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Envisioning an Energy Policy that Fosters the Emergence of a Revitalized, Energy Efficient and Sustainable Domestic Chemical Industry
A Statement by Dr. Andrew Gellman
Lord Professor of Chemical Engineering, Chemistry and Materials Science
Co-Director – Scott Institute for Energy Innovation
Carnegie Mellon University
Prepared for the Regional Public Forum on the Quadrennial Energy Review
Held at Carnegie Mellon University
July 21, 2014
Introduction
I want to express my appreciation to Secretary Moniz and Director Kenderdinefor convening this important dialogue on the future of America’s energy technology, policy and infrastructure and for the opportunity to contribute to this discussion. I also want to thank Congressman Murphy for his participation and for his commitment to helping advance Western Pennsylvania as a center for energy innovation.
My name is Andrew Gellman; I am the Lord Professor of Chemical Engineering, Chemistry and Materials Science at Carnegie Mellon University (CMU). Much of my research has focused on advancing discoveries in new materials and catalysts that address the most fundamental gaps in the path to cost-effective and sustainable use of fossil energy resources.
I also serve as co-Director of the Wilton E. Scott Institute for Energy Innovation at Carnegie Mellon. In the best tradition of CMU’s commitment to applying cutting-edge research to solve real world problems, the Scott Institute is addressing several complex challenges:
• How to deliver and use our energy most efficiently;
• How to expand the mix of energy sources in ways that are clean, reliable, affordableand sustainable and;
• How to create innovations in energy technology, regulation and policy that address major energy challenges facing society.
I have also had the honor to serve as a key technical lead for the regional university partnership formed with the DOE National Energy Technology Laboratory—the NETL Regional University Alliance. In a classic example of the effective federal/industry/university partnership that has been so pivotal to U.S. energy innovation, the NETL played a vital role in incubating the core science and technology that has made the recent growth in unconventional oil and gas possible. The NETL-RUAis dedicated to advancing techniques to make its use both safer and more efficient.
Finally, over the last two years, I have participated in a collaboration led by the American Fuel and Petrochemical Manufacturers (AFPM) that has fostered a dialogue on the wide range of infrastructure, environmental, workforce and research issues that must be addressed in order to develop a petrochemical industry that is based on a regional natural gas resource. The workshops organized by this collaboration have included representation from all sectors of society: federal and regional government, environmental groups, manufacturers, labor, consumer groups, economic development organizations, energy companies, foundations, academia, etc.
In these efforts, I have had the privilege of working with some of the nation’s best energy researchers, industry and business leaders, and non-governmental organizations to understand how to advance innovation and create a strategic vision of how the shale gas boom can serve as the bridge to use of renewables and how natural gas can serve as the catalyst for the re-emergence of U.S. manufacturing—most notably a next generation chemical industry – while balancing environmental considerations.
My remarks today will focus on issues pertinent to realizing this opportunity. The Quadrennial Energy Review (QER) that the Secretary is leading on behalf of the President provides a unique opportunity to align innovation, market forces, infrastructure development and energy policy. One day, generations of American’s will look at this time period and appreciate that by this effort the United States truly regained its standing as the world’s manufacturing leader. This vision can be advanced while alsoenablingan effective transition to cleaner fossil fuel and ultimately a more diversified and sustainable energy portfolio.
The essence of my comments today are that the Quadrennial Energy Review should include three key strategic thruststo ensure that we realize the potential for shale gas to catalyze the rebirth of a U.S. chemical industry manufacturing new materials and products. The three specific recommendations include the following:
•That the federal government, through its energy policies, support regional capabilities—such as those being developed in the Marcellus region—that bring industry, government, environmental and community partners together to establish best practices and regionally focused research on natural gas utilization, environmental impact, and human health effects to ensure that this tremendous resource is developed in an effective and safe manner;
•That we launch an aggressive technology innovationeffortusing optimal system design methodsandrational development of public policy to create a supportive environment for investment, effective permitting and long term planning. Thesemust align the upstream, midstream and downstream natural gas infrastructure to serve both national consumer markets and the potential for regional growth in chemical and industrial manufacturing.
•That in this month of the 45th anniversary of the Apollo landing, we launch a Moon Shot initiative to advance the critical innovations needed to ensure the most energy efficient and sustainable utilization of natural gas and to accelerate the emergence of a next generation chemical industry.
Building A National Strategy for Natural Gas Infrastructure Development that Recognizes the Unique Regional Dynamics of the Shale Gas Revolution1
A vital element of the natural gas opportunity is the regional dynamics created by the nation’s shale gas resources. Shale gas is extracted from “shale plays”, geographically distinct areas targeted for explorationbecause they contain economically viablequantities ofoil and/or gas bound in subterranean shale formations. Shale gas occursthroughout much of the United States. The map below shows the knownextent of shale plays that have economicallyviable shale gas and/or shale oil reservoirs.2 Our understanding ofthese reservoirs evolves constantly. Forexample, in 2012 the U.S. GeologicalService found that the Utica Shale contains38 trillion cubic feet of undiscovered,technically recoverable shale gas, 940million barrels of shale oil and 208 millionbarrels of unconventional natural gas liquids.
The challenges of economically developing unconventional shale reservoirs vary with the characteristics of the reservoir, extraction costs, topography, land uses, water resource availability and local climate. Proximity to gas consumers and to infrastructure for transporting and processing produced gas is also a key determinant of the economic viability of localized shale gas resources. A particularly important factor is whether the natural gas is “dry” or “wet.” “Dry” gas contains mostly methane, while “wet” gas has higher levels of ethane, propane and butane. The wet gas components have higher economic value than dry methane. The amount of natural gas liquids varies from one shale play to the next. For example, in the Marcellus shale, the shale gas in north central and northeast Pennsylvania is dry, whereas shale gas in Southwestern Pennsylvania is wet.
In addition to gas, a shale play may also contain shale oil, which is also considered more valuable than dry natural gas at today’s prices. As with shale gas, the U.S. Energy Information Administration estimates production of shale oil will become a large part of the nation’s oil supply by 2040.2
The potential benefits from shale gas fall into three categories: economic, national security and environmental. In the case of economic benefit, there is the potential for long-term job creation and lower energy prices to consumers. This job creation comes from the extraction of shale gas, the transmission and utilization of that gas to produce energy, and the jobs associated with its conversion into high value chemical and materials products. Actual estimates vary, but a 2012 study funded by industry and conducted by IHS Global Insight3 illustrates the potential economic benefits in the United States from both shale gasand shale oil.
According to this study, more than $5.1 trillion in capital expenditures will take place between 2012 and 2035 across unconventional oil and natural gas activity, of which:
•Over $2.1 trillion in capital expenditures will take place between 2012 and 2035 in unconventional oil activity.
•Close to $3 trillion in capital expenditures will take place between 2012 and 2035 in unconventional natural gas activity.
•Employment attributed to upstream unconventional oil and natural gas activity will support more than 1.7 million jobs in 2012, growing to some 2.5 million jobs in 2015, 3 million jobs in 2020 and 3.5 million jobs in 2035.
•On average, direct employment will represent about 20% of all jobs resulting from unconventional oil and natural gas activity with the balance contributed by indirect [supporting businesses] and induced [direct and indirect employee spending] employment.
•In 2012, unconventional oil and natural gas activity contributed nearly $62 billion in federal, state and local tax receipts. By 2020, total government revenues will grow to just over $111 billion. On a cumulative basis, unconventional oil and natural gas activity will generate more than $2.5 trillion in tax revenues between 2012 and 2035.4
Envisioning Components of aQuadrennial Energy Review that Seizes the Potential for Safe and Effective Development of Natural Gas to Advance the Rebirth of U.S. Manufacturing
Realization of an energy policy that advances sustainability, security and improved U.S. manufacturing necessitates attention to three distinct objectives. First, we will need to invest in and support university/industry/government collaborations on a regional level that can ensure implementation of effective and sound best practices for natural gas drilling and production. The regionally specific nature of “gas plays” necessitates a national focus on building regionally specific models of effective best practices.
The model for such an approach has been incubated in the Southwest Pennsylvania region, where a multi-stakeholder process worked for over two years to identify a framework for how regional organizations, government, community, and industry could co-invest in effective best practices and environmental research and solution development. The University of Pittsburgh’s Institute of Politics Shale Gas Roundtable study on Shale Gas Research, co-chaired by Carnegie Mellon University President Jared Cohon and James Roddey, partner at Parente Beard and former Allegheny County chief executive,systematically analyzed a number of options to respond to the need for shale gas research. The study concluded, based on the need for credible research in this controversial area, that the Health Effects Institute (HEI) was especially well-suited to lead a regional research effort that would focus on plays in the Appalachian Basin, which includes New York, Pennsylvania, Ohio, West Virginia and Kentucky. Such a collaborative could also focus the development of natural gas resources in parallel with improved mechanisms for integrating intermittent renewable energy sources into the region’s energy portfolio.
An effective national energy policywould create a national platform for supporting these regional initiatives. To realize the national potential of these uniquely regional resources we must create a new framework for regional policy and for economic development and weave sounder regional approaches into the fabric of a national energy policy.
The second objective requiring attention is that the nation’s energy strategy must focus on advancing a vision and policy framework for the natural gas infrastructure that balances the imperatives of national markets, export needs for industry growth and the potential for regional downstream chemical and manufacturing growth. At the heart of this challenge is the critical need to optimize the upstream exploration and production of gas, the midstream systems for gas distribution and processing and the downstream capabilities for transforming natural gas into high value added chemicals.
