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Atlas_2014_Spring_Newsletter_Mech.qxd:Layout 1

5/16/14

10:36 AM

Page 1

Natural Gas Boom Means Economic Boon

Park Place Corporate Center One 1000 Commerce Drive, Suite 410 Pittsburgh, PA 15275

as reported in the Annual Energy Outlook 2014 (AEO2014) Reference case released in December 2014, as noted in last quarter’s issue of this newsletter. "Growing domestic hydrocarbon production is also reducing our net dependence on imported oil and benefiting the U.S. economy as natural-gas-intensive industries boost their output," EIA Administrator Adam Sieminski said. ▲

By most accounts, including a number of recently released reports, the U.S. economy is benefiting greatly from the boom in natural gas production in recent years resulting from advanced drilling technology that enables accessing of greater reserves.

NOTE: Projections by the EIA are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular scenario. SOURCES: “The State of American Energy: America’s Energy, America’s Choice,” the American Petroleum Institute, January, 2014; “Energy Works for Us,” Institute for 21st Century Energy/U.S. Chamber of Commerce; “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy – Volume 3: A Manufacturing Renaissance,” IHS-CERA; energyindepth.org /national/video-shale-brings-jobs-back-toamerica; and U.S. Energy Information Administration’s Annual Energy Outlook 2014, early release December 16, 2013.

Low Natural Gas Inventories May Impact Prices Game Changing Power

Low natural gas inventories due to an unusually harsh winter, which spurred higher usage for heating, prompts a debate as to whether injections will be sufficient for next winter, and whether a potential reduced supply may boost natural gas prices.

A recent American Petroleum Institute (API) report, “The State of American Energy: America’s Energy, America’s Choice” emphasizes the “game changing power” of the current boom, reporting, “Drilling advancements have unlocked deposits of natural gas and oil that were previously unrecoverable, transforming our energy outlook from one of scarcity to abundance in just a few short years.”

U.S. Natural Gas Working Inventories (billion cubic feet)

This report underscores the impact in terms of job growth, stating “While national unemployment levels have been high, the oil and natural gas industry has been a significant job creator in communities across the nation, supporting 9.8 million jobs accounting for 5.6 percent of total U.S. employment.”

4,500 4,000 3,500

End of injection season

3,000 2,500

Additional benefits to the economy also noted in the report include a manufacturing “revival due to increased affordable natural gas supplies.” These include those in “energy-intensive industries such as chemicals, aluminum, glass, cement, and food.”

April-October injection

2,000 1,500 1,000

Start of injection season

500

ENERGY NEWSLINE

T H E Q U A R T E R LY N E W S L E T T E R F O R T H E AT L A S I N V E S T M E N T C O M M U N I T Y

Northwest: Neil Nakagawa, Vice President, Sales Aaron Patterson, Regional Director Southwest: Vicki Burbridge, Vice President, Sales Chase McAnally, Regional Director Plains: Paul Tencer, Vice President, Sales JR Lopez, Regional Director South Central: Matthew A. Podolsky, Vice President, Sales Davina Pennington, Regional Director Midwest: Jon J. Eastman, Vice President, Sales Karen George, Regional Director

Southeast: Kevin Harris, Vice President, Sales Chris Porter, Regional Director Mid-Atlantic: Barry Dow, Vice President, Sales Brian Davis, Regional Director Northeast: Andrew Eisen, Vice President, Sales Tracy Billings, Regional Director

IN THIS ISSUE: Natural Gas Boom Means Economic Boon page 1

3,500

Low Natural Gas Inventories May Impact Prices

3,000 2,500 2,000 1,500 1,000 500 0

00 20 01 20 02 20 03 20 04 20 05

Editorial Staff: Marci Bleichmar, Executive Vice President, Marketing Jack Hollander, Executive Vice President, Direct Participation Programs Jeff Smith, Vice President, National Sales Manager

20

Energy NewsLine is published by Atlas Resources, LLC

Natural Gas in Fleet Use Expanding page 2

page 1

Liquified Natural Gas Shows Potential as Locomotive Fuel page 3

Nancy Hiler, Managing Editor Karen Morstad & Associates, Designer We welcome your comments/questions. Contact investorservices@atlasenergy.com or 800-251-0171 option 3

