Resource Development Council

RDC Comment Letter:
2007-2012 Five year Outer Continental Shelf Program

May 3, 2010

Ms. Renee Orr, Chief Leasing Division
Minerals Management Service 4010
381 Eldon Street
Herndon, VA 20170-4817

Re: 2007-2012 Five year Outer Continental Shelf Program

Dear Ms. Orr:

The Resource Development Council (RDC) appreciates the opportunity to submit comments on the 2007-2012 five-year Outer Continental Shelf (OCS) program. RDC urges the Minerals Management Service (MMS) to move forward expeditiously with the remanded 2007-2012 program to ensure timely and appropriate action on existing leases.

RDC is a statewide membership-funded organization founded in 1975. Our membership is comprised of individuals and companies from Alaska’s oil and gas, mining, timber, tourism, and fisheries industries, as well as Alaska Native corporations, local communities, organized labor, and industry support firms. RDC’s purpose is to link these diverse interests together to encourage a strong, diversified private sector in Alaska and expand the state’s economic base through the responsible development of our natural resources.

RDC specifically supports:

  1. The decision to retain current leases in the Chukchi and Beaufort seas;
  2. Cook Inlet lease sales in the current five-year plan;
  3. Holding lease sales as scheduled to provide certainty and consistency.

However, RDC opposes withdrawal of lease sales that were to occur in the Chukchi and Beaufort Seas under the 2007-2012 program. These lease sales and subsequent exploration activities should be allowed while additional studies are conducted. Moreover, RDC does not support withdrawing the North Aleutian Basin from future lease sales. There are 23 local governments and Aleutian tribal councils in favor of oil and gas exploration in the North Aleutian Basin. A stringent permitting process and mitigation measures would protect commercial and subsistence fisheries in the region, where communities are shrinking.

RDC supports offshore exploration in the Alaska OCS because it is confident operations can
occur safely. However, since recent events in the Gulf of Mexico, opponents of offshore drilling are calling for a freeze on new exploration and development in Alaska and elsewhere. RDC sharply disagrees with such a call because there are important distinctions between drilling in the deep waters of the Gulf of Mexico and the relatively shallow waters offshore Alaska. In the Chukchi and Beaufort Seas, exploration would occur in water approximately 150 feet in depth, compared to 5,000 feet or more in the Gulf. The wells being drilled in the deep waters of the Gulf are also significantly different than those that would be drilled in Alaska, not only in water depth, but down-hole pressure. The Horizon well was drilling in 5,000 feet of water to a depth of 18,000 feet. The pressure encountered in the Horizon wells and others like it in the Gulf is multiple times greater than in Alaska where wells would be drilled to a depth of 10,000 feet. With the lower pressure, the safety margin in Alaska drilling is much greater and drillers would have significantly more time to identify and respond to a down-hole event. In addition, because of the much lower down-hole pressure, the weight of the drilling mud remaining in a well would effectively shut off the well in the highly unlikely event of an incident. Moreover, the relatively shallow water depth would allow blowout preventers to close much more rapidly than those in deep water.

There has never been a blowout in the Alaska or Canadian Arctic. Thirty wells have been
drilled in the Beaufort and five in the Chukchi – all without incident. These wells were drilled
in the 1980s, utilizing older technology compared to what exists today.

Advances in technology provide an additional measure of confidence in Alaska drilling. Energy development in Alaska is subject to in-depth analysis by federal law, a stringent permitting process and oversight by state and federal agencies. In every instance, development is preceded by extensive studies. The North Slope and the offshore are now perhaps the most studied energy basins in America. MMS has spent more than $300 million on studies in Alaska and in the past decade the agency has funded over 250 studies here, with the majority of those focused on the Beaufort and Chukchi Seas.

RDC recognizes that subsistence whaling is vitally important, both economically and culturally to North Slope villages, and that commercial fishing historically has been the primary industry
in the North Aleutian Basin. Industry and government working together have the ability to
protect subsistence and fishery resources while producing needed domestic energy for the
nation. Strong regulatory oversight, combined with other mitigation measures, can be employed to protect all resource and subsistence users.

To help address local socio-economic impacts, RDC strongly supports sharing federal royalty
payments from production in federal waters with coastal states and local communities. Such a measure is critical to local Alaska communities in the Arctic and the North Aleutian Basin.
Revenue sharing would significantly benefit local communities and facilitate a healthy partnership among federal, state and local agencies.

