[Federal Register Volume 71, Number 45 (Wednesday, March 8, 2006)]
[Proposed Rules]
[Pages 11559-11561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-2169]


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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Part 3100

Minerals Management Service

30 CFR Part 203

[WO-310-06-1310-24 1A]
RIN 1004-AD81


Gas Hydrate Production Incentives

AGENCY: Bureau of Land Management, Minerals Management Service, 
Interior.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Bureau of Land Management (BLM) and the Minerals 
Management Service (MMS) request comments and suggestions to assist in 
the preparation of proposed regulations governing Gas Hydrate 
Production Incentives. The rule would provide incentives to promote 
natural gas production from the natural gas hydrate resources on 
Federal lands in Alaska and in Federal waters on the Outer Continental 
Shelf. We encourage the public to provide comments and suggestions to 
help clarify and define the requirements for Gas Hydrate Production 
Incentives as described in the Energy Policy Act of 2005.

DATES: We will accept comments and suggestions on the advance notice of 
proposed rulemaking until April 7, 2006.

ADDRESSES: You may submit comments by any of the following methods 
listed below.

Federal rulemaking portal: http://www.regulations.gov (Follow the 
instructions for submitting comments.)
Internet e-mail: [email protected]. (Include ``Attn: 
AD81'').
Mail: Director (630), Bureau of Land Management, Administrative Record, 
Room 401-LS, Eastern States Office, 7450 Boston Boulevard, Springfield, 
Virginia 22153. Personal or messenger delivery: Room 401, 1620 L 
Street, NW., Washington, DC 20036.

FOR FURTHER INFORMATION CONTACT: For onshore, Thomas J. Zelenka at 
(202) 452-0334 and for offshore, Marshall Rose at (703) 787-1536, as to 
the substance of the advance notice, or Ted Hudson at (202) 452-5042, 
as to procedural matters. Persons who use a telecommunications device 
for the deaf (TDD) may call the Federal Information Relay Service 
(FIRS) at 1-800-877-8330, 24 hours a day, seven days a week, to contact 
the above individuals.

SUPPLEMENTARY INFORMATION:

I. Public Comment Procedures
II. Background
III. Description of Information Requested

I. Public Comment Procedures

A. How Do I Ccomment on the Advance Notice of Proposed Rulemaking?

    Your written comments should:
     Be specific;
     Explain the reason for your comments and suggestions; and
     Be about the issues outlined in the notice.
    Comments and recommendations that will be most useful and likely to 
influence decisions on the content of the proposed rule are:

[[Page 11560]]

     Those supported by quantitative information or studies, 
and
     Those that include citations to and analyses of any 
applicable laws and regulations.
    We are particularly interested in receiving comments and 
suggestions about the topics listed under Section III. Description and 
Information Requested.
    If you wish to comment, you may submit your comments by any one of 
several methods, in each case referring to ``1004-AD81''.
     You may mail comments to Director (630), Bureau of Land 
Management, Administrative Record, Room 401 LS, Eastern States Office, 
7450 Boston Boulevard, Springfield, Virginia 22153.
     You may deliver comments to Room 401, 1620 L Street, NW., 
Washington, DC 20036.
     You may comment on this advance notice at the Federal 
eRulemaking Portal: http://www.regulations.gov, following the 
instructions at that link.
     You may also comment via email to: [email protected].
    We may not necessarily consider or include in the Administrative 
Record for the final rule comments received after the close of the 
comment period (see DATES) or comments delivered to an address other 
than those listed above (see ADDRESSES).

B. May I Review Comments Submitted by Others?

    Comments, including names and street addresses of respondents, will 
be available for public review at the address listed under ADDRESSES 
Personal or messenger delivery--during regular business hours (7:45 
a.m. to 4:15 p.m.), Monday through Friday, except holidays.
    Individual respondents may request confidentiality, which we will 
honor to the extent allowable by law. If you wish to withhold your name 
or address, except for the city or town, you must state this 
prominently at the beginning of your comment. We will make all 
submissions from organizations or businesses, and from individuals 
identifying themselves as representatives or officials of organizations 
or businesses, available for public inspection in their entirety.

II. Background

A. Statutory

    The Energy Policy Act of 2005, at Section 353, GAS HYDRATE 
PRODUCTION INCENTIVE, is intended to ``promote natural gas production 
from the natural gas hydrate resources on the outer Continental Shelf 
and Federal lands in Alaska by providing royalty incentives.'' The 
statute directs the Secretary to conduct a rulemaking and grant royalty 
relief ``if the Secretary determines that such royalty relief would 
encourage production of natural gas from gas hydrate resources. . ..'' 
The Energy Policy Act of 2005, at Section 353(d) also directs the 
Secretary to issue an Advance Notice of Proposed Rulemaking within 180 
days of the August 8, 2005, date of enactment.

