$250 Billion of Benefits from DOE’s Core Oil & Natural Gas R&D

Recent results from DOE’s National Energy Modeling System have indicated that the Office of Fossil Energy’s core Oil and Natural Gas R&D Program will benefit the Nation by $250 Billion of cumulative benefits through the year 2025. This program is implemented by the National Energy Technology Center’s Strategic Center for Natural Gas and Oil (SCNGO). SCNGO’s core R&D program includes reservoir remediation, wellbore cleanup, surface optimization, improved CO2 supply, low-cost injectors (conformance control), cost effective, hi-res imaging for real, time monitoring, environmental solutions, and portions of Section 999 of the Energy Policy Act of 2005.

DOE Oil & Gas Research Program—Success Stories

U.S. Department of Energy oil and gas research programs have supported and catalyzed America’s petroleum technology leadership for decades. Some of the most important exploration and production technology advances of the past century had their roots in research conducted under DOE/NETL or predecessor organizations, including: waterflooding (1920s), mud-pulse telemetry (1970s), and polycrystalline diamond compact (PDC) drillbits (1980s).

In 2001 the National Research Council (NRC) found that: “DOE’s program appears to have met its objectives of expanding the oil and gas resource base and increasing domestic production of oil and gas in response to mandates from Congress or the Administration … by utilizing DOE expertise and emphasizing high-risk projects. Also, DOE supports smaller companies and independent oil and gas producers, which make up a significant portion of the production capacity in the United States and which have limited resources to undertake R&D programs.”

Meeting these objectives has resulted in a number of success stories, seventeen of which are grouped below into four broad categories: (1) Underdeveloped Resources Brought On Line, (2) Technology Breakthroughs, (3) Successful Support of Regulatory Enhancements, and (4) Today’s Research for Tomorrow’s Energy Success Stories.

Underdeveloped Resources Brought On Line
Coalbed natural gas commercialization - DOE’s early R&D in coalbed natural gas (CBNG) provided a critical knowledge base upon which private industry developed the Black Warrior Basin of Alabama and the San Juan Basin of New Mexico and Colorado. A $30 million research program supported by DOE during 1978-82 served as a foundation for the Gas Research Institute (now the Gas Technology Institute) to continue to work with industry on CBNG technology commercialization. Tax incentives in combination with DOE and GRI technology provided the impetus to transform CBNG from a coalmine hazard to a resource that now supplies nearly 10% of domestic natural gas.

Tight Gas - From 1981 to 1988, in the Piceance basin of western Colorado, DOE drilled and evaluated the geology and performance of tight gas sandstones in three closely spaced wells. The comprehensive test data derived from these experiments provided critical insights into the stimulation techniques necessary to improve production rates from low permeability sandstones, and remains a primary source of information on tight sand reservoir heterogeneity, rock properties, and modes of natural fracturing. The site was a catalyst for the development of advanced technologies such as cross-well tomography and microseismic monitoring. A more recent project in New Mexico’s San Juan basin revealed that tailoring infill well drilling to trends in reservoir heterogeneity can boost a field’s ultimate production by more than 40%; a resource addition of more than 7 Tcf in the San Juan Basin alone.

Gas Shales - Another DOE research program, which ran from 1976 to 1992, resulted in a five-fold increase in gas production from the fractured shale reservoirs of the eastern U.S. The work initiated by DOE revealed the fundamental mechanisms of gas storage and release in shale reservoirs, and developed operating practices that continue to be used in completing and stimulating shale reservoirs today. Shale gas production is currently the nation’s fastest growing gas resource, one example of which is the successful development of the Barnett Shale in the Fort Worth Basin of Texas. DOE investment in basic research continues to pay dividends nationwide.

