Political Winds Change Natural Gas Landscape

 

 
  December 15. 2006
 
Changes in the political landscape will alter the course of natural gas development. With a Democratic congress headed to Washington in January, it is unlikely that any ambitious new drilling programs will get underway.

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

Natural gas developers and their supporters on Capitol Hill and in the White House have long noted that the demand for energy in the United States has outstripped the domestic supply -- with shortfalls made up through dwindling Canadian imports. That crunch will worsen as demand grows, which is a problem that the industry says could be rectified if producers had greater access to federal lands thought to be rich with natural gas.

But those additional rights are not coming anytime soon. Many Democrats in Congress are sympathetic to the concerns of the environmental community, which has argued that the United States cannot drill its way out of the energy conundrum that it is in. Because there is said to be only 50 to 75 years of natural gas on domestic property, such groups maintain that policymakers ought to pursue a sustainable energy strategy.

The effects of a new political dawning in Washington are already evident. For example, both chambers earlier passed legislation to allow producers more off-shore access in the Outer Continental Shelf. While the Senate voted out a moderate bill that would open up an additional 8 million acres in the Gulf of Mexico, the House okayed legislation that would also allow more drilling off the Atlantic and Pacific coastlines.

But, the upcoming change in leadership has meant that the House's version had no chance of becoming law. So, Republican House members were forced to acquiesce and support the Senate's more conservative approach. That bill, now approved by both chambers and which awaits the president's signature, motivates the states that line the Gulf Coast - Alabama, Louisiana, Mississippi and Texas -- to push for passage by raising their royalty shares from less than 2 percent to 37.5 percent.

"The U.S. remains the only nation in the industrialized world that restricts access to our own deep sea energy resources," says Jack Gerard, CEO of the American Chemistry Council. "One of the biggest sources of rising natural gas demand is for generating electricity, and more natural gas also will be needed to produce ethanol, hydrogen, ultra-low sulfur diesel fuel, solar panels, wind power blades, and energy-efficient materials such as insulation and plastics for light-weight cars."

And the shift in political winds is prompting President Bush to consider lifting a ban on oil and gas drilling in federal waters off Alaska's Bristol Bay. The area, which is home to endangered whales, has been closed to production since the Exxon Valdez accident in 1989. Today, though, the administration points out that natural gas prices are high and consumers need relief -- something strongly opposed by environmentalists, who fear oil spills and irreparable harm to the local ecology.

Political Jockeying

Drilling opponents in environmentally sensitive areas that include areas off the shores of Alaska and Florida say that the latest strategies employed by the Bush administration and Republican members of Congress are just last ditch efforts to satisfy their supporters and salvage parts of their policy platform. It's "a last minute giveaway of public lands as an early Christmas present to the big oil companies," says Rep. Edward Markey, D-Massachusetts, senior member of the House Resources Committee, in a prepared statement.

The political jockeying is not new. Long before the Republicans thought they would lose control of both chambers, they were able to insert a provision in the massive energy bill that passed in 2005 to change the way calculations to drilling rights are done. The practical implications are that surveys completed this year differ dramatically from those taken just three years ago.

The 2006 report performed by the Department of the Interior's Bureau of Land Management says that half of the oil and more than a quarter of the natural gas that lay beneath 99 million acres of federal land are off limits to producers. By extension, it says that 3 percent of oil and 13 percent of natural gas in those federally-controlled lands are accessible under standard lease terms while another 46 percent of oil and 60 percent of natural gas could be developed with "additional restrictions" like protecting endangered wildlife.

The survey taken three years ago, and that came to different conclusions, is the one referenced by the environmental community. It covered 59 million acres in the Rocky Mountains and said that 80 percent of all oil and gas there was accessible with some restrictions -- something that oil and gas producers said is a misrepresentation, noting that the restrictions were so burdensome that they precluded any possibility of development.

Their views resonated with the Republican-controlled House and Senate, which "clarified" the terms of the survey and the manner in which it is conducted. Now, the Bureau of Land Management has included more acreage in its analysis while taking into consideration various restrictions, all of which leads to the new figures that a preponderance of the federal land is off limits to oil and gas drilling. In the new study, natural gas accessibility fell from 87 trillion cubic feet to 25 trillion cubic feet.

It's "a more complete and accurate picture" and "a helpful tool as we consider the road forward and the needs of the growing nation," says Kathleen Clarke, director of the Bureau of Land Management, in a prepared statement.

While enough natural gas is in storage to meet next year's energy demand, the same can't be said for the future -- if double-digit growth projections are to be met. Natural gas producers say that they can meet that future need if they could get access to areas off-shore and in the Rocky Mountains. Even though they do not have the political support to significantly expand their rights, they should not alienate the Democrats, given that they might ease their opposition if the drilling techniques prove to be much less invasive.

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