PRUDENT
DEVELOPMENT
Realizing the Potential of North America’s Abundant
Natural Gas and Oil Resources
National Petroleum Council • 2011
PRUDENT
DEVELOPMENT
Realizing the Potential of North America’s Abundant
Natural Gas and Oil Resources
A report of the National Petroleum Council
September 2011
Committee on Resource Development
James T. Hackett, Chair
NATIONAL PETROLEUM COUNCIL
David J. O’Reilly, Chair
Douglas L. Foshee, Vice Chair
Marshall W. Nichols, Executive Director
U.S. DEPARTMENT OF ENERGY
Steven Chu, Secretary
e National Petroleum Council is a federal
advisory committee to the Secretary of Energy.
e sole purpose of the National Petroleum Council
is to advise, inform, and make recommendations
to the Secretary of Energy on any matter
requested by the Secretary
relating to oil and natural gas
or to the oil and gas industries.
All Rights Reserved
Library of Congress Control Number: 2011944162
© National Petroleum Council 2011
Printed in the United States of America
e text and graphics herein may be reproduced
in any format or medium, provided they are reproduced accurately,
not used in a misleading context, and bear acknowledgement of
the National Petroleum Council’s copyright
and the title of this report.
OUTLINE OF REPORT MATERIALS i
Summary Report Volume (also available
online at www.npc.org)
y Report Transmittal Letter to the
Secretary of Energy
y Outline of Report Materials
y Preface
y Executive Summary
y Study Request Letters
y Description of the National Petroleum Council
y Roster of the National Petroleum Council
Full Report Volume (printed and available
online at www.npc.org)
y Outline of Full Report (see below)
Additional Study Materials (available online
at www.npc.org)
y Summary and Full Report (pdfs with hyperlinks)
y Report Slide Presentations
y Webcasts of NPC Report Approval Meeting and
Press Conference
y Study Topic and White Papers (see page vi for list)
y Study Survey Data Aggregations
Outline of Full Report
Preface
Executive Summary
America’s Energy Future
Core Strategies
Support Prudent Natural Gas and Oil Resource Development and Regulation
Better Reect Environmental Impacts in Markets and Fuel/Technology Choices
Enhance the Ecient Use of Energy
Enhance the Regulation of Markets
Support the Development of Intellectual Capital and a Skilled Workforce
Conclusions
Outline of Report
Materials
ii PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Chapter One: Crude Oil and Natural Gas Resources and Supply
Abstract
Introduction and Summary
Summaries and Key Findings
Summary of Scope and Objectives
Summary of Methodology
North American Oil and Natural Gas Resource Endowment
Hydrocarbon Resource Assessment Uses and Denitions
Overview of Recent and Current North American Oil and Gas Resource Assessments
Key Findings and Observations
Analysis of Resource and Production Outlooks and Studies
Overview
Crude Oil
Natural Gas
Prospects for North American Oil Development
Overview
Oshore
Arctic
Onshore Oil
Unconventional Oil
Crude Oil Pipeline Infrastructure
Prospects for North American Gas Development
Overview
Oshore
Arctic
Onshore Gas
Natural Gas Infrastructure
North American Oil and Gas Production Prospects to 2050
Chapter Two: Operations and Environment
Abstract
Introduction and Summary
Environmental Challenges
Prudent Development
Major Findings: Assuring Prudent Development
Chapter Organization
Resource Play Variations and Associated Environmental Challenges
Overview of the Life Cycle of Natural Gas and Oil Exploration and Production
Developing Onshore Conventional Natural Gas and Oil Resources
OUTLINE OF REPORT MATERIALS iii
Developing Oshore Conventional Natural Gas and Oil Resources
Developing Unconventional Natural Gas and Oil Resources
History of Innovation in Environmental Stewardship
Onshore Development of Natural Gas and Oil
Oshore Development of Natural Gas and Oil
Future Expectations
History of Natural Gas and Oil Environmental Laws
Prior to 1935
Initiation of Natural Gas and Oil Conservation
U.S. Oil Production Dominance
Environmental Movement
Environmental Regulation Renement
Sustainable Strategies and Systems for the Continued Prudent Development of
North American Natural Gas and Oil
Life-Cycle Assessments and Footprint Analyses
Environmental Management Systems
Public-Private Partnerships
Data Management Systems
Oshore Safety and Environmental Management
Center for Oshore Safety
Outer Continental Shelf Safety Oversight Board
Regulatory Framework on the Outer Continental Shelf
Lease Sale Planning Process
Coastal Marine Spatial Planning
Consideration of Studies on the Deepwater Horizon Incident
Oshore Operations and Environmental Management Findings
Key Findings and Policy Recommendations
Key Findings
Denitions of Sustainable Development
Chapter ree: Natural Gas Demand
Abstract
Summary
Back to the Future: Two Decades of Natural Gas Studies
Range of U.S. and Canadian Natural Gas Demand Projections
Potential U.S. and Canadian Total Natural Gas Requirements
Compared to Natural Gas Supply
U.S. Power Generation Natural Gas Demand
Natural Gas Demand Summary
Drivers of Power Generation Natural Gas Demand
iv PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Power Generation Natural Gas Demand Projections
Harmonization of U.S. Natural Gas and Power Markets
U.S. Residential and Commercial Natural Gas, Distillate, and Electricity Demand
U.S. Residential Energy
U.S. Industrial Natural Gas and Electricity Demand
Industrial Natural Gas Demand
Industrial Electricity Demand
U.S. Transmission Natural Gas Demand
U.S. Transmission Natural Gas Demand
Other Transmission Issues
Full Fuel Cycle Analysis
Canadian Natural Gas and Electricity Demand
Canadian Natural Gas Demand
Canadian Residential Natural Gas and Electricity Demand
Canadian Commercial Natural Gas and Electricity Demand
Canadian Industrial Natural Gas and Electricity Demand
Canadian Power Generation Demand
A View on 2050 Natural Gas Demand
Potential Vehicle Natural Gas and Electricity Demand
NGV Natural Gas Demand
PEV Electricity Demand
Total Potential Natural Gas Demand for Vehicles
LNG Exports
Exports to Mexico
U.S. Liquids Demand
Policy Recommendations
Increase Energy Eciency
Promote Ecient and Reliable Energy Markets
Increase Eectiveness of Energy Policies
Support Carbon Capture and Sequestration Research and Development
Description of Projection Cases
Chapter Four: Carbon and Other Emissions in the End-Use Sectors
Abstract
Summary
Emissions Baseline and Projections
Summary of Findings
Greenhouse Gas Emissions: Unconstrained Cases
Greenhouse Gas Emissions: Constrained Scenarios
Sulfur Dioxide, Nitrogen Oxides, and Mercury
OUTLINE OF REPORT MATERIALS v
Life-Cycle Emissions of Natural Gas and Coal in Power Generation
Life-Cycle Analysis of Natural Gas and Coal in Power Generation
Other LCA Studies
Methane Reduction Programs and Technologies
Conclusions
Recommendations
Natural Gas End-Use Technologies
Methodology
Findings
Impact of Non-GHG EPA Rules on the Power Sector
Retirement Decision
Methodology
Results
Intra-Study emes
Other Considerations
Limitations
Policy Considerations
Methodology
Findings
Evaluation of Policy Options and Frameworks
Recommendations
Chapter Five: Macroeconomics
Abstract
Summary
Macroeconomic Impacts of the Natural Gas and Oil Industry on the Domestic Economy
Related Industries
Taxes and the Natural Gas and Oil Industry
Federal Corporate Income Taxes
Severance Taxes
Royalties
Other Taxes Generated Directly by the Industry
Tax Deductions for the Natural Gas and Oil Industry
Natural Gas and Oil Workforce Challenges
Challenge #1 – Aging Natural Gas and Oil Workforce
Challenge #2 – Long Decline in University-Level Population Seeking
Natural Gas and Oil Careers
Challenge #3 – e U.S. Need for Increased Investment in
K-12 Mathematics and Science Education
Responding to the Workforce Challenges
vi PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Natural Gas and Crude Oil Volatility Impacts on Producers and Consumers
Commodity Price Volatility
Background: Commodity Prices
Macroeconomic Impacts of Changing Commodity Prices
Energy Sector-Specic Impacts of Changing Commodity Prices
Impacts on Volatility
Assessing the Business Model of the Natural Gas and Oil Industry
Company Roles within the Unconventional Natural Gas Business
How the Business Model Works: Process of Unconventional Development
International Unconventional: Will It Work?
Implications of the Shift to an Unconventional Natural Gas Business Model
e U.S. Government’s Role in the Business Model for Unconventional Gas Development
Governing Principles for the Government
e Government’s Choice of Tools to Employ in the Natural Gas and Oil Industry
Business Model
Bibliography
Appendices
Appendix A: Request Letters and Description of the NPC
Appendix B: Study Group Rosters
Appendix C: Additional Materials Available Electronically
Acronyms and Abbreviations
Conversion Factors
List of Study Topic and White Papers
Resource & Supply Task Group
Subgroup Topic Papers
Paper #1-1: Oil and Gas Geologic Endowment
Paper #1-2: Data and Studies Evaluation
Paper #1-3: Oshore Oil and Gas Supply
Paper #1-4: Arctic Oil and Gas
Paper #1-5: Onshore Conventional Oil Including EOR
Paper #1-6: Unconventional Oil
Paper #1-7: Crude Oil Infrastructure
Paper #1-8: Onshore Natural Gas
Paper #1-9: Natural Gas Infrastructure
Task Group White Papers
Paper #1-10: Liqueed Natural Gas (LNG)
Paper #1-11: Methane Hydrates
OUTLINE OF REPORT MATERIALS vii
Paper #1-12: Mexico Oil & Gas Supply
Paper #1-13: Natural Gas Liquids (NGLs)
Operations & Environment Task Group
Environmental & Regulatory Subgroup Topic Papers
Paper #2-1: Water/Energy Nexus
Paper #2-2: Regulatory Framework
Paper #2-3: U.S. Oil and Gas Environmental Regulatory Process Overview
Paper #2-4: U.S. Environmental Regulatory and Permitting Processes
Paper #2-5: Canadian and Provincial Permitting and Environmental Processes
Paper # 2-6: Evolving Regulatory Framework
Oshore Operations Subgroup Topic Papers
Paper #2-7: Safe and Sustainable Oshore Operations
Paper #2-8: Oshore Environmental Footprints and Regulatory Reviews
Paper #2-9: Oshore Environmental Management of Seismic and Other Geophysical
Exploration Work
Paper #2-10: Oshore Production Facilities and Pipelines, Including Arctic Platform Designs
Paper #2-11: Subsea Drilling, Well Operations and Completions
Paper #2-12: Oshore Transportation
Paper #2-13: Oshore Well Control Management and Response
Paper #2-14: Oshore Data Management
Technology Subgroups Topic Papers
Paper #2-15: Air Emissions Management
Paper #2-16: Biodiversity Management and Technology
Paper #2-17: Management of Produced Water from Oil and Gas Wells
Paper #2-18: Oil Production Technology
Paper #2-19: Natural Gas Pipelines Challenges
Paper #2-20: Regulatory Data Management
Paper #2-21: Research, Development and Technology Transfer
Paper #2-22: Siting and Interim Reclamation
Paper #2-23: Sustainable Drilling of Onshore Oil and Gas Wells
Paper #2-24: Waste Management
Paper #2-25: Plugging and Abandonment of Oil and Gas Wells
Onshore Operations Subgroup
Paper #2-26: Life Cycle of Onshore Oil and Gas Operations
Paper #2-27: North American Oil and Gas Play Types
Task Group White Papers
Paper #2-28: Environmental Footprint Analysis Framework
Paper #2-29: Hydraulic Fracturing: Technology and Practices Addressing Hydraulic Fracturing
and Completions
viii PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Demand Task Group
Subgroup Topic Papers
Paper #3-1: Power Generation Natural Gas Demand
Paper #3-2: Residential and Commercial Natural Gas and Electricity Demand
Paper #3-3: Industrial Natural Gas and Electricity Demand
Paper #3-4: Transmission Natural Gas Demand
Task Group White Papers
Paper #3-5: What Past Studies Missed
Paper #3-6: Natural Gas Exports to Mexico
Paper #3-7: Liquids Demand
Carbon and Other End-Use Emissions Subgroup
Subgroup Topic Papers
Paper #4-1: Baseline and Projections of Emissions from End-Use Sectors
Paper # 4-1a: Addendum: GHG Constrained Cases
Paper #4-2: Life-Cycle Emissions of Natural Gas and Coal in the Power Sector
Paper #4-3: Natural Gas End-Use GHG Reduction Technologies
Paper #4-4: Impact of EPA Regulations on the Power Sector
Paper #4-5: Policy Options for Deployment of Natural Gas End-Use GHG Reduction
Technologies
Macroeconomic Subgroup
Subgroup Topic Papers
Paper #5-1: Macroeconomic Impacts of the Domestic Oil & Gas Industry
Paper #5-2: Commodity Price Volatility
Paper #5-3: U.S. Oil & Gas Industry Business Models
PREFACE 1
studies on two topics: (1) Future Transportation
Fuels; and (2) Prudent Development of North Ameri-
can Natural Gas and Oil Resources. e Secretary
stated that the Council is uniquely positioned to pro-
vide advice to the Department of Energy on these
important topics.
In the Fuels Study request, Secretary Chu asked
the Council to “conduct a study which would analyze
U.S. fuels prospects through 2030 for auto, truck, air,
rail, and waterborne transport,” with advice sought
on “policy options and pathways for integrating
new fuels and vehicles into the marketplace includ-
ing infrastructure development.” Expanding on his
September 2009 request, in a supplemental letter
dated April 30, 2010, Secretary Chu further asked
that the Fuels Study examine actions industry and
government could take to stimulate the technologi-
cal advances and market conditions needed to reduce
life-cycle greenhouse gas emissions in the U.S. trans-
portation sector by 50% by 2050, relative to 2005
levels, while enhancing the nation’s energy security
and economic prosperity. at study is now under-
way, with an anticipated completion in the rst half
of 2012.
is North American Resources Study report is
the Council’s response to the second study request,
in which Secretary Chu asked the NPC to “reassess
the North American natural gas and oil resources
supply chain and infrastructure potential, and the
contribution that natural gas can make in a transition
to a lower carbon fuel mix.” He further expressed his
interest in “advice on policy options that would allow
prudent development of North American natural
gas and oil resources consistent with government
objectives of environmental protection, economic
growth, and national security.” In his supplemental
letter of April 2010, Secretary Chu stated: “the
NatioNal Petroleum CouNCil
e National Petroleum Council (NPC) is an organiza-
tion whose sole purpose is to provide advice to the fed-
eral government. At President Harry Truman’s request,
this federally chartered and privately funded advisory
group was established by the Secretary of the Interior
in 1946 to represent the oil and natural gas industry’s
views to the federal government: advising, inform-
ing, and recommending policy options. During World
War II, under President Franklin Roosevelt, the federal
government and the Petroleum Industry War Council
worked closely together to mobilize the oil supplies that
fueled the Allied victory. President Truman’s goal was
to continue that successful cooperation in the uncertain
postwar years. Today, the NPC is chartered by the Sec-
retary of Energy under the Federal Advisory Committee
Act of 1972, and the views represented are considerably
broader than those of the oil and natural gas industry.
About 200 in number, Council members are ap-
pointed by the Energy Secretary to assure well-
balanced representation from all segments of the
oil and natural gas industry, from all sections of
the country, and from large and small companies.
Members are also appointed from outside the oil and
natural gas industry, representing related interests
such as states, Native Americans, and academic,
nancial, research, and public-interest organizations
and institutions. e Council provides a forum
for informed dialogue on issues involving energy,
security, the economy, and the environment of an
ever-changing world.
Study requeSt
By letter dated September 16, 2009, Secretary of
Energy Steven Chu requested the NPC to conduct
Preface
2 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Subgroups focused on specic subject areas. Figure1
provides an organization chart for the study and
Table1 lists those who served as leaders of the groups
that conducted the study’s analyses.
e members of the various study groups were
drawn from NPC members’ organizations as well as
from many other industries, state and federal agen-
cies, environmental nongovernmental organiza-
tions (NGOs), other public interest groups, nancial
institutions, consultancies, academia, and research
groups. More than 400 people served on the study’s
Committee, Subcommittee, Task Groups, and Sub-
groups and while all have relevant expertise for the
study, fewer than 50% work for natural gas and oil
companies. Appendix B contains rosters of these
study groups and Figure 2 depicts the diversity of par-
ticipation in the study process. In addition to these
study group participants, many more people were
involved through outreach activities. ese eorts
were an integral part of the study with the goal of
informing and soliciting input from an informed
range of interested parties.
Study group and outreach participants contrib-
uted in a variety of ways, ranging from full-time
work in multiple study areas, to involvement on a
United States sees a future in which valuable
domestic energy resources are responsibly produced
to meet the needs of American energy consumers
consistent with national, environmental, economic
and energy security goals, … [and the United States]
has the opportunity to demonstrate global leadership
in technological and environmental innovation.
Accordingly, I request the Council’s advice on potential
technology and policy actions capable of achieving
this vision.” Appendix A contains full copies of both
letters from the Secretary.
Study orgaNizatioN
In response to the Secretary’s requests, the Council
established a Committee on Resource Development
to study this topic and to supervise preparation of a
draft report for the Council’s consideration. e Com-
mittee leadership consisted of a Chair, Government
Cochair, and four subject-area Vice Chairs. e Coun-
cil also established a Coordinating Subcommittee,
three Task Groups, and three Coordinating Subcom-
mittee level analytical Subgroups to assist the Com-
mittee in conducting the study. ese study groups
were aided by four Coordinating Subcommittee level
support Subgroups and twenty-one Task Group-level
Figure P-1. Structure of the North American Resource and Development Study Team
COORDINATING SUBCOMMITTEE
COMMITTEE ON RESOURCE DEVELOPMENT
ANTITRUST
ADVISORY
SUBGROUP
REPORT
WRITING
SUBGROUP
INTEGRATION
SUBGROUP
MACROECONOMIC
SUBGROUP
END-USE EMISSIONS
AND CARBON
REGULATION SUBGROUP
POLICY
SUBGROUP
RESOURCE & SUPPLY
TASK GROUP
OPERATIONS & ENVIRONMENT
TASK GROUP
DEMAND
TASK GROUP
Figure 1. Structure of the North American Resource Development Study Team
PREFACE 3
lation of data and other information, they did not take
positions on the study’s policy recommendations. As a
federally appointed and chartered advisory commit-
tee, the NPC is solely responsible for the nal advice
provided to the Secretary of Energy. However, the
Council believes that the broad and diverse study
group and outreach participation has informed and
specic topic, to reviewing proposed materials, or to
participating solely in an outreach session. Involve-
ment in these activities should not be construed as
endorsement or agreement with all the statements,
ndings, and recommendations in this report. Addi-
tionally, while U.S. government participants provided
signicant assistance in the identication and compi-
Chair – Committee
James T. Hackett
Chairman and Chief Executive Ocer
Anadarko Petroleum Company
Chair – Coordinating Subcommittee
D. Clay Bretches
Vice President, E&P Services and Minerals
Anadarko Petroleum Company
Government Cochair – Committee
Daniel P. Poneman
Deputy Secretary of Energy
U.S. Department of Energy
Government Cochair – Coordinating Subcommittee
Christopher A. Smith
Deputy Assistant Secretary for Oil and Natural Gas
U.S. Department of Energy
Vice Chair – Resource & Supply
Marvin E. Odum
President
Shell Oil Company
Chair – Resource & Supply Task Group
Andrew J. Slaughter
Business Environment Advisor – Upstream Americas
Shell Exploration & Production Company
Vice Chair – Operations & Environment
Aubrey K. McClendon
Chairman of the Board and Chief Executive Ocer
Chesapeake Energy Corporation
Chair – Operations & Environment Task Group
Paul D. Hagemeier
Vice President, Regulatory Compliance
Chesapeake Energy Corporation
Vice Chair – Demand
Daniel H. Yergin
Chairman
IHS Cambridge Energy Research Associates, Inc.
Chair – Demand Task Group
Kenneth L. Yeasting
Senior Director, Global Gas and North America Gas
IHS Cambridge Energy Research Associates, Inc.
Vice Chair – Policy
Philip R. Sharp
President
Resources for the Future
Chair – Policy Subgroup
Susan F. Tierney
Managing Principal
Analysis Group, Inc.
Chair – End-Use Emissions & Carbon Subgroup
Fiji C. George
Carbon Strategies Director
El Paso Corporation
Chair – Macroeconomic Subgroup
Christopher L. Conoscenti
Exective Director, Energy Investment Banking
J.P. Morgan Securities LLC
Table 1. North American Resource Development Study Leaders
4 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
4. Consider the evolutionary path of technology and
the ability of the United States to demonstrate
technological leadership.
