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GAO-08-190R:
United States Government Accountability Office: Washington, DC 20548:
November 6, 2007:
The Honorable Byron L. Dorgan: Chairman:
Subcommittee on Energy and Water Development: Committee on
Appropriations: United States Senate:
Subject: Department of Energy: Oil and Natural Gas Research and
Development Activities:
Dear Mr. Chairman:
Domestic oil and natural gas production are important to meeting our
nation's energy needs and represented more than 40 percent of the U.S.
energy production in 2006. The Department of Energy (DOE) has
undertaken research and development (R&D) for oil and natural gas since
its inception in the late 1970s. Historically, the federal government
has entered into cost-sharing agreements with universities, state
agencies, and independent companies to help fund these R&D efforts,
which were often long-term, high-risk projects with variable results.
In recent appropriations, DOE's funding for oil and natural gas R&D was
significantly reduced.
In this context, you asked us to review DOE's R&D activities for oil
and natural gas and provide information on (1) how much has been
appropriated during the past 10 years, (2) how DOE expended these
appropriations and its reported results to date, (3) the potential
future results from continuing DOE-sponsored research in oil and
natural gas technologies, and (4) the factors that could be considered
when determining the federal government's role in oil and natural gas
R&D.
We briefed your staff on the results of our work on September 25, 2007.
In response to your request, this report summarizes and formally
transmits the information provided to your staff during that briefing.
The enclosure to this report presents the briefing in its entirety.
This report is based on analysis of prior GAO work, budget data for
fiscal years 1997 through 2007, and discussions about the results of
past oil and natural gas R&D expenditures and the potential future
results of oil and natural gas R&D activities. We discussed these
issues with officials from DOE and other federal government
organizations, industry, states, academia, consulting groups, and the
National Academy of Sciences. We performed our work between June 2007
and November 2007 in accordance with generally accepted government
auditing standards.
Summary:
DOE oil and natural gas R&D appropriations have generally declined from
approximately $162.5 million in fiscal year 1997 to about $14.3 million
in fiscal year 2007.[Footnote 1] Oil appropriations, which were about
$45.2 million in fiscal year 1997, rose to about $65.1 million in
fiscal year 2001 before declining steadily to approximately $2.6
million in fiscal year 2007. Natural gas appropriations have also
declined from about $117.3 million in fiscal year 1997 to about $11.7
million in fiscal year 2007, partially because fuel cell technologies
and advanced gas turbines have been removed from the natural gas R&D
budget.[Footnote 2]
Since 1997, DOE oil and natural gas R&D expenditures include projects
for (1) increasing exploration and production; (2) addressing
environmental protection; (3) extending reservoir lives; (4) developing
gas hydrates; and (5) carrying out other activities, such as the
development of fuel cells, gas turbines, and infrastructure
improvements, and providing field demonstrations. For example, one
project studied the environmental impacts of road building on tundra
and found that tundra was more resistant than anticipated. This
knowledge provided a basis for companies operating in northern Alaska
to extend the exploration season without additional harm to the tundra.
According to DOE officials, if DOE continued to sponsor research in oil
and natural gas R&D, it would seek results in three broad areas: (1)
increasing domestic oil and natural gas production--especially from
independent producers[Footnote 3]--to a level higher than otherwise
would occur; (2) reducing some environmental impacts by monitoring and
conducting assessments of air quality, developing new management
options for using water produced during production, and contributing to
the overall health of ecosystems; and (3) developing "game changing"
technologies, such as methods for finding and producing gas hydrates,
and newer enhanced oil recovery technologies and processes that
increase production and provide the necessary bridge to commercial
carbon dioxide sequestration--the capture and containment of this
gas.[Footnote 4] Increasing domestic oil and natural gas production
could, according to DOE officials, potentially result in increased
support for independent producers, less reliance on imported oil,
increased government revenues from royalties and taxes, and research
projects that help to replenish the talent pool of energy professionals.
