Access Denied

By Rebecca Goozee

Fluctuating oil prices are symptomatic of the supply and demand struggles in the current oil and gas market. In order to control these prices the US need to step up and realize that supply can and should start at home. In an exclusive interview with O&G, Bud Albright, Under Secretary for Energy at the US Department of Energy, reveals how the US should develop its own resources and why it is vital we start now to see returns within the next decade.

“World demand is currently expected to increase up to 50% by 2030”
-Bud Albright, US Department of Energy

Look at any analysis for the future of the oil and gas industry and it is fraught with supply and demand difficulties. As regulatory pressures continue to impact operations, costs soar and reserves become more difficult to extract, the pressure to meet future energy demand mounts higher every day. World demand is currently expected to increase up to 57% by 2030, with many commentators concerned over the future availability of oil and gas reserves to meet that demand. Bud Albright, Under Secretary for Energy at the US Department of Energy believes that it is crucial we act now in order to see returns in the future, and it is even more important that the US take responsibility for creating their own resources.

"Demand in the world is up," he says. "China and India are growing exponentially, and their demand is increasing accordingly. We have limited oil and it looks like this problem will be around for a long time in the future, unless we take the intiative and get the ball rolling."

But, these problems didn't come about overnight, and the solutions won't either - and certainly not without increased access to supplies. Albright believes that there are several billion-barrel areas that haven't yet begun to be explored, including the Arctic and the outer continental shelf. "But it doesn't matter how much supply there is if there is no access to it," he says, comparing the situation to a locked safe: "If there's plenty of money in the world but it's all locked up in a safe, it doesn't do you much good to proclaim the wealth of the safe." He believes that we need to ensure that existing resources are developed and at the same time research the way things will be done differently in the future.

"One of the things that frustrates me is that so many people take an all or nothing approach, that if we expand our petroleum resources then we won't do any alternative work, and won't look to better and smarter energy production," says Albright passionately. "I don't buy it. As long as the research continues we'll see scientific progress and developments, ok not by next Wednesday, but these developments will change things dramatically as we go forward over the next five, 10, 20 years." To transition through the time until these new resources work, we are certainly going to need the petroleum resources that we currently do have, and it is imperative that these resources are expanded. 

Imports

The US currently imports around two-thirds of the oil it uses. With energy security such a key issue, America's reliance on imports has to change. Albright argues that it is imperative that the Arctic National Wildlife Refuge (ANWR) is opened up as soon as possible, along with the outer continental shelf. He also says that it is critical that resources in oil shale and sands are developed. "We need to get smarter about our usage, conserving more and wasting less. But, along with decreased demand we need increased supply, particularly within the US itself," says Albright.

He goes on to explain that the US is already seeing some decrease in demand in specific sectors and industries. He says that decreases have been identified in the transportation and industrial industries but not so much in the residential and commercial sectors. "The market will have to work in a way that will send signals in order that people change behavior and embrace new technology documents and therefore change usage patterns," explains Albright.

So far, Albright believes that the US has failed to develop resources in a way that has met predictable need - in a sense the US can be seen as a victim of its own inaction regarding oil and gas supply. "A good example of that is the failure to develop ANWR," says Albright. "Many of the reasons put forward tend to involve the safety of development of those resources, primarily from an environmental perspective. But, with regard to the environmental argument, surely developing our own resources makes a whole lot more sense than relying on foreign imports."

The 19-million acre ANWR park lies in the northeast corner of Alaska and is about the size of the state of California. The Coastal Plain of ANWR is the part being considered for oil and gas development since it potentially holds billions of barrels of recoverable oil and trillions of cubic feet of recoverable gas. The Coastal Plain is around 2000 acres, or one-fifth the size of Washington DC's Dulles International Airport. "That size is shrinking, as the latest technologies use even less acreage than that. We can develop our own resources and we can drill safely in an environmentally prudent and responsible way, we just need to get about doing it. And if we don't we are being short-sighted and unwilling to meet our own needs, which potentially could be catastrophic for the future or oil and gas in the US."

Opportunity

Fourteen years ago, the Senate passed a bipartisan bill that would allow the development of ANWR. The President at the time, Bill Clinton, chose to veto the bill, and that veto has so far been sustained. Because ANWR is an important wildlife habitat, some people are concerned that development would hurt the land, endanger wildlife and not even recover enough oil to make the effort worthwhile.

