GRACE CREEK MEDIA

"IDEAS IN ACTION"

INTERVIEW WITH DAN YERGIN, DANA MURPHY,

JOSEPH SLUZAR

MEDIA ID:  IIA NATURAL GAS NATION

JIM GLASSMAN:

(MUSIC) Welcome to Ideas in Action, a weekly series about ideas and their consequences.  I'm Jim Glassman.  We're here on the campus of Southern Methodist University in Dallas, Texas, where the George W. Bush Presidential Center is located.  The topic this week, innovations in extracting natural gas from the earth, could lead to a huge supply of energy for the United States right here on our own soil.  But at what cost to the environment?

Joining me to explore this topic, Dan Yergin, Pulitzer prize winning author of the Prize:  The Epic Quest for Oil, Money, and Power; and renowned energy expert, Dana Murphy, Commissioner of the Oklahoma Corporation Commission, the state's regulatory body in charge of natural gas exploration; and Joseph Sluzar, County Attorney for Broome County, New York, which sits on top of the largest known reserve of natural gas in the United States.  What will it take to make the U.S. a natural gas nation?

ANNOUNCER:

Funding for Ideas in Action is provided by Investor's Business Daily.  Every stock market cycle is led by America's never ending stream of innovative new companies and inventions. Investor's Business Daily helps investors find these new leaders as they emerge.  More information is available at investors.com.

JIM GLASSMAN:

It's estimated the U.S. has a supply of natural gas that could last up to 100 years.  Innovative drilling techniques have enabled companies to extract fuel from sources once thought too costly and inefficient like shale deposits and so called tight sands.  But these new techniques, which inject fluids into the earth to break rock and release the gas, worry environmentalists and concern some regulators.

They say the chemicals used in methods like hydraulic fracturing can contaminate the water supply, a claim industry experts reject.  Those experts consider natural gas to be the cleanest burning fossil fuel, emitting less carbon dioxide than oil and coal.  It's often referred to as a bridge fuel, one that will lead to fewer greenhouse gases.  And because natural gas is made in America, experts say the industry can create more jobs at home and even help with our national security by reducing U.S. dependence on foreign energy supplies.

JIM GLASSMAN:

Dan Yergin, it wasn't very long ago, less than seven years ago, in fact, that Alan Greenspan, the head of the Fed, was saying that, in essence, we're running out of natural gas.  Prices are going up.  It's actually going to hurt U.S. industry because they can't get at the supply at a decent price.  But something has changed.  What's changed?

DAN YERGIN:

Something very big has changed.  What's happened is a really big revolution-- technological revolution.  I think the biggest innovation in energy since the year 2000, since this century began, and it kind of snuck up on everybody almost-- mysteriously.  It didn't-- people didn't expect it to ha-- happen.  So two technologies came together to enable, to liberate all this gas in the shale rock.  And, suddenly, we're looking at a very different picture in terms of natural gas and in terms of our nation's energy future.

JIM GLASSMAN:

So some people are saying 100-year supply.  And your firm is saying there's been a doubling in two years?

DAN YERGIN:

Yes, it's-- ex-- exactly.  It was-- you know, the-- the kind of breakthrough innovation was 2000, 2002, 2003.  No one paid attention.  Around 2007, you started to see it in the numbers.  And the last two years, there's been this big effort to-- to understand the resource across the United States.  And in all-- when you add up all the numbers, we've doubled the discovered reserves, and you're looking at at least 100-year supply.  And I think before we're done, we're going to say it's m-- well more than 100 years.

JIM GLASSMAN:

So Joseph Sluzar, you-- you are a County Attorney of Broome County, New York, which-- whose main city is Binghamton, which is a-- a fairly depressed area.  The population's been dropping over the last 50 years.  And, suddenly, you're sitting on top of, you know, what would be called in oil terms, a gusher.  And yet, there's an ambivalence.  Can you describe what's going on in your county?

