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Oil and Natural Gas Supply
Future Supply and Emerging Resources
The U.S. is the birthplace of the oil and gas industry. After nearly a century
and half, the industry now finds itself at a crossroads. Oil and natural gas
prices are at record highs, and although price spikes have occurred in the
past, there is a growing consensus among analysts that the current situation
is not a transitory feature of the market. Instead, there is a fundamental
and potentially worsening gap between our demand for oil and natural gas and
our ability to supply it. Despite seemingly large resources, we are becoming
increasingly dependent on imports (imports' share of gas supply has tripled
since 1985, and imports' share of oil supply has jumped to almost 60% from
27% in 1985). More importantly, the domestic industry has been unable to increase
production despite strong price incentives and increased drilling.
The root cause of this difficulty is the progressive change in the remaining
resource base. Industry has picked much of the Nation's “low-hanging fruit,” and
remaining resources are increasingly found both in deeper, more remote, more
complex reservoirs (high cost and high risk), or in shallow, drilling-intensive,
low-productivity reservoirs. Policy actions alone cannot change the nature
of the resource base – dramatic cost-and risk-reducing technological improvements
are needed in order to make the nation's vast oil and gas resources viable
to produce. These resources are not being developed by the major oil and gas
companies; instead, they are in the hands of thousands of small independent
operators who have little capability or incentive to pursue long-term/high-risk
R&D.
The government's role in natural gas supply R&D is to 1) ensure that the
Nation's valuable gas resources are used wisely, without waste or significant
environmental impact, and for the benefit of the public; 2) expand the gas
resource base to include vast deposits that are currently viewed as “unrecoverable,” in
order to secure the long-term supply of reasonably-priced domestic natural
gas. These actions, when used in prudent combination with carefully-considered
policy initiatives, will provide economic growth and increased energy security
until such time as the next generation of sustainable energy sources comes
available.
NETL's efforts in low-permeability
formations (tight gas sands) are focused on expanding access to vast
stores of gas trapped in complex, low-quality reservoirs. The USGS has estimated
that five basins in the American west alone contain as much as 6,000 Tcf
of natural gas in place in tight sandstones; however, currently, less than
2 percent of this resource is recoverable with current technology. Large
resources are also present within untapped coal
seams and gas shales. History has shown that these resources are dependent
on advanced technologies for production, and it is clear that further advances
in remote technologies for gas and natural fracture detection and improved
drilling, completion, and stimulation technologies have the potential to
expand the Nation's access to these resources.
The Deep Gas program targets resources
that face tremendous technical and cost challenges related to an inability
to image any but the largest deep prospects. Also, these deep reservoirs maintain
high temperatures and pressures that exceed the capability of modern drilling
and evaluation technologies. Deep reservoirs currently account for about 7%
of domestic gas production but only about 1% of the Nation's gas wells drilled.
Vast regions of the Nation remain virtually unexplored for deep gas.
NETL also coordinates a unique multi-agency program to investigate the potential
of methane hydrate. The USGS
has estimated that deposits of methane hydrates likely hold 200,000 Tcf natural
gas in-place within the U.S. Exclusive Economic Zone alone. Technical recoverability
has been established through Arctic field tests; however, recoverability of
the vast deepwater accumulations has not yet been demonstrated. Clearly, hydrate
will face significant economic challenges; however, if only 1 percent of the
resource can be rendered recoverable, the United States could more than double
its current natural gas resource base. In addition, the role of methane hydrate
in global climate and its potential as a deep sea safety hazard remain poorly
understood.
An important new source of domestic oil and gas supply is the deepwater Gulf
of Mexico. Water depths exceeding 1,000 feet account for about two thirds of
the gulf's oil production, a share expected to continue to rise. Deepwater
fields in the Gulf of Mexico contribute 17% of the Nation's oil production
and 7% of its gas output. Technology advances, coupled with a strong Federal
leasing program, have helped industry accelerate its drilling success rate
in the deepwater gulf. Since the start of 2000, new deepwater drilling added
oil and gas reserves totaling over 4.5 billion barrels of oil equivalent (BOE),
a 58% increase over the total deepwater reserves discovered from 1974 to 1999,
according to the U.S. Minerals Management Service (MMS). In 2000, MMS estimated
that more than 50 billion BOE of recoverable oil and gas remains to be discovered
in the deepwater Gulf of Mexico.
Extraordinarily high development costs pose a daunting hurdle for this promising
petroleum province. Several NETL-sponsored technologies will have applications
in deepwater areas and could help expand resource recovery there. Among them
are:
- Advances in high-temperature/high-pressure drilling technology—a critical
area as deepwater drilling fans out into deeper-pay plays.
- Composite-material lightweight drill pipe that provides better flexibility
for horizontal wells—often a cost-effective alternative to vertical wells
offshore.
- Hard-wired “smart” drill pipe that can rapidly transmit downhole data to
allow real-time drilling decisions.
- Ultrasmall-diameter wellbores (“microholes”) that can slash drilling costs
and reduce environmental impacts offshore.
Unconventional oil resources, notably heavy hydrocarbons such as tar sands and
oil shale, may play a much greater role in the Nation's future oil supply. The
United States holds the bulk of the world's oil shale resource at more than 2
trillion barrels, and its tar sands resource is pegged at more than 76 billion
barrels. Earlier attempts to exploit these vast domestic resources fell afoul
of the oil price collapse of the early 1980s.
Recent NETL-sponsored studies suggests that U.S. oil shale development could
be economic in the coming decades at oil prices of less than $50 per barrel,
in today's dollars. (DOE's Energy Information Administration, in its latest
annual energy outlook, projected a U.S. benchmark oil price of $54 per barrel,
in 2004 dollars, in 2025.) A mature oil shale industry producing 3 million
barrels per day of oil 30 years from now could provide America with direct
and indirect economic benefits of as much as $40 billion per year while pressuring
oil prices downward, according to one NETL study.
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