Department of Energy: Oil and Natural Gas Research and		 
Development Activities (06-NOV-07, GAO-08-190R).		 
                                                                 
Domestic oil and natural gas production are important to meeting 
our nation's energy needs and represented more than 40 percent of
the U.S. energy production in 2006. The Department of Energy	 
(DOE) has undertaken research and development (R&D) for oil and  
natural gas since its inception in the late 1970s. Historically, 
the federal government has entered into cost-sharing agreements  
with universities, state agencies, and independent companies to  
help fund these R&D efforts, which were often long-term,	 
high-risk projects with variable results. In recent		 
appropriations, DOE's funding for oil and natural gas R&D was	 
significantly reduced. In this context, Congress asked GAO to	 
review DOE's R&D activities for oil and natural gas and provide  
information on (1) how much has been appropriated during the past
10 years, (2) how DOE expended these appropriations and its	 
reported results to date, (3) the potential future results from  
continuing DOE-sponsored research in oil and natural gas	 
technologies, and (4) the factors that could be considered when  
determining the federal government's role in oil and natural gas 
R&D.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-190R					        
    ACCNO:   A78034						        
  TITLE:     Department of Energy: Oil and Natural Gas Research and   
Development Activities						 
     DATE:   11/06/2007 
  SUBJECT:   Domestic crude oil 				 
	     Energy research					 
	     Environmental research				 
	     Extractive industry				 
	     Fuel gas industry					 
	     Fuel research					 
	     Independent research and development		 
	     Natural gas					 
	     Natural resources					 
	     Petroleum exploration				 
	     Petroleum industry 				 
	     Research and development				 
	     Research and development costs			 
	     Appropriated funds 				 
	     Cost sharing (finance)				 

******************************************************************
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** may not resemble those in the printed version.               **
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GAO-08-190R

   

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United States Government Accountability Office
Washington, DC 20548

November 6, 2007

The Honorable Byron L. Dorgan
Chairman
Subcommittee on Energy and Water Development
Committee on Appropriations
United States Senate

Subject: Department of Energy: Oil and Natural Gas Research and
Development Activities

Dear Mr. Chairman:

Domestic oil and natural gas production are important to meeting our
nation's energy needs and represented more than 40 percent of the U.S.
energy production in 2006. The Department of Energy (DOE) has undertaken
research and development (R&D) for oil and natural gas since its inception
in the late 1970s. Historically, the federal government has entered into
cost-sharing agreements with universities, state agencies, and independent
companies to help fund these R&D efforts, which were often long-term,
high-risk projects with variable results. In recent appropriations, DOE's
funding for oil and natural gas R&D was significantly reduced.

In this context, you asked us to review DOE's R&D activities for oil and
natural gas and provide information on (1) how much has been appropriated
during the past 10 years, (2) how DOE expended these appropriations and
its reported results to date, (3) the potential future results from
continuing DOE-sponsored research in oil and natural gas technologies, and
(4) the factors that could be considered when determining the federal
government's role in oil and natural gas R&D.

We briefed your staff on the results of our work on September 25, 2007. In
response to your request, this report summarizes and formally transmits
the information provided to your staff during that briefing. The enclosure
to this report presents the briefing in its entirety. This report is based
on analysis of prior GAO work, budget data for fiscal years 1997 through
2007, and discussions about the results of past oil and natural gas R&D
expenditures and the potential future results of oil and natural gas R&D
activities. We discussed these issues with officials from DOE and other
federal government organizations, industry, states, academia, consulting
groups, and the National Academy of Sciences. We performed our work
between June 2007 and November 2007 in accordance with generally accepted
government auditing standards.

