Natural Gas- Green, Homegrown Energy for Virginia. Greg Kozera. President, Virginia Oil and Gas Association

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1 Natural Gas- Green, Homegrown Energy for Virginia Greg Kozera President, Virginia Oil and Gas Association

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3 In 2008, we paid $475 billion to foreign countries for oil (pickensplan.com) What if we kept that money here? How would it help OUR economy?

4 own Energy Greg Kozera as Association

5 How is Natural Gas used today? Approx. 22% of energy consumption in U.S. comes from natural gas. Natural gas is a raw material for products such as paint, fertilizer, plastics and many other products. Source: EIA

6 How is Natural Gas used today? Natural Gas is used to produce steel, glass, paper, brick and electricity. In 2008, 21.3% of electricity in U.S. was generated using natural gas. More than 62.5 percent of homes use natural gas for heating, cooking, drying or water heating. Source: EIA

7 Running out of natural gas, think again year supply T c f year supply 2006 Potential Gas Committee Supply Estimate 88 year supply 2008 NCI Supply Update of PGC Supply Est. Including Shale 2008 NCI Supply Update For Industry Input (Max as of June 2008) Unproved Technically Recoverable Proved Reserves U.S. Consumption of Natural Gas Tcf 0 Source: American CleanSkies

8 Marcellus shale and other shale drilling will increase our reserves

9 Unconventional Gas Reserves Unconventional = Non Traditional Reservoirs Low permeability Developed in the last 20 years Coalbed Methane Tight Gas Sands Gas Shales

10 Growth of Unconventional Resources Unconventional Growth Unconventional natural gas has grown from approx. 16% of production in 1990 to 47% or more today. TCF % 47% 16% Total Production Unconventional Production Source: EIA Based on EIA estimates the largest Source of U.S. Natural Gas Supply from will be from unconventional sources. In 2030, estimates suggest that unconventional will provide 60+% of our NG

11 Other Unconventional Shale Plays Huron

12 Virginia is Unconventional Coalbed Methane (CBM) Wells Natural gas in coal seams Produced above 3,000 ft Accounts for 80% of Virginia s production Tight Gas Sand Wells Non-coal formations (sandstone & limestone) Deeper than 3,000 ft (typically 3,000-6,000ft) Horizontal Wells (shale and tight gas sands) New Technology

13 Where is natural gas produced in Virginia? Production concentrated in 7 counties : Buchanan, Dickenson, Wise, Russell, Tazewell, Scott, Lee

14 2009 Another Record Year in VA TOTAL GAS PRODUCTION BCF or 386 MMcf/day - representing a 97% increase from 2000 to representing a 10% increase over 2008 Total Gas Production Trend (BCF) Information provided by VA Dept of Mines, Minerals & Energy

15 TOTAL GAS PRODUCTION TREND BY WELL TYPE (Bcf) 2009 courtesy VA DMME DGO CONVENTIONAL GAS PRODUCTION SINCE 1989 (includes Dual completion wells) COALBED METHANE PRODUCTION SINCE

16 Coalbed Methane Fields in Virginia CBM production started in % of Virginia production is CBM Virginia ranks #5 in CBM production in U.S. EIA ranks Oakwood 23 rd and Nora 53 rd Largest Gas Fields in U.S. Combine all CBM wells in Virginia Top 10 Largest Gas Field in the U.S.!

17 Division of Gas & Oil Activities an update. Courtesy VA DMME DGO Coalfield Boundary Active and History of permit activities Areas of interests for new exploration.

18 Technology Horizontal Drilling (new) Hydraulic Fracturing (old)

19 New Technology Opens Up New Horizons Benefits of Horizontal Drilling Working Interest Owners, Royalty Owners, and the County will likely benefit by maximizing production Promote conservation of the gas resource and prevent waste by more effectively extracting the resource

20 New Technology Opens Up New Horizons Benefits of Horizontal Drilling Laterals can drill underneath areas otherwise inaccessible from the surface Less potential impact on coal Less potential surface disturbance Square units have no stranded acreage

21 Almost all Virginia Wells are Hydraulically Fractured

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23 Old becomes New Virginia s 20 Year Cycle 1950 Lower Huron 1970 Berea 1990 CBM 2010 Lower Huron (Horizontal)

24 Financial Benefits from Natural Gas produced in Virginia $300+ Million Capital Budget for Drilling in 2009 Creation of 3,000 + High Paying Jobs Severance tax paid to producing counties over $28 Million annually

25 Financial Benefits from Natural Gas produced in Virginia Real estate tax - $3+ Million annually Royalty to mineral owners- over $100 million in 2008 Jobs and taxes paid by individuals and companies Trickle Down Economy

26 Gas usage in Virginia In 2007, Virginia used approximately 310 Bcf of natural gas. Below is the breakdown of that usage: 26% Residential 22% Commercial 23% Industrial 29% Electric Generation % % consumption estimated Production Consumption Source: EIA

27 How does natural gas reach markets? Virginia Pipeline System Virginia s gas is transported underground from Southwest VA to Market

28 How can we better utilize the natural gas resource in Southwest Virginia? Continued development of the resource to meet demand Application of technology to the resource to increase production Development of industrial base Build on recent success in attracting new business Gas fired electric generation in Southwest Virginia One 700 MW NG facility would supply enough power for all of Southwestern Virginia and burn less than half of the gas we currently produce Natural Gas vehicles

29 CNG Vehicles What is CNG? CNG stands for Compressed Natural Gas. CNG can be used as an alternative to gasoline for all types of vehicles All vehicles can be converted, however EPA approval required for each specific model Ford Fusion

30 CNG- A Proven Technology

31 1,800,000 WHY CNG? It is more efficient 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Natural Gas Conv. Gas and LS Diesel Gas Vehicle with Ethanol Blend Gasoline and Electricity Hybrid BTU/Mile Ethanol: E85 Electricity Sources: The Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) Model 1.8b American Clean Skies Foundation

32 The Future Natural gas production can be increased from current reservoirs with new technology like horizontal drilling New Reservoirs Marcellus shale Offshore Other on shore Virginia has the infrastructure and workforce to make this happen

33 Why Natural Gas for Virginia? Jobs, Jobs, Jobs Most are high paying with benefits Many types of jobs Drilling & well site work with production and service companies. Pipeline work Truck drivers, welders etc. Professional jobs like accountants, managers, engineers, geologists, attorneys, IT and HR Associated industry- maintenance, construction, hotel, restaurant etc.

34 Summary- Why Natural Gas? Cost effective Cleanest fossil fuel 85% of all natural gas consumed in U.S. is produced in U.S. (EIA) Reduce dependence on foreign oil Nearly 70% of our oil is imported In 2008, we paid $475 billion to foreign countries for oil (pickensplan.com) NGV growth can produce more jobs Reserve growth can support increased future demand

35 Summary- Why Natural Gas? Severance tax paid to VA counties Over $28 million annually Real estate and income taxes Royalty to mineral owners- over $100 Million in 2008 Good for Virginia s economy We can control our destiny and not be controlled by outside, especially foreign, interests! PRODUCED HERE IN AMERICA

36 With Natural Gas Virginia Wins The People of Virginia Win The Environment Wins- Our Kids Win!