JOSEPH SLUZAR:

Well, there's a lot more than ambivalence.  There's a public debate raging as to whether or not we should even have natural gas drilling.  You're right.  The geology of the Marcella shale in Broome County is phenomenal.  Apparently, we sit over a sweet spot of the Marcellus.

But people are nervous.  They're worried about their water.  They're worried about their air.  They're worried about noise.  They're worried about roads.  And the public debate-- has been going on now for two years, and it hasn't been resolved.  We're waiting for New York State to make some regulatory review decisions.  And then, at least, the Broome County government hopes that the process will move forward.

JIM GLASSMAN:

But this could lead to thousands of jobs for Broome County.  And individuals who can get the royalties on the natural gas that's under their own property, they can make, potentially, hundreds of thousands of dollars.  Why isn't there more enthusiasm?

JOSEPH SLUZAR:

Well, I think the debate is-- being raised on both sides.  There's no doubt about it.  I mean, the folks who own property and want to lease their property are vocal.  The county administration that I work for is very vocal.  We commissioned an economic impact study-- to show what effect this would have on Broome County over the next ten years.  The estimates were in the billions of dollars in economic benefits just to Broome County, just to Broome County.  So the benefits are tremendous.  So the debate is on both sides.  We're waiting for New York State to finish its review process.

JIM GLASSMAN:

But the concern in New York is that drilling might contaminate the drinking water the people in New York City are getting.  Right?

JOSEPH SLUZAR:

Well, that's certainly one of the stakeholders in the debate.  The first time I looked at a map of the Marcella shale, I saw that it was under the New York City watershed.  And-- and I said to myself, "We're going to have (CHUCKLE) problems."  Because New York City takes almost a military-like-- defense when they're protecting perceived threats to their watershed.

JIM GLASSMAN:

Is there now a moratorium on drilling?

JOSEPH SLUZAR:

Well, New York State DEC, our Department of Environmental Conservation, would say, "Well, there is no official moratorium."  But, truly, there is.  What people don't realize, though, is that New York State has a long history of drilling.  You can get horizontal drilling permits in other formations in New York State-- maybe tight sand formations, etcetera.  So drilling is still going on, including the fracturing.  But there is no permits being granted for the Marcellus or the Utica shales right now.

JIM GLASSMAN:

And horizontal drilling is where you go down a little bit and then across, potentially for miles.

JOSEPH SLUZAR:

Yes, and--

JIM GLASSMAN:

So it causes less disturbance.

JOSEPH SLUZAR:

Well, there's certainly less disturbance on the surface.  The Marcellus shale in Broome County is between 4,000 to 6,000 feet deep.  And a drilling unit would be about a square mile.  And you'd only need about four or five wells in that square mile-- to drain the unit because of what you just described-- the laterals that would go under the ground.  They could go a mile and even longer.  So there is not as much of an imprint with horizontal drilling as opposed to conventional, vertical wells, which would take about 16 or more wells to drain a same size unit.

JIM GLASSMAN:

Dana Murphy, you are a commissioner on the Oklahoma Corporation Commission, which regulates-- oil and gas in your state, among other things.  So you've had more experience with this.  I wonder whether you might want to give-- Joe Sluzar some suggestions on how to resolve this raging controversy.

DANA MURPHY:

Well, in Oklahoma, you know, we have a long history-- over 120,000 active oil and gas wells-- a lot of history of drilling.  And so when companies starting drilling horizontally, we've actually had horizontal rules on the books for over 20 years, but that was primarily for horizontal w-- wells that were drilled in oil.  Now with the advancing technology where you can drill horizontally for-- you know, Joe talked about a mile, but in Oklahoma this is how rapidly it changed.  In June of last year, our longest lateral was 7,500 feet.  We are now up to 11,000 feet.  So that's how rapidly the technology has changed.

