Natural Gas:
An Energy Game Changer
Ron Muhlenkamp
Muhlenkamp & Company, Inc.
Intelligent Investment Management
© 2013. All rights reserved.
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist
• Landowner
• Investor
Natural Gas: An Energy Game Changer
• Consumer
Natural Gas
Crude Oil
1995–3/17/2014
(Daily)
Source: Bloomberg; Oil; Generic 1st 'CO' Future, Natural
Gas; Generic 1st 'NG' Future delivery to Henry Hub
How Shale Gas Benefits the Homeowner
Source: Muhlenkamp & Company, Inc.
Percent of Total U.S. Electricity
Net Generation by Energy Source
2012
Source: U.S. Energy Information Administration; Electric Power Monthly, Tables 7.2b and 8.2b
Historical Natural Gas Consumption
in the U.S.
25%
Utilities
Home Heating
Industry
25%
Source: Muhlenkamp & Company, Inc.
50%
Working Gas in Underground Storage Compared with 5-year Range
Week ending March 7, 2014
Last 24 Months
5-year average
Note: The shaded area indicates the 5-year range between the minimum and maximum values for the weekly series.
Between 2009-2014.
Source: U.S. Energy Information Administration; Form EIA-912, “Weekly Underground Natural Gas Storage Report.”
Energy Source
Source: Bloomberg
Other U.S. “Consumers” of Natural Gas
• Utilities
• Over-the-Road Trucking
• Industry Feedstock
• Manufacturers
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist
Chemical Composition of Selected Fuel Sources
Source: Muhlenkamp & Company, Inc.
Land Usage: Favors Natural Gas for Power Generation
Acres of land needed to produce the fuel to
generate enough electricity to serve 1,000
households for one year
Energy Source
Source: U.S. Energy Information Administration, Carbon Dioxide Emissions Coefficients Report
Petroleum Coke
Lignite Coal
Subbituminous Coal
Waste Oil
Waste / Other Coal
Coal-Based Synfuel
Bituminous and Anthracite Coal
Sludge Waste
Wood Waste Solids
Wood Waste Liquids
Other Biomass Solid
Municipal Solid Waste
Black Liquor
Agriculture Crop Byproducts
Tires
Municipal Solid Waste
Residual Fuel Oil
Distillate Fuel Oil
Kerosene
Jet Fuel
Other Gas
Propane
Natural Gas
Blast Furnace Gas
Other Biomass Liquid
Other Biomass Gases
Landfill Gas
Municipal Solid Waste
Geothermal
Purchased Steam
Other
Wind
250
Water
Solar
Nuclear
Pounds Per Million Btu
Carbon dioxide emission factors for electric power generation
by fuel type in the United States
Percent of largest
carbon emitter (Right Axis)
100%
90%
200
80%
70%
150
60%
50%
100
40%
30%
50
20%
10%
0
0%
U.S. Carbon Dioxide Emissions from Coal
1972-Nov2013 (Monthly)
250
150
100
50
Year
Source: U.S. Energy Information Administration, Monthly Energy Review.
Note: Reflects total carbon dioxide emissions in metric tons by month.
2014
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1990
1988
1986
1984
1982
1980
1978
1976
1974
0
1972
Million Metric Tons
200
U.S. energy-related CO2 emissions in early 2012 lowest since 1992
U.S. Total Carbon Dioxide Emissions from Energy Demand
1973-Nov2013 (Monthly)
600
Million Metric Tons
550
500
450
400
350
300
Year
Source: U.S. Energy Information Administration, Monthly Energy Review.
Note: Reflects total carbon dioxide emissions in metric tons by quarter.
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
Ron Muhlenkamp & Company
1979
1977
1975
1973
250
What about the Water?
1) Into well
2) Flow back
3) Water table
4) Burn Methane (CH4)
5) Ethanol (C2H6O)
Water into the Well
It takes 5 million gallons to frac 1 well
which drains 80 acres
ft3
7.5 Gals.
12 Inches
ft
Source: Muhlenkamp & Company, Inc.
X
=
Acre
43,560 ft2
X
1
80 Acres
2.3 Inches of Rain
Flow Back
• Center for Sustainable Shale
Development (CSSD)
• Into subsequent wells
Water Table…
Burn Methane, CH4
→ CO + 2H O
1 Billion ft → 11 Million Gallons of H O
CH4 + 2O2
2
3
Source: Muhlenkamp & Company, Inc.
2
2
Fracturing: What about the Water?
$5 Million + 5 million gallons H2O =
88 Million Gallons of H2O
→ 83 Million Gallons of H O @ 6¢/Gallon
2
= Free Energy
Source: Muhlenkamp & Company, Inc.
Ethanol: What about the Water?
• ≈ 30% of U.S. corn crop is used for ethanol
production
• 25-30” of rainfall are required to grow corn
• Average corn yield of 1 acre of farmland
≈ 147 bushels
• 1 bushel of corn ≈ 2.77 gallons of ethanol
• 677,724 gallons of water ≈ 450 gallons of
ethanol
Source: Muhlenkamp & Company, Inc.
