Benefits of GRI R&D Results That Have Been Placed in Commercial Use in 1996 Through 2000

The economic benefits are quantified for one hundred and sixteen items commercialized between 1996 and 2000 that are known to have produced significant economic benefits for their users.

Gerald D Pine GRI

May 2001

Abstract

This report provides brief descriptions for twenty-four new GRI R&D products commercialized

in 2000 and four enhancements of previously introduced products The economic benefits are quantified for one hundred and sixteen items commercialized between 1996 and 2000 that are known to have produced significant economic benefits for their users The calculated ratio of the benefits to gas customers to total GRI costs incurred in 1996 through the end of 2000 was

9.4 to 1.

In a similar analysis carried out in 2000 for one hundred and thirty-three R&D items placed in commercial use between 1995 and 1999, the calculated ratio of the benefits to gas customers to total GRI costs incurred during the same period was 9.4 to 1.

Legal Notice

This report was prepared by the University of Illinois at Chicago (UIC) Energy Resources Center as an account of work sponsored by GRI Neither GRI, members of GRI, UIC, officers, trustees, or staff of UIC, nor any person acting on behalf of either:

a Makes any warranty or representation, express or implied, with respect to the accuracy,

completeness, or usefulness of the information contained in this report, or that the use of any apparatus, method, or process disclosed in this report may not infringe privately owned rights; or

b Assumes any liability with respect to the use of, or for damages resulting from the use of, any information, apparatus, method, or process disclosed in this report

Also, we want to thank the GRI personnel for their continued support in the evaluation of benefits from GRIR&D results.

Between January 1, 2000 and December 31, 2000, twenty-four GRI R&D results were placed in

commercial service In addition, enhanced versions of four previously commercialized items were placed

in use.* Those items are listed in Table 1, and brief descriptions of the 28 items are included in Appendix

A With these new additions, some 170 GRI R&D results have entered the commercial marketplace during the 5-year period between January 1996 and December 2000 The full list of the 170 items is included in Appendix B As one measure of the value of the GRI R&D program, the economic benefits accruing to users of 116 out of the 170 products can be compared to the total outlays of GRI during the past five years This paper highlights the new GRI products that have entered the market during the past year and presents the results of the benefit-to-cost analysis of GRI's R&D results during the past five years

Notable additions to the list of GRI R&D results placed in commercial service in 2000 are the

development of new guidelines for properly sizing and installing combination heating systems; two product lines of gas engine-driven chillers using R-134a refrigerant; a single-stage absorption, hot water or steam-fired chiller line; an advanced integrated kiosk ventilation system designedspecifically for non-traditional settings; an advanced bending and tempering systems for deep bend automotive glass; an IR microturbine cogeneration system; a precision pipe locator to detect the location

space-heating/water-of buried steel, cast iron, or metal-wire-traced plastic pipe; a computerized analytical tool to estimate the probability of breaks and leaks occurring in steel mains; a smart pig that uses ultrasound technology to inspect pipelines for defects due to stress corrosion cracking and long seam fatigue cracking in in-service natural gas and liquid pipelines; a leak detection and repair method for detecting leaks that are cost effective to repair at compressor stations and gas plants; development of through-casing logging tools that

measure formation resistivity and pressure; and a new “Portfolio of Emerging Natural Gas Resources – Rocky Mountain Basins” portfolio that assembles geologic, reservoir and production data on those

emerging natural gas plays in the Greater Green River, Piceance and Wind River basins that hold promise for large gas reserve additions

* For tangible products (hardware, software) we interpret “commercialized” to mean that the product is commercially available, economically viable without subsidies, and has been sold in meaningful quantities For the less tangible reports and other information products, we require that the products have been used in a commercial enterprise and have generated demonstrable economic benefits to the users “Enhanced” products have been augmented in a commercially significant way, with or without GRI support The augmentation may be a technical improvement in a product line, expansion of a product catalog, or expansion of the product market into new areas not available to the original product at its time of introduction

Table 1 GRI R&D Results That Have Been Placed in Commercial Use in 2000 RESIDENTIAL

