 Silence. I love this. Okay, so I'm Frank Ferrastro. I'm a senior vice president here at CSIS, and I'm senior director of the Energy and National Security Program. And it's my pleasure as kind of the home team this morning to welcome you to this event. We think it's extremely timely. This is a great topic. Obviously, you can tell by the audience turnout that it's an item that's of great interest in this city. We've been playing with natural gas for probably a year and a half going back to the road map that we put together with WRI, road map to a low carbon economy, recognizing the role that gas can play. It's portable, it's storable, now with the unconventionals, it's readily available, it's baseload, it's peak, it's compatible with renewables. There's some great benefits to it, but you have to get the policy right. So when Adam approached us, Adam Saminsky approached us with the prospect of doing this joint session with the Association of Energy Economics, we thought this would be a great thing to do. In part because we really appreciate the work that the association has done. It also gives us an opportunity to spend some time with folks like Adam and Ben Schlesinger that we always enjoy working with. And because the topic is so good, and it's one we had great interest in anyway, we thought this would be a great time to put it together. Now in the past some of you have attended, we have done single sessions on technology and the resource base and the economics and the above ground issues and the security impacts of having domestic supply to change international markets. We've never tried to do all of this in one day, so we're going to see how that works. I've got to tell you, the panel that's been, the panelists that have been solicited for their presentations today are just outstanding. I think you're going to get a range of, wide range of perspectives. We've got Bob Simon with us this morning to give us kind of a view from the hill. We've got Murray Gerber coming at lunchtime and Joe Aldi to kind of close the day so you'll get a variety of different perspectives. This is one of those opportunities, we think, that the good day in think tank land is when you can actually move the ball forward and put a little different perspective and upgrade the policy debate. Adam was saying this morning that his hope for an expectation for a good turnout today was that we got 60 to 100 people and we have an entertaining day, I think on all counts that we will have fulfilled our expectations. Let me welcome you all. There's a couple of administrative things, so first and foremost, out of courtesy to the speakers and also the people around you since we have a large crowd today, this would be a great time to turn off your cell phones or put them on mute. For those of you that have already availed yourself of the CSIS coffee in the back, you've already probably found the restrooms, which are down the hall and to your left. If not, you will find them shortly. The exits in the event, the unlikely event of an evacuation, you have a couple of different options. So there's stairwells that are clearly marked going out the doors to my right to your left. If you go one flight up, it takes you to the foyer behind the elevator bank that takes you out to K Street. If you go one flight down, it takes you to the garage level, follow the ramp up, and you exit on 18th Street. And with that, let me turn this program over to Andy Knox. Andy is the current president of the Washington chapter of the U.S. Association of Energy Economists, and then he can introduce Ben, and Ben will then introduce Bob Simon. Thanks very much. Thanks very much, Frank. We are just thrilled to be partnering with CSIS. This is the 14th annual Energy Policy Conference of the national chapter of the U.S. Association of Energy Economics. So this year is focused on gas. As Frank said, it's really one of the pivotal issues in energy policy, so we're just delighted to be having such an exciting panel of speakers all day today. We would like also to just thank CSIS for partnering with us in such a great venue. This is right in the heart of downtown. As you can all see, this is a terrific spot and we're excited about the turnout as well. I would just like to turn this now over to Ben Schlesinger, a former president of the U.S.A.E.E. local chapter and soon to be president of the national chapter. Before I do, I'd also like to thank Adam Saminsky for all of his hard work in organizing this and also Mark Lively for his work as well as the folks at CSIS for all that they did. Ben is an international gas market expert. He has often advised leading corporations around the world as well as spoken in front of Congress many times. So he also has the distinction of being one of the first early adopter of natural gas and his personal life being one of the first purchasers of a natural gas vehicle. So with that, I would just turn it over to Ben. Thank you, Andy. I wish I could say I was still, that many people had done this, but unfortunately we still have the only house with natural gas in Maryland after 15 years. It's a real pleasure to introduce Bob Simon, who is staff director, as you know, with Senate Energy and Natural Resources Committee. Bob was formerly held position with the Department