B. Technical Review

    Gas hydrates are crystalline substances composed of water and gas 
together in solid form far above the freezing point of water, in which 
a solid water-lattice accommodates gas molecules in a cage-like 
structure, or clathrate. The estimated amount of gas in the hydrate 
accumulations of the world greatly exceeds the volume of known 
conventional gas resources. However, the role that gas hydrate 
resources may play in contributing to the world's energy requirements 
will depend ultimately on the availability of producible gas hydrate 
resources and the cost to extract them.
    The discovery of large gas hydrate accumulations in terrestrial 
permafrost regions of the Arctic and beneath the sea along the outer 
continental margins of the world's oceans has heightened interest in 
gas hydrate resources as a possible energy resource. However, technical 
issues need to be resolved before gas hydrate resources can be 
considered a viable option for affordable supplies of natural gas. The 
combined information from Arctic gas-hydrate studies shows that, in 
permafrost regions, gas hydrate resources may exist at subsurface 
depths ranging from about 130 to 2,000 meters. The presence of gas 
hydrate resources in offshore continental margins has been inferred 
mainly from anomalous seismic reflectors, known as bottom-simulating 
reflectors, that have been mapped at depths below the sea floor ranging 
from about 100 to 1,100 meters.
    In 1995, the U.S. Geological Survey completed its most detailed 
assessment of U.S. gas hydrate resources. The USGS study estimated the 
in-place gas resource within the gas hydrate of the United States 
ranged from 112,000 trillion cubic feet to 676,000 trillion cubic feet, 
with a mean value of 320,000 trillion cubic feet of gas. Subsequent 
refinements of the data in 1997 have suggested that the mean should be 
adjusted slightly downward, to around 200,000 trillion cubic feet--
still larger by several orders of magnitude than the estimated 1,200 
trillion cubic feet of conventional recoverable gas resources and 
reserves in the United States.
    Recently, several countries, including Japan, India, and the United 
States, launched ambitious national projects to further examine the 
resource potential of gas hydrate resources. These projects may help 
answer key questions dealing with the properties of gas hydrate 
reservoirs, the design of production systems, and, most importantly, 
the relative costs and economics of gas hydrate production.
    Even though gas hydrate resources are known to occur in numerous 
marine and Arctic settings, little is known about the technology 
necessary to produce gas hydrate. Most of the existing gas hydrate 
``resource'' assessments do not address the problem of gas hydrate 
recoverability. Proposed methods of gas recovery from gas hydrate 
resources usually deal with dissociating or ``melting'' in-situ gas 
hydrates by (1) heating the reservoir beyond hydrate formation 
temperatures, (2) decreasing the reservoir pressure below hydrate 
equilibrium, (3) injecting an inhibitor such as methanol or glycol into 
the reservoir to create conditions that could decrease hydrate 
stability, or (4) some combination of these methods. Gas hydrate 
computer production models and a limited number of research and 
development production tests have shown that gas can be produced from 
hydrate resources at sufficient rates to make gas hydrate a technically 
recoverable resource. However, the economic costs associated with the 
various proposed production schemes have not been assessed. Several 
recent studies have documented the need for extended gas hydrate 
production field tests in order to allow further development of various 
gas hydrate production technologies.

C. Ongoing Research and Development Activities

    It is possible that gas hydrate resources may become an important 
global source of natural gas. For the MMS and BLM, gas hydrates are 
potentially a large untapped resource occurring on Federally-managed 
lands and waters. To develop a complete regional understanding of this 
potential energy resource, the Department of the Interior through MMS, 
BLM, and the U.S. Geological Survey (USGS), is actively assessing the 
energy resource potential of gas hydrate resources in the Outer 
Continental Shelf of the United States and onshore in northern Alaska. 
This ongoing work has combined the resource assessment responsibilities 
of MMS and USGS with the surface management and permitting 
responsibilities of MMS and BLM. As interest in gas hydrate resources

[[Page 11561]]

continues to grow, information generated from these activities will 
help guide these agencies to promote responsible development of this 
potential energy resource.
    The Methane Hydrate Research and Development Act of 2000 (Pub. L. 
106-193) authorized the expenditure of $43 million over 5 years and 
directed the U.S. Department of Energy (DOE), in consultation with 
USGS, MMS, the National Science Foundation, the Department of Defense, 
and the Department of Commerce, to commence basic and applied research 
to identify, explore, assess, and develop methane hydrate resources as 
a source of energy. Under this Act, DOE funded laboratory and field 
research on both Arctic and marine gas hydrate resources. The Energy 
Policy Act of 2005 renews the Methane Hydrate Research and Development 
Act. In addition, the Energy Policy Act of 2005 provides the Secretary 
of the Interior with the authority to create incentives through royalty 
relief for gas hydrate production. Such incentives may encourage new 
technology and advance the timing of recovery.