Summary

DOE oil and natural gas R&D appropriations have generally declined from
approximately $162.5 million in fiscal year 1997 to about $14.3 million in
fiscal year 2007.^1 Oil appropriations, which were about $45.2 million in
fiscal year 1997, rose to about $65.1 million in fiscal year 2001 before
declining steadily to approximately $2.6 million in fiscal year 2007.
Natural gas appropriations have also declined from about $117.3 million in
fiscal year 1997 to about $11.7 million in fiscal year 2007, partially
because fuel cell technologies and advanced gas turbines have been removed
from the natural gas R&D budget.^2

Since 1997, DOE oil and natural gas R&D expenditures include projects for
(1) increasing exploration and production; (2) addressing environmental
protection; (3) extending reservoir lives; (4) developing gas hydrates;
and (5) carrying out other activities, such as the development of fuel
cells, gas turbines, and infrastructure improvements, and providing field
demonstrations. For example, one project studied the environmental impacts
of road building on tundra and found that tundra was more resistant than
anticipated. This knowledge provided a basis for companies operating in
northern Alaska to extend the exploration season without additional harm
to the tundra.

According to DOE officials, if DOE continued to sponsor research in oil
and natural gas R&D, it would seek results in three broad areas: (1)
increasing domestic oil and natural gas production--especially from
independent producers^3--to a level higher than otherwise would occur; (2)
reducing some environmental impacts by monitoring and conducting
assessments of air quality, developing new management options for using
water produced during production, and contributing to the overall health
of ecosystems; and (3) developing "game changing" technologies, such as
methods for finding and producing gas hydrates, and newer enhanced oil
recovery technologies and processes that increase production and provide
the necessary bridge to commercial carbon dioxide sequestration--the
capture and containment of this gas.^4 Increasing domestic oil and natural
gas production could, according to DOE officials, potentially result in
increased support for independent producers, less reliance on imported
oil, increased government revenues from royalties and taxes, and research
projects that help to replenish the talent pool of energy professionals.

^1Dollar amounts for appropriations are unadjusted for inflation.

^2These funds were shifted to other areas within DOE and are no longer
categorized as natural gas R&D activities.

^3Independent producers are oil and natural gas companies that receive
nearly all of their revenues from oil and gas production, and that
generally lack revenue from refining, transportation, and retail marketing
of the products.

^4Game changing technologies are seen by DOE as technologies or approaches
with the potential to dramatically alter thinking about oil and natural
gas resources. For example, the methane (natural gas) contained in methane
hydrate is estimated to be over 100 times larger than estimated
technically recoverable natural gas resources from more conventional
reservoirs, which could change thinking regarding the need for natural gas
imports from other countries.

On the basis of GAO's prior work, the following questions, among others,
could be considered when determining the federal government's role in oil
and natural gas R&D: (1) Is the industry motivated to conduct the research
on its own? (2) Do cost-sharing opportunities exist for the government?
and (3) Do the benefits of the research exceed the cost?^5 Although
competition in oil and natural gas markets should provide incentives for
companies to invest in R&D, they may not be adequately motivated to incur
the full costs of R&D because they cannot capture all of the benefits. For
example, a successful innovator would capture some of the rewards, but
those rewards would typically be a fraction--and sometimes a very small
fraction--of the overall benefits to society. As such, some industry
economists and experts argue that a federal government role is needed
because industry may underinvest in oil and natural gas R&D. However, the
extent to which industry is underinvesting in this area is unclear because
comparable data are not readily available and much of these data are
proprietary.

In short, DOE reports many cost-sharing initiatives that have resulted in
technological innovations, which have helped domestic
producers--particularly independent producers--maintain production of
these important fuels; addressed some environmental issues, such as the
need for research on the effects of oil and natural gas activities on
surrounding ecosystems; and developed a better understanding of other
potential resources, such as gas hydrates. While GAO and others have
reported that the overall benefits of these projects have been difficult
to quantify and link to DOE's efforts, considering key questions about the
need for research, industry commitment to research, and the costs and
benefits associated with the research can help define the role of the
federal government and assist the Congress in its policy choices.

Agency Comments

We provided DOE with a draft of this report for review and comment. DOE
officials had no substantive comments on the report, but they provided
technical comments about the potential of gas hydrates, how major oil
companies differ from the independents, and our characterization of new
carbon sequestration technologies. We incorporated their comments as
appropriate.

