Continued R&D essential to tap US tight oil, panel told

The successful recovery of oil and natural gas from previously inaccessible tight shales with hydraulic fracturing and horizontal drilling does not mean further research and development is unnecessary, experts told a US House Committee on Apr. 17. They suggested that the estimated hundreds of millions of barrels of potential US oil resources could climb into the trillions if R&D to tap massive oil shale deposits in Colorado, Utah, and Wyoming were to get stronger government backing.

“Unconventional oil has added a new dimension to what was already a rich portfolio of oil development options,” said Andrew J. Slaughter, business environment manager for Royal Dutch Shell’s Upstream Americas division, at a House Science, Space, and Technology hearing on technology and policy pathways to tap US unconventional oil resources.

“In considering current and future energy policy, we urge policymakers to take all necessary steps to keep these options on the table, allowing capital to be deployed and significant energy security and economic benefits to be achieved,” he said, adding, “There are challenges to many of these prospects, but industry can overcome these challenges by being allowed to proceed with development and technological advances.”

Slaughter, who chaired the National Petroleum Council’s Resource and Supply Task Group in preparing NPC’s September 2011 report on prudent US unconventional energy resource development, said an estimated 180 billion bbl of US tight oil could be recovered with existing technologies. The amount would climb to more than 1 trillion bbl if technology and policy challenges to produce the oil shale resource on federal acreage in Colorado, Utah, and Wyoming are successfully addressed, he indicated.

“Some parts of the resource base will be precommercial for some time, such as oil shale and methane hydrates,” Slaughter told the committee. “Oil shale’s development pathway is particularly long, but it will not be available when we need it if we quit working on it.”

Relearning lesson

Michelle Michot Foss, chief energy economist and head of the Bureau of Economic Geology at the University of Texas at Austin, said the US keeps having to relearn the same lesson: “We have a rich resource endowment, and a nimble, inventive, and deep industry bench.” Companies and investors respond quickly whenever supply-demand conditions send an attractive price signal that suggests imbalance, she explained.

“Private land and minerals holdings enable fast response for leasing and testing new play concepts,” Michot Foss said in her written statement. “Technology and service providers combine with operating savvy to push the envelope yet again in a way that challenges preconceived notions about US productivity and longevity. As the cycle progresses, [R&D] are mobilized to tackle the next tranche of resource recovery challenges.”

Downward pressure on both major US oil and gas price indexes (West Texas Intermediate for oil, Henry Hub for gas) widens spreads between US and international indexes, she said. “This reality, along with the large price premium of oil against natural gas, is unleashing disruptive forces that could lead to long-term shifts in how we develop and use these resources and in international trade patterns,” she said.

US unconventional resource development poses a specific midstream and downstream distribution challenge because of the differing production, processing, and end-use locations, Michot Foss added. The strong spread between WTI and North Sea Brent crude prices has triggered Midcontinent activity to ease bottlenecks, according to Michot Foss. “Some $80 billion in new downstream spending is anticipated in the Gulf Coast alone,” she said. “Other regions and states are targeted to host additional capacity. Timing, location, and ultimate extent of capital expenditure will hinge on many variables.”

Transparent, sensible, and timely certification of proposed facilities will be required to debottleneck US oil and gas transportation and storage systems, she indicated. “Access to right-of-way to build infrastructure is just as critical as access to oil and gas resources in order to sustain domestic industry and production competitiveness,” Michot Foss said.

Certainty essential

More certainty is essential, declared Karen A. Harbert, president of the Institute for 21st Century Energy at the US Chamber of Commerce. Canada and the US were at similar points with oil sands and oil shale in the late 1970s, but while Canada has moved ahead to begin producing its resource, the US downgraded its oil shale R&D research when crude prices plunged in the 1980s and the Obama administration has dramatically curtailed leasing for R&D once it took office in 2009, she said.

“The policy pathway to realizing even a portion of this huge asset is to allow access to our unconventional resources for production,” Harbert said in her written statement. “Congress made its will known through the 2005 Energy Policy Act, but this administration has ignored its mandate and refuses to move forward. Unless this near-sighted approach changes, our largest strategic assets will remain subterranean potential assets until this, or subsequent administration, decide to allow access…and secure our energy future.”

James T. Brown, president of Whiting Petroleum Corp., said the Denver independent producer has grown by primarily producing oil from tight shales on private and state lands. He said that the three main factors in determining any product’s economic viability are capital investments in drilling, well productivity, and product price.

“While we have minimal control over product pricing, we believe that a combination of a stable regulatory environment and continued increase in technologies that help us increase well productivity and reduce our costs will allow energy companies to increase the ultimate recovery from the Bakken shale by more than 60% from 9 billion to 15 billion bbl,” Brown said.

A fifth witness, Daniel J. Weiss, a senior fellow and climate strategy director at the Center for American Progress, said continued government support for renewable and alternative energy R&D makes more long-term sense since it would help move consumers and industries away from environmentally harmful fossil fuels.

Contact Nick Snow at nicks@pennwell.com.

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