 So good afternoon and welcome. I'm Frank Perastra. I'm Senior Vice President here at CSIS, and I hold this lesson chair. But it's my great pleasure today to talk about natural gas. So natural gas, this session, when we first decided to put it together, we were stymied, whether to call it a reassessment or a reevaluation of our gas resources, because a lot of work's been done in that regard. Starting with the 2011 NPC study that really began in its infancy in 2008, 2009, when we started collecting data and looking at the shale gas development. Thank you very much. We did our first session here in 2008, picking up on that trend. And over the last four or five years, what we've seen is that the resource development in terms of wells drilled and productivity of wells, new technology and the application of that technology has led to a phenomenal increase in both the gas reserve base but also in productivity. And shale gas that was once a low percentage of U.S. gas supply is now over 35% in climbing, and is expected to be in the near future the preponderance of domestic natural gas sources. We've got dry gas from certain plays, and then we've got liquids-rich natural gas out in the West. Our proxy for natural gas drilling, the well count, the rig count no longer holds true because we're producing so much from single pads and individual wells, the efficiency of the rigs, individual wells are now producing from multiple horizons at the same time. So we thought it would be a good time to take a look and reassess with all the discussion that's gone on about natural gas exports and where we are in terms of the comfort level with gas demand and gas supply that we needed to do a reevaluation. What prompted this discussion in the NPC study, there was a paper, it was 1-8, if I'm correct, John, that talked about the onshore natural gas resource. And two of our panelists and the natural gas panel actually took it upon themselves to go back and look at the NPC runs that we had, and instead of using 2009 data, update it with 2010, 11, 12, and in some cases 13. And looking at this new productivity, what that did to our assessment and what we saw is the reality of this resource base. And so it not only raises the front end of the curve, but then raises the back end of the curve as well. Adam Saminsky at EIA has done essentially the same thing. In real time now we're getting data that the Energy Information Administration is putting into their model, and it's giving us a totally different look at what the resource base looks like. At the same time, because we have a clean energy agenda and concerned about climate change, we're also looking at new ways to use this natural gas in terms of demand, power generation, transportation, new opportunities for industry. What about gas exports? What about pipeline exports to neighboring countries in addition to the LNG? So when we thought about bringing back this crew together, this is one of the largest panels that we've had at CSIS, but there's a reason for it. And the reason is that this is what we thought that it takes to actually bring and discuss this for all of you to bring you a new kind of picture of this emerging reality and what it means for both supply and demand both currently and going forward. So the folks we have on our agenda today, we're actually going to start with Dr. Paula Gantt. And Paula is the Deputy Assistant Secretary for Oil and Gas Resources in the Office of Fossil Energy. Many of you know Paula. She just joined the administration after serving as Senior Vice President for Policy and Planning at the Gas Association and prior to that she was the Vice President for Duke Energy. She's going to lead off the discussion and we've asked her to actually talk about how this fits with the new policy narrative that the administration looks at going forward, not only for domestic natural gas production, but what it means for the environment, for the economy, for national security and foreign policy. When Paula is done, we're going to turn the ball over to Adam Saminsky. Adam's an old friend in a familiar face here. Adam is now the, for the last 18 months, has been Administrator at the Energy Information Administration. Prior to that he spent time at the National Security Council where he was Senior Director for Energy and Climate Change and most of you know him in a prior life where he was the Senior Energy Analyst at Deutsche Bank. It's interesting to note that Adam on his formal resume that's on the EIA website talks about his affiliation with CSIS as a Senior Energy Advisor. And those of us here at CSIS always think that Adam, who isn't supposed to do policy in his role at EIA but loves to do policy, is always one unapproved remark from joining us here on a full-time basis. Adam will talk about EIA's updated forecast for gas demand and growing supply. We'll then turn to Andrew Slaughter. Andrew joins us on the panel. He's a frequent presenter here at CSIS as well. He is now the Vice President for Energy Insight Research Team at IHS on oil and gas upstream, environmental management, water, carbon, and global energy modeling. Immediately prior to joining IHS he served with Shell's upstream business in the Americas and he is also a key member of the various NPC study efforts and was on the supply task force for the NPC study. Both Andrew and Doug Tierney, who'll be our next presenter, they will actually talk about how they took the NPC analysis, and what they found in terms of productivity and the size of the resource base. For those of you, and as I look out at this audience, there's at least half of the members that participated in some way, shape, or form on the NPC study. The outlier estimate was 4,500 trillion cubic feet. An enormous amount of gas. The new numbers suggest an even bigger number. We had the Canadians down here last year and the group from Canada was talking about for North America a number of equivalent to 10,000 trillion cubic feet. So I spent most of my career in the energy industry and this is infinity and this is 10,000 trillion cubic feet. It's just enormous to try to figure out what that is. Doug is currently the Vice President for Business Development at Encana. He was instrumental in pulling together the NPC and both he and Andrew will share the results of that study. And then to balance the new supply picture we asked Mary Barcella. Dr. Barcella is with IHS as well. She's Senior Director there and she follows North American natural gas markets and she focuses on long-term outlooks, pricing, economics, and policy. IHS just produced a new gas demand scenario and what that might look like. And it's power generation, it's new industry, it's accelerated transformation and transportation sector but it also looks at exports. So to give us a flavor of what that new demand scenario might look like. And then we thought what would be more appropriate to talk about so that there's this realization or there's this focus on what America could look like with this energy and these abundant energy resources but from a producer perspective what would be the obstacles and challenges to realizing that potential. And I could think of no one better than Clay Breaches. Clay is Vice President with Anna Darko, an operator but he also chaired the NPC study on Prudent Development of North American Resources and we asked Clay specifically to deal with the challenges and opportunities producer face, what they've done in terms of local and community aspects, above ground and below ground on technology but also license to operate, dealing with water, with emissions, what that means going forward and how that impacts the resource base. So we're looking forward to a terrific panel and discussion. We will leave time for plenty of discussion or plenty of discussion and questions at the end and let me start. I will ask Dr. Gantt to come up and join us and make some opening remarks and then we'll get started but thank you all for joining us. Thank you Frank for that very kind introduction. When Frank told me about the idea of putting this panel together I was very excited and I said I'd love to have a front row seat. I didn't know I was actually going to get a front row seat. So very exciting. So these are incredibly exciting times to be in the administration as well as just to be in the energy industry. When we think about the path that we've taken from 2000 to the present, who to thank. We've gone from a resource that was really marginally producing for the country to one that is really the center of all of our conversations practically about energy and that's our unconventional shale gas resources. So incredibly extraordinary times and it's a great time to be working in an administration that fully appreciates the very happy circumstance we find ourselves in with this domestic abundance of these resources and very much wanting to understand the full potential of those resources to contribute to our economic prosperity, our national security, our environmental quality and making sure that happens for decades to come. And that definitely starts at the top with President Obama and his incredible appreciation for making sure and in concern that we get this right with regard to this domestic abundance and we realize that potential. What did that domestic abundance translate into? Well, we've had an incredibly strong winter. Polar vortex has come into our vocabulary. We saw a throughput of 140 BCF a day or in early January at a peak, something that's just sort of mind-boggling to consider and the market's responding quite well. And that's something that's worth stopping and taking a moment to appreciate and that's one of the reasons I was so excited about this panel is we're all busy trying to understand this abundance in particular aspects of it and sometimes it's important to just stop and take a moment to really acknowledge where we are in the course of our history and that this is a fundamentally new landscape that we're looking at from an energy perspective and to think about before we figure out what all we're going to do with it, how do we get here so we can make sure we keep making those sorts of decisions and how did we get here? We got here by know-how. We get all of America in know-how and American ingenuity continuing to apply to a very abundant domestic resource that we knew was there and we were determined to get it out of the ground in a way that benefited our economy overall. We added to that infrastructure and an incredibly successful record of developing particularly natural gas transmission and storage and delivery infrastructure across the country. We've got 2.4 million miles of pipe in the ground and we are the envy of the world in that regard because natural gas in the ground is nice to have. Natural gas delivered where you need it and use it is what runs our economy and powers this potential that we're all talking about. So those factors, our ingenuity, our know-how, our investments in R&D, technological advance, our investments in infrastructure have led us to the point now where we're going to hear a lot of insight that informs our thinking about this new abundance and importantly I think we need to stop and think about how we make decisions in this regard. We're shifting from a psyche as Americans that has previously in my lifetime been framed by one of energy scarcity and we're shifting into a psychology of abundance that's completely new territory for us. It's going to require us not only to consider new answer sets but to consider new question sets and this is really personal for me. I think I remember waiting in line in the 70s to buy gasoline and that's something when I tell my son about it he's convinced I am actually from another planet because he also can't believe I didn't have a cell phone when I was born but that's another story. He won't be faced with that sort of challenge in his lifetime. There'll be other challenges. There'll be other questions that his generation needs to answer but we are faced with this incredible abundance whether it's natural gas and oil domestically, energy efficiency, renewable energy, an abundance of technologies that are allowing us to think differently about how we consume and use energy and where we do that. We're all much more empowered. It's a completely new dawn and it's important to make sure that we're thinking about that and not applying our old questions to our new environment. So first things first, we're shifting our psychology. We need to shift the questions that we're asking and then what do we need