Office of Fossil Energy

Independent Oil and Gas Association of West Virginia

August 6, 2019

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Remarks of Assistant Secretary for Fossil Energy Steven Winberg as prepared at the Independent Oil and Gas Association of West Virginia in White Sulfer Springs, WV on August 6, 2019

 

Thank you. 

 

It’s great to be back in West Virginia, and I appreciate the opportunity to talk about what this Administration – and particularly the Department of Energy – is doing to expand our oil and gas development and open up opportunities for the Nation, the Appalachian region, and for communities here in West Virginia.

 

What we’re doing at DOE can provide real value to the oil and gas industry.  But you’re the ones who invest, produce, develop, and deliver our oil and gas resources.  You’re the ones with the expertise and on-the-ground, real-world experience in the field.  You know what works and what doesn’t.  So, the work we do will only be as effective as the strength of our cooperation and collaboration with you. 

 

I want to talk about some of that work in a moment, but first let’s look at the big picture.

 

We’re truly living in a new world.  A decade ago, the storyline was that we were running out of recoverable oil, and we would increasingly become a net importer of natural gas. 

 

But then came the shale energy revolution, which rewrote that storyline and transformed energy development here in West Virginia, the broader Appalachian region, and other parts of the country.  Today, the U.S. is the world’s top producer of oil and gas.  We’re now a net exporter of natural gas, and DOE’s Energy Information Administration projects that we’ll be a net energy exporter next year.

 

Let me put this in context.  The last time we were a net energy exporter was in 1953.  Dwight Eisenhower was president and most of us were kids – or perhaps not even born yet.

 

So, what we’ve seen in the last 10 years is nothing short of remarkable, and it’s certainly the biggest energy story in my lifetime.  I think you’d have to go all the way back to Spindletop in 1901, which launched the Texas oil boom, to find a U.S. energy development comparable in its impacts to the shale revolution.

 

And, of course, you can see the impacts of that revolution up close here in West Virginia and across the Marcellus and Utica shale plays in Appalachia. 

 

These plays are responsible for 85 percent of the growth in U.S. natural gas production over the past decade and already account for right at a third of U.S. production today. 

 

And West Virginia, of course, is a big part of that.  You rank in the top 10 natural gas-producing states, producing 1.6 trillion cubic feet in 2017.

 

So, as the experts at Shale Crescent like to note, if Appalachia were an independent country, it would be the third-largest natural gas producer in the world.

 

Looking ahead, the region is expected to account for 45 percent of total U.S. natural gas production by 2040.  So, Appalachia gas is abundant now and projected to be abundant through the middle of the century. 

 

It’s worth noting that these energy accomplishments have been helped by the Administration’s policies that seek to unleash the full potential of America’s fossil fuel resources.  We are putting innovation ahead of over-regulation. 

 

By innovating more, and regulating a little less and more prudently, by encouraging—rather than discouraging—production, we ensure our energy security, grow our economy, create jobs, and protect the environment.

 

And innovation is what we do at the Department of Energy.

 

We were on the ground floor of the shale revolution, supporting the early research that developed the hydraulic fracturing and horizontal drilling technologies that opened up our unconventional oil and gas resources.  In fact, 99 percent of production in the Marcellus Shale has been from horizontally drilled wells.

 

There’s no doubt that DOE has had a successful track record when it comes to oil and gas R&D, and we’re building on that success to expand the development of those resources – especially our unconventional resources. 

 

So, upstream, we’re applying data science and machine learning tools to help make it possible to process and interpret complex data streams in real time and increase production of unconventional oil and gas. 

 

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

 

So, just in the past couple of months, we’ve invested nearly $85 million in projects to move us closer to this goal.

 

Last month, we selected five projects to receive right at $40 million to help advance enhanced oil recovery in unconventional reservoirs.  And, in June, we announced more than $44 million in funding for a dozen projects to enhance the characterization and improve the recovery efficiency of emerging unconventional oil and gas reservoirs. 

 

We also have a number of projects to address produced water challenges.  They run the gamut – from basic science and risk assessment, to water-treatment technology development, to enhanced water disposal options, produced water management, and other focus areas.  And last month, we issued a $5 million FOA for projects to develop produced water treatment technologies.

 

So, we’re excited about moving further into this important research area.

 

Now, when it comes to resource delivery, we’re pursuing data science and management tools to improve operational reliability and reduce the 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.”

 

At the end of the day, we’re looking at an entirely new tool set for the marketplace with huge potential to provide more reliable information about the performance of critical systems and components.  It creates a number of benefits for industry, and it’s the future of “smart pipelines.” 

 

Speaking of pipelines, the Executive Orders President Trump issued in April will help remove barriers to energy infrastructure development – and they represent a major step toward removing unnecessary red tape, streamlining and modernizing the regulatory process, and promoting an even more efficient energy market.

 

So, a lot of important work on resource development, energy-water challenges, and infrastructure.  And we believe that work will expand this era of oil and natural gas abundance, which is vital to our energy security and economic growth – and to planning long-lived energy infrastructure development.

 

And, increasingly, co-produced natural gas liquids are becoming an important part of this story.

 

As you all know, a lot of Appalachian gas is particularly “wet” – containing substantial volumes of natural gas liquids, such as ethane, propane, and butanes, all of which can serve as petrochemical feedstocks.

 

In fact, the Energy Information Administration projects that by 2025, ethane production in the Appalachian Basin will reach 640,000 barrels per day – which is 20 times greater than it was in 2013.  

