**Johnnie Burton**

**American Public Gas Association**

**Annual Conference**

**Lake Geneva, Wisconsin**

July 26 & 27, 2004

[Overcoming obstacles]{.underline}

Over the last few decades, America has grown increasingly reliant on oil
and natural gas to fuel its economy.  Today, gasoline prices are nearly
50% higher than last summer, oil prices are at a 25-year high and
natural gas prices have reached sustained high historic levels.

The gap between our energy supply and demand is widening. Many of the
national experts indicate the era of cheap oil is coming to an end. But
there are some important actions that can and must be taken to help meet
our domestic energy demand and ensure the Nation's energy security. As a
Nation we are at a crossroads in which the **[choices]{.underline}** we
make today on domestic energy production will affect us for decades to
come.

The fact is energy is the lifeblood of our modern existence.

Over the last 20 years, for environmental reasons, clean burning natural
gas has emerged as the fuel of choice for power generation as well as
for residential and manufacturing use. When natural gas becomes
unavailable or available at prices that were never anticipated when
business plans were drafted, we will have many victims. Jobs are lost,
companies close their doors or relocate overseas where gas is cheaper,
and senior citizens have difficulty paying for heat or air conditioning
while also meeting their every day expenses.

Among the fossil fuels, natural gas has been gaining a larger share of
demand every year and that share is projected to increase significantly
in the next couple of decades.

However, **[domestic production]{.underline}** of natural gas has not
kept pace with **[rising demand]{.underline}**. In fact total domestic
production is on the decline.  We went from being self sufficient to
importing over 15%---a number that is expected to rise dramatically in
the coming decades. Presently our imports come mostly from Canada. But
Canada has warned that they may have trouble sustaining this level of
export.

Projections done by the Department of Energy anticipate that the demand
for both oil and gas will increase substantially in the next 10 to 15
years.  For natural gas, the anticipated demand will grow by almost 40%.
Where will we obtain the natural gas we need and at what price?

What we need to do is work toward re-establishing a balance between
supply and demand. This can be accomplished with a combination of
increased imports and increased domestic production, conservation
measures, and faster development of alternative sources of energy.

In anticipation of meeting our future needs, the Nation is now turning
to importation of liquefied natural gas from the Middle East, Africa and
elsewhere, which can now be done competitively by tankers. I assume you
have already heard a lot about LNG terminals onshore and offshore for
these ships. This will not take care of the whole problem of short
supply and furthermore it may not be wise to become too dependent on
foreign natural gas imports as we are for oil now. But it is a necessary
strategy. This Administration is diligently pursuing this strategy by
requiring the agencies involved to expedite the permitting process for
those terminals. However, there is significant work to be done to insure
the safety of those operations. Building such terminals is a huge task
and at best will still take at least two to three years. Increasing LNG
imports is part of the solution and will happen but the results will not
be seen for some time.

A question I am asked often is: \"Can we be self-sufficient?"
Self-sufficiency for oil is really not in the realm of possibility. The
gap between supply and demand is too wide now. We import 60% of the oil
we need. But for natural gas, the possibility of self-sufficiency is
much more real. The obstacles to overcome here are those of technology
which demand huge investments in research and tests, and reasonable
access to the resource.

The challenges of technology are tied to both exploring in different
frontiers and doing it in a way that would be sensitive to the
environment. The issue of access is actually an issue of choice for the
American people.

Progress in exploration and production technologies has been phenomenal
in the last few years. I won't provide a lengthy technical explanation
here but let me give you an example or two.

What is happening offshore is on a par with what is happening in the
space program. Today's wells can be drilled in 10,000 ft of water and
then drilled an additional 15,000 ft through the ocean floor. This can
be done with a drill ship that maintains its position over the hole with
the use of thrusters that are activated by satellite relayed global
positioning. Think of the engineering feats that are accomplished to
keep drill pipe steady going through 10,000 ft of water with strong
currents pushing and pulling in different directions at different depths
within the water column. Think of the pressures and temperatures they
encounter offshore and onshore when they are 20,000 ft and deeper into
the earth crust. Now, many completion installations offshore are done on
the ocean floor with well heads, arrays of valves, flow lines resting
9,000 ft below the surface of the ocean; all these installations being
built and monitored by remotely operated vehicles, robots operated
through joysticks in a small room aboard ship.

