Study outlines policy strategy for unconventional development

Unconventional oil and gas presents perhaps the single largest opportunity to improve the trajectory of the US economy, according to a report released by Harvard University Business School (HBS) and Boston Consulting Group Inc. (BCG).

Economic benefits can be achieved while mitigating environmental risks from horizontal drilling and hydraulic fracturing, researchers said, noting that “unproductive, divisive, and often misinformed debate about our energy strategy” currently threatens economic goals.

Researchers outlined a policy strategy for unconventional oil and gas development. The report, entitled “America’s Unconventional Energy Opportunity,” concentrated on shale plays and tight oil. Researchers excluded oil sands, extra-heavy oil, coal-to-gas conversion, and coalbed methane from the report.

Previously, HBS launched a US Competitiveness Project, which showed the business environment’s overall quality has declined in key areas, including skills, infrastructure, cost of doing business, and corporate tax structure. Among various reasons, HBS blamed “partisan political gridlock.”

Unconventional oil and gas presents “a once-in-a-generation opportunity to change the nation’s economic and energy trajectory,” the HBS-BCG report said. So far, much of the unconventional focus has been on the upstream.

“With proper policies and actions by the industry and other stakeholders, this economic opportunity can further spread into downstream industries, such as petrochemicals and energy-intensive industries, and more broadly throughout the economy,” the report said.

The report was overseen by Harvard business professor Michael E. Porter and BCG partner and managing director David S. Gee in Washington, DC, along with Gregory J. Pope, BCG principal in San Francisco.

Threats to energy development

Low commodity prices are unlikely to hinder a fundamental US competitive advantage over the next several decades, researchers noted. But public support for unconventional development, and especially hydraulic fracturing, appears to be declining and is considered a threat.

Opposition reflects both legitimate concerns and widespread confusion, researchers said. The HBS-BCG report listed the following issues that the US must address to ensure its unconventional oil and gas potential can be achieved:

• Continue timely development of additional pipelines, gathering systems, and processing plants.

• Deliver a skilled workforce across a wide variety of occupations.

• Eliminate outdated restrictions on gas and oil exports.

• Minimize local environmental risks to water, air, land, and communities.

• Develop transparent and consistent environmental performance data.

• Set robust regulatory standards to speed adoption of industry-best practices.

• Strengthen regulatory enforcement and producer compliance.

Significant progress has been made in improving regulatory standards in most energy-producing states, the report said.

“There is no inherent trade-off between environmental protection and company profitability. With sound regulation and strong compliance, the cost of good environmental performance is modest and gives companies a level playing field,” HBS-BCG said.

Contact Paula Dittrick at paulad@ogjonline.com.

*Paula Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.

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