1. Understanding the MarcellusShale Supply ChainShaun M. SeydorAssociate Director, Institute for Entrepreneurial ExcellenceEric ClementsManagement Consultant, Institute for Entrepreneurial ExcellenceSpyros Pantelemonitis, Vinay DeshpandeGraduate Student Consultants, Institute for Entrepreneurial ExcellenceJames Canter, Iysha Evelyn, Lauren Keating, AshleyLeonzio, James Gianoutsos, Jared Hammond, GrantBurcha, Chia Ta (David) Chen, Wen-Jung (Rose) Chen,Ritesh Chutani, Sylwia Dabrowka, Lauren Mamros, AmeyPradhan, Adolfo Perez-Hernande, Diansyah PutriHandayani, Kimberly Hornin, Amit Pawar, Peter Damesimo,Brian Grab, Aaron Hatok, Clark Rexrode, Robert ShanafeltMBA Candidates, Supply Chain Project Course Spring 2012,Joseph M. Katz Graduate School of BusinessUniversity of PittsburghMay 2012 2. Pitt Business Working PapersDocuments made available through this series result from the work of the Pitt Businessinitiatives, especially those focused on entrepreneurship, globalization, value chain andsupply chain management, and interdisciplinary collaboration between the businessdisciplines and other disciplines. They are intended to contribute to the knowledge baseand debate around critical issues facing business today, at levels from the localcommunity, to the region, and beyond to global perspectives.Pitt Business is made up of the Joseph M. Katz Graduate School of Business, theCollege of Business Administration which offers undergraduate business degrees, andfive education and research centers, including the Institute for EntrepreneurialExcellence.The papers in this series have been developed in the context of Pitts work and includeliterature reviews, scoping studies and, occasionally, issue-oriented studies. They arewritten primarily by Pitt Business faculty, staff, and students. The papers are not subjectto peer review, nor reviewed or edited for style and content. The views expressed arethose of the author(s) and do not necessarily represent those of Pitt Business or theUniversity of Pittsburgh.Pitts Working Papers are published and distributed primarily in electronic format viawww.business.pitt.edu, though hardcopies are available upon request. Working papersmay be copied freely for research and educational purposes and cited with dueacknowledgment. 3. Pitt Business Working Papers - 2012Understanding the Marcellus ShaleSupply ChainShaun M. Seydor, Eric Clements, Spyros Pantelemonitis,Vinay Deshpande, James Canter, Iysha Evelyn, LaurenKeating, Ashley Leonzio, James Gianoutsos, JaredHammond, Grant Burcha, Chia Ta (David) Chen, Wen-Jung(Rose) Chen, Ritesh Chutani, Sylwia Dabrowka, LaurenMamros, Amey Pradhan, Adolfo Perez-Hernande, DiansyahPutri Handayani, Kimberly Hornin, Amit PawarAbstract:Understanding the Marcellus Shale Supply Chain examines the overall supply chain asit currently exists for the Marcellus Shale development, principally located in andaround Pennsylvania. This study seeks to fill a critical information gap on the nature ofthe supply chain, derived from the drilling and extraction of natural gas from MarcellusShale geologic deposits. The study first looks at the macroeconomics of the natural gasmarket, the major components of the supply chain, and an analysis of suppliercharacteristics, resources, and best practices. Our analysis is based on extensive fieldresearch and interviews, as well as information gathering from a number of publiclyavailable sources.University of PittsburghKatz Graduate School of BusinessMervis Hall, Pittsburgh, PA 15260 USAMay 15, 2012 4. AcknowledgementsWe would like to thank several friends and colleagues for their important contributionsand insights on the earlier drafts of this paper, especially Oda Bolden, Adjunct Professorof Business Administration, Katz Graduate School of Business. Mr. Boldens insight,project course management, and coordination of student teams were critical to thesuccess of this project.We also wish to thank Dean John Delaney, Ann Dugan, Professor Bill Hefley, and ourco-authors in the Spring 2012 graduate supply chain management project course, at theJoseph M. Katz Graduate School of Business.This work was made possible through a partnership with Catalyst Connection, a non-profit manufacturing consulting group that is committed to advancing the performance ofmanufacturing companies in southwestern Pennsylvania. We wish to thank PetraMitchell, Connie Palucka, Anna Mancuso, and Scott Dietz for their ongoing support andcollaboration.Finally, we would like to thank those professionals who contributed their knowledge andexpertise to our findings, including Andy Birol, Jeff Kotula, Pat McCune, Craig Sweger,and a host of Anonymous industry experts.This academic project was prepared for:Catalyst Connection and the Marcellus Regional Innovation Consortium (M-RIC)initiative.Seydor, Shaun M., et al.2012. Understanding the Marcellus Shale Supply Chain Working Paper, KatzGraduate School of Business. Pittsburgh, PA: University of Pittsburgh.Copyright 2012, University of Pittsburgh. All permissions granted to Catalyst Connection.This