A new report from Goldman Sachs, a venerable global investment banking, securities and investment management firm, offers some insights into why the US and especially states like Pennsylvania have failed to drive economic growth beyond resource extraction during the current oil and gas boom.
Unlocking the economic potential of North America’s energy resources points out that:
Although North America has access to some of the lowest energy prices in the world, reinvestment rates in energy-intensive manufacturing that create high-value jobs lag those of Asia and the Middle East, by…15-to-1. Further, the region has also fallen short in building the infrastructure to ensure the benefits of abundant energy supplies can be fully reaped…
If these trends continue, North America will not only fail to harness the benefits from the shale revolution it created, but it will also forego over the next decade more than 2 million new jobs, 1.0 % of additional GDP growth and at least a 5% incremental reduction in greenhouse-gas emissions.
Ignore for the moment - as Goldman does - the distinct possibility (absent ubiquitous deployment of CCUS technologies for all fossil-fueled power) that we might have to leave the gas in the ground to avoid catastrophic climate disruption. “(W)hat”Goldman asks, “can be done to turn resource wealth into real economic value?” Their answer is:
...reducing uncertainty through stable and well-defined energy, environmental and transportation policies.
…(w)hile the “shale revolution” has taken place without an energy policy…the demand-side investments that we need today are larger in scale, requiring decades to recoup the investment, and as such require a high level of confidence in future policies…
I’ll focus here on the environmental policies. On the subject of regulation, Goldman says:
In order to be predictable, regulation needs to be clear, uniform and effective. In our view, effective energy policy should be conducted in terms of both protecting the environment and in attracting longer-term responsible investment. These objectives are not mutually exclusive.
They go on to highlight key issues that can “promote transparency and environmental
- Disclosure of chemicals used in hydraulic fracturing. We believe it is key that there is public confidence the environmental risks associated with the use of frac fluids are acceptable…
- Reducing surface and air disturbance. In both rural and urban communities that have seen increases in activity, there remain concerns regarding surface disturbance, contribution from drilling/fracture stimulation on pollution/air quality and traffic/noise that reduce quality of life for local residents.
- Ensuring well integrity to prevent groundwater contamination. We see a continued need for industry to increase public confidence in well integrity to reduce concerns of groundwater contamination. We view the casing of wells as key, particularly when wells are being drilled through aquifers.
- Measurement and recycling of water supply. Water disposal and water quality remain an ongoing concern across shale plays…there remains further opportunity to reduce freshwater withdrawal used for drilling and completion. Before and after drilling, testing of groundwater can help identify areas of non-compliance.
- Better measurement, increased focus and investments on measurement tools and analysis to understand the sources of methane emissions and means of capture.
- Improve well completion techniques.. Importantly, the upstream industry should embrace these techniques, as they are potentially returns/profitability enhancing as they increase volumes/revenues, unlike midstream/downstream operators where the commodity is a pass-through to customers.
- Accelerate/ improve pipeline integrity programs.
To access the potential that North America has to exploit its cost advantage and increase market share, several current uncertainties need to be addressed to give business the confidence that the current competitive advantage is sustainable...The business case for sustainability gains ever more adherents. Now, if only the energy industry would catch up.