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Offshore Groups, Distributors Press for Eastern Gulf Access in Next Five-Year Leasing Plan

Noting that the United States cannot conserve its way out of the perilous natural gas supply situation, a major gas distribution group and several mostly offshore groups have called on the Interior Department's Minerals Management Service (MMS) to open up many of the off-limit areas of the federal Outer Continental Shelf (OCS) to production in its upcoming five-year (2007-2012) leasing plan for offshore energy development.

"We ask that the [MMS] include areas currently under administrative withdrawal or leasing moratoria in the new five-year plan, so that the areas will have been analyzed if circumstances change between 2007 and 2012," David N. Parker, president of the American Gas Association (AGA), said in a letter to the Interior agency.

The group "strongly recommend[s]" that the Atlantic and the Aleutian Basin of Alaska planning areas be included in the five-year leasing plan, as well as the full area of the eastern Gulf of Mexico not under moratoria, known as the "original 181 area." It also urged the MMS to continue the annual offering of all acreage in the Central and Western Gulf of Mexico.

In a separate filing, the offshore groups -- the National Ocean Industries Association, Independent Petroleum Association of America, the International Association of Drilling Contractors, the Domestic Petroleum Council, the U.S. Oil & Gas Association and the Petroleum Equipment Suppliers Association -- made identical recommendations.

The six industry groups chided Interior Secretary Gale Norton for saying, in her notice, that the department had no intention of offering for leasing areas in the Eastern Gulf of Mexico Planning Area within 100 miles of the coast of Florida. "We believe it is inappropriate to declare such an intention at the beginning of the scoping process. [The Outer Continental Shelf Lands Act] requires that all areas be analyzed so that informed decisions may be made after conducting a comparative analysis of all the areas."

That planning area alone may hold more than 12 Tcf of natural gas, the offshore groups said. And because it "is so close to existing infrastructure, it is also the quickest way to bring new supplies of energy to the American people."

The AGA and offshore groups split on the issue of gas-only leasing. The AGA called on the Interior agency to consider the use of natural gas-preference leases "in order to make the new five-year plan as flexible as possible." However, the producer/offshore groups said "while we recognize that there are occasions where particular fields produce entirely (or mostly) natural gas, we do not think it is necessary to limit leasing to gas. Oil can be produced in a safe manner on the OCS, and industry has clearly done so for over 30 years."

The AGA sees a pressing need for more gas production. "Residential consumers have already reduced their gas consumption by 20% over the past two decades. Yet overall demand for natural gas is rising due to population increases and regulatory pressure to use clean natural gas for electric power production. Conservation alone is not the answer. Instead, we must also increase supplies of natural gas to meet rising demand," Parker wrote.

Natural gas prices, which closed last Thursday at above $13/Mcf for November delivery, have risen more than 400% over the past five years, he said. "It is critical that the federal government expand the offshore areas available for natural gas production."

Public health and welfare are at stake, according to AGA. "Many poor families have to make hard choices between being warm and being fed. This tough fact often seems forgotten in the debate over drilling on the Outer Continental Shelf," Parker said.

"From a broader public welfare perspective, if the current supply-demand imbalance and the resulting price volatility are allowed to continue, it could cause natural gas customers to switch to other less efficient, less secure and less environmentally friendly fuel sources."

The MMS put out a request in late August for AGA and other industry participants to submit comments to aid in the development of its 2007-2012 leasing plan for energy activity on the OCS. The deadline for comments was last Tuesday. The upcoming OCS leasing program will be the seventh program prepared since Congress passed the Outer Continental Shelf Lands Act in 1978. The current program runs through June 30, 2007.

MMS has indicated that it will issue a draft proposed leasing program in the winter of this year, a proposed leasing program and draft environmental impact statement (EIS) in the summer of 2006, and a final leasing program and final EIS in the winter of 2006. Following a 60-day waiting period, the agency said it expects to approve the five-year leasing plan in the spring of 2007.

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