of Energy. You have his bio and I won't read it. He's been with the Senate for 17 years. He's had a position with the National Research Council, a doctorate at MIT in organic chemistry. He's recently named a fellow of the AAAS, American Association for the Advancement of Science. Bob, I've seen Bob at work and spoken with him on the Hill. He's just a kind of person with the experience and skill to craft workable legislation when you hear about bipartisanship. This is somebody who actually puts it to work and lives it and breathes it. Without another word, thank you so much for being here, Bob. Well, thank you very much for that introduction. It's really a pleasure for me to be here this morning for this policy conference on the Unconventional Gas Revolution. As both Frank and the others have said, this is a very interesting and fascinating topic. It's a sort of important topic and this meeting is being looked at today at sort of a pivotal point in our energy policy debate in Washington. It's easy to call it a pivotal point. My only problem is I can't figure out which direction it's pivoting in. But let me start off by talking a little bit about unconventional natural gas as seen from the Hill perspective and the sorts of things that we're hearing from a wide variety of experts about unconventional natural gas and asking sort of a few questions that I suspect you're going to get around to exploring today. And as you develop your own sort of consensus about some of these issues, we would be delighted to sort of receive and process some of your conclusions and consensus thoughts from this conference as we move forward on the Hill. First question really deals with the size of the potential supply impact of unconventional natural gas. It's looking like unconventional natural gas is going to be a major new development on the energy policy seen here in the United States, certainly in Canada, elsewhere around the world, the same sorts of geologies that we're exploiting now obviously occur in places like Poland which are very interesting from sort of a geopolitical natural gas perspective. If there are suddenly major new sources of natural gas supply in Europe, that's a very interesting geopolitical development. Cambridge Energy Research Associates, and Dan Juergen's group, actually is releasing a report down in Houston this week entitled Fueling North America's Energy Future, which is mostly focused on unconventional natural gas, which they present as a paradigm shift in our energy picture. And why do they sort of, you know, Dan Juergen's not the kind of guy who's sort of given to gross exaggeration, so why do they have this highly optimistic view? And they point to some raw supply statistics. They think that we're adding essentially 1,800 billion, a trillion additional cubic feet to a domestic natural resource that will bring it all to about 3,000 trillion cubic feet, and that's kind of like a 100-year supply. And so I guess one of the first questions is, do people here in the room sort of generally think that's on target? Do you think that's high or low or what? If we're seeing such a large new source of supply coming on board, that would seem to have major implications for what we're doing with liquefied natural gas. And even major infrastructure projects like the natural gas pipeline. So does unconventional natural gas take some of these things that, you know, two or three years ago were seen pretty much as kind of ultimate long-term necessities. Does it make them more options than necessities? I think that's kind of an interesting question for us to deal with in the policy perspective. Obviously, natural gas has a lower carbon footprint per unit of energy produced and unit of energy consumed. So that makes it an attractive candidate for lowering the overall carbon content of our energy system. Now, of course, producing shale gas is not without its own environmental issues, and some of them have gotten rather intense focus in the debate here in Washington. What sort of context we should put those issues in I think is an important question. How do they compare with the environmental issues associated with other major fossil fuels like coal, for example? We are certainly seeing resistance to unconventional natural gas exploration and production in places like New York State, and there are a couple ways of looking at that. Are we looking at a more fundamental sort of technological and political problem that's going to be, may emerge as a showstopper? Or are we dealing with the fact that people are beginning to produce a resource in a place that's not seen this kind of resource production ever before, and so there's some sort of learning curve that local communities and state governments are climbing along the Marseilles shale formation, et cetera. And I think that that is an interesting question. And either way, what should our policy response be? I think that's an important question that we're trying to wrap our minds around. If we are bringing new and large and seemingly stable supplies of natural gas online in the United States, does that smooth out price volatility? Has it been quite an issue in natural gas policy over the last several years? Are we going to stabilize around some price point, and we stabilize