On the basis of GAO's prior work, the following questions, among
others, could be considered when determining the federal government's
role in oil and natural gas R&D: (1) Is the industry motivated to
conduct the research on its own? (2) Do cost-sharing opportunities
exist for the government? and (3) Do the benefits of the research
exceed the cost?[Footnote 5] Although competition in oil and natural
gas markets should provide incentives for companies to invest in R&D,
they may not be adequately motivated to incur the full costs of R&D
because they cannot capture all of the benefits. For example, a
successful innovator would capture some of the rewards, but those
rewards would typically be a fraction--and sometimes a very small
fraction--of the overall benefits to society. As such, some industry
economists and experts argue that a federal government role is needed
because industry may under invest in oil and natural gas R&D. However,
the extent to which industry is under investing in this area is unclear
because comparable data are not readily available and much of these
data are proprietary.
In short, DOE reports many cost-sharing initiatives that have resulted
in technological innovations, which have helped domestic producers--
particularly independent producers--maintain production of these
important fuels; addressed some environmental issues, such as the need
for research on the effects of oil and natural gas activities on
surrounding ecosystems; and developed a better understanding of other
potential resources, such as gas hydrates. While GAO and others have
reported that the overall benefits of these projects have been
difficult to quantify and link to DOE's efforts, considering key
questions about the need for research, industry commitment to research,
and the costs and benefits associated with the research can help define
the role of the federal government and assist the Congress in its
policy choices.
Agency Comments:
We provided DOE with a draft of this report for review and comment. DOE
officials had no substantive comments on the report, but they provided
technical comments about the potential of gas hydrates, how major oil
companies differ from the independents, and our characterization of new
carbon sequestration technologies. We incorporated their comments as
appropriate.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 7 days
from its issue date. At that time, we will send copies of this report
to appropriate congressional committees; the Secretary of Energy; and
other interested parties. In addition, this report will be available at
no charge on GAO's Web site at [hyperlink, http://www.gao.gov].
If you have any questions or need additional information, please
contact me at:
(202) 512-3841 or gaffiganm@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found at the last
page of this report. Major contributors to this report were Chuck
Bausell, Ron Belak, Dan Haas (Assistant Director), Stuart Ryba, and
Ignacio Yanes. Also contributing to this report were Virginia Chanley,
Alison O'Neill, MaryLynn Sergent, Anne Stevens, and Barbara Timmerman.
Sincerely yours,
Signed by:
Mark Gaffigan:
Acting Director, National Resources and Environment:
Enclosure:
[End of section]
Briefing to the Committee on Appropriations, Subcommittee on Energy and
Water Development:
Department of Energy: Oil and Natural Gas Research and Development
Activities:
Briefing to the Committee on Appropriations, Subcommittee on Energy and
Water Development, U.S. Senate:
September 25, 2007:
DOE Research and Development (R&D)for Oil and Natural Gas:
Background:
U.S. Consumes More Energy Than it Produces:
2006 Domestic Energy Production by Primary Energy Source (quadrillion
Btu):
Coal: 24;
Natural Gas: 19;
Oil: 11;
Nuclear Electric: 8;
Other: 9;
Total: 71.
2006 Energy Consumption (quadrillion Btu): Production: 71;
Imports: 29.
Source: Energy Information Administration Annual Energy Review 2006
(Preliminary).
Note: Other Includes Renewable Energy Sources and Natural Gas Plant
Liquids.
U.S. Imports Most of Its Oil and Some of Its Natural Gas:
This slide contains two pie-charts, depicting sources of oil and
natural gas, as follows:
Imported Oil: 67%;
Domestic Oil: 33%.
Domestic Natural Gas: 81%; Imported Natural Gas: 19%.
Source: DOE Energy Information Administration 2007.
Historical Role of DOE in R&D:
* DOE has undertaken research and development (R&D) for oil and natural
gas since its inception in the late 1970s.
* These research activities often fund high-risk, high-cost projects
aimed at long-term results.
* Historically, the federal government has entered into cost-sharing
agreements with universities, state agencies, and independent companies
to fund these R&D activities.
* In recent appropriations, DOE has received significantly reduced
funding for its oil and natural gas R&D activities.
The Key Players in the Oil and Natural Gas Industries Have Varying
Interests:
Majors (e.g. Shell, Exxon Mobil, and BP) include companies with
refining and marketing capabilities that focus primarily on exploration
and production of new reserves in relatively unexplored areas.
