Office of Fossil Energy

Energy and Mineral Law Institute Remarks

June 10, 2019

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Remarks of ASFE Steven Winberg as prepared at the Energy and Mineral Law Institute on June 10, 2019

 

Thank you.  I appreciate the opportunity to speak to you today.  I’ve had the pleasure of meeting with you in a couple of previous lifetimes, so I welcome the chance to meet with you as Assistant Secretary for Fossil Energy.

 

I see several familiar faces here this morning, and it’s good to see you again.  Thank you for being here. 

 

I also want to thank Tim McCrum for the invitation to speak to you this morning and for working with me and my staff.  Thank you.

 

This morning I’d like to provide an overview of the state of fossil energy and what the Department of Energy – and, specifically, my office – is doing to expand the development and use of our oil, natural gas, and coal resources.

 

We’re living in a very exciting and promising time for U.S. fossil energy development.  And a lot of that has to do with the fact that today we have a President who recognizes the reality – and embraces the fact – that we have vast oil, gas, and coal resources in the United States — and that we need to develop, produce, use, and export them. 

 

And this Administration has been moving on every front to do those things. 

 

From approving the Keystone and Dakota Access pipelines to reducing onerous regulations on coal; from promoting expanded markets for American natural gas to developing the technologies to help expand the development and use of our fossil resources – when it comes to American energy, President Trump and his Administration have consistently put reality over ideology, and innovation over regulation to unleash America’s energy potential and to help make the U.S. energy dominant in the global marketplace.

 

And we’re seeing what happens when that potential is unleashed – and nowhere is that more obvious than when it comes to our oil and gas development.

 

The U.S. is now the world’s largest producer of both oil and natural gas.

 

In 2017, we became a net natural gas exporter for the first time since 1957.  And the U.S. Energy Information Administration – or EIA – projects that we will become a net energy exporter next year.

 

To put that in context, we’ve been a net energy importer since 1953. 

 

In the meantime, we’re seeing a phenomenal expansion in year-over-year production of oil and gas.

 

Looking at oil, we saw a record high production of 11 million b/d last year.  And going forward, the EIA forecasts that U.S. crude oil production will average 12.4 million barrels per day this year and 13.2 million b/d next year.

Crude oil exports have also increased – by 400 percent since President Trump took office.  And those oil exports represent nearly a quarter of our daily domestic production. 

 

Last year, we exported 2 million b/d of oil – nearly double the 1.2 million b/d rate in 2017.

 

And in February, the U.S. exported its highest levels of crude oil ever – an average of 2.99 million barrels per day versus averaging 1.6 million barrels per day in February 2018.

 

At the same time, U.S. natural gas production grew by 10 billion cubic feet per day last year, an 11 percent increase from 2017 – the largest annual increase in production on record, and the second consecutive year that we hit a record high.

 

Now, I know a lot of you are keenly interested in energy development in the East and in Appalachia. So, I wanted to point out that the Appalachian region remained the largest natural gas-producing region in the U.S., and Ohio saw the largest percentage increase last year.

 

Looking ahead, development in the Marcellus and Utica shale plays will drive more than half of the projected production increase over the next 30 years.

 

So, we’re seeing phenomenal growth in natural gas production.  At the same time, total U.S. natural gas exports – both pipeline and LNG – reached nearly 10 Bcf/d last year – a 14 percent increase and the fourth consecutive year that exports have gone up. 

 

As President Trump has said, U.S. energy exports “provide true energy security to our friends, partners, and allies all across the globe.” 

 

And nowhere is that more evident than in the impact that U.S. LNG is having in the global market, where, last year, LNG trade grew by 10 percent over 2017 – hitting just over 41 Bcf/d – and where U.S. LNG exports grew by 53 percent to 3 Bcf/d.

 

So, the world’s LNG market is expanding, and so are American exports.  We have the resources and export infrastructure that promise to make the U.S. a leading global natural gas supplier.  And this Administration is committed to making it easier for that to happen.

 

As you may know, my office has the regulatory authority over natural gas exports within the Department of Energy, and to date, we’ve authorized over 32 billion cubic feet per day of natural gas primarily spread across 13 large-scale export projects in Louisiana, Texas, Maryland, Georgia, and the Gulf of Mexico.


