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Remarks of ASFE Steven Winberg as prepared at the Unconventional Resources Technology Conference (URTEC) on July 20, 2020

 

Thank you very much for that introduction.

 

First, let me give you a look at the landscape of our industry as it is now; then, a look ahead. I want to start by affirming that fossil energy is here for the long run. As you probably know, about 80 percent of the energy used around the world comes from fossil fuels, and 80% of those fossil fuels are oil and natural gas. That means unconventional—and conventional-- oil and gas is here for the long run: that’s the good news.

 

However, I’ll also acknowledge the pain we have experienced in the past several months.  The pandemic has frozen the global economy, and the energy industry is among the most seriously affected. We have witnessed unprecedented decreases in U.S. consumption of petroleum products and natural gas in the past several months. But I believe the U.S. oil and gas industry is now in recovery mode, and taking stock of the new energy landscape.

 

Oil is fundamental to the U.S. and the global economy. Within the global oil market, the United States is a key participant, both actively importing and exporting crude oil and petroleum products. In 2019, the United States exported a record 2.9 million barrels per day of crude oil, to 44 different destinations. Also in 2019, the United States exported 5.5 million barrels per day of petroleum products, just shy of 2018’s record level.   

 

We became one of the world’s top exporters of oil and natural gas because we produced more oil and natural gas than ever before. U.S. oil production grew to 12.2 million barrels per day in 2019. And U.S. dry natural gas production grew by 9.8 billion cubic feet per day in 2019, a 10% increase from 2018. U.S. natural gas production measured as gross production averaged 111.5 Bcf/d in 2019, the highest volume on record, according to the EIA.

 

All those energy riches were the direct result of your efforts to develop our Nation’s abundant shale resources—and as you know, that development was unleashed in part by early DOE-supported research.  It opened up a phenomenal expansion of oil and gas shale development and production.  The continuing increase in U.S. oil and gas production has strengthened our energy future.

 

However, the unprecedented COVID-19 crisis and its demand disruption hit just as American oil and gas producers were preparing for another year of record-setting achievement.  You are probably asking yourself whether our energy future has been seriously damaged because of the crisis. While long-term effects of the pandemic on the oil and gas industries remain highly uncertain, we know that decisions many companies are facing to delay oil and gas investments will certainly affect the long term.

 

But I don’t believe that is all the future holds for us.

 

 

COVID-19 related travel restrictions, flight cancellations, and stay-at-home orders have resulted in U.S. consumption of transportation fuels falling to levels not seen in decades. The four-week average of U.S. motor gasoline consumption fell to 5.3 million barrels per day in the week ending April 24; for context, that amount is on par with 1968 levels, and 42% lower than normal for that time of year.

 

Similarly, U.S. consumption of distillate fuel, such as diesel, fell to just over 3 million barrels per day for the week ending May 1, 24% lower than normal levels.

 

Most drastic: U.S. consumption of jet fuel was 67% lower than normal levels for the week ending May 29.

 

Although U.S. consumption of transportation fuels is beginning to recover, it is still lower than normal. In the most current weekly data through July 3, U.S. consumption of motor gasoline and distillate were 12.5 % lower than normal, while jet fuel consumption was still 57.2 % lower than normal.

 

As a result of the effects of travel restrictions and stay-at-home orders in the U.S., EIA forecasts that domestic consumption of petroleum liquids will decrease, with gasoline and diesel consumption falling by 10% in 2020.

 

According to the EIA, the most significant declines in domestic consumption of petroleum liquids have already occurred, and consumption will recover over the next 18 months. Nevertheless, the EIA does not expect a return to 2019 consumption levels before the end of 2021.

 

Both domestic and global consumption of natural gas have declined over the last several months as well, and U.S. LNG exports have also fallen significantly. While we were exporting over 8 Bcf/d of LNG earlier this year, we expect LNG exports to be between 2 and 5 Bcf/d for the next several months.