So what we're actually doing in Oklahoma is going through the rule making process to up-- update and move our rules forward to keep up with the technology.  And also trying to move out to the public and have discussions through town hall meetings and include different stakeholders in the rule making so everyone gets a voice.  And the things that we can pretty much agree on, we can move forward with those.  And the more controversial issues, those are going to have to be put out for more dialogue.

JIM GLASSMAN:

Dan, you know-- it s-- it seems a shame if-- if these kinds of controversies, I-- I realize there-- there certainly is-- are some-- some valid or seemingly valid-- concerns about water contamination.  But it would really seem a shame that you've got this energy source that is clean and that really can provide the kind of national security that's necessary if it would be held up because of this.

DAN YERGIN:

Couple things to keep in mind.  First of all, where your water supply is and where the shale is there's thousands of feet and impermeable rock that separates them.  Secondly, this is not a Wild West situation.  This isn't a casino or-- this is a highly regulated activity.  When people drill in Oklahoma for oil or gas, the fracking is, the breaking of the rock, the-- all of this is-- is very carefully monitored by state and local authorities and then what they do with the produced water.  So it's like we have a-- a system in place that hasn't been demonstrated that the system isn't working.

JIM GLASSMAN:

And-- and, you know, is that part of the problem.  Dan says understand where it's all happening.  You've got the shale deposits in pretty populated areas.  Where in the past-- drilling went on in Texas, and Oklahoma, and other parts of the country where there wasn't a person for miles.  I-- is that part of the problem that you've got?

JOSEPH SLUZAR:

Oh, I think so.  We're an urban/suburban area.   Obviously, we have ruled-- land as well.  But there's a lot of people who are very concerned.  And one of the things that's happened in Broome County is that some of the first impressions made by the industry scared a lot of people.

Some of the first wells that were drilled horizontally in the Marcellus shale near Broome County were in Pennsylvania.  And although they weren't-- they didn't have major problems, there were some problems where natural gas seeped into some water wells-- some private water wells.  And I can't tell you how much that has turned the public debate.  People are upset.  They're scared.  They're nervous.  And they're arguing about this.  I agree.  Education and communication is very, very important.  But we need the industry to help with that education and communication.

JIM GLASSMAN:

And-- and what about that?  I mean, d-- do you feel that you, in Oklahoma, have the cooperation of industry?  Are you working together with industry?  Is this--

DANA MURPHY:

I-- I think we've had some in the past, but I think you're seeing more of it.  You know, Oklahoma was a leading state in setting up what's called The Oklahoma Energy Resources Board, which is basically a check-off program for royalty owners and industry using that money to then go back and clean up abandoned sites and-- and deal with those type issues.  So it was put in place so that the industry could actually show its efforts as a good citizen.  They put commercials on TV.  There's been a lot of outreach with that.

What you're seeing now, though, and we kind of talked about it-- earlier today, people wonder why there wasn't more communication or dissemination of information.  But I think it's because it's been a competitive industry.  I think the companies are realizing they're going to have to work together more.

And we already have, you know, pretty diverse groups-- mineral owners, surface owners.  And you see more of a coming together of that, along with regulators and legislators working with the media.  So I-- I think you see divergent interest coming together and dialoguing.  And I think that's really helped us a lot, and we haven't had some of these same problems.

JIM GLASSMAN:

You know, how big is this?  I know the-- the Economist Magazine recently had a headline that-- about natural gas that says, "This changes everything."  And I've heard the term game changer.  How-- how big is the-- the-- the advent of a large increase in supply of natural gas in the United States?

DAN YERGIN:

It's very significant.  You know, we-- people focus on, let's say, wind.  Wind is growing fast, but it's one percent of our energy.  Natural gas is 25 percent of our energy.  And if we go from this sense that we have that you talked about earlier that we're in tight supply and we're going to have to import it to that we have a lot of abundant, it's very important for things like electric power.  What are we going to-- how are we going to insure that we have the lights and everything that we need five, ten, 15, 20 years from now?