Atlas Energy VP, EHS, Jack Crook Speaks on Effective Water Management page 3

14

13

20

12

20

11

20

10

20

09

20

08

20

20

06 07 20

05

20

04

20

03

20

02

20

20

00

20

20

Source: Energy Information Administration

In a similar vein, an Institute for 21st Century Energy/U.S. Chamber of Commerce report, “Energy Works for Us,” touts the economic benefits of increased domestic energy. “In the midst of an economy struggling to get moving and a dismal jobs outlook, the oil and natural gas industry has been a notable exception. The Independent Petroleum Association of America (IPAA) found that while the gain in total U.S. employment from 2001 to 2011 was just 3.4%, employment in upstream oil and natural gas activities jumped by more than 60%, or nearly 194,000 jobs, a trend that appears to be continuing into 2012. These jobs also tend to be higher paying than average—nearly 50% above the national average wage.”

Volume 18 – Issue 2 • Spring 2014

01

0

Employment Gains

Natural Gas Inventories Fell to an 11-Year Low “A winter of prolonged, widespread, bitter cold weather throughout much of the United States led to a record-breaking natural gas withdrawal season in 2014, bringing inventories of natural gas to an 11-year low,” according to the Energy Information Administration (EIA). From November 2013 to March 2014, natural gas net withdrawals totaled 2,851 billion cubic feet (Bcf), running 14% above the previous record of 2,436 Bcf set during the 2003 -2004 winter season. As noted in “Fuelcast Special Report: Outlook for 2014 Storage Injections” published by the energy consulting firm, Energy Ventures Analysis, Inc., records were set in nearly every sector of the industry, including: • Third coldest winter (4,005 heating degree days) • Record monthly gas demand • Record winter demand • Record storage withdrawals Demand driven by cold weather played a major role in driving the high withdrawal levels, the Short-Term Energy Outlook (STEO), released March 13, 2014 noted: “From November 1, 2013 through March 10, 2014, U.S. consumption of natural gas averaged 91.2 Bcf/day, an increase of 10% over the same days last winter and of 13% over the average for these days during the past five winters.

Expected Future Growth Another report released recently by the independent energy industry research firm IHS-CERA, “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy” by HIS-CERA, encompasses the full energy value chain and the contributions on the manufacturing sector and the broader U.S. economy. The study finds that “combined with upstream activity, the entire unconventional oil and gas value chain currently supports more than 2.1 million jobs. Total jobs supported by this value chain will rise to more than 3.3 million in 2020 and reach nearly 3.9 million by 2025.” A video created by Energy In Depth, also takes a visual tour of the important role that natural gas plays in the nation’s growing economy, and how it is expected to fuel additional growth well into the future. All of this is further evidence of the ways in which “the growing oil and natural gas production continues to reshape the U.S. energy economy,”

(continued on page 2)

1


Atlas_2014_Spring_Newsletter_Mech.qxd:Layout 1

5/16/14

10:27 AM

Page 1

Natural Gas Boom Means Economic Boon

Park Place Corporate Center One 1000 Commerce Drive, Suite 410 Pittsburgh, PA 15275

as reported in the Annual Energy Outlook 2014 (AEO2014) Reference case released in December 2014, as noted in last quarter’s issue of this newsletter. "Growing domestic hydrocarbon production is also reducing our net dependence on imported oil and benefiting the U.S. economy as natural-gas-intensive industries boost their output," EIA Administrator Adam Sieminski said. ▲

By most accounts, including a number of recently released reports, the U.S. economy is benefiting greatly from the boom in natural gas production in recent years resulting from advanced drilling technology that enables accessing of greater reserves.

NOTE: Projections by the EIA are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular scenario. SOURCES: “The State of American Energy: America’s Energy, America’s Choice,” the American Petroleum Institute, January, 2014; “Energy Works for Us,” Institute for 21st Century Energy/U.S. Chamber of Commerce; “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy – Volume 3: A Manufacturing Renaissance,” IHS-CERA; energyindepth.org /national/video-shale-brings-jobs-back-toamerica; and U.S. Energy Information Administration’s Annual Energy Outlook 2014, early release December 16, 2013.

Low Natural Gas Inventories May Impact Prices Game Changing Power

Low natural gas inventories due to an unusually harsh winter, which spurred higher usage for heating, prompts a debate as to whether injections will be sufficient for next winter, and whether a potential reduced supply may boost natural gas prices.

A recent American Petroleum Institute (API) report, “The State of American Energy: America’s Energy, America’s Choice” emphasizes the “game changing power” of the current boom, reporting, “Drilling advancements have unlocked deposits of natural gas and oil that were previously unrecoverable, transforming our energy outlook from one of scarcity to abundance in just a few short years.”

