[Congressional Record (Bound Edition), Volume 151 (2005), Part 15]
[Extensions of Remarks]
[Pages 20981-20984]
[From the U.S. Government Publishing Office, www.gpo.gov]




       URGING DEPARTMENT OF ENERGY TO EXPEDITE ULTRA-DEEP PROGRAM

                                 ______
                                 

                           HON. RALPH M. HALL

                                of texas

                    in the house of representatives

                     Wednesday, September 21, 2005

  Mr. HALL. Mr. Speaker, the Congress has passed and the President has 
signed the Energy Policy Act of 2005, a historic bill that will put 
America on course for more energy independence. We now need to move as 
quickly

[[Page 20982]]

as possible to increase production and distribution of energy supplies 
in the United States. The disruption of supplies and spiraling gasoline 
costs as a result of Hurricane Katrina--combined with the threat of 
disruption from other natural disasters or terrorist attacks--
underscore the need to increase our energy supplies and reduce our 
dependence on foreign sources.
  One provision in the Energy Act that will increase supplies is my 
provision for Ultra-deepwater and Unconventional Natural Gas and Other 
Petroleum Resources. I want to share with my colleagues the letter and 
attachments that I sent to Secretary of Energy Samuel Bodman last week. 
These provide further analysis and clarification of this program to 
develop the technologies needed to drill in ultra-deep and 
unconventional areas. This program will improve our energy and national 
security, increase natural gas and oil production, increase royalty 
revenues, and help lower energy costs for consumers. I urge the 
Department of Energy to take steps to implement the program as soon as 
possible.