around five to seven bucks? Is that a good price point? What's the implications of that as a sort of a long-term price point for natural gas? Will that be accepted by residential customers and industrial customers? A lot of them are quite price-sensitive to natural gas in their operations. And then finally, the sort of the broader question is what do we do with it if we have all this new gas? And my thought is that the most likely outcome is that it's going to find its way mostly into the power and manufacturing sector. But there are other people who have other very different ideas. The thinking that I think we have up on the hill amongst some of us is that, look, our existing infrastructure for distributing and using natural gas is pretty much tailored to the power sector and the manufacturing sector. And there will probably be an increasing demand or role for gas as some sort of transition fuel as we retire coal plants and as a backup fuel for intermittent sources like solar and wind. And one way of thinking about a wind farm is sort of a lower carbon footprint version of a natural gas plant, if you could look at it from that perspective. But how does this group see it? Do you sort of see that as being the dominant place that natural gas is going into? And if you sort of are thinking a little more deeply about the power sector scenario, I think that there are a number of current assertions being made in the policy realm in Washington about natural gas. I think bear some closer examination. We certainly have Tim Worth, former senator, former member of the Energy Committee, certainly a good friend of many members of the Senate, including Senator Bingaman, who are out there saying, look, this is terrific. We can just change the dispatch order for generation and just dispatch natural gas ahead of coal. And presto chango, you can see I have a little skepticism about this, carbon footprints are instantly and almost immediately reduced. But aren't there a lot of coal plants located in places where there aren't good dispatchable natural gas plants to begin with? And can you really run a peaker as if it were a base load plant? So how realistic? What are the pluses and the minuses? What are the pluses and the minuses of optimism and elements of optimism in this sort of dispatch scenario? I think that's a question that we're grappling with here in Washington, and if you've got some sage observations to make on that, I think we'd be very interested in hearing them. And you know, the second question deals with sort of the long-term future of natural gas. Let's assume for a moment that we convert all our coal plants over to natural gas. Well, eventually the emissions curve from that generation mix does intersect the curve we're supposed to come down in order to get to some of these climate change scenarios, like 450 parts per million of carbon dioxide equivalent in the atmosphere. And if that's the case, we probably need to figure out how to make carbon capture and sequestration work for natural gas plants. And I wonder what people in the room think about that. Do people agree with that sort of assessment? That's certainly an assessment that is the International Energy Agency, and there are a 2008 report on energy technology perspectives forgetting to major reductions of greenhouse gases. And that was to a 50% reduction target in 2050. And obviously, you know, there are people who think that that's way too weak a target, and we need to get to 60%, 70%, 83%. So what is the connection ultimately between natural gas and carbon capture and sequestration? There's a different scenario than this sort of power sector scenario I've been talking about, and it's been the subject of also a lot of conversation. It's being actively promoted by natural gas proponents, most notably Teebun Pickens. And his thesis is that, you know, this gas is just terrific. We can just replace a tremendous amount of other fossil fuels in our transportation system with the direct use of natural gas. Now, we certainly see natural gas used in local fleets and has been for, you know, a decade or more, a couple decades. And it's got a fair degree of market penetration in that sort of specialized sector. But is natural gas sort of a sensible economic candidate for a sort of long haul of transportation from 18-wheelers? That's what Mr. Pickens is proposing. And if you sort of think about that, you know, there's some, you know, sooner or later we get around to sort of thermodynamics and, you know, compressed natural gas and even liquidified natural gas just has a lower energy content per volume than diesel fuel. So the way I sort of do the math, you know, if you, your average 18-wheeler with two big diesel tanks can probably drive around 650 miles before it pulls off somewhere and it probably can refill those tanks in, you know, five minutes, seven minutes. You know, it's not terribly long. You know, it's not terribly long weight on those, you know, fuel plazas off the New Jersey Turnpike. So now if we're suddenly using the same form factor and using compressed natural gas, you know, maybe you're only going 170 miles before you have to pull off. And, of course, it takes a lot longer to fuel up with compressed natural gas. So you're talking maybe 20 minutes, you know, maybe