U.S. Oil Research Funding Clouded

PTTC's 'Shoestring' Focuses on Independents

Most of the American public thinks of oil and gas production as a low-tech activity.

Anyone with a connection to the industry knows that isn't true.

But a majority still equates Big Oil with big iron, with drilling rigs and drillbits and storage tanks, with rusted walking-beams seen from the highways.

So it's ironic that the future of exploration and production would depend so heavily on advanced technology.

Now the U.S. government plans to create a Strategic Center for Natural Gas and Oil (SCNGO), to manage federally funded E&P research projects.

Depending on the point of view, that move could be seen as shrewd, perfectly logical, almost meaningless or too little, too late.

The 'Enormous Challenge'

Federal funding for upstream research and technology transfer comes from the U.S. Department of Energy (DOE), with a current budget of $23.3 billion.

A fraction of that money goes to the DOE's Office of Fossil Energy, which in turn funds the National Energy Technology Laboratory (NETL).

NETL, with a 2004 fiscal-year budget of $572.7 million, includes the National Petroleum Technology Office (NPTO) in Tulsa and the Strategic Center for Natural Gas (SCNG) in Morgantown, W. Va., and Pittsburgh. These two agencies would be combined into SCNGO.

A national "strategic center" for oil and gas sounds impressive, but the new agency's budget and impact may turn out to be trivial.

"The budgets they do have are at risk every year. This administration and the OMB (Office of Management and Budget) just don't think the fossil energy people spend their money very well," said Scott Tinker, director of the Bureau of Economic Geology at the University of Texas at Austin.

In fact, the White House once called the DOE's petroleum research subpar, and it only later began rating the DOE's overall efforts in building technologies as "adequate."

Almost all of DOE's money goes into programs that have nothing to do with oil and gas, including nuclear energy, clean-coal initiatives, renewable energy sources, fuel cells and national security-related efforts.

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Most of the American public thinks of oil and gas production as a low-tech activity.

Anyone with a connection to the industry knows that isn't true.

But a majority still equates Big Oil with big iron, with drilling rigs and drillbits and storage tanks, with rusted walking-beams seen from the highways.

So it's ironic that the future of exploration and production would depend so heavily on advanced technology.

Now the U.S. government plans to create a Strategic Center for Natural Gas and Oil (SCNGO), to manage federally funded E&P research projects.

Depending on the point of view, that move could be seen as shrewd, perfectly logical, almost meaningless or too little, too late.

The 'Enormous Challenge'

Federal funding for upstream research and technology transfer comes from the U.S. Department of Energy (DOE), with a current budget of $23.3 billion.

A fraction of that money goes to the DOE's Office of Fossil Energy, which in turn funds the National Energy Technology Laboratory (NETL).

NETL, with a 2004 fiscal-year budget of $572.7 million, includes the National Petroleum Technology Office (NPTO) in Tulsa and the Strategic Center for Natural Gas (SCNG) in Morgantown, W. Va., and Pittsburgh. These two agencies would be combined into SCNGO.

A national "strategic center" for oil and gas sounds impressive, but the new agency's budget and impact may turn out to be trivial.

"The budgets they do have are at risk every year. This administration and the OMB (Office of Management and Budget) just don't think the fossil energy people spend their money very well," said Scott Tinker, director of the Bureau of Economic Geology at the University of Texas at Austin.

In fact, the White House once called the DOE's petroleum research subpar, and it only later began rating the DOE's overall efforts in building technologies as "adequate."

Almost all of DOE's money goes into programs that have nothing to do with oil and gas, including nuclear energy, clean-coal initiatives, renewable energy sources, fuel cells and national security-related efforts.

"Those are good things to think about, but at the same time there's a huge support for coal — about $40 million for oil and gas and $400 million for coal," Tinker noted.

DOE recently announced grants for six E&P-related projects:

  • Microhole coiled-tubing drilling rig — $1,836,423, Schlumberger IPC, Sugar Land, Texas.
  • Microhole steering and measurement tools — $986,084, Baker Hughes Inteq, Houston.
  • Horizontal-well drillbit steering tool — $921,875, Stolar Research, Raton, N.M.
  • Downhole tractor tool for horizontal wells — $645,420, Western Well Tool, Anaheim, Calif.
  • Slurry-jet drilling technique — $592,000, Bandera Petroleum Exploration, Tulsa.
  • Lift system for low-pressure reservoirs — $210,000, Gas Production Specialties, Lafayette, La.

Those industry partners are expected to contribute more than $1.4 million to the projects, part of an effort to reduce the environmental footprint of oil and gas operations.

