 I'm Epri's Environment and Renewable Energy Vice President. Epri is the Electric Power Research Institute, based here in Palo Alto. We're a nonprofit research organization. We've been around for 40 years. And if you're interested in more about what we do to help bring about a more affordable, reliable, and environmentally responsible electric power system, I'm happy to chat with you after this session. I'm real honored to be moderating a session with three great minds, great experts, with views on natural gas and what the recent innovations, the recent market developments, and what some of the recent challenges associated with this important resource are doing and may do in the future to scramble the thinking of all of the various actors in the energy space. So I've got two out of the three in the room. Hopefully the third, Nancy, will join us. Their bios are in the folder, so I won't spend too much time, except to say we're real pleased to have Professor Mark Zobak here from Stanford, who will talk about some of the resource issues associated with natural gas and highlight some of the opportunities and the challenges are there. And I see that Nancy's arrived, so that's great. Second up, I'll ask Deb Afonza. Debra is the senior director for utility strategy and performance improvement at PG&E. She will comment on how natural gas is affecting their thinking from the standpoint of the power utility. So that will be, I think, enlightening. And then Nancy, welcome. Nancy Fund is the founder and managing partner of DBL Investors, a venture capital firm located in San Francisco. And I've asked Nancy to comment a bit on how the landscape for natural gas is affecting their thinking and the thinking in the broader, clean tech space. So you'll have a diversity of views and perspectives. I've asked each of them to be in the sort of 10 to 15 minute range and then we'll open it up for questions both between the panelists. I've got a few in my back pocket in case things are quiet and especially all of you. So be thinking of your questions, write them down and we'll go to you after the break. So let me ask Professor Zobak to come on up and if we can get the computer going, which would be nice. Yeah, I just had to start it back up. There we are. So, Mark, thanks and the floor is yours. Yeah, thank you. Thanks for coming. I have the good fortune of having the topics I'm gonna talk about introduced by two former secretaries earlier this morning. So some of those issues will come up again and I'll offer you my perspective. You've seen pictures like this before. You know the bottom line in North America we have something like 100 years of recoverable natural gas. Now that's of course at current utilization rates. So if we do one of my favorite things and that's replace coal with natural gas as quickly as possible, we would basically double the rate at which we currently use natural gas. So that makes it a 50 year supply. I very much personally see natural gas as the blue bridge to the green future, not a permanent solution to the energy situation but a very important solution for the next few decades. The situation is just as bright globally. This map is a little bit more than a year old and it's grossly out of date, but it shows enormous gas reserves of which natural shale gas is a significant part. What's a particular note is all the gray areas which were simply not considered because of the lack of data availability. So these numbers are just gonna go up. And just in the last week or so there has been news of the USGS has published a rather modest estimate for recoverable reserves off the East coast. So unless those numbers go up there probably not be much development. Exxon has pulled out of Poland but a number of other companies are still active there. There's, turns out there's tremendous interest in shale gas development in the Persian Gulf area for mostly domestic use. And China is embarking on just enormous program to develop its shale gas resources. And this is just going to continue. Now the key to developing natural gas from shale was the technological breakthrough of combining horizontal drilling as just shown here in cartoon form with multi-stage hydraulic fracturing as indicated by those planes using basically water. And the water penetrates into the rock and induces very tiny micro seismic events in the rock and changes the permeability of the shale. These rocks have a permeability that is one million times smaller than a regular gas reservoir. So we have to stimulate that permeability in order to make it productive. And the big increase in the number of wells and the production from the Barnett shale in the Dallas, Fort Worth area was basically a reflection of learning how to use this technology as well as high gas prices at least up until 2008. This is a typical way things are done from either a single or a couple of pads, multiple horizontal wells are drilled. The little dots represent the micro seismic events generated by multiple hydraulic fractures. So in the time available, I wanna address the questions of whether we're optimizing production. Can we accurately estimate how much gas we're gonna be recovering? Are there any big technology barriers? And how do we minimize the environmental impacts? Now this slide shows the average well production for wells in the Barnett shale, but it's done in an interesting way. It shows the average of all wells drilled in the month of July in 2004, the month of July of 2005, and the month of July of 2006, and then shows how the production declines with time and the production is very rapid in the first couple of years. Now there's a couple of things that are really interesting about this. One is you can see the role of improved technology. In just a two year period, the initial production