Obstacles beyond technology may limit US production, lawmakers told

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 10 -- Technological breakthroughs have increased the amount of economically recoverable oil and gas resources in the US, industry experts told the US Senate Energy and Natural Resources Committee, but they warned that amounts that are actually produced will be limited if other challenges aren’t addressed.

“With the framework of primary recovery, we’ll only access some of the resource,” said Thomas L. Davis, director of the Reservoir Characterization Project at the Colorado School of Mines. Waterflooding will help produce some oil from the Niobrara and similar shales, “but we will need [enhanced oil recovery] eventually,” he continued. “Just the injection of carbon dioxide in the Sinclair field in Canada has doubled or tripled production. A government framework should enhance CO2 availability through some kind of incentive that allows us to use it in these formations, and not just store it.”

“We produce about 100 million bbl/year, or about 5% of our needs in the US, each year from EOR,” said L. Stephen Melzer, engineer and founder of Melzer Consulting Inc. in Midland, Tex. “Our growth of the industry has been hampered as of late because we’re out of CO2.” Demand stems from opportunities and the ability to reap financial rewards from oil production, but matching CO2 supplies with demand can be expensive and challenging, he said in his written testimony.

US Department of Energy programs are advancing carbon capture and storage technology, but more pipelines will be needed to move CO2 from industrial sources to oil fields where it can be used, Melzer said. CO2 under new contracts costs about $2/Mcf, although contracts from the 1980s and ‘90s make the average price closer to $1, he indicated. “There are several pent-up projects which could double our CO2 utilization,” he said.

Supplies ‘maxed-out’
US CO2 supplies are limited now because natural sources and the pipelines serving them “are maxed out,” Melzer told the committee. “We’re trying to take low-hanging fruit from industrial sources first, and hopefully can begin to use CO2 from coal plants with combustion capture.”

Others described just how much technology has changed oil and gas exploration and production in the last 20 years. “Our industry is about high-tech tools and equipment these days,” said Andy Hendricks, president of Schlumberger Ltd.’s drilling and measurements division in Sugar Land, Tex. “Drilling has become a sophisticated science over the years. Today, we have precise navigational systems built into our wells which are more sophisticated than what’s in your car.”

Current technology allows drilling of multiple wells from a single surface site onshore in places like the Rocky Mountains and offshore from a single production platform, Hendricks added. “This reduces a drilling operation’s surface footprint by eliminating the need for multiple single-well locations,” he said. “The challenge in this process is to navigate a dense cluster of well bores, and we accomplish this through the use of sophisticated navigational and guidance systems.”

Improved technology has been necessary to produce oil and gas in the Arctic from the outset, observed Kevin R. Banks, director of the oil and gas division in Alaska’s Department of Natural Resources. “This has been a process where industry has come up with new and unique solutions applicable only to the Arctic and where industry has brought north advances in technology tested elsewhere and adapted to the special conditions of the North Slope,” he said. “Everything from the civil construction of man-camps, treatment and handling of byproducts of oil development, and the installation of roads and pipelines to the high-tech science of oil exploration and development has been modified and specialized for the conditions found only in the Arctic.”

Lisa Murkowski (R-Alas.), the committee’s ranking minority member who suggested holding the hearing, asked Banks if technology has improved to a point that oil might be produced from beneath the Arctic National Wildlife Refuge’s coastal plain from the Sourdough well in the Point Thompson unit on state land immediately west of ANWR. “It’s a logical spot to begin looking for and producing oil, and extended reach drilling could make a major impact,” Banks replied. Another well which was drilled in the 1980s also could be reached from state-submerged land, although its prospects aren’t as certain, he added.

Sees likely impacts
But Lois Epstein, The Wilderness Society’s Arctic program director, strongly questioned the idea that directional drilling can provide access to fragile areas off Alaska as well as in ANWR without significant consequences. “Directional drilling allows a region to become industrialized and compromised to an extent similar to conventional drilling,” she told the committee. “There’s no question that conducting directional drilling immediately to federally protected areas such as [ANWR] would have impacts.”

The hearing came one day after Jeff Bingaman (D-NM), the committee’s chairman, introduced two oil and gas bills. The first, S 916, the 2011 Oil and Gas Facilitation Act, would extend the oil and gas permit processing improvement fund, facilitate coproduction of geothermal energy on oil and gas leases, mandate a comprehensive inventory of US Outer Continental Shelf resources, create an Alaska OCS permit processing office, and phase out mandatory OCS deepwater and deep gas royalty relief for future leases.

The second bill, S. 917, the 2011 OCS Reform Act, would codify US Interior Sec. Ken Salazar’s plans to create two bureaus to manage federal OCS resources and operations, establish a separate office within the US Department of the Interior to manage federal OCS royalties and revenue, create an OCS environmental and advisory board for the new bureaus, and give the secretary authority to offer higher salaries for critical positions and reemploy retired private sector oil and gas employees.

“Both bills are comprised of provisions that were introduced and passed out of our committee in the last Congress with strong bipartisan support,” Bingaman said on May 10. “Along with this hearing, these two bills are a good starting point for what I hope will be a constructive, bipartisan dialogue on the topic as the rest of this month unfolds.”

He said that he hoped to have a hearing on the bills and related legislation next week, and that the committee could mark up oil and gas legislation as part of its overall agenda during this work period.

Contact Nick Snow at nicks@pennwell.com.

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