Shale gas: The industry’s road ahead

Remarks by Jack Williams
President, XTO Energy Inc.
World Shale Gas Conference
November 3, 2010 

It is an honor to be with you today.   Thanks to all of you for coming out to talk about the important topic of shale gas development.

I recognize many of you are probably thinking about the current industry environment and have questions about the future.

First, will the shale gas industry continue to grow at the pace of the last several years? 

With international oil companies beginning to play a larger role in shale gas development, you may be asking — what changes are in store?

With public concerns mounting, what can we do to work with policymakers in today’s challenging climate?

And finally, most everyone in the room living here in the U.S. is probably wondering — when are we going to get back to $8 gas?

Today my message to you is simple: energy demand will increase in the long-term. And natural gas will play a growing role in meeting this demand.

As an industry, we must work together and share a common voice to address the public’s concerns as we develop these resources.

So first a little bit about myself. I’ve been the President of XTO since the merger back in June, and I’m proud and privileged to be leading such a tremendous group of people. I’ve found not just a culture of cowboy boots and good-hearted people, but one of expertise and efficiency in shale gas development.

In 20 years, XTO amassed a natural gas resource base of 45 TCF.  This strong portfolio, dominated by shale gas, was a key reason why ExxonMobil was so attracted to this merger. 

I grew up in ExxonMobil, and I can clearly see that our combined technical expertise, substantial global resource base, and advanced research and development capabilities are second to none.

Over the next few minutes I’ll focus on three key areas:  natural gas supply and demand, the impact of unconventional gas resources, and some strategies for the industry’s road ahead.

The global demand for energy presents a dual challenge.  In the decades ahead, the world must both expand energy supplies, and do it in a way that is safe, secure, affordable, and environmentally responsible. 

Every day our industry operates at an enormous scale to safely and responsibly supply the world’s energy. Meeting the dual energy challenge is not going to be easy, and requires an integrated set of solutions and a long-term commitment to innovation and technology.

Although energy demand in the near term has been significantly impacted by the global recession, over the long-term, global energy demand is expected to continue to rise.

We expect demand will grow approximately 35 percent from 2005 levels by the year 2030 — even with substantial gains in efficiency.  It is important to note that most of the world’s new energy demand will actually come from the developing world.   To meet this growing demand we need to develop all commercially viable energy sources. 

Meeting this demand also means that oil and natural gas will continue to play a critical role.  In fact, oil and natural gas are projected to continue to supply the majority of the world’s energy for the coming decades — approximately 60 percent. 

And during this time, demand for natural gas is projected to surpass demand for coal as it becomes a favored fuel for power generation. 

Power generation is the sector where natural gas can make the most immediate and significant impact.  Growing demand for electricity has been the trend for the last 25 years, and will continue as living standards improve. 

Increasing natural gas use in power generation presents the most cost-effective and large-scale option currently available to reduce greenhouse gas emissions.

For example, let’s look at the estimated cost of electricity generated from a new-build baseload power plant coming online in the U.S. in 2025.  Absent any policies that impose a cost on CO₂ emissions, we expect coal and natural gas to be among the lowest-cost options for electricity generation.

In addition to being a low-cost option, gas-fired power generation has other distinguishing characteristics.  It requires lower unit capital investment, shorter construction time, and better response to changes in electrical load, which helps maintain power system stability.

Now that we’ve identified the critical role natural gas will play in meeting the world’s growing energy demand, where will it all come from?

The world’s remaining recoverable gas resource is estimated to be approximately 20,000 TCF. 

While the Middle East still has the largest endowment of natural gas, North America has burst back onto the scene in recent years.  The Barnett Shale production is just one example of this expanded growth. According to MIT, the current mean projection of unconventional gas in the U.S. is 650 TCF. 

That means there is about 100 years of U.S. natural gas supply available at current U.S. consumption rates.  This almost doubles the projections from just a few years ago.

The driver of increase, as all of us here today are aware, is shale gas.  While unconventional resources are not necessarily “new,” only recently have we seen how significant their impact on energy supply will be, especially here in the U.S.

Including XTO, ExxonMobil has a combined, global unconventional resource base of approximately 70 TCF, with material positions in all the major U.S. unconventional plays and many emerging international plays.  We are the largest natural gas producer in the U.S. at nearly 3.7 billion cubic feet per day.

We are in the process of evaluating this diverse resource base and expect to see further growth through increased recovery and the addition of new productive intervals and new plays.  The Bossier Shale is just one example.