5. Develop policy recommendations following and
deriving from the development of facts.
6. Provide and adhere to clear objectives and a
detailed scope of work.
7. Set clear expectations for study participants –
commitment level and duration.
8. Communicate regularly with leadership, team
members, and external stakeholders.
As part of providing a broad review of current
knowledge, the study groups examined available
analyses on North American oil and gas resources,
supply, demand, and industry operations. e main
focus of the analysis review was on the United States
and Canada, as both countries are very large oil and
natural gas producers and both have very large future
supply potential in those resources. Mexico is geo-
graphically part of North America and is recognized
as an important crude oil supplier to the United
States as well as a current importer of approximately
1billion cubic feet per day of natural gas. ese link-
ages are discussed in more detail in the Demand and
Resources and Supply chapters. e study team did
not, however, attempt to undertake an in-depth
review of future resources and supply potential from
Mexico.
e varied analyses reviewed during the study
included those produced by the Energy Information
Administration, International Energy Agency, and
National Energy Board of Canada, among others. In
addition, the study incorporated the January 2011
Report of the Presidential Oil Spill Commission, the
National Academy of Engineering Macondo Study, the
(as then incomplete) Joint Investigation Teamstudy
by the Bureau of Ocean Energy Management (BOEM)
and U.S. Coast Guard, and other studies.
e NPC also conducted a broad survey of propri-
etary energy outlooks. As an integral part of this pro-
cess, the public accounting rm Argy, Wiltse & Rob-
inson, P.C. received, aggregated, and protected the
proprietary data responses.
Using these datasets, both public and private, the
study groups organized the material to compare and
contrast the views through 2050, the period selected
in the request from Secretary Chu. Most of the
enhanced its study and advice. e Council is very
appreciative of the commitment and contributions
from all who participated in the process.
Study aPProaCh
A central goal of the study was to fully comply with
all regulations and laws that cover a project of this
type. For that reason, every eort was made to con-
form to all antitrust laws and provisions as well as
the Federal Advisory Committee Act. As part of this
compliance eort, this study does not include a direct
evaluation of commodity prices despite the extremely
important role these play in balancing supply and
demand.
After careful thought, the Council decided upon the
following principles to guide the study:
1. Identify and involve a broad and diverse set of
interests to participate in the study.
2. Utilize consensus-based leadership to produce the
best results.
3. Provide a broad review of current research and
conduct new studies only as needed.
>400 PARTICIPANTS; >50% PARTICIPANTS FROM OUTSIDE
THE OIL AND GAS INDUSTRY
Figure P-2. Study Participant Diversity
ACADEMIA AND PROFESSIONAL SOCIETIES
OIL AND GAS
INDUSTRY
GOV'T –
FEDERAL
AND STATE
NGOs
END
USERS
CONSULTANT/
FINANCIAL/
LEGAL
Figure 2. Study Participant Diversity
PREFACE 5
review this Integrated Report and supporting details
in dierent levels of detail, the report is organized in
multiple layers as follows:
y Executive Summary is the rst layer and pro-
vides a broad overview of the study’s princi-
pal ndings and resulting policy recommen-
dations. It describes the signicant increases
in estimates of recoverable natural gas and oil
resources and the contributions they can make to
the nation’s economic, security, and environmental
well-being if properly produced and transported.
y Report Chapters provide a more detailed discussion
of the data, analyses, and additional background
on the ndings. ese individual chapters of the
Integrated Report are titled by subject area – i.e.,
Demand, Macroeconomics, etc. ese chapters pro-
vide supporting data and analyses for the ndings
and recommendations presented in the Executive
Summary.
y Appendices are at the end of the Integrated Report
to provide important background material, such as
Secretary Chu’s request letters; rosters of the Coun-
cil and study groups’ membership; and descriptions
of additional study materials available electroni-
cally. Also included are conversion factors used by
all study groups in the creation of the report, as
well as a list of acronyms and abbreviations.
y Topic and White Papers provide a nal level of detail
for the reader. ese papers, developed by or for
the study’s Task Groups and Subgroups, formed
the base for the understanding of each study seg-
ment, such as Onshore Gas and Industrial Demand,
and were heavily utilized in the development of the
chapters of the Integrated Report. A list of short
abstracts of these papers appears in Appendix C
and the full papers can be viewed and downloaded
from the NPC website (http://www.npc.org).
e Council believes that these materials will be of
interest to the readers of the report and will help
them better understand the results. e members
of the NPC were not asked to endorse or approve
all of the statements and conclusions contained in
these documents but, rather, to approve the publi-
cation of these materials as part of the study pro-
cess. e papers were reviewed by the Task Groups
and Subgroups but are essentially stand-alone anal-
yses of the studies used by each group. As such,
statements and suggested ndings that appear in
these papers are not endorsed by the NPC unless
they were incorporated into the Integrated Report.
outlooks evaluated, however, extended only through
2035 and a number ended before that date. For that
reason, the material framing many aspects of the
study for the 15 years between 2036 and 2050 are
more qualitative than quantitative in nature.
To avoid overlap and leverage resources, both the
Fuels Study and North American Resources Study
teams created Integration Subgroups to coordinate
work within and between the two parallel projects.
e Resources Study thus evaluated the petroleum
resource base and the infrastructure necessary to
bring petroleum to the renery while the Fuels Study
focused on renery capacity, upgrading, and down-
stream infrastructure. e Fuels Study also exam-
ined the demand for petroleum motor transportation
fuels as well as natural gas demand for transporta-
tion. With regard to the latter, the Resources Study
received access to the Fuels Study’s initial view on
high potential natural gas vehicle demand and the
eect of electric vehicles on natural gas consumption,
but the Resource Study advanced timeline did not
allow for inclusion of the nal Fuels Study analysis in
these areas. By addressing these potential overlaps
and establishing rm means of communication, the
results of both studies were signicantly improved
and the time necessary for completing each of the
Council’s studies was shortened.
e Resources Study Task Groups and Subgroups
carefully evaluated the numerous studies available
within their respective areas using the grounded per-
spective resulting from their combined hundreds of
years of experience. ey determined the key drivers
for each outlook and developed a fact-based under-
standing of the key issues within demand and sup-
ply as well as end-use emissions, the economy and
prudent environmental operations. From this back-
ground, the Committee on Resource Development
brought important ndings to the attention of the
Council. ese ndings led to the creation of recom-
mendations on government policy that could favor-
ably aect the ability of natural gas to manage the
country’s “transition to a lower carbon fuel mix.”
Study rePort StruCture
In the interest of transparency and to help readers
better understand this study, the NPC is making the
study results and many of the documents developed
by the study groups available to all interested par-
ties. To provide interested parties with the ability to
6 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
visit the site to download the entire report or indi-
vidual sections for free. Also, published copies of the
report can be purchased from the NPC.
e Integrated Report and the Topic and White
Papers are publicly available. ey may be individu-
ally downloaded from the NPC website (http://www.
npc.org). Readers are welcome and encouraged to
EXECUTIVE SUMMARY 7
energy and feedstocks required by America’s indus-
tries. What happens to natural gas supplies aects
all Americans.
Other events have detracted from these positive
developments. Consumers have been coping with
the eects of high petroleum prices. ere have been
tragic accidents, such as the Macondo oil spill in the
deepwater Gulf of Mexico and the natural gas pipe-
line explosion in San Bruno, California. Concerns
have been raised about the environmental impacts
of oil sands and shale gas extraction. Some are
questioning the industry’s ability to develop North
American oil and gas resources in an environmen-
tally acceptable and safe manner.
All this sets the context for this study, highlight-
ing the need to continue to develop America’s natu-
ral gas and oil resources in a manner that will balance
energy, economic, and environmental security needs
as part of a transition to a lower carbon energy mix.
In his letter asking the NPC to conduct this study,
the Secretary of Energy requested that the assess-
ment concentrate on two tasks: developing an up-
to-date understanding of the potential natural gas
and oil supply opportunities in North America
2
; and
examining the contribution that natural gas could
make in a transition to a lower carbon fuel mix. He
focused the NPC’s attention on interrelated national
objectives of enhancing the nation’s energy security
and economic competitiveness while minimizing
environmental impacts, including climate change.
He instructed the NPC to use a study process to
“venture beyond business-as-usual industry and
government assessments.”
2 This study generally focuses on resources in the United States
and Canada.
E
xtraordinary events have aected energy mar-
kets in the years since the National Petroleum
Council (NPC) reported on the Hard Truths
about energy in 2007.
1
at study concluded that
the world would need increased energy eciency
and all economic forms of energy supply. is is still
true today, but in the few years since then, signicant
technology advances have unlocked vast natural gas
and oil resources. e newly and greatly expanded
North American natural gas and oil resources are
already beneting our country economically and
increasing employment. Growing supplies of natural
gas have resulted in lower prices, helping to revital-
ize many U.S. industries and, in some parts of the
country, lower the cost of producing electricity. e
increased competitiveness of natural gas could lead
to greater use for power generation, helping to fur-
ther reduce emissions from electricity production.
Technological advances and the expansion of eco-
nomically recoverable natural gas and oil reserves
can substantially improve America’s energy security.
North America has also become much more inte-
grated in energy terms; Canada provides a quarter of
America’s total oil imports, almost double that of the
next largest source.
e great expansion of economically recoverable
natural gas is central to meeting America’s over-
all needs, as natural gas is one of the cornerstone
fuels on which the nation’s economy depends.
Natural gas provides a quarter of America’s over-
all energy and is used to generate a quarter of the
nation’s electricity. It provides the heat for 56 mil-
lion homes and apartments and delivers 35% of the
1 National Petroleum Council, Hard Truths: Facing the Hard
Truths about Energy, July 2007 (“Hard Truths”).
E S
8 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Fourth, realizing the benefits of natural gas and
oil depends on environmentally responsible devel-
opment. In order to realize the benets of these
larger natural gas and oil resources, safe, responsi-
ble, and environmentally acceptable production and
delivery must be ensured in all circumstances. Many
natural gas and oil companies are committed to such
goals and work hard to achieve them. e critical path
to sustained and expanded resource development in
North America includes eective regulation and a
commitment of industry and regulators to continuous
improvement in practices to eliminate or minimize
environmental risk. ese steps are necessary for pub-
lic trust. Recognizing that access to available resources
can be undermined by safety and environmental inci-
dents, all industry participants must continuously
improve their environmental, safety, and health prac-
tices, preserving the benets of greater access for the
industry, consumers, and all other stakeholders.
In making these core ndings, the NPC examined a
broad range of energy supply, demand, environmen-
tal, and technology outlooks through 2050. e study
participants addressed issues relating to public health,
safety, and environmental risks associated with natu-
ral gas and oil production and delivery practices, as
well as opportunities for natural gas to reduce emis-
sions from energy use. e NPC’s ndings and recom-
mendations are summarized below and explained in
detail in the report chapters.
1. NATURAL GAS IS A VERY ABUNDANT
RESOURCE
America’s natural gas resource base is enor-
mous. It offers significant, potentially trans-
formative benefits for the U.S. economy,
energy security, and the environment. anks
to the advances in the application of technol-
ogy pioneered in the United States and Canada,
North America has a large, economically acces-
sible natural gas resource base that includes
significant sources of unconventional gas such
as shale gas. is resource base could supply
over 100 years of demand at today’s consump-
tion rates. Natural gas, properly produced and
delivered, can play an important role in helping
the United States reduce its carbon and other
emissions. But these potentially transforma-
tive benefits cannot happen without access to
resource-rich basins and the consistent appli-
cation of responsible development practices.
AMERICA’S ENERGY FUTURE
is study came to four conclusions about natural
gas and oil. ese ndings can help guide the nation’s
actions.
First, the potential supply of North American
natural gas is far bigger than was thought even a
few years ago. As late as 2007, it was thought that
the United States would have to become increasingly
dependent on imported liqueed natural gas, owing
to what appeared to be a constrained domestic supply.
at is no longer the case. It is now understood that
the natural gas resource base is enormous and that its
development – if carried out in acceptable ways – is
potentially transformative for the American econ-
omy, energy security, and the environment, includ-
ing reduction of air emissions. ese resources have
the potential to meet even the highest projections of
demand reviewed by this study.
Second – and perhaps surprising to many –
America’s oil resources are also proving to be much
larger than previously thought. e North American
oil resource base oers substantial supply for decades
ahead and could help the United States reduce, but not
eliminate, its requirements and costs for oil imported
from outside of North America. e United States
and Canada together produce 4% more oil than Rus-
sia, the world’s largest producer. However, as Hard
Truths stated, “energy independence is not realistic
in the foreseeable future,” although economic and
energy security benets ow from reducing imports
through eciency and increasing domestic produc-
tion. Realizing the potential of oil, like natural gas, in
the future will depend on putting in place appropriate
access regimes that can allow sustained exploration
and development activity to take place in resource-
rich areas.
ird, we need these natural gas and oil resources
even as efficiency reduces energy demand and alter-
natives become more economically available on a
large scale. Even presuming that the United States
uses energy much more eciently, diversies its
energy mix, and transitions to a lower carbon fuel mix,
Americans will need natural gas and oil for much of
their energy requirements for the foreseeable future.
Moreover, the natural gas and oil industry is vital to
the U.S. economy, generating millions of high-paying
jobs and providing tax revenues to federal, state, and
local governments.
EXECUTIVE SUMMARY 9
decades at current or greatly expanded levels of use.
Figure ES-3 shows estimates of the wellhead devel-
opment cost from three estimates of future natural
gas resources derived from the recent Massachusetts
Institute of Technology (MIT) study
4
on natural gas,
along with low and high estimates of cumulative, total
demand from 2010 to 2035.
5
e wellhead develop-
ment cost, as estimated by the MIT study, should not
be read as an expected market price, since many fac-
tors determine the price to the consumer in competi-
tive markets. In the longer term, there are additional
potential major resources in Arctic and other oshore
4 MIT Energy Initiative, The Future of Natural Gas: An Inter-
disciplinary MIT Study, Massachusetts Institute of Tech-
nology, 2011 (MIT 2011 Gas Report). As presented on
Figure ES-3, the MIT “Mean Resource Case” shows the
mean resource estimate, based on 2007 technology levels;
the “Advanced Technology Case” shows the mean resource
estimate based on advanced technologies; and the “High
Resource Technology Case” shows the high resource estimate
using advanced technologies, as defined in that study.
5 Figure ES-3 also shows the range of cumulative natural gas
demand for 2010 through 2035. The range is based on the
NPC Demand Task Group estimate that North American nat-
ural gas demand for 2035 could range from 25 to 45 trillion
cubic feet per year, with a 2010 beginning point of 26 trillion
cubic feet per year.
e United States is now the number one natural
gas producer in the world and together with Canada
accounts for over 25% of global natural gas production
(Figure ES-1). While shale and other unconventional
gas resources are the new game changers, signicant
conventional resources are being produced in onshore
and oshore areas. Lower and less volatile prices for
natural gas in the past two years reect these new real-
ities, with benets for American consumers and the
nation’s competitive and strategic interests, including
the revitalization of several domestic industries.
New applications of technologies such as horizontal
drilling and hydraulic fracturing have brought about
this recent increase in natural gas production and
the reassessment of the size of the U.S. recoverable
natural gas resource base. Figure ES-2 shows how the
estimates of U.S. technically recoverable resources
have greatly increased over the past decade, with esti-
mates of recoverable shale gas being the most striking
reason for changes over the decade.
3
e natural gas
resource base could support supply for ve or more
3 Technically recoverable resources are resources that can be
produced using current technology, as defined by the Energy
Information Administration (EIA).
Figure ES-1. United States and Canada Are Among Leading Natural Gas Producers
Figure ES-1. United States and Canada Are Among Leading Natural Gas Producers
0
20
40
60
USA RUSSIA CANADA IRAN NORWAYQATAR CHINA ALGERIASAUDI
ARABIA
INDONESIA
Source: BP Statistical Review of World Energy.
BILLION CUBIC FEET PER DAY
10 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
0
1,000
2,000
3,000
4,000
Figure ES-2. U.S. Natural Gas Technically Recoverable Resources Are Increasing
TRILLION CUBIC FEET
YEAR
Notes: Minerals Management Service (MMS) no longer exists; its functions are now administered by the Bureau of Ocean Energy Ma
nagement, Regulation and Enforcement (BOEMRE).
For a detailed discussion of the survey that the NPC used to prepare these “low,” “mid,” and “high” estimates, see the Preface as well as the Resources and Supply chapter.
1999 2000 2003 2004 2005 2006 2007 2008 2009 2010 2011
POTENTIAL GAS COMMITTEE
ENERGY INFORMATION ADMINISTRATION/
DEPARTMENT OF ENERGY/MINERALS MANAGEMENT SERVICE
NATIONAL PETROLEUM COUNCIL (NPC)
ICF INTERNATIONAL, INC.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
NPC SURVEY LOW
NPC SURVEY MID
NPC SURVEY HIGH
AMERICA’S NATURAL GAS ALLIANCE
INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA
Figure ES-2. U.S. Natural Gas Technically Recoverable Resources Are Increasing
EXECUTIVE SUMMARY 11
around the world – ranging from China to Poland,
Ukraine, and South Africa – are now assessing their
own shale gas resources and development potential.
U.S. companies are playing an important role in these
activities.
Natural gas can also help the United States reduce
greenhouse gas
7
(GHG) and other air emissions in
the near term, especially if methane emissions from
gas production and delivery are reduced. e biggest
opportunity is in the power sector, but there are also
opportunities in the industrial, commercial, and resi-
dential sectors (Figure ES-4). In recent years, rela-
tively favorable prices for natural gas have displaced
some coal-red generation. More natural gas use will
likely result from the electric industry’s response to
upcoming federal environmental regulations that
may encourage retirement of some of the nation’s
coal-red power plants. In the long term, if the nation
7 The major GHG emissions of concern in this report are carbon
dioxide (CO
2
), nitrous oxide (N
2
O), and methane (CH
4
).
regions, or with advances in technology from meth-
ane hydrate deposits in various locations, mainly o-
shore. ese opportunities could allow natural gas to
continue to play a central role in the North American
energy economy into the next century.
Development of these natural gas resources will
require timely investment in the expansion of deliv-
ery infrastructure. To date, market signals and
existing regulatory structures have worked well in
bringing about new natural gas delivery and storage
infrastructure.
e technological success in the United States opens
up signicant new opportunities for global techno-
logical leadership and an expanded global role for
U.S. natural gas and oil companies.
6
Many countries
6 Unless specifically described in context below, the term “nat-
ural gas and oil companies” used in this report includes not
only exploration or production companies, but also service
companies that support drilling and operations, as well as
companies that transport oil and gas.
Figure ES-3. North American Natural Gas Resources Can Meet Decades of Demand
3
6
8
4
10
0 1,000 2,000 3,000
WELLHEAD DEVELOPMENT COST
(2007 DOLLARS PER MILLION CUBIC FEET)
Figure ES-3. North American Technically Recoverable Natural Gas Resources
RANGE OF
CUMULATIVE
DEMAND
2010–2035
TRILLION CUBIC FEET
MIT MEAN RESOURCE CASE
MIT ADVANCED TECHNOLOGY CASE
MIT HIGH RESOURCE TECHNOLOGY CASE
LOW
DEMAND
HIGH
DEMAND
Note: The y-axis represents estimated wellhead cost of supply. The cost of supply can vary over time and place in light of dierent
regulatory conditions, dierent technological developments and deployments, and other dierent technical conditions.
In none of these cases is “cost of supply” to be interpreted as an indicator of market prices or trends in market prices, since many
factors determine prices to consumers in competitive markets.
Source of MIT information: The Future of Natural Gas: An Interdisciplinary MIT Study, 2011.
12 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
GHG REDUCTION POTENTIAL
DIFFICULTY OF IMPLEMENTATION
NATURAL GAS CARBON CAPTURE
AND SEQUESTRATION
NEW NATURAL GAS
POWER PLANTS
COMBINED HEAT & POWER
FUEL CELLS
INDUSTRIAL FUEL SWITCHING
REFUEL OR REPOWER EXISTING
COAL- OR OIL-FIRED PLANTS
Figure ES-4. Natural Gas Technologies Can Help Reduce Greenhouse Gas (GHG) Emissions
WAS Fig. ES-3
RESIDENTIAL/COMMERCIAL
APPLIANCES
LOW MEDIUM HIGH
MEDIUM HIGHLOW
DISPATCHING NATURAL GAS PLANTS
AHEAD OF COAL PLANTS
class resource basins, some of which are
located in remote areas offshore and in
the Arctic. Going forward, access to these
resources depends upon responsible develop-
ment practices being consistently deployed.
