Senate energy debate moves to fuel efficiency; ANWR debate looms

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Mar. 12 -- The Senate Mar. 11 resumed work on a sweeping energy bill with votes expected on tighter motor vehicle fuel efficiency standards and tougher government oversight of energy derivatives.
Hundreds of other amendments could be proposed, but Senate Majority Leader Tom Daschle (D-SD) may temporarily pull the energy bill from the floor if debate stalls.
Daschle also has suggested that the bill may still be under construction past the spring recess from Mar. 25 through Apr 5.
While debate over the bill is far from over, it appears the closely divided Senate may seek to avoid truly polarizing issues that have dominated the energy policy debate for decades. Those who favor stronger conservation measures through tighter corporate average fuel economy (CAFE) standards are likely to fail, lobbyists and lawmakers predicted. Similarly, proposals to lease a portion of the coastal plain of the Arctic National Wildlife Refuge may not succeed, Senate observers say.

CAFE, RFG eyed
On the fuel efficiency issue, the Senate looked poised to narrowly approve a proposal by Sens. Carl Levin (D-Mich.) and Kit Bond (R-Mo.) that directs the Department of Transportation to issue new CAFE standards for cars and light trucks. The Levin-Bond plan would give the Transportation department 15 months to come up with new fuel standards for light trucks and 24 months for passenger cars. Support for a tougher plan to raise the combined CAFE of cars and sport utility vehicles from today's 24 mpg to 36 mpg by 2015 appeared to be waning.

Meanwhile, a much-touted deal between major oil companies and ethanol interests over streamlining clean fuel guidelines may also fall under some criticism this week. The deal now included in the Senate bill at the behest of Senate Majority Leader Tom Daschle (D-SD) repeals a federal oxygenate mandate for reformulated gasoline (RFG) 270 days after the bill becomes law. It also requires that, beginning in 2004, that at least 2.3 billion gal/year of renewable fuel be used nationwide. By 2010 the requirement expands to 5 billion gal/year, but the provision is written broadly, with no requirement that renewables be included in each gallon of gasoline and without restrictions on where renewables can be used. The provision also bans refiners from blending methyl tertiary butyl ether into gasoline within four years (OGJ Online, Feb. 28, 2002).
Not everyone approves of the RFG provision. Some state officials, fuel suppliers, and refiners say the plan makes the gasoline supply too dependent on the fuel ethanol industry, which now only produces 1.7 billion gal/year of the oxygenate.
Recent reports from Congress and the Energy Information Administration suggest the proposal, designed to triple demand for renewable transportation fuels, may boost gasoline and diesel prices to a level both consumers and politicians may not be able to stomach.
"It's replacing one mandate with another," warned Gregory Scott, a partner with Collier Shannon, a law firm that represents the Society of Independent Gasoline Marketers of America and the National Association of Convenience Stores. "Marketers are generally proxies for consumers, and to have the EIA say this will raise prices by $6-7 billion/year to consumers makes us not sure what Congress is thinking. Have they already forgotten the price spikes of 2000 and 2001?" he asked.

Yet even those who oppose the deal predict the proposal will largely survive in the Senate because of the political clout of farm and ethanol interests in an election year. Whether the RFG language remains after final negotiations between the House and Senate is very unclear, however, say lawmakers and lobbyists. The House bill largely avoids the RFG issue altogether.
But in the event the Senate RFG language fails within the confines of an energy bill, RFG stakeholders expect Congress will still be stuck having to face the issue eventually, possibly as a separate bill or as part of other legislation.

Enron redux
One item lawmakers expect to reach a compromise on is energy derivatives legislation. In the ongoing wake of the Enron Corp. financial debacle, Sen. Diane Feinstein (D-Calif.) wants the Commodities Futures Trading Commission to more directly oversee internet energy exchanges, and she wants tighter controls on customized "over the counter" financial instruments. Critics of the plan, led by Sen. Phil Gramm (R-Tex.), say the proposal will limit the ability of energy companies to manage risk effectively and will dry up capital investment. One compromise being eyed would require those who sell energy derivatives be registered and licensed by the Securities and Exchange Commission, much like securities brokers and dealers are. Compromise language is also expected to include expanded authority to CFTC to monitor internet exchanges, but to what extent that authority will entail is still unknown, say lawmakers.
As part of a White House interagency task force on Enron, CFTC is investigating the former energy giant's trading operations conducted through its exclusive electronic exchange EnronOnline, and trades done by Enron and other parties on traditional exchanges such as the New York Mercantile Exchange.

