The State of R & D in the Petroleum Industry (includes associated papers 31055 and 31158
Authors: Economides Michael J. 
Published: December 2007

This paper is SPE 31023. Distinguished Author Series articles are general, descriptive papers that summarize the state of the art in an area of technology by describing recent developments for readers who are not specialists in the topics discussed. Written by individuals recognized as experts in the area, these articles provide key references to more definitive work and present specific details only to illustrate the technology. Purpose:to inform the general readership of recent advances in various areas of petroleum engineering. A softbound anthology, SPE Distinguished Author Series: Dec. 1981-Dec. 1983, is available from the SPE Book Order Dept. Journal of Petroleum Technology, July 1995.

Introduction

In the summer of 1980, my wife, Christine Ehlig-Economides, and I arrived in Alaska, fresh out of Stanford U., to start the petroleum engineering program at the U. of Alaska, Fairbanks (UAF). I still consider the subsequent 4 years as our formative period; the academic accomplishment of putting a university program together from scratch is quite a formidable task.

That was only part of the challenge. In a state where, at that time, 96% of its revenues derived from oil, there were many within and outside the university who did not think or even question the need for a petroleum engineering program. Several state agencies dealing with "energy" were spending millions on research, technology development, and applications in such areas as wind, peat moss, and solar (in Alaska!!) but precious little on petroleum. To this day, the Petroleum Engineering Dept. at UAF has never really been the beneficiary of any substantial state largesse for research.

One may discard that Alaskan experience as an aberration. Yet last year, I sat on a Texas A&M U. in-house committee made up of a dozen professors from different disciplines to distribute mini-grants on energy issues from a $500,000 state fund. Of about 25 awards, none went to petroleum engineering although several were requested - this in the quintessential oil state and a very pragmatically oriented university.

Interested to let the process run its course, I did not interfere during committee deliberations. The stakes were small. However, I was somewhat satisfied to see my colleagues' stunned faces when, after their decisions were finalized, I pointed out the ludicrousness of the situation. Subconsciously, many of my colleagues believed that the patron petroleum industry, rich and huge, and a logic-driven state legislature would provide bounties to petroleum engineering programs.

I have met many petroleum industry executives who believe that the (oil)states should support petroleum technology teaching and research. Interestingly, many legislators in these same states have the mistaken perception that the petroleum industry has supported and still supports with enormous R&D grants the academic programs that carry its name. In fact, industry-supported petroleum technology research at universities has been almost insignificant.(In my estimates, the total industry-supported university petroleum engineering research, divided among 21 departments in the U.S., was less than $5 million in 1993-94, mostly in the form of low-cost consortium participation. There are very few industry-supported research projects with explicit deliverables. Of course, I recognize that petroleum engineering is only a subtechnology of the upstream petroleum industry.)

All things relating to "petroleum" often breed controversy. For example, it is difficult to discuss the "big picture" of U.S. domestic petroleum production vs. imports without arousing passions from both the left and the right. It touches on such issues as national security, trade restrictions, good jobs(undeniably, many of which have been lost in recent years in many U.S. oil states,) the short-term benefits of cheap oil, the potential long-term catastrophes, the ethics of exploitation and skimming third-world resources with lower labor and far less stringent environmental concerns; and all these in a world where barriers and boundaries are becoming increasingly fuzzy.

Energy illiteracy is persistent and pervasive. For almost 20 years, rarely have I found people outside the petroleum industry conscious of the fact that there are no real alternatives to fossil fuels in any reasonably foreseeable future. Essentially unchanged for the same last 20 years worldwide, fossil fuels account for 90% of all primary energy sources with oil and gas accounting for more than 60%. In a recent "millennium" issue, Newsweek magazine(Dec. 26, 1994) talked about a fuel cell that can "run forever," failing to mention that today natural gas is by far the cheapest way to produce the required hydrogen (with an energy conversion loss to boot).

For the U.S. and Western Europe, domestic production vs. imports of energy is an obvious and fundamental question. Clearly, cheap energy is beneficial, although other political, social, and long-term economic concerns can be and have been conjured by many. A secondary question is the proprietorship of petroleum technology, a U.S. multibillion-dollar export industry in contrast to the commodity itself that results in multibillion-dollar imports.

It is in this environment that I will attempt to describe the state of industrial petroleum R&D, the vast majority of which has been done in the U.S. until now.

The International Economics of Petroleum

First, the petroleum industry and its technological infrastructure must be understood in terms of the "postindustrial" state of the developed world, which is where much of the industry's ownership and energy consumption resides. Fig. 1, compiled from information in popular publications, such as the 1993 Petroleum Encyclopedia and the 1994 World Almanac, is telling. Eight countries are shown in a graph of per-capita income vs. per-capita oil consumption. Three developed countries (the U.S., Japan, and Germany), two huge developing countries (China and India), the two most populous Latin nations (Brazil and Mexico), and a large producer but also absorber (Nigeria) are included. The 1990's enigma (Russia) is not included. Although Russia is the world's second largest petroleum producer, the entire situation there is in such state of flux that it is almost unfathomable.

There is an obvious and clear correlation in Fig. 1 that poses several questions of future levels and distribution of supply and demand. What world crises are forthcoming from this picture? For instance, the 260 million U.S. citizens are using now 16.5 million B/D of oil. This is 33 times the petroleum per-capita consumption of the 1.2 billion, economically galloping Chinese(consumption 2.2 million B/D.) The total current world oil production would have to more than double (i.e., increase by 75 million B/D) to accommodate similar oil consumption in both nations.

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