Speakers
Daniel Yergin Chairman IHS CERA (Chair)	David Hobbs Chief Energy Strategist IHS CERA
Chad Deaton President and Chief Executive Officer Baker Hughes	Greg Ebel President and Chief Executive Officer Spectra Energy Corporation
Richard Newell Administrator US Energy Information Administration (EIA)	G. Steven Farris Chairman and Chief Executive Officer Apache

Plenary cochairs Daniel Yergin, IHS CERA Chairman, and David Hobbs, IHS CERA Head of Research, led a deep dive into shale gas in the Wednesday afternoon special session "Fueling North America's Energy Future," which focused on how shale gas could change the North American energy landscape. Dr. Yergin thanked the sponsors Cisco Systems, Evolution Markets, and Baker Hughes, and then invited the panelists to offer their views.

G. Steven Farris, Chairman and CEO, Apache, said that "over the last five years we have changed the landscape," noting that there are now over 100 years worth of natural gas reserves in North America. He asserted that natural gas, and shale in particular, is "going to be a very significant contributor to our energy needs for some time to come" and emphasized that technology to exploit the gas has evolved to the point that shale gas is now "really pure development."

Mr. Farris discussed two sectors where gas could make significant inroads--transportation and power generation. In transportation its use as compressed natural gas could displace 5 million barrels per day of oil, reducing North American imports by $140 billion per year. Doing so would have the added benefit of reducing national greenhouse gas (GHG) emissions by 8 percent. He mentioned that his company is converting its entire fleet to natural gas, which is "just as easy or easier to fill up than gasoline."

In power generation converting 50 percent of coal plants to natural gas would decrease carbon dioxide emissions by 10 percent, helping to lower national GHG emissions. Mr. Farris also touched on the environmental benefits of developments in natural gas production. Using advanced gas drilling, one well with multiple horizontal fingers can replace development that previously required 32 wells, drastically reducing the physical footprint for production.

However, Mr. Farris noted additional challenges and said the industry needs to do a better job of educating Americans about the safety of hydraulic fraccing, for example. Yet he sees great potential for greater gas penetration into the North American energy market. In his opinion, "It's a no-brainer."

Richard Newell, Administrator, Energy Information Administration, touched on four main points about shale gas. First, "Shale is definitely a game changer on the supply side" as natural gas production in the United States has grown 16 percent over past four years. The Energy Information Administration (EIA) projects that shale will constitute over 25 percent of North American production by 2030.

Indeed natural gas is likely to be constrained by demand rather than resource availability. Demand has been relatively flat; the industrial sector will likely see no net growth over the next 25 years. In addition, the EIA expects a possible decline in power demand for natural gas, unless gas prices turn out below projections

In his third point Mr. Newell noted that the oil-to-gas price ratio is two times higher than historically, and the EIA expects this trend will continue, for two reasons. Transportation demand is growing, increasing demand for oil and elevating oil prices. At the same time robust unconventional production will keep natural gas prices low. Gas penetration in the transportation market is difficult to achieve without subsidies, limiting interfuel competition and helping to maintain the new oil-gas price ratio.

Finally, future policy efforts will have major implications for natural gas demand. With 60 percent lower GHG emissions than coal, natural gas would be favored in the near to midterm. However, to meet the proposed goal of an 85 percent reduction in GHG emissions, power generation will have to be almost completely carbon free, favoring nuclear, renewables, and coal with carbon capture and storage over natural gas generation.

Chad Deaton, President and CEO, Baker Hughes, said he believes many questions continue to linger around shale gas development. Is shale gas real? Is it reliable? Does it represent a new paradigm for the North American energy market? Mr. Deaton said history has led many people to view projections of shale gas reserves with a grain of salt. Nonetheless, in his opinion the reserves are there and can be produced at reasonably low prices. However, it is still uncertain whether all players along the value chain will work together to achieve favorable economics.

Gas prices have been notoriously volatile. In mid-2008 prices peaked at over $8 before crashing to less than $4. But for the last few months prices have remained relatively stable. Reserves are large enough to make natural gas a reliable source, but volatility must be addressed. He also cautioned that many technical challenges must still be overcome. For example, in order to produce gas more reliably and cheaply, the geomechanics of the rock must be better understood; the industry must also develop the ability to drill longer horizontal wells. Shale gas can be priced competitively, doesn't have to be imported, and is the cleanest of the hydrocarbons. This makes gas a natural contender to compete with coal, but to make that switch all players have to come to agreement on pricing. Mr. Deaton agreed that shale gas has fundamentally changed the market. There is significant opportunity to switch--in some cases--from coal to natural gas, but only if the economics are right.

Greg Ebel, President and CEO, Spectra Energy, said we are at a game changing point for natural gas and maybe for the entire energy market. Technology can help overcome the challenges ahead, Mr. Ebel said, noting in particular the speed of technological transition in the past. While the issues seem daunting--the necessary 38,000 miles of new interstate pipeline, 400 billion cubic feet (Bcf) of new gas storage, or the $6-$10 billion required each year--they can be overcome. Spectra alone spends $1-$2 billion per year on infrastructure.

He also addressed pricing, suggesting that the industry must start thinking of the role of pricing in a different way. Instead of looking at the absolute price, suppliers should look at the economics in terms of risk-adjusted returns. From this perspective $5 gas is not something to worry about if it gives yields a 25 percent return.

Finally, Mr. Ebel touched on the need for sound government policies that treat gas fairly, saying the current policy playbook is outdated. But part of the onus is on the industry: if the message is not clear and convincing, or if industry is not working collaboratively with government and affected communities, the risk of stagnation or unrealistic policies grows. In the future the world will require many energy sources, including fossil fuels. That bodes well for shale gas, and its day in the sun "seems to be right here right now."

The session concluded with comments by David Hobbs, IHS CERA Head of Research, who discussed IHS CERA's recently completed Multiclient Study "Fueling North America's Energy Future." Mr. Hobbs agrees that there is a great deal of natural gas available.

One main point of the IHS CERA study addresses the concerns of environmental organizations about water, in particular the treatment of produced water. This water requires the same level of care that produced water from all oil and gas drilling needs. As most states already have rules in place for dealing with this byproduct, however, water should not be a deal-breaker for shale gas production.

The IHS CERA study considers that the risk for natural gas development is on the demand side. Because of the pace at which the auto fleet turns over, the study concluded that there would not be rapid penetration of natural gas into transportation. Instead, any big changes in demand will come from the power sector, which could increase to 35 Bcf per day by 2035. GHG policy, however, leaves the power sector in a quandary: Should utilities build a relatively cheap natural gas plant today and run the risk that policy could require it to shut down before the end of its useful life? Or is it better to build capital-intensive nuclear power and then find that it's not needed? Given these issues, shale gas is a gift whose true value will take a long time to realize.