Lease swaps
Other upcoming amendments may include various lease "swapping" proposals. Senators from Louisiana and California want to see legislation that closes a decades-old billion-dollar dispute between industry and California over offshore oil leases.
Their proposal directs the secretary of the Interior to provide oil companies holding California leases with a swap of equivalent value covering lease sale offerings in the Gulf of Mexico within 30 days of the bill's passage.
A similar plan may be offered by members of the Florida and Texas delegations, industry sources said. Industry trade groups have avoided commenting publicly on the proposal, because some companies that hold leases outside Florida or California say the swap may give the former leaseholders an unfair competitive advantage at future lease sales.
There also is a fear that swaps may cause future problems in areas that currently are available to drilling, because environmental groups may try to use swaps as a way to control future lease areas.

Electricity, taxes
Electricity laws may also be debated in the coming week, as would a long-anticipated showdown over leasing a portion of ANWR. One area expected to be less contentious is tax policy.
But new tax incentives designed to spur US oil and gas production are expected to be one of the last items the Senate tackles this spring as it moves to pass sweeping energy legislation, according to congressional sources and industry lobbyists.
Part of the Senate bill includes a bipartisan $14 billion energy tax proposal that includes about $4 billion in credits and incentives for the oil and gas industry.
When the Republican-led House of Representatives last August passed its own comprehensive energy bill, it included oil and gas provisions that congressional budget-makers estimated would cost $8 billion over a 10-year period. Lawmakers from oil-producing states say the expanded incentives could ultimately save taxpayers money by improving the economy and adding jobs in the oil sector.
Critics of the House bill, which include most Democrats, say the provisions are "corporate welfare" that help make energy companies more profitable but do little to improve energy security (OGJ Online, Feb. 13, 2002).
But what the Democratic-led Senate will ultimately pass with regard to tax provisions is still largely unclear, lobbyists say.
A bipartisan tax plan supported by Daschle and Sen. Frank Murkowski (R-Alas.) to encourage the construction of an Alaskan North Slope gas pipeline is still under discussion. The proposal gives North Slope producers a floor price for gas when market conditions are poor; some smaller producers in the Lower 48 argue a floor price gives Alaska producers an unfair advantage.
However, pipeline proponents say the Senate bill already includes provisions to encourage marginal production outside Alaska. Both the House and Senate versions include a new $3/bbl credit for the production of oil and 50¢/Mcf for gas from marginal wells. The maximum amount of production on which credits could be claimed would be 1,095 boe/year. The credits would phase in when prices fell below $18/bbl or $2/Mcf.

Amendments approved
Amidst much indecision, the Senate has approved a handful of amendments of interest to the oil and gas industry that are much less incendiary than ANWR. These include:

-- An amendment designed to block North Slope producers from building the line mostly in Canada via a shorter, northern route instead of a southern route through Alaska paralleling the oil pipeline to Fairbanks and then the Alaska Highway to British Columbia. The amendment also clarifies Alaska will have regulatory authority over gas delivered from a southern pipeline to state customers.
-- An amendment approved by the Senate Mar. 8 directs the Environmental Protection Agency to study whether there is a need to regulate hydraulic fracturing.
-- The Senate also included in the energy bill the modified text of S. 235, the Pipeline Safety Act passed by the Senate in February 2001 (OGJ Online, Dec. 21, 2001). Two new provisions address security concerns: Sec. 781 authorizes the secretary of transportation to withhold information if it is deemed to be in the interest of national defense or foreign policy; Sec. 782 authorizes the secretary to provide technical assistance to pipeline operators or to state and local officials to prevent or respond to acts of terrorism.

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