Houston 2009 Annual Meeting

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SEG Forum tackles State of Energy R&D

Industry speakers discuss significant changes and new investments on energy landscape.

Nina M. Rach, Senior Editor, E&P

A near-capacity, standing-room only crowd gathered for the annual SEG Forum plenary session on Monday morning. Introduced by Forum Chair Donald Paul, the panel of five discussed the technical and market drivers that focus current investment trends in research and development in the energy industry.

Paul, Executive Director of the USC Energy Institute, highlighted the profound need for energy and noted that demand will increase. He cited the economic challenge in developing resources and the high cost of carbon mitigation strategies. Evolving new technology is key, he said, in unlocking the challenges of carbon capture and sequestration (CCS).

Operators “pull” the development of new technology, striving to improve the economic performance of the existing oil and gas supply chain. All sectors must improve on the 15 years it currently takes to move from research to deployment of breakthrough technologies.

John McDonald, Vice President and Chief Technology Officer at Chevron, said that innovation in R&D will come from both independent and collaborative efforts. Chevron partners with other operators, universities, national laboratories, and venture capitalists to generate a “pipeline” of ideas and develop capability. The company has hired 18 000 new people in the last two years, about half directly out of colleges, and their learning and collaboration are enhanced by social networking not envisioned a decade ago.

McDonald suggested six broad pathways for new, innovative technologies:

1. energy efficiency—how to consumer less in lighting, heating, cooling, and promote waste heat recovery
2. natural gas—developing shale gas and LNG
3. carbon capture and storage—particularly finding and mapping storage reservoirs
4. biofuels and renewables—with many possible conversion pathways, utilizing geothermal, solar to steam, and wind
5. nuclear energy—with potential to supply power, heat, hydrogen, and feed smart-grids
6. oil—which he described as “fundamental,” requiring advancements in enhanced oil recovery techniques, earth modeling and simulations, and molecular transformations

Bob Peebler, Chief Executive Officer at ION Geophysical Corp., acknowledged that the economic outlook in the industry changes swiftly and often it is hard for companies to remember the importance of long-term R&D investment when operating in a “crisis” mode. He sees two major trends driving change:

1. the need for more rapid diffusion of technology
2. the need to manage integrated systems that cross traditional discipline boundaries and develop new and innovative business models to accommodate them

ION is spending US$50 to $60 million this year on R&D, out of $600 to $700 million gross (income). The company has internally led R&D efforts, including field trial partnerships (such as digital streamer steering with Fugro and others); co-development and co-deployment partnerships with E&P operators (such as the FireFly cableless recording system); corporate venturing and new company formation in partnership with venture capitalists and entrepreneurs (such as interpretation platforms with Transform, redeployable seabed systems with RXT-Reservoir Exploration Technology ASA, and permanent seabed installations with OCTIO Geophysical); academic partnerships (such as Next-Gen source with University of Texas and carbon management strategies with University of California-Berkeley); and a recently announced land equipment joint venture with seismic contractor BGP Inc. (including a FireFly survey in the Qaidam basin, Inner Mongolia).

“Working alone just does not work,” Peebler added, predicting that the industry’s use of virtual user groups and perhaps virtual trade fairs, will expand. To stay on the cutting edge, he says companies need to tap the best ideas available, stepping outside the corporate firewall, and meticulously screen and triage those ideas. Since R&D personnel are rarely co-located, companies will have to address security issues in the exchange of information, and recognize that engineering “styles” will vary across cultures.

C. Michael Ming, President of Research Partnership to Secure Energy for America (RPSEA), believes that technology development can be quicker and more efficient. We will continue to plod along with only incremental improvements, he said, at current financing levels. In order to accelerate advancements, R&D funding should be ramped up 3 to 5 times current levels. But the trend is in the opposite direction: the US Department of Energy’s oil and gas funding has decreased steadily since 2001, and the research laboratories of many major operators have closed.

Since 1997, service company investments in R&D have steadily increased, while operator investment has fluctuated.

Ming advocates secure, multiyear funding to reach technology objectives, using a public-private partnership model, which he described as “nimble and flexible.”
He cited two examples of applied research in Europe and Latin America. Norway’s DEMO 2000 is a public-private effort funded at nearly $10 million/year. Although Norway’s GDP is about 1/60 that of the US, it nearly matches the US in offshore investment. Brazil spends about 1% of gross production revenue on R&D; its GDP is about 1/7 that of the US, but it outspends the US 10:1. Brazil’s PROCAP 3000 project is focused on technologies deployable beyond 3000 m water depth.

Applied research projects in the US include:

• Deepstar, funded at about $3 million/year by a consortium of 10 operators
• CBM work produced by the Gas Research Institute (now GTI), which had “extensive industry direction to insure its relevancy”
• Energy Policy Act of 2005 and Section 999, an industry-drive consortium with 70 research projects in three programs, involving more than 1000 subject matter experts. This latter program has 10 years of funding, but the $37.5 million cost represents the value of the oil imported into the US during a single hour.

Raymond Orbach, Director of the Energy Institute, University of Texas at Austin, spoke about the role of R&D in CO₂ sequestration and systems. CCS technology could provide as much as 20% of projected carbon mitigation needed to avoid disruptive climate change. The four components include:

1. capturing CO₂ from power plants, industries, and the ambient atmosphere
2. compressing CO₂ to supercritical liquid phase
3. transporting CO₂ in pipelines
4. sequestrating CO₂ in geologic formations

A major challenge is the high energy demand (and subsequent cost) of carbon capture and compression, approaching 25% to 30% of the energy requirements of a coal-fired power plant. Public acceptance of increased costs and risks is not necessarily assured, given the recent anti-carbon campaigns in Germany over the Ketzin project. This is the first geologic sequestration project in Europe, attempting to pump CO₂ into a saline aquifer 2600 ft below the surface. The intensified public protests led the Wall St. Journal to coin the term “NUMBY”—not under my back yard.

Benefits will accrue, Orbach said, when demo projects create a platform for sustainable, environmentally benign, global energy production.