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Shale Insight Conference, Philadelphia

Remarks by President John A. Fry, September 25, 2013

Good morning. I know that many of you have traveled from all over North America, both to attend this conference, and in general to work on the Marcellus Shale. Let me extend a heartfelt welcome to Philadelphia.

If you haven’t spent much time here, let me say that this is one of America’s greatest cities—for its history, for the vibrancy and importance it has today and for its incredible future potential.

I’m pleased that the Coalition has chosen to hold its conference here, because Philadelphia will share the responsibility for the transformational initiative that’s been undertaken in the Marcellus Shale. And I’ll argue that the long-term success of that initiative will depend to some extent on Philadelphia.

I’m glad to have this chance to speak to you. Let me thank Randy Allen and the rest of the Marcellus Shale Coalition board for showing leadership in an industry that’s changing at a rapid pace, and doing so under constant public scrutiny. I also want to acknowledge Katie Klaber’s four years of outstanding work as CEO of the Coalition. I wish Katie the best of luck as she tackles future challenges. At the same time, it’s hard to imagine that those challenges will hold a candle to what she’s faced at the Coalition.

Looking at the second half of the last decade, the dominating facet of the landscape was the huge financial crisis brewing locally and nationally. And in our modern economy, any financial crisis can be construed ultimately as an energy crisis.  Simultaneously, there was a great leap forward in the energy industry’s understanding of shale gas, and the technological ability to go after it.

Those factors combined to completely change the economic calculus around extraction. So in a vital and competitive industry like this, companies started moving fast. A critical mass of investment and effort went into finding and drilling for this resource. It happened before there was a full understanding of how to value the interests of every stakeholder: consumers, producers, contractors, landholders, government and, most important, the communities in the shale play, and also those downstream like Philadelphia.

That’s the void the Coalition stepped into in 2009. I think the situation has stabilized tremendously since then. And the Coalition played a big role in that.

The voice of the industry is, of course, only one among a group of equally important voices in the debate over using this resource safely, effectively and to the broadest societal benefit. But when that voice is clear and conscientious—when other stakeholders sense there’s mutual accountability and responsibility among the players in the industry—then I think there’s potential for sensible conversation and real solutions. So I acknowledge your hard work on that.

Now, none of that is to say that there aren’t many more questions to answer. I expect that addressing such questions is one reason for this conference. And I want to take just a few minutes to discuss a question that matters to me: What is the role of Philadelphia, and its major institutions including Drexel University, in managing the change that has come to Pennsylvania and the nation?

Here in Greater Philadelphia, we haven’t leaned into our role in the Marcellus Shale conversation as strongly as we should. Gas extraction is creating both economic opportunity and environmental risk in Pennsylvania. Our civic leaders owe it to the citizens of the region to make sure that Philadelphia shares in that value, and also that we advocate for the mitigation of the risk.

The benefits and costs of the Marcellus Shale initiative can be measured across a number of dimensions.
Each of those dimensions involves Philadelphia.

In the short to medium term, there’s the question of shale gas extraction as an industrial economic opportunity that drives jobs and growth, directly and indirectly. One thing we’ve learned is how difficult it is to quantify those gains, both potential and those actually realized. But there are jobs, and there is growth.

Philadelphia is the economic engine of Pennsylvania, and we’re well positioned to experience some of that growth. Let’s look at some of the resources Philadelphia brings to the table: We have history and capacity as the Northeast’s leading region for refining and for the chemical industry. We already serve as a critical node of the nation’s energy and industrial transport system. Our port is world-class, and so is our rail system. We’re processing a large majority of the crude from the Bakken formation, and the Carlyle Group is among those organizations heavily investing in businesses and transportation in our region.

Philadelphia needs to fully engage with the Marcellus Shale initiative so that a fair share of the direct benefit of this work is realized locally and regionally. Because it’s a fact that we’re assuming a share of the environmental risk.

It’s estimated that 40 to 50 percent of our water supply originates within the Marcellus region. And with the need to transport frack liquid from drilling sites to treatment sites comes the risk of a potentially catastrophic accident affecting large numbers of people. So it would irresponsible for this region not to make our voice heard.

