Offshore drilling

Drilling pledge

Vice President Al Gore has pledged that, if elected President, he would ban any new offshore drilling for oil and gas along the California and Florida coasts. The Clinton administration had prohibited new leasing, but not drilling on existing leases. The American Petroleum Institute called Gore's promise "shortsighted." It said, "Government policy towards offshore exploration for oil and gas should be guided by a careful analysis of the country's needs and the best knowledge of what can be done with current technology, not politics."

Next action: Industry groups have launched a public relations effort warning against such a ban, and stressing the need for gas from the Outer Continental Shelf.

Exxon Mobil merger

Exxon Corp. and Mobil Corp. appear close to culminating a $82 billion merger that would create the world's largest publicly traded oil company. The European Commission already has approved the companies' merger of their operations there. Negotiations were continuing with the US Federal Trade Commission. FTC reportedly wants the firms to sell up to 1,500 gasoline stations in the Northeast, some terminals, ownership interests in pipelines, and one or more refineries.

Next action: An agreement is likely before the end of October.

Tanker case

The US Supreme Court has agreed to hear appeals challenging Washington state's regulations on oil tanker traffic off its coast. The Justice Department and tanker companies argue that only the federal government has the legal authority to regulate offshore shipping. The cases are US vs. Locke and International Association of Independent Tanker Owners vs. Locke.

Next action: The court is due to hear arguments in December and issue an opinion by June.

Electricity restructuring

The House Commerce Committee's energy and power subcommittee has reported out a bill opening the retail electricity market to competition. So far, 24 states have opened their retail markets to customer choice. Proponents for federal action say competition and reliability in the national power grid cannot be completed without deregulation legislation. Meanwhile, Sen. Frank Murkowski (R-Alas.), Senate Energy and Natural Resources Committee chairman, said his panel wouldn't move legislation until early 2000.

Next action: The House bill goes to the full committee, but approval there is doubtful.

Royalty in-kind test

The US Minerals Management Service plans a third royalty-in-kind (RIK) pilot, using a competitive auction to take up to 260 MMBTU/day of gas from Gulf of Mexico federal leases. RIK pilots are underway in Wyoming and offshore Texas. The Gulf of Mexico pilot will involve federal properties off western Louisiana and is expected to include a large number of operators, lessees, and potential purchasers. In the program, bidders will offer a quantity of gas at a specific market center location in return for royalty gas from specified locations at or near the leases.

Next action: MMS will accept bids soon for the pilot, which will begin Dec. 1 and run 4 months.

Royalty rule moratorium

House and Senate conferees have approved a 6-month extension of an appropriations bill provision that would block the US Minerals Management Service from issuing a controversial royalty management rule. During that time, the congressional General Accounting Office would investigate the royalty issue and report to Congress. The MMS rule would reset the way royalties are calculated, abandoning reliance on posted prices and basing them on actual sales prices. Industry claims the proposed rule is too complex and unworkable. The American Petroleum Institute has urged President Bill Clinton to order MMS to repropose the rule, effectively delaying it until the next administration (OGJ, Oct. 4, 1999, p. 40).

Next action: Clinton is highly unlikely to order MMS to start afresh. The 6-month ban was retained in the spending bills, but President Clinton threatened to veto the measure.

California RFG

The House Commerce Committee's health and environment subcommittee has approved a bill allowing California a waiver on use of methyl tertiary butyl ether in gasoline. The bill would allow California to phase out MTBE, if the replacement gasoline met the Clean Air Act's required toxic emissions reductions and achieved the same cuts in auto emissions.

Next action: The issue now moves to the full Commerce Committee. Eventual passage by the House is doubtful, given the opposition of agriculture and alcohol fuels interests.

Dumping appeal

Save Domestic Oil Inc., a group of independent US producers, has appealed a Commerce Department decision to dismiss their anti-dumping petition to the Court of International Trade. The case alleges Saudi Arabia, Mexico, Venezuela, and Iraq sold crude in the US at unreasonably low prices. The American Petroleum Institute opposes the appeal. Commerce ruled last August that the SDO petition failed to meet the legal threshold of adequate industry support, and thus did not consider the merits of the case (OGJ, Aug. 16, 1999, p. 31).

Next action: The court, based in New York City, will be considering briefs this fall.

Oil loan program

The US Commerce Department has drafting rules providing federal loan guarantees for oil and gas firms, under a law enacted last summer which. The program would allow independent petroleum producers and small business service companies to borrow up to $10 million each until total loans reach $500 million. The bill provides a government-backed repayment guarantee for 85% of each loan, making it possible for commercial lenders to offer more lenient terms than they would otherwise.