to do to make sure that we realize this potential and I briefly hit on a few things that I think are important. One, again we need to acknowledge what are the new market fundamentals that we understand and that they're fundamentally different than the market that we've just left and that's what the panel is going to do here today and it's really important that we all stop and acknowledge incredibly new outcomes that we're observing. Two, and I think this is also going to be touched on, we have got to secure the confidence of our communities that we can produce this resource responsibly and deliver it safely to their homes and businesses now and decades into the future. To do that we need to engage in continual improvement of our practices for producing and delivering the resource as well as using it. We need to make sure that we're implementing the best standards and practices with regard to environmental management and we need to make sure that we're making the right investments to ensure economic development so this potential that we realize is widely distributed. That we can share this benefit with the local communities where the resources are produced as well as across the economy. Third, we also need to think about our policies. We need to continually look at policies and the current context and where we need to rethink based on new market fundamentals. Fourth, we need to invest, invest, invest. Whether it's an infrastructure or an R&D which is what leads to the technological breakthroughs that leads to these phenomenal market outcomes that we see and we need to invest in our manufacturing base as well. Again, to ensure that the potential is broadly realized across the economy. And finally, we need to realize that we, to the extent that we transfer our domestic know-how in producing this resource and using this resource abroad that that is a tremendous ability to enhance our energy security. All of those, in my view, are great questions and challenges for us to be facing right now and I'm looking forward to hearing some more good news from the panel. Thanks, Frank. Thanks. So Paula talked a bit about the new narrative that we're going to develop as part of this discussion. And the first person to tee up both the new supply and demand cases, when we started working with Adam Seminsky at EIA, this notion of the high resource case has now become the reference case. And we have got a new high resource case but we also have new demand numbers. So we've asked Adam to come today and present the newest forecast that EIA has available and put some texture on the numbers and discuss what it means to the United States. Thanks, Adam. Thank you, Frank. So I thought that... Let's see. How about page down? No. What do I need to do to advance the slides? There we go. Okay. I know that this is supposed to be a discussion about natural gas but I'm going to talk a little bit about oil as well and the reason for that is simple. When you look at this growth in natural gas production here and our forecast out to the year 2040 of more than 100 billion cubic feet a day of production, more than 60% of that is associated gas. That is, it's coming from wells that produce both oil and gas. So I don't think you can talk about natural gas in isolation. The number of places that we are producing gas from gas reservoirs alone is beginning to diminish. There was a little bit of chat ahead of the meeting here today about this. One of the things that we know is that the rig count, looking at the oil rig count or the natural gas rig count is no longer a very reliable indicator of what's going on. So if you think about all of that production, the next thing you want to think about is where is it going to go? And in the EIA's reference case forecast for the 2014 annual energy outlook, what we are saying is that electric power is going to go up a lot. Mary Barcello will give you some really good reasons why it might even go up more than what we're showing here. This is under existing law and regulation and if we see a tightening in air quality rules, we could see even more natural gas going into electric power. But we're also seeing this relatively big build out in industrial natural gas use. And so let's look at that a little bit more closely. And here what you see is a lot of gas going into refining and related activities. Well, why is that? You need heat in a refinery and that heat is being supplied by relatively low cost natural gas. And so the U.S. has a natural advantage in a sense in refining activities because of the existence of this gas that we are developing. Both chemicals also will be a big beneficiary in EIA's view of the growth in natural gas production. And I kind of like the third one because you very seldom, seldom hear oil and gas people talk about food, at least not in the sense, but it takes a lot of energy actually to process food. And natural gas growth is going to show up in more food processing activity in the U.S. just as an example. Here kind of you see the standard forecast for more natural gas being used in transportation, freight trucks, railroads and marine uses probably for LNG. One of the interesting things that's not on this slide that was on it last year, so I just want to call it to your attention, is natural gas being used in gas-to-liquids activities. So a year ago we thought that natural gas could end up being converted into liquid fuels and the economics of that just aren't looking as good. That's a lesson for everybody actually when you think about long-term forecasts that even in the course of one year at a long-term forecast some things can come in and some things can go off of your forecast and it might make a difference. Even with greater use of natural gas, domestically EIA's estimates are that there's plenty left over that the U.S. will become a net exporter of natural gas very shortly before the end of this decade. And last year we thought it would be early in the next decade and these things keep creeping up and I'm going to show you another slide about that. We are already a big pipeline exporter of natural gas to Mexico and we think that will continue to grow. We both import and export gas, mainly by pipeline from Canada and I suspect that cross-border trade of U.S. gas into Canada from the Marcellus, for example, is likely to pick up and then we have LNG exports. This is not a forecast of who's going to get a permit. This is a forecast based on how the national energy model that EIA uses allocates the economic viability of natural gas exports and what we're saying is that those numbers are going to grow fairly substantially over time. I said I was going to talk just a little bit about oil because one of the things I think you want to keep in mind is that oil is several years behind in one sense what we're seeing happening in natural gas in terms of this issue of resource abundance. Our model currently still shows tidal oil production moving up sharply but then beginning to level off and come down. We said that last year, we're still saying that this year there is one difference though last year that level was several million barrels a day below what we're saying in the 2014 annual energy outlook. We now see total U.S. crude oil production rising to almost 10 million barrels a day and that's going to be upon us very shortly because we think that will happen sometime around 2016 or 2017. Where's all that going to go? One of the things that we do know is that transportation absorbs a lot of U.S. oil including what we import. Two thirds of oil consumption in the U.S. goes into transportation uses roughly. That's not going to grow a whole lot that might actually shrink and motor gasoline consumption we see coming down. We do envision a pickup in diesel, jet fuel and even ethanol but the total in 2040 is going to be less than what we're currently using. That means there's some of that left over then too in one sense and one of the things that we found is that our refineries particularly the ones in the Gulf Coast of the U.S. had been operating at below their design utilization rates and with a pickup in utilization and the growth in domestic production we've seen a big pickup in exports of products from the U.S. The U.S. is now a net product exporter. If you say, well, where is that oil going in the form of gasoline and diesel fuel and other products? Largely Latin America especially gasoline down there and diesel fuel into Europe and those numbers have climbed tremendously. We're showing a number there around 2012 that hit three million barrels a day but on a monthly basis at the end of 2013 we think that exports may have actually reached close to four million barrels a day. Final slide. If you look at the, it's a little hard to see there but the two blue lines are dotted at least on my version of this, they're dotted, are they? The slightly lighter, I guess you can kind of see the dots. Those represent, the bottom one is the reference case. The top lines represent the high resource case from last year. We haven't published a high resource case yet and my rough idea of what the high resource case could look like when we come out with it in a month or so. The red lines, the one that's in the middle is the reference case for 2014. The lower one is last year's low demand, kind of low import case that was based on things like extension and improvements in auto fuel efficiency, substitution of natural gas into the transportation sector and a few other things along those lines. The one that's at the top is an interesting one to keep in mind and that is actually what the demand case looks like and a high oil and gas reference case. So it goes up from the reference case. Why does it go up? Well, the reason it goes up is because you have more supply. More supply generally tends to lead to lower prices and lower prices and abundant supply lead to more demand and we end up with more demand. Now you could offset that by doing other things from a policy perspective on things like auto fuel efficiency but it's kind of an interesting case. One of the things that you see where those two lines cross out past 2030, the blue and the lower red line, I think that's around 2032 or 2033, that was an estimate of could the US become a net exporter of petroleum and we said yes in a high resource case and a low demand case, how would you get the lowest level of imports case that could happen, just kind of putting rough numbers on paper here based on what we are looking at now in the AEO 2014 if you ran the same kind of analysis, you'd get the same kind of result but it moves back and up. So you have a higher production number and a more rapid move towards a zero export case. In general, I think the message that I would like to leave you with today is that as we have seen in gas we are continuing to see some of these same issues I think are going to become apparent on the oil side with the improvements in technology on both supply and demand leading to a more rapid move towards this idea of abundance rather than scarcity. So thank you. Thanks, Adam. So that was the EIA, the US government's newest projection. We are going to turn now to Andrew and Doug to talk about how they updated the NPC analysis and what that might mean in terms of total productivity by 2025 or so. Thanks, Annie. Thank you. I'm just going to set the scene for a couple of minutes to remind you of what we said in the 2011 NPC Prudent Development Study about gas resources and the gas supply potential. And then I'll turn it over to Doug to talk about the great work he and his team have done in bringing up our thinking based on more recent data and showing how levels of confidence and our conclusions have evolved since then. I think we should remember just when we look back to those times that work that was published in 2011 was based on data that was available through 2009 and 2010. So we were far earlier on the maturity curve in our understanding and our stage of development in unconventional gas and even more so unconventional oil. If I can just... What's that one? Okay, so we concluded that natural gas resources have the potential to supply the market for decades. That was our takeaway line. We based these conclusions on some resource work that had been published by MIT in the early stages of our study. And that work looked at supply curves. The one in green is a very conservative supply curve really based on the notion that unconventional technologies are not going to take off in any bigger way. They'll either be technically or economically