42 years after the Arab oil embargo knocked the U.S. for a loop, energy experts are cheering the fact that the U.S. is the world’s number one producer—but Harvard University’s business school sees “a real risk that American citizens, companies, and communities will fail to capitalize on this opportunity”
At the University of Colorado-Denver’s Global Energy Management program’s 2015 “Energy Moving Forward” symposium this week, the day’s broad-themed discussions inadvertently found a common thread: the positive economics delivered by oil and gas.
Invited speakers and panel members discussed shale production, pipeline permitting, natural gas, coal, wind, solar, nuclear power and renewable energy’s relationship to the transmission grid. Experts came from the U.S., Mexico and Canada, from the public and private sector, and from companies involved in exploring for oil, gas transmission, electric generation, and there were energy attorneys and consultants.
Participants were closely unified in making the point that the oil and gas industry continues to bring tremendous value to the planet.
No Such Thing as Energy Independence
Manhattan Institute senior fellow and author (Pipe Dreams: Greed, Ego, and the Death of Enron; Power Hungry: the Myths of Green Energy and the Real Fuels of the Future; and Smaller, Faster, Lighter, Denser, Cheaper: How Innovation Keeps Proving the Catastrophists Wrong) Robert Bryce, led things off with a keynote speech entitled “The Energy Independence Mirage… .”
Bryce set the pace for the afternoon by strongly proclaiming that the concept of energy independence is “the most hackneyed phrase in use today.” Bryce suggested a more appropriate term for today’s global energy market place is “energy interdependence.” He pointed to the fact that the U.S. exports its refined petroleum products to 82 different countries and receives the bulk of its imported crude oil from Canada.
Bryce pointed out that the 1970s idea of “energy independence” is based on the premise that “foreign oil is bad,” a longstanding label that originated during the 1973 Arab oil embargo that sent U.S. gasoline prices through the roof (historically) and led to transportation fuel shortages and long gas station lines that disrupted life in the U.S.
Bryce called corn ethanol “the longest running scam on U.S. tax payers,” saying that ethanol has always been more expensive to produce than gasoline, by 90 cents per gallon. Bryce compared the production of fossil fuels to the economics of ethanol and other renewable energy sources, pointing out that renewables have yet to become self-sufficient.
He talked about “some of the common myths about oil,” the first being energy independence. “We live in a global market. The global oil market is the single biggest market in history, a $5 trillion dollar industry; it’s the most transparent and liquid marketplace in the world.” Bryce said the U.S. will not abandon the Persian Gulf and he made the point that oil does not support terrorism around the world, because terrorism does not need oil to exist.
The speakers discussed that the boom in U.S. domestic shale production has reduced the need for the U.S. to import as much foreign oil to meet its own needs, and several speakers pointed out that the U.S. imports more oil from Canada than from any other country, including the Persian Gulf countries.
Bryce and other speakers pointed to the U.S.’s strong leadership role in global energy production, giving the fact that the U.S. leads the world in oil production, natural gas production and coal production.
The Three ‘Rs’ of the Shale Boom
In a clever sound bite, Bryce made the case that no other country could have hosted the shale boom, even though shale deposits are found all over the world. “Why? Because the U.S. has the 3 ‘Rs’: Rigs, Rednecks and Rights.”
RIGS – the U.S. rig count is higher than in any other country
REDNECKS – the U.S. has a skilled, hardworking army of oilfield workers—trained, experienced people who know how to work around drilling rigs
RIGHTS – the U.S. is unique in that the nation allows for private ownership of mineral rights. Bryce said that single factor, besides horizontal drilling and hydraulic fracturing, is what made the shale boom possible. Private mineral ownership creates the financial incentive to push the development of shale drilling on private property. “If you’re getting at least 12.5%, and up to 20% production royalty, plus a cash bonus, you’ll put up with some extra dust and trucks on your property to produce oil and gas.
This is not true in other countries. Canadian panel member Dale Eisler, senior policy fellow and senior advisor for government relations at the University of Regina, confirmed that Canada will have a tough time developing a long awaited national strategic approach to energy, because energy policy is governed by each province, not the federal government, and the minerals are owned by the Crown.” Mexico’s minerals belong to the government. Same in Europe, Russia and Asia.
Bryce says that it boils down to the fact that the U.S. has the key ingredients required to move the hydrocarbon molecule from the wellhead to the burner tip: free markets and free people. He quantified the point that shale development has added three percentage points to the U.S. GDP. And that U.S. exports of refined petroleum products have quadrupled, that LNG exports are about to boom, and that in 2014 U.S. exports of coal doubled from 2005. “The world wants cheap, abundant, reliable electricity, and developing countries are turning to coal.” Bryce said a Manhattan Institute study shows coal will be responsible for 300-500 gigawatts of global electricity by 2035.
“High energy production in the U.S. has made the world ‘energy interdependent’,” Bryce said.
Will the U.S. Blow It?
“America’s unconventional gas and oil resources are perhaps the single largest opportunity to improve the trajectory of the nation’s economy, at a time when the prospects for the average American are weaker than experienced in generations.”
That’s from the authors of a new joint research report by Harvard Business School and the Boston Consulting Group. The report, America’s Unconventional Energy Opportunity: A Win-Win Plan for the Economy, the Environment, and a Lower-Carbon, Cleaner-Energy Future, points to the fact that energy drives U.S. competitiveness plus job and economic growth.
