A Tech&CreativeLabs Energy Perspective

Gary L HuntPresidentTech&CreativeLabs

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Table of Contents

New Energy Reality Forces of Change 31. Global Energy Competition 4

2. Struggle over Energy Policy 13

3. Growth in Unconventional Oil and Gas 14

4. Uncertainty of Environmental Regulation 17

5. Game Changing Technology 23

6. Customers Take Control 24

A Low Cost Scenario for Growth 29Technological Implications 33

Global Business Finance Implications of Shale E&P Growth 34

America’s New Energy Reality Implications 361. Natural gas has been the fuel of choice for power generation for more than a decade. 36

2. The Need for Balance in Our Environmental Laws and Rules 37

3. Domestic Energy Security Requires Domestic Energy Production 40

4. The Seeds of the Next Boom are Planted in the Last Bust 41

Cover Graphic Source: Recorded Future

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Low cost domestic energy production growth is leading America back from the brink. Thisgrowth is being driven by technology and global competition and it is profoundly impacting ourboth energy future and America’s national competitive advantage. The evidence is all around usin the forces of change bringing together information technology and operations technologies.The result is a growth in wind and solar energy market share, smart meter deployment and theevolution of a smart grid of interoperable equipment, and a flourishing North American oil andgas boom market made possible by American ingenuity in horizontal drilling and hydraulicfracturing that is redrawing energy maps and rewriting the energy rules of the marketplace.

New Energy Reality Forces of Change

What are the forces of change taking place in energy today?

1. Global competition for energy resources from emerging economies like China2. Struggle over energy policy and greenhouse gas emissions around the world3. Growth in unconventional oil and gas from shales and oil sands4. Uncertainty of environmental regulations forcing power plant retirements5. Game changing technology from smart grid is turning the energy industry on its head

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1. Global Energy Competition

Global energy competition is being driven by fast growing emerging markets like China andIndia with faster economic growth than the West and an exports driven quest to produce everlower cost manufactured goods to keep growth going. Over the past two decades, faster Asiangrowth and lower costs have suctioned up North American and EU manufacturing andsometimes dumped product onto our markets at prices lower than domestic producers. That is thebasis of the current complaint by domestic solar panel producers against China. This is whathappened in Spain, Germany and across EU with feed-in-tariffs as China took market share fromEU manufacturers of PV panels forcing them to dump their inventory on the market in adesperate effort to stay afloat. The glut of PV panels haunts the solar industry still.

In North America today falling price PV panels and wind turbines from China keep exportsgrowing that China needs until its domestic markets grow enough to absorb more of the domesticmanufacturing output. China’s export production requires vast amounts of energy and rawmaterials so it scavenges the global markets to buy up resources. This erodes margins and profitsfor domestic manufacturers unable to compete with low prices from imports.

This insatiable demand for energy gives cartels like OPEC and Russia, Qatar and Algeriaseeking control over conventional oil and natural gas prices in global markets by controlling the

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swing capacity in production. The less swing capacity the higher prices and commodity tradersincreasingly use this natural volatility in the markets to game the system as a substitute for thestock market.

Low prices always low prices is the slogan taken by China’s wind and solar PV panelmanufacturers. It describes their global market strategy of flooding the market with equipment,driving down prices as a result of that glut and suctioning up feed in tariffs and other subsidies tohelp finance China’s export production growth. For a while it was a winning strategy. Then theUS and EU players caught onto the game forced to act by rising deficits and rising costs ofsubsidies rationalizing the subsidy cuts by celebrating that wind and solar were at or near gridparity as a result of falling global prices.

Now we have experience with those low priced Chinese wind turbines in the market. Quality isimproving rapidly but like any new manufacturer of complex equipment there are service issues.The other problem for China is that it succeeded in commoditizing the oldest, least efficient windturbines and solar PV panels driving down their cost to compete in global markets eager for lowprices but needing higher efficiencies and larger scale to reach the market penetration ratesnecessary for sustainability before the subsidies run out.

So the forward focus of the wind industry is now shifting to increasing operating efficiency,improving performance, adding energy storage technology, providing real-time control andcutting maintenance requirements. EU and US wind manufacturers focused on the best newtechnology and highest efficiency have new opportunities to successfully compete by strippingcosts from the balance of system operations, maintenance and support which can also add a fewpercentage points to technical efficiency gains resulting in a lower levelized cost of electricity.

Why is this important?

Because the grid parity price to beat for natural gas is likely to be low for quite a while as a resultof the growth of unconventional shale gas decoupling the price of natural gas in North America.If wind energy manufacturers can improve technology, reduce operating cost, improveperformance profitability in America they will be golden in other global markets where naturalgas prices are expected to be higher longer until shale gas development reaches critical mass inthose markets as well.

The Chinese manufacturers will continue to produce cheap wind turbines and will eventuallycommoditize more efficient technologies, but unless more of them follow the changing businessmodel of Goldwind and bring their profits to America buying up and operating wind farmsthemselves as merchant generators, American manufacturers still have a window to buildsustainable market share. The bet is that services will never be a good business model for Chinain US and EU markets for all the reasons you can easily imagine including it does not support

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exports growth. Competitive grid parity pricing, good service, high efficiency, best technology,best performance, lower balance of system costs---these are the drivers of successful windenergy market share growth in a grid parity market future.

Germany’s solar market has been red hot. So hot, in fact, installations of PV panels in 2011totaled a record 7.4 GW out of 28 GW installed worldwide according to Bloomberg New EnergyFinance. Worldwide solar installations rose 50% in 2011 on falling PV prices caused byoverproduction for exports in China. But that red hot solar market is burning the sustainabilityout of Germany's global solar market leadership.

SOURCE: der Spiegel

But instead of celebrating its 7.4GW achievement there is wailing and gnashing of teeth in Berlinsince the feed in tariff subsidized goal for solar installations in 2011 was only 3GW and thegovernment is on the hook for subsidy payments for the excess. Solar subsidies in Germanytotaled more than €8 billion ($10.2 billion) in 2011, but produced only 3% of total powerproduced. Those 2011 solar installations alone will cost electricity customers an additional €18billion in subsidy costs over the next 20 years according to Rhine-Westphalia Institute for

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Economic Research (RWI), and industry research group which estimated that total Germansubsidies for solar energy now total more than €100 billion.

This must stop! Germany’s solar bill is like a parent getting his teenager’s spiking mobile phonebill 250% higher than expected because the kid’s phone habit is insatiable, the meter is running,and Dad is paying the bill. Germany's Economy Ministry joined the angry parent club proposingan absolute 1 GW cap on subsidies for installations in a replay of Spain’s ruthless but effectivecap on solar subsidies that saw Spain reduced from world PV market leader in 2008 to 8thposition in 2011. Now Germany is debating the same tough love medicine despite industrycomplaints that such action will ruin the German solar market.

But for politicians forced to deal with this subsidy surprise over and over it gets worse.German utility customers now pay a green energy surcharge on electricity bills of 3.59 cents perkilowatt hour of electricity. The German government had promised to limit the surcharge to 3.5cents but was unable to keep that promise. Now because of the excess solar installations thatgreen energy surcharge is also surging to 4.7 cents per kilowatt hour or about €200 more per yearon a typical household energy bill in addition to the any other rate increases for actual costsapproved by regulators. In a volatile and weak EU economy spiking utility bills are not whatpoliticians or voters want to face.

FiT in a Falling Price Market. Above market local feed in tariff subsidies in a falling global PVprice market is forcing Germany to fundamentally rethink its support for renewable energy. Theman responsible for paying Germany’s solar bill for these subsidies, Environment MinisterNorbert Roettgen sounded like an irate parent when he got that bill. He said the Germangovernment would begin reducing FiT subsidies monthly instead of twice yearly as in the past to“curb an unacceptable surge in installations” from feed-in tariffs providing subsidies at above-market prices for solar power.

The solar industry learned to game the twice year FiT subsidy review process in Germany sothey often times projects to come on line to qualify for the higher FiT subsidy at the last minute.For example, installations in December 2011 totaled 3 GW--the entire annual target---in order toqualify for the higher FiT subsidy before the rate dropped in January. So much solar wasinstalled that it will take a mere 225MW of additional installations in the first quarter of 2012 totrigger another 15% reduction in the Fit in July 2012 under the old rules. Minister Roettgenhopes cutting the FiT allowance monthly will stop that gaming, but in case it does not do so—hesaid all solar subsidies would end in 2017.

Well, that cold turkey announcement sent solar share prices plunging in global markets.Germany has been the hope and prayer for many solar companies seeking to avoid disaster fromfalling PV prices. Meyer Burger, Europe's biggest maker of solar-panels, fell 6.6%. SMA,Germany's biggest solar company, fell 5.3%. SolarWorld, the big German PV panel maker, fell6.5%.

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The lesson is feed in tariffs are a good way to jump start a new technology but they create dependenciesand manipulate market behavior in ways that often have unintended consequences for all. In Spain, Italyand other EU countries these subsidies created unsustainable ‘bubble’ markets that China was able toeasily exploit to suction up subsidy money through falling prices for its export panels that undermineddomestic producers, took global market share and used the proceeds to pay for its own domesticproduction capacity.

This is not the outcome anyone imagined---but it is the reality all must now face.

Source: Trefis

"In the last two years, the delivered cost of energy from PV was cut in half. NRG expects the costto fall in half again in the next two years, which would make solar power less expensive thanretail electricity in roughly 20 states. The expected drop in solar costs has the potential torevolutionize the hub-and-spoke power system, which currently makes up the power industry." --- David Crane, CEO, NRG Energy

It was not supposed to be this way, and yet here it is---the highly regulated monopoly centralstation generation business model of the electric power industry in place for more than 100 yearsis being turned on its head by the combination of disruptive technology, disruptive regulationand disruptive global competition. Every new disruption seems to accelerate the process ofchange.