a little more. Now, is that a problem? How do truckers feel about that, I wonder? You know, and so I do think that there's some practicality issues associated there that aren't entirely clear to us as we evaluate these proposals and I think that that would be worth looking at. And I did bring one slide that Frank is going to figure out how to put up. Uh-oh, okay. Which sort of gets to this sort of question of sort of thermodynamics. And what this slide is, is a sort of a wealth to wheels analysis of the energy efficiency of different kinds of natural gas options for fueling transportation, okay? So we sort of go from, it's like golf scores, so lower is better. The more, the vertical axis is joules per kilometer as a BTU's per mile. So the fewer BTUs or joules you need per unit of distance, sort of the better off you are. So we could take natural gas and turn it into fish or trope diesel. We know how to do that. That's a relatively inefficient way of doing it because you have to use up a lot of energy system-wide from the well to the wheels to actually move very far. And so we kind of go across. Now, sort of the let's fuel all the 18-wheelers. That's the spark ignition. So that would be the second item here. And then we sort of come across we could try to turn natural gas into hydrogen and run it through fuel cells. We can use sort of combustion turbines and then make electricity and put it into plug-in hybrids. And finally we can use combined cycle plants to put into plug-in hybrids. And you can see that actually from a thermodynamic perspective, gas into electricity running it through the wires and into people's light-duty vehicles is 35% more thermodynamically efficient than just having to compress natural gas vehicle itself. And there are reasons for that. Obviously you can burn it at higher temperature and get more thermodynamic efficiency. Electric motors to wheel torque is much more efficient than in an automobile sort of an ignition engine to wheels. And so, you know, there are a number of systems efficiencies that come into play. So when you sort of think about the sort of the relative thermodynamic efficiency of your different options, right, does that convey any sort of policy messages to us here in Washington? And should we sort of follow the thermodynamics in terms of how we think about the use of natural gas and transportation or not? So that's kind of a brief tour of some of the issues that I think come to us most naturally when we talk about natural gas. Like I said, you have a lot of interesting experts on the program today. Sadly, I have a we have a hearing in the committee this morning that I have to go back to, but I do plan to check back in with Adam and Frank to see what your general sentiments were and your insights were on this sort of collections of questions. Let me just say a few things and I'll try not to go over my time about sort of where we stand in this sort of larger policy picture at this point in Congress. And the first thing is to sort of note where we are on the diagram, okay? If you sort of look at the number of session weeks we've had already and the number of session weeks that remain in front of us before October 8th, which I think is kind of the outside for when we, you know, adjourn to have people go off and run for re-election, we're sort of at the two-thirds point in this Congress, which is kind of, you know, sort of surprising when you think about it that we're that far gone. And so we don't have a whole lot of time left in this year to settle up on a very impressive array of very thorny issues, only one of which is energy. As was mentioned, the Committee on Energy and Natural Resources for which I work, which is chaired by my boss, Senator Jeff Bingham of New Mexico, and is we have the good fortune of having Senator Lisa Murkowski as our ranking member who has been just a terrifically substantive person to work with and also sort of has this adheres to the idea that the Senate ought to be a place where we work things out on a bipartisan basis. So we've been able to produce a bipartisan energy bill. We reported it out last June, the American Clean Energy Leadership Act that addresses a number of what we think are the key sticking points in energy policy going forward, and I will sort of group them into sort of five general categories. One is really the search for new policies to accelerate the deployment of clean energy technology, and under that category are things like the renewable electricity standard, our Clean Energy Deployment Administration proposal, and transmission system improvements for siting and deciding on and making sure you can build and figuring out how to pay for improvements to the electric transmission system. The second major theme of our bill is energy efficiency, and there we take a real look at how to improve energy efficiency in the manufacturing sector, which I think is critical to the future health of the manufacturing sector in the United States, as well as energy efficiency in buildings and appliances. The third major theme of our bill really deals with the energy innovation system, and there we've managed to craft sort of a bipartisan agreement on a long-term comprehensive doubling of our energy research and development programs of the