1 NAECA Water Heater Assessment

2 Combo Systems Sizing and Installation Guidelines *

COMMERCIAL

3 Analysis of Commercial Sizing and Installation Guidelines

4 Gas Cooling Guide  Pro Version

5 BinMaker Pro *

6 York 600 RT 134a Chiller

7 Tecogen 150 RT 134a Chiller

8 Trane Single Effect Horizon Chiller

9 Chiller Application Briefs

10 Restaurant Kiosk Ventilation and High-Performance Gas Countertop

INDUSTRIAL

11 Forced Convection Heater (FCH) Systems  Automotive

POWER GENERATION

12 IR PowerWorks Microturbine Cogeneration Systems

13 DGen Pro Software *

17 Bare Steel Maintenance Optimization System (BASMOS) Software

18 Soil Compaction Supervisor

PIPELINE

19 Emeritus Report B31.8 Code, Federal Pipeline Safety Regulations

20 Elastic Wave Vehicle Tool

21 Advanced Leak Detection and Repair at Gas Processing Plants – Hi-Flow Sampler

EXPLORATION AND PRODUCTION

22 Glycol Dehydrator Emissions Calculation Program – GLYCalc 4.0 *

23 ProTreat Software for Amine Gas Treating Applications

24 Cased Hole Resistivity Tool

25 Cased Hole Pressure Tool

26 Well Siting in Carbonates – EGI Report

27 Portfolio of Emerging Natural Gas Resources – Rocky Mountain Basins

28 Mercury Contamination Training Workshop

* Enhancement to a previous product

Benefits Results

The full list of the 170 items placed in commercial use between January 1996 and December 2000 is included in Appendix B, but we chose to focus the benefits analysis of GRI's R&D on 116 of the 170

items that are known to have produced significant economic benefits for their users The 116 items are

listed in Table 2 Benefits to product users in typical applications were calculated by comparing the economics of the GRI-sponsored products with the economics of products that would have been used in the absence of the GRI product Product cost and performance data were obtained from product vendors, from field test results, or from product users The measure of product benefit is the net present value of the incremental cash flow to the user (cost savings minus incremental cost) over the product lifetime using a real discount rate of 5% (above inflation) The GRI Baseline [1] national average projections of energy prices were used, when appropriate, to estimate cost savings Total benefits were calculated by multiplying the unit benefits by the sales projected by product vendors from the first year in which the product was sold through 2004 The results are shown in Table 2 A range of product sales is shown to protect proprietary vendor sales projections

As shown in Table 2, calculated economic benefits for the 116 items are estimated to be between $6.1 to

$11 billion Table 3 shows the expected value of benefits, at about $7.9 billion, and the breakdown of the economic benefits by sector We estimate that the 116 items account for most of the economic benefits that would be calculated for the entire set of 170 products Omitted items often offer significant benefits

to their users, but have not achieved widespread use as have the 116 high impact items In addition, some

of the omitted items are designed to produce benefits that are not easily expressed in economic terms For example, R&D results provide test methods for new gas equipment, technologies to meet existing or anticipated air emissions requirements, and information that is useful to the gas industry in developing thegas resource and in delivering it to the customer

Table 2 Summary of Benefits of GRI R&D Results That Have Been Placed in Commercial Use

in 1996 Through 2000

Sales or Applications Projected Through

2005 (in units)

Year

of First Sale

Net Present Value of Benefits** (Million 2000$)

RESIDENTIAL

Carrier "Chimney Friendly" Furnace 21,000 to 38,000 1996 $7.0 to $12.9

Empire Gravity Vented Wall Furnace 16,000 to 31,000 1996 $70.8 to $135.2

COMMERCIAL

Separation Requirements in ASHRAE Standard

62-89R

18,000 to 37,000 1996 $178.5 to $374.8

TecoFROST Gas Engine Driven Refrigeration 90 to 190 1997 $20.5 to $43.0

Alturdyne Hybrid Electric/Gas Engine Chiller 130 to 250 1998 $128.7 to $235.9

Modulating Indirect-Fired Make-Up Air Unit

with Clean Modulation

INDUSTRIAL

Process Application of Composite Radiant

Tubes

34,000 to 58,000 1994/99 $59.4 to $102.9

Multi-Variable Controls (MVC for Industrial

Applications)

Sales or Applications Projected Through

2005 (in units)

Year

of First Sale

Net Present Value of Benefits** (Million 2000$)

Natural Gas Cofiring in Biomass-Fueled Stoker

Boilers

Forced Convection Heater (FCH) Systems -

POWER GENERATION

Low NOx Turbine Combustors:

 Allison 501-K Low NOx Combustor

 Low-NOx Turbine Combustor (GE LM

Extended Range Package

Risk Management Program for Liquid Natural

Gas Vehicle Refueling Stations

Standards

19,000,000 to 37,000,000 1996 $211.3 to $403.4

Pneumatic Tool Diagnostic System (Tool Tester) 30 to 60 1997 $10.9 to $21.8Contained Recovery of Oily Waste (CROW)