                                   - - - - -

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 7 days from
its issue date. At that time, we will send copies of this report to
appropriate congressional committees; the Secretary of Energy; and other
interested parties. In addition, this report will be available at no
charge on GAO's Web site at [8]http://www.gao.gov .

^5See, for example, GAO, Department of Energy: Proposed Budget in Support
of the President's Climate Change Technology Initiative, GAO/RCED-98-147
(Washington, D.C.: Apr. 10, 1998).

If you have any questions or need additional information, please contact
me at

(202) 512-3841 or [9][email protected] . Contact points for our Offices of
Congressional Relations and Public Affairs may be found at the last page
of this report. Major contributors to this report were Chuck Bausell, Ron
Belak, Dan Haas (Assistant Director), Stuart Ryba, and Ignacio Yanes. Also
contributing to this report were Virginia Chanley, Alison O'Neill,
MaryLynn Sergent, Anne Stevens, and Barbara Timmerman.

Sincerely yours,

Mark Gaffigan
Acting Director, National Resources and Environment

Enclosure

Briefing to the Committee on Appropriations, Subcommittee on Energy and 
Water Development:

Department of Energy: Oil and Natural Gas Research and Development 
Activities: 

Briefing to the Committee on Appropriations, Subcommittee on Energy and 
Water Development, U.S. Senate: 

September 25, 2007: 

DOE Research and Development (R&D)for Oil and Natural Gas: 

Background: 

U.S. Consumes More Energy Than it Produces: 

2006 Domestic Energy Production by Primary Energy Source (quadrillion 
Btu):

Coal: 24; 
Natural Gas: 19; 
Oil: 11; 
Nuclear Electric: 8; 
Other: 9; 
Total: 71.

2006 Energy Consumption (quadrillion Btu): Production: 71; 
Imports: 29. 

Source: Energy Information Administration Annual Energy Review 2006 
(Preliminary). 

Note: Other Includes Renewable Energy Sources and Natural Gas Plant 
Liquids. 

U.S. Imports Most of Its Oil and Some of Its Natural Gas: 

This slide contains two pie-charts, depicting sources of oil and 
natural gas, as follows:

Imported Oil: 67%; 
Domestic Oil: 33%. 

Domestic Natural Gas: 81%; Imported Natural Gas: 19%. 

Source: DOE Energy Information Administration 2007. 

Historical Role of DOE in R&D: 

* DOE has undertaken research and development (R&D) for oil and natural 
gas since its inception in the late 1970s. 

* These research activities often fund high-risk, high-cost projects 
aimed at long-term results. 

* Historically, the federal government has entered into cost-sharing 
agreements with universities, state agencies, and independent companies 
to fund these R&D activities. 

* In recent appropriations, DOE has received significantly reduced 
funding for its oil and natural gas R&D activities. 

The Key Players in the Oil and Natural Gas Industries Have Varying 
Interests: 

Majors (e.g. Shell, Exxon Mobil, and BP) include companies with 
refining and marketing capabilities that focus primarily on exploration 
and production of new reserves in relatively unexplored areas. 

Service Companies (e.g., Halliburton, Schlumberger, and Smith 
International) primarily develop new technologies to assist both the 
major oil companies and some of the independents in exploration and 
production. 

Independents- The U.S. has about 5,000 producers who drill 90 percent 
of domestic oil and gas wells, produce about 68 percent of domestic 
oil, and produce about 82 percent of domestic natural gas. Although 
their size and resources vary, many do not individually own enough oil 
and natural gas to justify R&D investment. 

Objectives: DOE R&D Activities for Oil and Natural Gas: 

1. How much has been appropriated during the past ten years? 

2. How have these appropriations been expended and what are DOEï¿½s 
reported results to date? 

3. What are the potential future results from continuing DOE-sponsored 
research in oil and natural gas technologies? 

4. What factors could be considered when determining the federal 
governmentï¿½s role in oil and natural gas R&D? 

DOE R&D for Oil and Natural Gas: 

Scope and Methodology: 

Scope: 
DOE oil and natural gas R&D activities from fiscal year 1997-2007: 

Methodology: 

* Reviewed and analyzed budget data for fiscal years 1997-2007 with 
officials from DOE and reviewed budget data from the Office of 
Management and Budget and previous GAO reports. 

