Johnnie Burton
American Public Gas Association
Annual Conference
Lake Geneva, Wisconsin
July 26 & 27, 2004

Overcoming Obstacles 

Over the last few decades, America has grown increasingly reliant on oil and natural gas to fuel its economy.  Today, gasoline prices are nearly 50% higher than last summer, oil prices are at a 25-year high and natural gas prices have reached sustained high historic levels.

The gap between our energy supply and demand is widening.  Many of the national experts indicate the era of cheap oil is coming to an end.  But there are some important actions that can and must be taken to help meet our domestic energy demand and ensure the Nation’s energy security.  As a Nation we are at a crossroads in which the choices we make today on domestic energy production will affect us for decades to come.

The fact is energy is the lifeblood of our modern existence.

Over the last 20 years, for environmental reasons, clean burning natural gas has emerged as the fuel of choice for power generation as well as for residential and manufacturing use.  When natural gas becomes unavailable or available at prices that were never anticipated when business plans were drafted, we will have many victims.  Jobs are lost, companies close their doors or relocate overseas where gas is cheaper, and senior citizens have difficulty paying for heat or air conditioning while also meeting their every day expenses.

Among the fossil fuels, natural gas has been gaining a larger share of demand every year and that share is projected to increase significantly in the next couple of decades.

However,  domestic production of natural gas has not kept pace with rising demand. In fact total domestic production is on the decline.  We went from being self sufficient to importing over 15%—a number that is expected to rise dramatically in the coming decades.  Presently our imports come mostly from Canada.  But Canada has warned that they may have trouble sustaining this level of export.

Projections done by the Department of Energy anticipate that the demand for both oil and gas will increase substantially in the next 10 to 15 years.  For natural gas, the anticipated demand will grow by almost 40%.  Where will we obtain the natural gas we need and at what price?

What we need to do is work toward re-establishing a balance between supply and demand.  This can be accomplished with a combination of increased imports and increased domestic production, conservation measures, and faster development of alternative sources of energy.

In anticipation of meeting our future needs, the Nation is now turning to importation of liquefied natural gas from the Middle East, Africa and elsewhere, which can now be done competitively by tankers.  I assume you have already heard a lot about LNG terminals onshore and offshore for these ships.  This will not take care of the whole problem of short supply and furthermore it may not be wise to become too dependent on foreign natural gas imports as we are for oil now.  But it is a necessary strategy. This Administration is diligently pursuing this strategy by requiring the agencies involved to expedite the permitting process for those terminals.  However, there is significant work to be done to insure the safety of those operations.  Building such terminals is a huge task and at best will still take at least two to three years.  Increasing LNG imports is part of the solution and will happen but the results will not be seen for some time.

A question I am asked often is: "Can we be self-sufficient?”  Self-sufficiency for oil is really not in the realm of possibility.  The gap between supply and demand is too wide now.  We import 60% of the oil we need.  But for natural gas, the possibility of self-sufficiency is much more real. The obstacles to overcome here are those of technology which demand huge investments in research and tests, and reasonable access to the resource.

The challenges of technology are tied to both exploring in different frontiers and doing it in a way that would be sensitive to the environment.  The issue of access is actually an issue of choice for the American people.

Progress in exploration and production technologies has been phenomenal in the last few years.  I won’t provide a lengthy technical explanation here but let me give you an example or two.

What is happening offshore is on a par with what is happening in the space program.  Today’s wells can be drilled in 10,000 ft of water and then drilled an additional 15,000 ft through the ocean floor.  This can be done with a drill ship that maintains its position over the hole with the use of thrusters that are activated by satellite relayed global positioning.  Think of the engineering feats that are accomplished to keep drill pipe steady going through 10,000 ft of water with strong currents pushing and pulling in different directions at different depths within the water column.  Think of the pressures and temperatures they encounter offshore and onshore when they are 20,000 ft and deeper into the earth crust.  Now, many completion installations offshore are done on the ocean floor with well heads, arrays of valves, flow lines resting 9,000 ft below the surface of the ocean; all these installations being built and monitored by remotely operated vehicles, robots operated through joysticks in a small room aboard ship.