                               Washington, DC, September 14, 2005.
     Hon. Samuel W. Bodman,
     Secretary of Energy, Department of Energy, Independence Ave., 
         SW., Washington, DC.
       Dear Mr. Secretary: I want to congratulate you and your 
     colleagues at the Department of Energy for your fine work in 
     helping with the enactment of H.R. 6, the Energy Policy Act 
     of 2005. There are many important provisions in the new law, 
     and in this letter I want to draw your attention to 
     ``Subtitle J--Ultra-deepwater and Unconventional Natural Gas 
     and Other Petroleum Resources.''
       As you may know, I first introduced this legislation in 
     2001 when it was included in H.R 4, the comprehensive energy 
     bill that passed the House that year. Since that time I have 
     shepherded this legislation through three separate 
     Congresses. The provision has been the subject of 
     Congressional hearings and much legislative debate. On the 
     way to enactment in August, the provision was passed by 
     either the House or Senate eight times in the last four 
     years. The final version contained in the Energy Policy Act 
     of 2005 embodies many improvements that were made throughout 
     this long process and the important compromises that were 
     reached during the Conference Committee meetings this past 
     July. Since there was no detailed Conference Committee Report 
     to accompany the bill, I am sending this letter to provide 
     some additional context and clarification of legislative 
     intent for this new program.
       My purpose for introducing this legislation was to enhance 
     the ability of the Department to conduct well-funded, multi-
     year, resource based natural gas and oil R&D activities to 
     accelerate the development of new technologies and increase 
     domestic natural gas and oil production in the near and mid-
     term. This new program is intended to complement the work of 
     the Department and allow the current Oil and Natural Gas 
     Program to focus its ongoing efforts on solving the more 
     basic production and environmental issues that challenge our 
     collective ability to increase production and to transition 
     to a hydrogen based energy system in the longer term. For 
     example, the vast methane hydrate and oil shale resources in 
     the U.S. could make a substantial fossil fuel contribution to 
     the ultimate evolution of a hydrogen based energy system for 
     the country. The Oil and Natural Gas Program should also 
     continue its important work analyzing the consequences of 
     past and potential actions by other federal agencies on 
     domestic natural gas and oil production, conducting public 
     interest analysis and fostering the education of the next 
     generation of American oil and gas technologists.
       This new program will receive an assured, multi-year 
     funding source from the Ultra-deepwater and Unconventional 
     Natural Gas and Other Petroleum Research Fund to pay for 
     research, development, demonstration and commercial 
     applications to create and deploy the technologies needed to 
     bring these vital natural gas resources to the consumers of 
     this country. This Fund and the authorities established in 
     the law provide the tools to ``the Department of Energy to 
     work through its National Energy Technology Laboratory to 
     accomplish these objectives and to work to develop the 
     technologies for lowering the cost of drilling to formations 
     in the Outer Continental Shelf to depths greater than 15,000 
     feet and to address the technology challenges of small 
     producers.
       It is the intention of Congress that the Department will 
     take steps immediately to implement this new program in 
     accordance with the schedule established in the statute. We 
     expect that the Department will use existing program 
     direction management funds to conduct the solicitation and 
     select the program consortium. It is critical that this new 
     program be implemented as quickly as possible. Most recently, 
     the Energy Information Administration forecast that natural 
     gas prices in the Midwest will be 71 percent higher this 
     winter than last. That means that gas prices during the 
     coming heating season will top $12. Work needs to begin 
     immediately to accelerate the development of the new 
     technology needed to increase domestic natural gas production 
     to avoid such high prices in the future.
       The Ultra-deepwater and Unconventional Natural Gas and 
     Other Petroleum Resources Program has been designed to foster 
     the development of additional natural gas from the vast 
     resources of technically recoverable natural gas in the 
     United States. The 2003 National Petroleum Council study on 
     natural gas estimated that there are 1969 Tcf of technically 
     recoverable natural gas reserves in North America--equivalent 
     to 90 years of gas supply at current rates of consumption. 
     The lower-48 contains 1240 Tcf, about 56 years of supply, of 
     which only about 210 are unavailable to be developed due to 
     moratoria or other restriction. The balance is in Alaska and 
     Canada. Some of the Alaskan resource is technically 
     challenged, but the predominant problem there is with price 
     due to the high cost of pipelines to transport the gas to 
     market. Much of the Canadian technically challenged resource 
     would become productive with the application of the new 
     technologies developed by this program.
       It is the intention of this legislation that the Department 
     will carry out this program through two entities:
       1. A single program consortium selected by the Secretary 
     through a competitive solicitation will administer the 
     programmatic activities as prescribed in the law and make 
     awards to research performers to carry out research, 
     development, demonstration, and commercial application 
     activities under the program; this program consortium, which 
     will operate with significant oversight of the Department, 
     should provide much needed industry and academic expertise to 
     the program as well as ensure that the cross-cutting 
     technologies for both the ultra-deepwater and unconventional 
     onshore research are coordinated, developed and deployed. 
     Selecting a single consortium for this program will render 
     the greatest benefit for consumers by ensuring that R&D 
     activities that are applicable to multiple gas provinces are 
     well coordinated and the results of the work are effectively 
     disseminated. Of the funds made available for this program, 
     75% shall be administered by the program consortium. Up to 
     10% of that amount should be adequate for the program 
     consortium to administer the program. Significant authority 
     has been provided for the National Energy Technology 
     Laboratory on behalf of the Secretary: to issue a competitive 
     solicitation for the program consortium; evaluate, select, 
     and award a contract or other agreement to a qualified 
     program consortium; and, have primary review and oversight 
     responsibility for the program consortium. Up to 5% of 
     program funds to be administered by the program consortium 
     are allocated in the law for NETL to perform these 
     activities. The review and oversight responsibility includes 
     review and approval of research awards proposed to be made by 
     the program consortium. NETL may use the allocated funds for 
     program direction and to establish a site office if it is 
     necessary to carry out the program, which I encourage; and
       2. The Secretary has been provided 25% of the total funds 
     for the National Energy Technology Laboratory to carry out a 
     program of research and other activities, including program 
     direction, overall program oversight, contract management, 
     and the establishment and operation of a technical committee 
     to ensure that in-house research activities funded are 
     technically complementary to, and not duplicative of, 
     research conducted under this new program. While it is 
     contemplated that the NETL may contract out some of this 
     work, the intent of the legislation is to encourage NETL to 
     build internal research and development capabilities with 
     this portion of the program funds.
       To ensure that this program is implemented as soon as 
     possible, the legislation requires the Secretary to select 
     the program consortium not later than 270 days after the date 
     of enactment. That time line should provide sufficient time 
     for a final contract with the selected program consortium to 
     be completed and for work to commence when funds for the 
     program consortium become available on October 1, 2006. In 
     the preparation of the solicitation of proposals for the 
     program consortium that will administer the program, I 
     encourage the National Energy Technology Laboratory to seek 
     broad public comment prior to the issuance of a final request 
     for proposals.
       I look forward to working with you to see that this program 
     is successful. If it is effectively administered in 
     accordance with the direction and timelines provided in the 
     statute, I feel confident that it will improve energy and 
     national security and achieve the additional natural gas and 
     oil production, increased royalty revenues and lower energy 
     costs for consumers as described in 2004 analysis by the 
     Energy Information Administration.
       I am attaching further analysis of the policy basis and 
     thrust of the new program and plan to submit this letter and 
     attachment for inclusion in the Congressional Record. Should 
     you need additional information, please let me know. Again, I 
     look forward to working with you on this important 
     initiative.

