[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
``THE ABILITY OF FEDERAL LANDS TO MEET OUR ENERGY NEEDS''
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
Tuesday, June 24, 2003
__________
Serial No. 108-32
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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Committee address: http://resourcescommittee.house.gov
______
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COMMITTEE ON RESOURCES
RICHARD W. POMBO, California, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana Eni F.H. Faleomavaega, American
Jim Saxton, New Jersey Samoa
Elton Gallegly, California Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland Frank Pallone, Jr., New Jersey
Ken Calvert, California Calvin M. Dooley, California
Scott McInnis, Colorado Donna M. Christensen, Virgin
Barbara Cubin, Wyoming Islands
George Radanovich, California Ron Kind, Wisconsin
Walter B. Jones, Jr., North Jay Inslee, Washington
Carolina Grace F. Napolitano, California
Chris Cannon, Utah Tom Udall, New Mexico
John E. Peterson, Pennsylvania Mark Udall, Colorado
Jim Gibbons, Nevada, Anibal Acevedo-Vila, Puerto Rico
Vice Chairman Brad Carson, Oklahoma
Mark E. Souder, Indiana Raul M. Grijalva, Arizona
Greg Walden, Oregon Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona George Miller, California
Tom Osborne, Nebraska Edward J. Markey, Massachusetts
Jeff Flake, Arizona Ruben Hinojosa, Texas
Dennis R. Rehberg, Montana Ciro D. Rodriguez, Texas
Rick Renzi, Arizona Joe Baca, California
Tom Cole, Oklahoma Betty McCollum, Minnesota
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
VACANCY
Steven J. Ding, Chief of Staff
Lisa Pittman, Chief Counsel
James H. Zoia, Democrat Staff Director
Jeffrey P. Petrich, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
BARBARA CUBIN, Wyoming, Chairman
RON KIND, Wisconsin, Ranking Democrat Member
W.J. ``Billy'' Tauzin, Louisiana Eni F.H. Faleomavaega, American
Chris Cannon, Utah Samoa
Jim Gibbons, Nevada Solomon P. Ortiz, Texas
Mark E. Souder, Indiana Grace F. Napolitano, California
Dennis R. Rehberg, Montana Tom Udall, New Mexico
Tom Cole, Oklahoma Brad Carson, Oklahoma
Stevan Pearce, New Mexico Edward J. Markey, Massachusetts
Rob Bishop, Utah VACANCY
Devin Nunes, California Nick J. Rahall II, West Virginia,
Richard W. Pombo, California, ex ex officio
officio
------
C O N T E N T S
----------
Page
Hearing held on June 24, 2003.................................... 1
Statement of Members:
Cubin, Hon. Barbara, a Representative in Congress from the
State of Wyoming, Prepared statement of.................... 1
Kind, Hon. Ron, a Representative in Congress from the State
of Wisconsin............................................... 4
Prepared statement of.................................... 6
Markey, Hon. Edward J., a Representative in Congress from the
State of Massachusetts, Prepared statement of.............. 13
Rehberg, Hon. Dennis R., a Representative in Congress from
the State of Montana....................................... 1
Souder, Hon. Mark E., a Representative in Congress from the
State of Indiana........................................... 20
Prepared statement of.................................... 21
Statement of Witnesses:
Bower, Dru, Vice President, Petroleum Association of Wyoming. 42
Prepared statement of.................................... 43
Eppink, Jeffrey, Vice President, Advanced Resources
International, Inc......................................... 23
Prepared statement of.................................... 31
Oil & Gas Journal article submitted for the record....... 23
Johnson, Arthur H., Chairman and Chief Executive Officer,
Hydrate Energy International............................... 32
Prepared statement of.................................... 33
Knopman, Debra, Associate Director, RAND Science and
Technology................................................. 35
Prepared statement of.................................... 37
Watson, Rebecca, Assistant Secretary for Land and Minerals
Management, U.S. Department of the Interior................ 7
Prepared statement of.................................... 8
OVERSIGHT HEARING ON ``THE ABILITY OF FEDERAL LANDS TO MEET OUR ENERGY
NEEDS''
----------
Tuesday, June 24, 2003
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Resources
Washington, DC
----------
The Subcommittee met, pursuant to notice, at 10:02 a.m., in
room 1324, Longworth House Office Building, Hon. Dennis R.
Rehberg presiding.
Present: Representatives Rehberg, Kind, Cannon, Gibbons,
Souder, Pearce, Bishop, and Nunes.
STATEMENT OF THE HON. DENNIS R. REHBERG, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MONTANA
Mr. Rehberg. The oversight hearing by the Subcommittee on
Energy and Mineral Resources will come to order. The
Subcommittee is meeting today to hear testimony on the recent
estimates of oil and gas resources on Federal lands and the
impediments to their development. Under Committee Rule 4(g),
the Chairman and the Ranking Minority Member can make opening
statements. If any members have other statements, they can be
included in the hearing record under a unanimous consent.
Mrs. Cubin regrets she cannot be here today. She headed out
to Wyoming this morning, so you get the junior varsity in
charge today, and I welcome you and thank you for giving this
opportunity to give an opening statement.
[The prepared statement of Mrs. Cubin follows:]
Statement of The Honorable Barbara Cubin, Chairman,
Subcommittee on Energy and Mineral Resources
The Subcommittee meets today to consider several pressing issues
surrounding the natural gas resource base on Federal lands and the
impediments to those resources. Last Thursday we examined the natural
gas supply situation and established that 1) a crisis is looming due to
a lack of supply to meet demand and it threatens jobs and the economy;
2) future supply shortages will have to be made up by domestic natural
gas supply; and 3) other fuels, such as our vast coal and geothermal
resources will have to be utilized to meet future energy demand.
We have vast natural gas resources in the U.S., about 1,400
trillion cubic feet in the U.S. and another 1,000 Tcf in North America.
This is enough natural gas to fuel our nation for over one hundred
years. But while we have adequate gas resources, it is becoming
increasingly difficult to access those resources, especially those on
Federal lands from which the majority of our future gas supplies will
come. Numerous impediments exist to developing oil and gas resources on
Federal lands.
In 2000, Congress passed the Energy Policy and Conservation Act, or
EPCA, which called for an inventory of oil and gas resources on Federal
lands and the impediments to leasing those lands for energy
development. The assessment is to be updated periodically to reflect
changes in the resource base and to the leasing impediments.
The results of the first round of that assessment, which surveyed
five major producing basins in the Rockies, was released last winter.
It inventoried approximately 138 trillion cubic feet (Tcf) of natural
gas resources and reserves on Federal lands in the Rocky Mountains. It
stated that about 60 percent of natural gas resources in the five
producing basins were found to be under standard lease terms. Another
40 percent are either off-limits to drilling or under such strict terms
as not to be economically feasible.
Several environmental groups responded to the release of the EPCA
study by stating that it showed that the Rocky Mountains are largely
open to oil and gas development. What the EPCA study really shows is
that an alarming percentage of the resources in the region are in fact
off-limits. Once a lease is obtained, it does not follow that
development is under way. EPCA does not currently address post leasing
restrictions such as the long and arduous process for receiving
drilling permits or rights-of-way. However, language was included in
H.R. 6, the energy bill that passed Congress earlier this year, that
would expand the EPCA study to include an analysis of post leasing
impediments and their impact on energy production.
Some environmental groups have objected to the methodology used in
the EPCA study, which studies technically recoverable resources. These
groups, in an effort to curb production of the natural gas resource,
have argued that such assessments should include economic factors and
should inventory economically recoverable resources only.
With grants from the Hewlett Foundation, RAND, a research and
development think tank, released an assessment of the economically
recoverable resources, rather than technically recoverable resources,
in the Greater Green River Basin. That assessment exposed some of the
flaws associated with making an assessment based on economics. For
instance, the RAND assessment classified Wyoming's Jonah Field as
``uneconomic,'' despite the fact that hundreds of millions of cubic
feet of economically viable natural gas are produced there each day.
Had the RAND assessment been done ten years ago, it would have shown
the vast gas reserves in the Coal Bed Methane play in Wyoming's Powder
River Basin not to be economically recoverable. In the future, the same
could likely be said for the Methane Hydrate resources in the Outer
Continental Shelf and below the frozen tundra of Alaska.
The bottom line is that we cannot pre-determine what reserves will
be economically recoverable in the future. That is a factor that
changes over time, from company to company, from process to process,
relying heavily on technological developments. The purpose of the EPCA
resource assessment is to give policy makers a look at the potential
resources on public lands and the impediments to their production.
The economics of resource development is determined by companies
and financiers. It is frightening to think that during a time of high
natural gas prices, hydrocarbon bearing lands could be theoretically
withheld based on economic determinations made by technocrats in
Washington. That's just down right bad policy, and does not serve the
American people.
I look forward to the testimony, and welcome all of our witnesses
today. I'd especially like to welcome Dru Bower, who is currently
serving as the Vice President of the Petroleum Association of Wyoming.
She is a fine woman and a dear friend.
______
Mr. Rehberg. The Subcommittee today meets to consider
several pressing issues surrounding the natural gas resource
base on Federal lands and the impediments to those resources.
Last Thursday, we examined our natural gas supply situation and
established that a gas supply crisis is looming, threatening
jobs in the economy. Future supply shortages will have to be
made up by increasing domestic natural gas supply and other
fuels such as our vast coal and geothermal resources will have
to be utilized to meet future energy demand.
The U.S. has vast natural gas resources--over 1.4 trillion
cubic feet in the U.S. and another trillion cubic feet in North
America. That is enough natural gas to fuel our nation for over
100 years. But while we have adequate gas resources, it is
becoming increasingly difficult to access those resources,
especially on Federal lands, from which the majority of our
future gas supplies will come. Numerous impediments exist to
developing oil and gas resources on Federal lands.
In the year 2000, Congress passed the Energy Policy and
Conservation Act, which called for an inventory of oil and gas
resources on Federal lands and the impediments to leasing those
lands for energy development. The assessment is to be updated
periodically to reflect changes in the resource base and the
leasing impediments. Last winter, the Department of Interior
released the results of the first round of that assessment,
which surveyed five major producing basins in the Rockies.
The study inventoried approximately 138 trillion cubic feet
of natural gas resources and reserves on Federal lands in the
Rocky Mountains. It stated that about 60 percent of natural gas
resources in the five producing basins were found to be under
standard lease terms, another 40 percent are either off limits
to drilling or under such strict terms so as not to be
economically feasible.
Several groups responded to the release of the study by
stating that it showed that the Rocky Mountains are largely
open to oil and gas development, but what the study really
shows is that an alarming percentage of the resources in that
region are, in fact, off limits. Once a lease is obtained, it
does not mean that development is underway. The Act does not
currently address post-leasing restrictions, such as the long
and arduous process for receiving drilling permits or right-of-
ways.
However, the House included language in H.R. 6, the energy
bill that passed Congress in April, that would expand the study
to include an analysis of post-leasing impediments and their
impact on energy production. Some environmental groups have
objected to the methodology used in the study, which studies
technically recoverable resources. These groups, in an effort
to curb production of the natural gas resource, have argued
that such assessment should include economic factors and should
inventory economically recoverable resources only.
With grants from the Hewlett Foundation, RAND, a research
and development think tank, released an assessment of the
economically recoverable resources rather than technically
recoverable resources in the greater Green River Basin. That
assessment exposed some of the flaws associated with making an
assessment based on economics. For instance, the RAND
assessment classified Wyoming's Jonah Field as uneconomic,
despite the fact that hundreds of millions of cubic feet of
economically viable natural gas are produced there each day.
Had the RAND assessment been done 10 years ago, it would
have shown the vast gas resources in the cold bed methane plate
in the Powder River Basin not to be economically recoverable.
In the future, the same could be likely said for the methane
hydrate resources on the outer continental shelf and below the
frozen tundra of Alaska.
The bottom line is that we cannot predetermine what
reserves will be economically recoverable in the future. That
is a factor that changes over time from company-to-company,
from process-to-process, relying heavily on technological
developments. The purpose of the Energy Policy and Conservation
Act Resource Assessment is to give policymakers a look at the
potential resources on public lands and the impediments to
their production.
The economics of resource development is determined by
companies and financiers. It is frightening to think that
during a time of high natural gas prices, hydrocarbon-bearing
lands could be theoretically withheld based on economic
determinations made by technocrats in Washington. That is bad
public policy and does not serve the American public well. We
are experiencing an energy crisis and must look at other ways
to develop enough energy to meet the demands of today. I look
forward to the testimony and welcome all of our witnesses
today.
The Chair will now recognize Mr. Kind, the Ranking Minority
Member.
STATEMENT OF THE HON. RON KIND, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WISCONSIN
Mr. Kind. Thank you, Mr. Chairman, and I want to thank Ms.
Watson for her presence and her testimony here today, as well
as the other witnesses. I do have a written statement I would
like to submit for the record at this time.
Mr. Rehberg. Without objection.
Mr. Kind. This, I believe, now is the tenth hearing that we
are having on natural gas supply in the country and also the
natural gas issue, which is fine. In fact, we have had about 20
hearings on just the energy policy over the last couple of
years, which is fine. I mean, these are very important issues
that need to be delved into, but we have heard a lot of the
similar type of testimony. We have covered a lot of the ground
over the course of the last couple of years with the various
hearings that we have had. And we know that there are tough
market conditions right now, but we also know that there are
market corrections taking place because of supply and demand
and price volatility, and that has always been the case, the
free-market system.
We know that we have infrastructure issues that need to be
addressed, permitting issues that need to be addressed, access
issues, and we are going to get into that a little bit in
today's hearing in regards to public lands. We have NIMBY
issues that need to be addressed. It would be interesting if
this Committee were to have a hearing on the West Coast of
Florida, for instance, and call the Governor down there to
testify in regards to their view of some of the drilling that
has been proposed off the coast of Florida and some of the
other sensitive regions around the country, and these are
important issues.
But in order for us, I believe, to develop a sustainable
long-term energy plan, we need to take a comprehensive
approach. Yes, natural gas is going to be an important piece of
that. It is a preferable piece of that, given it is one of the
cleaner-burning fossil fuels that are available, and we have
access to still more resources within our own country, but it
can't be the sole answer. I mean, there is going to have to be
a mosaic of different options available for the country in
order for us to develop greater energy independence and to wean
ourselves off from the dependence on foreign sources,
alternative and renewable energy supplies, biofuels and the
fuel of the future, fuel cell development.
I think we need to be much more aggressive in regards to
our energy policy, in regards to the incentives and the
investments that need to take place there, but natural gas is
the subject of the hearing today. We are going to be looking
forward to the testimony, but I just wish that we would have
more well-rounded, balanced approach to this discussion, and
this isn't a partisan issue.
I mean, we have heard a lot of conversations from private
landowners out West, from outdoor sports organizations, hunters
and fishermen alike who want to see us take a balanced approach
in regards to access issues involving the public lands. They
don't want to see the scale tipped too heavily on one side.
These are important issues. We will look forward to the
testimony today, but it is a little disingenuous when the Chair
last week claims that there is not a lot of interest on our
side on this topic.
We have been engaged in debate. We have tried to engage in
a meaningful dialog on it. People do come from time to time in
and out of these hearings when they take place. In fact, we had
five or six members last week that were here at least for part
of the testimony that took place, and yet the Chair somehow
found fit to level some criticism that more members weren't
here during the entire course of the hearing.
But we will look forward to Ms. Watson's testimony today,
as well as the other witnesses, and hopefully try to come up
with some further answers or maybe some new ideas on how we can
approach this issue. But unless or until this Committee, this
Congress in the country starts developing the political
leadership to do what we really need to do to become energy
independent, which is going to be good not only for our
economic growth potential, but in regards to foreign policy
implications.
We are going to be having more and more hearings with not a
whole lot being accomplished because of a single-set
ideological mind-set that we can somehow just drill our way out
of the situation we find ourselves in. Conservation and energy
efficiency has to be a part of the equation as well.
It was a little ironic that at the time the Vice President
was criticizing those who were advocating more energy efficient
and conservation approaches, given the high energy prices just
a couple of years ago, the State of California was approving it
with a 15-percent decline, in 1 month alone, on energy
consumption because of the energy price spike that they were
experiencing, and now we were discovering that there was market
manipulation giving rise to a lot of what took place in
California. But it showed the flexibility and the
responsiveness of the American people and what truly can be
accomplished if we develop this comprehensive energy framework
and don't become too fixated and too focused on just one aspect
of it.
So thank you, Ms. Watson, for your presence here today.
Thank you, Mr. Chairman. We look forward to the testimony.
[The prepared statement of Mr. Kind follows:]
Statement of The Honorable Ron Kind, Ranking Democrat,
Subcommittee on Energy and Mineral Resources
Today we meet for the tenth time to discuss natural gas issues. In
fact, we have had about 20 hearings on just the energy policy over the
last couple of years, which is fine. These are very important issues
that deserve scrutiny, nevertheless, most of the testimony has been
similar.
The Subcommittee has covered a lot of ground throughout the course
of these oversight hearings. We know that there are tough market
conditions right now, but that market corrections are happening because
of supply and demand and price volatility, which has always been the
case with the free-market system.
We know that there are infrastructure and permitting issues that
need to be addressed, and we will touch on those issues during today's
hearing in regards to public lands. There are also NIMBY issues that
need to be addressed. It would be interesting if this Committee were to
have a hearing on the West Coast of Florida, for instance, and call the
governor down to testify on his view of some of the drilling that has
been proposed off the coast of Florida and other sensitive regions
around the country. After all, these are important issues.
However, in order for us to develop a sustainable long-term energy
plan, we need to take a comprehensive approach. Granted, natural gas is
going to be an important factor in such a plan. It is a preferable
piece of the approach, given it is one of the cleanest-burning fossil
fuels that are available, and we have access to even more resources
within our own country, but it cannot be the sole answer. There must be
a mosaic of different options available for the country in order for us
to develop a greater energy independence and wean ourselves from our
dependence on foreign sources. Alternative and renewable energy
supplies, biofuels and the fuel of the future, fuel cell development,
must all play a role.
We need to be much more aggressive in regards to our energy policy
and the incentives and investments that need to take place, but natural
gas is the subject of the hearing today. We are looking forward to the
testimony, but I just wish that we could have a more well-rounded,
balanced approach to this discussion because this is not a partisan
issue.
We have been witness to conversations from private landowners out
West, outdoor sports organizations, and hunters and fishermen alike who
want to see us take a balanced approach in regards to access issues
involving public lands. They do not want the scale tipped too heavily
on one side. We look forward to the testimony today because these are
important issues, however, to be clear, it was disingenuous when the
Chair last week claimed that there is not a lot of democratic interest
on this topic.
The Subcommittee Democrats have been engaged in debate. We have
tried to engage in a meaningful dialogue on this subject. Members walk
in and out of these hearings when they take place. In fact, we had five
or six Members last week that were here for at least part of the
testimony that took place, yet the Chair somehow found fit to level
criticism that more members were not here during the entire course of
the hearing.
Regardless, we look forward to Ms. Watson's testimony today, as
well as the other witnesses, and we will try to come up with some
further answers, or maybe some new ideas, on how we can approach this
issue. But unless, or until, this Committee and this Congress begins
developing the political leadership necessary for achieving energy
independence, which will be good not only for our economic growth
potential but also in regards to foreign policy implications, expect to
see these issues persist.
We will hold more hearings with little accomplishment due to a
single-set ideological mind-set that believes we can somehow drill our
way out of our current situation. Conservation and energy efficiency
has to be a part of the equation as well. The Vice President criticized
advocates of energy efficient and conservation-oriented programs, in
spite of high energy prices just a couple of years ago. Even so, the
State of California, entrenched in a massive energy crisis, approved
efficiency measures that, in one month alone, resulted in a 15-percent
decline in energy consumption. The residents of California reflected
the potential of the American people to respond to adversity and what
can be accomplished if we develop a comprehensive energy framework to
avoid becoming too fixated and too focused on just one aspect of it.
So thank you, Ms. Watson, for your presence here today. Thank you,
Madame Chairman. We look forward to the testimony.
______
Mr. Rehberg. Thank you, Mr. Kind.
Ms. Watson, I know you understand the drill by now. You
have been here many times. Thanks for being in Montana last
week and your good work.
The timing light is in front of you. We have asked you to
give a 5-minute statement, and if you would please stand, raise
your right hand and repeat after me.
[Witness sworn.]
Mr. Rehberg. Thank you. You may proceed.
STATEMENT OF REBECCA WATSON, ASSISTANT SECRETARY FOR LAND AND
MINERALS MANAGEMENT, U.S. DEPARTMENT OF THE INTERIOR
Ms. Watson. Representative Rehberg and members of the
Subcommittee, I am pleased to come before you today to discuss
the findings of the Energy, Policy and Conservation Act, EPCA,
and what the Bureau of Land Management is doing to integrate
the inventory's findings into how oil and natural gas are
developed and natural resources are protected on Federal lands.
As you noted in your opening remarks, our Nation faces
great challenges in meeting its energy needs. Energy is the
cornerstone of our American economy. The fact is that we
consume more than we produce. We know that it is particularly
acute for oil. Right now we are importing 55 percent of our
oil. That is expected to grow to 68 percent by 2025.
Recently, we have had the issue of natural gas supply come
to our attention with the testimony of Chairman Greenspan.
Natural gas demand has grown. Typically, we have been able to
meet our demand, eighty-six percent of our demand from our own
domestic resources, and importing the rest from Canada. That
has now changed. The demand for clean-burning natural gas to
fuel electricity is growing. Ninety percent of the new power
plants will be run on natural gas. We expect that demand will
grow by more than 50 percent, but supply will only grow by 14
percent.
One solution that Chairman Greenspan talked about is again
turning to the solution of imports, and this time it won't be
imports from Canada because Canada is facing the same
challenges we are. We will be moving into a situation where we
have the same political and security challenges as we face in
oil with our natural gas.
This Administration believes that we need to protect the
quality of life in our country by increasing our ability to
produce more of our energy domestically and to close the gap
between the amount of energy we use and the amount we produce.
I have a poster up here that demonstrates the problem that
we face. The dark green line on the bottom shows the supply
curve, and you see it drastically declining for natural gas.
The light green demonstrates what we think we can produce
reasonably with the current development we have right now in
natural gas. The lighter color of yellow and the top line shows
the gap, the demand skyrocketing up, and that yellow gap
growing year-by-year that needs to be filled with Alaska gas,
imported LNG, and unconventional gas.
Chairman Greenspan highlighted the importance of natural
gas to our economy. He testified on that issue because he sees
it impacting our economic recovery and our economy. Just last
week, there was an article in the Wall Street Journal,
``Natural Gas Cooks the Chemical Sector''; New York Times,
``Short Supply of Natural Gas Raises Economic Worries.'' This
is a problem that should be a concern of all members.
But this energy challenge is not new, and in order to
provide for our energy needs, President Bush's national energy
policy did establish a comprehensive long-term energy strategy.
As Representative Kind suggested was needed, the President's
plan recognizes conservation, more efficient use of energy,
diversification of our energy supply, and increased production
of all domestic energy resources, renewable and nonrenewable.
This Congress directed us to perform the EPCA inventory, to
inventory our domestic oil and gas resources on Federal lands
and to identify any kind of constraints to their development.
The national energy policy supported the direction of Congress
and directed that this study be expedited.
The next poster shows the study areas, and we selected,
with the assistance of Congress, what five basins we would
begin our study with. And these five basins contained the
largest supply of oil and natural gas on shore. As you can see,
it is the Paradox/San Juan Basins in Colorado, Utah and New
Mexico; the Unita/Piceance Basins in Colorado; basins in
Wyoming and the Montanan Thrust Belt.
My time is rapidly running out, and I will just say that
what we are doing to integrate this is we have set up two
committees to integrate the EPCA information into both planning
and the issuance of applications for permit to drill. We expect
these two committees that we have set up internally within BLM
to come with specific guidance to BLM very shortly. Again, that
would be how we integrate this information into our planning
process and applications for permit to drill.
What the study found is that there is redundancy in lease
stipulations, and there is inconsistency, and those are the two
problems we are going to try and focus on to have the
restrictions on leasing, protect the resource values that need
to be protected, but not to overprotect them or be redundant
and inconsistent.
We found that as you looked at how restrictions were
applied, artificial jurisdictional boundaries would change the
restriction from one place to another. In other words, you had
the same elk herd. It was treated one way in Wyoming, the elk
herd was treated a different way in Colorado, and it was not
based on any resource protection need, but simply a change in
jurisdictional boundaries, and we want to remove some of that
confusion and treat the resource in a holistic way.
So thank you, and I will take questions.
[The prepared statement of Ms. Watson follows:]
Statement of Rebecca Watson, Assistant Secretary for Land and Minerals
Management, U.S. Department of the Interior
Madam Chairman and members of the Subcommittee, I am pleased to
appear before you this morning to discuss the findings of the Energy
Policy and Conservation Act (EPCA) Inventory and what the Bureau of
Land Management (BLM) is doing to integrate the inventory's findings
into how oil and natural gas are developed and natural resources are
protected on Federal lands.
As you know, our Nation faces a great challenge in meeting its
energy needs. Energy is the cornerstone of the American economy. We
consume much more than we produce; this is especially true for oil.
This imbalance causes us to rely increasingly on foreign oil. According
to the Department of Energy's Energy Information Administration (EIA),
we are currently importing about 55% of our oil from foreign sources--a
percentage that is expected to increase to 68% by 2025. Relying on
these foreign sources of oil make us dependent on unstable parts of the
globe, creates uncertainty and anxiety at home, and threatens our
quality of life.
Historically, we have been able to satisfy most of our natural gas
demand through the production of our domestic resources, and nearly all
of our imports come from Canada. We currently supply 86% of our own
demand. However, that is beginning to change as demand for clean-
burning natural gas to produce electricity continues to accelerate,
mature basins decline, and access to new basins fails to keep pace with
demand.
According to the EIA, over the next 20 years, U.S. natural gas
consumption is projected to grow by more than 50 percent, while
production, if it grows at the rate of the last 10 years, will grow by
only 14 percent. The EIA also projects an increasing need for natural
gas imports from Canada at a time when Canada's gas exports are
declining. Increased imports of liquefied natural gas (LNG) are an
important component of natural gas supply and, as Federal Reserve
Chairman Alan Greenspan recently pointed out, are likely to become an
even more important source of supply in the future.
We need to protect our economic and national security by increasing
our ability to produce more of our energy domestically, and close the
gap between the amount of energy we use and the amount of energy we
produce.
On May 21, 2003, Chairman Alan Greenspan testified before the Joint
Economic Committee of Congress and stated, ``I'm quite surprised at how
little attention the natural gas problem has been getting, because it
is a very serious problem.'' He also said, ``If on the one hand we have
encouraged, as we have, very significant growth in domestic demand for
natural gas--but are very readily constrained by our ability to
increase supply--then something has got to give, and what is giving, of
course, is price.'' More recently, on June 10, 2003, Chairman Greenspan
spoke before the House Committee on Energy and Commerce about the
natural gas crisis. Again, Chairman Greenspan warned Congress that
short supplies and rising costs of natural gas could eventually
contribute to ``erosion'' in the economy.
The energy challenge we find ourselves in is not new. In order to
provide for our Nation's growing energy needs, President Bush's
National Energy Policy established a comprehensive, long-term energy
strategy. The President's plan recognizes that conservation and more
efficient use of energy, diversification of our energy supply, and
increased production of all of our domestic energy resources--renewable
and nonrenewable--are critical to our energy future.
The National Energy Policy recognized the Congressionally-mandated
EPCA inventory of domestic oil and gas resources on Federal lands as an
important part of that strategy. The inventory identifies the oil and
natural gas resources in five energy-rich basins of the western United
States and analyzes the impediments to accessing those resources. The
National Energy Policy directed that the EPCA inventory be expedited
and that constraints to Federal oil and gas leasing be reassessed and
modified ``where opportunities exist (consistent with the law, good
environmental practice, and balanced use of other resources).'' The
National Energy Policy further directed that any reassessment of
constraints be conducted ``with full public consultation, especially
with people in the region.''
On April 18, 2002, BLM Director Kathleen Clarke testified before
this Subcommittee about the status of the EPCA inventory and the
methodology to be used in developing the report. The Departments of the
Interior, Energy, and Agriculture released the EPCA inventory in
January 2003. With the inventory now completed, the BLM is taking
several steps to ensure the report's integration into the land use
planning process, applications for permits to drill, and other use
authorizations.
EPCA Overview & Key Findings
As directed by Congress in the Energy Policy and Conservation Act
of 2000 (Public Law 106-469), the Secretary of the Interior, in
consultation with the Secretary of Agriculture and the Secretary of
Energy, initiated a national inventory of oil and natural gas resources
beneath Federal lands and the constraints that may limit the
development of those resources. The report, entitled ``Scientific
Inventory of Onshore Federal Lands Oil and Gas Resource and Reserves
and the Extent and Nature of Restrictions and Impediments to Their
Development,'' evaluated five areas in the West that contain the bulk
of the natural gas and much of the oil resources under Federal
management in the onshore United States.
The basins are: the Paradox/San Juan Basins in Colorado, Utah and
New Mexico; the Uinta/Piceance Basins in Colorado and Utah; the Greater
Green River Basin in Wyoming, Colorado and Utah; the Powder River Basin
in Montana and Wyoming; and the Montana Thrust Belt. These five basins
encompass nearly 104 million acres, 59 million acres of which are
managed by the Federal Government. The EPCA directed us to look at all
onshore Federal lands and, thus, the inventory includes lands managed
by the BLM, the National Park Service, the Bureau of Reclamation, the
U.S. Fish and Wildlife Service, the USDA Forest Service, and the
Department of Defense. It also includes split estate lands--those
privately owned lands where the Federal Government owns the subsurface
minerals. The EPCA inventory does not include American Indian lands.
These five basins contain the largest reservoirs of natural gas
after the Outer Continental shelf--almost 140 trillion cubic feet of
natural gas on Federal lands. According to the Natural Gas Supply
Association, some 56 million U.S. homes use natural gas. The amount of
natural gas on public lands in these 5 basins could satisfy the needs
of these 56 million homes for nearly 30 years. These same lands,
however, are also important for a variety of multiple uses, including
wildlife habitat, grazing, recreation, historical and cultural
resources, and renewable and nonrenewable energy and mineral
development. The EPCA study sought to address both dimensions of public
land oil and gas development--the resource values and the constraints
posed by other values.
In the inventory, the USGS analyzed undiscovered technically
recoverable resources. Technically recoverable resources are those
resources that are currently producible using existing technology. The
estimates do not address whether it is currently economically
profitable to recover these resources. The USGS resource numbers were
then added to EIA's proved oil and natural gas reserves for the United
States. Proved reserves calculations include consideration of current
economics. The EIA annually collects proved-reserve information from
operators. Thus, the EPCA inventory is more comprehensive than simply
using technically recoverable resources. The USGS estimates that it
will take approximately 2 years to determine economically recoverable
resources for these 5 basins.
The EPCA inventory further breaks these data down by the five
Basins identified above. The inventory next provides a basin-by-basin
comprehensive summary of the constraints to oil and natural gas
development resulting from various existing lease stipulations. The BLM
and the U.S. Forest Service supplied lease stipulation data, which was
then overlaid on the resource numbers using Geographic Information
System (GIS) technology. Some 1000 lease stipulations were classified
into 10 broad categories. It is important to note, however, that the
EPCA inventory only addresses the leasing stage and whether lands
containing oil and natural gas resources are open or closed to leasing,
and the degree of constraint on development resulting from lease
stipulations on open lands. The EPCA inventory did not address other
potential constraints to development that may result from the permit
process and other post-lease conditions of approval. These potential
constraints are the subject of the work of the White House Task Force
on Energy Project Streamlining, as created pursuant to Executive Order
13212, and the work of the National Petroleum Council, among others.
The key findings of the EPCA inventory are as follows:
In these 5 basins, an estimated 57 percent of the oil and
63 percent of the natural gas are available under standard leasing
stipulations, and only 15 percent of oil and 12 percent of natural gas
are totally unavailable. The remaining oil and natural gas are
available with increasing restrictions on development. Generally, land
that is completely closed to development contains comparatively little
oil and natural gas potential.
Within these five basins, the total estimated Federal
reserves and undiscovered technically recoverable oil totals 3.9
billion barrels (Bbbl), and the total estimated undiscovered
technically recoverable natural gas totals 138.5 trillion cubic feet
(Tcf). Of this amount, 2.2 Bbbl of oil and 86.6 Tcf of natural gas are
available for leasing with standard stipulations. Additionally, 1.1
Bbbl of oil and 36 Tcf of natural gas are available for leasing with
restrictions on oil and natural gas operations beyond standard
stipulations. The EPCA inventory also identified 0.6 Bbbl of oil and
15.9 Tcf of natural gas that is not currently available for leasing due
to pending land use planning or various prohibitions established by
laws, Executive Orders, or status as set by a land management agency.
While I have discussed our findings related to the issue of access
to oil and gas resources beneath Federal lands, from a management
perspective, there is an additional significant finding.
Numerous examples were found in which lease stipulations
were being applied inconsistently. These inconsistencies included
differences in protective stipulations that resulted from
jurisdictional boundaries--state line, agency boundaries, BLM Field
Office areas--rather than a resource protection need.
We found that requirements on oil and gas operators to protect a
resource could be significantly different between adjoining political
jurisdictions and agency management units. A seemingly arbitrary
invisible line could separate two entirely different management
practices for the same resource in the same setting. The reasons for
such differences in management practices were usually unclear.
Because BLM is the DOI bureau primarily responsible for
implementing changes as a result of the EPCA study, I'll now turn my
attention to what BLM is doing in response to the report. One of BLM's
first tasks is a review of such conflicting management practices for
similar resources in similar settings. Sound science has to be the
critical factor in the design of operating restrictions. Operators
should have a single prescription for a specific resource in a specific
setting throughout that setting regardless of how many state or
management unit boundaries that setting crosses. Prescriptions should
not change at invisible boundaries. We must define appropriate
practices for settings which may extend across numerous political
jurisdictions or agency management unit boundaries. Where appropriate,
we must incorporate those prescriptions in all of the management plans
for which the resource and setting occur.
As a result of the EPCA inventory, BLM is asking field managers to
look beyond the boundaries of their units to ensure that the
restrictions they impose on oil and gas operators for a specific
resource are similar, if not identical, to those imposed in neighboring
units with the same setting.
As noted earlier, our restrictions must be based on the best
available science. We must recognize the value of adaptive management.
That is, the ability to modify or adjust restrictions to ensure
adequate resource protection. We must determine whether or not our
prescriptions are effective without being overly restrictive. We must
respond to new scientific information and use it to make appropriate
changes to our prescriptions. This is the real promise of the EPCA
inventory. Consistency based on sound science will benefit both our
resources and our domestic oil and gas producers.
It is important to note that any reassessment of these restrictions
on oil and gas activities will occur in the public-land use planning or
legislative processes, both of which are fully open to public
participation and debate over the appropriate balance between resource
protection and resource development.
Integrating EPCA into Land Use Planning / Resource Use & Authorization
In accordance with the President's National Energy Policy, it is
the goal of the BLM to provide optimal access to the resources from the
public lands consistent with sound land stewardship principles and full
public involvement. The information developed in the EPCA inventory
will play an important role in advancing this strategy.
On April 3, 2003, BLM Director Kathleen Clarke issued guidance to
BLM State Directors regarding integration of the EPCA inventory results
into land use planning and energy use authorizations. Four EPCA
integration principles were transmitted to the field offices. They are:
1. Environmental protection and energy production are both
desirable and necessary objectives of sound land management practices
and are not to be considered mutually exclusive priorities;
2. The BLM must ensure the appropriate amount of accessibility to
the energy resources necessary for the nation's security while
recognizing that special and unique non-energy resources can be
preserved;
3. Sound planning will weigh relative resources values consistent
with The Federal Land Policy and Management Act;
4. All resource impacts, including those associated with energy
development and transmission, will be mitigated to prevent unnecessary
or undue degradation.
The BLM established two national teams led by State Directors to
develop strategies to integrate the EPCA inventory into the land use
planning and use-authorizations processes. The Land Use Planning Team
is responsible for developing guidance which will guide the BLM in
integrating EPCA into land use plans (especially those designated as
time-sensitive). In the long term, the team will be responsible for
looking at ways to improve the planning process and allow for
flexibility in making decisions which take into account current land
conditions and scientific knowledge. Additionally, the process
developed by the team will insure bureau-wide consistency in the
application of stipulations. The other team, the Resource Use
Authorization Team, is responsible for developing guidance that will
(1) direct how the EPCA results can provide flexibility and consistency
in the use of stipulation waivers and exceptions to facilitate oil and
gas development, where appropriate, and (2) use of the EPCA results to
improve communications with operators on the timing requirements for
Applications for Permit to Drill (APD) submissions as related to
seasonal restrictions and where the EPCA results can be used to
facilitate our APD streamlining efforts. The teams are proposing to
incorporate adaptive management principles using the most current
science and information available. Stipulations would be more outcome-
based instead of prescriptive. This means that the desired results
would be stated and various approaches could be utilized to accomplish
resource protection.
Finally, to ensure the successful and timely implementation of
these efforts and to stress the importance of using the EPCA inventory
as a key component of the President's National Energy Policy, the BLM
organized a national telecast for all BLM field managers on May 14,
2003. The telecast provided a forum to discuss the importance of this
effort and to explain how the BLM will fully integrate the information
in the EPCA inventory into the way the agency does business.
Additional EPCA Inventories
In consultation with the other Federal agencies that prepared the
first phase of EPCA, the BLM is considering the next phase of EPCA
inventories. Areas for study could include the Eastern Great Basin in
Nevada; the Bighorn Basin in Wyoming; the Wind River Basin in Wyoming;
and the Wyoming Thrust Belt.
Conclusion
Completion of the first EPCA inventory is an important step toward
implementing the President's National Energy Policy and improving the
way BLM does business. We look forward to working with the Subcommittee
as BLM continues to integrate the data from this and future EPCA
inventories into its management plans. Thank you for the opportunity to
testify before you today. I welcome any questions the Subcommittee may
have.
______
Mr. Rehberg. Thank you, Ms. Watson.
