Wednesday, August 25, 2010

U.S. State Department Says U.S. Natural Gas Impacting the World

MR. CROWLEY: Good afternoon, and welcome to the Department of State. To start off today, we have our State Department Coordinator for International Energy Affairs David Goldwyn. He’s here to brief you on the Global Shale Gas Initiative Conference that is still ongoing here at the Department. It represents – 17 countries are represented to discuss the importance of shale gas as a lower-carbon fuel option. So we’ll start with David and then we’ll come back for other subjects.

MR. GOLDWYN: Thanks, P.J. Good afternoon. As P.J. noted, yesterday and today we’re hosting the Global Shale Gas Initiative Conference. It’s a regulatory conference. We’re up to 20 countries and 10 federal entities, as well as state and local regulators. The reason we’re doing this is it’s part of the State Department’s effort to promote global energy security and climate security around the world.

The U.S. shale gas phenomenon has transformed global energy markets. Because we have discovered and we have the technology to develop efficiently large quantities of gas from shale, global prices of liquefied natural gas have decreased. Gas has become cheaper. Gas is now competitive with coal on a BTU basis, which means that countries that might use coal can now not make an economic choice, but on a competitive basis choose gas for their next level of power generation.

It’s also provided competition, gas-on-gas competition, because the U.S. is no longer a big importer of or will not need to be an importer of liquefied natural gas.

So this has been a terrific boon for ourselves and for global energy security, and other countries want to replicate this process. And we wish them the best in doing this, but there are a lot of things that governments need to know in order to develop shale gas safely and efficiently. And that’s why we organized a regulatory conference where we could teach them what they need to know.

Now, their motivation and our motivation as the State Department to engage on this issue should be clear for foreign policy and energy security reasons. Countries around the world need diversity of energy supply. There are countries with millions of people – in fact, tens and some hundreds of millions of people – without access to electricity services. They need a feedstock and they need it for base load energy. They also, in many cases, are dependent on a single country for their source of gas supply and they want some choice.

So it’s understandable that they want to develop shale gas, but we have, in our country, an umbrella of laws and regulations that makes sure this is done safely and efficiently. We have federal regulation of air and water. We have state regulation of land use and water. We have the capacity to monitor and to regulate. And even then, there’s the need for enforcement.

So what we did was we gathered all these agencies together for two days to explain all of these things to governments. So EPA talked about how we regulate water at the federal level and how they partner with states. EIA, the Energy Information Administration, talked about the phenomenon in the growth of shale gas and how unconventional gas in general is making – giving us choices to improve the climate and to reduce the pathway for future energy emissions. The U.S. Geological Survey is talking to these countries about how you know what kind of resource you have. And the Bureau of Land Management and the Department of Interior is talking about how on federal lands all the steps we take in terms of environmental impact assessment, safety regulations, license rules, to make sure that when an operator comes to develop a resource that you have someone who is technically qualified, someone who has a plan which has been approved, and that the environmental impacts have been considered and are adopted into the core of the license.

We’ve also had a representative from the Groundwater Protection Council, and this is an association of state regulators, because in our country, it’s really the states that are on the front lines of safe drinking water regulation. In 33 states, the state leads or co-partners with the Environmental Protection Agency. So we’ve spent a lot of time talking about water, because water is scarce in a lot of these countries.

The bottom line is that we’ve had a really successful conference, because these countries have a lot of questions. People are enthusiastic, but they’re careful. There’s a lot that they need to know and there’s a lot they need to stand up in terms of regulatory capacity before they’re ready to engage in this. And so from our point of view, this has been a big success. We want people to have rational expectations about what they have. We want them to understand that it takes not just good commercial terms but really good government and good governance in order to make sure this is done safely.

So it’s another of the examples of our using smart power or creative diplomacy to try and improve energy security, but to help countries learn what they need to know. Thank you.

QUESTION: Can you give us a sense of how – of the total sort of consumption of LNG in the world, how much of it is now supplied by shale gas, and some sense of how you see that evolving over time, in five years, ten years?

MR. GOLDWYN: Well, right now, I would say very little. In fact, maybe no liquefied natural gas is supplied by shale gas. Most of the liquefied natural gas is coming from conventional gas production, and then liquefied and shipped on global markets. The impact in the U.S. is we, eight years ago, expected that we would be importing vast amounts of liquefied natural gas, and now, because we have this large-scale domestic production, we won’t need to.

