Department Of Interior


Remarks Prepared for Delivery
By The Honorable Gale Norton
Secretary of the Interior
Natural Gas Roundtable
July 22, 2003


Natural gas is making front page headlines, thanks to recent comments by Federal Reserve Board Chairman Alan Greenspan. Many of you have been hearing about a predicted natural gas shortage for several years. But Chairman Greenspan is like that television commercial for a financial firm, "When Greenspan talks, people listen."

Chairman Greenspan told Congress and the Nation three facts that you in this room know all too well, and they are:
" Natural gas demand is outpacing supply.
" Natural gas prices soared 75% in one year.
" Natural gas price increases are, to quote Chairman Greenspan, "a very serious problem" for the economy.

What Chairman Greenspan is reporting and what America is experiencing is what President Bush warned about long before he took office.


Because the shortfall between natural gas supply and demand could be 50 percent in 20 years, the President made writing a new energy policy one of the first priorities of his new Administration.

President Bush gave the order to chart a new course on energy policy. The Department of the Interior carries much of the responsibility to steer this policy into action. Interior-managed lands and waters produce about 1/3 of all domestic coal, oil, and natural gas.

I am here today to talk about the challenges we face in providing clean-burning natural gas, and to tell you about the energy work underway at the Department of the Interior.

You will be interested to know that when I leave here today, I will be going directly to meet with the House Natural Gas Task Force. Speaker Denny Hastert created this task force to develop, by September, legislative and administrative recommendations to address the natural gas crisis. So our conversation today is especially timely.

The current market for natural gas is characterized by high and volatile prices, low levels of gas in storage and flat domestic production in the face of growing demand.

We face a crisis because, as a nation, we have seen a sea-change in the use of natural gas. Some 56 million American homes are heated with natural gas today. Because of its air quality benefits, 90 percent of our new energy plants will be powered by natural gas.

I met yesterday with a dozen natural gas users to hear their concerns over the escalating natural gas market.

Obviously, natural gas price increases can have a dramatic impact on home utility bills. Natural gas bills in Indianapolis will increase 38 percent next month, as projected by the local power company.

Residential consumers in Central Ohio are paying nearly double what they were charged in June 2000. The poor and those living on fixed incomes are struggling to pay utility bills.

Farm groups told me that farmers are paying higher prices for fertilizer made with natural gas. Increased natural gas prices also make it more expensive to run irrigation pumps and heat greenhouses.

As large as the impacts are on farmers and on residential customers- I was most shocked by the long-term impact high natural gas prices can have on American factory workers. As you know, natural gas is the feedstock for many plastics and chemicals.

Industries built on using $2 gas, for both energy and raw material, sense disaster at prices 3 times that. One chemical company said it had laid off 20% of its workforce.

In the first quarter of 2003, another company said it paid over $1 billion more for natural gas than it paid in a similar quarter last year.

Long-term predictions of high natural gas prices are causing these companies to move natural gas-based manufacturing overseas, to places where gas is available at lower cost. Since 1998, 2 million manufacturing jobs have been lost, and energy costs are a major contributing factor. Thousands upon thousands more jobs may soon be permanently lost to American workers.

We need a reliable supply of natural gas to heat our homes, power our lives, keep our businesses operating in the black-and in America!

Whether we can produce enough natural gas to keep prices stable and reasonable is not a question of whether we are running out of resources.

The truth is America has plentiful resources of natural gas. At current consumption rates, the U.S. Geological Survey says there is a 50-year supply of technically recoverable undiscovered natural gas. More than half of this supply exists on lands and waters managed by the Interior Department. As I will mention later, there is the very real prospect that there is another source of U.S. natural gas that is even greater than current supplies.

With the existence of these ample supplies, our challenge is to implement reasonable policies for access, with economic efficiency and with full environmental protection.

Of course, Americans value a spectacular natural environment, just as they value a thriving economy.

As the President said in his National Energy Policy:

"We must work to build a new harmony between our energy needs and our environmental concerns. Too often, Americans are asked to take sides between energy production and environmental protection…as if the people who produce America's energy do not care about the planet their children will inherit."

"The truth is energy production and environmental protection are not competing priorities. They are dual aspects of a single purpose, to live well and wisely upon the earth."

Our national strategy includes not only enhanced supplies, but also conservation. That is why the Bush Administration this year imposed the greatest increase in fuel economy standards in 20 years for light trucks, vans and sports utility vehicles.

