U.S. Oil and Natural Gas Production
Just a decade or so ago, the United States was on a downward-spiraling path of energy dependency – a path marked by scarcity, limited options and uncertainty stretching well into the future. U.S. oil and natural gas production was declining, and our reliance on other countries for energy was rising at an alarming rate.
Thanks to safe, modern hydraulic fracturing and technologically advanced horizontal drilling – much of it occurring in the prolific Marcellus and Utica shale plays in the East – that narrative has been turned on its head. In the East and other parts of the country these technologies (often referred to as “fracking”) have made the United States the world’s leading producer of oil and natural gas, launching an American energy revolution that has fundamentally changed the world energy order.
The Shale Natural Gas Revolution
Rising natural gas production and the increased use of gas in American homes, businesses and in the utility sector are hallmarks of this energy renaissance. Leaders from the president on down now talk about a 100-year supply of natural gas. Because of ever-improving fracking and drilling technologies, some believe U.S. reserves could extend beyond that. Instead of needing to import gas to meet domestic needs, the U.S. now is positioned to export liquefied natural gas (LNG) – with the potential to lift our economy, reduce the United States’ trade deficit and help allies abroad. All thanks to safe and responsible fracking.
It’s a rapidly accelerating revolution. Shale natural gas accounted for only 5 percent of total U.S. dry gas output in 2004, according to the U.S. Energy Information Administration (EIA). That doubled to 10 percent in 2007 and now is 56 percent of production. IHS estimates that unconventional energy developed with fracking increased each American household’s disposable income by $1,200 in 2012 and projects the benefit will rise to more than $3,500 in 2025. Meanwhile, a broad range of manufacturers are opening or expanding U.S. operations because lower-cost natural gas is available as a power source and as a feedstock for finished products.
It’s also a job-creating revolution. The shale, or unconventional, oil and natural gas value chain and energy-related chemicals activity together support more than 2.1 million jobs nationwide. By 2025, IHS says, these will support nearly 3.9 million jobs.
Big Shale Plays Dominate Eastern Output
Perhaps nowhere in the country are the benefits and opportunities of hydraulic fracturing and shale energy better illustrated than in the East. EIA says the Marcellus and Utica shale plays have provided 85 percent of U.S. shale gas production growth since 2012 – with Marcellus output increasing from approximately 1 billion cubic feet per day in 2007 to 16 billion cubic feet per day in 2015. This is creating jobs and generating economic growth as states, communities and industry manage the logistics of rapid growth – finding the balance between infrastructure needs, support services and environmental objectives.
In the East, Pennsylvania, Ohio and West Virginia lead the way in energy development. According to PwC, energy activity supported nearly 340,000 jobs in Pennsylvania and was responsible for $34.6 billion added to the state’s economy in 2011, the most recent data year available. In Ohio, energy supported more than 255,000 jobs, added $28.4 billion to the state economy and paid an average salary of nearly $76,000 to non-gas station oil and natural gas employees (compared to the state average of less than $45,500 for all industries). In West Virginia, energy activity supported 80,400 jobs and contributed $5.8 billion to the state economy.
The benefits of energy exploration and production aren’t limited to resource-rich states. Even in New York, where energy development remains largely on hold, the energy sector’s long economic reach is making significant contributions, with oil and gas supporting 270,600 jobs – most of them in the hundreds of businesses up and down the energy supply chain located there. Similarly, a number of businesses located in Massachusetts help support the shale revolution, and altogether more than 106,000 state jobs exist because of oil and gas, according to PwC. Energy supports jobs throughout the East – from Maine (28,800 jobs) to Maryland (75,400).
Safe, responsible energy development has been and continues to be industry’s objective – in fact, API was founded as a standards-setting organization and currently has more than 700 standards covering every aspect of oil and gas operations, including 200 regarding fracking and other upstream operations.
Reflecting industry’s commitment to safe operations, API-member companies and key non-industry stakeholders have developed a program of standards and practices – accredited by the American National Standards Institute, the same body that accredits several national laboratories – to advance safety for workers, communities and the environment. These include specific standards for well integrity and water management, as well as practices to mitigate the surface impacts of hydraulic fracturing and the many other elements of operations.
Industry’s commitment to safety includes the FracFocus.org chemical disclosure registry managed by the Ground Water Protection Council (GWPC) and the Interstate Oil and Gas Compact Commission, which provides to the public detailed, searchable data on specific wells. Now in its third revision, the registry covers more than 99,000 wells. These, together with strong state and federal regulatory oversight, form the architecture to help ensure safe and responsible development, which is key to sustaining the public’s support.
Recent analysis finds that this structure is working. Most significantly, EPA’s draft study of hydraulic fracturing and its potential impacts on drinking water found no evidence that fracking has led to “widespread, systematic impacts on drinking water resources in the United States.” The EPA study said fractures created by hydraulic fracturing are “highly unlikely to extend upward from these deep formations into shallow water aquifers.” The agency also noted that water used in fracking amounts to less than 1 percent of the U.S. annual total.
EPA’s draft hydraulic fracturing study found no evidence that fracking has led to “widespread, systematic impacts on drinking water resources in the United States.