Service Companies (e.g., Halliburton, Schlumberger, and Smith
International) primarily develop new technologies to assist both the
major oil companies and some of the independents in exploration and
production.
Independents- The U.S. has about 5,000 producers who drill 90 percent
of domestic oil and gas wells, produce about 68 percent of domestic
oil, and produce about 82 percent of domestic natural gas. Although
their size and resources vary, many do not individually own enough oil
and natural gas to justify R&D investment.
Objectives: DOE R&D Activities for Oil and Natural Gas:
1. How much has been appropriated during the past ten years?
2. How have these appropriations been expended and what are DOE’s
reported results to date?
3. What are the potential future results from continuing DOE-sponsored
research in oil and natural gas technologies?
4. What factors could be considered when determining the federal
government’s role in oil and natural gas R&D?
DOE R&D for Oil and Natural Gas:
Scope and Methodology:
Scope:
DOE oil and natural gas R&D activities from fiscal year 1997-2007:
Methodology:
* Reviewed and analyzed budget data for fiscal years 1997-2007 with
officials from DOE and reviewed budget data from the Office of
Management and Budget and previous GAO reports.
* We reviewed studies and discussed the results of oil and natural gas
expenditures with officials from DOE, the U.S. Geological Survey,
industry, states, academia, think tanks, the National Academy of
Sciences, and the International Energy Agency.
* We discussed the potential future results of continued DOE-sponsored
research in oil and natural gas R&D with officials from the same group.
* We reviewed prior GAO reports as well as reports by the National
Academy of Sciences and DOE to determine factors that should be
considered when assessing the federal government’s role in oil and
natural gas R&D.
* Our assessment of some information is preliminary and has not been
fully corroborated. We also did not perform a cost-benefit analysis,
nor did we consider additional subsidies to industry through tax
breaks.
* We performed our work between June 2007 and November 2007 in
accordance with generally accepted government auditing standards.
Scope and Methodology: Sources of Information:
We discussed DOE’soil and gas R&D activities with:
* Government:DOE Fossil Energy, DOE National Energy Technology
Laboratory (NETL), DOE Lawrence Berkeley National Laboratory, United
States Geological Survey Energy Resources Program, International Energy
Agency;
* Industry: Independent Petroleum Association of America and Research
Partnership to Secure Energy for America;
* States and Academia: Colorado Energy Research Institute, University
of Texas Bureau of Economic Geology, University of North Dakota Energy
and Environmental Research Center, Interstate Oil and Gas Compact
Commission, Southern States Energy Board;
* Think Tanks: Cambridge Energy Research Associates and Rocky Mountain
Institute;
* National Academy of Sciences: National Research Council.
Results in Brief:
Objective 1:
DOE oil and natural gas R&D appropriations have generally declined from
approximately $162 million in fiscal year 1997 to about $14million in
fiscal year 2007.
Objective 2:
DOE oil and natural gas R&D appropriations resulted in expenditures for
projects including:
* increasing exploration and production;
* addressing environmental protection;
* extending reservoir lives;
* developing gas hydrates; and;
* carrying out other activities, such as the development of fuel cells,
gas turbines, and infrastructure improvements, and providing field
demonstrations.
Objective 3:
Future DOE oil and natural gas R&D investments could potentially yield
results in three broad areas:
* increasing domestic oil and natural gas production—especially from
independent producers—to a level higher than otherwise would occur;
* reducing environmental impacts in some cases; and;
* developing “game changing” technologies such as (1) gas hydrates and
(2) CO2 sequestration that increases production.
Objective 4:
Among the factors that could be considered when determining the federal
government’s role in oil and natural gas R&D are:
* Is industry motivated to conduct the research on its own?
* Do cost-sharing opportunities exist for the government?
* Do benefits of the research exceed the costs?
DOE R&D for Oil and Natural Gas:
Objective 1: How much has been appropriated during the past ten years?