The President's hydrogen fuel initiative, international cooperation on a thermonuclear experimental reactor, and the FutureGen Project-a $1 billion initiative to design and build the first coal-fired, emissions-free power plant-are examples of what the future may hold.
Coal, oil, nuclear, hydropower and renewable fuels are also vital components.

Interior worked with the Department of Energy to produce the first government-wide report describing actions to increase renewable energy production and use on federal lands.

Environmental protection must accompany energy production. Let me share with you some factors that affect Interior's function as a land manager. We do extensive reviews under the National Environmental Policy Act and other laws in every case before we recommend development.

We do exhaustive land-use planning that involves input from all stakeholders. When environmental conditions warrant protection, we recommend no development or require special mitigation. We respect all moratoria on offshore oil drilling off our coasts. Where we do have off-shore production, a billion dollars of these revenues goes into the Land and Water Conservation and National Historic Preservation programs.

The reality is that once these extensive environmental reviews are complete they often trigger environmental litigation-no matter how rigorous and inclusive we have been. For example, in Utah, one environmental group automatically protests virtually every seismic test, oil and gas lease sale and application for permit to drill.

In Wyoming, appeals and litigation halted new leases in the Powder River Basin. Recently, a Federal judge ruled the BLM properly analyzed the environmental impacts on the leasing of coal bed natural gas, contrary to the claims of environmental groups. But, even winning a lawsuit costs time and taxpayer dollars.

Litigation is only one of many challenges we face.

In many cases, energy discoveries are smaller than previous reserves and are depleted more rapidly. The production rate per well is declining steeply. To maintain the existing supply of natural gas, more well completions are needed to offset declining production rates.

To provide energy today, energy producers have to look in more remote locations, using innovative technologies. Often these resources are in areas where there are other competing uses of the land.

So what is Interior doing to meet these challenges?

ACTION STEPS

First, we are implementing the President's National Energy Plan and Congressional directives.

We formulated and are now conducting our 5-year offshore leasing program for 2002 to 2007. This is estimated to make enough natural gas available to heat and cool all 56 million homes that rely on natural gas for a dozen years.

At the beginning of the year, we completed the Interagency study of oil and natural gas resources called for in the Energy Policy and Conservation Act.

The five basins we studied in the West contain enough natural gas to provide energy for those 56 million homes for nearly 30 years. The inventory looked at whether lands containing oil and gas are open or closed to leasing. It then examined the degree of constraint on development resulting from lease stipulations.

In the five basins, an estimated 63 percent of the natural gas is available under standard leasing stipulations and 12 percent of natural gas supply areas are cut off from leasing.

These stipulations, which are designed to protect the environment or wildlife, vary greatly between agency or state jurisdictions-even when the resource being protected is the same. We are now attempting to reduce redundancy and bring consistency to them, based on solid science.

But the Energy Policy and Conservation Act study only looked at the leasing stage. Often there are additional post-leasing restrictions attached to the applications for permits to drill. These may add time and costs to the development of natural gas. The National Petroleum Council is beginning an analysis of whether post-leasing requirements, effectively render additional areas closed to development.

There are some restrictions on access that cannot and should not be changed. For example, the large resource area in the Montana over-thrust belt is 82 percent off limits to energy development. The Bob Marshall Wilderness area represents about half that restriction. We will not explore, lease or drill in the Bob Marshall area because of its wilderness designation.

When an area is set aside as wilderness, it represents a societal consensus that no other use for that land can ever be appropriate. No matter how critically needed other uses might be, or how careful developers might be, all human development is banned. Because this approach is quite different from the constant balancing and responsive management of the multiple use approach, only Congress has the authority to designate areas for wilderness status.

A recent settlement agreement on wilderness between the State of Utah and the Interior Department-that has generated headlines-recognized this limitation on our administrative land management powers.

Another court case addressing Forest Service roadless areas reached the same conclusion. Federal district court Judge Clarence Brimmer held that,
"…Congress has the sole power to create and set aside federally designated wilderness areas…"

Rather than blanket approaches purporting to create administrative wilderness areas, we will consider wilderness characteristics along with other land characteristics, such as recreation or energy potential, in our land use planning process. Through a public involvement process, we hope to identify the best areas for energy and the best to protect for their natural beauty.

By 2004, we hope to complete nine land-use management plans that have energy potential throughout the five basins. These plans were highlighted in the National Energy Policy for priority review.

We also are working to reduce the backlog of applications for drilling permits on previously issued leases, especially in the Powder River Basin in Wyoming.

