First, I want to thank Paul Kelly and Bob Stewart of NOIA for getting together this group of distinguished and knowledgeable participants. Paul, Bob—I very much appreciate your efforts.

Our meeting today provides us the opportunity to talk about a very important issue to you as well as to MMS and the nation. I am here not only to share my perspective, but also to listen to you as we focus on the future of natural gas production in the Gulf of Mexico.

I would like to discuss two topics today:

What are the technology and cost barriers to increasing offshore natural gas production in the Gulf of Mexico?

And, what would be appropriate incentives to help industry break through these barriers?

Today, as you know, total natural gas production from Federal waters of the Gulf of Mexico contributes approximately 23 percent of total US gas consumption. That is a total of about 5.1 trillion cubic feet per year. We’ve maintained this level from 1996 through 1999.

But, as we also know, consumption is expected to increase in the coming years. By 2015, annual US natural gas demand will increase from about 22 Tcf today to more than 30 Tcf , according to estimates from The Gas Research Institute and Dept. of Energy

It doesn’t take a mathematician to figure out that annual domestic production on the OCS will have to go up. We anticipate an increase from about 5 Tcf currently to 7 to 8 Tcf per year just to keep up with demand.

Making this particularly challenging is the fact that annual gas production from water depths less than 200 meters declined by 13% between 1997 and 1999.

As you can see, we have a challenge.

At MMS, we see two primary areas in the Gulf of Mexico where natural gas resources may be found to meet this challenge.

The first is the deep gas resources on the shelf in 200 meters of water or less.

The second is in the Subsalt prospects.

For deep gas resources, MMS estimates a resource potential of between 4 and 16 Tcf of natural gas that could be located in the deeper plays on leases in water depth of less than 200 meters.

However, up to this point, industry has only drilled 140 wells to a depth between 18,000 and 20,000 feet on these leases. Also, the current success in completing wells drilled to this total depth is less than 4 percent.

But, if future US energy demand is to be met in part from the Gulf of Mexico Continental Shelf, it is time to determine whether deep gas wells can successfully contribute to domestic production.

For subsalt resources, MMS sees a resource potential of between 6 and 16 Tcf of natural gas in the Gulf of Mexico.

MMS data indicates that subsalt discoveries on the Gulf of Mexico Shelf have been about 55% natural gas.

Unfortunately, the oil and gas industry has not been able to fully explore and develop subsalt reserves because of the increased time and money required to process geophysical data associated with subsalt discoveries.

There is also the difficulty in obtaining clear seismic images, and the increased level of uncertainty associated with identifying subsalt hydrocarbon reservoirs.

So, this is where we are today. We need to open a dialogue that will help our decision-making process concerning this important national challenge.

A challenge before industry--as the companies that will meet the increased natural gas demand for the American people and its economy. that faces both government and industry.

And a challenge before MMS--as the manager of the Nations offshore energy resources.

I’d like to hear your thoughts on:

What you see as the technology and cost challenges to increase Gulf of Mexico natural gas production on the shelf.

Second, what you believe are appropriate incentives for Gulf of Mexico shelf natural gas exploration, production and development.

I’m here to listen to you.