The provincial government is seeking ways to spur oilpatch investment in new oil- and gas-recovery technologies, amid declining energy supplies and plummeting industry spending on research and development.
A new initiative, spearheaded by the Alberta Energy Research Institute (AERI) and backed by Alberta Energy Minister Murray Smith, is aimed at stimulating the oil and gas industry’s dwindling R&D activity.
The worry is that without a renewed R&D effort, most of the oil and gas in the Western Canadian Sedimentary Basin – the geological formations that underpin Alberta’s energy economy – will remain forever untapped.
“A number of big operators have reduced their R&D expenditures in conventional oil and gas, and have shifted to tar sands and heavy oil and to the international marketplace,” said Denis Gaudet, director of technology transfer for Petroleum Technology Alliance Canada (PTAC).
PTAC, along with Calgary-based consulting firm Deep Blue Associates Inc., is preparing a report for AERI on new policies and other changes needed to encourage the oil and gas industry to start spending R&D money again on aging oil and gas fields in Western Canada.
“If we can increase the recoverable reserves, we ultimately recover more oil and gas. And that means more royalties, more revenue, more jobs in the long run,” Gaudet said in an interview last week at a PTAC workshop in Calgary.
“There is a tremendous opportunity here because 70 per cent (of the oil) is still in the ground,” said Eddy Isaacs, managing director of AERI, which has responsibility for Alberta’s future energy strategy.
Yet, between 1983 and 1995, private sector investment in fossil energy R&D dropped 60 per cent in Canada, according to Deep Blue consultants.
Only a handful of Canadian oil and gas companies made a list of Canada’s top 100 corporate R&D spenders for 2002.
They included Imperial Oil Ltd., in 28th spot with $71 million in R&D expenditures. The only other oil and gas companies to crack the top 100 were Syncrude, EnCana, Precision Drilling and Suncor.
“There is a distinct lack of R&D resources in the companies today,” said Bill Overend, a consultant with Deep Blue.
Oil and gas company investment in R&D is only a fraction of that of other industry sectors.
Alberta technology firms spent an average of 21 per cent of their revenue on R&D last year, according to a survey of high-tech companies.
In comparison, Imperial Oil’s R&D spending in 2001 amounted to 0.4 per cent of revenue. Syncrude’s spending was 1.5 per cent of revenue, EnCana’s 0.6, Precision Drilling’s 1.7 and Suncor’s 0.4.
“Conventional oil and gas in Western Canada has diminished in importance, and hence diminished a lot of R&D resources in the Western Canadian Sedimentary Basin,” Gaudet noted.
Government has also pulled back from its former considerable support for R&D within the oil and gas industry, according to Deep Blue. Between 1980 and 1995, government-sponsored energy research and development declined by one-third in Canada and by 58 per cent in the U.S.
There are about 47 billion barrels of oil and 147 trillion cubic feet of conventional natural gas still trapped in the geological basin in Alberta, Deep Blue says.
Investing in R&D on new technologies to boost current oil recovery by one per cent would deliver 600 million more barrels of oil – adding $7 billion to provincial coffers.
Greg Stringham, a vice-president with the Canadian Association of Petroleum Producers, said the dilemma is that oil and gas companies have already shifted much of their focus and investment to other parts of the world.
The industry is using proven exploration, drilling and production technologies in other countries, to recover oil and gas that is easier to find and cheaper to develop than in Western Canada.
Derek Logan of Extreme Energy, a Calgary oil and gas service firm, said only a handful of service companies are still engaged in R&D of new drilling technologies for conventional oil and gas.
“Calgary has always been a hotbed for technology development . . . that’s kind of disappearing,” he said. “We have lost our hotbed.”
Several factors work against R&D investment in Alberta’s oil and gas industry. Innovative individuals and companies require a lot of funding to take their new ideas from the laboratory bench to the marketplace. Also, fluctuating world energy prices that drive the oilpatch’s up-and-down cycles make it increasingly difficult to attract and retain bright young university graduates and skilled technical personnel.
Still, there are positive signs that government, industry and other players are starting to address the R&D shortfall. AERI plans to submit its final report to Energy Minister Smith in August. That’s expected to lead to policy changes, such as new royalty credits to encourage companies to invest more in R&D in conventional oil and gas development.
In May, Alberta Energy announced a new royalty program to promote development of enhanced oil and gas recovery using carbon dioxide gas.
The department will provide a maximum of $15 million over five years in royalty credits, to offset up to 30 per cent of companies’ approved costs in eligible CO2 projects.
Alberta Energy says it expects the additional oil recovered will generate more than $30 million in royalty payments coming back to the province.
Deep Blue’s Overend said the industry and other stakeholders will have to work together on an “integrated model for a return of R&D effectively, and the development of technology.”
Above all, the industry, government and other players are looking for a return on renewed investment in Alberta’s aging oil and gas fields, said PTAC’s Gaudet.
“There has to be economic benefit, ultimately, to all of the stakeholders.”
