**STATEMENT OF**

**C. STEPHEN ALLRED**

**ASSISTANT SECRETARY FOR LAND AND MINERALS MANAGEMENT**

**U.S. DEPARTMENT OF THE INTERIOR**

**BEFORE THE**

**SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES**

**JANUARY 25, 2007**

Mr. Chairman, thank you for the opportunity to appear here today to
discuss the Federal Outer Continental Shelf (OCS) and the role these
Federal lands play in providing a secure source of domestic production
of oil and gas.

The Department and its agencies, including the Minerals Management
Service (MMS), serve the public through stewardship of our Nation's
natural resources. The Department also plays an important role in
facilitating domestic energy development. One third of all energy
resources produced in the United States are managed by the Department of
the Interior.

The MMS has two significant missions: managing access to offshore
Federal energy and mineral resources and managing revenues generated by
Federal and Indian mineral leases, on and offshore.

Managing access has resulted in OCS production of almost 11 billion
barrels of oil and more than 116 trillion cubic feet of natural gas
since 1982. Since 1982 OCS leasing has increased by 185 percent, and
since 1994 OCS oil production has increased by 34 percent.

**Nation's Energy Outlook**

The United States continues to face an energy challenge with high prices
and increasing dependence on foreign supplies. Our security, economy,
and our quality of life are dependent on energy. As this Committee knows
well, there is no single solution. Achieving energy security will
require diligence on both the supply and demand sides of the energy
equation.

Oil will continue to be vital to the American economy. According to the
Energy Information Administration (EIA), over the next 20 years
Americans' demand for energy is expected to grow 25 percent. \[see
figure A: EIA projection of U.S. energy consumption\] Even with more
renewable energy production expected, oil and natural gas are projected
to account for a majority of energy use through 2030. This projection
incorporates continued gains in energy efficiency and movement away from
energy-intensive manufacturing to less energy intensive service
industries. Offshore oil and gas production will continue to be a vital
part of our Nation's domestic energy resource portfolio. \[see Figure B:
EIA projection of U.S. energy resource production\]

Continued and growing reliance on oil and natural gas coupled with the
need to reduce our dependence on foreign energy supplies causes us to
look increasingly at the potential oil, natural gas and other energy
resources from Federal waters on the Outer Continental Shelf (OCS) to
enhance environmentally safe domestic energy production.

Today, MMS administers more than 8,400 leases and oversees over 4,000
facilities on the OCS. According to MMS's calculations, within the next
5 years, offshore production will likely account for more than 40
percent of domestic oil and 25 percent of U.S. natural gas production,
owing primarily to deep water discoveries in the Gulf of Mexico.

**OCS Role in Nation's Energy Portfolio**

Much of the future United States oil and gas demand will have to be met
by OCS production, especially from new areas in the Gulf of Mexico and
Alaska.

The Gulf of Mexico continues to represent a major domestic energy source
for the United States. There is intense interest in oil and gas
potential in the deep and ultra-deep water areas. Exploratory drilling
in the deep water increased in 2005 despite the disruptions caused by
hurricanes; and 12 new deep water discoveries were announced in 2006.
Recent discoveries in the ultra-deep waters of the Gulf of Mexico
represent a significant increase in oil and gas reserves for decades to
come. The large volume of active deep water leases, the steady drilling
program, and the deep water infrastructure indicate that the deep water
Gulf of Mexico will continue to be an integral part of the Nation's
energy supply.

The EIA provided MMS with Federal OCS data pulled from its soon to be
published 2007 Annual Energy Outlook[^1]. The Federal OCS data shows a
trend of increasing oil production from the OCS to about 750 million
barrels per year by 2010. Natural gas production should begin increasing
in 2007, again reaching 4 trillion cubic feet by 2011 and sustaining
that level through at least 2022. Significant additional oil and natural
gas production is expected when new projects, like Atlantis, Thunder
Horse, and Independence Hub, come on line in 2007 and 2008. However, new
deep water natural gas production may not keep pace with the expected
declines in production from the shallow waters of the Gulf of Mexico.

To encourage energy development from Federal offshore lands, MMS
provides an orderly and predictable schedule of oil and gas lease
offerings through competitive bid. Production from leases issued as a
result of these sales will contribute substantially to future domestic
oil and gas production and will provide bonuses, rentals and royalties
to the U.S. Treasury and adjacent coastal states. To encourage increased
drilling and production from the OCS, sales in the Gulf of Mexico have
included royalty incentives authorized by Congress for the drilling of
deep depth wells in shallow waters and for producing from deep water
leases. Incentives have also been provided for newly issued leases
offshore Alaska to encourage industry interest in that area.

