Offshore

The oil and gas industry has made enormous strides in developing technology on many levels and continues to invest enormous sums in R&D. One of the criticisms of the industry, however (besides the obvious one of how long it takes new technologies to be adopted and put into use), is that it rarely adopts or adapts technologies that are being applied in other disciplines.

Technology transfer from other industries could help engineers in the oil and gas industry answer many of today’s biggest challenges.

Exploring the potential of medical technology to address oil and gas issues was at the heart of the Pumps & Pipes III conference in Houston, which was held the first week of December.

Scientists and engineers from two of the nation’s largest industries – medicine and energy – joined leading academicians to explore the synergies in moving oil and pumping blood. Sponsored by ExxonMobil, the Methodist DeBakey Heart & Vascular Center, and University of Houston, the Pumps & Pipes III provided a forum for sharing new technologies and pursuing discussion that participants hoped would spark ideas among experts in the petroleum, medical, and imaging industries that face similar technical challenges.

“Today, engineers are talking to medical researchers about using nanoparticles to sort stem cells,” said Alan Lumsden, M.D., co-director of Pumps & Pipes, medical director of the Methodist DeBakey Heart & Vascular Center and chair of the department of cardiovascular surgery at The Methodist Hospital. “An engineer who specializes in cleaning oil spills thought of it during a discussion at the last Pumps & Pipes conference.  It’s amazing the ideas that flow when energy and medicine experts get together. The interaction sparks ideas that would never have materialized if we stayed in the medical center and they stayed in the oil field.”

The conference featured speakers in the morning sessions from medicine, energy, and academia, who discussed the use of advanced nanotechnology, robotics, and remote monitoring in common issues like pipeline corrosion and blood vessel integrity. The afternoon sessions featured discussions on pipes and fluids, a concept that spawned joint oil and medicine ideas in the past when Methodist researchers looking at preventing aneurysms gained a new perspective of blood flow dynamics from pipeline engineers who used fluid dynamics to predict pipeline ruptures.

Talks focused on managing imperfect pipes, next-generation intelligent conduits, and advanced materials for energy and medicine. The presentations offered participants a common language as well as a platform from which to discuss the hurdles facing each discipline.

“Collaboration with the medical and oil industry is an essential component of solving complex interdisciplinary challenges,” said Ioannis Kakadiaris, Ph.D., co-director of Pumps & Pipes and Eckhard Pfeiffer Professor of Computer Science at the University of Houston (UH). “The Pumps & Pipes initiative brings industry and academia together in a unique way, leveraging UH’s research strengths in areas such as biomedical image computing, computer-assisted intention, and nanomaterials, and allows innovators to share ideas and develop solutions.”

According to William E. Kline, PhD, co-director of Pumps & Pipes, ExxonMobil Upstream Research Co., “This year’s Better Together theme follows The Other Guy’s Toolkit theme of Pumps & Pipes II. By imagining together, we bring together the power of countless years of innovation.”

So far, it looks as if participants are on the right track. And certainly, this sort of collaboration is something that has enormous potential for all of the parties involved.

Deloitte released a survey at its Oil & Gas Conference in Houston on December 9 that shows the views of oil and gas professionals regarding the future of natural gas.

According to Deloitte, the US is entering an age of plenty for natural gas. Gary Adams, vice chairman and leader of Deloitte’s oil and gas practice, called the survey numbers “striking,” noting that 84% of the survey respondents say the best days for the US natural gas industry are still ahead.

In a press release, Deloitte said current industry thinking would attribute this enthusiasm about natural gas to a surge in production from unconventional formations, such as shale and coal bed methane, and to the expectation that climate change legislation will increase the demand for gas-powered electricity generation.

In fact, according to Adams, the survey confirms the increasingly common perception among many energy pundits that America’s energy future will become more closely aligned with natural gas than seemed to be the case just a few years ago. In contrast, oil will continue to be a dominant fuel source for transportation for many years to come, but difficulties are expected to continue when it comes to finding and producing the fuel in the future, mainly because oil is increasingly found in challenging environments such as deep water and arctic regions, or in reserves controlled by national oil interests.