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David Crane is no stranger to exploiting disruptive change. He has used it skillfully for years toturn NRG into a competitive powerhouse from its early beginnings as an unregulated subsidiaryof Northern State Power in Minnesota. NRG Energy was reborn in 1992 after passage of theEnergy Policy Act authorized exempt wholesale power generation in the US markets.

These new independent power producers made their early living exploiting the regulatorymandates and loopholes of the day just as renewable energy has done more recently. UsingPURPA’s mandate that utilities buy power from qualifying facilities at their avoided cost theybuild merchant generation typically natural gas-fired combined cycle power plants able to followload and produce a variety of power products.

Later as investor owned utilities divested old power plants as a price for entry into newcompetitive retail energy markets, these exempt wholesale generators bought them, ‘pimpedthem out’ to run faster, better and cheaper than the utilities had done and sold the capacity andenergy into the market. Later came sale of nuclear power plants for those IPPs qualified to runthen, then more recently as renewable portfolio standards, treasury tax grants and other subsidiesmade renewable energy the only game in town in a depressed, uncertain economy the end gamewas on.

How does China fit into this? Low prices, always low prices from China’s ferocious exportsmachine able to commoditize solar panels and wind turbines and sell them to eager globalmarkets at prices lower than domestic manufacturers. It was for a while a virtuous circlestimulated by subsidies, lubricated by RPS mandates, supported by environmental advocates asthe best thing since canned beer (recyclable aluminum cans of course). The government providedregulations to create the mandates and subsidies to offset the above market costs of compliance.Projects were promoted and helped along by politicians eager to pander and always ready toshow up for the press at a green job creating ribbon cutting. Those were the good old days.

Today there are storm clouds on the renewable energy front. The air is being cleared and thereality we see is the terror of grid parity and China’s export machine at work suctioning upsubsidies and global market share, creating green jobs in China not Boston, and leaving theremnants of a growing renewable energy industry struggling to survive.

The glut of solar panels worldwide leads the David Crane’s to rethink business models. Itbankrupts advanced technology players like Solyndra no longer able to compete in acommoditized PV driven market. It now forces entire nations like Spain, UK and Germany tounravel their feed in tariff policies because they backfired in the face of rapidly falling PV prices.

The fear of falling prices is accentuated by that lack of commitment on building bettermousetraps. Five of nine of California's large approved solar thermal utility scale projects are

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abandoning their challenging molten salt projects replacing the technology with cheap PVpanels.

The state of California is enabling this because it is more committed to reaching its 33% RPSgoal than it is in advancing the real option value of renewable energy technology development.Yes the projects are cheaper, but the switch to PV from solar thermal gives up on energy storagein molten salts. It gives up on improving efficiencies in next generation technology that Chinadoes not yet have. It consigns ratepayers to overpaying for rapidly obsolescent technology. Itwastes all the R&D effort that US DOE and the California Energy Commission say they areputting into new technology development.

SOURCE: The Economist

It is time to break the cycle of the race to the renewable bottom. Solar PV is at or nearenough to grid parity that we should cease and desist from subsidizing its commodity purchase.Focus tax credits and incentives on the next generation of technology. Focus R&D on improvingefficiency and driving down the balance of system costs. Secretary Steven Chu made a big dealof the Sunshot program to drive down the cost of solar to $1 per watt. Guess what? Falling PVprices beat US DOE to that target so why are they still spending money on it.

Everything in renewable energy has speeded up, but it is often a race to the exits. Theunintended consequences of market manipulation whether done by industry to protectmonopolies as utilities have done in the past, or by politicians eager to pick winners and losers inan industrial policy roulette with taxpayers’ money, or by export nations like China able toanalyze the opportunities and position their export machine to vacuum up money out of theglobal markets for old technology now made cheap, cheaper and the cheapest ever.

The renewable energy industry has a promising future. But that future belongs to theinnovators, the new technologies able to drive up efficiencies and performance, drive down thebalance of system costs, and position their products to compete head-to-head at grid parity priceswith other technologies. Chasing fickle government subsidies or joining the race to the bottomwith commodity pricing of the oldest, least efficient technology is not the way to the future wewant. It turns renewable energy into a fad and consigns it to the same category as pet rocks!

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The lesson is the fundamentals driven boom and bust business cycle is alive and well in theglobally competitive energy industry and competitive market will not be denied rationalizationand the constant search for equilibrium. No amount of market manipulation, industrial policygaming, or political correctness will stop it.

There are unintended consequences of renewable energy subsidies and rules in competitivefalling price markets. Look at one in Germany’s generous above market prices feed in tariffsubsidy in a falling global PV price market. The result was that German taxpayers spent a lot ofmoney to promote solar energy market growth hoping to create a sustainable domestic market ofclean energy producers and a growing market share of electricity sales from renewable energy tomeet emission reduction targets. Instead they created a bubble now burst because excess solarinstallations are driving up subsidy costs even while global PV prices are falling. Germantaxpayers will pay out more subsidies than planned leaving a big hole in the national budget.They pay higher utility bill surcharges for the renewable energy only to see the cash suctioned upby China’s efficient export machine undermining domestic German solar energy manufacturingjust as in Spain and other countries with above market FiT subsidies.

The second unintended consequence is that the German government is spending money topromote the oldest, least efficient, and most easily commoditized solar technology thus playingto China’s export growth strengths, instead of investing in the next generation of more efficient,better performing German engineering and manufacturing expertise to drive down the cost ofmore advanced technologies.

Average solar photovoltaic panel efficiencies are about 14% today. Better solar technologiestoday near 20% efficiencies. Compare that to the 60%+ efficiencies of natural gas combinedcycle generation or the 85%+ efficiencies of baseload nuclear power. But in Germany todaynuclear is, well---radioactive! The German government has decided in its wisdom after theFukushima Daiichi disaster following the Japanese tsunami to phase out German’s nuclear powergeneration fleet at a cost of $1.7 trillion according to a Siemen’s estimate. But it is going to takea lot of solar panels at 14% efficiency to replace all that 85% efficient nuclear power.

Germany's feed in tariff accelerates installation of the most inefficient solar technology. SolarPV receives 56% of all green energy subsidies while producing only 21% of subsidized energyand that energy is only 14% efficient.

Wind energy in Germany which today supplies five times more energy than solar at thesame cost. Small scale hydro provides six times the energy output at the same subsidy cost.Solar subsidies also drive out spending on energy efficiency. But renewable energy is notGermany’s only goal. It also faces tiff targets for emission reduction so the lower the efficiencyin producing energy from non-fossil sources the harder it is for German to meet the emissionsreduction goals. Thus the practical consequence is the cost of cutting a ton of CO2 emissions, is

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€5 from adding insulation in an old building to improve energy efficiency, or €20 in a new gas-fired power plant or €500 into a new solar energy system. The Munich-based Ifo Institute forEconomic Research says its research concludes the benefit to the climate is the same in all threeexamples but they have radically different costs and impacts.

So what did German politicians do? They cut nuclear and bet the farm on solar thus riskingboth their renewable energy goals and their emission reduction goals. Oh, don’t worry they willachieve both of those goals but the cost may be staggering!

The lesson is never trust politicians with your wallet or your national priorities---they will spendboth on politically correct short term choices until your money runs out.

SOURCE: TransCanada

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2. Struggle over Energy Policy

Canadians were shocked at President Obama’s decision to reject the Keystone XL Pipeline. Isthis just politics in an election year in America? Yes, the decision to reject Keystone was causedby the competing pressure on President Obama from environmental groups that have been one ofhis most important constituencies and labor unions who favored the projects because of it highwage job creating potential. The President tried to postpone the decision until after the electionbut Republicans made it a cause célèbre and thus made it worse by forcing the President’s handso he rejected the pipeline on procedural grounds and invited the pipeline sponsors to re-file andcomeback after the election.

Why is Keystone so important that it causes all this controversy? For environmental groupsopposed to Canadian oil sands development and more fossil fuel development, Keystone is seenas an enabler of bad policy. For the energy industry, Keystone represented ---pardon the pun---akeystone to the important changes in how the oil and gas infrastructure of North America isbeing transformed by the phenomenal growth of unconventional oil and gas from tar sands andshales.

Keystone ended up being even more important as a symbol of the integrity of the long standingUS/Canadian partnership and a defining political issue in the 2012 campaign. Rejection of theKeystone project undermined prospects for bringing Canadian oil sands to the underutilized Gulfof Mexico refining, storage and export facilities. That infrastructure has been hurt by themoratorium and Federal slowdown in permitting new Gulf projects after the BP oil spill.

Unfortunately for President Obama, the Keystone decision frames an energy policy issue for the2012 election he wanted to avoid---and it forced Prime Minister Harper to book a flight toBeijing to demonstrate that Canada is not dependent upon the US for export of its oil sands.

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3. Growth in Unconventional Oil and Gas

Conventional oil is the term used for the traditional or conventional method of extraction bydrilling a vertical well into a large underground reservoir of oil or gas and suctioning it out forrefining into findings products. For much of the last 100 years this is the way oil was extractedand the OPEC cartel was formed to control world prices for these large oil reserves.

Unconventional oil and gas refers to the deposits that were hard to reach or were uneconomic toproduce with conventional technology. In America wildcatters from Mitchell Energy and DevonEnergy began experimenting with new horizontal drilling techniques that allowed access to thesethin ribbons of oil and gas running horizontally for long distances rather than gathered in largepools where a vertical drilling rig could reach them. Getting the oil and gas out of thesehorizontal ribbons or streams was difficult and costly until these wildcatters began to use atechnique called hydraulic fracturing to pump a combination of water, sand and lubricatingchemicals into the well sites to help open up the porous rocks enough to extract their treasurers.

