The Interior Department’s Minerals Management Service (MMS) believes “substantial amounts” of natural gas could exist in the North Aleutian Basin, which lies in the southern Bristol Bay region of the Bering Sea off the northern shore of Alaska, the Governmental Accountability Office (GAO) told Congress.
“[The] MMS estimates that, with existing conventional techniques, there is a 19 in 20 chance that at least 20 million bbl of oil and 400 Bcf of natural gas exist in the basin, but a one in 20 chance that as much as 2.5 billion bbl of oil and 23.3 Tcf of natural gas exist,” said the GAO, the investigative arm of Congress, in the report requested by Rep. Norm Dicks (D-WA), chairman of the Subcommittee on Interior, Environment and Related Agencies.
MMS officials attributed the the estimates’ wide range to a lack of seismic data on the basin region.
“Although the estimates are much lower than those for other offshore areas, they are high enough to generate oil industry interest. But limited infrastructure exists in the basin for oil and natural gas development, and building the needed infrastructure — such as pipelines, processing facilities and a tanker terminal — would likely cost billions of dollars,” the report said.
“At $80 per bbl of oil and the associated natural gas price of $12.10/Mcf, MMS estimates that nearly all of the basin’s technically recoverable oil and natural gas would also be economically recoverable,” the GAO said. Oil is selling at a $85 bbl now, while the price of gas has plunged to $4.0844/Mcf at the Henry Hub.
“An oil company official told us [GAO] that recent fluctuations in energy prices have little bearing on his company’s interest in the basin. He said that his company takes the long view, seeing the North Aleutian Basin as an area that will probably not begin production for at least another 10 or 15 years, but could potentially remain in production for another 25 years.
“In other words, the quantities may well offer a substantial incentive to companies to bid on a lease sale and take the substantial monetary risk to explore and perhaps develop the basin,” the report noted.
To develop the North Aleutian Basin, MMS believes it would take four to six offshore oil and gas development platforms; undersea pipelines to bring oil and gas to an offshore hub; 25 miles of undersea pipeline from the offshore hub to the northern coast of the Alaska Peninsula; 50 miles of overland pipeline across the Alaska Peninsula to Balboa Bay; a liquefied natural gas (LNG) plant in Balboa Bay; a tanker terminal to Balboa Bay for LNG and oil tankers; and LNG tankers to transport natural gas to the U.S. West Coast. The infrastructure costs would be in the billions of dollars.
In addition to the staggering costs, industry faces delays at MMS. The MMS process for oil and gas development comprises four stages: 1) preparing a nationwide five-year leasing program; 2) planning for an holding a specific lease sale; 3) approving a company’s exploration plan; and 4) approving a company’s development and production plan.
“As of December 2009, MMS had not proceeded beyond the second stage — the lease sale stage — in the basin. According to MMS officials, completing all four stages could take at least 10 more years. Moreover delays can occur at any stage; indeed, a number of delays have already occurred in developing oil and gas in the Alaska OCS [Outer Continental Shelf] region,” the GAO report said.
In addition, the GAO said the MMS in the Alaska OCS Region also has fallen short of its responsibility under the National Environmental Policy Act (NEPA). “Although Interior policy directs its agencies to prepare handbooks providing guidance on how to implement NEPA, MMS lacks such a guidance handbook. The lack of a comprehensive guidance handbook, combined with high staff turnover in recent years, has left the process for meeting NEPA requirements ill-defined for the analysts charged with developing NEPA documents,” the report noted.
Moreover, MMS has been accused by “stakeholders and former MMS scientists of suppression or alternation of their work on environmental issues. GAO also found that the Alaska OCS Region shares information selectively. This practice is inconsistent with agency policy, which directs that information, including proprietary data from industry, be shared with all staff involved in environmental reviews,” the GAO said.
The GAO called on Interior to take steps to strengthen NEPA procedures, set a deadline for issuing a comprehensive NEPA handbook, and to ensure that MMS follows policy on the sharing of information.
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