* We reviewed studies and discussed the results of oil and natural gas 
expenditures with officials from DOE, the U.S. Geological Survey, 
industry, states, academia, think tanks, the National Academy of 
Sciences, and the International Energy Agency. 

* We discussed the potential future results of continued DOE-sponsored 
research in oil and natural gas R&D with officials from the same group. 

* We reviewed prior GAO reports as well as reports by the National 
Academy of Sciences and DOE to determine factors that should be 
considered when assessing the federal governmentï¿½s role in oil and 
natural gas R&D. 

* Our assessment of some information is preliminary and has not been 
fully corroborated. We also did not perform a cost-benefit analysis, 
nor did we consider additional subsidies to industry through tax 
breaks. 

* We performed our work between June 2007 and November 2007 in 
accordance with generally accepted government auditing standards.

Scope and Methodology: Sources of Information: 

We discussed DOEï¿½soil and gas R&D activities with: 

* Government:DOE Fossil Energy, DOE National Energy Technology 
Laboratory (NETL), DOE Lawrence Berkeley National Laboratory, United 
States Geological Survey Energy Resources Program, International Energy 
Agency; 

* Industry: Independent Petroleum Association of America and Research 
Partnership to Secure Energy for America; 

* States and Academia: Colorado Energy Research Institute, University 
of Texas Bureau of Economic Geology, University of North Dakota Energy 
and Environmental Research Center, Interstate Oil and Gas Compact 
Commission, Southern States Energy Board; 

* Think Tanks: Cambridge Energy Research Associates and Rocky Mountain 
Institute; 

* National Academy of Sciences: National Research Council. 

Results in Brief: 

Objective 1: 
DOE oil and natural gas R&D appropriations have generally declined from 
approximately $162 million in fiscal year 1997 to about $14million in 
fiscal year 2007. 

Objective 2: 
DOE oil and natural gas R&D appropriations resulted in expenditures for 
projects including: 
* increasing exploration and production; 
* addressing environmental protection; 
* extending reservoir lives; 
* developing gas hydrates; and; 
* carrying out other activities, such as the development of fuel cells, 
gas turbines, and infrastructure improvements, and providing field 
demonstrations. 

Objective 3: 
Future DOE oil and natural gas R&D investments could potentially yield 
results in three broad areas: 
* increasing domestic oil and natural gas productionï¿½especially from 
independent producersï¿½to a level higher than otherwise would occur; 
* reducing environmental impacts in some cases; and; 
* developing ï¿½game changingï¿½ technologies such as (1) gas hydrates and 
(2) CO2 sequestration that increases production. 

Objective 4: 
Among the factors that could be considered when determining the federal 
governmentï¿½s role in oil and natural gas R&D are: 
* Is industry motivated to conduct the research on its own? 
* Do cost-sharing opportunities exist for the government? 
* Do benefits of the research exceed the costs? 

DOE R&D for Oil and Natural Gas: 

Objective 1: How much has been appropriated during the past ten years? 

Appropriations Have Generally Declined From Fiscal Year 1997 to 2007 
(in millions of dollars): 

This figure is a vertical bar graph. The vertical axis of the graph 
represents dollars in millions from 0 to 140. The horizontal axis of 
the graph represents appropriations for oil and natural gas during 
fiscal years 1997 through 2007. The following data is depicted:

Fiscal year 1997:
Oil: 45.2; 
Natural Gas: 117.3. 

Fiscal year 1998:
Oil: 47.7; 
Natural Gas: 108.5. 

Fiscal year 1999:
Oil: 47.3; 
Natural Gas: 69.3.

Fiscal year 2000:
Oil: 55.7; 
Natural Gas: 73.9. 

Fiscal year 2001:
Oil: 65.1; 
Natural Gas: 43.9. 