publication may be downloaded, saved, printed and reproduced for education and research purposes.When used we would request inclusion of a note recognizing the authorship and the Katz Graduate Schoolof Business at the University of Pittsburgh.Neither the Joseph M. Katz Graduate School of Business at the University of Pittsburgh, nor the Universityof Pittsburgh, nor any person acting on behalf thereof, makes any warranty or representation, express orimplied, with respect to the accuracy, completeness, or usefulness of the information contained in thereport.Please send inquiries and comments to: smseydor@katz.pitt.edu Working Paper I 2012 I Understanding the Marcellus Shale Supply Chain 5. Contents1 Executive Summary .................................................................................... 32 Industry Overview........................................................................................ 43 Macroeconomic Uses of Natural Gas.......................................................... 8 3.1 Electricity Generation ......................................................................... 9 3.2 Industrial Users ............................................................................ 11 3.3 Commercial & Residential Users...................................................... 12 3.4 Natural Gas Vehicles........................................................................ 14 3.5 Customer Growth Opportunities ....................................................... 164 The Marcellus Shale Supply Chain ........................................................... 17 4.1 Leasing, Acquisition, & Permitting .................................................... 18 4.2 Drilling .............................................................................................. 18 4.3 Hydraulic Fracturing ......................................................................... 20 4.4 Extraction & Production .................................................................... 23 4.5 Transport & Processing .................................................................... 25 4.6 Storage ............................................................................................. 29 4.7 Distribution ....................................................................................... 33 4.8 Marketing.......................................................................................... 385 Supply Chain Needs.................................................................................. 43 5.1 Supplier Industries............................................................................ 44 5.2 Supplier Selection and Development ............................................... 47 5.3 Criteria for Supplier Selection and Evaluation .................................. 50 5.4 Supplier Support Programs .............................................................. 52 5.5 ISNetworld A Case Study .............................................................. 54 5.6 Technology Transfer ........................................................................ 566 Conclusion................................................................................................. 58Acronyms & Abbreviations ............................................................................. 60Bibliography.................................................................................................... 61Appendix A About the Research Team ....................................................... 67 Working Paper I 2012 I Understanding the Marcellus Shale Supply Chain 6. 1 Executive SummaryThis project examines the overall supply chain for the Marcellus Shale development,principally located in and around Pennsylvania. This study seeks to fill a criticalinformation gap on the nature of the supply chain, derived from the drilling andextraction of natural gas from Marcellus Shale deposits. The study first looks at themacroeconomics of the natural gas market, the major components of the supply chain,and an analysis of supplier characteristics, resources, and best practices. ShaunSeydor, Associate Director at the Institute for Entrepreneurial Excellence at the KatzGraduate School of Business, and Pitt Business Adjunct Professor Oda Bolden, led aPitt student group of researchers in this analysis of the supply chain. Partnering withindustry experts through interview, insight, and learning, the students were able touncover many critical elements of the supply chain itself, as well as opportunities andsupport programs for supplier entry and education.Our goal with this study is to provide a realistic picture of the current supply chain fornatural gas drilling in Pennsylvania, primarily to provide information to smallbusinesses and manufacturers. Section 2 provides a brief background to theMarcellus Shale industry and the critical issues that must be considered in the supplychain. Section 3 looks at the demand side of the natural gas industry, to first quantifyand understand the components of the macroeconomic cycle. Section 4 addresseseach major section of the supply chain, covering from exploration to natural gasmarketing. Next, Section 5 looks at supply chain needs, including industries, selectionpractices, and supplier support. Section 6 wraps up by summarizing critical takeawaysfor the Marcellus Shale supply chain. Working Paper 2012 I3 I Understanding the Marcellus Shale Supply Chain 7. 