After declining in recent years, North American oil
production rose in 2009 and 2010 due to advances in
technology and signicant investment in exploration
and development by companies over a number of pre-
ceding years. As a result, the United States and Can-
ada have several already-producing world-class basins
– in particular in the deepwater Gulf of Mexico and
the Alberta oil sands. ese areas contribute substan-
tially to North American oil production, and could
sustain and grow current production beyond 2030.
In addition, onshore conventional oil is a large sup-
ply source, although made up of a multitude of small
developments. e long-term decline of production
from onshore conventional elds has reversed in
recent years through techniques such as enhanced oil
recovery (EOR) and hydraulic fracturing. e United
States is the third largest oil producer in the world,
after Russia and Saudi Arabia (Figure ES-5).
desires deeper reductions in GHG emissions, it will
need to address the GHG emissions of all fossil fuels,
including natural gas, by putting a price on carbon
8
and advancing other technologies, including those
that can capture and sequester carbon dioxide (CO
2
).
2. SURPRISINGLY, OIL IS ALSO AN
ABUNDANT RESOURCE
Contrary to conventional wisdom, the North
American oil resource base also could pro-
vide substantial supply for decades ahead.
rough technology leadership and sus-
tained investment, the United States and
Canada together now constitute the largest
oil producer in the world. We have world-
8 See http://www.ipcc.ch/pdf/assessment-report/ar4/wg3/
ar4-wg3-annex1.pdf. Generally, the term “price on carbon”
refers to an assessment of the negative externalities of GHG
emissions and the associated economic value of reducing or
avoiding one metric ton of GHG in carbon dioxide equivalent.
Discussions in this report do not differentiate between an
explicit carbon price (e.g., under a cap and trade or carbon tax
policy) and an implied carbon cost (e.g., specific regulatory
limitations on the amounts of emissions).
Figure ES-4. Natural Gas Technologies Can Help Reduce Greenhouse Gas Emissions
EXECUTIVE SUMMARY 13
strong production in the Gulf of Mexico. ird, new
Arctic oil and natural gas supply have a potential of
the equivalent of over 200 billion barrels of oil. is
is in addition to existing oil supply and proven natural
gas reserves on the Alaska North Slope. e new Arc-
tic resources could yield signicant supply after 2025.
Fourth, another very large long-term oil supply source
lies in the shale oil deposits of Colorado, Utah, and
Wyoming. e development of these billions of bar-
rels of oil from these new resource areas will require
sustained investment, substantial advances in tech-
nology, and environmental risk management systems
and approaches.
9
In many instances, there will be the
need for new pipelines and other infrastructure.
9 There are several trillion barrels of “oil-in-place.” How much
can be extracted will greatly depend on the technology and
economics.
Longer-term growth in oil production can come
from several new and emerging North American sup-
ply sources. One source is tight oil, found in geo-
logical formations where the oil does not easily ow
through the rock, such as in the Bakken formation of
North Dakota, Saskatchewan, Montana, and Mani-
toba. Tight oil has also beneted from technologies
similar to those used for shale gas, including hydrau-
lic fracturing. Over the next 20 years, tight oil pro-
duction could continue to grow. A second potentially
large supply source is in new oshore areas, particu-
larly in the Gulf of Mexico and the Atlantic and Pacic
coasts of the United States and Canada. Access to and
potential development of these new U.S. areas would
require an Executive Branch level directive to include
such areas in the 2012–2017 Leasing Program. New
oshore areas could provide both natural gas and oil
in signicant quantities to supplement the continuing
Foundational Concepts
Based on the request from the Secretary of
Energy, the NPC used four key concepts to evaluate
potential policy recommendations that arose in the
study: economic prosperity, environmental sustain-
ability, energy security, and prudent development.
“Economic prosperity” means not just the
level of wealth of a country, but also its economic
growth, economic security, and economic com-
petitiveness. is goal also includes the notion of
balancing the interests of today’s society against
those of tomorrow’s.
“Environmentally sustainable” means allowing
for the maintenance of environmental quality
and resource protection over time. Environmental
sustainability encompasses impacts such as air and
water pollution that directly aect public health, as
well as these and other impacts aecting ecosystem
vitality, biodiversity, habitat, forestry and sher-
ies’ health, agriculture, and the global climate. It is
related to the concept of sustainable development
as dened by the Brundtland Commission, formerly
known as the World Commission on Environment
and Development: “meeting the needs of the pres-
ent without compromising the ability of future gen-
erations to meet their own needs.”
“Energy security” means minimizing vulner-
ability to energy supply disruptions and the
resulting volatile and disruptive energy prices.
Since most of the U.S. energy supply is domestic,
energy security is aected by the development
of domestic resources, as well as the security of
delivery and production systems such as natural
gas pipelines, reneries, power plants, and elec-
tric power transmission. Likewise, as some of the
U.S. energy supply comes from other countries,
energy security also involves geopolitical consid-
erations associated with protecting and enhancing
U.S. strategic interests internationally. Potential
disrupters of energy security cover a range, among
which are turmoil in foreign supplier countries;
the disruption of a major supply source or delivery
infrastructure; assaults on the supply chain; natu-
ral disasters; and global environmental issues and
extreme weather events, as characterized by the
2010 Quadrennial Defense Review Report of the
U.S. Department of Defense.
e concept of “prudent development of
North American natural gas and oil resources”
means development, operations, and deliv-
ery systems that achieve a broadly acceptable
balance of several factors: economic growth,
environmental stewardship and sustainability,
energy security, and human health and safety.
Prudent development necessarily involves trade-
os among these factors. Consideration of the
distribution of costs and benets is a key part of
prudent development.
14 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
substantial advances in technology, and regulatory
burdens that are not signicantly dierent than
today. Even under the high potential scenario, the
United States will still need to import oil for the fore-
seeable future.
Enhanced access is also a key enabler that could
move North American oil production towards the
higher potential pathway indicated here. Resource-
rich areas such as the eastern Gulf of Mexico, the
Atlantic and Pacic continental margins, and the Arc-
tic are capable of delivering new volumes of oil supply,
potentially extending over several decades. Indeed, in
the Arctic, unless new oil production can be developed
as a consequence of sustained exploration, the key
infrastructure link currently operating (the Trans-
Alaska Pipeline System from the Alaska North Slope
to the crude oil loading terminal at Valdez, Alaska)
will have to be decommissioned when the declines
from existing Alaska North Slope production cause
pipeline ows to fall below minimum operating levels.
Such an outcome could leave a huge resource stranded
with deleterious consequences for the economy and
for energy security.
Continuing signicant technological advances
could extend North American oil production for
many decades in various areas, such as other o-
shore areas, other unconventional oil opportunities,
and eventually, oil shale. In recent years, there has
been rapid learning and deployment of new produc-
tion techniques to unlock higher actual and potential
natural gas supply, particularly from tight and shale
gas reservoirs. Such learnings have not yet been fully
applied to new and emerging oil opportunities. As
the emerging oil opportunities develop both onshore
and oshore and with application of some of the
technologies now enabling access to unconventional
natural gas, similar upward re-appraisal of potential
oil supply will likely follow. Such appraisals are an
ongoing process as new resources are brought into
the development phase.
Figure ES-6 shows the various sources of current
supply as well as projected supply in 2035 under
“limited potential” and “high potential” scenarios.
e limited potential scenario is characterized by lim-
ited resource access, constrained technology develop-
ment, as well as greater regulatory barriers. e high
potential scenario is characterized by more access,
MILLION BARRELS PER DAY
0
4
8
12
RUSSIA SAUDI
ARABIA
USA IRAN CHINA CANADA MEXICO UNITED
ARAB
EMIRATES
IRAQVENEZUELA
Figure ES-5. United States and Canada Are among Leading Oil Producers
WAS Figure ES-4
Source: BP Statistical Review of World Energy.
Figure ES-5. United States and Canada Are Among Leading Oil Producers
EXECUTIVE SUMMARY 15
is current and future development of U.S. and
Canadian oil can translate into energy security ben-
ets through reducing oil imports. Other potential
benets include improved balance of trade, jobs, and
economic multiplier eects from domestic drilling,
production, and delivery.
3. AMERICA NEEDS NATURAL GAS AND
OIL EVEN AS ALTERNATIVE RESOURCES
BECOME AVAILABLE
Even as the United States uses energy much
more efficiently and diversifies its energy
mix, Americans will need natural gas and oil
for the foreseeable future. Natural gas can
enable renewable power through manage-
ment of intermittency. Natural gas and oil
are currently indispensable ingredients in the
American economy and Americans’ standard
of living. A vibrant domestic natural gas and
oil industry has the potential to add much-
needed domestic jobs and revenues for federal,
state, and local governments. In a competi-
tive global business environment, where com-
panies have the ability to move capital around
the world, a dependable and affordable supply
of natural gas and oil is important for creating
economic growth, investment, and jobs in the
United States. Abundant supplies of natural
gas are vital to improving the competitiveness
of domestic industries that use natural gas as a
fuel and feedstock. ough North America has
abundant natural gas and oil resources, these
resources must still be used wisely; and energy
efficiency measures should be developed and
implemented wherever they are cost effective.
Together, natural gas and oil make up nearly two-
thirds of U.S. energy use.
10
Even with increasing
energy eciency, buildings, motor vehicles, indus-
trial facilities, and other energy-using equipment
will remain highly dependent on natural gas and oil
10 EIA, Annual Energy Outlook 2011, Reference Case.
UNCONVENTIONAL OIL
{
}
0
10
20
2010 2035 LIMITED 2035 HIGH POTENTIAL
MILLION BARRELS PER DAY
Figure ES-6. More Resource Access and Technology Innovation Could Substantially Increase
North American Oil Production
ALSO used as Figure 1-5
Notes: The oil supply bars for 2035 represent the range of potential supply from each of the individual supply sources and types
considered in this study. The specic factors that may constrain or enable development and production can be dierent for
each supply type, but include such factors as whether access is enabled, infrastructure is developed, appropriate
technology research and development is sustained, an appropriate regulatory framework is in place, and environmental
performance is maintained.
Note that in 2010, oil demand for the U.S. and Canada combined was 22.45 million barrels per day. Thus, even in
the high potential scenario, 2035 supply is lower than 2010 demand, implying a continued need for oil imports
and participation in global trade.
Source: Historical data from Energy Information Administration and National Energy Board of Canada.
ONSHORE CONVENTIONAL
OFFSHORE
ARCTIC
NATURAL GAS LIQUIDS
OIL SANDS
TIGHT OIL
OIL SHALE
Figure ES-6. More Resource Access and Technology Innovation
Could Substantially Increase North American Oil Production
16 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
in combined operational expenses and capital invest-
ment in 2009 – equivalent to over 3% of America’s gross
domestic product (GDP).
12
In the United States, federal,
state, and local governments also benet from the sub-
stantial amount of taxes and royalties paid by natural
gas and oil companies. Taking into account all corpo-
rate income taxes, severance taxes, royalties on federal
lands, sales taxes, payroll taxes, property and use taxes,
and excise taxes, natural gas and oil companies gener-
ate over $250 billion in government revenue annually.
Although natural gas and oil have long been viewed
as related fuels, their uses are quite dierent. Natural
gas is especially important for heating, power genera-
tion, and industrial uses such as chemical manufac-
turing. By contrast, around 97% of all energy used in
the transportation sector comes from oil. e import
picture diers as well. Nearly all of the natural gas con-
sumed in North America is produced within the same
continental boundaries, while about half of the crude
oil processed in North American reneries is imported.
Within North America, Canada is a net exporter of
crude oil and the United States is a net importer.
13
Low natural gas prices make U.S. manufacturers
and farmers more competitive. U.S. rms rely on nat-
ural gas- and oil-derived chemicals as building blocks
for the production of electronics (including comput-
ers and cell phones), plastics, medicines and medical
equipment, cleaning products, fertilizers, building
materials, adhesives, and clothing. When manufac-
turers use natural gas as a fuel and feedstock, they
create a variety of products that are used every day.
ese products are valued at greater than eight times
the cost of the natural gas used to create them, pro-
viding signicant benet to the nation’s economy.
14
12 PricewaterhouseCoopers, “The Economic Impacts of the
Oil and Natural Gas Industry on the U.S. Economy in 2009:
Employment, Labor Income, and Value Added,” May 2011.
13 In 2010, U.S. net crude oil imports were 9.1 million barrels
per day, which was about 62% of its total refinery crude oil
inputs. Canada, in contrast, is a net crude oil exporter, as it
imports crude oil into eastern Canadian refineries but exports
crude oil to the United States from western Canadian produc-
tion. On a net basis, Canada exports 1.4million barrels per
day, but its crude oil exports to the U.S. total 1.99 million bar-
rels/day, 22% of U.S. crude oil imports. So, for both coun-
tries together, net crude oil imports total 7.7 million barrels
per day, or about 47% of combined refinery crude oil runs.
Source: BP and EIA.
14 Based on information in the American Chemistry Coun-
cil, “Guide to the Business of Chemistry,” 2011; and Ameri-
can Chemistry Council, “Shale Gas and New Petrochemicals
Investment: Benefits for the Economy, Jobs, and US Manu-
facturing,” Economics & Statistics, March 2011.
for many years to come. us, these fuels are criti-
cal in the U.S. economy, particularly as part of a strat-
egy to transition towards a low-carbon energy mix in
the future. ere is enough supply to meet a range of
demand levels for decades – from business as usual,
to scenarios with much greater penetrations of natu-
ral gas in the power, industrial, and transportation
sectors. And, using these resources much more e-
ciently will strengthen the nation’s economic resil-
iency, reduce environmental impacts, and enhance
energy security. As noted in Hard Truths and other
studies, investment in and deployment of energy e-
ciency measures is frequently cost eective and will
reduce demands for fossil fuels and the impacts of
their associated emissions. Energy eciency deserves
continued and increased eorts.
11
At the same time, in meeting the needs of U.S. con-
sumers, the American natural gas and oil industry
plays an essential role in the U.S. economy. Compa-
nies directly engaged in the oil and natural gas indus-
try employ over 2 million Americans who earn over
$175 billion in labor income. e employment gure
jumps to over 9 million Americans with $533 billion in
labor income when including the jobs created by the
spending on goods and services of natural gas and oil
companies and their employees. PricewaterhouseCoo-
pers has estimated that the domestic oil and natural gas
industry directly generated approximately $464 billion
11 Hard Truths recommended that the United States moderate
demand by increasing energy efficiency through improved
vehicle fuel economy and by reducing energy consumption
in the residential and commercial sectors. Hard Truths con-
cluded that:
“… anticipated energy use in the residential and commercial
sectors could be reduced by roughly 15 to 20 percent through
deployment of cost-effective energy-efficiency measures that
use existing, commercially available technologies. Assuming
that all these measures are put in place over the next decades
and that all other factors such as level of services are held
constant, U.S. residential/commercial energy consumption
could be reduced by 7 to 9 quadrillion Btu. Technologies to
accomplish savings of these magnitudes are indicated to be
available in the marketplace.” (page 43)
“… a doubling of fuel economy of new cars and light trucks
by 2030 is possible through the use of existing and antici-
pated technologies, assuming vehicle performance and other
attributes remain the same as today…. Depending upon
how quickly new vehicle improvements are incorporated in
the on-road light duty vehicle fleet, U.S. oil demand would
be reduced by about 3-5 million barrels per day in 2030.
Additional fuel economy improvements would be possible
by reducing vehicle weight, horsepower, and amenities,
or by developing more expensive, step-out technologies.”
(pages 14-15)
EXECUTIVE SUMMARY 17
Observers of natural gas markets forecast a
wide range of future natural gas demand for
the United States and a narrower range for
Canada.
15
For the United States, most of the varia-
tion in natural gas demand comes from the power
sector; for Canada, it comes from the industrial
sector. Figure ES-7 shows demand in 2010, along
with several projections for 2020 and 2030.
16
Over
120 gigawatts (GW) of natural gas combined cycle
capacity was added from 2000 to 2008. e power
sector has already substituted the use of natural gas
for some coal because of low natural gas prices. e
increased use of these new and ecient natural gas
units decreased the GHG emissions from U.S. power
plants by about 83 million metric tons of CO
2
, or
15 The NPC assessed the numerous recent forecasts of demand
for U.S. and Canadian natural gas that exist in the public
domain. Additionally, the NPC studied a number of propri-
etary forecasts and conducted a survey. The study subgroups
also examined aggregated proprietary data collected via a con-
fidential survey of private organizations, primarily gas and oil
companies and specialized consulting groups. The propri-
etary data were collected by a third party and aggregated to
disguise individual responses.
16 The AEO cases are from the Annual Energy Outlook, prepared
by the EIA. The proprietary cases are aggregated third-party
forecasts.
about 1% of total U.S. emissions in 2005.
17
Com-
pared to 2000, natural gas use for power genera-
tion has grown by almost 45% from 2000 to 2010.
It is projected to increase as much as another 75%
by 2030.
18
e availability of abundant low cost natural gas is
helping to revitalize several industries, including pet-
rochemicals, leading to several billions of dollars of
new investment in domestic industrial operations that
would not have been anticipated half a decade ago.
Upcoming environmental regulations aecting
power plants, combined with expectations for future
natural gas prices informed by published forecasts, will
have an impact on the use of natural gas in the power
sector. Relatively old and inecient coal-red power
plants with limited emission controls will likely retire,
with various studies estimating retirements ranging
17 Based on EIA, U.S. Carbon Dioxide Emissions in 2009: A Retro-
spective Review, http://www.eia.doe.gov/oiaf/environment/
emissions/carbon/ and NPC analysis of EIA, Monthly Energy
Review, April 2011.
18 Compared to 2000, natural gas use for power generation has
grown from 14 billion cubic feet per day (Bcf/d) in 2000 to
20 Bcf/d in 2010, and is projected to be between 19 and
35 Bcf/d by 2030 (see Figure ES-7).
0
20
40
60
80
100
BILLION CUBIC FEET PER DAY
Figure ES-7. The Power Sector Shows the Most Variation in Projected U.S. Natural Gas Demand
WAS Figure ES-6, ALSO Figure 3-2
AEO
2010
AEO
2011
REFERENCE CASE
MAX. MED. MIN.
2030
PROPRIETARY
AEO
2010
AEO
2011
REFERENCE CASE
MAX. MED. MIN.
2020
PROPRIETARY
2010 2000
Notes: AEO2010 = EIA’s Annual Energy Outlook (2010); AEO2011 = EIA’s Annual Energy Outlook (2011).
DO NOT OVERWRITE 3-2 WITH THIS FIGURE -
SLIGHT DIFFERENCE IN NOTES @ BOTTOM
VEHICLE
TRANSMISSION
RESIDENTIAL
COMMERCIAL
INDUSTRIAL
POWER
Figure ES-7. The Power Sector Shows the Most Variation in Projected U.S. Natural GasDemand
18 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
U.S. GHG emissions in 2009. ere is, however, a very
high degree of uncertainty around estimates of meth-
ane emissions and, therefore, better data are needed
while eorts continue to reduce such emissions.
Taking into account EPA’s recently revised esti-
mates of methane emissions during production and
delivery, the life-cycle emissions for natural gas are
about 35% lower than coal on a heat-content (British
thermal unit [Btu]) basis.
21
In terms of the production
of electricity, for eciencies typical of coal- and
natural gas-red plants, natural gas has about
50–60% lower GHG emissions than those of a coal-
red plant (Figure ES-9).
22
Beyond the power sector, there is potential for
increased use of natural gas to displace oil in the trans-
portation sector. e NPC Future Transportation
21 Life-cycle emissions include those from the direct combustion
of natural gas, as well as methane emissions from the produc-
tion and delivery of natural gas.
22 The natural gas combined cycle turbine unit has a heat rate of
7,000 Btu/kWh, while the coal plant at 30% efficiency has a
heat rate of 11,377 Btu/kWh and the coal plant at 38% effi-
ciency has a heat rate of 9,000 Btu/kWh.
from 12 to 101 GW of capacity by 2020. e study
average of 58 GW of coal-red capacity retirements
represents about 6% of total U.S. generating capacity,
or around 18% of coal-red capacity. is will likely
increase demand for natural gas at power plants, lead
to new investment in natural gas-red generation, and
lower GHG emissions from the power sector (on aver-
age, around 3.5% of the 2005 U.S. total by 2020).
In the longer term, increased natural gas supplies,
along with the possible introduction of policies to
reduce GHG emissions, could yield more substitu-
tion of natural gas for other fossil fuels, mainly coal.
According to studies reviewed as part of this NPC
study, natural gas could help reduce emissions in the
long term (such as a 50% reduction from a 2005 base-
line by 2050). A steeper emissions reduction target,
such as 80% or more by 2050, will likely also require
more aggressive emission control technologies like car-
bon capture and sequestration (CCS) for both coal and
natural gas power plants, if these fossil fuels were to
remain a signicant energy source for power genera-
tion. Excluding transportation, the potential reduc-
tion in GHG emissions from natural gas use ranges
from an equivalent of 126–864 million metric tons of
CO
2
per year by 2030, or about 2–12% of total 2005
U.S. GHG emissions (Figure ES-8). is broad range
of GHG reductions reects the potential application
of diverse natural gas technologies across the end-use
sectors, including appliances, power infrastructure,
and infrastructure retrots in applications within the
residential, commercial, and industrial end-use sectors.