rates doubled, and that's from drilling further and figuring out how to do the hydraulic fracturing more intelligently. The other thing that's kind of interesting is that these curves flatten off in a very unusual way. In other words, when petroleum engineers, two petroleum engineers wrote this paper, try to analyze the decline as they would a normal petroleum reservoir. Everything works, but this flattening doesn't work, and it's really puzzling why the production is so persistent, and it's led to the speculation that these wells might actually last 25 or 30 years. Now is that true or is it just hyperbole from those with an economic interest? Well it all comes down to the nitty gritty details of what's happening in the rock. So this is an SEM photo of the Eagleford shale, and this little black ellipse is a piece of kerrigan, the waxy organic material that's producing the gas, and as we zoom in, you can start to see and see more clearly now pores, empty spaces in the kerrigan. This rock is 90 million years old and it's still producing gas. And that's, if nothing else, a measure to how impermeable the surrounding rock is. That gas is being generated, has been generated, and is locked in place, and we have to get the gas out of those pores. And one of the really interesting things is that very complicated processes, such as the absorption of methane that's stuck on chemically to the surfaces of the kerrigan and the clay, and a different kind of flow, diffusion flow rather than the normal kind of flow, may be responsible for this very persistent production. It's a low rate of production, but it could go on for many decades. We're doing lab work on this now, and our initial interpretation of our data is that, maybe it's true, maybe these wells really will continue to produce for a very long period of time, and that, of course, changes the economics and it changes our perspective about how these wells have to be constructed properly so that they're safe for 25 years. Now, with respect to barriers, there's been tremendous success and enthusiasm based on the success of applying this technology throughout North America. I forgot to say that the red areas here are in fact shale gas, and the green areas are places where shale gas technology, horizontal drilling and multi-stage hydraulic fracturing are unlocking oil resources, and so there's a million barrels of oil a day coming from the Bakken shale, which we're not coming a few years ago. And amongst all of that success, there's been one big failure, and that's the Floyd shale here in the Black Warrior Basin, and it was put on this map by the Department of Energy, but there was no resource associated with it because the companies that went to the Floyd shale were not able to successfully produce the gas. We've been studying why that is, and our current thinking is that it's because there's so much clay in the Floyd shale that it's actually deforming very plastically and that the technology of hydraulic fracturing and slick water fracking, as it's called, simply doesn't work in this kind of rock, and so the fear is that as we look at these global assessments and this global potential, we do not know yet how many Floyd shales are out there, and so are we being over-optimistic because there are some shales that are not gonna be productive, or are we being under-optimistic because in the long term we're gonna get a lot more gas out of these reservoirs than we now think we will. We simply don't know. Now, the final thing I wanna talk about are the environmental issues because the environmental issues are real, they're formidable, and they've created a lot of concern among the public. First, there's surface contamination. These are big industrial activities and a lot of trucks and a lot of people and a lot of activity rolls into an area. There's concern about whether there's gonna be gas leakage from the wells, whether there's gas leakage from pipelines in the distribution system, and this is a question that operates at multiple timescales. If the gas is leaking at a relatively fast rate, obviously it poses a hazard to residents and the immediate environment. If it's leaking slowly over time, the methane being admitted to the atmosphere actually negates the two-to-one CO2 advantage that natural gas offers. So it's a very important question. In fact, among all the major issues, this is one where the most research is needed and where most data pour. We have issues about disposing of flowback waters after hydraulic fracturing. Now the best thing to do is to reuse those waters, which is happening in the Northeast because there's literally no good place to put it, and the reuse of those waters negates this problem, but there is water disposal in other areas. There's, of course, concern among the public about whether hydraulic fracturing can potentially contaminate well water. There's concern about triggering of earthquakes associated with the disposal of flowback water. In 2011, there were earthquakes in Youngstown, Ohio and Arkansas that were triggered by flowback water, and these are legitimate concerns. It turns out to be an easily managed problem if companies and regulators are a bit more proactive about site characterization than they've been before. And the biggest concern, at least that I have, since we're talking about tens of thousands of wells that are to be drilled, is how to minimize the impacts on residents and ecosystems. Somehow, my PowerPoint animation got screwed up, but the point of what I was trying to say is that in the minds of the public, all of these very real issues have sort of been combined into a bumper sticker called no fracking. And this is really unfortunate because these are real issues and to identify the solutions, we have to identify the issues to get the