Fiscal year 2002:
Oil: 56.2; 
Natural Gas: 43.9. 

Fiscal year 2003:
Oil: 41; 
Natural Gas: 44.1. 

Fiscal year 2004:
Oil: 34.1; 
Natural Gas: 45.9. 

Fiscal year 2005:
Oil: 33;
Natural Gas: 41.8. 

Fiscal year 2006:
Oil: 30.8;
Natural Gas: 31.8. 

Fiscal year 2006:
Oil: 2.6;
Natural Gas: 11.7. 

Source: GAO analysis of DOE data. 

Note: Dollar amounts are unadjusted for inflation; when adjusted, the 
declines are even greater. 

[End of figure] 

Appropriations Have Generally Declined From Fiscal Year 1997 to 2007 
(in millions of dollars): 

Fiscal year: 1997; 
Oil Technologies: 45.184; 
Gas Technologies: 117.261; 
Total: 162.445. 

Fiscal year: 1998; 
Oil Technologies: 47.708; 
Gas Technologies: 108.461; 
Total: 156.169. 

Fiscal year: 1999;  
Oil Technologies: 47.344; 
Gas Technologies: 69.346; 
Total: 116.690. 

Fiscal year: 2000; 
Oil Technologies: 55.747; 
Gas Technologies: 69.346; 
Total: 116.690. 

Fiscal year: 2001; 
Oil Technologies: 65.095; 
Gas Technologies: 43.925; 
Total: 109.020. 

Fiscal year: 2002; 
Oil Technologies: 56.244; 
Gas Technologies: 44.069; 
Total: 100.313. 

Fiscal year: 2003; 
Oil Technologies: 40.983; 
Gas Technologies: 45.860; 
Total: 86.843. 

Fiscal year: 2004; 
Oil Technologies: 34.107; 
Gas Technologies: 41.836; 
Total: 75.943. 

Fiscal year: 2005; 
Oil Technologies: 32.985; 
Gas Technologies: 43.632; 
Total: 76.617. 

Fiscal year: 2006; 
Oil Technologies: 30.805; 
Gas Technologies: 31.801; 
Total: 62.606. 

Fiscal year: 2007; 
Oil Technologies: 2.625; 
Gas Technologies: 11.709; 
Total: 14.334. 

Fiscal year: Total; 
Oil Technologies: 458.827; 
Gas Technologies: 631.794; 
Total: 1090.621.  

Source: GAO analysis of DOE data. 

Note: Dollar amounts are unadjusted for inflation; when adjusted, the 
declines are even greater.  

[End of table]  

DOE R&D for Oil and Natural Gas:  

Objective 2: How have these appropriations been expended and what are 
DOEï¿½s reported results to date?  

Purpose of Oil and Natural Gas R&D Expenditures (Selected Years in 
millions of dollars):  

Budget Categories: Oil Technologies, Exploration and Production; 
FY98: 30.141; 
FY02: 33.207; 
FY06: 12.997.  

Budget Categories: Oil Technologies, Environmental Protection; 
FY98: 6.224 
FY02: 10.426; 
FY06: 9.242.  

Budget Categories: Oil Technologies, Reservoir Life Extension; 
FY98: 0.000; 
FY02: 12.611; 
FY06: 5.776.  

Budget Categories: Oil Technologies, Other; 
FY98: 11.343; 
FY02: 0.000; 
FY06: 2.790.  

Budget Categories: Oil Technologies, Total Oil; 
FY98: 47.708; 
FY02: 56.244; 
FY06: 30.805.  

Budget Categories: Natural Gas Technologies: Exploration and 
Production; 
FY98: 13.566; 
FY02: 19.964; 
FY06: 17.329.  

Budget Categories: Natural Gas Technologies: Environmental Protection; 
FY98: 3.181; 
FY02: 2.537; 
FY06: 1.444.  

Budget Categories: Natural Gas Technologies: Gas Hydrates; 
FY98: 0.000; 
FY02: 9.568; 
FY06: 8.667.  