 

And by 2050, the eastern U.S., including 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 35 percent of all ethane production. 

 

So, not only is the natural gas resource abundant and low-cost, but the NGL resource, which provides valuable petrochemical feedstocks, is also abundant and low-cost.

 

And that’s opening up a massive potential here in West Virginia and across Appalachia.

 

I’m not sure a lot of folks fully realize the transformational opportunity we’re seeing.  This is one of those once-in-a-lifetime opportunities—and if Appalachia works together, every person in this room will be a witness to an Appalachian Petrochemical Renaissance on a scale that we could scarcely have imagined just a decade ago. 

 

This renaissance has the potential to create more than 100,000 new jobs in the region, generate tens-of-billions in revenue annually, reinvigorate regional manufacturing, and enhance our national energy security.

 

So, I’d like to talk to you for a few minutes about the Administration’s commitment to help advance this renaissance.

 

Now, this isn’t a new or novel concept to have a petrochemical industry in the Appalachian Basin.  In fact, this is where it all began, and Union Carbide constructed America’s first commercial ethane cracker in Clendenin in 1920. 

 

Today, the Marcellus and Utica Shale reserves are within a day’s drive to 70 percent of the country’s polyethylene market – meaning that supplies and the market are closer than ever.

 

And nearly a third of U.S. manufacturing involving petrochemicals is within about 300 miles of Morgantown.  This base creates $300 billion in revenue, employs 900,000 workers, and supports 7500 businesses, and it is positioned to grow. 

 

So, in Appalachia today, we have a robust customer base that is hungry for cost-effective chemical intermediates, such as plastic resins.  And, thanks to the shale gas revolution, Appalachian now has abundant, enduring, low-cost NGL feedstocks to manufacture those chemical intermediates profitably. 

 

As some of you may know, we delivered a report to Congress last year that examined the potential for a new ethane storage and distribution hub, as well as a number of associated issues. 

 

As we discussed in our report, Appalachia – with its abundant resources upstream and extensive downstream industrial activity – could offer a highly competitive advantage and help the U.S. gain global petrochemical market share.

 

We also explored the manufacturing security advantages of an Appalachian petrochemical industry.  Right now, over 95 percent of America’s ethylene production capacity, which uses ethane as a feedstock, is located in Texas and in Louisiana.  And it’s pretty clear that if the Gulf Coast remains the sole anchor for our petrochemical assets, disruptions caused by hurricanes or other factors could impact the petrochemical supply chain across the country.

 

So, what we’re looking at is providing the geographic diversity of production and delivery that would enhance the reliability of the broader petrochemical and plastics manufacturing supply chain – and that would offer protections against unexpected plant shutdowns and transportation constraints.

 

With the massive growth in the production of natural gas and natural gas liquids in Appalachia – coupled with the existing industrial activity downstream – it only makes sense that we maximize the value of the ethane that is being produced here as a feedstock for a new Appalachian petrochemical industry. 

 

Of course, Appalachian petrochemicals are not an alternative, they are a complement to production capacity in the Gulf region.  But there’s no question that there is enough natural gas and enough market share to go around.

 

In fact, IHS Markit has estimated that the market could support five world-scale crackers in this region.  And that’s in addition to the existing mid-size cracker facility located in Kentucky, which the region’s ethane supports.

 

We’re encouraged by market developments in that direction, with Shell’s project in Pennsylvania and the progress that is now being made on PTT’s planned cracker plant in Belmont County, Ohio, which has received all of its permits and is far advanced in its design work and contractual arrangements.  And we’re hopeful that project will see a positive final investment decision this year.

 

So, where do we go from here?  Ultimately, private capital will primarily create a petrochemical renaissance here, but there is an important role – and opportunity – for government and other stakeholders to work together.

 

The Department’s view is that one of the most impactful things government can do is align our economic development efforts – at the state and federal levels – to catalyze private investment.

 

It’s also our view that the federal government, wherever possible and appropriate, must complement state efforts.

 

So, there are four areas that the Department and other federal agencies are focused on. They include:

  • Investing in public infrastructure;
  • Supporting workforce development;
  • Facilitating the investment of private capital; and
  • Communicating the market opportunity.

 

And when it comes to communicating the opportunity, at DOE, we’re in a full court press to get the message out.  And I can tell you that Secretary Perry has talked to President Trump about this opportunity, and he is excited and supportive.

 

At the same time, DOE leadership – from the Secretary to me – are on the road every chance we get to shine a bright light on this opportunity. 

 

That includes everything from meetings with local community leaders, economic development groups, international entities, industry groups, governors, and state legislative leaders.

 

In fact, last month, I testified at a hearing in Charleston, where I talked about a petrochemical industry here.  And I’m encouraged by the interest of your state leaders in this potential.

 

So, the massive development of the Marcellus and Utica shales has helped spur an era of American energy abundance – and it’s opened the door to transformational opportunities here in West Virginia and Appalachia more broadly.  This Administration is committed to expanding what Secretary Perry calls the new American Energy Era and with that, opportunities like the Appalachian Petrochemical Renaissance.

 

And, as I said at the beginning, we need to work with you to do that.  We also need your help to shine a bright light on the potential for this Appalachian Petrochemical Renaissance. 

 

At the end of the day, there are a lot of opportunities for valuable partnerships between us and industry, where your contributions can be extremely important. 

 

So, we welcome your contributions, and I look forward to working with you.

 

Thank you.