Another Perspective

By Barry Russell, President and Chief Executive Officer, Independent Petroleum Association of America

President Barack Obama was absolutely right about one thing he underscored in his recent State of the Union address, “Nowhere is the promise of innovation greater than in American-made energy.”

The United States is endowed with abundant oil and natural gas reserves. It also possesses the innovative technologies and work force necessary to safely develop our homegrown energy and use it to create more American jobs and strengthen national security. Unfortunately, on these critical issues, the Obama administration’s actions speak louder than the president’s words.

And while the president has recently had somewhat of an awakening regarding the benefits tied to U.S. oil and natural gas, albeit rhetorically, it cannot be lost on the American people that this administration’s energy policies have destroyed jobs, weakened our security and stifled production.

President Obama speaks of developing America’s natural gas resources “…without putting the health and safety of our citizens at risk.” America has been safely developing its natural gas resources for a century through sound state and federal regulatory programs.

But, in 2011, nine — yes, nine — separate federal agencies looked to implement new regulations and procedures to delay, if not altogether halt, U.S. oil and natural gas production. These efforts range from multiple agencies proposing new federal hydraulic fracturing regulations to threatening to list lizards and prairie chickens as endangered in natural gas producing states to the Interior Department trying to reinvent regulations that have been faithfully managed by the existing state-federal system.

Federalizing oil and natural gas regulation will not result in tangible safe development benefits. But, needless to say, such misguided actions could paralyze production across the country.

Today, the American people directly benefit from expanded shale gas development. In fact, a senior economist at the U.S. Federal Reserve recently stated that American consumers could save as much as $16.5 billion on electricity bills throughout 2012 as more U.S. natural gas is responsibly produced.

Much of the shale revolution’s success — tens of thousands of new private-sector jobs, lower energy costs, millions in tax revenue — has been made not because of this administration’s policies, but in spite of them. Why? This production, overwhelmingly, is occurring on private land.

As the president noted in his address, “American oil production is the highest that it’s been in eight years.” I am proud to say this is true.

Here again, oil production increases are coming from private land development. In 2010, oil production on federal land decreased by 13%. In the same year, federal lands saw the fewest number of onshore leases since 1984. The impressive growth in U.S. oil production — overwhelmingly on private land — is because of America’s oil producers, not heavy-handed Washington regulations.

And while the Interior Department slow-walked access to government-owned oil, the onshore production of oil on private lands created tens of thousands of jobs and much-needed tax revenues in states like North Dakota. Last November, North Dakota alone surpassed OPEC member nation Ecuador in oil production — a boost in production from 2.0 million barrels in 2002 to 16 million barrels in 2011.

As for production of America’s abundant, job-creating oil and natural gas resources offshore, the administration’s soaring rhetoric is fundamentally misaligned with the cold, hard facts. We hear the president announcing that his administration will open 75% of our potential offshore oil and gas resources for exploration, but we know he is referring to leasing that has been scheduled for years in the same areas that have been producing for a half century.

Recall the president’s visit to Brazil, where he stated that he wants the United States “to be one of [Brazil's] best customers” for oil produced off its shores. That’s better than getting oil from Iran and Venezuela, for sure, but why shouldn’t American oil and natural gas, and other sources, serve as the foundation for our nation’s energy policy?

The unnecessary de facto moratorium on offshore drilling that this administration reflexively put in place remains a key impediment for struggling communities along the Gulf Coast whose livelihoods have been upended as a result. And while offshore permits are beginning to once again move, though at glacially slow rates, it’s important to recognize that just 2% of our offshore areas are leased for development — not the implied 75% in the president’s speech.

America’s independent oil and natural gas producers remain focused on responsibly leveraging our nation’s resources in a way that protects our environment and realizes broad-based economic and security benefits.
President Obama’s newfound embrace of America’s vast oil and natural gas potential is encouraging. We hope his words signal a change in the direction of his administration.

This commentary is available from the Independent Petroleum Association of America.

By: Mark Brownstein, Energy Program Chief Counsel, Environmental Defense Fund

Around the country, states are taking a serious look at the regulations to manage shale gas development.  New York has the potential to be a leader among these states.

The Environmental Defense Fund (EDF) believes that strong regulations and aggressive enforcement is critical to protecting public health and the environment from high-volume hydraulic fracturing and other hydrocarbon extraction activities in New York state.

To that end, we have submitted detailed comments on the New York State Department of Environmental Conservation’s (NYSDEC) proposed rules and permitting conditions for hydraulic fracturing. The NYSDEC can put New York at the forefront of safe and clean shale gas development by implementing our suggestions in several critical areas.

Chemical Disclosure

Full public disclosure is rapidly becoming the industry norm across the country, but the proposed NYSDEC disclosure rules for chemicals used in the hydraulic fracturing process only cover chemicals with material safety data sheets (MSDS), thus failing to capture perhaps half or more of the chemicals used.

This is especially problematic because MSDS only explore hazards in occupational settings and do not consider implications for public health or the environment.

Further, the proposed rule only requires disclosure of additive products proposed to be used in hydraulic fracturing, as opposed to the chemicals actually used during the hydraulic fracturing process.