I guess I would like to dwell a little bit on the
difference between economically feasible and technically
feasible and have your opinion of the importance of the
distinction between the two and do you believe an assessment,
from this point forward, should dwell more heavily on technical
feasibility or is there a place for economic feasibility?
Ms. Watson. Well, I think that it is not an either/or
situation. First, in the EPCA study, we were directed, again,
in consultation with the committee, to look at technically
recoverable resources. We modified that by adding into USGS's
technically recoverable resources the EIA's proved resources.
So that is an element of economic recoverability that we laid
over our USGS resource numbers. So it gives us a little bit
more refined analysis.
Secondly, the problem with using economic reserves was
highlighted in your opening statement. Those are a snapshot in
time. EPCA was designed to be a planning tool, and for planning
you need to look out quite a long ways. And so we felt the
technically recoverable resources was what we were asked to do
and that they were the more appropriate technique.
At the same time, USGS is performing an economically
recoverable analysis, as they do always, and that should be
ready in about 2 years.
Mr. Rehberg. Do you feel enough has been done to consider
the post-leasing problems that exist, the delays or the
inability to get the projects going once they have been leased?
Ms. Watson. Well, I thank you for that question. It is
important to realize that the EPCA study focused only on pre-
leasing conditions, conditions at the lease, and it analyzed
some 1,000 different stipulations that exist and categorized
them into 10 categories and rated how open it was to leasing.
It did not address at all what happens at the post-leasing
stage.
And it is very important to realize that there is a lot, of
course, that happens at that stage. You have to continue to do
NEPA analysis. While you may have done a plan NEPA analysis,
you have to do a site-specific NEPA analysis. You have to do
cultural resource surveys, national historic preservation
compliance, Endangered Species Act compliance, consultation
with tribes over cultural resources, Clean Water Act permits.
So there are innumerable processes that take place afterwards.
This study did not analyze those.
There are two studies that I know of that are addressing
that: One is the President's Task Force on Energy Streamlining,
and more immediate will be the results of the National
Petroleum Council's Study on Post-Lease Constraints and Natural
Gas Supply that should be issued in September.
Thank you.
Mr. Kind?
Mr. Kind. Thank you, Mr. Chairman. Thank you, Ms. Watson
for your presence and your testimony here today.
Mr. Chairman, I would ask unanimous consent at this time to
have another member of the Resources Committee statement,
Representative Ed Markey's, submitted into the record at this
time.
Thank you.
[The prepared statement of Mr. Markey follows:]
Statement of The Honorable Edward J. Markey, a Representative in
Congress from the State of Massachusetts
Today the Subcommittee is examining the proposition that Federal
lands have the ability to meet America's energy needs.
We are going to hear a lot of numbers during the hearing. Let me
put the two crucial numbers before the Committee: 75 and 3. The former
is the percentage of global oil reserves that OPEC countries hold; the
latter is the percentage of global oil reserves that America controls.
No matter how much we produce from our Federal lands, we will not be
able to make up this gap.
But we can cause a lot of damage trying.
We have set aside Federal lands to protect our nation's resources.
Most are governed by the doctrine of multiple-use and despite
industries' claims, oil and gas development gets more than its fair
share of use. According to the Department of Interior's own study, 85%
of the technically recoverable oil and gas on Federal lands in the
Rocky Mountain region are available for development. Granted sometimes
these lands require environmental lease stipulations, but these are
mostly during the exploration stage and are seasonal in nature in order
to protect wildlife during critical times of the year. Furthermore,
even these basic stipulations are routinely waived if a company finds
them too onerous, removing what little protection wildlife might
otherwise enjoy.
There are some Federal lands that are too precious to disturb, but
much of our Federal lands has and will continue to be used for a
variety of activities, including oil and gas production. We have had a
number of hearings in which industry has been able to pose the
question: ``Why do we have put up with seasonal restrictions for
wildlife?'' This Committee should also be asking the corollary
question: ``What are the impacts to wildlife as a consequence of the
BLM's frequent waiver of stipulations designed for their protection?''
______
Mr. Kind. Ms. Watson, two areas to delve into.
You testified earlier we need to somehow close the gap
between the energy use, the energy consumption we now have and
the production that is available in getting that to market. I
am just curious as to whether or not there is an important role
for increased energy efficiency and conservation practices from
individuals to businesses alike for them to play a role in our
energy policy as well and where you see that fitting in.
Ms. Watson. Yes. As I said, the President's energy policy
looks at both domestic production and also conservation and
energy efficiency. If you look at the NEPA, it demonstrated
that industry has responded very dramatically with energy-
efficient techniques. Where we fall down is individually and
our need to address conservation in our own homes, in our small
businesses, in our driving habits, et cetera, and conservation
does play a role.
But I think what we need to be concerned about, as
policymakers, is that in the next 5 years, we have a very
critical natural gas supply shortage. Natural gas is key to
many of our fundamental industries. In Representative Markey's
State of Massachusetts, the chemical industry is a direct
employer and is a multi-billion dollar industry. And as these
articles that I raised pointed out, that industry is fleeing
our shores, and this is something that needs to be addressed in
5 years. And natural gas has to play a role because the plan is
to use natural gas to supply power.
Mr. Kind. I would agree with you. In fact, there was a lot
of outreach just a few years ago encouraging conversion to
natural gas, usually, because it is a cleaner burning fuel. And
a lot of individuals, through their homes and otherwise, made
that conversion. Businesses did as well, and now we face these
supply and demand issues, the price fluctuations, the urgency
that you are describing here today, but there has also been a
public campaign to do a better job of educating the general
public about increased efficiency and conservation.
Is enough being done in that area or do we need to ramp up
efforts, as far as public education, in regards to conservation
practices, and things that can empower individuals to have a
little bit more control over this?
Ms. Watson. I think that education on the energy issue is
critical. I received a study in my office this fall that is
entitled ``Energy IQ,'' and it basically shows Americans flunk
knowledge of energy, where it comes from, what we use it for,
the role of conservation and efficiency, and just how important
it is to economy. And it is fundamental, and there is a great
deal of information that should, and could, be imparted on all
issues, whether it is conservation, natural gas, renewables.
There is a need to educate the American public, and again I see
that as a role for policymakers, people in industry, in our
schools. It is something we haven't done and we need to do.
Mr. Kind. Do you have any ideas? Has your idea been
focusing on this, what type of public outreach campaign might
work?
Ms. Watson. We have been talking about it. I try to do that
personally when I speak to groups. I have been focusing on this
issue for the last 18 months. I have been working with
Assistant Secretary Mike Smith at the Department of Energy, who
is the assistant secretary over fossil fuels. This is a
particular area of expertise and love of his. He did it
effectively in Oklahoma, and I have been trying to work with
him on ideas he has that are principally focused on schools.
Mr. Kind. Well, we would certainly like to work with you
further on that. If you have any ideas that you want to share
with us, this Committee, what we might be able to do, as far as
policymakers to extend the outreach and the information
available to the general public, I think it is crucial,
especially there will be a more receptive audience if these
price issues continue in the future. It seems the public is
very responsive to the price fluctuations, and will be looking
for some answers.
Yes, we have the supply issue that we are dealing with
primarily in this hearing, but also the demand, and the
consumer issue, too, that I think needs to be focused upon.
Let me just ask you quickly in regards to the permitting
process. There are a lot of the public lands currently
available for development for exploration. I think somewhere as
much as 85 percent of the Rocky Mountain basin area is
currently available for development for exploration. I think
somewhere as much as 85 percent of the Rocky Mountain Basin
area is currently available for exploration, but we have taken
testimony in the past, heard from various industry officials
that the permitting process could be streamlined or made more
efficient. Is this just a matter of resources and additional
personnel that is needed in this area or are there other things
that we need to be looking at?
Ms. Watson. I think, in part, it is always a question of
resources, how many people you have to attack a problem. But I
think more fundamentally is we have so many multiple layers of
both State and Federal, and in some cases now tribal laws, that
address many of the same resource questions and how do you
coordinate the permitting process.
I remember being involved in a project where we prepared a
huge chart with velcro tags about how we would do the historic
preservation consultation, the ESA, the Clean Water permit,
various other State requirements in the right sequence, so we
would end up at the right time with all of our permits in order
when the EIS was finished. It is not easy, and I think that is
an area that the Bureau of Land Management has focused on. Just
in April, they have issued five instruction memorandum on how
to better coordinate some of these permitting processes. But I
think more can and should be done.
Mr. Kind. Great. Thank you.
Thank you, Mr. Chairman.
Mr. Rehberg. Mr. Gibbons?
Mr. Gibbons. Thank you very much, Mr. Chairman. And,
Secretary Watson, welcome to the Committee. We are happy to
have you here testifying in front of us.
During the energy crisis in California about 18 months ago,
there was of course a move to look for alternative energy
capability; in other words, production of electrical energy in
California by building natural gas-fired electrical plants.
In the State of Nevada, California came over to Nevada
looking for sites to locate these gas-fired electrical plants
in Nevada because they could not or would not permit them in
California. Obviously, it was impermissible to pollute the air
of California, so they came to Nevada looking for that.
The real problem was not the fact they could not find a
site to locate it. The problem was they did not have the
capacity in the gas pipeline to deliver the gas needed to fire
the gas-fired power plants for California. One of the issues,
of course, is how are we going to address the issue of
distribution and the logistics of moving gas around the country
once it is discovered? Because if the demand is growing,
capacity in our pipeline system needs to grow commensurately to
supply those areas. What are your suggestions with that?
Ms. Watson. Well, this is actually under the purview of
FERC, these larger pipelines, but it is also a function of
individual companies confidence in the natural gas market for
them to construct the gathering pipelines. And our role as
Bureau of Land Management is granting rights of way for those
pipelines, and that is something we work on again to be more
efficient. The White House has a task force on infrastructure,
building that necessary infrastructure, and it is really a
problem that faces not just natural gas, but also renewable
energy.
How do you distribute the power to where it is needed? Much
of it is produced in areas that are low population, yet it is
the population centers on the East and West Coast that need the
energy. So you have highlighted a good problem, and I think
FERC feels that it is working toward getting the necessary
pipeline infrastructure there, but we need a response from the
natural gas industry to build the pipes to connect up with
those pipes.
Mr. Gibbons. Let me ask how long it takes today to permit a
drilling operation for natural gas. What is the length of time
a company comes in, makes an application to do a drilling
permit to the point of time that that permit is issued by the
Bureau of Land Management?
Ms. Watson. It is a complicated issue, but the simple
answer is it could be as little as 30 days or it could be
longer than a year. I think if you look at the Powder River
Basin, you see that before any wells could be permitted, they
had to go through a 2-year plan NEPA process. That NEPA process
is completed, and immediately five lawsuits were filed.
Then, you have your individual NEPA compliance and
permitting for these individual wells. So it could be any
amount of time, but at least the quickest would be 30 days.
Mr. Gibbons. Yes, but it is not likely that you would get
one in the say, say, Rocky Mountain region, where there is a
natural gas supply, issued within 30 days, is it?
Ms. Watson. I think in some places in Wyoming, especially
at the Buffalo Field Office that they are sort of the center of
some of these APD processing streamlining techniques, and they
have been able, with additional resources and streamlining
techniques, to increase the speed. We do have a backlog of
permits, but we have reduced that, and so you can't get around
the fact that post-leasing there are permitting hurdles, time
delay, money to wind your way through that process, and it can
add a lot of time, which adds uncertainty to investment.
Mr. Gibbons. Let me ask one final question before my time
is up. In looking at the fact that Alan Greenspan has
indicated, among others, including the industry, that there
will be a natural gas shortage sometime this winter, what is
the likelihood that if everything went swimmingly, everything
was on time, that you could actually bring on-line, with the
current regulatory system that we have, the needed gas supplies
to solve the gas crisis that is pending or predicted for the
end of the year? What is the likelihood of that?
Ms. Watson. I think the likelihood, under the current
regulatory structure, is very challenging. To up demand in the
time that it is needed by the winter with the current structure
that we have, I think that would be difficult.
Mr. Gibbons. Thank you.
Mr. Rehberg. Mr. Pearce?
Mr. Pearce. Thank you, Mr. Chairman.
I appreciate that we are engaged in one of the discussions
that is most difficult to balance; that is, the need to
preserve our environment and the lack of desire to see people
suffering from the inability to pay the heating bills, that we
need a reasonable price. Even our entire economy, as Ms. Watson
has suggested, is based on affordable energy, and so constantly
that balance between our environmental needs and the needs of
people have to be balanced.
As we deal with BLM in our State, we find that one of the
great impediments is that no matter what the rules say, that
the lowest level of bureaucrat can intercede and stop an entire
process, sometimes without legal standing, sometimes without
regulatory standing, and I just wonder what the management does
in those circumstances where projects are held up, where the
desires of the upper-level management are just ignored. What
does the BLM do?
Ms. Watson. Well, I think that is something I am concerned
about. I can tell you that in the Washington office, Kathleen
Clark, at the BLM, and I, and other policymakers have been
working very hard to come up with these instruction
memorandums, to address some of these permitting problems, also
to address conflicts with surface estate and mineral estate.
And we intend that the lowest level of the bureaucrat, as
you describe it, would implement those, and one of the things
Kathleen and I were just talking about on Monday was that we
want to have a conference, and we want to personally involve
all of our field staff in that and make it very clear that
these instruction memorandums are to be followed, that they are
not optional, as was reported recently in some of the trade
press. That is a concern of ours. We take a lot of time and
thoughtfulness to come up with policies that we think will
address problems on either side of the issue, and we intend
that they be implemented.
Mr. Pearce. I think that in the case of the instruction
memorandum, there is concern what happens to them after you
issue them. What are you finding does happen to those
instruction memorandum? Because the feeling among people who
have to deal with it on the other side of the issue is that
they are very arbitrary and that they can be ignored. So what
do you find, as a management person, is occurring with an
instruction memorandum?
Ms. Watson. Well, that issue was highlighted for me this
week in the Public Lands newsletter. I read it there, and I
immediately talked to Kathleen Clark about that issue. Again, I
intend to make it clear to BLM that these instruction
memorandum are not optional, that they are directives from the
Director, and that they are to be implemented. There seems to
be some confusion that they are optional, and that is not how
we view instruction memorandums. They are guidance that is
binding on BLM employees, and I was troubled when I read that,
and I plan to address it.
Mr. Pearce. Do you foresee any particular management
action? And the reason I ask this is because the greatest
complaint I have from constituents in the West, we have a lot
of constituents, about 60 percent of our land is publicly
owned, and we have a lot of constituents who always interact
with Government officials, Fish and Wildlife, Forest, BLM, and
it is the arrogance, it is their ability to walk away from any
rule, any common sense that really offends people and is
causing the inflammatory things that happened last year in
Klamath Falls.
Even the Government employees who fabricated the entire
story about the lynx, wherever that deal came, Fish and
Wildlife, my question to their highest level of supervision
was, ``Exactly what did you do to those people? Did you give
them a cut in pay? Did you bump them down a personnel category?
Did you transfer them? What exactly did you do to these people
that fabricated a hoax that was really intended to cause great
difficulties?''
And my question I guess to you, as my time wraps up, is
what management things can we look back a year from now and say
that the BLM did take some actions so that the arrogance of the
lowest-level employee who wanted to just ignore orders, who
wanted to just implement their own desires, what management
action a year from now can I say, ``Well, I heard that in
Committee, and then it came about''; what do you foresee?
Ms. Watson. Well, I can just tell you, again, I had this
conversation with Kathleen yesterday at lunch. We made a
decision together that we are going to hold a conference
involving the lowest level of field managers to discuss this
very issue and indicate that these directives will be followed,
and then I will look to Kathleen to enforce the fact that they
be followed, and how she does that will be something that we
will discuss, but I take it very seriously.
Mr. Pearce. Thank you, Mr. Chairman.
Mr. Rehberg. Mr. Nunes?
Mr. Nunes. Thank you, Mr. Chairman.
Last year, the BLM issued an instruction memorandum on the
statement of adverse energy impact, and due to some confusion
in the field, BLM indicated it would put together additional
guidance as to how to prepare such a statement, and the
Committee was wondering what is the status of this guidance.
Ms. Watson. I think, unfortunately, it is still underway. I
think the same personnel that would be addressing that have
been addressing this EPCA study, completing the some 43 tasks
under the national energy plan and then developing these five
APD instruction memorandums, and the instruction memorandum on
surface owners. We are also looking at instruction memorandum
on bonding, some of the issues out there, and we have not
followed up as rapidly as we would have wished on the statement
of adverse energy impacts.
But I see that as a topic that I would like to include in
this conference that I mentioned to Representative Pearce,
where we bring together the oil and gas field staff, and we
will see if we can address the confusion in the meantime.
Mr. Nunes. So at what point do you think we could assume
there would be some type of resolution to this issue? Can you
give me a date?
Ms. Watson. I think what staff has advised in the first
part of the next fiscal year, so late fall.
Mr. Nunes. Late fall?
Ms. Watson. That is what I have been told. I don't have any
personal knowledge of it, but--
Mr. Nunes. Thank you.
I have no further questions, Mr. Chairman.
Mr. Rehberg. Thank you.
A couple of follow-up questions if I might. The APO is
supposed to, by statute, take 30 days. Currently, I believe, if
my numbers are correct, were about over 3 months beyond that
time for the permitting process. I guess my question is what
specifically are you doing administratively that will, in fact,
shorten that timeframe.
Ms. Watson. Well, we came out with instruction memorandum
and revisions to existing guidance that provide for batch
processing. Rather than looking at it well-by-well, we will
look at a pot of wells and analyze the cultural resource
issues, the NEPA issues, and the Endangered Species Act issues
as a group. That will add a lot of efficiency to it and will
also give us a better ecosystemwide view.
Rather than a snapshot of one well, look at it in an
ecologically significant manner. So that we think we get some
efficiencies, and we get a better job by doing that, and we
have added better guidance for conditions of approval for
permit applications, and we have revised the on-shore oil and
gas order. It was quite dated, the language was dated, some of
the provisions needed to be made more clear, and again all of
those things should help.
We are looking to Centers of Excellence, and one of the
Centers of Excellence is the Buffalo field office in Wyoming.
They have processed a number of permits. They have had to deal
with the high volume, and they have come up with some good
efficiencies, and that formed the basis, from the field level
up, on how we can do things better. I think the White House and
others are looking at further steps yet on improving
processing.
Mr. Rehberg. Based upon all of that, then, can you give us
a best estimate a year from now, agencywide, what will the
timeframe be? Will it be 30 days? Can we get an assurance that
the APO process will take, from start to finish, a 30-day
limit?
Ms. Watson. I am a lawyer. I would never give such an
assurance. No.
Mr. Rehberg. You are also under oath.
Ms. Watson. I am under oath, that is right, and I don't
think I could give you that assurance. I think there are too
many unknowables. I think that that is a goal we strive for,
but as I said, the permitting process is incredibly complex,
and there is, as you know, opposition, and there is many
opportunities for people that are opposed to oil and gas
development to express that opposition through appeals and
through litigation. All of that can add time, and delay, and so
I don't think we can provide that certainty.
But are we aware of the problem of delay? Are we taking
steps to address it? Yes, we are.
Mr. Rehberg. If there was one thing that you could wave
your wand and get a bill passed through Congress that would
make that process simpler, what would you suggest we do or do
you have the tools in place already, and it is just a matter of
administratively working your way through the glitches and
making it more efficient?