Budget Categories: Natural Gas Technologies: Other; 
FY98: 91.714; 
FY02: 12.000; 
FY06: 4.361.  

Budget Categories: Natural Gas Technologies: Total Natural Gas; 
FY98: 108.461; 
FY02: 44.069; 
FY06: 31.801.  

Budget Categories: Total Oil and Natural Gas; 
FY98: 156.169; 
FY02: 100.313; 
FY06: 62.606.  

Source: GAO analysis of DOE data.  

[End of table]  

Purpose of Oil and Natural Gas R&D Expenditures:  

Category: Exploration and Production; Goals/Details: Development of 
technologies for independents to economically recover the oil remaining 
in mature fields by expanding the technology options for enhanced oil 
recovery. Develop technology to find and produce gas from non-
conventional and deep gas reservoirs with minimal environmental impact. 
Also includes resource assessments in new basins and drilling 
completion and stimulations.  

Category: Effective Environmental Protection; Goals/Details: Develop 
technologies and practices that reduce the environmental impact of oil 
exploration, production, and processing while lowering the cost of 
effective environmental protection and compliance. Includes examining 
the specific impact of produced water and the more general problem of 
water management.Reduce the environmental impacts of natural gas 
operations and reduce the cost of environmental compliance through a 
combination of technology development, risk assessment, and regulatory 
streamlining.  

Category: Reservoir Life Extension; Goals/Details: Improve recovery 
from mature fields through (1) prototype development such as microhole 
technologies for enabling improved access; (2) technology transfer to 
independents; and (3) policy analysis and planning to increase domestic 
oil recovery over a wide range of technological and economic 
conditions.  

Category: Gas (Methane) Hydrates; Goals/Details: Develop the knowledge 
and technology to allow methane to be produced from hydrates while 
protecting the environment. Conduct high risk and long-term research to 
understand the fundamental characteristics of hydrates and commercially 
produce the gas.  

Category: Other; 
Goals/Details: Includes infrastructure research to enhance the 
reliability of the nationï¿½s oil and gas pipelines and storage; 
processing technology that evaluates gas to liquid feasibility; 
recovery field demonstrations that display to independent producers 
advanced technologies to maximize oil recovery; congressional directed 
activities; and others. Includes $39.2 million for fuel cells and $43.9 
million for advanced gas turbines in fiscal year 1998 for natural gas 
R&Dï¿½these projects continued but were transferred out of the natural 
gas R&D in subsequent years.  

[End of table]  

Reported Results of Expenditures: Exploration and Production:  

Results include providing the necessary technologies to identify, 
locate, and economically recover oil and natural gas remaining in 
mature fields with minimal environmental impact. Examples include:  

1. Advanced Diagnostic and Imaging provides deep imaging capabilities, 
improves resource estimates, develops new methods for detection of 
reservoir sweet spots, and provides improved CO2 monitoring.  

2. Deep Trek developed more durable equipment in high temperature 
drilling conditions, and provides real-time communication between the 
drill bit and surface.  

3. Stripper Well Revitalization includes organizing a nationwide 
consortium to share information and developing low cost techniques for 
small companies to improve natural gas and oil recovery.  

4. Enhanced Oil Recovery efforts unite university knowledge centers 
with independent producers and develop techniques to use CO2 injection 
to increase production.  

Design of a Down-hole Microcomputer Circuit:  

Objective: 
Develop a down-hole microcomputer system that survives 275oC and can be 
readily incorporated in electronic circuits used by industry.  

Accomplishments: 
Agreed upon design standards (allows broad market application and 
compatibility with other components underdevelopment).  

Benefits: 
Provides accurate and efficient control of down-hole equipment, 
communications, data acquisition, and digital signal processing.  

Figure: Illustration of Microcomputer circuit. 