To be effective, this balanced infrastructure strategy will necessitate federal, state and industry collaboration and investment in optimization based planning and development. The same advances that have revolutionizedtelecommunications and information technology afford us the opportunity to design an integrated system ofgas extraction, distribution, storage, transportation,conversion and end use manufacturing. The latest algorithms and optimal design methods must become real tools for use by permitting officials, industry, investment and government leaders. The Quadrennial Energy Review should advance a national initiative to bring advanced optimization capabilities into state and federal permitting and planning processes and into the infrastructure design and development process.
Finally, an effective strategy for the development of the America’s natural gas industry requires a commitment to seizing the high plain of innovation that can bring the full potential of this resource as a catalyst for resurgence of the U.S. chemical and manufacturing industries. As illustrated in the next figure, the fundamental leverage to realizing this opportunity is to advance breakthroughs in the science and technology for transforming natural gas into high value added chemical products which can boost the domestic manufacturing of a host of goods.
This is the time to launch a major research initiative on the scale of a manufacturing innovation hub that brings together the national labs, industry and universities focused on ensuring that high value added chemicals are derived from natural gas by industries and technologies developed in the US. The revolution in unconventional natural gas exploration—a result of the uniquely American ability to align forward looking basic research with entrepreneurial business leadership — is transforming the U.S. energy portfolio and sparking a wave of industrial reshoring. But the U.S. is also in a race to maintain the competitive advantages of this energy revolution. As shale based resources are identified in other regions of the world and nations such as Mexico move to create the legal and policy frameworks to accelerate development, the ability to maintain the economic advantages of the natural gas revolution will increasingly rest upon an aggressive innovation strategy that lowers the cost of converting methane and the wet components of natural gas to industrial feedstocks.
Source: B. Morreale, DOE – National Energy Technology Laboratory.
Establishing this competitive edge in innovation requires revitalizing the research and innovation collaboration that was central to igniting the birth of unconventional gas extraction. The creation of anindustry/university/national lab collaboration is needed to advance fundamental breakthroughs in methane and natural gas utilization technologies that can ensure long term U.S. industrial leadership.
The critical building blocks of a natural gas innovation platform are outlined below:
•Process Synthesis: advanced algorithms to model and designcomplex chemical conversion processes tailored for a specific characteristic, such maximum selectivity towards a given product with optimal energy efficiency.
•Reaction Engineering: tailor processes (thermal, catalytic, photo, etc.) for natural gas feeds; develop catalytic materials, reactor designs, reaction and separation schemes, and processes tooptimize reaction rates and selectivity.
•Materials Optimization: exploit advances in fundamental computational and experimental sciences to rapidly identify optimum structure-function relationships for catalysts and other materials associated with natural gas utilization.
Given the potential benefits of converting natural gas to chemicals or liquid fuels, a focused research effort should integrate computational and experimental approaches spanning material design through process synthesis and leveraging public and private resources. Innovative approaches could include i) the hybridization of energy inputs (renewable, fossil, nuclear), ii) the polygeneration of a variety of energy carriers (transportation fuel, power), health (i.e. pharmaceuticals, food, potable water) and chemical commodities (i.e. plastics, solvents, fertilizers), iii) examine the role of distributed versus central utilization, and iv) new conversion pathways (i.e. biological).
The Quadrennial Energy Review should call for the convening of a methane research initiative task force led by the National Energy Technology Laboratory, which is uniquely positioned to continue to advance the utilization of unconventional shale resources.
This task force should engage the national laboratories,universities, and industry and provide a report to the Secretary on specific research and innovation agenda for the development of alternative methane technologies and recommendations on strategies for effectively engaging federal, university and industry research to address this agenda. With strong strategic guidance, this research initiative can be aligned with commitments to ensure the safe development of shale resources and the development of an optimal infrastructure for natural gas storage and transmission.
Conclusion
Shale gas has fundamentally changed the discussion of the energy’s future. As we continue to work together in government, industry and academia to advance the development and utilization of this resource in an environmentally sound way and make it a fundamental component of a strategy for increased utilization of renewable energy, we should also ensure that we not lose sight of the vital opportunity to transform American industrial competitiveness. This Quadrennial Energy Review—grounded in a thoughtful focus on regional infrastructure — can seize this moment.
1D. Stine “Shale Gas and the Environment: Critical Need for a Government-University-Industry Research Initiative” a policymaker guide of the W.E. Scott Institute for Energy innovation at Carnegie Mellon University, available at
2US Energy Information Administration “What is Shale Gas and Why is it Important?” available at
3IHS Global Insight, “The Economic and Employment Contributions of Shale Gas in the United States, December 2011, Natural Gas Alliance at
4Ibid.