Gas Technology Institute, the result of combining the two leading US natural gas research and development organizations, has marked progress in creating a "one-stop-shopping" venue for gas R&D.
The critical nature of that task is echoed in the tightness in the current US gas supply-demand balance. Today's market tightness has spawned not only higher gas prices but also concerns about meeting a rapidly growing US gas market estimated at 30 tcf/year perhaps as soon as the end of the decade. Accordingly, the US gas industry has placed a high priority on developing new technology to bolster the potential supply of gas in the US.
At the same time, the US gas industry faces new challenges in the arena of pipeline safety, which is getting the lion's share of pipeline-related R&D.
The merger, the mission
GTI was created through the merger of Gas Research Institute and Institute of Gas Technology in April 2000 (OGJ, Apr. 24, 2000, Newsletter). This move combined the resources of the two major US natural gas research and technology development organizations into a single entity. IGT dated to 1941, while GRI was founded in 1976. The surviving entity remains an independent, nonprofit technology organization that:
- Performs contract research, development, and demonstration projects in the laboratory or in the field.
- Plans and manages technology development programs for the gas industry and other clients.
- Provides technical services related to gas exploration and production.
- Offers education and training on topics related to natural gas.
- Commercializes new, energy-related technology through a variety of business arrangements.
GTI's mission remains essentially the same as it was with its two predecessor organizations, notes John Riordan, GTI president and CEO. But the combination has spawned R&D cost efficiencies and enabled a broader portfolio of services to its customers in the natural gas industry, he told OGJ in an exclusive interview.
"Our mission is not significantly different," he said. "GTI-like GRI and IGT before it-is an independent, not-for-profit organization that provides technology-based solutions to its members and customers. The biggest change is that we can now offer a more complete portfolio of solutions-contract R&D, technical services, management of technology development, education programs, or information-in one place.
"But we're still focused on technology related to energy and the environment, with a major emphasis on natural gas."
That continuing emphasis reflects the drivers of the merger, which Riordan prefers to think of more as a "combination."
"The major driving force behind the combination was to get in step with our industryellipseto move away from (regulated) operation and toward competitive, market-based operation," he said.
GRI's revenues historically have come from a funding mechanism-a surcharge on interstate natural gas sales-that is authorized annually by the US Federal Energy Regulatory Commission. The FERC funding has declined in recent years and is gradually being phased out. It will provide $70 million in 2001 and $60 million/year in 2002-04; thereafter, funding will come from other sources.
Paralleling the FERC-authorized program is GTI's focus on organizations and groups that seek a competitive advantage through technology advances. This can include the outsourcing of technology research applications or participating in developing technological solutions attuned to specific needs.
Outsourcing and joint ventures, in turn, imply the growing trend toward consolidation and cost efficiencies that has been a primary driver in overall industry activity and thus points to the second driving force behind the GRI-IGT combination: a strong desire to reduce R&D costs.
"Many gas industry companies were members of both IGT and GRI, and the two boards realized that, as FERC-authorized funding declined, IGT and GRI would become very similar operations-even competitors," Riordan noted. "So, it made sense to proactively bring 'the best of both' together into a single entity, to pursue an orderly transition to fully competitive operation."
GTI, headquartered in the Chicago suburb of Des Plaines, Ill., is headed by Riordan and Executive Vice-Pres. and COO Stanley Borys. It conducts business under four divisions: program management, exploration and production, education, and research and deployment.
The research and deployment division, in turn, consists of nine groups: biotechnology and environmental engineering, combustion technology, electrochemical technology, high-temperature fuel cell technology, distributed generation technology, gas operations technology, gas processing technology, transportation systems, and process engineering.
Staff at Des Plaines includes engineers, researchers, program managers, and business analysts. Staff at GTI's Washington, DC, office study market and regulatory trends, evaluate policy issues affecting energy markets, and interact with government agencies and other energy-related organizations. GTI also has specialists in gas exploration and production in Houston, Denver, Calgary, and Des Plaines.