2 Industry OverviewThe United States oil and gas business has increasingly concentrated on shale inrecent years. With technology improvements, including horizontal drilling andhydraulic fracturing techniques, economic recovery of huge natural gas deposits inshale rock formations has become commonplace in the last decade. The MarcellusShale formation, located in Pennsylvania, New York, Ohio, and West Virginia, is one ofthe largest such shale formations in the world, covering more than 95,000 squaremiles. The heart, or so called fairway, of this play resides within Pennsylvania,stretching from the Southwest to the Northeast, covering nearly two-thirds of theCommonwealth. With such a world-class opportunity present and available, in theform of economic viability, fiscal recovery and sustainability, and immense job creationand infrastructure improvement, careful consideration of all issues is being pursued inthis high-stakes discussion. According to a report by IHS Global Insight, shale gas, bySeptember 2011, had reached 34% of total US natural gas production. By 2015, thatshare will grow to 43% and will more than double, reaching 60%, by 2035. Also,nearly $1.9 trillion in shale gas capital investments are expected between 2010 and2035. In addition, during 2010, the shale gas industry supported 600,000 jobs; this willgrow to nearly 870,000 in 2015 and to over 1.6 million by 2035 (IHS, 2011). Manysupply chain opportunities exist due to both direct and indirect economic effects ofMarcellus Shale exploration, and those opportunities represent the focus of thisresearch.Pennsylvania lies within the vast majority of the Marcellus Shale geologic formationand includes its most abundant and resource-rich areas. Recently, the U.S.Geological Survey (USGS) has raised its estimate of natural gas resources in the giantMarcellus Shale gas formation, concluding that the undiscovered technicallyrecoverable natural gas resources could range from 43 Tcf to 144.1 Tcf, representingprobabilities of 95% and 5% respectively. Its mean estimate represents a probability of50% (ONeil, 2011). Such estimates can contribute to the formation of numerous Working Paper 2012 I4 I Understanding the Marcellus Shale Supply Chain 8. employment and supply chain opportunities. With this abundance of local gasreserves, many ancillary industries may be developed too, including plastics, glass,fertilizer, natural gas vehicles and fueling station infrastructure, natural gas powerplants, and many others. This is no more evident than in the recent announcementthat Royal Dutch Shell will analyze construction of an ethane cracker plant in Monaca,PA, at an estimated cost of more than $1 billion and creating thousands of constructionjobs and hundreds of permanent jobs (Gough, 2012). The Marcellus Shale has theability to revolutionize scores of markets in Pennsylvania.There are wide-ranging estimates of potential job creation by several differentresources. By 2020, the Marcellus Shale natural gas industry will have created orsupported 212,000 Pennsylvania jobs, according to a Penn State projection (Toland,2010). This notion is also shared by others within the industry. Development ofMarcellus Shale natural gas could create 280,000 jobs and add $6 billion of federal,state, and local tax revenues over the next decade, according to a studycommissioned by the American Petroleum Institute (Snow, 2010). Forecasted jobgrowth will occur through three different channels: directly in the oil and gas industry;indirectly from a chain of outlays in supporting industries; and economic growth fromproperty owners royalties and new tax revenues and consumer spending by newlyemployed individuals and their families (Snow, 2010).An example of these economics in action: The natural gas industry motivated Dura-Bond Industries Inc. to break ground on a $12 million facility at U.S. Steels formerDuquesne Works, President Wayne Norris said. The company coats pipe for U.S.Steel, and needed the additional capacity to keep up with growth in the sector. "It usedto be that pipe made here was not consumed here. It was a declining business, butthe Marcellus Shale changed all that (Gordon, 2012). There are changes happeningon the industrial front as well. The Pennsylvania Public Utility Commission (PUC) isworking to provide incentives to companies in the state supplying the natural gasindustry and is evaluating railroad needs to support the industry (Gordon, 2012). The Working Paper 2012 I5 I Understanding the Marcellus Shale Supply Chain 9. Marcellus Shale has spillover effects in other industries, most notably construction.Recently, MarkWest Energy Partners, L.P. announced expansion plans for