NPC study urges prudent North American oil, gas development

North America's oil and natural gas resources are more abundant than previously thought and should be prudently developed, the National Petroleum Council recommended in a report submitted to US Sec. of Energy Steven Chu.

NPC said this might be achieved by establishing "councils of excellence" covering environmental, safety, and health practices; corporate and regulatory commitments to advancing environmental performance; engaging affected communities; and structuring policies to support prudent development of and access to resources.

The report, which NPC adopted on Sept. 15, also said the US will find it difficult to reduce greenhouse gas emissions further without putting a price on carbon that is economy-wide, market-based, predictable, transparent, and part of a global framework. It added that options should be kept open for carbon capture and sequestration, and information developed on environmental footprints and full fuel cycle impacts.

This recommendation produced two written dissents and a question during the NPC meeting from members concerned about possible adverse impacts of more-stringent GHG regulations on refining, chemical, and other heavy industries.

But the report does not call for putting a price on carbon emissions with a cap-and-trade or other program, two members of the coordinating committee that prepared it told OGJ following the meeting. "It was discussed extensively in several meetings," explained Andrew J. Slaughter, the committee's chairman who also is Shell Exploration & Production Co.'s Upstream Americas business environment manager. "But the final report does not make that recommendation."

'Most efficient strategy'

Fiji C. George, El Paso Corp.'s climate strategies director who led the committee's climate change discussions, said that the group eventually decided that if the US deems it necessary to take further GHG emissions reduction steps, "it should recognize that the most efficient carbon capture strategy would be to put a price on carbon, both nationally and as part of an integrated global response." Natural gas could significantly contribute to such an effort, he added.

The report also called for more efficient energy use, enhanced regulation of markets, and more development of intellectual capital and a skilled workforce. "There's still a wide experience gap between retiring professionals and new hires in government as well as the industry," said Christopher L. Conscenti, energy investment banking executive director at JP Morgan Securities LLC and chairman of the committee's macroeconomic subgroup. "Natural gas and oil companies will need to take a bigger lead in recruitment and talent development."

Chu, who attended the meeting, said, "I want to stress how impressive oil and gas exploration technologies have been over the past decade." Recovery rates have gone from 20-30% to as high as 75% in some places, he said, adding, "Horizontal drilling has transformed natural gas exploration and production, and is transforming oil E&P. But as technology improves, one wants to be sure it keeps up with safe and environmentally sensible extraction."

He especially approved of the report's emphasis on prudence. "I want to remind you that scientific evidence of human behavior's impact on climate change is not decreasing," Chu said. The measured ratio of Carbon 12 to Carbon 13 in the atmosphere shows the opposite, he maintained.

"Natural gas is actually going to be needed as the price of renewable energy sources goes down and more alternatives are deployed," Chu said, adding, "As more intermittent systems are used, new and more-efficient gas turbines will be needed. Fortunately, the technology has made such turbines much more efficient, allowing them to be ramped up in 15 min—a feature that did not exist 10 years ago."

'Get started'

Chu told reporters after his remarks that he disagrees with those who say further development of US oil resources is not necessary because they represent only 2% of the world's total. US oil production now accounts for about 11%, he said, adding that the study "shows we have abundant resources." He said, "It does not mean that we should put off the transition to alternatives. It only shows that we have some time, but we still need to get started."

Several oil and gas association officials endorsed the report's conclusions. "It supports what our industry has been saying for some time—including last week in a letter to the president—that with policies that encourage responsible development of new and existing oil and natural gas resources, we could create 1.1 million additional jobs by 2020," said Erik Milito, the American Petroleum Institute's upstream director. "We have the solutions to our nation's most pressing issues, and the industry stands ready to help."

"It is heartening that the report acknowledges the importance of power markets to the natural gas industry going forward," said Natural Gas Supply Association Pres. R. Skip Horvath. "We are especially struck by the recommendation that the interaction between the natural gas and electric markets should be harmonized, and we are looking forward to [the US Federal Energy Regulatory Commission's] leadership in navigating the industry through this challenging, yet critical, policy area."

"This report shows that natural gas is a driver of the US economy, and that its development, transmission and consumption create American jobs," said Interstate Natural Gas Association of America Pres. Donald F. Santa. "These and other benefits, including environmental improvements, increased energy security and stable, competitive prices, only will grow with additional domestic gas use. This can happen only if our leaders ensure that the nation's regulatory and investment climate continues to promote the pipeline expansion that will be necessary to accommodate both growing natural gas supplies, especially from the prolific shale areas, and growing demand, largely for power generation."

Meanwhile, American Gas Association Pres. Dave McCurdy stated, "We are especially pleased that such a distinguished and diverse study team concluded that natural gas and energy efficiency can work in tandem to help solve our most challenging needs, from economic growth to energy security and environmental protection. We agree that responsible development of the resource is the lynchpin to realizing this promise, and we urge our policymakers to endorse the recommendations of this study that clearly lay out workable solutions to timely and important issues."

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