Changing corporate culture
While GTI's mission remains largely the same as its two predecessor entities, the different approaches to R&D each had has made for some minor bumps in the road as the two corporate cultures have blended.
"It's always difficult to bring together two firms with decades of history and corporate memory, but we're making good progress in streamlining our business processes and controlling our costs," Riordan said. "The cultural shift is more challenging. Recall that GRI planned, managed and funded research, while IGT performed R&D as a contractor and provided education and training services. And we'll continue these activities. But all of our staff need to get comfortable describing GTI as one company and marketing our entire slate of capabilities to customers.
"But overall, we're making good progress, and I'm very pleased at the staff's teamwork and enthusiasm."
He reckons that there will be some further integration of staff and refinement of structure over the coming year, "but I'd say we are 95% done with combining the two companies."
Riordan was quick to make clear that GTI will continue to "prudently manage the FERC-authorized funds made available for our use through 2004, and that we will continue to deliver R&D results of broad value to gas customers and the gas industry. That's the basis of our 1998 agreement with the FERC regarding the GRI transition."
At the same time, however, GTI is trying to position itself as an effective direct provider of services and information to paying clients.
"We will start to operate our business now, in many areas, as if the FERC-authorized funding has already ended."
In that sense, GTI now focuses on better understanding the technology needs of current and potential customers, expanding its capabilities and expertise in areas they value, marketing itself more effectively, and controlling its operating costs in order to win new business.
"In simple terms, the combined organization will operate much like IGT has been operating but with even more emphasis on listening to customers and on marketing our products and services," Riordan said. "We've got to continue to improve our ability to provide measurable and valuable results that give our customers a satisfactory return on their investment."
R&D focus
There is likely to be a shift in the type of R&D GTI will focus on, says Riordan.
"I suspect that individual companies will have more interest in near-term, applied R&D that helps them solve a problem, respond to a competitor, or capitalize on a market opportunity," he said. "On the other hand, we also expect to do business with federal or state agencies that often have a longer-term R&D perspective."
GTI will continue the Sustaining Membership Program that IGT started in 1985. This program focuses on using voluntary funding to develop technology for use in the mid- and longer term. About 70 gas industry companies have participated in SMP.
"In terms of technology areas, we will still offer a range of expertise needed to help customers find, produce, deliver, and use natural gas and to resolve related environmental and safety concerns," Riordan said. "And our education programs will still cover a spectrum of business and regulatory issues as well as the latest developments in technology.
"Within any of those broad areas, we will likely sharpen our focus in the next couple of years. But we'll do that based on feedback from customers."
It shouldn't be surprising that an R&D organization funded largely by pipeline operations will focus the lion's share of its R&D on technology related to the delivery of gas to customers. This area, which covers about half of GTI's business, includes research on transmission pipelines and gas storage as well as on gas utility operations. Targets of emphasis include improvements in pipeline inspection systems, methods for repair and rehabilitation of pipe, greater deliverability and flexibility from storage operations, and lower-cost methods for installing, maintaining, and repairing gas mains and service.
Next in line of emphasis is gas supply. Here, special attention is paid to low-permeability formations, onshore deep gas, and studies of fundamental geoscience that can help reduce exploration risk.
And GTI is devoting considerable attention to environmental research. The focus in this area is on reducing airborne emissions (including combustion products such as nitrogen oxides and greenhouse gases), risk-based approaches to clean-up of contaminated sites, and the cost-effective management of wastes associated with gas production (such as produced waters).
Gas supply concerns
Like everyone else in the US natural gas industry, Riordan is concerned about the outlook for US gas supply.
While new technology has improved efficiencies in gas E&P and created new markets for gas, the industry also has had to learn a hard lesson: the difficulty of meeting growing demand while also maintaining affordable commodity prices in the face of volatile weather patterns and shifting global market forces.
Riordan thinks that producers and pipeline operators have equally important roles in serving a 30-tcf market.