Ms. Watson. I think there is a lot we can do
administratively. I think it is a very difficult challenge
because natural gas is part of our quality of life, but
likewise environmental values are part of our quality of life.
Those environmental values are expressed through enumerable
statutes. Many times they add layers of complexity and
confusion.
The best thing I think industry would probably tell you is
if there would be some way to have a better-coordinated process
to make those permitting decisions more efficient. Much of the
same information is required in some of the other permit
requests. You could reduce duplication that way, but it is a
result of many value decisions that have been made over the
years, and then how you coordinate them and get them addressed
in a meaningful timeframe is the difficulty.
Mr. Rehberg. Can you give me an indication, and this is my
final question, of when the coalbed methane memorandum will be
finalized and published?
Ms. Watson. I believe that that will be done late this
summer. We are actually addressing it this week. It is being,
again, developed from the field from the bottom up, and then it
will be reviewed in the Department and we anticipate by late
summer.
Mr. Rehberg. Mr. Souder?
STATEMENT OF THE HON. MARK E. SOUDER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF INDIANA
Mr. Souder. Thank you, Mr. Chairman.
I wanted to just make a brief comment to take this back as
you meet with your lower-level employees that you were talking
about and, in general, in BLM and for the record. I am not a
Westerner. I represent an area in Indiana. We use the natural
gas, and I am being informed by our companies that we are going
to have another huge increase this winter. people who can ill
afford those increases at a time of economic slumps, and it is
extremely irritating to listen and hear about the roadblocks in
developing natural gas, when people were told that this was the
direction to go.
It was the suggestion that companies and individuals should
move toward this because it is a better form of energy, and
then to have some of the people who tried to argue that it was
a better form of energy hold up that development in the United
States is extremely irritating to those of us in the Upper
Midwest and the Great Lakes Region.
We also constantly hear about American jobs moving
overseas. What kind of pressure is this going to put on the
industrial belt of the United States if they see production
costs which are, in my area, were second or third in foundries,
were fifth in steel? We make all sorts of automobiles, trucks,
SUVs, parts for all kinds of industrial America, of which
energy is one of the most expensive costs in that, that when
they hold up the ability for us to get reasonably priced
natural gas, and oil, and other forms of energy, whether it be
in the coastal zones, whether it be in the mountain zones or
other places, what they are doing is either increasing the
energy costs and the product costs of every American through
these delays and blocks or they are pushing those jobs
overseas.
And many of the same people who we constantly hear say,
``Well, everybody can't work at McDonald's.'' Well, this is one
way to make sure that everybody either is going to work at
McDonald's or nowhere if you push American industry overseas
because we don't have the ability to meet our energy capacities
here in the United States because of our cost of delivery
systems.
And it is not just the actual getting it off the ground. It
becomes a pipeline in the refineries and everything else, as
well, and we have to get a handle on this. And the anger level
this coming winter from the industrial belt, from the
homeowners and the manufacturers, is they potentially have to
simultaneously lose their jobs and be laid off, and not be able
to make their home heating payments.
And if this is going to continue a number of years, I think
the political consequences of this are out down a couple of
years, and I hope people understand the anger level that is
going to hit by the inability to have planned ahead. And I say
that as a nonproducer State. I have a totally different agenda
than most of them here, but we have the same common interests.
With that, I yield back.
[The prepared statement of Mr. Souder follows:]
Statement of The Honorable Mark E. Souder, a Representative in Congress
from the State of Indiana
Madam Chairman: I want to express my appreciation for your calling
this timely series of oversight hearings on natural gas. One aspect of
the natural gas problem we are facing is an emerging one: getting
needed gas pipeline infrastructure into the ground and then delivering
gas to expanding markets. It has come to my attention that Coastal Zone
Management Act (CZMA) consistency challenges to interstate gas pipeline
projects already determined by the Federal Energy Regulatory Commission
(FERC) as required ``by the public interest'' are now impeding the
certainty and timeliness necessary to get needed gas pipelines into the
ground, and operating.
As you well know, since the late 1980s, certain coastal States have
increasingly used ``CZMA consistency determinations'' to thwart energy
projects involving leasing, exploration and production in the Federal
Outer Continental Shelf (OCS). These environmentally-evaluated energy
projects would provide consumers needed oil and gas resources owned,
not by those objecting coastal states, but by all Americans. Yet many
exploration projects have been cancelled, due to costly delays and
uncertainty while the appeal record in controversial cases remained
open at the National Oceanic and Atmospheric Administration (NOAA) for
years.
Now, the CZMA ``consistency'' process has entered a new, disturbing
phase. Coastal States are attempting to block two interstate natural
gas pipeline projects that would cross the coastal zone, even though
FERC approved those projects after multi-year, comprehensive
examinations. Under the Natural Gas Act and NEPA (National
Environmental Policy Act), Congress long ago directed FERC to decide
licensing of interstate gas pipelines, only after preparing full
environmental impact statements (EISs). FERC's congressional mandate is
to consider fully coastal impacts, and public, state and relevant
Federal agencies' participation and consultation under current Federal
law. FERC must also evaluate in detail the need for the projects,
alternative routes, and explain its analysis as part of its written
decision. Congress mandated FERC's preemptive jurisdiction to authorize
gas pipelines over 60 years ago, and the Supreme Court has upheld
FERC's authority many times.
I must note that FERC has had a very good track record in the
courts defeating challengers contending that its decisions to approve
pipeline routes were somehow not well supported, unnecessary or
environmentally defective. But now, significant new gas infrastructure
that FERC has determined is critically needed to heat homes and
generate clean-fired electricity is on hold at NOAA due to these CZMA
``consistency appeals.''
Numerous congressional directives in the CZMA, which, of course, is
within the jurisdiction of the Resources Committee, mandate
decisionmaking efficiency, coordination and consultation among Federal
and state agencies with an interest in a project affecting the coastal
zone. However, the CZMA unequivocally states: ``Nothing in this chapter
shall be construed...as superseding, modifying, or repealing existing
laws applicable to the various Federal agencies'' (6 USC Sec.
1456(e)(2)).
In enacting the CZMA, Congress imposed an important limitation on
States in conferring participation and consultation regarding Federal
activities affecting States' coastal zones. In encouraging ``'timely
and effective notification of, and opportunities for public and local
government participation in, coastal management decision making'' (16
USC Sec. 1452 (2)(H)), Congress did not give a coastal State the power
to block proposed Federal permit activities in interstate commerce that
could affect a State's coastal zone.
Congress limited a coastal State's challenge of a proposed
Federally-permitted activity to be consistent, to the greatest extent
practicable, with the ``the enforceable policies of the state's
approved program'' (6 USC Sec.1456(c)(3)). Yet, in CZMA consistency
challenges, States have requested that NOAA conduct more scientific
studies, hold additional public meetings, and consider alternative
pipeline routes once again. That is hardly the ``coordination and
simplification of procedures in order to ensure expedited governmental
decision making for the management of coastal resources'' that Congress
declared must be a CZMA imperative (16 USC Sec. 1452 (2)(G)).
The glaring fact is that when NOAA considers a state CZMA
challenge, FERC has already conducted exhaustive multi-year hearings,
public town hall meetings, and comprehensive scientific, engineering,
and environmental reviews, all with the participation of the affected
coastal States, and all Federal and state agencies with
responsibilities for particular aspects of the proposed pipelines.
FERC's detailed examination must range from wetlands and endangered
species, to coastal zone impacts, Environmental Protection Agency (EPA)
Clean Air permits, and Corps of Engineers Clean Water Act permits.
The type of delay caused by NOAA's view of its appeal mandate can
cause needed energy projects to be cancelled, as litigation costs and
large amounts of capital allocated to these projects remain idle, or
are directed elsewhere due to lengthy uncertainty. And all of this
delay and redundancy provides no additional environmental benefits,
since all had already been fully considered at FERC, the lead Federal
agency that prepared and defended the environmental impact statement as
part of its evaluation.
If opponents of an energy projects believe the environmental data
does not support the project, they have the right to challenge the
reasons for the decision in court. But opponents cannot insist that a
CZMA consistency record remain open, killing needed energy projects
through lengthy time delays.
______
Mr. Rehberg. Ms. Watson, thank you for your testimony, and
I will, at this time, call up Panel No. 2.
Ms. Watson. Thank you.
Mr. Rehberg. Good morning. Welcome. By way of introduction,
Panel No. 2, Jeffrey Eppink, Vice President, Advanced Resources
International, Inc.; Art Johnson, Chairman and CEO, Hydrate
Energy International; Debra Knopman, Associate Director, RAND
Science and Technology, RAND; and Dru Bower, Vice President,
Petroleum Association of Wyoming.
Now, that you are all comfortably seated, would you please
stand. Raise your right hand.
[Witnesses sworn.]
Mr. Rehberg. Thank you. Please be seated.
Again, I will remind the folks that we have a 5-minute rule
here on your testimony. The lights indicate the time available.
I believe it is yellow when it is like wrap it up and red when
you are a done deal, and if you would please respect that as
closely as you possibly can.
We will begin with Mr. Eppink.
STATEMENT OF JEFFREY EPPINK, VICE PRESIDENT, ADVANCED RESOURCES
INTERNATIONAL, INC.
Mr. Eppink. Good morning, Chairman Rehberg and members of
the Subcommittee. My name is Jeffrey Eppink. I am a vice
president with Advanced Resources, International, an energy
consulting firm based in Arlington, Virginia.
At Advanced Resources, we have conducted a number of
Federal lands assessments in recent years. Under the guidance
of a Federal steering committee, Advanced Resources conducted
the EPCA inventory, and consequently we have a solid
familiarity with its strengths and weaknesses.
Published in yesterday's Oil and Gas Journal is an article
concerning the inventory that I, along with BLM, DOE and four
service colleagues wrote. I would like to submit a copy of that
article for the record.
[The Oil and Gas Journal article follows:]
Oil & Gas Journal Article Submitted May 2003
By:
Jeffrey Eppink
Vice President
Advanced Resources International, Inc.
William Hochheiser
Manager, Oil and Gas Environmental Research
Office of Fossil Energy
U.S. Department of Energy
Richard L. Watson
Physical Scientist
USDI-Bureau of Land Management
Dean Crandell
U.S. Forest Service
Minerals and Geology Management
Federal Lands Access in the Rockies: Is the Glass 40% Empty or 60%
Full?
As the nation's energy needs grow, basins in the West have been
identified as a significant future supply source to help meet these
needs, especially for natural gas. Of the 23 tcf of natural gas that
the U.S. uses annually, about 4 tcf are imported. The Energy
Information Administration (EIA) in its Energy Outlook 2003 projects
that the demand for natural gas will raise to about 35 tcf by 2025.
Basins in the Rocky Mountains represent the second largest natural gas
resource in the United States after the outer continental shelf and can
help meet this demand. While the resource base in the West is
substantial, it is dominated by unconventional natural gas, primarily
tight sands and coalbed methane.
At the same time, the Rocky Mountain region is one where multiple-
use interests and environmental concerns often intersect. Multiple uses
of the Federal lands, including grazing, forestry, recreation, wildlife
habitat, open space, wilderness, rights-of-way, often conflict with
exploration and production. The restrictions and leasing stipulations
that govern access to Federal lands in the region are a patchwork of
requirements that can act to increase costs and delay activity. Access
restrictions range from areas unavailable for leasing, to areas where
leasing can occur although the land surface cannot not be occupied, to
limitations on drilling activities due to a variety of environmental
considerations.
NPC Assessment
In their landmark 1999 study 1 the National Petroleum
Council (NPC) provided a first-time assessment of natural gas resource
impacts associated with Federal land use designations and related
environmental stipulations in the Rocky Mountain region 2.
---------------------------------------------------------------------------
\1\ ``Natural Gas, Meeting the Challenges of the Nation's Growing
Natural Gas Demand'', National Petroleum Council, December 1999.
\2\ Ibid, Vol. III, Appendix J.
---------------------------------------------------------------------------
The NPC assessment was based on a limited sample of Federal lands
in the region. In that study, five specific areas were studied in
detail and those results were extrapolated to all Federal lands in the
Rocky Mountains. The NPC assessment characterized access to natural gas
resources as ``off-limits'', ``high cost'' or ``standard lease terms''
(Fig. 1). About 60 percent of natural gas resources were shown to be
under standard lease terms. The NPC study recommended that the issue of
land access be studied in more detail.
Mandate for EPCA
Recognizing the access situation, Congress directed that a
scientific inventory of the Nation's Federal onshore lands be conducted
to assess the impact of environmental considerations on the potential
for recovery of oil and gas resources. In November 2000, Congress
passed (and President Clinton signed) the Energy Policy and
Conservation Act Amendments of 2000 (EPCA). Congress required that the
analysis identify any restriction or impediment that might inhibit
development of resources. Its purpose was to add clarity to the debate
and assist energy policymakers and Federal land managers in making
decisions concerning oil and gas resource development.
Subsequently, President Bush's National Energy Policy recognized
the then-ongoing EPCA inventory and endorsed environmentally
responsible oil and gas development based on sound science. Following
the September 11th attacks, on October 11, 2001, Congress provided its
sense of priority for EPCA by stating:
...In light of recent attacks on the United States that have
underscored the potential for disruptions to America's energy
supply, the managers believe this project should be considered
a top priority...
EPCA requires that all onshore Federal lands be inventoried with
provision for periodic updating. Shirley Neff, former staff economist
with the Senate Energy and Natural Resources Committee who worked on
the legislation, recently commented:
The intention for EPCA was for the agencies to upgrade their
overall systems for tracking oil and gas leasing, permitting
and development. The intent was not to have the agencies
conduct a one-time study of the situation. The idea was to have
a systematic way to review on an ongoing basis not only
leasing, but actual development.
EPCA Inventory
The recently released 2003 EPCA inventory 3 partially
fulfills the Congressional mandate. The inventory is a comprehensive
review of Federal oil and gas resources and constraints on their
development in high-priority basins of the Rockies (Fig. 2). These
basins were selected for study for three reasons: (1) they contain most
of the onshore natural gas and much of the oil under Federal ownership
within the 48 contiguous states, (2) the rapidly growing population in
the West and (3) public lands in this region face increased demands for
their use as sites for recreation, livestock grazing, forestry, open
space, wildlife habitat, mining, and oil and gas production.
---------------------------------------------------------------------------
\3\ See http://www.doi.gov/epca for the full 2003 EPCA inventory
report.
---------------------------------------------------------------------------
The 2003 EPCA inventory was accomplished through a cooperative
effort of Federal agencies, including the Bureau of Land Management
(BLM), U.S. Geologic Survey (USGS), the Forest Service (FS), and the
Department of Energy (EIA and the Office of Fossil Energy). Advanced
Resources International of Arlington, VA, and Premier Data Services of
Denver, CO, conducted the inventory.
The 2003 EPCA inventory examined 138 tcf of natural gas resources
4 including reserves 5 on Federal lands in the
Rocky Mountain basins. In addition to analyzing Federal lands, the
inventory also examined extensive split estate lands in which private
surface lands are underlain by Federal subsurface mineral rights. About
59 million acres of Federal lands (including split estate), present
among the almost 104 million acres in these study areas, were analyzed.
Federal lands and mineral split estate comprise over 60 percent of the
natural gas resources in the EPCA study areas.
---------------------------------------------------------------------------
\4\ EPCA mandated the use of USGS resource estimates. USGS
estimates of technically recoverable resources were used in the
inventory.
\5\ Consideration of reserves was mandated by the EPCA legislation.
Proved reserves estimates were provided by the Energy Information
Administration.
---------------------------------------------------------------------------
Stipulations are conditions issued for a lease, usually for reasons
of environmental protection, and are subject to change from time-to-
time 6. For this reason, the 2003 EPCA Inventory represents
a ``snapshot'' in time for conditions present at the time the inventory
was conducted. The inventory entailed the geospatial modeling of oil
and gas resource data in a compatible GIS format with land use
designations 7 and leasing stipulations. There are
approximately 1,000 discrete lease stipulations being applied by the
land managing agencies (primarily the BLM and FS) in over 70 field
offices in the basins studied.
---------------------------------------------------------------------------
\6\ In fact some of the BLM and FS offices are in the process of
revising their management plans, but those revisions and stipulations
were not yet available for the EPCA studies.
\7\ Land use designations include wilderness areas, wilderness
study areas, etc.
---------------------------------------------------------------------------
To focus the EPCA analysis on constraints on oil and gas
development, a hierarchy of ten categories of access was developed to
cover the complete range associated with oil and gas leasing in the
studied basins (Fig. 3). The hierarchy was formulated based on the
accessibility of the lands for leasing and drilling. For areas in which
drilling is permitted, it was formulated to assess the impacts relative
to the costs and delays to operators for conducting drilling.
In addition, the analysis included consideration of exceptions to
stipulations, principally seasonal restrictions, and the use of
technologies such as directional drilling. Figure 4 shows the results
of the EPCA inventory.
Response to the Analyses--NPC and EPCA
If we focus on natural gas, the dominant resource type in the
Rockies, the 1999 NPC report and the 2003 EPCA inventory appear similar
in overall results. When the EPCA results are recast according to
nomenclature used by the NPC, where NPC ``off limits'' areas are
correlated with EPCA categories 1 to 5 and ``high cost'' correspond to
EPCA categories 6 through 9, (Fig. 5), both studies show that about 40
percent of the natural gas resources in the Rockies are either off
limits or high cost.
Interestingly, the response to the two studies is a contrast. The
1999 NPC Report results have been generally characterized in terms of
restrictiveness--40 percent of natural gas resources is either off
limits or restricted. Conversely, the 2003 EPCA inventory has been
characterized in terms of the complement--accessibility to the drill
bit, where 60 percent is accessible. Ironically some environmental
groups such as The Wilderness Society have indicated a preference for
the EPCA results.
The Devil Is In The Details
Nominally, at least, 1999 NPC and 2003 EPCA do appear to be
opposite sides of the same coin. The reality is more complex and Table
1 helps to sort out some of the differences.
Resources. The studies covered similar areas (although
there are some Rocky Mountain basins that EPCA has yet to address).
Likewise, the resource bases are comparable, but there are some
important differences--the EPCA inventory categorized about 26 tcf of
proved reserves as accessible, placing them in the standard lease terms
category. Further, the 2003 EPCA inventory did not account for reserves
growth, although there are plans to do so in the future.
Stipulation Exceptions. Generally, exception rates to
stipulations were higher in the 2003 EPCA inventory leading to an
increased access depiction. In the EPCA inventory, input on this issue
came from over 70 BLM and FS offices.
Inventoried Roadless Areas (IRAs). In the EPCA inventory,
IRAs were not considered off limits because of an injunction blocking
the roadless rule by a Federal judge in Idaho. However, with an April
14, 2003 mandated refusal to review the recent 9th U.S. Circuit Court
of Appeals panel decision ordering that the injunction be lifted, the
roadless rule is in effect. In keeping with the intent that the EPCA
inventory capture the practical aspects of access, roadless areas
effectively should be considered off limits; the 2003 inventory does
not reflect this.
Split estate. With inclusion of split estate, the EPCA
inventory makes for a more accurate depiction, especially in the Powder
River Basin where almost 70 percent of the resources are estimated to
be in split estate.
