This document summarizes the natural gas supply chain from upstream production to downstream consumption. It describes the various sources of natural gas including conventional and unconventional reserves developed through hydraulic fracturing. It also discusses the midstream infrastructure of gathering pipelines, processing plants, storage facilities, and interstate pipelines. Finally, it outlines the downstream sector including local distribution companies and end users such as power plants, industrial facilities, commercial businesses and homes. Paradigm shifts have occurred through technological advances in hydraulic fracturing and infrastructure expansion to move gas to new markets.

1. Natural Gas Supply Chain Dynamics and
Paradigm Shi7(s)*
David A. Boger, PMP
Senior Consultant
Skipping Stone, LLC
www.skippingstone.com
* Paradigm Shi, (PS) is a change from one way of thinking
about a parAcular subject to another way of thinking about it.

2. A Brief Bio
• Educated in Energy Related Industry
– Allegheny College: BS Geology
– Penn State: MS Mineral Economics
• 28 Year Career in Retail Energy
– Industrial Energy Services Company
– Babst, Calland, Clements & Zomnir
– Strategic Energy LLC
– Direct Energy Business
– Skipping Stone, LLC
– ???
• Natural Gas MarkeAng, Natural Gas Management ConsulAng, Energy
OperaAons, Product Development, MarkeAng, Business Process
Improvement, Project Management, Corporate Training, Customer Service

3. Natural Gas Supply Chain

4. Upstream Dynamics

5. Natural gas originates from mulAple resources
Non-conventional gas
(Hydraulic Fracturing Process)

6. Widespread DomesAc ConvenAonal Reserves

7. America’s next natural gas fronAer also
widespread…..
PS

8. Bakken Gas Flaring…

9. Shale Oil and Gas abundant reserves especially
in Europe, Russia, China, S. America, N. Africa
PS

10. Hydraulic Fracturing Process has some history
• Drilling technique for developing and
recovering oil and gas from unconvenAonal
reserves (Aght sands, shale)
• VerAcal and Horizontal wells
• Technique origins dates back to late 1860s
(Drake Well Era) and late 1940s (Halliburton)
• Jump started in 2003
• EsAmated that up 80% gas wells drilled in the
next decade will uAlize hydraulic fracturing

11. How low does the drilling go?
From: www. Fracfocus.org
Water * 5 – 8 MM Gallons
Sand 75K – 300K LBS
Horsepower 1,500 – 10,000 hhp
* Water Sources: surface water, ground
water, municipal water , treated
wastewater, powerplant cooling water,
recycled water (flowback)

12. Drilling Performance ConAnues to Improve
(Marcellus Shale Region)
- Improved
ProducAvity
- Gas/Oil Assoc
- Improved
Technology
- Improved
Technique
- Improved
Efficiencies
- 2012: 142 Rigs
- Improved
ProducAon per rig

13. US Natural Gas ProducAon by Source
(1990-2040) Trillioncubicfeet
PS

14. Times are a’ changing…
“And it’s not just Ukraine. Delega6ons from other Eastern European countries in the
crescent around Russia have come to Pennsylvania many, many 6mes in recent years,
Mr. (Tom) Murphy said, to learn the experience of the Marcellus Shale in hopes of
developing their own shale plays” Anya Litvak, Post Gazepe, March 18. 2014
PS Gas
Oil

15. What is natural gas?
Super – Rich Gas: As per Range Resources; wet gas measured at 1,350 Btu
per Mcf or higher; Contains a condensate comparable to a natural form of
gasoline.
Wet Gas > 1,200 Btu/Mcf > Dry Gas
PS

16. Gathering and Processing prepares the gas to
pipeline quality standards
- Gas producAon has
outpaced gathering
and processing
capacity
- Infrastructure build
out is on!
- Pipeline yards in
Duquesne

17. Upstream Headliner Topics….
Supply Infrastructure Regulatory Service Expansion
Marcellus, UAca and
Upper Devonian
Shales, ConvenAonal
Sandstones (Medina)
Gathering Pipeline
and Processing Plant
build out
Act 13 – State & Local
Zoning
Drilling under the Parks
Drilling under Airports
Drilling under CommuniAes
Engineering, Legal,
Environmental,
Water Transport,
Water Treatment,
Site PreparaAon,
Drilling, Chemicals,
Noise ReducAon,
Dry Gas, Wet Gas,
Super – Rich Gas
buoying producAon
levels
Water/Waste Water Mgmt,
Ground Water ProtecAon,
Air Emissions, Site
ConstrucAon/Road Impact
Waste Disposal,
Cement Supply,
Trenching, Pipeline
Manufacturing,
Shi7ing focus of E&P
Companies: Coal to
Gas, internaAonal
investments, IPOs, Real
Estate growth
Push for a Uniform
Severance tax policy (PA,
WV, OH)
Trucking, Shale
Hotels, Machine/
Equipment rentals,
Sewage treatment,
Site remediaAon
services…