III. Description of Information Requested

    We are committed to carrying out the provisions of the Energy 
Policy Act of 2005. The potential for natural gas production from gas 
hydrate resources exists but has not yet been demonstrated to be 
technically feasible. Until exploration, development and production 
technologies are better determined, a rule providing for a flexible 
case-by-case assessment of each gas hydrate application for royalty 
relief would appear to be the most logical approach.
    The gas hydrate production incentive aims to promote natural gas 
production from gas hydrate resources by providing a royalty suspension 
volume of up to 30 billion cubic feet (Bcf) per eligible lease, the 
maximum amount authorized under the statute. If the Secretary 
determines, pursuant to Section 353(b)(3) of the Energy Policy Act of 
2005, that royalty relief would encourage production of natural gas 
from gas hydrate resources, and adopts a regulation providing for such 
relief, a lease may be eligible for this royalty relief if it is:
     A lease under the Outer Continental Shelf (OCS) Lands Act; 
or
     An oil and gas lease for onshore Federal lands in Alaska;
     Issued prior to January 1, 2016, that commences natural 
gas production from gas hydrate resources prior to January 1, 2018.
    Section 353(d)(2) requires that any final rule must define gas 
hydrate resources as both the natural gas content of gas hydrates 
within the hydrate stability zone and free natural gas trapped by and 
beneath the hydrate stability zone. The royalty relief, if authorized 
under a final rule and approved for a lease, would apply only to 
production occurring on or after the date of publication of this 
advance notice of proposed rulemaking, as provided by Section 353(b)(3) 
of the EPAct. While relief is retroactive to the date of this advance 
notice of proposed rulemaking, lessees must pay royalty on production 
that occurs before publication of a final rule but may request a refund 
after a final rule is published. In addition, pursuant to Section 
353(b)(4) of the EPAct, the royalty relief may be conditioned on the 
market price of natural gas, and so may be subject to a natural gas 
price threshold or other market based limitations.
    We are interested in receiving comments regarding incentive 
provisions that would encourage production of natural gas hydrate 
resources. Topics we are considering for the proposed regulations 
include, but are not limited to, the following:
    1. If the Secretary determines that incentives are warranted, does 
a case-specific assessment approach for gas hydrate resources provide 
the appropriate framework for the intended incentives?
    2. How should the assessment be structured with regard to 
determining whether royalty relief is needed? Is it reasonable to 
expect that such assessments can be consistently and reliably completed 
for a wide variety of projects? If the Secretary determines that relief 
is warranted, how should the amount of relief be calculated? What 
information should be required?
    3. Given that the technologies needed to produce this hydrate 
resource are still in the early stages of development, should 
incentives be structured to adapt to changes in technology and project 
economics? If yes, how?
    4. Should the relief awarded be conditioned on market price? If 
yes, how?
    5. If an approach other than a case-specific approach is advocated, 
what decision criteria should be used? What methodology should be used? 
What information should be required? How would this approach address 
the evolution of the technologies and operational processes? Should the 
process be the same for onshore leases and offshore leases?
    6. Are there other incentives that could be offered to encourage 
development of gas hydrate resources production?
    7. How should royalty relief be structured for production of gas 
hydrate resources? How should royalty relief for production of gas 
hydrate resources relate to other royalty relief?
    8. Should royalty relief for the production of gas hydrate 
resources differentiate between instances that produce hydrate 
resources directly, and those that produce free natural gas trapped 
beneath the hydrate stability zone?
    9. Are there other issues that should be considered?
    As a result of comments received in response to this Advance Notice 
of Proposed Rulemaking, the Secretary may determine that a production 
royalty incentive is either unnecessary to promote gas hydrate 
production or is insufficient to encourage production of natural gas 
from gas hydrate resources. If a production royalty is insufficient to 
encourage production, other options for promoting gas hydrate resources 
production, possibly in combination with the options discussed above, 
may need to be analyzed instead. Therefore, the Secretary is not yet 
prepared to make the determination under Section 353(b)(3) of the 
Energy Policy Act that royalty relief would encourage production of 
natural gas from gas hydrate resources. However, pursuant to that 
subsection of the Energy Policy Act, if BLM and/or MMS adopt a royalty 
relief rule it would be applicable to any eligible production occurring 
on or after the publication date of this Advance Notice of Proposed 
Rulemaking in the Federal Register.

    Dated: February 1, 2006.
Johnnie Burton,
Acting Assistant Secretary of the Interior.
[FR Doc. 06-2169 Filed 3-7-06; 8:45 am]
BILLING CODE 4310-MR-P; 4310-84-P