EDF feels strongly that operators should disclose all hydraulic fracturing chemicals used on a well-by-well basis, posted on a searchable, publically accessible website.

Well Construction

Properly constructed, tested and maintained wells are critical to protecting New York’s precious groundwater and surface-water aquifers from contamination by drilling fluid, wastewater and natural gas seepage.

The proposed well construction regulations and permitting conditions need improvement to meet industry best practice standards. Furthermore, some of the proposed rules represent potential safety hazards for well pad workers.

A model regulatory framework EDF has helped develop could be used to greatly improve NYSDEC’s proposed well construction regulations.

GHG Emissions/Methane Leakage

EDF is a leading advocate of strict standards on limiting methane emissions from natural gas production. Methane is a pernicious greenhouse gas, many more times more powerful than carbon dioxide.

To reduce the peak warming and improve air quality, it is critical to minimize the amount of methane vented or flared at the production site or leaked during storage and transmission.

We strongly urge the NYSDEC to impose specific green completion and other emission-reducing requirements on operators, and to formulate hard emissions targets that provide incentives for operators to reduce methane leakage even further.

Wastewater

Hydraulic fracturing produces huge volumes of potentially toxic and radioactive wastewater. New York recognizes this problem but does not seriously address the lack of capacity for processing or safely storing hydraulic fracturing waste materials within the state.

Current technology does not allow for safe, cost-effective filtration of hydraulic fracturing wastewater at treatment centers for re-introduction into the water system, and should be banned.

Insofar as it appears that the final disposition of the bulk of the wastewater produced in New York will be trucked out of state to deep injection wells, the proposed regulations and permitting conditions must grapple with this expensive and perhaps unsustainable practice.

Finally, since wastewater recycling will likely be the dominant treatment option undertaken by shale gas operators in New York, this practice needs to be more thoughtfully and transparently regulated.

Phase-In

Finally, even with the best rules on the books, it will take time to hire and train the necessary staff to implement and enforce the rules properly.  New York is essentially building a regulatory program from scratch.

EDF believes the NYSDEC should learn how to walk before it can run.  Our suggestion is that New York phase in the regulatory program region by region.  In this way, the state can be sure that the pace of drilling activity will not outpace its ability to adequately administer the regulations.

So, too, this phase-in approach will allow the state to acquire valuable experience in step-wise fashion. The key is not doing it quickly, but doing it correctly.

These and other adjustments to the proposed rules and permitting conditions are necessary to protect public health and the environment in New York. Shale gas extraction can be made safe through strong regulations and aggressive enforcement to protect communities. EDF is committed to working with the NYSDEC on these issues to produce the most responsible hydraulic fracturing regulatory framework in the nation.

EDF’s full comments on New York’s hydraulic fracturing regulations are available.

By Radisav Vidic, University of Pittsburgh, Professor and Chairman of the Department of Civil and Environmental Engineering

Killing two birds with one stone. It’s a concept that businesses, institutions, and individuals use on regular basis -– especially if they’re looking to save money or time. In particular, it’s an idea that could greatly benefit a growing energy industry in Pennsylvania: gas extraction from Marcellus Shale.

Shale gas extraction uses millions of gallons of water every year. That water is then enriched in chemicals that are used to assist in the hydraulic fracturing or “fracing” process (e.g., friction reducers, scale inhibitors, biocides) or added through dissolution of the shale itself (e.g., salts, organics). That polluted water is trucked to and from various locations, using an exorbitant amount of gasoline and opening up the possibility of spillage on the roadways.

Meanwhile, the state of Pennsylvania has a decades-old problem of abandoned coal mine drainage (AMD). Nineteen million dollars is spent annually on abandoned mine reclamation (according to the Department of Environmental Protection). That water is one of the biggest environmental problems for state rivers.

The solution? Let’s see if we can use AMD that is widely available throughout the Marcellus region to solve and prevent pollution simultaneously.

For several years, I’ve been studying how drillers could use mine drainage water for fracing. This method would keep toxic drainage away from water supplies and stop drillers from burning through gasoline and crushing roads while hauling water to well sites. Not only would it reduce the traffic and opportunities for spilling, but it would also help clean up some of the legacy issues left by the coal industry.

On the upside, many companies are interested in the idea. However, most companies aren’t willing to take the risk.  The problem is really the regulatory requirements and liability issues behind the switch. Companies are used to doing things a certain way and have been doing so forever. The companies often take the approach: if it works now, why fix it? Understandably so, change is never easy.

However, with the resolution of technical and regulatory issues, the benefits this would bring would be immeasurable. Many of these mine waters can be used right now without any problems. Yes, there are technical issues that need to be resolved for some mine waters. But, those are solvable. Those issues are nothing compared to the trucking of water that’s happening in the industry.

The goal is to make mine water usable with minimal treatment: the only way it could become a cheap, widely available source for the shale gas industry. It just makes sense to figure out how to do this logically and help get rid of – and prevent – pollution in Pennsylvania.

By C. Paul Davis, Senior Vice President, Titan Oil Recovery Inc.

