Remarks by
Robert Kripowicz
Principal Deputy Assistant Secretary
for Fossil Energy
U.S. Department of Energy
before the
World Petroleum Congress
Ministerial Panel
October 14, 1997
Beijing, China

Thank you very much. It is an honor to be here to represent our Secretary of Energy, Federico Peña, and the United States at this prestigious World Petroleum Congress.

The world today is one of current and projected stability in terms of both oil supply and price. Our Energy Information Administration projects relatively stable oil prices in the long term as sources of supply become more varied, markets become more open and responsive, and we are able to produce more oil economically with advanced oil recovery technology. No longer do we see the projections of economically-disruptive shortages or large fluctuations in prices that defined the oil market in the 1970s and 1980s.

U.S. Energy Outlook and Policies

Yet, while much has changed in the world petroleum marketplace, much remains the same from the perspective of the United States. Our nation continues to have a foot in two camps. One foot is in the camp of producing nations -- the United States ranks second to Saudi Arabia in world oil production and second to Russia in natural gas production.

The oil and gas industry continues to be a significant and crucial component of our domestic economy. It employs 300,000 Americans directly and supports another 1 million workers throughout the U.S. economy. The oil and gas industry accounts for almost 5 percent of our economy's gross output, or about $360 billion.

We are continuing to discover significant amounts of oil and gas, particularly in the Gulf of Mexico, and current projections show natural gas production increasing by more than 40 percent by 2015. Much of this increased productivity is due to improved technology. State-of-the-art engineering and technology, some of which was developed with Department of Energy-funded research, have helped lower field development costs, especially in deep water.

We are also in the camp of consuming nations, being the world's largest user of petroleum. We continue to depend on oil for one-third of our total energy consumption and for some 95 percent of the energy we use in transportation. We still find ourselves, the world's second largest oil producing country, also the world's largest importer, dependent on imports for 50 percent of our consumption. Therefore, it behooves us to be concerned about energy security, and to address energy security as it applies to the oil field as well as to the oil user.

We have worked to bolster our energy security and have made great progress. Our oil supply system is more flexible and diversified than ever.

Over the past three decades, we have established the Strategic Petroleum Reserve (SPR) to safeguard our economy in case of future oil supply disruptions. We think of this reserve, which currently contains 563 million barrels of crude oil, as our first line of defense against the economic threat of energy emergencies. As many of you may be aware, fiscal pressures have forced the sale of 28 million barrels of oil from the Reserve. The Administration has expressed its concerns about further use of the Reserve for revenue-raising purposes, and we continue to work with the Congress to find reasonable alternatives that will preclude the need for further sales.

Over the long run, however, we know that a formidable Strategic Petroleum Reserve, alone, is not sufficient to safeguard our energy and economic interests. We must also find ways to extract the full potential of our remaining domestic oil reserves. Technology is the key to achieving this very important goal.

Impact of Technology -- New Reserves, Increased Efficiency

Because of the maturing of the United States as an oil producing region, our petroleum industry remains an important source of technological innovation, both domestically and internationally.

One of the major missions of the Department of Energy is to ensure that producers continue to have available state-of-the-art tools for exploration, production and processing of hydrocarbons. Our research & development historically has been conducted in partnership with industry, universities, state and local governments, and other participants. This partnership approach is one we believe very strongly should remain the core of our R&D program. Our focus is on longer-term, higher-risk projects that companies would be reluctant or unable to tackle on their own. Our goal is to transfer advanced technologies to our producers, particularly the smaller, independent producers who make up an important and increasing share of our domestic production industry.

Today, because of technology, producers are able to locate and produce more oil and gas with fewer dry holes and at less cost. In the next century, the need for technological advances will be even greater. The domestic demand for natural gas is projected to increase 30% and the growth in demand for oil could surpass 25 percent by 2015. For this reason, future domestic supplies to meet the growing demand will have to come from deeper, more geologically complex reservoirs.

The development of three-dimensional seismic of deepwater hydrocarbon deposits and improved production methods that can bring more oil out of old wells have transformed the industry. This and other technologies have made the exploration for oil less risky and more profitable than in the past.

We are seeing a new generation of seismic technology emerging from our national laboratories. Scientists and engineers from these world class facilities are working with industry partners to develop ways to send and receive seismic images from the wellbore itself....rather than relying on surface signals. This technique is showing considerable promise in revealing reservoir characteristics, deposits within salt dome formations (in the Gulf of Mexico, for example) and faults near wells that would otherwise be invisible to surface equipment.

