Keynote Remarks
by
Dr. Victor K. Der
Assistant Secretary of Energy (Acting)
Office of Fossil Energy
U.S. Department of Energy

Research Partnership to Secure Energy for America
Mid-Continent Gas Shales Forum
Rosemont, IL
June 4, 2009

Thank you, David [Carroll, President and CEO, GTI] and thank you to GTI and RPSEA for the opportunity to present these remarks on behalf of the Department of Energy.

Today, I’d like to talk about our Nation’s energy security and the role of natural gas in ensuring domestic energy supplies -- and about the role of gas shales in securing our energy future, and finally, about our efforts to date to implement the Ultra-Deepwater and Unconventional Natural Gas Research Program as established by the Energy Policy Act of 2005.

Energy security means moving toward less dependence on outside sources of the fuels we need to power our economy.

Fossil fuels supply 85 percent of the nation's energy. Ensuring that we can continue to rely on clean, affordable energy from our traditional fuel resources is the primary mission of Department of Energy's Office of Fossil Energy.

To this end, we are working on such priority projects as pollution-free coal plants, more productive oil and gas fields, and the continuing readiness of federal emergency oil stockpiles.

Because it is an integral part of FE’s mission, I’d like to just briefly mention our R&D efforts on carbon capture and sequestration (CCS) and advanced coal.

The President is committed to the concept of near-zero emission coal with CCS. For instance, his science and technology advisory committee recommended increasing DOE's R&D for carbon sequestration. And the recently-passed stimulus bill - the Recovery Act - provides funds for enhancing "America’s energy independence" in part through carbon capture and storage from industrial sources. The Office of Fossil Energy has received $3.4 billion from the Recovery Act that includes $1.52 billion for a competitive solicitation for a range of industrial carbon capture and energy efficiency improvement projects, including a small allocation for innovative concepts for beneficial reuse of carbon dioxide (CO2).

So, as we continue to move forward with our advanced coal R&D, the focus will be on developing deployable advanced near-zero emission technologies, including carbon capture and storage.

To be successful, the techniques and practices to sequester carbon must be safe, effective and cost-competitive, in providing stable, long term storage.

But I have to stop and ask myself, who better than the oil and gas sector understands the challenges of injecting fluids into porous media, monitoring the results, and monetizing the effort?

Who better than the oil and gas industry understands how to transfer lessons learned in one arena into business opportunities in another arena?

And, who better than the oil and gas sector understands the value of solid business relationships across the various technical sectors of our economy?

When discussing energy security, the President acknowledges that the U.S. is endowed with an abundance of energy alternatives: oil and gas, coal, and renewable forms of energy such as solar, wind, hydro, geothermal and nuclear.

But he also acknowledges that we’re not going to make the transition to alternative energy sources overnight. As our energy needs grow through the transition, we will still need more oil and gas, and we want to find it, produce it, and use it in an environmentally responsible, sustainable way.

As we move toward a greater reliance on renewable energy, domestic production of oil and natural gas will be an essential part of that transition.

The President’s comprehensive "New Energy for America" plan promotes the responsible domestic production of oil and natural gas—which you are doing now and will continue to do.

At the core of the Administration’s plan for national energy security is the assumption that current production of oil and gas will continue into the next century, based on the strength of the industry. A steady domestic supply of oil and gas is a key part of the strategy for the Administration in its goal to reduce foreign imports.

The next assumption, of course, is that the oil and gas industry will continue its strong leadership in production to underpin the transition to greater use of alternative energy sources – a transition that will require the research, development and application of cutting edge technologies.

At the recent annual meeting of the National Academy of Sciences, the President said that science is more essential for our prosperity, our security, our health, our environment, and our quality of life than it has ever been before.

Nowhere is that more true than in the field of natural gas production, where science and technology are opening doors to a new era of exploration and development.

Let’s look at the facts. Natural gas makes up about 22 percent of the total U.S. fossil fuel supply, a share that will remain fairly constant for the next 20 years.

But here’s the challenging part - natural gas from unconventional reservoirs provides nearly 50 percent of U.S. gas production. So, for all intent and purpose, our Nation’s natural gas supply base is unconventional in nature – locked in gas-filled shale, coal seams, and low permeability sandstones. Moreover, a very significant volume of methane is also present in hydrates – a resource many would term "frontier." The US Geological Survey recently estimated the volume of technically recoverable gas from hydrates at 85 Trillion cubic feet for the North Slope of Alaska alone. Worldwide, methane hydrate resources are estimated as tens of thousands of Tcf.

Clearly, if we are to develop, process and distribute these valuable and abundant resources, we – all of us – must "get smarter" regarding how we do this.

If we can develop an efficient way to turn produced natural gas well brine or fracture fluids into a clean water supply in arid regions of the country, we are "getting smarter." If we can find ways to develop reservoirs 20 miles from a drilling location, both saving on drilling costs and causing less environmental disturbance, we are "getting smarter." If we can find a way to extract geothermal energy from produced water and then use that energy to power remote production facilities, we are "getting smarter." If we can find a way to extract more gas from difficult-to-crack rocks and drill fewer wells in fewer places for the same amount of "home-grown" energy, we are "getting smarter."

Getting smarter also means finding ways to develop our domestic energy resources, including natural gas, in ways that are efficient, environmentally benign and scientifically sensible. So, it’s not necessarily about drilling more wells, it’s about getting more gas from more sources with fewer wells, each with less waste and a lower energy cost.