The responsible development of potentially immense oil and gas deposits in the Arctic would
significantly boost Alaska’s economy, extend the life of the trans-Alaska oil pipeline, improve the economic viability of the proposed natural gas pipeline from the North Slope to the Lower
48 and reduce America’s reliance on foreign energy.

A comprehensive energy plan for the nation must include Alaska, which accounts for over 30
percent of the nation’s technically recoverable oil and gas resources. The Alaska OCS is an
important future source of U.S. energy supply with an estimated 27 billion barrels of oil and 132 trillion cubic feet of natural gas potentially in place. By comparison, total production from
the North Slope over the past 32 years has been approximately 15.5 billion barrels. In
addition, the potential recoverable reserves offshore Alaska is more than all the current total
proven U.S. oil reserves of approximately 21 billion barrels. Alaska would have the ninth
largest oil resources in the world – ahead of Nigeria, Libya and Norway – if access is granted
to these potential reserves.

Not developing these reserves and those elsewhere in the U.S. OCS makes no sense from an
economic and energy security stand point. A recent report from the National Association of
Regulatory Utility Commissioners revealed that not developing America’s domestic offshore
resources could lead to a dangerous energy crisis. American oil production is projected to
decrease by 9.9 billion barrels within the next 20 years, nearly a 15 percent annual decrease
from current levels. Meanwhile, imports of oil from OPEC are projected to increase by 4.1
billion barrels, nearly 19 percent – and at a cost of $607 billion.

The cost of not developing additional U.S. reserves would put a huge burden on the economy, resulting in the loss of 13 million jobs in energy intensive industries and a decrease in real disposable income of $2.34 trillion. Gross domestic product would decrease by an estimated $2.36 trillion.

Given its potential for immense recoverable reserves and enormous economic benefits to the
state and nation, the Alaska OCS should be opened to responsible development. The Alaska
OCS has the potential to sharply increase throughput in the oil pipeline, which is currently
operating at one-third of its peak capacity reached in the late 1980s. Without new significant
discoveries of oil, the pipeline could be uneconomic to operate at some point after 2020. In
addition, OCS gas reserves would significantly improve the long-term economic viability of the proposed gas pipeline from the North Slope to the Lower 48 – a clean energy priority project of the Obama administration. To become a reality, the pipeline requires additional gas
reserves beyond what has already been discovered onshore.

With its enormous potential reserves, the OCS can sustain Alaska’s economy for generations,
creating tens of thousands of jobs and generating hundreds of billions of dollars in federal,
state and local government revenues. Currently there are more than 108,000 Alaskan jobs
tied to the discovery, production and shipment of Alaskan oil and natural gas, accounting for
more than 15 percent of Alaska’s population. According to a University of Alaska study, OCS
production could provide an annual average of 35,000 additional jobs within the state for 50
years and $72 billion in new payroll.

RDC and many Alaskans share President Obama’s view that America needs to conserve more
and put new emphasis on renewable and alternative energy. By doing so, the nation can ultimately break its reliance on foreign oil. Yet while America must conserve more and move
toward renewable energy, it still needs to pursue new oil and gas production, given the fact it will take decades before renewable energy becomes a dominant energy source. Even with the Obama administration’s goal to decrease dependence on oil, it is projected that fossil fuels will still account for two-thirds of this nation’s energy consumption in 2025.

Where will the oil come from to meet this demand? The OCS is the most logical choice, given
its immense potential. If not the OCS, then where? For every barrel of oil not developed domestically, the nation will have little choice but to import another from overseas – where weaker environmental regulations often apply. Given economic and geopolitical concerns, that barrel should be produced here in the U.S. – under American laws, regulations and oversight, and by American workers.

Given demand for energy will rise as the economy recovers, America must continue to pursue new oil and gas development, even as the nation slowly transitions to the new energy sources of the future. Increased emphasis on renewable energy should not preclude or require less oil and gas development. America needs more of both to offset declining production and reduce its reliance on foreign oil. Development of OCS oil and gas resources will buy America the time it needs to develop the alternative and renewable energy resources that will someday assist in the nation achieving energy independence.

It is vital that our nation’s abundant energy resources be fully utilized for compelling economic and energy security reasons. RDC encourages MMS to immediately finalize and
move forward with the 2007-2012 program, including the Chukchi and Beaufort Seas lease
sales originally scheduled under this program.

Thank you for the opportunity to provide comments on the 2007-2012 OCS program.

Resource Development Council for Alaska, Inc.