In addition to emissions of CO
2
at the point of natu-
ral gas combustion, there are emissions of methane
into the atmosphere that result from the production
and delivery of natural gas.
19
Some emissions occur in
normal operations through venting for safety reasons
such as to relieve pressure. Other emissions occur
because of leaks in equipment such as compressor seals
and connections. Because methane is a GHG that is
signicantly more potent than CO
2
in its global warm-
ing potential,
20
it is vital to minimize these emissions.
In the April 2011 annual national GHG inventory
update, the Environmental Protection Agency (EPA)
estimated that fugitive methane emissions by natu-
ral gas companies accounted for approximately 4% of
19 Methane is a chemical compound that is the primary compo-
nent of natural gas.
20 See a more detailed discussion in Chapter Four about the
issues surrounding the relative potency of methane and CO
2
from a global warming potential.
Figure ES-8. Estimated GHG Emission Reductions
from the Use of Natural Gas Vary Widely
70
571
15
150
7
84
34
59
LOW HIGH
864
126
Figure ES-8. Estimated GHG Emission Reductions from the Use of Natural Gas Vary Widely
WAS Figure ES-7
MILLION METRIC TONS OF CO
2
EQUIVALENT
PER YEAR (2030)
900
700
500
300
100
0
POWER
RESIDENTIAL
COMMERCIAL
INDUSTRIAL
EXECUTIVE SUMMARY 19
Fuels (FTF) study is examining the implications for
gasoline and diesel demand of natural gas vehicles
and plug-in electric vehicles that could create some
natural gas demand for power generation, as well as
fuel cell electric vehicles using hydrogen reformed
from natural gas. Since the FTF study will be com-
pleted after this study, the nal results of the FTF
study cannot be incorporated here. Consequently, the
NPC’s study of natural gas and oil resources examined
high-potential-demand cases for natural gas vehicles,
plug-in electric vehicles, and fuel cell electric vehicles
from published sources. For example, in 2035, U.S.
and Canadian transportation could potentially con-
sume 13 billion cubic feet per day (Bcf/d) of gas.
ere is a wide range in the estimates of future
demand for natural gas. e most aggressive esti-
mate of total natural gas demand, including trans-
portation, is 133 Bcf/d by 2035, an 85% increase
from 2010 natural gas requirements of 72 Bcf/d.
23
e low-end estimate of total natural gas demand
for 2035 is 72 Bcf/d (Figure ES-10). It appears that
23 U.S. and Canadian demand for 2035 is based on an extrapo-
lation of 2020–2030 Proprietary Maximum and Minimum
cases.
1,034
2,528
2,000
0
1,000
2,000
3,000
NATURAL GAS
COMBINED
CYCLE (48%
EFFICIENCY)
COAL PLANT
(30%
EFFICIENCY)
COAL PLANT
(38%
EFFICIENCY)
EMISSION RATE
(LBS. OF CO
2
EQUIVALENT PER MEGAWATT HOUR)
Figure ES-9. Life-Cycle GHG Emissions for Natural Gas Are About One-Half of Coal
Figure ES-9. Life-Cycle GHG Emissions for Natural
Gas Are about One-Half of Coal
Notes: 2035 – Development facilitated by access to new areas, balanced regulation, sustained technology development,
higher resource size.
2035 – Development constrained by lack of access, regulatory barriers, low exploration activity, lower resource size.
0
50
100
150
BILLION CUBIC FEET PER DAY
Figure ES-10. North American Natural Gas Production Could Meet High Demand
HIGH DEMANDSUPPLY
2010 2035
SUPPLY (HIGH POTENTIAL)
SUPPLY (LIMITED POTENTIAL)
LIQUEFIED NATURAL
GAS EXPORTS
VEHICLE DEMAND
EXPORTS TO MEXICO
CANADIAN DEMAND
U.S. DEMAND
DEMAND LOW DEMAND SUPPLY
Figure ES-10. North American Natural Gas Production Could Meet High Demand
20 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Risk to the environment exists with oil and natural
gas development, as with any kind of energy produc-
tion. Natural gas and oil companies have drilled for
and delivered energy in the United States and Canada
for a century and a half. rough that time, much has
changed in how natural gas and oil are produced, and
how drilling and production are regulated. In general,
exploration and production occur in a far safer and
environmentally responsible fashion than in genera-
tions past, in no small part as a result of changes in
public environmental awareness, government regu-
lation, technological innovations, and companies’
actions. In spite of the exploration and production
improvements, there will undoubtedly be areas that
remain o limits, based on unique environmental
attributes.
25
e key is that as environmental consid-
erations evolve, both natural gas and oil companies
and the government continue to work to improve
environmental performance.
Many, if not most, natural gas and oil companies
have committed themselves to operating at high
levels of performance with respect to environment,
safety, and health impacts. Oil and gas industry
occupational injury statistics from 1994 to 2009
show signicant reductions compared to all of private
industry.
26
As an example of improvements in envi-
ronmental performance, on Alaska’s North Slope, the
surface footprint of drill pads has been reduced from
65 acres to 9 acres
27
and the volumes of waste gener-
ated from 100 barrels of oil equivalent of reserve addi-
tions has shrunk from 7.5 to 3.4 barrels.
28
Advances
in water use management practices have resulted in
reduced demands on freshwater sources and many
operators are pursuing reuse of produced water in
fracture operations. According to the MIT 2011 Gas
25 The most obvious examples are resources located in national
parks.
26 The oil and natural gas industry had an injury and illness
incidence rate of 5.4 per 100 full-time workers in 1994 (com-
pared to 8.4 per 100 for all private industry that year), and
improved the rate to 1.6 per 100 in 2009 (compared to 3.6
per 100 in that year for all private industry). Source: U.S.
Department of Labor, Bureau of Labor Statistics, Survey of
Occupational Injuries and Illnesses, Table 1, “Incidence rates of
nonfatal occupational injuries and illnesses by case type and
ownership, selected industries, 1994,” 2009.
27 American Petroleum Institute, Examples of Technology at
Work in the Arctic, Autumn 2008, http://www.api.org/policy/
exploration/upload/Technology_at_Work_Arctic.pdf.
28 U.S. DOE, Environmental Benefits of Advanced Oil and Gas
Exploration and Production Technology, DOE-FE-0385,
October 1999.
even a 2035 potential demand requirement of up to
133 Bcf/d could be supplied. And based on the MIT
2011 Gas Report, e Future of Natural Gas, this high
potential demand could be supplied at a current esti-
mated wellhead production cost range in 2007 dollars
of $4.00 to $8.00 per million Btu (MMBtu),as shown
by comparing the information in Figure ES-10 and
Figure ES-3, and based on current expectations of
cost performance and assuming adequate access to
resources for development.
24
is wellhead develop-
ment cost should not be read as an expected market
price, since many factors determine the price to the
consumer in competitive markets.
While natural gas and oil bring many benets, they
come with mixed impacts, as do other sources of
energy. Production and delivery of energy involves
real health, safety, and environmental considerations
and risks. Using natural gas and oil resources much
more eciently, producing them with lower environ-
mental impacts, and diversifying U.S. energy mix are
essential. e nation should adopt energy eciency
measures wherever economically attractive, and gov-
ernment policies should address impediments to that
objective.
4. REALIZING THE BENEFITS OF
NATURAL GAS AND OIL REQUIRES
ENVIRONMENTALLY RESPONSIBLE
DEVELOPMENT
Achieving the economic, environmental, and
energy security benefits of North Ameri-
can natural gas and oil supplies requires
responsible approaches to resource pro-
duction and delivery. Development in dif-
ferent geographic areas, such as deepwater
offshore basins or onshore areas with shale
gas resources in populated areas, requires
different approaches and continued techno-
logical advances. But in all locales and con-
ditions, the critical path to sustained and
expanded resource development in North
America includes effective regulation and
a commitment of industry and regulators
to continuous improvement in practices to
eliminate or minimize environmental risk.
ese steps are necessary for public trust.
24 MIT 2011 Gas Report, page 31.
EXECUTIVE SUMMARY 21
Hydraulic fracturing is the treatment applied to
reservoir rock to improve the ow of trapped oil
or natural gas from its initial location to the well-
bore. is process involves creating fractures in the
formation and placing sand or proppant in those
fractures to hold them open. Fracturing is accom-
plished by injecting water and uids designed for
the specic site under high pressure in a process
that is engineered, controlled, and monitored.
Fracturing Facts
� Hydraulic fracturing was rst used in 1947 in an
oil well in Grant County, Kansas, and by 2002,
the practice had already been used approximately
a million times in the United States.*
� Up to 95% of wells drilled today are hydrauli-
cally fractured, accounting for more than 43% of
total U.S. oil production and 67% of natural gas
production.
†
� e rst known instance where hydraulic fractur-
ing was raised and addressed as a technology of
concern was when it was used in shallow coalbed
methane formations that contained freshwater
(Black Warrior Basin, Alabama, 1997).
� In areas with deep unconventional formations
(such as the Marcellus areas in Appalachia),
the shale gas under development is separated
from freshwater aquifers by thousands of feet
and multiple conning layers. To reach these
deep formations where the fracturing of rock
occurs, drilling goes through the shallower
areas, with the drilling equipment and produc-
tion pipe sealed o using casing and cementing
techniques.
� e technology and its application are continu-
ously evolving. For example, testing and devel-
opment are underway of safer fracturing uid
additives.
� e Interstate Oil and Gas Compact Commission
(IOGCC), comprised of 30 member states in the
United States, reported in 2009 that there have
been no cases where hydraulic fracturing has
been veried to have contaminated water.
‡
� A new voluntary chemical registry (FracFocus)
for disclosing fracturing uid additives was
launched in the spring of 2011 by the Ground
Water Protection Council (GWPC) and the
IOGCC. Texas operators are required by law to
use FracFocus.
� e Environmental Protection Agency concluded
in 2004 that the injection of hydraulic fractur-
ing uids into coalbed methane wells poses little
or no threat to underground sources of drinking
water.
§
e EPA is currently studying hydraulic
fracturing in unconventional formations to bet-
ter understand the full life-cycle relationship
between hydraulic fracturing and drinking water
and groundwater resources.
� e Secretary of Energy’s Advisory Board is also
studying ways to improve the safety and environ-
mental performance relating to shale gas devel-
opment, including hydraulic fracturing.
¶
Hydraulic Fracturing
* Interstate Oil and Gas Compact Commission, Testimony
Submitted to the House Committee on Natural Resources,
Subcommittee on Energy and Mineral Resources, June 18,
2009, Attachment B.
† IHS Global Insights, Measuring the Economic and Energy
Impacts of Proposals to Regulate Hydraulic Fracturing, 2009;
and EIA, “Natural Gas and Crude Oil Production,” Decem-
ber 2010 and July 2011.
‡ Interstate Oil and Gas Compact Commission, Testimony
Submitted to the House Committee on Natural Resources,
Subcommittee on Energy and Mineral Resources, June 18,
2009, Attachment B.
§ U.S. EPA, Office of Water, Office of Ground Water and
Drinking Water, “Evaluation of Impacts to Underground
Sources of Drinking Water by Hydraulic Fracturing of
Coalbed Methane Reservoirs,”
(4606M) EPA 816-R-04-003,
June 2004.
¶ Secretary of Energy Advisory Board (SEAB), Natural Gas
Subcommittee (http://www.shalegas.energy.gov/aboutus/
members.html), 90-Day Interim Report (http://www.
shalegas.energy.gov/resources/081811_90_day_report_
final.pdf), Safety of Shale Gas Development, May5,2011,
http://www.shalegas.energy.gov/
22 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Report, which reviewed three reports of publicly
reported incidents related to gas well drilling, there
were only 43 “widely reported” incidents related to
gas well drilling in the past decade (to2010)
29
during
which time, there were about 20,000 shale gas wells
drilled with almost all of them being hydraulically
fractured.
30
Unfortunately, accidents have occurred in opera-
tions of even the most committed companies. Eorts
by all industry members to achieve and sustain high
environment, health, and safety performance are
essential. Many in and outside of the natural gas and
oil industry worry that accidents or inferior practices
of some companies could undermine public trust in
the entire industry. Consistent use of responsible
practices to protect the environment and public
health are important on their own, and will also help
avoid additional restrictions on access to resources
and support access to additional resources that could
help meet future energy needs.
Natural gas and oil resources in North America
are developed in a wide variety of settings, each of
which has a variety of environmental challenges.
For instance, in oshore development, the response
to a major oil spill incident is complicated by condi-
tions in the marine location, with drilling occurring
up to several thousand feet below sea level. Onshore
natural gas and oil development takes place in a wide
range of locations, including arid deserts and coastal
wetlands, wildlife habitats, rural and urban settings,
and pristine landscapes and industrial parks. e
various locations pose dierent issues in areas such
as water sourcing, euent disposal, site preparation
and reclamation, and reduced fragmentation and
protection of wildlife habitat. Specic standards and
regulations that may be appropriate for production
in some areas may not be eective in others.
29 Of these, 47% of the incidents involved groundwater contam-
ination by natural gas or drilling fluids; 33% involved on-site
surface spills; 9% involved off-site disposal issues; and the
remaining 10% involved water withdrawal issues, air quality
issues, and blowouts. “With over 20,000 shale wells drilled
in the last 10 years, the environmental record of shale gas
development has for the most part been a good one – but it
is important to recognize the inherent risks and the damage
that can be caused by just one poor operation…. In the stud-
ies surveyed, no incidents are reported which conclusively
demonstrate contamination of shallow water zones with frac-
ture fluids.” MIT 2011 Gas Report, Appendix 2E.
30 MIT 2011 Gas Report, pages 39-40.
Environmental and public health concerns
associated with oil and natural gas development
vary according to location and type of resource,
whether the resource is onshore versus oshore,
and the methods employed to extract and deliver
the resource. e following issues are addressed
in the chapters of this report:
� Hydraulic fracturing – consumption of fresh-
water (volumes and sources); treatment and/
or disposal of produced water returned to
the surface; instances of naturally occurring
radioactive material in produced water; seis-
mic impacts; chemical disclosure of fracture
uid additives; potential ground and surface
water contamination.
� Onshore operations – wellbore integrity;
air emissions from combustion, venting,
or leaks; methane migration into drink-
ing water; community impacts includ-
ing noise, odors, proximity to residen-
tial areas, and volume of truck trac;
fragmentation of and impacts on wildlife hab-
itats; water contamination; waste manage-
ment; and human health and safety.
� Offshore operations – the marine envi-
ronment brings dierent concerns than
for onshore; pressures and temperatures
at remote wellheads make prevention and
response to a major release more challenging;
and seismic noise associated with exploration
and drilling activities is recognized as a con-
cern for whale populations and other marine
life, including sh.
� Arctic ice environments – responding to an
oil spill in low temperatures with the presence
of broken sea ice; potential threats to sensitive
habitat; and seismic noise.
� Oil sands – volumes of water needed generate
issues of water sourcing; removal of overbur-
den for surface mining can fragment wildlife
habitat and increase the risk of soil erosion
or surface run-o events to nearby water
systems; GHG and other air emissions from
production.
Environmental and Public Health
Concerns
EXECUTIVE SUMMARY 23
e dierent types of natural gas and oil resources
and geologic formations also pose dierent develop-
ment and environmental challenges. e variations
among coalbed natural gas, tight sands, shale gas, oil
sands, shale oil, and conventional opportunities can
dier widely and require dierent approaches for pro-
duction and delivery and dierent risk management
practices to manage environmental impacts. Regula-
tions and operating practices need to be tailored for
the specic setting.
e number and variety of companies engaged in
natural gas and oil development dier dramatically
depending on the location and type of resource. In
oshore development, because of the large capital
investments and nancial risk, generally the com-
panies are fewer in number and larger in size than
onshore. Onshore, around 7,000 companies are
involved in natural gas and oil exploration and pro-
duction, including 2,000 drilling operators and hun-
dreds of service companies. e size of these rms
ranges from those with very few employees to major
integrated international oil companies with tens of
thousands of U.S. employees.
Oil and gas activity has increased dramatically, and
development is now occurring in some areas where
there has not been signicant activity for decades.
In those circumstances, regulatory capability may
have to be – and in some states,
31
already has been
– enhanced and companies need to engage with local
communities. Regulators face the challenge of keep-
ing up with increased activity and staying abreast of
technological developments. Regulatory programs
have to be administered eectively and with clarity
during a time of extraordinary budget pressures.
A complex regulatory framework governs opera-
tional requirements, drilling practices, land use, water
use, and other environmental safeguards. ese
involve many agencies of the federal, state, and even
local governments. Ensuring best regulatory practices
means providing adequate resources for development
31 For example, Colorado has recently updated its regulations,
in part to address the intensity of development in parts of
the state where less development has occurred historically; in
2010, Pennsylvania instituted a number of policies to update
its regulations and regulatory capability, to address various
issues relating to increased natural gas development in the
state. See: Colorado Oil and Gas Conservation Commission,
2009 amended rules (http://cogcc.state.co.us/); and STRON-
GER, “Pennsylvania Hydraulic Fracturing State Review,”
September 2010.
State, federal, and in some cases, regional regu-
lations are in place to govern oil and natural gas
production for the purpose of achieving safety,
public health, and environmental protection. e
interaction of these many layers of regulation is
complex and generally eective. However, regu-
lation among jurisdictions is uneven and in some
cases requires strengthening resources available
for stang, keeping abreast of changes in the
industry, and enforcement.
In certain circumstances, there are federal leg-
islative exemptions or special considerations
aorded the oil and gas industry that some envi-
ronmental advocates believe result in material de-
ciencies in environmental protection, particularly
in relation to water and air quality. Others, includ-
ing many in the natural gas and oil industry and
in state governments, maintain that the special
classications under federal law are appropriate
and supported by scientic or economic ndings,
addressed by state laws, and are parallel to special
considerations that exist for many industries.
ere is a range of views on whether outstand-
ing regulatory issues are best addressed through
state or federal regulatory action. Many state
agencies have been involved in regulating oil and
gas development for much longer than the fed-
eral government and have unique knowledge and
expertise relative to the local geological, hydro-
logical, environmental, and land use setting, and
are responsible for regulation and development of
private and state natural gas and oil resources, as
well as for implementing certain federal laws and
regulations.
Federal agencies have similar responsibilities for
federal mineral development and environmental
performance of companies where the federal gov-
ernment owns or controls such mineral rights or
lands. Some entities believe states are generally
more adept than federal agencies in their ability
to adapt to changes in technology and new indus-
try practices and more ecient. Others believe
that only through federal regulation can there be
assurance of a reasonably consistent level of envi-
ronmental and public health protection across the
country, and on public and private lands.
Environmental Regulation of the
Natural Gas and Oil Industry
24 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
� Better reect environmental impacts in markets
and fuel/technology choices.
� Enhance the ecient use of energy.
� Enhance the regulation of markets.
� Support the development of intellectual capital and
a skilled workforce.
As policymakers consider the recommendations of
this report and seek to create policies to implement
them, they should rely to the greatest extent possible
on market-based policies to provide signals and incen-
tives to industry and consumers. ese approaches
have the best chance of providing cost-eective and
creative solutions to responsibly meet the nation’s
energy needs.
Support Prudent Natural Gas and
Oil Resource Development and
Regulation
e NPC found several key areas where more
could be done to support prudent natural gas and
oil resource development and regulation. Funda-
mental to all of these issues is that commitment to
excellent environmental performance and continu-
ous improvement must be maintained at both the
leadership level of companies and throughout their
organizations.
In support of these outcomes, the NPC recom-
mends the establishment of industry-led, regionally
based, “councils of excellence” for identication and
dissemination of eective environment, health, and
safety practices for natural gas and oil production
and delivery.
32
e intention is to involve industry,
government, academics, nongovernmental organiza-
tions (NGOs), and other stakeholders in processes
that are light on bureaucracy, dedicated to sharing
technical information, and benet from the substan-
tive work of many existing industry and public-sector
organizations such as the Society of Petroleum Engi-
neers, the State Review of Oil and Natural Gas Envi-
ronmental Regulations (STRONGER), the Ground
Water Protection Council, the Interstate Oil and Gas
Compact Commission, the standard-setting program
32 These exchanges of environmental, health, and safety prac-
tices (as well as other similar exchanges referenced elsewhere
in this report) must be conducted in compliance with appli-
cable laws and regulations, including federal and state anti-
trust laws.
and enforcement of regulations, ensuring that regu-
latory sta has the technical capabilities to make
sound decisions, and creating a regulatory culture
that embraces eciency, innovation, and eective-
ness. It also depends upon providing consistency of
regulation and understanding the specic planning
and practices required by the particular character of
production and operating risks of dierent resource
areas.