**2006 Resource Assessment**

Last year, as part of the OCS inventory requirements of the Energy
Policy Act of 2005, MMS completed an assessment of the potential
quantities of undiscovered technically recoverable oil and gas resources
that may be present on the OCS[^2]. According to this assessment, the
OCS is thought to contain (at the mean level) 86 billion barrels of oil
and 420 trillion cubic feet of natural gas. For comparison, the most
recent resource assessment estimates from the United States Geological
Survey National Oil and Gas Assessment indicate that the total mean,
undiscovered technically recoverable resources for onshore and State
owned waters offshore are approximately 46 billion barrels of oil and
627 trillion cubic feet of natural gas. Thus, the OCS represents about
65 percent of oil and 40 percent of natural gas of the Nation's
remaining undiscovered technically recoverable oil and natural gas
resources. \[see Figure C: Resource Assessment Map\]

Approximately 20 percent of those undiscovered technically recoverable
OCS resources have been unavailable for leasing due to longstanding
congressional moratoria and/or Presidential withdrawal. When the 2006
resource assessment was completed, areas under congressional moratoria
or Presidential withdrawal included the North Aleutian Basin off Alaska,
the Pacific, the Eastern Gulf of Mexico, and the Atlantic. As discussed
further in my statement, modifications to the status of some of these
areas have recently been made.

There is great uncertainty regarding the resource potential in areas
where leasing has been prohibited and where the last geophysical surveys
and drilling exploration occurred more than 25 years ago. Using the
information available to us, we estimate that nearly 17.8 billion
barrels of oil and 76.5 trillion cubic feet of technically recoverable
gas remain unavailable for leasing consideration.

**Access to Resources**

Of the 1.76 billion acres of Federal offshore lands on the OCS, about
600 million acres are not available for oil and gas leasing. The
potential resource in the areas under remaining moratoria and withdrawal
are estimated to be approximately 18 billion barrels and 76 trillion
cubic feet of gas.

There has been a 20-year congressional moratorium on new leasing along
the Atlantic and Pacific coasts and in the Eastern Gulf of Mexico.  In
1990, Congress placed Alaska's North Aleutian Basin under a leasing
moratorium.   In 1998, these areas were placed under a Presidential
Withdrawal which continues through 2012.

In 2004, at the request of the Alaska delegation, Congress dropped the
North Aleutian Basin from the annual moratoria language.  The Gulf of
Mexico Energy Security Act (GOMESA) [^3] was signed into law in December
2006, establishing a new moratorium on leasing activities until June 30,
2022 in the new Eastern Gulf Planning Area outside of Sale 181, and a
portion of the Central Gulf Planning Area that, in general, is within
100 miles of the coastline of Florida.  There are two small areas in the
new Eastern Gulf Planning Area west of the Military Mission Line and one
small area in the new Central Gulf Planning Area north of the Sale 181
Area that remain subject to the Presidential Withdrawal through 2012,
but are not subject to the new 2022 moratorium under GOMESA.  In
addition, GOMESA repealed the congressional moratorium for the area in
the Central Gulf Planning Area, known as "181 Area South."  \[See Figure
D: Map of Sale 181\]

**5-Year OCS Oil and Gas Leasing Program (2007-2012)**

The MMS is nearing completion of a new 5-Year OCS Oil and Gas Leasing
Program for sales beginning in July 2007 through June 2012. MMS is
preparing the Proposed Final Program and Final Environmental Impact
Statement (EIS) for issuance in April of this year. Pursuant to the OCS
Lands Act, the Program will be sent to Congress and the President for at
least 60 days before the Secretary approves the final program.

The Draft Proposed Program, issued in February 2006, contained 21 sales
in seven planning areas---Western and Central Gulf of Mexico, Beaufort
and Chukchi Seas, Cook Inlet and North Aleutian Basin off Alaska, and
the Atlantic offshore Virginia.

Following scoping and public comment, the Proposed Program and Draft EIS
were issued in August 2006. The sales in Alaska are proposed in response
the State of Alaska and industry interest, especially the Chukchi Sea.
The North Aleutian Basin, as well as the 181 South Area in the Gulf of
Mexico and the Atlantic offshore Virginia were included as areas for
further consideration of leasing should Congress and the President
modify the pertinent congressional moratoria and Presidential Withdrawal
language.

On January 9, 2007, the President modified the 1998 withdrawal to allow
leasing in the North Aleutian Basin planning area offshore Alaska and
the 181 South Area of the Gulf of Mexico. These actions were in response
to the requests from Alaska state officers and local communities and
enactment of the GOMESA respectively.

The analysis completed for the proposed 5-year plan indicated that
implementing the new program would result in the anticipated production
of an additional 10 billion barrels of oil and 45 trillion cubic feet of
gas, with \$170 billion in net benefits for the Nation over a 40-year
time span. With the enactment of the GOMESA, these numbers will probably
change. Those changes will be reflected in the Final Plan.