18. Midstream Dynamics

19. Natural gas interstate pipeline map with highly
dependent states *
* States in grey which are at least 85% dependent on the interstate pipeline network for their
natural gas supply
Source: Energy InformaAon AdministraAon, Form EIA176 "Annual Report of Natural Gas and Supplemental Gas Supply and DisposiAon."
- 210 Natural Gas Pipelines
- 305,000 Miles of pipe
- 1,400 Compressor StaAons
- 49 Import/Export Points (via pipe)
- 8 LNG Import FaciliAes

20. Historical “longitudinal” flow papern of natural gas

21. Developing “grid” flow paperns of natural gas
PS

22. Push to expand Pipeline Capacity
FERC
Office of Energy Projects
Northeast Expansion (Tennessee) (1,200)
Marcellus to Manhattan (Millennium) (675)
West Side Expansions (NiSource) (950)
Continent to Coast (Portland Natural)(182)
Central New York Oil and Gas (250)
North-South Connector (Millennium) (250)
South to North Project (Iroquois) (300)
Northern Access 2015 - West Side Expansion (NFG) (175)
Niagara Expansion (Tennessee) (158)
Atlantic Sunrise (Transco) (1,000)
Atlantic Bridge Project (Spectra) (600)
Good Springs Pipeline (UGI Energy)(300)
Inergy Midstream (320)
Tiaoga Access Expansion (UGI Storage) (250)
Lower NY Bay Lateral (Transco) (400)
Connecticut Expansion (Tennessee) (72)
Pennstar (NiSource & UGI) (500)
Wright Compressor (Iroquois) (375)
U2GC Project (Spectra) (425)
Mainline 68 (Questar) (50)
Opal Market Link (Northwest) (400)
Tucson-Sasabe Pipeline (Mitsui) (770)
Nexus Gas (Spectra) (1,000)
Appalachia to Midwest (TETCO) (300)
Straight Blackwell Expansion (Southern Star) (225)
Dakota Pipeline (WBI Energy) (500)
East-to-West Project (Rockies Express) (700)
Lebanon Lateral (ANR) (60)
Williston Basin (30)
Lebanon Lateral 2014 (ANR) (350)
Glen Karn 2015 (ANR) (400)
Ozark Gas (200)
South Texas Expansion (TETCO) (300)
SOLA Project (TETCO)(600)
Elba Expansion (Elba Express) (650)
New Orleans River Corridor (Gulf South) (450)
Southwest Louisiana Supply (Tennessee) (1,000)
Gulf Markets Expansion Project (TETCO) (650)
TEAM-South Expansion Project (TETC)) (300)
Louisiana Access Project (Texas Gas) (500)
Destin Pipeline (380)
Dalton Expansion (Transco) (600)
Renaissance Gas Transmission (Spectra) (1,250)
Kennesaw Pipeline (NiSource)(1,316)
Tiger Exp (ETC) (600)
Major Pipeline Projects On
The Horizon (MMcf/d)
January 2010 to February 2014
21.96 BCF/D Total
1,723 Miles

23. Pipeline Projects in the works to move NGL to
exisAng, distant refineries
Source: Pipsburgh Business Times, Oct. 25, 2013 “Advanced pipeline projects cloud viability of Shell cracker by Malia
Spencer
- Five (5) NGL Pipeline projects
targeted for 2015
- 710,000 barrels/day capacity
- Connect NGL ProducAon to
exisAng cracking/refining
- Ethane glut
- Time to Market:
- Pipeline: 18 – 24 months
- Ethane Plant: 4 – 6 years
PS

24. Gas Storage is vital for meeAng peak demand and
providing price hedging capabiliAes
Propane
Storage
LNG Storage
ABOVE GROUND BELOW GROUND
A – Salt Caverns; smaller capacity, quick cycle Ame, 33%
gas cushion
D – Depleted Oil/Gas Reservoirs; more common, larger
capacity, tradiAonal cycles, 50% gas cushion
C – Natural Aquifer; midwest concentraAon, costly to
develop, 80% gas cushion
B – Abandon Mines, E – Hard Rock Caverns

