Federal government to move forward on leases

Posted: Thursday, December 18, 2003

Unlike voiced opposition heard in southern Kenai Peninsula communities, calm prevailed at the Kenai Chamber of Commerce last week when a supervisor for Minerals Management Service described specifics of proposed Department of Interior oil and gas lease sales in lower Cook Inlet.

The lease sales known as Lease Sale 191 and 199 would be conducted in May 2004 and in 2006, according to Paul Stang, regional supervisor for leasing and environment for MMS.

The area proposed for leasing is on the Outer Continental Shelf between three and 30 nautical miles offshore, and covers some 2 million acres extending from just south of Kalgin Island to just northwest of Shuyak Island.

Two areas that were excluded from the lease sales because of environmental concerns are a narrow band of blocks off the lower Kenai Peninsula and the Barren Islands, which Stang said are considered critical habitat for Stellar sea lions.

"We submitted a letter outlining the proposal to the governor in November, a final notice of the sale will go out in March, with the sale in May," Stang said.

Before proceeding with the lease sales, he said MMS looked at five major issues: the local need for oil and natural gas; assurance of a collaboration between the fishing and oil and gas industry to minimize potential conflict; prevention of oil spills; subsistence; and maintaing water quality.

"Public involvement is key," Stang said.

In addition to public scoping meetings conducted throughout the potentially affected area, he said MMS conducted public hearings in Anchorage, Kenai, Homer and Nanwalek.

In developing a required environmental impact statement for the two combined lease sales, Stang said MMS focused on identifying critical habitat areas as well as impact assistance or revenue sharing.

He listed several economic incentives for oil and gas producers including a standard 12.5 percent fixed royalty and royalty suspension volumes.

"The royalty suspension volumes would exempt royalty payments on the first 30 million barrels of oil equivalent including natural gas with price floors and ceilings," he said.

The economic incentives are being offered in federal waters of Cook Inlet for the first time.

Although Stang said the amount of oil and natural gas that may be found in the lease areas will not be known until drilling begins, MMS estimates the potential to be between 0.3 and 1.4 billion barrels of oil and 0.7 and 2.5 trillion cubic feet of natural gas.

Referring to a projected value chart, he told the group of Kenai business people that "if the price of oil and natural gas is low, no one will touch those resources.

"As the price goes up, the amount of (recoverable) oil and gas goes up," he said.

"We use 140 million barrels of oil and 190 billion cubic feet of natural gas."

Those quantities would be if oil prices are between $20 and $25 a barrel, according to the Kenai Peninsula Borough oil and gas liaison office.

If oil prices are in the $30 to $35-per-barrel range, the estimates go up to 500 million barrels of recoverable oil and nearly 1 trillion cubic feet of gas.

MMS spent $275 million on research in Alaska, according to Stang.

"In 2003, we addressed mitigation of impacts on drift-net fishing, social and economic assessment of major oil spill litigation, distribution of harbor seals, and measurements of salinity in Cook Inlet," he said.

Recent research efforts have included studies of the quality of sediment and water in Cook Inlet.

"We have found that Cook Inlet has really clean water," he said.

Since the proposed lease sales first became known to people on the Kenai Peninsula, residents in southern peninsula communities have generally spoken in opposition of the sales. In the central Kenai Peninsula, the lease sales have met with favor.

Once the state makes its final comments on the proposal, the Secretary of Interior is expected to announce in March the first lease sale on May 19.

The sale is tentatively scheduled to begin at 9 a.m. in the Wilda Marston Theatre of the Z.J. Loussac Public Library, 3600 Denali St., in Anchorage.

Bids must be submitted by May 18 to MMS at its regional office in Anchorage.

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