In response to passage of the GOMESA, which directs lease offerings in
two areas of the Gulf, MMS plans to move forward with this Congressional
directive in connection with the new 5-year program. Adding these two
important areas to the leasing schedule under the final 2007-2012
leasing program provides access to a potential 637 million barrels of
oil and 2.8 trillion cubic feet of natural gas.

The first area consists of approximately 546,000 acres that lie within
the Sale 181 area and in the Eastern Gulf Planning Area. MMS has begun
preparation of a supplemental EIS to a previous National Environmental
Policy Act (NEPA) document prepared in 2001 for Sale 181.

The second area consists of approximately 5.8 million acres in the deep
waters of the Central Gulf and was included in the Proposed Program as
an area for further consideration for leasing. In response to the GOMESA
and modification of the Presidential withdrawal, MMS intends to prepare
a supplemental EIS and include this area in the Central Gulf sale
scheduled for March of 2009.

On the Atlantic coast, Virginia expressed an interest in looking into
the gas resources off its coastline. While this area has been included
in the Proposed Program and discussions continue, no leasing will occur
in this area unless Congress lifts its moratorium and the President
modifies the withdrawal to allow leasing activities to occur.

Sales proposed will be completed in compliance with the National
Environmental Policy Act to analyze potential environmental impacts.
Other laws, such as the Marine Mammal Protection Act and the Endangered
Species Act, will be complied with.

**Renewables: Alternative Energy on the Outer Continental Shelf**

The United States faces a future of increasing energy demand causing a
search for new sources of domestic energy supply. Our ocean frontiers
may play a significant national role in this quest, particularly in the
areas of new renewable and other alternative energy sources. MMS,
drawing on its vast offshore engineering and environmental expertise,
will work to help secure America's energy future while protecting the
environment.

In addition to supplying the Nation with "traditional" energy resources,
the OCS is poised to provide us with "alternative", renewable sources of
energy such as wind, wave, tidal, and ocean current. Through new
authorities established by the Energy Policy Act of 2005, the
Department, specifically MMS, is establishing a regulatory framework to
harness these potent energy sources. Our goal is to create a program
that provides for meaningful dialogue with states and stakeholders;
relies on sound environmental, engineering and scientific analyses; and
culminates in a balanced approach that promotes safe and environmentally
responsible renewable energy production.

Along with the program, MMS is preparing a programmatic EIS that will
focus on general impacts from each industry sector based on global
knowledge and identify key issues that future project or site-specific
environmental analyses should consider. Our target is to make the
programmatic EIS and draft rule available for public comment in the
spring of this year, and finalize these documents in the near future.

[]{.mark}

The Energy Policy Act also gave the Secretary responsibility for two
existing offshore alternative energy proposals, the Cape Wind Energy and
the Long Island Offshore Wind Park projects. The MMS is reviewing each
proposal and supporting information, and is preparing project-specific
environmental analyses.

Cape Wind Associates (CWA) has proposed to construct an offshore wind
park located on Horseshoe Shoal in Nantucket Sound, 4.7 miles offshore
Massachusetts. The purpose of the project is to provide a utility-scale
renewable energy facility project providing electricity to the New
England Power grid. The proposed wind park will consist of 130 offshore
wind turbine generators arranged to maximize the park\'s maximum
potential electric capacity of approximately 454 megawatts. The draft
EIS is anticipated to be available for public comment in late spring.

The Long Island Power Authority (LIPA) and Florida Power & Light (FPL)
have proposed an offshore wind park located between 3 and 4 miles off
the South Shore of Long Island, New York. The proposed wind park would
entail installation of 40 turbines with a capacity of 140 megawatts of
electricity for use in Long Island communities. The draft EIS is
anticipated to be available for comment in late summer.

**Conclusion**

The Department of the Interior remains committed to doing its part to
provide access to both traditional energy resources and alternative and
renewable sources on Federal lands as a critical component of a
balanced, comprehensive energy policy. For this reason, the Department
has ensured that the OCS remains a solid contributor to the Nation's
energy needs.  The relative contribution from Federal offshore areas
will increase in the coming years due to increased access and increased
activity in the deep waters of the Gulf of Mexico.  

 

Mr. Chairman, this concludes my statement. I appreciate the continued
support and interest of this Committee in MMS's programs. It would be my
pleasure to answer any questions you or other members of the Committee
may have at this time.

[^1]: Energy Information Administration, Annual Energy Outlook 2007 Data
    (Special National Energy Modeling System run AEO2007.D112106A for
    MMS).

[^2]: Report to Congress: Comprehensive Inventory of U.S. OCS Oil and
    Natural Gas Resources.
    [http://www.mms.gov/revaldiv/PDFs/FinalInvRptToCongress050106.pdf]{.underline}

[^3]: GOMESA was Title I of Division C of Public Law 109-432, an act to
    amend the Internal Revenue Code of 1986 to extend expiring
    provisions, and for other purposes.