underperforming, restricting the economic supply base. The blue line was the so-called advanced technology case and that was really integrating unconventional technologies into the supply system. And the brown line there was the combination of higher resource estimates with real proper deployment of unconventional technologies. And so the conclusion was if we stay around those yellow and blue lines we can probably supply that range of demand at fairly reasonable cost. The horizontal bar there is the range of cumulative demand through 2035. If we look at that in a slightly different way, again, looking at the low demand case and the high demand case in 2035, the end of our outlook period, there's a huge range in the ability of supply to demand that depending on whether the unconventional revolution is successful. At that stage the jury is somewhat still out. You have to envisage a future in which perhaps unconventional technologies don't maintain their promise or perhaps regulatory impediment to stop progress in unconventional development. And in that case supply is probably not enough to meet the even the low outlook for domestic demand. So we will be back in a position which we thought we were going to be in earlier in the decade when we were going to be big LNG importers and probably at a much higher market clearing price for that market structure than domestic supply. But the more we push demand very high and we looked at success cases for unconventional development and the success cases for unconventional development basically our conclusion was we could meet even very aggressive demand growth projections over the next 20 years if the unconventional resource potential met its promise and if that momentum is maintained. So that was all based on 2009, 2010 data. We've moved down the road. We have more recent data and Doug and his team took a look at this in the last several months and he's going to give us an update on what our conclusions now are, how we've evolved in our thinking. Doug. Okay. So since we published our MPC work we have three more years of data arguably getting very close to four. And my company largely produces natural gas so we're very acutely and painfully aware of the relationship with price and natural gas production. From the bottom-up point of view, so the work we did just to be clear as Andrew said, we really relied on a body of work that was published by MIT who supplied the bottom-up point of view and we did not in this update go back and redo that. That's a large effort to do that. But we do know a few things. We know that new discoveries have been and continue to be made both in the dry gas world and certainly the advent of associated gas now with particularly the full spectrum plays like the DuVernay or the Eagleford shale have really brought to light yet another layer of resource that will need to be quantified at some point in time. Also more recent studies like the potential gas committee and Adam's work continue to gas resource estimates and actually the MPC both my onshore gas group as well as there was another group that did a industry slash academia other interested party survey. All of these numbers are converging on the same figures and they continue to grow. So all this as I was digesting this and gave Andrew and John a call, John Guy said, you know, really when we published our report, we were looking at this suite of data and you can see on the bottom there where the gas starts to contribute on the bottom. There's still a little bit of lingering doubt and when we looked at the MIT data, we set forth, we don't really know exactly where this is, but we laid out a low, medium, and I'll call it high, what isn't really high case. And it just became very, very apparent that the low side case can just be disregarded today and thought it'd be prudent to, you know, do that and make that point. And it's certainly been well received and here we find ourselves today discussing it. Just point out some things on this graph. Scale Paula mentioned, you know, this is a generational issue. The labels down there are 20 year increments, you know, 1900 and 1920 to 1940 and so forth. You know, back when we published, you can see that, you know, shale gas, while it looked very robust, we just didn't know how big it could really be. Here we are three years later and you can see now the blue line, it's just on a meteoric rise. I should explain the other curves on here. The green line that intersects the blue line, that's what we call old unconventional technology, so that would be CBM. It would be multi-stage fracturing in vertical wells. And so what I'm really distinguishing here that we're calling shale, it's to be clear, it's cost effective multi-stage fracturing and horizontal well bores. And that's not actually limited to shale. There's a few examples of silt stones and other type reservoirs where that's germane. The kind of pink line you see there, that would be conventional onshore. Again, we were charged with onshore. Certainly if you layered it offshore, that would alleviate the kind of peaking as you see there back in 1973. And you can see then, as we started developing unconventional resources first with the green line and now with the blue, it's just had a phenomenal impact on the overall supply side picture. So switching gears a little bit from rate time now, I want to take you into the cost of supply or price versus cumulative production. And I realize these are a little hard to look at, but I'm a technocrat at heart, so you'll have to bear with me. Again, scale on this is extremely important. I'll introduce, just to make the conversation easier, a term called a quad. It's a quadrillion cubic feet. That's 1,000 TCF. So to date, when we first did the study, we had produced about 1.1 quads. So 1,100, if I could point you there, direct your eyes. The last three points, it takes about three, a little over three years to actually span one of the little bitty increments on this particular scale. So scale is important. If you think about resource depletion of a finite resource, there's general, there's some debate about this, but you kind of get about halfway through depleting that resource, and then you get to a production rate. It's really hard to maintain that production rate and you end up in some sort of terminal decline. So one way to kind of look at this graph and think about what should the cost or price of this product be is to think about doubling or going out twice beyond if we were really at some sort of peak or plateau. You can just go out twice as far as what we've produced today and get some idea on what should the price of the product be. If we were still on the blue line, the case one, if you follow your eyes out to say 2.4 quads, you can go up there and see if we were still on the blue line, the cost of the product would be somewhere in that $7 or $8 range. Well, it's not. I mean, we know it's not. So again, this was just some evidence, some top-down evidence that we looked at to say, you know, that top line today with what we know has happened is just irrelevant. It just is impossible. And hence the little squiggly black line there that's Andrew's artwork. I won't take credit for it. So point being is, I mean, these curves, they're very dynamic, you know, difficult to estimate. A lot of work goes into them. But the point is they're going down and to the right. We're finding more and more supply at less and less cost. And that's really the big takeaway for today. How big could this get? And if I could just case three, we actually did our study all the way up to a $20 cutoff price, somewhat arbitrary. That's $120 a barrel if you want to talk energy equivalents, which actually is not out of the realm of reason when you think of oil today. If you do that, the actual cutoff is about four and a half quads. I'll round that to five just for argument's sake because we know it's getting bigger. But how big might this get? And it was actually in the appendix in the study we published a few years ago, but thought I'd bring it to the forefront. Dr. S. A. Holditch and some of his colleagues at Texas A&M University did a study back in 2008. This is before we even know it, well before we know what we know today. And they looked at in some select basins what that contribution of ultimate recovery would be from conventional and unconventional resources. And you know, just eyeballing that, you can kind of see it was about a 90 to 10% breakout. And we know some of these basins, you know, since 2008 have had enormous advances in what they will ultimately deliver for unconventional and highlight their appellation probably being the most dramatic of those. Back in 2008, Marcellus wasn't that big of a deal. So this will probably improve is the point. And when you think about that, if you go back to that original rate time graph to do our cumulative production curve, we've produced about one quad of conventional gas. So doing a, you know, simple math times 10. That just says that, you know, this is onshore only, could ultimately be, say, up to 10 quads or the 10,000 TCF that Frank mentioned. This, you know, it is somewhat of a guess at this point, no doubt about it. But the point is, is that there is a lot of gas, an awful lot of gas. And as Paula mentions, you know, now the real question is, what do we do with it? Economics drive all this. This winter has been quite interesting. I found it quite interesting. It's really a test case. And, you know, seeing the price behave such as it has is really a testament, I think, to the bountiful supply that we do have available to us today. I think that's it. Thanks. Okay. So we've heard a bit about the supply forecast. In fact, under this new trajectory, it's in excess of 95 BCF a day by 2025. Substantial amount of gas. We asked Mary to come and talk about what gas demand could look like. And then as we get into discussions, we'll talk about what if there's a low demand case? Where does the supply go? What if there's a higher demand case and it's accelerated? What if during the interim periods we actually see hiccups so that on either a seasonally adjusted basis or if there's supply disruptions or a technology-specific technology takes off? Will this transition be smooth? Can we do things to facilitate that? Thank you. Dr. Barsala? Yeah, the answer is we don't think the transition will be smooth, but we've got lumps of new demand coming online in our outlook in the next few years. And the questions... Well, I'm jumping ahead to my final slide. The question is, will supply be there to meet these incremental increases and lumps in demand? But first, just our overall view of the next 22 years or so, this is... I'm showing our IHS projections of final demand plus exports. U.S. lower 48, comparing to AEO early release 2014 of the same thing, although they include Alaska, so that would bump up about a BCF a day that we don't have in our outlook. But what I want to point out is the main difference in the two outlooks is in our projections for power sector, gas demand. We think the power sector is going to increase its gas demand by far more than EIA thinks it will. And a major reason for that difference is in differences in our projections of electricity demand increase. We have electricity demand growing at about 1.3% per year. EIA's electricity demand grows, I think, at about 0.8% per year. So a big difference there. And when you factor in the increased demand for electricity, need for power generation, the phase out of coal-fired power generation plants that we believe will be largely taken over by gas-fired generation, then that gives a big difference in our outlook for power sector natural gas demand, which is the big growth area in our outlook. The reason for that, and here I actually have an EIA slide that shows over the past 35 years how your basic uses for electricity, space heating, space cooling, water heating, refrigeration, freezing, freezers, and cooking have really not grown that much as you would have expected with growth in population, growth in housing, and so forth, which really points to the efficiency or the efficacy of efficiency and conservation measures. They've been highly effective in keeping those uses of electricity fairly stable over the years. But what has changed is our cell phones that we did not have in 1977, computers, high-definition televisions, huge screen TVs, communication servers of hardware all across the country that use a lot of electricity that was simply not there before. So we think that that effect, new uses