There is a term that is being used quite frequently in today’s oil industry called “unconventional oil.”  The term is used more often these days and has become a common topic of Dr. Daniel Yergin, chairman of IHS-CERA.

Yergin is the well known and respected author of his new book, The Quest (2011).  He is also the Pulitzer Prize author of another best seller, The Prize (1991).  Both of these books are great reads and both provide a wonderfully detailed history of the oil industry from the very beginning up to today. I have read both books and I recommend them highly.

“Conventional oil” is essentially the oil that is found, recovered and used by most of the world since the very first oil well was drilled by Colonel Edwin Drake in Titusville, PA, in 1859, some 153 years ago.

Since that day in 1859, an estimated 1.5 trillion barrels of conventional oil have already been produced globally and most oil experts agree that, at least, another 1.0 trillion barrels or so of conventional oil still remains to be recovered.

Since the global average of approximately 35% of the original oil discovered is normally recovered using industry standard primary and secondary oil recovery processes, this leaves about 65% of the remaining oil, or an estimated 6.0 to 7.0 trillion barrels of oil trapped. This oil is considered basically unrecoverable using the typical and widely accepted and applied primary and secondary oil field processes.

However, for many decades, various enhanced oil recovery (EOR) processes have been used successfully to recover a portion of the remaining 65% of the trapped oil. Some of these EOR processes include: 1) gas injection (CO2, natural gas and nitrogen); 2) chemical injection (polymers, surfactants and alkaline solutions); and 3) thermal methods (cyclic steam injection, steam flooding, in-situ combustion and hot water floods).

These three methods routinely recover approximately another 10% (although this can be significantly higher in some circumstances) of the original-oil-in-place, still leaving about 55% of the remaining oil trapped and unrecoverable.

Over the past 80 years, there have been a lot of time, effort, and money spent by many people, universities, and companies trying to invent a new MEOR technology that works and can recover an additional meaningful percentage (up to 10%) of the remaining 55% of trapped oil at an affordable cost.

Having spent more than 10 years and over $30 million developing, testing, and successfully commercializing its own proprietary microbial enhanced oil recovery (MEOR) technology called the Titan Process®, Titan Oil Recovery is one of these companies.

Based on nearly four years (July 2007 to December 2010) of applying its technology to over 16 oil fields with over 100 safe well treatments achieving a 83% success rate, Titan believes another 10% recovery of oil at less than $10 a barrel is definitely possible because the cost per recovered barrel has actually been as low as $6.  A copy of Titan’s application report is available on request.

Yergin’s new direction away from the peak oil debate is a rather interesting development.  His new position is that if we add the total amount of oil that can be recovered from new emerging oil sources, like oil sands (or tar sands) and oil shale where an immense amount of oil can potentially be found and processed that the world will have at least 15 trillion barrels of recoverable oil remaining and not the 1.0 trillion barrels that many experts have come to believe.

For sure, 15 trillion barrels of oil would last the world a very long time.

Some people are actually saying that the United States, in time, has the opportunity to become energy independent and also, in time to again become the largest producer of oil in the world based on unconventional oil (and gas).  Wow!

If this proves to be doable and affordable, then maybe, just maybe he might be right.  Let’s all hope that he is right.

When one thinks about oil shale, one usually thinks about the United States, Estonia, China, Brazil, Germany, Israel and Russia.  Here the oil is held in very low permeability shale — essentially eliminating any natural flow of oil.  However, the United States holds the greatest promise for additional oil from various shale formations.  The Bakken, Pierre shale, Niobrara, Marcellus and Eagle Ford are some of the largest known resources.  Initial global estimates for oil shale range from 2.8 to 3.3 trillion barrels of oil.

New technologies are at the forefront oil shale production – things like multi-stage fracing (using water, sand, and proprietary fluids) and horizontal drilling to release oil trapped in the shale are relatively new developments that appear to hold great promise–if they can be applied safely.

However, these new technological solutions face some serious challenges and concerns since they are not well understood by the general public, the media, and often even the regulators.

Some of the challenges that unconventional oil will have to address and solve to realize Yergin’s new perceived world of oil in the U.S. and the world, include:

• The cost to produce a barrel of oil.  All of the new processes (equipment, services, facilities and raw materials) tend to be very costly (multi-billions of dollars in total) to implement and the ultimate cost to produce a barrel of oil is also very high.  Costs can range to over $70 a barrel in some circumstances.
• The amount of water required for many of the processes (such as fracing) is quite high and very expensive unless water can be reclaimed and reused.
• The energy retuned on energy invested (EROEI) is indeed a real challenge.  If it costs and takes more energy to produce than the energy that is derived, why do it?
• Pollution of the atmosphere, lakes and streams is critical. So, pollution and environmental damage must be eliminated, mitigated, or adequately remediated — all high cost factors.
• Disposing of the waste generated during the two processes (oil sands and oil shale) is a major task and can add significant cost.
• The impact of environmental destruction is potentially enormous.    The companies involved are legally required to return the land to its former condition. This sounds like a very difficult, costly, and almost impossible challenge.
• The damage to wildlife inhabiting the land where many of these processes are performed is a major concern to environmentalists and people who live there, and rightfully so.