25. Natural Gas storage capacity concentraAon
coincides with transportaAon grid

26. As winter temperatures goes, so does
withdrawals from storage…….
PS
- Record cold temps
resulted in record
withdrawal levels
- Record HeaAng
demand (residenAal/
commercials) + Gas –
Fired Power GeneraAon
+ Pipeline Capacity
Constraints (New
England)
- ProducAon limitaAons
due to well freeze

27. ResulAng in a projected record 2014
storage injecAon season……
- Summer Air
CondiAoning loads
could strain gas
supply
- Increased Gas – fired
Power generaAon +
strong storage
injecAons could drive
gas prices
PS

28. Midstream Headliner Topics….
Infrastructure Regulatory
Service Expansion
Intrastate, Interstate
Pipeline Capacity Expansion
Gas & Power Industry
Synching
Geophysical Survey,
Mapping, Road
ConstrucAon, Real Estate
Sales, Property
Management,
NGL Pipeline Capacity
Expansion to get NGL to
exisAng refineries
Air Quality Monitoring,
Water Quality Monitoring,
Diesel and Gasoline
Supplies, Lab Services
Refinery/Cracking Capacity
built in SW PA, WV
MarkeAng, PR

29. Downstream Dynamics

30. Local DistribuAon Companies (LDC) come in
various organizaAonal structures
LDC Types:
• Investor Owned (257):
Publically traded, rates
subject to PUC Regs and rate
– setting guidelines
• Privately Owned (104):
Privately owned, rates subject
to PUC Regs and rate –
setting guidelines
• Municipality (931): Owned
by Municipal Government,
rates set by municipal
government
• Cooperative (15): Non –
Profit organization, limited
profit sharing with members
Source: Fundamentals of the U.S. Natural Gas System, PGS Energy Training, 2011

31. Burner Tip Commercial/ Industrial Customers
( and other end – users of natural gas)

32. Who consumes natural gas?
Electric Power GeneraAon (31%)
Industrial (29%)
ResidenAal (19%)
Commercial (13%)
Lease and Plant Fuel (5%)
Pipeline & DistribuAon (3%)
Natural Gas Vehicle (0.13%)
2013 U.S. Natural Gas Consumption by End Use (MMcf)
Source: EIA Natural Gas 2013 Annual Released December 12, 2013

33. Pennsylvania customer average annual natural
gas usage (mcf)
Gas fired
power plants
use an
average of
357,000 mcf
of natural gas
per year,
almost 9
times more
than the
average
industrial
customer.
ResidenAal,
120
Commercial,
1,071
Industrial,
40,034

34. Industrial and electric power sectors lead U.S.
growth in forecasted natural gas consumpAon
Trillion cubic feet
PS

35. Over time the electricity mix gradually shifts to lower-carbon
options, led by growth in natural gas and renewable generation
2
0
1
2
3
4
5
6
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
U.S. electricity net generation
trillion kilowatthours
25%
19%
42%
13%
1%
Nuclear
Oil and other liquids
Natural gas
Coal
Renewables
2011 ProjectionsHistory
17%
16%
35%
30%
1%
1993
53%
13%
19%
11%
4%
Source: EIA, Annual Energy Outlook 2013
Adam Sieminski, USNIC
June 05, 2013
Forecasted electricity generaAon driven by
Natural Gas and Renewables
• Decline in Coal – fired
generaAon apributed to:
• Plant reArements
• Compliance with EPA
Mercury & Air Toxic
Standards (MATS)
• Weak Electricity demand
(Demand Mgmt.
programs, improved
appliance efficiencies)
• AlternaAve Fuel
CompeAAon (Gas/
Renewables)
PS

36. “The increase in natural gas
producAon from shale in the US
has resulted in a 36% drop in
prices paid by manufactures
between 2006 – 2010”*
“about 20% of the cost of
producing a ton of steel
related to energy costs,
anything that can help lower
costs is good for the viability
of the industry”** “natural gas prices in other major
economies are currently 2 ½ to 4
Ames higher than US natural gas
prices” ***
• Manufacturing, energy taking bigger role, Pipsburgh Business
Times, Dennis Yablonsky, Jan 2014
** Shale development big boost for steel industry, Pipsburgh
Business Times, JusAn Coyne, Oct. 2013
*** Shale spurs manufacturing, Pipsburgh Post Gazepe, Sirkin &
Zinsker, March 2014
Natural Gas cost advantage helps US Manufacturing
create jobs, drive the economy and compete with the
world
Feed stock Industries
Heat Source Industries
PS