for electricity will continue to increase electricity demand, and that's the main reason why we have a much higher rate of growth in electricity demand in our forecast, I think, than EIA does. Oops, wrong way. So here's another way of looking at our outlook, and this just shows the growth through 2035 compared to 2008. And you can see in the recent years, through last year, there was a lot of gas being used for coal displacements. So because gas prices were so low, we backed out a lot of coal in power generation. We simply outcompeted coal on a cost-of-generation basis. We don't see that going forward because we do expect prices to firm, or prices have firmed back up. We expect them to remain firmer and not sub $3 like we had in 2012. So we no longer have the coal displacement effect, but we do have the strong growth in power sector demand for gas that you see in the blue section there. What else do we have? Well, we have, you hear a lot about LNG exports. We do have, I think, similar amounts of exports that EIA has about five-and-a-half BCF a day by 2035 from the U.S. lower 48. Chemicals and manufacturing. Yes, there is a strong manufacturing renaissance going on. Partly, in large part, because of access to lower-cost natural gas and other fuel supplies. But it's not that big an impact on natural gas demand because, largely because it's concentrated in the chemical sector. It's concentrated in facilities that are reshoring, coming back to the States, because of the low-cost natural gas liquids. So it's the ethane that they're coming here for the feedstock. Their actual use of natural gas in processing is not that great. Ammonia and methanol do use natural gas for feedstock, and so we have some increases there owing to those effects. But overall, we see industrial use from chemicals growing by about 1.8 BCF a day, another 0.8 BCF a day from other gas-intensive industries. At the same time, you've got a lot of gas-intensive industries that are not growing very fast or actually declining for competitive reasons, totally apart from the cost of fuel. When those industries don't grow, they don't use gas or they don't use more gas. So we are not, from the point of view of industrial sector gas consumption, we don't have as huge an increase as you might expect from listening to the headlines about all the facilities that are coming back and have these great growth plans. Yes, they do. Yes, they're making a big contribution to the economy. It's really good. I said it really is a manufacturing renaissance, but compared to other sectors of growth for natural gas consumption, it's not that big an impact. Natural gas vehicles, we do see quite a bit of growth, particularly after 2020. A lot of that in our outlook is concentrated in heavy-duty trucks where we do think LNG is making great inroads already. We'll continue to. We have some increase in other transportation in there as well, but the bulk of the growth is in the heavy-duty trucking. And finally, exports to Mexico, which again are growing. We expect them to continue to grow and to add some to total gas, US gas, disposition of US gas supplies. A word about, let's go the other way back to the beginning, a word about the residential and commercial sectors. This is where our basic outlook, EIA's basic outlook, nobody sees a lot of growth in those sectors. And for a number of reasons. Number one is energy conservation effects. Number two is the continued shift of population into warmer areas where you just don't need gas for space heating as much, or where electric heat pumps do out-compete or make more sense than gas. So a lot of reasons why typical projections of residential commercial growth are pretty static. And in fact, there's been virtually no growth for the past 20 or 30 years in those sectors. So this study that we just completed for the American Gas Foundation looked at that and said, okay, what could move the needle here in residential and commercial sectors? A number of areas. And number one, which is going on already to a great extent, is displacement of oil heat in the northeast. Elsewhere, it can make a lot of sense once the word gets out, once homeowners, regulators, builders, communities realize that this change is real and do accept the outlook that gas prices are likely to be considerably lower than competing fuels for a long time to come and perhaps change their heating fuel increased demand for space and water heat for cooking to natural gas. Natural gas vehicles, again, certain barriers to be overcome. The potential there is quite large. And if you can get the home refueling equipment and systems to marketable levels, significant growth potential there. Needs a lot of institutional support from the natural gas distribution companies. Needs a lot of regulatory support. There are a lot of barriers in terms of financing. How do you pay for the costs of expanding your distribution systems comes back to infrastructure largely. So I think we'll be hearing a lot more about infrastructure. The resource seems to be settled. Infrastructure is the next frontier. So upside demand potential. Again, residential, commercial, natural gas vehicles. Perhaps the gas intensive industries grow faster than we have in our outlook. Greater demand response to lower prices. This is something that we haven't quite seen yet, but I think if it's not there yet, I think it's coming that in the future we won't be setting our thermostats back quite so low on a cold day. And then it may be that the LNG exports and the exports to Mexico increase faster than we think at this point. There's significant upside potential there. Downside risk, slower growth in all those areas. Low global demand for LNG could happen if other countries develop their own indigenous resources more quickly. Methane hydrates in Japan I think is a big question mark in the longer term. And as has also been discussed here, if we have greater limits on our own development through regulatory reasons for the social license to operate if methane emissions become a greater concern, if CO2 emissions from natural gas use become a greater concern, maybe those uses would be limited. Resource adequacy, this is our own resource estimate from a few years ago when we looked at 18 plays very similar to what you just saw from the NPC and the MIT work. We think there is 50 years worth of consumption, even including our, well I guess these are current consumption rates, but at prices of $7 or less. So this resource space is quite abundant, quite low cost, can sustain quite a bit of expanded demand. But going back to, here's my last slide I think, going back to what we said earlier, we do see a big jump in demand coming in 2015, 2016 and 2017 as new gas-fired power plants come online, as more coal generation is retired, as LNG exports start to take off, and as the new chemical expansions and so forth, those facilities start to come online. Within the next three to four years, question is will producers have seen that demand increment coming and will they have drilled the wells and gotten the production up to the level that it needs to be when that new demand comes on? If not, you're going to see a temporary spike in prices, producers will respond to that, you'll get the supply you need, prices will come back off. Again, it's a question of deliverability, not a question of resource adequacy. So I think that's it. Thank you. Mary, thanks. That's terrific. So we've asked Clay as a producer but then also stepping back from his Anadarko role with his NPC hat on to just talk about license to operate and what producers are seeing in the field, what are the challenges and opportunity, if the resource is there, how do we get it out of the ground and how do we deliver it? And I think a lot does come back to infrastructure. One point I would add to Mary's piece is that what we've seen historically is the midstream takes longer to develop than the upstream, upstream is drilling wells, and the downstream on the oil side takes longer to develop than the midstream. So we've got a sequencing gap here and if we have, as Mary suggests, that the resource is more than adequate but at any specific point in time along that curve, if you have an upsurge in demand, how do we actually deliver that product, get it out of the ground and get it to consumers that need it? Clay? Great. So Mary, I feel like that was a direct challenge to me. And one of the things, I just will respond briefly to that, that we found in the Prudent Development Study was that the elasticity of supply is so much higher now with resource plays relative to where we were years ago when we were producing out of the Gulf of Mexico and it took five to seven years to develop projects that could deliver this high demand of natural gas. Now that we're doing this in the onshore, and I'll show you just a minute what we are doing and how we were proceeding with drilling efficiencies and such, I think I can answer your question. Frank had asked me to come today and talk about some of the issues that could possibly derail this great news story that we have. And I do want to thank Doug and his team for getting us to the podium in the first place. All this work that you have generated precipitated this today, I think it's a good discussion and timely. So before we get too far into this, let's just, you know, back to the basics and talk about what got us here in the first place. And that's a convergence of technology between horizontal drilling, multi-pad drilling, and hydraulic fracturing. It has yielded amazing results. And this was recognized a few years ago when we commissioned two major studies, one in the National Petroleum Council Study, Prudent Development Study, and the other, the Secretary of Energy Advisory Board report on shale gas development. Work has been underway since then by industry and I'll report back on that in just a moment as to some of the initiatives that have taken place since then. Just to refresh on the amazing endowment of unconventional resources that we have here in the United States. And one thing I'd like to point out, I mean, obviously you have the Appalachian Basin on the northeast and you come down into the Hainesville and the Eagleford in South Texas and Louisiana up into the Barnett, the Woodford up in Oklahoma, you move into the Piaz and the Nyebrera up in the Colorado Utah areas and then all the way up into the Bakken, which is just a phenomenal oil play in and of itself. But one thing I'd like to point out with this particular map, and we've all seen it hundreds of times, but just the vast geographical expanse that this represents. And the reason this unconventional play is so vast, obviously, because it covers a lot of geography, but it also affects a great number of people. The population that this affects is much different than what we had versus in the past, be it in the Gulf of Mexico, be it in South Texas, be it in West Texas or Eastern New Mexico. So we have a much different situation today, which is one of the reasons that when we talk about public trust and the social license to operate, it becomes so important because it affects so many people. So let me move on a little bit and let's talk about rig count. In the past, we used rig count as a proxy of activity. We could count on it. If rig count was up, we would see that we were producing more oil or gas if it was down less. What you see here, and a pretty horrible color display up here, and I apologize for that, but the green bars on the bottom of this graph, if you take a look at the last five years of rig count, represent those rigs that are drilling for oil. The red bars represent those rigs that are drilling for gas. That blue line that runs through here represents the number of rigs that are drilling either horizontally or some type of a slant hole drilling, directional drilling. So one thing I want to point out here is that currently, 78% of the rig fleet is searching for liquids versus 54% two years ago. So a significant change is we move from the gas plays to the oil plays. Approximately 81% of onshore drilling is either horizontal or directional. What you'll see is that there's a bit of a dip in rig count in that 2011-2012 timeframe to where we are in 2013, which might imply to some that we've had reduced activity. But if we look at this proxy of activity, which is actually a better proxy in these days, and that is of onshore footage drilled in well count. So I'll back up again and I'll just show you. We've had a dip in rig count. We've actually had an increase in footage