We have the technology to do the job right and safely for the people and
the environment. There is still a lot of research and testing being done
but this obstacle is fairly well mastered-- if not totally overcome.
Companies are spending billions of dollars improving the technology
daily, and they employ some of the best brains from our engineering
schools. Betting on American ingenuity to produce energy in remote
places is a safe bet.

The next major obstacle is access. Drilling for and producing natural
gas -- all fossil fuels for that matter -- are visible activities that
require some land disturbance. Energy companies have to go where the
resource is located. Today, the technology is such that mineral
development can be done cleanly and safely almost everywhere. We must
always be sensitive to the environment and conduct development
carefully. We regulate industry's activities to achieve this balance. It
can be done.

Every place on earth has a beauty of its own. But if too many areas are
inaccessible to energy production, our economy is severely constrained
and there is a significant negative impact on jobs.

So, as difficult as it may be we must make some choices.

President Bush is very aware of the balance we must achieve.  This is
why less than three months after he took office he presented his
national energy plan.  In Washington getting anything done in three
months is lightning speed and reflects the priority of this issue in the
President\'s agenda. His plan encourages production of oil and gas while
being very protective of the environment. The plan also includes
conservation and increased research on alternative energy.

However, many of the recommendations contained in the plan require
Congressional action, and as many of you know the Congress continues
debating the bill and there are no signs they will pass it anytime
soon. 

Some of the domestic production recommendations in the plan can be
implemented by the Secretary of the Interior through her administrative
authority. And Interior has been diligent in the last 3 ½ years in
providing incentives and streamlining processes so Industry can increase
production of both oil and natural gas.

While public lands are often associated with the outdoors like parks,
rivers, fishing, hunting and all manners of recreation, they also
contain important mineral resources, many of which are found in millions
of acres under our oceans and in public lands in the western half of the
US.

Among DOI's eight bureaus that share the duties of managing those lands,
the Minerals Management Service and Bureau of Land Management oversee
mineral production. 

The Minerals Management Service, which I am privileged to direct for the
Secretary, has a dual function.  MMS oversees production of oil and gas
on nearly 1.76 billion acres of federal offshore submerged lands. We
also collect revenue from all mineral production on public lands both
onshore and offshore. In 2003, MMS collected and remitted to the US
Treasury, the Indian Tribes and the States their shares of \$8 billion.

 

The offshore lands managed by MMS have proven to be very rich in fossil
fuels.  Offshore produces 30% of all domestic oil production - more than
we import from any given country and more than is produced from any
single state.  It also accounts for 23% of all the domestically produced
natural gas. However, the gas production from the Gulf of Mexico is on a
fairly steep decline. One of the significant trends occurring in the
Gulf is the strong decline in the number of new gas completions. There
were 1,046 new gas completions in the Gulf in 1994. This number has been
decreasing yearly and in 2003, new gas wells completions dropped to 893.
When this decline in activity is combined with a steep decline rate in
the producing wells, it is cause for concern.

What is happening onshore? The Bureau of Land Management oversees 262
million acres of federal lands, mostly in the West, that account for 11%
of all domestic natural gas production along with energy produced from
various other sources. Again BLM has to manage the land in an
environmentally sensitive manner and for multiple use, and they do. In
fact of the 262 million acres they manage, only 1% has had surface
disturbance due to oil and gas production. Yet BLM is roundly criticized
in some circles for allowing too much energy activities on public lands.

Although energy production on public lands onshore and offshore is
significant, the President is asking us to do more in the Interior
Department to help meet our energy needs. In the last few years, a great
deal of attention has been paid to increasing production of natural gas
to try and ease a very tight market.

This Administration has been trying to expand the areas where
exploration can take place and it has been moderately successful in some
areas. BLM has opened more areas in the West, but ANWR has not been
approved by Congress although the refuge contain 19 million acres and
only 2000 acres are proposed for oil and gas exploration foot print. As
far as the Outer Continental Shelf (OCS) is concerned, the fraction of
acreage available for leasing has not changed in 15 years, and it
represents only 9% of the total OCS acreage MMS is charged with
managing.