Heavy-oil field reactivation – A DOE-funded project has revitalized a century-old, heavy-oil producing property in California’s San Joaquin Valley. After being shut in for almost a decade, a portion of the supergiant Midway-Sunset field was revived through a project with the University of Utah. Using a computer model of the reservoir to identify producibility problems, the operator was able to optimize enhanced oil recovery schemes. The result: added production of 2.52 million barrels of oil from a property once deemed depleted. As other areas of the field apply the technologies demonstrated by the DOE-funded project, another 80 million barrels of incremental oil is expected. Technology developed under another DOE-funded project is expected to add 13 million barrels of incremental oil production in a portion of the Wilmington oilfield, a 73-year-old giant field in Long Beach, CA. If the innovative techniques developed under the project are applied field-wide, it could result in boosting Wilmington’s ultimate oil recovery by 525 million barrels of oil, effectively doubling the field’s remaining proved reserves. This technology could boost reserves in similar fields along the California coast by 1.4 billion barrels of oil. The City of Long Beach is a direct beneficiary of the results of the project; it effectively converted an environmental subsidence issue into a major revenue stream for the City.

Stripper Well Consortium - This Consortium, supported with DOE funds, has provided over 100 small oil and gas producers with the opportunity to participate in technology development. The 5-year-old program has already yielded commercial technologies that are improving performance in nearly 1000 of the marginal oil and gas wells that provide 7% of domestic gas and 15% of domestic oil production. Examples include two new pump designs, an improved chemical injector, and a flow device that helps in the removal of water from low-pressure gas wells. The Consortium’s research is a perfect example of a successful collaborative effort among DOE, academia, and industry.

Technology Transfer to Independents – In addition to the Stripper Well Consortium, DOE directly impacts the small producer by funding an active technology transfer program in association with the Petroleum Technology Transfer Council (www.pttc.org). In addition to an in-depth web-based information system, PTTC currently hosts nearly 150 regional events each year drawing about 6,000 participants, and further leverage is obtained by posting workshop summaries online.

Technology Breakthroughs
Advanced Drill Bits – Polycrystalline diamond compact (PDC) drill bits—now one third of the market—is a technology that was given a jump-start by DOE-funded research in the 1980s. This collaborative effort continues, and a new bit with high-strength diamond cutters completed field-testing and development last year. This bit has the potential to significantly reduce the cost (through increased bit life and improved rate of penetration) of reaching deep, tight gas reservoirs. A major bit manufacturer has plans to integrate this bit into its product line during 2006.

High-resolution downhole imaging - A major new advance in seismic technology developed under a DOE project has made a significant contribution to reducing the oil and gas industry’s exploration and development risk. Paulsson Geophysical Services has fabricated a 400-level downhole receiver array for high-resolution seismic imaging of oil and gas reservoirs. The receiver array is deployed on standard production tubing or drill pipe, and when combined with a multi-component seismic-signal source, can record 9 components of seismic energy; five times the recording capability of current state-of-the-art borehole seismic equipment. This new technology improves image resolution up to 10 times over what was possible with standard three-dimensional seismic recording systems, allowing the resolution of features as thin as 4 feet. This added level of reservoir detail has already decreased the number of dry holes being drilled in fields in Alaska and Texas.

Composite Drill Pipe – With funding from DOE, Advanced Composite Products & Technology (ACPT) has developed a flexible drill pipe made from carbon fiber composites that will enable drillers to utilize existing wellbores to reach and produce bypassed oil and gas resources without the cost and environmental impact of drilling new wells. The flexible composite pipe can be used to drill high-angle lateral holes without suffering the fatigue damage that leads to costly pipe failures with steel pipe. ACPT has received orders for over 2,000 feet of pipe and is currently working on the development of a larger-diameter version that will contain a conductor within the body of the pipe for relaying real-time downhole data.

Intellipipe – Novatek and Grant Prideco have completed development of a “smart” drill pipe (IntellipipeTM) that will enable operators to monitor downhole conditions in real time, providing significant improvements in safety and drilling efficiency. A new commercialization company has been formed that expects to employ over 1,000 workers. This technology, developed with DOE funding, opens the door for an entire new suite of downhole tools that could revolutionize the way industry drills for oil and gas.

Successful Support of Regulatory Enhancements
Area of Review - A DOE-funded research initiative has helped to modify an unnecessarily burdensome regulation, saving industry hundreds of millions of dollars. Drinking-water protection standards developed in the 1980s require that operators planning to drill a new injection well evaluate all wells within a quarter-mile radius of the proposed well. Operators must pay to obtain data on these wells and where there are problems must repair or plug the wells, regardless of ownership. DOE co-funded a project with the American Petroleum Institute (API) to demonstrate that it was appropriate to grant variances to the regulatory requirements under certain circumstances, for example, when no drinkable groundwater is present. EPA agreed and allowed states to approve variances, saving the industry over $300 million over five years—$86 million in the East Texas field alone—for investment in finding and producing domestic oil and gas.

Risk Based Data Management System - RBDMS is a relational data base and associated applications that allow state agencies to manage, analyze, and report all of their oil and gas-related information, including data on production, injection, well construction, environmental compliance, permits, wastes, and surface facilities. Developed with DOE funding, the database is now used in 20 states and one Indian Nation—with more states expressing interest—to manage oil and gas production- and water injection-related activities. RBDMS allows agencies to improve regulatory decision-making, make oil and gas information more readily available to industry, increase environmental compliance, and reduce regulatory barriers to oil and gas production. In addition to the many benefits RBDMS offers to regulators, the system saves industry money that can be reinvested in domestic production. The on-line permitting function alone is estimated to save over $20 million a year by reducing downtime for well workovers.

NORM treatment - In the mid 1990’s public anxiety over Naturally Occurring Radioactive Material (NORM) from oil and natural gas production was rising. EPA was considering a national rulemaking and NORM handling and disposal had become a significant issue for both regulatory agencies and petroleum producing companies. Disposal costs had risen to as high as $300/barrel and operators had thousands of barrels of waste stored across the country. DOE conducted risk assessments and determined that the risks to humans and the environment are low if minimal standards are followed. These results reduced public concern over the issue and provided the industry and state regulators information to facilitate safe handling and disposal of NORM at reduced cost. DOE sponsored a pilot demonstration focusing on economic and effective treating technologies and developed model regulations that states could follow. As a result, EPA withdrew its rule-making effort and NORM disposal costs dropped to below $50/ barrel.

Synthetic mud research - While water-based drilling mud can be safely discharged directly into the ocean, the oil-based fluids often required for deep and extended-reach drilling cannot. Synthetic Based Mud (SBM) performs as well or better than oil-based mud for most applications, but is very expensive. Because SBM is recyclable, operators sought permission to discharge clean SBM-related cuttings, as they have historically done with water-based drill cuttings. Because existing regulations did not adequately address the issue, DOE funded environmental risk-assessment research and determined that offshore disposal of cuttings from SBM did not harm the environment. DOE also established an informal synthetic-fluids discussion group—including EPA, DOE, MMS, and several drilling, service, and oil and gas companies—that addressed cutting toxicity, analysis, seabed effects, and biodegradation. As a result of DOE’s research and leadership, EPA issued a presumptive rulemaking allowing discharge of SBM cuttings, making SBMs an economic and environmentally friendly alternative to oil-based drilling muds. This has supported an increase in exploration and development drilling in the deepwater Gulf of Mexico, perhaps the most important U.S. province for future major oil and gas discoveries.

Alaska tundra access – Access to Federal and state lands in Alaska is critical for increasing America’s domestic oil production. As much as 50 billion barrels of oil is estimated to be in-place in the environmentally sensitive North Slope. To find and produce that oil without damaging the fragile tundra, the industry has only the winter work season to carry out seismic exploration, to build ice roads for exploratory drilling, to carry out construction activity, or to perform maintenance on remote infrastructure. The length of this season has shortened over the past 30 years, dropping from over 200 days in 1970 to about 100 days in 2003, imposing a limit on activity and prompting DOE’s involvement. DOE is working with partners to provide tools that will lead to a longer work season while maintaining, and occasionally enhancing, current levels of environmental protection. For the last couple of years, Alaska’s Department of Natural Resources has safely opened portions of the North Slope as much as two weeks earlier than it did in prior years, based on the results of the DOE sponsored Tundra Travel Model. Similarly, DOE is developing lake recharge models that will be used to estimate the maximum quantity of fresh water that might be available for ice-road construction without adverse environmental impact. Increased water withdrawal limits, combined with better use of ice-chips, should lead to faster road building, in turn leaving more time for well drilling before the spring thaw forces companies to retreat back across the ice roads before they become too soft for use. DOE’s emphasis on safely increasing the winter work season could allow companies to complete exploration wells within one season rather than two, thereby increasing the flow of domestic oil from Alaska.