drilled. Again, green represents oil. Footage drilled, red represents natural gas footage drilled. But if we look at this, we see that the overall well count has increased over this timeframe. There's a bit of a shift since rigs are becoming so much more efficient both in reduced days per well and overall footage drilled. And you see a much better way to gauge activity today. Over the last three years, average footage per well has increased 40%. And the number of wells drilled per year has increased 20%. I want to give you a high-level summary, just a comparison of 2010 versus 2013. I know that a number of you in here crunched numbers for a living, so I want to be very careful when I talk about these production figures. What I did was take November of 2013 versus November of 2010, which is for clarity. But what we see is crude oil production up 40%. We see natural gas production up 13%. And this is surprising given the number of rigs that are now drilling for liquids versus natural gas. This is because of the associated gas. As many of you know, if you're drilling for oil, you're probably going to produce a lot of gas, especially in these tight formations, it's the energy mechanism that pushes the oil out. Rig count is only up slightly, 4%. Well count is up 20%, which shows that we're becoming more efficient. Footage per well up 40%. So I'm going to put on my anodarko hat for a moment, take a look at what we're doing in the Eagleford. I asked one of our drilling engineers to put this together for me, and he wanted to show everything on one graph, and I love him for it. But I don't want you to really look at the numbers. Let me tell you this. The lines that are supposed to go up are going up, the lines that are supposed to go down are going down, and the lines that are supposed to stay flat are flat. But let me give you a few of the figures that we have here. We have experienced a reduction in drilling days per well drilled of 40%. So we've reduced our time that the rigs are there by 40%. A remarkable increase in footage drilled per day of 81%. And again, this is over a three year time frame. An increase of wells drilled per quarter of 133%. All this with an average rig count of approximately 10 rigs. Now it could have shown you this graph for a Wattenberg field, which is another one of anodarko's major plays, and it would look identical to this. Maybe even busier just because it's such a busy place, but it would look just like this and you'd see the same types of ramp-ups. This is occurring all over the industry. So we have a good news story. We've talked about how we have increased resource, increased production, increased efficiency. A lot of times when we talk about increased demand, we work, you know, exports and such. We worry about what could that possibly do to price. One of the things that's really interesting is we see our costs going down our well head development costs going down just because we're becoming so much more efficient and there's still room to make moves on that. These are all positive events. So we look at what could slow this down? What could make this good news story go sour? What do producers lie awake at night worrying about? And I've put some of the major issues on the board here and interestingly enough, these are some of the same major issues that we were looking at three and four years ago when we started the Prudent Development Study. So they have not changed, but what has changed again is a geographical expanse and the population of this country that we affect. And if you don't believe that these are real issues, you look anywhere around the world that has not developed shale gas resources and you understand that these are the very things that stop them from doing so. So these are basically issues that could cause public trust to diminish and for us as producing, the producing community not to have a social license to operate. So you ask questions, are there effective regulations? Are there effective regulators? Are there enough regulators? Fract fluid additives, even though we have frack focus through the Groundwater Protection Council, are we disclosing enough as producers? Competitive water use. We're competing with agriculture for water and other end users. Potential for groundwater contamination. These are all issues on communities' minds. Surface impacts, not the least of which related to traffic, road, and noise, as well as air emissions, including methane, as Mary spoke about earlier. So these are all big issues, not to be ignored. So the National Petroleum Council came up with a recommendation, actually came up with several recommendations, but related to these particular issues with the idea that we should establish regional councils of excellence to identify best practices for environmental health and safety and operating in a socially responsible way. And the major objective here was to share and disseminate best practices with producers and regulators and importantly engage all stakeholders. Now there was another body of work that came out approximately at the same time from the Secretary of Energy's advisory board. This report on shale gas development came up with a similar concept of these regional councils, but preferred a national organization rather than regional ones. It did suggest, however, that such an organization would likely work through regional subgroups. So again, recognizing the differences between regions, hydrogeology, traffic issues, hunting issues, all the things that mattered to the individual communities. So here's the industry response thus far. The industry has been hard at work trying to make these councils of excellence come to pass. You see the Marcellus Shale Coalition exist, developing best practices for producers in the Marcellus. The Appalachian Shale Recommended Practices Group, which was 11 of the Appalachian's largest producers coming together to identify and disseminate best practices to all stakeholders, including stronger IOGCC and regulators. The Center for Sustainable Shale Gas Development, which is very similar, however, a smaller group, and it has a self audit function, much like the Center for Offshore Safety. In Colorado, there is a responsible operator council that's being crafted as we speak. This has many of the features. I'll talk about some of the important attributes from my perspective that exist in these councils of excellence. In this particular one, I think it embodies most of those. In the Eagleford Shale, you have the Eagleford Task Force, which was put together by David Porter, who is the railroad commissioner, one of the railroad commissioners in the state of Texas. The South Texas Energy and Economic Roundtable, also known as STEER, is a group that engages not only the community producers as well for ensuring best practices. In the Bakken, you have the Bakken Production Optimization Program that focuses not only on production optimization, but also on best practices for the environment. In the Offshore, you have the Center for Offshore Safety. It has 29 members. That group also has a self auditing function. It's a smaller group. In the oil sands, you have the Canadian Oil Sands Innovation Alliance. A lot of groups in these major resource plays that are trying to make sure that they are getting the best practices out there. Let me also mention another group. Actually, this isn't even a group. This is a concept that I know very little about, but we saw it came out with the president's state of the union fact sheet and it has to do with sustainable shale gas growth zones. The fact sheet stated that the objective was to bribe regions with technical assistance and regional planning so that they can withstand boom bus cycles. We're not sure what this means exactly and how the plan will be executed, but we look forward to learning more. So you can see everyone kind of wants to get a bite of this apple. They realize that this is extremely important for the sustainability of this good news story. Now, what I've outlined here from my own perspective are some of the attributes of a successful center of excellence. I'd like to share those with you. First of all, they identify best practices. They don't necessarily develop them because that's not what they're geared for. There are a lot of resources, including the American Petroleum Institute, Society of Petroleum Engineers, IPECA for international standards that can be leaned upon and we do lean upon them because we're a member of many of these groups up here, I can tell you. Engagement of all stakeholders. I sit in a lot of meetings, a lot of industry associations, a lot of gatherings of producers, and I hear the E word a lot, but it's not engagement, it's education. If only we could educate the public better, they'd understand us. I sometimes feel the same way at home with my wife. If only my wife would listen to what I had to say. I think engagement's a much better word because engagement implies that you listen as well as you provide information. In granted, the industry has a lot of information to share, but they have a lot to learn from the communities in which they are producing. Dissemination to all stakeholders using effective means. Industry associations as appropriate, websites and social media. I can't say enough about the social media side. So many of us as producers find that if we can educate by means of a town hall, that should be adequate. And what we find is really not that many people can attend town halls because a lot of the folks who you'd like to be there are working parents, have kids in school that have homework and probably a soccer game that night. So you're not going to get everybody at a town hall. So in order to adequately engage and engage in much larger areas and a much better cross-section of the demographics that you want to touch, we need to use this social media in a much better way. And this type of organization should not be in the advocacy business. This is my opinion, but I find it that if you're busy advocating, you're probably not engaging. And so that gives me back to my previous point of engagement. It's one-way flow and that's outward flow. So these types of groups really should be in the learning, listening, and identifying best practices to deal with the issues in the region in which they're operating. So my closing remark here is that we can only realize the huge benefit of our natural gas and oil resource endowment if we do so in a responsible manner. And that is incumbent on both industry and government alike. We do not want to spoil this unparalleled opportunity. Thank you. Thanks, Clay. So the basic takeaway, as I understand it, is that the resource base is large and getting larger. And the more we learn about the shale and really the lab is in the field. I mean that's what we've done for the last five years. So we're learning about how to extract more economically and environmentally from these shale deposits. The question to me is even under high demand case that there seems to be adequate supply and as Paula set us up for at the beginning, it's the deliverability. So how do we deliver it in a timely manner at an affordable price to consumers that want it? And that's going to be the crux of the argument. So since that's part of the discussion here, I'm going to start with a question to Clay as we start looking at this resource base. If we see price spikes and we talk about consumer confidence and also Doug as a producer to weigh in on this as well, what you see in the field and how you translate that, how do you give confidence to consumers that the resource is there and can be there? And then along with that, I'm going to ask Dr. Gantt to come back up here and join us for the Q&A session so we get a policy perspective as well. Okay, so Frank, to answer your question on the price spikes, what we turn to generally on this question is the resource curves themselves and you've seen already a relatively low well head development cost scenario for the higher technology cases. So at the well head, we see relatively low cost of development, which most of the time does translate into better pricing for consumers. There are times, and we can look back, not to just a few weeks ago when you do see price spikes in regions because of a lack of infrastructure. We saw this in the propane markets. We also saw this in the natural gas markets in the northeast. That basically is a cry for infrastructure. So when we see that, we know that we can produce this at the well head. I can assure you that the prices that were seen in New York of $100 to $150 per M in BTU a couple of weeks ago in the New York area were not translated at the well head. They were still getting between four to $6 at the well head in the peon space in New York. So it didn't translate there. That price spike was really unique to the regions that had the constraint in terms of infrastructure. So when it cries out for infrastructure like that, the market will repair itself. If we see high prices like that, I'm a big believer that the market will respond to high prices. It will respond to low prices. And what we will see is more infrastructure that will go into the northeast. Doug, you want to add to that? Sure. I'll just echo that just a little bit further. And just if you look at track record as well, Hainesville's one I'm very familiar with. You know, when the price of gas exceeded the marginal cost and allowed us to make a reasonable profit and we put our rigs to work, within a span of about 36 months, that play went from zero to over five BCF a day, which is just astounding. Marcellus is no different and it continues to perform well today. So the track record is there and it's not there in just one place. There are multiple plays. There's been even new plays discovered since Marcellus and Hainesville and what have you that just punctuate the ability of, you know, given the confidence in the price, the industry will step up and deliver the gas that is really not in our minds, not an issue. As an example again in the Hainesville, we've never actually developed the Hainesville. What we were doing was punching a hole every square mile because you have to do that here in the U.S. just to hold your leases in place. And so the pad drilling that Clay was talking about, we started doing that on very, very few sections and most of our sections just remain undeveloped other than the single well we've punched just to hold the leases. A question for Adam and Andrew. So given the amount of contribution we've seen from associated gas from oil plays, in a world where there's excess oil production and oil prices drop, what does that do to the associated gas development costs and prices that they receive and to the whole resource base? Do people start shifting rigs? Do they take or because oil is still so much more profitable that they stay in those plays? Just based on some of the resource analysis work we've done on the North American tight oil plays, many of them are not on the margin in terms of cost of supply. There's quite a bit of variability across the plays but the price of oil is still set in global markets according to many different actors, opaque behavior, spare capacity, countries going offline and being slow to ramp back up so the price of oil is not set in North America but most of the tight oil plays that we have seen are not on the margin so you can see some reduction in oil price and they'll still be in the money so we don't see a dramatic impact on associated gas knock-on effects. Can Adam and your forecast? I think Andrew gave the general description. Let me just throw some numbers out that in many plays, tight oil is probably still profitable down into numbers that begin with a 6 or a 7 and so 65 dollars to 75 dollars is just saying. Some lower. Andrew just said some lower. What that suggests is that there would probably be some movement, my guess is, within the OPEC countries to try to reallocate production in that organization at prices before you get to 75 dollars. Sure, up the floor. Paula, a question for you. The Department of Energy is engaged in the Quadrangle Energy Review and infrastructure and sustainability are two of the primary factors people are looking at. When you start looking at the deliverability and resiliency that you talked about, how does that factor in the planning process for the QER and in what timeframe are we likely to see policies? Great, thanks Frank. The Quadrangle Energy Review as recommended by the President's Council of Advisors on Science and Technology a couple of years ago, I guess, is getting itself ginned up to kick off and it will be led by the White House and the Department of Energy will be the Secretariat for the very, very large scale effort that will encompass all parts of the federal government. I imagine many of you in this room a variety of stakeholders. The process will proceed over four years. In the first year, we'll focus on matters related to transmission storage and distribution infrastructure. And in doing that, the matters of resiliency of that infrastructure will certainly be a key focus in response to not only natural disasters and severe weather events, but as other things that are increasingly of concern, such as physical threats and cyber threats. So there will be a variety of public roundtables and opportunities for stakeholders to provide input into this process. It's really intended to give us some insights into the challenges and opportunities that face our energy delivery infrastructure and where we need to think about making strategic investments. So more to come on that, certainly something that we hope will, at the end of the day, which is by the end of next January, provide us with some useful insights and policies, thoughts for policy recommendations to ensure that we are building a 21st century energy delivery and movement system across the country. One of the things that is going to feed into that with regard to increasing the responsiveness of our energy delivery systems in the event of natural disasters is the secretary has asked the National Petroleum Council to convene a study to address how to increase communications and improve emergency response for fuels delivery. And so that process will be kicking off and we hope to have some results from that before the end of the year. Okay, thank you. Thomas, we're going to open this up to broader discussion and questions. We only have, actually we have three rules. I was going to say two. So if you raise your hand, you need to identify yourself and your affiliation. Wait for the microphone, because it's a large crowd. And if you can, ask your question in the form of a question. So starters, it was all crystal clear. Sure. Neil, I didn't recognize you. Neil Brown with the German Marshall Fund. I'm not sure, mostly for Paula but also for Clay. The mention was made of these new sustainable shale gas zones. And I wonder what the state of play is and administration on that, what the expected scope is. And whether you expect congressional action or is it primarily an executive enterprise? Clay, would you like me to take that one? Sorry. So thanks for the question. The concept, and as Clay touched on it a bit, these sustainable shale growth zones concept was introduced in the President's State of the Union speech about a month ago. And the concept is targeted to address some concerns that many people have, that this abundance will be realized in a spotty fashion and not localized to where some of the impacts of extracting the resource are felt. So there's, for example, there's a real intent interest by the Governor of Ohio and other investors in Ohio and local communities and ensuring that as they develop the Utica that they're able to do that in a smart way that also stimulates renaissance in manufacturing and industry. And it's a great story to think about there in Ohio. You've got steel mills and you've got lots of lots of skilled labor and a relatively increasingly robust delivery and transmission infrastructure and geology for storage. So there's, that's an example of where you might say let's step back and again use this period of abundance where we've got some extra bandwidth to think about how to do things smartly and make sure this works for everybody. Now, all that is all to say that the concept is in the state of development. So I think this is a good time for people to think about how could we realize that promise of turning these booms into something that's sustainable for communities and importantly that that's going to happen at the local level. So it goes back to Clay's point about engagement matters a lot and engaging different people in new ways and making sure we're bringing everyone along. Okay, so my first answer to the question, when I first saw it, I immediately sent an email to Paula. So that was my first response to get an answer. I can tell you there hasn't been a whole lot of information shared on this at this point in time, but what I hope that we see is as Paula explained that it really is geared towards prevention of these boom bust types of cycles that you sometimes see in mining or oil and gas extraction areas. What I would hope that it would lead to are educational opportunities for those who can work in these fields to increase your skill sets. What I hope that it would embody is bringing folks in from areas that may not have as much industry opportunity somewhere maybe in the Midwest in the Rust Belt that could come into these areas and have meaningful jobs and new functions that would require new skills. So I would hope that it would have an educational component to it. What I hope that it does not have is or does not infringe upon is the state primacy over oil and gas regulation. So this is I think a very sensitive area. Industry has a little bit of trepidation about what it actually means, but it has not been explained fully as what it does mean, but I think it actually can be a good thing. Again, if it focuses on those areas that I mentioned at the beginning and stays away from the regulation side and allows the states to continue to regulate as they are able to do. Really quickly, since Clay touched on this point to clarify, the President and the Secretary and others in the administration are very keenly aware of the important role that state regulators play in ensuring the prudent development of oil and gas resources and are doing our best to support the increased capacity of those regulators to do their job and to do it very well so that we can all have confidence in how the resource will be produced. The shale zones are intended to really address economic development and the economic promise presented by this tremendous abundance. So I know that we are going to have the opportunity to hear from Mr. Brechers and many of you about how best to do that and it's an exciting challenge to have. Okay, so we have one question, middle section, fourth row back. And then we'll come down front. Good afternoon. Ariel Cohen, the Harry Foundation. Could the producers, Anadarko and IHS, elaborate on the combination of fixed and operational costs so that we have a better idea in nonconventional oil, tight oil, and shale gas? What are the costs of production and are most of the fields now profitable in the current low range of prices for gas? And what is the range for costs in oil? Thank you. Okay, so I'll take a stab at this. Just from Anadarko's viewpoint, I'll try to answer the question as best I can. Are most of the fields in which we operate profitable the answer is yes, we wouldn't be operating in them. The variable component of production generally has to do with drilling of new wells. So the service costs associated with the drilling and working over of these wells, that's where we put our capital. If these fields are not making money, then what we will tend to do is to produce them, but we won't spend a lot of capital on them. So our capital allocation, which is public information to any and all in that can see this, you see where we favor the areas that get the most capital. So in the U.S. onshore, if you were to take a look at how we spend our money, we spend most of our money in the Eagleford shale and in the Niagara Formation in and around the Denver Jewels Unit outside of Denver, Colorado. That's where the majority, the bulk of our spending goes. We have other U.S. onshore plays. We spend money in the Marcellus because it's a dry gas field. We don't spend as much money there, but we generally put our money towards the liquid rich plays. In terms of the component of how we break out fixed versus variable, again, the variable side of it is primarily that capital spending that you will see on an annual basis. And so just depending on this last year, we spent $7.6 billion in total capital spending. About five of that was in the U.S. onshore. So it is really a play of favor for us. We spend a lot of money in this area because it's very profitable and we'll continue to do so at current prices. Clay, average shale well onshore, $4 million? It ranges depending on how far you go with your laterals, but once you include