In the future, it will really depend on which countries are producing shale gas and at what scale. In this country, it’s entirely possible if things continue on trend that we would have the ability to export gas extracted from shale, liquefy it, and export it overseas. That’s if we didn’t use all of it domestically.

In other countries, at least the countries around the table, my guess is that most of what is being produced will be used domestically. So China, India, to give examples of two large countries, have very large gas demands over time. If they’re able to produce shale gas, my guess is that it’s going to be used domestically and not used for export. The large-scale producers of gas right now – Qatar, Russia, Nigeria, Algeria, Trinidad and Tobago – all that is from conventional gas. So I think it’s unforeseeable, but I would not expect a huge portion of LNG supply to come from shale.

QUESTION: I’m sorry; I think I asked the question wrong. Essentially, what I was trying to get at is not so much liquefied natural gas, but just gas consumption and how much of it is – I mean, can you say, for example, in the United States what proportion of American gas consumption comes from shale gas and can you give us some sense of how much you – I mean, I’m trying to figure out if it’s been a big enough proportion to actually reduce gas prices, then it has to be a fairly – it has to be some percentage level, and sort of what kind of a bang for the buck might country X, or Y, or Z hope to get. Can they get 5 percent, 10 percent of their gas consumption?

MR. GOLDWYN: Sure. Well, in the U.S. right now, 10 percent of our production comes from shale gas. U.S. gas reserves have increased eight fold over the last 10 years. And projections we saw from the National Security Council this morning showed just that estimates from EIA for the United States, China, and Canada show that we might be looking at somewhere near 30 percent of future gas supply coming from unconventional sources – that shale-type gas, coal bed methane as well.

So, in Canada, by 2035, I think the projection is that close to half of gas production will come from shale and unconventional resources and in China as well a very significant increase. So for the U.S., this has been a game-changer in the sense that we thought we were on the decline and now we’re very significantly on the rise.

If these shales develop, I think this could easily be the case in these countries. What we don’t know right now is how much shale is there and whether it’s technically recoverable or whether it’s commercially recoverable. But there are large shale formations all over the world, and if they are even a fraction as prolific as the Barnett shale has been, as the Marcellus shale is proving to be, then it would be a dramatic portion of global gas supply in the future.

QUESTION: And predictions concerning Poland, where also huge deposits have been discovered of shale gas?

MR. GOLDWYN: Poland is here at the conference day. They have – there is exploration underway. And it’s hard to predict what you’re going to find until the drilling actually takes place, but they have large-scale shale formations. What we’ve learned over the last couple of days from the U.S. Geological Survey and from the Department of Commerce presentations is because you have a lot of shale, it’s hard to predict until you drill whether it’s technically or economically recoverable. It depends on how tight the formation is, how much gas it releases, whether the formation is very wide, and how it’s produced. It’s also a question of whether you have the infrastructure and the terms to bring that investment. So we have high hopes for Poland, but with any country, you can’t predict until they draw.

Yes, sir.

QUESTION: As far as India and U.S. energy cooperation, a lot is going on in the past few months and India is importing almost 80 percent. It might rise in the future because demand is also rising. Is there any cooperation going on now between the India and U.S. as far as more exploration? Because India has a lot of energy or gas but still somehow they are not taking the advantage of their technology.

MR. GOLDWYN: Yes. Coincident with the prime minister – with Prime Minister Singh’s visit to the U.S., we launched a memorandum of understanding with India on shale gas. And this will – we have proposed at least that the U.S. Geological Survey do a resource assessment of certain shale basins in India, and that we would provide workshops to train Indian geophysicists on how to do their own resource assessments.

The U.S. Geological Survey is the only federal agency, actually the only government agency in the world that assesses resources outside its home country. And they have a very sophisticated model where they can use analogs to shales in the U.S. and other places to project not only what the resource may hold, but what are the sweet spots, what are the most prolific places to drill. So we’ve proposed that to India; I’ll meet with them this afternoon to talk about deepening that cooperation, and it’s part of a larger umbrella of cooperation we have under the U.S.-India Strategic Dialogue.