To that end, he calls for:
- Pushing for greater access to federal lands for exploration and development.
- Ensuring safe and low-impact E&P and pipeline operations in environmentally sensitive areas or near population centers.
- Effectively managing and minimizing wastes.
- Expanding gas production from deeper formations, low-permeability reservoirs, the offshore, and other challenging environments.
- Developing cost-effective processes for upgrading marginal-quality gas.
- Expanding pipeline system deliverability while continuing reliable, safe pipeline operations.
- Making more effective use of gas storage to meet demand peaks.
- Improving understanding of-and planning for-gas use for electric power generation.
Producers are responding to the higher price signals of the past few months, as indicated by rig counts and announced plans for E&P spending for this year, Riordan noted: "But they will continue to need new technology to help find deeper or more-remote frontier resources with less risk and to develop them at an acceptable cost."
The US pipeline industry also is working hard to expand capacity, Riordan pointed out.
"Our analysis shows that about 20 bcfd of capacity was added between 1998 and 2000. And between 1998 and 2015, we project total investment for pipeline expansion will be about $37 billion-plus another $5 billion for new underground storage facilities."
Gas supply options
Riordan contends that the US gas supply challenges are significant but not insurmountable.
GTI last year projected that Lower 48 gas production will grow to about 28 tcf in 2015 from 19 tcf in 2000. The major contributors to this growth will be the Gulf of Mexico and the Rocky Mountain basins. The gulf, especially the deep and ultradeepwater prospects, will account for the biggest increment of this supply growth, about 3.2 tcf partly offsetting declines elsewhere. And tight sands and other gas resources in the Rockies are expected to spur growth in production of 70% by 2015, compared with 1998 levels.
Canadian imports will provide the second largest increment of gas supply growth, rising to 4.8 tcf in 2015 from 3.5 tcf in 2000.
Gas from Alaska, LNG imports, and some niche emerging resources (such as coalbed methane) will also make modest contributions to incremental supply, Riordan noted. "Our projections are based on the expectation that E&P technology improvements will continue at levels consistent with recent historical experience. Advanced technology will be critical in successfully exploiting deep reservoirs, tight formations, shales, and coalbed methane resources."
Some examples of the technology needed, says Riordan, include advanced seismic, digital modeling of the subsurface, advanced drilling systems, fracture diagnostics, restimulation technologies, and systems for managing produced waters.
Image concerns
With all the promising R&D work designed to bolster US gas supply and the opportunities provided by a rapidly growing market, the US gas industry nevertheless for now must grapple with some recent developments that have left stains on its image.
The most immediate of these trends is the California energy crisis and the past winter's gas price spikes, which have called into question the perception of natural gas as a reasonably priced, reliable energy supply source.
Riordan sees something positive in the controversy over rocketing electric power prices and supply curtailments in California, especially as they are linked to the price and availability of natural gas to fuel the state's power plants.
"First, I think the California experience has helped educate the public, as well as legislators and regulators, about the complexities of deregulation, the increasing role of nonutility power generation, and the growing importance of natural gas as a fuel for generating electricity. Those are all important lessons," Riordan said.
"With regard to price spikes for electricity and gas, we've learned once again that the relationships among supply, demand, and price apply to energy just as they do to other products. And that hard-to-predict weather patterns and global market forces also can have a major impact on price.
"Has the reputation of natural gas been tarnished a bit? Perhaps. But I think the industry has done a pretty good job of explaining the set of factors that led to the spikes. The challenge now will be to show that the price jumps really were unusual and temporaryellipsethat supply can be increased to match growing demand."
Looking ahead, GTI expects that the link between gas and electricity will get even closer. The growing popularity of gas for power generation stems not just from its cleaner-burning qualities but also from advances in gas technology, Riordan said: "We estimate that virtually all new central generating capacity [in the US] added by 2015 will be built by independent or merchant power generators and that many, if not most, of these plants will use gas-fired combined-cycle or combustion turbines."
