Shale Gas: An American Success Story
President, XTO Energy
Shale Gas Insight 2012 Conference & Exhibition
Philadelphia Convention Center
September 20, 2012
It's fitting we meet in Philadelphia, the city where our Founding Fathers dared to form a new country ... a country where citizens would be free to create and innovate and prosper.
In his first inaugural address in 1801, Thomas Jefferson described the United States as: "A rising nation, spread over a wide and fruitful land, traversing all the seas with the rich productions of their industry."
I think Jefferson himself might be surprised at how accurate his description turned out to be.
Over the next two centuries, American industry would produce a series of innovations – from the light bulb to the personal computer – that propelled this country to economic leadership and improved the lives of people not only in this country, but around the world.
And now, that American spirit of industry and innovation has unlocked another game-changer: shale gas.
Today, because of shale development, the United States has about 100 years of natural gas supply. Shale gas production scarcely existed 10 years ago and it now supports more than a million American jobs and generates billions of dollars in revenues and taxes – at a time when our economy really needs it.
An American success story
Today, I'd like to discuss how shale-development technology can do even more for this country in the coming decades.
But first, I'd like to step back and reflect on the origin of this American success story, because it tells us a lot not just about where shale gas activity came from, but where it could go from here….
In the early 1980s – soon after Steve Jobs built the first Apple computer in his parents' garage in California – George Mitchell was working on an equally revolutionary idea in Texas. Mitchell was convinced he could produce natural gas from shale rock. For the better part of a decade, he failed; People said he was wasting his time – and his money. But Mitchell and his team eventually succeeded. They combined two existing technologies – hydraulic fracturing and horizontal drilling – to extract natural gas safely and economically. And as it turned out, those same technologies could be used to extract oil from shale.
The point I'd like to emphasize is that it wasn't just Mitchell's vision and tenacity that made shale development such a success. That was the seed; what allowed the seed to grow and flourish was a unique set of conditions that exist here in the United States.
It was the technological expertise – the engineers, geologists and other field professionals here in America who advanced and fine-tuned the shale development process. It was the manufacturing capacity and existing energy infrastructure across America, which allowed our industry to rapidly build fleets of equipment and expand the transportation network.
It was the efficient capital markets in America, which those early commercial risk-takers tapped to buy leases and drill wells. And when combined with the long-standing U.S. commitment to the rule of law and secure contracts, mineral owners could become equity partners in oil and gas development and innovation.
That's the real story behind shale development: That all of these elements ... America's creativity, its pioneering spirit, its economic system ... came together to produce this game-changing opportunity. These conditions simply don't exist in the same way anywhere else. It shows why America continues to be a birthplace for innovation.
The question now is: What will be the next chapter in America's shale success story?
It's not a question of technology – the technology for safe and responsible production of shale resources is already here. It's whether our industry and government – and a willing public – will take the right steps to ensure our country remains a leader in this field, so that our citizens and communities will enjoy the full economic benefits of these "made in America" energy technologies.
I believe we can – and I believe we will.
Developing America's energy
Lately, I've been encouraged to see a growing awareness of energy and its role in the economy. In just the past year or so, natural gas has made the covers of Time magazine, Fortune, The Economist and BusinessWeek. It's not quite the same level of media coverage as the royal wedding or the Facebook IPO, but for something once called "the forgotten fuel," it's pretty good.
But then again, it's hard to overlook the positive impact energy development is having across the United States.
Here in Pennsylvania, development of the Marcellus Shale generated $11 billion in value-added economic impact in 2010, while contributing $1 billion in state and local tax revenue, and supporting nearly 140,000 jobs.
Nationwide, shale gas is expected to support one and a half million jobs, and contribute nearly $200 billion to GDP by 2015. By 2035, those numbers are expected to double.
This is real economic opportunity for individuals, families and communities....in Pennsylvania, Ohio, West Virginia, Texas, Colorado...in every state with shale gas development – and even those without it. One out of every five jobs that our industry supports is located in a non-shale-producing state.
Let's not forget that shale development is just one aspect of the energy renaissance underway in North America. Opportunities are arising from all types of energy production – both the conventional oil and gas that have powered our economy for decades, and unconventional supplies unlocked by new technologies, such as oil from the Bakken and Eagle Ford shales as well as the oil sands in Canada.
Consider what is happening eight miles south of here, at the Aker Philadelphia shipyard. Last year, it looked as if that shipyard might close. But then Aker signed a $400 million contract with ExxonMobil to build two new tankers. Today, hundreds of men and women – many previously laid off – are back to work, building two Aframax tankers that will carry Alaskan crude to the West Coast.
