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Energy & Resources
Offshore oil inventories
Venezuela shares with its neighbors
Mineral of the Month: Magnesium

Offshore oil inventories

This summer’s energy bill, signed into law on Aug. 8, included a somewhat controversial provision to inventory the oil and natural gas in the outer continental shelf (OCS) of the United States. While most of the OCS is currently off-limits to exploration and production, advocates of the inventory have said that it is logical to know what resources are out there. Some opponents worry, however, that any accurate inventory would include new drilling. Now, with hurricanes Katrina and Rita hitting the nation’s energy systems particularly hard, Congress is considering new ways to produce oil and gas, including possibly finding ways around the OCS moratoria.

States have jurisdiction over mineral (primarily oil and gas) exploration and development from their coasts to about 5 kilometers offshore, where the U.S. Minerals Management Service (MMS) takes over. The OCS then encompasses about 1.76 billion acres of territory from 5 to 320 kilometers offshore, about 10 percent of which is currently available for leasing. Congressional and presidential moratoria in place since the 1990s prohibit exploration and development activities off the entire East and West coasts, parts of Alaska and the eastern Gulf of Mexico.

Still, MMS manages about 8,300 separate leases. Of those, more than 8,000 are in the Gulf of Mexico, producing about 30 percent of the nation’s oil and 21 percent of its natural gas. By 2006, the Gulf could be producing 40 percent of the nation’s oil, according to MMS. That is “a lot of our eggs in one single basket,” says Walter Cruickshank, MMS deputy director.

Every five years, MMS develops a new plan for where to allow leases. So the inventory, which Congress directed to be completed within six months, will be included in the next five-year plan, about which MMS is soliciting public comment.

Current estimates suggest that the entire OCS contains 76 billion barrels of technically recoverable oil and 406.1 trillion cubic feet of gas. But those estimates, especially for the moratoria areas, are somewhat out of date, Cruickshank says, which is part of the reason Congress directed the inventory.

The inventory may not help update energy estimates, however, as most of the moratoria areas have not been assessed in nearly two decades or more, Cruickshank says. An inventory is most effective with seismic testing or modeling, but no such new activities will take place, he says, because Congress did not appropriate any funding for new testing. And without the prospect of development, companies are not likely to perform expensive new field studies on their own. So MMS will have to rely on “new ways to look at old information” and on “anyone who has information on resources to share it,” he says.

In the meantime, the offshore landscape could be further changing, with Congress acting quickly to enact new legislation in the weeks following the hurricanes, as gasoline prices soared, and citizens clamored for policy-makers to intervene. On Sept. 28, the House Resources Committee, chaired by Richard Pombo (R-Calif.), approved a new bill that would allow states to “opt out” of the coastal leasing bans, and thus allow development 45 kilometers or more offshore. If states petition the federal government to withdraw from the existing moratoria and develop resources off their coasts, they would receive revenues from royalties, a real incentive. Amid controversy on Sept. 30, a committee spokesperson announced that the bill would not go to the House floor after all and instead may become part of the budget reconciliation package.

The House “is using Katrina to push through measures quickly that it has tried to push through before,” says a staffer for a Democratic representative in the Resources committee, who wished to remain anonymous. But the legislation may face an uphill battle in the Senate, especially because it also allows drilling in the Arctic National Wildlife Refuge and cuts back on many environmental regulations. The Senate is “certain to take a more deliberative approach than the House, which pretty much implemented the fast track to push this huge bill through,” says the staff member. “We’re in a tough time, paying the price of not having a broader energy policy — it’s now that the argument becomes stronger for pursuing greater conservation and renewable energy measures,” rather than simply drilling more.

But with the Department of Energy projecting at least a 1.5-percent annual growth in demand for oil and gas, and oil imports already at about 60 percent, Gale Norton, secretary of the Interior, said in an Aug. 22 press release: “We would be irresponsible if we did not consider how we might develop [the] abundant domestic resources” in the OCS.

Megan Sever


Minerals Management Service

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Venezuela shares with its neighbors

Oil is one of Venezuela’s most precious commodities, and recently, President Hugo Chávez has been sharing it with his Caribbean neighbors.

