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BLM, MMS Request Comments on Enhanced Recovery, Gas Hydrate Royalty Relief Plans

Acting on specifications in the Energy Policy Act of 2005, the Bureau of Land Management (BLM) and the Minerals Management Service (MMS) published requests for comments in the Federal Register this week to prepare for proposed rulemakings that would provide royalty relief for gas and oil production using enhanced recovery techniques and for gas production from methane hydrates.

House Resources Committee Chairman Richard W. Pombo (R-CA) lauded the actions, which were prompted by language he included in the Energy Policy Act. "Taking a collective look at the amount of oil and natural gas we could produce from these unconventional sources, the energy locked in our deep ocean waters and the trillions of barrels of oil in our oil shale reserves, I know these resources can help North America become energy independent by 2025. We must tap American ingenuity to make the unconventional energy of today the conventional energy of tomorrow."

Pombo noted that the U.S. Geological Survey (USGS) estimates that the nation's natural gas hydrate resource could total 200,000 Tcf of natural gas. The Department of Energy also has estimated that enhanced oil recovery techniques using carbon dioxide (CO2) and other gasses and materials could lead to the production of 89 billion bbl oil with the potential for 430 billion bbl as technology improves. Enhanced recovery techniques also could be used to capture significantly more natural gas supply.

Studies show that about 55% of oil and 33% of natural gas remains stranded offshore Louisiana using traditional recovery methods, but potentially one-tenth to one-third of that stranded resource could be recovered using CO2 enhanced recovery technology.

The proposed rule on production using enhanced recovery techniques would provide royalty relief incentives to promote the capture, transportation, and injection of produced CO2 and other appropriate gases or matter for injection/sequestration into oil and gas fields to promote oil and natural gas production from the Outer Continental Shelf (OCS) and from onshore federal leases.

Thermal, chemical, and gas flooding are three major enhanced recovery methods that have been developed and utilized for maximizing oil reserves recovery from onshore fields. Enhanced recovery is fairly advanced in some regions of the U.S. Steam flooding is used in California fields because the oil there can be very viscous. CO2 flooding is common in New Mexico, West Texas, western Oklahoma, and Wyoming because commercial pipelines deliver CO2 from natural sources or from gas processing plants. CO2 also is available for some fields in Mississippi and Louisiana.

However, enhanced recovery operations are not common in most of the rest of the nation because steam is not needed or CO2 is not available. Where CO2 from natural sources is not available nearby, the use of CO2 sequestration from gas processing or other industrial plants may be an alternative source.

In Norway, the target for original oil left behind in place is about 45% and other new offshore projects are attempting further increases in the rate of recovery. Domestically, incentives to spur new technology may encourage additional technologies and recovery efficiencies. New technologies are being developed to produce CO2 from industrial applications such as natural gas processing, fertilizer, ethanol, and hydrogen plants in locations where naturally occurring CO2 reservoirs are not available.

Large scale field expansion potential for enhanced coalbed methane (ECBM) gas recovery through CO2 and nitrogen gas injection into coalbed natural gas reservoirs has not yet been demonstrated to be technically and economically feasible. Until more pilot performance testing can be successfully performed and evaluated, enhanced natural gas production potential remains to be realized.

BLM and MMS said that the diverse enhanced recovery techniques available suggest that a rule providing for a flexible, case-by-case assessment of each application for royalty relief would be the most logical approach to take. The proposed incentives aim to promote additional oil and natural gas recovery from mature oil and natural gas fields by providing a royalty suspension volume of up to 5 million boe for each eligible lease, the maximum amount authorized under the EPAct. A lease may be eligible if produced CO2, natural CO2, and other appropriate gases or matter will be used as an enhanced recovery technique and the Interior Secretary determines that the lease contains oil or gas that would likely not be produced without the royalty reduction provided in the EPAct.

Among other things comments are requested on whether it is appropriate for the federal government to provide production incentives for enhanced oil and gas recovery projects or whether such decisions be left to market forces, whether a case-by-case assessment approach would be appropriate and how assessments would be structured to determine whether royalty relief is needed.

For the gas hydrate rule, the Interior agencies have proposed a royalty suspension volume of up to 30 Bcf per eligible lease. Eligibility also would be determined on a case by case basis.

Even though gas hydrate resources are known to occur in numerous marine and Arctic settings, little is known about the technology necessary to produce gas from these resources.

Gas hydrates are crystalline substances composed of water and gas together in solid form far above the freezing point of water, in which a solid water-lattice accommodates gas molecules in a cage-like structure, or clathrate. The estimated amount of gas in the hydrate accumulations of the world greatly exceeds the volume of known conventional gas resources.

In 1995, the U.S. Geological Survey (USGS) completed its most detailed assessment of U.S. gas hydrate resources. The USGS study estimated the in-place gas resource within the gas hydrate of the United States ranged from 112,000 Tcf to 676,000 Tcf, with a mean value of 320,000 Tcf of gas. Subsequent refinements of the data in 1997 have suggested that the mean should be adjusted slightly downward, to around 200,000 Tcf -- still larger by several orders of magnitude than the estimated 1,200 Tcf of conventional recoverable gas resources and reserves in the United States.

Nevertheless, most of the existing gas hydrate "resource" assessments do not address the problem of gas hydrate recoverability. Proposed methods of gas recovery from gas hydrate resources usually deal with dissociating or "melting" in-situ gas hydrates by heating the reservoir beyond hydrate formation temperatures, decreasing the reservoir pressure below hydrate equilibrium, injecting an inhibitor such as methanol or glycol into the reservoir to create conditions that could decrease hydrate stability, or some combination of these methods.

Gas hydrate computer production models and a limited number of research and development production tests have shown that gas can be produced from hydrate resources at sufficient rates to make gas hydrate a technically recoverable resource. However, the economic costs associated with the various proposed production schemes have not been assessed.

Several recent studies have documented the need for extended gas hydrate production field tests in order to allow further development of various gas hydrate production technologies.

To develop a complete regional understanding of this potential energy resource, the Department of the Interior through MMS, BLM, and USGS is actively assessing the energy resource potential of gas hydrate resources. The Methane Hydrate Research and Development Act of 2000 authorized the expenditure of $43 million over five years and directed the Department of Energy (DOE) to commence basic and applied research to identify, explore, assess, and develop methane hydrate resources as a source of energy. The Energy Policy Act of 2005 renewed the Methane Hydrate Research and Development Act and provides the Secretary of the Interior with the authority to create incentives through royalty relief for gas hydrate production.

Comments on providing such royalty relief for hydrate gas production and through the use of enhanced recovery techniques are due April 7. For instructions go to http://www.regulations.gov or just send comments to comments_washington@blm.gov. For other details, call Thomas J. Zelenka at (202) 452-0334, Marshall Rose at (703) 787-1536, or Ted Hudson at (202) 452-5042.

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