These days, more uncertain than the price of gas, especially with the announcement last month from the administration to ban the import of Russian oil and gas, combined with the European Union’s decision to cut imports by 80 percent, is the question of whether the world will get the energy it needs – and who will provide it.
To that end, Susan Nash, AAPG’s director of Innovation and Emerging Science/Technology, has been wondering what conventional oil and gas reservoirs here in America can be drilled and placed online quickly to help fill that need.
“Perhaps ‘crisis’ is too strong,” she said, “but we are at a moment in time when the need for oil and gas production has surged.”
The reasons for volatility are many, including production decreases during the pandemic, an earlier price war between Russia and Saudi Arabia that drove prices down, followed by pent-up demand once the world started emerging from COVID-19, and now, of course, the recent invasion into Ukraine by Russia.
Making Up the Difference
According to the U.S. Energy Information Association and the American Fuel and Petrochemical Manufacturers trade association, America, with the exception of Hawaii, consumes very little Russian oil. In 2021, Russian oil made up only 3 percent of total U.S. crude imports and just 1 percent of the oil processed by U.S. refineries. Hawaii, due to its location in the middle of the Pacific, alone counts for between 10 and 25 percent of Russian crude shipped to the United States. The EU, by contrast, in 2021, imported around 45 percent of its gas imports from Russia, which is also the world’s top exporter of crude and oil products combined, with around 7 million barrels per day or about 7 percent of global supply.
That has to be made up somewhere.
Nash thinks the solutions, at least in this country, are in sight. She said, for starters, that small conventional prospects that have not been economic in the last five years now are.
“It takes much less time to put together a conventional prospect than a large unconventional. Further, the capital costs are much lower, there’s new technology to develop large existing fields and basins, and in-field drilling is lower risk than the high-risk ‘rank wildcats,’” she said.
‘A Measured Approach’
On the flip side, there is reluctance among investors to plow money into fossil fuel stocks, even though recent overtures by the Biden administration seem to indicate it would welcome more drilling, deciding higher prices, at least temporarily, are a more important issue than fighting climate change. There has also been something of paradigm shift in the industry where companies are more interested in paying more dividends and doing more share buybacks than looking for new oil and gas. Nash said the fundamental issue is that many companies don’t really have much money to invest – at least on a large scale.
“The budgets have been committed and the plan is to continue to seek energy storage solutions as well as other projects – geothermal, blended solar, (carbon capture, utilization and storage),” said Nash.
But that doesn’t mean it’s not possible.
“What that means is that a measured approach with innovative partnerships will be necessary,” she added.
Impediments to Investment
Steve Zody, of Ohio-based Zody Geoscience, agrees with Nash that there is a need and a way forward, but he isn’t as sanguine.
“I’m not sure that there are a significant number of projects that can be drilled and placed online really quickly due to the shortfall of investment and lack of focus on conventional resources,” he said.
He does feel, however, there are opportunities to develop conventional reserves if those sources of capital can be secured.
“I currently have several projects in various stages of development in the Permian, Appalachian and Michigan Basins,” said Zody, adding that even though conventional projects are slowly regaining traction, there are fewer quality prospects and fewer sources of capital pursuing these types of projects.
“Therefore, it takes time for explorationists to find the right fit to match capital with a given prospect,” he added.
Zody, whose company specializes in reservoir management, sequence stratigraphy, 3-D seismic interpretation, prospect generation and consulting services, is unhappy with how we got here and how the people who were supposed to look after the situation didn’t.
“Conventional exploration has steadily eroded over the past decade due to many factors. AAPG – and the industry in general – have done a poor job of promoting/defending our profession and industry. Instead, we have tried to appease the green/ESG/sustainability/net-zero factions and allowed them to brand us as villainous,” he said.
He believes that because shale plays have dominated capital allocation, this has driven many conventional explorationists to retire or leave the industry altogether. Further, he said, government regulations have had a detrimental impact, especially in the past year.
“It is more difficult to plan long term exploration programs with the uncertainty – or certainty – that more and more impediments will be placed in the way. Regulations and/or fees that were put into effect for large horizontal operations have also served as collateral damage to conventional operations,” he said.
A ‘Clean-Up Approach’
All that being said, Nash believes that because a conventional oil and gas prospects take less time to put together than a large unconventional play, it could be possible to have oil flowing within six months.
“Conventional exploration and development is becoming a lost art that I hope can be resurrected with new life,” Zody said, adding that the thrill and adventure of prospecting for conventional hydrocarbon deposits is a rewarding experience.
“I have always relished it. It is often a test of patience and perseverance. Most importantly, it takes optimism – a trait that must be maintained regardless of constant outside pressure,” he said.
Nash sees the enormity and pressure as a challenge – and not an unfamiliar one.
“There are always gnarly bumps in the road – unexpected supply chain issues, etc. There are gremlins in systems. But, there are opportunities,” she said.
One of those opportunities, Nash believes, entails industry housekeeping – what she calls a “clean-up approach.”
She is talking about converting orphan wells into clean producers and eliminating all flaring, automating the operations to avoid leaks and making sure that all are certified as “responsibly produced,” which she elucidates to mean “no flares, no leaks, and lots of monitoring on gas gathering systems.”
She said a lot, too, will depend on whether the government considers a commodity price increase a “windfall” and taxes it as such.
“An incentive to reinvest the new revenue flows into increased efficiencies and to achieve ESG targets of cleaning up orphans and putting them in clean production could be a big win for the Biden administration as well as state regulatory agencies,” said Nash.
Zody is unapologetic about the industry’s role in our survival.
“Unfortunately, it takes disastrous events to remind the world how important hydrocarbons are to everyday life and human flourishing.”
As Nash puts it, “Time to get this business pumping!”