Methodology. Because the EPCA inventory completely mapped
the surface restrictions in the five areas study, it more accurately
portrays access to resources under Federal land than does the NPC
study.
Recognizing these differences between the two studies, especially
regarding resource type, estimations of exceptions and consideration of
roadless areas, it is safe to say that, had the 2003 EPCA inventory
been analyzed using 1999 NPC study parameters, it would show more
restricted access.
Important Additional Issues
Neither the 1999 NPC study nor the 2003 EPCA inventory
quantitatively treat a number of additional issues that impact access
to resources. These additional factors can be significant for oil and
gas exploration and development on Federal lands. They are not easily
quantified statistically or geographically and include:
Protection for threatened and endangered species and
surveys to determine whether a lease contains habitat for such species;
Archaeological reviews required by the National Historic
Preservation Act, and related issues involving cultural resources
including consultation with Native American tribes;
Air quality impacts, especially visibility
considerations, and resulting restrictions on activities that may
affect air quality;
Water quality impacts, especially discharge permits for
CBM
Visual impacts of oil and gas operations;
Noise from oil and gas operations;
Conflicts between oil and gas and other mineral
operations, such as coal and potash;
Suburban encroachment on oil and gas fields and county
government restrictions;
``Sense of Place,'' i.e., an emotional or spiritual
attachment to certain locations which has been used as justification
for designating certain areas as off limits to drilling;
Typically, these requirements manifest themselves as conditions of
approval attached to drilling permits following analysis under the
National Environmental Policy Act (NEPA). Conditions of approval can
delay or modify a planned oil and gas development activity at the
permit stage and in some cases preclude it altogether.
Because these requirements are not easily quantifiable, they were
not included in the EPCA inventory, and further work would be needed to
incorporate them. Their inclusion would provide a more accurate
depiction of the difficulties for developing those resources.
The BLM and FS, aware of the strengths and limitations of the EPCA
inventory, are beginning a process of integrating the results to help
prioritize and guide their planning processes. The EPCA results allow
the Federal land management agencies to focus their efforts on those
land use issues that most affect oil and gas resources, and that these
efforts are supported by good data and sound science. Expansion of the
inventory to include additional Federal lands and resources is planned.
With the recognized, decreasing quality of prospects generally in
the U.S., the proper question may not be whether the glass is full or
empty, but what is the quality of the production that can developed and
at what level of difficulty. The EPCA inventory has contributed a
measure of clarity to the access issue, but more work remains to be
done.
Acknowledgments
The authors thank the Departments of Interior, Agriculture and
Energy for supporting the EPCA study and the DOE for supporting this
review and comparison with the NPC study.
______
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Mr. Eppink. The EPCA inventory to date has concentrated on
Rocky Mountain basins. Basins in the Rocky Mountains represent
the second-largest natural gas resource in the U.S. after the
outer continental shelf, and can help meet growing natural gas
demand.
The EPCA inventory addresses the issue of access. However,
access is a bit of a misnomer for the Federal lands and the
Rocky Mountains. While access is an obvious term for off-shore
areas under moratoria, the situation is more complex than the
Rocky's. For generating natural gas supply from the Rocky's,
the issue decidedly does not revolve around access to such
areas as national parks and wilderness areas. Rather, it
concerns the degree of difficulty for generating supply from
lands that can be leased and from areas that are
administratively off-limits.
The 2003 EPCA inventory is groundbreaking in that it is the
most comprehensive examination of Federal land access issues
that has been performed to date. Its purpose is to add clarity
to the access debate and assist energy policymakers and Federal
land managers in making decisions concerning oil and gas
resource development.
As the inventory results have been presented previously, I
would like to spend the remainder of my time providing some
context for those results. There has been criticism from some
quarters that the EPCA inventory uses only technically
recoverable resources and, further, that it should exclusively
use economically recoverable resources. This can be misleading
for a number of reasons.
The 2003 EPCA inventory, in fact, was mandated to include
proved reserves, where they are placed in the category with
highest access. Proved reserves are the quintessential economic
resources, having already been discovered and developed.
Production comes from proved reserves.
For undiscovered resources, however, it is inappropriate to
use for land use planning solely those resources that are
economically recoverable. One reason is that there is
widespread disagreement regarding the appropriate prices on
which to base the economics, but the compelling reason is more
fundamental. Use of economically recoverable resources can
overlook the geology, specifically the fact that the rocks
exist in the ground, and contain hydrocarbons that may be
recoverable with technology in the future.
An example here is appropriate. If an EPCA-style inventory,
focusing solely on economical recoverable resources had been
conducted in 1990, it would have generally dismissed coalbed
gas resources as unviable. In only 13 years, production of gas
from coalbeds has grown to over 1.5 tcf per year and is growing
still.
I am confident that there are other similar resource types
which will be significant contributors to production in 2020,
but which cannot be considered economic today. Additionally,
the 2003 EPCA inventory is a snapshot in time, and it should be
considered as part of a dynamic process. A prime example is
that of the so-called roadless rule for certain for-service
lands. Due to the status of court decisions at the time,
roadless areas were not considered off-limits in the inventory.
However, the most recent court action leaves the roadless rule
in effect. Were the inventory to be conducted today, it would
have considered roadless areas as off-limits.
Finally, the 2003 EPCA inventory does not quantitatively
treat a number of additional issues, primarily post-leasing in
nature, that impact access to resources. These factors can
delay, significantly increase costs for or altogether preclude
drilling.
In closing, with the recognized decreasing quality of
prospects generally in the U.S., the question remains, What is
the quality of future natural gas production that can be
developed and at what level of difficulty?
The 2003 EPCA inventory has contributed a measure of
clarity to the access issue, but more work remains to be done.
The ability of our Federal lands to help meet our energy needs
is there. This ability needs to be streamlined and expedited.
I appreciate the opportunity to testify here before you and
would be glad to answer any questions you might have.
[The prepared statement of Mr. Eppink follows:]
Statement of Jeffrey Eppink, Vice President,
Advanced Resources International, Inc.
Good afternoon, Chairwoman Cubin and members of the Subcommittee.
My name is Jeffrey Eppink. I am a vice president with Advanced
Resources International, an energy consulting firm based in Arlington,
Virginia.
At Advanced Resources, we have conducted a number of Federal lands
assessments in recent years. We participated in the National Petroleum
Council's 1999 study on natural gas, the study of Federal lands in the
Greater Green River Basin (performed for the Department of Energy), and
most recently the Energy and Policy Conservation Act (EPCA) inventory
(more properly entitled ``Scientific Inventory of Onshore Federal Lands
Oil and Gas Resources and Reserves and the Extent and Nature of
Restrictions or Impediments to Their Development''), which is the
subject of today's hearing.
Because Advanced Resources was highly involved in the EPCA
inventory, having collected the requisite data and performed the
analysis under the guidance of the DOI, DOA and DOE, we have a solid
familiarity with its strengths and weakness. Recently I have written an
article, along with BLM, DOE and DOA colleagues, concerning the
inventory, published in yesterday's Oil and Gas Journal. I would like
to submit a (pre-print) copy of that article for the record.
The EPCA inventory to date has concentrated on Rocky Mountain
basins. It evaluates those basins that contain most of the natural gas
and much of the oil resources under Federal ownership onshore in the
United States. Basins in the Rocky Mountains represent the second
largest natural gas resource in the U.S. after the outer continental
shelf and can help meet growing natural gas demand.
The EPCA inventory addresses the issue of ``access''. However,
access is a bit of a misnomer for the Federal lands in the Rocky
Mountains. While access is an obvious term for offshore areas under
moratoria, the situation is more complex in the Rockies. For generating
natural gas supply from the Rockies, the issue decidedly does not
revolve around access to such areas as National Parks and Wilderness
areas, rather it concerns the degree of difficulty for generating
supply from lands that can be leased and areas that are
administratively off-limits.
The 2003 EPCA inventory is groundbreaking in that it is the most
comprehensive examination of Federal land access issues that has been
performed to date. It examined nearly 1000 discrete leasing
stipulations and provides a meaningful categorization of Federal lands
and resources. Its purpose is to add clarity to the access debate and
assist energy policymakers and Federal land managers in making
decisions concerning oil and gas resource development.
Unconventional natural gas (primarily tight sands and coalbeds) is
the dominant resource type in the Rockies. The 2003 EPCA inventory
examined 138 tcf of natural gas resources including proved reserves on
59 million acres of Federal lands (including split estate) in the Rocky
Mountains. As the inventory results have been presented already, I
would like to spend the remainder of my time providing some context for
those results.
There has been criticism from some quarters that the EPCA inventory
only uses technically recoverable resources and, further, that it
should exclusively use economically recoverable resources. This can be
misleading for a number of reasons.
The 2003 EPCA inventory, in fact, was mandated to include proved
reserves, where they are categorized under ``standard lease terms,''
the category with highest access. Proved reserves are the
quintessential economic resources, having already been discovered and
developed. Production comes from proved reserves.
For undiscovered resources, however, it is inappropriate to use
(for land use planning) solely those that are economically recoverable.
One reason is that there is widespread disagreement regarding
appropriate prices on which to base the economics. But the compelling
reason is more fundamental. Use of economically recoverable resources
can overlook the geology, specifically the fact that rocks exist in the
ground and contain hydrocarbons that may be recoverable with future
technology.
An example here is appropriate. If an EPCA-type inventory, focusing
solely economically recoverable resources, had been conducted in 1990,
it would have generally dismissed coalbed gas resources as unviable. In
only 13 years, production of gas from coalbeds has grown to over 1.5
tcf per year and is growing. I am confident that there are other,
similar resource types, which will be significant contributors to
production in 2020 but which cannot be considered economic today.
The 2003 EPCA inventory is a snapshot in time and should be
considered part of a dynamic process. A prime example is that of the
so-called ``roadless rule'' for certain Forest Service lands. Due to
the status of court decisions at that time, roadless areas were not
considered off limits in the inventory. However, the most recent court
action leaves the roadless rule in effect. Were the inventory to be
conducted today, it would have considered roadless areas as off limits.
Finally, the 2003 EPCA inventory does not quantitatively treat a
number of additional issues that impact access to resources. These
factors can delay, significantly increase costs for, or altogether
preclude drilling. They are not easily quantified statistically or
geographically and include:
Archaeological reviews,
Air and water quality impacts,
Protection for threatened and endangered species,
Noise and visual impacts of oil and gas operations, and
``Sense of place,'' which is an emotional or spiritual
attachment to certain locations.
With the recognized, decreasing quality of prospects generally in
the U.S., the question remains: What is the quality of future natural
gas production that can be developed and what is the level of
difficulty. The 2003 EPCA inventory has contributed a measure of
clarity to the access issue, but more work remains to be done.
The ability of our Federal lands to help meet our energy needs is
there; this ability needs to be streamlined and expedited. I appreciate
the opportunity to testify before you and would be glad to answer any
questions you might have.
______
Mr. Rehberg. Thank you.
Mr. Johnson?
STATEMENT OF ART JOHNSON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
HYDRATE ENERGY INTERNATIONAL
Mr. Johnson. Thank you. I am Arthur Johnson, chairman and
CEO of Hydrate Energy International, Kenner, Louisiana.
Given that there is a looming supply issue, we see three
options. First, would be opening additional areas to
exploration, streamlining the permitting process, and also, for
that matter, including a pipeline from the North Slope of
Alaska, which would have some serious impact.
The second approach would be imports of natural gas using
LNG. We have problems with that one and what volume of LNG
could reasonably be imported. Probably more important for me,
though, is, as a Nation, we have been self-sufficient in
natural gas, and I am concerned about a vision where 20 years
from now or 15 years from now we are importing natural gas to
the same extent that we are currently importing oil.
So that third alternative, then, is to pursue
unconventional resources of natural gas, deep gas, tight gas,
shale gas, coalbed methane and gas hydrates, and this has
already begun with coalbed methane, our model for how to
proceed. CBM is now 8 percent of America's production, and that
is our model for how we could see proceeding with gas hydrate.
Gas hydrate is a crystalline substance composed of water
and natural gas, under conditions of low temperature and
moderately high pressure. It forms a solid. The conditions
where that forms are found under the permafrost in Alaska and
along America's continental margins. The advantage with gas
hydrate is when it is either warmed or depressurized, it
reverts back to very large quantities of natural gas. A cubic
foot of methane hydrate yields approximately 160 cubic feet of
natural gas.
We are still at an early stage of assessing how much gas
hydrate we have, but it appears that we have on the order of
hundreds of thousands of tcf on Federal acreage. The question
of how much of that is recoverable by any means, much less
commercially, is one of those areas being investigated. We
currently have programs, and I chaired the Methane Hydrate
Advisory Committee that is overseeing some of this.
We are making good progress, but rather slow. It is a
program that is only funded at about $10 million a year through
DOE, although the U.S. Geological Survey, Bureau of Land
Management, the Navy, also have very solid, but I would say,
from a funding standpoint, fairly minor programs, but have made
some good progress.
We are currently involved in drilling operations in Canada.
We are hoping to have some drilling coming up to the next 18
months on the North slope of Alaska, where we have identified
approximately 100 tcf hydrate in place in a form that should be
recoverable, given the nature of the reservoirs.
From the industry standpoint, hydrates have had a bad
reputation. They have always been viewed as a very futuristic
resource. And with the DOE program goals looking for production
in approximately the year 2020, what we find from industry is a
lot of industry folks saying, well, get back to me in 2019, and
we can talk. What we are looking at doing is how can we
accelerate a program like this. Are there some ways that we
could determine exactly where commercial deposits are, work
with industry to assess that.
Again, we see Federal research funding is the key to
proving the commerciality of hydrates and accelerating the time
line. We will need continuity in programs. This year DOE has
only asked for $3.5 million in the budget for gas hydrates,
which will have a dramatic negative impact on the program.
We have identified hydrate potential on all coasts,
particularly in the Gulf of Mexico, but also on the North
Slope. They appear to be abundant, and while there are many
uncertainties regarding their total resource potential, that
potential appears to be significant. There are a lot of
technical challenges remaining, but I don't believe that these
are insurmountable. I believe that we know enough to move
forward with hydrate programs.
[The prepared statement of Mr. Johnson follows:]
Statement of Arthur H. Johnson, Chairman and Chief Executive Officer,
Hydrate Energy International
Madam Chair and Members:
I am Arthur H. Johnson, Chairman and CEO of Hydrate Energy
International. I will discuss the potential for gas hydrates as an
energy resource for the United States. I have 25 years of industry
experience in oil and gas exploration and have served for the past two
years as chair of the Department of Energy's Methane Hydrate Advisory
Committee. I am also co-chair of the Gas Hydrate Committee of the
American Association of Petroleum Geologists.
The United States is entering an era of natural gas shortages
during periods of peak demand. These supply shortfalls will be
accompanied by significantly higher natural gas prices that, in turn,
will have a serious impact on our nation's economy. In the years ahead,
the shortages and price increases may become increasingly severe.
Increasing the supply of natural gas from domestic sources should be a
primary objective for the nation. A number of options for increasing
gas supply should be considered.
First, additional areas could be opened to exploration and
development, and the permitting process streamlined.
Second, imports of natural gas can be increased. Canada continues
to supply a portion of America's natural gas and that volume will
increase. Additional imports would require liquefied natural gas (LNG),
an expensive process that is currently in use in many parts of the
world. LNG imports are becoming economically feasible at current
natural gas prices and a number of new domestic LNG receiving terminals
are currently being designed. LNG imports have several negative
aspects. Safety is an immediate concern, both with the LNG tankers and
with the terminals. Gas for LNG would be supplied from fields in areas
such as the Middle East, West Africa, and the Former Soviet Union; and
there are concerns about America depending on the stability of these
regions for its economic well-being. Beyond these issues is the
fundamental observation that America is evolving from a nation that has
been self-sufficient in natural gas to one that has become dependent on
foreign sources. It is quite possible that in ten or fifteen years
America could be importing natural gas to the same extent that it is
now importing oil.
The third alternative is to pursue unconventional sources of
natural gas such as deep gas, shale gas, coaled methane, and gas
hydrates. This has already begun, with coalbed methane (CBM) already
supplying 8% of America's natural gas production. The role of CBM is
continuing to increase, especially in Wyoming, and serves as an
excellent analogy for the possible development of gas hydrates. Twenty
years ago, CBM was a drilling hazard and the government was criticized
for conducting research in it. That effort has definitely paid off.
The best advice is to pursue all three alternatives.
This brings us to gas hydrates. Gas hydrate is a crystalline
substance composed of gas and water. It forms when water and natural
gas combine under conditions of moderately high pressure and low
temperature. If gas hydrate is either warmed or depressurized it will
revert back to water and natural gas, a process termed
``dissociation''. Natural gas is concentrated in hydrate so that the
dissociation of a cubic foot of hydrate will yield 0.8 cubic feet of
water and approximately 160 cubic feet of natural gas. The conditions
where hydrates occur are common in sediments off the coasts of the
United States in water depths greater than approximately 1600 feet and
at shallower depths in sediments associated with deep permafrost in the
Arctic. Preliminary investigations indicate that considerable volumes
of gas hydrate are present in at least some of these areas.
The total volume of gas hydrate in the United States is not known,
although the results of a wide variety of investigations conducted over
the past thirty years indicate that the volume is very large, on the
order of hundreds of thousands of TCF. More important, however, is the
amount of hydrate that can be commercially recovered. Characterization
of hydrate resources that has been carried out, for example in the
MacKenzie Delta of Canada, the North Slope of Alaska, offshore Japan,
and elsewhere indicate that the total in less explored areas of the
U.S. hydrate province is likely in the range of many thousands of TCF.
Gas hydrate investigations have been undertaken by many Federal
agencies during the past 30 years. These include the U.S. Geological
Survey, Naval Research Laboratory, National Science Foundation, and
Department of Energy. The Methane Hydrate Research and Development Act
of 2000 initiated a new program to study several aspects of gas
hydrates, including seafloor stability, global climate change, and the
potential of gas hydrate as a commercial resource. The resource target
has been for production in the year 2020. Funding for the new program,
which is managed by the DOE, has typically been on the order of $10
million per year.
The new program has enabled the United States to participate in a
number of recent cooperative international investigations that have
increased our understanding of gas hydrates. These include an
experimental well in the Canadian Arctic last year that resulted in
significant new data for use in modeling hydrate production and
actually produced some gas from hydrate. A joint effort of the DOE and
Anadarko Petroleum has an on-going project to drill and evaluate Arctic
sediments to better understand hydrate occurrence. A joint effort of
the DOE and BP Exploration Alaska is preparing a hydrate production
test in approximately 18 months that should greatly improve our
understanding of the commercial viability of Arctic hydrates. The U.S.
Geological Survey has played a dominant role in guiding the geological
and geophysical aspects of these projects. Successful results in Alaska
will encourage the domestic industry to pursue hydrate opportunities in
the Gulf of Mexico. It is conceivable that commercial production of gas
from gas hydrate could begin, on at least a limited basis, in just a
few years.
In the Gulf of Mexico, a Joint Industry Program (JIP) is engaged in
characterizing gas hydrate occurrences there with matching funds
provided by the DOE. The JIP is led by ChevronTexaco and includes
several other U.S. and foreign oil companies, as well as the U.S.
