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Testimony: Daniel Yergin Testimony to the Senate Energy and Natural Resources Committee

Tuesday, October 4, 2011 1:01 pm EDT

Dateline:

WASHINGTON, D.C.
"perhaps the biggest shift in energy-reserve estimates in the last half century."

Senate Energy Committee

Testimony

Dr. Daniel Yergin, Chairman, IHS Cambridge Energy Research Associates

October 4, 2011

I appreciate the opportunity to appear before the Senate Energy Committee for this discussion of what we learned from the Secretary of Energy Advisory Board Subcommittee 90-Day Report on shale gas production.[1]

I am Daniel Yergin, chairman of IHS Cambridge Energy Research Associates. I am the author of a new book, The Quest: Energy, Security, and the Remaking of the Modern World, which describes the development of shale gas, among other topics.[2]

It was a privilege to serve on this Subcommittee, which was constituted in January 2011. The Subcommittee was tasked with developing a study report by President Obama in his March 31, 2011, speech, in which he declared that “recent innovations have given us the opportunity to tap large reserves—perhaps a century’s worth” of shale. In order to facilitate this development, ensure environmental protection, and meet public concerns, he instructed Secretary of Energy Steven Chu to have this subcommittee address the safety and environmental performance of shale gas production.

We focused on three major environmental concerns: water quality, air quality, and community impact. Our conclusion is that the need for environmental protection can be met if approached properly. To that end, we made 20 recommendations regarding best practices, technological innovation, and regulatory processes.

 We do so with the recognition that almost overnight, in energy terms, shale gas has become a major and critical national resource. Two years ago, the very concept of shale gas was hardly known, either in the nation or in Washington DC, and even the spelling of “fracking”—or “fraccing,” or “fracing”—has been a subject of dispute.

Today shale gas accounts for about 30 percent of total US natural gas production, and this is expected to rise dramatically in the foreseeable future. Natural gas itself is one of the backbones of our economy, providing about a quarter of the country’s total energy.

This abundance of natural gas is very different from what was expected a half decade ago. It was then anticipated that constraints on domestic natural gas production would result in high prices for consumers and the migration of gas-using industries—and the jobs that go with them—out of the United States to parts of the world with cheaper supplies. The United States was also expected to be importing substantial amounts of natural gas in the form of liquefied natural gas (LNG). That would have added as much as $100 billion to our trade deficit.

None of that has occurred..

Instead,

  • The United States has become, except for imports from Canada, mostly self-sufficient save for some LNG imported to cope with pipeline constraints and seasonality.
  • Gas prices have fallen substantially, lowering the cost of gas-generated electricity and home heating bills.
  • Several hundred thousand jobs have been created in the United States.
  • Gas-consuming industries have invested billions of dollars in factories in the United States, something which they would not have expected to do half a decade ago—creating new jobs in the process.
  • The development of shale has created significant new revenue sources for states—for the state of Pennsylvania and localities in that state, for example, $1.1 billion in revenues in 2010.

Shale gas—the unconventional natural gas revolution—has been called the biggest energy innovation of the past few decades.  The chairman of our Subcommittee, Professor John Deutch of the Massachusetts Institute of Technology, has described shale gas as responsible for “perhaps the biggest shift in energy-reserve estimates in the last half century.” [3]

The new National Petroleum Study Prudent Development: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources, submitted to the Secretary of Energy on September 15, details what it describes as the “surprising” upward reassessment in US oil and gas resources—the result of technological advance.[4]

Shale gas only burst into public view in 2008 and 2009. Yet as I describe in The Quest, this was the result of a quarter century of technological development and progress and innovation—a process that had involved much disappointment and trial and error until the end of the 1990s.

In the past few years, the rapid development of shale gas has also created environmental concerns and issues, which are the topic of our report. Commercial development of shale gas had begun in traditional oil and gas–producing states. But these concerns became much more visible when development spread into the “Mighty Marcellus”—that is, the Marcellus Shale that is found in Pennsylvania, West Virginia, and New York State. Although western Pennsylvania had been the birthplace of the oil and gas industry, that was a long time ago and under very different conditions. In modern times, this was a new activity, particularly on this scale, and in a more densely populated region.

My Subcommittee colleagues will speak about the specific environmental issues and how to mitigate them. These concern water quality, air quality, and community impact. Professor Steven Holditch, chairman of the petroleum engineering department at Texas A&M, has 40 years’ experience with the science of hydraulic fracturing. Mark Zoback, professor of earth sciences and geophysics at Stanford University, is an expert on the forces in the earth that control geologic processes. And Kathleen McGinty was Secretary for Environmental Protection for the State of Pennsylvania and served as chair of the White House Council on Environmental Quality.

Altogether, as noted, the report contains 20 specific recommendations about these issues. One of the starting points is the need for much more complete measurement of water quality, air quality, and specifically methane. Many of the recommendations focus on best practices and technical innovation. They also emphasize the importance of community engagement and the need for disclosure and transparency. They recognize the central role of state regulation in this arena.

As Professor John Deutch wrote to the committee: “The Subcommittee believes that these recommendations, if implemented, combined with a continuing focus on and clear commitment to measurable progress in introducing best practices based on technical innovation and field experience, represent important steps toward meeting public concerns and ensuring that the nation’s resources are being responsibly developed.”

We came at this report from a variety of perspectives and, as we examined the issues and listened to public testimony, came to a consensus on our recommendations.

But there are a couple of recommendations that I would like to highlight. We recognize the difficult decisions that have to be made about the federal budget and the challenges this creates for both the Congress and the Administration. But there are two areas of modest funding that would pay back to the nation—and government revenues—many hundredfold.

The first is to support at a modest-level STRONGER—the State Review of Oil and Natural Gas Environmental Regulations. This is very valuable because the states are both the frontline and the backbone of regulation. Similar support should be provided to the Ground Water Protection Council.

The second is to provide federal R&D support on developing the technologies that address the environmental issues and promote continuous improvement and best practices. This includes support for the Research Partnership to Secure Energy for America.

These two investments would pay enormous returns , first and foremost in meeting environmental objectives and facilitating the achievement of the great potential of shale gas, and by so doing would contribute to energy security, economic development, and job creation—and, as a result of all this, generate considerable revenue flows to federal , state, and local governments.

Dr. Daniel Yergin is chairman of IHS Cambridge Energy Research Associates. His new book The Quest: Energy, Security, and the Remaking of the Modern World has just been published (www.danielyergin.com). The Quest addresses the natural gas revolution in Chapter 16.

Dr. Yergin is a member of the Secretary of Energy Advisory Board. He previously chaired a US Department of Energy Task Force on Energy R&D. He is a member of the National Petroleum Council and vice chair of its new study Prudent Development: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources.

Dr. Yergin received the Pulitzer Prize for his book The Prize: the Epic Quest for Oil, Money and Power.

 

[1] Secretary of Energy Advisory Board, Shale Gas Production Subcommittee 90 Day Report, US Department of Energy, August 18, 2011.

[2] Daniel Yergin, The Quest: Energy, Security and the Remaking of the Modern World (New York: Penguin, 2011), Chapter 16,“The Natural Gas Revolution”  (www.danielyergin.com)

[3] John Deutch, “The Good News about Gas,” Foreign Affairs, January–February 2011,

[4] National Petroleum Council, Prudent Development: Realizing the Potential of North America’s Natural Gas and Oil Resources, Report Submitted to the Secretary of Energy on September 15, 2011.

Contact:

Energy; Natural Resources
Jeff Marn, +1 202 463 8213
Energy Strategy, Renewable Energy
jeff.marn@ihs.com

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