OTC: US production boost seen from R&D consortium

May 22, 2006
Falling US oil and gas production could be turned around if a controversial section of a recently passed bill is implemented, members of a technology panel said May 3 at the Offshore Technology Conference in Houston.

Falling US oil and gas production could be turned around if a controversial section of a recently passed bill is implemented, members of a technology panel said May 3 at the Offshore Technology Conference in Houston.

Sub-part J of the Energy Policy Act of 2005 (EPACT) authorized the formation of a research and development consortium to develop commercially viable production technologies.

Ultradeepwater technology will be one of the consortium’s production targets. The program also will address safety, environmental impact mitigation, challenges of small producers, and workforce issues. The initiative was born of a 1999 National Petroleum Council study that warned of serious supply shortfalls by 2025 and called for development of advanced production technologies (OGJ, May 8, 2006, p. 15).

“Natural gas prices were low [in 1999], and domestic gas production had fallen off the cliff,” said Charles Cooke, a staff member on the House Science and Technology Committee, which worked on the measure for 5 years. “So that was the driver at the time.”

The not-for-profit R&D consortium consists of more than 80 companies, organizations, national laboratories, universities, and other research groups. The Department of Energy will administer the program, which will be funded with $50 million/year over a 10-year period, said Cooke. Because it isn’t yet known how much the program will cost, there is a contingency $100 million/year available if needed.

The consortium issued solicitations for research awards Nov. 3, 2005, said Brad Tomer, acting director of the Strategic Center for Natural Gas and Oil, a division of DOE’s National Energy Technology Laboratory. The Secretary of Energy makes the final decision on all awards. About 35% of the designated funds will be for ultradeepwater technology, 32.5% for unconventional onshore gas initiatives, 7.5% for small-producer challenges, and 25% for basic research.

Research to extend the production life of hydrocarbons is important, said Tomer, because fossil energy makes up 85% of the US energy supply. He said R&D successes linked to programs implemented in the past are responsible for 25% of the gas and 13% of the oil produced in the US.


Not everyone is pleased with subpart J of EPACT, however, and opponents are attempting to have it repealed, Cooke said. “The program is under attack from the left and the right,” Cooke said. “My opinion is that this is a product of fear in Washington right now over what to do in response to energy prices, and [it] is not based on understanding of the program.” He said opponents question why the government should pay for the program when oil price exceeds $70/bbl.

“It is needed,” he said, because “few energy companies have R&D programs.”

Insisting that the program is not a subsidy, Cooke added, “It is essentially a reinvestment by the government of funding from royalty revenues-investing to produce even more natural gas and oil.”

Michelle Foss, chief economist and director of the Center for Energy Economics at the University of Texas, said, “Public acceptance is key, or technological benefits will not be realized.”

Ambitious goals

In programs such as this, public money should be used for public benefit, said Brian Clark, a director of the Research Partnership to Secure Energy for America and a Schlumberger Fellow with 40 patents. He sees EPACT as an opportunity to define and correct key industry problems that would have the highest impact, such as basic research into reservoir properties.

Clark said the focus should be on applying technology, not building hardware. He would like to determine how to get the technology into commercialization within 3-4 years when the typical project takes 10-16 years (3 years for research, 10 years before commercialization, and 6 more years for improvements), costs $20 million, and requires an engineering staff of 130.

Another opportunity from the bill would be to “exploit and expand the talent pool in universities” and work hand-in-hand to create a future workforce while students are doing graduate level research, said Clark. “With manpower shortages and increased E&P activities, there is no time to experiment,” he said.

Foss concurred, saying a 10-year program such as EPACT could stabilize university student registration, countering problems associated with the industry’s boom-bust cycles.