Minerals Management Service. While the stated goal of the JIP involves
ensuring the safety of existing facilities, the results of the JIP
program will assist in characterizing the commercial hydrate potential
of the Gulf.
Other nations are also investigating gas hydrates as part of their
energy security initiatives. The most significant programs are in
Japan, India, and Canada. These programs are making great progress and
the U.S. is benefiting from their results.
Industry interest in gas hydrates as a resource has been growing
over the past year. In the past hydrates were viewed as strange and
futuristic, always to be twenty years into the future. Many of the
production schemes envisioned for hydrates involved exotic and
expensive approaches to production that are far removed from any
company's core business. Hydrate development was viewed as requiring
high operating expense, while nearly every company was striving to
reduce operating expense. Hydrates also had a credibility problem, with
many proponents making unrealistic projections of hydrate production
capabilities.
These negative perceptions are changing as research efforts begin
to show the commercial viability of hydrates. The drilling results last
year at the Canadian site have led to studies showing that hydrate
production need not involve high operating expense. On the North Slope
of Alaska, where initial U.S. production is most likely, there is a
growing industry interest in natural gas. In addition, the recent
changes in the domestic gas market have encouraged companies to seek
additional sources. Yet, industry is not yet ready to pursue hydrates
its own.
Federal research funding is the key to proving the commerciality of
gas hydrates and accelerating the development timeline. Such funding
must be focused on the critical questions that need to be resolved. In
addition, there needs to be continuity from one budget cycle to the
next so that multi-year projects can be maintained. Incentives such as
royalty relief and unconventional resource tax credits will encourage
industry participation.
Recent models indicate that hydrate resources can be developed by
producing gas from adjacent free-gas reservoirs. The drop in pressure
will cause dissociation of the hydrate which then feeds additional gas
into the reservoir. The critical questions that need to be answered
involve the ultimate amount of gas that can be recovered from hydrates
by each well, the daily production rate of each well, and the expenses
involved in drilling and producing the wells.
Gas hydrate deposits have been identified on the North Slope of
Alaska and in deep water locations off the Pacific, Atlantic, and Gulf
coasts of the U.S. In the near term, hydrate prospects will only be
viable in areas where there is existing conventional production so that
infrastructure (platforms, pipelines, etc.) may be leveraged. This will
make the North Slope of Alaska and the deepwater Gulf of Mexico the
primary focus of commercial hydrate development in the U.S. for the
foreseeable future. In these areas, gas hydrates have the potential to
add significantly to America's natural gas production.
In summary, gas hydrates appear to occur in abundance in Arctic and
U.S. territorial waters. While there are many uncertainties regarding
their total resource potential, that potential appears to be
significant. Technical challenges remain but are not insurmountable. We
know enough to move forward.
______
Mr. Rehberg. Thank you.
Ms. Knopman?
STATEMENT OF DEBRA KNOPMAN, ASSOCIATE DIRECTOR, RAND SCIENCE
AND TECHNOLOGY, RAND
Ms. Knopman. Thank you, Mr. Chairman, for the opportunity
to testify before the Subcommittee. I would like to request my
full written statement be included in the record.
Mr. Rehberg. Without objection.
Ms. Knopman. I am associate director of RAND Science and
Technology, a senior engineer at RAND and also a member of the
study team for RAND's recently released final report,
``Assessing Natural Gas and Oil Resources: An Example of New
Approach in the Greater Green River Basin.'' This study was
funded by the William and Flora Hewlett Foundation.
I just would like to point out the views expressed here are
my own and do not necessarily reflect those of either RAND or
its research sponsors. Further, I would like to state RAND has
no position on whether oil and gas exploration and development
should proceed on currently restricted Federally managed lands.
Institutionally, RAND's interest is in the quality, relevance,
and transparency of the technical information that surrounds
the public debate.
Our main point can be summarized as follows:
Existing resource assessments focus on the amount of
technically recoverable resource. Our new approach builds on
these assessments by including economic and environmental
considerations. We believe that this additional information can
help Federal and State land managers and policymakers at all
levels better plan for long-term resource use.
The rapid increase in domestic natural gas demand has
heightened the need for land management agencies to take a
strategic view of Federal land-use planning. It is vital for
land managers and, indeed, energy policymakers in and out of
Government to have some understanding of how much resource is
likely to come into the market under various conditions.
For example, the balance between market prices of natural
gas and drilling and transportation costs, highly dependent, as
others have pointed out, on geologic and topographic conditions
will clearly affect the rate of development and technology as
well, I should add.
If land management agencies were directed to increase
production on Federal lands, they would clearly benefit from
using economic and environmental information to set regional
priorities. Indeed, Federal law already requires strategic
planning and priorities for land use. An open question is the
basis for the priorities. What should be the breadth and scope
of technical information that is available and used to inform
the planning process?
In our study, we demonstrated our approach for the Greater
Green River Basin in Southwestern Wyoming, estimated to contain
about 9 percent of the Nation's future natural gas supply.
Our analysis found that, depending on the technically
recoverable resource base estimate used, approximately 35 to 45
percent of natural gas in the basin could be profitably
produced at less than $3 per million Btu. Up to 65 percent
could be profitably produced if the market price were $5 per
million Btu.
More significantly, the fraction of technically recoverable
gas that is economically recoverable at a given price varies
substantially from place to place. When we looked at
environmental measures associated with the lands overlying the
resource, such as various ecosystem and water quality factors,
we found that concentrations of economically recoverable gas
exist predominantly in areas of relatively lower environmental
concern. For instance, 18 percent is found in areas with
predicted species richness above the median value in that basin
and 11 percent is in aquatic or riparian areas. Less than 8
percent is within close proximity of human settlements.
Our methodology does, however, have limitations. Most
particularly, it is limited by the quality and spacial
resolution underlying the assessments we use as our base. Those
are not our assessments. They are the USGS or NPC assessments.
More detailed information may be needed to make decisions at
the smaller scale.
We have emphasized the use of our approach on the regional
scale and subregional scale. As we were developing our method,
the EPCA study of the special distribution of access
restrictions in the Rocky's, including the Greater Green River
Basin, was released. While the overall goal of the two studies
is the same to improve the information base for strategic
decisionmaking, the studies differ in the way they ask the
question about potential limits on development.
The EPCA study looked at access restrictions as the key
variable indicating development potential. We looked at
estimates of wellhead and transportation costs associated with
gas resources in different areas as a useful indicator of
development potential.
We also looked at a set of measurable environmental
indicators associated with land overlying the resource, in
contrast to the EPCA's study's focus on access restrictions
which, as has been pointed out, are often variably designated
from one BLM office or State to another.
While we see great value in our new assessment approach, we
are not suggesting it be the sole tool in any decisionmaking
process, nor is it meant to replace existing tools, such as
detailed lease-specific analyses or environmental impact
assessments.
RAND's interest in this issue, as it is in all of our work,
is to improve decisionmaking through research and analysis. We
are independent, nonprofit, dedicated to producing objective,
nonpartisan analysis. The research upon which this testimony is
based has been through Rand's quality assurance process.
This concludes my testimony. Thank you.
[The prepared statement of Ms. Knopman follows:]
Statement of Debra Knopman, Associate Director,
RAND Science & Technology
Thank you, Madam Chairman, for the opportunity to testify before
the Subcommittee on Energy and Mineral Resources about methods of
assessing oil and gas resources.
I am Associate Director of RAND Science and Technology, a Senior
Engineer at RAND, and a member of the study team for RAND's recently
released final report ``Assessing Natural Gas and Oil Resources: An
Example of a New Approach in the Greater Green River Basin.'' This
study was funded by the William and Flora Hewlett Foundation.
In April 2002, I appeared before this Committee with interim
findings. In our testimony, I reviewed existing resource assessment
methods and presented a general framework for a new approach to
assessing natural gas and oil resources. Today, on behalf of my co-
authors, I offer our completed research, including the results of
applying this new approach to the Greater Green River Basin in
southwestern Wyoming.
OVERVIEW
Natural gas and oil resource assessments have historically focused
on the amount of resource in the ground that could be extracted, based
on assumptions about available drilling technologies. Our new
methodology builds on these traditional assessments by adding economic
and environmental considerations, such as how much resource might be
recoverable at what cost, and how much resource is associated with
lands having different environmental values.
The primary objective of our research is to help governmental
officials and other stakeholders make more informed choices related to
land use planning, design of energy policies, and energy development
and fuel utilization planning. For example, the additional economic and
environmental information generated by our approach B overlaid on maps
of the technically recoverable resource B can help public land managers
distinguish energy potential among different areas and set priorities
among areas based on multiple B and often competing--public objectives.
This new approach can help Federal and state land managers and
policymakers at all levels plan strategically for long-term resource
use. It is worth noting that current law requires that this planning
take place; it just happens to take place now in the absence of this
richer source of information. We are suggesting that the existing
planning process could be substantially improved by systematically
introducing economic and environmental criteria consistent with the
same geological framework used to represent the technically recoverable
resource.
RAND'S PERSPECTIVE ON THIS RESEARCH
As in all our work, RAND's interest in this issue is to improve
decision-making through research and analysis. We are an independent
non-profit organization, dedicated to producing objective, non-partisan
analysis. Our publications are subjected to rigorous peer review and
quality assurance during which we actively seek internal and outside
experts to critique our work. The research upon which this testimony is
based has been through this quality assurance process.
RAND does not have a position on whether oil and gas exploration
and development should proceed on currently restricted Federally
managed lands. Instead, our interest is in the quality, relevance, and
transparency of the technical information that surrounds the public
debate on future development. We also seek to encourage an expansion of
the discussion regarding prospective exploration and development beyond
the particular access restrictions applied to Federal lands. We believe
that improved public understanding of the range of estimated costs and
impacts of development and associated infrastructure, under different
technology and economic assumptions, will contribute significantly to
the debate on national energy and land management policies.
We fully recognize that there are legitimate questions about the
appropriate Federal role in examining the economics of exploration and
development scenarios. Our proposed approach is not meant to replace
industry's detailed, site-specific economic evaluations or Federal land
managers' existing environmental assessment and permitting processes.
Rather, it is meant to provide decisionmakers with a more comprehensive
assessment of bounding ranges of resource availability at the regional
and subregional scale. We believe our proposed methodology would
enhance current efforts by the BLM and other Federal land managers to
communicate more effectively and clearly the economics and
environmental implications of their actions. We are simply making a
case for more comprehensive information in the policy process.
OVERVIEW OF FINDINGS
Our chief point can be summarized as follows: There is an ongoing
need for improvements in the way we think about how to value energy
resources and ways we can incorporate this valuation into land use and
other decisionmaking. Our study focuses on this need, specifically for
natural gas and specifically for Federal land in the Rocky Mountain
West.
Decisions about potential development of oil and gas resources are
particularly relevant now. Natural gas demand in this country has been
increasing for the last 15 years and is expected to increase
substantially in the next 20 years. Most states and regions are
currently in the process of planning for considerable future dependence
on natural gas as their dominant electricity-generating fuel. With
demand rising, much attention has focused on strategies to increase
domestic production. As a result, decisionmakers and the public would
benefit from a more comprehensive view of prospective costs and
availability of long-term domestic supplies of natural gas and oil.
Further, as domestic production of gas increases, Federal land
managers, particularly the Bureau of Land Management and the Forest
Service, confront with increasing frequency complex and sensitive
development decisions--decisions that can have far-reaching and long-
term effects. As they approach future land use questions, an assessment
approach that allows for more strategic decisionmaking is highly
desirable. We thus propose a methodology that incorporates a fuller
array of the issues Federal land managers must face, including costs
associated with production as well as environmental considerations that
may have an impact on additional costs of exploration and development.
A MORE COMPREHENSIVE ASSESSMENT ALLOWS FOR MORE STRATEGIC AND LONG-
RANGE DECISIONMAKING
The rapid increase in domestic natural gas production has
heightened the necessity for the country's land management agencies to
take a strategic view of Federal land use decisionmaking--one that
allows them to understand the differences between resources in
different areas and thus to prioritize lands being evaluated for
development. Under current practices by the Bureau of Land Management
and the Forest Service, resource management plans required by the
Federal Land Management and Planning Act may remain in place for on
average about 15 years before being updated. In the meantime, many
small-scale decisions related to individual applications to drill are
made based on out of date planning assumptions about the status of the
energy and other resources throughout the region. Current practice
leaves little room for land managers to set internal priorities on
deploying their own resources to further public objectives, including
increased domestic energy production. Our primary goal was to develop a
consistent and technically defensible means of bringing in new
information about economics and environmental measures into the
strategic planning process for the purpose of improving the long-range
and large-scale view of public land use decisions.
This new approach is designed to offer a larger picture than
traditional gas and oil resource assessments. The function of current
assessments is to provide decisionmakers with a scientifically informed
estimate of the quantity and spatial extent of the resource. These
assessments focus on what is commonly called the ``technically
recoverable resource,'' or the amount of the resource that is estimated
to be recoverable given certain assumptions about exploration and
production capabilities. Resources are evaluated in terms of geological
criteria and technical feasibility of recovery, but without economic or
other considerations. These estimates, therefore, are not intended to
indicate how much resource will likely be developed and at what cost.
HOW THE NEW APPROACH WORKS: THE GREATER GREEN RIVER BASIN CASE STUDY
As a means of demonstrating how our new methodology works, we used
it to assess natural gas resources in the Greater Green River Basin. We
believe these results are instructive for developing the methodology
further and providing insights that may help inform strategic energy
resource planning in this basin. We chose this region because its
characteristics apply to multiple areas throughout the intermountain
areas of the Rocky Mountains. Due to its relative richness in
hydrocarbon resources, particularly natural gas, this region has been
under intense scrutiny in recent years as efforts increase to find
domestic sources of gas and oil.
National resource assessments indicate that the Rockies contain
approximately 15 percent of the nation's technically recoverable future
natural gas supply. Further, in the Rockies, 60 percent of the
technically recoverable gas underlies Federal land, compared to just
two percent in the onshore areas of Texas and the Gulf Coast states.
Thus, growth in production in the Rockies means that energy-related
land use decisions will increasingly become the responsibility of
Federal land managers. Likewise, in this region, gas occurs in diverse
range of deposit types and depths, resulting in a large range of costs
and demonstrating the need for--and value of--a more comprehensive
assessment approach.
As a first step, we mapped the spatial distribution of the
technically recoverable resource in the Greater Green River Basin. We
looked at three different estimates: the 1995 U.S. Geological Survey
Assessment, the ``conventional technology'' estimate from the National
Petroleum Council (NPC), and the ``enhanced technology'' estimate from
the NPC. For mapping purposes, we disaggregated the geological units
identified by USGS as containing substantial resource (known as
``plays'') into smaller ``subplays.'' This enabled us to provide a more
refined estimate of costs, particularly capturing differences in
drilling costs related to the depth of the deposits. Then, we generated
production cost curves for proved reserves, reserve appreciation, and
undiscovered resource in each subplay in order to determine the
resource available at different costs. We estimated separate costs for
each resource unit, resource category, resource type, and depletion
increment, eventually formulating separate costs for over 1,200
distinct analysis units throughout the basin. Using continuous cost
curves, we summed up the amount of gas that could be produced at costs
beginning with zero and extending up to different discrete prices.
Our analysis found that, depending on the base technically
recoverable resource estimate used, approximately 35 to 45 percent of
natural gas in the Greater Green River Basin could be produced
profitably produced at less than $3 per million British Thermal Units
(MMBtu), which is similar to recent prices in Wyoming. Up to 65 percent
could be profitably produced if the market price were $5 per million
MMBtu.
Importantly, our analysis showed that the fraction of technically
recoverable gas that is economically recoverable at a given price
varies substantially from place to place; for example, concentrations
in some areas drop off much more quickly than in others as the price
decreases. Such a result highlights the usefulness of combining
economic and spatial analyses: When looking at specific areas, the
concentrations of economically recoverable resources do not necessarily
correlate directly with the concentrations of technically recoverable
resources. In other words, what is technically recoverable is not
always economically desirable under assumed market conditions.
This spatial-economic analysis thus provides information not
currently available to help Federal land managers distinguish gas
resources in different areas. By using transparent economic and other
quantitative criteria, the methodology enables decisionmakers to
establish a credible basis for more spatially refined priorities.
The next stage in our approach overlays these findings with
environmental considerations. Specifically, our next analytical step
seeks to factor in the environmental attributes of the resource by
distinguishing resources according to the characteristics of the land
it occupies. It is important to point out that this part of the
methodology does not function as, or substitute for, an environmental
impact assessment. Rather, it is a first attempt at what we call an
environmental characterization: a description of some relevant
environmental measures and a classification of the lands and associated
resources according to these measures. Eventually, an environmental
impact assessment would have to occur before actual drilling activities
begin, but this characterization provides an initial framework for the
process, both at a larger scale and at an earlier stage in the planning
process.
In this analysis, we examined seven environmental measures: 1)
Terrestrial vertebrate species richness; 2) Proximity to sensitive
species observed locations; 3) Surface water and riparian habitat
zones; 4) Proximity to human settlements; 5) Aquifer recharge rate; 6)
Depth to groundwater; 7) Surface slope. The first three measures
address primarily ecosystem quality, the fourth represents issues
related to human use of the area, and the final three measures examine
primarily water quality. We also considered existing Federal land
access restrictions. Measure values were grouped or ``binned'' and maps
of the spatial distribution of the lands with different measure values
were then generated. It is important to note that the cut-offs between
different bins are statistically rather than empirically based. The
relationship between environmental measures and sensitivity to
environmental impact is complex and developing this relationship is
beyond the scope of this approach. Our statistically derived bin values
do, however, provide a relative sense of environmental concern and so
do offer some useful guidance. However, because these values are not
based on empirically-derived relationships between gas and oil
development activities and potential environmental impacts, they say
little about actual environmental risk and in that sense the
environmental measures need to be developed further as the methodology
becomes more comprehensive.
Our analysis indicates that, for the most part, the concentrations
of economically recoverable gas exist in areas of relatively lower
potential environmental concern--at least in terms of the environmental
measures we considered. For instance, 18 percent of the economically
recoverable natural gas is in areas with predicted species richness
above the median value and 11 percent is in aquatic or riparian areas.
Less than eight percent of the gas occurs within close proximity of
human settlements. Of the water quality measures, only eight percent
occurs in areas with slopes greater than 25 percent, and areas with
high aquifer recharge rates and shallow groundwater contain,
respectively, nine percent and 12 percent of the gas in the basin.
I should note that in the specific case of the Greater Green River
Basin, the measures related to ground water quality may not be as
important as in other areas. This would be the case as long as the
state of Wyoming enforces their current requirement that no drilling
waters in the basin are discharged at the surface, but rather are
reinjected into the subsurface. However, for purposes of illustrating a
broader range of environmental attributes, we included these ground
water measures in our analysis.
As with the economic evaluation, however, environmental overlay
results for certain areas within the basin differ from the basin-wide
average values. Indeed, we found some areas with relatively high gas
densities that do coincide with riparian habitats, high terrestrial
vertebrate species richness, and shallow groundwater. Such findings may
be particularly relevant in areas such as north of the LaBarge
Platform, which may appear promising judging by the economic analysis
alone but may present more complexity--and hence more cost--when one
considers its environmental attributes.