In the medium and long terms, the importance of Marcellus Shale lies in its impact on the energy equation in America. There are obvious benefits from a potential increase in the energy produced domestically.

But the impact on energy independence is not universally positive. We have to be mindful of how new fossil fuel sources might adversely affect our nation’s commitment to create a truly sustainable, renewable energy supply.

What’s Philadelphia’s role in figuring out how shale fits into the future? Well, I say this with great respect to our outstanding colleagues at Penn State, who have already added major value to the discussion, and the strong universities in Pittsburgh and elsewhere. But Philadelphia remains the Commonwealth’s leading concentration of academic talent and research capacity.

So we can help address the key questions. We can research the environmental, economic and legal issues. We can educate leaders for the energy field, and prepare professionals in every field to understand the new energy landscape.

Unconventional gas has implications that go well beyond the scope of producers and sellers. There are health questions: What would it mean for respiratory health if we could switch more major transportation fleets to cleaner natural gas? There are geopolitical questions: What would an energy-independent United States look like, and what would the consequences be for the regions of the world that are organized around producing energy? There are legal questions: How can the U.S. deal with maritime laws, for instance, that are nearly a century old in some cases and limit our ability to find and move energy?

These are questions that we have to answer as a society. It’s not in anyone’s interest, least of all yours, for the industry to claim it can provide all the answers. And one of the best academic ecosystems in the world is right here, in Philadelphia, and we’re ready to step in and help.

I don’t want to spend a lot of time talking about my own institution, Drexel University. But just as an example, we’re building on strengths in engineering, science, public health, business, law and medicine to create an interdisciplinary institute focused on energy and the environment.

We’re also developing a remarkable new project, called the Innovation Neighborhood, that will bring together our students and researchers, industrial R&D companies and high-tech entrepreneurs, on over 12 acres next to Philadelphia’s 30th Street Station, the third busiest rail station in the country. This will also be the home of Drexel’s Energy and Environment Institute.

Ultimately, the true crux of the value of the Marcellus Shale might lie in its potential to help restart U.S. manufacturing. Energy has kept the U.S. uncompetitive in manufacturing for decades, because of its scarcity and volatility in our markets.

Abundant, reliable energy creates an incredible opportunity to spark new manufacturing. And there are few places better positioned to be the test case than Philadelphia.

Philadelphia was the “Workshop of the World” well into the 20th century. We felt the sting of the decline of American manufacturing deeply. We’ve made great inroads lately in high-tech and information industries, and in building one of the world’s greatest centers of education and medicine.

But imagine if we could leverage the power of this amazing location and city, the transportation infrastructure I described, a wealth of brownfield sites that could be easily repurposed and now a reliable, competitively priced source of cleaner energy.

That’s the vision that Mayor Michael Nutter’s Manufacturing Task Force is pursuing. I’m bullish on the prospect. And energy will be one of the keys detriments to the success of this effort.

How will society ultimately weigh the tradeoffs involved in shale gas? It’s going to depend on how the value proposition measures up to the perceived costs.

That goes far beyond shareholder value. Your companies may be profitable, responsible and even outstanding corporate citizens. But that’s not the level at which the question will be judged.

And it goes beyond the value for individual landowners, and even for citizens and communities who find it possible to get jobs in the short term because of the gas fields.

Where the crux of the cost-benefit analysis lies is in the ability of shale gas to contribute to a stable, affordable and reliable energy picture for America, the effect of such a vision on the prospects for a manufacturing revival in the U.S. and in the belief that this energy source can be tapped successfully without having a negative impact on the quality of life for people and communities.

No one wins when forms of energy are set against each other. Shale gas needs to be seen as a component of a national energy strategy. That strategy must account for every type of energy we have the potential to use. And it must work on near-, middle- and long-term timeframes simultaneously.

As an industry, you need to connect to this overall energy strategy. That’s something that Philadelphia’s academic and policy leaders are ready to work with you to help make possible.

Thanks again for your time. I hope you have a fruitful conference, and a great time in Philadelphia.