Next action: Commerce will receive comments on the proposed rule.

FTC gasoline probes

The Federal Trade Commission presumably still is investigating West Coast gasoline price increases that occurred this spring. It has linked the effort to its review into the possible antitrust problems resulting from the planned Exxon Corp. and Mobil Corp., and BP Amoco Plc. and Atlantic Richfield Corp. mergers.

Next action: FTC does not comment on its investigations or when they may be concluded.

Import investigation

The US Commerce Department is studying whether rising crude and product imports are affecting national security. If it determines that they are, the Clinton administration could take corrective actions under Sec. 232 of the Trade Expansion Act. The study must be completed by Jan. 29, 2000. A similar study in 1994, when petroleum import levels were lower, concluded imports did threaten national security, but the Clinton administration determined no special actions were needed.

Next action: Commerce already has missed an internal deadline it set for itself. An announcement could come at any time.

Sulfur rule

The US Environmental Protection Agency plans to give small refiners more time to meet its planned rule limiting gasoline sulfur levels. The measure would slash the sulfur content of gasoline from the current average of 330 ppm to 30 ppm between 2004 and 2006. The American Petroleum Institute said the rule would add 5 cents/gal to the cost of gasoline, costing US consumers about $5.7 billion/year, and could cause some small refiners to close operations (OGJ, May 31, 1999, p. 34).

Next action: EPA plans to issue a final rule by yearend.

Smog/soot rule

A federal appeals court has overturned the US Environmental Protection smog and soot standards. In a 2-1 opinion, the District of Columbia Court of Appeals said EPA overstepped its authority in drafting the rule 2 years ago because it failed to show public health concerns justified the tougher rule. The court also said EPA had assumed that Congress had given it powers that the justices said Congress could not delegate under the US constitution (OGJ, May 24, 1999, p. 39).

Next action: EPA will appeal the court's decision to the US Supreme Court.

OCS revenues

Oil state congressmen have introduced bills to allocate at least half of the federal revenues from Outer Continental Shelf oil and gas production for coastal states and nationwide conservation and wildlife programs. The Senate bill would use 50% of OCS revenues, or $2.296 billion/year. The House bill earmarks 60%, or $2.74 billion/year (OGJ, May 24, 1999, p. 45).

Next action: The legislation is stalled due to opposition from environmental groups and the problem of funding the multi-billion dollar program without a waiver of budget laws.

Landowners rule

The US Federal Energy Regulatory Commission has issued a rule to require interstate gas pipeline companies to notify landowners of proposed routes when they file applications for the construction and operation of facilities. FERC said the proposed rule would ensure that landowners along rights of way would have sufficient opportunity to participate in its pipeline certificate process.

Next action: The rule becomes effective in mid-November.

SPR refill

This fall the US Department of Energy is refilling the Strategic Petroleum Reserve with 13.2 million bbl of Central Gulf of Mexico federal royalty oil. Previously, the SPR contained 561 million bbl SPR. DOE is replenishing 28 million bbl sold in 1996 and 1997 for budgetary reasons. The four SPR sites in Louisiana and Texas have capacity for 680 million bbl and hold 561 million bbl (OGJ, Apr. 12, 1999, p. 37).

Next action: More solicitations will be sought this fall.

Lease operating standards

The US Bureau of Land Management has proposed a rule to reduce overlap in current oil and gas regulations and give operators increased flexibility in meeting agency requirements. The rule would allow operators to meet published industry standards rather than BLM requirements. In some cases it would allow operators to meet performance standards that would replace prescriptive rules. The rule would increase individual lease bonds from $10,000 to $20,000, and statewide bonds from $25,000 to $75,000. Nationwide bonds would remain at $150,000 (OGJ, Dec. 14, 1998, p. 28).

Next action: The rule has met some industry opposition and is pending.

Global warming

The US signed the Kyoto global warming treaty Nov. 13, 1998, as the representatives of 160 nations concluded a second round of negotiations in Buenos Aires. The Kyoto pact calls for the US to cut its emissions 7% below 1990 levels by the year 2012. At the Buenos Aires meeting, the parties agreed to a late 2000 deadline for resolving issues remaining from the meeting in Kyoto. Also, they plan to draft rules for enforcing the Kyoto pact, including penalties for noncompliance (OGJ, Nov. 16, 1998, p. 42).

Next action: The Clinton Administration does not plan to submit the treaty to the US Senate for ratification until developing nations make commitments to cut their emissions.

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