An example of the type of permitting and over-
sight that accompanies the development of a natural
gas and oil project is illustrated in Figure ES-11. Not
every development project is exactly the same, and
in fact, there are signicant dierences between the
Pennsylvania illustration and Deepwater Oshore
development, as well as development on federal lands
where the federal National Environmental Policy Act
process is applied. However, the requirement for
regulatory interaction at each stage of the process is
common. Also, some of the state regulatory and over-
sight functions identied in this illustration are also
delegated from federal regulatory programs. e fed-
eral programs are not highlighted in this illustration.
CORE STRATEGIES
e NPC used the fundamental concepts of eco-
nomic prosperity, environmental sustainability,
energy security, and prudent development as lenses
for viewing the potential of natural gas and oil as
energy sources and the potential of gas to help reduce
GHG emissions. In doing this, the NPC kept in mind
that the United States generally relies on markets to
produce ecient use of resources in the economy and
on private entrepreneurs to innovate. Government
policy plays an important role in helping markets
function through setting the rules of the road, such
as establishing the rule of law to support contracts,
enforcing property rights, maintaining a regulatory
regime, and through providing public goods (such
as basic research and development). Designing and
implementing government policy in markets, how-
ever, should be done with care and consideration of
possible unintended consequences.
As described more fully in this report, the NPC pro-
poses a number of recommendations for adoption by
governments and companies. ese recommenda-
tions are organized around ve core strategies:
� Support prudent natural gas and oil resource devel-
opment and regulation.
EXECUTIVE SUMMARY 25
of the American Petroleum Institute (API), and oth-
ers.
33
Since there is lack of general information and
awareness about what may be eective practices in
a given region, and since companies vary in their
access to the most-recent information about eective
practices, such councils could address such decien-
cies and provide for the more rapid dissemination of
information.
Leaders in government should be committed to
high-quality environmental supervision and out-
comes by ensuring adequate resources for ecient
and eective regulation and enforcement. Govern-
ment ocials should also ensure that their regula-
tory requirements evolve and keep pace with the
development of new and highly eective practices.
e NPC recommends cooperation between the
councils of excellence and regulators. Community
engagement needs to be a core value and fundamen-
tal practice of companies, and these councils may be
ways to communicate constructive avenues to share
information with communities and to listen to their
concerns. Companies should also increase eorts
to reduce emissions from their gas production and
delivery activities. Finally, governments should
structure policies to support prudent development
of resources.
Establish Councils of Excellence for
Sharing Effective Environmental,
Health, and Safety Practices
Over many decades, natural gas and oil compa-
nies have made continuous and signicant improve-
ments in production processes and practices. ese
have resulted in energy production with lower envi-
ronmental impacts. Although accidents, spills, and
other problems have occurred, overall environmental
33 STRONGER is a nonprofit organization whose purpose is to
assist states in documenting the environmental regulations
associated with the exploration, development, and production
of crude oil and natural gas; it uses a voluntary peer-review
process of state regulatory approaches in order to share inno-
vative techniques and environmental protection strategies,
and to identify opportunities for program improvement. The
Ground Water Protection Council is a nonprofit organiza-
tion whose members consist of state groundwater regulatory
agencies, which promote and ensure the use of best manage-
ment practices and fair but effective laws regarding compre-
hensive groundwater protection. The Interstate Oil and Gas
Compact Commission is a chartered multistate government
agency that promotes the conservation and efficient recov-
ery of domestic oil and natural gas resources while protecting
health, safety, and the environment.
protection has improved. is has occurred as compa-
nies have applied more sophisticated technologies to
drilling and production practices.
In recent years, public condence in natural gas and
oil development and in some of the associated regula-
tory mechanisms has frayed. e tragic circumstances
of the Macondo accident in the Gulf of Mexico in 2010
and community attention to real and perceived safety,
water quality, and other environmental impacts of
shale gas extraction in some parts of the country
have heightened public awareness and concerns. In
some cases, natural gas and oil production activity is
increasing in populated areas and in closer proximity
to residential areas.
Companies gain exposure to and adopt new tech-
nologies and operating practices in dierent ways
and at dierent rates. More systematic mechanisms
to identify, evaluate, and disseminate information
to companies and regulators about eective environ-
mental, health, and safety practices with a regional
focus would improve information transfer. In light
of the many existing organizations involved in one
or another aspect of this work, the focus should be
on developing mechanisms for information sharing,
and not the establishment of new bureaucracies. e
goal would be to promote more consistently high-
quality performance on environment, safety, and
health issues across all companies. e concept is
for the council(s) to be nimble, exible, technically
competent, and aimed at collecting and disseminat-
ing eective environmental, health, and safety prac-
tices to all interested parties, rather than reinventing
the wheel.
ere are existing examples of mechanisms for
sharing (and developing new) eective practices,
including the recently formed Center for Oshore
Safety under API, as well as activities by the Society
of Petroleum Engineers and the Petroleum Technol-
ogy Transfer Council. Each has its own particular
mission, structure that includes non-industry rep-
resentatives, and programmatic activities with the
goal of enhancing the performance of its members.
Another example is the API’s standard-setting orga-
nization – which is separate from API’s advocacy
organization and is responsible for developing many
standards and recommended practices for onshore
and oshore operations through a standard-
development process that encourages third-party
participation.
26 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
of environmental safeguards and practices.
While the leaders of many natural gas and oil
companies are already committed to excellent
environmental performance and take action
to ensure this at their rms, all leaders of nat-
ural gas and oil companies should commit and
lead their rms to excellent environmental
performance. ese companies should con-
sider more eective environmental, health,
and safety performance as critical success fac-
tors for their enterprises.
� Natural gas and oil companies should estab-
lish regionally focused council(s) of excellence
in eective environmental, health, and safety
practices. ese councils should be forums
in which companies could identify and dis-
seminate eective environmental, health, and
safety practices and technologies that are
appropriate to the particular region. ese
may include operational risk management
approaches, better environmental manage-
ment techniques, and methods for measuring
environmental performance. e governance
structures, participation processes, and trans-
parency should be designed to: promote engage-
ment of industry and other interested parties,
and enhance the credibility of a council’s prod-
ucts and the likelihood they can be relied upon
by regulators at the state and federal level.
Adopt Policies for More Effective
Regulation of Natural Gas and Oil
Production and Operations
Most regulation relating to natural gas and oil pro-
duction in onshore areas occurs at the state rather
than the federal level. In the 33 states where natural
gas and oil resources are currently in development,
state agencies establish most of the terms and condi-
tions under which natural gas and oil production may
occur. is is particularly true for mineral resources
located on or under lands in private ownership. e
federal government has jurisdiction over develop-
ment on federal land, where federal mineral rights
exist under privately owned lands, and in the oshore
areas of the Outer Continental Shelf.
Within this context of natural gas and oil devel-
opment on private and public lands, there are mul-
tiple and overlapping areas of regulatory jurisdiction.
Natural gas and oil companies should draw upon
existing activities, as appropriate, and form “council(s)
of excellence” that may be aliated with or grow out
of an existing organization. eir function would be
to act as a centralized repository and more systematic
mechanism to collect, catalog, and disseminate envi-
ronmental, health, and safety standards, practices,
procedures, and management systems that pertain
to a region and resource play. Because development
of natural gas and oil resources diers depending on
factors such as the geology, water resources, geog-
raphy, and land uses of the region, what constitutes
eective practice may well be regionally dened. As
such, there may be a need for multiple councils, each
with a regional focus. e council(s) would be indus-
try led, but should be open to companies, regulators,
policymakers, nongovernmental stakeholders, and
the public. eir information would be publicly acces-
sible to interested parties as well as government agen-
cies. Experience in developing a rst regional council
(potentially in the Marcellus region) could provide
insights for other subsequent councils.
A result of such council(s) of excellence should be
continuous improvement by all company participants
(and others, including nonparticipating companies
and regulators). Eective practices are not static.
ey must evolve with changing technology, and dif-
ferent eective practices will apply in dierent types
of development areas.
ere are many existing organizations that are
already seeking to collect and disseminate relevant
information and assist state regulators to have more
eective environment, health, and safety regulatory
approaches. ese organizations include STRON-
GER, the GWPC, and the IOGCC. e proposed coun-
cils should benet from their eorts and be useful to
them as well. One of these existing multistate organi-
zations should be considered as a possible vehicle for
housing these councils.
Recommendation
e NPC makes the following recommenda-
tions for more effective environmental perfor-
mance of natural gas and oil production and
delivery operations:
� e leaders of companies set the expectations
for their individual organizations and focus
attention on the critical nature and importance
EXECUTIVE SUMMARY 27
States are heavily involved in regulating the terms and
conditions of access to and environmental impacts of
resource development and extraction, while local gov-
ernments often regulate land-use issues. e federal
government regulates certain aspects of air pollution,
water resource protection, and wastewater disposal.
Where the federal government itself owns the land or
mineral rights, the federal government also controls
land use, terms and conditions of access and use, and
many other issues.
For both state and federal regulation, it is important
that regulatory requirements and oversight evolve
to incorporate new technological developments and
practices. is is necessary to identify new standards
that may arise from the development of new science
or technical information, and to keep up with the pace
of industry activity.
While regulation of companies’ access to and devel-
opment of natural gas and oil resources exists in
every state where such resources are located, states
use dierent approaches and dierent standards in
regulating the industry due to varying geologic, cli-
mate, environmental, institutional, and statutory
factors. Over the years, the states have adopted tools
to help each other do their jobs better. An example
is the STRONGER organization, which provides peer
reviews of state regulatory approaches. STRONGER
is a nonprot organization comprised of environmen-
tal, state, and industry stakeholders. STRONGER’s
mission is to assist states by sharing innovative tech-
niques and environmental protection strategies for
exploration, development, and production of oil and
natural gas. Another example is the IOGCC through
which oil- and gas-producing states share informa-
tion and tools to solve common problems, focus on
model statutes and environmental stewardship, and
acknowledge their dierences.
Eective regulatory oversight should support the
multiple objectives of prudent development and take
into account dierent operating conditions for devel-
opment and operations. Such oversight benets not
just the public, but also industry, by providing skilled
regulatory personnel who can handle issues e-
ciently and eectively and keep abreast of technologi-
cal developments. In addition, eective and credible
regulatory oversight should take into consideration
standards set by independent standard-setting orga-
nizations – and strengthen regulation consistent
with evolving standards for prudent development.
To achieve these goals, regulators require adequate
resources, including sucient sta, training, and
technical expertise. A fee-based funding mechanism
is one approach that could provide these resources
in states where there are neither the resources nor
adequate industry contributions to support this func-
tion, provided that such fees support the institutional
mission of ecient and eective regulation and are
not used solely to increase taxes for general budgetary
support.
Recommendation
e NPC makes the following recommenda-
tions for more effective regulatory programs:
� Leaders of governments must be commit-
ted to ecient and eective oil and natural
gas regulation; create organizational cultures
aimed at that outcome; and ensure that their
regulatory requirements evolve with improve-
ments in scientic information, technology,
and operational practices.
� State and federal agencies should seek a bal-
ance between prescriptive and performance-
based regulations to encourage innovation
and environmental improvements while
maintaining worker and public safety.
� Federal agencies should undertake eorts to
better coordinate and streamline permitting
activities on federal lands and in the Outer
Continental Shelf.
� Regulators at the federal and state level should
gain practical insights from the work of cred-
ible council(s) for excellence in eective envi-
ronmental, safety, and health practices.
� Regulators at the federal and state level should
have sucient funding to ensure adequate
personnel, training, technical expertise, and
eective enforcement to properly regulate
natural gas and oil companies.
� STRONGER should be bolstered and increase
the scope of its activities. All states with natu-
ral gas and oil production should actively par-
ticipate in STRONGER and use its recommen-
dations to continuously improve regulation.
It should be adequately funded, including
from the federal government.
28 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
1. LEASE LAND 2. SEISMIC ACQUISITION
3. SITE SELECTION 4. LOCAL CONSTRUCTION
Figure ES-11. The Natural Gas and Oil Industry Is Well Regulated: Project Development Requirements in Pennsylvania
5. DRILLING AND COMPLETION 6. WELL START UP
7. RESTORATION AND RELEASE
Source: Adapted from “Governor’s Marcellus Shale Advisory, Commission Report” by Jim Cawley, Lt. Governor, Commonwealth of
Pennsylvania, July 22, 2011. Full Report Found at http://www.pa.gov. Also see Pennsylvania Public Records for Grugan
development: Gathering Line - Permit #ESX10-035-0002, GP0518291004, GP0818291001; COP Tract 289 Pad E -
Permit #ESX10-081-0076, API #37-081-20446 (Well #E-1029H); COP Tract 285 Pad C - Permit #GP0718291001, ESX10-035-0007.
Additional reporting and oversight required for exceptions to permitted activity not shown.
LEGEND:
BMP – Best Management Practice
COE – U.S. Army Corps of Engineers
DCNR – PA Dept. of Conservation &
Natural Resources
DEP – PA Dept. of Environmental Protection
EA – Environmental Assessment
START
END
EPA – Environmental Protection Agency
ESA – Federal Endangered Species Act
FAA – Federal Aviation Administration
NOI – Notice of Intent
PA DOT – PA Dept. of Transportation
PNDI – PA Natural Diversity Inventory
SLO – State Lands Oce
SPCC – Spill Prevention, Control &
Countermeasure Plan
SRBC – Susquehanna River Basin Commission
U.S. F&W – U.S. Fish & Wildlife Service
Landowner / Lease - Adhere
to Restoration Requirements
DEP – Plugging Permit
TERMINATION OF PRODUCTION
Operator – Shut-In Production
Plug Well
Decommission & Remove
Equipment
Abandon Gathering Lines
(See Steps 3 & 4)
Release of
Land & Location
DECOMMISSIONING
Frac Focus Report
SRBC – Post Drill Report
DEP – Solid Waste Mgmt Permit
DEP – Gas Flaring Permit
DEP – Post Drill Reports
Well Test & Clean Up
All Water Recycled
Solids – Disposed osite at
Approved, Permitted Facility
TEMPORARY FLOW BACK
INFRASTRUCTURE & HOOK UP
Repeat Steps 3 & 4
DEP – Air Permits
EPA – SPCC Requirements
Maintenance Activities
Repeat Steps 3 & 4
Inspections (Life of Well)
Construct
Gathering Lines
Construct
Permanent
Facilities
Connect
to Sales Line
DEP
EPA
SRBC
COE
U.S. F&W
Operator
DCNR
Monitor Well Integrity
(Reg. Req.)
PRODUCE WELL
Local Water Well Survey & Tests
Surface Owner Sign-o
DEP – File Drilling Plan – Compliant
with PA Const. & Op. Stds.
DEP – Pre-Spud Notication
Local Sewage Permits
SRBC – Registration
DEP – Coal/Non-Coal Determination
DEP/SRBC Water Mgmt Plan
DEP PERMIT TO DRILL
Sent to DEP Licensed Landll)
Cuttings & Waste Mgmt. (Tested &
Adhere to Previous Permit Conditions
Obey All Lease Stips
Obey Local Ordinance Requests
Inspections & Oversight
SPUD, DRILL & FRAC WELL
PA Fish & Boat
PA Game
DCNR
DEP
SRBC
Local
Operator
NOI to DEP (w/ Local Notice & Comment)
Managing Agencies – Seasonal Activity
Restrictions
PA DOT – Road Const. Permits
PA County – Local Road Const. Permits
SRBC – Water Access Permits
Local Municipal – Zoning & Land
Development Permits
DEP – Inspection
DEP – Pre-Const. Meeting
Activity Notice – Various Agencies
Build Location & Access Roads
Compliance Monitoring (Life of Well)
FEMA/Local-Flood Plain Determination
U.S. FAA – Air Clearance Consult
PA Biological Review
Pre-const. EA Forestry Approval of Location
PA DEP – Road Const. Plan
DCNR Location and Approval
DEP – COE - Wetlands & Stream Crossings
PA Game Commission – Species of Concern
PA Fish & Boat – Species of Concern
U.S. F&W – Federal ESA Issues; Seasonal Stips
Penn-State Historical Preservation -
Cultural Resources
Storm water -
Pre-Const. Notice (BMP)
PNDI – Mapping
DCNR - Seismic Survey Agreement
PA Game Comm. – Right-of-Way & Spec. Use
DEP Explosive Permits
PA DOT – State Road Permits
PA County – Local Road Use Permits
Collect Seismic Data
Evaluate Data
U.S. Fish & Wildlife
DCNR
PA Game
PA Fish & Boat
Federal ESA Review
DCNR – Species of Concern
High Occupancy Road Permits
Local Zoning Issues
Seasonal Game Restrictions
Stream, Road & Pad Buers
Multiple Use Stipulations
Non-Surface Use Stips
Holiday Work Restrictions
Disturbance Limits
Road Use Bonds
Submit Bid to SLO
LEASE CONDITIONS
AND PRODUCTION
Figure ES-11. The Natural Gas and Oil Industry Is Well Regulated:
EXECUTIVE SUMMARY 29
1. LEASE LAND 2. SEISMIC ACQUISITION
3. SITE SELECTION 4. LOCAL CONSTRUCTION
Figure ES-11. The Natural Gas and Oil Industry Is Well Regulated: Project Development Requirements in Pennsylvania
5. DRILLING AND COMPLETION 6. WELL START UP
7. RESTORATION AND RELEASE
Source: Adapted from “Governor’s Marcellus Shale Advisory, Commission Report” by Jim Cawley, Lt. Governor, Commonwealth of
Pennsylvania, July 22, 2011. Full Report Found at http://www.pa.gov. Also see Pennsylvania Public Records for Grugan
development: Gathering Line - Permit #ESX10-035-0002, GP0518291004, GP0818291001; COP Tract 289 Pad E -
Permit #ESX10-081-0076, API #37-081-20446 (Well #E-1029H); COP Tract 285 Pad C - Permit #GP0718291001, ESX10-035-0007.
Additional reporting and oversight required for exceptions to permitted activity not shown.
LEGEND:
BMP – Best Management Practice
COE – U.S. Army Corps of Engineers
DCNR – PA Dept. of Conservation &
Natural Resources
DEP – PA Dept. of Environmental Protection
EA – Environmental Assessment
START
END
EPA – Environmental Protection Agency
ESA – Federal Endangered Species Act
FAA – Federal Aviation Administration
NOI – Notice of Intent
PA DOT – PA Dept. of Transportation
PNDI – PA Natural Diversity Inventory
SLO – State Lands Oce
SPCC – Spill Prevention, Control &
Countermeasure Plan
SRBC – Susquehanna River Basin Commission
U.S. F&W – U.S. Fish & Wildlife Service
Landowner / Lease - Adhere
to Restoration Requirements
DEP – Plugging Permit
TERMINATION OF PRODUCTION
Operator – Shut-In Production
Plug Well
Decommission & Remove
Equipment
Abandon Gathering Lines
(See Steps 3 & 4)
Release of
Land & Location
DECOMMISSIONING
Frac Focus Report
SRBC – Post Drill Report
DEP – Solid Waste Mgmt Permit
DEP – Gas Flaring Permit
DEP – Post Drill Reports
Well Test & Clean Up
All Water Recycled
Solids – Disposed osite at
Approved, Permitted Facility
TEMPORARY FLOW BACK
INFRASTRUCTURE & HOOK UP
Repeat Steps 3 & 4
DEP – Air Permits
EPA – SPCC Requirements
Maintenance Activities
Repeat Steps 3 & 4
Inspections (Life of Well)
Construct
Gathering Lines
Construct
Permanent
Facilities
Connect
to Sales Line
DEP
EPA
SRBC
COE
U.S. F&W
Operator
DCNR
Monitor Well Integrity
(Reg. Req.)
PRODUCE WELL
Local Water Well Survey & Tests
Surface Owner Sign-o
DEP – File Drilling Plan – Compliant
with PA Const. & Op. Stds.