drilling and completion cost, it can be anywhere from $6 to $14 million per way. I think that's one of the keys. This is very variable depending on the type of player. You saw the huge geographical spread of opportunity in the map that Clay showed. While some of those are relatively more shallow wells, some of them are deeper wells, some of them have good access to water, some of them have less access. There's a huge range of operating conditions which drive economics, but I would look at the actual producing results. Natural gas production is increasing even though the actual rig count is falling back. That shows that producers are finding it a profitable game to stay in. It's not only variable geographically, it's variable over time. You saw the increase in drilling efficiencies again, the evidence from Anadarko. For a similar type well, because of drilling efficiencies, pad drilling, technology, costs are coming down. That race between cost and price is being addressed by application of technology and application of efficient operating practices to keep natural gas profitable in what was a lower price environment. There's been a number of presentations around town, especially recently about mid-sized players having higher capex than income. Sequenchi, so go back to Clay's point, if that were to reoccur over time, you wouldn't be in business. A lot of people that spent money in the lease acquisition phase, so early on, depending on how much they spent on the lease, but now that they're in the production phase, that can change as well. It's more mosaic of a picture, I would say. Right down in front here. Thank you. Chris Flavin with the World Watch Institute. Seems like one of the big challenges here is just that the field is moving so rapidly that EIA projections consistently have been outdated within a couple months of coming out. I want to see if we can think outside the box, and really it seems like there's a good chance that supply is going to outrun any conceivable short-run growth in demand. I think that's at least a possibility. Where would the extra gas go? If we do have potential supplies that are significantly larger, maybe the prices will just get pushed to an incredibly low level, but it seems to me like there are two possibilities. One is that we see exports that are much larger than what's projected, that it turns out that, and I guess the question there is, what is the international price of gas going to be both in Asia and Europe? It seems like that some kind of projection there has to be factored in. And the other possibility, of course, is transportation, where the question there is not economics, because natural gas going into a vehicle is already half the cost or less than half the cost of gasoline. But assuming out to 2035 that nobody is going to take advantage of that money that's essentially sitting on the table to solve the infrastructure problem. Again, I don't see that we're thinking outside the box yet, so I'd be interested in any responses. Adam, you want to take a first shot at that? Sure. So in my 18 months at EIA, I've worked very hard, Chris, to expand that time period of how soon to be proven wrong from a couple of months to, I think now I'm up to a couple of years, maybe. That's efficiency. That's improvement. One of the things, you know, where that's happened, first of all, it hasn't happened across all of the EIA's forecasts, our electricity forecasts and so on, have been just fine. I think where the biggest problem has been is in this area of the impact that hydraulic fracturing, horizontal drilling and multi-pad, you know, multi-well pads has combined to create a technological revolution in production. So what we've managed to do there is to publish this drilling productivity report that comes out monthly that has estimates of current and one month out production, which is getting us a lot closer to having an accurate starting point for the production coming from these six huge oil and natural gas shale plays. The Eagle Ford, Permian Basin, Niobarara, Bakken, the Hainesville and Marcellus. So since most of the production growth is coming from those six plays, if we can track those six plays and maybe even add a couple to that including, let's say, Utica and maybe Granite Wash or something in that area, we will have gone a long way towards solving that issue. Let me come back to your first comment about is supply going out or on demand? For natural gas, that's really hard for that to happen because there's a certain amount of demand that's there and you're not going to supply more than the demand. So I think that you correctly guessed the outcome and we've already seen that in one sense is lower prices. So if supply begins to outrun demand, it has an impact on prices and drops those prices and what we saw, for example, in 2012 is that the amount of natural gas that can go into electric generation displacing other fuels, coal and others as well is a lot. I mean it can absorb a lot of production in the short run and so my guess is that's what would happen is that if we got that extra shot of supply for whatever reasons it would result in lower prices and those lower prices would drive something at the margin and the easiest thing to displace in the short run is other fuels in electricity generation and I suppose and this would be ironic, wouldn't it? I'd have to put gas liquids back into that because that's why gas liquids went out because the price of gas went up and then it wasn't as attractive and if the price of gas went down and oil prices went up then you'd find it more attractive to do things like that and in fact to move faster on some of the transportation uses for natural gas like LNG and trucks, rail, marine transportation and so on that could go faster if the economics were right. Just a couple of things I would reiterate and Adam said 2012 is when we really saw what happens when supply outruns demand in the short run so in addition to the price collapsing below $3 and the coal displacement we had storage we totally ran out of storage even though we built a lot more storage capacity over the preceding few years all of a sudden there was no place to put this gas they started shutting in wells so that's how you manage an oversupply in the short term the price collapses and your storage builds up to record levels this year then we came into this winter with a very healthy storage balance and it took what two months of extremely cold weather to drive those storage facilities to where we're now setting new lows for storage fill and so short run it balances that way and then on the heels of that we are having prices firm up and the firmer prices will stay in effect for as long as it takes to replenish the storage balances to sort of average or balance levels so a longer term view I think I would agree with Adam is that over the longer term you don't have supply outrunning demand or vice versa that if the extra supply were to persist the price would come down until supply comes down and balances demand Oh absolutely but I thought you were talking about demand or supply outrunning demand I'm sorry demand yes well I think what we see is there's potential in all kinds of different areas and it's kind of whatever the opposite of death by a thousand cuts is you know you get a BCF extra potential here another two BCF there and pretty soon you're talking real money where it comes out of all the possibilities is really hard to say so I don't think we could pick our horse but I think there are a lot of opportunities to be wrong on the downside anyway to be underestimating the potential and Chris part of it is the infrastructure that we all keep coming back to right so gas deliverability is basically by pipe unless you can cool it and deliver it by truck or rail oil by one of the beauties of the fungibility of oil it's rail, truck, pipe, barge bunch of different things the second piece and we really didn't touch on this too much and the concern had been on the public side about demand of pacing supply and so what does that do to price spikes and how fast is deliverability if you posit the other case the low demand case which is a nightmare for producers but it also sits in motion and we've seen this in the power generation sector if we had growing demand there was room for nuclear renewables, gas you took out coal as demand is flat or declining you start cannibalizing fuels and people make short-term decisions and that's where the policy piece comes in that's complicated I thought actually Mary's presentation was interesting that long-term that the resource base covers demand but at any year in time along that path you could get a hiccup where all of a sudden demand emerges and the infrastructure is not there yet and that's what's going to be one of Paula's problems to figure this out so that it's a smooth transition so Frank the low demand case usually goes along with the low economic growth case and if we have the low economic growth case we're going to have bigger problems than what's going to happen with natural gas and this will only take 30 seconds so I think you want to go back to that slide that I showed second where does the gas go in addition to electric power generation you got industry and within industry it's refining, it's bulk chemicals it's food processing, it's metal smelting it's cement, it's glass you're talking about a huge potential for a pickup and industrial output in the U.S. some of which we're already seeing glass have full kind of gap okay so we have a bunch let me go, Len on this side and then I'll come back across the middle Hi Len Coburn, independent consultant in Maxwell School one of the things I have not heard anybody talk about is the potential of EPA stepping in and doing some sort of study or regulation that will be federal in scope rather than state in scope most of the regulation is now at the state level everyone's happy with that perhaps what does EPA regulation do to disturb and upset the apple cart on the supply side Clay you want to take a shot of that? Sure so let me just start by saying that presently in the states in which we operate we feel like the state primacy regulation is adequate in areas where there are issues that exist for example in the Marcellus or the Eagleford where you have rapid ramp up of activity and impacts on communities that have not been impacted in that way before we feel like the councils of excellence working with regulators, local regulators to make the regulation better is a good idea as per the NPC study one of the recommendations that we made on state regulations particularly in states that did not have regulatory bodies before or big oil and gas regulatory bodies was that they impose a tax on the industry particularly in these new growth areas before the production began because they're not going to be getting royalties, they're not going to be getting severance taxes until the production starts so they need to have proper regulation in place when these plays start. So it really doesn't matter if you're talking about state government or federal government what you need to have is adequate regulation you need to have well trained regulators and you need to have effective regulation that is more less prescriptive and more performance based. So now I'm going to get specifically to your question on whether the EPA would be involved in this it would be hard for me to envision that the EPA could be more effective at regulating oil and gas in a particular area than states that already do this and have been doing it for years maybe tens of years or hundreds of years it's hard for me to envision because these people know they know the business, they know the areas in which they are regulating and so they're very effective at it so to think that we could just come in there and one fail swoop and have federal regulation over these oil and gas operations is to me far best. I think importantly what we need to do is make sure that we have adequate regulation so working with groups such as Stronger the State Review on Oil and Natural Gas Environmental Regulation IOGCC Interstate Oil and Gas Compact Commission those organizations that help make state regulations better is a much more important job of EPA rather than trying to do the regulation themselves again my opinion. Paul I'm going to flip the question around a little bit for you so as a government policy maker you can make you have to deal with economics foreign policy, environmental safety community aspects so you might get a sub-optimal agriculture policy