“While most analysts agree that oil will remain vital for transportation, the current belief in a vibrant future for domestic natural gas – driven by significant technological advances in the production of gases from unconventional fuel sources – stands in contrast to the industry’s thinking just a few years ago, which indicated that natural gas supplies in the United States would not grow dramatically,” Adams said.

Deloitte says additional key perceptions that surfaced in the survey further support this optimism:
•    While oil is expected to remain the single most widely used energy source in the US for some time, its usage is expected to decline over time. The number of respondents that expect oil to remain the most widely used overall energy source in the US drops 16 points over the next five years — sinking to 41% who believe oil will dominate in 2015 from the 57% who currently think oil is the most widely used overall energy source.
•    In contrast, expectations that natural gas will be the most widely used fuel source by 2015 double over the next five years, rising to almost one quarter of participants who believe it will dominate in 2015. One in 10 respondents sees natural gas as the currently dominant fuel source.
•    Almost one in 10 respondents expects unconventional natural gas to be the main source of energy in five years – an additional 4% think it will be LNG.
•    When it comes to fossil fuel production, 85% of respondents believe domestic gas production will increase in the next five years, while only 45% who think American oil production will increase during the same time period.
•    More respondents believe oil prices will increase than those who believe natural gas prices will increase. More than half (51%) believe the price of oil will greatly increase over the next five years. In contrast, only 32% of respondents foresee the price of natural gas greatly increasing in the same time period.

The survey also addressed attitudes about climate change legislation. The survey revealed that 60% of respondents think some form of the climate change legislation currently under discussion in Congress will be finalized and passed within the next two years. Only 14% think Congress will never pass climate change legislation.

Respondents were united, however, in their opinions that this sort of legislation will push consumer prices higher and penalize oil and gas companies:
•    More than 90% of respondents believe climate change legislation will lead to higher gasoline and natural gas prices for consumers.
•    Three quarters of the respondents expect climate change legislation will lead to significantly lower profits for oil and gas companies, and 68% say it will lead to more layoffs in the industry.
•    Most oil and gas professionals (76 percent) believe climate change legislation is not likely to create more jobs for Americans.

“All of this speaks to a general concern about the effectiveness of governmental energy policies among oil and gas professionals,” Adams said. The survey indicates that 76% think the energy industry is heading in the wrong direction and a similar number, 63%, say it is in worse shape now than it was even a year ago.”

Despite concerns about layoffs and expense cutting, respondents are optimistic about exploration and production revenues. Almost one in two oil and gas professionals expects layoffs will increase over the next year. Most say their companies are reducing operating expenses, and many say their companies are reducing overall capital expenditures in response to the recession.

Furthermore, respondents do not expect revenues to shrink in the various oil and gas industry sectors in the next year, with the exception of the refining sector:
•    76% expect revenues to grow at national oil companies
•    76% expect revenues to grow at international oil companies
•    67% expect revenues to grow at independent exploration and production companies
•    61% expect revenues to grow at supply and service companies
•    58% expect revenues to grow at outside energy consultancies
•    35% expect revenues to grow at refining companies

Great Plains Oil and Exploration has provided a raw material (Camelina oil) to be converted for an historic KLM biofuel flight.

According to a press release issued by the company on December 1, Great Plains Oil and Exploration, which is the world’s largest producer of Camelina seed, oil, and animal feed, has entered the race to bring commercial quantities of Camelina-based aviation biofuel to the market. The company recently provided more than 20,000 gallons of its Camelina oil for conversion to renewable jet fuel.

The oil was converted to green jet fuel using technology from UOP, a Honeywell company that has been providing technology to the petroleum refining, gas processing, petrochemical production, and manufacturing industries for over 90 years.

Camelina was used as the source for renewable jet fuel for a demonstration flight conducted by Japan Airlines earlier this year. According to Great Plains, in flight, the biofuel met or exceeded performance specifications for petroleum-based jet fuel. On November 23, 2009, a portion of this jet fuel was used by Dutch airline company KLM for the first biofuel flight with passengers on board. The remaining fuel will be used for additional aviation trials in the coming months.