Oil sands found in large amounts in Alberta are thick bitumen crude and the process of extractingthe petroleum products involves heating the bitumen and expressing the product from the poroussoils. It is more energy intensive but technology is also making it more economical to produceespecially if pipeline, storage and refining infrastructure already existing can be used to bring itto market.

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Why is unconventional oil and gas so important?

It all goes back to global energy competition. China, India, and other emerging markets havesuch insatiable appetites for energy that they are buy up and driving up the prices for oil, metalsand other commodities needed to feed their export economies. That means they are driving upthe price in global markets we must pay when we import oil or other energy resources. Higher oilprices are a drag on economic recovery and growth and it makes us more dependent upon MiddleEast, Nigerian or Venezuelan oil in US markets, Russian gas or Iranian oil in Europe andresources from other places in the world that are volatile or unfriendly. As our conventional oiland gas resources are depleted we are forced to import more from these regions to make up thedifference.

Over the past ten years that growth fully offset the depletion from our domesticconventional oil and gas resources. The United States became a net exporter ofnatural gas for the first time in a generation in 2011 as a result of this growth.

The struggle over energy policy between politicians and the markets is testing our integrationand energy partnership. US/Canadian energy integration is good policy and better defense.Canada has vast energy resources but the logical markets for those resources are in the US. Overtime, the oil and gas interstate pipeline system linked our two countries in ways that made goodbusiness sense and good public policy sense. Citizens in both nations broadly support cleanenergy goals and environmental protections so our interests are harmonious. By optimizinginfrastructure and balancing supply and demand between us we made our economies morerobust, our markets more transparent, and our nations more secure. Meanwhile, as politiciansdebate North American energy policy the markets have chosen natural gas as the fuel of thefuture. The tremendous growth of unconventional shale gas is insuring that future will take place.

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This is not new news, the EIA Annual Energy Outlook 2011 estimated that the US has 2,543trillion cubic feet (TCF) of potential natural gas resources. That is about 100 years of gas supplyat our average annual rate of consumption. As more drilling and unconventional natural gas E&Pactivity takes place the data available to assess the potential and proven reserves gets better andis being used by USGS and EIA to validate or revise their estimates.

For example, in its AEO2012 Reference case, EIA’s estimated unproved technically recoverableresource (TRR) of US shale gas has been reduced from 827 TCF to 482 TCF last year. Critics ofunconventional gas claim this is ‘incontrovertible evidence’ that relying on shale gas for thefuture is a foolish premise. This is nonsense. The decline mostly reflects changes in theassessment for the Appalachian Basin Marcellus shale, from 410 TCF to 141 TCF based uponthe rapid growth in drilling in the Marcellus over the past two years bringing better data uponwhich to base projections. As a result Marcellus shale production doubled during 2011.

Based upon better data from drilling activity since 2010, USGS was able to update its technicallyrecoverable resource (TRR) estimate for Marcellus to 84 TCF with a 90% confidence level in arange from 43 to 144 TCF. In 2002 USGS estimated Marcellus held 2.0 TCF. For its new earlyrelease of AEO2012, EIA also estimated that the Utica Shale which runs below much of theMarcellus play held 16.0 TCF. These estimates will continue to be modified based upon betterdata and analysis, but it still is a good news story for domestic energy production and long termnatural gas supply reliability.

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The good news for the Northeast US is that at the same time coal market share is declining andtaking with it the jobs and economic activity that has supported many of the states in this regionfor generations, now comes cleaner, safer, low cost natural gas in many of the same locations tofill the gap and fuel the next stage of America's economic growth.

4. Uncertainty of Environmental Regulation

Global policy issues like greenhouse gas emissions reduction, carbon taxes, renewable energyand the industrial policies of feed in tariffs, renewable portfolio standards and tax subsidies toadvance policy preferences all cause heartburn and unintended consequences.

In EU France favors nuclear but Germany opposes it. Germany favors Russian gas imports butPoland and the former Warsaw pact nations fear dependence on Russia and its willingness to cutthem off. The Kyoto Protocol was supposed to reduce greenhouse gas emissions but theemerging economies refused to sign on and the developed world cheated. The CopenhagenConference to find a compromise global warming solution failed when China, India and otheremerging economies refused to agree to limits to emissions that hurt their economic growth.

The practical reality for the US, Canada and Europe is that we can shut down all of our powerplants and industrial emissions bankrupting our economies and still not offset the emissionsgrowth from China, India and other faster growing emerging economies unwilling to cooperate.

The US Congress rejected President Obama’s cap and trade legislation but the President is tryingto impose environmental regulations that seek to achieve many of the same goals but is meetingfierce resistance. This is the context for the Keystone pipeline rejection and the 2012 political

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debate in America. In both the EU and the US carbon policy correctness shows signs of runningits course having been discredited by scandal, the persistence of scientific method, and publicpressure to recognize market realities. The proponents of carbon policy changes are caughtbetween panic and despair. They came so close to implementing their policy regimes, and cannotnow accept that the world has said ‘No!’

The evidence of the death rattle of carbon policy has been presenting itself for a while but like adegenerative diseases it was slow to develop but relentless in its progress. The EU adopted phase1 of its Emissions Trading Scheme (ETS) setting policy goals of reducing greenhouse gasemissions by 20% below 1990 levels. Europe went along but the grumbling was quieted by a bigdose of emissions allowances to reduce the pain. Much of the economy was targeted indirectlyby the focus on power stations and transport. Phase 2 was tougher and more allowances left theETS awash in oversupply with resulting falling prices thus undermining the economic incentivesto reduce emissions. Then an inconvenient truth began to appear---the policy has been sold onthe looming prospects of rising temperatures and rising sea levels. The scandals that discreditedthe incontrovertible science were caused by the persistence of the scientific method which keptasking ‘why is it that temperatures are not rising as forecast?’ The answer was----shut up, youidiot---you’ll make a mess of things!

The politically correct policy response was to double down on the carbon policy cram-downprocess before it was too late. The extension of the carbon policy tax to airlines in the EUexpanded the conflict beyond the continental boundaries. The nations that just said no inCopenhagen and Cancun and Durban said ‘hell no’ we will not have our flag carriers taxed bythe EU. The EU carbon policy weakness was revealed since the EU lacks the ability to enforce itbeyond the EU borders. And even the US said no.

A parallel fate is playing out on the American side of the Atlantic for carbon policy.President Obama was elected with high public aspirations for hope and change and a bettereconomic future. In phase 1, he pushed hard for Cap and Trade legislation but despite havingmajorities from his own party in both houses of the Congress the measure failed. Theenvironmental advocates of American carbon policy change were incredulous. The Presidentsought to cast his defeat as an ugly partisan battle against those Neanderthal republicans and teapartiers ignoring the inconvenient truth that his policy had been defeated by the no votes ofmembers of his own caucus from fossil fuel producing states. In phase 2, the president usedstimulus funding to create a de facto industrial policy of heavily investing in favored greentechnologies and instructed the US EPA to turn the cap and trade legislative principles intofederal regulations to achieve as much of the carbon policy goal in his first term as possible. ThePresident then turned attention to health care reform and the economy while the regulatorsworked behind the scenes. The president achieved success with the passage of his health carereforms and it did suck up much of the oxygen in the nation’s capital by the strenuous debate.

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Meanwhile, one by one the US EPA rolled out new rules that targeted fossil fuel use in powergeneration and transport following the lead of the EU.

But the US effort to double down on carbon policy regulation was met with a market responsewholly unexpected. Shale development had been growing rapidly from horizontal drilling andhydraulic fracturing success. The players were largely smaller firms unable to compete againstthe super majors in deep water drilling. But they were fast, nimble and efficient at exploitingunconventional shale plays and the market began to notice.

By the 2008 recession the unconventional plays in Texas and North Dakota had grown to findnew opportunities in the Marcellus and Utica shale in Pennsylvania, Ohio and New York. In theWest the Niobrara shale in Colorado, Kansas and Nebraska and the Monterrey shale inCalifornia were reassessed to update their recoverable oil and gas potential.

In the aftermath of the Gulf of Mexico oil spill the administration clamped down on issuing newdrilling permits in the Gulf and on Federal lands. This forced deepwater producers to moveoffshore oil rigs to other global markets like Brazil or Angola and encouraged others to moveonshore and go after the growing potential for oil and gas from shale on private lands as the onlygame left.

By 2010, the US had a full blown domestic energy production boom in the making creating jobs,producing tax revenue and lifting spirits in a sour economy. North Dakota unemployment ratesare near 4% while California's still are above 10%. By 2011 the US became a net exporter ofnatural gas for the first time in more than thirty years. Against that obvious market success, theAdministration presented its drumbeat of ever more onerous anti-fossil fuel regulations cappedby the newly proposed carbon pollution rule that virtually bans future coal generation in the US.

In the face of looming carbon policy changes from the Administration, the market offers thepublic low natural gas prices from growing domestic production. The government offers carbontaxes, Chevy Volt, and more Solyndra-like investments with money borrowed from China----inan election year!

The EU pursues its policies to the fullest and finds itself with high energy prices, oversupply ofemissions allowances as market demand falls along with the EU economy. The US finds itscarbon policy defeated in the Congress and pursued by administrative regulation only to beconfronted with a domestic energy boom on private lands the president and his regulators cannotstop pointing a now carbon-skeptical public to the job creating, revenue producing advantages ofshale.