Right now, around 13 billion cubic feet per day of natural gas export capacity is in various states of operation and construction across seven large-scale LNG export projects.  By the end of next year, our LNG export capacity will more than double where we are today.    

 

American LNG exports are having a global reach – cargos from the U.S. have landed in 35 countries across Europe, Asia, Africa, the Middle East, South America, North America, and the Caribbean. 

 

In the meantime, President Trump has taken important steps to increase our energy export potential. 

 

A couple of months ago, he issued two sweeping Executive Orders aimed at removing barriers to energy infrastructure development, and allowing LNG to be transported by rail. 

 

The President also ordered a report on the impacts of the limitations on the export of natural gas and other energy resources from the U.S. West Coast.

 

These Executive Orders are a major step toward removing unnecessary red tape, streamlining and modernizing the regulatory process, and promoting an even more efficient energy market.

 

And they will help provide the certainty the private sector needs to invest in critical energy infrastructure projects.

 

In addition to exports, the expansion of natural gas development is also opening up economic opportunities across the country – including an enormous transformative potential in Appalachia. 

 

A lot of Appalachian gas is particularly “wet” – meaning it contains substantial volumes of natural gas liquids, including ethane, which can be separated from the gas and converted into plastics, antifreeze, and other products we use every day.

 

By the way, by 2050, the East region, which includes the Appalachian Basin, is projected to account for the largest share of U.S. natural gas liquids output―30 percent of the national total―and for 35 percent of all ethane production. 

 

So, ethane is critical to the petrochemical industry.  Right now, more than 95 percent of America’s ethylene production capacity, which uses ethane as a feedstock, is located in Texas and Louisiana.  But those locations are exposed to devastating weather events like hurricanes.  For instance, Hurricane Harvey took 60 percent of U.S. ethylene production offline for weeks. 

 

As you may know, the Department released a report at the end of last year that examined the potential to expand the petrochemical asset base beyond the Gulf Coast.  We found that Appalachia – with its abundant resources and extensive downstream industrial activity – could offer a highly competitive advantage and help the U.S. gain global petrochemical market share.

 

And we’re seeing the market move in that direction, with Shell now constructing a $6 billion cracker in Beaver County, Pennsylvania and PTT’s planned $10 billion cracker plant in Belmont County, Ohio.  PTT’s project has received its air and water permits from the Ohio EPA, and we expect to see a positive final investment decision on that project this year. 

 

A new petrochemical industry in Appalachia could reap enormous benefits for the region.  According to a recent American Chemical Council report, more than $35 billion in capital investment could flow into Appalachia; 100,000 jobs could be created and supported; nearly $30 billion in additional annual revenue could be generated; and over $1 billion per year in state and local tax revenue. 

 

Industry and government need to work together to fully realize this opportunity.  For our part, I can tell you that Secretary Perry has had discussions with the President about this, and the President is very excited about it. 

 

In fact, as part of the broader Executive Order on energy infrastructure he issued in April, President Trump ordered the DOE to prepare a report on opportunities to promote economic growth and workforce development in Appalachia, including the development of an Appalachian petrochemical industry. 

 

So, this Administration is committed to capitalizing on the benefits of our natural gas resources to promote a truly transformative industrial renaissance in Appalachia.  And we will continue to shine a bright light on this opportunity in discussions here at home and abroad.

 

Now, I want to talk for a few minutes about coal. 

 

Today, we have reasons to be optimistic about coal.  And a big reason for that optimism is that we have a President and an Administration that truly understand the value and the necessity of coal. 

 

So, let’s look at where we are.  True – coal consumption has declined in the U.S., although the production and use of refined coal reached record highs in 2017, and last year’s figures will probably show another increase once they’re finally calculated.  And we actually saw increased production in the Central Appalachian and Illinois Basins last year.

 

At the same time, according to a report by the National Coal Council, worldwide coal trade has more than doubled since 2000.  And the Energy Information Administration projects that worldwide coal consumption will remain relatively stable between 2015 and 2040. 

 

And the reason is Asia, where coal use is seen as a pragmatic fuel to achieve energy security and expand economic growth.  

 

In the meantime, we’re shipping more coal overseas – 116 million short tons last year, the second year in row that coal exports have increased and the highest level in five years. 

 

One more thing about exports.  We have enormous coal resources available, and there’s a massive market in Asia – but we have a lack of export capacity on the West Coast. 