U.S. Natural Gas Working Inventories (billion cubic feet)

This report underscores the impact in terms of job growth, stating “While national unemployment levels have been high, the oil and natural gas industry has been a significant job creator in communities across the nation, supporting 9.8 million jobs accounting for 5.6 percent of total U.S. employment.”

4,500 4,000 3,500

End of injection season

3,000 2,500

Additional benefits to the economy also noted in the report include a manufacturing “revival due to increased affordable natural gas supplies.” These include those in “energy-intensive industries such as chemicals, aluminum, glass, cement, and food.”

April-October injection

2,000 1,500 1,000

Start of injection season

500

ENERGY NEWSLINE

T H E Q U A R T E R LY N E W S L E T T E R F O R T H E AT L A S I N V E S T M E N T C O M M U N I T Y

Northwest: Neil Nakagawa, Vice President, Sales Aaron Patterson, Regional Director Southwest: Vicki Burbridge, Vice President, Sales Chase McAnally, Regional Director Plains: Paul Tencer, Vice President, Sales JR Lopez, Regional Director South Central: Matthew A. Podolsky, Vice President, Sales Davina Pennington, Regional Director Midwest: Jon J. Eastman, Vice President, Sales Karen George, Regional Director

Southeast: Kevin Harris, Vice President, Sales Chris Porter, Regional Director Mid-Atlantic: Barry Dow, Vice President, Sales Brian Davis, Regional Director Northeast: Andrew Eisen, Vice President, Sales Tracy Billings, Regional Director

IN THIS ISSUE: Natural Gas Boom Means Economic Boon page 1

3,500

Low Natural Gas Inventories May Impact Prices

3,000 2,500 2,000 1,500 1,000 500 0

00 20 01 20 02 20 03 20 04 20 05

Editorial Staff: Marci Bleichmar, Executive Vice President, Marketing Jack Hollander, Executive Vice President, Direct Participation Programs Jeff Smith, Vice President, National Sales Manager

20

Energy NewsLine is published by Atlas Resources, LLC

Natural Gas in Fleet Use Expanding page 2

page 1

Liquified Natural Gas Shows Potential as Locomotive Fuel page 3

Nancy Hiler, Managing Editor Karen Morstad & Associates, Designer We welcome your comments/questions. Contact investorservices@atlasenergy.com or 800-251-0171 option 3

Atlas Energy VP, EHS, Jack Crook Speaks on Effective Water Management page 3

14

13

20

12

20

11

20

10

20

09

20

08

20

20

06 07 20

05

20

04

20

03

20

02

20

20

00

20

20

Source: Energy Information Administration

In a similar vein, an Institute for 21st Century Energy/U.S. Chamber of Commerce report, “Energy Works for Us,” touts the economic benefits of increased domestic energy. “In the midst of an economy struggling to get moving and a dismal jobs outlook, the oil and natural gas industry has been a notable exception. The Independent Petroleum Association of America (IPAA) found that while the gain in total U.S. employment from 2001 to 2011 was just 3.4%, employment in upstream oil and natural gas activities jumped by more than 60%, or nearly 194,000 jobs, a trend that appears to be continuing into 2012. These jobs also tend to be higher paying than average—nearly 50% above the national average wage.”

Volume 18 – Issue 2 • Spring 2014

01

0

Employment Gains

Natural Gas Inventories Fell to an 11-Year Low “A winter of prolonged, widespread, bitter cold weather throughout much of the United States led to a record-breaking natural gas withdrawal season in 2014, bringing inventories of natural gas to an 11-year low,” according to the Energy Information Administration (EIA). From November 2013 to March 2014, natural gas net withdrawals totaled 2,851 billion cubic feet (Bcf), running 14% above the previous record of 2,436 Bcf set during the 2003 -2004 winter season. As noted in “Fuelcast Special Report: Outlook for 2014 Storage Injections” published by the energy consulting firm, Energy Ventures Analysis, Inc., records were set in nearly every sector of the industry, including: • Third coldest winter (4,005 heating degree days) • Record monthly gas demand • Record winter demand • Record storage withdrawals Demand driven by cold weather played a major role in driving the high withdrawal levels, the Short-Term Energy Outlook (STEO), released March 13, 2014 noted: “From November 1, 2013 through March 10, 2014, U.S. consumption of natural gas averaged 91.2 Bcf/day, an increase of 10% over the same days last winter and of 13% over the average for these days during the past five winters.

