Fueling Jobs and Growth with Gas: Jumping at the Chance

In presaging his comments at Gas Week 2013 at the European Parliament in Brussels, Belgium, Peter Hagen, General Manager, Gas Commercialization Europe, Chevron, said when he was offered a chance to speak about fueling jobs and growth with gas, he jumped at the chance.

He explained, "I know there's tremendous potential for natural gas, both now and in the long term. Natural gas is not just what some call a 'transition fuel'—it's here to stay, and Europe has an opportunity to take advantage of the growing demand for natural gas, to reinvigorate its energy industry and serve as a catalyst for growth and jobs in the region."

In addition to speaking on behalf of Chevron, Mr. Hagen said he was also at Gas Week on behalf of the "Gas from Shale Taskforce" of the Association of Oil and Gas Producers. Of the organization, he said: "We're charged with addressing global policy issues associated with exploring for and producing natural gas from shale."

Thus, he said he would focus on the benefits of increased indigenous supply, primarily natural gas produced from shale.

"Shale is a rock that industry once considered too difficult and uneconomic to produce, but we didn't give up," he recalled. "The energy industry managed to crack the code.

"This has fueled an energy renaissance across the United States, a renaissance which I believe will spread to several other areas of the world in the not-too distant future."

Peter Hagen said the benefits were clear.

"In the US, the production of gas, and now liquids, from shale has created a multiplier effect, in jobs, tax revenues and even manufacturing, as manufacturers expand domestically to take advantage of affordable feedstock."

With the increasing production of crude oil from shale, he noted the renaissance was growing and was showing signs of reversing more than 20 years of crude oil production declines, in addition to making the US a global leader in natural gas production.

"There's no reason Europe cannot benefit from an energy renaissance of its own," he opined. "Europe already has a big offshore industry and Chevron is involved in a number of areas."

Among the company's new projects, Mr. Hagen cited Rose Bank and Clair Ridge off of the Shetland Islands. "And we're using new techniques to get more from existing projects, such as the Captain field north of Aberdeen, where we're using polymer injection to decrease viscosity and enhance oil recovery.

"We see an opportunity, however, to invigorate onshore natural gas production as well. The demand for natural gas is only going to go up," he said, "and it makes sense to develop it wherever we can, safely and responsibly."

He noted natural gas' multiple uses: used by households, providing baseload and peak power, supplementing renewables and increasingly being used as a transportation fuel.

"It's also the cleanest burning fossil fuel," said Mr. Hagen. "Natural gas emits 44% less carbon dioxide than coal and 29% less than oil per unit of energy produced."

Yet to counter the high price of natural gas, Europe was using coal as its primary source of energy. "Switching to natural gas could help reduce the region's carbon footprint and help in EU attempts to reach ambitious CO2 reduction targets," he explained.

According to Mr. Hagen, if Europe were to target more of its indigenous natural gas resources like that trapped in shale, it would enhance the region's energy security and provide greater competition between suppliers.

"The IEA believes that potential to grow gas supplies is so great that we're no entering a 'Golden Age of Gas'—a number of studies indicate that Europe could be part of that golden age," he explained, "with the ability to increase indigenous production through significant commercially recoverable shale gas reserves in several countries."

But that would not happen on its own.

"We'll need to work together with policymakers, regulators, stakeholders and the private sector to ensure these resources are developed safely and responsibly; the end result could be increased jobs, tax revenue, incomes and, of course, supplies—supplies that will provide more competition in the European gas market and the economic benefits that may come with that."

To back up his case, Mr. Hagen described numerous economic benefits that had resulted in the US. He recalled that, previous to the shale gas revolution, natural gas reserves had been declining, but now shale gas was on track to provide 50% of total US natural gas production by 2040.

He said he would focus in on the US state of Pennsylvania, which hosted the so-called epicenter of US shale: the Marcellus shale.

"The natural gas industry invested more than $31 billion in Pennsylvania between 2010 and 2012, while supporting more than 200,000 jobs across the region. In 2013, the natural gas industry is expected to spend another $13.5 billion," he highlighted.

He said average wages for an average worker in the Marcellus was about $90,000/year, which was $40,000 higher than the average wage for all industries in Pennsylvania.

"According to recent studies conducted by Penn State University, exploration and production in the Marcellus region is expected to generate more than 250,000 jobs and more than $20 billion dollars in regional GDP equivalent by 2020. "Those are big numbers," remarked Mr. Hagen.

He also highlighted the resultant lower natural gas prices and for electric power. "These lower prices," he said, "will result in an annual average net energy savings of $926 per household between 2012 and 2015, and in 2035 those saving are projected to be just over $2,000 per household. That's what's happening in the US."

The knock-on effects were also apparent, according to him, with tremendous changes sweeping across the global natural gas industry.

Mr. Hagen recalled, "The European market has seen some of these effects, but the greatest changes in my opinion, have been as a result of EU policy.

"With the introduction of the 3rd Energy Package, previously isolated gas systems within the EU are becoming more interconnected," he explained. "This has fostered greater competition and is an example of where clear energy policy direction benefits Europe. I applaud the European Commission for pursuing this so diligently."

He suggested that the EU might similarly foster competitiveness by providing clear policies for the support of exploration and potential production of natural gas from shale.

"The fact is, we don't have a handle on how big Europe's energy economy could be. We need the EU and member states' support to do initial exploration to determine the size and the viability of Europe's resources; it's during that phase that we can demonstrate on the ground, that shale can be produced in a safe and environmentally sound manner.

"Only then, will we be able to obtain the mandate we need to produce gas from shale, commerically, in large volumes, responsibly, with all the benefits that it will provide for Europe: for the economy, for the environment, for energy security.

He said he realized that some in the room had reservations about unconventional gas, harboring fears about the possible impacts of developing shale in Europe.

That hydraulic fracturing might contaminate groundwater, he contended, was likely the greatest of these fears.

"Hydraulic fracturing takes place about 4 kilometers below water aquifers—that's more than 10 Eiffel Towers below the deepest aquifers. Beyond this natural isolation, we at Chevron design our wells with multiple layers of steel and cement to protect groundwater during hydraulic fracturing and over the life of the well. This is followed by a rigorous testing and monitoring over the full lifecycle of the well to ensure complete well integrity, such that fluids used in drilling and hydraulic fracturing do not enter the aquifer."

He added that hydraulic fracturing had been used on more than 2 million wells since the 1940s. "To this date, we can say that no case of hydraulic fracturing has contaminated groundwater."

Mr. Hagen contended that many would still remain skeptical and he said this was understandable. "That's why we, as an industry, want to demonstrate irrefutably on the ground in the exploration and appraisal phase that we can mitigate the risks, drill and hydraulically fracture shale gas wells in a socially and environmentally sound manner."

"If Europe decides to pursue new opportunities in natural gas development, we at Chevron stand ready to help, but to move forward as an industry will need support from all stakeholders and a strong social license to operate. The first step is exploration."

If a large shale resource were to be proven to be in place, Mr. Hagen said he believed this would be a catalyst for all stakeholders to work together and find a way to produce it that was acceptable to all stakeholders, from landowners all the way up to the EU.

"This is too great an opportunity to pass up," he concluded.