A shiny brick

The price of oil is in a terrible place, and the “lower-for-longer” malaise impacts the industry’s every decision. We live in a time of abundance, with a global oversupply of oil and waning demand. Momentary increases in oil price send unconventional operators into flurries of production, but this only pushes prices back down. OPEC’s attempt to reduce global supply is making some progress, but there is a long way to go. In the meantime, the industry cannot escape the law of supply and demand. 

The search for breakthroughs. Is it possible to be lucrative and sustainable in such a volatile market? In high-price times, companies are anxious to increase productivity, and will invest in university-sponsored research. In low-price times, companies cut spending to protect balance sheets and preserve capability, which squeezes capital from investment in research efforts. Investment in academic research has dropped by about 75% since 2014, symptomatic of most companies shifting from looking for breakthrough ideas to more incremental improvement and lean manufacturing.

The success of lean manufacturing techniques applied to the oilfield supply chain has reduced break-even price dramatically, and has increased efficiency for many operators. But one can only polish a brick so much. Lean manufacturing and incremental innovation have made the oil patch tremendously efficient, but they can, and will, reach a technical limit. Continuous polishing will only result in a shiny brick. What is needed now is a breakthrough revolution to new methods and ideas. 

Take, for example, conventional reservoirs, where operators leave behind nearly 65% of oil-in-place. In unconventional reservoirs, operators leave behind nearly 90% of oil-in-place. Lean manufacturing will not improve recovery factors. Different methods and processes are now required to improve recovery efficiency. Support for breakthrough research in geoscience, geomechanics, completion technology, fluid dynamics, and chemistry will be necessary to solve this challenge. No better return for capital investment can be found than research to improve recovery of hydrocarbons.

The digital revolution is another research area for improving performance, yet the petroleum industry has been slow to implement. Adoption has been slow, due to three factors that are lacking: First, research and significant capital investment are needed for smart-sensor technology. These sensors will equip critical components of the production system to provide analytics and predictive failure alerts. Second, there must be investment in manpower and time for vetting the quality and integrity of legacy databases and how to efficiently integrate these into a holistic system. Third, there needs to be training of data scientists for developing appropriate data-mining algorithms and turning these data into insight. 

The digital revolution promises to align expectations, reduce the number of unproductive wells, and optimize operations. The two biggest obstacles to implementing the digital revolution will be the capital and time required to clean up legacy databases and develop central databases with common structures and storage for quadrillions of data. Research into new data compression techniques for data storage and retrieval will be required. The result could yield predictive analytics that issue alerts of impending critical equipment failure, dramatically improving operational efficiency and system analysis to optimize operations.

Research into renewable energy will play a vital role, allowing our limited petroleum resources to be used more productively. The world population is over 7.6 billion people and growing at a rate of 1.1% per year. By 2040, the population is expected to be over 9 billion people and will require at least 28% more energy than today. With this growth in population, demand increases for energy and perhaps, more importantly, food. The agricultural and petrochemical industries use about half of all energy consumption. As a society, we need to increase investment and research into renewables. We need to seriously consider how to effectively use renewables for our electrical and transportation needs and preserve our fossil fuel resources for agriculture and petrochemicals. 

One of the most important uses of petroleum is in the production of ammonia, which is used as a nitrogen source for agricultural fertilizers. Pesticides are almost all produced from oil. In 2012, the U.S. agriculture industry used nearly 800 trillion Btu’s of energy—about as much primary energy as the entire state of Utah. The United Nations Food and Agriculture Organization estimates that the global annual use of nitrogen-based fertilizers derived from natural gas will grow at 1.8% per year in the future. Investment into research is needed to extend the efficiency of catalysts and reactors that can reduce the amount of hydrocarbons required in these processes.

To add value to shareholders and society alike, companies must recognize that the research university is the ultimate wealth-creating engine. The research university has the best and brightest students from around the world, top professors with aggressive research programs, and close associations with private industry—all of which is more conducive for generating breakthrough ideas. Whether it’s improving recovery efficiency, embracing the digital oil field, shifting to renewables for energy and transportation, or preserving fossil fuels for food production, the industry needs more investment in breakthrough research. If not, we may end up with nothing more than a very shiny brick.

About the Authors

Douglas N. Valleau

Contributing Editor

Douglas N. Valleau is President, Strategia Innovation and Technology Advisors, LLC, and Senior V.P., Business Development, at Piri Technologies LLC. He works with energy professionals to provide geoscience and reservoir characterization, IOR, EOR and CCUS evaluations, expert testimony, and equity determination. In collaboration with Piri Technologies, Mr. Valleau provides two- and three-phase, full-reservoir conditions core flood experiments, with simultaneous CT scan to reveal the full physics of fluid flow through porous media. He helps clients identify innovation in geoscience and petroleum engineering to explore strategic ways to achieve the energy transition focused on value, growth and sustainability. Prior to Strategia, Mr. Valleau was Chief Geologist and Director of Unconventional Technology for Hess Corporation. He has held various management and geoscience and engineering positions with ConocoPhillips, Burlington Resources, Maxus, BHP Billiton, Monsanto, and Gulf Oil. He is a member of SEG, SPE, AAPG, Society of Professional Well Log Analysts, and the Houston Geological Society. Mr. Valleau is a certified petroleum geologist, registered in the State of Texas, and he holds a Master’s degree in geoscience from the University of Florida in 1977.