Expected Future Growth Another report released recently by the independent energy industry research firm IHS-CERA, “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy” by HIS-CERA, encompasses the full energy value chain and the contributions on the manufacturing sector and the broader U.S. economy. The study finds that “combined with upstream activity, the entire unconventional oil and gas value chain currently supports more than 2.1 million jobs. Total jobs supported by this value chain will rise to more than 3.3 million in 2020 and reach nearly 3.9 million by 2025.” A video created by Energy In Depth, also takes a visual tour of the important role that natural gas plays in the nation’s growing economy, and how it is expected to fuel additional growth well into the future. All of this is further evidence of the ways in which “the growing oil and natural gas production continues to reshape the U.S. energy economy,”

(continued on page 2)

1


Atlas_2014_Spring_Newsletter_Mech.qxd:Layout 1

5/16/14

10:28 AM

Page 2

Low Natural Gas Inventories May Impact Prices (continued from page 1) Residential/commercial consumption increased by 17% over the same days in the 2012-13 winter season, while population-weighted heating degree days (indicating cold weather) increased by 16%, according to data from Bentek Energy LLC.”

total Lower 48 end-October inventories in 2014 would still be at their lowest level since 2008. “High injections would not fully erase the deficit in storage volumes caused by this winter's heavy withdrawals,” EIA’s STEO predicts. One answer, some may surmise, would be increased natural gas drilling, but the EVA report states, particularly in view of a recent rise in gas prices. “There is no indication of an increase in gas-directed drilling activity despite gas prices being about 25% above last year,” the report said. “There are two key factors behind this — namely, the [expected] lack of sustained higher gas prices and competition for limited capital.” The report notes that flat or slowing production in natural gas plays other than in the Marcellus and Eagle Ford plays where increases have been significant, and the newer Utica basin which has potential, are not likely to be sufficient to carry national demand.

‘Robust’ Injections Expected The EIA projects “robust” natural gas storage injections for the remainder of 2014 to account for the record-breaking withdrawals, as noted in the STEO. The forecast for the injections season April-October is for “nearly 2,500 Bcf added to storage as operators seek to rebuild inventory levels.” See “U.S. Natural Gas Working Inventories” chart on previous page. The EVA report cautions: “With respect to the storage outlook for the year, the industry will be challenged to refill storage by the beginning of next winter (November 1, 2014) to adequate levels,” unless it is cold to normal or mild.

Demand has increased not strictly based on weather, but also because of industrial sector needs and rising exports to Mexico. A hot 2014 summer may also increase demand, if the electricity usage for air conditioning rises, impacting natural gas-powered electrical generation, putting aside even greater strain on demand that would result from a repeat harsh winter in 2015.

“Probably the most challenging questions at present for the natural gas industry are what will storage levels be at the end of this injection season, and will they be adequate for the next winter,” Stephen L. Thumb, Principal, EVA. “The EVA report addresses these critical issues for the industry and how gas prices likely will be impacted,” he said.

Impact on Natural Gas Prices?

While the EIA’s STEO projects relatively high natural gas production growth and moderate demand growth starting in April that will allow for a record storage build through October, which would make the projected storage build for the upcoming injection season a record, as

The STEO projects that spot prices will be in the low $4 per million British thermal unit (MMBtu) range over the summer, a level high enough to limit the growth of natural gas use in the electric power sector. As a result, and assuming close-to-normal weather this summer, EIA projects that electric power consumption of gas from April to October will be 23.9 Bcf/d, essentially flat compared to year-ago levels. Expected dry natural gas production during this period is projected to reach 68.1 Bcf/d, a 2% increase over last year.

Hats Off to Atlas!

The EVA report says, in summary, to “expect gas prices over time to drift towards higher levels.” Too soon to call, a hot summer, another cold winter, and so on, and the relative value of natural gas may be further heightened. The future remains to be seen. ▲ NOTE: Projections by the EIA are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular scenario. SOURCES: U.S. Energy Information Administration’s Short-Term Energy Outlook, released March 13, 2014, and Energy Ventures Analysis, Inc.’s Fuelcast Special Report: Outlook for 2014 Storage Injections, April 2014.

Hats off (or on?!) to Atlas Energy’s Alabama field crew, shown here sporting new hats and ready to represent the company more visibly as part of their usual great work.