 

LNG exports to 38 countries around the world have been a very strong part of the fossil energy success story. By the end of next year, we expect to see a return to over 8 Bcf/d, - even close to 9 Bcf/d of LNG exports.    

 

Given that long-term projections for oil and natural gas global demand remain strong, we expect our production and exports to return to previous and even higher levels in the future.

The vast oil and gas resources of the United States remain ready to be produced when demand recovers – COVID-19 doesn’t change that.

 

The United States is in a stronger place than we were 10 years ago.  We’re encouraged by the strength of our LNG export capacity – which is still growing.  In fact, by the end of this year we’ll have over 10 Bcf/d of export capacity – enough to cover nearly 85 percent of annual European LNG demand.

 

Once all of the U.S. export capacity under construction is in place – around the year 2025 – we’ll have over 15.5 Bcf/d of export capacity, which is more than any other country and enough to cover nearly 1/3 of current global demand.  And if all of the 45.9 Bcf/d of export capacity that’s been permitted by DOE were to be built, the U.S. would be able to support over 90 percent of current estimated global demand.

 

So, given the fact that the economy has taken a massive hit, we’re really encouraged about the likely trajectory for LNG exports as we move ahead to economic recovery. 

 

That recovery – and the energy future of our country - depends on YOUR continuing to develop our unconventional oil and gas resources.  We need your talent and your know-how to meet our 21st century energy challenges. DOE is honored to partner with you to more efficiently apply the technology we have, and to advance that technology in new ways.

 

At DOE, we will continue to partner with the private sector, and together we will secure our Nation’s energy future.  We value the public-private partnerships that are the foundation of DOE’s oil and gas research portfolio.

 

A few words about that. DOE has supported and continues to support a tremendous amount of research and development for unconventional oil and gas.  As you know, drilling is complex, especially in unconventional reservoirs.  Completions have become larger and more complex.  And compared to yesterday’s technology, the latest technology is like going from landlines to smart phones. 

 

New technology is allowing the collection of more diverse data types; eventually we hope to use that information for real time decision making.  Today, we capture about a gigabyte of data per day from our various projects. With the application of new technology comes the opportunity to gather more insights.

 

We are collecting the data we need to understand more deeply the interface between engineered systems and natural systems, and to process and interpret complex and diverse data streams, leading eventually to real time decision making. Better decision making based on that data will help us increase production of our unconventional resources.

 

A key effort in that direction is our new “SMART” initiative, which is primarily about using machine learning and artificial intelligence to help develop technologies that will transform the oil and gas industry and all other subsurface industries.

 

SMART takes advantage of recent advances in novel sensors that include fiber optics and nanosensors, high performance computing, data streaming and analytics to develop real-time visualization, real-time forecasting, and virtual learning capabilities.

Despite the significant recent growth in producing our unconventional resources, the mechanisms controlling recovery efficiency in these reservoirs remain poorly understood.

Recovery factors are typically quite low—approximately 20 percent in gas-rich shale reservoirs and less than 10 percent in liquid-rich plays. Even in onshore and offshore conventional oil reservoirs, more than half of the oil typically remains in place.

 

DOE’s upstream focus has evolved.  From 2007 to 2013, we focused on hydraulic fracturing design---an engineering approach.  In 2014, we turned our attention toward basin-specific research—a geologic approach—from pore to core to reservoir. 

 

We’ve learned that the technical barriers to resource recovery vary from basin to basin.  So, we’re pursuing a more targeted “basin-specific” approach to technology development, where we want to be able to look at all kinds of subsurface data – a massive amount of data – to better understand specific basins and develop the technology and improved completion designs to increase unconventional oil and gas production.

 

To advance our basin-specific work, we’ve established a network of 17 oil and gas field laboratories that allow us to examine cores within the context of fundamental shale pore scale research conducted by our National Laboratories, and then apply findings at the reservoir scale.  You will learn more about this approach at a panel session on Tuesday morning.