Global markets find America’s prospects of low natural gas prices now decoupled from rising oilprices so attractive that there is real opportunity for a rebirth of America’s manufacturing base

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long ago forced offshore in search of cheaper fuels and labor. The only thing holding back theindustrial investment is America’s uncompetitive corporate tax and repatriation of earningspolicies, the uncertainty of looming health care costs, and the prospects that carbon policyadvocates will kill the golden goose of domestic energy production of fossil fuels.

The Federal Energy Regulatory Commission is trying to avoid being drawn into the politicalbattle over the regulatory agenda being pursued by the US EPA against fossil fuel emissions inthe wave of new environmental regulations being issued by the agency. Industry trade groups,state regulators and industry leaders that see the EPA regulatory push as a full frontal assault onfossil fuels in pursuit of an obvious political agenda are doing everything they can to stop theregulations from going into effect or to make sure they are a 2012 election year issues that forcesall politicians to take sides. The environmental advocates for greenhouse gas emissions reductionand using less fossil fuel are pushing back and trying to push the agenda forward before it is toolate.

On top of that rising gasoline prices have drawn national attention and threaten to hurt thePresident’s reelection chances each time a voter fills up his or her gas tank.

What does this have to do with FERC?

Some Congressional genius in our past, decided to fragment the responsibility for energy policyand regulation across a wide range of Federal agencies. In its wisdom Congress designated:

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US EPA with responsibility for enforcing clean air and clean water policies but left it tothe agency to define the details of regulations to do so.

Department of the Interior took on the responsibility for managing the energyproduction on Federal lands and thus controls a gigantic portion of the best available realestate for wind, solar, oil and gas and hydropower production in the US.

Department of Energy inherited the nuclear facilities and fuels, the national laboratoriesand, of late, the industrial policy and investment strategies for emerging technologies thatare giving it Solyndra headaches.

Department of Defense is focused on energy security, mobility and lower costs forenergy so it is adopted a microgrid and renewable energy resources strategy at militarybases and plans to develop mobile energy potential, energy storage capabilities and othertechnologies needed to fight future wars with growing energy demands from its arsenalof technologies.

FERC is an independent regulatory agency focused on defining fair and reasonable marketprices, setting allowable tariff prices and adjudicating complaints between market participants.But some now want to assign it a Solomon like role of assessing the impacts and implications ofthe rulemaking jumble of these other Federal agencies on resource adequate and electricityreliability. If this sounds to you like a no-win assignment, then you understand why FERC isreluctant to get involved. Ironically, it may actually be the least-worst solution.

Congress passes laws without a clue about how they will actually work. They authorize theFederal agencies to adopt rules to implement and enforce the law, but the law is so vague that itis sometimes impossible to interpret Congressional intent. This is why things are so messed upand why Washington scores so low in our public opinion polls. Regulation, rather than definingprocedures to implement a clear policy, is being used to write entirely new law and policy. Thenadditional regulations like the “endangerment finding on the health effects of CO2” take a lawand turn it into a battering ram. Such a law likely would not have been approved by Congress inthe first instance, but it has become de facto law through regulations.

FERC is being called upon to rationalize the irrational. Do we really want to shut down somany coal fired power plants in such a short period of time that we jeopardize electric gridreliability? Was it Congressional intent to use regulations to drive up the cost of a legal activitylike producing electricity from fossil fuels to the point where it is no longer economic to do so?Did Congress intend to drive up electricity rates to end use customers to pay for the cumulativecost of emissions reduction, renewable energy expansion and smart grid deployment this much?

Do you see what I mean?

All of these rules and regulations have been written by policy advocates who reject anyresponsibility to balance the cost and benefit of their regulatory actions. The resource agencies

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tell us their job is to protect the environment. They decide alone what methodology to use. Arethey selectively counting the benefits and selectively forgetting the costs? Is that really theirbiological opinion or is it their political opinion.

There is no standard methodology for calculating regulatory cost benefit. There is noadministrative law judge responsible for forcing these Federal agencies to own a burden ofproving the need for the regulation they propose or the reasonableness of their cost in the publicinterest. Yet in Federal rules enforcement companies and individuals are often guilty until theycan prove themselves innocent.

FERC is being asked to assert itself as an independent arbiter of reasonableness in Federalregulations affecting energy. By opening a proceeding and taking testimony about theimplications and impact of proposed EPA regulations on greenhouse gas emissions and theireffect on electricity reliability, resource adequacy the reasonableness of the balance of cost andbenefits of the proposed rules, their implementation timing and cost, the industry is crying outfor common sense. But Congress has not authorized FERC to define common sense in Federalrulemaking----and it may not like the answer FERC gives. But this is another useful signpostabout how our Federal regulatory and rulemaking process is broken and needs to be fixed.

SOURCE: TransCanada

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5. Game Changing Technology

Horizontal drilling and hydraulic fracturing are disruptive innovation technologies that makepossible this phenomenal growth in oil and gas E&P from shales. These technologies are notonly bringing North America out of our economic slump but they set the stage for a return toindustrial production and job growth from low natural gas prices.

Wind and Solar renewable energy technologies are transforming the utility business modelfrom its traditional central station generation model of large baseload plants into a cleaner, moredistributed energy business model with many more market participants. The result is not onlymore wind and solar resources but other advances such as microgrids, combined heat and powerin industrial settings and nets zero buildings striving to produce what they consume.

Smart Grid is more than smart meters. It is bringing two way communication, networkcommunications architecture, sensors, power electronics and self-healing machine learningtechnologies to optimize the power grids.

Operations and Compliance Technology. Technology is giving us tools we could not evenimagine just a few years ago. Information access will also produce better policy as well as betterenergy field performance. For Example, my company Tech and Creative labs partners with aCalgary firm called HotButton Solutions to provide remote data gathering and synchingtechnology available not just in the Alberta oil Patch but across the wider market forunconventional oil and gas. The product not only gives the field crews access to all the criticalinformation about a well site they need but it tracks inspections, records temperature andpressure readings and alerts the field crews when anomalies from normal operating patternsappear to prevent outages or environmental accidents.

Recently, the Alberta Energy Minister was quoted in the Calgary Daily Herald calling for a newcompliance monitoring solution to keep track of the growing number of wells at work. This isthe power of adaptive technology change at work. In many cases, adaptive re-use of existingtechnology for new purposes creates the innovation we need to take the next step for growth,environmental protection and profitability. So I hope Energy Minister is reading my blog todaybecause I have a solution for her.

Will we have higher energy prices or lower prices? The honest answer is we will probably haveboth depending upon how global energy competition and energy policies affect the natural boomand bust cycle of the energy business.

The continued growth of unconventional oil and gas is our best hope for lower energy prices.The early focus on unconventional gas production on shore in Texas and now spreading across

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North America has boosted domestic supply so much that is has decoupled natural gas pricesfrom oil prices and turned the US into a net exporter of natural gas.

Global oil prices are still persistently high at around $100 per barrel. They are subject towild volatility from potential conflict in the Middle East and with Iran. Commodity traders andspeculators use oil as a substitute or hedge against stock and bond market fluctuation. Butunconventional oil production is growing as North American E&P shifts in the face of excesssupply and lower natural gas prices to produce more oil that can be sold at higher prices. Thesenatural market forces will bring more domestic oil supplies to market and should over time havea moderating impact on oil prices when enough unconventional plays are developed around theworld to reduce the influence of OPEC by increasing the swing productive oil capacity availablein global markets.

US Canadian Partnership in Energy is more important than ever. By leveraging our assets,resources and infrastructure the Us and Canada can both rev up our economic growth throughdomestic energy production and exports as well as improve our global energy security thusinsulating ourselves from the bad boys in the Middle East and other neighborhoods seeking toharm us.

Creating a low price, pro-growth domestic energy environment is also the fastest way to live intothe clean, distributed energy economy our policymakers say they want. The rebirth ofmanufacturing will bring new jobs and new demands for infrastructure that will speed thedevelopment of renewable energy, the substitution of cleaner natural gas fired power generationfrom coal, and more rapid advance of smart grid power grid optimization. A rising tide lifts allboats and will make us more energy secure, more environmentally responsible and moreeconomically competitive.

6. Customers Take Control

The energy industry is being turned on its head by the transformative power of disruptivetechnologies such as smart grid, renewable energy choices for power supply, and the analyticstools that shift power from traditional energy suppliers to customers.

We are moving from the stealth phase of this disruptive technology cycle as customers becomemore aware of their potential use disruptive technologies to address their business 'pain points' inour uncertain and volatile economy. We crave certainty, we want choices, and we all need tosave money! The seductive power of pull technologies is giving customers more control overtheir business operations and their lifestyles. As awareness of pull technologies grows the paceof change in the energy industry is likely to increase.

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California is the first state to require that utilities disgorge smart meter data to customers and thethird party vendors they choose for products and services. That is expected to accelerate the paceat which customers are offered solutions that put that data to work to save money and improvetheir energy performance.

The energy industry was built around “push” technology strategies. Thomas Edison’s lightbulb led to the development of power generators and energy delivery systems to push electricityinto the homes and businesses of consumers glad to pay for the privilege. There were not a lot ofchoices—you either wanted the lights on or not. There was no competition, you paid the electriccompany that could deliver the light and power you craved or you bought candles.

Disruptive "pull" technologies are pushing the energy industry to change. Fast forward ahundred years and we still want the lights to be on---but we want more choice, competition andoptions that give customers benefits from new energy technology development. Today the powerto transform the “push” strategies of the past one hundred years into “pull” strategies of choice isleveraging that technology to unlock benefits by shifting power from the producers of energy toconsumers.

Silver Spring Networks, the maker of smart metering solutions, commissioned a study of 1,000smart meter customers to assess what customers wanted from smart meters. More than half thecustomers surveyed said they wanted to save money. Eight percent wanted to be greener, even ifit costs more. But when the answers were added up the common factor in all the customer wantswas their desire for more control over energy use and energy options. That natural desire forsavings, options and control is the seductive power of pull. Giving customers more control overenergy use and options requires that others give up control, and that has been the sticking pointin all the debate.