To move these permits forward, we are batching similar permits to be analyzed at the same time. In addition we will be forming teams of people from the BLM, the Forest Service and the President's Council on Environmental Quality to specifically address permit backlogs in that basin.

We are working with Congress to pass energy legislation to codify various incentives and common sense administrative reforms-and to expedite construction of a pipeline to deliver Alaska natural gas to the lower 48 states. Interior geologists estimate that enough natural gas is available on Alaska's North Slope to power those same 56 million homes for more than 30 years. We stand ready to efficiently process applications for this pipeline once decisions are made.

We are working with the Coast Guard and Department of Transportation to approve the first offshore ports for liquefied natural gas. Chairman Greenspan has highlighted the need for imports of liquefied natural gas to provide a "safety valve" against natural gas price spikes. The ability to obtain supplies from around the globe during periods of high demand would reduce price volatility in the United States.

Although we began taking action to enhance natural gas production in early 2001, most of our activities will take several years to bring new gas to market. As we contemplated the need for immediate supplies, one proposal emerged as the most likely to produce quick results.

We believe significant gas resources exist, more than three miles deep, below existing shallow-water platforms in the Gulf of Mexico. This is a technological frontier, but it can be accessed from existing infrastructure. To encourage exploration and rapid development, we are expanding royalty relief for this deep gas.

We estimate these deep underground formations could power our 56 million homes for 4 years, and production could start in 2005.

METHANE HYDRATES

Turning from our immediate needs to the longer term future, there is a new source of energy that may vastly expand our natural gas supplies.

It is called methane hydrates or gas hydrates. If you have not heard these terms, you soon will.

Methane hydrates are molecules of gas compressed and trapped in ice. You could think of it as frozen natural gas. Methane hydrates are found in permafrost and deep in the ocean.

Let me see if I can use some numbers to give you an idea of the staggering supplies of methane hydrates that may be ours to develop.

We estimate that the technically recoverable undiscovered natural gas in this country is roughly 1100 trillion cubic feet.

The estimate of total U.S. gas hydrates is 200,000 trillion cubic feet. That is over 175 times the amount of traditional natural gas. The estimates of the resource are calculated "in place" because we don't yet know what is recoverable.

With methane hydrates, we could have hundreds of years of natural gas supply.

Recently Kirk Osadetz of the Geological Survey of Canada said, "While Canada has significant conventional natural gas reserves and resources, the future assurance of abundant, environmentally friendly fuel for North America may ultimately rest with gas hydrates."

Total federal investment in methane hydrates research has been roughly $15 million a year since 2001. The National Methane Hydrate Research Program is a collaborative research and development effort among the Naval Research Lab, the National Science Foundation and the Energy, Commerce, and Interior Departments.

Industry has now completed a successful drilling program for hydrates in Canada's Mackenzie Delta and currently is drilling a hydrate prospect on the North Slope. The "Hot Ice" research well, located about 40 miles southwest of Prudhoe Bay, is drilling methane hydrates this year. The goal is to test the best tools and methods for drilling and recovering gas hydrate resources.

There are still many technological hurdles, but Interior's scientists are becoming optimistic about when this new source will become a real contributor to our energy future. Some expect production could begin within a decade.

The future may be a bright one. But we need to take action now to supply today's natural gas that is vital for our economy. I ask each of you to do three things.

First, commit to being great partners in the process of developing our nation's energy. The need to foster greater partnerships is apparent when farmers and ranchers, who own surface rights, have concerns about energy development on their lands. Split estate issues must be addressed.

Interior is tackling this issue by requiring good-faith negotiations with the private owners to reach a surface-use agreement. If an equitable agreement can't be reached, industry will have to post an additional bond to compensate surface owners for potential losses on their land.

Second, the Congress is considering energy legislation. The House-passed bill includes provisions that would enhance production of traditional sources of energy as well as renewables.

At this time, we are very engaged with the work of the Senate Energy Committee. We hope you will join us in urging Congress to act quickly on responsible legislation.

Third, think of yourselves not just as professionals working on all aspects of natural gas, but also think of yourselves as communicators. A recent study says that only one in eight Americans knows the primary fuels for electricity generation. Clearly we need to better educate Americans on the work you do.

There is a great story to tell about the technological advances you have made-from drilling in record depths in the Gulf of Mexico to using directional drilling to probe great distances from a single development site, to further enhancements in environmental protection mechanisms. Yet there are few examples of companies speaking out about the importance of energy to American jobs and families, and how technological innovation allows us to better protect the environment.

We prefer the spirit of partnership over the power of pressure. Working together we can provide the natural gas America needs.