In a report submitted to Congress last week, the Interior Department’s Minerals Management Service (MMS) recommended that the federal government not provide production incentives to the energy industry to spur the development of natural gas hydrates at this time.

It cited as reasons for its recommendation the lack of existing information about the potential for gas hydrate production, ongoing preliminary hydrate research, the absence of industry exploration activity and the already high market price for natural gas.

“Production incentives, like royalty relief, would be better suited for encouraging prospect-specific exploration and development of gas hydrate resources if needed once necessary technology is developed and commercial recoverability is established,” according to the MMS report, which was required by the Energy Policy Act of 2005.

“At this stage of gas hydrate development, federal incentives — through technical and financial assistance for research and development programs, database development, education and training, and assistance and collaboration in field testing of production methods — would be the most effective way to help accelerate the process of commercial production of gas hydrate resources,” the agency recommended to Congress.

“In particular, federal assistance is needed for the continued support of public-private partnerships in both field and laboratory research programs, most notably new drilling and production testing, as well as data collection in ‘wells of opportunity,'” it said.

Gas hydrates are ice-like crystalline substances occurring in nature where an ice-lattice accommodates gas molecules, primarily methane, in a cage-like structure. Methane hydrates are found in the Arctic region in Alaska and beneath the sea floor in the Outer Continental Shelf (OCS). The hydrate resources “may be one of the nation’s most promising energy supply sources,” and will likely be needed to respond to the nation’s projected future supply shortfall, the MMS said.

One estimate puts the gas hydrate potential in the United States at approximately 200,000 Tcf, while others calculate that the resource potential is less. “Although testing indicates that gas hydrate is producible, and the potential amount of in-place gas hydrate is enormous, how much of that amount is technically and commercially producible is still to be determined,” the agency noted.

The Gulf of Mexico holds the possibility of having sand reservoirs that could have high gas hydrate saturations, according to MMS. It noted that a Chevron-led Joint Industry Project is planning to test, through drilling, some of these sandy gas hydrate reservoirs by 2008.

Private industry generally has yet to “vigorously pursue” research that could make gas hydrate development viable, the agency said. “Although currently high gas prices may encourage increased interest in gas hydrate, they may also serve to actually delay the rate of investment in long-term research and development ventures for unconventional resources, like gas hydrate on the OCS or in Alaska, in favor of added investments in alternative conventional sources of natural gas or increased investments in infrastructure for importation of LNG,” the MMS noted.

“Consequently, it is unclear what amount of production incentive, if any, at this very early stage of gas hydrate development would be sufficient to cause industry to shift significant resources to the development of gas hydrate resources, or even if it would be appropriate or desirable to encourage such a shift by providing financial incentives at this early stage.”

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