Albright believes that had Clinton's veto not been sustained, around a million barrels a day would be coming out of the site today. "One of the rationale at the time for vetoing was that we wouldn't see this oil for 10 years anyway and that we needed something with immediate results. That was 14 years ago, and I think it is fair to say that today is here - we'd be getting that oil now if we hadn't been so short-sighted," says Albright. "The old saying is that the best time to plant a tree is 30 years ago. The second best time is today. And it's that kind of short-term thinking that has gotten us into the situation we're in today."

The outer continental shelf is another area that has remained under wraps for years, denying the US access to millions of barrels of oil. Analysts estimate that there are somewhere in the region of 115 billion barrels available. Although there has been a lapse in the outer continental shelf ban it still remains to be seen what will happen regarding the ban and whether it will be reinstated. Albright believes that if Congress truly allow the development of these resources then we will action begin almost immediately develop those, particularly in areas where infrastructure is already in place, such as the coast of California. However, it will still take a number of years to develop, probably around eight years to 10 years.

"It's a long-term process and it won't be something that happens overnight," says Albright. "We're talking about billions of dollars of investment and there will studies and test drills on the leases that companies get. A platform us about a $3 billion investment so these companies are going to want to be pretty sure that they get oil when they drill. It's a long-term process with a long-term answer."

Technology

Many experts believe that rather than opening up new fields, we should concentrate on maximizing returns from existing fields. While Albright believes that maximizing returns should surely exist for every oil or gas field currently in use, he goes on to explain that the reality is that we need to drill more holes to get more oil. "Frankly, we need to stop playing games," says Albright. "With prices the way they are and having gotten to where they are because of our own inaction and because of political games that have been played for years, it's time to stop that and get serious about recognizing the problem, acknowledging that supplies are down and without additional resources we aren't going to get out of this unless we develop alternative sources as well."

An alternative option that the Canadian oil and gas industry is currently utilizing includes producing oil and gas from difficult tar sands and shale fields. This type of extraction is predicted to hold up to a trillion barrels of economically recoverable oil at today's prices of somewhere between $60 and $80. To put this in perspective, the whole world has used a trillion barrels since oil was first used.  It is anticipated that the entire world's supply could come from this oil sand and shale for the next 30 years. 

Albright believes that Canada is developing these resources incredibly well and is seeing a great deal of product from them. While oil shale has gained attention as an alternative energy resource, there are some environmental issues involved in the extraction and production of oil shale, including land use, waste disposal, and air pollution. Environmentalists oppose the production and usage of oil shale as it creates even more greenhouse gases than conventional fossil fuels.

But despite the concerns around alternative resources, demand for oil will continue to intensify and one way to meet these demands involves new technology. Albright believes that in terms of transportation fuel cells and plug-in hybrids have promise, as does diesel, crucially because it is available today. "It's clean and it delivers almost 30% more efficiently," says Albright. "By using diesel you have already found 30% more fuel for every vehicle on the road, and we will continue to see tremendous advancement in this area."

Albright goes on to explain that the Department of Energy are working on other alternatives such as biofuels and cellulosic ethanol. "Nobody knows exactly what's going to work and what isn't. Some of it will probably fall on its face but some of it will probably do quite well and change the way we do things. I don't know exactly where we're going but I do know we're going to be better in the future. I'm extremely optimistic about our ability to meet the challenges."

Future focus

So how does Albright see the oil and gas sector developing over the next few years? "The government should no longer be in the business of making determination as to how the business is developed," he replies. "We ought to be in the business of seeing oil and gas businesses have access to resources so they can fashion their business plans to meet America, and the world's, needs going forward, and let them determine the best way to do that.

"In my experience at least, how they look, how they form and what their profile is should be determined in the private sector, with the government clearing a path to make sure that there is access to what's needed."

Strategic goals

The Department of Energy's overarching mission is to advance the national, economic and energy security of the US. The department's strategic goals to achieve the mission are deigned to deliver results along five strategic themes:

1. Energy security: Promoting America's energy security through reliable, clean and affordable energy
2. Nuclear security: Ensuring America's nuclear security
3. Scientific discovery and innovation: Strengthening US scientific discovery, economic competitiveness and improving the quality of life through innovations in science and technology
4. Environmental responsibility: Protecting the environment by providing a responsible resolution to the environmental legacy of nuclear weapons production
5. Management excellence: Enabling the mission through sound management