Dr. Mariano E. Gurfinkel is Project Manager and Associate Head of the Center for Energy Economics (CEE), within the Bureau of Economic Geology (BEG) at the Jackson School of Geosciences, University of Texas in Austin.

A mechanical engineer by education, Dr. Gurfinkel focuses on the development and implementation of technology for heavy oil and unconventional resources. At CEE, he is also the team leader for liquefied natural gas (LNG) research.

The Center for Energy Economics

The Center for Energy Economics (CEE) calls itself a “do-tank” rather than a “think tank” or a consulting company. It employs a multidisciplinary team of economists, engineers, political scientists, MBAs and geoscientists. Partially self-funding, it wins grants to support its work, and being part of an academic institution, prizes objectivity.

CEE develops environmentally and economically viable commercial frameworks in collaboration with governments and companies to help develop their natural resources. They consider how to deliver these resources to market while providing long- and short-term value along the chain through government revenue and profits. With their multidisciplinary approach issues such as tax, local content, local benefits and transport systems are also addressed.

The center works with government agencies on their country’s fiscal regimes and benchmarks them against other comparable regimes around the world. This can include helping with specific license rounds, but normally addresses more strategic and conceptual issues, such as whether a national oil company might be wholly or partially privatized, or whether and how to set up joint ventures.

Frameworks to optimize value

Long-term viability in heavy oil developments is the fundamental aspect to any proposed development. Two of the key questions that arise from this are

• How do you finance projects?
• What and where is the market?

Heavy oil, surprisingly to some, is not without parallels; building frameworks for heavy oil development shows some similarities with LNG. Both link upstream E&P with midstream needs such as transport and upgrading. For example, producing heavy crude from parts of Kuwait and the Faja del Orinoco area of Venezuela requires not only a large investment in E&P, but also large upgrading facilities so resulting synthetic crude can be handled and transported normally. Both LNG and heavy oil need significant investment in production, processing/upgrading and transport (e.g., pipelines and tankers).

Balancing the short- and long-terms

Gurfinkel stresses that such frameworks should balance maximum value for resource owners with fair returns on commercial investment for both short- and long-terms. “Resource nationalism” and “creeping fiscal regimes” can deter investors. This is particularly important for developing heavy oil, where investment in production is large and long term. Countries cannot choose their hydrocarbons, but they can design and adjust their frameworks to exploit them to their best advantage. Those with clearer commercial frameworks are usually better able to measure their performance.

Latest project proposals for CO₂ study

The latest proposed BEG project will target a lifecycle analysis of CO₂ enhanced oil recovery (EOR) operations and their opportunity for, albeit limited, carbon sequestration. CEE studies typically last 3 to 5 years, with specific intermediate deliverables. This project is now seeking funding. CEE delivers reports, evaluation tools and forecasts, and hosts forums to present and discuss the results. Feedback and interaction from producers and resource owners to expand and focus this project towards the right areas is both encouraged and welcomed.

The concept of “thermo-dynamically rigorous lifecycle analysis” to help understand frontier and alternative energy resources from the perspective of environmental constraints is one recently developed by the CEE. This analysis tries to measure the complete CO₂ footprint from the reservoir through to hydrocarbon products in order to develop a suitable long-term framework that addresses the real implications. For example, many forecasts expect Canadian oil sands production to rise to 4 million bbl/d, Gurfinkel questions if this can realistically happen if greenhouse gas emission constraints are imposed. What are the market consequences of not making such a vast resource off-limits?  He emphasizes the need for new technologies to help with environmental issues. He believes the costs of CO₂ need to be analyzed and weighed against any alternatives, and the possible application of environmental and regulatory constraints should be considered. Sequestration is one solution, but how should its costs be met? The alternatives to steam injection, such as subsurface heating through other means—nuclear power or in situ combustion (ISC)—need to be economically viable. He believes the enormous resources in some countries should make it possible to exploit economies of scale to effectively introduce new technologies to address some of these issues.

In addition to CO₂, land use, water use and energy supply can represent constraints to development, so frameworks should also consider these factors, balancing energy production with the environment. Transport of produced crude represents another challenge for which there are several solutions. To make the right choices investors must understand the constraints and variables, e.g., in areas such as Canada, a return pipeline for recycled diluent may be required unless crudes are upgraded locally. In Venezuela and Peru, otherwise stranded low cost natural gas may be available to heat the pipelines.

Future changes

CEE studies possible future scenarios for supplying energy from heavy oil resources, the impact of environmental constraints, and opportunities for these technologies. The work looks at the complete lifecycle and the non-linear sensitivity of several factors. What could really affect the output? What are the big game changers? Technology can be such a changer; for example, 25 years ago, the Venezuelan Faja did not seem attractive, but is now economically viable through multilateral and horizontal well technology developments. 

Industry trends

Over the past 20 to 30 years, global production of crude oil has tended to turn heavier and more sour (high levels of sulfur)—the only option for increasing production for many NOCs. Most recent increases in production are of heavy crude, such as from Saudi Arabia, Venezuela, Canada and Brazil. In the US, refineries are keeping up with the demand to process heavier crudes, helped by recent unprecedented declines in gasoline consumption. Several new multibillion dollar projects have already been announced, despite the fact that average refining margins are lower than they have been recently, so representing a rather low return on investment (ROI). Worldwide, there is a deficit of heavy-oil refining capacity, but if projected schemes go ahead, global refining capacity will soon catch up with increasing production. Some proposed projects may face constraints such as environmental restrictions (e.g., CO₂ emissions) or the supply of the necessary power and/or natural gas. Several heavy oil producers have bought refineries to guarantee a market for their crude production.

Producing heavy oil offshore, such as in Brazil, represents another interesting development. Only when it becomes economically viable to reach market will it be produced. Countries with offshore fields need to consider this when trying to improve the use of their resources.

Long-term vision

CEE typically looks 5 to 10 years ahead for the next geographic and/or technical frontiers anticipating where will come online next. It also tracks potentially influential technologies; for example, what would be the effect of an economically viable steam assisted recovery system for carbonates? ISC could become a major contributor with a relatively low carbon footprint, but today, commercial activity is at a small scale. The processes present in ISC operations are comparable to those in a refinery. However, a refinery has instrumentation, flow and process control. Today, ISC is poorly controlled, but improvements in monitoring and control in real time may change this. He believes we need to understand what is happening in the reservoir, which is now the reactor vessel, and move towards a closed-loop control system. Once resolved, ISC has potential applications worldwide. Partial upgrading upstream would make a big difference to downstream investment needs.

CEE not only examines new fields; it also studies technologies applicable to older fields. Recovery factors are normally higher with lighter crudes, but often a considerable amount of resource remains to be produced. Smaller deposits of heavy oil will gain interest as technology and economics develop. The world is full of resources. CEE would like to be in a position to check-off problems as they are solved and then know which resources could be economically brought online as conditions change.

Heavy oil is abundant, but its value remains low unless it is developed under the right framework. Those who establish this framework will ultimately reap the most rewards from their resource.

Dr. Gurfinkel's full bio can be found at:
http://www.beg.utexas.edu/staffinfo/gurfinkel01.htm and to find more information on the University of Texas CEE, their web site is: http://www.beg.utexas.edu/energyecon/.