Howard Baker Speech John Quigley 09252012 | Hydraulic Fracturing | Shale Gas

John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

Good morning. It’s an honor to be with you this morning, especially to participate in the Howard Baker Forum. While he was speaking of the Kyoto Treaty, the Senator could have been thinking about the opportunities and challenges presented by shale gas development when he said: The welfare of the planet and its environment is paramount. But what we do, and do equally and evenhandedly, is more difficult to identify. I want to share with you a perspective on the role of science and technology in mitigating risk in shale gas development, based on my personal background and professional experiences. I come from a small city in Pennsylvania's anthracite coal region. My family and I lived with the results of irresponsible hydrocarbon extraction - the dirt black from slate; the landscape dominated by decades-old, deep unreclaimed stripping pits and barren areas; “forests” that are little more than patches of scrub birch; and streams that run orange from iron pollution or turquoise from aluminum pollution flowing from abandoned mine workings. My hometown is like many communities that lived through the previous eras of oil drilling and coal mining in Pennsylvania, or the massive clear cutting of the forests of its northern tier more than a century ago. After the prosperity faded, what was left were severe, persistent, and costly environmental, economic, and social consequences. Rusted, shrunken communities like my home town remained caught on the downside of resource extraction’s trajectory. In one form or another, I've been grappling with that history for most of my career. After graduate school, my first job was as the founding head of an economic development agency trying to bring new businesses and jobs to my hometown. The challenge was equal to the heights of the waste coal piles that surrounded the city. From there, I was elected as the city’s first full-time Mayor – either the fondest dream or the worst nightmare of a local economic development professional. I learned in eight years in City Hall how deep the scars of an unbridled rush for coal are, and how difficult it is to heal them. And why some communities just give up trying. As I moved on to a variety of management positions with major manufacturers, the land's scars and the hopelessness it bred stayed with me. When the opportunity to work for a statewide NGO presented itself, I brought this perspective to Harrisburg and carried it with me later in government service. First, as an advocate for the state's alternative energy law, and later, as chief of staff to the Secretary of Pennsylvania's Department of Conservation and Natural Resources, I learned Howard Baker Forum 1 of 8

John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

quickly that when it comes to resource development, you have as much chance of predicting the ups and downs of the business cycle as Punxsutawney Phil has of telling us when spring will come. Later, after being appointed by Governor Ed Rendell to be DCNR's Secretary, I took over a department whose dual mission embodied the challenges that the shale gas industry and government regulators face. On the one hand, I was steward to the Commonwealth's 120 state parks and managed its 2.2 million acres of state forests. On the other, to meet a generational budget shortfall, the Legislature mandated and the Governor implemented a leasing program, and we leased 139,000 acres of state forest land for Marcellus shale development. The challenge was to develop the gas without compromising our natural resources. Our primary goal was to come up with an approach that balanced the state's desire to exploit the resource and a science-based approach to minimize the risks created by shale gas development. Our effort had four stages. First, we worked with industry and other stakeholders to institute a new lease that’s considered the most protective of any public lands lease in the nation. Second, we conducted an extensive environmental review prior to offering any land for lease. This analysis identified the areas that were too environmentally sensitive to develop, which areas could be developed with minimal impacts, and how individual leased tracts could be managed to limit impacts even further without hampering development. But we didn't stop there. We continued to work collaboratively with our industry lessees to develop and adopt "best management practices" and instituted an extensive monitoring program that’s become a model for other states. And finally, and despite all our best attempts to balance gas development with the ecological integrity of the state forest, we concluded that even with these protections, it was in the public's interest to limit shale gas development on Commonwealth lands. In 2010 Governor Ed Rendell signed a moratorium on further leasing that has been maintained under current Governor Tom Corbett. These are the experiences I bring to this morning’s talk. I also bring the belief that shale gas – responsibly produced – offers our country and much of the world the best available tool to reduce carbon emissions immediately to confront the challenge of our time – climate disruption. Unconventional drilling techniques have the potential to improve the public's health, cut our self-defeating reliance on coal and to build economic prosperity, manufacturing resurgence, and energy security. Coupled with aggressive renewable energy development, shale gas can provide a path to sustainable growth. And one thing more. Howard Baker Forum 2 of 8

