The Environmental Impact

of the Energy Industry

Paul Hagemeier,
Chesapeake Energy, Inc.
VP Regulatory Compliance

Presentation Overview
Background on Chesapeake Energy
The National Petroleum Councils North American
Resource Development Study

The Environmental Impact of the Energy Industry

Life cycle and environmental footprint impacts
Regulatory challenges
Recommendations for Industry and Government

Chesapeake Energy Overview

Second-largest producer of U.S. natural gas and a Top 15 producer of U.S.
liquids
Most active driller in U.S.
176 operated rigs currently 100 drilling for natural gas and 76 drilling for liquids

Employ over 12,000 employees in 16 states

Applying unconventional thinking and state of the art technologies,

Chesapeake has grown from a $50,000 startup in 1989 to a $30 billion
enterprise today
Chesapeake is leading the effort to reduce American dependence on
unreliable, high-cost foreign oil and on dirty, high-carbon coal through the
greater use of natural gas in electrical generation and transportation networks
Leader in identifying and capturing world-class unconventional natural gas and
liquids resources
In past 4 years, discovered five of Americas best unconventional plays: Granite Wash,
Mississippi Lime, Haynesville Shale, Tonkawa Tight Sand and Utica Shale
3

Best Assets in the Business

Captured Americas largest natural gas and liquids resource base

Unparalleled inventory of U.S. onshore leasehold and 3D seismic

Diversified operational focus
Leading positions in 12 of the Top 15 unconventional liquids-rich plays in
the U.S.
Leading positions in 4 of the Top 5 best U.S. natural gas shale plays
(having sold the Fayetteville)

High quality assets

PXP, BP, STO, TOT, CNOOC JVs and BHP Fayetteville sale validate asset
quality and value
Exclusive focus onshore U.S. where the highest risk-adjusted returns in the
industry are available
1) Based on trailing 12-month average price required by SEC rules; 17.2 tcfe based on 10-year average NYMEX prices
Note: Risk disclosure regarding unproved resource estimates appears on page 45

North American Resource Development Study

Conducted by the
National Petroleum
Council (NPC) for
Secretary of Energy
Chu
Prudent Development
- Realizing the
Potential of North
Americas Natural Gas
and Oil Resources

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

Study Objectives
Reassess North American resource base

Describe the operating practices and technologies that

will be used to minimize environmental impacts
Assess North American supply and demand
Identify emission reductions stemming from increased
use of natural gas
Advise on policy options that will allow prudent
development consistent with:
Environmental protection
Economic growth
Energy security
Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

Finding #1

Natural Gas is an Abundant Resource

Advances in application
of technology brought
this about

Recent Estimates of Natural Gas Resources

Significant benefits for

economy, environment,
energy security
Realization of benefits
depends on responsible
development practices
Estimates
10 years ago

Current
Estimates

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

Finding #2

Oil Resources are Also Abundant

North Americas oil resource
base could also provide
substantial supply for decades
ahead

High production opportunities exist if access is

opened up

World-class resource basins

Some in remote areas
offshore and in the Arctic
Access results from
technology leadership,
sustained investment

U.S. and Canada together

now the worlds largest oil
producer
Future access depends upon all
companies adhering to prudent
development practices

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

Finding #3

America Needs Natural Gas and Oil

Natural gas and oil are indispensable to our economy and
standard of living for the foreseeable future
Its true even as we diversify and use energy more efficiently
Abundant gas supply can help the global competitiveness of domestic
industries that use natural gas as a fuel and feedstock
Even so, we must still use these resources wisely with cost-effective
energy efficient measures

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

Finding #4

Benefits Depend Upon Prudent Development

Realizing the benefits of natural gas and oil requires
environmentally responsible development and delivery
The hoped-for benefits economic, environmental, and energy security
depend on responsible production and delivery
Development in different areas require different approaches
Everywhere, natural gas and oil companies must use responsible practices
that protect the environment
Regulators must evolve their own regulatory requirements to take account
of new information and practices

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

10

Operation and Environment Task Group Focus

The evolution of environmental improvements and variations
across play types
Evaluate the environmental footprint compared to other
energy sources

The regulatory framework

Future technological advances
Sustainable principles that provide for the future

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

11

The Geographic Reach of Natural Gas and Oil

Development in N. American Wells is Large

Total: 4.3 Million Wells

Wells per 100 square miles
1-50
51-250
251-500
501-1000
> 1000

Source: IHS / HPDI

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

12

The History of Continuous Improvement

Should Inform Policy
Drilling Activity

Technology Changes

Legal & regulatory

changes

Span of 150+ years

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

13

Oil and Gas Development is Regulated

From Start to Finish
Leasing Land
Seismic
Assessments
Site Preparation
Drilling
Well Completion
Production
Restoration

