EnergyBiz - September/October 2007 - (Page 9) rigs than ever but that has not been able to offset declining production rates. A decade ago, such depletion rates averaged 16 percent a year. Now, they average 28 percent a year. To stay even with current natural gas supply, vast reserves from the entire Gulf of Mexico must be found and brought on line each year, the group says. To illustrate its message, the association points to a 2003 study on federal lands in the West by the Department of Interior’s Bureau of Land Management. It showed that 12 percent of natural gas resources were completely off limits. But, it also identified another 26–27 percent of the resources that were constrained by restrictions on surface occupancy and when development can occur. Collectively, close to 40 percent of the resource base is confined. The remaining 60 percent is not controlled at the time of leasing, but it can be limited as part of the federal permitting process. And, obviously, producers must obtain a permit to develop the lease. Federal law has been misappropriated, the advocacy group says. Government must consider the environmental impacts of its decisions by eliciting the views of all stakeholders. Today, however, executive orders, regulations and court decisions have altered the landscape while the regulatory and permitting processes are laden with environmental reviews that can delay or derail viable projects. Offshore drilling, meanwhile, is just as onerous. Moratoria in the Eastern Gulf of Mexico, the Atlantic Ocean and the Pacific Ocean prohibit access to about 80 trillion cubic feet of potential natural gas. These restrictions — set by both the legislative and executive branches — are unreasonable, critics say. They rely on antiquated and inaccurate assessments of the risks of developing offshore resources. New techniques such as horizontal drilling, however, allow for safe development in areas with shell formations. “Current offshore development technology ranks with the most sophisticated in the world,” the petroleum association wrote in a recent report. “It allows for rapid responses to potential environmental threats.” Green groups and other activists are unyielding in their defense of these restricted areas, saying that the United States cannot drill its way out of the energy conundrum that it is in. Clean air and water is a public right and allowing additional drilling rights on federally controlled property would assuredly leave an indelible footprint, they say. In terms of offshore drilling, they point out that 191,000 barrels of oil have found their way into the Gulf of Mexico by way of damaged pipelines and hurricane-torn oil facilities. Because there is only 50 to 75 years’ worth of natural gas on domestic property, such groups maintain that policymakers ought to pursue a sustainable energy strategy. BaBy steps Right now, the United States provides about 19 trillion cubic feet of the 23 trillion cubic feet that it consumes. Canada supplies most of the rest, although it, too, is stretched. So, what next? A third of current natural gas is derived from unconventional sources — coal beds, shale and tight formations, according to the petroleum association. Additionally, a growing segment of supply is coming from deep wells — both offshore and onshore — which can be either conventional or tight formations. Each, however, will face challenges to its future development from potential federal policies. Liquefied natural gas (LNG) imports, meanwhile, could ease the supply crunch. But, there’s firm opposition to the development of the terminals where such gas would be stored. Devon Energy is utilizing a technology to produce natural gas from shale — something that was not commercially viable a decade ago. Specifically, shale is a dense, black rock containing hydrocarbons. Devon pumps water mixed with sand to shatter the rock so that the trapped natural gas can escape. Currently, the company produces about 750 million cubic feet of natural gas from shale per day. Altogether, about 2 billion cubic feet of the commodity is produced a day. “Right now, we are stretching our abilities through technology and innovation to keep pace with demand,” says Chip Minty, spokesman for Oklahoma City-based Devon Energy. Still, “our message is that access to potential reserves in areas that are prohibited is important and that cutting-edge technologies are available to the industry to reach those reserves in an environmentally friendly way.” More access to gas-rich areas remains the one constant coming from the entire natural gas industry. The energy act of 2005 was the first major piece of federal energy legislation since 1992 that tried to address such issues as demand reduction, onshore supply access and LNG supplies. Subsequent to that legislative initiative, Congress also opened up parts of the Gulf of Mexico to increased drilling, although it kept much of the eastern Gulf as well as the Atlantic and Pacific coastlines off limits. Even now, the Alaskan Gas Pipeline that would free up 35 trillion cubic feet is a distant dream. Paul Wilkinson, vice president of policy analysis for the American Gas Association, calls the recently enacted federal energy laws a “baby step” in the overall battle to balance supply and demand. In the final analysis, the industry is not locked into any form of natural gas. It will all be necessary to meet the expected future demand, he adds, which will continue to increase as the nation grapples with how to address climate change. Ironically, lawmakers on Capitol Hill are not sympathetic to the natural gas industry, some say. “The Hill is now actively discussing greenhouse gases and efficiency improvements,” says Wilkinson. “However, lawmakers are not inclined to discuss the prospects of opening areas now off-limits. The demand for natural gas will increase. It will be compounded by a demand for cleaner fuels. So, we know what will happen on the demand side. But, we really don’t know on the supply side. I am fairly pessimistic about being able to increase our domestic supplies.” The industry remains vigilant. It is trying to educate lawmakers. It is working to develop environmentally safe drilling technologies. It is harnessing new forms of natural gas. While those successes may offset declines in production rates, they will not be enough to overcome the regulatory impediments now in place, some fear. www.energycentral.com E n E rgyB i z 9 http://www.energycentral.com
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