Liquified Natural Gas Shows Potential as Locomotive Fuel Liquefied natural gas (LNG) shows potential as a freight locomotive fuel according to the Energy Information Administration’s Annual Energy Outlook 2014 (AEO2014), early release April 14, 2014. LNG could play an increasing role in powering freight locomotives in coming years, the report predicts. “Continued growth in domestic natural gas production and substantially lower natural gas prices compared to crude oil prices could result in significant cost savings for locomotives that use LNG as a fuel source,” the report said. “Taken together, the 7 major U.S. freight railroads consumed more than 3.6 billion gallons of diesel fuel in 2012, or 7% of all diesel fuel consumed in the United States. The fuel cost more than $11 billion in 2012 and accounted for 23% of total operating expenses.” The report went on to say, “These railroads are considering the use of LNG in locomotives because of the potential for significant fuel cost savings and the resulting reductions in fuel operating costs.”

Comparison of Energy Consumption for Freight Rail using Diesel and LNG (2015-2040) (trillion btu)

Some major railroad operators view the potential of LNG-fueled trains as similar to the switch from steam propulsion to diesel in the 1940s and 1950s, a revolution in freight rail known as dieselization.

500 diesel freight rail fuel 450 400 350 High Rail LNG 300 250 200 150 High Rail LNG 100 LNG freight rail fuel 50 0 2015 2020 2025

Others have responded with more caution, likening the potential switch to the more evolutionary advance from using direct current (DC) motors to alternating current (AC) motors, which allows fewer locomotives to pull the same load. The change towards AC motors has been ongoing since the early 1990s. See chart at right. ▲

Low Rail LNG Reference

Reference Low Rail LNG

2030

2040

2045

Source: Energy Information Administration

NOTE: Projections by the EIA are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular scenario. SOURCE: U.S. Energy Information Administration’s Annual Energy Outlook 2014 (AEO2014), early release April 14, 2014.

Natural Gas in Fleet Use Expanding As reported several times in past issues of this newsletter, the switch from diesel to natural gas as the fuel of choice for truck, bus and fleet use is on the rise as never before. While several large companies — Procter & Gamble, United Parcel Service, Ryder, AT&T, Frito-Lay, Waste Management, and FedEx among them — have moved toward natural gas fleets, recently some smaller firms are following suit as the infrastructure for natural gas refueling stations grows, according to fuelfix.com, the energy business news and analysis site anchored by the Houston Chronicle and other Hearst newspapers.

Atlas Energy VP, EHS, Jack Crook Speaks on Effective Water Management

According to a recent article in the New York Times, T. Boone Pickens, a Clean Energy Fuels board member who has been an advocate for switching the national trucking fleet to natural gas, predicts that a majority of the nation’s long-haul truck fleet would be fueled by natural gas in seven years because 70 percent of the 18-wheelers operate in defined regional areas, and a natural gas truck can drive 600 miles on a single fill-up. ▲

More companies and organizations are involved in the funding, design, and construction of natural gas refueling stations than ever before, including natural gas retailers, “traditional” fuel retailers, large fleet owners, and leasing companies, according to advocacy group, Natural Gas Vehicles for America.

SOURCES: Trucking Industry Is Set to Expand Its Use of Natural Gas,” the New York Times, April 22, 2013; Fuelfix.com; Energy Venture Analysis, Inc.’s FuelCast Special Report: Gas Demand in the Transportation Sector, March 2014; and Natural Gas Vehicles for America.

There are 1,470 truck-capable natural gas fueling stations in the United States today, according to a recent Energy Venture Analysis, Inc. report. These stations are a mix of CNG fast-fill, CNG time-fill, LNG and L/CNG stations.

2

with the latest EHS regulations. These included examining preMarcellus days and reviewing conventional operations to understand the history of water withdrawals in PA, using a more science-focused approach to understand the evolution of the water management regulations in PA, an overview of current state of water management plans including reviews, permits, water withdrawals, signs and intake, as well as looking forward, the future of water, cooperation and regulation to predict how water management strategy is going to evolve in the future.

