Comments to MMS on Proposed 5-Year OCS Oil and Gas Leasing Program for 2002 -2007
January 22, 2002

The Domestic Petroleum Council, representing the largest and most active offshore independent natural gas and oil exploration and production companies strongly recommends that the proposed 5-Year OCS Oil and Gas Leasing Program be expanded to preserve options that may be essential to meeting the energy needs of our nation during and beyond the program period.

The DPC companies, that collectively hold some 3,700 interests in the Gulf of Mexico and Alaska offshore areas, including some 1,100 deepwater interests, including many as operator, are keenly aware of the challenges we face in meeting future energy demand-especially for natural gas.

For example, despite the current economic slowdown's masking of the critical natural gas supply and demand balance situation, we could see significant market tightening as early as next winter. Over the longer term, we believe that the National Petroleum Council's (National Petroleum Council. "Meeting the Challenges of the Nation's Growing Natural Gas Demand". December, 1999.) projection of a thirty percent gas demand increase over the next fifteen years could be conservative. The U.S. Energy Information Administration projects that the demand increase by 2020 (or over less than twenty years) could be 60%.

Whatever the eventual demand increase number is, offshore natural gas resources will have to meet a very significant share of that demand. The NPC projected that it could be as much as much as one-third.

A very significant share of that projected offshore natural gas supply must come from deeper waters. (In fact, the chart below may be conservative in that regard due to more-rapid-than-expected production declines in the shallower waters of the continental shelf area.)

As a result, given planning and leasing program timelines for both the MMS and industry, it is highly unlikely that the proposed 5-Year Program would allow decisions and activities that would enable our companies and others to realistically even begin to achieve the offshore natural gas supply growth that that will be needed.

A dramatic illustration of this point is again provided by the NPC. In its 1999 natural gas study, Eastern Gulf of Mexico gas that contributed to projected supply/demand balance included significant production from areas that were subsequently taken out of consideration for lease bidding in the December 2001 Sale 181. Those deletions are estimated to have removed as much as 75 percent of the sale's natural gas resource potential.

(The deletions would have contributed to the NPC Eastern Gulf of Mexico gas supply projection shown under the reference case center line on the chart on the following page.)

Most important, those areas are also deleted from the proposed 5-Year Program.

Even more problematic is the fact that none of the potential Eastern Gulf of Mexico supply growth under the top line of the chart shown above is possible under the proposed 5-Year Program because none of the acreage under which that potential supply lies is included in the proposal.

Clearly we will be at an important natural gas supply and demand juncture during the years covered by the 5-Year OCS Program. Because of required planning and lease action lead times, and given global political and energy supply uncertainties, during the 2002-2007 time period we very likely will need to make crucial supply decisions.

During that time period, as has been occurring in the immediate past, we could see a continuing shifting of environmental and technology understanding improvements that will permit energy decisions to include expansion of energy leasing activity off our coasts, even in some areas currently off limits by law or executive order. But because leasing actions not included in the 5-Year Program are prohibited without potentially years of additional policy process and delay, the Program as proposed would not allow adequate energy policy decision flexibility.

For that reason, the Domestic Petroleum Council strongly recommends that the Proposed 5-Year OCS Oil and Gas Leasing Program for 2002-2007 include consideration of additional acreage in areas of the Eastern Gulf of Mexico and even selected priority resource areas off the Atlantic and/or Pacific coasts.

Increasing the consideration of acreage covered by the 5-Year Program would not mandate any specific leasing actions. It would, however, provide the MMS in the future with increased ability to take timely and appropriate action with respect to OCS areas that might be proposed for leasing, exploration, development and production in conformance with future legislative and/or Executive Branch energy policy decisions.

Contact: William F. Whitsitt, President, DPC