Computer technology expertise from the Department of Energy's national laboratories is also contributing to the success of our oil and gas industry. With the advent of computerized simulation technology in the 1970s, oil exploration and production was no longer as much of a "hit or miss" proposition. The only problem was that small producers could not afford the mainframe computers that operated the software. The Department of Energy's investment in personal computer-based oil field simulators, however, has changed that situation, and today many of these simulations can be run on the desktop.

Since 1985, advances in drilling, reservoir imaging and production technologies have allowed U.S. oil and gas producers to continue domestic production from increasingly difficult reservoirs to meet growing demand. One of the most important advances in drilling technology has been the polycrystalline diamond drill bit. The diffusion bonding technique that combined the cutting assembly with the bit was an innovation developed at our national laboratories. Today, for time-critical, hard rock, or deep and offshore formation drilling, the polycrystalline diamond bit saves producers as much as $1 million per well.

Last week, the Department announced a new set of five partnership projects with the drilling industry. One of the projects is intended to develop the next generation of higher strength, faster cutting, thermally stable polycrystalline diamond cutters. Other projects in this new effort include the development of a high pressure, coiled tubing drill system, the development of an advanced water hammer drilling system, and a new microwave processing technology for fabricating tungsten carbide-based cutting tools.

Advanced drilling systems, however, are but one of the portfolio of projects in our oil research program.

Equally important is the development of new recovery technologies, especially those that can slow the premature abandonment of U.S. oil and gas wells. Of the 6.4 million barrels per day of oil produced in the United States, 63 percent is produced by secondary and tertiary recovery technologies. As primary production declines in our mature oil fields, the contribution of secondary and tertiary recovery will inevitably grow. It is important that we ensure the most cost-effective technologies are available and deployed.

We have sponsored a nationwide series of field demonstration tests of innovative reservoir characterization and production technologies. Some of these projects have validated the state-of-the-art, convincing producers that advanced technology is a sound investment. Others have pushed outward the boundaries of the technology, proving the feasibility of new techniques for enhanced oil recovery. Underpinning this field demonstration effort is a continuing R&D program, encompassing thermal, gas-miscible, chemical, and microbial methods.

We project that technologies emerging from these programs, if widely applied by our nation's oil and gas producers, are capable of increasing the annual yield of tertiary oil up to 500 million barrels and the annual yield of natural gas up to 6 trillion cubic feet by the year 2015.

Our ultimate goal is to develop the production tools that could potentially recover a significant portion of the 350 billion barrels of "discovered but unrecovered" oil in the United States.

Overall, by 2010, we expect our R&D program to reduce drilling costs by at least 13%, lower operating costs by almost 20%, and produce natural gas and oil from formations that are beyond the reach of current technology. We can say that technology has made all the difference in this industry. Companies that yesterday saw an uncertain future are now confident in predicting increases in production extending well into the next century.

The Globalization of Oil & Gas Markets

A significant trend that began only recently in this century is the globalization of the oil and gas industry. U.S. oil and gas companies have markedly increased their overseas presence, often in partnership with foreign companies or governments. Energy companies from Norway, Japan, the United Kingdom, China and other nations are increasingly involved in oil and gas development projects outside their borders.

Privatization has been a major factor in this globalization as formerly state-owned energy enterprises have opened up opportunities for private capital investment throughout the 1990s. Around the globe, energy privatization has led to billions of dollars in cross-border capital flows. This globalization and the need for capital investment to finance the explosion of energy development in Asia, Africa, Latin America, the Caspian region, and elsewhere will require the establishment of regulatory, legal, and financial regimes that will attract international investment for energy development.

Energy Consumption and the Environment

The impact of energy development and consumption on the environment is another important issue that deserves our attention. Increasingly, global leaders and business executives are incorporating environmental protection into their development plans. The world's people want and expect a clean and healthy environment as well as economic well-being. This is not a simple balance to achieve, but one for which every nation must strive.

President Clinton and Secretary Peña support proactive leadership by industry to see that oil and gas needed to fuel our future are used with maximum efficiency and minimum environmental impact. They believe that an industry that has devised ways to drill 8,000-feet into the ocean floor can do much to lessen the environmental impact of oil and gas production. Advanced technology is, we believe, one of the best ways to ensure environmental quality for future generations.

In conclusion, we expect that the global oil and gas marketplace will continue to expand and change dramatically. Such change will require the world's nations to examine their methods, strategies and their legal structures in order to meet the increasing demand for energy and their people's needs and desires for economic growth and prosperity. As one of the world's largest producers and consumers of oil and gas, as well as the home of many of the industry's technology leaders, we will continue to play a major and active role in the oil and gas marketplace.

I look forward to discussing these vital issues with this audience and with other Congress participants.

Thank you.