So it-- it-- I don't-- it doesn't change everything by any means.  But it-- it is the biggest thing to have happened in energy.  And this is something that started off as an American revolution, and it's now spreading around the world where I see it everywhere-- from China to Europe.  People are-- are kind of scrambling to say, "Do we have the same capacity?"

JIM GLASSMAN:

Americans have been concerned for the last 30 or 40 years about energy security, the fact that we are so dependent on foreign sources of energy, mainly oil.  Will this change that equation?

DAN YERGIN:

Well, this is in our-- the new study that we've done on fueling North America's energy future.  This is what we looked at very carefully.  We certainly see major increase in electric power-- of natural gas being used there.  And some of that electricity may well be used to power cars-- electric cars in the future.

I think the thing that is-- very much subject to debate is to what degree will we see natural gas vehicles?  And natural gas vehicles would be competing not only with gasoline, but they're competing with-- with this mandate to-- for electric cars, for bio fuels for greater energy efficiency.  And so I think there the economics are less clear.

You can see fleets where you have central filling of natural gas.  That's-- that's the easiest way to go.  And-- but are we going to see vast number of natural gas vehicles on the road or not?  Then you're getting to very big infrastructure questions.  And it-- it has to be balanced about all-- against all these other things that we're also trying to do as a country.

JIM GLASSMAN:

So just-- just so I understand.  Right now-- we-- we get our electricity from coal, from natural gas, from--

DAN YERGIN:

Nuclear.

JIM GLASSMAN:

--Nuclear.  So natural gas-- y-- your firm believes, will displace a lot of the coal.

DAN YERGIN:

Well, we think in terms of new capacity.  You know, as a country, we like using things that use electricity.  We use more and more of them.  And as we do, we're going to a see the need for substantial new electric capacity.  We think more of that will be natural gas.  We think electric utilities who are thinking what to put in will use more natural gas.  And because this-- the electric utilities have lived through cycles where you have shortage, you have surplus, you've had (UNINTEL).  You can't use-- 'cause there's not enough gas, you can't use electric power.  If they're confident that there are stable supplies, growing supplies, then that will change the decision making, and we'll see more natural gas using electric power.  It's a significant source now, but still the dominant source in our electric power supply today-- is coal.

JIM GLASSMAN:

You know, Joe Sluzar, when you hear about the benefits, the national security benefits, the environmental benefits where natural gas has half the emissions, CO2 emissions of coal, you know, you guys in Broome County, you're-- you're kind of ground zero for helping the country as a whole to-- to make this shift, which seems-- seems a pretty beneficial shift despite some concerns about some of the environmental effects.  Do you-- do you feel this as a-- as a burden or an opportunity?

JOSEPH SLUZAR:

I-- I view it as an opportunity.  I-- actually, I view it as a no brainer myself.  The major-- major issue in Broome County and-- and some of the other areas of New York State is protecting our water resources.  The people I talk to are people at town hall meetings, grange meetings, etcetera.  And they're worried about the water they pull out of their private well.  That-- that's what they're concerned with.  And they have a lot of fears, and some of those fears are exaggerated.

So what we've tried to do is educate them.  We've tried to explain to them some of the points that Dan just made.  Your water aquifer is 2 to 500 feet from the surface.  The shale oil that we're-- or shale gas that we're talking about is 4,000, 6,000 feet below the ground.  There are tight formations on top of it.  That gas-- those frack additives are not going to migrate to the surface.

So we've been going out and trying to educate folks so they can take part in this opportunity.  But the point that I've been trying to make earlier today-- and-- and here-- is that I, personally, think the industry needs to do a better job of marketing that position, marketing those benefits, marketing the safety record that they do have.  And I think that would help a lot.

JIM GLASSMAN:

Do you agree with that?

DAN YERGIN:

Yes, I think that-- I think that this is all about communication.  You're going, as Joe says, into an area where this is not-- I mean people don't even think about this and suddenly talked about their water.  And the-- just what you said-- the distance between the two is a very important thing.

