Liquid Natural Gas: Small-Scale Commercial Impacts & Opportunities Tim Miller Engineering Manager Tim.miller@frontierNR.com

The Bottom Line PA LNG benefits ALL industries in our state Natural gas is better than diesel or fuel oil Cheaper, Cleaner, Local With small-scale LNG, cheap natural gas can be delivered to PA customers who have been ignored by the pipelines and utilities PA is a prime location for LNG plants Cheap gas supply Under-served market PA LNG benefits ALL industries in our state Hybrid business model, can cut out middle men and offer price stability Not dependent upon NYMEX prices

Frontier Natural Resources, Inc. Independent natural gas producer Based in Bellefonte, PA Marcellus assets in central PA Small-scale LNG producer LNG plant operating in Northern PA Producing about 5000 gal/day LNG

What is LNG? Liquefied Natural Gas Methane (natural gas) cooled down to -260 °F Cryogenic liquid Methane becomes 600 times smaller in liquid form than in gas form Higher energy density than CNG (compressed natural gas) Allows natural gas to be transported via truck/trailer Great option for areas where there are pipeline bottlenecks or pipeline is not available Provides natural gas options for fuel consumers without pipeline availability

The Benefits of LNG Cost Savings Environmentally Friendly The current rack price for diesel in PA is about $1.90/gal This equates to $13.67/mmBTU Natural gas wellhead price is around $3.00/mmBTU LNG wholesale prices in PA are around $7.00/mmBTU Natural gas is substantially cheaper than diesel, even with liquefaction costs included Environmentally Friendly Cleaner burning Fewer CO2 emissions No contamination if spilled Domestically Produced

How It’s Made Natural gas must be cooled to the point of liquefaction Cooling is mostly performed via expansion Joules-Thompson Effect Expansion of natural gas directly, or some other coolant gas (nitrogen, propane, ammonia, etc.) Compression is necessary in order to gain pressure for expansion Seems counter-intuitive, but it works Natural gas is cooled to about -260 F Gas condenses into a liquid Stored in special cryogenic tank until ready for delivery to market

Making LNG: The Process Mole Sieve – Cleans gas by stripping out non-hydrocarbon molecules CO2, H2O, etc. Gas stream needs to be majority methane (dry gas) to begin with Compression – Increases pressure of gas in preparation for expansion Some sort of external cooling necessary to remove heat added during compression Ambient coolers, water coolers, etc. Expansion – Rapidly cut pressure to create cooling Power Generation – A lot of energy necessary to drive this process Large electric generators necessary if not connected to power grid Storage – LNG is stored in a vacuum-insulated tank Keeps LNG cold much longer than normal tank

Small-Scale LNG I hear about LNG in the news. Is this the same thing?

NO. But it’s similar

This is the LNG in the news Credit: www.abc.net.au/news/2016-02-05/an-australia-lng-ship-sails-off-the-coast-of/7144914

This is what we are talking about

Traditional LNG – Large Scale Massive LNG plants built along the coast Create LNG and load onto tankers for shipping across the ocean Used as a method to send natural gas from abundant markets (Africa, Middle East, Australia etc.) to underserved markets (Europe, Japan, etc.) Involves billions of dollars of investment on each side of the ocean America building new LNG plants Gulf Coast, Cove Point Maryland When you hear about LNG in the news, this is usually what they are talking about

Credit: www.2b1stconsulting.com/lng/

Small-Scale LNG Land-based LNG is moved via truck Serves local or regional markets Virtual Pipeline Method of transporting natural gas without a pipeline Similar to CNG (Compressed Natural Gas)

Our LNG Facility Mansfield, PA Produce about 5000 gal/day of LNG 600 MCF/D of feedstock gas, of which 70% makes it to market Larger plants have greater efficiency Purchase gas from Tenaska Resources Dresser-Rand LNGo Plant Power – process is powered by an 800 KW natural gas generator

Water Cooler Generator Mole Sieve Process Module Compressor

LNG Markets Wholesale distributers Asphalt plants Oil and gas – drilling rigs, frac fleets Mining – rock quarries, coal mines Manufacturing – paper mills, etc. Transportation Any business that burns diesel or fuel oil LNG is “re-vaporized” prior to being burned in a furnace or engine Vaporization is simple – just let it warm back up on its way to the furnace Notice that all of the above markets are end-users except for one Small-scale LNG allows us to cut out the middle men

Market Challenges – The Chicken or The Egg Dilemma Limited LNG supply UGI LNG plant in Temple, PA – primarily used for peak shaving Nearest merchant plants in Indiana and Massachusetts Market is still developing Additional supply will help encourage market Funding Very difficult to get funds necessary to build an LNG plant “Take-Or-Pay” contract The mythical unicorn of the investment world $5 million to $20 million necessary to build a small-scale plant Funding partner is necessary – if you can find them

A Competitive Advantage Cheap feedstock gas Wellhead gas prices in Northern PA are discounted by as much as 25% compared with NYMEX due to oversupply and pipeline bottlenecks Feedstock gas in Northern PA is significantly cheaper than other regions Market proximity Nearest LNG merchant plants in Indianapolis and Boston Over 350 miles from Pennsylvania Reduced transportation costs Pennsylvania LNG is Cheaper and Closer!

LNG at the Wellhead – Taking Competitive Advantage to a Whole New Level Stranded gas – Marcellus shale wells with no pipeline access Cost of feedstock gas is substantially cheaper Lifting costs = $0.60 to $1.00 per MCF Gas cost is not dependent upon NYMEX price Steady OPEX over time With LNG made from the wellhead, we can offer long-term, fixed- price supply contracts to end-use customers! No middle man between producer and consumer

Questions Thank you for your time Tim Miller Engineering Manager Tim.miller@frontierNR.com 814-353-4738