Vested interests 'cling' to the push status quo. While environmental advocates want customersto make greener choices for energy their strategy has been to push renewable portfolio standardsthat mandate green energy by forcing utilities to buy it even at above market prices. Whileutilities say they want customers to be engaged in their use of energy, their actions pushcustomers away by the complexity of energy efficiency and demand response programs, theconflicting tariff and rate designs that charge more per unit of energy when consumptionincreases, undone by average cost ratemaking and “budget” billing plans. Genuine competitionin the wholesale energy markets has been pushed aside by government policies that undermineintegrated resource planning goals of 'least cost, best fit' energy portfolio balance for utilities asstates push procurement rules that mandate what technologies can be bought, in what amounts, inwhat time frames often at above market prices thus completely hijacking the IRP.

The relentless forces of change from disruptive technology are pulling customers out ofstatus quo offering choice, options and the power over energy use and options. Over the past

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few months, a group of energy industry players, state utility regulators and environmental groupshave been meeting to search for areas of agreement across the issues they debate. While theirwork is a long way from a consensus on what to do they are defining what to work on next. TheCritical Consumer Issues Forum (CCIF) recently issued a report which summarized theirprogress. It is a quick read of mostly bullet points to prioritize the issues for further discussion.

It is a good start, but time isn’t their ally. Technology is changing faster than these politicians,industry executives and advocates can draft the fine print of their settlement agreements. Theyare losing control to customers. What do I mean?

The customer benefits of Smart Grid are being unlocked by “pull technologies.” While theutility industry obsesses over installation of smart meters, most have ignored or failed atcustomer education and engagement. Why? Because utilities still see customers as load to beserved (“push”) rather than customers to be attracted, retained and satisfied by new products andbetter services.

The business need to control costs enables technology vendors to offer customers choicesand options. This transition from push to pull is starting with commercial and industrialcustomer classes, but customer aggregation policies, third party vendor access to smart meterdata, and better control technologies and equipment on the customer side of the meter are quicklygoing to level the playing field. Action on the customer side of the meter is growing fast.

The menu of choices and control options is expanding fast with value propositions pullingcustomers to get involved to save money, reduce their impact and gain more control:

Demand Response (gain control over energy use and shift demand to save money) Constant Energy Management (optimize energy use and save money) Customer aggregation (creating customer buying and selling pools to scale savings) Combined heat and power (capture waste heat and reuse it to reduce energy demand) Net zero energy projects (maximize energy efficiency, control demand and produce the rest) Microgrids (miniature power grids integrating demand and supply choices plus control systems) Smart building designs (design energy efficiency into buildings to cut impact and operating

cost)

Do you see the common denominator in all of these solutions? It is NOT utilities offeringthese choices. The third party vendors are offering these options by getting in between theutilities and customers to offer choice, savings and control. These vendors focus on options that“pull” customers to satisfy their business need by leveraging their disruptive technology andservices to “push” the utility to adapt to meet that customer need thus shifting power in thetransaction from the utility to the customer. By creating value for customers these choices attractinvestment from commercial and industrial customers eager to capitalize long term opportunitiesfor cost reduction to gain competitive advantage.

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The fatal flaws of "push" strategies today are fragmentation of energy markets, the inability toscale new clean energy economy products, the death of a thousand different rules and regulationsare the remnants of “push” strategies in energy markets. These things are not stopping disruptiveenergy technology but they are denying utilities, regulators and politicians the benefits of smartgrid, renewable energy and the clean energy economy they crave.

The seductive power of “pull” strategies especially in this weak and uncertain economicclimate has enabled customers to take back control over their energy use and costs with the helpof third party vendors.

A recent survey of energy experts by The Brattle Group says that energy efficiency canreduce electricity consumption by 5-15%, peak electricity demand by 7.5-15% andnatural gas consumption by 5-10% by 2020 if it is more fully utilized. Brattle says thereductions are being driven by rising fuel and capital costs, improved appliance andbuilding technology, and customer behavioral change.

Brattle is missing the point of “pull” technology impact on the power grids. That energydemand Brattle's survey talks about is NOT going away---it is going off grid, it is beingconverted into other options, it is being shifted over time and place, and displacing the “push” ofthe traditional utility business selling commodity energy to end users. That demand is beingtransformed before our eyes by the seductive power of disruptive technology at work helpingcustomers turn “push” into “pull”. It is a pull value proposition when the customer is in controland makes decisions about whether to produce in location A or B depending upon the calculus ofwhich location maximizes energy savings, achieving the most sustainable production result, andoptimizes production efficiency for the benefit of the company, its customers (throughcompetitive prices) and shareholders.

The Benefits of Pull are a Phone Call Away. Decisions to take back control of energy use nolonger require the customer to hire an army of employees and act like a utility. Third partyvendors are assembling end-to-end solutions that include software, data and cloud-basedservices, equipment, communications and expertise to offer meter data management, energyoptimization analysis, predictive analytics, pattern analysis and business process changerecommendations using artificial intelligence and knowledge harvest algorithms to optimizeenergy use and cost savings, maximize the revenue potential from demand management, self-produce energy from waste heat, reduce waste streams, emissions and costs all choreographed ina symphony of decisions, choices and options designed to do three simple things:

1. save money2. give me control over my operations and my lifestyle3. enable flexible, adaptable operations to respond to uncertainty in our crazy world.

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Signs of growth in pull technologies are a leading indicator that we are moving out of bustthrough recovery on our way to build-up in the next energy business cycle. Build up begins whencustomers realize that they must act to secure their competitive advantage for the next stage ofthe business cycle. Regulatory drivers can speed that transition as they are today because of theaggressive EPA war on fossil fuel emissions, but the uncertainty that causes also increases theseductive attraction of pull technologies to give customers more control and more options. Thatis where we are today.

There is one more thing. The fuel of choice for power generation is natural gas no matter whowins the 2012 election. The EPA may war against coal but it knows that every megawatt of coalfired generation forced prematurely into retirement is going to be replaced by natural gas loadfollowing generation to assure system reliability. Wind and solar can supplement that supply butthey cannot displace it. Almost all the pull technologies benefit from natural gas because it is aflexible, reliable fuel and it sets the grid parity price to beat as the low cost option for powergeneration. By targeting flexibility, savings potential and control around a grid parity pricecustomers have the maximum leverage in negotiating deals with renewable energy suppliers,CHP vendors and demand response customer aggregators to assemble and implement adistributed energy future that works for them.

The sum of all this pull technology evolution is quickening transition to a distributed energyfuture where customers have control and use it to secure their own energy needs, net meter andcontribute to the grid, and control their own destiny thus escaping from the uncertainty of energypolicies and politics that try to pick winners and losers rather than focus on low-cost and high-reliability and economic competitiveness.

SOURCE: US EIA

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What about these energy wildcards?

Keystone is a symptom not a disease. If US and Canadian politicians cannot find commonground to reassure the markets that our energy cooperation and integration is mutually beneficial,sustainable and profitable we both have a big problem. The way forward will be muddled untilafter the US 2012 election.

Conflict with Iran or Syria. Volatility in the Middle East will still spike oil prices and whipsawthe North American economy. There is no downside to faster, stronger, larger domestic energyproduction of oil and gas.

NIMBY is a nuisance we all must face. It can slow down pipelines and electric transmissionprojects but policy clarity and market forces are the best defense.

EU financial crisis. North American financial and equity markets are still vulnerable to theuncertainties in Greece and elsewhere as the EU faces it eurozone issues. Oil prices could spikeif oil is seen as a safer haven than stocks or bonds, but oil could plunge if a recession is triggeredor a default creates a more profound crisis on fears that economic activity and energy demandwill fall along with the economy.

A Low Cost Scenario for Growth

A funny thing is happening on the way to the clean energy future--reality is setting in. There is‘incontrovertible evidence’ about the economic growth and job creating effects of America’s

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unconventional oil and gas production boom - more than 600,000 jobs directly attributable toshale gas development. Even President Obama is praising the job creating benefits of ‘America’sresource boom’. America is getting its energy mojo back and that is good news but not the entirestory.

How Much Shale Gas is there in the United States? In July 2011 US EIA released a [Reviewof Emerging Resources: US Shale Gas and Shale Oil Plays produced by INTEK. This is anupdated assessment of onshore lower 48 states technically recoverable shale gas and shale oilresources. The assessment found the lower 48 states have a total 750 trillion cubic feet oftechnically recoverable shale gas resources with the largest portions in the Northeast (63%), GulfCoast (13%), and Southwest regions (10%) respectively. The largest shale gas plays are theMarcellus (410.3 trillion cubic feet, 55 percent of the total), Haynesville (74.7 trillion cubic feet,10 percent of the total), and Barnett (43.4 trillion cubic feet, 6 percent of the total).The INTEKassessment was incorporated into the Onshore Lower 48 Oil and Gas Supply Submodule(OLOGSS) within the Oil and Gas Supply Module (OGSM) of NEMS to project oil and naturalgas production for the Annual Energy Outlook 2011 (AEO2011) to provide a starting point forfuture work.

Total US recoverable natural gas resources (includes conventional, unconventional in lower 48,Alaska and offshore) totals 4.244 quadrillion cubic feet according to the Institute for EnergyResearch:

Enough natural gas to meet US electricity demand for 575 years at current fuel demandfor generation levels

Enough natural gas to fuel homes heated by natural gas in the United States for 857 years More natural gas than Russia, Iran, Qatar, Saudi Arabia, and Turkmenistan combined.