Technology for Soil Cleanup

Plastic Pipe Reliability (PENT Test) 2,900 to 5,800 1997 $20.5 to $40.9

Sales or Applications Projected Through

2005 (in units)

Year

of First Sale

Net Present Value of Benefits** (Million 2000$)

Distribution Internal Inspection System -

Magnetic Flux Leakage (MFL)

Assessment of Gas Pipeline Non-Destructive

Evaluation (NDE) Technologies

Risk Assessment/Risk Management:

 Risk Assessment/Risk Management

Guidelines

 Airborne Pipeline Integrity Monitoring

(APIM) Assessment

 Pipeline Inspection and Maintenance

Optimization System (PIMOS)

 Third-Party Damage Prevention Assessment

Remote and Automatic Controlled Valves

Guidelines

PCB Contaminated Pipeline Abandonment

Breeze Haz Environment and Safety Offsite

Consequence Modeling Software

Emeritus Report B31.8 Code, Federal Pipeline

Safety Regulations

Advanced Leak Detection and Repair at Gas 600 to 1,000 2000 $215.9 to $385.6

Sales or Applications Projected Through

2005 (in units)

Year

of First Sale

Net Present Value of Benefits** (Million 2000$)

Processing Plants – Hi-Flow Sampler

EXPLORATION AND PRODUCTION

Atlases of Major Gas Reservoirs:

 Appalachian Atlas

 Offshore Atlas

 Offshore Atlas, Vol 2

6,700 to 8,800 1997/98 $516.2 to $676.1

Environmental Technology Information Center

Mercury Soil Contamination Program 72,000 to 125,000 1997 $204.1 to $357.1Glycol Dehydrator Controls/Monitoring 36,000 to 56,000 1997 $166.3 to $261.3Coalbed Methane Reservoir Gas-In-Place

Analytical Techniques

Calcite Scale Handbook/ASTM Standards 1,000 to 1,600 1998 $26.7 to $42.0

Mesa-GRIP Seismic Survey Design Software 180 to 240 1998 $67.8 to $93.3

Fracturing Information and Diagnostics

M-Site Advanced Diagnostics Insights

Hydraulic Fracture Mapping System

High Power VSP Mechanical Seismic Source 500 to 750 1999 $27.2 to $39.6Advanced Stimulation Technologies CD-ROM 120 to 220 1999 $13.2 to $24.2

GRI–MSTR Software and Report to Predict 360 to 560 1999 $13.2 to $20.8

Sales or Applications Projected Through

2005 (in units)

Year

of First Sale

Net Present Value of Benefits** (Million 2000$)

Toxicity of Produced Water Discharged to

the Marine Environment

Glycol Dehydrator Emissions Calculation

ProTreat Software for Amine Gas Treating

Applications

Portfolio of Emerging Natural Gas Resources –

(million of 2000 dollars, 5% discount rate)

* Enhancement to a previous product for a new market application

** Net present value calculations based on a real discount rate of 5% (excluding inflation), stated in 2000dollars

*** Benefits are based on user feedback about technical and market influence of the group of the

information items

Table 3 Total Expected Benefits by Sector (Millions of 2000$)

GRI R&D Costs

Between January 1996 and December 2000, GRI outlays totaled $726.8 million For comparison to the R&D benefits calculated above, the cost cash flow stream was converted to an equivalent net present value lump sum expenditure at the beginning of 2000 As with the benefits calculation, a 5% real discountrate was used in the net present value calculation The calculated equivalent cost was $842 million These costs include all outlays made by GRI during the past 5-year period, not just the costs incurred to produce the 170 R&D products Consequently, a portion of the calculated cost will yet generate benefits as additional products are commercialized in the future

Benefit-to-Cost Ratio

Dividing the calculated benefits by the costs results in a calculated benefit-to-cost ratio range of 7.3 : 1 to 13.0 : 1 (benefits of $6.1 to $11.0 billion divided by outlays of $842 million) with an expected value of 9.4 : 1 ($7.9 billion divided by $842 million) In a similar analysis carried out in 2000 for R&D items placed in commercial use between 1995 and 1999, the calculated ratio of the benefits to gas customers to total GRI costs incurred during the same period was 9.4 to 1 [Reference 2]