The other thing we haven't talked about is the obvious thing is natural gas is-- the lowest carbon of the fossil fuels.  And so if you also have a whole lot of climate objectives out there about reducing CO2, that's another thing that pushes towards more use of natural gas and electric power.

JIM GLASSMAN:

But it seems like the Obama administration is more interested in coal, or what's called clean coal, and renewables than in natural gas.  And in the President's-- State of the Union message, he talked about energy, but he never mentioned natural gas.

DAN YERGIN:

Yeah, it was s-- that's right he did talk about what caught a lot of people's attention and, of course, raised-- raised tempers a little bit-- his supporting nuclear power as a non carbon energy source.  I think that-- even when the d-- natural gas-- when the Climate Change Bill was being debated in the House-- a year ago in the-- in the spring of 2009, there was just no awareness of this in-- kind of incredibly big innovation that had happened.  If we say that the kind of-- the energy industry woke up to it around 2007, 2008, I don't think Washington, D.C., discovered unconventional gas until about August of 2009.  And so it's now a question of-- of getting into the process.  And I still see there's kind of a lot of questions, and-- and there's still a process of education and understanding to be done, not only in Broome County and not only in Oklahoma, but also in-- in-- Washington, D.C.

JIM GLASSMAN:

You know, I mean, is part of the problem that natural gas is a fossil fuel, Dana?  I mean-- is there just such animosity toward fossil fuels that the idea of a fossil fuel that has half the emissions of coal, that has two-thirds the emissions of oil, and that really doesn't have some of the other pollutants it does-- those two may have, it-- that's not enough for a lot of people.

DANA MURPHY:

Right, I th-- I think that you-- I think your-- your point is well made about the aspect of the fossil fuel because I don't know that people are making a big distinction between the gasoline that I pump into my car and the natural gas that maybe runs my heater or my water heater.  I-- I did want to mention something about the water aspect 'cause I couldn't agree with Dan and Joe more that the water zones are so much higher than the other zones.  And we've had in place long time in Oklahoma, and I know Texas, surface-casing regulations, so many types of regulations that deal with protecting water.  If people could see what's on the books and really understand it, I think that would make a real difference.

DAN YERGIN:

I think, I mean, 83 percent of our energy comes from oil, coal, and natural gas.  And wind-- I mean, renewables will play and should play a bigger role, but they're starting from a very s-- small base if wind is one percent.  It's going to take awhile to build it up.  And so, you know, we have to deal with the reality where we are now, where we'll be in ten or 20 years.

And something that a lot of people don't realize is you put in wind, you put in solar, they're called intermittent energy 'cause either the sun has to shine or the wind has to blow.

JIM GLASSMAN:

Can't they be stored, though?

DAN YERGIN:

No, there-- there's no-- not yet.

JIM GLASSMAN:

I knew the answer to that.  (CHUCKLE)

DAN YERGIN:

Yeah, well, they're working on it.  But the point is-- so you need something to balance out.  And natural gas of these different fuels is one of the reasons they're-- they have this new role that if you want more wind, you're going to need natural gas to balance it out.  And so that's a new role for-- natural gas.  Wind-- you know, when you look at the numbers, there-- a lot of times when the wind doesn't blow and-- balancing, making our complicated electric power system work and balance with it is a-- is a whole new challenge.

DANA MURPHY:

And-- and you'll find out, with what Dan is saying that, typically, where peak demand is in the hottest months of the summer where you need air conditioning, that's when the wind is not blowing.  And that's when you're going to need some other type of base load or peaking generation that really comes from natural gas.

DAN YERGIN:

Is that-- and the thing you can turn on quickly are these natural gas units 'cause with coal or nuclear, they're what's called base load, but you-- so you need something.  That temperature suddenly is 88 degrees-- that's when you got to turn on your natural gas generator.

DANA MURPHY:

Right.