The US has Three Times the Proven Reserves of Saudi Arabia in Shale Oil. Global oil shaleresources exceed 10 trillion barrels. More than 1.8 trillion barrels of oil are trapped in shale inFederal lands in the western United States in the states of Colorado, Utah and Wyoming, ofwhich 800 billion is considered recoverable--three times the proven reserves of Saudi Arabia.TheINTEK assessment for EIA found 23.9 billion barrels of technically recoverable shale oilresources in the onshore Lower 48 States. The Southern California Monterey/Santos play is thelargest shale oil formation estimated to hold 15.4 billion barrels or 64 percent of the total shaleoil resources followed by Bakken and Eagle Ford with approximately 3.6 billion barrels and 3.4billion barrels of oil, respectively.

New Jobs Creation is driven by Low Cost Energy. A report from PricewaterhouseCoopers forthe National Association of Manufacturers says low cost domestic natural gas will save $11billion per year in US manufacturing costs over the next ten years and create more than a millionnew jobs. This new low cost energy reality is expected to increase disposable income by $2,000

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per year per household in the United States. The growth in domestic natural gas production fromunconventional sources (shale gas) has decoupled domestic North American gas prices fromworld oil and LNG prices, reversed the once expected US dependence on imported LNG, anddriven down prices to near record low levels from long term reliable domestic energy supply.

New Jobs Creation Leads to Worry over Skills Shortages and Competition for Talent. Justas the shale growth phenomenon takes off, the market face a looming new reality that more than10,000 baby boomers per day will begin retiring in the US alone. The same fate or worse affectsother global markets. The good news is the demand for experience, skills and technologyexpertise among workers in the oil and gas industry means than many will be coaxed intoworking longer or auctioning off their expertise to refill their retirement accounts left shatteredby the great global recession. The demand for replacement skills is expected to swell the ranks ofengineering, technology developers, science, math and software training programs anduniversities to meet that need. But the bigger need will be welders, plumbers, electricians, skilledmachinists and other crafts to install and operate the equipment and support the technologydeployment around the world.

Market Discipline of Fossil Fuels Weeds Out Coal in Favor of Cleaner Gas. After pursuing avirtual war on fossil fuels imposing one new regulation after another to undermine the economicsand weaken the support for low cost energy production in order to reduce demand and thusemissions, opponents of fossil fuels are also faced with a stark new reality. New regulations mayforce the premature closure of coal generation plants, but that capacity is likely to be replacedwith high efficiency natural gas fired generation not renewable energy. Low gas prices are amuch more virulent threat to coal than anything the US EPA can dream up in regulations andmore ruthlessly efficient. Older coal plants will be replaced with newer, cleaner, cheaper naturalgas plants not a bad market outcome. Not a bad environmental outcome either. Meanwhile USEPA is left to take arrows in the chest over its regulatory overreach, piling on in times ofeconomic uncertainty, and deliberate efforts to undermine America’s productive capacity forgrowth. This weeding out of older less efficient coal fired generation is the natural result ofmarket forces at work. The replacement for many of these retiring coal plants will be loadfollowing natural gas because it is the fuel of choice in almost every power market and gas isrequired to back up every MW of renewable energy. Low gas prices from shale gas productiongrowth make gas the least cost, best fit in almost every region.

Delivered energy consumption in the transportation sector grows from 27.6 quadrillion Btuin 2010 to 28.8 quadrillion Btu in 2035 in the AEO2012 Reference case (Figure 7). Energyconsumption by light-duty vehicles (LDVs) (including commercial light trucks) initially declinesin the Reference case, from 16.5 quadrillion Btu in 2010 to 15.7 quadrillion Btu in 2025, due toprojected increases in the fuel economy of highway vehicles. Projected energy consumption forLDVs increases after 2025, to 16.3 quadrillion Btu in 2035.

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Low Cost Shale Gas Drives Down the Grid Parity Price for Renewable Energy. The samemarket forces that forced old coal plants to give way to newer, clean natural gas fired combinedcycle generation are also impacting renewable energy especially wind and solar. The global glutof solar photovoltaic panels and wind turbines brought on by overproduction by China is searchof export growth is now caused governments in Europe to reduce or eliminate feed-in-tariffsupports and subsidies as falling prices bring renewable energy prices into competitive levelswith natural gas.

But the new reality is low gas prices caused by the growth in shale gas production is drivingdown the grid parity price point. EU government reeling from the eurozone financial crisiscannot afford the FiT subsidies. Many US states that adopted renewable portfolio standards arenearing their goals and few are following California's lead to its higher 33% RPS target.The bottom line is renewable energy finds itself a mainstream resource at or near grid paritypricing levels but still dependent upon subsidies for profitability. Consolidation is sweeping thesector as smaller players sell out to larger global players with deeper financial pockets.

Taming the bad boys in the neighborhood. As shale development potential is betterunderstood around the world a slow and subtle trend turns viral as the competition for access tothe technology and infrastructure needed to exploit shale development grows. The bad boys inevery regional neighborhood suddenly face pressure from their neighbors to clean up their act.

Why?

The fierce competition for technology access enables its multinational suppliers to be choosyabout where they work--and they choose not to work where insurgents shoot at them, blow uptheir projects or extort them with out of control corruption. An informal code of conduct emergesthat scores each market based upon its potential for profitable returns for the technology andinfrastructure vendors. The competition to be next in line for access forces the locals to rein inthe bad behaviors and improve their place in the queue. Combined with lower prices reducing themischief funding potential from Iran, Russia and other traditional fomenters of mischief and theeagerness of nations and NOCs to gain access to Western technologies they need, the elders ofeach regional neighborhood reassert themselves to enable their economies to grow.

Economic growth results in a rising middle class and demand for less corruption, morereforms and lasting democratic change. Shale development produces the mother's milk ofdemocratic change envisioned by the Arab Spring but suppressed by the bad boys in eachneighborhood. The enthusiasm for growth accelerates the demand for change. The lessons fromtaming of the bad boys in the neighborhood are not lost on despots. A few resist and are forcedout by the combination of domestic demand for change and the 'code of conduct' smack-downpushing those locations to the bottom of the queue. The fear of being left behind in the wave ofglobal economic growth proves too powerful to resist.

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Abundant energy reduces global conflict Abundant and evenly distributed energy sources(natural gas) reduce the intensity of competition for new energy sources of New Core countrieslike India and China. Bringing this new fuel to domestic markets will have a higher priority thanenergy adventurism (China’s search for energy in Africa.) It also allows important global playersto focus on growing their economies rather than growing their militaries to insure themselvesagainst resource scarcity.

Abundant energy increases global conflict New energy sources and technology lets nationalgovernments extract resources where they couldn’t extract them before. This new technologicalcapability increases conflict at the local, regional and global level. Indigenous groups, localgrievances and movements for autonomy will spring up in newly resource rich areas. Longcontested border disputes will gain new intensity when resources are found in these areas.Governments will prioritize extraction in these areas out of fear that their neighbors will “drinktheir milkshake.”

Technological Implications

National Oil and Gas Companies are forced to compete for competitive access to horizontaldrilling and hydraulic fracturing technology and the rigs. With many shale gas sourcesmajors and super majors lose interest in some NOCs that have traditionally been difficult to dobusiness with or seeking to retain too much of the profit.

Access to water proves to be one of the biggest challenges to shale development. Resistancegrows to use of potable water for fracking especially in arid regions like the Middle East where itis more precious.This leads to investment in infrastructure to make use of recycled wastewatereffluent and the growth in desalination especially of brackish waters. As infrastructure expandswater storage, conveyance and distribution systems are made more efficient and leak lessespecially in aging systems.

The Middle East becomes a laboratory for new energy development with combined heatand power projects and microgrids supporting shale development. Expanding use of solarfor small scale applications takes advantage of falling prices for photovoltaic panels produced inChina. The need for so much new energy and environmental infrastructure positions the MiddleEast to be a hot bed for clean, distributed energy technology development which acceleratesinvestment by China and others around the world eager to gain access to advanced technology todevelop their own shale resources.

The growing demand for technology challenges conventional wisdom and overturns oldbusiness models. Super majors and horizontal drilling technology leaders create auctions marketfor their services forcing nations to compete for access to their capabilities instead of thetraditional state tenders and concessions.

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O&G business models shift from owning the product to supplying the technology andgetting paid in tradable shares of proven reserves. This leads to vast portfolios of distributedshale resources that are fungibly traded to balance risk, reward potential and accelerate economicgrowth in an open market rather than through OPEC. Russian, or Qatari dominated monopoliesor NOC bilateral deals. In such competitive markets bad boys like Iran, Venezuela and others arestranded unable to compete in open markets and unable to extort providers at home who threatento leave or do leave for better opportunities elsewhere. Other markets like Mexico where self-imposed constraints on outside investment or foreign ownership have undermined growth andlimited access to technology find the open markets a way out of their trap and seize it by biddingfor new technology to restart their E&P growth using the global portfolio exchange to pay fortheir E&P development with tradable contracts from future production and reserves.

Investment in technology develop and infrastructure services skyrockets as each regionalmarket seeks to improve its place in the queue and looks for new technology players eager tosteal business from super majors by offering better deals on upstart companies. In fact, thisgrowing market for new energy technology is funded by super majors, sovereign wealth fundsand traditional energy suppliers eager for access to new technologies.

The ripple effect of E&P growth widely distributed accelerates global GDP, encouragesinvestment, lifts millions out of poverty and intensifies demand for democratic reforms to assuresustainable growth.