John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

When it comes to a discussion of shale gas, I come from a state where gas is demonized by opponents; industry assures us that all is well, and shoddy operator performance gives us the tragedy of Dimock. Meanwhile, the scars of my home town come back to me with every news article or blog that I read. In the din of Pennsylvania’s latest resource boom, we must hear George Santayana’s admonition: “Those who cannot remember the past are condemned to repeat it.” Science and technology - and a few other things I’ll talk about – can help us to avoid that fate. I’m sure you’ve already noticed that there’s nothing in my background that hints about scientific expertise. I’ve directed technology efforts – from MIS to IT to LiDAR imaging to seismic studies - in past jobs; and I’ve worked with accomplished chemists, engineers, biologists, and geologists. But I will offer as technocratic qualifications for my topic today what Bob Dylan so famously said: "You don't need a weatherman to know which way the wind blows." There’s a lot about science, technology, and risk in the shale gas universe that, if you just hold your finger up into the social and political winds, becomes just as obvious. A central tenet of a balanced shale gas development policy is that technology and science provide us with tools to mitigate risk. But an initial question hasn’t been answered: Does gas drilling make people sick? We do know that it fuels fierce debates, public angst and moratoria on drilling here, in the EU, and other nations with shale gas deposits. Just a week after South Africa lifted its ban on shale gas drilling, its Water Research Commission warned of “serious risk” of water pollution from cancer-causing chemicals and radioactive contaminants associated with fracking. State and national advisory committees here are looking at the question, but public health experts have been missing from the table. This year the U.S. House of Representatives failed to support a request to fund $4.25 million in research on how drilling may affect water quality. At the state level, the Pennsylvania General Assembly stripped out $2 million of funding for statewide tracking of illnesses potentially related to gas drilling. So we have a vacuum. And what rushes in to fill it? Fear. Emotion. Protests. Heartbreaking anecdotes of illnesses in the gas fields. Rushes to judgment. Moratoria. Without a healthy dose of science, the question of whether gas drilling makes people sick won’t go away; people may suffer avoidable harms; and the industry will face continued

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John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

threats to its social license to operate. Maria van der Hoeven, the Executive Director of the International Energy Agency has warned: "There is a very real possibility that public opposition to drilling for shale gas will stop the unconventional gas revolution and fracking in its tracks." An example of innovative technology-driven approach that offer potential to help actually establish if there is a threat to public health is offered by the Geisinger Health System - for whom I serve as a consultant. Geisinger, along with collaborators from the health care industry, academia, public health and government, want to create an electronic health records data warehouse to enable research that will start to give us scientifically rigorous answers to that simple question of whether gas drilling makes people sick. Millions of people in 44 counties in Pennsylvania – in the heart of Marcellus drilling activity - and 5 counties in New York would be included in the system, and it’s scalable to the 31 other states where gas development is happening. It would enable rapid identification of some possible impacts, support other crucial longitudinal studies, identify measures to mitigate harm where it exists, dispel unfounded fears where it doesn’t, and inform public policy makers. It’s precisely the kind of innovative, technology-driven approach to protecting and improving public health that’s been called for by National Institutes of Health director Francis Collins. We’re working toward full funding of the effort. Now let’s talk about the gas industry’s balance sheets and the risks to its bottom line. The risks associated with hydraulic fracturing are broad, interconnected and – according to a seminal MIT report - manageable. In a recent white paper, KPMG - the international consulting firm - identified four areas of critical risk to companies that employ hydraulic fracturing: 1. 2. 3. 4. Physical and Environmental risks Regulatory risks Reputational risks, and Forward-looking risks.

Let me spend a few moments discussing each. Water availability tops the list of Physical and Environmental risks. Fracking already faces serious challenges in drought-prone or high water-demand areas here and abroad. This risk will worsen as global climate disruption accelerates. Any thirsty industry faces an uncertain future.

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John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

Then there are the weather-related events that can create serious challenges to control onsite runoff of water, increased soil erosion, threats to the integrity of containment pits, and increased risk of contamination to surface and groundwater. Water quality issues loom large. Contamination of water and soil can occur from poor well construction, and from improper disposal of fracking fluids and chemicals. Leaks and spills can occur at any point of the production process. Frackwater storage in open containments is a big risk. Wildlife tends to be attracted to it, drink it and die. And the chemicals from these containments volatilize and give rise to local air pollution and the nosebleeds, headaches, rashes, and other illnesses that are disturbingly reported from the gas fields. And what happens to injected frackwater that stays downhole may lead to increased short and long-term risks. The environmental risk of drilling activity to biodiversity is, in my view, underappreciated because of the scale of development. In Pennsylvania, for example, it’s been estimated that as many as 10 million acres – more than a third of the state’s land area – is leased for shale gas exploration. Hundreds of thousands of wells, according to industry estimates, and tens of thousands of miles of roads and pipelines could be developed in a spiderweb that will spin across the state in the coming decades. One very conservative projection is that almost 10% of Pennsylvania’s forest cover could be destroyed or damaged by Marcellus exploration alone. That would have profound impacts on water, wildlife, and more. And that’s before development of the other shale basins beneath Pennsylvania. Then there’s the risk of induced seismicity and contamination from wastewater injection, and the problems with naturally-occurring radioactive materials, total dissolved solids, and metals in drilling wastewater. The second big risk category for KPMG is regulatory risks, like permitting, licensing and access issues; approval delays, regulatory gaps, local actions, recordkeeping requirements, and paperwork; state actions like weight limits, bonding requirements, and road reconstruction or community compensation agreements. KPMG warns that additional regulations may decrease production and increase costs. Maybe. The International Energy Agency’s Golden Rules for a Golden Age of Gas report says that following all of their proposed Golden Rules would add about 7% to the cost of a well, but that landscape-level planning alone would save 5% of overall development costs. And regulations on methane capture should be cost-negative. More importantly, industry leaders – from the so-called “father of fracking” George Mitchell, to Shell CEO Peter Voser, to Former BP CEO Lord Browne - as well as global investor groups with trillions of dollars of assets - have all called for stronger regulations as being in the industry’s best interests. The rest of the world seems to agree. A recent European Commission report flatly said that our regulations at both state and Federal levels are not strong enough. Howard Baker Forum 5 of 8