In the more-distant future are several "next-generation" systems for producing electric power that will also be based on natural gas, such as microturbines and fuel cells. GTI and others are on the verge of bringing these technologies to market.
Technology advances have also helped natural gas play a role in the revival of interest in coal-fired power plants, something that Riordan sees as more of an opportunity than as a competitive threat.
"Our view has always been that the nation requires a mix of energy resources to meet a wide range of needs," he said. "Whether you're talking about coal, natural gas, oil, nuclear, or renewables, technology is always a key factor: What advances can be achieved to help boost the availability, improve the economics, or ensure the environmentally acceptability of an energy resource?
"And sometimes, technology uncovers new ways of thinking about energy. For example, over the past decade, GTI and its partners have developed technologies for burning gas with coal-cofiring and reburning systems-that help utilities and large industrial customers comply with air-quality regulations and still take advantage of the economics of coal. We've also done a good deal of work in past years on coal gasification. So, we do understand the important role that coal plays in the US energy portfolio."
Safety
An even bigger concern for GTI is the issue of pipeline safety, especially in light of several explosions on gas pipelines in recent years that resulted in the loss of lives in the US.
GTI has earmarked $8 million of its $12 million pipeline research budget for safety-related R&D.
"Our major focus is on improving technology for in-line inspection of pipelines," Riordan noted. "This includes improvements in nondestructive evaluation systems, methods to detect and monitor mechanical damage, a device for characterizing the severity of pipeline-wall gouges, an ultrasonic system to identify and characterize stress corrosion cracking, and an aboveground unit for detection of pipe corrosion.
The other major element of GTI's program focuses on pipeline integrity management. This includes research on:
- Predicting and minimizing external force threats to pipelines.
- Integrity assurance programs for pipeline management.
- Improved prediction and mitigation of pipeline corrosion.
- Improved ground-penetrating radar.
- Risk design tools and an operations safety digest on integrity management issues.
- Basic research on corrosion-related modeling and monitoring, stress corrosion cracking, and pipeline coating performance.
"We coordinate our program closely with the pipeline industry in framing our research agenda, and we started a substantial initiative last year with the US Department of Transportation to further develop internal inspection technologies," Riordan said.
A big part of GTI's program will be the creation of the Gas Pipeline Center of Excellence. The center will allow various constituencies to access test data and to influence the direction of research on pipeline safety and reliability, Riordan said.
Challenges
For the near term, GTI is focusing on these major challenges:
- Establishing the new GTI "brand identity."
- Building up its capabilities in sales and marketing.
- Working harder to understand customer needs.
- Expanding its customer base.
- Developing more options for customers to work with GTI.
- Strengthening its performance capabilities in key technology areas.
- Controlling operating costs and streamlining business processes.
GTI still maintains a primary focus on North American gas markets-in particular, the US-and has no plans for major international initiatives, Riordan said.
"However, we certainly do keep up with gas-related technology developments around the world. For example, again this year, we are a cosponsor and a participant in the International Gas Research Confer- ence, set for November in the Nether- lands. We also share information frequently with our 45 international members about gas technologies and markets."
GTI Pres., CEO John Riordan
The major driving force behind the combination of GRI and IGT was to get in step with our industryellipseto move away from "regulated" operation and toward competitive, market-based operationellipseThe second driving force behind the combination was a strong desire to reduce R&D costs.
Producers are responding to the higher price signals of the past few months, as indicated by rig counts and announced plans for E&P spending for this year. But they will continue to need new technology to help find deeper or more-remote frontier resources with less risk and to develop them at an acceptable cost.
Our major focus is on improving technology for in-line inspection of pipelines. This includes improvements in nondestructive evaluation systems, methods to detect and monitor mechanical damage, a device for characterizing the severity of pipeline-wall gouges, an ultrasonic system to identify and characterize stress corrosion cracking, and an aboveground unit for detection of pipe corrosion.