[[Page 20983]]

       With best personal regards, I am
           Sincerely,
                                                    Ralph M. Hall,
                                               Member of Congress.
       Attachment.
                                  ____


The Ultra-Deepwater and Unconventional Onshore Natural Gas Research and 
                          Development Program


                    the resource base and the policy

       The Ultra-deepwater and Unconventional Onshore Natural Gas 
     Research and Development Program constitutes the fourth 
     element of a solid policy plan for increasing natural gas and 
     other petroleum production and supply in the United States. 
     The policy foundation for the program is found in analysis 
     and recommendations of the National Petroleum Council (NPC), 
     the Department of Energy (DOE), the Energy Information 
     Administration (EIA) and the Bureau of Economic Geology (BEG) 
     at the University of Texas. R&D experience indicates that the 
     opportunity for dramatically increasing gas production from 
     these resources is great. North America has substantial 
     additional technically recoverable natural gas.
       The 2003 NPC study estimated that there are 1,969 Tcf of 
     technically recoverable natural gas reserves in North 
     America--equivalent to 90 years of gas supply at current 
     consumption rates.
       1240 Tcf is in the lower-48--(56 years of gas supply at 
     current consumption rates).
       Only 210 Tcf is in moratoria areas or areas otherwise 
     unavailable for development. (See Attachment A)
       The balance is in Alaska and Canada.
       Much of the Canadian technically challenged resource would 
     become productive with application of the new technologies 
     developed by this program.
       While some of the Alaskan resource is technically 
     challenged, the predominant problem there is with price due 
     to the high cost of pipelines to transport the gas to market.
       Development of additional technically recoverable natural 
     gas requires a suite of policy actions.
       Increased access to natural gas on federal lands affects 
     about 210 Tcf.
       Financial incentives can affect high cost gas resources 
     such as Alaska, deep wells, marginal producing properties and 
     gas pipeline infrastructure.
       Regulatory streamlining can benefit new infrastructure such 
     as pipelines and LNG terminals.
       Technology development creates the means to access 
     unconventional and ultra-deepwater resources--1240 Tcf in the 
     lower-48.


  policy basis for industry. academic and government collaboration on 
                     sustained, resource-based r&d

