Report of the Energy and Mineral Policy Committee

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Nov 8, 2013 (4 years and 1 month ago)

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Report of the Energy and Mineral Policy Committee
AASG Annual Meeting - June 15-18, 2003, Nebraska
Scott Tinker (TX) Chair
James Davis (CA) Earl Bennett (ID)
Lee Allison (KS) Jim Cobb (KY)
Chacko John (LA) Val Chandler (MN)
Ed Deal (MT) Jon Price (NV)
Charlie Mankin (OK) John Beaulieu (OR)
Ramon Alonso Harris (PR) Rick Allis (UT)
Rick Berquist (VA) Ron Teissere (WA)
Carl Smith (WV) Lance Cook (WY)
Nick Tew Rod Cambellick
This Committee shall track, comment on, and provide input into federal legislation and regulations relating
to the nation’s energy and mineral resources. This includes issues involving federal lands and
international policies. Provide the Association with updates as appropriate regarding the federal
administration's and Congressional proposed consolidation or reorganization of Mineral leasing, royalty
stream management, and operational oversight. Pursue further talks regarding possible cooperation
between the Association and OSM involving sharing of databases, and potential computer systems and
technical training for non-primacy states.
Report
Minerals
On the minerals front, there is an effort within NASULGC to build an external grants program within the
USGS Minerals Program. This follows a recommendation made by the National Research Council in 1996.
AASG has been supportive of the effort, but NASULGC's Mineral and Energy Resources Section is taking
the lead on lobbying. It will be difficult to add new money into the USGS Minerals Program, because the
President's budget for FY'04 calls for a significant cut.
Fossil Energy
The current administration has designed oil and gas energy policy around access to new lands for E&P, and
incentives to explore and produce. DOE Fossil Energy oil and gas research has been systematically targeted
by OMB for very large budget cuts.
As Chair, in 2003 I submitted written testimony on the DOE O&G budget to the Senate and House
Committee's, published articles on the same topic in Geotimes and the AAPG Explorer, chaired an NRC
Workshop on Natural gas, the report of which should come out in August of 2003, and spent some time
with Texas Senator Hutchison and Dr. Kathy Olson (Deputy Science Advisor to the President). Other
members of the Committee were also active with their Congressmen and Senators, and Charlie Mankin had
consistent input with Deputy Secretary of Fossil Energy Mike Smith.
A summary of the current status of U.S. fossil energy situation follows.
The president’s budget proposes deep 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. Oil Technology budget was reduced from $56.2 million
in 2002 to $42.3 million in 2003 to $15.0 million in 2004, and 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.
These reductions come at a time when private sector spending on fossil energy research is at a several
decade low and falling, university enrollments in geosciences and petroleum engineering are at 40 year
lows, oil and natural gas demand represents 60% of all energy demand combined and is rising in
percentage and absolute terms owing to increased overall energy demand, imports of oil and natural gas by
percentage continue to rise and impact national security, and oil and gas resources that remain--although
potentially abundant--will require new and advanced technologies. The time is critical for a changed model
from the past, a model that includes increased Federal awareness of the changed nature of the private
energy sector, leveraging of the very real opportunities for private-public partnerships, and public
awareness of the economic and environmental benefits that will result from same.
Consumption: Fossil energy consumption is rising and the trend is toward natural gas
The past 20 years (1980–1999) have seen a steady and predictable decrease in the percentage of global
energy consumption satisfied by oil (46% down to 40%) and coal (26% down to 22%), and an associated
increase in the percentage of global energy consumption satisfied by a combination of natural gas, nuclear,
and other renewables (28% up to 38%). From 1980 to 1999 total global energy consumption increased by
nearly 35% (from 282 quads to 379 quads). During the same period, U.S. total energy consumption
increased 23% (from 78 to 97 quads).
In contrast to global consumption, which shows a trend away from coal and oil to 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%, oil 39%, and natural gas 23%). To maintain a flat oil
and coal consumption curve, the United States bears the security risks associated with 60% and rising oil
imports and the resultant air quality emissions from coal-fired electric plants. Importantly, fossil fuels
account for 84% of global and U.S. energy consumption today. More importantly, for reasons including
energy efficiency, environmental well-being, economic stability, health of the future energy workforce,
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.
Energy Consumption by Fuel Type
20%
25%
30%
35%
40%
45%
50%
1980 1985 1990 1995
Year
U.S. Coal
World Coal
U.S. Oil
World Oil
U.S. Gas, Nuclear, Hydro,
Renewables
World Gas, Nuclear, Hydro,
Renewables
U.S. Data: Annual Energy Review 1999 (EIA, 2000)
World Data: International Energy Annual 1999 (EIA, 2000
)
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 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, downhole logging tools provide remarkable information about the rock-fluid
system, seismic data have evolved to a point where some depositional systems lend themselves to direct
hydrocarbon detection, all aided by the seemingly endless improvements in computer—speed, memory,
disk, visualization—capabilities. These and other advancements have combined to improve efficiency
across the oil and gas industry significantly. In fact, while manpower in the industry has decreased nearly
70% in the past two decades, global production of oil and natural gas has steadily increased.
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 and gas. 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 has fallen over 100%, from $5 billion to
nearly $2 billion 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 3 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.
The Need for Technology: Oil and natural gas will require increased R&T in the future
Oil. 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.
Historical U.S. Composition of Total Oil Discoveries (1980-20
0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1980 1985 1990 1995 2000
U.S. Oil (MMbbls)
Reserve Growth
New Fields
Data: U.S. crude oil, natural gas, and natural gas
liquids reserves: 2001 Annual Report (EIA, 2002)
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. Natural gas (1) is an efficient fuel, (2) has significant environmental advantages over coal and
oil, (3) is more broadly distributed across the globe, which, once the transportation networks are
established, will provide long-term price, economic stability, and security benefits, and (4) 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.
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1990
1992
1994
1998
1998 $
$ Billion
1996
Chris Ross, World Energy (2001, v.4, no.2)
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1990
1992
1994
1998
1998 $
$ Billion
1996
Chris Ross, World Energy (2001, v.4, no.2)
A Better Direction: A public-private partnership will facilitate a smooth transition
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 global trends. 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% of the total DOE budget. Of that
3%, only 2% is for oil, and 3% is for natural gas. The remainder of the 3% is for coal (40%), renewables
(39%), and nuclear (16%). Let me say that a different way: of the $23.4 billion DOE budget, only $26.6
million (0.1%) is for natural gas, and $15 million (0.1%) is for oil. Oil and natural gas account for 65% of
the nation’s energy supply but only 0.2% 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.
Opinion
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 (1) the continued production of
coal with some “clean coal” research dollars redirected to natural gas, (2) continued renewable and nuclear
energy research, (3) enhanced oil recovery research in support of independent producers ($150 million),
and (4) research and technology across the upstream to downstream natural gas spectrum ($300 million).