Or consider Youngstown, Ohio, where a new steel plant is being built for the first time in decades – part of a broader revival in U.S. manufacturing brought about by shale gas.
Or consider the fact that college graduates with degrees in petroleum engineering and related fields consistently rank among the young people with the brightest job prospects.
Wherever we look, we see energy creating multiplier effects that ripple through the U.S. economy. The World Economic Forum estimated that oil and gas production accounted for 9 percent of all new U.S. jobs last year. A significant part of that growth is coming from shale development.
Safe and responsible development
But we need to acknowledge that for all the success of shale development, public confidence is not as strong as it could be.
Some Americans continue to demonstrate a high level of concern about the potential impact of shale development activity on their communities and the environment. This concern persists despite the many independent studies affirming the safety of shale production, and despite the fact that shale oil and gas are being produced every day across the country without significant incident.
Our industry must take steps to strengthen public confidence. I'm proud to say XTO and other producers have been proactive in these efforts. Let me give just a few examples:
This is not to say there are no risks, or that more cannot be done.
Unfortunately, there continues to be a lot of misinformation out there. But I believe that, with a commitment to public engagement and to listening to community concerns and questions, these issues will be resolved over time, and public confidence in shale gas will continue to grow.
Why am I so optimistic?
Because I live in Fort Worth, which happens to sit on top of the most actively drilled shale play in the United States – the Barnett Shale. Where I live, shale gas activity is a familiar part of everyday life.
You know that old saying, "not in my backyard"? I don't have a shale well in my backyard ... but I can see one from my front yard. There is a well pad less than a half a mile from my house and two wells on that pad run horizontally beneath my property.
My experience is far from unique. Over the past decade, nearly 20,000 wells have been drilled in the Fort Worth area, which is home to nearly 2 million people.
Shale gas has been a welcome development in Fort Worth. It has created more than 100,000 jobs, millions of dollars in tax revenue and royalties, and billions in economic development. Over the past few years – a time when, unfortunately, many American cities were hurt by the economic downturn – Fort Worth has remained a thriving, fast-growing city.
And in all this time, there have been no instances of shale development harming drinking water, or any other significant aspect of our environment.
Think about that. Twenty thousand wells over ten years ... in a metropolitan area with nearly 2 million residents ... and not a single incident in which public health was compromised.
I wish every American could come visit Fort Worth to see for themselves what I'm talking about – because the economic potential of shale resources is bigger than Fort Worth. Bigger even than Texas, or Pennsylvania, or any single state. The economic potential and environmental benefits of shale resources can help our entire nation.
Thanks to the ingenuity and hard work of many people – including many in this room – the United States recently became the world's top natural gas producer, and the clear leader in an innovative combination of proven natural gas recovery technologies and techniques at precisely the time when global demand for natural gas is surging.
A Golden Age of Natural Gas?
Natural gas is the world's fastest-growing fuel for good reason: It is abundant, affordable, versatile, and emits up to 60 percent fewer carbon-dioxide emissions than coal when used for power generation.
Between 2010 and 2040, ExxonMobil sees global gas demand rising by 60 percent. By 2040, we expect that natural gas will account for more than 25 percent of the world's energy, and will have overtaken coal as the second-largest energy source.
It's important for us to remember that these forecasts embody the interests and needs of billions of people .... billions of people using modern energy to make their lives safer, healthier and more productive. As the United Nations recognized, every aspect of human development depends upon access to electricity and other forms of modern energy.
With the spread of shale gas technologies, natural gas can play an even larger role in enabling this progress.
In fact, the International Energy Agency recently said that because of shale technologies, the world may be entering a "Golden Age" of natural gas – an age marked by abundant and affordable energy supplies, increased energy investment, and environmental benefits.
I know the term "Golden Age" can sometimes be overused. But in this case I think it's appropriate. In fact, this "Golden Age" of gas may already be upon us.
Demand for natural gas is being driven mostly by the power-generation sector. By 2040, ExxonMobil expects global demand for electricity will be 80 percent higher than it was in 2010, and 30 percent of that electricity will come from natural gas.
The shift toward gas as a fuel for the power-generation sector is helping slow global carbon-dioxide emissions. In the United States and other developed economies, emissions are actually falling. In fact, by 2040, ExxonMobil expects that U.S. energy-related CO2 emissions will be back to levels not seen since the 1970s.
