New gas reserves could be tapped under proposed rules

by Richard Slawsky

A proposed Senate bill giving states the right to opt out of the federal moratorium on new offshore drilling could increase natural gas production in the Gulf of Mexico by 20 % or more.
Opponents consider the bill part of a stealthy strategy of bribing cash-strapped states to overturn a 23-year ban on new offshore drilling along much of the country's coastline.

The bill, introduced by Sen. Lamar Alexander, R-Tenn., and Tim Johnson, D-S.D., will provide the US Department of the Interior with the authority to issue natural gas only leases. The measure is specifically meant to open Lease 181 to drilling in the Gulf, a 1.5- million acre rectangular tract south of the Florida Panhandle in the eastern Gulf.
Alexander and Johnson are members of the Senate Energy Committee along with Sen. Mary Landrieu, D-New Orleans.
"High natural gas prices are threatening our jobs, our farms and hurting Americans who are trying to heat and cool their homes," Alexander said. "Only an ambitious, comprehensive approach that both increases supply and controls demand can lower the price of natural gas and keep our growing economic recovery from becoming recent history."

The bill instructs the Department of the Interior to draw the state boundary between Florida and Alabama with regard to Lease 181. Drilling is banned off the coast of Florida but allowed off Alabama's coast. Portions of the lease not in Florida, which are more than 20 miles offshore, would be open to drilling for natural gas only.
The Minerals Management Service, which regulates oil and gas drilling in federal waters, estimates area reserves at 1.25 tcf of natural gas. About 4.45 tcf of natural gas is produced annually in the Gulf.

"Both the exploration companies and the service companies will be very happy with any additional areas that are opened up in the Gulf," said Al Petrie, president of Al Petrie Media and Investor Relations, which represents energy interests.
Public interest groups are already protesting plans to open Lease 181 to drilling.
"We are absolutely opposed to any further eastward expansion into the Gulf of Mexico by the oil and gas industry," said Mark Ferullo, director of the Florida Public Interest Research Group. "The oil industry has carte blanche in the entire central Gulf and western Gulf. We are saying there should be one area that is left free from industrialization."

The bill would also give states the right to opt out of the federal moratorium on new offshore drilling. Bans on offshore drilling off the East and West coasts have been in place since 1982. The bill directs states interested in opting out of the drilling moratorium to request a survey be conducted by the Department of the Interior Minerals Management Service of the oil and gas resources off their coast. A boundary would be defined for royalty purposes.
The states would receive all lease payments for the first five years after the first lease sale. States would also receive 12.5 % of production revenues and an additional 12.5 % of production revenues would go into a fund for conservation projects.

Tax credits for alternative energy research are included in the bill. Also included: oil demand reduction targets, incentives for utilities to make power plants more efficient and higher efficiency standards for appliances using natural gas. Increased royalties from new gas drilling on Lease 181 could pay the bill's estimated $ 6 bn cost. Bans on offshore drilling were enacted in 1982 during the Reagan administration and President Bill Clinton extended the prohibition until 2012.
"The administration has been adamant in their assertion that the drilling moratorium will remain in place," Ferullo said. "We will see whether or not they have been paying lip service to that position."