In June, 13 Caribbean countries signed deals with Venezuela to receive oil cheaply, followed by deals with Argentina, Brazil, Uruguay and Paraguay. Cuba has been getting most of its oil from Venezuela since April, in return for doctors and teachers. And in August, when protesters in Ecuador dynamited oil pipelines and vandalized pumping machinery, crippling oil exports, Chávez stepped in and covered Ecuador’s oil export commitments, free and clear.

Critics have charged that Chávez is buying friends and influence with oil, with the purpose of undermining the United States and extending his own power in the Western Hemisphere. “There is no economic rationale in these deals, said Ricardo Hausmann, an economist at Harvard and a former minister of planning in Venezuela, in an article in The Christian Science Monitor on Aug. 25. “It is a political investment,” perhaps for the day when Chávez decides to radicalize his Bolivarian revolution, he said.

Other observers suggest that it is altruism, and that Chávez is simply being a good neighbor. Regardless of Chávez’s intentions, it could mean trouble for the United States, industry pundits say. Chávez proclaimed on Aug. 14 that the daily supply of 1.5 million barrels of oil to the United States could be halted if U.S. “aggressions” against the Venezuelan government continue, according to The Christian Science Monitor.

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Mineral of the Month: Magnesium

Deborah A. Kramer, the Magnesium Commodity Specialist for the U.S. Geological Survey, has compiled the following information about magnesium, an important mineral for aluminum production.

Magnesium, often confused with last month’s mineral of the month manganese, is valued primarily because of its light weight and high strength-to-weight ratio. Magnesium is the eighth most abundant element and constitutes about 2 percent of the Earth’s crust. It is the third most plentiful element dissolved in seawater, with a concentration averaging 0.13 percent. Magnesium is found in over 60 minerals, and also is recovered from seawater, wells, and lake brines and bitterns.

Magnesium metal has been produced continuously in the United States since it was first recovered in 1916. The height of magnesium production in the United States was during World War II, when 15 magnesium plants were operating to supply magnesium for aircraft production.

Today, magnesium is produced at only one plant in the United States. Its largest use is as an alloying addition to increase the hardness and corrosion resistance of aluminum. The single largest application for magnesium-containing alloys of aluminum is the aluminum beverage can, which has a magnesium content of about 4.5 percent in the lid and about 1.1 percent in the can body. Without magnesium in the alloys, aluminum beverage cans would be as flexible as a toothpaste tube.

Magnesium and its alloys have structural uses in the forms of die castings, sand and permanent mold castings, and wrought products. Automakers have introduced magnesium components such as clutch housings, instrument panel supports, headlamp assemblies and grill covers to reduce vehicular weight. From the 1977 to the 2004 model years, magnesium die castings in automotive applications have increased from an average of 1 pound per vehicle to 10 pounds per vehicle. The power tool market includes magnesium castings in chain saws and lawnmower housings. Die-cast magnesium also is used in video camera, cell phone and computer components.

In the iron and steel industry, magnesium is used as an external hot-metal desulfurization agent, and it is used in the production of nodular iron. Magnesium is used as a catalyst for producing certain organic chemicals and petrochemicals and as a reducing agent for producing other nonferrous metals. Anodes of magnesium are frequently used in underground pipes and water tanks, water heaters and marine applications.

World production of primary magnesium metal in 2004 was about 584,000 metric tons, with China as the world’s leading producer, accounting for about 426,000 metric tons. The sole magnesium plant in the United States has the capacity to produce 43,000 metric tons per year, but U.S. consumption in 2004 was about 140,000 metric tons, much of which was supplied by imports. In 2004, Canada, China, Israel and Russia supplied 92 percent of the 99,000 metric tons of U.S. imports.

Magnesium recycled from old scrap supplied about 15 percent of U.S. consumption. Magnesium is recycled from new scrap generated mainly during the production of magnesium structural products. Recycled magnesium also comes from old scrap such as used beverage cans and other discarded consumer products.

Visit for more information on magnesium.

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