or sub-optimal energy policy because it's all about trade-offs so what kind of space does that put you in when you have to deal with these kinds of issues? Wow that was a different spin on the question that's why they pay you the big bucks careful what you asked more from Frank so wow I'm going to have to think about that one but I won't do that online these are I think there is I will go back to a point I made earlier which is that there's a tremendous appreciation for how the potential for realizing the abundance rests at the local level and ensuring that that happens in a prudent manner rest at a local level as well and at the Department of Energy we partner very strongly with organizations like IOGCC that Clay mentioned to ensure that to the extent that we're doing basic R&D on material science production practices new technology that we're sharing that information with regulators as a means of helping them inform their policy working with them to help them develop new tools like the risk-based data management system EIA does a lot of partnering with them as well so that we can help understand and make available data about oil and gas operations and this in the long run also answers some of the questions that Chris was raising about how are we ensuring that we're making good decisions and one thing's not outpacing the other increasingly over time it's about better information in real time so that we're making better informed decisions so there's a tremendous appreciation I think for continuing to look to the states to ensure the prudent and responsible development of our resources and to increase that capacity at the same time there's a tremendous appreciation of the important role that industry leadership will also play and that it's important that we are all working together whether it's state regulators and industry leaders other advocates people like me across the administration who want to ensure that we're taking the necessary actions to ensure the public confidence not only will we develop the resource prudently from an economic perspective but also that we will do it with respect for our communities and our other natural resources great a couple minutes left I'm actually going to take three questions and we're going to start on that side so the second row here on that side and then we'll combine them all we'll then come to the middle and Jeff I think with NDS LLC just a quick question on methane hydrates Mary you mentioned that Japanese are working on that truly in North America resource unconventional resources are large but do you ever see feedback if the methane hydrates are successful especially in countries that can't develop gas shales as easily as U.S. feeding back and making the supply even larger the resource base let's say price blue wave resources we've had a lot of talk about supply meaning production demand what we really haven't talked about is the interstate pipeline network to what extent are you seeing that as a constraint on the kind of growth that we're talking about it's clear it's going to have to grow it's going to have to change there are constraints and issues we see for example coordination with the electric power industry which Sarah is seeing expanding greatly what constraints are you seeing how are you seeing them being removed to ensure that we don't derail the growth you all see thank you Sam Saddle with the Howard Baker Forum I have a question mostly for Mary you were speaking about increased demand or sorry less in demand on LNG what you mentioned both the questions of methane hydrates as well as over supply of liquefaction capabilities what are the signposts that you're looking for for LNG demand both on the low side as well as on the high side there you go we'll talk about interstate pipelines and I would say that we are actually going to start Sarah is going to start up an electric power and grid series here because we realize that's coming into play and we have to do this in totality and third section we'll talk about LNG and Mary we can start with you so we'll start at the back end and work our way through and if you've got opinions on any of these topics raise your hand and we'll go ahead Mary I'll start with the LNG situation global demand right now the global demand for LNG is about 35 BCF a day globally right now the assumption is over 70 BCF a day so the entire rest of the world market is only half the size of the US domestic market at the same time we've got all these proposals here in the United States to export LNG we've got the Russians saying we're going to get there first we've got Australia coming on strong Middle East finds in the Mediterranean off the east Africa so if you sum up the total of the proposals to supply this market even if the market doubles in the next 20 years you've got almost more than enough proposals on the books to accommodate that supply I'm sorry almost enough projects under development to supply most of that market and then if you add all the proposals that have just been floated out there you're going to swamp the market so we see or I see the biggest danger on the downside is that everybody in the world develops their liquefaction projects and there's no demand there for it that will collapse the global price of gas and a lot of projects are just going to go bankrupt so I mean where that happens so we see a big risk that the global demand is not going to materialize to accommodate all the people that want to sell them LNG and of course everybody wants to sell LNG to Japan and Korea because they think they're going to get a $20 price or $15 price for their $4 gas and of course the Asians want to buy our LNG because they think they're going to get a $4 price so there we have we have those issues methane hydrates comes in here because the Japanese along with cooperation or joint projects with the Department of Energy and I think USGS and other American agencies have succeeded in extracting methane from the hydrates in several different ways it's rather high cost now today the Japanese think they will be able to do it commercially within the next decade and again what is a sustainable cost in Japan is very different from what would be a sustainable cost in the United States so if Japan were to succeed there self sufficient in natural gas there goes a big chunk of your market for LNG so that's one of the signposts I would look at another signpost would be the number of new LNG plants coming on export projects coming on globally and just look at how quickly the market is satisfied with supply Japan yes, yes good point actually I'd rather answer the pipeline question so let me do that I'll have a go at hydrates I'll have a go at hydrates just briefly we did look at hydrates in 2011 for the North American context it's a resource in abundance all around the continental shelf and in the Arctic for North America we thought that it would be a much longer time frame to bring that into commerciality probably 50 to 70 years it's basically because of economics technology development and the fact that we have a new onshore unconventional resource base it's far more likely that it will take off earlier in a country like Japan as Mary was saying they have the economic incentive of competing against high LNG prices they're working the technology and they have a big market so we could conceivably see it earlier in Japan than in North America in North America we concluded that the early breakthroughs were likely to come in the Gulf of Mexico but probably around mid-century not before if I could jump in on methane hydrates before we move on to Adam's excitement about infrastructure we also at the Department of Energy have an MOU with the state of Alaska to do which has set aside significant acreage for field testings on production of methane hydrates and this is vital work for us to do there was some conversation earlier about what energy security means and this type of work is exactly the kind of work you want to be doing if you care about energy security over the long term we are on methane hydrates is sort of where we were on technologies for shale production in the late 70's early 80's and the work that we did the investments that we made then in R&D is what's helping us to realize as a country the abundance that we have today we need to continue to do the same thing on methane hydrates really quickly before I pass off to Adam on infrastructure the Quadrant Energy Review will give us an opportunity to look at this infrastructure issue on a regional basis because the challenges to the extent that we're seeing are very locational and regional with respect to natural gas infrastructure and the solutions will come out of those regions and there's nothing to suggest that we need a moonshot here that this is very doable and the QER is going to give us an opportunity to have those discussions and the roundtables will therefore be very regional located in the regions in order to get that local flavor So on the pipeline question I mean I think Paula was very tempted to do the same thing is to actually generalize on that it's not just pipelines it's refineries our refineries were set up in the Gulf Coast to run heavy sour crude and now we have an abundance of light sweet crude how do you deal with that infrastructure question North Dakota is the second largest oil producing state in America now and that's not a traditional oil producing region so it doesn't have the same kind of pipeline take away capacity for either oil or natural gas that it would have had if it had been in the Permian Basin in Texas how do you deal with that question we just had a really interesting lesson I think with the propane problems in the Midwest and natural gas pipeline constraints in the England during the cold weather how do you it kind of reminds me of that whole point that they used to make still do in the internet technology that last 50 feet or maybe the last 500 feet or the last mile to somebody's home how do you get the propane and natural gas to where it needs to be when it needs to be there is a really good question to ask and I think the QER is actually going to address some of that at EIA what we're going to try to do is improve our ability to drill down and look at things in more detail so that we can get a better understanding of energy movements between pads and from state to state and in some cases within the states from county to county particularly in the Gulf Coast region even in Texas which has probably just infrastructure for oil and gas the Eagle Ford has really outside of the traditional box of oil and gas production and getting the oil and gas out of the Eagle Ford has proven to be an issue and so I think that for at least we can't build pipelines at EIA but I think we're going to try to look at those issues and be able to comment sensibly on where the bottlenecks are on the natural gas side I think it's worth just pointing out that the last several years have seen a very significant build out of natural gas pipelines as new plays have come into the system first of all in Texas and Louisiana more recently out of the Marcellus it's one of the reasons the Marcellus has been able to grow its production by leaps and bounds because it's getting piped out there's a bit of a lag always because investing in infrastructure needs to be confident the molecules will be there to flow so there's that lag but I think the industry has been remarkably successful as a great track record of getting pipe in place into these new producing areas and linking up with markets on the natural gas side I think that system works quite well Doug Clay Last thought on the pipeline issue as we see increased we see these big ramp-ups in production and we see a lot of need for infrastructure and we see a lot of regulation because again if you're going to have that social license to operate what you have to do is you have to be able to operate these pipelines safely in an environmentally sustainable way so we need to make sure that when we put these in we're doing it right and that we have adequate and effective regulations going to be incumbent upon us to have more regulators in the areas in which we're putting these pipelines across so I would I would actually argue that that's an area that we're deficient in right now with the right regulations and the right regulators in place So we will post all the presentations at our website I thank you for your attendance and your attentive attendance and please join me in thanking our panel this terrific discussion Thanks very much