 

This Administration wants to expand that capacity.  I mentioned the President’s Executive Order calling for a report on limitations on energy exports from the U.S. West Coast.  That includes coal exports.

 

Now, I know that a West Coast coal export terminal will not directly help eastern coal but if there is an outlet for western coal, it will help ease some of the pressure to move western coal, east.

 

Meanwhile, coal still provides around 30 percent of our electricity – and we’ve seen how critical it is in vast swaths of the country, most vividly during last year’s extreme cold spell on the East Coast – where it provided 55 percent of the incremental daily generation across the affected region.  We also saw it a few months ago, when coal accounted for over half of the power generation during the Polar Vortex in the Midwest.

 

At the end of the day, coal will continue to be in demand as a global energy source, and it will continue to be critical to the resiliency, reliability, and stability of the Nation’s electricity grid. 

 

So, that’s the lay of the land right now for fossil energy.  We’re seeing phenomenal growth in oil and gas production and exports, and coal continues to be a critical fuel around the world and here at home.

 

But we still need to do more to help ensure coal’s place in the grid and to expand our oil and gas development.  And that’s where the Department of Energy’s research and development is playing a critical role.

 

Secretary Perry likes to refer to DOE as the Department of Everything – and he’s right.  Two of the most powerful computers in the world – and five of the ten fastest – are located in our national labs.  And these powerful machines will help unlock the tremendous potential of artificial intelligence to address the world’s most complex energy challenges.

 

But DOE’s work and capabilities are helping to make advances in other areas, like health care, for instance.  A great example is the work we’re doing with the Department of Veterans Affairs to leverage next-generation artificial intelligence and our supercomputing capabilities to help veterans who have traumatic brain injuries, post-traumatic stress disorder, and opioid addictions.

 

Our labs are also working to demonstrate communications through quantum entanglement – which are particles that aren’t physically connected but are able to share information with each other instantaneously.  What we’re doing on quantum entanglement could transform communication and computation.

 

So, we have the capabilities and resources to make important and positive impacts across so many areas.  And we’re applying those capabilities and resources, including big data, high-performance computing, and machine learning to address fossil energy challenges and open new opportunities for those resources.

 

When it comes to coal, one of our biggest challenges is that our fleet of coal-fired power plants is aging rapidly. 

 

The National Coal Council came out with a report last year noting that nearly a quarter of U.S. coal generation capacity was retired between 2005 and 2017.  And since we’re looking at 240 plants retired or planned for retirement between 2013 and 2020, that leaves us with just over 530 units scheduled to be operating after next year. 

 

If this pace continues, we could see the resiliency and reliability of America’s electricity supply, significantly undermined – especially during extreme weather events.

 

So, one of the things we’re focused on is increasing the efficiency and competitiveness of existing plants to extend their lives and ensure that they can operate on an evolving grid that is accommodating more and more intermittent, renewable generation. 

 

And just this morning we announced the selection of 17 projects – a total of $39 million in federal funding – to improve the overall performance, reliability, and flexibility of existing coal plants. 

 

This represents a major drive to modernize our current fleet of coal-fired power plants – and it underscores the Administration’s commitment to ensuring those plants can continue to provide stable energy to the power grid.

 

So, we’re excited about the potential of these projects.

 

At the same time, though, we need to begin developing the coal-fired power plants of the future — plants that are cleaner, very efficient, and have a smaller footprint.  And we’re doing this through an initiative we call Coal FIRST (Flexible, Innovative, Resilient, Small, and Transformative). 

 

These future plants will need to be able to compete with other sources of power generation and provide stability and resiliency to the grid.  They’ll also need to overcome siting, operating, and logistical constraints that limit the deployment of large-scale plants – and they’ll need to employ the most advanced technologies aimed at protecting the environment.

 

So, we envision these plants to:

  • Be capable of flexible operations to meet the needs of the grid;
  • Use innovative and cutting-edge components that improve efficiency;
  • Provide resilient power with near-zero emissions;
  • Be small compared to today’s conventional utility-scale coal; and
  • Transform how coal technologies are designed and manufactured.   

One of the beautiful things about these plants is that their modularity, size, and flexibility mean they can be sited wherever they’re needed, near coal mines or near industrial facilities, for instance. 