QUESTION: It’s been a long time. But why it’s taking so long? Is it something to do with politics going on somewhere?

MR. GOLDWYN: Why has it taken India so long to develop its shale? Well, I think there’s – there are lots of reasons why the pace of production in countries can be slow. I think with respect to shale, it’s a relatively new phenomenon, even in this country. These very same shales that are producing now were uneconomic because of the technology even six or seven years ago, and the ability to do this now quickly and at a lower cost has really opened people’s eyes here in the U.S. and in other places to that possibility. So it’s new for India also.

But part of the message that we have given is that for any country you need more than the resource. You have to have a regulatory system. You have to have the infrastructure. You have to have protection of intellectual property. You have to have a pipeline that will take the gas from wherever it’s produced to a market. And you have to have a market price, because if there isn’t a market price for natural gas, no one wants to produce that gas. No one will finance a pipeline, no one will produce a gas-gathering system to remove the impurities, and no one will purchase it on the end.

And I think price, because of political pressures in many countries, is one of the biggest challenges. As part of the G-20, we’ve urged the removal of fossil-fuel subsidies, both at the production and at the consumption level. And I think as prices rise, you’ll see interest and investment increase.

You first and then --

QUESTION: You hinted at this. The – in terms of the possibilities in the future for the U.S. to be an exporter for shale, was that something that was raised in these talks and is that something you can see that this potentially could be a business opportunity for the U.S. – an economic opportunity?

MR. GOLDWYN: Well, a question came up and we had a presentation from the Federal Energy Regulatory Commission, FERC, which has responsibility for licensing and sighting pipelines, and they mentioned that they’ve had a request. Between FERC and the Department of Energy they have jurisdiction over those areas so I couldn’t comment on what future policy would be, but they’ve had at least one request.

Yes, sir.

QUESTION: Has USGS done any in-depth analyses yet of the shale gas resources of any country, or is India is the farthest along in that process?

MR. GOLDWYN: Well, USGS has – they’ve done these global surveys for oil and for gas and for other things. They’re just at the front end of doing resource assessments of unconventional reserves worldwide. So the assessments have actually not begun in India or in China, which is the other – one of the other countries in which we have a bilateral commitment to help do the resource assessments.

It’s a – the process takes actually a bit of time as I’ve learned from Brenda Pierce, who’s the chief scientist, who’s been helping us. You have to get the data from the other country, which may come from water wells, from log wells; there’s a tremendous amount of data. You gather that, you assess it. There are seven or eight different kinds of geochemical and geophysical analysis that go. They put that into a computer model and then they produce an assessment which they put on the web. But I think their worldwide assessment is really just beginning. I’m not aware of where – any country where they’ve completed one yet.

QUESTION: But you have MOUs just with China and India then? Or just China and still working on India?

MR. GOLDWYN: We have MOUs signed with China and India, but there are follow-up steps that are needed to begin implementation, although, we will have our first workshop in China, November 9th to 11th so we’ll be underway in China. Under the Energy and Climate Partnership of the Americas, we’ve also committed to do some in the Southern Cone, and so we’re looking at potential assessments in Chile and Uruguay as well.

Yes, sir.

QUESTION: Yes, a couple of questions. It seems like the technology and production has sort of been developed in the United States. Was there any discussion about partnerships directly between countries and U.S. companies that are at the forefront of this?

MR. GOLDWYN: There have been. We had presentations from a number of the companies today, under the Department of Commerce’s chairmanship, of companies that are working in the U.S. but are not working overseas. And there is some interest by some of the big upstream companies that we’ve seen in other places. The companies that we had here said today that the resource is large in the U.S. and the financial terms are secure, and the market price is driven by the market. And so – and they only have so much capital to invest in a lot of places, so for a lot of the companies that are big in the U.S., they’re staying in the U.S.

So there was great demand from other countries to find out whether service providers, technology providers, and investors would come to those countries. But our goal in this conference was really to be a regulatory conference rather than trade promotion.

QUESTION: Also, I just wanted to ask you and kind of clarify the strategic reason for holding this conference. For example, China is a competitor on – to some degree on – for oil and gas resources around the world. Does this take some pressure – would this take some pressure off of, I guess, that kind of global competition for energy resources if they were to develop their own gas shale resources? And also in Europe, would it take some pressure off of the Russia-Western Europe energy security issues?

