November 30, 1999

Events from Around Town: National Petroleum Council Report: Prudent Development of North America's Oil & Gas Resources

Yesterday, the Center for Strategic & International
Studies (CSIS) hosted key members of the National Petroleum Council (NPC) to
discuss its recently released report “Prudent
Development of North America’s Oil and Gas Resources
.” The panel reported
that North America still has huge amounts of natural gas and oil remaining to
be produced. This is particularly true for the United States and Canada, with
the important caveat that technology must continue to develop to allow for the
safe, prudent development and production of those resources from deepwater offshore
drilling, the Arctic and unconventional sources such as oil sands, shale and
tight oil (fossil fuel resources trapped in rock formations, like shale rock). 

On the natural gas front, NPC members argued that there were
enough natural gas resources available to satisfy even the most robust projected
natural gas consumption models for the United States for several decades.  After development, the largest variable in
projected modeling for natural gas use was related to the amount of natural gas
consumed by power plants as a potential replacement for coal.  The demand is likely to depend a great deal
on the standards the Environmental Protection Agency settles on for greenhouse
gas emissions and the impact this has on the viability for power plants to
continue to burn coal. 

Continued development of these resources provides additional
security for access to petroleum should supplies from other regions be
interrupted, the panel argued. Even more encouraging was the ability to
completely satisfy the need for access to natural gas from assets in the United
States and Canada.

The report included five key recommendations: support prudent
development of North American hydrocarbon resources; better reflect environmental
impacts in markets and choices; enhance the efficient use of energy; enhance
the regulation of markets; and support needed talent and know how. 

Read the full report at:

While not surprised that the NPC would be touting the
benefits of continued development of oil and natural gas, I was surprised at
the projected amounts remaining to be developed IF it were technologically and economically feasible. This remains
a huge variable. I wonder what the actual price break points are for continued
investment in development of economically viable recovery technologies entirely
by industry so that these resources can be developed. Will industry bear the
costs alone or will it require government assistance of some sort in the form
of tax breaks, grants or other mechanisms?  
As one of the panelist’s essentially remarked, you can’t wait to develop
this technology until you run out of oil from other sources because the lead
time is too great. The report intentionally does not address price points.  

Another area related to pricing that I need a better understanding
of is sorting out the complex impacts regulation of greenhouse gases, as well
as regulation of power plants in general will have on the price of natural
gas.  What I took away from today’s panel
is that producers are looking for less volatility in potential regulations
related to power plants to be able to better forecast the market and potential
profit in further development.  

Finally, one other point of note in the presentation was the
need for a potential difference in the leasing structure for offshore leases in
the Arctic as compared with the Gulf of Mexico. 
The argument was made that you needed longer leases in the Arctic to
reflect a much narrower window to actually discover, drill and develop the oil
and gas.  The Arctic region might
currently give you a 90 day weather window a year versus the Gulf of Mexico
which is much closer to 365 days.  I
found this point interesting and had always assumed that such a factor would be
considered when bidding on the lease. 
However, if such a change would actually decrease risk of an imprudent
decision to force actions within narrow time frames, and it would not
significantly alter the income from the lease to the federal government, leasing
changes could be an easy win for all. 

To learn more about the event, listen to the audio
from yesterday’s panel

Commander Shannon
Gilreath is the Senior Coast Guard Fellow at the Center for a New American
Security. The views expressed in this blog post are those of the author and do
not reflect the official policy or position of the U.S. Coast Guard, Department
of Homeland Security or the U.S. Government.