Jack Crook, Atlas Energy Vice President, Environmental, Health & Safety (EHS) opened the 4th annual Produced Water Disposal & Reuse Initiative 2014: Utica & Marcellus held in March in Canonsburg. He presented a strategic discussion on identifying an effective water management strategy for ensuring EHS compliance with latest treatment and sourcing regulations. Jack Crook, VP, EHS

The annual initiative brings together water experts from across the Utica and Marcellus to deliver innovative practical solutions and share technical and strategic advances in sourcing, disposal, treatment, storage, and centralized facilities to drive down the overall cost of water management, whilst maximizing water re-use. ▲

Mr. Crook’s EHS expertise quickly became apparent as he tackled a variety of issues related to complying

3


Atlas_2014_Spring_Newsletter_Mech.qxd:Layout 1

5/16/14

10:28 AM

Page 2

Low Natural Gas Inventories May Impact Prices (continued from page 1) Residential/commercial consumption increased by 17% over the same days in the 2012-13 winter season, while population-weighted heating degree days (indicating cold weather) increased by 16%, according to data from Bentek Energy LLC.”

total Lower 48 end-October inventories in 2014 would still be at their lowest level since 2008. “High injections would not fully erase the deficit in storage volumes caused by this winter's heavy withdrawals,” EIA’s STEO predicts. One answer, some may surmise, would be increased natural gas drilling, but the EVA report states, particularly in view of a recent rise in gas prices. “There is no indication of an increase in gas-directed drilling activity despite gas prices being about 25% above last year,” the report said. “There are two key factors behind this — namely, the [expected] lack of sustained higher gas prices and competition for limited capital.” The report notes that flat or slowing production in natural gas plays other than in the Marcellus and Eagle Ford plays where increases have been significant, and the newer Utica basin which has potential, are not likely to be sufficient to carry national demand.

‘Robust’ Injections Expected The EIA projects “robust” natural gas storage injections for the remainder of 2014 to account for the record-breaking withdrawals, as noted in the STEO. The forecast for the injections season April-October is for “nearly 2,500 Bcf added to storage as operators seek to rebuild inventory levels.” See “U.S. Natural Gas Working Inventories” chart on previous page. The EVA report cautions: “With respect to the storage outlook for the year, the industry will be challenged to refill storage by the beginning of next winter (November 1, 2014) to adequate levels,” unless it is cold to normal or mild.

Demand has increased not strictly based on weather, but also because of industrial sector needs and rising exports to Mexico. A hot 2014 summer may also increase demand, if the electricity usage for air conditioning rises, impacting natural gas-powered electrical generation, putting aside even greater strain on demand that would result from a repeat harsh winter in 2015.

“Probably the most challenging questions at present for the natural gas industry are what will storage levels be at the end of this injection season, and will they be adequate for the next winter,” Stephen L. Thumb, Principal, EVA. “The EVA report addresses these critical issues for the industry and how gas prices likely will be impacted,” he said.

Impact on Natural Gas Prices?

While the EIA’s STEO projects relatively high natural gas production growth and moderate demand growth starting in April that will allow for a record storage build through October, which would make the projected storage build for the upcoming injection season a record, as

The STEO projects that spot prices will be in the low $4 per million British thermal unit (MMBtu) range over the summer, a level high enough to limit the growth of natural gas use in the electric power sector. As a result, and assuming close-to-normal weather this summer, EIA projects that electric power consumption of gas from April to October will be 23.9 Bcf/d, essentially flat compared to year-ago levels. Expected dry natural gas production during this period is projected to reach 68.1 Bcf/d, a 2% increase over last year.

Hats Off to Atlas!

The EVA report says, in summary, to “expect gas prices over time to drift towards higher levels.” Too soon to call, a hot summer, another cold winter, and so on, and the relative value of natural gas may be further heightened. The future remains to be seen. ▲ NOTE: Projections by the EIA are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular scenario. SOURCES: U.S. Energy Information Administration’s Short-Term Energy Outlook, released March 13, 2014, and Energy Ventures Analysis, Inc.’s Fuelcast Special Report: Outlook for 2014 Storage Injections, April 2014.

Hats off (or on?!) to Atlas Energy’s Alabama field crew, shown here sporting new hats and ready to represent the company more visibly as part of their usual great work.

Liquified Natural Gas Shows Potential as Locomotive Fuel Liquefied natural gas (LNG) shows potential as a freight locomotive fuel according to the Energy Information Administration’s Annual Energy Outlook 2014 (AEO2014), early release April 14, 2014. LNG could play an increasing role in powering freight locomotives in coming years, the report predicts. “Continued growth in domestic natural gas production and substantially lower natural gas prices compared to crude oil prices could result in significant cost savings for locomotives that use LNG as a fuel source,” the report said. “Taken together, the 7 major U.S. freight railroads consumed more than 3.6 billion gallons of diesel fuel in 2012, or 7% of all diesel fuel consumed in the United States. The fuel cost more than $11 billion in 2012 and accounted for 23% of total operating expenses.” The report went on to say, “These railroads are considering the use of LNG in locomotives because of the potential for significant fuel cost savings and the resulting reductions in fuel operating costs.”

