Call if an unfortunate case of perception
Everyone actively involved in the upstream petroleum
business may realize how high-tech the industry has become, but
the general public tends to view the business as fairly low-tech.
When all they usually see are pictures of people
standing around a rotating kelly bushing or old historical photos
of blowouts, who could blame them?
Such misconceptions by the public may not seem particularly
important to the industry, but they should be, because this lack
of understanding seeps into the halls of Congress -- where significant
funding issues for future research and development hang in the balance.
And without a widespread, general appreciation for
the technologically intensive nature of the petroleum business,
the continued advancement of technology may be jeopardized.
That's the opinion of David M. Weinberg, science-engineering
fellow with the Idaho National Engineering and Environmental Laboratory
fossil fuels department and a technical paper presenter slated for
the AAPG Annual Meeting in Houston.
"What people don't realize -- and I think this is
an important message that has to be heard and acted on -- is that
the level of sophistication in today's petroleum industry is every
bit as high as medicine, and in some cases more sophisticated than
planetary exploration by NASA," he said.
"However, like medicine, this sophistication comes
with higher costs."
Weinberg's paper is part of a session titled "The
Future of Petroleum R&D," sponsored by the AAPG Research Committee.
"Today's problems will require more sophisticated
technology than yesterday's -- and tomorrow's challenges will require
more advanced technology than we have today," Weinberg said. "But
energy prices simply can't escalate to meet the increasing technology
Weinberg anticipates that technology costs will rise
faster than crude prices in real terms, short of an energy crisis
driven by a supply restriction.
"So the industry must find new ways to meet its technological
needs," he added, "and that means a rethinking of the traditional
model for research and development."
The Cost of Progress?
Weinberg pointed to a 1995 report to the Department
of Energy by the Task Force on Strategic Energy Research and Development,
which was chaired by Daniel Yergin, as making several pertinent
Investment in R&D, both public and private, is America's
investment in its future.
It is a major driver of economic growth and job creation, the
report said, and one of the most important foundations for America's
future competitiveness and international leadership.
Federal energy R&D has been cut by 75 percent since the
At the time of the report the Japanese government spent more
than twice that on energy as the United States.
Widespread cutbacks, restructuring and foreshortening of
time horizons threaten the U.S. R&D effort at a time when science
and technology are of growing importance for meeting global challenges
-- and this may portend a brewing R&D crisis.
Energy is fundamental to the ability of industrial societies
Global energy demand, arising mainly from developing economies,
is expected to grow by about 40 percent in 15 years.
Global energy markets are now less regulated and more market-oriented
than they were 15 years ago -- but because of its strategic and
economic importance, there is a continuing and critical security
component to energy, especially oil.
The United States is a declining oil producer.
Almost half of 1995 oil demand was met by imports, and imports
could be 60 percent or more by 2010.
Weinberg said the task force was right on target
-- oil imports were at 58 percent by 1999. But one trend that the
group failed to address was the near total divestiture of oil and
gas R&D by the producing companies.
"While incremental improvements on existing technology
are being addressed by the service sector," he said, "the capacity
of the U.S. oil and gas industry to do its own research and development
is essentially non-existent."
R&D within major producing companies can survive
only if there is measurable value added, he said.
Put simply, oil companies have to make money and
they are constrained by the stockholders, so consequently the allocation
of capital dollars for new technologies without an intelligently
risked approach to what the value will be should the technology
succeed is not a viable option.
This is not a new phenomenon.
"The industry is very dedicated to identifying in
hard terms what the value add is going to be, and that's difficult
to do with research," Weinberg said. "Value add for research tends
to be over a much longer time frame, so it's more difficult to identify
"For oil companies there is a time value of money
issue, and the reality is it's almost impossible to document when
the first germ of an idea was conceived and follow that through
Low Hanging Fruit
He said research and development in the petroleum
industry is at a crossroads.
"For the last decade the industry has operated under
what I call the John Brown model," he said.
