This column addresses the proposed budget cuts
to the U.S. Department of Energy's Fossil Energy Research and Development
-- specifically the National Energy Technology Laboratory (NETL)
and the National Petroleum Technology Office (NPTO) programs.
The oil technology budget was reduced from $56.2 million
in 2002 to $42.3 million in 2003 to $15.0 million in 2004. The natural
gas technology budget was kept level from $44.1 million in 2002
to $47.3 million in 2003, and reduced to $26.6 million in 2004.
Fossil Energy Consumption and Trends
The past 20 years (1980-1999) have seen:
- A steady and predictable decrease in
the percentage of global energy consumption satisfied by oil (46
percent down to 40 percent) and coal (26 percent down to 22 percent).
- An associated increase in the percentage
of global energy consumption satisfied by a combination of natural
gas, nuclear and other renewables (28 percent up to 38 percent).
- Total global energy consumption increased
by nearly 35 percent (from 282 quads to 379 quads) and shows few
signs of slowing.
- U.S. total energy consumption increased
23 percent (from 78 to 97 quads).
In contrast to global consumption -- which shows a
trend away from coal and oil to more efficient, abundant and environmentally
sound natural gas, nuclear and renewables -- the U.S. energy consumption
mix has remained flat for two decades, to a point where today it
is nearly identical to the global energy mix (coal 22 percent, oil
39 percent and natural gas 23 percent).
To maintain a flat oil consumption curve, the United
States bears the security risks associated with 60 percent and rising
To maintain a flat coal consumption curve, the United
States suffers the resultant air quality emissions from coal-fired
Importantly, fossil fuels account for 84 percent of
global and U.S. energy consumption today. More importantly (due
to factors such as energy efficiency, environmental well-being,
economic stability, health of the future energy work force, supply
distribution, mitigation of an oil crises and national security),
U.S. energy policy and associated legislation should encourage what
Jesse Ausubel describes as "decarbonization" -- the changing energy
mix toward natural gas, nuclear and other renewables.
The Changed Face of Industry: Permanent Decrease
in Private Technology And Research
The oil and gas business is, and will remain, a technical
one. Drilling and operational technologies have advanced to a point
- Virtually any land drilling location is
- Ocean water depth is less and less a
- Oil and gas fields can be developed using
multilateral well bores from a single vertical well bore.
- Downhole logging tools provide remarkable
information about the rock-fluid system.
- Seismic data have evolved to a point
where some depositional systems, using certain attributes and
inversion approaches, lend themselves to direct hydrocarbon detection.
- Reservoir modeling and simulation software
continues to improve, aided by the seemingly endless improvements
in computer -- speed, memory, disk, visualization and transfer
These and other technological advancements have combined
to improve efficiency across the oil and gas industry significantly.
In fact, while manpower in the industry has decreased nearly 70
percent in the past two decades, global production of oil and natural
gas has steadily increased.
There is a logical bottom to the efficiency reflected
in the inverse relationship between required manpower and production,
but the industry has not seen the bottom yet.
The oil and gas industry changed considerably in the
last two decades. Historically, the lion's share of the research
and development that resulted in the creation and application of
advanced technology and enhanced efficiency was funded by the private
sector. Private companies each had research -- later to be renamed
technology -- labs, and they competed for the best intellectual
talent from universities, and with each other to develop advancements
that would provide differentiating competitive advantage and allow
for more expeditious and economic discovery and development of oil
Those days are gone, as are most of the research labs
-- Amoco, Arco, Conoco, Texaco, Chevron, Marathon, Mobil, Phillips
and Unocal -- and much of the R&D spending by petroleum companies,
which has fallen over 100 percent in the past decade.
Major companies and large independents can no longer
afford to operate R&D facilities, because the payout time for
commercialization of research -- commonly on the order of three
to 10 years -- far exceeds what the capital markets and commodity
price cycles will bear.
In order to meet the quarterly market demands, the
private sector has had to focus every effort on reduced cycle time,
replacement of reserves (largely through acquisition), quarterly
return on investment and profit.
Oil and Natural Gas: The Need for Technology
Oil represents a bridge to the natural gas and hydrogen
future. Increased production of known reserves (reserve growth)
via enhanced oil recovery (EOR) projects will continue to account
for more U.S. oil than new discoveries.
Efficient EOR requires advanced reservoir characterization
and technology. These projects, in the United States, will be conducted
largely by the independent producer, who does not have staff or
resources for high-level R&D.
Federal policy and investment in oil research, technology
and incentives should be directed almost exclusively toward the
independent for EOR.
Is this corporate welfare? No more than investing
in clean coal technology, wind turbines or fuel cells. It is simply
a wise Federal investment in the U.S. energy future.
An environmental benefit of EOR is that no new lands
will be impacted.
Natural gas, on the other hand:
- Is an efficient fuel.
- Has significant environmental advantages
over coal and oil.
- Is more broadly distributed across the
globe, which, once the transportation networks are established,
will provide long-term price, economic stability, and security
- Will serve as feedstock for hydrogen
in a hydrogen economy.
The global resource potential of natural gas is very
large. To date, natural gas has been produced largely in association
with oil, called conventional gas. About one-third of U.S. annual
production of natural gas comes from sources not associated with
oil called unconventional gas, such as coalbed methane, shale gas
and basin-centered and tight gas.
Other unconventional gas sources include subsalt,
ultra deep (>15,000 ft) and gas hydrates. Combined with conventional
gas, these unconventional sources represent the future of the global
natural gas supply.
Because their behavior and distribution are not as
well understood, exploration and exploitation will require significant
research and technology investment, both federally and privately.
Public-Private Partnership: A Better Direction
We have before us a remarkable opportunity for a public-private
partnership that will lead the world into the natural gas economy.
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
technology investment should be couched accordingly. Dollars spent
on new research initiatives in coal are dollars spent against natural
National oil independence is highly unlikely -- but
energy independence is achievable with a balanced investment in
a mix of energy sources.
Oil and gas research programs across federal agencies
have been targeted for massive budget cuts each year for the past
several years. The fiscal year 2004 DOE 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,
only 2 percent is for oil and 3 percent is for natural gas.
The remainder of the 3 percent is for coal (40 percent),
renewables (39 percent) and nuclear (16 percent).
Let me say that a different way: Of the $23.4 billion
DOE budget, only $26.6 million (0.1 percent) is for natural gas,
and $15 million (0.1 percent) is for oil.
Oil and natural gas account for 65 percent of the
nation's energy supply but only 0.2 percent of the proposed FY 2004
DOE budget for oil and gas research!
Combine these essentially nonexistent federal dollars
with decreases in the private sector, and there appears to be no
future for young people in the oil and gas energy field. University
statistics reflect this, as U.S. geoscience and petroleum engineering
enrollments are at a 35-year low.
For the next several years, federal investments must
be redirected to focus on federal-private-university partnerships
that help bridge the gap to a natural gas economy, including:
- The continued production of coal with
some "clean coal" research dollars redirected to natural gas.
- Continued renewable and nuclear energy
- Enhanced oil recovery research in support
of independent producers ($150 million).
- Research and technology across the upstream
to downstream natural gas spectrum ($300 million).
It is not too late, but it is close.