Could a state-by-state approach to hydraulic fracturing regulation put certain shale plays at a disadvantage? During today's OnPoint, Kathryn Klaber, CEO of the Marcellus Shale Coalition, discusses the latest on the future of regulations, the LNG exports debate, and the dynamic between industry competitors. Klaber also explains how tax reform discussions could negatively impact the rollout of natural gas in the US.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Kathryn Klaber, CEO of the Marcellus Shale Coalition. Kathryn, it's great to have you back on the show.
Kathryn Klaber: Great to be here again.
Monica Trauzzi: Kathryn, a lot happening here in Washington right now on natural gas. Let's start first with news coming out of FERC. FERC Chairman Jon Wellinghoff has announced that he'll be leaving the Commission. With FERC playing such a critical role when it comes to the licensing of LNG export facilities and how the country's going to move forward on that front, what impact do you think his departure will have on that discussion?
Kathryn Klaber: Right. Well, I think this is so big, that none of this is in the hands of one person. And it really is starting from the top, with the DOE report that President Obama commissioned, through FERC, of course, a very important role. But I think most of those commissioners are very much up to speed on what's going on. And then the capital investment is going to need to follow where the business opportunities are. And hopefully, Wellinghoff's replacement will be able to get up to speed very quickly.
Monica Trauzzi: So staying on LNG exports, a recent report by the Bipartisan Policy Center found that exports would unlikely have a large impact on the price of natural gas domestically. There's been a lot of information gathering up until this point, and now we're getting to the point in the discussion where some decisions will need to be made. What role do you expect the administration and Congress to play this year and in the short term?
Kathryn Klaber: Well, I mean, I think the administration has already played a very big role by commissioning that report, by standing up to its findings, by talking about a net benefit on jobs for export. I think where, you know, Congress, you know, if Congress stays focused on the fact that this is a job creation, you know, opportunity, in addition, for all those involved with foreign affairs, seeing, you know, how many opportunities come to help our friends around the globe. In fact, you know, Britain had talked about within five years having homes heated in London with U.S. shale gas, and the reach may be, you know, much greater than that. But also recognizing that these are not discussions for knee jerk reactions. All those studies are pointing to, you know, stable prices, to additional supply to meet any demand that would be part of exports. And I just, you know, we hope that Congress stays focused on those market dynamics.
Monica Trauzzi: But we have seen conflicting reports about just how much energy can be produced through U.S. shale plays. How sustainable is the current supply of expected energy coming out of the Marcellus? What are the numbers that you're looking at, and how concerned are you that the shale wells in your region could be depleted quickly?
Kathryn Klaber: Well, there's no indication that those wells will be depleted quickly. In fact, their production has been higher than originally proposed, and keep getting higher. What has slowed down is the number of new wells that are being drilled, and that's purely a reaction to not only price, but to how much shale development there is around the country. And there's simply not enough rigs and capital, you know, to go after that all at once. This is a, you know, multi-decade, if not, you know, well over a century in the Marcellus alone, and, you know, the production has only exceeded expectations up till now. In fact, you know, Pennsylvania is now producing nearly 10 percent of the nation's natural gas, and about a quarter of the onshore shale gas. So who would have imagined that even a few years ago?
Monica Trauzzi: How critical of a role are foreign investments playing in your region, and sort of are you actively seeking out those types of investments?
Kathryn Klaber: Yeah. Well, we as a trade association don't seek those investments, but certainly we see firsthand the companies from around the globe who have put dollars in operating or non-operating interests to be a part of this development. Our governor was recently down in South America and Chile for a economic development mission. And a lot of those conversations kept coming back to energy and the partnerships that the U.S. can have to our friends around the globe on this.
Monica Trauzzi: When we had former FERC Commission Marc Spitzer on the show back in March, he had indicated that the issue of master limited partnerships was going to come up in the tax discussions. And we are hearing a bit about that now. MLPs play a big role in natural gas development. Could a repeal of that section of the tax code have negative impacts on natural gas development?
Kathryn Klaber: Well, the relationships between all these companies is incredibly, you know, complex. I think that the tax code issues continue to be looked at, but they should only be done in that overall competitiveness, to make sure that the country continues to still be able to attract that investment, and that we're encouraging this growth because of all the benefits that can accrue to the country and to the environment as a result.
Monica Trauzzi: Senator Hoeven has called for a states-first approach for fracking and energy development in the U.S., but in some ways, could a state by state approach put some regions where we're seeing shale development at a disadvantage, if they faced stricter regulation in that state?
Kathryn Klaber: Well, you know, having had the pleasure of working with some of my colleagues in other states around the country, I am more than ever convinced that we need to have states understand what's going on within those states, both politically and, you know, geologically. These shale plays are not at all the same. Even within Pennsylvania, we do not have a homogenous geological, you know, framework. So it's not just the states. It's even, you know, the specialists within those states understanding what may be needed to be done for this particular part of the play versus that, because of the VOC content, because of the depth of the play. You know, more than ever, I think we need to be strengthening our states programs, benchmarking those through programs like Stronger and others to make sure that lessons learned in one state are quickly communicated to others. But this is still very much a states' game to regulate.
Monica Trauzzi: So what's the dynamic within the industry, between the states and the various shale plays? I mean, do you consider the other shale plays to be heavy competition? What's the dynamic?
Kathryn Klaber: Oh, that's a very good question. I mean, I think it is obviously a competition for capital, and I think governors and hopefully state legislatures recognize that, and that we need to have a competitive landscape for that investment state to state. But, you know, as these conversations are happening more in Washington, I think it's focusing on that we all need to develop these resources in a responsible way, and not undercut each other, given the important role that the country can, you know, can play in this energy production.
Monica Trauzzi: All right. We'll end it there. Thank you for coming on the show.
Kathryn Klaber: Yeah. Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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