But the report’s authors also blame politics for the impending possibility that America might blow it. “There is a real risk that American citizens, companies, and communities will fail to capitalize on this opportunity because of misunderstanding and distrust. Unconventional energy production is mired in political gridlock and consumed by public and stakeholder frustrations on local community and environmental impacts of hydraulic fracturing, as well as climate concerns.”
Pipelines are Routinely Permitted in 18 Months. Why is Keystone XL so Delayed?
This fact was brought up at the “Energy Moving Forward” event. Several speakers mentioned the high level of politicization of the Keystone XL pipeline, which has experienced more than six years of political wrangling and foot dragging, rather than breaking ground and delivering crude oil from Canada and North Dakota to refineries along the U.S. Gulf coast. “Pipelines are routinely permitted in 18 months,” Nils Nichols, director, Division of Pipeline Regulation for the Office of Energy Market Regulation of the Federal Energy Regulatory Commission (FERC) told the audience.
As far as transporting energy, Nichols said that gas works well to transport energy from point A to point B via pipeline, compared to building a large scale electricity transmission project to move energy. “Gas is flexible in giving people access to energy.” Transmission lines are hard to permit and site.
The National Renewable Energy Laboratory’s Senior Energy Analyst Eric Lantz said, “If you want more renewables in the mix [wind and solar], it’s hampered because there is no inter-regional means of siting and permitting transmission lines.” In other words, renewable generation like wind farms or solar farms need more high voltage transmission lines to move the energy long distances from generation point to the end user who could be several states away from the source. The energy infrastructure system is long, complex and slow moving with long lived assets, panelists concluded.
Technology: Driver of Innovation in Energy
The Denver event concluded with a talk from an oil and gas technology expert that would make any college student want to change his major to petroleum engineering, petrophysics or technology. Dr. Ram Shenoy, chief technology officer for ConocoPhillips took the audience through a 50,000 foot view of how technology has driven the energy revolution.
Shenoy outlined four events that have each delivered one half trillion BOEs (barrels of oil equivalent), each lasting about 50 years:
- Edwin Drake saw oil had seeped out of the ground in Pennsylvania and thought to drill into the ground to bring it out: this spawned the oil and gas industry, and launched modern day transportation and the automotive and aerospace industries (fuel for transportation).
- People applied earth science (knowledge of geology) to find more sources of hydrocarbons on the planet: discovered the Middle East’s giant oilfields, East Texas field.
- We learned how to drill for oil and gas offshore: 1950s, deepwater drilling, responsible for 60% of the major discoveries
- Technology showed that shales and unconventional reservoirs could be developed and are economic: birth of the shale boom
Shenoy said the world has thus far consumed 1.9 T to 2 T of BOE and it has presently 2.6 T of BOE of proved reserves. He addressed how rising shale gas production will soon enable LNG exports. Gas in the U.S. has been replacing coal as fuel for electricity for purely economic reasons, and the irony is that the U.S. is the only country to already meet the Kyoto protocols (a GHG treaty to which it is not a signatory).
Energy Revolution: More Value Added than Silicon Valley
Shenoy said the oil and gas industry is experiencing a technology revolution of more size, weight and global value than the technology created by Silicon Valley that started with silicon chips. Because of technology development in the extraction of oil and gas, “it’s costing us less and we’re drilling faster and with a smaller footprint.” Shenoy said that ConocoPhillips thought that a field would produce for up to 20 years, but because of technology advances in the petroleum industry, that field has now produced for 40 years and with continued improved technology it could go another 30 years, because the energy revolution is driven by technological innovation. He described the energy revolution as “a one trillion barrel event.”
Shenoy said technology advancements in the oil and gas industry will change the industry. “You’re going to see the ruthless elimination of jobs in the industry as technology makes it possible for one person to do the work of two or three engineers, and it’ll be done remotely with computers. Everyone entering the workforce needs to get used to change—you need to ‘learn how to learn’,” Shenoy offered as advice for college students.
Harvard Business School Conclusions:
The unconventional oil and gas revolution in its sites, here are the summarized findings of the Harvard Business School study with respect to unconventional hydrocarbon development:
“The development of unconventional energy offers an unprecedented opportunity for increasing U.S. competitiveness and growing well-paying jobs that are accessible to the average citizen.
By 2030, unconventionals could:
Support 3.8 million jobs with wages twice the national median—half of which would be accessible to middle-skilled workers.
Produce average annual energy savings of $1,070 per household from low-cost natural gas, up from nearly $800 [in savings] in 2014.
Contribute almost $600 billion in annual GDP and $160 billion in government tax revenue from production-related activities alone, with ripple effects in energy-intensive industries such as plastics, metals, and heavy manufacturing.
The local environmental impacts of hydraulic fracturing can be managed cost-effectively—without hindering the economic opportunity—by using known processes, filling gaps in regulation, and improving enforcement.”
NatGas is the Only Cost Effective Solution to Reduce GHG: Harvard Business School
The Harvard Business School report summary concluded its findings with: “Unconventional natural gas is the only feasible, cost-effective way for the U.S. to substantially reduce greenhouse gas emissions through 2030 while enabling the penetration of renewables.”
Back in Denver, Robert Bryce summed the shale boom up this way: “Since 2006, the U.S. has produced enough hydrocarbons to add two OPEC members in oil and another two OPEC members in natural gas.”