{See PDF for image]  

Reported Results of Expenditures: Effective Environmental Protection:  

Results include technologies, practices, and regulations that reduce 
the environmental impact of oil and natural gas exploration, 
production, and processing through technology development and risk 
assessment. Examples include:  

1. Waste Disposal of naturally occurring radioactive materials and 
synthetic mud.  

2. Using salt caverns for disposal of non-hazardous oilfield waste.  

3. Developing new water treatment technologies to create management 
options for produced water.  

4. Studying the effects of oil and gas activities on the surrounding 
ecosystem as well as wildlife and their habitat.  

Example: Environmental Impacts on Tundra:  

* DOE/Alaska DNR performed environmental assessment that quantitatively 
defined the hardness of the ground needed to protect the tundra during 
road building in different ecosystems;  

* According to DOE, the tundra was much more resistant to the impacts 
of road building than anticipated;  

* Assessment determined season could begin earlier without damaging 
tundra.  

Figure: Picture of Tundra. 

{See PDF for image]  

Reported Results of Expenditures: Reservoir Life Extension:  

Results include developing technologies to more effectively recover 
domestic oil, extend the life of existing fields, and maximize 
production through research and technology transfer gained from the 
field testing of new technologies. Examples include:  

1. Using microhole technologies to locate and monitor production in 
complex reservoirs via new 4-D seismic imaging.  

2. Applying new thermal enhanced oil recovery technologies to increase 
recovery of heavy oil.  

3. Transferring technology to independent producers through workshops, 
presentations, and websites.  

Example: Microhole Technologies:  

Figure: Illustration of microhole technologies. 

[See PDF for image]  

Reported Results of Expenditures: Gas Hydrates:  

Results include a better understanding of the fundamental 
characteristics of hydrates and a basis upon which to develop this 
source of natural gas as conventional resources decline. DOE is part of 
a government-industry partnership evaluating:  

1. whether gas hydrates are a meaningful resource;  

2. how to find them; and;  

3. how to produce them safely, profitably, and in an environmentally-
responsible manner.  

Example: Hydrates (Ice that Burns):  

2000: 
* Hydrate science focused on getting a basic understanding; 
* Hydrates were considered a drilling hazard; 
* Hydrates difficult if not impossible to remotely detect.  

2007: 
* Proven feasibility of Arctic hydrate production; 
* Understanding that typical hydrate occurrences not a threat; 
* Proven remote detection and some quantification capabilities for 
Arctic hydrate.  

Potential future focus of DOE Research: 
* Determine the amount of resource available; 
* Determine the capability for reliable remote detection and 
quantification of marine hydrates; 
* Demonstrate the ability to produce economic amounts; 
* Understand the environmental implications of hydrates.  

Figure: Photograph of Hydrates. 

{See PDF for image]  

Reported Results of Expenditures: Other Projects:  

Reported Results include:  

* Fuel Cells and Gas Turbines ï¿½the budgets for these projects were 
subsequently moved out of oil and natural gas R&D.  

* Infrastructure improvements that upgrade aging equipment to protect 
the public from pipeline and equipment leakages.  

* Recovery Field Demonstrations that illustrate to independent 
producers how to implement new technologies developed by DOE and its 
partners.  

Example: Infrastructure:  

* Provides increased integrity, operational reliability, safety and 
security of the nationï¿½s natural gas infrastructure.  

* Reduces greenhouse gas emissions resulting from pipeline and 
equipment leakage.  

Figure: Photograph of pipeline.  

[See PDF for image]  

DOE R&D for Oil and Natural Gas:  

Objective 3: What are the potential future results from continuing DOE-
sponsored research in oil and natural gas technologies?  

Continuing DOEï¿½s Oil and Natural Gas R&D Could Potentially Result in: 

* Increased Domestic Production of Oil and Natural Gas; 
- Increased Support for 5000 Independent Producers; 
- Less Reliance on Imported Oil; 
- Increased Government Revenues from Royalties and Taxes; 
- Research Projects That Help to Replenish the Talent Pool of Energy 
Professionals.  

* Reducing the Environmental Impact of Oil and Natural Gas Activities; 
- Monitoring and Conducting Assessments of Air Quality; 
- Creating Management Options for Produced Water; 
- Contributing to the Health of Ecosystems.  