 

Our field laboratories generate various types of data streams that can be examined using advanced data analytics such as big data and machine learning. That information can lead to basin-specific solutions for increasing ultimate recovery.

 

Our field lab measurements generate new data for machine learning and for using new technologies in actual operating oilfield settings.  Several technical papers related to this research are being presented at URTEC this week.  These public-private research partnerships with industry and academia enhance our already very robust collaboration with industry, academia, and the states. 

 

Earlier this fiscal year, we awarded over $80 million for new projects that brought us 9 new field laboratories---4 in emerging basins, and 5 that include EOR (enhanced oil recovery), as well as 7 projects that enhance the ability to capture even more data and/or process it faster. Those projects include a digital sensor system for distributed downhole pressure monitoring that can help fill critical gaps in data on unconventional reservoirs, and an optical seismic sensor system to increase the effectiveness of unconventional oil and natural gas extraction. 

 

Turning to another basin-specific challenge, the large volumes of produced water associated with oil and gas operations call for efforts to reduce and treat produced water as another key focus of the research we sponsor.

 

Water is critical to our energy security, our economy, and our National security.  The Administration has asked DOE to lead the Water Security Grand Challenge, an effort that coordinates work on water at several Federal agencies. The Challenge includes a goal to transform produced water from a waste to a resource—and if possible from a cost to a revenue stream.

                                                                                             

As you know, with the dramatic increase in production, the volume of produced water has increased.  And more water is being produced than can be used in the process of drilling, completing, and stimulating oil and gas wells.

 

Produced water must be removed from the production stream before the oil and gas can be sold.  And, right now, the cost of disposal is very low.  In some basins, companies are reusing as much as they can and disposing of the rest.  In other basins there is little, if any, oilfield reuse of produced water, especially in basins where the cost of fresh water is also low.  Treating the water costs more than disposing of it. Companies also faced with the cost of moving the treated water from the "supply" location to the "new use" location, find little incentive to treat the water and convert it from a waste to a resource.

 

So, we’ve got a number of projects to address produced water challenges.  They run the gamut – from basic science and risk assessment, to water-treatment technology development, to enhanced water disposal options, produced water management, and other focus areas.  And we recently selected four new projects to receive about $4.5 million to develop produced water treatment technologies.  We are looking to these projects and to other efforts at DOE to reduce the cost of produced water treatment and to use more in oilfields. Possibly, we can identify non-oilfield use.

 

We’re excited about moving further into this important research area.

 

So while today, American oil and gas producers are slashing their costs as they reckon with low oil prices and weakened demand, broadly speaking, the industry will withstand this disrupted business cycle. With that said, some companies, particularly many small- and medium-sized businesses, are very hard hit, and we should not minimize the long-term impact on their employees and communities.

 

This is an industry that, by its very nature, invests for the long term.  The oil industry achieved a minor miracle by combining hydraulic fracturing with horizontal drilling. Your grit, determination, and entrepreneurial spirit helped the U.S. become one of the world’s major energy producing countries. 

 

The infrastructure, technology, know-how, equipment, and resources are all still there. When the economic fundamentals recover and prices rise higher, you will see investors willing to develop those assets. It’s just a matter of time until the market rebalances and we see brighter days.  The pandemic didn’t change the fact that oil powers more than 90 percent of transportation, for example. Commerce in the U.S. – and globally – requires moving materials, food, goods, and people. We learned this month that some companies are beginning to open wells that were temporarily closed in the U.S. and in Canada. Finally, in the big picture - the IEA predicts that global oil demand will rebound in 2021.

 

So, my message to you today is that the Administration – especially the Department of Energy – will continue to do whatever we can to make sure that recovery happens sooner rather than later. 

 

We are here for the long run, and so are you.

 

Ken Humphreys, Principal Deputy Assistant Secretary for Fossil Energy, will represent DOE on the panel this morning.

 

Thank you very much.