Global Business Finance Implications of Shale E&P Growth

PriceWaterhouseCoopers reported that in the first three quarters of 2010 shale gas M&Adeal value had grown to $20.1 billion from $6.8 billion in the same period in 2007. This dealflow increase resulted from energy majors leveraging their financial strength to position theircompanies for growth in shale reserves markets was driven by wildcatters or small independentslike Mitchell Energy that is largely credited with development of horizontal drilling andhydraulic fracturing as a way to creating a market so they did not have to compete head to headwith the majors. But the growth of unconventional oil and gas E&P success attracted the majorsand other investors eager for a piece of the shale growth action. Today major oil companies arelarge investors in shale recognizing its growth potential and leveraging it as an alternative toconventional oil and gas plays with growing environmental restrictions and rapid decline rates.In fact, the growth in unconventional oil and gas has largely offset the decline in productionoutput from conventional US sources.

About one-third of total U.S. delivered energy, 23.4 quadrillion Btu, was consumed in theindustrial sector in 2010. In the AEO2012 Reference case, total industrial delivered energyconsumption grows by 16 percent, from 23.4 quadrillion Btu in 2010 to 27.0 quadrillion Btu in2035. The largest user of energy is the bulk chemicals industry, which represented 21 percent of

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total energy consumption in the industrial sector in 2010. By 2026, however, the refiningindustry, defined as including energy use at petroleum, biofuels, and coal-to-liquids (CTL)facilities, becomes the largest energy-consuming industry in the AEO2012 Reference case.

Collectively, the energy-intensive manufacturing industries such as bulk chemicals,refining, paper products, iron and steel, aluminum, food, glass, and cement produce slightlymore than one-quarter of the total dollar value of industrial shipments while accounting fornearly two-thirds of industrial delivered energy consumption. Although the energy-intensiveindustries are expected to recover from the recent recession, their long-term growth is slowed byincreased international competition and a shift in U.S. manufacturing toward higher valueconsumer goods. The dollar value of shipments from the energy-intensive manufacturingindustries grows by 29 percent from 2010 to 2035 in the AEO2012 Reference case, while thevalue of shipments from non-energy-intensive industries increases by 57 percent. As a result ofthe shift toward non-energy-intensive manufacturing, total industrial delivered energyconsumption increases more slowly than total shipments, and the energy intensity of industrialproduction declines.

See Data Tables from AEO 2012 Early Release. aeotab_2.xls, aeotab_4.xls, aeotab_5.xls,aeotab_6.xls, aeotab_7.xls, overview.fig07.data.xls, aeotab_8.xls

Low energy prices also bring energy security as long as reliable supply is sustained reducingAmerican dependence on imported oil and natural gas from the Middle East and reducing thevolatility of oil prices as demand is distributed across wider global supply opportunities fromshale. Low energy prices especially in oil undermine the economies of OPEC member states andreduce their geopolitical and global economic leverage. This can lead to a change in US foreignpolicy priorities away from the Middle East.

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America’s New Energy Reality Implications

The race is on to build market share for wind and solar energy with the states demanding it inrenewable portfolio standards and the Federal Government encouraging it with subsidies andtreasury tax grants. This is not a bad goal for our clean energy future, but the battle has alreadybeen won and the winner in natural gas. That is America’s new energy reality.

1. Natural gas has been the fuel of choice for power generation for more than a decade.

In fact, we have already built the next generation of power generation and it is natural gascombined cycle built and put in service during the last boom stage of the energy business cycle.During that boom cycle we feared that too much natural gas power generation would requireimporting the gas to run it from foreign sources as LNG. But the dramatic growth ofunconventional gas here in North America changed all that.

Natural gas supply is growing worldwide from unconventional natural gas resources, particularlyshale gas. The dramatic growth of unconventional natural gas right here at home and lowernatural gas prices is restoring America’s industrial and manufacturing competitive position sincenatural gas is important in many industries from manufacturing, home heating, plastics,transportation fuel and power generation. It is clean, flexible, low-cost and can use used withexisting technologies.

This is true whether you see it as a ‘bridge fuel to the clean energy future’ or just the benchmarkdefining grid parity for everything else. Natural gas has uses beyond power generation forplastics and other manufacturing product purposes. Cleaner than coal, less costly and easier topermit and site than nuclear baseload generation, natural gas fired combined cycle is the loadfollowing alternative to both. Natural gas is also the logical backup fuel for renewable energysources.

Recently MIT released a new study called The Future of Natural Gas adding research credenceto the conventional wisdom that natural gas is the fuel of our energy future. The findings fromthe study say that displacing coal with gas-fired generation can reduce CO2 emissions by up to50%.

In fact, without natural gas it is impossible to displace coal and thus reduce greenhouse gasemissions without de-industrializing our economy. Fortunately we have already built the nextgeneration of power plants and they are largely gas-fired combined cycle plants many nowunderutilized until our economy recovers. More fully utilizing these existing plants is the leastcost, best fit way to reduce U.S. CO2 emissions by up to 20% in the electric power sector, or 8%overall, with little new capital investment and no new technology requirements according to theMIT study.

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AEO 2011 Capacity Additions By Fuel figure_78-sm

Natural gas defines grid parity prices as the benchmark against which other clean power sourcesmust compete to remove the marginal ton of CO2. This quest for grid parity is driving down thecost of wind and solar energy to stay competitive. Natural gas-fired power generation is alsoessential to backup intermittent renewable energy, in the absence of a breakthrough that providesaffordable utility-scale storage. But renewable power generation will be forced to compete withits natural gas backup for a place in the dispatch order based upon those grid parity prices.

2. The Need for Balance in Our Environmental Laws and Rules

President Obama recently nominated John Bryson to be US Secretary of Commerce. Bryson isthe retired Chairman and CEO of Edison International, the parent company of southernCalifornia Edison, the giant utility and merchant energy company. Bryson has another highlighton his credentials as one of the founders of the Natural Resources Defense Council. He wouldreplace Secretary Gary Locke, former Governor of Washington State, who has been namedAmbassador to China.

The real story is not about Bryson or the reasons President Obama selected him, but he is auseful metaphor for an unmistakable energy policy reality we are confronting in our search for aclean energy future. In the United States, our environmental laws were written with influenceand angry by people like John Bryson who were outraged by the excesses of business, the air andwater pollution it was causing, and the impacts such ‘business as usual’ was having on ourcommunities, the nation and the planet.

As a nation of ‘baby boomers’ we grew up in the spirit of the environmental movement. We usedit to shape our actions when we got ‘day jobs’ and over time we changed business as usual to

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something more environmentally responsible. We cleaned up the air and water and, in truth, byshining a spotlight on environmental issues and empowering citizens acting on their own to bringactions to enforce the environmental laws we gave life to John Bryson’s dream.

Fast forward from the ‘Silent Spring’ of Rachel Carson’s era to 2007 when sustainability as adescriptor of our clean energy and environmental future was prominently on display in theUnited Nations World Commission on Environment and Development report entitled “OurCommon Future”. Sometimes called the Brundtland Report after the chair Gro HarlemBrundtland, it sought to encourage better environmental practices by appealing to the naturaldesire of parents to leave a better climate, better earth, better opportunity for our children thanwe found ourselves through ‘sustainable development’ by “meeting the needs of the presentwithout compromising the ability of future generations to meet their own needs.” The measure ofsuccess, then, is whether or not we give future generations the same opportunities that we havehad.

In reality, what made this progress possible was not the emotional exuberance of our youth orour zeal for a clean energy future. It was the reality of the Brundtland report sentiment aboutsustainability writ large as our common shared value. We have succeeded in cleaning up our airand water because we embraced such business as usual conditions in our shared national values.That transformation happened because of the persistence of people like John Bryson in bringinglegal action to enforce environmental laws, write new environmental rules, and demandenvironmental action. By these actions they speeded up the process of change and instilled in usa vision of a clean energy and sustainable future. But the dirty little secret of the environmentalmovement is that we achieved our goals for cleaner air and water and more environmentalresponsible policies for ‘business as usual’ BECAUSE WE ALL GOT GOOD JOBS thatallowed us to shape and influence those policies and live into the sustainability definition of the2007 Brundtland Report to create a better environment and a better world for our children thanwe found in Rachel Carson’s lament in Silent Spring.

So what?

So today is not the post WWII period of heady growth. The cleanest places on the planet to livetoday were ironically some of the most polluted in the days of Silent Spring. The dirtiest placeson earth to live are the looming cities of the developing world in China, India, Brazil andelsewhere growing rapidly to sustain their pace of economic growth as the path to their ownprosperity.

In An Inconvenient Truth Al Gore sought to galvanize the emotions and passions of the SilentSpring generation using the same in-your-face approach writ globally large to reduce greenhousegas emissions and thus save the world. Taking this message to Beijing and New Delhi andBrasilia fell on deaf ears as the developing world said that they were unwilling to trade economic

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growth for environmental improvements at this stage of their development. But they welcomedwestern investment, technology and help to live into their economic growth dreams and stillwork on environmental issues.

This is when the sustainability definition of the Brundland Report was hijacked by a drive toCOP15 in Copenhagen to try to convince the developed world that the only way to ‘save theplanet’ was to tax the progress of the developed world to reduce emissions and give it to thedeveloping world because they refused to clean up their act. This audacious wealth transfer planfailed because the developing world was unwilling to agree to international limitations on theireconomic growth realizing no doubt that bribery is not a sustainable policy. And conversely thedeveloped world blinked realizing that signing up for unsustainable self imposed emissionsreductions policies would not change the developing world’s position or the climate but wouldcrater their own economies and get all the politicians sacked by their voters.

This brings me back to John Bryson and the energy policy reality we face today.

