The good news for growing U.S. natural gas demand is that declining traditional reserves can be replaced by a combination of Rocky Mountain unconventional supplies and increased imports of liquefied natural gas (LNG), but the bad news is the fact that permitting for new supply projects in these two sectors may be difficult to obtain, a panel of energy lawyers told an industry conference Thursday in Santa Fe, NM. Ultimately, Uncle Sam or neighboring Mexico could hold the keys to unlocking these supplies.

“The Rockies provide the single largest land-based source of new natural gas supplies over the next 20 years,” said Robert Lewis, an energy attorney with Denver-based Faegre & Benson. “And the vast majority of the supplies are found on federal-controlled lands.”

Nearly one-third of all land in the United States — some 700 million acres — are federally controlled, and the majority of the land is in the West, according to Ezekiel Williams, a legal colleague of Lewis’s at Faegre & Benson. In some cases, the land is privately owned on the surface, but the underground resources are controlled by the federal government dating back to the homesteading by western settlers in the late 19th and early 20th centuries.

“The biggest possible constraint on Rockies gas supplies is that it is a federalized supply,” Williams said. “That has both consequences and constraints,” involving the federal Bureau of Land Management (BLM) and U.S. Forestry Service, and the sometimes onerous National Environmental Policy Act (NEPA).

NEPA has been used by environmental and other opposition groups to bring lawsuits against proposals to develop supplies on federal-controlled lands, Williams said. The federal law provides what Williams called a “huge potential” for blocking development of federal lands.

In assessing LNG’s future role, Dian Phillips, a Boston-based attorney with Holland & Knight, cited rising concerns in Mexico concerning the amount of potential LNG supplies that eventually might flow through its borders to the United States and a myriad of federal-local issues on siting LNG receiving terminals on the East and West Coasts.

Sempra Energy’s North Baja terminal, now under construction in Mexico, has the best chance of succeeding, Phillips said, but she is skeptical that it, or the other projects now in development will dampen rising wholesale gas prices as conventional wisdom now projects.

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