37. All gas customers must learn how to navigate
unpredictable price volaAlity and manage inherent risk

38. “The NaAon’s gas supply will exceed its demand
by 2017”*
* Benteck Energy LLC at 2013 Penn State Natural Gas UAlizaAon Conference
Trillion cubic feet
PS

39. Expanding LNG Export Capacity has complicaAons..
• Lengthy steps/Ame to obtain Federal approval
• 25 pending permits ($7B - $10B projects)
• 7th Project (Oregon) just approved by DOE (pending FERC
review)
• Target operaAons to start 2016
• Non – Free Trade Agreement countries
• World PoliAcs; Russian/Crimean/Ukraine events
• Russia supplies 1/3 gas to Europe, Major Ukraine Pipelines
• PoliAcal push to expedite approval process
• US Manufactures concerned about price impact
PS

40. Downstream Headliner Issues….
Demand
Drivers
Pricing Dynamics Regulatory
Gas – Fired Power
GeneraAon (20 MW
“micro” plants)
Gas Price Spikes in
pipeline capacity
constrained regions
Pace of LNG Facility
Approval and associated
poliAcal pressures
LNG Exports – Europe and
Beyond
Electricity Price Spikes in
PJM; gas needed for
residenAal and power
generaAon
Peoples Natural Gas
buying Equitable Gas
Compressed Natural Gas
TransportaAon & refueling
infrastructure expansion

41. Natural Gas Supply Chain
Paradigm Shi7 Is On!

42. Appendix
- NYMEX Basics
- Natural Gas Measurement Fundamentals

43. NYMEX Basics
• Trading Unit
Natural Gas Futures: 10,000 million BriAsh thermal units (MMBtu).
• Trading Months
Natural Gas Futures: 36 consecuAve months commencing with the next
calendar month (for example, on October 2, 1998, trading occurs in all
months from November 1998 through October 2001). OpAons: 12
consecuAve months, plus 15, 18, 21, 24, 27, 30, 33, and 36 months on a June/
December cycle.
• Price Quotation
Natural Gas Futures: Dollars and cents per MMBtu, for example, $2.035 per
MMBtu.
• Last Trading Day
Natural Gas Futures: Trading terminates three business days prior to the first
calendar day of the delivery month.
• Delivery
Sabine Pipe Line Co.’s Henry Hub in Louisiana. Seller is responsible for the
movement of the gas through the Hub; the buyer, from the Hub. The Hub fee
will be paid by seller.
• Delivery Period
Delivery shall take place no earlier than the first calendar day of the delivery
month and shall be completed no later than the last calendar day of the
delivery month. All deliveries shall be made at as uniform as possible an
hourly and daily rate of flow over the course of the delivery month.
• Trading Symbols
Natural Gas Futures: NG
Month Settle 3/21/2014 Strip Avg,
Apr-14 4.313 Mar '14 - May '14 4.313
May-14 4.297 Apr '14 - Oct '14 4.339
Jun-14 4.329 Nov '14 - Mar '15 4.514
Jul-14 4.367 Apr '15 - Oct '15 4.061
Aug-14 4.366
Sep-14 4.343 Mar '14 - Feb '15 4.412
Oct-14 4.355 Calendar 2015 4.203
Nov-14 4.404 Calendar 2016 4.180
Dec-14 4.524 Calendar 2017 4.252
Jan-15 4.606 Calendar 2018 4.341
Feb-15 4.566 Calendar 2019 4.457
Mar-15 4.472 Calendar 2020 4.655
ICE NEXT DAY GAS PRICES:
Henry Hub 4.3155 Dominion-South 4.0680 TCO 4.3651
Market Commentary: The natural gas market seems to have
written off remaining winter weather concerns for now, with

44. Natural Gas Measurement Fundamentals
Volume
CCF = 100 cubic
feet
MCF = 1000
cubic feet
Energy
Therm = Amount of
energy produced by one
CCF
Dekatherm (DTH) = 10
Therms
Conversion
Volume x BTU Factor *
or
Energy/BTU Factor*
* A British Thermal Unit (BTU) is the amount of heat energy needed to raise the
temperature of one pound of water by one degree F.
BTU Factor supplied by the utility; Typically ~1.03
Example: 1,000 MCF X 1.03 = 1,030 DTH
1,030 DTH / 1.03 = 1,000 MCF