I for one would like unconventional oil to become what Yergin envisions for the future. Let’s hope he is right.  For now, I suggest that we concentrate on recovering a significant portion of the 6.0 to 7.0 trillion barrels of trapped conventional oil safely and at an affordable cost.

EOR is a part of the solution to the world’s energy needs and we need to pursue technology that is affordable, safe, and available today.

So for now, recovering oil energy from conventional sources still continues to be the number one challenge of the 21st Century.

By Dr. Latha Ramchand, Dean at the C. T. Bauer College of Business, University of Houston

In early January, China Petroleum Corp. struck a multi-billion dollar deal with Devon Energy for five major shale oil and gas plays.  This is the third billion-dollar-plus investment in U.S. oil fields by a foreign oil company in the last three weeks — Spain’s Repsol YPF (REP.MC) entered into a $1 billion pact with SandRidge Energy Inc. (SD) to jointly develop oil fields in Kansas and Oklahoma, and France’s Total SA (TOT) paid $2.32 billion to Chesapeake Energy for a stake in its Utica shale discovery in Ohio.

These foreign firms are on a buying spree in a mission to hedge against volatile energy prices and uncertain supplies. The interest in the shale plays stems from an asset acquisition strategy, but also from a move to obtain the technology and the management expertise that must be in place for shale drilling.

In an effort to emphasize the importance of shale exploration, the Chinese government has categorized shale gas as a separate natural mineral resource, as opposed to including it in the general oil and gas category.  In June 2011, the government held its first auction for shale plays and a second one will soon follow.

In the U.S., we are dealing with a conundrum.  The origins of fracing technology and horizontal drilling are not new and the technology has finally come of age.  The data makes a powerful statement.

In July 2011 for instance, the Bakken shale produced 424,000 barrels of oil a day (b/d) compared to 453,000 b/d in Alaska.  The Eagle Ford play in Texas produced 190,000 b/d in August 2011, compared to 3,100 b/d two years ago, and this output is expected to quadruple in the next five years.

If these trends continue, daily U.S. output could increase (by 1.0 million b/d) to 6.6 MMb/d.  Shale gas production is leading to new jobs in construction, chemicals, plastics, fertilizer and steel.  IHS Global Insight expects the industry to support 870,000 jobs in 2015 and 1.6 million by 2035.

Furthermore, in a recent study, PriceWaterhouseCoopers estimates 1.0 million manufacturing jobs being created in the next 15 years as a multiplier effect of these new developments.

Today, shale gas accounts for more than 33% of U.S. natural gas production and by 2035 will account for 60% (IHS Global Insight).  The shale gas industry contributed $76 billion to GDP in 2010, and this is expected to rise to $118 billion by 2015 and $231 billion by 2035.

The increase in production of natural gas due to shale is leading to lower electricity prices and also helping utilities and refiners.  For instance, Dow Chemical is planning to build two new chemical plants near the U.S. Gulf Coast and upgrade others.  Some of the chemicals will be exported to Latin America.

The lower natural gas prices driven by larger supplies of natural gas will lead to a 10% lower electricity cost nationwide.  On a per capita basis, lower gas prices will add an annual average of $926 per year in household disposable income by 2015 and $2,000 by 2035.

The elephant in the room of course is the environmental impact of shale gas.  Concerns have been raised about the chemicals used in the water that is used for fracing.  These concerns are magnified if the water is then dumped into treatment plants where the partially treated liquids are discharged into rivers leading to contamination of drinking water supplies.

Recently, the earthquakes in Ohio suggest that drilling or injecting brine water near fault lines can cause earthquakes.  Furthermore, the effects of seismic activity related to these injections can last for a year.  The environmental issues are not trivial and must surely be addressed.

At the same time, blanket moratoriums on shale drilling will not help.  We cannot afford to negotiate from a position of fear.  Discussion of these concerns must promote further scientific inquiry, which can lead to improvements in technology.

The real problem with shale is that if the technological improvements do not happen here in the U.S., they will happen in the countries that are now acquiring shale plays for the technological know-how.

The environmental concerns must be juxtaposed with the concerns over losing first-mover advantages to wealthy buyers that can then import the technology, refine it and maybe sell it back to us.  It is like selling your house that has some plumbing problems to your neighbor who knows less about plumbing than you do but is willing to take the risks, only to have him fix the problems and sell it back to you at a higher price.

At the end of the day, the bigger question that policy makers need to pose is: how safe are we with tankers moving through the Strait of Hormuz versus moving oil or gas out of shale formations?

In this case, the Chinese cannot be accused of being the lowest cost imitator.  At least they are willing to pay for the technology when we seem to be ambivalent about its value.

By Dr. Michael T. Gamble

So much sound and fury over the Higgs Boson, signifying what? A complete understanding of the fundamental constituents of the world in which we live? Of the universe of which we are an integral part? No … and yes.

