6th Annual Harris County International Trade and Transportation Conference
NRG Center, Houston, Texas
October 23, 2014
4:00-5:00 p.m. The Impact of Shale Plays on Harris County
Nancy L. Sauer
© 2014 Nancy L. Sauer
Nancy L. Sauer
President
Government Relations Consulting
P.O. Box 270596
Houston, Texas 77277-0596
713-668-1330
713-668-1143 (fax)
nlsauer@sbcglobal.net
Adjunct Faculty
Jones Graduate School of Business, Rice University
Nancy.l.sauer@rice.edu
http://business.rice.edu/OnlineDirectory/PersonnelDetail.aspx?id=3381
Adjunct Faculty
Price School of Business, University of Oklahoma
http://www.ou.edu/price/mba/EEMBA/Faculty/nancysauer.html
© 2014 Nancy L. Sauer
The energy history of our region is characterized by confidence, crisis and
responses of unimaginable scale. In this presentation, we will examine examples
of these cycles and what they might predict for the current shale boom, energy
independence and Harris County’s role as a hub for this activity.
Outline
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Our History and its Lessons
Those Lessons and Shale
Conclusion
© 2014 Nancy L. Sauer
un·con·ven·tion·al
ə
adjective \-ˈvench-nəl, -ˈven(t)-shə-n l\ : very
different from the things that are used or
accepted by most people : not traditional or
usual : not conventional
Source: http://www.merriam-webster.com/dictionary/unconventional, accessed 10/18/14.
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
Confidence
Crisis
© 2014 Nancy L. Sauer
Response
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US Weather Service’s Galveston Bureau Chief, Isaac Cline, recommends
against building a seawall because the threat of a hurricane was
considered remote.
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September 7, 1900: Most important city in TX
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Storm warnings from Cuba went unheeded for fear of alarming the
public
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September 8, 1900: The Great Storm remains deadliest natural disaster
in US history
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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Raise the island 17 feet
Build a seawall
Photo: http://www.therealgalveston.com/Seawall.html, accessed 10-19/14
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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Two Men
A Crisis/An Opportunity
An Idea
A Federal/State project
Economic development
Innovation
 Rail cars and spurs
 Patent
© 2014 Nancy L. Sauer
Build it and they will come.
© 2014 Nancy L. Sauer
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1930
 9 oil refineries operate along Ship Channel
 2 synthetic rubber plants added in WWII
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Ship Channel becomes center of
petrochemical industry in US
© 2014 Nancy L. Sauer
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One mile offshore Louisiana
14 feet of water
Fixed platform
Launches new frontier for energy
© 2014 Nancy L. Sauer
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German 10th U-boat flotilla to Gulf of Mexico
Seek to disrupt oil and supply lines to Europe
Germans sink 56 vessels in Gulf
Germans torpedo the Robert E. Lee in 1942
and 25 die
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
Deadliest industrial accident in US history
One of largest non-nuclear explosions
SS Grandcamp docked at Port of Texas City
Cargo of ammonium nitrate explodes
Chain reaction in other ships and oil storage
facilities
 Kills 581 including all but one of the Texas City
Fire Department
 First ever class action lawsuit filed against US
government under Federal Tort Claims Act
 $17,000,000 in claims
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© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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Outer Continental Shelf Lands Act of 1953
Innovation outpaces regulation
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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1973 Arab Oil Embargo
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Largest government stockpile of emergency crude
supplies in the world
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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Pemex Ixtoc Exploratory Well explodes in Bay of Campeche
10-month spill
$300 million damage to Texas coast
Blowout preventer failure
Pemex asserts sovereign immunity to avoid compensation
claims
© 2014 Nancy L. Sauer
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Oil Pollution Act of 1990
Double-hulled tankers
Oil spill response capability
© 2014 Nancy L. Sauer
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New hemispheric trading zone
New transportation projects
Proposals for international pipelines
© 2014 Nancy L. Sauer
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Gulf Coast security vulnerabilities
Department of Homeland Security
Energy infrastructure
New threats
© 2014 Nancy L. Sauer
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Fire and explosion kill 15 workers
Launches federal study
Recommends industry review safety cultures
© 2014 Nancy L. Sauer
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Bid triggers Congressional opposition and
debate on foreign ownership of U.S. oil
company
Chevron makes successful counteroffer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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Requires a consortium to administer program
R&D
Research Partnership to Secure Energy for
America (RPSEA)
Ultra deepwater and unconventionals
For additional information on unconventional resource research funded by the Energy Policy Act of 2005:
http://www.alrc.doe.gov/technologies/oil-gas/EPAct2005/Projects/sec999-final-reports.html.