right solution. And it turns out hydraulic fracturing is really not the problem. Every well is hydraulic fracturing, and so it's convenient to blame hydraulic fracturing or use this icon of no fracking as the solution. Well, last year I had the pleasure of serving on a committee chaired by John Deutch, charged by the Secretary of Energy to look at these problems. We issue two reports, they're online. I'm only gonna talk about one issue that we covered. And before I do, let me just say, to summarize our committee's conclusions, shell gas is an extremely important energy resource to the United States and in fact, to the world. It is currently providing 30% of all the natural gas that we use. It has a large positive economic effect on local communities and states and that it can be developed in an environmentally responsible manner. The most important thing that needs to be done is to construct wells properly, to regulate the construction properly, to test the construction before putting the wells into production. And in fact, when you look at sort of the recommended practice of API, it says put surface casing to 500 feet to isolate the aquifers. Well, that's a good idea, in fact, it's essential. But in many places, there are coal seams or sort of insignificant gas producing shales that'll generate bubbles of methane that will come up in the space between the rock and the steel casing. Now, if this is all that you do, then there's only a single barrier to prevent leakage either in the short term or the longer term. And it's a much better practice to run a second string of casing to cement that properly and have multiple barriers to potential leakage. And obviously, if you want the well to work over a 25 year period, this is essential. Now, this practice is actually being carried out voluntarily by good companies. States are insisting on it in some places, but in fact, it's very non-uniform. Not all companies are acting responsibly, not all states are regulating properly. And so, the great majority of issues affecting the environmental impact of shale gas production are issues we understand and know how to regulate. Unfortunately, we just don't do a very good job of it in many places. And that's the origin of the problem. It's not things we don't understand. So, just to wind up, many of you remember this cover from Time Magazine about a year ago. This rock could power the world. Well, to answer the question Brian posed to me, will gas be abundant and low cost? I think there's no question that the answer is yes. I think it's gonna be, we have so many sources and we know how to get it out of the ground. I think it is gonna be abundant and I think it is gonna be low cost, but we still have a lot of work to do. We have a work to do to better understand the resource development and we have work to do to do a better job of limiting the negative impacts on the environment. And I'll just leave it there. Great, thank you. Okay, so given that, Deborah, flashback to five years ago, we didn't have all the shale gas. The prices were eight, 10, 12. The utility world thinking was very, very different than it is today. Maybe shed some light on that and where do you see PG&E's thinking? Where do you see the broader industry going in light of both the opportunities that Mark described, but also maybe some of the challenges that are in there. And then to this audience, how does that affect your thinking about renewables, energy efficiency, sort of the rest of the clean energy portfolio? Well, before we get there, I did have some comments I wanted to make, is that all right? You bet, absolutely. So if you go back five years, so I'm in strategy and this is about thinking about natural gas. And five years ago, in our strategic planning process, we argued whether you'd ever have gas below $10 in MMBTO. It just hit a five month peak at $2.76, including the hot weather that's occurring on the East Coast. So you can see the difference just in five years. And I think with that, I mean, it's easy for us, it's easy for us in the utility space to kind of insulate ourselves and Northern California, this is PG&E. And I don't think that serves us or the customers well. So I like to think more broadly and I like to step back and say, before we can analyze how natural gas is gonna impact us, how is it just gonna impact the balance of the energy market? So with that, I'm going anti PowerPoint, sorry. So we just so overuse it sometimes that we don't think and lately I've taken to magic markers and white papers and coloring, but I'm gonna spare you that. And I'm just gonna read you some things. So, and this is so timely because in September of this year, we're bringing to our board a strategic discussion about natural gas. So I don't know what that discussion is gonna be on yet because I'm just gonna read to you some facts. And then at the end, you guys can help me decide what should I bring to our board? So I'll just, again, a couple of quotes. The shale gas boom is the most disruptive change in my 28 years in the industry. John Rowe, former CEO of Exelon. North America has the potential to become the new Middle East. Ed Morris, head of Global Commodity Research for Citigroup. The transformation represents a decisive shift in energy history. That's ExxonMobil. Natural gas is driving us to transition in a big way. And that's Tom Fanning. He's the president of Southern Company. Huge utility. So, yesterday, and I mean, are trying to stay current on natural gas? Yesterday, we get, every day, I get an update on what's happening in the industry. What happened yesterday? Natural gas and coal, each accounted for 32% of the US total net generation of electricity. Natural gas equal coal. It's always been 50, 20, 20. 50% coal, 20 natural gas, 20 nuclear. You know, roundabout. 