* Game Changing Technologies in the Oil and Natural Gas Industries; 
- Gas Hydrates; 
- Carbon Sequestration that Increases Production.  

DOE Cites Potential Game Changing Benefits for R&D in Gas Hydrates and 
Carbon Sequestration:  

Gas Hydrates: 
* Refers to gas hydrates as a new source of domestic natural gas with 
ï¿½tantalizing potentialï¿½ï¿½about 200,000 trillion cubic feet. (Over 100 
times more than estimated technically recoverable natural gas 
resources.) 
* Acknowledges that the potential benefits would not be understood for 
several years. 
* Hydrate R&D is high cost, high risk, and long-term. 
* Industry is not aggressively pursuing hydrates R&D.  

Carbon Sequestration: 
* Approximately 2/3 (over 400 billion barrels) of domestic oil resource 
remains after primary recovery. 
* Identifies over 47 billion barrels of economically recoverable oil 
that will result from the widespread use of enhanced oil recovery (EOR) 
technologies. 
* These technologies may provide the necessary bridge to the 
development and implementation of next generation CO2 EOR 
technologies.  

DOE R&D for Oil and Natural Gas:  

Objective 4: What factors could be considered when determining the 
federal governmentï¿½s role in oil and natural gas R&D?  

What factors could be considered when determining the federal 
governmentï¿½s role in oil and natural gas R&D?  

* Competition in oil and natural gas markets should provide incentives 
for companies to invest in R&D. Innovations provide competitive 
advantages by: (1) reducing costs, and (2) enhancing knowledge;  

* Markets may fail to motivate companies to fully fund R&D. Two 
examples: (1) technology ï¿½an innovating company may not be able to 
capture all the benefits while incurring all the costs of R&D (e.g., 
intellectual property laws inadequate). (2) environmental ï¿½cleaner 
technologies can be at a disadvantage to dirtier ones if environmental 
costs are not adequately reflected in the market. Thus, no cost 
advantages are provided to cleaner technologies, thereby reducing 
incentives to research and develop the cleaner ones.  

* Based on ongoing and prior work, consideration could be given to 
questions, such as: (1) Would the private sector do the research 
without federal funding? (Would the resulting technology be competitive 
in the marketplace?) (2) Are there cost-sharing options through a 
public-private partnership? (3) Do the benefits exceed costs? For 
example, do independent evaluations indicate that the research program 
is effective and achieving results?  

Quantifying the Benefits of DOE R&D Activities Is Inherently 
Difficult:  

* As GAO and others have reported, the overall benefits of these 
projects have been difficult to quantify and link to DOE efforts.  

* In FY2001, the National Academy of Sciences assessed the benefits of 
federal DOE R&D programs in fossil energy.  

* The Academy found no reliable way to quantify the DOE contribution in 
most cases, and admitted that doing so remains a methodological 
challenge. The Academy also judged, in aggregate, benefits of federal 
energy R&D exceeded costs but observed DOEï¿½s overall portfolio included 
striking successes and expensive failures.  

* DOE quantified the benefits of its fossil energy research in 2004 and 
judged that the benefits outweighed the cost. However, its report 
acknowledged that ï¿½the future benefits and impacts of R&D programs are 
inherently uncertain, as are future economic, geopolitical, and 
regulatory conditions.ï¿½  

Concluding Observations:  

* Domestic oil and natural gas production remain important to meeting 
our nationï¿½s energy needs and DOE has a long history of R&D in these 
areas.  

* DOE-supported R&D has resulted in technological innovations. Some 
industry economists and experts argue that a federal government role is 
needed because industry, especially many independent producers, may be 
under investing in oil and natural gas R&D. The extent to which 
industry is under-investing is unclear.  

* Although the benefits of R&D are difficult to quantify, considering 
key questions about the need for research, industry commitment to 
research, and the costs and benefits associated with the research can 
help define the role of the federal government and assist the Congress 
in its policy choices.  

[End of enclosure]  

(360861)

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