
manufacturing  tremendous material, logistics and manufacturing cost advantage
» 5-10% total cost advantage potential vs. US Gulf Coast supply chain
» Plastics may replace other materials due to low cost – like aluminum, castings
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16. Manufacturing Cost of Goods
Sold (COGS) Comparison
US vs. China COGS for Widget X - 2008
US vs. China COGS for Widget X - 2008 US vs. vs. China COGS for Widget XX 2015
US China COGS for Widget - - 2015
100
100 100
80
-20% 80 80
80
or more 70
+10%?
60 60
40 40
20 20
0 0
US 2008 China 2008 US 2015 China 2015
Direct Material Indirect Material Labor Overhead Shipping Direct Material Indirect Material Labor Overhead Shipping
» Direct & Indirect Materials make up 60-70% of typical manufactured component
 US has & will have substantive raw material cost advantages over much of the world
 Winners will take advantage of constantly changing raw material markets with Value Engineering
 Global sourcing capability still will remain a requirement
» Overseas shipping can account for 10% of the component cost – built in advantage for US
www.PLGConsulting.com 16

17. Key Questions for US manufacturers
1. Will we take advantage of the raw material & energy
cost advantages driven by shale gas?
2. Will we leverage the logistical cost and cash flow
advantages of local manufacturing?
3. Will we relentlessly lower our labor and overhead costs?
 PLG model assumes that US manufacturers can cut their labor and
overhead by 50% between 2008 & 2015
 Must minimize all Supply Chain costs & cycle times from supplier to
customer
 Lean and Six Sigma can’t be just buzzwords – must live it!
4. Will we lead our teams to do things differently than in the
past?
www.PLGConsulting.com 17

18. Implications & Wrap Up
» Shale gas is a game-changer for US manufacturing
» US manufacturing must continuously reduce
their labor and overhead costs
» Competition will intensify, change, grow….
 The Chinese will not easily give up on manufacturing US products
 New entrants in US will use new materials and technology in many industries
 “Innovate or perish”
» Shale Oil & Gas has additive benefits to the US economy
 Energy independence – 2020 or 2025?
 Driving large increase in exports – LNG, propane, petrochemicals, chemicals, plastics
 Major improvement on trade deficit
 Shale Oil & Gas supply chain will drive job growth
www.PLGConsulting.com 18

19. Thank You!
For follow up questions and information, please contact:
Taylor Robinson, President
+1-508-982-1319 / trobinson@prologisticsgroup.com
This presentation will be available at:
www.PLGConsulting.com
“News” section
www.PLGConsulting.com 19