DEP – Pre-Spud Notication
Local Sewage Permits
SRBC – Registration
DEP – Coal/Non-Coal Determination
DEP/SRBC Water Mgmt Plan
DEP PERMIT TO DRILL
Sent to DEP Licensed Landll)
Cuttings & Waste Mgmt. (Tested &
Adhere to Previous Permit Conditions
Obey All Lease Stips
Obey Local Ordinance Requests
Inspections & Oversight
SPUD, DRILL & FRAC WELL
PA Fish & Boat
PA Game
DCNR
DEP
SRBC
Local
Operator
NOI to DEP (w/ Local Notice & Comment)
Managing Agencies – Seasonal Activity
Restrictions
PA DOT – Road Const. Permits
PA County – Local Road Const. Permits
SRBC – Water Access Permits
Local Municipal – Zoning & Land
Development Permits
DEP – Inspection
DEP – Pre-Const. Meeting
Activity Notice – Various Agencies
Build Location & Access Roads
Compliance Monitoring (Life of Well)
FEMA/Local-Flood Plain Determination
U.S. FAA – Air Clearance Consult
PA Biological Review
Pre-const. EA Forestry Approval of Location
PA DEP – Road Const. Plan
DCNR Location and Approval
DEP – COE - Wetlands & Stream Crossings
PA Game Commission – Species of Concern
PA Fish & Boat – Species of Concern
U.S. F&W – Federal ESA Issues; Seasonal Stips
Penn-State Historical Preservation -
Cultural Resources
Storm water -
Pre-Const. Notice (BMP)
PNDI – Mapping
DCNR - Seismic Survey Agreement
PA Game Comm. – Right-of-Way & Spec. Use
DEP Explosive Permits
PA DOT – State Road Permits
PA County – Local Road Use Permits
Collect Seismic Data
Evaluate Data
U.S. Fish & Wildlife
DCNR
PA Game
PA Fish & Boat
Federal ESA Review
DCNR – Species of Concern
High Occupancy Road Permits
Local Zoning Issues
Seasonal Game Restrictions
Stream, Road & Pad Buers
Multiple Use Stipulations
Non-Surface Use Stips
Holiday Work Restrictions
Disturbance Limits
Road Use Bonds
Submit Bid to SLO
LEASE CONDITIONS
AND PRODUCTION
Project Development Requirements in Pennsylvania
30 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Recommendation
e NPC makes the following recommenda-
tions to increase community engagement by
natural gas and oil companies and, in so doing,
support prudent development practices:
� Natural gas and oil companies should engage
aected communities to establish shared
understandings of expectations and aware-
ness of issues and facts.
� Engagement should include sharing of infor-
mation relevant to the community on a trans-
parent and comparable basis.
� e industry and state and federal agencies
must develop and disseminate science-based
information on practices and risks to inform
the public and build public condence.
� All levels of the natural gas and oil industry
should use appropriate and comprehensive
predevelopment planning, risk assessment,
and innovative applications of technology,
which must be adapted to the variability of
resource types and regional dierences.
� Every natural gas and oil company that uses
hydraulic fracturing should participate in
FracFocus and comply with applicable state-
mandated registries. e Department of the
Interior should require every natural gas and
oil company that uses hydraulic fracturing on
federal lands to participate in FracFocus.
Actions to Measure and Reduce
Methane Emissions
Since methane is a potent GHG, emissions should
be minimized in production and delivery. e
EPA Gas STAR program is a voluntary industry-
government partnership that has helped to elimi-
nate over 900 Bcf of methane emissions since 1993.
However, Gas STAR lacks robust quantication pro-
tocols to document the reductions and does not fully
account for reduction practices employed within
the industry. Moreover, not all companies partici-
pate in Gas STAR. An enhanced Gas STAR industry-
government partnership, or an alternative, could
provide an improved forum to review the barriers
to greater adoption of methane emission-reducing
Commit to Community Engagement
Every natural gas and oil company must be commit-
ted to community engagement. Even though a com-
pany may believe its environmental performance is at
the highest level, maintaining transparency regarding
issues is important to public stakeholders. Industry
needs to explain its production practices and environ-
mental, safety, and health impacts in nonproprietary
terms. e public should have the information neces-
sary to have an understanding of the challenges, risks,
and benets associated with natural gas and oil pro-
duction, including the cumulative impacts in a region
of the development of multiple wells. Transparent
reporting of comparable and reliable information
can provide companies the tangible and intangible
benets of stronger relationships with communi-
ties, employees, and public interest groups. is is an
essential part of earning and maintaining public trust
and critical to establishing appropriate public policies
and regulations.
While providing information is important, natural
gas and oil companies should also work with com-
munities and seek ways to reduce the tangible or per-
ceived negative impacts of development. is should
include predevelopment planning to identify issues
such as noise and trac and seek ways to mitigate
them. Companies should ask for alternative views,
and reect stakeholders’ positions in strategic objec-
tives and communications.
One recent example of the natural gas and oil
industry’s community engagement is found in Frac-
Focus, the hydraulic fracturing chemical registry
website. A joint project of the GWPC and the IOGCC,
FracFocus provides a place where companies can post
information about the chemicals used in the hydrau-
lic fracturing of oil and gas wells. Many natural gas
and oil companies participate in FracFocus, but not
all companies do so. Increasing the participation in
FracFocus to all natural gas and oil companies that
engage in hydraulic fracturing, and adding into the
system all wells currently in drilling or production,
would be an important step in raising the level of
community engagement.
Another example is the practice of drilling multiple
wells from a single pad, which can signicantly reduce
the truck trac and minimize surface disturbance.
Much eort is now going into innovations aimed at
signicantly reducing the water usage for hydraulic
fracturing, and it is expected that the eects will be
seen over the next few years.
EXECUTIVE SUMMARY 31
technologies, develop and fund research for a variety
of new methane reduction technologies, and update
processes and practices to improve emissions account-
ing and reduction protocols.
Compliance with the EPA mandatory reporting of
GHG emissions should result in improved character-
ization of the emissions prole of the industry and
enable identication and adoption of technologies to
minimize the loss of natural gas.
Recommendation
e NPC makes the following recommenda-
tions to reduce methane emissions:
� Use industry-government partnerships to
promote technologies, protocols, and prac-
tices to measure, estimate, report, and reduce
emissions of methane in all cycles of produc-
tion and delivery.
� Ensure greater adoption of these tech-
nologies and practices within all sectors of
the natural gas industry, with a focus on
signicantly reducing methane emissions
while maintaining high safety and reliability
standards.
Other Policies to Support
Prudent Development
Access to resources is a necessary condition for oil
and gas development. e ability to develop subsur-
face areas with known or potential natural gas or oil
resources often depends on decisions of owners of
land and mineral rights and of policymakers. In cir-
cumstances of limited or contested access, even where
there is a known natural gas or oil resource, explora-
tion and development activities cannot be undertaken
eectively. Access limitations can be explicit, such
as recent moratoria applied to shale exploration and
development in some areas. Limitations can occur
less explicitly, resulting from ineective or unpredict-
able permitting regimes, or public opposition. Recent
advancements in technology and operating practices
may be able to alleviate some environmental concerns
that originally contributed to these access restric-
tions. Policymaking on issues aecting access should
reect a balance of economics, energy security, and
environmental protection.
In places, the term of leases can pose access prob-
lems. For example, oshore areas could make an
important contribution to natural gas and oil supply
over the next 20 to 30 years. Steps that could allow
these areas to be considered for development, such as
updated resource assessments and the development
of environmental impact studies, are important to
sustaining supply potential. Also, proposals that put
into question the status of existing leases where drill-
ing activity has not yet taken place (“use it or lose it”)
are a threat to adequate access and resource develop-
ment. It can take considerable time to develop lease
exploration and drilling plans and receive requisite
approvals, since drilling activity requires water and air
discharge permits and other environmental assess-
ments. In some areas, such as the high-cost, nan-
cially risky oshore environment, 10-year lease terms
are a minimum length of time for these processes and
decisions to be made. Longer lease periods would be
more eective in frontier areas such as the Arctic,
which have shorter annual drilling windows, very
limited processing and transport infrastructure, and
more complex permitting procedures and environ-
mental review processes.
A second necessary condition to enable develop-
ment is predictable regulatory regimes. e public
has a right to expect regulatory compliance by com-
panies and proper government oversight. However,
examples of overlapping or conicting regulations
that unreasonably impede development should be
addressed. State or Canadian provincial regulations
are usually more adapted to local subsurface and sur-
face conditions, which can vary widely across regions
of North America. Timely decision-making and regu-
latory clarity should also be objectives of government
policy. Delays and “regulatory congestion” not only
create uncertainty and draw out projects, but they
can also negatively aect the economics of projects
and add costs. Regulators should take care to ensure
that they aim their regulatory processes on achieving
meaningful outcomes, and minimize situations where
long review periods produce diminishing returns to
the public.
e third necessary condition to enable develop-
ment is continued support for research and technol-
ogy development. Much research and technology
development is conducted by private companies, and
it is important to not jeopardize this private enter-
prise system of innovation. However, sometimes the
payo period for such research is too long to attract
32 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
federal agencies may be appropriate homes
for a range of research and technology devel-
opment eorts, the Department of Energy
should lead in identifying, in some cases
funding, and in other cases supporting
public-private partnerships for research and
development on energy and certain environ-
mental issues of national interest (e.g., pre-
commercial issues or issues where companies
cannot retain intellectual property). Examples
where federal involvement is needed include:
− e environmental impact of oil spills
and cleanup, including residual eects of
chemical dispersants, and science-based
risk assessments
− Science and pre-commercial technology
relating to methane hydrates
− Technology and methods for understand-
ing, quantifying, and mitigating the envi-
ronmental impacts and other risks of natu-
ral gas and oil development to continue to
improve the environmental performance of
exploration and development activities
− Assessments of resource base in areas
currently o limits to exploration and
production.
Better Reflect Environmental
Impacts in Markets and Fuel/
Technology Choices
Potential Policies for Internalizing
the Cost of Carbon Impacts into
Fuel Prices
In recent years, the substitution of natural gas for
coal in electric power generation has decreased GHG
emissions. Moreover, if the EPA’s proposed non-GHG
rules for power plants take eect, additional GHG
emissions reductions are expected to occur.
In his letter asking the NPC to conduct this study,
the Secretary of Energy asked the NPC to examine the
contribution that natural gas could make in a transi-
tion to a lower carbon fuel mix. He did not ask the
NPC to weigh in on the merits of adopting a climate
policy. However, the NPC does believe that any con-
sideration of climate policy should take into account
private support. erefore, private investment can-
not be counted on to perform this work. In other
cases, the intellectual property developed by research
is better held as a public good rather than being held
privately. is can occur when the benets of the
research would accrue to the United States as a whole,
yet do not meet the criteria of any individual company
to justify the investment.
Recommendation
e NPC makes the following recommenda-
tions regarding other policies to support
prudent development of natural gas and oil
resources:
� Policymakers on issues aecting access
should reect the balance of economic,
energy security, and environmental issues,
and consider technology and operational
advancements that allow environmentally
responsible development.
� Revise policies applicable to frontier areas
with long lead times, challenging physical
conditions, or new technology applications
(e.g., deep oshore Gulf of Mexico and Arctic).
− Allow the length of leases to correspond
to the long development lead times neces-
sary to allow for appropriate incentives for
private-sector investments in exploration
and prudent development.
− Maintain tailored royalty relief targeted
towards supporting pre-commercial invest-
ment by early adopters of new technology
or entrants into new types of resources with
potential for the long-term resource devel-
opment.
� Congress should ensure adequate funding to
the Energy Information Administration for
the collection, analysis, and communication of
data on natural gas, oil, and other elements of
the energy system. All are essential to support
informed decisions by governments, private
rms, and the public.
� Even as natural gas and oil companies con-
tinue to fund their own proprietary technol-
ogy and other research, federal government
agencies should also support the develop-
ment of new technology. While dierent
EXECUTIVE SUMMARY 33
the impacts on the national economy and competi-
tiveness, the environment, and energy security, and
be part of a global framework.
e NPC recognizes, however, that the United
States, with its market-based economy, will nd it di-
cult if not impossible to substantially further decrease
its GHG emissions without introducing higher costs
or regulatory controls associated with GHG emissions
from development, delivery, or combustion of fossil
fuels. Absent a price on carbon, energy eciency and
those power sources with lower carbon intensity –
such as renewables, nuclear, and natural gas – will tend
to be undervalued as individuals, businesses, and gov-
ernments make decisions. A price on carbon, implied
or explicit, or similar regulatory action that prices the
environmental costs of fossil fuel emissions, will help
to accelerate shifts to lower carbon-intensity sources
of electric power. Such policies could take the form of
an explicit carbon price, such as a carbon tax, or other
market mechanisms.
If policymakers were to adopt a carbon-pricing
mechanism, the policy should ensure that the carbon
price signal is not distorted to favor one energy source
over another except with respect to carbon inten-
sity. ere should be a level playing eld with regard
to carbon-related attributes of energy alternatives.
Designed appropriately, a carbon policy could provide
the economic incentive for further improvements in
energy eciency; increased use of lower-carbon fuels
such as natural gas; as well as for the development of
other low- to zero-emitting technologies including
renewables, nuclear, and technologies that allow for
capture and sequestration of CO
2
. Other policies can
introduce an implied carbon price, such as through the
use of a performance standard, a clean energy stan-
dard (CES), or coal plant retirement incentives. If the
United States were to proceed with a CES, then such
a CES policy should include natural gas as a “qualied
clean energy” source for both new and existing natu-
ral gas power plants. All energy resources included
in a CES should be qualied on the basis of life-cycle
analysis that reects total emissions from the fuel,
including production, delivery, and combustion.
A national carbon policy, incorporating the charac-
teristics in the recommendation below, would help pro-
vide predictable signals for decisions about long-lived
capital investments and allow for innovation and incre-
mental steps towards a lower carbon energy mix. Pro-
viding clarity on carbon policy would reduce regulatory
uncertainty and help business investment decisions.
Recommendation
e NPC makes the following recommenda-
tions with respect to potential policies for
internalizing the cost of carbon impacts into
fuel and technology choices:
� As Congress, the administration, and rel-
evant agencies consider energy policies, they
should recognize that the most eective and
ecient method to further reduce GHG emis-
sions would be a mechanism for putting a
price on carbon emissions that is national,
economy-wide, market-based, visible, pre-
dictable, transparent, applicable to all sources
of emissions, and part of an eective global
framework.
− Should policymakers implement clean
energy standards or other electric gen-
eration performance standards, such poli-
cies should allow natural gas to qualify as
a clean energy source based on relative
carbon-related emissions performance.
� Any policy should include consideration of
the impacts on the national economy and
industry and should provide a predictable
investment climate. To minimize adverse
impacts on energy security and aordabil-
ity, implementation should address the need
for phase-in of carbon prices and emission
controls.
Policies for Keeping Options Open for
Advanced Technology for CCS
Direct and indirect policies to set a price on carbon
emissions from fossil fuel combustion and delivery
would value natural gas’ ability to provide energy
with lower GHG emissions than other fossil fuels.
However, if very deep reductions in GHG emissions
are desired over the long run, fossil fuels, including
natural gas, could play only a limited role in providing
energy unless there is a means to capture and seques-
ter the CO
2
emissions from burning fossil fuels. CCS
could provide such a means.
Currently, CCS research is focused on coal-red
power production. However, all fossil fuels, includ-
ing natural gas, would benet from CCS; thus, CCS
34 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Recommendation
To keep the option open in the long run of using
natural gas in a situation where deeper reduc-
tions in GHG emissions are desired or necessary,
the NPC makes the following recommenda-
tions regarding advanced technology for CCS:
� e federal government should work with
the states, universities, and companies in the
electric, oil and gas, chemical, and manufac-
turing sectors to:
− Fund basic and applied research eorts
on CCS such as the cost of carbon capture,
geologic issues, and the separation of CO
2
from combusted gases
− Develop some number of full-scale CCS
demonstration projects on a range of tech-
nologies and applications
− Establish a legal and regulatory framework
that is conducive to CCS
− Find mechanisms to support the use of
anthropogenic CO
2
without raising its cost
to users in appropriate EOR applications
− Strive to be fuel, technology, and sector
neutral, and include a range of geologic
storage options.
Policies for Providing Information
about Environmental Footprints and
FullFuelCycle Impacts
All energy choices involve trade-os of one form or
another. Environmental footprint analyses incorpo-
rate the impacts that energy choices have on a variety
of impact measures, including water and air quality,
land and water resource use, human health, and wild-
life health. Such footprint analyses provide a method
for comparing the impacts of energy resources on dif-
ferent environmental outcomes. For example, a well-
constructed footprint analysis would compare on a
common basis the water use or land use associated
with extraction of one energy resource such as shale
gas development, with other energy resources such as
coal or biofuels. In that example, water use could be
measured in terms of energy content of the fuel or in
terms of each fuel’s ability to power a common unit of
electricity.
research, development, and demonstration should
be fuel neutral and include options that allow for
potential applications in and out of the power sec-
tor. erefore, CCS research and development
funding should include natural gas. e petroleum
rening and natural gas processing industries have
been separating CO
2
from gas streams for decades
and have invested signicant research in develop-
ing technologies for making this separation. Even
so, separating CO
2
remains expensive. Additional
research might lower this cost. ere is also a
need for further research on aspects of long-term
geological storage.
CO
2
separation from ue gas on the scale of a large
electric power plant has not been demonstrated to
date. Full-scale demonstration projects would pro-
vide the opportunity to learn how current CCS tech-
nologies might work on a large scale. Several dem-
onstration projects are underway and more have
been proposed. CCS demonstration projects will
require government support in the near term, since
they will be uneconomic without a signicant price
on carbon.
A way to reduce the cost of research and devel-
opment of CCS is to combine it with commercial
opportunities for using captured CO
2
. Enhanced oil
recovery is a technique currently in use for increas-
ing the amount of oil that can be extracted from an
oil eld. When CO
2
is injected into certain types of
oil elds for EOR, the CO
2
enhances oil mobility and
can increase recovery from a reservoir. is use of
CO
2
in EOR can be a method of geologic sequestra-
tion and it can provide rst movers with repositories
for scaled-up capture projects. CO
2
EOR production
has been increasing for the last two decades and now
amounts to about 10% of onshore conventional oil
volumes.
ere are various mechanisms to support fund-
ing for research, development, and demonstration
programs, and policymakers should consider inno-
vative methods to address support for CCS research
and development. In addition, the need to “develop
the legal and regulatory framework to enable CCS”
remains as important today as it was when Hard
Truths was published in 2007. ese include policies
that provide for a clear transfer of long-term respon-
sibility for closed storage sites, after appropriate site
integrity verication, to a government or other public
entity for long-term management.
EXECUTIVE SUMMARY 35
In theory, an environmental footprint analysis is
an objective, science-based assessment of the poten-
tial positive and negative impacts of each energy
source. In practice, however, environmental foot-
print analyses are in early stages of development,
with analyses exhibiting dierent techniques for
measuring impacts and widely varying assump-
tions that often end up producing apples-to-oranges
comparisons across fuel and energy resources. ere
are technical issues such as incomplete data and the
lack of consensus around quantication of impacts
and risks. is latter fact complicates the ability of
this potentially important technique to provide poli-
cymakers with useful information to evaluate the rel-
ative importance of the dierent impacts. Moreover,
the dierent resource types for the same fuel may
have dierent impacts, such as with shale gas versus
conventional gas. Environmental footprint results,
however, are not intended to be a rationale for not
mitigating the impacts of any fuel.
Policymakers should rene their understanding of
the life-cycle and environmental footprint of energy
sources, including natural gas and oil, as part of pro-
viding a high-quality information base for making
decisions about energy choices that reect the dif-
ferent nature and intensity of impacts. Information
from environmental footprint analyses could be incor-
porated into analyses used in making investment and
purchasing decisions by consumers, producers, and
state and federal governments.
Recommendation
e NPC makes the following recommenda-
tions on environmental footprint analyses to
enhance the evaluation of the environmental
impact of energy resource choices:
� e federal government should support the
development of consistent methodologies
for assessing environmental footprint eects
such as impacts on water and land.
� As sound methodologies are established and
vetted, regulators and other policymakers
should use environmental footprint analyses
to inform regulatory decisions and in imple-
menting other policies where energy resource
choices involve economic and environmental
trade-os.
In contrast to environmental footprint analysis,
a full fuel cycle (FFC) analysis is a tool that can help
inform choices about end-use technologies, such as a
natural gas versus an electric water heater. Such an
FFC analysis incorporates information about both
the impacts (e.g.,CO
2
emissions) of energy consump-
tion at the point of ultimate consumption, as well as
those impacts attributable to the energy consumed or
vented as part of the fuel extraction, processing, and
transportation. FFC analysis could also account for
impacts associated with energy losses from thermal
combustion in power-generation plants and energy
losses in transmission and distribution to homes and
commercial buildings.
FFC analysis could inform energy-related policies at
dierent levels and branches of government. FFC and
footprint analyses are particularly useful in under-
standing the complete impact of energy-related deci-
sions on total energy consumed and total emissions,
especially when comparing two or more fuel options
to achieve the same end-use result. FFC analysis could
be applied in various decision-making settings, such
as: development and implementation of appliance
and building energy eciency standards; compari-
sons of dierent technology choices such as a natu-
ral gas water heater to an electric water heater; home
energy rating systems (HERS) index; and decisions
about whether to approve power plant applications.