These findings endorse the primary role that’s being played by the states to provide effective, efficient oversight that’s tailored to the specific geology, hydrology and other resource characteristics in each state. From 2009 to 2013 state agencies created an estimated 82 groundwater-related rules for oil and natural gas production – as well as hundreds of discrete rule changes, according to a GWPC report. Pennsylvania, for example, can require more than 38 different permits for natural gas development.
Bottom line: Hydraulic fracturing is heavily regulated by the states and the federal government, with various federal environmental and public health statutes applying, according to the U.S. Government Accountability Office. These include the Safe Drinking Water Act; the Clean Water Act; the Clean Air Act; the Resources Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation, and Liability Act; and the Emergency Planning and Community Right-to-Know Act.
Innovation and technology are helping curb emissions of methane. From 2005 to 2013 – during a period when natural gas production from areas like the Marcellus and Utica shale plays increased dramatically – methane emissions from natural gas production fell 38 percent, according to EPA’s 2015 Inventory of U.S. Greenhouse Gas Emissions and Sinks. Methane emissions from hydraulically fractured wells declined 79 percent during the same period, EPA found.
That methane emissions from natural gas production are trending lower is consistent with findings in a number of studies showing low leakage rates. A major field study of 130 facilities found that 101 had loss rates below 1 percent – or, put another way, they had methane containment of more than 99 percent. A collection of studies from the Barnett Shale play in Texas also showed low leakage rates – 1.2 percent – a rate well below the 3.2 percent cited by a leading environmental organization as the point where the environmental advantages of natural gas in power generation are realized.
Progress on reducing methane emissions from industry operations underscores a pair of points: The first is that industry is continually working to improve operations – to safely maximize recovery of oil and gas resources, including capturing methane. The second is that conducting environmentally responsible operations also means delivering more energy to consumers. There’s a strong incentive for industry to operate this way, hence the continuing push for improved technologies, a number of which EPA subsequently incorporated in its Natural Gas STAR program and regulations. Given this progress, EPA’s 2015 proposal for regulating methane emissions in natural gas development not only is misguided and unnecessary but would add regulatory burdens that could increase costs and stifle innovation.
Clean water and air is a key objective of safe energy development. Our employees work and live in areas under development. Safety and environmental protection are fully integrated into the way our companies operate, often exceeding what is required by law – because doing our work safely and responsibly is what it means to be a good steward and neighbor.
Looking to the Future
America’s shale energy revolution is writing a new future for the United States – yet that story won’t be finished without more investment, more innovation and more energy development, made possible by pro-energy policy choices. A number of these points are illustrated in the Eastern U.S.
Take access to resources: Pennsylvania and New York are the stars in a tale of two energy states. Both sit atop the natural gas-rich Marcellus shale play, but they’re taking diametrically opposed paths on development.
Pennsylvania is open for business, managing development to benefit communities and individual residents. These benefits include jobs and the economic boost they provide across the state economy – service companies and suppliers that support operations and also non-energy businesses like restaurants, grocery stores, hotels and more that meet the needs of energy workers and their families. There’s also the benefit to the commonwealth from $2.1 billion in tax revenue from energy activity from 2007 through 2014, as well as $856 million in impact fee collections (2011-2014) that are distributed to local governments.
Pennsylvania is open for business, managing development to benefit communities and individual residents.
To the north, New York’s fracking moratorium continues to leave that state’s natural gas resources largely untapped, in the ground. The once-prosperous Southern Tier region of the state, just across the state line from Pennsylvania, faces significant economic challenges, yet its own Marcellus shale wealth is kept off limits by state policy – unavailable to provide work for the region’s young people, unavailable to provide economic stimulus to lift local businesses, unavailable to landowners who could harness the minerals beneath their feet to rescue struggling family farms.
More broadly, the forward momentum of the shale revolution is threatened by overregulation as federal agencies move to impose new layers of rules that could hinder safe development, which is already well-monitored by the states. The Bureau of Land Management may soon enact new fracking regulations for federal and Indian lands that could slow production with new costs and red tape – without appreciably adding meaningful safety or environmental benefits. EPA has proposed new rules on methane emissions, despite the progress noted above. These are but two examples among dozens that threaten future investment. For the revolution to continue apace, commonsense regulatory approaches are needed that acknowledge the effective oversight already being provided by the states, under both state and federal laws.
Apart from access to reserves and commonsense regulation, America’s shale revolution needs infrastructure investment and a regulatory process that supports private investment in these vital projects. In the oil and natural gas industry, America has a proven partner that has demonstrated its willingness to invest in the United States. Six oil and natural gas companies earned places on the Progressive Policy Institute’s top 25 in 2014 U.S. capital investments with $44.7 billion.
Infrastructure needs in the East are one example of the energy infrastructure necessary across the United States to fully capitalize on increased domestic oil and natural gas production. Infrastructure is needed to bring oil to East Coast refineries that are suited to process lighter crudes from the Upper Plains states. Infrastructure also is needed to bring natural gas to New England to produce heat and affordable electricity for its homes and businesses. Despite being adjacent to the abundant Marcellus shale, New England residents paid up to 68 percent more for electricity than the national average in winter 2014, according to EIA estimates, while the industrial sector paid up to 105 percent more for its electricity than the national average – in part because of infrastructure limitations. One study estimates that failing to expand natural gas and electricity infrastructure could cost New England households and businesses $5.4 billion in higher energy costs and more than 167,000 private-sector and construction jobs between 2016 and 2020.