theMarcellus and Utica Shales that include more than 600 million cubic feet per day ofadditional processing capacity and 140,000 barrels per day of incremental fractionationcapacity (Energy Weekly, 2012).One fact that must be addressed, however, is that the entire industry is under varyingfuture expectations, due to the decline in natural gas commodity prices. Natural gasprices have recently been at the lowest point in years. According to numbers by theUnited States Energy Information Administration (USEIA), U.S. storage facilities areholding 60% more gas than normal. This glut of natural gas supply has forced pricesto drop by 59% from last summers peak of $4.85. Gas prices in North America areexpected to remain below recent levels and will remain well below petroleum prices(Bewley, 2011). Despite low natural gas prices, investment continues in shale gasexploration and production because the lower risk in these properties is offset by thelower product prices.Because Southwestern Pennsylvania has wet gas, meaning there are otherhydrocarbons present in addition to the methane-based natural gas, such as ethane,propane, butane, and others, there is opportunity to process these compounds out andsell them on the commodities markets. So in essence, this elevates the break-evenpoint for Marcellus Shale drilling operations in this region. When natural gas prices aredepressed, these additional revenue streams provide for a more attractive investmentand a stronger return, as is the case today. The following chart describes commodityprices for the various NGLs present in portions of the Marcellus Shale formation. Working Paper 2012 I6 I Understanding the Marcellus Shale Supply Chain 10. Figure 1: Natural Gas vs. Natural Gas Liquids (FERC, 2012)Natural gas prices are expected to steadily rise as demand increases throughtraditional, emerging, and new markets. Nonetheless, reduced natural gas prices havecaused a shift of focus from dry gas fields, located in the eastern Marcellus Shale towet gas fields located in west. As macroeconomic factors such as the commodityprice of natural gas, supply chain development, demand/supply side changes, andregulatory consistency are addressed, the number of Marcellus Shale wells isexpected to continually rise in the coming years. This can be assessed through openpermits, 5,751 of which were issued in 2011 (DEP, 2012): In the first few months of2012, 1,160 permits were issued, signaling a consistent trend (DEP, 2012). Working Paper 2012 I7 I Understanding the Marcellus Shale Supply Chain 11. 3 Macroeconomic Uses of Natural GasAccording to the USEIA, natural gas customers are defined as follows (USEIA, 2012): Electricity Generation Natural gas used for power generation to sell electricity to the public. Industrial Natural gas used for heat, power, or chemical feedstock at manufacturing facilities or in mining or other mineral extractions, as well as in agriculture, forestry, fisheries and construction. Commercial Natural gas used in non-manufacturing establishments or agencies primarily engaged in the sale of goods or services, including hotels, restaurants, wholesale and retail stores, and other service enterprises. Residential Natural gas used in private dwellings, including apartments, for heating, air conditioning, cooking, water heating and other household uses.As shown in below, the largest customer segment in 2012 is electricity generators(30%) followed by industrial users (27%), households (21%), and commercial users(14%).Figure 2: Natural Gas Market Segmentation (Molavi, 2012) Working Paper 2012 I8 I Understanding the Marcellus Shale Supply Chain 12. Total demand and concentration of the market among the major customers in the tri-state region of Pennsylvania, Ohio, and West Virginia, are seen in the next table:Table 1: Domestic and Regional Natural Gas Demand by Market Segment (EIA,2012)Segment 2010 US Demand 2010 Tri-State Tri-State Percent (MMcf) Demand (MMcf) of US DemandElectricity 6,668,325 81,905 1.2%GeneratorsIndustrial Users 6,517,477 474,746 7.3%Commercial Users 3,101,675 322,963 10.4%Residential Users 4,787,320 534,366 11.2%TOTAL 21,074,797 1,413,980 6.7%3.1 Electricity GenerationThe largest market for consumption of natural gas is power generation. According toreports, 21% of all electricity generated in the United States relies on natural gas as afeedstock, and 30% of all natural gas consumed domestically is consumed by powergeneration users (Molavi, 2012). As electricity usage trends upward, demand fornatural gas in this sector is expected to increase. The USEIA forecasts that demandfor electricity will increase by roughly 1% per year through 2035, requiring an additional223 gigawatts of capacity by 2035. Other fuel sources for electricity generation, suchas coal, will continue to supplement natural gas use; however, the quantity and relativeproportion of natural gas use in power generation is predicted to grow as illustratedbelow, highlighting the additions to new capacities, by feedstock. Working Paper 2012 I9 I Understanding the Marcellus