Appropriations Have Generally Declined From Fiscal Year 1997 to 2007
(in millions of dollars):
This figure is a vertical bar graph. The vertical axis of the graph
represents dollars in millions from 0 to 140. The horizontal axis of
the graph represents appropriations for oil and natural gas during
fiscal years 1997 through 2007. The following data is depicted:
Fiscal year 1997:
Oil: 45.2;
Natural Gas: 117.3.
Fiscal year 1998:
Oil: 47.7;
Natural Gas: 108.5.
Fiscal year 1999:
Oil: 47.3;
Natural Gas: 69.3.
Fiscal year 2000:
Oil: 55.7;
Natural Gas: 73.9.
Fiscal year 2001:
Oil: 65.1;
Natural Gas: 43.9.
Fiscal year 2002:
Oil: 56.2;
Natural Gas: 43.9.
Fiscal year 2003:
Oil: 41;
Natural Gas: 44.1.
Fiscal year 2004:
Oil: 34.1;
Natural Gas: 45.9.
Fiscal year 2005:
Oil: 33;
Natural Gas: 41.8.
Fiscal year 2006:
Oil: 30.8;
Natural Gas: 31.8.
Fiscal year 2006:
Oil: 2.6;
Natural Gas: 11.7.
Source: GAO analysis of DOE data.
Note: Dollar amounts are unadjusted for inflation; when adjusted, the
declines are even greater.
[End of figure]
Appropriations Have Generally Declined From Fiscal Year 1997 to 2007
(in millions of dollars):
Fiscal year: 1997;
Oil Technologies: 45.184;
Gas Technologies: 117.261;
Total: 162.445.
Fiscal year: 1998;
Oil Technologies: 47.708;
Gas Technologies: 108.461;
Total: 156.169.
Fiscal year: 1999;
Oil Technologies: 47.344;
Gas Technologies: 69.346;
Total: 116.690.
Fiscal year: 2000;
Oil Technologies: 55.747;
Gas Technologies: 69.346;
Total: 116.690.
Fiscal year: 2001;
Oil Technologies: 65.095;
Gas Technologies: 43.925;
Total: 109.020.
Fiscal year: 2002;
Oil Technologies: 56.244;
Gas Technologies: 44.069;
Total: 100.313.
Fiscal year: 2003;
Oil Technologies: 40.983;
Gas Technologies: 45.860;
Total: 86.843.
Fiscal year: 2004;
Oil Technologies: 34.107;
Gas Technologies: 41.836;
Total: 75.943.
Fiscal year: 2005;
Oil Technologies: 32.985;
Gas Technologies: 43.632;
Total: 76.617.
Fiscal year: 2006;
Oil Technologies: 30.805;
Gas Technologies: 31.801;
Total: 62.606.
Fiscal year: 2007;
Oil Technologies: 2.625;
Gas Technologies: 11.709;
Total: 14.334.
Fiscal year: Total;
Oil Technologies: 458.827;
Gas Technologies: 631.794;
Total: 1090.621.
Source: GAO analysis of DOE data.
Note: Dollar amounts are unadjusted for inflation; when adjusted, the
declines are even greater.
[End of table]
DOE R&D for Oil and Natural Gas:
Objective 2: How have these appropriations been expended and what are
DOE’s reported results to date?
Purpose of Oil and Natural Gas R&D Expenditures (Selected Years in
millions of dollars):
Budget Categories: Oil Technologies, Exploration and Production;
FY98: 30.141;
FY02: 33.207;
FY06: 12.997.
Budget Categories: Oil Technologies, Environmental Protection;
FY98: 6.224
FY02: 10.426;
FY06: 9.242.
Budget Categories: Oil Technologies, Reservoir Life Extension;
FY98: 0.000;
FY02: 12.611;
FY06: 5.776.
Budget Categories: Oil Technologies, Other;
FY98: 11.343;
FY02: 0.000;
FY06: 2.790.
Budget Categories: Oil Technologies, Total Oil;
FY98: 47.708;
FY02: 56.244;
FY06: 30.805.
Budget Categories: Natural Gas Technologies: Exploration and
Production;
FY98: 13.566;
FY02: 19.964;
FY06: 17.329.