Today’s Research for Tomorrow’s Energy Success Stories
Methane Hydrates - From 1983 to 1992, DOE’s modest program in methane hydrates (in collaboration with the USGS) served to establish a basic foundation in hydrate science and established the vast scale of the domestic hydrate in-place resource. A renewed program begun in 2000 is unique in its degree of interagency and international collaboration, and continues to make significant progress. One pivotal event was the collaboration in 2002 with the Japanese and the Canadians to test and model a hydrate reservoir at the Mallik site in northern Canada. This work confirmed the recoverability of methane from hydrate and indicated that depressurization (similar to coal-bed methane production) was an effective route to commercial production. Subsequently, the program has funded work that has resulted in the first remote detection of drillable hydrate resources, the first dedicated hydrate reservoir simulators, and the first North American discovery and sampling of hydrate-saturated sands in the marine environment. A network of specialized hydrate simulation and analysis facilities established at DOE’s National labs are routinely revealing data on hydrates that are critical to accurate evaluation of field results and reservoir and economic modeling.

Deep Trek Program – The goal of the DOE/NETL Deep Trek program is to develop an integrated deep drilling and deep imaging system that will lower the cost and improve the efficiency of drilling and completing deep wells. Although less than 1% of all wells drilled in the United States have penetrated below 15,000 feet, deep reservoirs account for more than 7 percent of domestic production, a share that will need to grow to 12 percent by 2010 to meet America’s growing demand for natural gas. But development of deep resources is limited because drilling systems cannot withstand the extremely high temperature and pressure conditions, resulting in an exponential increase in drilling costs. The Deep Trek Program is developing the building blocks needed to change this. For example, Honeywell International is developing four electronic downhole components—identified by industry as those most needed—that will operate at 400-450° F. Three other projects are developing key elements of an advanced suite of drilling and diagnostic tools for deep wells. These include tools for evaluating formations in real time, a microprocessor to provide real-time processing of downhole measurements and control downhole equipment, and a downhole power source. These and other Program technologies will lead to more efficient and safer recovery of an additional 100 trillion cubic feet of deep-formation gas through 2020.

Microhole Technologies Program – Developing marginal oil and gas resources and reducing exploration risk is the focus of one of NETL’s youngest programs. Less than three years old, the Microhole Technologies Program already boasts a significant success: the launch of a 1 trillion cubic feet shallow gas play in Kansas and Colorado. A DOE field demonstration of a hybrid coiled-tubing drilling rig proved the feasibility of economically developing this hitherto marginal gas play with low-cost, ultra-small-diameter wells while simultaneously reducing environmental impact. This point factored into the project operator’s nomination as Operator of the Year by the Colorado Oil and Gas Conservation Commission. Initial successes in low-cost drilling and subsurface imaging technologies—with some already in the early stages of commercialization—suggest a new paradigm for oil and gas exploration and how American oil and gas wells can be drilled economically with minimal environmental impact.

DOE Oil and Gas R&D: A Solid Investment
These are just a few examples of how DOE investments have returned benefits to the American consumer by lowering the cost of finding and producing domestic oil and gas resources in an environmentally safe manner. The DOE is uniquely qualified to be very effective in regulatory enhancements because of its reputation as an “honest broker” and its track record for providing technology based solutions to environmental issues. The NRC determined that the net realized economic benefits of DOE’s programs have resulted in a 400% return on investment, reporting that, “ …the benefits have substantially exceeded their cost and led to improvements to the economy, the environment, and the security of the nation.” In 2003 the National Petroleum Council’s report on Natural Gas Policy reaffirmed this perspective, finding that … “The Department of Energy plays an important role in facilitating and sponsoring joint research and development programs within the gas supply industry.”