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

14

National Petroleum Council

Recommendations
Support Prudent Natural Gas and Oil Resource
Development and Regulation
Establish Regional Councils of Excellence
Adopt Policies for More Effective Regulation
Commit to Community Engagement
Develop Consistent Methodologies for Environmental
Footprint Analysis

Prudent Development Realizing the Potential of North Americas Natural Gas and Oil Resources

15

The Environmental Impact

of the Energy Industry

National Energy Picture

71% of petroleum is
used for transportation
91% of coal is used to
generate electricity
100% of nuclear is used
to generate electricity
51% of renewables are used
to generate electricity
Natural gas is versatile

In 2008 the U.S. consumed over 99.2 quadrillion Btus of energy.

34% Industrial
34% Residential/commercial
29% Electrical generation
3% Transportation

Source: Energy Information Administration, Annual

Energy Review 2008, June 2009, Table 1.3 and Figure 2.0.

93 percent of energy consumed is from nonrenewable sources

U.S. EIA, U.S. Primary Energy Consumption by Source and Sector, 2008, Annual Energy Review 2008 (June 2009),
http://www.eia.doe.gov/emeu/aer/pecss_diagram.html (accessed January 2010).; U.S. EIA, Table 2.1d: Industrial Sector Energy Consumption, Selected Years,
1949-2008, Annual Energy Review 2008 (2009), available at http://www.eia.gov/FTPROOT/multifuel/038408.pdf.
U.S. EIA, Annual Energy Outlook, DOE/EIA-0383(2010), April 2010, Appendix A - Table A6, available at http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2010).pdf 17

Concerns Voiced By NGOs & Public

Energy
Source
Biofuels

NRDC

Union of
Concerned
Scientists

The Nature
Conservancy

The Wilderness
Society

Sierra Club

GHGs, soil, aquatic

systems, wildlife

Air/GHGs, land use,

habitat, soil impacts

Land use changes,

carbon balance

Land degradation, water use

& quality

Land, air, water, farming,

food impact

Mountaintops, GHGs, land

and aquifer impacts

Air emissions, GHGs,

water, wildlife

Coal plants are big polluters,

GHGs

GHGs, air, water, land,

food chain, mining impacts

Habitat, land use

changes, wildlife

Land, habitat, lower water

tables, air emissions, water
use
Land and wildlife impacts
(renewables in general)

Siting near surface

features & sensitive
environments
Water quality, fish
passage, streamflow, land
inundation
Damage to frontier areas,
CBM water impacts

Hydro

Specific concern not

identified

Mining impacts,
emissions, GHGs,
wastes, water
Air and water pollution,
siting, subsidence,
waste
Land impacts, wildlife,
river system changes

Natural Gas

Land, Water, Air,

Exemptions, Health

Air emissions water

pollution, oil spills

Releases of radio-activity,
health, aquifers

Risks of accidents, risks

from waste storage and
disposal

Specific concern not

identified

Specific concern not

identified

Mining impacts, risk of

accidents, risks from
nuclear wastes

Land, Water, Air,

Exemptions, Health

Air emissions water

pollution, oil spills

GHGs, habitat, water,

wildlife

Wildlife/habitat, water, GHGs

Oil

Damage to frontier areas,

CBM water impacts

Solar

Specific concern not

identified

Land use, habitat, water

use, hazardous
materials
Land use, bird deaths,
noise, visual impacts

Habitat, land use

changes, wildlife

Impacts on deserts, toxic

materials, water use, spills

Land impacts, materials,

construction

Habitat, land use

changes, wildlife,
cumulative effects

Land and soil, habitat,

bird/bat deaths, noise, visual

Visual, habitat, bird and bat

impacts, marine and
coastal

Coal

Geothermal

Nuclear

Wind

Siting in sensitive
environments

Offshore: marine
mammals, birds, coastal
environment

Aquatic ecosystems,
fisheries, land use
changes
GHGs, habitat, water,
wildlife

Wildlife/habitat, water, GHGs

18

The National Discussion

DOE

Environmental NGOs

State Regulators
Local Regulators

The public

Natural Gas and Oil Industry

Community Groups

SEC

Renewables Industry
Power Industry
Congress

EPA

DOI

When I want your opinion I'll give it to you. (Laurence J. Peter)

Every man has a right to be wrong in his opinions. But no man has
a right to be wrong in his facts. (Bernard M. Baruch)
19