Budget Categories: Natural Gas Technologies: Environmental Protection;
FY98: 3.181;
FY02: 2.537;
FY06: 1.444.
Budget Categories: Natural Gas Technologies: Gas Hydrates;
FY98: 0.000;
FY02: 9.568;
FY06: 8.667.
Budget Categories: Natural Gas Technologies: Other;
FY98: 91.714;
FY02: 12.000;
FY06: 4.361.
Budget Categories: Natural Gas Technologies: Total Natural Gas;
FY98: 108.461;
FY02: 44.069;
FY06: 31.801.
Budget Categories: Total Oil and Natural Gas;
FY98: 156.169;
FY02: 100.313;
FY06: 62.606.
Source: GAO analysis of DOE data.
[End of table]
Purpose of Oil and Natural Gas R&D Expenditures:
Category: Exploration and Production; Goals/Details: Development of
technologies for independents to economically recover the oil remaining
in mature fields by expanding the technology options for enhanced oil
recovery. Develop technology to find and produce gas from non-
conventional and deep gas reservoirs with minimal environmental impact.
Also includes resource assessments in new basins and drilling
completion and stimulations.
Category: Effective Environmental Protection; Goals/Details: Develop
technologies and practices that reduce the environmental impact of oil
exploration, production, and processing while lowering the cost of
effective environmental protection and compliance. Includes examining
the specific impact of produced water and the more general problem of
water management.Reduce the environmental impacts of natural gas
operations and reduce the cost of environmental compliance through a
combination of technology development, risk assessment, and regulatory
streamlining.
Category: Reservoir Life Extension; Goals/Details: Improve recovery
from mature fields through (1) prototype development such as microhole
technologies for enabling improved access; (2) technology transfer to
independents; and (3) policy analysis and planning to increase domestic
oil recovery over a wide range of technological and economic
conditions.
Category: Gas (Methane) Hydrates; Goals/Details: Develop the knowledge
and technology to allow methane to be produced from hydrates while
protecting the environment. Conduct high risk and long-term research to
understand the fundamental characteristics of hydrates and commercially
produce the gas.
Category: Other;
Goals/Details: Includes infrastructure research to enhance the
reliability of the nation’s oil and gas pipelines and storage;
processing technology that evaluates gas to liquid feasibility;
recovery field demonstrations that display to independent producers
advanced technologies to maximize oil recovery; congressional directed
activities; and others. Includes $39.2 million for fuel cells and $43.9
million for advanced gas turbines in fiscal year 1998 for natural gas
R&D—these projects continued but were transferred out of the natural
gas R&D in subsequent years.
[End of table]
Reported Results of Expenditures: Exploration and Production:
Results include providing the necessary technologies to identify,
locate, and economically recover oil and natural gas remaining in
mature fields with minimal environmental impact. Examples include:
1. Advanced Diagnostic and Imaging provides deep imaging capabilities,
improves resource estimates, develops new methods for detection of
reservoir sweet spots, and provides improved CO2 monitoring.
2. Deep Trek developed more durable equipment in high temperature
drilling conditions, and provides real-time communication between the
drill bit and surface.
3. Stripper Well Revitalization includes organizing a nationwide
consortium to share information and developing low cost techniques for
small companies to improve natural gas and oil recovery.
4. Enhanced Oil Recovery efforts unite university knowledge centers
with independent producers and develop techniques to use CO2 injection
to increase production.
Design of a Down-hole Microcomputer Circuit:
Objective:
Develop a down-hole microcomputer system that survives 275oC and can be
readily incorporated in electronic circuits used by industry.
Accomplishments:
Agreed upon design standards (allows broad market application and
compatibility with other components underdevelopment).
Benefits:
Provides accurate and efficient control of down-hole equipment,
communications, data acquisition, and digital signal processing.
Figure: Illustration of Microcomputer circuit.
{See PDF for image]
Reported Results of Expenditures: Effective Environmental Protection:
Results include technologies, practices, and regulations that reduce
the environmental impact of oil and natural gas exploration,
production, and processing through technology development and risk
assessment. Examples include:
1. Waste Disposal of naturally occurring radioactive materials and
synthetic mud.
