Interior Secretary Kirk Kempthorne Monday released the proposed five-year program (2007-2012) that calls for leasing in the eastern Gulf of Mexico, in Alaska's Bristol Bay area and possibly offshore Virginia. Industry and consumer groups said the offshore leasing plan was far short of what is needed to meet increasing natural gas demand.

Interior's Minerals Management Service (MMS), which oversees oil and gas leasing activities in federal waters, proposes 21 lease sales for the five-year period -- 12 of which are scheduled for the Gulf of Mexico, eight offshore Alaska (including Bristol Bay) and, at the request of the Commonwealth of Virginia, one in the Mid-Atlantic Planning Area, about 50 miles off the coast of southern Virginia.

The planned lease sales could produce 10 billion barrels of oil and 45 Tcf of natural gas over 40 years, generating approximately $170 million in net benefits for the federal government, according to Kempthorne.

The plan proposes that 8.3 million acres in the Lease Sale 181 area in the eastern Gulf and in a tract south of Lease Sale 181 (181 South) will be available for oil and gas leasing in the upcoming five years. The areas are believed to contain 2.8 Tcf of natural gas and a potential 637 million barrels of oil. President Bush signed a bill into law in December to open these areas to drilling (see Daily GPI, Dec. 21, 2006). MMS has scheduled a Central Gulf sale later this year that involves a portion of the Sale 181 area, and one lease sale in the eastern Gulf in 2008.

Interior has scheduled eight sales in Alaska -- two in the Beaufort Sea, three in the Chukchi Sea, up to two in Cook Inlet and one in the North Aleutian Basin (Bristol Bay area) -- in an area of about 5.6 million acres that was previously offered during Lease Sale 92 in 1985. There currently are no existing leases in the North Aleutian Basin, the agency said.

Bush in January lifted the presidential bans on drilling in the Bristol Bay area in the North Aleutian Basin of Alaska and "181 South" area in the Central Gulf, removing the last remaining obstacles to offering producers leases in the areas under the 2007-2012 leasing program (see Daily GPI, Jan. 10). The North Aleutian Basin Planning Area is gas-prone, with estimated technically recoverable, undiscovered natural gas resources of up to 23.38 Tcf, according to MMS.

The proposed offshore Virginia lease sale is scheduled for late 2011. Drilling off the West and East coasts currently is prohibited by presidential and congressional bans. So the sale would only take place only if the presidential prohibition is lifted and the congressional moratorium is discontinued in the Mid-Atlantic Planning Area, MMS said.

The planning area excludes a 50-mile coastal buffer from leasing consideration as requested by Virginia, as well as a wedge-shaped no-obstruction zone to avoid conflicts with navigation activities in and out of the Chesapeake Bay.

The Virginia General Assembly has twice passed legislation supporting natural gas drilling off the state's coast (see Daily GPI, Feb. 25, 2005). Last year, Virginia Gov. Timothy Kaine and state lawmakers agreed on a bill that would bar drilling within 50 miles of the state's coastline.

Interior said no lease sale would proceed without additional and more site-specific analysis of its environmental effects under the National Environmental Policy Act.

The five-year leasing plan and its final environmental impact statement will be published in the Federal Register on Wednesday (May 2). The proposed leasing plan was submitted to the White House and Congress Monday and, after 60 days, Kempthorne said he may approve it to take effect on July 1.

"While a good step, much more is needed to improve domestic supply of natural gas," said Paul N. Cicio, president of the Industrial Energy Consumers of America.

"Demand [for natural gas] is exploding because of all the ethanol plants that are coming onstream" and the growing gas appetite of power generation facilities, he told NGI. In addition, "Congress is readying legislation in the climate change area that will [further] increase demand, but it is not doing anything to increase supply," he noted.

"Leasing new areas of the Gulf of Mexico will not increase supply till 2012," Cicio said, adding that it will be a "long, long time before they are going to do any leasing" offshore Virginia. As for Alaska, the proposal only "opens up a little bit of Bristol Bay," he noted.

Last year, U.S. consumers paid a whopping $75.5 billion more for their natural gas than they did in 2000, according to Cicio. Consumers also paid $65 million more per year for electricity in 2006 than they did in 2000 as a result of higher gas prices, he said.

A consumer alliance group said the MMS five-year leasing plan didn't go far enough. "The MMS plan announced today is a modest step toward expanding access to domestic energy supplies in the OCS. We believe the agency should have made more OCS acreage available for development," said the Consumer Alliance on Energy Security (CAES) in Washington, DC.

Congress currently is considering a raft of new proposals, particularly related to climate change, that would raise demand for natural gas without boosting supply, CAES said. "These new energy demand pressures should persuade Congress to look for ways to increase access to domestic natural gas supplies, both onshore and offshore. Unfortunately, some members of Congress are moving in the opposite direction," it noted.

"At the very least, Congress should support MMS' limited efforts to expand access to the nation's energy supplies while rejecting any proposal that would roll back existing supply policies."

The American Petroleum Institute, which represents major oil and gas producers, was more supportive of Interior's plan. "We are encouraged that MMS is offering lease sales in area where we are already exploring and producing in the Gulf of Mexico, such as the Sale 181 area (parts of which were opened last year by Congress), along with new areas south of Sale 181 and new areas off the coast in Virginia and in Bristol Bay," it said.

"Nevertheless, it is important to remember that most U.S. offshore areas in the Lower 48 states (some 80% of the federal Outer Continental Shelf) remain off limits to oil and gas exploration and that these areas contain vast amounts of oil and natural gas."

©Copyright 2007 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.