JIM GLASSMAN:

So, Joe, you're-- you're the guy who's on the hot seat, at least as far as I'm concerned.

JOSEPH SLUZAR:

Okay, that's-- (CHUCKLE) that's good.

JIM GLASSMAN:

That br-- if Broome County were to embrace natural gas, I think it would make-- would-- would have-- a big effect-- or if New York State were to embrace natural gas.  W-- what-- what's the one thing that would help in that cause?

JOSEPH SLUZAR:

I know I'm repeating myself, but I have to.  The one thing, I think, that would help most of all is if the industry put in a concerted effort to deliver their message, their safety record, etcetera, to the public.  They need to do that. It sounds so simple, but sometimes the simplest answer is the best answer.  The industry hasn't done a good job in New York State in delivering that message.

And that-- one of the things that Dan said, and I think it helps explain some of the exaggerated fear, Dan talked about the scale.  The scale is different with horizontal drilling.  New York State already has 13,000 vertical wells, mostly in the western part of the state.  Those wells also refract w-- probably 80,000 gallons of water.

Now we're talking about fracking wells with three million to five million gallons of water.  Maybe two million's going to come back up, and it's going to be contaminated.  So these are the types of things that people are scared of.  There are answers.  The industry has come up with answers.  They're good answers, but the industry needs to do a better job explaining those answers.

DAN YERGIN:

Yeah, and if I can add-- I mean, to-- to what Joe said.  It comes up, but there's a term for it.  It's called produced water.  It needs to be managed.  It needs to be clea-- cleaned.  And it needs to be handled.  And there are regulations and systems, and you do it in your state.  So it's not like, oh, my God, you're just going to spill all this water.  It's a pretty tightly regulated activity.  You should describe what you do with it.

DANA MURPHY:

In Oklahoma, it's-- it's-- it's-- we've had regulations in place for a long time with commercial disposal wells.  We've had an infrastructure in place that's designed to deal with water.  And Joe is right and-- and so is Dan.  Water's an issue whether you do it vertically or horizontally.  But I think it's real important to make sure you've got the infrastructure to deal with water as well.

JIM GLASSMAN:

I want to ask you all the same question which is ten years from now, do you think America's energy mix will include a much higher proportion of natural gas?  Joe.

JOSEPH SLUZAR:

The answer is yes from my perspective.  And I think New York State will be a major player, not just with the Marcellus shale, but also the Utica shale.  We have too many market forces, which are going to demand that.  We're close to the New York City gate, the northeastern-- quarter-- population quarter.  We have interstate-- interstate pipelines going right through the county of-- Broome in the southern tier of New York State.  There's no doubt that there's a price point advantage to developing natural gas in New York State.  So my answer is yes.

JIM GLASSMAN:

Dan?

DAN YERGIN:

I think ten years from now we're going to have a much more efficient energy economy, much more diversified energy economy.  And I think natural gas will play a larger role in it.  I think it's important that we approach it sensibly and understand that we have a really big opportunity here.

JIM GLASSMAN:

Dana?

DANA MURPHY:

I would yes.  Oklahoma's still-- the third largest natural gas producing state in the United States.  And I think what we'll see is more diversity in how natural gas is used as people become more familiar with it.  And electricity generation, fleet vehicles, maybe even ten years from now we'll see more consumers actually filling up or fueling up at-- at home.  So I-- I see a great future for it.  I do.

JIM GLASSMAN:

Thank you, Dana.  Thank you, Joe Sluzar.  And thank you, Dan.  (MUSIC) For Ideas in Action, I'm Jim Glassman.

ANNOUNCER:

For more information, visit us at ideasinactiontv.com.  Funding for Ideas in Action is provided by Investor's Business Daily.  Every stock market cycle is led by America's never ending stream of innovative new companies and inventions.  Investor's Business Daily helps investors find these new leaders as they emerge.  More information is available at investors.com.  This program is a production of Grace Creek Media and the George W. Bush Institute, which are solely responsible for its content.

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