John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

The third category of risk is reputational. Community values, attitudes, and perceptions, and local impacts, incidents, and accidents can threaten a company’s license to operate. So can corporate compliance and business behavior, and the behavior and track record of vendors. So can impacts on other economic sectors, like farming and tourism. That’s a big deal in Pennsylvania. Farming is our biggest industry, and tourism is number 2. At least one sixth of our $33 billion tourism sector directly depends on outdoor recreation – and a major portion of Marcellus development is happening in Pennsylvania’s outdoor recreation havens. KPMG’s final risk category is what they call Forward-looking risks. These trends include:         Increasing costs of fuel, water treatment, and disposal; Vendor and supply chain risks in acquisition, use, treatment, recycling, and disposal of water; Increasing litigation over permit violations, environmental damage, or contamination; Increasing liability exposure and insurance costs; Increased vendor and supply chain environmental and business risks; Increasing transparency and disclosure requirements; Bans and moratoria in the U.S. and abroad and A tighter regulatory environment going forward – both of which, in my view, will be self-determined by industry performance.

What are the common denominators among all of these risks? Water and chemicals. For just a moment, suspend disbelief and try to imagine what it would be like if water and toxic chemicals were no longer needed for hydraulic fracturing. Virtually all of these risks would either be reduced greatly or would go away entirely. Again, go along with me on this. Now let’s take a look at all the costs that are reduced greatly or would go away entirely.
    

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The costs of acquisition, storage, and handling of, chemicals and water. Trucking and pipeline development costs Costs of that result from drought and delays from water withdrawal curtailment by river basin commissions. Water treatment, handling, storage, recycling, and disposal costs. Reduced site development and restoration costs from smaller well pad footprints that no longer needed to accommodate water tankers and containments for fresh and produced water. Road building and bonding costs; Costs of mitigating or remediating spills, leaks, and ground- or surface-water contamination Compliance reporting costs 6 of 8

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John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

Lobbying, legal, and - maybe a lot of - PR costs

Reducing or eliminating these risks and costs not only make the business case for this risk management approach to water and chemical use, but also goes to a company's license to operate by minimizing public and political opposition. Since 2005, three new generations of drilling technologies have come into use, along with recycling and water treatment technologies. And with them have come emerging fracturing technologies to minimize and potentially eliminate the use of water and chemicals. When it comes to water and chemicals, when you consider cost reduction alongside risk reduction, you have a potential win - win situation, one where the public is confident that their health is not in jeopardy and the savings go directly to a company's bottom line. Another Pennsylvanian, Dwight Eisenhower, famously said, “If you can't solve a problem, enlarge it.” So to take Ike's advice to heart, I’m calling on the industry to establish an "aspirational goal" of squeezing the water and chemicals out of fracking. That goal may not be achieved soon, but by establishing this ambitious objective, we establish a baseline to measure progress, to test best practices, encourage investment in technological advances, in pilot projects, and in bringing new technology to scale. To get there would certainly require a graduated approach through the adoption of the kind of continuous improvement processes called for by the Secretary of Energy’s Shale Gas Subcommittee and the International Energy Agency. But I think that the industry must embrace innovation to develop fracturing technologies that eliminate the use of water and chemicals and in the process capture a wide range of additional economic, social, and environmental benefits. Ambitious? Yes. Necessary? I think so. Practical? If nothing that I’ve said this morning convinces you that it is, consider this. Titan Oil and Gas is proposing to drill one exploratory unconventional well in Kern County, California. State law requires that its oil and gas department review the project. Recently, that department issued a finding of no significant impact for that single well. In response, The Center for Biological Diversity submitted this petition challenging the finding – an 83-page compendium of issues and allegations against fracking. The gas industry can either spend the next decade responding to 83 pages of charges, and perhaps fight the battle well-by-well. Or they can change the entire fracking paradigm and choose a way that can reconcile both society's and industry's goals.

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John Quigley The Role of Science and Technology in Mitigating Risk

9/25/2012

It will take vision – and the ability to imagine a fundamentally different approach. But the stakes justify the efforts. Albert Einstein said “Imagination is more important than knowledge.” So let yourself imagine a world where the benefits of shale gas development - improved public health, energy security, a swift pathway to greenhouse gas reductions and renewable energy growth - are fully realized, and where the public no longer fears for its health, and views the risks as manageable – and managed. Now let's get all stakeholders to share that vision so we can take advantage of this unexpected opportunity, and avoid the ills suffered by my home town in this next energy era.

Thank you.

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