Tinker agreed that government-sponsored research projects should be directed toward formal, national goals for energy use and development.

"The lack of a national energy plan or strategy — or, God forbid, a National Energy Policy — that's an enormous challenge," he said.

PTTC's Part

What does seem to work is the federal effort at technology transfer for independent producers through the Petroleum Technology Transfer Council (PTTC) in Houston.

PTTC observed its 10th anniversary of operation earlier this year.

Eddie David is president of David Petroleum Corp. in Roswell, N.M., and a former president of AAPG. He's also a member of the PTTC Board of Directors as AAPG's representative.

"I've been impressed with it," David said. "They're doing a real good job in getting information out to independents on technology."

Don Duttlinger, PTTC's executive director, attributed part of this success to the agency's reach into oil and gas producing states. PTTC has 10 regional offices and two satellite offices.

"We're trying to get right to rural basins, right to where the primary production from these fields takes place," he said.

By national standards, PTTC operates on less than a shoestring. Duttlinger said PTTC received $2.6 million in annual federal funding this year, through NPTO and SCNG (see figure, next page). Those funds are matched in time-and-effort contributions from its regional operatives.

PTTC probably is best known for its petroleum-related workshops. Lance Cole, national project manager for PTTC, said the agency will present or help sponsor 140 workshops this year, and has averaged over 100 workshops annually for several years.

Duttlinger quickly adds that PTTC maintains an information-rich series of Web pages, accessible through www.pttc.org. It also distributes case studies and posts regular columns in industry publications.

In a new direction, PTTC will begin analyzing technology applications and "proactively stimulating research," he said.

"We get a lot of ideas from what you might call 'garage inventors' all the way to substantial R&D departments outside the oil and gas industry," Duttlinger noted.

To examine those suggestions, and to help foster and pass along viable new technologies, PTTC has created a Technical Field Trial Committee, he said.

David also praised PTTC for bringing together and drawing on expertise from all sections of the United States and all parts of the industry, including majors and service and supply companies.

That gives PTTC an important human resource and allows it to keep in touch with the latest technology applications — what works, where it works and how it works, according to Cole.

"We're a lot more than just an information repository. We ourselves don't pretend to know all the answers, but we've got staff in all the regions and other experts we can call on," Cole said.

"When an independent asks us a question, we can have 25 to 30 knowledgeable people in the industry looking for an answer," he added.

Because of its structure and the way it operates, PTTC considers itself more of an industry effort than a federal agency.

"We're really not DOE," Cole emphasized. "We're a contractor to them but we're a separate, industry-led consortium working on this mission. We're not the government."

Give-and-Take Budgets

What happens to federal funding for E&P research and technology transfer next year depends on the annual budget dance in Washington, D.C., according to Tinker.

He said the administration has consistently tried to reduce funds for upstream research in the DOE budget, and Congress has regularly restored most of that funding.

For its fiscal-year 2005 Office of Fossil Energy budget, DOE requested $26 million for natural gas technology research and $15 million for oil technology research — a total of $41 million.

In the budget process, the House of Representatives raised those levels to $41.6 million for gas and $34.7 million for oil, a total of $76.3 million.

"They're unwilling to put more money back into it than there was before, and it's usually a little less. The problem with that is, it isn't even close. In the oil and gas business, $40 million is nothing," Tinker said.

The Senate can suggest further changes to budget entries, then a final House-Senate federal budget will go to the president for acceptance.

Tinker and Eugene Kim, BEG research associate, presented testimony to Congress in March about DOE's budget request for oil and gas research.

"Federal research budgets should be directed toward three critical time scales — the long-term, the mid-term and the near-term," they said.

In that light, "the proposed budget is dangerously out of balance in its under-funding of oil and gas research for the near- and mid-term," they stated.

Looking forward, Tinker holds out little hope for a workable National Energy Policy. Too many special interests demand attention and no federal agency or office wants to give up existing power, he explained.

"None will ever fit everybody's needs," Tinker said.

"The large oil companies still lobby against oil and gas R&D spending by the DOE," even though they have reduced their own research spending dramatically, he added.

But Tinker does think industry will support more spending for research in government labs and academia, eventually.

"I see the private sector rallying. They're going to have to. They are strategically hiring overseas, but they're going to need good education here in the U.S.," he said.

He's less hopeful about the response of government, in a nation where oil and gas drives much of the economy but receives relatively little federal funding for research.

"I would like to see the federal government acknowledge this, but they're driven by crises," he said, "and crisis-based policy is never the greatest policy."

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