Of course, the fact that an area has specific environmental
characteristics does not necessarily mean these characteristics will be
negatively affected by development. Still, our results suggest that
some lands might be less attractive than other lands for development.
For example, there may be more costs associated with mitigating
potential impacts on lands close to surface water resources. This
information would be useful to public land managers who may need to
prioritize their efforts in permitting lands for exploration and
production.
We have highlighted aspects of natural gas resources in the Greater
Green River Basin that may not be directly evident from technically
recoverable resource assessments. However, the value of this approach
is expected to be even more evident when it has been applied to all the
basins in the Rocky Mountains and eventually to all basins in the
country. Just as a basin-wide evaluation using a consistent methodology
allows Federal land managers to compare and prioritize areas within the
Greater Green River Basin, a Rockies-wide evaluation will allow these
managers to make the same type of comparisons and prioritizations among
areas within different basins.
Ultimately, we believe the results generated from this approach can
provide decisionmakers with more robust information about natural
resources that can help guide strategic resource planning, help
prioritize difficult decisions that are being made about access to
Federal lands, and help understand the potential consequences of
decisions.
As with any type of spatial analysis, the appropriate level of
interpretation depends critically on the resolution of the underlying
data. This is particularly evident in our study which is fundamentally
limited by the quality and spatial resolution of the underlying
geologic framework establishing the estimates of technically
recoverable resource. The USGS and NPC estimates are not sufficiently
resolved spatially to identify small, but possibly productive deposits.
The Jonah field in Wyoming is frequently cited as an example of a
small, but highly productive area that was ``missed'' by the experts.
Our analysis, as any analysis at a similar resolution, must therefore
be used with the understanding that more detailed information may be
needed to make decisions at the smaller scale.
RELATIONSHIP OF THE RAND METHOD TO THE EPCA STUDY
During the time we were developing our method, an interagency work
group completed their study of the spatial distribution of access
restrictions in the Rockies, including the Greater Green River Basin.
The work group's report, known as the Energy Policy and Conservation
Act (EPCA) study, took a fundamentally different approach from our
study. The EPCA study pulled together a spatial analysis of access
restrictions as they applied to the technically recoverable resource.
These access restrictions are typically associated with environmental
concerns, but they are inconsistently applied from region to region and
state to state. Hence, they are a highly variable B and unreliable B
measure of environmental assets. Further, by design, the EPCA study did
not address issues associated with the costs of resource development at
the wellhead or the infrastructure costs of transporting the resource
to market.
FINAL COMMENTS
Given its capabilities, we believe our new methodology enhances the
array of tools currently available. By linking economics and
environmental characteristics with spatial analysis, it allows
decisionmakers to consider relative priorities for development. It is
also a flexible methodology that is applicable to other regions. For
Federal land use planners, it provides more information to weigh energy
resource values, while also helping to identify areas with higher
production potential. In turn, for energy planners, it offers
information to help in the comparison of policy options and can guide
fuel choices and import planning. Indeed, if this information were
available for all basins in the region, electric utilities or state
energy planners could plan their long-term resource use more
effectively by having a more realistic view of availability based on
production costs. Likewise, the Energy Information Administration could
use this information in its price and supply forecasts. For other
stakeholders, such as state authorities, utilities, and natural gas and
oil producers, it can assist in estimating energy availability and in
planning for power plant and transmission infrastructure investment.
Finally, this approach can be used on the local level to forecast
economic impacts, such as projected revenues and jobs brought about by
these land uses.
It is important to note that this new approach is not meant to be
the sole tool in any decisionmaking process. Instead, it is intended to
be a part of a broader set of information sources that decisionmakers
might use. Further, it is not intended to replace detailed economic or
environmental analyses on specific leases. What it does offer, however,
is a new means to treats economic costs and environmental
characteristics as integral attributes of energy resources. We believe
this approach will contribute to a richer debate and assist in the kind
of long-term strategic planning needed to tackle these areas of growing
concern.
This concludes my testimony. I welcome any questions you may have.
Thank you.
______
Mr. Rehberg. Thank you.
Ms. Bower?
STATEMENT OF DRU BOWER, VICE PRESIDENT,
PETROLEUM ASSOCIATION OF WYOMING
Ms. Bower. Mr. Chairman, members of the Subcommittee. My
name is Dru Bower, and I am the vice president for the
Petroleum Association of Wyoming, specializing in public land
issues.
In 1996, Wyoming supplied the Nation with 3.4 percent of
the total U.S. output of natural gas. In 2002, natural gas
production for our State rose to 7.1 percent. Noteworthy is the
fact that a significant percentage of Wyoming is managed by
Federal agencies, approximately 49 percent of the surface and
66 percent of the mineral estate.
The Federal Government plays a significant role not only in
Wyoming, but in many other Western States. Industry commends
Congress for its foresight in requiring the Energy Policy and
Conservation Act study. We have already been presented with the
results of that study. And while some groups claim that EPCA
results suggest that there is no access problem, this couldn't
be further from the truth. The EPCA study is a solid beginning.
However, the analysis does not go far enough to assess the full
situation. Even on leased lands subject to only standard lease
terms, conditions of approval are imposed in accordance with
land-use decisions made by the agencies. While a lease may not
be subject to additional stipulations, conditions of approval
identified through project-level or site-specific environmental
analysis may be required for proposed projects. Each condition
of approval limits access to the lease, to some extent, whether
through added cost or delay.
While the petroleum industry uses the word ``access'' as a
``catch-all'' term, the term is not limited to the availability
of Federal lands for leasing. Access also encompasses the
industry's ability to develop new wells in existing fields.
The National Petroleum Council is in the process of
updating its 1999 Natural Gas Supply and Demand Study. It is
our understanding that MPC is adding an access section which
will analyze, for high gas potential, basins to determine the
effects, lease stipulations, surveys for threatening an
endangered species and conditions of approval have on
industry's ability to explore for and develop resources. The
report is due out in September of this year.
The Roadless Conservation Rule prevents road building on
more than 58 million acres of National Forest System, a move
that will place 11.3 trillion cubic feet of economically
recoverable natural gas off-limits to exploration and
development. According to the Department of Energy report, 83
percent of the natural gas resource found in the Rocky Mountain
region is located in slightly less than 5 percent of the total
proposed inventoried roadless areas nationwide.
The Petroleum Association and Public Land Advocacy urge
Congress to support modification of the Roadless Conservation
Rule. Removal of the 5 percent of inventoried roadless areas
that overlie these important natural gas resources would still
allow for the majority of inventoried roadless areas to be set
aside, while providing for development of the critically
important natural gas resource base.
The Federal regulatory process is exhaustive and
cumbersome. It should be noted that once a lease has been
issued, it becomes a contractual agreement between the Federal
Government and the lessee. While the lease contract gives the
lessee the exclusive right to develop the lease, it does not
give the lessee the green light to start exploration or
development activities.
There are several different processes and several different
layers of NEPA analysis which must occur before and after
leasing; primarily, at the resource management plan stage, also
a determination of NEPA adequacy indicates whether additional
analysis is necessary before leasing can occur, and there is
also project-level and site-specific level NEPA analysis.
Consultations with other agencies also must occur, and each
agency may require new restrictions that directly impact access
and the economic viability of the project. BLM has implemented
several new instruction memoranda designed to make the process
more efficient. These IMs are a positive step in the right
direction, and industry looks forward to their immediate
implementation in the field. There are additional measures that
must be taken to ensure timely and cost-effective access to
Federal lands, and these recommendations are outlined in my
written testimony.
Another important factor to consider in the Federal
Regulatory process is litigation by environmentalist groups
whose sole purpose is to delay or deny development of natural
resources. In Wyoming, virtually all lease sales and most
project-level environmental assessments and environmental
impact statements, including geophysical projects, have been
protested, appealed or challenged in Federal Court.
Unfortunately, NEPA has become a tool that is used as the
primary impediment to oil and gas development on Federal lands.
The cost of NEPA abuse is high. Litigation is paralyzing
agencies' field and State offices from making decisions as
their focus is shifting from land management and processing of
permits to responding to frivolous litigation. Therefore, the
burden of the agency's management responsibilities frequently
shifts to the operators. All of these new obligations that have
been historically the agency's responsibility put a tremendous
burden on industry's ability to economically develop the
resource for the benefit of this country.
In conclusion, the Petroleum Association of Wyoming and
Public Land Advocacy appreciate Congress's recognition of the
important role access to Federal lands plays in meeting the
energy needs of this country through its efforts to pass an
energy bill. However, many of the additional measures discussed
in this testimony can also be easily addressed through the
regulatory process.
Mr. Chairman and members of the Subcommittee, thank you for
this opportunity to testify.
[The prepared statement of Ms. Bower follows:]
Statement of Dru Bower, Vice President, Petroleum Association of
Wyoming, on behalf of Public Lands Advocacy
Madam Chairwoman and members of the Subcommittee, my name is Dru
Bower and I am the Vice President of the Petroleum Association of
Wyoming (PAW), specializing in public land issues. I am here today
representing not only PAW, but also Public Lands Advocacy. We would
like to thank the Subcommittee on Energy and Mineral Resources of the
Committee on Energy and Commerce for the opportunity to testify at this
Oversight Hearing regarding ``The Ability of Federal Lands to Meet our
Energy Needs.''
PAW is Wyoming's oldest and largest trade organization, the members
of which account for over ninety percent of the natural gas and over
eighty percent of the crude oil produced in the State. PAW is
recognized as Wyoming's leading authority on petroleum industry issues
and is dedicated to the betterment of the state's oil and gas industry
and public welfare.
Public Lands Advocacy (PLA) is a non-profit organization whose
members include major and independent petroleum companies as well as
non-profit trade and professional organizations that have joined
together to foster the interests of the oil and gas industry relating
to responsible and environmentally sound exploration and development on
Federal lands.
In 1996, Wyoming supplied the nation with 3.4% of the total U.S.
output of natural gas. In 2002, natural gas production for our state
rose to 7.1% of the total U.S. output. Noteworthy is the fact that a
significant percentage of Wyoming is managed by Federal agencies.
Wyoming is a uniquely rural state comprised of 97,914 square miles
and is the ninth largest state in the Union. Lands in the state, which
are owned and controlled by the Federal Government equate to
approximately forty-nine percent (49%) of the surface and sixty-six
percent (66%) of the mineral estate. These Federal lands are managed by
agencies such as the National Park Service (NPS), United States Forest
Service (USFS) and the Bureau of Land Management (BLM). The remaining
51% of the surface and 34% of the mineral estate are owned by private
entities, the State of Wyoming and the Tribes.
ENERGY POLICY AND CONSERVATION ACT
Industry commends Congress for its foresight in requiring the
Energy Policy and Conservation Act (EPCA) Study, an assessment of
Federal lands available for leasing in the most promising basins in the
west and the obstacles to development of those resources. Released in
January of 2003, the Study addressed constraints on development with
respect to two factors affecting access to oil and gas resources. Those
factors included: 1) whether the lands are ``open'' or ``closed'' to
leasing, and 2) the degree of access afforded by lease stipulations on
leased lands. The study found that approximately 39 percent of the
Federal lands were available for oil and gas leasing, 25 percent is
available for leasing with restrictions on operations beyond standard
lease terms, and 36 percent of the Federal lands are unavailable for
leasing. While some groups claim that the EPCA results suggest there is
no access problem, this couldn't be further from the truth.
The EPCA study is a solid beginning; however, the analysis does not
go far enough to assess the full situation. In addition to addressing
leased lands, their associated stipulations and lands unavailable for
lease, other important factors must be considered. For example, even on
leased lands subject to only standard lease terms, conditions of
approval (COA) are imposed in accordance with land use decisions made
by the agencies. In other words, while a lease may not be subject to
additional stipulations, conditions of approval identified through
project level or site-specific environmental analysis may be required
for proposed projects. Each condition of approval limits access to the
lease to some extent whether through added cost or delay. Therefore, in
reality, it is safe to say that all leases issued under standard lease
terms are still subject to the same constraints imposed on stipulated
leases. Further, some conditions of approval may be more of an
impediment to exploration or development than lease stipulations.
While the Petroleum Industry uses the word ``Access'' as a catchall
term, the term is not limited to the availability of Federal lands for
leasing. Clearly, leasing is an important aspect of access to Federal
lands for purposes of exploration and development; however, access also
encompasses the industry's ability to develop new wells in existing
fields. As such, expansion of existing production often faces numerous
impediments including:
High cost to industry and long delays for NEPA
compliance;
Delays in land use plan revisions;
A wide variety of surveys and inventories on most
projects for cultural, wildlife and other resource values that may or
may not be present in a project area;
Delays in obtaining drilling and rights-of-way permits
due to a lack of adequate Federal staffing and funding in high volume
leasing and development areas;
Financial burdens placed upon industry who may have to
pay for contract personnel to work on permits in field offices;
The same restrictive management imposed to protect
species listed as threatened or endangered under the Endangered Species
Act are applied to unlisted species (i.e. sensitive, proposed and
candidate species);
Endless petitions to the U.S. Fish and Wildlife Service
(FWS) to list plant and animal species without supporting scientific
data; but, which cause Federal agencies to change their management
objectives from multiple-use to restricted use; and
Further, environmental groups are not only filing
petitions with FWS to list a particular species with limited supporting
scientific data; petitions are concurrently being filed by the same
parties with BLM to manage the species habitat as an Area of Critical
and Environmental Concern (ACEC). An area with an ACEC designation
carries additional restrictions for mineral development.
NATIONAL PETROLEUM COUNCIL NATURAL GAS STUDY UPDATE
The National Petroleum Council (NPC) is in the process of updating
its 1999 Natural Gas Supply and Demand Study. It is our understanding
that NPC is adding an access section which will analyze four high gas
potential basins (Powder River, Greater Green River, Uinta/Piceance,
and San Juan) to determine the effects lease stipulations, surveys for
threatened and endangered species and conditions of approval have on
industry's ability to explore for and develop resources from these
Rocky Mountain basins. The report is due out in September of this year.
Federal lands must play a growing role in future U.S. energy
supplies. Prior to 1980, only 9% of all domestic oil and gas production
came from Federal land. According to the American Petroleum Institute
(API), today Federal lands produce about one third of domestic oil and
gas, but are estimated to contain 77% of the oil and 60% of the natural
gas resources to be found in the US. In the short period from 1995 to
2003, there has been an increase of at least 75% in estimates of
remaining undiscovered domestic oil resources and over 23% in estimates
of undiscovered natural gas on Federal lands. Despite greater knowledge
of the occurrence of gas resources and increased demand for energy,
Federal policy toward energy development has become increasingly
restrictive. PAW and PLA urge members of this Committee to take steps
to reverse this trend as outlined in the recommendations below.
ROADLESS CONSERVATION RULE
The Roadless Conservation Rule prevents road building on more than
58 million acres of the National Forest System--a move that will place
11.3 TCF of economically recoverable natural gas off limits to
exploration and development. Ironically, this decision coincides with
Administration warnings of shrinking gas supplies. The Bush
Administration sees only ``limited opportunities'' to increase
dwindling natural gas supplies over the next 12 to 18 months, calling
for conservation to head off a summer shortage. Moreover, Federal
Reserve Chairman Alan Greenspan has publicly stated that dwindling
supplies could add serious pressure to the U.S. economy.
According to the Department of Energy Report, Undiscovered Natural
Gas and Petroleum Resources beneath Inventoried Roadless and Special
Designated Areas on Forest Service Lands, November 2000, 83 percent of
the natural gas resource found in the Rocky Mountain Region is located
in slightly less than 5 percent of the total proposed Inventoried
Roadless Areas (IRA) nationwide. PAW and PLA urge Congress to support
modification of the Roadless Conservation Rule. Removal of the 5% IRAs
that overlie these important natural gas resources would still allow
for the majority of the IRAs to be set aside while providing for
development of the critically important natural gas resource base.
FEDERAL REGULATORY PROCESS
The Federal regulatory process is exhaustive and cumbersome. To
comply with requirements of the Federal Land Policy and Management Act
(FLPMA), agencies are required to prepare land use plans. The National
Environmental Policy Act (NEPA) requires agencies to evaluate how
proposed Federal actions will affect the human environment.
Environmental Assessments (EA) must demonstrate that impacts associated
with a proposed action can be mitigated and that the net effects are
not significant. If the EA shows a project has significant impacts, an
Environmental Impact Statement (EIS) must be prepared which identifies
and discloses the potential effects of the project, along with
identified mitigation measures to be used if the project is approved.
Resource Management Plans (BLM) or Land and Resource Management
Plans (USFS) have been developed for all Federal lands. Each plan is
subject to an extensive EIS process; the plans identify what areas will
be available for oil and gas leasing and the stipulations to be applied
to those leases (i.e. No Surface Occupancy (NSO), seasonal restrictions
for wildlife protection, etc.). In addition, the plans establish
operating standards, which must be met before proposed projects are
implemented.
BLM also conducts a ``Determination of NEPA Adequacy'' (DNA) before
a lease parcel is actually included in a Federal lease sale. This
determination indicates whether additional analysis is necessary before
leasing occurs. (Similar DNA analyses are typically prepared before a
project is allowed to proceed.)
It should be noted that once a lease has been issued, it becomes a
contractual agreement between the Federal Government and the lessee.
However, while the lease contract gives the lessee the exclusive right
to develop the lease, it does not give the lessee the green light to
start exploration or development activities. Every proposed project is
subject to a site-specific NEPA analysis before a permit is approved by
the agency. In addition, consultation with other agencies must occur.
For example, consultations with the U.S. Fish and Wildlife Service
(USFWS) or a State Historic Preservation Office (SHPO) may be required
if listed threatened and endangered species or cultural resource issues
are involved, respectively. Each agency may require new restrictions
that directly impact access and the economic viability of the project.
BLM has implemented several new Instruction Memoranda designed to
make the process more efficient. These include:
Enhanced Consistencies in Conditions of Approval;
Cultural Resources Management (block clearances of 40
acres and modeling);
Revision of Onshore Order 1;
Revision of the Gold Book on Operations; and
Plans of Development (POD) Requirements (master POD
addressing two or more proposed wells in close geographic proximity to
one another that share common Drilling and Surface Use Plans).
These IMs are a positive step in the right direction and industry
looks forward to their immediate implementation in the field. In fact,
industry hopes to work closely with BLM in its revisions of the Onshore
Order No. 1 and the Gold Book on Operations. However, there are
additional measures that must be taken to ensure timely and cost
effective ``access'' to Federal lands. We recommend that new
Instruction Memoranda be issued to address the following:
In order to eliminate costly and time-consuming redundant
NEPA analyses, the agencies must utilize existing NEPA documentation by
either tiering or incorporating by reference all existing NEPA analyses
to avoid reanalyzing issues that have already been addressed and for
which decisions have already been made. In other words, in areas where
expanded development is proposed, no new resource data collection is
necessary; simply a new cumulative effects analysis is required; and
Additionally, no new cumulative effects analysis is
necessary if a project proponent wishes to increase recovery of the
resource by directionally drilling new wells from existing locations
that were already approved and drilled under a previous decision
document. Since no new surface disturbance will result, no further NEPA
analysis is necessary.
