127 



Because petroleum production from off- 

 shore wells in shallow waters has a long his- 

 tory, its operational, legal,, and economic 

 problems are well understood and, for the 

 most part, have been resolved. However, as 

 industry moves into deeper, more hostile 

 waters, the Government should become in- 

 creasingly aware of the importance of regu- 

 latory and fiscal policies which will ensure 

 industry's continued investment and ability 

 to meet exploration and production require- 

 ments. 



The Commission recommends that leasing 

 and regulatory policies for offshore oil 

 be geared to a rate of development reflect- 

 ing all aspects of national interests. 

 Strong support should be given to accom- 

 plishing the analysis necessary to provide 

 a basis for decisions on development rates. 

 In scheduling its Federal lease sales, the 

 Government should give adequate consid- 

 eration to industry's need to plan its ex- 

 ploration and development programs in 

 an orderly and effective fashion. For ex- 

 ample, it is recommended that longer 

 periods of advance notice be provided for 

 Federal lease sales. 



Natural Gas 



Bringing natural gas to the consumer in- 

 volves three sequential functions: produc- 

 tion, transmission, and distribution. Petro- 

 leum companies normally explore for and 

 produce the gas. Transportation in interstate 

 commerce is handled by companies regulated 

 by the Federal Power Commission (FPC). 

 Distribution to consumers involves a separate 

 group of companies regulated at the State or 

 municipal level. Although the three functions 

 commonly are accomplished by independent 

 companies, a combination may be performed 



by one company through subsidiaries. Taken 

 together, the gas transmission and distribu- 

 tion industry is among the 10 largest U.S. in- 

 dustries in terms of capital investment. 



Sales of natural gas in the next decade are 

 expected to increase about 4 per cent per year. 

 In fact, the percentage of total energy con- 

 sumption represented by natural gas is ex- 

 pected to increase slightly, in spite of the 

 growth of nuclear and other new competitive 

 primary energy sources. As for oil, the off- 

 shore areas offer great potential for new gas 

 reserves; gas producers and transmission 

 companies are making heavy commitments 

 there. In 1967, about $300 million was paid to 

 petroleum companies for natural gas pro- 

 duced offshore. 



Offshore oil and natural gas operations 

 share many technical and regulatory prob- 

 lems. Unlike the situation in the petroleum 

 industry, however, the maximum prices that 

 the producer and wholesale distributor of 

 natural gas may charge are subject to regula- 

 tion by the FPC, and FPC permission must 

 be obtained before new interstate gas pipe- 

 lines can be laid. 



Reserves 



The national reserve-to-production (R/P) 

 ratio of natural gas has been declining stead- 

 ily, falling from a reserve adequate to cover 

 nearly 27 years of production in 1950 to 

 slightly less than 16 years in 1968. The op- 

 timum level of reserves cannot be authorita- 

 tively stated. Some companies believe that 

 the national R/P ratio can continue to de- 

 cline for an additional period without caus- 

 ing undue concern. However, individual 

 companies have already felt the pressure of 

 declining reserves, and it is doubtful that it 

 would be in the national interest to allow 

 much further reduction. Although the R/P 

 ratio for oil is about 10 years, valid reasons 

 exist for maintaining natural gas reserves 