Examples of Energy Impacts

Wind farm in San Gorgonio Pass, CA

Nuclear Reactor (Three Mile Island)

Sempra Energy Solar Farm,

El Dorado, NV

Mountaintop removal coal mine in

southern WV

20

Total U.S. Freshwater Use

Public Supply
12.66%
Thermoelectric
40.94%
Irrigation
36.65%

Industrial
4.87%
Livestock
0.61% Domestic
1.10%

Mining
0.66%

Aquaculture
2.51%

U.S. freshwater use

was equal to 349
billion gallons / day
(in 2005)
Thermoelectric is the
dominant freshwater
use sector

Source: Kenny, J.F., Barber, N.L., Hutson, S.S., Linsey, K.S., Lovelace, J.K., and Maupin, M.A., 2009, Estimated use of water in the United States in 2005: U.S.
Geological Survey Circular 1344, 52 p.

21

Water Intensity of Raw Fuels

Gals / MMBtu
Gallons of water used per million Btu produced
Biodiesel (irrigated soy)
Fuel Ethanol (irrigated corn)
Enhanced Oil Recovery
Synfuel - Coal Liquid (Fischer-Tropsch)
Petroleum from Tar Sands (Oil Sands)

Energy Source

Deep Shale Natural Gas:

0.63.8
Natural Gas: 13
Coal (no slurry transport): 28
Nuclear: 8-14
Conventional Oil: 8-20
Fuel Ethanol (irrigated corn):
2,500-29,100
Biodiesel (irrigated soy):
14,000-75,000
Hydrogen (electrolysis 100200)

Petroleum from Shale Oil (Surface Retorting)

Coal (with slurry transport)

Water Intensity: The

amount of water
needed to extract, mine,
or grow materials that
are processed and later
used for energy or
transportation fuels

Petroleum from Shale Oil (in-situ retorting)

Synfuel - Coal Gasification
Convetnional Oil

Nuclear (processed Uranium ready to use in power

Coal (no slurry transport)
Deep Shale Gas

Other Natural Gas

1

10

100

1000

10000

100000

Gallons of Water

Sources: Matthew E. Mantell (Chesapeake Energy Corporation), Deep Shale Natural Gas: Abundant, Affordable, and Surprisingly Water Efficient, paper prepared for
Presentation at the 2009 GWPC Water/Energy Sustainability Symposium, Salt Lake City, Utah, September 13-16, 2009; and U.S. DOE, Energy Demands on Water Resources, report
to Congress on the Interdependency of Energy and Water (December 2006), Table B-1.

22

Surface Disturbance by Energy Source

Acres

Acreageacreage
Disturbed for
the Generation
of 1,000inMW
of generation
Electrical of
Surface
disturbance
incurred
the
1,000 MW of new Power
energy
for the national electric grid
24/365

Nuclear: 169
Shale Gas: 496
Biodiesel from soy
Hydroelectric
Wind Turbines: 1,943*
Solar - PV
Solar - CSP
Conventional Natural Gas: 2,051
Geothermal
Coal Surface Mines: 2,054
Conventional Oil
Gas - CBNG
Conventional Oil: 2,236
Coal - Surface Mines
Conventional Gas
Geothermal: 2,381
Wind
Oil - Shale Oil
Concentrating Solar: 17,241
Horizontal scale is
Coal - Underground Mines
logarithmic
Photovoltaic: 31,786
Gas - Shale Gas
Nuclear
Hydroelectric: 172,241
1
10
100
1000
10000
100000
1000000
*Wind turbines only accounts for the surface disturbed for the pad and
Bio Diesel (soy): 4,214,227
access routes not the entire farm.