Fracturing vs. Ethanol:
What about the Water?
• Marcellus gas well uses 0.16 gallons of
water to generate the energy equivalent
of 1 gallon of gasoline.
• Ethanol requires 2,259 gallons of water to
produce the energy equivalent of 1 gallon
of gasoline.
Shale gas is 14,000 times more water-efficient
in the production of energy than corn ethanol.
Source: Muhlenkamp & Company, Inc.
Source: MarcellusGas.org
Examples of Typical Shale Fracturing Mixture Makeup
Source: AXPC
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist
• Landowner
Natural Gas in Pennsylvania
Round I
Source: sjvgeology.org
Source: Oil and Gas Field Atlas of The Butler Quadrangle
Source: Oil and Gas Field Atlas of The Butler Quadrangle
Natural Gas in Pennsylvania
Round II
6 Laterals (wells) seen here
Range Resources (Dry Gas):
1) Average distance of lateral in 2013: 5,000 feet
2) Currently drill with 25 fracture stages
Source: Oil and Gas Field Atlas of The Butler Quadrangle
Total Disturbance during drilling, including access road, drilling pad and required pipeline infrastructure:
•Horizontal (yellow) develops 1,000 acres per pad with 1% surface disturbance
•Vertical (purple boxes) on 1,000 foot spacing develop 23 acres per well with 19% total surface disturbance
(old industry method)
Source: Range Resources; Pennsylvania’s Marcellus Gas Play Its History, Potential, and Challenges, 8/31/11
10 Laterals (wells) seen here
Range Resources (Dry Gas):
1) Average distance of lateral in 2013: 5,000 feet
2) Currently drill with 25 frac stages
Source: Muhlenkamp & Company
Source: National Geographic
Source: Range Resources
Source: Range Resources: October 29, 2013; Company Presentation
U.S. Natural Gas Pipeline Network
October 29, 2013; Company Presentation
Source: Range Resources
October 29, 2013; Company Presentation
Per Acre Estimate of Pre-Tax Cumulative Dollars Received by the
Landowner Over the Life of a Typical Marcellus Shale Dry Gas
Well in Southwestern Pennsylvania*
* Typical Marcellus Shale dry gas well pad as of 8/1/13: assumes 58 year well life, 80 acre spacing, 6 Bcfe EUR
(Estimated Ultimate Recovery) per well, 8 wells total, $4/MMBtu Dry Gas Price.
© Muhlenkamp & Company, Inc. 2013
Estimate of Pre-Tax Cash Flows to the Landowner
from a Typical Marcellus Shale Dry Gas Well
in Southwestern Pennsylvania*
* Typical Marcellus Shale dry gas well pad in SW Pennsylvania as of 8/1/13
** EUR = Estimated Ultimate Recovery
© Muhlenkamp & Company, Inc. 2013
Natural Gas: An Energy Game Changer
• Consumer
• Environmentalist
• Landowner
• Investor
Natural Gas
Crude Oil
1995–3/17/2014
(Daily)
Source: Bloomberg; Oil; Generic 1st 'CO' Future, Natural
Gas; Generic 1st 'NG' Future delivery to Henry Hub
Source: Examiner.com; 12/6/12
Source: Bloomberg
America’s Natural Gas Highway®
The Clean Energy Solution
Natural Gas: Diesel Replacement
for America’s Trucking Corridors
Source: Clean Energy Fuels; http://www.cleanenergyfuels.com/buildingamerica.html
What’s Next
Changing Supply/Demand Dynamics
Natural Gas Liquids (NGLs)
• Emphasis on products downstream of ethylene.
• Liquefied Petroleum Gas (LPG) exports continue to increase
with U.S. playing a key role.
Crude Oil
North American production continues to grow mostly from
unconventional resources.
• U.S. refined product exports continue to grow, enabled by
increasing crude oil supplies.
Natural Gas
• Markets will grow substantially, including power generation,
and Liquefied Natural Gas (LNG) exports.
• Shut-in wells ready to respond to increases in prices, likely
assuring low prices for years to come.
Natural Gas
Exploration & Production
Cabot Oil & Gas
Chesapeake Energy
Range Resources
Rex Energy
Southwestern Energy
Oil & Gas Services
Halliburton Company
Schlumberger LTD
Baker Hughes
Distribution
Clean Energy
Engine Conversion
Westport Innovations
Fuel Systems
American Power Group
LNG Plant Construction
Chicago Bridge
Fluor Corp.
KBR Inc.
Feedstock
U.S. chemical companies
Questions and
Responses
Muhlenkamp & Company, Inc.
Intelligent Investment Management
The comments made by
Muhlenkamp & Company are
opinions and are not intended to
be investment advice or a forecast
of future events.
Muhlenkamp & Company, Inc.
Intelligent Investment Management
Muhlenkamp & Company, Inc.
Intelligent Investment Management
© 2013. All rights reserved.