High-energy physicists at CERN, the European Center for Nuclear Research, announced this week they are closer than ever to detecting the apparently hallowed boson – which, possibly, is called God Particle merely for mass consumption. Its quantification would at once provide breathtaking insights into the infinitesimal domain affecting Earthly life and to the composition of the entire universe, a broad range, indeed.

Rewards of Basic Science

This is basic science at its best, the unraveling of the underpinnings of the thing, matter, in this case. The payoff is understanding the whys and wherefores of how particles come to be endowed with mass. And, when mass teams up with gravity, watch out, literally. An apple falls to Earth because gravity, a force centrally directed toward the Earth’s core, acts on mass, and on mass alone. We all owe a great debt to mass. In hydroelectric power plants, gravity acts on the mass of water spilling over the dam and pulls it downward, turning the turbines.

Humans don’t float away into space, as Frank did in Stanley Kubric’s “2001: A Space Odyssey,” because the Earth’s gravity acts on our body mass. Yes, mass is directly proportional to weight, the product of mass multiplied times the Earth’s gravitational acceleration. Cheer up, on Mars you would weigh about 60% less!

Standard Model Confirmation and Extensions

The best description of the nature of matter and how it interacts with itself that scientists have devised is codified in the so-called standard model (SM) of particle physics. The Higgs Boson is encompassed by the SM and would fit perfectly, once detected, as it is the sole remaining undetected/unquantified particle prophesized by SM devotees.

Of greater import than completing the equivalent of a prestigious stamp collection for high-energy physicists, quantifying the Higgs Field, the modality via which mass is apportioned, would enable more of the principal forces observed in nature to be unified, mutually describable in a set of complete equations.

Electricity and magnetism have long been codified in the Maxwell equations. Quantification of the Higgs Field would enable a separate phenomenon, nuclear beta decay, also called the nuclear weak force, to be unified with the forces of electricity and magnetism and elaborated in electro-weak equations.

While the Higgs Boson remains unquantified, narrowing the range of its mass to between 114.4 GeV and 131 GeV, according to CERN scientists, is meaningful news. Some years ago the Higgs was thought to be as massive as 500+ GeV, an energy regime unreachable by the LHC, whose peak energy is closer to 450 GeV.

It appears that it is only a matter of time to determining the mass of the God Particle. And although Einstein’s grand unification vision, a single set of equations describing all of the fundamental forces including gravity, will still be unrealized, I, for one, will celebrate by eating ice cream. When talking mass, every kilogram counts.

About Dr. Michael T. Gamble: Dr. Gamble is a former staff member of the physics division of the Los Alamos National Laboratory, where he researched directed-energy devices such as terawatt laser systems. He was also a senior manager within the gammas, electrons, and muons detector collaboration at the Superconducting Super Collider. Gamble is the author of “Zeroscape,” a high-tech thriller. He holds degrees in nuclear and mechanical engineering, and was a postdoctoral Fellow at the Massachusetts Institute of Technology.

By Nancy Schmitt, President and Partner, Taum Sauk Capital Management

The promise of shale will remain in the ground.  What?  Sound impossible?  It’s more likely than ever.  This is how it is happening.

Referring to themselves as “just a bunch of hippies up in Ithaca,”  the protestors who have filled the Department of Environmental Conservation (DEC) public hearings and monopolized the public debate on the moratorium on hydraulic fracturing in New York state are dismissed by industry and others as just a few extreme environmentalists.

Yet, given enough time and financing, the protestors are going to grassroots organize anyone who ever backpacked in the Catskills or bought food from an organic grocery store. Their objective is not the tightening of regulations on shale development so that the moratorium in New York state can be lifted, which is what the hearings are about. Rather, their objective is to ban shale development altogether.

As the protest grows, the message is spread using the internet and community groups.  The protest, that began with environmentalists and students, now includes doctors, lawyers, financiers, and even priests.  “Would Jesus Frack?” was the cover article of the most recent issue of The Episcopal New Yorker.  Pillars of the community are terrified of potential toxins in their food and fracing underneath their homes. One by one, they throw in with the protestors.

State and local politicians react to the concerns of their constituents. Assemblyman Robert Sweeney from Long Island and 34 others sponsored a bill to ban all hydraulic fracturing in the state of New York.  Sen. David Carlucci from Rockland County (across the Hudson River, west of New York City) and 22 others introduced the same bill in the Senate. Both bills were initiated at the end of the last session. Some think that the bills will pass if called for a vote.  Although that won’t happen until the outcome of the DEC hearings is known, when the legislature resumes in January, it is possible.

Industry and trade associations respond with aggressive lobbying. Thinking that facts and scientific studies will quell the protest, they fail to discern the real issue: fear. The exaggerated fear has been created by publicizing a handful of incidents of possible air and water pollution, which the industry and regulators generally deny. Protestors accuse, industry ducks, regulators appease and the public has to choose which side to believe. The public believes the neighbors, who are the protestors, because that’s who they know.

Heightened fear at the local level drives municipal bans on high volume hydraulic fracturing. Local bans lead to the state banning fracing on state lands, in watersheds and other sensitive areas. Congress takes note and bans it on federal lands.

