|
Access to federal lands could prevent gas shocks Rice University study recommends trading Alaska gas development for E&P access to closed Lower 48 federal lands Rose Ragsdale For Petroleum News
Spening federal lands to oil and gas exploration won’t free the United States from its growing dependence on natural gas imports, but it could protect the country from future global supply disruptions caused by possible formation of an OPEC-like gas cartel, according to a study released in November by Rice University researchers.
Given the importance of the changing outlook for natural gas supplies and energy prices, the James A. Baker III Institute for Public Policy at Rice University conducted a two-year study, “Natural Gas in North America: Markets and Security,” to investigate factors that will influence security of supply and pricing.
About 3 percent of current U.S. natural gas supplies come from overseas via liquefied natural gas tankers, another 17 percent comes from Canada in pipelines and the remaining 80 percent is produced domestically.
In recent years, environmental and land-use considerations have prompted U.S. policy makers to deny access to large areas that were once available for exploration and development. Twenty years ago, nearly 75 percent of federal lands were available for private lease to oil and gas exploration companies. Since then, the share has fallen to 17 percent.
The study said LNG imports could rise to as much as 30 percent by 2030 if the United States does not permit access to the 58 percent of federal lands now off limits, including offshore areas and the Rocky Mountains.
More domestic production needed Opening restricted areas in the outer continental shelf and Rocky Mountains will not render the United States energy independent nor will it even lower U.S. dependence on LNG imports in 2015 by a significant volume.
Opening these lands to drilling, however, would cut LNG demand to 22 percent of the country’s gas needs by 2030, the study said. It also would help keep prices lower.
But the larger benefit of reducing LNG imports would be to undermine efforts by big gas exporters, including Russia, Iran and Qatar, to form a cartel like the Organization of the Petroleum Exporting Countries that could limit supplies and drive costs up, according to the analysis.
“As time passes, our high-cost domestic production will increasingly have to compete against a swath of more competitively priced imports,” predicted Kenneth B. Medlock, a fellow for energy studies at the Baker Institute.
“In the short term,” Medlock explained, “the net impacts on U.S. supply security are not all that worrisome. But in the long term, as our demand grows, we will have to worry more about security of supply.”
Opening up the outer continental shelf and Rockies gas supplies means the rest of the world will have a bigger basket of alternative supplies to pull from, significantly reducing market power that a cartel might try to create, he added.
Alaska gas too costly While Alaska is believed to hold substantial natural gas reserves, the high cost of developing these distant supplies will make it difficult for them to compete with low-cost sources, the researchers said. Under a moderate oil price, unrestricted drilling, market scenario, Alaska gas resources would not get fully developed. They would in effect take a back seat to low-cost domestic natural gas production and cheap, marginal supplies of LNG imports, the study said.
“Another alternative would be to exploit the potential for ‘net conservation benefit trades’ in lands that have potential for natural gas resource development,” the researchers said. “Essentially, a net conservation benefit trade is an exchange of resources that results in a net gain in conservation outcomes, while at the same time releasing resources for other uses.
“Examples of net conservation benefit trades include multiple land use, where productive practices are adjusted to maintain or enhance conservation values in situ. For example ... a productive activity in one location is used to finance a conservation activity, or purchase conservation rights, elsewhere. Indeed, the trade of increased Lower 48 production for reduced Alaskan production could be viewed as an implicit net conservation benefit offset,” the researchers said.
The study, which Medlock co-authored, was released as part of a Nov. 16 conference at Rice about the future of natural gas in the United States. It was co-sponsored by McKinsey & Co. and the Independent Petroleum Association of America.
| 