MR. GOLDWYN: Well, the main reasons for doing it are national security and climate security. For these countries, you’re right. In Eastern Europe in particular, it’s really diversity of supply; it’s a national security issue. For China and India, it’s both climate security and economic security because they have large demand for resources and the market is volatile and to be able to produce it domestically is a huge boon. In countries in the Southern Cone, they don’t have LNG importing capability, and so they don’t have a choice of gas unless they produce it domestically.

In terms of the global market, gas is very different than oil. Oil is a global market, global commodity. I guess I wouldn’t agree that there is a destructive global competition for oil. The market’s pretty well supplied now. Gas is still very much a local market. It’s expensive to liquefy it, to transport over long distances. It’s mostly from the point of source to the point of consumption, and so there I don’t really see a global competitiveness issue, but there is a huge impact. If gas is cheap, plentiful, and available to countries like China and India – they have a choice versus coal – it’s competitive on a cost basis and the climate implications are huge.

You also have in India, and I would say in – also in Pakistan and other places, really, tens if not hundreds of millions of people without access to electricity. What are your choices for base load electricity? Nuclear, hydro, gas, fuel oil; so they don’t have – and coal. So coal is cheap and plentiful. If you can make gas cheap and plentiful, it’s a real choice.

QUESTION: Thank you. I was wondering if you can comment on the position or the reaction of oil-producer countries. And the second part of my question: If this initiative is in any way related to the energy and partnership of the Americas? And finally, if you can comment on the position of Venezuela on that? Thank you.

MR. GOLDWYN: I knew there would be a Venezuela question coming in there someplace. We haven’t asked global oil producers what they think of this initiative, so I don’t know. But gas is different than oil, so I think for the oil producers, I don’t imagine they – that they’re going to care a lot.

This is coordinated with the Energy and Climate Partnership of the Americas because they’re – as Secretary Clinton announced in April at the Energy and Climate Partnership ministerial, cooperation on shale gas was the sixth, I think, of the major initiatives that she announced. And we will be doing cooperation with – at least on a resource assessment basis – with Uruguay and Chile. And as part of this initiative, the next step is really to offer an a la carte menu to countries about the cooperation they need. If they are mature and they want to talk about water and safety, that’s the agenda. If they’re at the front end and they want to talk about resource assessment, we’ll bring USGS and BLM to them. It’ll be whatever the country wants.

And with respect to Venezuela, they have a lot of conventional gas. We haven’t talked to them about shale gas. Venezuela doesn’t really need shale gas because they have so much conventional offshore. And so Venezuela is not really a factor in this initiative.

QUESTION: But have you tried to establish any dialogue or conversations with the Venezuelan Government in that regard? I mean --

MR. GOLDWYN: Not – the Department of Energy has a dialogue which resumed, actually, coincident with the Energy and Climate Partnership of the Americas. And so that’s the primary dialogue for energy conversation with Venezuela.

QUESTION: Is this --

MR. GOLDWYN: No, you only get three.

QUESTION: Oh, okay.

MR. GOLDWYN: Yes, sir. (Laughter.)

QUESTION: What’s the scope and potential of shale gas in India? And are you – is the USGS also looking at it in Afghanistan?

MR. GOLDWYN: USGS actually has looked at the potential for a variety of minerals and resources in Afghanistan. It’s hard to tell in India. The shale formations are there, but you don’t know until you assess it. Every shale is different. Some of them are rich with gas, some of them are rich with gas and liquids, some of them are not at all. Some of them are easy to access, some are not.

So what we have offered to India is to bring our best knowledge about how you make that estimate, how you make that resource evaluation, and to bring our scientists to them to talk about that. And we’re waiting for India’s reaction and we’re hopeful that they’ll do it. I think the – you can’t tell until you drill, but the shale presence is there.

MR. CROWLEY: We’ll take two more and finish up – or three more.

QUESTION: I’m sorry. I’m going to jump in and I got three questions, one on India. India has already scheduled the auction of shale leases in three states next year. Do they know what’s under there in this – the GS – USGS is to survey additional states? Or is this going to be done in time for the auction next year?

