Office of Fossil Energy under threat from US budget cuts
Wednesday, Jun 14, 2017
The US Department of Energy’s (DoE) Office of Fossil Energy (OFE) is facing heavy funding cuts under US President Donald Trump’s proposed budget plan. The agency, which played a part in helping to drive the country’s shale oil and gas boom, is now seeing its future plans and projects under considerable pressure.

Last month, Trump unveiled his proposed federal budget, which included cuts to social spending such as Medicaid and tax reductions aimed at stimulating economic growth. With US$4.3 trillion in spending cuts outlined over 10 years, few departments have escaped the prospect of drastically reduced funds.

These include the DoE’s Office of Energy Efficiency and Renewable Energy, which is facing a 70% cut, the Office of Nuclear Energy with a 31% decrease, and the OFE with a 58% cut.

These names may not be the well-known outside the industry, but it is hard to overstate the impact that the OFE has had on the US shale industry.

Rich history
The very first horizontal wells targeting shale gas in the Appalachian Basin were drilled by the agency in the 1970s, with around US$137 million invested into shale drilling technology by the OFE over the subsequent two decades. Any innovations developed by the agency were – and remain – available for any company to use.

Smaller firms, which lack the research and development budgets of majors, have unsurprisingly benefited in particular from this resource, which helped to create the agile and responsive operating environment that has defined the industry.

“Small producers were able to take some of that data and say, ‘Hey, there’s something here, we can start risking private capital’,” former Assistant Secretary for Fossil Energy Chris Smith told Bloomberg recently. “The shale gas revolution certainly wouldn’t have occurred on the timescale it had if it weren’t for the Department of Energy.”

Much of the agency’s focus is now on reducing the environmental impact of oil and gas production. Studies looking at areas such as water quality, methane emissions, wastewater management and seismic monitoring are all under way, while other projects include research into the viability of methane hydrates – natural gas trapped in ice-like structures beneath permafrost and in sediments along continental shelves. Indeed, a methane hydrate drilling and coring expedition is currently under way in the deepwater Gulf of Mexico.

There is also ongoing research into subsurface analysis, aimed at improving recovery rates while lessening any possible environmental impact. Alternative ways of inspecting pipelines with sensors are also being explored, while a geographic information system- (GIS) based tool allowing companies to make better decisions regarding infrastructure management has also been made available.

At risk
There is doubt that the budget, which has received a mixed response including considerable criticism, will be approved in its current form. Previous draft budgets have been dismissed by US Congress, and even many Republican Senators have criticised one or more aspects of the spending plan.

Debates over areas such cuts to education and social care spending are likely to be fierce. Yet while the DoE receives substantial bipartisan support, there is the sense that protecting the OFE’s budget could be something of a hard sell.

By their nature, concrete returns on the OFE’s work are hard to measure and predict. In addition, shale drilling remains a controversial subject for many Democrats, while the OFE’s environmental focus is not a priority for a large number of Republicans. Among the noise of the broader budget talks, voices that lie somewhere in the middle are likely to be drowned out.

With all this in mind, it seems likely that the OFE will indeed suffer substantial cuts. Meanwhile, the current air of uncertainty is far from helpful. Until the budget is passed, the OFE is relying on guidelines from the president to steer its management. These have not been articulated clearly so far.

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