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‘Big Fracking Deal: Shale and the Future of Energy’

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Brooks McCabe Brooks McCabe

Sen. Brooks McCabe, D-Kanawha, is managing member and broker of West Virginia Commercial LLC. He has been involved in commercial and investment real estate for more than 30 years, and he also is general partner of McCabe Land Co. LP. He has served in the West Virginia Senate since 1998, and is a special project consultant to The State Journal.

The cover story in the May/June issue of “Foreign Affairs” is titled “Big Fracking Deal: Shale and the Future of Energy.”

The editors of this internationally acclaimed journal have concluded that the future of energy will be overshadowed by one big thing — shale. In a series of well-written articles three clear points are made.

First, the growth of the shale gas industry will continue and it will drive “a fundamental change in global energy markets.” Second, this revolution of change could only have happened in the United States. Lastly, care must be taken to properly understand and account for potential unfavorable environmental consequences if the opportunities are to be fully realized.

For “Foreign Affairs” to focus on these opportunities and the issues around them illustrates the significance of what is happening globally. This series of articles accentuates the game-changing opportunity for West Virginia, why it is happening now and why it will continue into the future. This truly is West Virginia’s chance to participate in the new emerging global economy.

Edward L. Morse, Global Head of Commodities Research at Citigroup, wrote that natural gas production has increased 25 percent since 2010. He notes the current slowdown is partially the result of the need to let infrastructure investments catch up to production capabilities. Efficiency gains are continuing to positively impact the cost of production and that trend is expected to continue.

There is no longer any doubt that these shale resources are real and are creating a paradigm shift in the role of hydrocarbons. A gas price of $5.50/mcf and a trading range of $70-$90/barrel of oil should be sustainable globally by the end of the decade. This pricing structure will greatly benefit the U.S. economy. It is already clear the impact that new technologies and operating efficiencies are providing the oil and gas industry with new pricing advantages. Many of the large oil and gas companies have spent significant sums on acquiring lease hold interests and are now poised to develop them. Over time our country’s LNG exports will lesson Russia’s grip on Europe.

The geopolitics of energy are changing. OPEC will need to adjust its world view as competing energy sources are fully integrated into the global economy. It is now possible to envision the United States having a positive trade balance and energy independence. Morse concludes by writing “the shale gas revolution is only just now getting started.”

Robert A. Hefner III, founder and CEO of the GHK Companies and author of “The Grand Energy Transition,” provided the second article titled “The United States of Gas.” In it he describes the phenomenal surge of innovation that allowed entrepreneurs to remake the oil and gas industry and to create a new day of opportunity for our manufactures. Chemical, steel and aluminum plants are now being planned or brought back online. Hundreds of billions of dollars are on the table.

It has been possible because of the “entrepreneurial friendly system” we have in this country. Our legal system and long history of private ownership of land and the mineral resources below the surface have made this resurgence possible at the fast pace with which it has occurred. Open capital markets willing to fund new and expanded business ventures have provided a major impetus to thousands of independent oil and gas companies. This increase in drilling activity has led to a substantial increase in innovation and creativity as companies both small and large have found ways to drill more efficiently. China and the OPEC countries do not have the same advantages. The United States has the ability to continue leadership in the oil and gas arena if it can effectively manage the growth in the future. Hefner’s ending quote is “Politicians need to recognize that today America has an unprecedented opportunity for long-term growth that can generate good middle-class jobs, help leave the Great Recession behind for good and grant its geopolitical advantages over its competitors for decades to come. It would be a shame not to seize it.”

The third article titled “Don’t Just Drill, Baby — Drill Carefully” was by Fred Krupp, president of the Environmental Defense Fund. He notes the growing concern about environmental problems associated with drilling in places like Colorado, North Dakota and Pennsylvania. Air and water quality are the big issues and communities are reacting accordingly. Last year in Colorado both Boulder and Fort Collins voted to ban fracking for at least five years. In 2010 France declared a moratorium on fracking and Germany did the same in 2013. The environmental issues must be taken seriously. Krupp’s concern is that policy makers are in danger of being blindsided “by failing to grasp the extent of the growing concern among Americans over the environmental costs of unconventional oil and gas production.” He acknowledges “natural gas has the potential to provide a net environmental benefit — if the serious problems associated with it can be resolved.” He points out that in spite of the economic benefits, the environmental risks have affected public opinion as evidenced by a September 2013 Pew poll that showed 49 percent of the respondents opposed fracking with only 44 percent in favor.

The recently formed Center for Sustainable Shale Development in Pittsburgh is, however, an example of proactive involvement by industry. It is a collaboration of industry, environmental groups and philanthropic organizations. Some of the oil and gas members are Chevron, Shell, EQT and Consol Energy. The center has set voluntary environmental standards to improve shale gas development in the Appalachian basin. This is a good start. Krupp concludes his comments with the following observation: “By forging unlikely alliances based on a mutual understanding of what is at stake, the environmental community and the oil and gas community can create strong sensible standards that reduce the risk of unconventional oil and gas development — and ensure that the economic windfall benefits the environment too.”

West Virginia can no longer be considered an island unto itself. It will become a player in the future of energy. The question remains as to whether it will have a minor role, or be a major player. Its opportunity is to assume the mantle of leadership and become a major player. For this to occur will require a concerted effort on multiple fronts. The articles described above in “Foreign Affairs” illustrate this discussion of shale gas has dramatic national and global implications. One of the major keys to success will be embracing the suggestions of Fred Krupp. We must forge unlikely alliances and collaboratively address and solve the issues before us. To quote Krupp one last time, “industry cannot spin the facts to gain public acceptance or brush aside the harmful local impacts of drilling.”

Industry, environmental organizations, community leaders and elected officials must face the issues head on and together find acceptable solutions. The stakes are too high to do otherwise. If West Virginia can take a leading role in this effort, it will gain a seat at the table and be considered one of the leaders in creating the future of energy. What an exciting opportunity is before us.

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