MR. GOLDWYN: They’re – it probably will not be completed in time for the auction next year. There’s really two ways countries can find out what’s underneath the ground. One is they can take acreage that they think is prospective, they can offer it for leasing, and they can – companies can take that risk and they will pay – be compensated at a rate that evaluates that.

Another way to do it, which we think is going to be more helpful to countries if they can avail themselves of it, is to make the assessment first so investors will have a higher level of confidence about what the composition of that shale is and they’ll be more likely to explore there, and then the country will be in a better position to set itself competitive fiscal terms. So I think India and other countries will do both.

QUESTION: Okay. While you were talking with these people, there’s sometimes a significant difference between the United States and the rest of the world because we have private ownership of mineral rights here, whereas in India, for instance, the state controls all the mineral rights. Does that cause a problem or does that make it easier because they only have to deal with one person?

MR. GOLDWYN: For them – we spend a lot of time talking about that because we have such a unique system in that regard. I think to some extent, it makes it easier for them to regulate and you can probably have a single regulator. It makes it easy for them to set terms, and so that’s a – that provides a more uniformed system.

It’s easier for them to offer -- to pick which are the best spots to offer, and it’s also easier for them to do the kind of thing that the Bureau of Land Management does for us, is to look at their country and say “We don’t want development here and we want to protect wildlife there and we don’t want anyone near the water someplace else, so here’s the area we pick for development,” and we want them to be able to make those choices in a smart way. That’s easier for them. What’s harder is it’s harder to access capital.

MR. CROWLEY: David and then we’ll finish up.

QUESTION: Some environmentalists say that these shale extraction techniques are unequivocally disastrous vis-à-vis groundwater and that sort of thing. Is that the case, as far as you’re concerned? Do these concerns play in the discussions here?

MR. GOLDWYN: Well, safe water and safe regulation plays a huge part in our discussions. It’s really one of the main reasons that we held the conference in the first place. And while hundreds of thousands of wells have been drilled successfully in the United States so far, the lesson that we want all these countries to understand is that you have to have technically competent people operating and you have to have laws and regulations in place first. We have safe – we have safe – Clean Air Act. We have safe drinking acts. We have rules about where you can drill. We have rules about what sort of casings you have to have. And so, if done responsibly, it can be done safely, but these countries need to know you need laws and regulations in place first. I wouldn't paint the development with a broad brush.

MR. CROWLEY: Last one.

QUESTION: Basically, my question is that the production in the U.S. seems to have outpaced the ability to effectively oversee the safety, with multiple reports of ground water tables being polluted and the proprietary blend that they use, the companies use, they don’t have to really divulge what it in there under high pressure being pumped into the ground. So it seems that if U.S. is having a difficulty keeping up with the safety aspect, to what extent can we expect that other countries will be able to do the same?

MR. GOLDWYN: We heard from the Ground Water Protection Council, which is sort of a collection of state regulators, and we spent a lot of time talking about that issue, that you have to have the capacity in place first and that you have to have the rules in place to do that – to do that safely, and that you have to make sure that you know how to do that. We also heard a lot about the evolution in the states about new requirements for disclosure when – of what’s in the fluids. We heard new things from the companies about the move to use organic and green fluids in the process and about new technology for making the operations safer. So that essentially was our core message to all these countries is you need to know what you need to know before you get started.

QUESTION: Were any river basin commissions involved with this conference? The Susquehanna River Basin, the Delaware River Basin, Ohio River Basin, Potomac River Basin – are any of them involved?

MR. GOLDWYN: Not this one.

QUESTION: Because they regulate water supply.

MR. GOLDWYN: We had – for this one, we had BLM and EPA and the Ground Water Protection Council.

QUESTION: This is for India, how much cost and time are we looking for?

MR. GOLDWYN: Time and cost of looking for what?

QUESTION: Of – yes, sir. For drilling.

MR. GOLDWYN: Well, as you heard earlier, India has a licensing round in – I believe in September. But I think the pace of development will probably come with whether there’s success in these first basins, whether there’s an assessment of what they have. As you know, Reliance has made an investment in a U.S. company to learn the technology, and that’s what a lot of countries are doing is they’re trying to find out how it’s done. So it’ll depend on success and, in India in particular, depend on the price of gas.

Thanks very much.

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