10000000

Surface coal mine size is based on: Average distrubed 3,863.8 acres/yr Source: Office of Surface Mining Reclamation and Enforcement (OSMRE). Regulation of Active Coal Mines. In 2002 Annual Report.
http://www.osmre.gov/Reports/AnnualReport/2002/2002_AR_Regulation_of_Active_Mines.pdf (accessed March 2010).
Average production 3,365,858 tons/yr Source: U.S. EIA. Table 1:Coal Production and Number of Mines by State and Mine Type, 2008-2007. Annual Coal Report DOE/EIA-0584 (2008). September 2009. http://www/eia.doe.gov/cneaf/coal/page/acr/table1.html (accessed July 7, 2010).
Subsurface coal mine size is based on: Conversations with industry (off the record) and regulatory officials (Ohio Department of Natural Resources) Includes mine mouth, coal washing, etc. Average 140 acres
Average production 538,951 tons/yr Source: U.S. EIA. Table 1: Coal Production and Number of Mines by State and Mine Type, 20082007. Annual Coal Report DOE/EIA-0584 (2008). September 2009. http://www.eia.doe.gov/cneaf/coal/page/acr/table1.html (accessed July 7, 2010).
Conventional gas, Proxy: Massard Gas Field, N. AR, Average production: 36,547 MCF/yr/well Average acres disturbed: 2.24 ac Source: BLM. Louisiana: Reasonably Foreseeable Development Scenario for Fluid Minerals. BLM Eastern States, Jackson Field Office. March 2008.
CBNG, Proxy: Powder River Basin, WY, Acreage production: 30,021 MCF/yr/well Source: Wyoming Oil and Gas Conservation Commission. Webpage. n.d. http://wogcc.state.wy.us/ (accessed March 2010)
Average acres distrubed: 2.0 ac Source: BLM. Draft Supplement to the Montana Statewide Oil and Gas Environmental Impact Statement and Amendment of the Powder River and Bi llings Resource Management Plans. Miles City, MT: December 2006
Shale gas, Proxy: Barnett Shale, TX, Average production: 150,185 MCF/yr/well Source: Railroad Commission of Texas. Newark, East (Barnett Shale) Field: Discovery Date 10-15-1981. http://www.rrc.state.tx.us/data/fielddata/barnettshale.pdf (accessed March 2010)
Average acres distributed: 1.23 ac/well based on 7.4 acres for a 6 well pad Source: ALL Consulting and the Ground Water Protection Council (GWPC). Modern Shale Gas Development in the United State: A Primer. Prepared for the U.S. Department of Energy Office of
Fossil Energy and National Energy Technology Laboratory, Washington, DC. April 2009.

23

Visual Impact Comparison

Wind
Turbine
1.5 MW
(262.46)

Wind
Turbine
2.3 MW
(393.70)

Statue of
Liberty
(301.25)

Nuclear Hybrid
Cooling Tower
(169.04)

Visual impact: the alteration of an

aesthetic experience of a viewshed. It is
highly subjective; therefore, quantifying
visual impacts can be complex

Natural Draft
Cooling Tower
(500)

Pump
Gas
High
Jack Wellhead Voltage
(15)
(6)
Tower
(82)

This study focused on skyline impairment

and surface disturbance which allow a
degree of scaling

Geothermal Heating: Geothermal Energy Environmental Impact. Geothermal Heating Report 2007. http://www.geothermalheatingreport.com/geothermalenergyenvironmentalimpact.html (accessed January 2010).
Iowa Energy Center. How Tall are Wind Turbines? http://www.energy.iastate.edu/renewable/wind/howtallareturbines.htm (accessed January 2010).
New York State Department of Environmental Conservation (NY DEC). Natural Gas Development Activities and High-Volume Hydraulic Fracturing. Chapter 5 in Draft Supplemental Generic Environmental Impact Statement on the Oil,
Gas and Solution Mining Regulatory Program. 2009 (5-22)
U.S. Nuclear Regulatory Commission (U.S. NRC). Generic Environmental Impact Statement for License Renewal of Nuclear Plants: Main Report (NUREG-1437, Volume 1). May 1996 http://www.nrc.gov/reading-rm/doccollections/nuregs/staff/sr1437/v1/index.html (accessed January 2010).

24

Almost All Impact Is Local

25

EPAs Approach to Natural Gas Study,

Regulation, Guidance and Policy
Regulation and policy development under existing
authorities:
New air regulations
Guidance to provide framework for use of diesel fuel in hydraulic fracturing
fluids
Guidance on wastewater pits and impoundment construction

Regulations and guidance for treatment and disposal of production

wastewater
Evaluating injection induced seismicity

Hydraulic Fracturing Study

Enforcement initiative
26

The Administrations Approach to Natural Gas

Even so, the industry is under a great deal of

scrutiny:
EPA investigations
Department of Interior Review of On Shore Rules
Secretary of Energy Advisory Board

Securities and Exchange Commission

27

Tying It Together
Comparative environmental cost keep national policy
making and regulation in perspective
Expect and support effective state regulation
Focus on local impacts and drive continuous
improvement
Engage communities in plans and education
Develop effective practices for local conditions

28

This is a $30 Million Factory

Never closes
Employs dozens for decades
6 to 8 can be co-located on a
single 1 to 3 acre pad

Thats $180M-$240M in total

value for one site
Supports salaries, taxes,
schools and charities

29

The Environmental Impact

of the Energy Industry
Paul Hagemeier,
Chesapeake Energy, Inc.
VP Regulatory Compliance