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Lack of Access, Litigation Slows North American Energy Development

The United States can achieve energy security only if it is able to convince lawmakers and litigation-minded stakeholders that allowing access to restricted areas would boost the nation's oil and natural gas reserves and not add to global warming concerns, a panel of energy experts said this week at the Offshore Technology Conference in Houston.

"Much of the future U.S. demand can -- and let me underline can -- be met by OCS [Outer Continental Shelf] production, particularly from new areas in Alaska and the Gulf of Mexico, if we can survive the threat of hurricanes and survive the hurricane of litigation that surrounds oil and gas development," said Minerals Management Services (MMS) Director Randall Luthi. He served on a panel that discussed how U.S. energy security may be achievable even with growing concerns about climate change.

High on Luthi's list of areas to be explored and developed is Alaska's offshore. In the Alaska OCS, he noted that there are only 260 leases, with three producing leases in the Beaufort Sea. The East and West coasts and the eastern Gulf of Mexico also have to be opened to development, he said. However, Luthi pointed to mounting litigation by Native Americans living in the region and environmental groups, which he said has stymied efforts to grow oil and gas output.

The MMS in February conducted the first lease sale in Alaska's Chukchi Sea in 15 years, even though several groups protested and filed lawsuits to protect polar bear habitat, Luthi noted (see Daily GPI, May 1). By the end of April, despite the litigation, MMS had awarded 292 of the 488 leases available in the area.

"I am confident that we as a group can develop these resources without harm to the polar bear and the other species of concern," and at the same time adequately address Native American concerns, said Luthi.

Environmental security has to be part of any plan to combine energy security and climate security for the United States, Luthi noted.

"The price of gasoline is only part of our energy equation," he said. "Without increased domestic production, imports will have to increase." Luthi said the federal government has to work with Congress to expand domestic energy production from all sources. U.S. energy production has to increase from all sources, he said, including alternative and renewable energy sources.

"We do have to look at all possibilities, new sources of energy as well as more efficient use of existing sources," said Luthi. As the United States steps up its energy production, he said efforts need to be made to encourage a worldwide climate control effort. "The U.S. is a key part" of climate security, "but other emerging economies need to be a part as well."

This "growing sense of urgency" to control climate change and secure adequate energy supplies in the United States will require trade-offs, said Amy Jaffe of Rice University's Baker Institute.

"If we move to greater use of natural gas, what is that going to mean for U.S. energy security?" she asked. "In a carbon-constrained scenario," the United States likely would be importing more liquefied natural gas (LNG), but would that lead to concerns about more dependence on foreign supplies? The U.S. definition of energy security is different from how Europe defines it, or how Asian countries define it, Jaffe noted.

"Different parts of the world are not even talking about the same commodity," she said. "For example, Europeans are generally more interested in securing natural gas supplies, while U.S. citizens are more likely to talk about gasoline supplies."

Political unrest and uprisings in emerging regions may define energy security in one part of the world, said Jaffe. Hurricanes sweeping through the Gulf of Mexico or labor stoppages may define energy security -- or a lack thereof -- in other parts of the globe. In addition, she said "we have to worry about a new producer climate...National oil companies feel empowered by oil supply shortages, and this will tempt them to flex their geopolitical muscle."

The oil and gas industry has to figure out how to achieve a balance between energy security and climate security that also coexists with society's expectations, said IHS' Robert Fryklund, who is in charge of industrial relations.

"Unfortunately, this puzzle has a couple of missing pieces," he said. "There is a lot that we know, but there is a lot that we don't know. Corporations...ask how much is it going to cost. Individuals ask how much more they are going to have to pay at the pump."

How can energy companies help pull their part of the puzzle pieces together? First of all, they should realize that it's more than just a cost item on the balance sheet, said Cambridge Energy Research Associates' Robert LaCount.

"Scale, reliability, timing, integration and unintended consequences" all contribute to a complete clean energy policy, he said. "When we look over the next couple decades, we would recommend keeping an eye on many different aspects" to determine how different energy sources will develop -- or fail, LaCount said.

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