We have the technology to do the job right and safely for the people and the environment.   There is still a lot of research and testing being done but this obstacle is fairly well mastered– if not totally overcome.  Companies are spending billions of dollars improving the technology daily, and they employ some of the best brains from our engineering schools.  Betting on American ingenuity to produce energy in remote places is a safe bet.

The next major obstacle is access.  Drilling for and producing natural gas – all fossil fuels for that matter – are visible activities that require some land disturbance.  Energy companies have to go where the resource is located.  Today, the technology is such that mineral development can be done cleanly and safely almost everywhere.   We must always be sensitive to the environment and conduct development carefully.  We regulate industry’s activities to achieve this balance.  It can be done.

Every place on earth has a beauty of its own.  But if too many areas are inaccessible to energy production, our economy is severely constrained and there is a significant negative impact on jobs.

So, as difficult as it may be we must make some choices.

President Bush is very aware of the balance we must achieve.  This is why less than three months after he took office he presented his national energy plan.  In Washington getting anything done in three months is lightning speed and reflects the priority of this issue in the President's agenda.  His plan encourages production of oil and gas while being very protective of the environment.  The plan also includes conservation and increased research on alternative energy.

However, many of the recommendations contained in the plan require Congressional action, and as many of you know the Congress continues debating the bill and there are no signs they will pass it anytime soon. 

Some of the domestic production recommendations in the plan can be implemented by the Secretary of the Interior through her administrative authority. And Interior has been diligent in the last 3 ½ years in providing incentives and streamlining processes so Industry can increase production of both oil and natural gas.

While public lands are often associated with the outdoors like parks, rivers, fishing, hunting and all manners of recreation, they also contain important mineral resources, many of which are found in millions of acres under our oceans and in public lands in the western half of the US.

Among DOI’s eight bureaus that share the duties of managing those lands, the Minerals Management Service and Bureau of Land Management oversee mineral production. 

The Minerals Management Service, which I am privileged to direct for the Secretary, has a dual function.  MMS oversees production of oil and gas on nearly 1.76 billion acres of federal offshore submerged lands. We also collect revenue from all mineral production on public lands both onshore and offshore.  In 2003, MMS collected and remitted to the US Treasury, the Indian Tribes and the States their shares of $8 billion.

The offshore lands managed by MMS have proven to be very rich in fossil fuels.  Offshore produces 30% of all domestic oil production - more than we import from any given country and more than is produced from any single state.  It also accounts for 23% of all the domestically produced natural gas. However, the gas production from the Gulf of Mexico is on a fairly steep decline.  One of the significant trends occurring in the Gulf is the strong decline in the number of new gas completions.  There were 1,046 new gas completions in the Gulf in 1994.  This number has been decreasing yearly and in 2003, new gas wells completions dropped to 893.  When this decline in activity is combined with a steep decline rate in the producing wells, it is cause for concern.

What is happening onshore?  The Bureau of Land Management oversees 262 million acres of federal lands, mostly in the West, that account for 11% of all domestic natural gas production along with energy produced from various other sources.  Again BLM has to manage the land in an environmentally sensitive manner and for multiple use, and they do.  In fact of the 262 million acres they manage, only 1% has had surface disturbance due to oil and gas production.  Yet BLM is roundly criticized in some circles for allowing too much energy activities on public lands.

Although energy production on public lands onshore and offshore is significant, the President is asking us to do more in the Interior Department to help meet our energy needs.   In the last few years, a great deal of attention has been paid to increasing production of natural gas to try and ease a very tight market.

This Administration has been trying to expand the areas where exploration can take place and it has been moderately successful in some areas.  BLM has opened more areas in the West, but ANWR has not been approved by Congress although the refuge contain 19 million acres and only 2000 acres are proposed for oil and gas exploration foot print.  As far as the Outer Continental Shelf (OCS) is concerned, the fraction of acreage available for leasing has not changed in 15 years, and it represents only 9% of the total OCS acreage MMS is charged with managing.