Shale Supply Chain 13. According to the USEIA, natural gas-fired electricity generation accounted for 16% ofall generation in 2002 and will increase to 24% of of total for all generation by 2035.The two main drivers for natural gas use in electricity generation are the retirement ofaging nuclear, coal, and petroleum-powered genreation plants and increased overalldemand for electricity mostly attributed to residential and commercial markets. Thegrowing use of natural gas for power generation can be partly attributed to the lowcapital cost and greater operational flexibility of natural gas-fired combined cyclegeneration plants. Additionally, increasingly stringent carbon emission regulationshave provided an incentive for electric generation companies to consider natural gascapabilities because emissions can be reduced by 50% when compared to coal-firedgeneration.Consumption in the tri-state region of Pennsylvania, Ohio, and West Virginia accountsfor only 1.2% of the electricity generated by natural gas in the United States (see Table1). Regionally, 88.8% of natural gas demand for power generation is concentrated inthe top five consumers and/or distributors.Table 2: Top five Regional Consumers / Distributors of Natural Gas for ElectricityGeneration in 2010 (EIA, 2012)Company Consumption Percent of Tri-State (MMcf) ConsumptionPPL Interstate Energy Company 29,073 35.5%UGI Utilities 21,374 26.1%Philadelphia Gas Works 10,262 12.5%Dominion Transmission Incorporated 6,869 8.4%PECO Energy Company 5,167 6.3%TOTAL 72,745 88.8% Working Paper 2012 I 10 I Understanding the Marcellus Shale Supply Chain 14. 3.2 Industrial UsersIndustrial users are the second largest consumer of natural gas behind electricitygenerators. Currently, industrial usage accounts for 27% of all natural gas usagewithin the U.S. The USEIA predicts that industrial usage of natural gas will grow by0.9% per year over the next 20 years. The level of growth is adversely impacted by ashift in domestic manufacturing from energy-intensive manufacturing industries to lessenergy-intensive manufacturing industries. Increased energy efficiency of equipmentand processes used in the industrial sector also contributes to the marginal growthforecast in the industrial sector.Demand for natural gas in the industrial sector reflects the overall economy. As theUnited States economy improves or contracts, industrial demand for natural gas willfollow suit. Manufacturing firms will increase output during an upswing in theeconomy, which in turn requires more fuel to support increased production. Short-termnatural gas demand in the industrial sector can swing significantly depending onproduction schedules; however several factors have driven increased long-term naturalgas usage by industrial consumers, including consolidation within the industrial sector,electricity restructuring, industrial carbon emissions regulation, and technologyadvancement.The price advantage that natural gas provides to industry has contributed to the rise ofnatural gas usage. Natural gas has provided domestic manufacturers with acompetitive advantage over manufacturers in Europe and Asia who do not have thesame access to low-cost production fuels. Low natural gas prices have made somecompanies that produce chemicals and fertilizer rethink their production locations andconsider building new plants in the U.S.Consumption in the tri-state region of Pennsylvania, Ohio, and West Virginia accountsfor 7.3% of the natural gas consumed by industrial customers in the United States (see Working Paper 2012 I 11 I Understanding the Marcellus Shale Supply Chain 15. Table 1). Regionally, 50.6% of natural gas demand for industrial use is concentratedin the top five consumers and/or distributors.Table 3: Top Five Regional Industrial Consumers / Distributors of Natural Gas in2010 (EIA, 2012)Company Consumption Percent of Tri-State (MMcf) ConsumptionEast Ohio Gas Company Dominion East 86,131 18.1%Columbia Gas Distribution Company 72,168 15.2%UGI Utilities 30,382 6.4%Panhandle Eastern Pipeline Company 27,669 5.8%PECO Energy Company 23,901 5.0%TOTAL 240,251 50.6%3.3 Commercial & Residential UsersCommercial use of natural gas primarily consists of space heating for businesses, butthere is also demand in the form of hot water or other heating. A continued growtharea is natural gas use in the food service industry, which now offers multifunctionalnatural gas appliances in the form of hot and cold storage areas, gas-fired fryers,griddles and ovens. From a residential perspective, just over half of domestichouseholds (62 million homes) heat their homes using natural gas. Other residentialnatural gas applications include cooking, clothes drying, and water heating for bothpersonal and recreational use.Demand in the residential and commercial sectors shift significantly throughout theyear, predominantly due to increased demand for heating in the winter months.However, this effect is partially offset through demand for cooling in the summermonths. Using electricity to power air conditioners has been