© 2014 Nancy L. Sauer
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Largest marine oil spill in history
Loss of 11 lives
Agency reorganization
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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Build it and they will come for over 100 years
Private sector innovation outpaces
government
Environment important
Worker health and safety important
Global trade exploding
Security/Cybersecurity
Public-Private Partnerships Work
Research Consortia Contribute
Natural and manmade disasters happen
© 2014 Nancy L. Sauer
Unconventional thinkers
Public/Private Partnerships
Economic prosperity
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
Map of basins with assessed shale oil
and gas formations as of May 2013. Source:
United States: EIA and USGS; Other basins: ARI
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
Source for graphic:
www.energyfromshale.org
, accessed 10/18/14
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
Source: Taken from The Evolution of Giant Oil Field Production Behavior by Mikael Hook, Bengt Soderbergh, Kristofer
Jakobsson, and Kjell Aleklet, from Natural Resources Research, Vol. 18, No. 1, March 2009 (_ 2009)
DOI: 10.1007/s11053-009-9087-z. online version
© 2014 Nancy L. Sauer
http://naturalgasnow.org/shale-gas-declinecurves-demystified/
Source: EIA.
http://naturalgasno
w.org/shale-gasdecline-curvesdemystified/,
accessed 10/19/14.
© 2014 Nancy L. Sauer
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Directional Drilling and Hydraulic Fracturing:
A Public-Private Partnership
1976-2007
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DOE Eastern Gas Shales Project/Devonian (1976)
Gas Research Institute (1991)/GTI (2000)
Barnett Shale (DOE-Mitchell)
Sandia National Laboratory
Tax Incentives on Unconventional Gas
Mitchell Energy (2000)
© 2014 Nancy L. Sauer
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10 years in on a 20-30 year ride
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
Source:
www.bputica.com,
accessed 10/18/14.
© 2014 Nancy L. Sauer
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2002: Devon purchases Mitchell Energy
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2002-2012: Devon drills nearly 5,000 wells in the
Barnett Shale with 7,500 remaining drilling locations.
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Devon’s production increased from 200 million cubic
feet of natural gas equivalent per day in 2002 to 1.2
billion in 2012.
© 2014 Nancy L. Sauer
Peak Oil Paradigm: Scarcity
“ Technology is fabulous, but it does exactly the opposite of what
people thought it was going to do--it accelerates decline rates…the
simple analogy is you're having a Slurpee-slugging contest. You have
a normal vertical straw and someone comes along with a multilateral
straw. You're not getting more out, just getting it out faster.“
Matthew Simmons
SOURCE: Crude Cassandra
Christopher Helman, 02.11.09, 06:00 PM EST
Forbes Magazine dated March 02, 2009
© 2014 Nancy L. Sauer
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Father of Nanotechnology
Inventor of “Buckeyballs”
Co-winner of Nobel Prize in Chemistry (1996)
First Energy and Nanotechnology Conference (2003)
Rice Center for Nanoscience and Technology/Richard E.
Smalley Institute
Carbon Nanotechnologies Inc./Unidym
National Nanotechnology Initiative (2005)
© 2014 Nancy L. Sauer
Department of Energy Shale Gas Subcommittee issues two reports in 2011:
The risk of hydraulic fracturing fluid contamination of drinking water
sources is “remote.”
Source: http://www2.epa.gov/hfstudy, accessed 10/19/14
© 2014 Nancy L. Sauer
At the request of Congress, EPA is conducting
a study to better understand any potential
impacts of hydraulic fracturing on drinking
water resources. The scope of the research
includes the full lifespan of water in hydraulic
fracturing. The progress report was released in
December 2012 and a draft report is expected
to be released for public comment and peer
review in 2014.