Coastal states have a say - as they should - about whether they agree to have drilling and production in federal waters off their coasts.  This is in great part the reason why only the central and western Gulf of Mexico and offshore Alaska are areas available for exploration and production.

Until people are convinced that drilling and production can occur safely for the environment, not much is going to change.  The dialogue and information sharing must occur at the state level, particularly in the coastal states that, except for a small handful, are opposed to drilling in federal waters off their coasts.  This Administration respects the moratoria imposed by Congress, previous Presidential withdrawals, and the desires of the states.  Congress may take another view of domestic production only if their constituents push them in that direction.  Most obstacles to access will have to be addressed at the local level.

We must inform the people of the process followed before public lands are opened to exploration and production. Before any exploration occurs in any area, MMS and BLM’s scientists conduct comprehensive environmental reviews to make sure the ecosystems are protected. 

MMS has scores of geologists, geophysicists, engineers, marine biologists and oceanographers to insure that proper science is the basis of our decisions.

Our job at MMS and BLM is to make sure industry does this work safely for the people who work in the field as well as for the environment in which they work.  But we also act as facilitators for increased exploration and production of energy.

So what are the choices we must make in the coming years?  The Rocky Mountain region is where most of the natural gas onshore in the lower 48 is yet to be found.  This is in the form of conventional oil and gas fields and gas from coal bed seams.

A comprehensive study published last year found that much of the lands under BLM jurisdiction have no permanent restrictions on development.  However, the reality is that there are competing land use issues that present many hurdles to overcome.

The most recent issue to hit the headlines is the effect of development (any development) on the habitat of the sage grouse.  This is an issue that must be studied carefully because of its potential to affect both fossil fuel and renewable energy development on public lands.

In Alaska, several options for building a natural gas pipeline to transport some of the huge reserves of natural gas that is stranded on the North Slope to the lower 48 are being debated. What economic incentives are appropriate for a project such as this and what is a preferred route must be resolved between companies, Alaskan and Canadian government officials, and Congress.  It will take some time to arrive at the resolution of this problem.  This is truly a matter of economics.  Companies will not build such an expensive pipeline unless they can make money transporting gas.

In addition, the OCS contains about 60 percent of the Nation’s oil and gas resources left to be found and produced.  Industry has moved aggressively into deepwater to tap that new frontier.

However, going deep is expensive.  It is not uncommon to spend over $100 million just to acquire leases and drill one or two test wells.  MMS has offered economic incentives for companies to test through these deep waters and other deep areas offshore. 

The current Executive Order issued by the previous Administration and respected by this Administration, putting most of the OCS off limits to oil and gas development expires in 2012.  Significant information gathering steps must be taken before then to ensure that scientifically based policy decisions can be made.  This is probably the major obstacle to further production of natural gas from offshore and unless the states – one at a time - ask for these moratoria to be lifted, they very well may be renewed in 2012. 

In the case of importation of natural gas in liquid form, there are now almost 30 proposals for expanding existing terminals or building new ones on the Pacific, Gulf of Mexico and Atlantic coasts.  Only a few of those will be built and I am sure you are aware that several projects have already been rejected by coastal states.  They made their choice, and it is one that will not ease the short supply of natural gas.   

In all of these cases an open discussion that is informed with the best scientific information is critical to ensuring that we have the most diverse approach to dealing with our energy problems. 

In conclusion, it is clear to me that new technology and stringent regulatory control over the petroleum industry make it possible for us to have both increased domestic production of oil and natural gas while we also protect the environment.  We do not have to choose between these two values but we must choose to move forward.

The President said in his National Energy Policy document:

"We must work to build a new harmony between our energy needs and our environmental concerns.”

The President noted that energy production and environmental protection are not mutually exclusive: "They are dual aspects of a single purpose: to live well and wisely upon this earth."

We have the capability to do both, but as a Nation we need to muster the collective will to do so.  The way to move the process forward is to have an informed citizenry who understands the high stakes of decisions regarding domestic production of energy.  We, collectively in the industry and regulatory fields, must inform and educate.

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Last Updated: 10/10/2007, 05:13:28 AM