prevalent since the1950s; however recent technological advances, improved efficiency, and depressed Working Paper 2012 I 12 I Understanding the Marcellus Shale Supply Chain 16. gas prices have caused resurgence in the popularity of gas-powered units. Such unitsare initially more expensive, but are more efficient, require less maintenance and havean expected working life of as much as 20 years.As shown in below, the demand for natural gas in the residential and commercialsegments is expected to continue to grow over the next five years. However, thestrength of the economy will have a material impact on the strength of that growth,predominantly due to demand generated through construction of new property.Partially offsetting the expected volume growth is the anticipated increase incompetition and lower prices from the continued deregulation of utility markets acrossthe U.S. over the short-term.Table 4: Demand and Expected Growth of Natural Gas Use in Residential andCommercial Markets (EIA, 2012) Residential CommercialUS Market Size Value $26.8B $17.85BUS Market Size Volume 21% 14%US Annual Growth 0.225% 1.1%US 5 Yr Growth 1.8% 9.1%Consumption in the tri-state region of Pennsylvania, Ohio, and West Virginia accountsfor 11.2% of the natural gas consumed by residential customers and 10.4% of naturalgas consumed by commercial customers in the U.S. (see Table 1). Regionally,demand is highly concentrated within the top two customers for both segments, andthe top five customers account for over 60% of demand for each segment. Asderegulation continues in utility markets, it is expected that the spread across the topfive customers will reduce. Working Paper 2012 I 13 I Understanding the Marcellus Shale Supply Chain 17. Table 5: Top Five Regional Residential Consumers / Distributors of Natural Gasin 2010 (EIA, 2012)Company Consumption Percent of Tri-State (MMcf) ConsumptionColumbia Gas Distribution Company 138,750 26.0%East Ohio Gas Company - Dominion East 107,286 20.1%Peco Energy Company 37,739 7.1%Philadelphia Gas Works 35,864 6.7%Duke Energy Ohio 31,333 5.9%TOTAL 350,971 65.7%Table 6: Top Five Regional Commercial Consumers / Distributors of Natural Gasin 2010 (EIA, 2012)Company Consumption Percent of Tri-State (MMcf) ConsumptionColumbia Gas Distribution Company 83,141 25.7%East Ohio Gas Company - Dominion East 49,257 15.3%Duke Energy Ohio 24,734 7.7%UGI Utilities 22,879 7.1%PECO Energy Company 21,012 6.5%TOTAL 201,024 62.2%3.4 Natural Gas VehiclesNatural gas usage in the transportation sector is still minimal, accounting for 3% of thetotal demand in the U.S (Naturalgas.org, 2012). Even though the demand in thetransportation sector is not significant today, this segment warrants discussion due tothe enormous potential for future growth. Industry data shows that vehicular natural Working Paper 2012 I 14 I Understanding the Marcellus Shale Supply Chain 18. gas nearly doubled between 2003 and 2009 (NGVAmerica, 2012). The benefits ofnatural gas powered vehicles include: decreased environmental emissions because ofthe clean burning performance of natural gas; improved safety because natural gasdissipates in the event of an accident instead of pooling as do liquid fuels; anddecreased dependence on foreign oil because natural gas is domestically available inabundance.The largest barrier to increased natural gas usage in the transportation sector is thelimited refueling infrastructure. Large fleets of vehicles that drive many miles each dayand that are centrally maintained and fueled are best suited for natural gas use. In2011, the top three users in vehicular natural gas were transit buses (62%), wastecollection and transfer vehicles (12%), and airport natural gas vehicle fleets (9%)(Naturalgas.org, 2012). The infrastructure needed for more widespread use of naturalgas vehicles is expected to expand as more fleets and individual users switch tonatural gas vehicles.The primary driver behind natural gas powered vehicles is the environmental benefit ofsignificantly reduced emissions. Replacing a typical older in-use vehicle with a newnatural gas powered vehicle provides exhaust emission reduction ranges as follows:carbon monoxide - 70% to 90%; non-methane organic gas - 50% to 75%; nitrogenoxides - 75% to 95%; and carbon dioxide - 20% to 30% (Naturalgas.org, 2012).Federal and state environmental regulations are expected to become increasinglystringent, especially in regions that experience poor air quality, such as the state ofCalifornia. In Pennsylvania, incentives such as tax credits and grants are being offeredfor projects related to alternative fuels. In the Pennsylvania, Ohio and West Virginiaregion, 99% of natural gas demand for vehicle fuel is concentrated in the top twoconsumers. Working Paper 2012 I 15 I Understanding the Marcellus Shale Supply Chain 19. Table 7: Top Four Regional Consumers of Natural Gas for Vehicle Fuel in 2010(EIA, 2012)Company Consumption (MMcf) Percent of Tri-State ConsumptionEast Ohio Gas Company 72 66.1%Dominion EastPECO Energy Company 36 33.0%Philadelphia Gas Works 0.8