Department of Energy, as well as a variety of provisions that deal with energy workforce training, which is sort of critical to the future. I think the fourth general area of enterprise in our bill is things I would call sort of energy market improvements. These deal with a collection of specific issues. For example, do we have an adequate way of ensuring cybersecurity electric transmission system? I mean that is if there is a major issue of information or cyber attack on SCADA systems, we're in deep trouble in this country, and there needs to be a way of detecting and heading those off and responding to threats and vulnerabilities along those lines. Also, the availability of energy supplies when our infrastructure is particularly our infrastructure for the delivery of product is disrupted by hurricanes, as we saw with Hurricane Ike. And then the whole issue of do we have adequate information on energy market, how energy markets are operating? Where is all this product that seems to be floating offshore in boats around the world, and who owns it, and when does it come into shore, and how does that affect our thinking about energy markets going forward? So there's a lot of things that we could do to sort of help energy markets work better since we do rely on market forces for an awful lot of the specifics of our energy operations operation and energy policy. And finally, the last sort of general category of things that we did on a bipartisan basis in the committee was, I think comes under the rubric of transition to the future. These are things like opening the eastern Gulf of Mexico to oil and gas exploration. There's 21 trillion cubic feet of natural gas under the eastern Gulf. That's just the estimate at this point. There's probably more once you get started and learn more about the geology. And also things like carbon capture and storage. How to sort of get carbon capture and storage projects at a large scale demonstrated and what are the barriers to those kinds of demonstrations and what can we do from the congressional side to deal with issues like liability, long-term stewardship. The things that keep people from actually signing up for a project say, yeah, I'll put a million tons of CO2 underground a year for 10 years to show that it can be done. You have to ask the question, well, okay, after 10 years you've got 10 million tons of CO2 under the ground, what's that? Who's responsible for that? And I think that there are some issues there on the policy nature that we can help with. Since reporting the bill we've continued to work on a bipartisan basis. We have a bunch of hearings this week that are the fruit of that. Senator Bingaman and Senator Murkowski have cosponsored a very substantial bill containing a number of additional appliance and equipment efficiency standards, including outdoor lighting, including sort of embodying sort of a consensus that has emerged about how to deal with regional standards. There are some real greenhouse gas savings associated with that. Homestar, we'll have a hearing on that this week. And we are soliciting additional suggestions on a bipartisan basis for other sort of perfecting improvements or technical changes that people want to see to our bill, which sort of leads to the question once you all do that, then what do you do? The path forward on this topic is a little murky at the moment. Senator Reid earlier talked about this last year of sort of a method of proceeding in which the relevant committees would sort of report out their work product and their areas of jurisdiction and they would somehow then be integrated with each other. And most of the committees that he initially had sort of nominated for doing that have not reported out legislation. We've reported out a bill. The Environment Public Works Committee has reported out the Kerry Boxer bill, but that was with some intended questions. Senator Kerry, Graham and Lieberman are circulating around the Senate and talking to a lot of members trying to see if there is a way of discovering 60 votes for a comprehensive form or a semi-comprehensive form of a cap and trade system. That continues to be a work in progress. They haven't circulated a text yet. We're hopeful that they will in the near future and I think once there's opportunity whether they have come up with something that can get sort of the necessary support to advance in the Senate. Obviously, Senator Byron Dorgan, Kent Conrad and the numbers of others have advocated for just take the energy bill that we passed and sort of be done with it and push that through. Obviously, Senator Binghamman certainly supports the bill that we reported out of committee. I think it would be a sober cut for his point of view. I think it wouldn't be energy only, it would be energy plus. I think that he does believe that there are a variety of other policies that we can probably get broad consensual support for in the Senate. That would be very responsive to the need to get our arms around the greenhouse gas problem. We're certainly talking to a variety of members about that. The activities that ongoing in the Senate are very responsive example of that. But ultimately, as Senator Bennett Johnson, my first boss on the Hill used to say, sometimes the clock is your enemy. At this