Source: http://www2.epa.gov/hydraulicfracturing, accessed on 8/9/13.
© 2014 Nancy L. Sauer
http://fracfocus.org/
© 2014 Nancy L. Sauer
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Texas Railroad Commission
 Texas Seismologist
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Oklahoma Corporation Commission
© 2014 Nancy L. Sauer
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Sheldon Whitehouse of Rhode Island,
Dianne Feinstein of California,
Barbara Boxer of California,
Jack Reed of Rhode Island,
Maria Cantwell of Washington,
Ben Cardin of Maryland,
Richard Blumenthal of Connecticut,
Brian Schatz of Hawaii,
Tammy Baldwin of Wisconsin,
Chris Murphy of Connecticut,
Mazie Hirono of Hawaii,
Elizabeth Warren of Massachusetts,
Ed Markey of Massachusetts,
Angus King of Maine, and
Bernie Sanders of Vermont
© 2014 Nancy L. Sauer
GROWING IMPACTS OF
ENERGY DEVELOPMENT
ON HIGHWAYS AND
BRIDGES
An Overview of Potential
Solutions
July 25, 2013
© 2014 Nancy L. Sauer
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July 2013 Quebec, Canada oil-train derailment and fire (10
such accidents since 2008)
US Transportation Department’s Pipeline and Hazardous
Materials Safety Administration proposed safety rules for
oil trains in July 2014 expected to be finalized in 2015
Rules propose new standards for tank-car brakes, lower
speed limits and new routes in areas with high population
6-year process to retrofit railcars
10-year process to phase out/upgrade railcars
Steel supply issues
Welder shortages
Backlog of 50,000 orders
© 2014 Nancy L. Sauer
Source: US EIA
Annual Energy
Outlook 2014,
http://www.eia.gov
/forecasts/aeo/MT_
naturalgas.cfm#sh
ale_gas, accessed
10/16/14
© 2014 Nancy L. Sauer
Source:
http://www.eia.gov/
forecasts/aeo/MT_n
aturalgas.cfm#shal
e_gas, accessed
10/19/14.
© 2014 Nancy L. Sauer
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US: net exporter of natural gas in 2018
LNG Exports
Variables
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Global market price convergence
Natural gas v. oil competition in US
International gas markets
Natural gas supply growth outside US
Source: http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm#shale_gas, accessed 10/19/14
© 2014 Nancy L. Sauer
2037
Source: http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm#shale_gas , accessed 10/19/14
© 2014 Nancy L. Sauer
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Exploration
Drilling and production
Royalties
Pipeline and Delivery System Construction
Maintenance and operation
Wages and fees
Transportation
Export infrastructure
Refining
Payroll/Taxes
© 2014 Nancy L. Sauer
Construction (other new nonresidential
structures)
Support activities for oil and gas operations
Extraction of oil and natural gas
Drilling oil and gas wells
Food services
Wholesale trade businesses
Architectural- engineering- and related services
Retail Stores - Food and beverage
Monetary authorities and depository credit
intermediaries
Transport by truck
© 2014 Nancy L. Sauer
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Direct impact for Harris County:
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Management and control of shale resources
Management and control of shale well services
Financing of shale development and production
Global shale thought leadership
Transportation (pipelines, trucks, rail, vessels)
Infrastructure (state, national and international)
Refining
Exports
Jobs
Indirect Impacts
© 2014 Nancy L. Sauer
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State and local government
 Property taxes
 Retail sales
 Hotel and motel occupancy taxes
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Real estate development
 Permit and fee revenue
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Taxable activities
© 2014 Nancy L. Sauer
© 2014 Nancy L. Sauer
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Local Bans
Increased operating expenses
Increased regulatory uncertainty
Cybersecurity and Terrorism
New accidents/disasters
Price collapse
New taxes
Public opinion
Loss of influence in DC
Petro-dollar
© 2014 Nancy L. Sauer
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54 Producing Operators
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238 Producing Leases On File
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3,653 Total Leases On File
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15,417 Total Wells On File
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103,380 Barrels of Oil Produced in May 2014
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1,044,217 MCF of Gas Produced in May 2014
Source: http://www.drillingedge.com/texas/harris-county, accessed 10/19/14
© 2014 Nancy L. Sauer
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Which shale play?
