It will be up to risk-taking entrepreneurs --and not Congress-- who will lead the way for the oil and natural gas industry, a former U.S. Department of Energy (DOE) official said Wednesday in Denver.
Technology has come more quickly than businesses or regulators have been able to respond to, but all new things take time to be assimilated, said Jeff Navin, a partner in consulting firm Boundary Stone Partners in Washington, DC. That's true for every new innovation, not just unconventional drilling using hydraulic fracturing (fracking) techniques, he said.
Navin was part of a panel at the Rocky Mountain Energy Summit sponsored by the Colorado Oil and Gas Association. He cofounded Boundary recently after serving as acting chief of staff and deputy chief of staff for DOE, where he managed energy technology, deployment, environmental management and national security emissions.
What's happened, Navin told the standing-room-only crowd, is that new drilling innovations have advanced more quickly than businesses, regulators or the public could comprehend. Congress? It doesn't look like it will have any impact on the energy industry for a long time.
He offered what he said was a "bold" prediction: "Washington's not going to help you with this. I spent 13 years on Capitol Hill and a number of years at DOE. There are a lot of lawmakers that get it. But there's not a lot they can do..."
Navin noted that there've been no "real changes" to oil and gas regulations in the five years President Obama has been in office.
"All of you are operating in a regulatory structure that's designed to deal with an energy reality that's no longer the case...Most of the regulations in place were written in the '70s," making many of them outdated.
What's left to do will be done by the innovators, "the capitalists who will look for opportunities," Navin said. "I do not see any major changes coming whatsoever in statutory environmental energy regulations in Washington..."
Federal and state regulators "are doing their best to figure it out," he said. "Ultimately, you look at the development of fracking technology, and that's really government and industry collaborating..."
Don't let anyone tell an energy innovator that he or she is "crazy," as many told fracking pioneer George P. Mitchell, said Navin.
"Innovations come from the business model side of things, through new partnerships, new alliances and new opportunities to put cheap natural gas to work. How things shake out are yet to be seen."
Risk takers more nimble and with enough capital can take advantage of growing opportunities.
"When President Obama was elected five years ago, think about some of the assumptions that were made then about energy...We were building import facilities for natural gas, with tens of billions of dollars going into them. Our assumptions about oil were that we would increasingly reply on imported oil, and we were on the cusp of a nuclear renaissance," Navin said.
"Renewable energy was an interesting idea, but it was decades away...Cap and trade appeared inevitable, and emissions were expected to increase with it...And finally, coal continued to remain 'king.'
"Not only were those assumptions off a little bit, every single on of them was wrong," he told the audience. "Five years...is not that long ago. The old assumptions turned out to be wrong...and old coalitions have fallen apart. Now we are in a period when oil and gas are competing with each other..."
Major truckers are moving as "rapidly as they can away from diesel to natural gas ...Electric vehicles (EV) are growing more rapidly than hybrids...Ford is offering its best-selling F-150 with a compressed natural gas [CNG] engine..."
However, "the reality is, EVs won't take over, and there will be more gasoline-fired Ford F-150s than those fueled by CNG," Navin said. "But that incrementalism matters when you are talking about increments here and there...especially when margins are high. Those little things make a difference."
With technology advancing so rapidly in the oil and gas fields, regulators haven't been as "nimble as the capital side...The winners will be able to figure out how to take advantage of this..."
One of the issues that the U.S. energy industry is coping with is understanding that new technology takes time to be accepted. Navin harkened back to the overhaul within the telecommunications industry in the 1980s and 1990s. Nobody thought then about not having a landline in the house. "Now that's not economically profitable...
"What does that mean for this industry? A ton of disruption, a ton of change, and entrpreneurs seizing those opportunities...Just because we did it in the past doesn't mean we will do it in the future," said Navin.
There always are people resistant to change, he said, and "they're going to struggle a little bit" with the innovations in the gas patch.