As the protest continues to spread, it captures the attention of the national and international media. “Fracing cannot be regulated,” protestor celebrity Josh Fox shouts. “It must be banned!”   Once the practice is banned in municipalities, watersheds, and government land, not to mention France, why should it be allowed elsewhere?

Protestors equally distrust industry and government. Government regulation is viewed as ineffective against widespread, low-level pollution. Agreeing with the protestors without saying as much, the White House under President Barack Obama reiterates his view that the economy of the future must be green and sustainable. (Never mind expense or reliability.)

Reportedly, Obama confidently told White House VIPs that, “Oil and gas will be important for the next few years. But we need to go on to green and alternative energy. [Energy] Secretary [Steven] Chu has assured me that within five years we can have a battery developed that will make a car with the equivalent of 130 miles per gallon.”

The most recognizable spokesman for the natural gas industry, Boone Pickens, addresses the American people and assures them that America’s energy future has never been brighter.  ‘Getting off foreign oil and onto domestic natural gas’  will revitalize the economy like nothing else. Everything he says, even if true, falls on deaf ears. He is chiefly viewed as a canny businessman who made billions of dollars from the oil and gas industry.

As the protest takes root and flourishes in New York, it spreads to other states, the eastern provinces of Canada, Washington, D.C., European countries and the seat of European Union power in Brussels.

This is how the tide of public opinion is turned. Shale development dies as it is being born.

It doesn’t have to be this way, but it just might be if industry doesn’t get more engaged with what is happening in New York.  People here are signing onto a protest after hearing just one side of the story. The industry responds with more lobbying and advertising, but this isn’t doing the job. These efforts demonstrate how much money the industry can afford to spend, but they don’t change minds or hearts.

Industry also must get busy making high volume hydraulic fracturing zero-impact.  Drilling wells should not pollute water.  Producing wells should not pollute air.  The industry was pollution free in the Gulf of Mexico and on the North Slope when I worked there 30 years ago. Why can’t it be done now?  Why isn’t the industry meeting this challenge?

The shale protest has to be quickly taken seriously, starting with what’s going on in New York. Otherwise … Rachel Carson meets Arab Spring and who knows where it goes.

Editor’s Note: Taum Sauk Capital Management manages investment funds, which focus on energy and natural resources.  It invests in all forms of energy.  For more information on the shale protest as viewed by a former energy industry professional, see my blog.

Nancy Schmitt, President and Partner, Taum Sauk Capital Management

The shale protest is gaining momentum in New York state. Protestors have increased the stakes from tightening regulations to outright banning shale development. They have support from local and state politicians. They are connected, informed, organized and financed. Plus, they have tremendous passion for what they do. If you have never visited the Shale Shock website, it’s worth seeing.

Support for shale development must be mobilized. Even if you don’t reside in New York and don’t think you are affected by what happens in that state, you are. The protest could shut down shale development with ripple effects throughout America, Canada, the EU and the rest of the world.

So what can you do? The first thing is to comment on the New York Department of Environmental Conservation’s Supplemental Generic Environmental Impact Statement (SGEIS). The state began studying high-volume hydraulic fracturing in fall 2008. The draft SGEIS was issued on Sept. 30, 2009, and has been out for comment since then. There will be no shale development until comments and responses are finished, and the comment period was just extended again until Jan. 11, 2012.

The objective of the SGEIS is to tighten regulation on high-volume hydraulic fracturing. Tighter regulation is okay. Industry has long said that it will operate within the rules as long as it knows what these are.

Regulators seem to agree because the SGEIS states, “ The department finds that the ‘no-action’ alternative would not result in any of the significant adverse impacts identified herein, but would also not result in the significant economic and other benefits identified with natural gas drilling by this method. The department believes that this alternative [the no-action alternative] is not preferable because significant adverse impacts from high-volume hydraulic fracturing operations can be fully or partially mitigated.”[1]

When the double negatives are netted out, the DEC is saying that shale development should proceed. However, if the DEC is only hearing protestors and no supporters in public hearings and written comments, it may reverse its pro-development stance. Taking 29 months to collect and respond to comments shows just how fraught the process has been. Supporters of shale development need to say that the issue has been studied enough. It’s time to end the comments, publish the regulations and issue permits.

Why is it important to do this? Based on the outpouring of protestors at public hearings, comments are running 10 to 1 against shale development. Regulators are hearing from protestors that the oil and gas industry cannot be regulated. They are hearing that drilling pollutes water and production fouls the air. This is simply not true. And, if it did occur in isolated instances because of accidents or carelessness, it can be corrected.

Regulators are also hearing that oilfield jobs are undesirable. Protestors claim that the jobs are transitory, following drilling rigs from place to place, creating a boom while the rig is working and a bust after the rig moves on. Workers are from out-of-state and therefore outside the community. They arrive in numbers which overwhelm small towns, congest traffic, wear out roads, drive up prices and create social problems. This isn’t altogether true, either, but it’s what regulators are hearing.

The executive summary of the SGEIS can be found at this weblink. It’s 34 pages and much more readable than the 1,537 page SGEIS itself. Comments can still be submitted.

