Opening U.S. Lands to Exploration Could Head Off Natural Gas Cartel

Opening federal lands to oil and gas exploration won't free the country from dependence on natural gas imports but it could head off the formation of another OPEC-like cartel, according to a study released by Rice University researchers.

The United States gets about 3 percent of its natural gas from overseas via liquefied natural gas tankers. Another 17 percent comes from Canada in pipelines and the rest is produced domestically.

The report says the LNG imports will rise to about 30 percent by 2030 if the United States does not permit exploration in the 58 percent of federal lands now off limits by congressional or presidential decree -- including parts of the Rocky Mountains and areas off the east and west coasts.

Opening those lands to exploration would cut LNG demand to 22 percent of the country's gas needs by 2030. It also would help keep prices lower.

But the larger benefit of reducing the import percentage would be to undermine efforts by big natural 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.

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," said Kenneth Medlock, a fellow for energy studies at Rice University's Baker Institute for Public Policy.

The study, which Medlock co-authored, will be released as part of a conference at Rice today about the future of natural gas in the U.S. Other topics of the conference include U.S. natural gas demand in the power and chemical industries and the relationship between oil and natural gas prices.

Natural gas supplies 23 percent of the world's energy, making it the third-largest energy source behind petroleum, at 36 percent, and coal, at 26 percent, according to the U.S. Energy Information Administration.

In the U.S. natural gas accounts for about 22 percent of total energy consumed. About 20 percent of the country's electricity comes from gas-fired power plants, which are much cleaner burning and less expensive to build than coal-fired power plants, which generate about half of U.S. electricity.

For most of the 20th century, natural gas supply in the U.S. matched demand, but just as domestic oil reserves have fallen, so too have natural gas resources. Texas remains the top natural gas producer in the continental U.S., accounting for more than 33 percent of the nation's 2006 production.

Medlock's study, sponsored in part by the Independent Petroleum Association of America, analyzed the role existing drilling restrictions in the U.S. would play in worldwide natural gas markets.

It's assumed gas produced from any newly opened U.S. land would be used here and not exported. That could reduce competition for foreign gas, giving greater flexibility to natural gas consumers in regions like Europe.

"Reducing U.S. demand for LNG helps lower global natural gas prices and enhances available supplies for other major buyers in Europe and Northeast Asia," Medlock said. "The wider swath of alternative supplies for Europe and Northeast Asia translates into significantly reduced market power of producers in Russia and the Middle East."

The Rice study also found that opening restricted areas for natural gas drilling could hinder the development of a gas pipeline from Alaska's North Slope.

Such a project has been discussed since the Trans-Alaskan oil pipeline went into service in 1977. The North Slope contains an estimated 125 trillion cubic feet of gas, six times the nation's total demand last year.

This year Alaska developed a process to get companies to bid on building the project. Bids are due at month's end.

But new gas supplies from the Rockies and offshore would likely be less expensive than Alaskan gas, the report says. That could undermine the economics of building the project.