32, 32. All right. And that's on a national basis, right? National basis. Okay, some more quotes. This is from Sarah, Cambridge Energy Research Associate. Shale gas accounted for 1% of US natural gas supply in 2000. 1% in 2000. What year are we in? 2012. 12 years later. So, they say 20%. Mark had a slide that said 30%. Yeah, 30%, this is the EIA. And they say by 2030, it could be 50%. So, I would imagine it will be even more. The next quote. And I'm sorry if I'm boring you with quotes, but this is what jars my mind for thinking. Natural gas has a lower carbon footprint. About half that of coal. But it still has a carbon footprint. All right. Moving along. McKinsey, have we heard of McKinsey? So, this is not even on the press yet. They gave me a pre-read. It hasn't hit the press. In combination with tight oil drilling, this low cost, meaning natural gas resource, could help create 3 million ongoing jobs and add about 500 billion to annual GDP, enabling the US to become an oil and natural gas exporter. Saving US consumers about 130 billion each year. Another one. In 2005, natural gas prices were $13 billion, I mean $13 in MMB to you. It was expected that we would be importing over 20% of gas by 2020. So PG&E, when I came to the company in 2006, we were actually looking at setting up LNG, a joint venture down in Mexico for the import of natural gas to the US. In early 2012, gas prices have fallen below $2 in MMB to you, MMB to you, and now we're looking at exporting gas. And the recovery rates here, they say, are staggering 70% in the wealth that you can get out of the wealth. The other thing I really liked on this one. So at $3 in MMB to you, and we know that it's below $3, guess what that comparable rate is to a barrel of oil? Anyone want to take a guess? $12, who said $18, $18 a barrel for oil? Where are we now? What would gasoline be at $18 a barrel? Well, you know what's weird? So I'm from the Northeast and I'm right by the Marcellus Shale. That's all they're talking about is natural gas vehicles. They're taking all the medium and light trucks, school buses, taking them all to natural gas. I have some quotes on that. I wasn't going to bring those up. I love it. Okay, this is the one. Our analysis suggests that at $3 in MMB to you, a combination of replacing oil with natural gas, drilling for tight oil, and increasing the efficiencies of the vehicle fleet could make the US entirely independent of oil imports in or around 2026. I didn't think I'd hear that in my lifetime. So the other thing that I look at, so you look at natural gas and we tend to think of it for electricity, but there is a big impact that this natural gas is having on industrial. And for example, I just bought this quote. So ethane is used heavily in US chemical plants while overseas competitors tend to rely more on an oil-based NAFTA. So we have eight potential new ethylene crackers that are going to be put in the US. That is, and that's all because of shale gas because it will be a reliable supply. And I wanted to say they anticipate approximately one million workers, one million manufacturing workers. So again, I think it's easy just to look at, for me to just look at electricity, but I think the last quote I heard is 35% of the oil that's bought into the US is used for petrochemicals. If that petrochemicals is going to be displaced by natural gas that's in the US, then we free up transportation fuel oil. I mean, we free up oil that can be used in transportation, which is looking at electric vehicles and natural gas vehicles and hybrids. And then we might have this extra oil and it leads me to think, holy moly, are we going to be using oil for electricity again? We're back to where we started. So it's just some interesting stats. And the last one I'll leave you with and then I'll try and answer some of the questions is, and this one I spent the first 12 years of my career in petrochemicals. Manufacturers have certainly benefited from lower natural gas prices. The fuel is particularly critical for input for petrochemicals and refining industry. Given the US firms, giving US firms a big cost advantage over international competitors, such as, I'll let you guys guess, X% over manufacturers in South Korea and Europe. So what is our competitive advantage? Anybody want to guess what the percentage is? 70, a 70% competitive advantage. So I'm not going to go on, but so these are the facts that are running through my mind as we look at, so what's the impact of natural gas? And sure, we can say, you can see it, natural gas is a displacement, it's displacing coal. That doesn't impact us as much in California because we have very little to know coal-based generation, but in the Southeast, in the Midwest, a lot of shifting, a lot of retirement of coal plants to natural gas. I mean, for those of us in the industry to see 32, 32, to see a balance of coal, I didn't think I'd see it in my lifetime. Didn't think I'd see it in the lifetime. So I'm going to take it to renewables. So then you look at renewables, lower natural gas prices, if you just looked at it from a academic perspective and you didn't put all those things, you just, sorry. It's all right. Just do a slate to academic, sorry. You just look at it kind of in an ideal world and you'd say lower price of natural gas is going to put tremendous pressure on the development of renewables because they're not competitive. They're not competitive. And if the point of a public utility is to provide the highest reliability with the lowest cost, it puts even a greater burden because most renewables are intermittent. So in some ways, it can be the biggest threat to renewables, but then in other ways, then if you look at an MIT study that was done on natural gas, because of the RPS standard that are in place, natural gas can be the parallel fuel with renewables. So you can co-locate natural gas with the renewable and you'll solve the intermittency and you'll still have the renewable. And Florida Power and Light, I guess a couple of years back announced, that was they were going to co-locate wind with natural gas for those purposes. So that's what I'm thinking about. And I don't, I can't land anywhere yet. On this, I can't say we're, you know, PG&E is definitely gonna do this. What it does provide for our customers is headroom because we buy a fair amount of natural gas for the production of electricity. And it gives headroom in pricing for customers, but it's at the same time that most electrical grids are getting to the end of their useful life and major capital investments are required just to keep the grids up to standards. So the displacement of the lower price of natural gas is being replaced with capital investment, sorely needed capital investment across all parts of the value chain electricity. So they were my non-powerpoint comments. And I know it's a lot of facts, but you know what, I thought what better place to try and skim and get some work done and, you know, multitask here is, you know, what do I bring to my board? What do I say? So be thinking about that and give Deborah some advice during the question session. Thank you for that. Nancy, from your perspective in the investment space, looking at natural gas, clean technology, same sort of confusion, open-endedness, a little bit more crystallized. What's your perspective? Venture capitalists are never confused. We would never admit to that. Certainly the world is changing and really appreciated the remarks of both Mark and Deborah. The proliferation of natural gas will affect the clean tech investment world, both by creating new opportunities in our investment landscape, but also by putting, as Deborah pointed out, more cost pressure on renewables. Our view, though, and again, your data suggests this, is that this cost pressure will, the bigger loser here will be coal as opposed to renewables and I'll explain that in a few minutes. So that, and since there isn't a huge amount of clean tech investing in the clean coal space, there is some, but it's dwarfed by renewables, you're not going to see a massive shift because there isn't a lot of coal investing to displace. So the complexity comes from several dimensions, so a few points to consider. The $2.77 cents that we see today is not static and certainly the EIA annual energy outlook projects natural gas costs to be going up and as we hit the 2020s, 2030s, looking at more like seven or eight dollars. So significant curve going up, look at solar, it's the opposite, the curve is going down. 70% decline in costs in the past few years for solar and that's heading, we're in the dollar per watt, we're getting efficiencies on all levels. So this, when one cost is going up and one is going down, it's going to create opportunities for disruption. So that the cost competitiveness of the two energy sources will change over time and since venture capital is a long-term investment, we're not buying that we're gonna be competing against $2.77, I mean our companies are built for the long-term and will face different dynamics. And we're already seeing that in many places, PG&E territory included, a solar lease, if you get a solar lease you can pay less than your PG&E bill. So the costs through incentives have made solar electricity cheaper in various parts of the country than the traditional utility supply. Now and with those incentives diminishing over the next 10 years, you might say, well that's going to change because the rebates or the ITC will shift. But if there's a gradual diminishing as there has been in California, we haven't seen any erosion. In fact, we saw 85% growth quarter to quarter in solar this year. So as the costs come down, the industry becomes much more able to withstand any cuts and subsidies over the long-term. And so there's also huge consumer demand for renewables. This is something that in terms of the customer impact, you're going to, in various regions of the country, you're going to see that remain strong if you look at the various focus groups and opinion studies. A second regulatory regime that affects renewables and does not include natural gas are the renewable portfolio standards. Because natural gas does generate carbon emissions, it's not included in renewable portfolio standards. And there are over what, 26, 27 states that have RPSs in this country. So this drives a considerable amount of renewables purchasing, especially by utilities, by corporations, larger scale renewables installations. And it will never be, as long as those standards are in place, renewables will enjoy a place in the utility framework that at least in that regulatory approach will not be enjoyed by natural gas. And you're seeing, again, in this part of the world, dramatic cost decreases. If you look at the PPAs, the PG&E and SoCal Edison put out in the mid, in the sort of 2006, 2007 timeframe, and we know this because one of our companies, Bright Source Energy, got some of those PPAs. The price much higher than the most recent round of renewable, large scale renewable PPAs that came through in the past year. So there's significant lowering of the long-term, 20-year power purchase agreement costs for renewables. And this will broaden the availability of that as a resource for those, especially those states that have good insulation resources. Another aspect which Marked really addressed is the environmental regulations, the environmental efforts that remain to be worked out for natural gas. This is, we believe these are significant. We've seen it in large-scale solar where every impact on land, on culture, on endangered species has