When do you need to do this? Immediately. The comment period, unless it is extended again, ends on Jan. 11, 2012.

Shale supporters must get organized just as well as the shale protestors are. In places where oil and gas are least understood, and least liked, supporters must get engaged on the local level. That means speaking with your neighbor and everyone you know. In New York City, for example, most people don’t even know anyone who has worked in the industry.

There is another upcoming battle where grassroots organization is going to be critical. Most people don’t know that many buildings in New York City burn bunker fuel made from OPEC oil for heat. The boards that run these buildings are being pressured by the New York City to convert to cleaner fuel.[2]

As the boards make decisions to switch fuel supply many of them don’t understand the ramifications of choosing between less polluting grades of fuel oil versus propane versus natural gas. Plus the doctors, lawyers and financiers who sit on these boards are typically sympathetic to environmental causes. So when they hear from the protestors that natural gas carries pollution risk, they might not chose natural gas. If boards heard both sides of the story about why natural gas is the best choice, not only for them, but also for America, they might insist on it.

Physical constraints currently limit the distribution of natural gas in New York City. However, latent demand will be essential if the largest market for incremental natural gas consumption in the United States is going to be built. Local distribution can and will be solved if there is enough latent demand. Protestors, however, are making plans to object to additional pipelines into the city thinking that doing so is another way to stop shale. Today, people are talking more about hydrofracking than they are about lowering energy costs and reducing air pollution.

Sensible regulation will allow shale to be developed with no or minimal environmental impact. This can be done. It’s a no-brainer in most parts of the country. However, if Rachel Carson meets Arab Spring, expect the unexpected.

Editor’s note: Taum Sauk Capital Management manages investment funds, which focus on energy and natural resources. It invests in all forms of energy.

For more information on the shale protest as viewed by a former energy industry professional, see my blog. So why do I care? I work have worked in and around the energy business for a long time, and I’m a mom, too. I care about developing shale because clean, reliable and cheap energy is one of the best advantages to have in a global economy. It will bring manufacturing back to America. It will also expand the valuable scientific and technical expertise, which is required to develop natural resources, that can be exported around the world. - Nancy Schmitt

By Mark Muro, Policy Director, Brookings Institution Metropolitan Policy Program

The astonishing boom in American shale gas production continues to change everything — perceptions of fuel abundance and scarcity, projections of the U.S. energy mix, and the price environment for renewables.
Now, the glut of cheap gas is driving another revolution: the pivot of discussion from anxiety about natural gas imports to debates about whether to export the fuel — something that requires approvals from the Department of Energy.

Michael Levi of the Council on Foreign Relations–who isn’t sure where he comes down on the new conundrum–has nicely articulated a number of possible complications to the standard argument that the United States should clearly export what is suddenly cheap here to European and Asian countries where prices are much higher.

Levi worries that exporting gas might increase the volatility of U.S. prices for the fuel. Likewise, he worries that price increases driven by exporting might impact domestic consumers more than they benefit producers and limit how much the United States is able and willing to cut its own greenhouse gas emissions — something it needs to do in order to be able to negotiate emissions cuts in developing nations. At the same time, Levi conversely believes there may be an environmental case for sending gas abroad since there are few cheap opportunities to substitute natural gas for oil in the U.S. and many abroad (though some of us would disagree on the latter point).

At any rate, these points are good, and the question of exporting is definitely layered. However, for all that I would like to add another perspective.

My view flows from the emphasis at the Metropolitan Policy Program on the long-run need to restructure the U.S. economy and move toward higher-value production and export activities.

Along these lines, I would place the overall well-being of higher-order U.S. industrial production at the top of my priority list, and consider the benefits of cheap natural gas to the growth and health of the U.S. economy. To be sure, having companies like Cheniere Energy liquefy and export natural gas to cash in on the spread between low U.S. prices and much higher European and Asian ones would allow U.S. producers to reap a bonanza and help cut into the U.S. trade deficit.

However, large-scale exports of natural gas could also tighten domestic supply and raise prices. For example, a consultant’s report estimates that Chenier’s big Sabine Pass (LA) export project will raise U.S. natural gas prices by up to 11.6 percent when shipments of more than 2.0 billion cubic feet of gas a day begin in 2015.

Higher prices for consumers, then, represent one possible economic drag on the nation’s recovery associated with exporting. Relatedly, higher costs to U.S. industrial producers have that potential as well.

Today, nearly 45 percent of U.S. natural gas consumption flows to industrial concerns that use it to produce chemicals, fertilizers, metal, plastics, paper, refinery products, glass, and food products. Cheap natural gas is a critical input to numerous important production and export industries in America.

To pick just one example, the American Chemistry Society recently noted the potential for sizable job and output benefits in the chemical industry associated with the shale gas revolution. All of which suggests that cheap natural gas represents a point of competitive advantage for desirable higher-value industries, U.S. exports, and good-paying jobs.

My tentative conclusion: It would be premature for DOE to conclude the United States now has so much gas that it can afford to export it overseas without risking domestic price dislocations. At least for now, gas should be husbanded as a low-cost input to industrial production, as well as held as a high-potential, cleaner substitute fuel for use in the electric power sector to displace coal in generating plants and in the transportation sector to displace oil. In short, gas should be exported not in its raw form but only as a low-cost input to higher-value production and job creation by American companies.