Fortunately, we’ve had a good head start - Section 999 of the Energy Policy Act of 2005 authorized and funded a program that focuses in part on research, development, demonstration, and commercial application of technologies for ultra-deepwater and unconventional natural gas and other petroleum resource exploration and production. It also includes addressing the technology challenges for small producers, safe operations, and environmental mitigation.

In the time I have, I’d like to pay particular attention to a Section 999 program we’re focusing on, and to underscore the importance of that program to our energy security.

One of the most exciting developments in natural gas production today is the progress we are making in the research, development and production of shale gas.

Technically recoverable unconventional gas - including shale gas - accounts for 60 percent of the onshore recoverable resource. At 2007 U.S. production rates, estimated at about 19.3 Tcf, the current recoverable resource estimate provides enough natural gas to supply the U.S. for the next 90 years. Some estimates of the shale gas resource extend this supply to about 116 years.

Three factors have combined in recent years to make shale gas production economically viable: advances in horizontal drilling; advances in hydraulic fracturing; and, perhaps most importantly – notwithstanding recent natural gas prices – the rapid price increase in the last several years resulting from significant supply and demand pressures.

The lower 48 states have a wide distribution of highly organic shales containing vast resources of natural gas. For instance, in 2007 the Barnett Shale play in Texas produced 1 Tcf – or six percent of all natural gas produced in the continental United States. Additionally, other active shales hold great promise. These include the Haynesville/Bossier Shale, the Antrim Shale, the Fayetteville Shale, the Marcellus Shale, the Woodford Shale, and the New Albany Shale.

Analysts have estimated that by 2011 most new reserves growth will come from unconventional shale gas reservoirs. The total recoverable gas resources in four new shale gas plays - the Haynesville, Fayetteville, Marcellus, and Woodford - may be over 550 Tcf. Total annual production volumes of three to four Tcf may be sustainable for decades. This potential for production in the known onshore shale basins, coupled with other unconventional gas plays, is predicted to contribute significantly to the United States' domestic energy outlook.

Each of these gas shale basins is different and each has a unique set of exploration criteria and operational challenges. Because of these differences, the development of shale gas resources in each of these areas faces potentially unique opportunities and challenges for industry.

These challenges – both technical and non-technical – require our attention. And they require a considered and effective response. For example, DOE recently funded a Basin Initiative with the Interstate Oil and Gas Compact Commission (IOGCC). This effort is designed to encourage the development of State-championed strategies for increasing U.S. oil and natural gas supply, with an eye toward regional economic and environmental objectives.

Under the Basin Initiative, the IOGCC has established a 16-state Shale Gas Directors Workgroup. This Workgroup aims to enable state officials to leverage efforts to address shale gas development challenges, such as evolving regulatory programs, public education, water management and recycling, data availability, infrastructure, and technology. The IOGCC, in collaboration with FERC, plans to host an Appalachian Shale Gas Infrastructure Summit later this year. This effort and others could serve as a model for activities in other basins.

By any measure, the rapidly expanding development of shale gas resources has been astounding. It has uncovered deep, previously untapped resources, and has brought drilling and production to regions of the country that have seen little or no activity in the past. New gas developments bring environmental and socio-economic changes, particularly in those areas where gas development is a new activity. These changes have prompted questions and concerns about the nature of shale gas development, the potential environmental impacts, and the ability of the current regulatory structure to deal with this development. Regulators, policy makers, and the public need a reliable source of information on which to base answers to these questions and decisions about how to manage the challenges that may accompany shale gas development.

In April of this year, the Department announced the release of "Modern Shale Gas Development in the United States: A Primer." The Primer provides regulators, policy makers, and the public with an objective source of information on the technology advances and challenges that accompany development in gas shales that can be anywhere from 6,000 to more than 10,000 feet deep.

So, with a new Administration, the question is: Where do we go from here?

To be clear, the President and Secretary Chu are fully behind responsible exploration and development of unconventional fossil fuel resources. The view from 30,000 feet is that there will continue to be significant emphasis on R&D and the deployment of new technologies across the fossil energy spectrum – including onshore unconventional resources.

With specific regard to Section 999, we have a lot going on. There are currently 42 cost-shared projects in place, one cost-shared contract currently under negotiation, and 18 newly selected cost-shared projects. Proposals responding to the seven remaining 2008 solicitations are currently under review, and seven more solicitations are planned to be released this year. Finally, there are 36 complementary research projects in place. We will continue to move forward on these activities.

Additionally, we have begun our planning for the 2010 Annual Plan, and expect that the Ultra-Deepwater and Unconventional Resources Technology Advisory Committees will begin their review of the plan in September.

Let me take a moment to acknowledge the very important work of the Ultra-Deepwater Advisory Committee for the offshore program, and the Unconventional Resources Technology Advisory Committee for the onshore program.

Some of the members on those committees have served since the beginning, and we really appreciate their time, their effort, and, especially, their patience.

Again, we appreciate all the work to help us be good stewards of the funds that Congress has entrusted to us, and we continue to look forward to building our partnerships with you, the oil and gas industry.

Finally, I want to congratulate RPSEA and GTI on a great forum here today.

The work you, the industry, do is fundamental to the energy and economic security of our Nation. And for that, we thank you.