GAS PRICES HIGHLIGHT IMPORTANCE OF OCS SALE 181

With the price of natural gas piercing the $8/MMBTU level in futures trading on the New York Mercantile Exchange and more than three times that level for physical supply in California, go-ahead for oil and gas leasing in the eastern Gulf of Mexico makes gargantuan sense.

With the price of natural gas piercing the $8/MMBTU level in futures trading on the New York Mercantile Exchange and more than three times that level for physical supply in California, go-ahead for oil and gas leasing in the eastern Gulf of Mexico makes gargantuan sense.

The US has shortages at the moment of oil products and natural gas. Cold winter weather highlights the problem.

In the case of oil, the problem is not so much the supply of crude oil as it bottlenecks of processing and transportation capacity.

With gas, the problem relates more to domestic production. There isn't enough of it.

More to the point, there could be more gas production if the federal government would allow it to occur.

The government either refuses to lease or restricts activity on existing leases of land it owns in the US West and offshore. So domestic production of oil and gas remains less than what it could be.

The current zoom of gas prices shows that the country can't afford to limit production out of overblown fear about the environmental consequences of drilling and production.

Demand for gas has risen to the point that available supply from relatively low-cost sources, domestic production and pipeline imports, can't keep up. US and Canadian producers are drilling feverishly where they can lease land just to offset depletion.

The US needs major new sources of gas supply. Elevated prices have revived imports of LNG and discussions about construction of a pipeline from gas deposits in Alaska.

Surely, the US needs gas from those sources. But it makes no sense to be considering a major increase in LNG imports and a costly long-haul pipeline and let rich potential go untested as close to market as the eastern Gulf of Mexico.

The Minerals Management Service acted properly, therefore, in scheduling a lease sale for the area for December 2001.

The offering, Sale 181 covering 5.949 acres, would be the first in the eastern gulf since 1988.

Florida has fiercely opposed leasing of federal waters off its shores. Residents there fear environmental harm from drilling and production activities.

But they and their state government should find Sale 181 palatable. Blocks to be offered-as well as probable areas of immediate industry interest-lie in the western part of the sale area. All are 100 miles or more from Florida's coast.

Eventually, Floridians might learn that drilling and production activities are not so difficult to accommodate.

And, as bills rise for the electricity that powers their computers and air conditions, they might even come to see that they, like Americans in colder states, need the gas.

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