Comparison of Energy Consumption for Freight Rail using Diesel and LNG (2015-2040) (trillion btu)

Some major railroad operators view the potential of LNG-fueled trains as similar to the switch from steam propulsion to diesel in the 1940s and 1950s, a revolution in freight rail known as dieselization.

500 diesel freight rail fuel 450 400 350 High Rail LNG 300 250 200 150 High Rail LNG 100 LNG freight rail fuel 50 0 2015 2020 2025

Others have responded with more caution, likening the potential switch to the more evolutionary advance from using direct current (DC) motors to alternating current (AC) motors, which allows fewer locomotives to pull the same load. The change towards AC motors has been ongoing since the early 1990s. See chart at right. ▲

Low Rail LNG Reference

Reference Low Rail LNG

2030

2040

2045

Source: Energy Information Administration

NOTE: Projections by the EIA are not statements of what will happen but of what might happen, given the assumptions and methodologies used for any particular scenario. SOURCE: U.S. Energy Information Administration’s Annual Energy Outlook 2014 (AEO2014), early release April 14, 2014.

Natural Gas in Fleet Use Expanding As reported several times in past issues of this newsletter, the switch from diesel to natural gas as the fuel of choice for truck, bus and fleet use is on the rise as never before. While several large companies — Procter & Gamble, United Parcel Service, Ryder, AT&T, Frito-Lay, Waste Management, and FedEx among them — have moved toward natural gas fleets, recently some smaller firms are following suit as the infrastructure for natural gas refueling stations grows, according to fuelfix.com, the energy business news and analysis site anchored by the Houston Chronicle and other Hearst newspapers.

Atlas Energy VP, EHS, Jack Crook Speaks on Effective Water Management

According to a recent article in the New York Times, T. Boone Pickens, a Clean Energy Fuels board member who has been an advocate for switching the national trucking fleet to natural gas, predicts that a majority of the nation’s long-haul truck fleet would be fueled by natural gas in seven years because 70 percent of the 18-wheelers operate in defined regional areas, and a natural gas truck can drive 600 miles on a single fill-up. ▲

More companies and organizations are involved in the funding, design, and construction of natural gas refueling stations than ever before, including natural gas retailers, “traditional” fuel retailers, large fleet owners, and leasing companies, according to advocacy group, Natural Gas Vehicles for America.

SOURCES: Trucking Industry Is Set to Expand Its Use of Natural Gas,” the New York Times, April 22, 2013; Fuelfix.com; Energy Venture Analysis, Inc.’s FuelCast Special Report: Gas Demand in the Transportation Sector, March 2014; and Natural Gas Vehicles for America.

There are 1,470 truck-capable natural gas fueling stations in the United States today, according to a recent Energy Venture Analysis, Inc. report. These stations are a mix of CNG fast-fill, CNG time-fill, LNG and L/CNG stations.

2

with the latest EHS regulations. These included examining preMarcellus days and reviewing conventional operations to understand the history of water withdrawals in PA, using a more science-focused approach to understand the evolution of the water management regulations in PA, an overview of current state of water management plans including reviews, permits, water withdrawals, signs and intake, as well as looking forward, the future of water, cooperation and regulation to predict how water management strategy is going to evolve in the future.

Jack Crook, Atlas Energy Vice President, Environmental, Health & Safety (EHS) opened the 4th annual Produced Water Disposal & Reuse Initiative 2014: Utica & Marcellus held in March in Canonsburg. He presented a strategic discussion on identifying an effective water management strategy for ensuring EHS compliance with latest treatment and sourcing regulations. Jack Crook, VP, EHS

The annual initiative brings together water experts from across the Utica and Marcellus to deliver innovative practical solutions and share technical and strategic advances in sourcing, disposal, treatment, storage, and centralized facilities to drive down the overall cost of water management, whilst maximizing water re-use. ▲

Mr. Crook’s EHS expertise quickly became apparent as he tackled a variety of issues related to complying

3


Atlas Resources, LLC - Energy Newsline - Q2 2014