The Great Plains Web site says Camelina presents a unique opportunity for providing a reliable, inexpensive feedstock for biodiesel production. The reason, the site says, is that Camelina has several distinctive characteristics that make its oil perfect for biodiesel. “Camelina contains a high amount of alpha-linolenic acid (18:3n-3), possesses elongase(s) operative with n-9 and n-6 fatty acids, and contains a significant proportion of erucic acid (22:1n-9). The low amount of saturated fatty acids (<10%) is ideal for biodiesel and provides a strong potential for higher ratio biodiesel to petroleum based diesel blending (B20 and above).”

According to Great Plains, jet fuel produced from Camelina has previously been called “one of the most promising sources of renewable fuel that we’ve seen” by a senior executive in the airline industry.

From a more technical standpoint, Michigan Technological University conducted a life cycle analysis that shows jet fuel made from Camelina could lower emissions by as much as 84% compared to conventional jet fuel.

A big plus for Camelina is that when it is not being used for jet fuel, it can be fed to animals!

Earlier this month, the US Food and Drug Administration announced that Camelina is acceptable for feedlot cattle. Great Plains had been supplying Camelina for feed for broiler chickens with the result that the product has encouraged healthy weight gain in livestock and is high in heart-healthy omega 3 fatty acids.

If you’re interested in reading more about Camelina, click here.

Even though nearly everyone has despaired of reaching any kind of real agreement on global warming in Denmark in a couple of weeks, 65 world leaders have signed up to attend the climate talks.

Originally, the conference was organized for environment ministers, but now, world leaders, possibly including US President Barack Obama, are planning to attend.

According to Reuters editor John Acher, Danish officials hope the strong political presence will encourage a commitment to create a treaty. Acher’s article quotes a spokesman for the Danish Liberal Party as saying Danish Prime Minister Lars Lokke Rasmussen announced in a party meeting, “To cut through the outstanding issues and make an ambitious deal … the active involvement of heads of state and government is crucial.”

Reportedly, leaders from the UK, Germany, France, Spain, Australia, Japan, Indonesia, and Brazil are planning to attend. There will also be a sizable representation of leaders from developing nations.

According to Acher’s article, analysts say Rasmussen’s decision to invite world leaders is a calculated risk. It is possible that their presence raises the chance of making a deal, but that outcome is not very likely.

So far, promises by the rich states fall far short of the actual greenhouse emissions reduction goal. Furthermore, developed nations have not yet met promises of extra aid to developing countries.

At present, all signs indicate that a treaty is unlikely to appear any time soon. In fact, according to Acher, expectations for a legally binding agreement have slipped into next year.

The Independent Petroleum Association of Mountain States (IPAMS) warns that arbitrary decisions and failure to follow established law is putting 15% of America’s natural gas supply at risk.

IPAMS has had a busy couple of days. On November 12, the organization sent a letter to Congresswoman Diana DeGette (D-Denver) to request that she stop the spread of misinformation about frac fluids. And less than a week later, IPAMS took on the Department of the Interior (DOI).

The organization released a position paper on November 18 highlighting irregularities in the DOI’s natural gas and oil leasing program that are making it difficult for independent western producers to continue developing natural gas.

IPAMS takes issue with the position the US government has taken on energy. Interior Secretary Salazar has repeatedly stated that the Obama Administration is not “anti-oil and gas,” yet when it comes to Interior’s onshore natural gas and oil program, IPAMS believes the record suggests otherwise. The organization points to a series of DOI decisions that have created uncertainty in the management of the onshore program, threatening the supply of domestic energy.

A press release published by IPAMS states, “In spite of statements by the Obama administration touting the benefits of natural gas, conflicting decisions by DOI, which are not supported by law, are hindering producers’ efforts to develop the vast amounts of clean, domestic natural gas that lie beneath western public lands.”