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Barnett Shale (DFW)
Eagle Ford (S. Texas)
Wolfcamp
Haynesville (LA)
Marcellus (PA)
Utica (NY)
Bakken (ND)
What impact?
© 2014 Nancy L. Sauer
Present
Trending
Largest concentration of Fortune 500 energy companies
in the U.S. headquartered in region
Corporate inversions are shifting headquarters overseas;
joint ventures with foreign energy companies increasing
Houston is energy capital of the world
Energy development is, increasingly, collaborative and
widespread
Major energy education/R&D/innovation centers located
in region
Increasing competition for higher education STEM
educators overseas, increasing global reach of local
educational institutions, increasing global competition
for R&D
Energy/legal/technical/human resource hub
Houston model being replicated in other shale plays such
as Marcellus, Utica and Bakken
Houston is 2nd largest U.S. port by tonnage, with Texas
City, Galveston, Port Arthur and Beaumont providing
additional capacity
In the period, 2002-2012, the Port of Houston
experienced 34.1% growth.
Attracting global energy expertise© 2014 Nancy L. Sauer
Deploying global energy expertise
© 2014 Nancy L. Sauer
 JV’s by non-US companies account for 20% of $133.7 billion in
deals ($26.74 billion)
 21 JV’s with US acreage holders and operators with additional
investments in acquisitions, US companies and financial
institutions
 Foreign investors in JV’s usually buy a percentage of the host
company’s shale plays acreages through an upfront cash
payment and commit to cover part of the drilling cost within an
agreed-upon timeframe.
EIA: US investments in shale plays highlight foreign JVs
HOUSTON, Apr. 9
04/09/2013
By Conglin Xu
OGJ Senior Editor-Economics
© 2014 Nancy L. Sauer
Fortune 500
As of 2013, 24 Fortune 500[2] companies are headquartered in Houston and The Woodlands; 22 of which are energy-related. (Anadarko Petroleum is
headquartered in The Woodlands.)
Phillips 66
45 ConocoPhillips
64 Enterprise Products Partners
77 Plains All American Pipeline
106 Halliburton
135 Baker Hughes
144 National Oilwell Varco
167 Apache
174 Marathon Oil
233 EOG Resources
265 Kinder Morgan
310 Cameron International
334 KBR
344 CenterPoint Energy
381 Enbridge Energy Partners
397 Quanta Services
417 FMC Technologies
435 Targa Resources
451 MRC Global
459 Calpine
475 Spectra Energy
4
© 2014 Nancy L. Sauer
Eagle Ford Activity Generates over $25B in
Economic Output in South Tx.
by Karen Boman
Wednesday, May 09, 2012
- See more at:
http://www.rigzone.com/news/article.asp?hpf=1&a_id=117728#sthash.fD2Ybb4E.dpuf
© 2014 Nancy L. Sauer
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The Old Paradigm:
Peak Oil, Finite Resources and Scarcity
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U.S. energy production declining
U.S. energy imports rising
U.S. energy prices rising
U.S. manufacturing job losses
U.S. energy insecurity
© 2014 Nancy L. Sauer
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The New Paradigm: Abundance
 U.S. energy production is rising
 U.S. energy imports are declining
 U.S. energy prices are declining or are expected to
decline with increased supply
 U.S. energy exports (LNG) are expected to rise
 Manufacturing jobs return to the U.S.
 U.S. energy security is enhanced
© 2014 Nancy L. Sauer
“ We can’t have an energy strategy for the last century
that traps us in the past. We need an energy strategy
for the future – an all-of-the-above strategy for the
21st century that develops every source of Americanmade energy.”
