CSIS speaker: Community benefits are key to next US gas phase

Communities should be able to continuously share economic benefits from increasing US tight oil and shale gas production, experts said.

Industry’s ability to help communities do more than merely withstand the impacts of unconventional development will be an essential part of realizing a dramatically improved US oil and gas potential, speakers told a Feb. 18 event at the Center for Strategic and International Studies (CSIS).

The sustainable shale growth zones that US President Barack Obama mentioned in his 2014 State of the Union address could be aimed at sharing economic benefits where development impacts are heaviest, said Paula Gant, deputy assistant US energy secretary for oil and gas.

“In Ohio, where many plants shut down over several decades, there’s interest in developing the Utica shale in ways that stimulate industries,” she said.

Noting the concept still is being developed, Gant said, “This is a good time for all of us to ask how we can help these communities.”

Clay Bretches, Anadarko Petroleum Corp. vice-president of exploration and production services and minerals, said he has yet to hear details about local economic-benefit ideas.

“What I hope is we’ll see education opportunities for people to gain skills in new areas,” Bretches said. “I also hope it doesn’t impinge on state regulatory primacy.”

Gant responded that the Obama administration is well aware of states’ regulatory contributions.

“The focus will be on finding ways to help affected communities more,” she said. “The potential to realize this abundance rests at the local level. There’s a tremendous need for the states and oil and gas industry leaders to take the necessary steps to make sure local needs are met.”

Additional steps

It will be essential for the US to recognize how oil and gas markets have changed, and for policy makers to implement policy reforms in response, Gant said.

More investment will be needed in infrastructure, research and development, and manufacturing, she said. Gant also called for US resources and technology to be used effectively to improve energy security.

Frank A. Verrastro, a senior vice-president and holder of the James H. Schlesinger Chair for Energy and Geopolitics at CSIS, moderated the discussion.

He noted oil and gas supply situations keep changing.

“The high resource scenario of yesterday has become the standard resource base,” he said

Adam Sieminski, US Energy Information Administration administrator, noted domestic production of natural gas strictly from gas reservoirs is beginning to diminish.

Much gas production now is associated with oil production.

EIA anticipates the US will become a net gas exporter by the end of this decade while crude oil production from tight shales, which has lagged gas’s growth, could approach 10 million b/d by 2016.

An EnCana Corp. spokesman said industry knew shale gas could be a robust contributor.

“We did not expect its rise to be so meteoric,” said Douglas Tierney, EnCana vice-president for business development. “We’re finding more and more supplies at less and less cost. That’s the takeaway.”

A recent reassessment of 2011 data by IHS Energy found US and Canadian unconventional resources potentially could produce 10 times as much as conventional supplies, Tierney said.

“This winter was a good test,” he said. “The price behaved as it should.”

Demand outlook

In its recent study for the American Gas Foundation, IHS forecast gas demand for power generation will grow 3%/year (compared to EIA’s 0.8%/year) as consumers buy energy-consuming devices, such as big-screen televisions, said Mary Barcella, director of North American natural gas at IHS.

“The transition will not be smooth,” she warned. “Lots more demand is expected, particularly in the 2015-17 period, and it will put more pressure on producers. If they haven’t ramped up, there could be a temporary price spike.”

Andrew J. Slaughter, vice-president of energy research at IHS, said pipeline operators will need to be confident with market fundamentals before investing in additional infrastructure.

Barcella said it’s important not to overestimate the potential for US LNG exports.

“Even if the market doubles in the next 20 years, there are more than enough proposals to supply it,” she said. “The situation could change dramatically if Japan makes methane extraction from hydrates profitable in the next decade.”

Slaughter noted the NPC’s 2011 study estimates it could take 50-70 years to bring North American gas hydrates into production. “Japan could get it earlier because it’s so dependent on LNG imports,” he said.

Contact Nick Snow at nicks@pennwell.com

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