point, I think that the clock is our enemy. We don't have a lot of time left. We have a very full agenda. I think happily the President does have energy near the top of his agenda. Obviously, health care is the top priority. But energy is not too far behind. You'll have Joe Aldi coming to wrap this up. I'm sure he'll have more to say about the President's views. The White House continues to reach out to members on the Hill, including my boss, and reaching on a bipartisan basis to try to assess where we are and what can get done. And that all translates into some significant accomplishments in this Congress. With that, I appreciate you having me. I've only put you five minutes behind schedule. Thanks a lot. We have no time, but we should take a question or two. If you have a question, please raise your hand and wait for the mic to get to you. We're audio recording. So it won't do you any good. A hand up here, please, is there a mic? Raise them real high. Don't be shy. Please state your name and affiliation. Bob McNally Hello? Bob McNally with the Rapidank Group. Bob, excellent talk. A question for you. Could you elaborate a little bit on the politics of clean water that's around the fracking issue? And specifically, would you care to put odds that the exemption fracking enjoys under the Safe Drinking Water Act will be in place, say, by the end of next year? Thank you. Well, it's always hard to prognosticate how Congress will deal with any particular issue. There are a variety of viewpoints on all of them. I will observe that when the House was considering its comprehensive energy and climate bill, this was a topic that they looked at but then decided that they weren't quite ready to address. And so I think that we sort of have to start looking for data that would sort of illuminate what might be going on. Obviously we have a bill. Senator Casey has introduced a bill on the topic here in the Senate. We certainly have had a lot of briefings to try to educate people on the topic. We certainly have been I certainly have been in briefings with some advocates on various sides. I've been in with advocates of people who think we ought to do something who sort of talk about sort of various disturbing stories of people who have had their groundwater contaminated allegedly by fracking. I think that's a very complicated topic and the data there is certainly kind of murky. And people sort of say that their groundwater has been contaminated often times people and we have lots of people who live up next to oil and gas operations in New Mexico there are a lot of practices that happen in the process of drilling for exploratory wells, drilling production wells, producing from wells other than fracking that in my own thinking seem to be much more likely candidates for potential terms of contaminants and groundwater. And I think that there's certainly an issue out there particularly with older wells about whether there's cement and the borehole is adequate and the problem of course is that in the oil and gas industry people tend to think that it's just only a couple majors but obviously in the onshore in the United States we have a wide variety of operators some of whom are just terrific and some of whom sort of leave a lot to be desired ok so it's sort of a complicated question I think to confidently assign any one cause to instances of groundwater contamination people see unusual chemicals showing up in their wells were they from the drilling mud? How do you know it was from the fracking thing? Now I do think that one of the issues in the politics of all of this is sort of the what I would call the mystery quotient I think people make a lot of statements that nobody has any possible idea of what's going down what toxic which is bruised, people are injecting 7000 feet into the ground et cetera et cetera and I think that a little bit that's overstated because I'm fairly well convinced that people actually have material safety data sheets on the site that outline what some of these things are I do think that trying to address this kind of mystery quotient part of it is probably would be a helpful thing for industry to do I mean the chemical industry faced this issue 20 years ago in the aftermath of Bopal and they took some strong action to assure the public that they could find out what was going on at chemical processing plants and they were able to find ways of doing it that that obviously did not harm their ability to continue to undertake proprietary activities I do think that that's certainly one dimension to pursue going forward in all of this but like I said it's a complicated topic you know if we ever get around to debating an energy or climate bill on the senate floor you know those bills will probably be open to amendment so it's always the possible subject of an amendment we're doing what we can in the energy committee to sort of understand the dimensions of the problem ourselves and to sort of serve as a sort of a technical resource to help other people understand sort of the technical dimensions of the problem thank you Bob it's a real pleasure Bob thank you so much for being here presenting you with a certificate of our appreciation for appearing today in our hearing ok well thank you very much I look forward to your welcome