According to Kathleen Sgamma, IPAMS director of government affairs, “Efforts to restrict the federal natural gas and oil program put at risk 15% of the nation’s natural gas supply.” Sgamma points to severely reduced lease sales this year as an example. Compared to the first year of the Clinton Administration, the Obama Administration has issued 1,934 fewer leases and 1,146,949 fewer acres in the Intermountain West.

IPAMS has released a position paper that outlines some of the actions taken by the DOI that are creating uncertainty in the federal onshore natural gas and oil program.

These irregularities include:
•    $100 million worth of unissued leases in Colorado, Utah and Wyoming
•    Reduced lease sales, deferred leases and withdrawn leases
•    Permitting backlogs
•    Failure to issue permits using categorical exclusions, in violation of the Energy Policy Act of 2005
•    Indefinite holds on project-level environmental analysis

The Obama Administration hasn’t officially declared war on oil and gas operations, but the guerilla tactics outlined here speak volumes.

The big news this week comes out of the UK from an article written by Terry Macalister of the Guardian.

On Monday, Nov. 9, the Guardian reported that the world is much closer to running out of oil than official estimates imply. This information is attributed to “a whistleblower at the International Energy Agency (IEA),” who says the organization has deliberately underplayed a looming shortage “for fear of triggering panic buying.”

Macalister reported that the senior IEA official said the US has encouraged underreporting of the decline rate from existing oil fields and overplaying projections for future discoveries.

The article says these allegations raise questions about the accuracy of the IEA’s latest “World Energy Outlook” on oil demand and supply, which was published this week.

The real concern about the inaccuracy of this report, according to Macalister, is that IEA numbers are used by the UK and many other governments to help guide energy and climate change policies.

One specific fact that is being called into question is the organization’s 2008 prediction that oil production can be raised from the current level of output at 83 MMb/d to 105 MMb/d. That same information appears in this year’s outlook. Critics argue that this number cannot be substantiated by firm evidence. Many believe the world has already passed peak oil production.

The article reports that experts inside the IEA believe maintaining oil supplies at even 90 MMb/d to 95 MMb/d would be impossible.

Macalister quotes an insider at IEA, who explained the underreporting of reserves as a political necessity to the US. “The Americans fear the end of oil supremacy because it would threaten their power over access to oil resources.”

A second senior IEA source was quoted as saying it was “imperative not to anger the Americans.”

Interestingly, the article quotes John Hemming, the member of the British parliament who chairs the all-party group on peak oil and gas, as saying these revelations confirmed his suspicions that the organization underplayed the rate at which world reserves are being depleted and places additional significance to the UN Climate summit in Copenhagen next month.  “This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation.”

The problem with this logic is that deciding to effect change and actually making that change happen are far from the same thing. Today, 87% of the world’s energy comes from hydrocarbons, and that number has not changed by a significant amount in 30 years.

Though new technologies will no doubt identify replacement energy sources, it will take decades for any such solution to make a dent in the amount of energy currently supplied by oil and gas.

For a more detailed account of the IEA story, click here.

A new report from the Pacific Research Institute (PRI) debunks ten common myths about energy in America. PRI is a free market think tank based in San Francisco.

According to Thomas Tanton, senior fellow in Energy Studies at PRI, this report challenges conventional discourse about energy propagated by politicians, celebrities, and the media. Using data from the US Department of Energy and the Energy Information Administration, the report outlines the types of fuel most used in the US — where they come from, the risks involved, and the potential for alternative technologies.

The point of the report, according to PRI is to put accurate information into the public domain that might inform those who will be involved in marking up the Clean Energy Jobs and American Power Act in the US Senate. The press release says this is a critical time for people to understand the facts behind America’s energy sources, uses, and risks.

“Energy policy must be based on facts, not myths,” Tanton said. “If based on myths, energy policy could easily curtail our energy supply, drive up prices, and even increase pollution, all without an increase in energy security.

“Contrary to common belief, new technology has greatly reduced the environmental risk of oil extraction, and renewable energies such as solar and wind will not increase our energy security,” Tanton said. “There is a plethora of unexplored options for securing energy in America through domestic sources, but misled confidence in renewable technologies and increased efficiency are hampering common-sense energy policy.”