to be mapped out. You need to spend significant resources preventing any kind of impact. And really natural gas has yet to go through that period. So you're going to see, and you're seeing it every day, you open the paper. There's some kind of study, there's some kind of objection as you pointed out. And while the technology may be there, the public is going to drive a lot of the requirements there and as we've seen in other technologies, that adds cost and it adds delay. We have one storage company here in California that has a storage solution that will be very cost competitive. And we have a Munee, a California, a large irrigation district that wants to beta the storage to help firm up its wind resources where it gets a lot of its power because they don't want to go through the hassle of building another gas plant. They don't want to go to the permitting. They don't want the city council hearings and they have a great graph where it shows that it's much more cost effective if they can get storage at a certain price than to go through all of the hassle and cost of a gas plant. And we see that increasingly. So that's another, there are alternatives while natural gas and renewables can coexist very nicely as Deborah has described. The advent of storage is going to take that, create another option in many places. And so that's why storage is such a popular area for venture capital right now. You're seeing huge investments in both distributed storage and utility scale, substation kinds of storage. So that's sort of an overview of the impacts, the risks, the opportunities. There's no question that natural gas will create many opportunities for investment. And we have one, I mentioned our storage company also Bright Source Energy case in point has a natural gas plant, has the ability to run on natural gas when the sun isn't shining or at night to address the issues of reliability of power. So that's a new model for large scale solar thermal that will increasingly be used and shows the synergy between the two technologies. We have another company that's involved in the biochemical space called OPX Bio. It's in Boulder and it's a really good example of what's happening to us now because OPX Bio has a very sophisticated bioengineering platform to generate things like acrylic acid out of sugars and has a wonderful relationship with Dow Chemical to do this because Dow wants to have a cheaper supply than fossil fuels for acrylic acid and other kinds of chemicals. And most importantly, their end users want a clean green substitute. And one of the biggest users of acrylic acid in this country is the absorbent material in Pampers. And so Procter & Gamble has done all kinds of studies showing that people would really buy a Pampers product that didn't come from petrochemicals and may even pay a premium for it in its early days. And this is a multi-billion dollar industry. And so the chemical is also used in paints and stabilizers. I mean, it's a multi-billion dollar a year chemical that's very dependent on petrochemical feedstock right now. So we can shift that. So this company has that opportunity, has a tremendous market ahead of it, has great support from Dow Chemical. And then because of the natural gas being cheap, all of a sudden we get a wonderful grant from ARPA-E at the Department of Energy to use natural gas as a feedstock to create syngas and build alternatives to petroleum products for jet fuels, for fatty acids that go into detergents, jet fuels, things like that. So we as a company have limited resources. We're well-funded, but any startup you have to make these choices. So we are faced with this real-life challenge. Is it green Pampers or is it using natural gas to create green jet fuel? And so these are the kinds of choices that we are now really looking at that we even two years ago weren't on our horizon. Some other areas that you may see venture investment heading toward in terms of the natural gas boom would be certainly water treatment. The huge amounts of water are used in extracting this resource. And often, as Mark described, there are problems with water quality, not just the quantity of the water to use, but the chemicals and such that will necessitate better water treatment, better management of that water resource. We've talked about the use of natural gas in transportation as a fuel. We've been watching that for a long time. I think the venture capital industry has tracked the infrastructure issues, which are significant. There's been sort of a rise and then a fall in the infrastructure for natural gas. Vehicles certainly in fleets and corporate kind of purchases are going up, but we placed as a happy owner for one week of the Tesla Model S. I can tell you that electric vehicles have already proven their merit in terms of investments and that the number of charging stations is especially in high density states like California for electric vehicles is a lot more significant than for natural gas. So we're a little bit more skeptical of the role of natural gas in transportation, certainly in electricity and fuel cells and such. We see vast opportunity. Other things like vapor recovery, the losses that you've talked about, those seem to look like problems with a little bit of innovation and focus could be solved and we're bound to see entrepreneurs seeking better answers for those kinds of challenges. So I'll be happy to talk more in the Q&A, but that just sort of gives you the best of times, worst of times kind of world that we live in in terms of the impact of natural gas on clean tech investing. Thank you very much. Great, thank you, Nancy. So I'm going to ask those of you with questions to start to queue up here at the microphone in the center and while you're doing that, let me ask two quick ones for our