       In 1999, in the report ``Meeting the Challenges of the 
     Nation's Growing Natural Gas Demand,'' the National Petroleum 
     Council (NPC) made several observations and recommendations 
     for actions in order to meet growing natural gas demand in 
     the United States:
       Two regions--deepwater Gulf of Mexico and the Rockies will 
     contribute most significantly to new supply. (page 10)
       Deeper wells, deeper water, and nonconventional sources 
     will be the key to future supply. (page 10)
       Technology improvements are particularly important given 
     the difficult conditions accompanying new resources. (page 
     15) .
       This study assumes that technology improvements will 
     continue at an aggressive pace. (page 16)
       . . . an unprecedented and cooperative effort among 
     industry, government, and other stakeholders will be required 
     to develop production from new and existing fields. (page 10)
       The government should continue investing in research and 
     development through collaborations with industry, state 
     organizations, national laboratories and universities. (page 
     28)
       In response to the 1999 NPC study, the Department of Energy 
     conducted a roadmap-
     ping exercise through a series of work shops with 159 
     participants that included representatives from the 
     production and service industry, research institutions, 
     academia, the investment business, non-governmental 
     organizations, and government. In November 2000, the DOE 
     published the ``Offshore Technology Roadmap for the Ultra 
     Deepwater Gulf of Mexico'' which contains conclusions and 
     workshop highlights including:
       Scientific research and development (R&D) of new 
     technologies that will lower the cost of bringing these new 
     energy supplies to the consumer, while protecting the 
     environment, are needed. (page 4)
       The cost to design and implement an ultra-deepwater 
     technology demonstration program is on the order of hundreds 
     of millions of dollars. (page 4)
       R&D spending by the industry is very low as a percentage of 
     revenues compared to other industries. This is basically 
     possible because in the global economy, industry can 
     ``coast'' on older technology in other areas of the world. In 
     newer reservoirs and easier drilling environments around the 
     world (compared to the remaining opportunities in the United 
     States), new technology is less in demand. The industry will 
     develop the technology to produce in deepwater and ultra-
     deepwater in the United States, but absent some outside 
     stimulus, these developments will come at a very incremental 
     pace. (page A-1)
       If there is a national interest in increasing U.S. domestic 
     production in the near term, then stimulus could be applied 
     to achieve this goal. (page A-1)
       . . . assuring timely development of the nation's ultra-
     deepwater resources requires a deliberate, coordinated, and 
     well-financed effort on the part of industry, government, and 
     academia to address the key technological gaps that present a 
     barrier to this development. (page 4)
       Investment in technology for ultra-deepwater development 
     will require collaboration across all areas of a single 
     company and between companies. This collaboration must be 
     pervasive . . . between oil and gas companies and their 
     service providers; . . . governmental agencies, and non-
     governmental organizations; . . . and investors. (page A-2)
       Employing new technology is a significant barrier in and of 
     itself. In ultra deepwater, the initial technology deployment 
     represents a multi-million dollar investment. The risks and 
     costs for failure of initial deployment are high. (page A-5)
       A ``high-intensity'' approach to design and 
     commercialization is required to reduce the new technology 
     deployment time frame or the cycle time. (page A-6)
       Public funds for demonstration and/or testing will 
     accelerate technology commercialization. (page A-7)
       During the roadmapping process, stakeholders stated that 
     ``evolutionary elements of technology development must be 
     tied together in a way that brings a revolutionary result.'' 
     A critical point is that no single technology was identified 
     as holding revolutionary potential. It is the integration of 
     individual components of technology into a coherent and well-
     executed development process that will improve the efficiency 
     of deepwater development to make it competitive with other 
     provinces. It will take major technology advances on multiple 
     fronts in exploration, production, drilling, flow assurance 
     and infrastructure to achieve the revolutionary results . . . 
     (pages 14-15)
       In its report ``Economic Analysis for a National Ultra-
     deepwater and Unconventional Oil and Gas Supply Research 
     Fund'' (June 2003), the Bureau of Economic Geology (BEG) at 
     the University of Texas concluded that a well funded, 
     resource based R&D program could substantially increase 
     natural gas and oil production in the U.S. The results of 
     modeling a program roughly twice the size of the program in 
     the House bill indicate that this R&D work would yield a 
     relatively rapid increase in oil and gas production on 
     Federal lands currently available for leasing, resulting in a 
     cumulative increase in Federal oil and gas royalty receipts 
     of $12.4 billion over the next 10 years (and increasing 
     thereafter). In developing its report, the Bureau of Economic 
     Geology analyzed the experience of several successful R&D 
     efforts. The attached charts illustrate the results of that 
     analysis. (See Attachment B)
       There is ample experience with the unconventional gas 
     resources to provide clear examples of the potential for 
     successfully increasing natural gas production through the 
     implementation of a sustained, industry-led, well funded, 
     resource-based, collaborative R&D project. The GRI/industry 
     coalbed methane collaborative R&D program is especially 
     noteworthy for transforming coalbed methane from a nuisance 
     or hazard of coal production into a natural gas resource. 
     Before the mid-1980's, there was no coalbed methane 
     production. Now, coalbed methane constitutes more than 10 
     percent of domestic natural gas production.
       A more detailed profile of the GRI/industry coalbed methane 
     R&D program (see Attachment C) reveals the following: the 
     program cost about $140 million ($70 million GRI/$70 million 
     industry) over 10 years; production began to increase shortly 
     after the start of the program and annual production of 
     coalbed methane continues to increase and currently supplies 
     around 10 percent of U.S. domestic annual production. Among 
     the more important technologies that resulted from the 
     program are the application of hydraulic fracturing to 
     coalbeds, the capability to make accurate resource estimates, 
     gas desorption understanding and cavity completions. Other 
     examples of successful R&D programs in fields where 
     production has steadily increased are the Barnett Shale in 
     Texas and Michigan's Antrim Shale. Coalbed methane research 
     programs now exist in at least 13 countries worldwide.
       ``Balancing Natural Gas Policy.'' the 2003 report of the 
     National Petroleum Council says, ``Technology is a critical 
     driver for the growth of the gas industry in North America. 
     This is dictated by the nature and complexity of the 
     undiscovered resource base, which is generally characterized 
     by deeper drilling, deepwater, and nonconventional 
     reservoirs. Continued development of improved exploration and 
     development technologies and cost reductions for drilling and 
     platform construction will be critical to improving the 
     economics of future gas supply.'' (Chapter 9, page 303) The 
     attached chart indicates that technology advancements 
     represent two of the top three most effective

[[Page 20984]]

     ways to increase gas supply and lower energy costs to 
     consumers. (See Attachment D)
       According to an EIA analysis of the H.R. 6 Conference 
     Agreement in the 109th Congress, the program will yield net 
     natural gas supplies of 3.8 trillion cubic feet over the EIA 
     reference case and 850 million barrels of oil. In addition, 
     EIA notes that ``dedicated funding outside the annual 
     appropriations process implies relatively low funding-related 
     uncertainty for this program'' and ``. . . the new R&D 
     program would increase the technological progress of the 
     affected resources by 50% of its value in the [EIA] reference 
     case.'' Further analysis indicates that federal royalties 
     paid on the incremental supplies resulting from the R&D 
     investment will pay for the program. (See Attachment E)