In short, if the country’s goal is to lower prices, trim emissions, and sustain access to energy, then policy makers, the media, and the public should reject energy myths and stick to the path of facts and reality.

Since I agree, I thought I would share PRI’s comments with E&P readers.

The list of top ten myths in the report is:

Myth: Most of our energy comes from oil.
Reality: Oil represents less than 40% of our energy use.

Myth: Most of our oil comes from the Middle East.
Reality: Two-thirds of our oil comes from North America.

Myth: We have no choice but to import vast quantities of oil and natural gas.
Reality: The US could significantly reduce imports by expanding domestic production.

Myth: Offshore oil production poses environmental risks.
Reality: New technology has greatly reduced the risk of oil spills. Reducing oil reservoir pressure through extraction of petroleum will decrease the amount of oil pollution from natural seepage.

Myth: Reducing our petroleum use through alternative energies will increase US energy security.
Reality: Reducing petroleum use will first reduce domestic production, not production in unstable regions. Renewable technologies are subject to import and price security concerns as well.

Myth: Energy companies will not invest in clean reliable energy so we need government programs to do so.
Reality: Energy companies are investing huge sums of money to develop cleaner and more reliable sources of energy.

Myth: Renewable energies will soon replace most conventional energy sources.
Reality: While growing fast in percentage terms, renewable energies are a very small fraction of our energy mix and will remain so for the foreseeable future.

Myth: The US consumes large amounts of energy and thus emits a disproportionate amount of the world’s greenhouse gases.
Reality: The US uses energy and emits a large portion of the world’s emissions because it produces a large portion of the world’s goods and services.

Myth: Federal mandates for higher-mileage cars means less energy consumption.
Reality: Increased energy efficiency leads to increased energy use.

Myth: Forcing drivers to use alternative fuels will help solve global warming.
Reality: Alternative fuels do not necessarily result in lower greenhouse gas emissions.

The date for the UN climate talks in Copenhagen is fast approaching. The Climate Change Conference is scheduled to take place December 7-19, and as the time draws closer, there seems to be increasing doubt that the results of this conference will make a significant difference.

A Reuters article by Louis Charbonneau says the UN has officially lowered its expectations of reaching a binding agreement and is hoping instead for a “nonbinding political declaration” that would be followed by additional talks.

According to the article, Secretary-General Ban Ki-moon is spinning this as positively as possible saying the participants must “continue to aim for an ambitious politically binding agreement in Copenhagen that would chart the way for future post-Copenhagen negotiations that lead to a legally binding global agreement.”

I’m not sure that’s likely to happen.

Although there has been some optimism voiced along the way that China and other rapidly developing countries would jump on the green bandwagon, it has never been a very realistic expectation. Limiting CO2 emissions would seriously constrain China’s growth. The country may well be thinking about the damage domestic industrial pollution is doing, but the cold hard truth is that for the time being, China isn’t willing to trade off profits, increased GDP, and a higher standard of living for a cleaner environment.

Some have blamed the present slowdown in momentum in the run-up to Copenhagen to the fact that the US has failed to pass its own green energy bill. In the past, the US resisted mandatory carbon emissions limits, and now, although President Obama is trying to reverse the country’s policy on climate change, he hasn’t been able to deliver. Obama supports mandatory emission limits, but he can’t seem to get the US legislature behind him.

The US climate change is still not ready for approval, and there isn’t any reason to expect it to move forward in the next couple of weeks.

The countdown is on, but there might not be a liftoff at the end. In fact, the Climate Change Conference might just turn out to be a dud.

The price of oil is back up and fairly steady – over US $78 on Tuesday, October 20 – and the price of gas, which has been lagging, has reached a spot price of $4.60/mmBTU.

Maybe, at long last, things are starting to look up for gas drillers.

A number of indicators point in that direction, with one of the most impressive coming from Hart’s Drilling Unconventional Gas East Conference, which took place in Pittsburgh, PA, on October 19.