Continuing Successes of GRI R&D Results Commercialized Prior to 1996

Although the focus of this analysis has been on GRI's most recent successes, several past successes continue to significantly impact the markets in which they are used GRI is proud of the continuing success of these products, and we believe that a few comments about three of them are appropriate here

Blast Furnaces Due to environmental regulations imposed on the pollutant emissions from coke ovens,

metallurgical coke is increasingly scarce and expensive In conjunction with this, the renewed steel demand has strained the productive capacity of the current blast furnace population These two factors have poised the blast furnace industry to look for alternate fuel sources to decrease costs and increase productivity The advantages of using high levels of natural gas include: reduced coke usage, improved furnace stability, increased iron-making productivity, lower operating costs, high quality (lower sulfur content) hot metal product, lower air pollution emissions, and gas-injection equipment has lower capital costs than pulverized-coal or oil-injection equipment For over 25% of blast furnace coke requirements, high-level gas injection is an attractive substitute GRI and Charles River Associates demonstrated the

technical merits and the operational advantages of injecting natural gas at high levels (up to 300 lb/ton of hot metal) in blast furnaces and developed information and guidelines for high level natural gas injection that were made available to iron and steel makers throughout North America Over the past decade, gas use in blast furnaces has increased dramatically, from about 38 bcf in 1987 to 106 bcf in 1995.

Advanced Stimulation Technologies (AST) In the early 1980s, GRI began a comprehensive research

effort to evaluate and enhance technologies associated with hydraulic fracturing in gas wells to increase gas production Through a series of cooperative research and Staged Field Experiment wells, GRI

collected evidence that challenged traditional hydraulic fracturing methodologies and theories By analyzing detailed reservoir data and real-time fracture treatment data, new insights into the fracturing process were gained, and critical factors associated with successful fracture treatments were identified Significant improvements were made in onsite treatment quality control, pretreatment stress profiling and the use of 3-D fracture models, fracture treatment pressure history matching, and performing fracture treatment diagnostics onsite to identify well-specific fracturing mechanisms at competitive prices GRI AST tools and information are now widely used by gas producers Fracture treatment cost savings of about $200 million in 1998 have been documented by GRI These savings have increased the amount of economically attractive gas that can be produced from tight formations and have been an important element in enabling gas producers to survive in today’s low gas price world

Secondary Gas Recovery GRI’s Secondary Gas Recovery program involves the integration, application

and interpretation of geophysics, geology, reservoir engineering, formation evaluation and well log petrophysics New methods were developed to interpret seismic/geologic/reservoir engineering data for infill drilling of existing, mature fields, for locating of missed zones due to compartmentalization of the producing formation, and incompletely drained and bypassed reservoirs A series of short courses and

“How-to” manuals were initiated and technical lectures, videotapes, CD-ROM’s, and 3-D seismic data sets with digitized well logs were distributed Over 500 workshop participants from 264 different

companies have attended the short courses The SGR program increases reserves, specifically to infill drilling within mature producing areas and reduces dryhole wells According to a 1995 survey by Gelb of

98 operators familiar with GRI’s research, nine companies claimed 120 Bcf in enhanced production due

to GRI’s SGR project in Gulf Coast In 1998, Gelb revisited participants who could not quantify reserves

in 1995 and fourteen companies claimed enhanced production of 91Bcf in 1997 and two companies claimed 97 Bcf of enhanced production in 1998

GRI's planning and budget allocation process strives to put in place a program with the maximum ratio of benefits to R&D costs for the mutual benefit of the gas customer and the gas industry The economic evaluation of GRI's commercially successful R&D results have consistently shown that benefits far exceed the costs of the R&D program

Analysis of the benefits of approximately 116 of the 170 GRI R&D items placed into commercial service between January 1996 and December 2000 shows that GRI R&D will return about $9.40 for every dollar invested in GRI during the same period In addition to the fact that only portion of GRI's commercialized R&D items are included in the benefits calculation, all of the costs of GRI's operations during the 1996 to

2000 period have been included in the calculation of the benefit-to-cost ratio

References

1 P.D Holtberg, J.C Cochener, "Baseline Projection Data Book: 2001 Edition of the GRI Baseline Projection of U.S Energy Supply and Demand to 2020," GRI-01/0002.1 and GRI-01/0002.2, GRI, March 2001

2 A.D Bournakis, and G.D Pine, "Benefits of GRI R&D Results That Have Been Placed in

Commercial Use in 1995 Through 1999," Gas Research Institute, May 2000, GRI-00/0086