panelists. First, to both Deborah and Nancy, and Nancy, you touched on this a little bit. How do your views on the natural gas side of things affect demand response, smart grid, kind of the demand side of the equation? We've talked a lot about how natural gas affects coal and renewables, but then there's sort of that supply focus. What about the demand side? Does it encourage, discourage, create different value propositions for investments in energy efficiency? Just quickly if you could respond. I don't think they're too tightly coupled, especially in states. You're seeing a lot of resources going to create ways for utilities to benefit from conservation and certainly conservation is the, as Nancy pointed out in the lunch speech, is the first order response. And so we, where you have decoupling, utilities are able to benefit from conservation programs and so we see that as a permanent driver and we feel that the costs and the ability to combine demand side management with consumers gaining more control over their energy and more knowledge about their energy use, the personalization of energy use is a key theme in venture capital investing in this, whether it's music or data, we see that extending. So we don't see them as that tightly coupled. Thank you. And so we'll start with a smart grid. We really look at that from an operational perspective on how we can better operate our transmission distribution, electric transmission and distribution system. So I think any technology that we can cost effectively put and bolt onto our grid, such as storage, is a good thing. It's just you have to kind of figure out the engineering design in order to make that work efficiently with your complete system. And I agree with Nancy. I don't think conservation and energy efficiency is really associated with the mass markets with natural gas pricing. It's something that people believe in and they do and we support it. We have over 200 products and services dedicated to efficiency across a wide variety of consumer segments and industrial and commercial customers as well. So I don't see one, I don't see lower natural gas prices impacting the residential energy efficiency. Now, larger industrials, they're arbitrage fuels. So they'll do electricity, natural gas, number two fuel oil, they'll have a bunch of fuels that they're arbitrage, but I don't see it on the mass market, is there? And then one quick one to you, Mark. During your work with the Secretary of Energy Advisory Board, did you guys look at the infrastructure issues? Is there going to be enough pipeline capacity, the compressor stations? And Debra, you may want to jump in here too, because I know PG&E maintains a big infrastructure here in the state. You know, we didn't look at that, but there's already been major pipeline construction, you know, associated with the natural gas boom and you know, that'll continue. I think the good thing is that sort of happens as a natural part of the development of the resource and you know, there's a resource, there's a market and therefore private industry provides the infrastructure needed to deliver the product to its customers. So it's sort of happening. Yep. Debra, any comments? How that might affect you from the gas side? Yes, so what it's allowing to do, the pipelines, it's allowing gas to flow more from the east to west and you know, from north to south and it's just allowing more transparency and more ability to get gas from one place to another. I think the northeastern states have a little bit more challenge on trying to get more pipeline. We just had the, I forget what it's called and I thought I had it in here, but our supply, Northern California and Southern California, we now have entrants in, so it's a good thing. Great. It's a good thing. Let's take some questions and if you could introduce yourself, that'd be great. Sure. I'm Mike from Apple. I have two questions on some maybe policy implications that come out of this that we've been tossing around and we've heard some discussion from some NGOs who have talked to us, asking us to support different policies. So the first question is maybe probably more in Debra's area but it really relates to new generation sources on the grid. So one policy I've heard tossed around is we should say that new baseload generation on the grid should be as efficient as an efficient natural, or as clean as an efficient natural gas powered plant and that should be sort of the new bottom. Meaning that you can't do coal or coal has to be as clean as that definition. So one thought would be to take- I can't do nuclear because it's slated out. That's a whole other realm. But should natural gas become the new bottom, displacing coal, what's in there? For us, we actually try to do 100% renewable where we can but we want the grid to be cleaner. Is that a good policy to say that clean natural gas, sufficient natural gas should be the new bottom for grid generation? That's one question. The other question I have is we like the use of biogas on the grid. But one of the challenges is not enough places to inject where landfills or other agricultural sources might create biogas. Are we likely to see better, more dispersed natural gas infrastructure that would help the proliferation of biogas as well because of the low natural gas prices? So two different questions. Okay, quick answers. We got three questioners in five minutes before I get kicked out. So anyone? So policy with natural gas and new generation sources on the grid. So independent power producers are also participating in this marketplace. So I like Nancy's comment about we always, we have to look at policy and make sure we don't have unintended consequences. And then we also have to look at the economic conditions of the state and where we are and the price