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Oil and Gas Research at a Critical Juncture
Scott W. Tinker

The past 20 years have seen a steady and predictable decrease in the percentage of global energy consumption satisfied by oil and coal. At the same time, the share of global energy consumption satisfied by a combination of natural gas, nuclear and other renewables is increasing — what Jesse Ausubel at The Rockefeller University describes as the “decarbonization” of global energy.

There are many excellent reasons why U.S. policies and energy strategies should support and encourage this energy transition. These reasons include energy efficiency, environmental well-being, economic stability, health of the future energy workforce, supply distribution, U.S. and global security and mitigation of an energy crises. Political forces may forestall global energy trends, but decarbonization of energy sources is an inevitable reality.

The United States has a remarkable and absolutely critical opportunity for a public-private partnership that will lead the world into the natural gas economy. Natural gas is an efficient fuel. It has significant environmental advantages over coal and oil, and is more broadly distributed across the globe. Thus, once the transportation networks are established, it will provide long-term price, economic stability and security benefits; and it will serve as feedstock for hydrogen in a hydrogen economy.

To facilitate decarbonization, U.S. policy makers must recognize the significant change in the oil and gas industry that has occurred in the last two decades, implement a redirection of federal resources, and define a mutually beneficial private-public partnership. It is not too late, but it is close.

Private-public partnership

For the foreseeable future, a balance in energy sources is critical to satisfy global demand. Stalwarts such as oil, and to some degree coal, will remain prominent sources of global energy for at least the next several decades. But these are sunset sources of energy, and federal policy and investment should be couched accordingly. Any dollars spent on new research initiatives in coal are dollars spent against natural global trends.

In terms of oil, significantly more will be left in known North American fields than will be discovered by new exploration in North America. Although greater access for new drilling is alluring, and in some cases makes sense, oil independence as a nation is a fallacy that we should not strive for. To the contrary, energy independence is achievable. For oil, federal policy and investment in the form of research, technology and incentives should be directed almost exclusively toward enhanced recovery from known fields — largely the responsibility of the independent oil producer. Enhanced oil production will serve to bridge the gap to a natural gas future. As a benefit, surface environmental impact will be minimal, because no new lands will be used.

In terms of natural gas, the global resource potential is very large. To date, global natural gas has been produced largely in association with oil. So those countries that produce and supply oil also produce natural gas. Currently, about one-third of U.S. annual production of natural gas comes from unconventional gas, or sources not associated with oil, such as coalbed methane, shale gas, basin-centered and tight gas. Other unconventional gas sources include subsalt, aquifer gas and gas hydrates.

Combined with the conventional or associated natural gas, these unconventional sources are the future of global natural gas supply (Geotimes, November 2002 and March 2003). Because their behavior and distribution are not well understood, unconventional sources will require significant research and technology. The private sector will absorb the bulk of the expense to explore for and produce these natural gas resources, but federal officials need to recognize their role — responsibility, really — to invest in research and technology and provide incentives for exploration and production.

Vice President Cheney’s research policy, rightfully, relied heavily on input from the major and large independent oil companies. Access and incentives were the message of the day. The critical missing piece was the reality of paying for and conducting the research and technology development required to transition to a natural gas economy.

Unlike the nuclear industry, the renewables industry and the coal industry, the oil and gas industry never received significant government support for research. The oil and gas business is a technical one. Drilling and operational technologies have advanced to a point where virtually any land drilling location is technically feasible; ocean water depth is less and less a limiting factor; oil and gas fields can be developed using multilateral well bores from a single vertical well bore; and downhole logging tools provide remarkable information about the rock-fluid system. These and other technological advancements have combined to improve efficiency across the oil and gas industry significantly. Importantly, it was the private industry that provided the lion’s share of the research and development that resulted in the creation and application of advanced technology and enhanced efficiency — billions of dollars in funding each year.

Those days are gone, as are most of the research labs. Most sources show private sector funding for oil and gas research is down 50 percent to 75 percent in the past decade, and decreasing. Those who run companies today will tell you that they still consider technology to be a critical factor to business success. However, unlike in the past, major companies and large independents can no longer afford to operate these research and development facilities because the payout time — commonly on the order of 3 to 10 years — far exceeds what the capital markets and commodity price cycles will bear.

Where do we stand?

We are going in the wrong direction, and we are going there fast! Oil and gas research programs across federal agencies have been targeted for massive budget cuts each year for the past several years. For the Department of Energy (DOE), the president’s fiscal year 2004 budget requested of Congress for research directed at major U.S. energy production and consumption represents 3 percent of the total DOE budget. Of that 3 percent, 40 percent is for coal, 39 percent for renewables, 16 percent for nuclear, and only 2 percent is for oil and 3 percent is for natural gas. Let me say that a different way: of the $23.4 billion DOE budget, $315.6 million (1.3 percent) is for the President’s Coal Research Initiative, yet only $26.6 million (0.1 percent) is for natural gas, and $15 million (0.1 percent) is for oil. Compare that to global and U.S. energy consumption, where oil represents 40 percent, and natural gas 25 percent and rising. Let me say that again: 65 percent of the world’s energy is supplied by oil and natural gas, and a combined 0.2 percent of the proposed fiscal year 2004 DOE budget is targeted toward oil and gas research.

Office of Fossil Energy programs for 2004 are required to focus on supporting three of the president’s top energy policy initiatives: Clear Skies, Climate Change and Energy Security. To earn a spot in the fiscal year 2004 budget request, Fossil Energy programs had to demonstrate that they will either support the development of lower cost, more effective pollution control technologies or help diversify the nation’s future sources of clean-burning natural gas; that they will expand the nation’s technological options for reducing greenhouse gases either by increasing power plant efficiencies or by capturing and isolating these gases from the atmosphere; or that they will measurably add to the nation’s energy security by providing a short-term emergency response, such as the Strategic Petroleum Reserve, or a longer term alternative to imported oil, such as hydrogen and methane hydrates.

Investing in a realistic future

In order to ensure a smooth transition to a global natural gas and eventual hydrogen economy, federal investments for the next 20 years should support the production of coal as a long-term bridge fuel, but redirect any new coal research dollars toward more realistic future energy sources. Federal funding should also maintain research and development investment in various renewable and nuclear energy sources; support enhanced oil recovery programs in the United States via private-public research and technology partnerships; and invest heavily in natural gas research and technology across the upstream to downstream spectrum. Such future investment would support and advance energy efficiency, environmental well-being, economic stability, health of the future energy workforce, and U.S. and global security.


Tinker is director of the Bureau of Economic Geology at the University of Texas-Austin, which also serves as the state’s geological survey. E-mail him at: scott.tinker@beg.utexas.edu.

Opinions and conclusions expressed in this section by the authors are their own and not necessarily those of AGI, its staff or its member societies.

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