2. Using salt caverns for disposal of non-hazardous oilfield waste.
3. Developing new water treatment technologies to create management
options for produced water.
4. Studying the effects of oil and gas activities on the surrounding
ecosystem as well as wildlife and their habitat.
Example: Environmental Impacts on Tundra:
* DOE/Alaska DNR performed environmental assessment that quantitatively
defined the hardness of the ground needed to protect the tundra during
road building in different ecosystems;
* According to DOE, the tundra was much more resistant to the impacts
of road building than anticipated;
* Assessment determined season could begin earlier without damaging
tundra.
Figure: Picture of Tundra.
{See PDF for image]
Reported Results of Expenditures: Reservoir Life Extension:
Results include developing technologies to more effectively recover
domestic oil, extend the life of existing fields, and maximize
production through research and technology transfer gained from the
field testing of new technologies. Examples include:
1. Using microhole technologies to locate and monitor production in
complex reservoirs via new 4-D seismic imaging.
2. Applying new thermal enhanced oil recovery technologies to increase
recovery of heavy oil.
3. Transferring technology to independent producers through workshops,
presentations, and websites.
Example: Microhole Technologies:
Figure: Illustration of microhole technologies.
[See PDF for image]
Reported Results of Expenditures: Gas Hydrates:
Results include a better understanding of the fundamental
characteristics of hydrates and a basis upon which to develop this
source of natural gas as conventional resources decline. DOE is part of
a government-industry partnership evaluating:
1. whether gas hydrates are a meaningful resource;
2. how to find them; and;
3. how to produce them safely, profitably, and in an environmentally-
responsible manner.
Example: Hydrates (Ice that Burns):
2000:
* Hydrate science focused on getting a basic understanding;
* Hydrates were considered a drilling hazard;
* Hydrates difficult if not impossible to remotely detect.
2007:
* Proven feasibility of Arctic hydrate production;
* Understanding that typical hydrate occurrences not a threat;
* Proven remote detection and some quantification capabilities for
Arctic hydrate.
Potential future focus of DOE Research:
* Determine the amount of resource available;
* Determine the capability for reliable remote detection and
quantification of marine hydrates;
* Demonstrate the ability to produce economic amounts;
* Understand the environmental implications of hydrates.
Figure: Photograph of Hydrates.
{See PDF for image]
Reported Results of Expenditures: Other Projects:
Reported Results include:
* Fuel Cells and Gas Turbines —the budgets for these projects were
subsequently moved out of oil and natural gas R&D.
* Infrastructure improvements that upgrade aging equipment to protect
the public from pipeline and equipment leakages.
* Recovery Field Demonstrations that illustrate to independent
producers how to implement new technologies developed by DOE and its
partners.
Example: Infrastructure:
* Provides increased integrity, operational reliability, safety and
security of the nation’s natural gas infrastructure.
* Reduces greenhouse gas emissions resulting from pipeline and
equipment leakage.
Figure: Photograph of pipeline.
[See PDF for image]
DOE R&D for Oil and Natural Gas:
Objective 3: What are the potential future results from continuing DOE-
sponsored research in oil and natural gas technologies?
Continuing DOE’s Oil and Natural Gas R&D Could Potentially Result in:
* Increased Domestic Production of Oil and Natural Gas;
- Increased Support for 5000 Independent Producers;
- Less Reliance on Imported Oil;
- Increased Government Revenues from Royalties and Taxes;
- Research Projects That Help to Replenish the Talent Pool of Energy
Professionals.
* Reducing the Environmental Impact of Oil and Natural Gas Activities;
- Monitoring and Conducting Assessments of Air Quality;
- Creating Management Options for Produced Water;
- Contributing to the Health of Ecosystems.
* Game Changing Technologies in the Oil and Natural Gas Industries;
- Gas Hydrates;
- Carbon Sequestration that Increases Production.
DOE Cites Potential Game Changing Benefits for R&D in Gas Hydrates and
Carbon Sequestration:
Gas Hydrates:
* Refers to gas hydrates as a new source of domestic natural gas with
“tantalizing potential”—about 200,000 trillion cubic feet. (Over 100
times more than estimated technically recoverable natural gas
resources.)