President Barack Obama
March 15, 2012
© 2014 Nancy L. Sauer
Same Song, Second Verse
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Unrealistic production estimates
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Lack of long-term energy policy
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Federal/state/local tax threats
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Rising production costs
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Boom/bust management
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Captive to cartels
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Foreign opposition to development of shale resources
© 2014 Nancy L. Sauer
New Game
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Introduction of International Players/NOC’s
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Global Standards/Best Practices
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Technology
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Export Markets
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Climate Change Politics
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Job Creation (3 million/2020)
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Investment ($245 billion/2020)
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Tax Revenues ($900 million/2013/TX)
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Water Competition
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Urban Drilling and Production
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Long Supply Chains (water/sand/guar)
© 2014 Nancy L. Sauer
Source:
http://www.whitehouse.gov/
blog/2013/08/29/reducingamerica-s-dependenceforeign-oil-strategy-increaseeconomic-growth-and-redu.,
accessed 10/16/14
© 2014 Nancy L. Sauer
“Shale Threatens Saudi Economy,
Warns Prince Alwaleed
Investor Says
Kingdom's Economy Increasingly
Vulnerable”
WSJ: MIDDLE EAST NEWS
Updated July 29, 2013, 1:12 p.m. ET
© 2014 Nancy L. Sauer
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Saudi Price War Should Fuel Drive for U.S.
Crude Exports
(Wednesday, October 15, 2014) Saudi Arabia's
move to keep crude oil production high, fueling
a steep global price slump, may have an
unexpected consequence: intensifying the
campaign by U.S. producers to scrap
Washington's decades-old ban on exports of
domestic crude.
© 2014 Nancy L. Sauer
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Conflict over Natural Gas: LNG Exports or
Domestic Manufacturing Use?
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June 2012 Letter to US Energy Secretary
Steven Chu from U.S. Rep. Bill Johnson (ROH) and U.S. Rep. Tim Ryan (D-OH) and 21
other co-signers
© 2014 Nancy L. Sauer
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“Natural gas has become a key element in the
economic turnaround in my district and
throughout Ohio, Pennsylvania and West Virginia.
We need to support the businesses that are
creating quality jobs by allowing them to
compete in the global market, and I hope that
Secretary Chu will speed up the approval process
in a responsible way to permit producers of LNG
to export their products to consumers around the
world.“
U.S. Rep. Tim Ryan (D-OH)
© 2014 Nancy L. Sauer
Can shale plays
replace depletion of
existing oil fields?
© 2014 Nancy L. Sauer
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Geology
Tax Breaks
Service Industry
Population Density/Approval
Mineral Estate Ownership
GHG Rules
Environmental Community
French Ban
Polish Exports?
© 2014 Nancy L. Sauer
Issues for Global Shale Plays
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Private Property Rights/Mineral Rights
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Service Providers
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Infrastructure Commitments
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Geopolitics
© 2014 Nancy L. Sauer
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Region characterized by:
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Unconventional leadership
World class Public-Private Partnerships
National political leadership
Technological innovation
Transformation through crisis
Audacious public infrastructure improvements
World class higher education resources
Global mindset
Extreme experience with crisis and disaster
© 2014 Nancy L. Sauer
Impact of Proposed Denton, TX hydraulic fracturing ban:
http://energyindepth.org/wp-content/uploads/2014/07/Perryman-DentonFracking-Ban-Impact.pdf.
 EIA Shale Gas and Shale Oil Report (2011):
ftp://ftp.eia.doe.gov/natgas/usshaleplays.pdf
 EPA’s Hydraulic Fracturing Initiatives: http://www.epa.gov/hydraulicfracturing
 FracFocus Chemical Registry: http://fracfocus.org/
 Impacts of Climate Change and Variability on Transportation Systmes and
Infrastructure: Gulf Coast Study, Phase I; US Climate Science Program, March
2008: http://downloads.globalchange.gov/sap/sap4-7/sap4-7-final-all.pdf
 National Nanotechnology Initiative Strategic Plan, February 2014:
http://nano.gov/sites/default/files/pub_resource/2014_nni_strategic_plan.pdf
 Hydraulic Fracturing Initiatives: http://www.epa.gov/hydraulicfracturing
 FracFocus Chemical Registry: http://fracfocus.org/
 The Perryman Group Economic Study of Barnett Shale
Impacts: www.fortworthchamber.com/chamber/docs/BSISeptember2014.pdf
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© 2014 Nancy L. Sauer
Source:
http://www.eia.gov/forec
asts/aeo/MT_naturalgas.
cfm#shale_gas
© 2014 Nancy L. Sauer