David O'Reilly, the retired Chairman and CEO of Chevron, spoke recently at a conference at Stanford University hosted by The Hamilton Project, a policy project sponsored by the Brookings Institution think tank. The Hamilton Project has done extensive research on the natural gas boom.

O'Reilly kicked off the event with a brief overview of the energy landscape and tried to put the scale of the energy business in perspective. He reduced the global energy demand from all sources of energy to liquid form and put global energy usage as the equivalent of 125,000 gallons of oil per second.

He said, "To change the system takes time, given the scale. Overnight change does not happen, at least not at scale." O'Reilly noted that oil, gas, and coal still make up 80 percent of our primary energy sources, and when it comes to renewables, firewood and dung trump solar and wind on a global basis.

"The point is that all forms of energy have a role."

And natural gas is going to help lead the way.

The potential supply of natural gas in the U.S. "is far bigger than was thought even a few years ago -- in the range of a 100-year supply." American oil resources are also proving much larger than previously thought. O'Reilly noted that the "benefits of natural gas production are dependent on environmentally responsible development," adding that the shale gas revolution could make the U.S. more energy secure, especially "if we can extend what we've learned from shale gas to oil."

Abundant natural gas and coal makes the U.S. energy secure in industrial use and power generation according to O'Reilly -- but the U.S. will be dependent on oil imports for the next 25 years without a significant breakthrough in transportation.

The prospects for shale gas development outside the U.S. are lower than you might think, said O'Reilly, because the U.S. has an indigenous oil and services supply industry, along with a natural gas pipeline infrastructure. He also notes that in the U.S., landowners share the benefits, because landowners share the mineral rights. Eastern Europe is trying to pursue natural gas but is finding that it doesn't have an indigenous oil rig and equipment industry. As for the European Union, O'Reilly described it as "a European mess," with widely varying opinions, regulations, and a lack of incentives. China's leadership is interested in shale gas, but is still in the early stages of exploring the option.
On the cost side, prices will have to go up, according to O'Reilly. Even if natural gas prices rise to the "still very competitive" $5 per MMBTU range, he asserts that gas will be substituted for oil and will act as a tremendous market driver to consume gas.

O'Reilly added, "I believe that we will still be importing oil 20 to 25 years from now, and that is the one area of vulnerability we have in our supply system."