MARCELLUS SHALEand

MARYLANDDrew P. Cobbs

Maryland Petroleum Council

Hagerstown-Washington County Chamber of Commerce

July 11, 2012

State Distribution of the Marcellus Shale Play

State Areal % of Marcellus

Maryland 1.09

New York 20.06

Ohio 18.19

Pennsylvania 35.35

Virginia 3.85

West Virginia 21.33

Sources: U.S. Energy Information Administration, “Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays,” July 2011.

Marcellus Shale Formation

Marcellus Shale in Maryland

Shale Gas Offsets Declines in Other U.S. Natural Gas Production Sources

Natural Gas Facts and Usage

• Cleanest-Burning Fossil Fuel

– 30 percent less CO2 than oil

– 45 percent less CO2 than coal

– Virtually no SO2, Mercury or Particulates

Residential Use: 22 percent

Heat, hot water, ovens/stoves

Industrial/Commercial Use: 44 percent

Electrical Generation Use: 32 percent

Transportation Use: 3 percent

Electricity generation capacity additions by fuel type, 2010-2035

Adequate natural gas supply at competitive prices helps grow the U.S. economy

Lower gas prices have helped U.S. industry

Chemical and fertilizer facilities are seeing increased utilization with lower gas prices

Energy-intensive industry can be more competitive in the global market

Additional potential demand from natural gas vehicles

U.S. Industrial Demand for Natural Gas

Source: Wood Mackenzie

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2000 2005 2010 2015 2020 2025 2030

bcf

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Example of Shale Gas Benefits

Potential benefits of shale gas, according to a recent study of the American Chemistry Council:

- 17,000 new high-paying jobs in the U.S. chemical industry

- 395,000 additional jobs outside the chemical industry - $4.4 billion more in federal, state, and local tax revenue, annually

- A $32.8 billion increase in U.S. chemical production - $16.2 billion in capital investment by the chemical industry to build new

petrochemical and derivatives capacity - $132.4 billion in U.S. economic output

“The Potential Economic & Fiscal Impacts of Natural Gas Production in Western Maryland ,”study issued 3/1/12 for the Maryland Petroleum Council finds that:

•Approximately 365 wells would be operating over that period and, according to the Marcellus Shale Education and Training Center, it requires approximately 420 individuals across 150 occupations to bring a single Marcellus well online.

•In 2025 – the peak year of drilling activity – 1,814 Marylanders will enjoy employment opportunities related to well drilling and maintenance, royalty payments and expanded state and local government spending.

•Western Maryland could produce $300 million annually in natural gas output in constant $2011 by the year 2025.

•The State of Maryland would collect $214 million in revenue over the course of developing the Marcellus Shale play.

•Garrett County would collect approximately $162 million and Allegany County $65 million in revenue.

•Roughly $441 million in 2011 constant dollars of total positive fiscal impact would be experienced over the course of the Western Maryland Marcellus Shale development.

Economic Impact of Marcellus Shale on Pennsylvania

2009 2010 2011 2012 2015 2020

Employment

60,168 139,889 156,695 181,335 215,979 256,420

Value Added(millions $) 4,703 11,161 12,844 14,531 17,195 20,246State & Local Taxes(millions $) 573 1,085 1,231 1,402 1,677 2,003OutputBcfe*/day 0.3 1.3 3.5 6.7 12.0 17.5

Source: Timothy J. Considine, Robert Watson, Seth Blumsack, “The Pennsylvania Marcellus Natural Gas Industry: Status, Economic Impacts and Future Potential,” Penn State, July 20,2011

*bcfe is billion cubic feet of natural gas equivalents per day

Construction Industry Drilling Industry Chemical Industry

Trucking Industry Hospitality Industry Steel Industry

Potential Jobs Related to Natural Gas

• Oil & Gas Operators• Oil & Gas Service

Companies• Law Firms• Engineering Firms• Construction Contractors• Electrical Contractors• Land Service Providers• Pipeline Contractors

• Laborers• Truck Drivers• Equipment Operators• Welders• Surveyors• Lawyers• Accountants• Engineers• Environmental Scientists• Archeologists• Botanists• Electricians• Mechanics

Direct Employers Direct or Contracted Jobs

Employment Opportunities

1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

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Costs of Shale Gas Production

Records of the Pennsylvania Department of Environmental Protection show that from 2008 to 2010, the typical Marcellus shale gas well generates about:$14,000 in mainly reversible environmental impacts $4 million in economic benefits http://www.manhattan-institute.org/pdf/eper_09.pdf

Proper well construction provides groundwater protection

1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

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Water Usage By Industry

Industry Best Practices

API HF1, Hydraulic Fracturing Operations—Well Construction and Integrity

API HF2, Water Management Associated with Hydraulic Fracturing Guidance

API HF3, Practices for Mitigating Surface Impacts

RP51R, Environmental Protection for Onshore Oil and Gas Production Operations and Leases

RP65-Part2, Isolating Potential Flow Zones During Well Construction

1220 L Street, NW • Washington, DC 20005-4070 • www.api.org

The Shale Gas End Game

ENVIRONMENTAL IMPACTS

Smaller production footprints.

Lower lifecycle emissions for electricity generation

Lower lifecycle water use for electricity generation.

ECONOMY

U.S. energy security.

Domestic jobs.

Revitalize chemical and manufacturing sector

Cheaper natural gas for consumers.

For more information visitwww.api.orgwww.strongerinc.orgwww.fracfocus.org

THANK YOU

The growth of shale gas is leading to lower natural gas and electric power prices and increased productivity

• Without shale gas production, US natural gas prices would be at least 100% higher than they are

• Reduction of 10% in electricity costs nationwide over the forecast period• By 2017, lower prices will result in an initial impact of 2.9% higher industrial

production. By 2035, industrial production will be 4.7% higher. • By 2025 inexpensive natural gas could save U.S. manufacturers $11.6 billion a

year in costs and create more than 500,000 jobs. (PricewaterhouseCoopers)• Chemicals production in particular stands to benefit from an extended period of

low natural gas prices.• Savings from lower gas prices will add an annual average of $926 per year in

disposable household income between 2012 and 2015. In 2035, this would increase to just over $2,000 per household.

Source: IHS Global Insight

Growth in the shale gas industry contributes to the broader economy, tax revenues, and jobs

• The shale gas contribution to GDP was more than $76 billion in 2010. This will increase to $118 billion by 2015 and will triple to $231 billion in 2035.

• In 2010 shale gas production contributed $18.6 billion in federal, state and local government tax and federal royalty revenues. By 2035, these receipts will more than triple to just over $57 billion. On a cumulative basis, the shale industry will generate more than $933 billion in federal, state, and local tax and royalty revenues over the next 25 years.

• In 2010, the shale gas industry supported 600,000 jobs; this will grow to nearly 870,000 in 2015 and to over 1.6 million by 2035.

Source: IHS Global Insight