Such are the sort of considerations that must increasingly inform the energy decisions of a nation that needs to — all at once — reduce carbon emissions and more actively attend to the emergence of a higher-value production economy.

By Ramabhadran Srinivasan
Global Leader, Process Safety and Risk Management Offerings, DuPont Sustainable Solutions

From Piper Alpha in 1988 to Deepwater Horizon in 2010, it is evident that the magnitude and intensity of incidents in the oil and gas upstream sector can be enormous. While the oil and gas industry continues to make significant strides in adopting new techniques and technologies, these incidents continue to raise doubts about the industry’s capability for preventing such incidents and about the adequacy of safety measures.

In the “Report to the President, National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling,” the immediate causes of the Macondo well blowout were traced to a series of identifiable mistakes that reveal such systematic failures in risk management that they place in doubt the safety culture of the entire oil and gas industry. In Piper Alpha, as well, the causes can be attributed to a series of identifiable mistakes.

An analysis of these and other major incidents in the oil and gas industry indicates a culture that tolerates serious and longstanding deviations from good safety practice, resulting in the “normalizing of deviations.”
Analysis of catastrophic incidents often indicates that there may have been many missed warning signals prior to the incident.

Missing these warning signals can be attributed to several factors, including the unique nature of the oil and gas industry, lower standards of operating discipline, and last and most importantly, the lack of continued focus and commitment of leadership.

Unique Challenges

The offshore drilling and energy production sector faces challenges unique to the industry — primarily, the complex interrelationship among contractor and sub-contractor companies with different sets of specialized skills and offerings. This complex contractual relationship, coupled with a high-hazard environment demands a safety culture that encompasses every element of the extended drilling services and operating industry.

The nature of the industry and expertise of particular businesses have created an environment in which the various contracting companies work in silos. While each contracting company may be good in their own field, the interrelationships, planning and coordination necessary for operations makes creating industry-wide standards a massive challenge.

Since the specialized contracting services are necessary and will be an integral part of the oil and gas drilling industry, there is a need to enhance the process of contractor management systems and ensure that definitions of roles, responsibilities and authority are water tight. DuPont adopts the RACI (Responsibility, Accountability, Communication and Information) matrix as a method to clearly define roles and responsibilities among the various parties. The working environment of the oil and gas industry is akin to a turnaround environment — at least until production starts — which provides an opportunity to adopt some of the best practices from turnarounds adopted by other industries.

Operating Discipline

Consider the routine requirement of deciding on the location of onshore rigs. There are certain minimum distance requirements for locating residential quarters from the drilling rig and requirements for location of the mudpit and the flare stack. Meeting these requirements can be challenging in certain locations because of nearby residential areas or sensitive ecosystems.

If the rig manager is able to get away with some deviations and there are no resulting major incidents or issues, then this practice tends to proliferate very quickly and becomes “normal.” This is a classic case of normalizing deviations.

That said, there are a few factors that must be considered in the above case. Generally, in the oil and gas industry, management decisions are not necessarily influenced by a lack of willingness to spend money. Secondly, the case demonstrates the need for continuously searching for technical and technological solutions.

These technical and technological solutions require consistent dedication and application by cultivating a safety culture and the right behavior on a day-to-day basis by all levels of the organization. DuPont has defined this as “operating discipline.”

Role of leadership

The factors we have discussed, such as normalization of deviations and lack of operating discipline, are evidence of a dysfunctional process safety culture.

It may be a cliché, but process safety management really does start at the top — and the stronger it is, the better the response and performance of the rest of the organization. The most important ingredient is the leadership team, including their personal behavior.

Leaders, managers and supervisors must be visible in applying the agreed upon safety principles in decision making. Employees must believe that management places a high value on safety and is willing to live according to safety principles.

For a safety effort to succeed, all managers — even those at the highest levels — must demonstrate a visible commitment to safety in everything they do.

“Modeling” safe behavior is vital to this effort. With modeling, managers personally follow the same rules and procedures that apply to employees. In doing so, they serve as models for employees and demonstrate their respect for safety at the same time.

Employees and contractors always look to see how business leaders personally embody their commitment to safety rather than relying on posters that are hung on the walls or procedures that remain on paper.

Safety culture can be enhanced by positive reinforcement of superior safety performance. It cannot be overstated that recognition contributes significantly in creating and sustaining a safety culture. Identifying people who are doing things right and rewarding their safe actions is more impactful than punishing employees for doing things wrong.

Safety surveys of organizations across the world, regardless of cultures or geographies, always indicate that motivation is an area that needs more time and attention.

Creating a strong safety culture helps reduce incidents and keeps employees safe, ultimately creating a more sustainable business. Engaged leadership, the ability to diagnose issues and act to correct them, and the supportive and collaborative nature of an interdependent safety organization spill over into broader organizational effectiveness.

Dividends include stronger operational discipline, greater productivity, an improved risk profile and higher employee morale.

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