                               Conclusion

       The Ultra-deepwater and Unconventional Onshore Natural Gas 
     Research and Development Program fulfills the recommendations 
     of the National Petroleum Council that ``The government 
     should continue investing in research and development through 
     collaborations with industry, state organizations, national 
     laboratories and universities.'' The program is designed for 
     the purpose of assuring a well-funded and sustainable program 
     of collaborative research to more quickly develop the 
     technologies to develop our ultra-deepwater and 
     unconventional natural gas resources--our largest domestic 
     resources. The program design is based on analysis of R&D 
     programs that have already been completed and have yielded 
     large increases in natural gas production. According to 
     analyses by the Bureau of Economic Geology and the Department 
     of Energy's Energy Information Administration, the program 
     will increase natural gas and oil supplies, lower costs to 
     consumers, increase royalty revenues for the states and 
     return enough additional royalty revenue to the Treasury to 
     more than repay the cost of the program.
                                  ____


Increased Research and Development Spending From Sections 941 to 949 of 
                                the CEB

       Two types of uncertainty characterize the effects of 
     proposed authorizations of Federal R&D investments. First, 
     the timing and level of the net change in Federal R&D 
     spending is often different from the authorized amount. 
     Second, a statistically reliable relationship between the 
     level of R&D spending for specific technologies and the 
     actual outcome of that R&D has not been developed. Even is 
     both of these uncertainties were resolved, the analysis is 
     complex because the levels of private sector R&B expenditures 
     are usually unknown but often far exceed R&D spending by the 
     Federal Government. Consequently, EIA cannot provide an 
     estimate of the impact on technological change of an increase 
     in Federal R&D spending. However, EIA can provide the results 
     of a sensitivity case using an assumption of the 
     technological impact that increased spending on R&D might 
     have.
       Sections 941 to 949 of the CEB calls for the allocation of 
     $150 million annually into a fund (the Ultra-Deepwater and 
     Unconventional Natural Gas and Other Petroleum Research Fund) 
     for Federally sponsored R&D. The money is to come from 
     Federal royalty payments that are allocated in each fiscal 
     year from 2004 through 2013 and would not go through the 
     annual appropriations process. The R&D is to be targeted for 
     the development of ultra-deep (greater than 1,500 meters 
     water depth) offshore, unconventional natural gas, and other 
     petroleum resources. Unconventional natural gas and other 
     petroleum resources are ``natural gas and other petroleum 
     resources located onshore in an economically inaccessible 
     geological formation including resources of small 
     producers.''
       Dedicated funding outside of the annual appropriations 
     process implies relatively low funding-related uncertainty 
     for this program. However, the uncertainty in relating 
     increased Federal spending to technological progress remains 
     important. Experts in the Department of Energy's Office of 
     Fossil Energy (FE) believe that the new R&D funding would 
     increase the technological progress for the affected 
     resources (ultra deep offshore oil and gas and unconventional 
     gas production) by 50 percent over its value in the Reference 
     Case. They arrived at his conclusion by verifying that the 
     proposed additional R&D funding would bring total Federal R&D 
     spending back to the levels represented in the Reference Case 
     of AEO1997 which used the same rates. The CEB case with the 
     added FE assumptions regarding accelerated technological 
     change due to the Section 941-to-949 programs, referred to as 
     the FE/CEB case, was run to assess the impact of the assumed 
     accelerated technological change on oil and gas supply and 
     prices.
       The pattern of natural gas wellhead prices and production 
     in the FE/CEB case is as expected. Successful R&D increases 
     supply from the ultra-deep and unconventional resources and 
     lowers wellhead prices throughout the forecast. Natural gas 
     wellhead prices are as much as $0.30 per mcf lower than in 
     the Reference Case and as much as $0.20 per mcf lower than in 
     the CEB Case.
       Between 2009 and 2025, cumulative crude oil production from 
     the ultra-deep offshore is over 850 million barrels higher 
     than in the References Case and over 800 million barrels 
     higher then the CEB Case. Cumulative natural gas production 
     is 3.8 tcf higher than in the Reference Case and 3.2 tcf 
     higher than the CEB Case. It is important to note that the 
     technological improvements assumed for this case would also 
     have an impact in producing areas outside the United States, 
     which would potentially affect world oil markets.

                          ____________________