prices have grabbed much attention over the past year, but the
bigger story is natural gas. The rise in natural gas prices has
been considerably greater and imposes serious burdens on consumers
and industries that use natural gas. Yet even in the face of rising
prices and growing demand, domestic natural gas production has been
flat, largely due to legal and political constraints on drilling. A
proposal from Sen. Pete Domenici (R-NM), S. 2253, would open a
natural gas-rich portion of the eastern Gulf of Mexico to drilling.
Meanwhile, the Department of the Interior is trying to accomplish
the same goal administratively. Allowing drilling in this area
would be a major step forward for U.S. natural gas supplies.
1990s, natural gas was cheap and plentiful, and policymakers became
complacent about its future. Yielding to opposition from
environmentalists as well as legislators from Florida and a few
other coastal states, the federal government placed strict limits
on new exploration and drilling, especially in offshore areas.
At the same time,
tough Clean Air Act regulations raised the cost of coal-fired
electricity generation, making natural gas an attractive
alternative for utilities. As a result, most power plants built
since 1990 have been natural gas-fired, putting pressure on
supplies. In addition, consumer demand for natural gas was rising,
as were the needs of natural gas-dependent industries, particularly
chemical and fertilizer production, which uses gas as both an
energy source and a chemical feedstock.
With limits on
supplies and strong growth in demand, price increases were
inevitable. Natural gas stayed around $2.00 per thousand cubic feet
throughout the 1990s but has shot up since then, averaging $9.00
per thousand cubic feet in 2005. If the price of gasoline had risen
that much in percentage terms, it would exceed $5.00 per
This rise has
brought with it serious consequences. Electricity prices are
higher, and only a remarkably mild winter prevented residential
natural gas bills from skyrocketing these past few months. Natural
gas-using industries have closed 100 facilities over the past
decade, affecting as many as 100,000 jobs. Of the 120 major
chemical facilities now in the planning stages or under
construction around the world, only one is in the United States.
Uncompetitive natural gas prices are largely to blame; the price of
gas is sharply lower nearly everywhere else.
The good news is
that there is a simple and obvious solution. A substantial amount
of natural gas in the U.S. is not being utilized. According to
several estimates, as much as several decades' worth of additional
supply may today be untapped. Much of this potential lies offshore
and would require policy changes from Washington to reach the
On February 7,
Sen. Domenici, chairman of the Senate Energy and Natural Resources
Committee, introduced S. 2253, which would open the so-called Lease
Sale 181 area of the Gulf of Mexico for energy leasing. Domenici's
committee passed the bill, 16 to 5, on March 8.
area-containing an estimated 6 trillion cubic feet of gas, as well
as some oil-lies off Alabama and the Florida panhandle. The
proposed drilling would occur well offshore and would not be
visible from land. Technically, Lease Sale 181 is not one of the
areas subject to federal restrictions on drilling, but strident
opposition from Florida's congressional delegation has blocked its
Florida's concerns, Domenici's bill would forbid drilling within
100 miles of the Florida coast. Despite this massive buffer, Sen.
Bill Nelson (D-FL) has already threatened to filibuster the bill
and Sen. Mel Martinez (R-FL) has introduced an alternative bill
that would virtually outlaw new drilling within 150 miles of his
state, thereby putting most of Lease Sale 181 off-limits. With this
opposition, bipartisan support for the bill, already strong, will
be crucial for it to pass the full Senate and the House.
At the same time,
the Department of the Interior's Minerals Management Service is
also trying to open Lease Sale 181 through an administrative
procedure. Domenici and others believe that legislation would
expedite the matter. Indeed, timeliness is one of the advantages of
the 181 area because it lies near the existing pipeline system.
This additional energy could be brought online quickly.
Lease Sale 181 is
only one of many promising offshore areas currently blocked to
development. Other proposals in Congress would go much further than
Domenici's and give all coastal states the option to allow oil and
gas drilling off their coasts. These bills would also give states a
share of leasing and royalty revenues. These are good policies to
increase gas supplies.
can do to increase domestic natural gas production will benefit
those Americans impacted by high natural gas prices-that is, almost
everyone. Opening Lease Sale 181 would mark the first significant
expansion of domestic natural gas production in many years and
could lead to other offshore areas also being opened. The nation's
natural gas problem is a self-imposed one, and opening Lease Sale
181 is a first big step towards a solution.
Lieberman is Senior Policy Analyst in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage