Shale Gas Development

1. Presentation to: APEC Unconventional Natural Gas Workshop Sally Kornfeld Team Leader – International Oil and Gas Activities Office of Fossil Energy November 14, 2012 Shale Gas Development

2. National Petroleum Council Reports: Dramatic Change in Gas Supply “North American and U.S. natural gas production is likely to lag projected demand growth over the study time frame, requiring significant growth in LNG imports…. Forecasts range from 2.5 percent of U.S. supply to 16 to 18 percent by 2030.” - National Petroleum Council, 2007 “As a result of drilling technology advances and the emergence of the recent ‘game changing’ shale gas plays, the gap between U.S. demand and production Is closing rapidly and likely to reduce greatly the future need for LNG imports.” - National Petroleum Council, 2011

3. Shale gas offsets declines in other U.S. production sources U.S. dry gas production trillion cubic feet per year • Source: EIA, Annual Energy Outlook 2012 Early Release History Projections 2010 49% Shale gas 23% 21% Non-associated onshore 9% 9% Non-associated offshore 7% Tight gas 26% 21% 9% Coalbed methane 7% 1% 2% Alaska 10% Associated with oil 7%

4. U.S. dry gas billion cubic meters per year Source: EIA, Annual Energy Outlook 2012 Early Release Energy Security: U.S. Becomes Self-sufficient in Natural Gas 2010 History Projections Consumption Domestic supply Net imports

5. North American Shale Plays

6. Conventional vs. Unconventional Resource Play Or “continuous” … Source: U.S. Geological Survey

7. Deregulation, Tax Incentives and Government R&D Facilitated Unconventional Gas DOE CBM R&D 1978-1982 DOE Shale Gas R&D 1978-1992 Section 29 Credit 1980-2002 Shale Gas Coalbed Methane Natural Gas Wellhead Decontrol Act, 1989 Natural Gas Policy Act, 1978

8. Hydraulic Fracture Stimulation- The Key to Today’s Natural Gas Revolution Shale – horiz well + Multi-stage HF Tight Sands Multi-stage HF Tight Sands Single-stage HF Conventional Reservoir 1850’s to present 2000 to present 1950’s to 1990’s 1990’s to present Multi-stage hydraulic fracture stimulation (HF) unlocks gas in unconventional reservoirs

9. Hydraulic Fracturing

10. Well Bore Integrity Key to Environmental Protection • Multiple layers of Protection • Conductor casing is set and cemented • Surface Casing is cemented below deepest aquifer • Surface casing is cemented to surface • Production casing inside surface casing to formation • Production casing cemented back to surface • Steel production tubing • Internal plastic coating on tubing to prevent corrosion

11. Composition of Hydraulic Fracturing Fluid Source: ARI, 2009 after Arthur, J. D., et al, 2008

12. Shale Gas Far Below Useable Groundwater COMPARISON OF TARGET SHALE DEPTH AND BASE OF TREATABLE GROUNDWATER Source: 2009 Shale Gas Primer

13. Water Management is Critical for Shale Gas Development • Phases of water management for shale gas development • Withdrawal • Transport • Storage • Use (drilling and fracturing) • Treatment and reuse/recycle • Treatment and disposal • Logistics, costs, water volume/scale of operation, and timing • DOE is sponsoring a number of studies on water management for shale gas production Courtesy of All Consulting, Inc. 13

14. Secretary of Energy Advisory Board Recommendations • Manage short-term and cumulative impacts on communities, land use, wildlife, and ecologies • Protect water resources • Disclosure of fracturing fluid composition • Identify research and development needs • Create a public, national portal improving public information. • Organize for sharing best practices • Improve communication among state and federal regulators • Reduce use of diesel fuel in fracturing www.shalegas.energy.gov

15. EPA Shale Gas Study EPA: Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources • •Best available science • •Independent sources of information • •Transparent, peer-reviewed process • •Consultation with others Next Steps: •Publish an interim report of results in 2012 •Provide additional results in a 2014 report

16. Available Resources: • In 2009, DOE and the Ground Water Protection Council (GWPC) published “Modern Shale Gas Development in the United States: A Primer,” an in-depth analysis of Shale Gas development , including water management and disposal issues related to shale gas stimulation and production. • In 2009, DOE helped fund GWPC publishing a comprehensive review of regulations designed to protect water resources nationwide. This report, “State Oil and Natural Gas Regulations Designed to Protect Water Resources,” includes a detailed look at current state oil and gas regulations intended to protect water resources, including regulations related to hydraulic fracturing and waste handling. Available at www.fossil.energy.gov/programs/oilgas/index.html, www.netl.doe.gov/technologies/oil-gas, and www.gwpc.org.

17. Successful Regulatory Strategy A successful regulatory strategy… • Mitigates adverse impacts • Scientifically quantifies risks • Ensures public safety • Protects environment • GOAL: Clear rules and regulations to encourage investment while protecting public safety and environment.

18. IEA Projects Rise in World Unconventional Gas Production IEA, “Golden Rules for a Golden Age of Gas,” 2012

19. Factors in U.S. Shale Gas Success • Below Ground: • Favorable Geology • Technology – Including U.S. Government R&D • Infrastructure – pipelines and domestic industry • Above Ground: • Stabile & Transparent Regulatory/Taxes/Fiscal Terms • Developed Gas Markets • Ease in Leasing

20. Factors in Global Shale Gas Development • Additional Factors to those in U.S.: • Access to: • Resources, • Gas Treatment, • Pipelines, and • Markets • Ability/Willingness to Import Expertise: • Investment Climate: Huge Capital Required • Equipment • People (Visa support) • Great Potential, BUT: • In infancy – shale geology not yet proven • You never know if it is economic until drilled!! Shale Gas Wells Drilled 2008-2011 (PFC Energy)

21. Questions?