* Acknowledges that the potential benefits would not be understood for
several years.
* Hydrate R&D is high cost, high risk, and long-term.
* Industry is not aggressively pursuing hydrates R&D.
Carbon Sequestration:
* Approximately 2/3 (over 400 billion barrels) of domestic oil resource
remains after primary recovery.
* Identifies over 47 billion barrels of economically recoverable oil
that will result from the widespread use of enhanced oil recovery (EOR)
technologies.
* These technologies may provide the necessary bridge to the
development and implementation of next generation CO2 EOR
technologies.
DOE R&D for Oil and Natural Gas:
Objective 4: What factors could be considered when determining the
federal government’s role in oil and natural gas R&D?
What factors could be considered when determining the federal
government’s role in oil and natural gas R&D?
* Competition in oil and natural gas markets should provide incentives
for companies to invest in R&D. Innovations provide competitive
advantages by: (1) reducing costs, and (2) enhancing knowledge;
* Markets may fail to motivate companies to fully fund R&D. Two
examples: (1) technology —an innovating company may not be able to
capture all the benefits while incurring all the costs of R&D (e.g.,
intellectual property laws inadequate). (2) environmental —cleaner
technologies can be at a disadvantage to dirtier ones if environmental
costs are not adequately reflected in the market. Thus, no cost
advantages are provided to cleaner technologies, thereby reducing
incentives to research and develop the cleaner ones.
* Based on ongoing and prior work, consideration could be given to
questions, such as: (1) Would the private sector do the research
without federal funding? (Would the resulting technology be competitive
in the marketplace?) (2) Are there cost-sharing options through a
public-private partnership? (3) Do the benefits exceed costs? For
example, do independent evaluations indicate that the research program
is effective and achieving results?
Quantifying the Benefits of DOE R&D Activities Is Inherently
Difficult:
* As GAO and others have reported, the overall benefits of these
projects have been difficult to quantify and link to DOE efforts.
* In FY2001, the National Academy of Sciences assessed the benefits of
federal DOE R&D programs in fossil energy.
* The Academy found no reliable way to quantify the DOE contribution in
most cases, and admitted that doing so remains a methodological
challenge. The Academy also judged, in aggregate, benefits of federal
energy R&D exceeded costs but observed DOE’s overall portfolio included
striking successes and expensive failures.
* DOE quantified the benefits of its fossil energy research in 2004 and
judged that the benefits outweighed the cost. However, its report
acknowledged that “the future benefits and impacts of R&D programs are
inherently uncertain, as are future economic, geopolitical, and
regulatory conditions.”
Concluding Observations:
* Domestic oil and natural gas production remain important to meeting
our nation’s energy needs and DOE has a long history of R&D in these
areas.
* DOE-supported R&D has resulted in technological innovations. Some
industry economists and experts argue that a federal government role is
needed because industry, especially many independent producers, may be
under investing in oil and natural gas R&D. The extent to which
industry is under-investing is unclear.
* Although the benefits of R&D are difficult to quantify, considering
key questions about the need for research, industry commitment to
research, and the costs and benefits associated with the research can
help define the role of the federal government and assist the Congress
in its policy choices.
[End of enclosure]
Footnotes:
[1] Dollar amounts for appropriations are unadjusted for inflation.
[2] These funds were shifted to other areas within DOE and are no
longer categorized as natural gas R&D activities.
[3] Independent producers are oil and natural gas companies that
receive nearly all of their revenues from oil and gas production, and
that generally lack revenue from refining, transportation, and retail
marketing of the products.
[4] Game changing technologies are seen by DOE as technologies or
approaches with the potential to dramatically alter thinking about oil
and natural gas resources. For example, the methane (natural gas)
contained in methane hydrate is estimated to be over 100 times larger
than estimated technically recoverable natural gas resources from more
conventional reservoirs, which could change thinking regarding the need
for natural gas imports from other countries.
[5] See, for example, GAO, Department of Energy: Proposed Budget in
Support of the President's Climate Change Technology Initiative, GAO/
RCED-98-147 (Washington, D.C.: Apr. 10, 1998).
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