Sir John Brown, chairman of BP, shut down all of
the firm's research facilities in the early 1990s after realizing
that most of the useful new technologies were not coming from their
"His new model revolved around employing a small
group of technically competent people to survey new technologies
and determine those that could benefit the company," Weinberg said.
"Then, BP could simply go out and acquire that technology.
"There's certainly a logic to this approach," he
added, "but there are some huge assumptions in the model."
The biggest assumption, according to Weinberg, is
that needed technologies are being developed and can be purchased.
"Through the late 1990s Sir John Brown appeared to
be quite pre-omniscient," Weinberg said, "but in fact, BP and other
companies have simply picked all the low hanging fruit -- the model
no longer works because the technology pipeline has dried up."
Weinberg said there are myriad of signs that new
research and development is on the wane, and proposals to research
groups have declined dramatically.
"For example, a DOE official recently indicated that
most of the proposals DOE is seeing are rehashes of old ideas,"
he said. "Consortiums led by universities are suffering, and consequently
this major source of research funding is drying up.
"One consortium that dates back to 1972 when there
were 20 members is currently down to just 12 companies -- largely
a symptom of mergers."
According to the Schoenfield & Associates R&D
survey last year, research spending of upstream oil and gas companies
declined to $400 million in 2000 from $600 million in 1992. Another
important factor is the percentage of that funding that went to
applied or basic research. In 1992 $25 million of the total was
spent on basic research, but in 2000 less than $10 million went
to basic research.
"The decrease in basic research goes back to the
John Brown model," Weinberg said. "The industry's expenditures have
gone to picking the low hanging fruit of applied research."
Digging for Answers
So where does the industry's R&D go from here?
"First, we must come to grips with the fact that
we can't do it all and we have to borrow a lot of ideas from other
industries," Weinberg said. "And you can't borrow unless you can
give something back, which means we have to reinvestigate the paradigm
under which we work.
"All the good ideas don't come from the United States,
or the oil industry for that matter," he continued. "We have to
look outside ourselves for good ideas -- ideas that can help us
address the problems we face.
"We should always be aware of research in areas that
might not seem closely related, but where we can glean ideas that
could be applicable to our industry."
As an example, Weinberg cited the "Industrial Physicist"
journal, where a recent article discussed smart materials that are
capable of being induced into changing shapes on command.
"I can think of a couple of ways that concept might
be useful in the oil patch," he said. "It's that kind of 'information
mining' we all need to actively pursue."
Granted, some oil companies do actively support information
mining when looking for solutions to their problems. Many resources
exist to help anyone search for any research worldwide that might
be beneficial to the industry.
The Internet, for example, has dramatically changed
the face of R&D by providing an awareness of what scientists
all over the world are doing.
"Information mining helps us overcome our own prejudices
and look at a wider range of research," Weinberg said. "I have found
it's through a network of people in other fields that I get a great
deal of inspiration. So many ideas coming out of medicine can be
applied to earth problems."
For example, tomographic imaging, data fusion techniques
or the pill containing a tiny camera sensor are all new concepts
that Weinberg believes could have applications in the industry.
He acknowledged, however, that much of the future
in oil and gas research and development will have to come through
the DOE. Academia does a good job of basic research, but doesn't
have a particularly outstanding record for getting that science
into a useful form.
"The 1996 battle cry of the 'new' Republicans eschewing
'corporate welfare' while cutting federal budgets for energy research
need to wake up and see the real picture," Weinberg said. "Federally
funded oil and gas research is no more corporate welfare than are
research appropriations for new defense systems."
The good news is that since the 1995 Task Force on
Strategic Energy Research report federal funding for oil and gas
research has increased from $78.6 million in 1996 to $88.9 million
"To paraphrase a famous quote, at its most developed
science is indistinguishable from magic," he said. "We have to collectively
come together and get back to the magic.
"It will take every segment of the research community
to meet the petroleum industry's future needs," he added. "Every
organization -- from the DOE through academia down to the oil companies
on the front lines -- must first recognize the importance of continued
basic and applied research, and then pursue that research."