 

One other thing – we see an opportunity to export these technologies and, at the same time, expand the markets for American coal. 

 

We recently selected 13 projects to design the plants of the future.  These projects represent an impressive diversity of technical approaches that will lay the groundwork for the Coal FIRST initiative.

 

In the next few months, once we’ve reviewed the designs, we’ll issue a funding opportunity of just over $100 million for projects to develop critical components and advanced manufacturing approaches required by Coal FIRST systems. 

 

Now, besides modernizing today’s coal plants and designing better ones for tomorrow, we’re also working to advance the deployment of carbon capture, utilization, and storage, or CCUS. 

 

DOE has a robust CCUS R&D program and we’ve had some impressive successes, but there are still some technical hurdles to commercializing these technologies – the most significant being the costs associated with carbon capture, which we need to reduce by about 50 percent, ultimately getting it down to $30 a ton. 

 

It’s a challenging goal, but we’re exploring early-stage R&D on advanced technologies that have the potential to get us there.

 

And we’re backing up our commitment to CCUS with the funding necessary to advance these technologies.  So far this year we’ve:

  • Selected carbon capture technology projects totaling $24 million;
  • Announced $30 million for FEED studies for capture systems on both coal and natural gas plants; and
  • Announced $20 million for a regional initiative to accelerate CCUS.

Now, apart from what we’re doing on the technology side, there are other developments that I think will help advance CCUS.  The expansion of the 45Q, as well as policies adopted by state governments, is generating increased interest in CCUS among utilities and industry, including the oil and gas sectors.

 

By the way, we’re seeing a global convergence toward CCUS in the coal and oil and gas industries.  The National Petroleum Council is working on a study requested by Secretary Perry to define potential pathways for integrating CCUS into the petroleum industry. 

 

And the Oil and Gas Climate Initiative – a multinational oil and gas industry group – has been making the business case for CCUS. 

 

They currently have four investments in CCUS and they’re looking to invest in additional projects.  This work on CCUS in the oil and gas industry is extremely encouraging, and I think it could catalyze broader deployment of these technologies. 

 

Now, I’ve been focusing on what we’re doing to help coal plants meet 21st century challenges and compete in an evolving grid. 

 

But, as the National Coal Council pointed out in a recent report called “Coal in a New Carbon Age,” we’re seeing a number of opportunities to utilize coal to develop a wide range of products.

 

And at DOE, we’re exploring new value streams and markets for coal – for instance, using coal to develop products like pitches, fibers, nanocarbon catalysts, and other materials – products that can open up new possibilities for the coal industry, and for jobs in coal country. 

 

Now, turning to our oil and gas R&D, we’re ramping up our big data and machine learning efforts and capabilities to increase and improve production and delivery of those resources, especially our unconventional resources.

 

So, let’s look first at upstream production and development, where one of the biggest hurdles has to do with the rapid decline curve in shale oil and gas production after initial production. 

 

Let’s say that a well yields 2 million cubic feet of natural gas per day in the first year of production.  By the second year, it drops to 600 thousand cubic feet per day and continues to decline over time.  There will come a point when – if gas prices are too low to justify leaving the well in production – an operator may prematurely plug and abandon the well, leaving valuable resources in the ground. 

 

New applications of machine learning and data analytics may be able to process and interpret complex data streams in real time to enhance decision making — and increase production of our unconventional resources. 

 

The development and integration of these big data and machine learning tools — coupled with high-performance computing — have the potential to usher in a paradigm shift — from energy production and development to systems operations.

 

Now, when it comes to midstream resource delivery, we’re pursuing data science and management tools to improve operational reliability, and we’re reducing loss from natural gas gathering, transmission, distribution, and storage facilities. 

 

We’re also beginning to look at cybersecurity as well as continuing our focus on reducing methane losses.  And we have several R&D pathways to help us meet these goals and to pave the way for the “pipeline of the future.”

 

So that’s a view, in fairly broad strokes, of the fossil energy landscape – and of the Administration’s approach to responsibly developing and using those vast, reliable resources. 

 

It’s a truly all-of-the-above approach that combines both smart policies and the best technologies to ensure the Nation’s energy security and continued economic growth; to provide as much certainty as possible for producers, industry, and investors; and to promote America’s dominance in the global energy market.

 

Thank you.