Summary: 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, Congress asked GAO 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.
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. 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. 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. 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--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. On the basis of GAO's prior work, the following questions 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? As such, some industry economists and experts argue that a federal government role is needed because industry may underinvest in oil and natural gas R&D. However, the extent to which industry is underinvesting in this area is unclear because comparable data are not readily available and much of these data are proprietary.
