Ken Silverstein EnergyBiz Insider Editor-in-Chief

When the Clean Air Act of 1990 passed, natural gas was labeled the "fuel of choice." As such, projections as to its future demand soared -- upwards of 50 percent over 20 years. In effect, current consumption of about 23 trillion cubic feet (tcf) was supposed to rise to 34 tcf by 2020. But when policymakers enacted that 1990 law, they didn't make amends for the fact that nearly one-third of all land in the United States is federally controlled and that the government owns those resources that lay beneath it.

"Of course, the market for natural gas remains very tight," says U.S. Energy Secretary Sam Bodman, in a speech. "In fact, the United States has the most expensive natural gas in the world, which is causing significant job dislocation in the chemical industry by shifting production abroad. This is a trend that, as far as I can tell, seems likely to continue. So we need to do more to bring about adequate and affordable supplies of natural gas, both as a fuel source and industrial feedstock."

Drilling backers say that more access is needed in the Rocky Mountains, the Atlantic coastline, California's coastline, the Gulf of Mexico and the Artic National Wildlife Refuge. A plethora of natural gas in these areas is off limits to production.

The differences between proponents and opponents of more drilling rights are difficult to overcome. Natural gas developers, along with their supporters in the Bush administration and in Congress, say that the country is and will remain dependent on fossil fuels such as natural gas. And while the nation should pursue fuel diversity that includes renewable sources, it is impractical to think that fossil fuels can be displaced in the foreseeable future. At the same time, the modern drilling techniques mean that gas can be produced in an environmentally benign way.

Green groups and other activists are unyielding in their defense of these protected lands, saying that the U.S. cannot drill its way out of the energy conundrum that it is in. Clean air and water is a public right and allowing additional drilling rights on federally-controlled property would be a big no-no, they say. Because there is said to be only 50 to 75 years of natural gas on domestic property, such groups maintain that policymakers ought to pursue a sustainable energy strategy.

Clearly, the marketplace has choices: In the 1990s, about 90 percent of all new electric generation was to be fired by natural gas. But today, 85 percent of all such plans involve coal-fired technologies because it is much less expensive. At the same time, wind energy has grown to include 9,200 megawatts of total capacity in the United States.

Divisive Issues

Nowhere has the debate been more divisive than in the Artic Refuge. In December, U.S. lawmakers came close to passing a bill to allow access to this environmentally sensitive area but fell four votes short in the Senate -- all to beat back an expected filibuster.

The Bush administration estimates that proven gas reserves -- gas available for near-term production or within seven to nine years -- in the ANWR total more than 35 tcf and possibly another 100 tcf on its North Slope. If harnessed, the administration contends that the supplies would not only finance the construction of new pipelines to transport the fuel but it would also make a "significant long-term contribution" to helping the nation meet its energy demand.

"Allowing energy production in ANWR is a vital component to addressing one of our nation's more urgent public policy issues, namely the imbalance between energy demand and available supply, and the resulting high and volatile energy prices that America is experiencing," writes American Gas Association President David Parker, in a letter to Congress. "Increasing our access to domestic energy supplies is critical to ... sustaining America's economy and providing the American consumer with relief from ever spiraling energy costs."

Drilling opponents say that the refuge's wildlife and ecosystem are too sensitive and must remain off limits. William Meadows, president of the Wilderness Society, says the Senate rightly rebuffed efforts to permit drilling there, saying Americans reject the "drill-at-all-costs" mentality. Instead, the people are calling for forward-looking energy policy that protects our wildest public treasures, he says.

Gaining new drilling rights seems insurmountable. But winning permits to drill in some areas without tight restrictions is increasing. That's because the high price of natural gas is giving developers lots of incentives. Moreover, producers expect the price of natural gas to drop no lower than $7-$8 per thousand cubic feet -- well above the $2-$3 per thousand cubic feet the country experienced in the 1990s.

In Pennsylvania, for example, regulators there issued in 2005 6,000 new permits. In 2004, the number was about 4,500. Similarly, Colorado regulators in 2005 approved more than 4,300 oil and gas drilling permits. That's 50 percent more than in 2004. The number of permits is expected to increase again in 2006, all because natural gas prices are projected to remain high.

Look Ahead

Added drilling rights do not equate to environmental devastation, say producers. Exploration teams now have the resources to identify natural gas prospects more easily and place wells more effectively. That reduces the number of dry holes -- not to mention drilling costs and exploration time.

Modern technologies include 3-D imaging, which uses powerful computers and processors to create a three-dimensional model of the subsurface layers. 4-D seismology expands on that by allowing exploration teams to observe how subsurface characteristics change over time.

Restrictions to drilling access will certainly remain for the foreseeable future. But the high price of natural gas and the ripple effect that creates is giving policymakers more leeway to ease gas production. Essentially, they are now working on ways to expedite the permitting process and to cut down on some of the legal challenges to drilling, particularly when production can be done in an environmentally sensitive manner.

High natural gas prices may mean new supplies come to market. Still, natural gas is a limited fuel source and in many cases remains off limits to production. That's why one of the central lessons from today's energy picture is the need to maintain a diversified energy portfolio.

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