The conference drew nearly 50 exhibitors and 1,400 attendees, numbers that indicate interest in the Marcellus Shale (the focus area of the conference) is enormous. Operating companies among the speakers at the event couldn’t seem to say enough good things about this play.

Jeff Ventura, president, COO and director or Range Resources Corp., said, “The Marcellus has the best economics of any large-scale repeatable play out there,” noting that the company anticipates 180 MMcf/d to 200 MMcf/d production by the end of next year.

More and more operators are entering the region, Ventura said, which has increased competition and driven down costs.

One of those competitors, EQT corp. is investing heavily in the region, where it owns 3.4 million acres. According to Murry Gerber, EQT chairman and CEO, with finding and developing costs at around one dollar per mmBTU in the Marcellus, it is a solid investment for the company.

Gerber discussed gas in a broader application when he pointed to natural gas as one of the biggest potential contributors to US energy security, explaining that the country has a 116-year supply.

Though incorporating gas into the energy security scenario is a long-term goal, the present positive impact of gas production in the Marcellus is immediate.

According to a study carried out at the Pennsylvania State University, the Marcellus is responsible for creating 50,000 jobs in Pennsylvania this year and will likely more than double that number in 2010. Marcellus activity totaled $3.8 billion in the state this year and is projected to reach $83 billion by the end of next year.

This level of activity is exactly what the industry needs. If we can get this kind of momentum behind some of the other shale gas plays, we will considerably improve both the short-term and long-term health of the country’s domestic gas industry.

The Baker Hughes rotary rig count published last Friday shows an increase of 17 land rigs in the US over the previous week. Though the total count of  1,041 is a far cry from the 1,990 rigs that were working in the same area a year ago, the trend upward is still good news.

Unfortunately, the offshore count is moving in the opposite direction. Rigzone reports just under 58% utilization in the Gulf of Mexico (GoM), down from 59% last month. At 58% utilization, the GoM is hurting. This time last year, utilization rates hovered around 83%.

Exploration and production activity has dropped significantly, and recent clamoring in Washington could ensure that it continues to fall off. An article in the “Los Angeles Times” reported on Monday, October 12, that scientists from the National Oceanic and Atmospheric Administration are urging the Interior Department to drastically reduce plans to open the West coast and areas offshore Alaska to drilling.

According to the article, NOAA is urging the Minerals Management Service (MMS) to consider ocean ecosystems, coastal communities, and other environmental factors when finalizing a leasing plan.”

Does no one take exception to NOAA’s implication that the usual approach the MMS takes is to throw caution to the wind, encouraging offshore production at the cost of marine life and the environment? Allegations of this type are damaging, and all the more so when they come from a seemingly reputable source.

While this influential national agency throws its weight around, things are heating up in the Senate, where the green energy bill is still being debated. One of the fence-sitters in the Republican party, Lindsey Graham, has decamped to join the Democrats.

According to a Reuters article by Andy Sullivan, Graham co-authored an article in “The New York Times” with Senator John Kerry stating that the two men believed they can pick up sufficient support to pass a wide-ranging bill to limit carbon emissions and establish a clean-energy future for America.

While Graham and Kerry continue to push for ratification of the bill, the article says, “many lawmakers worry that the bill would hurt the struggling US economy, raise energy costs, hurt coal-producing regions and weaken energy-intensive industries like steel manufacturing.”

In the meantime, Graham and Kerry suggest companies should get annual permits (to be sold within a fixed minimum and maximum price) for every ton of carbon pollution they put into the atmosphere and be given the right to sell any they don’t need.

Countries that don’t limit pollution should face trade sanctions, they say, not bothering to take into account, of course, that by restricting the import of inexpensive goods, the US is driving up the cost of living even as domestic energy becomes more expensive to generate and more costly to purchase.

The “incentive” put forward by the Senators in their argument also is a bit dubious. In short, they imply that if Congress sets the limits, the bill will avoid a much more strict set of guidelines that will most likely be imposed by the Obama administration.

So it looks like more of the same from Washington – one step forward and two steps back.

To my ears, at least, the latest version of the bill sounds like the same old song.