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NARUC: Restricted Leasing Cuts U.S. Production

February 22, 2010
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Domestic natural gas production will fall by a projected 46 Tcf through 2030 and U.S. crude oil production will drop by 9.9 billion bbl over the same period if the federal government continues with its de facto moratoria policies on leasing in onshore and offshore areas, according to a new study released last week by the National Association of Regulatory Utility Commissioners (NARUC).

At the same time imports of natural gas (both liquefied natural gas and pipeline) would rise by nearly 15.7 Tcf through 2030, or by an average annual increase of almost 75%, and oil imports from the Organization of Petroleum Exporting Countries would rise by 4.1 billion bbls over the next two decades, or by an average annual increase of nearly 19%, said the study, which was prepared by McLean, VA-based Science Applications International Corp. (SAIC) and Gas Technology Institute (GTI).

If the U.S. continues its policies restricting leasing, the study projects that energy costs to consumers will increase cumulatively by $2.35 trillion through 2030, for an annual average increased cost of 5%. Import costs for crude oil, petroleum products and natural gas are projected to grow cumulatively by $1.6 trillion, for an annual average increased cost of more than 38%. At the same time the gross domestic product is pegged to fall cumulatively by $2.36 trillion through 2030, for an annual average decrease of 0.52%, according to the study.

Under this scenario, average natural gas prices would jump 17%; annual average electricity prices would rise 5%; and average motor gasoline prices would likely increase by 3% through 2030, it noted.

The study was unveiled at NARUC's Winter Committee Meetings last week in Washington, DC. NARUC adopted a resolution in 2007 calling for the study of the impact of the restrictions on energy exploration and production on federal lands, both onshore and in the federal Outer Continental Shelf (OCS). SAIC and Des Plaines, IL-based GTI coordinated the study with the NARUC Moratoria Study Group.

Congress let the long-standing congressional moratorium on drilling in much of the OCS expire on Nov. 1, 2008 (see NGI, Sept. 29, 2008). Earlier that year then-President Bush issued an executive order shelving the parallel presidential ban on drilling in federal offshore areas (see NGI, July 21, 2008).

While the two actions legally removed the restrictions on drilling in the OCS, the federal government still has maintained a de facto (in practice but not necessarily ordained by law) moratoria by keeping the lease sales in the prior moratoria OCS areas to a minimum. Furthermore, producers have grown increasingly concerned about the Obama administration's policies restricting onshore development, particularly in the Mountain West.

Because of the continuing restrictions, it's estimated that 285 Tcf of natural gas and 46 billion bbls of oil on federal onshore and offshore lands remain off-limits to producers, according to the study. This is enough natural gas to meet the country's needs for more than 12 years at current levels of consumption, said R. Skip Horvath, president of the Natural Gas Supply Association, which represents gas producers.

While relaxing U.S. moratoria policies would likely increase the associated environmental effects across the county, maintaining a de facto moratoria would lead to increased imports of crude oil and gas imports, which would result in greater domestic and global environmental effects, according to the study.

"The study observes that maintaining the moratoria will cause a shift to overseas fuels production with commensurate effects on the environment: 1) foreign production will increase the environmental effects in other countries where environmental standards are different (often less stringent) than those in the U.S.; and 2) foreign production will impose an unknown increase in environmental effects on domestic and international air and waters due to increased oil and LNG shipping transport," it noted.

The study further estimates that the U.S. oil and natural gas resource base in restricted and unrestricted onshore and offshore areas will be more than what the Energy Information Administration (EIA) has projected over the next two decades.

It projects that the natural gas resource base will grow to 2,034 Tcf by 2030 -- 286 Tcf, or 6.4%, more than the 1,748 Tcf projected by the EIA in its Annual Energy Outlook for 2009. And it sees the crude oil resource base to reaching 229 billion bbl by 2030, or 43 billion bbls, or 23.1%, more than the EIA's estimate of 186 billion bbl.

As for the 286 Tcf difference in gas estimates in the NARUC study, 132 Tcf would come from onshore and 154 Tcf would come from the offshore (excluding parts of Alaska), the study said. And as for the 43 billion bbls difference in oil estimates, 37 billion bbls would come from the offshore (excluding parts of Alaska), and 6 billion bbls would come from the onshore, it noted.

The study attributes its higher projections to two primary factors: expanded shale gas activity and development successes; and enhanced resource estimates for the currently restricted offshore areas and successes in the currently available and developed offshore areas.

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