FRIVOLOUS LITIGATION
Another important factor to consider in the Federal regulatory
process is litigation by ``environmentalist groups'' whose sole purpose
is to delay or deny development of natural resources. In Wyoming,
virtually all lease sales, and most project level EAs or EISs,
including geophysical projects, have been protested, appealed, or
challenged in Federal court. The same is true for the other Rocky
Mountain States.
Unfortunately, NEPA has become a ``tool'' that is used as the
primary impediment to oil and gas development on Federal lands. PAW and
PLA support without qualification the Act's provisions for public
comment, identification of alternatives to the proposed action, and
consideration of impacts and mitigation measures to be used.
Unfortunately, some groups view these same provisions as opportunities
to stop proposed projects without regard for cost and delay impacts on
land management agencies, the U.S. taxpayer, or multiple users of the
public lands.
The cost of ``NEPA abuse'' is high. For example, the burden of
agencies' management responsibilities frequently shifts to operators;
such as preparation of NEPA documentation, resource inventories and
species surveys, monitoring activities and ensuring adequate staff is
available to process permits. All of these new obligations put a
tremendous burden on industry's ability to economically develop the
resource for the benefit of the country.
RECOMMENDATIONS
In conclusion, PAW and PLA appreciate Congress' recognition of the
important role access to Federal lands plays in meeting the energy
needs of this country through its efforts to pass an energy bill.
However, many of the additional measures discussed in this testimony
can also be easily addressed through the regulatory process.
PAW and PLA recommend the following:
Reiterate the importance of Federal lands in meeting the
nation's energy needs;
Provide adequate funding for BLM staffing to specifically
address APD and Rights-of-Way backlogs;
Require timely issuance of leases in areas determined to
be available for oil and gas leasing;
Require timely issuance of APD and Rights-of-Way;
Eliminate the 5% of Inventoried Roadless Areas in the
Rocky Mountain Region that encompass 83% of the natural gas resources
found within the areas covered by the Roadless Conservation Rule;
Encourage aggressive implementation of recently issued
BLM Instruction Memoranda (IM) that provide field guidance for
improving processing of APDs and Rights-of-Way; and
Recommend issuance of new IMs that eliminate redundant
NEPA analyses.
Madam Chairwoman and members of the Subcommittee, thank you again
for the opportunity to share with you our perspective regarding the
``Ability of Federal Lands to our Meet Energy Needs''.
______
Mr. Rehberg. Thank you.
Mr. Eppink, could you explain to me real quickly what is
Advanced Resources International, just so I have a basis of
knowledge of your background, are you in business or are you--
Mr. Eppink. Yes, we are a medium-sized consulting firm,
about 28/25 professionals, and we concentrate on energy,
largely natural gas. Our client base is both Federal agencies,
the industry and Governments and industry overseas.
Mr. Rehberg. So you provide what kind of consulting?
Mr. Eppink. Technical and strategic consulting.
Mr. Rehberg. As to whether they, let us say, the companies
actually go in, and lease, and develop or lease, develop?
Mr. Eppink. Well, to be honest, we are a little bit removed
from the actual leasing per se. It is more of the strategy of
going after what technologies and what strategy is appropriate
for coalbed methane or tight gas in the U.S.
Mr. Rehberg. Do you, in your consulting business, then,
make a determination of the technical opportunities that might
be coming up? Again, I guess I want to ask you the question
what do you think is going to happen in the year 2020? What
level of production or what areas do you use your crystal ball
and make a determination we are going to be able to move into
that we don't currently know now? And then I will follow that
up with a question--
Mr. Eppink. That is a very good question. In fact, part of
our practice, one of my partners does quite a bit of work in
that area.
It is clear that in the future the makeup of natural gas,
especially with the depletion rates that we have now, is going
to be different than it is today. We are moving, in the U.S.,
we are moving to more marginal portions of the resource. They
are harder to get at, and the actual amounts of resources
proved up per individual well is less than it has been in the
past. So to stay in the same place, you have to peddle twice as
fast.
But by the same token, there is quite a bit of resource in
the U.S., in the Rockies in particular. The issue is not so
much resource. It is the difficulty of getting at it from a
number of factors, from an operator's point of view,
technology, price, access, all of these sorts of issues
contribute. So you ask me in 2020 what the picture is going to
look like, it is clearly going to be different than it is
today. We will be using much more unconventional natural gas.
Speaking about natural gas, in particular, we will be using
much more unconventional natural gas. Coalbed methane will not
be unconventional any more. It is clearly mainstream.
There will be much more tight gas. Hydrates I think will be
something that will be ramping up, and gas shales, gas shales
as well.
Mr. Rehberg. This panel is a reflection of a problem that I
have long felt, and I warn people about, I am an advocate of
peer review and sound science, but there are different peers
and different science. Could you compare your consulting
opinion and methodology with RAND's approach?
Mr. Eppink. Yes. Sure.
Mr. Rehberg. And then use the Jonah field in Wyoming as an
example of why you may think it makes good sense, where their
recommendation is it is uneconomic.
Mr. Eppink. Well, a number of things come to mind on that.
We do an awful lot of economic studies, and my contention is
not that economic studies shouldn't be done, it is that you
have to be careful about what you conclude from economic
studies.
As you go further down the resource chain from gas in
place, to technically recoverable, to economic, each item
becomes more and more tenuous. And economics in particular can
be unstable, depending on what price you use. If you had done a
study in 1999, compared to when prices were low, compared to
what they are now, your economics would be advised a little bit
differently.
I reviewed the RAND study, and I think, to be honest, I
don't find the RAND approach particularly new, in all deference
to Debra and her group. We have done studies for the DOE that
are similar on a township-by-township basis of the Greater
Green using GIS overlays previous to EPCA.
One of the criticisms that I did have of the RAND study is
that it puts the environmental filter after the economics, and
I think properly, to make a proper assessment, you need to
bring--it is the operators who face these environmental
constraints--and so they have to work them into their
economics. And so if you are going to put an environmental
filter on, it really needs to go before the economics and how
it impacts the economics.
We did a study just recently published for the Department
of Energy on the Powder River Basin, coalbed methane, looking
at seven options for water disposal associated with development
of the coalbed resources. And we did a resource assessment, we
did technically recoverable resource assessment, and then we
did economics scenario based on the seven methods of disposal.
But we put the environmental costs associated with those into
the economics. So I think the RAND study, it should have put
the environmental filter before the economics.
I think economics can be useful, but they can't be the
pivotal decision point. The issues are too complex, and
economics, it can suffer from the prices of the day, depending
on what price are you going to use; are you going to use $3?
$5?
Mr. Rehberg. Mr. Kind?
Mr. Kind. Thank you, Mr. Chairman.
Thank you, panelists, today for your testimony.
Ms. Knopman, let me ask you, in regard to the RAND study
and the calculation with regards to economically viable
methods, now, just so I am clear, is RAND advocating the
consideration of economically viable resources as the sole
consideration that should be calculated under the equation or
just part of the mix as a factor in determining what viable
sources make economic sense to go out and produce?
Ms. Knopman. We have been very clear that this is one
factor, among several, but it is an important factor.
There are quite a number of points I would like to clarify
if I may just use this opportunity to do so. There are multiple
uses of economic forecasting in the resource area. One can sort
of go up the chain to a macrolevel analysis, precisely what Mr.
Greenspan was concerned about. How much resource is likely to
be available at what cost. The only way that he can get answers
to that question is if he has tools to draw on to give him a
sense of what the nature of our resource base is and how much
it may cost, given what we know now. It is a snapshot,
absolutely, but that is how he gets a sense of what is
available.
The kind of analysis that we have done is intended to be
used for that kind of purpose. It is intended to be used by
State energy planners who are trying to get a sense of what Mr.
Souder was concerned about in his State. It is also a tool that
can be used in Federal land use planning to set priorities, but
it is one consideration when you look at the economics among
several.
Mr. Kind. So I guess economically viable considerations is
another way of saying cost benefit in regards to the other
costs that are calculated into the equation, transportation
infrastructure matters, things of that nature?
Ms. Knopman. Well, we didn't do a cost-benefit analysis.
What we were looking at was some way of getting a handle on
what the relative profitability might be of extracting resource
and different formations given our knowledge today of
technology. Just as Jeff mentioned, the assumption with our
method is that it is dynamic, that one would constantly update,
it is transparent, it is easy to go back and examine the effect
of certain assumptions on cost. In fact, the greatest
uncertainty in our economic analysis comes from the underlying
estimates of technically recoverable resource. That is where
the biggest uncertainties come. We can vary a lot of our cost
parameters, but it is really the uncertainty of the underlying
estimate that has the biggest effect on the range that one
comes up with.
Mr. Kind. Well, just dealing with the Rocky Mountain
regions, can you give us some type of assessment or picture in
regards to economically viable considerations dealing with
transportation infrastructure matters, the feasibility of
producing in that region and the costs that we may be looking
at.
Ms. Knopman. Yes. Well, what we discovered was that using
the assumptions that we lay out in our report, that you could,
within the Greater Green River Basin, we are not able to apply
our analysis to the whole Rocky Mountain Region, though we
would like to see that done and believe that would be useful,
but in the Greater Green River Basin, up to 65 percent could be
profitably produced if the market price were in the
neighborhood of $5 per million Btu.
The incremental costs, the extra costs from transportation,
for actually getting the resource out, is actually relatively
small compared to the drilling and development costs. So that
we found did not really play that large a role.
When the price of natural gas goes higher, there is more of
that technically recoverable resource that is obviously going
to be accessible. All of these numbers are subject to
adjustment as a new technology comes on-line and improvements
are made in engineering.
Mr. Kind. Got it. Thank you. Thank you for your testimony.
Thank you, Mr. Chairman.
Mr. Rehberg. Mr. Bishop?
Mr. Bishop. Thank you, Mr. Chairman. If I could maybe ask
two or three questions here.
First of all, and, Ms. Knopman, I am going to apologize for
this, but I am going to ask you to give me a technical answer,
and realize you are speaking to a nontechnical mind. So it is
going to be a rhetorical challenge for you.
But assuming that, take the Powder River Basin, for
example, if you had performed your resource assessment in 1990
using that same methodology, would the coalbed methane play in
that Powder River Basin have been deemed to hold an
economically recoverable resource?
Ms. Knopman. With any area, it doesn't matter where, and it
doesn't matter when, one would make assumptions, just as is
done in every other aspect of the economy and every economic
sector, make assumptions about available technology and what
that technology could do, given current market prices.
That assessment would only be as good as those assumptions,
and it is probably true that that would have been, there would
have been a conclusion drawn that at today's prices, with
today's technology, that would not have been a resource that
was likely to be developed. We don't make a judgment in our own
methodology of whether something should or should not be
developed. All that we can do is show that under certain market
conditions, under assumptions about various prices, cost of
production, that it would be profitable, a resource would be
profitable to develop.
So I think the answer would have been, and it would not
have been particular to RAND's approach, this would have been
true had the USGS done the economic analysis or an industry
association, it is not particular to any group, the same
conclusion would have been drawn, which is under those
assumptions, no, it would not have been.
Mr. Bishop. If all of these analyses, if every analysis,
then, is a living analysis, it is going to change by the
criteria and conditions change. How long do these analyses have
as far as their shelf life?
Ms. Knopman. That is a really good question, and I guess I
would answer that by saying, in terms of the resource
assessment, given the time in which the USGS can go back and
review their technically recoverable assessment, resource
estimate, you are probably looking at a maximum of 5 years or
so. However, on the economic side, conditions could change
within a year if a new technology came on-line or if prices
shot up. So you have to know, in any decisionmaking context,
what assumptions are underlying your analysis, no matter what
it is.
Mr. Bishop. Mr. Eppink, would you agree with that?
Mr. Eppink. Well, yes, I think I agree, if you had done in
1990, an economic analysis of Powder River Basin, it wouldn't
have passed, and if you had made a decision based on that
analysis, you probably would have dismissed it. But I think
people generally recognize it had technical potential.
My difficulty isn't with doing economics per se; it is, as
Debra pointed out in their own study, the driving force is not
the economics, it is the technically recoverable resource, and
that is why I maintain in my testimony, for purposes of EPCA,
using technically recoverable resource is satisfactory.
If you go to economic resource, and it is not RAND that
contends that you should only use economically recoverable
resources, it is some of the environmental groups, I think it
can be misleading. So it does depend on when an economic
analysis is done. It will clearly taint--taint is probably the
wrong word--but it will clearly dictate the economic parameters
under which you are going to run it, and you would probably
come to different conclusions then if you base your analysis on
technically recoverable resources. Because it was clearly
recognized in 1990, in the Powder River Basin, that the coal
was there.
Mr. Bishop. Mr. Chairman, if I could ask one more question.
I beg your indulgence because I am going to have to leave and
get a picture taken with an artist winner that is being hung up
in the tunnel.
If I could ask Ms. Bower just one question. You went to a
different area, and it is one where we, as a Congress, could
obviously deal. You talked about lawsuits, frivolous lawsuits,
especially on NEPA. Do you have any specific proposals of how
we, as Congress, could deal with those frivolous lawsuits based
on NEPA or similar statutes that produced the post-leasing
problems?
Ms. Bower. Mr. Chairman, Congressman Bishop, I think it is
a complex problem. NEPA allows for public comment. We certainly
are not advocating that you change NEPA to eliminate public
comment and their participation in the public process. I think
it is probably twofold, and I think IBLA is probably addressing
one part of that, and that is lawsuits that come in, they try
to address within I think 90 days to decide whether or not the
merits of the case should move forward or whether or not it is
not right to be in court in the first place.
Another thing that is very concerning, at least from the
Agency's perspective, is when these lawsuits are filed, it
takes up a tremendous amount of staff time and resources to
address the administrative records and prepare the
administrative records and State Director reviews.
If we could encourage that the prevailing party would be
reimbursed for costs incurred after the case has been ruled
upon, that may help with the coffers of the Federal Government
as well.
Mr. Bishop. Thank you.
Mr. Chairman, thank you.
Mr. Rehberg. Thank you.
Ms. Knopman, I didn't have an opportunity to go through the
same drill that I did with Mr. Eppink with you, so I would like
to ask you the same questions of your group. Essentially, you
are economists?
Ms. Knopman. RAND is a nonprofit organization of about 11-
or 1,200 full-time researchers of all disciplines. We have a
full complement of economists. We have many physical
scientists, we have MDs, we have lawyers. We really cover the
whole spectrum. I, myself, have a doctorate in engineering.
Mr. Rehberg. Are you able to work with companies or is this
strictly a nonprofit independent research source that provides
information essentially to Government?
Ms. Knopman. Most of our clients are Government, either at
the Federal or State and local level. However, RAND does do
some private-sector work, fairly limited, but we do it, as long
as it doesn't compromise our ability to be independent and
publish our work, which is very important to us.
Mr. Rehberg. In your 2002 papers, you had a criteria for
viable resources. But since that time, that designation has
been dropped. Can you explain why?
Ms. Knopman. We learned. That was an interim report. It
represented what our thinking had been at that time, as we
began the study, as we spoke with people like Jeff, and many of
the folks on the EPCA team, and got into the topic more deeply.
We understood that that was not a particularly useful term, and
we didn't need it to do what we thought needed to be done,
which was to show how economic criteria could be, and
environmental measures could be brought into an analysis of the
resource.
Mr. Rehberg. Would you say that Mr. Eppink made a point
about the environmental costs being included up front? It would
seem logical to me, someone who actually has to manage
resources for a living, that when you talk about economics, to
have placed it after the fact, probably, in my mind, kind of
discounts the entire study.
Ms. Knopman. Well, that is not entirely accurate as to what
we did, though I take Jeff's point. Our estimates of costs
include an assumption about what the environmental measures
would be taken in a particular type formation. It didn't
explore many different alternatives, and for that I think
Jeff's suggestion is quite useful in that we could be looking
at various environmental mitigation costs up front in the
economic analysis. We made an assumption about a set of costs
and approach for environmental mitigation.
What we do on the environmental side is look at a set of
environmental measures related to water quality, related to
ecological resources. We don't attempt to assign any dollar
figures to dealing with those particular measures. We are
simply associating the values of those measures with the
underlying resource and leaving it at that. We are not-
Mr. Rehberg. But if the theory is economics, and you are
applying a value on the opportunity to develop the resource,
why wouldn't you put a cost or an estimated cost?
Ms. Knopman. We do. We do. It's included in our cost base.
The costs of compliance are included in our cost base. Now, it
did not include, just to be correct here, we did not include
transaction costs, so we didn't include litigation or the costs
of obtaining a permit, and that would be great to include. We
should do that. We didn't--
Mr. Rehberg. I was leaning more toward the direction of my
prior questioning of Ms. Watson about the after-leasing costs,
that it is not a done deal once the permit is granted. There is
a huge economic cost beyond that--
Ms. Knopman. The way our method is set up, you can add as
many costs as you want, and that would be worth doing. What it
would show is simply that it would be more expensive across the
board probably, though there may be differences from one
formation to another to extract the resource. So all of our
availability curves would just sink down a bit. That is all
that would happen there. But one can add as many costs as you
want.
Mr. Rehberg. Mr. Johnson, just so you don't feel left out
of this process, can you explain, in more depth, the importance
of the BP well in Alaska. Is the drilling of the well assured,
and what would the Government do to make certain it is drilled?
Mr. Johnson. At this point, I have sort of heard both ways.
The Department of Energy seems to think it is going to happen.
BP I think to their credit is saying as they are doing their
studies, whenever they come to a decision point, they review
the data and make sure that economically it is worth
continuing. My best guess is that, in fact, during the winter
of 2004, actually, it would be, I believe, five wells being
drilled in a gas reservoir with associated gas hydrates, and
the plan will be to depressurize the reservoir which would then
dissociate the hydrates.
I think that the main thing is to make sure that the
funding is there, particularly for the Department of Interior.
The U.S. Geological Survey is providing a lot of the technical
support for this. The Department of Energy has done some very
good things, but I get the feeling gas hydrates are just not
very high on their priority list, and perhaps should be.
Mr. Rehberg. Japan has stated that it believes that it can
become an energy exporting country solely on the basis of its
gas hydrates. Do you feel that much potential exists?
Mr. Johnson. In Japan?
Mr. Rehberg. Yes.
Mr. Johnson. I think there is a very strong likelihood that
that is the case. They have drilled a few wells closely spaced
a couple of years ago. This coming year they are planning to
drill, I believe, it is somewhere between 20 and 30 wells, to
really evaluate this. They are developing the production
technology. They are modeling it. They are planning to move
ahead, although with the Japanese program, there is a sense of
caution, and perhaps that is simply the way that they like to
operate.
I get the feeling if Japan really wanted to have hydrate
production, they could have it in 2 years. I think their plan
is to have it in about 10 or 12 years, but the potential is
definitely there.
That same case could be made in the United States. We are
designing a program for production quite a ways down the road.
If we design the program differently, we could move that time
table up.
Mr. Rehberg. I want to thank you for taking time out of
your busy schedules. The members of the Committee may have
additional questions that they would like to have answered, and
we would ask that they submit those, and if you could give us
written responses to that. The Committee hearing records will
be left open for a period of 10 days. And since I see my
colleagues have all moved on, and there is no further business
before this Committee, it now stands adjourned.
[Whereupon, at 11:36 a.m., the Subcommittee was adjourned.]