So as we enter what some have dubbed the “Age of Unconventionals,” the world is counting on the industry to develop them in a safe and reliable manner. 

Public concerns are growing due to a lack of familiarity and understanding of our industry. As drilling rigs move into more populous regions or areas with no recent experience with oil and gas operations, we need to educate the public about our industry.  This certainly is a challenge, which only increases when opponents of mineral development distort science and engineering principles to advance their agendas.

Our job as operators is to build, and in some cases, restore the public’s trust. We must prove to our neighbors that we can develop these resources and deliver the promised jobs and economic benefits in a safe and responsible manner.  This morning I would like to offer three critical actions for our industry to consider.

First, we must find a workable solution for operators, service providers, and the public on the disclosure of ingredients used in hydraulic fracturing fluids. XTO has been working through several industry associations, alongside many of you, to design a system that provides regulators, first responders and the public the information they desire about fracturing ingredients. 

Recently, the Groundwater Protection Council committed to developing state-based reporting using its existing, online system. This plan is a good step forward, particularly because it involves state regulators who are best positioned to handle this information.

Second, we need an agreement within the industry on a consistent and robust set of operating guidelines or best management practices. This will assure the public that we can consistently and effectively mitigate the risks to human health and the environment. We must live up to the expectations we set and commit to following the guidelines we put in place.

Third, the industry should work together to improve coordination on public policy recommendations and public outreach. As the shale gas industry continues to grow, it is understandable that companies and industry associations — individually and collectively — are exerting significant energy to address public concerns. And there are many efforts under way. But, messages are far more effective if they are clear, consistent, and coordinated. 

Otherwise, we risk being more confusing than we are helpful.

Getting this right is vital not just to U.S. jobs and energy supply, but also to our ability to pursue these same opportunities globally.  Citizens close to unconventional gas development, wherever it occurs, may have similar anxieties in the absence of industry outreach.  And environmental activism is not confined to the U.S.  It is incumbent on the U.S. industry to establish a sound model that addresses environmental concerns and builds public assurance.  Working together to solve these issues in the U.S. will set a positive precedent for shale gas development around the globe. 

One particular group of stakeholders is paying close attention to our actions. Policymakers, both legislator and regulator at all government levels, have an acute awareness of the benefits of effectively managing the risks associated with shale gas development. Our message to them must be clear.

Domestic, cleaner-burning natural gas has tremendous potential to provide economic and environmental benefits to communities across the country.

According to a recent study by PricewaterhouseCoopers, the oil and gas industry already supports nine million full — and part-time U.S. jobs.  In 2008 alone, the gas industry contributed $385 billion to our nation's economy.

On top of these economic benefits, natural gas holds great promise for reducing greenhouse gas emissions.  CO₂ emissions from a new natural gas power plant are about 60 percent lower than emissions from a new coal plant, and gas-fired power generation with cogeneration — like that installed in all of ExxonMobil’s U.S. refineries — can achieve an even greater reduction in emissions.  These are just a few of the benefits that position natural gas as a major player in addressing the world’s energy challenges.

Consistent, balanced policies must be in place in order to realize these benefits. On the supply side, we need access to all potentially economic resources across the globe. Burdensome regulations can indirectly impede access.

On the demand side, energy policies should ensure a level playing field for all fuel types, including natural gas.  When policymakers begin to pick specific energy sources as winners and losers, the final outcomes may not reflect market desires.  Our energy future will be most sustainable over the long-term when it is built on a market driven foundation that does not include special government subsidies that can change with political winds.  The shale gas industry has a great product, and we need to ensure we have an equal opportunity to compete in the marketplace.

So to wrap up my comments this morning, let me just say that while the economic downturn has certainly had a significant short-term impact on global energy demand, the long-term outlook remains positive.

Natural gas, and particularly shale gas, will play a significant role in addressing energy demand.

But we must remember, we have a long road ahead.  We need to keep the focus on the long-term development of the resource.  Society benefits from efficient allocation of capital and appropriately paced development of resources, not from volatile peaks and valleys.

The best way for us to realize the full potential of these game-changing natural gas developments is to work together while mitigating the risks to people and the environment.  Failure to assure the public that we operate in a safe and reliable manner will result in continued challenges from policymakers.

So much is expected of us, and we need to ensure we deliver.  We all have a role to play in making sure this is done right.  I look forward to XTO playing an active role as we work together to ensure the continued success of shale gas development.

Thank you for your attention.