Continued development of FFC methodologies
used to assess environmental benets and costs of
energy supplies would be instructive to policymakers,
consumers, and the industry alike.
Recommendation
e NPC makes the following recommenda-
tions for full fuel cycle analyses to enhance
the evaluation of the environmental impact of
energy choices:
� e federal government should complete
development of and adopt consistent method-
ologies for assessing full fuel cycle eects.
� As sound methodologies are established, regu-
lators and other policymakers should use full
fuel cycle analyses to inform regulatory deci-
sions and implementation of other policies
where fuel and technology choices involve
energy and environmental trade-os.
36 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
local authorities. To help state and local governments,
the federal government can further support develop-
ment and periodic update of national model energy
codes, allowing and encouraging states to adopt the
most recent of such codes.
34
ese model codes are
typically updated on a three-year schedule. e fed-
eral government can also provide technical assistance,
training, and other measures to improve state and
local ability to enact and enforce codes.
While building codes typically apply only to new
structures or major renovations, appliance standards
can reduce energy consumption in existing buildings.
Ecient new appliances in the residential and com-
mercial sectors could reduce energy consumption
and, in turn, GHG emissions from these sectors by
12% and 7%, respectively. FFC analysis could provide
the basis for these appliance standards.
35
Recommendation
e NPC makes the following recommenda-
tions to support the adoption of energy effi-
ciency in buildings and appliances:
� e federal government should continue to
support the updating of national model build-
ing codes issued by existing institutions and
to provide technical assistance, training, and
other support for state and local enactment
and enforcement of the updated codes.
� e federal government should continue to
update energy eciency standards for appli-
ances and equipment over which it has statu-
tory authority.
� Federal and state governments should consider
incentives for products and buildings that are
more ecient than required by laws and stan-
dards, such as Energy Star qualifying products.
� State and local governments should adopt
programs to support cost-eective energy e-
ciency in buildings.
34 The International Energy Conservation Code (IECC) issued by
the International Code Council (ICC) develops national model
energy codes for residential buildings. The American National
Standards Institute (ANSI), the American Society of Heating,
Refrigerating, and Air-Conditioning Engineers (ASHRAE),
and the Illuminating Engineering Society of North America
(IESNA) Standard 90.1 are national model energy codes for
commercial buildings.
35 See Chapter Four.
Enhance the Efficient Use of Energy
Given the importance of energy eciency and the
continuing availability of untapped economical e-
ciency opportunities, the NPC nds that stronger
action is still needed:
� To enhance eciency of energy use in buildings and
appliances, through:
− Continued progress to adopt stronger eciency
standards for buildings and appliances
− Regulatory changes to remove the disincentives
for natural gas utilities and electric utilities to
deploy energy eciency measures.
� To eliminate barriers to combined heat and power
as a way to increase the eciency of electricity
production.
Enhance Efficiency of Energy Use in
Buildings and Appliances
Building and Appliance Efficiency Standards
Buildings constitute a major source of demand
for power, space heating and cooling, and lighting.
In many situations, avoiding energy consumption
through installation of more ecient appliances or
changes to the building shell can be the most cost-
eective strategy for satisfying customers’ energy
needs. Compared to implementing energy eciency,
all other energy resources and technologies involve
trade-os among economic, environmental, and
energy security objectives.
e 2007 NPC Hard Truths report identied many
energy eciency policy options, most of which are
still applicable today. Implementing energy-ecient
technologies can reduce the need to produce, deliver,
and transform energy, thus avoiding emissions and
resource use, mitigating environmental and health
impacts, saving consumers money, and enhancing
energy security. For instance, if the United States
used energy at 1973 eciency levels in all sectors
of the economy, about 56% more energy would be
consumed today – equal to another 52 quadrillion
Btu that otherwise would have had to be extracted,
delivered, combusted, or otherwise harnessed to pro-
duce usable energy for consumers’ needs. Increasing
energy eciency can thus provide long-term benets.
Signicant energy savings have been achieved in
the United States through building codes and appli-
ance and equipment standards. Building codes are
administered by the 50 states and by thousands of
EXECUTIVE SUMMARY 37
Utility Regulatory Policies to Support Greater
Cost-Effective Energy Efficiency
Gas and electric utilities are natural entities to pro-
vide some types of energy eciency programs, such
as installing weather-proong or distributing appli-
ance rebates, because those utilities have information
about the consumption patterns of their customers,
have an ongoing relationship with them, and often
have the expertise to implement energy eciency
programs. Moreover, treating energy eciency as a
resource in their portfolio of supply options can help
utilities deliver supply for their customers at lower
overall costs.
Under traditional ratemaking policies, however,
utilities that sell electric power or natural gas to end-
use consumers have the incentive to sell more of their
product to consumers once rates have been set: higher
sales means higher revenues and lower sales means just
the opposite. To overcome this disincentive, ratemak-
ing policies should align the nancial interests of both
electric and gas utilities with those of their customers
in providing cost-eective energy eciency measures.
Recommendation
e NPC makes the following recommendation
to remove the disincentives for natural gas
utilities and electric utilities to deploy energy
efficiency measures:
� State and federal utility regulators should
adopt for utilities:
− Ratemaking policies to align utility nan-
cial incentives with the adoption of cost-
eective energy eciency measures
− Goals and targets for the deployment of
cost-eective energy eciency so as to sup-
port the adoption of cost-eective energy
eciency measures on a timely basis.
Remove Barriers to Combined Heat
and Power to Increase the Efficiency of
Electricity Production
Another opportunity for energy savings comes
from combined heat and power (CHP) facilities. Such
facilities can function within industrial plants such as
paper mills or chemical plants. CHP can also be found
in large institutions such as universities or hospitals.
ese facilities produce steam for industrial purposes
or heating and produce electricity as a secondary
product for their own consumption or for sale. CHP
can operate at nearly 70% energy-eciency rates ver-
sus about 32% for base-load coal plants. Today CHP
accounts for almost 9% of total electricity produced.
Greater use of CHP can provide a signicant oppor-
tunity to lower energy costs and thus improve the
competitiveness of manufacturing, while provid-
ing larger societal benets such as improving overall
eciency of power generation, lowering emissions,
increasing reliability of the electric grid, and reducing
transmission losses. CHP’s power can be used inter-
nally or sold to the electricity grid.
In many areas, regulatory barriers prevent other-
wise economic investments in CHP. ese barriers
include rules relating to interconnecting CHP facilities
to the grid, policies limiting the sale of CHP power to
the market, problems with pricing, and the ability to
enter into long-term contracts for the power output
from CHP. Greater exibility, for instance, is needed
to allow manufacturing facilities to sell power to one
another, or in regulated states to wheel power from
one facility to another. Additionally, typical environ-
mental regulations also measure emissions of power
combustion as a function of heat input (e.g., emis-
sions per Btu consumed) rather than emissions asso-
ciated with output (e.g., emissions per kilowatt-hour
of output). is regulatory design disadvantages CHP
units and other, more ecient technologies. Higher
eciency generally means lower fuel consumption
and lower emissions of all pollutants.
Recommendation
e NPC makes the following recommenda-
tions to eliminate the barriers to CHP and thus
increase the efficiency of electricity production
in the United States:
� State and federal utility regulators should
adopt policies for both natural gas and electric
utilities that remove barriers to CHP in inter-
connection, power sales, and power transfers.
� Policymakers should include CHP and energy
eciency in any clean energy standard.
� e EPA should use output-based perfor-
mance standards for emissions from power
generation, including CHP, as a means to
reect inherent energy eciency dierences
in power generation technologies.
38 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Moreover, other factors provide further dampening
on the potential for natural gas price volatility. First,
substantial investments in LNG import capacity made
over the past decade could now serve almost one-third
of annual U.S. demand. Second, new investments
have been made in natural gas storage. ird, some
states use demand response and energy eciency in
order to manage price volatility.
Natural gas prices are currently low in comparison
to recent history, making gas-red generation attrac-
tive relative to coal in some situations. One form of
risk faced by builders of new natural gas-red power
plants is the perception that natural gas prices are
more volatile than the prices of competing fuels
such as coal. is perception is grounded in histori-
cal experience when utilities made investments in
(or purchases of power from) natural gas-red power
generation technologies only to have the prices unex-
pectedly rise. e price increases created diculties,
as these costs needed to be allocated between produc-
ers and consumers in states with traditionally regu-
lated electric utilities and natural gas utilities. Some
regulators and electric utilities may fear another spike
in prices, and be reluctant to engage in another era
of gas-red power generation investments. Also, in
many states, the regulatory legacy resulting from out-
of-market, take-or-pay contracts from several decades
ago creates regulatory risk and a barrier for electric
and gas utilities, if they were to enter into long-term
contracts for natural gas and then gas prices change
in ways that introduce questions about the prudency
of those original contract decisions. Even where vari-
ous contract instruments were used more recently for
price hedging purposes, some utilities have been sub-
ject to hindsight review by state utility commissions
and more recently have had to refund some hedging
costs to ratepayers. ese experiences with regula-
tory risk have made investment in gas-red genera-
tion less attractive for utilities.
Recommendation
e NPC makes the following recommenda-
tions to allow natural gas utilities and electric
power utilities to manage their natural gas
price risk:
� e NPC supports changes in regulatory policy
that remove regulatory barriers from utilities
managing their natural gas investment port-
folios using appropriate hedging approaches,
Enhance the Regulation of Markets
In large part, the U.S. economy relies on open
markets for goods and services that are inuenced
by government policy and regulation. Government
regulation creates the rules of the road for markets.
Accordingly, the design and implementation of regu-
lations matter to accomplish desired results without
introducing needless restrictions or costs. In this
study, the NPC found three areas where changes to
government regulation would enhance the function-
ing of energy markets and promote the goals of pru-
dent development of natural gas and oil resources,
and national economic prosperity, environmental
sustainability, and energy security. ese areas for
improved regulation are:
� Mechanisms for utilities to manage the impacts of
price volatility
� Harmonization of market rules and service arrange-
ments between the wholesale natural gas and
wholesale electric markets
� Environmental regulatory certainty affecting
investments and fuel choices in the power sector.
Mechanisms for Utilities to Manage the
Impacts of Price Volatility
Crude oil and natural gas price volatility poses a
challenge to the natural gas and oil industry and the
consumers of its products. Volatility is a measure
of the pace and magnitude of price changes. Price
changes send signals to consumers and producers that
lead them to adapt their behavior to match market
conditions. Consumers tend to consume more when
prices are lower and less when prices rise. Higher
prices tend to encourage the development of addi-
tional supply, while lower prices tend to discourage
additional supply. Well-functioning and transparent
commodities futures markets provide producers and
consumers of crude oil and natural gas the ability to
mitigate price volatility.
North American natural gas markets, with vast
domestic supplies, have been relatively insulated
from global supply and demand shocks. Despite this,
there have still been uctuations in U.S. natural gas
prices due to supply and demand imbalances, espe-
cially in the past decade. e recent development
of unconventional natural gas resources, however, is
dramatically increasing supply relative to demand and
dampening the expectation of future price volatility.
EXECUTIVE SUMMARY 39
including long-term contracts. Any such rules
should not impede the ability of utilities to
appropriately hedge their price risk.
� Regulators (such as state utility commis-
sions) and other policymakers should allow
market participants such as utilities to use
mechanisms to mitigate and manage the
impacts of price volatility. ese mechanisms
include long-term contracts for natural gas,
use of hedging instruments by regulated
entities like utilities, and investment in stor-
age facilities.
Harmonization of Market Rules and
Service Arrangements between the
Wholesale Natural Gas and Wholesale
Electric Markets
From 2000 to 2010, the use of natural gas for
power generation has increased from 16 to 24% of
total electric sector generation. In terms of fuel use,
the power sector’s use of natural gas grew from 14 to
20 Bcf/d (rising from 22 to 31% of total gas demand).
Natural gas use for power generation is expected to
increase further in the future, in light of three factors:
� A change in expectations about North American
natural gas supply and costs due to the economic
viability of shale gas development. Concerns about
high and volatile natural gas prices, at production,
and increasing LNG imports have changed to fore-
casts of lower and more stable natural gas prices
and abundant North American natural gas supplies
that could meet almost any natural gas demand
requirement.
36
� An expectation of strong growth in intermittent
renewable generation capacity that increasingly
requires backup by gas-red generation to stabilize
grid operations.
� An expectation of substantial retirements of coal-
red generation in the next few years as a conse-
quence of implementation of the EPA’s proposed
non-GHG regulations, combined with lower gas
price expectations.
36 See, for example, EIA, 2011 Annual Energy Outlook, Refer-
ence Case wellhead price forecast for 2030 declined from
$7.80 (2007$) per MMBtu for the 2009 Reference Case to
$5.66 (2009$) for the 2011 Reference Case.
Further growth in natural gas use for power genera-
tion, however, should not be taken for granted. e
increased use of natural gas for electricity produc-
tion, especially during peak periods in regional gas
and electric markets, is raising concerns about poten-
tial operational problems for both pipeline operators
and power generators. Some power generators have
identied some terms and conditions of natural gas
services that are inhibiting them from building and
operating gas-red generation plants.
37
Conversely,
some pipelines have stated that they are not being
adequately compensated for providing service to gas-
red generators that are backstopping intermittent
renewables.
38
Accordingly, federal and state regulators
and industry leaders are calling for more formalized
coordination between the electric and gas sectors.
is will not be an easy task. Both the natural gas
pipeline network and the electric transmission grid
operate under dierent complex systems of rules and
regulations that have evolved independently over
decades. For example, the natural gas industry uses
a standardized denition of an operating day, but the
power sector has multiple denitions of operating
days. e scheduling rules and timelines for power
generators (e.g., for day-ahead and real time markets)
may not synchronize between electric control areas
or with pipeline capacity nomination schedules or
rights. Gas-red generators not holding rm pipe-
line transportation frequently have to commit power
to the regional electricity grid before they have the
assurance of pipeline capacity. With the prospects
that natural gas will become an even larger supply
source for power generation, and with the increasing
need for natural gas generation to backstop intermit-
tent renewable generation, coordinating these respec-
tive operating and regulatory systems will become
increasingly complicated.
As natural gas and electric markets become more
entwined, greater coordination between the two will
be required. One way to enhance this coordination
and to minimize surprises is to increase the transpar-
ency of operations. e Federal Energy Regulatory
Commission has done this for natural gas markets
by requiring interstate pipelines to post on the web
37 See Chapter Three for a more complete discussion of issues
relating to the interaction of natural gas and electric whole-
sale markets.
38 INGAA Foundation, Firming Renewable Electric Power Gen-
erators: Opportunities and Challenges for Natural Gas Pipelines,
March 2011.
40 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
� Transmission operators should identify any
transmission bottlenecks or power market rules
that limit the ability of natural gas combined-
cycle plants to replace coal-red generation.
Environmental Regulatory Certainty
Affecting the Power Sector
e EPA is in the process of nalizing a number of
regulations that will aect the power sector over the
next several years. ese include the Clean Air Trans-
port Rule (now nalized and called the Cross-State
Air Pollution Rule); the proposed Air Toxics rule (also
known as the “Maximum Achievable Control Technol-
ogy” rule); and proposed regulations regarding cool-
ing water intake structures (the “316(b) Rule” under
the Clean Water Act); and coal combustion byproducts
(coal ash). Compliance costs associated with these
regulations may contribute to some power plant own-
ers’ decisions to retire some coal-red power plants
rather than retrot them to comply with the new envi-
ronmental rules. ere is debate in the industry with
respect to costs, benets, and eects on reliability.
Economics suggest that natural gas generation will
be a likely source of power to replace generation from
retired coal units. According to studies reviewed by
the NPC, the estimated amount of coal-red capac-
ity that will retire through 2020 ranges from 12 GW
to 101 GW of capacity. Based on the study average of
58 GW, this represents about 6% of total U.S. generat-
ing capacity, or around 18% of coal-red capacity. If
this amount of coal-red generation is replaced by gas-
red generation as a result of these regulations, there
could be a decrease in power sector CO
2
emissions of
11% of total emissions by 2020. Other impacts would
include lower electric power sector emissions of sulfur
dioxide, nitrogen oxides, and mercury, with reductions
of 19%, 16%, and 12%, respectively, below 2005 levels.
Current uncertainty regarding the timing and con-
tent of some of the pending EPA regulations contrib-
utes to some power plant owners and operators wait-
ing to make decisions on aected power plants and on
alternatives in the marketplace. ese decisions may
include whether and when to retire aging coal-red
power plants, as well as whether and when to build
other generation types, including natural gas genera-
tion. Increasing the certainty with respect to the timing
of new regulations would support timely investment
decisions aecting an important amount of power
extensive data on their operations. Increasing the
information about generation and transmission oper-
ations would increase transparency and would benet
the smooth functioning of the market.
Another interdependency issue that needs to be
addressed is the recovery of costs incurred by pipe-
lines in providing service to gas-red generators
and, in turn, the recovery of those costs by gas-red
generators from electric customers. e diversity
of various organized and non-organized wholesale
power markets requires dierent approaches.
Finally, there is an expectation that any retirement-
related reduction in coal-red generation can be met,
to some extent, by existing gas-red generation. How-
ever, none of the retirement studies examined whether
there were any electric transmission bottlenecks to
doing so.
Recommendation
e NPC recommends continuing the efforts
to harmonize the interaction between the nat-
ural gas and electric markets:
� e Federal Energy Regulatory Commission,
the North American Electric Reliability Cor-
poration, the North American Energy Stan-
dards Board, the National Association of
Regulatory Utility Commissioners, and each
formal wholesale market operated by the
Regional Transmission Organizations should,
with robust participation from market partici-
pants, undertake to:
− Develop policies, regulations, and standard-
ized business practices that improve the
coordinated operations of the two indus-
tries and reduce barriers that hamper the
operation of a well-functioning market
− Increase the transparency of wholesale elec-
tric power and natural gas markets
− Address the issue of what natural gas ser-
vices generators should hold, including rm
transport and storage, and what services
pipeline and storage operators should pro-
vide to meet the requirements of electricity
generators as well as compensation for such
services for pipeline and storage operators
and generators
EXECUTIVE SUMMARY 41
generation capacity and regarding impacts on fuel mar-
kets. Resolution of the EPA rules, as well as compliance
timelines and implementation decisions aecting indi-
vidual plants, must take into consideration reliability
impacts, recognizing that there are a variety of tools
available to address location-specic reliability issues.
Recommendation
e NPC makes the following recommenda-
tion to provide more regulatory certainty to
the power sector:
� Policymakers should take into account the
benets for market conditions from the nal-
ization of EPA regulations aecting the power
sector, especially those regulations not related
to controlling GHG emissions. ese benets
include reduced uncertainty in the market and
provision of near-term investment signals, as
well as the reduction of emissions of sulfur
dioxide, nitrogen oxide, mercury, and particu-
lates, along with collateral reductions of GHG
emissions from power generation.
Support the Development of
Intellectual Capital and a Skilled
Workforce
Compared to other industries, the workforce in
the natural gas and oil industry and the agencies that
regulate them has an older average age. A large gap
exists between the number of retiring technical pro-
fessionals and the number of graduates coming out of
junior college, college, and graduate school with the
knowledge and skills required to work in the industry.
Figure ES-12 illustrates this for one segment. is
leads to potential workforce challenges for the indus-
try and its regulators.
Part of this is pure demographics, as the baby
boomer generation has begun to retire from the work-
force. But there also is not enough industry activity
on university campuses. Moreover, government study
grants to undergraduate and graduate-level engi-
neering and geosciences projects often do not relate
to the natural gas and oil industry. Despite a recent
uptick in enrollments in petroleum engineering and
natural gas and oil-focused geosciences programs, the
Figure ES-12. More Petroleum Engineers Are Approaching Retirement (2010)
WAS Figure ES-11, ES-13
0
10
20
<200 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65+
PERCENT OF WORKFORCE
AGE RANGE
Source: Society of Petroleum Engineers.
Figure ES-12. More Petroleum Engineers are Approaching Retirement (2010)
42 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
� Congress should provide nancial support for
higher-education programs, including faculty
positions and research programs in areas of
national interest related to energy resources.
e NPC also supports the recommendations of
the National Academy of Sciences’ Rising Above
the Gathering Storm with respect to the need to
“move the United States’ K-12 education system
in science and mathematics to a leading position
by global standards.”
CONCLUSIONS
e NPC reiterates the important ndings of this
study: e North American natural gas resource base
is very large indeed, a size that has only become appar-
ent over the last half decade. Natural gas plays a criti-
cal role in supplying a quarter of the United States’
energy and what is likely to be a growing share of elec-
tric generation, including enabling renewable energy.
