Many of the predictions, cost estimates and energy price forecasts in the National Petroleum Council’s (NPC) $30 million study in 2003 on Balancing Natural Gas Policy came up well short of what actually transpired over the last two years, but its policy recommendations remain right on the money, according to many presenters at the Department of Energy’s (DOE) roundtable on Balancing Natural Gas Supply and Demand Tuesday in Washington, DC.
The problem is that Congress has failed to take appropriate action and many federal agency efforts also have fallen short of what’s needed, experts from many sectors of the industry said at the two-day meeting. DOE scheduled the roundtable to gather industry input for a gas supply and demand report that it is scheduled to be delivered to Congress in February. The report was required by the Energy Policy Act of 2005.
“Very little has been acted upon out of the [NPC’s] recommendations,” said Burlington Resources CEO Bobby Shackouls. The Energy Policy Act was a couple of years late and did too little, he said. Although drilling permitting in the Rockies has improved at the Bureau of Land Management (BLM), it still isn’t where it needs to be. Meanwhile, Lease Sale 181 in the Eastern Gulf of Mexico is still off limits for political reasons.
The NPC study recommended lifting the Outer Continental Shelf moratoria on drilling by 2005. That also hasn’t happened, he noted.
And now after two years and three 100-year storms in the last 12 months, gas prices have catapulted out of control to unexpected heights that could reach $20/MMBtu this winter. “Too many people believe that [producers] are sitting here enjoying this, but we’re not,” said Shackouls.
David Trice, CEO of Newfield Exploration, presented a report by the Domestic Petroleum Council (DPC), a group sponsored by 24 independent producers, that noted the continuing access and permitting problems in the Rocky Mountain region. The report cited a backlog of more than 3,000 applications for drilling permits (APD), 300 of which are Newfield’s, said Trice.
“Adequate funding and resources to process and clear out those backlogged pending APDs could increase natural gas reserves in the Rocky Mountain region by several trillion cubic feet — some of which would begin flowing soon and would make a difference in today’s tight market,” the DPC’s report said.
The DPC noted that conservation will have the most immediate impact on the gas market this winter and action is being taken on that front. The industry also is spending billions of dollars on restoration of the infrastructure damaged by the hurricanes this year. But beyond that, federal agencies including BLM, the U.S. Forest Service and others, need to speed up their approval processes when it comes to leasing and drilling.
A U.S. Forest Service representative said staffing and funding is so tight at the agency that its role in the oil and gas development process really should be folded together with other federal offices. “Congress is going to have to look at combining the offices. We are understaffed. It’s just not working,” he said.
Trice also said Lease Sale 181 “has to happen in 2006.” The DPC report said that “first production from what is expected to eventually be trillions of cubic feet of additional discovered reserves could probably begin flowing to market within 18 months to two years of a lease sale. Such a lease sale, based on appropriate congressional findings and direction and based on the environmental work already done, could be held as early as next summer.”
The Federal Energy Regulatory Commission (FERC) also could make some changes to smooth the regulatory process to speed up pipeline and storage development, said Kevin Petak of Energy and Environmental Analysis Inc. and Ronald Brown of Kinder Morgan. Although FERC has made significant progress in shortening its review process, its restrictions on rates may need to be relaxed.
“FERC should allow pipeline operators to configure transportation and storage infrastructure and related tariff services in a way that meets recent changing market demand profiles,” the presentation stated. “FERC has yet to revisit its policy that precludes pipelines and shippers from negotiating rates based on commodity price indices.”
They said FERC also should be more receptive to industry proposals seeking greater flexibility in the pricing of pipeline capacity for anchor shippers if it wants new long haul pipelines to be built.
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