Coastal states have a say - as they should - about whether they agree to
have drilling and production in federal waters off their coasts.  This
is in great part the reason why only the central and western Gulf of
Mexico and offshore Alaska are areas available for exploration and
production.

Until people are convinced that drilling and production can occur safely
for the environment, not much is going to change. The dialogue and
information sharing must occur at the state level, particularly in the
coastal states that, except for a small handful, are opposed to drilling
in federal waters off their coasts. This Administration respects the
moratoria imposed by Congress, previous Presidential withdrawals, and
the desires of the states. Congress may take another view of domestic
production only if their constituents push them in that direction. Most
obstacles to access will have to be addressed at the local level.

 

We must inform the people of the process followed before public lands
are opened to exploration and production. Before any exploration occurs
in any area, MMS and BLM's scientists conduct comprehensive
environmental reviews to make sure the ecosystems are protected. 

MMS has scores of geologists, geophysicists, engineers, marine
biologists and oceanographers to insure that proper science is the basis
of our decisions.

Our job at MMS and BLM is to make sure industry does this work safely
for the people who work in the field as well as for the environment in
which they work.  But we also act as facilitators for increased
exploration and production of energy.

So what are the choices we must make in the coming years? The Rocky
Mountain region is where most of the natural gas onshore in the lower 48
is yet to be found. This is in the form of conventional oil and gas
fields and gas from coal bed seams.

A comprehensive study published last year found that much of the lands
under BLM jurisdiction have no permanent restrictions on development.
However, the reality is that there are competing land use issues that
present many hurdles to overcome.

The most recent issue to hit the headlines is the effect of development
(any development) on the habitat of the sage grouse. This is an issue
that must be studied carefully because of its potential to affect both
fossil fuel and renewable energy development on public lands.

In Alaska, several options for building a natural gas pipeline to
transport some of the huge reserves of natural gas that is stranded on
the North Slope to the lower 48 are being debated. What economic
incentives are appropriate for a project such as this and what is a
preferred route must be resolved between companies, Alaskan and Canadian
government officials, and Congress. It will take some time to arrive at
the resolution of this problem. This is truly a matter of economics.
Companies will not build such an expensive pipeline unless they can make
money transporting gas.

In addition, the OCS contains about 60 percent of the Nation's oil and
gas resources left to be found and produced. Industry has moved
aggressively into deepwater to tap that new frontier.

However, going deep is expensive. It is not uncommon to spend over \$100
million just to acquire leases and drill one or two test wells. MMS has
offered economic incentives for companies to test through these deep
waters and other deep areas offshore.

The current Executive Order issued by the previous Administration and
respected by this Administration, putting most of the OCS off limits to
oil and gas development expires in 2012. Significant information
gathering steps must be taken before then to ensure that scientifically
based policy decisions can be made. This is probably the major obstacle
to further production of natural gas from offshore and unless the states
-- one at a time - ask for these moratoria to be lifted, they very well
may be renewed in 2012.

In the case of importation of natural gas in liquid form, there are now
almost 30 proposals for expanding existing terminals or building new
ones on the Pacific, Gulf of Mexico and Atlantic coasts. Only a few of
those will be built and I am sure you are aware that several projects
have already been rejected by coastal states. They made their choice,
and it is one that will not ease the short supply of natural gas.

In all of these cases an open discussion that is informed with the best
scientific information is critical to ensuring that we have the most
diverse approach to dealing with our energy problems.

In conclusion, it is clear to me that new technology and stringent
regulatory control over the petroleum industry make it possible for us
to have both increased domestic production of oil and natural gas while
we also protect the environment. We do not have to choose between these
two values but we must choose to move forward.

The President said in his National Energy Policy document:

\"*We must work to build a new harmony between our energy needs and our
environmental concerns."*

The President noted that energy production and environmental protection
are not mutually exclusive: \"*They are dual aspects of a single
purpose: to live well and wisely upon this earth.\"*

* *

We have the capability to do both, but as a Nation we need to muster the
**[collective will]{.underline}** to do so. The way to move the process
forward is to have an informed citizenry who understands the high stakes
of decisions regarding domestic production of energy. We, collectively
in the industry and regulatory fields, must inform and educate.