of electricity. Because Nancy said, I mean, solar's very attractive here because our top tier rates are in the 28 to 32 cents of KWH. So I think we just have to look at all the unintended consequences and make sure if we do set a new policy that it's not gonna disrupt something somewhere else. Okay, next question. Hi, my name is Danur and I just graduated from business school at Cornell. My question's for Nancy. Low gas prices will no doubt enlarge a lot of these adjacent markets, some of which you spoke about. I'm thinking you combine heat and power systems, solid oxide, fuel cells, car conversion kits, et cetera. But while prices go down, it might drive scale but it will discourage innovation. A lot of these things, a lot more of these things will be sold but there'll be a lot less resource and incentive to develop a better newer LNG conversion kit, for example. So in the long term, do you think that'll happen? And as a venture capitalist, does that concern you? Especially considering gas prices will go up at some point in the future. Is the question, am I concerned that there'll be less innovation in renewables implementation or? No, in technologies that use gas. Because of the prices. Will there be more resources put into better gas related widgets? Well, in a low price scenario. I mean, certainly you're going to see, there is a tension in terms of the infrastructure, say for natural gas powered vehicles versus electric vehicles. And that's coming to a head and certain policies. But what we're seeing is that right now, there are programs that are supporting both. And I think it really is going to take a while to settle on what the mix. I mean, the 3232 that you quoted, which you're surprised about, we're not there yet for the balance between, say, electric and gas. So I think we're gonna have to muddle through. I do think that in a global economy, which is what our companies exist in from the day they get their funding, there are huge drivers for clean fuel for renewables generation, for driving down the cost of renewables. And since we sell into Italy and China and countries across the globe want a lower carbon footprint, I don't see that you're going to have a shortage of innovation because globally the market is strong. Okay, we're gonna move on. If I could ask the last two gentlemen, give us your questions one after the other and then we'll wrap up with the answers. Right, this is for Mark. There are some skeptics out there about fracking and natural gas, in particular, I think of Art Berman, who says that the fall off rate from the wells, the cost of infrastructure, the very large, what he claims to be large losses that the present producers are racking up are being underestimated and that the resource could be one seventh, one tenth of what is currently being estimated. Are these just out in the fringe or should we worry that these guys might be right? Okay, and then the second question, quickly, Ben. One question or suggestion to the board, PG&E board and APRI board. If you invite Jeremy Rifkin, who is the author of the Third Industry Revolution, which integrates energy and information revolution that's happening in the world. Question, energy storage, there is a huge, not a huge, a recent happening in Germany and in Canada, is to combine electric and gas utilities by converting the excess power into hydrogen and putting hydrogen into natural gas system. Okay, I think you guys can chat about that one in the hallway after this. Let's get to the question about shale gas skepticism, Mark. Okay, well at the current gas prices, every company is losing money when they drill a gas well. So the drilling is limited to that required for them to hold their leases and they're trying to hold their leases till prices come back up. Five to $6 a million BTU is sort of the profit point for most of the places where gas is being produced. So that's certainly true. I think this issue of the total recovery from the gas wells is a question that's gonna answer itself. A lot of the initial gas production was driven by companies that had no intention to make money by producing gas. They just wanted to demonstrate the resource was there and then sell their acreage to someone else. The companies that are in that game now, the Exxons, the Shells, the BP's, the ConocoPhillips, these are serious companies and they are gas producing and gas selling companies. And so we're gonna know more as we go forward than we know today. I think conventional wisdom, I don't know where that quote came from, is that 30% of the resource is being recovered from these wells. And in fact, that's a tremendous opportunity for technology to get a higher fraction of that resource back. So once the industry gets past this speculative stage, the economics will reveal themselves and the answers to that question will be evident to everyone. So to- I just wanna add there was a Business Week article recently on this. Is it natural gas to cheap to drill? Initially, the analyst said $5 was the break point and between three and four you're in trouble, but they say the newer high production wells can turn a profit at $2, $2 in MMBTU. There's also the issue that in both the Marcellus and the Eagleford, two places which are still active, they're producing liquids which are very valuable and that's what makes the wells profitable. If they were pure gas wells, they would be, well, anyway. It's the byproduct coming off of the well, not only the natural gas or the money. They could flare the gas and make money off the byproduct. We could have gone all day with this session and some of you may still want to in the hallway. I know our panelists will be out there if you've got some extra questions. Thanks again for coming. Let's thank our panelists for a diverse and broad set of views.