In addition to owning Southern California Edison, Bryson’s Edison International is also one ofthe nation’s largest operators of coal-fired generation in the Midwest. Did Bryson sell out theenvironmental movement he helped found by being a coal baron? Or did his actions reflect theenergy policy reality we face namely that economic growth is the sine quo non for environmentalprogress. That was true in the 1960’s and 1970’s and it is true today. Unless our economy grows,jobs are created, invested capital is put to work we cannot expect to upgrade technology, developalternative fuels, clean up our business practices and thus have the sustainable environmentalresults that we have realized over the past 50 years. And neither will China, India, Brazil oranywhere else.

We need balance in our environmental laws, not just advocacy.

Our environmental laws in the United States were designed for a time when business wasreluctant to change and accepted dirty air and water and sloppy practices as business as usual.There is no requirement in our current environmental laws for either the government or thecourts to balance the competing interests of the environment, our national policy goals and theeconomic interests of those affected by the laws or rules.

Our energy policy reality today is that we cannot realize the promise of smart grid, renewableenergy, or distributed energy strategies because our environmental procedures make it virtuallyimpossible to build the electric transmission lines needed to bring wind and solar renewableenergy to market. Many of the wind and solar energy policies so cherished by environmentaladvocates are undermined by those same advocates now attacking projects because of habitatconcerns that protect rats, lizards or birds without regard to the economic consequences of suchopposition on people or the broader environmental policy goals of promoting cleaner energy

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alternatives. Our environmental laws lack a duty to balance competing interests and are oftenenforced by lawsuits brought by third party environmental groups with no standing, no financialconsequence for their actions and no duty to balance those competing interests. The biggest loseris the public interest.

We tolerated this lack of balance in the past because the economy grew faster and we could usework-arounds to overcome the opposition or spend much larger sums in settlements to buy themoff with mitigating actions. In today’s economic reality throwing money at the problem is notpossible.

It is not business as usual any more.

3. Domestic Energy Security Requires Domestic Energy Production

World oil prices surged again last week with front-month NYMEX Light, Sweet Crude Oil("WTI") futures hitting $101.75 on June 9 2011 for the July 2011 contract. That was up from$98.99 the week before. Oil prices were driven up by worries about the failure of OPEC to agreeto higher production targets for the first time in 20 years after US oil stockpiles fell by 4.8million barrels over the same period according to the US DOE despite a 2.9% fall in US gasolinedemand.

But OPEC members understand one thing well---high oil prices are good for OPEC members.Rising oil prices today do little to tamp down global demand since that demand is driven not bythe United States or Europe but by China. Average oil prices increased by 28.3% in 2010 over2009 but global oil consumption rose faster in 2010 than any year since 2004 up by 3.1% ormore than double the 10-year average increase.

Oil demand by China alone rose by more than 10% or 860,000 barrels a day (bbl/d). Worldenergy consumption overall is distorted by China’s sustained energy appetite with globalconsumption growing by 5.6%, the fastest rate since 1973. It is not US economic growth that isdriving up oil prices, but we are nonetheless victimized by higher oil and energy prices with littlerecourse given our dependence upon imported foreign oil.

This situation is not changing as energy forecasters expect world consumption of petroleum andother liquids during the third quarter of 2011 to grow 1.3 million bbl/d above second quarterconsumption with demand for 2011 averaging 1.7 million bbl/d above the 2010 level.

OPEC today accounts for about 40% of the world's oil production and the OPEC meeting disputewas over whether to increase those production targets beyond the 27.253 million barrels a day setin 2007 to make up for the 1.4 million barrels per day of production from Libya that is sidelinedby its civil war. But factoring in the growth in demand from China analysts say OPEC needs to

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boost output to 29.9 million barrels a day to meet average demand this year or about 1 millionbarrels a day more than last month based on data compiled by Bloomberg.

But by failing to approve a production quota increase OPEC assures that prices will go up andstay high since the global uncertainties over Libya, the rest of the Middle East and other factors.Meanwhile, Saudi Arabia said after the meeting it would increase production on its own and nodoubt others will Also “cheat” to take advantage of higher oil prices for their own bank accounts.

Meanwhile, the US consumer gets screwed by higher oil prices and thus continued high U.S.gasoline prices pegged to that global oil price. US gasoline demand falling 2.9% last week afterthe Memorial Day holiday weekend, but the price of regular gasoline fell only one penny pergallon to $3.78 per gallon. That price is $1.06 per gallon more than a year ago at this time. U.S.transportation fuels inventories increased for the fifth consecutive week as demand fell,according to USDOE.

4. The Seeds of the Next Boom are Planted in the Last Bust

The energy business has always been a boom and bust place to be. Driven by supply anddemand fundamentals we always seem to repeat the same behaviors that got us where we are.Since we served energy, utility and investment banking clients at Henwood Energy Services,then Global Energy Decisions, then Ventyx as the business grew over time, we learned to livewith that boom and bust cycle and build our product strategies around it.

If you studied the lessons of the fundamentals you learned that the seeds of the next boom aresowed just as the market peaks and begins to slide toward the inevitable bust. Traders neverseem to get it, but students of the fundamentals understood this logic seeing the market as a giantcontinuum with waves of bliss and terror interspersed with a few bouts of normal.

The bottom of the energy business cycle was the time we used to build the products orimprovements to our software we expected would be needed when the build-up and thenrecovery in the energy business cycle lead us to the next boom. By studying the lessons of thelast cycle to assess its excesses and failings we could anticipate the needs that would drive thenext stage of the business cycle.

We also learned that our growth depended upon having products and services that were neededby customers at each stage of the business cycle learning from their pain points at each stage toprepare for the next.

So what is this about?

I was reading an Op-ed piece by Larry Summers in Financial Times entitled “How to Avoid OurOwn Lost Decade” where he describes where we are now in the recovery process and why we

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should choose strategies to avoid the slow growth purgatory that befell Japan. I confess I havealways found Larry Summers a little too ‘Harvard’ always willing to spend someone else’smoney to advance his social aims. But Summers has a way of getting himself in trouble byblurting out random truths in moments of frustration, and this op-ed is one of them.

Summers argued that the problem we face today is a lack of confidence has reduced demand andour slow economic growth is being driven by the pessimism about the future that is caused bythe lack of confidence today. His prescription is very Harvard----spend to stimulate demand andif you spend enough for long enough the sum of that stimulus will ripple through the economy tocreate demand by restoring the confidence of those benefiting from it. Summers built thisconcept into the President’s economic strategy but confidence has been down so far for so longthat his good strategy has turned foul-smelling as the pain of slow growth persists.

I’d argue that Summers’ mistake was not a bad strategy but good politics. That is his strategy ofbuilding in the downturn to stimulate demand and restore confidence is still a good strategy butthe Administration spent a lot of money on politically correct “investment” pandering to his basethat did little to re-invest in stimulating the next boom. So now we are still digging out of thetrough of our economic disillusionment with the stimulus having failed but confidence still sucksso Summers says stimulate more----but now safely from academe instead of the White House.

Going back to my business and product strategy of using the bust to retool and reposition for thenext boom that is exactly what the energy industry and our economy more broadly are doingtoday. The great irony is the President could actually achieve his political objectives ofremaking America’s energy infrastructure into that clean energy economy he seeks by supportingthe revival of domestic energy production to build into the next boom.

What would it take?

Define a Clean Energy Economy Vision We Can Believe in that includes expandingAmerica’s domestic energy productive capacity to fuel the next stage of American economicgrowth, reforming our tax laws and regulations to make America a magnet for investment and tobring jobs back home closer to consumers to reduce costs, reduce emissions, and improve oureconomic performance.

The practical result would likely be:1. Reduced emissions by reducing dependence on coal for power generation with gas.2. Continued growth renewable energy market share3. Improved energy efficiency and accelerated smart grid technology deployment4. Growth in jobs in the clean energy economy with more tax revenue.

What the Republicans fear the President might do to take their election issues away:1. Improve America’s energy security by expanding domestic energy production

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2. Rein-in regulatory excess that is creating uncertainty across the economy3. Require an honest balancing of economic and environmental interest in regulations4. Reduce government spending and unleash private sector spending to grow the economy

What Independents want or they are going to vote out all incumbents:1. Quit the partisan bickering and work together to solve our problems2. Get the government off our backs so we can grow again and create jobs3. Make America the strongest, most competitive economy in the world again4. Give us back the American Dream creating jobs and a future for our kids

Surely there is a political deal here somewhere!

America’s energy policy reality today is that the real policy is to hinder, frustrate, regulate andoppose expansion of domestic oil and gas production in the US putting America’s energy andeconomic security at risk. Without a vibrant domestic energy production strategy America iswhipsawed by global oil price volatility, subject to price distortions and weakened by thecorrosive effects of higher than necessary energy prices on consumer confidence, job creationand economic growth. Worse America’s technology leadership in deepwater drilling is movingoffshore to Brazil and elsewhere because these E&P companies must pay the bills and we won’tlet America’s technology leaders work at home.

Recent announcements by Exxon that it discovered substantial new oil deposits in the deepwaterGulf of Mexico put added pressure on the Administration to ease its restrictions on domesticproduction, but the looming election pits political calculations against the broader public policyinterest.

America’s best defense against global energy volatility and the negative effects of China’s rapidgrowth distorting energy demand and prices is domestic energy production to increase ourenergy security, reducing the cost of oil imports and its effect on our economy, create jobs andimprove consumer confidence.

What’s not to like about that?

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About the Author

Gary Hunt is president, Tech & Creative Labs a Boston, Massachusetts based advanced analyticscompany leveraging data, software and insight services to create innovative, fast-to-market, easyto use enterprise scale solutions without the enterprise software cost or hassle.

Gary has more than 30 years in the energy industry as a state public utility regulator, utilityexecutive and strategic energy technology consultant. He served as a global division president atVentyx for eight years and also served as VP-Global Analytics & Data at IHS/CERA, and aprincipal at Standard & Poor’s/ DRI-McGraw-Hill.