Similarly, the oil resources are also very large, with
major opportunities for development. e United
States needs these resources to reduce oil imports
even after continued eorts to improve energy e-
ciency, and even as the nation transitions to a lower-
carbon energy system. Realizing the benets of these
natural gas and oil resources requires environmentally
responsible development of them in all circumstances,
continually taking advantage of new technologies and
evolving eective practices. at is the route forward
for advancing America’s economic, environmental,
and energy security objectives.
prospective graduates will not have the experience or
the raw numbers to replace the number of retiring,
well-seasoned professionals.
Increased support for new faculty positions and
research programs could address this problem at
various levels of higher education: in community
colleges, universities, graduate programs, faculty
appointments, and in various elds (in the geosci-
ences, in addition to other areas of earth sciences,
engineering, below-surface-water hydrology, and
environmental programs). In addition, there is evi-
dence that support at the K-12 (kindergarten to 12th
grade level) would also be helpful.
39
Because science
literacy is important for public understanding of
energy issues, energy science should be included in
curricula at these levels.
Recommendation
e NPC makes the following recommenda-
tions to increase the number of qualified natu-
ral gas and oil professionals:
� Natural gas and oil companies should review
and consider increasing their nancial sup-
port for educational/training activities to sup-
port the development of the next generation
of professionals with knowledge and skills
in the elds necessary for prudent develop-
ment of the nation’s natural gas and oil
resource base.
39 See, for example: National Academies, Rising Above the Gath-
ering Storm, Revisited, 2010.
REQUEST LETTERS
AND DESCRIPTION OF THE NPC
REQUEST LETTERS AND DESCRIPTION OF THE NPC 1
2 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
REQUEST LETTERS AND DESCRIPTION OF THE NPC 3
4 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
REQUEST LETTERS AND DESCRIPTION OF THE NPC 5
DESCRIPTION OF THE NATIONAL PETROLEUM COUNCIL
In May 1946, the President stated in a letter to the Secretary of the Interior that he had been impressed by
the contribution made through government/industry cooperation to the success of the World War II petroleum
program. He felt that it would be benecial if this close relationship were to be continued and suggested that the
Secretary of the Interior establish an industry organization to advise the Secretary on oil and natural gas matters.
Pursuant to this request, Interior Secretary J. A. Krug established the National Petroleum Council (NPC) on
June 18, 1946. In October 1977, the Department of Energy was established and the Council was transferred to
the new department.
e purpose of the NPC is solely to advise, inform, and make recommendations to the Secretary of Energy
on any matter requested by the Secretary, relating to oil and natural gas or the oil and gas industries. Matters
that the Secretary would like to have considered by the Council are submitted in the form of a letter outlining
the nature and scope of the study. e Council reserves the right to decide whether it will consider any matter
referred to it.
Examples of studies undertaken by the NPC at the request of the Secretary include:
y Industry Assistance to Government – Methods for Providing Petroleum Industry Expertise During Emergencies (1991)
y Petroleum Rening in the 1990s – Meeting the Challenges of the Clean Air Act (1991)
y e Potential for Natural Gas in the United States (1992)
y U.S. Petroleum Rening – Meeting Requirements for Cleaner Fuels and Reneries (1993)
y e Oil Pollution Act of 1990: Issues and Solutions (1994)
y Marginal Wells (1994)
y Research, Development, and Demonstration Needs of the Oil and Gas Industry (1995)
y Future Issues – A View of U.S. Oil & Natural Gas to 2020 (1995)
y U.S. Petroleum Product Supply – Inventory Dynamics (1998)
y Meeting the Challenges of the Nation’s Growing Natural Gas Demand (1999)
y U.S. Petroleum Rening – Assuring the Adequacy and Aordability of Cleaner Fuels (2000)
y Securing Oil and Natural Gas Infrastructures in the New Economy (2001)
y Balancing Natural Gas Policy – Fueling the Demands of a Growing Economy (2003)
y Observations on Petroleum Product Supply (2004)
y Facing the Hard Truths about Energy: A Comprehensive View to 2030 of Global Oil and Natural Gas (2007)
y One Year Later: An Update on Facing the Hard Truths about Energy (2008).
e NPC does not concern itself with trade practices, nor does it engage in any of the usual trade association
activities. e Council is subject to the provisions of the Federal Advisory Committee Act of 1972.
Members of the National Petroleum Council are appointed by the Secretary of Energy and represent all seg-
ments of the oil and gas industries and related interests. e NPC is headed by a Chair and a Vice Chair, who are
elected by the Council. e Council is supported entirely by voluntary contributions from its members.
Additional information on the Council’s origins, operations, and reports can be found at www.npc.org.
REQUEST LETTERS AND DESCRIPTION OF THE NPC 7
NATIONAL PETROLEUM COUNCIL
MEMBERSHIP
2010/2011 Term
Gary A. Adams Vice Chairman, Oil and Gas Deloitte LLP
George A. Alcorn, Sr. President Alcorn Exploration, Inc.
Robert Neal Anderson Head of Consulting Wood MacKenzie, Ltd.
Thurmon M. Andress Managing Director BreitBurn Energy LP
Robert H. Anthony Commissioner Oklahoma Corporation Commission
Alan S. Armstrong President and Chief Executive Ofcer The Williams Companies, Inc.
Gregory L. Armstrong Chairman and Chief Executive Ofcer Plains All American Pipeline, L.P.
Robert G. Armstrong President Armstrong Energy Corporation
Gregory A. Arnold President and Chief Executive Ofcer Truman Arnold Companies
Philip K. Asherman President and Chief Executive Ofcer Chicago Bridge & Iron Company N.V.
Ralph E. Bailey Chairman Emeritus Fuel Tech, Inc.
Fredrick J. Barrett Chairman and Chief Executive Ofcer Bill Barrett Corporation
Riley P. Bechtel Chairman and Chief Executive Ofcer Bechtel Group, Inc.
Michel Bénézit President, Rening and Marketing Total S.A.
Anthony J. Best President and Chief Executive Ofcer SM Energy Company
Donald T. Bollinger Chairman of the Board and Bollinger Shipyards, Inc.
Chief Executive Ofcer
John F. Bookout Houston, Texas
James D. Boyd Vice-Chair and Commissioner California Energy Commission
Ben M. Brigham Chairman, President and Brigham Exploration Company
Chief Executive Ofcer
Jon S. Brumley Chief Executive Ofcer Enduro Resource Partners LLC
Philip J. Burguieres Chief Executive Ofcer EMC Holdings, L.L.C.
Matthew D. Cabell President Seneca Resources Corporation
Kateri A. Callahan President Alliance to Save Energy
Robert B. Catell Chairman, Advanced Energy Research Stony Brook University
and Technology Center
Clarence P. Cazalot, Jr. Chairman, President and Marathon Oil Corporation
Chief Executive Ofcer
Eileen B. Claussen President Pew Center on Global Climate Change
Kim R. Cocklin President and Chief Executive Ofcer Atmos Energy Corporation
T. Jay Collins President and Chief Executive Ofcer Oceaneering International, Inc.
Theodore F. Craver, Jr. Chairman, President and Edison International
Chief Executive Ofcer
William A. Custard President and Chief Executive Ofcer Dallas Production, Inc.
Patrick D. Daniel President and Chief Executive Ofcer Enbridge Inc.
8 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Charles D. Davidson Chairman and Chief Executive Ofcer Noble Energy, Inc.
D. Scott Davis Chairman and Chief Executive Ofcer UPS
Chadwick C. Deaton Chairman and Chief Executive Ofcer Baker Hughes Incorporated
David R. Demers Chief Executive Ofcer Westport Innovations Inc.
Claiborne P. Deming Chairman of the Executive Committee Murphy Oil Corporation
David M. Demshur Chairman of the Board, President and Core Laboratories N.V.
Chief Executive Ofcer
John M. Deutch Institute Professor, Massachusetts Institute of Technology
Department of Chemistry
Laurence M. Downes Chairman and Chief Executive Ofcer New Jersey Resources Corporation
W. Byron Dunn Principal Tubular Synergy Group, LP
Bernard J. Duroc-Danner Chairman, President and Weatherford International Ltd.
Chief Executive Ofcer
Gregory L. Ebel President and Chief Executive Ofcer Spectra Energy Corp
Randall K. Eresman President and Chief Executive Ofcer Encana Corporation
Ronald A. Erickson Chief Executive Ofcer Holiday Companies
Behrooz Fattahi 2010 President Society of Petroleum Engineers
International
John A. Fees Chairman The Babcock & Wilcox Company
Fereidun Fesharaki Chairman FACTS Global Energy
William L. Fisher Professor and Barrow Chair, The University of Texas
Jackson School of Geosciences
James C. Flores Chairman of the Board, President and Plains Exploration & Production
Chief Executive Ofcer Company
Douglas L. Foshee Chairman and Chief Executive Ofcer El Paso Corporation
Paul L. Foster President and Chief Executive Ofcer Western Rening, Inc.
Randy A. Foutch Chairman and Chief Executive Ofcer Laredo Petroleum, Inc.
Robert W. Gee President Gee Strategies Group, LLC
Asim Ghosh President and Chief Executive Ofcer Husky Energy Inc.
James A. Gibbs Chairman Five States Energy Company, LLC
John W. Gibson Chief Executive Ofcer ONEOK, Inc.
Russell K. Girling President and Chief Executive Ofcer TransCanada Corporation
Lawrence J. Goldstein Director Energy Policy Research Foundation, Inc.
Andrew Gould Chairman Schlumberger Limited
Simon Greenshields Co-Head of Global Commodities Morgan Stanley
James T. Hackett Chairman and Chief Executive Ofcer Anadarko Petroleum Corporation
Gary L. Hall President Hall-Houston Exploration
Partners, L.L.C.
Frederic C. Hamilton Chairman and Chief Executive Ofcer The Hamilton Companies LLC
NATIONAL PETROLEUM COUNCIL
REQUEST LETTERS AND DESCRIPTION OF THE NPC 9
NATIONAL PETROLEUM COUNCIL
Harold G. Hamm Chairman of the Board and Continental Resources, Inc.
Chief Executive Ofcer
John J. Hamre President and Chief Executive Ofcer Center for Strategic & International
Studies
John A. Harju Associate Director for Research, University of North Dakota
Energy & Environment Research Center
Jeffrey O. Henley Chairman of the Board Oracle Corporation
John B. Hess Chairman, President and Hess Corporation
Chief Executive Ofcer
Jack D. Hightower Chairman, President and Bluestem Energy L.P.
Chief Executive Ofcer
Stephen L. Hightower President and Chief Executive Ofcer Hightowers Petroleum Co.
Jeffery D. Hildebrand President and Chief Executive Ofcer Hilcorp Energy Company
John D. Hofmeister Founder and Chief Executive Ofcer Citizens for Affordable Energy, Inc.
Forrest E. Hoglund Chairman and Chief Executive Ofcer SeaOne Maritime Corp.
Stephen A. Holditch Noble Endowed Chair and Texas A&M University
Head of the Harold Vance
Department of Petroleum Engineering
Martin J. Houston Executive Director BG Group plc
Ray L. Hunt Chairman of the Board, President and Hunt Consolidated, Inc.
Chief Executive Ofcer
Hillard G. Huntington Executive Director, Stanford University
Energy Modeling Forum
John R. Hurd General Partner Hurd Enterprises, Ltd.
Ray R. Irani Executive Chairman Occidental Petroleum Corporation
Eugene M. Isenberg Chairman and Chief Executive Ofcer Nabors Industries, Inc.
Terrence S. Jacobs President and Chief Executive Ofcer Penneco Oil Company
Robert J. Johnson Past President National Association of Black
Geologists and Geophysicists
A. V. Jones, Jr. Chairman Van Operating, Ltd.
Jon Rex Jones Chairman Jones Management Corp.
Jerry D. Jordan Chairman and General Counsel Knox Energy, Inc.
Fred C. Julander President Julander Energy Company
Andy Karsner Executive Chairman Manifest Energy, Inc.
Richard C. Kelly Former Chairman of the Board Xcel Energy Inc.
Richard D. Kinder Chairman and Chief Executive Ofcer Kinder Morgan Inc.
Peter D. Kinnear Chairman of the Board and FMC Technologies, Inc.
Chief Executive Ofcer
Frederick M. Kirschner Bryn Mawr, Pennsylvania
John Krenicki, Jr. President and Chief Executive Ofcer GE Energy Infrastructure
10 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Fred Krupp President Environmental Defense Fund
Vello A. Kuuskraa President Advanced Resources International, Inc.
Stephen D. Layton President E&B Natural Resources
Management Corporation
Virginia B. Lazenby Chairman and Chief Executive Ofcer Bretagne, LLC
David J. Lesar Chairman of the Board, President and Halliburton Company
Chief Executive Ofcer
Nancy G. Leveson Professor of Aeronautic and Astronautics Massachusetts Institute of Technology
Michael C. Linn Executive Chairman Linn Energy, LLC
Andrew N. Liveris Chairman, President and The Dow Chemical Company
Chief Executive Ofcer
Daniel H. Lopez President New Mexico Institute of Mining and
Technology
Amory B. Lovins Chairman and Chief Scientist Rocky Mountain Institute
Aubrey K. McClendon Chairman of the Board and Chesapeake Energy Corporation
Chief Executive Ofcer
W. Gary McGilvray President and Chief Executive Ofcer DeGolyer and MacNaughton
Lee A. McIntire Chairman of the Board and CH2M HILL Companies, Ltd.
Chief Executive Ofcer
Lamar McKay Chairman and President BP America Inc.
James T. McManus, II Chairman, President and Energen Corporation
Chief Executive Ofcer
Rae McQuade President North American Energy Standards
Board
Cary M. Maguire President and Chief Executive Ofcer Maguire Oil Company
Kenneth B. Medlock, III James A. Baker III and Susan G. Baker Rice University
Fellow in Energy and Resource
Economics and
Deputy Director, Energy Forum,
James A. Baker III Institute
for Public Policy
Adjunct Professor, Economics Department
F. H. Merelli Chairman, President and Cimarex Energy Co.
Chief Executive Ofcer
Augustus C. Miller Chairman and Chief Executive Ofcer Miller Oil Co., Inc.
David B. Miller Partner EnCap Investments L.P.
Merrill A. Miller, Jr. Chairman, President and National Oilwell Varco, Inc.
Chief Executive Ofcer
Michael J. Miller President Miller Energy Company
T. O. Moffatt Chairman The Energy Council
Jack B. Moore President and Chief Executive Ofcer Cameron
Michael G. Morris Chairman, President and American Electric Power Co., Inc.
Chief Executive Ofcer
NATIONAL PETROLEUM COUNCIL
REQUEST LETTERS AND DESCRIPTION OF THE NPC 11
Steven L. Mueller President and Chief Executive Ofcer Southwestern Energy Company
James J. Mulva Chairman and Chief Executive Ofcer ConocoPhillips
David L. Murn President Murn Drilling Co., Inc.
Mark B. Murphy President Strata Production Company
Richard S. Neville President Western Petroleum Company
James E. Newsome Principal Delta Strategy Group
J. Larry Nichols Executive Chairman Devon Energy Corporation
Patrick F. Noonan Chairman Emeritus The Conservation Fund
Gerardo Norcia President and Chief Operating Ofcer Michigan Consolidated Gas Company
John W. B. Northington President Northington Strategy Group
Thomas B. Nusz President and Chief Executive Ofcer Oasis Petroleum, LLC
Marvin E. Odum President Shell Oil Company
David J. O’Reilly Chairman of the Board, Retired Chevron Corporation
Geoffrey C. Orsak Dean, Bobby B. Lyle School of Engineering Southern Methodist University
James W. Owens Retired Chairman of the Board Caterpillar Inc.
C. R. Palmer Chairman Emeritus Rowan Companies, Inc.
Mark G. Papa Chairman and Chief Executive Ofcer EOG Resources, Inc.
Robert L. Parker, Jr. Executive Chairman Parker Drilling Company
Donald L. Paul Executive Director of the Energy Institute University of Southern California
and William M. Keck Chair in
Energy Resources
Allan G. Pulsipher Executive Director, Louisiana State University
Center for Energy Studies
Daniel W. Rabun Chairman of the Board, President and Ensco plc
Chief Executive Ofcer
W. Matt Ralls President and Chief Executive Ofcer Rowan Companies, Inc.
Keith O. Rattie Chairman Questar Corporation
Lee R. Raymond Former Chair National Petroleum Council
June Ressler President and Chief Executive Ofcer Cenergy Companies
Corbin J. Robertson, Jr. President and Chief Executive Ofcer Quintana Minerals Corporation
James E. Rogers Chairman, President and Duke Energy Corporation
Chief Executive Ofcer
Henry A. Rosenberg, Jr. Chairman of the Board Crown Central LLC
Paolo Scaroni Chief Executive Ofcer Eni S.p.A.
David T. Seaton Chief Executive Ofcer Fluor Corporation
Peter A. Seligmann Chairman of the Board and Conservation International
Chief Executive Ofcer
S. Scott Sewell President Delta Energy Management, Inc.
Bobby S. Shackouls Former Chair National Petroleum Council
NATIONAL PETROLEUM COUNCIL
12 PRUDENT DEVELOPMENT: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources
Philip R. Sharp President Resources for the Future Inc.
R. Gordon Shearer President and Chief Executive Ofcer Hess LNG LLC
Scott D. Shefeld Chairman and Chief Executive Ofcer Pioneer Natural Resources Company
Adam E. Sieminski Chief Energy Economist, Deutsche Bank AG
Global Markets/Commodities
Timothy Alan Simon Commissioner, State of California
Public Utilities Commission
Robert C. Skaggs, Jr. President and Chief Executive Ofcer NiSource Inc.
Carl Michael Smith Executive Director Interstate Oil and Gas Compact
Commission
Frederick W. Smith Chairman, President and FedEx Corporation
Chief Executive Ofcer
Frank M. Stewart President and Chief Operating Ofcer American Association of Blacks in
Energy
John P. Surma Chairman, President and U.S. Steel Corporation
Chief Executive Ofcer
Cindy B. Taylor President and Chief Executive Ofcer Oil States International, Inc.
Dean E. Taylor Chairman, President and Tidewater Inc.
Chief Executive Ofcer
Berry H. Tew, Jr. State Geologist and Oil and Gas Supervisor Geological Survey of Alabama
Susan F. Tierney Managing Principal Analysis Group, Inc.
Rex W. Tillerson Chairman, President and Exxon Mobil Corporation
Chief Executive Ofcer
Scott W. Tinker Director, Bureau of Economic Geology The University of Texas
and State Geologist of Texas
Jackson School of Geosciences
William Paschall Tosch Managing Director J.P. Morgan Securities Inc.
H. A. True, III Partner True Oil LLC
Robert B. Tudor, III Chairman and Chief Executive Ofcer Tudor, Pickering, Holt & Co., LLC
William P. Utt Chairman, President and KBR, Inc.
Chief Executive Ofcer
W. Bruce Valdez Executive Director Southern Ute Indian Tribe Growth Fund
J. Craig Venter Chairman and President J. Craig Venter Institute
Philip K. Verleger, Jr. David Mitchell Encana Professor University of Calgary
Haskayne School of Business
Bruce H. Vincent President Swift Energy Company
John B. Walker President and Chief Executive Ofcer EnerVest, Ltd.
Douglas J. Wall President and Chief Executive Ofcer Patterson-UTI Energy, Inc.
Cynthia J. Warner President and Chairman Sapphire Energy, Inc.
Michael D. Watford Chairman, President and Ultra Petroleum Corp.
Chief Executive Ofcer
NATIONAL PETROLEUM COUNCIL
REQUEST LETTERS AND DESCRIPTION OF THE NPC 13
NATIONAL PETROLEUM COUNCIL
John S. Watson Chairman of the Board and Chevron Corporation
Chief Executive Ofcer
Roger P. Webb Interim Executive Director Georgia Institute of Technology
The Strategic Energy Institute
J. Robinson West Chairman and Chief Executive Ofcer PFC Energy, Inc.
Craig E. White President and Chief Executive Ofcer Philadelphia Gas Works
David W. Williams Chairman of the Board, President and Noble Corporation
Chief Executive Ofcer
Mary Jane Wilson President and Chief Executive Ofcer WZI Inc.
Timothy E. Wirth President United Nations Foundation
Patricia A. Woertz Chairman, Chief Executive Ofcer Archer Daniels Midland Company
and President
David M. Wood President and Chief Executive Ofcer Murphy Oil Corporation
Patrick Wood, III Principal Wood3 Resources
Martha B. Wyrsch President Vestas Americas, USA
George M. Yates President and Chief Executive Ofcer HEYCO Energy Group, Inc.
John A. Yates Chairman of the Board Yates Petroleum Corporation
J. Michael Yeager Group Executive and Chief Executive– BHP Billiton Petroleum
Petroleum
Daniel H. Yergin Chairman IHS Cambridge Energy Research
Associates, Inc.
John F. Young President and Chief Executive Ofcer Energy Future Holdings Corp.