Now there’s a lot about the 1970s I'm sure none of us would want to bring back ... like leisure suits. But turning America's carbon-dioxide emissions back to the 1970s, even as our population and economy continue to grow? That is a remarkable achievement.
In addition to power generation, new gas supplies are spurring demand in the manufacturing sector. This is particularly evident in the United States, where shale gas is enabling the increased production of steel, chemicals and other products.
There also are emerging opportunities in transportation. Liquid petroleum fuels remain the best choice for most forms of transportation, including personal vehicles, for a number of reasons – including their high energy density and ease of transport. But recent growth in shale gas production has created some new opportunities for natural gas in the commercial transportation sector.
Compressed natural gas already is used by commercial fleets like taxis, buses and delivery trucks. We are beginning to see growing interest in the use of liquefied natural gas in the long-haul trucking sector, as the cost of converting trucks to run on LNG, while still high, can be recouped through fuel cost savings without subsidies.
Admittedly, LNG as a transportation fuel is starting from a small base and still faces significant hurdles – such as the need for refueling infrastructure. But we expect demand for LNG as a fuel for long-haul transportation to grow over the long term.
LNG export opportunity
But there's even bigger opportunity on the horizon for American-made LNG. Because of the vast shale gas resource that innovation has unlocked, the United States now has the opportunity to export LNG to serve growing overseas demand.
Just as we do with exports of grain, cars and other American products, by exporting LNG, we can create economic value that would not have existed otherwise. Building these trade opportunities also will help provide a stronger foundation for the United States to promote free trade with potential partners around the world.
And LNG exports would encourage increased domestic gas production, which, in turn, would support more investments here in the United States and lead to the creation of more American jobs.
At ExxonMobil, we see a bright future for natural gas with a global market developing that will help all nations advance together.
To this end, we are part of a cooperative venture that has applied to the U.S. Department of Energy to explore the potential of exporting liquefied natural gas (LNG) from the Golden Pass LNG receiving terminal at Sabine Pass in Texas.
If developed, this project would represent approximately $10 billion of investment, generating billions of dollars of economic growth at local, state and national levels and millions of dollars in taxes to local, state, and federal governments.
With LNG exports, we can use America's abundant natural gas resources to take advantage of rising overseas gas demand, while still supporting the expanded use of natural gas by American consumers and manufacturers. Exporting some of this North American bounty is not a question of 'either/or.' We can do both – fueling U.S. competitiveness and global growth.
Writing the next chapter
So getting back to my original question ... What will be the next chapter in America's shale success story?
Shale oil and gas technologies can do for America what they already have done for Fort Worth ... and Pennsylvania ... and North Dakota. By supporting the expansion of shale production, we can create more jobs and revenue ... and help lift the United States out of its economic slump and back on the path to robust growth.
We can do this by continuing to serve the growing need for gas for power generation and industry, pursuing niche applications in the transportation sector, and capturing the opportunity to export natural gas overseas.
Everyone has a role to play to make this happen.
Our industry must continue to support transparency in our operations. We must promote robust practices for well design and completion, and manage water use and disposal. We must continue to reduce our environmental footprint. And we must do a better job educating citizens and policymakers about our work.
At the same time, government should create conditions that allow American-made technology to flourish; maintain a stable, transparent and unbiased regulatory environment that encourages investment; and not stifle growth with laws that are overly restrictive, laws based on fear rather than fact, or laws that try to pick which technologies will ultimately prevail with consumers.
And let's not overlook the most influential group of all: the American public.
The freedom of Americans to participate in the policymaking process is one reason why the United States is admired around the world. But as the Founding Fathers recognized, with that freedom comes responsibility. With energy so central to our economy and daily lives, citizens need to stay informed about energy choices, and separate fact from fiction when deciding which energy policies to support.
We know that industry, government, the public and other stakeholders can work together to support expanded shale production, and that these efforts can be supported by an effective, responsive and stable regulatory framework. We know it can be done because it's already being done – here in Pennsylvania and in the other states around the country who are enjoying the benefits of shale production – a list that hopefully soon will also include New York.
If we get it right, the payoff could be tremendous. With new supplies of affordable energy, we can continue to lower the cost of living for every American, give U.S. industries a competitive edge, revitalize the U.S. manufacturing sector and breathe more life into our economy.
The "Golden Age of Gas" really is a golden opportunity for the United States.
By working together to make the most of this opportunity, and by capitalizing on our country's unique strengths, we can continue to be the "rising nation" that Thomas Jefferson envisioned, and help write another chapter of U.S. economic and technological leadership.