US oil industry groups have praised Sens. Frank Murkowski (R-Alas.) and John Breaux (D-La.) for opening debate on a comprehensive national energy strategy.
The senators last week filed an omnibus bill designed to lower US dependence on imported oil (OGJ Online, Feb. 23, 2000).
Murkowski is the energy and natural resources committee chairman. Breaux is the ranking Democrat on the panel. Another key cosponsor was Senate Majority Leader Trent Lott (R-Miss.).
Reducing import dependence
The legislation is intended to reduce US oil import dependence to less than 50% by 2011 from the current 56%.
It is expected to influence the energy policy program that President George W. Bush's administration is preparing. Vice-Pres. Dick Cheney is heading a cabinet task force drafting that plan.
Most of Murkowski's bill will be referred to his committee, but key portions will go to the finance and environment committees. The Senate failed to act on a similar Murkowski bill last session.
In the most controversial provision, the legislation would permit development of oil and gas fields on the coastal plain of the Arctic National Wildlife Refuge east of Alaska's Prudhoe Bay producing area.
Murkowski said, "We can't afford to leave our best players on the bench. That means it is necessary to responsibly open certain parts of Alaska's coastal plain, our nation's best hope for new domestic exploration. It can be done in an environmentally thoughtful and careful manner, and it can replace the [equivalent volume of oil the US currently buys] from Saudi Arabia for the next 30 years."
Oil provisions
The bill also would earmark a portion of bid bonuses from oil and gas leases on all federal lands toward funding research into renewable energy research and development.
The bill would reestablish the Deep Water Royalty Relief Program that expired in 2000, thus permitting faster capital cost recovery for deepwater activity.
It would establish a royalty in-kind (RIK) program that would allow producers operating on federal lands to pay royalties in the form of oil and gas through Sept. 30, 2006. States would be allowed to collect the RIK for the federal government. States also could assume regulation of federal leases within their borders.
RIK oil could be taken for storage in the Strategic Petroleum Reserve (SPR) when crude oil prices are low.
The bill would allow federal lessees to forego federal royalty payments during periods of low energy prices and instead make capital investment in energy production.
Tax measures
The bill allows a $3/bbl and 50¢/Mcf tax credit for production from marginal wells (average daily production less than 25 boe/d) when prices are below $18/bbl or $2/Mcf, and then only on the first 1,095 boe/d produced. The credit could be carried back 10 years.
It extends the current 15% enhanced oil recovery tax credit to include horizontal drilling and other "tertiary" recovery methods designed to extend the life of a reservoir.
It also extends the existing tax credit for production of coalbed methane and heavy oil to projects placed in service during 2001-08. The $3/bbl credit is extended to 2011 and phased out thereafter.
The bill repeals the 65% net income limit for percentage depletion of oil and gas wells operated by independents. It allows carry-back or carry-forward for up to 10 years any depletion not deductible because of net income limits.
It repeals the current 50% net income limit on percentage depletion of oil and gas wells.
The bill clarifies the existing small-refiner exception to oil depletion rules so that the 50,000 b/d limit would be determined annually.
It allows geological and geophysical expenditures and delay rental payments to be expensed.
And it would make all pipelines, offshore drilling rigs and structures, refineries, and petroleum storage facilities eligible for 7-year depreciation to foster investment in infrastructure.
It allows full expensing of heating oil, natural gas, and propane storage facilities.
And it would allow a 10% investment tax credit for US-built offshore drilling vessels and structures exceeding 10,000 gross tons.
Conservation programs
The bill would expand the Low Income Home Energy Assistance Program to $3 billion/year from $2 billion. It increases authorized emergency funds from $600 million/year to $1 billion/year. It also enlarges the Weatherization Assistance Program.
State conservation programs would be given the goal of reducing energy use by 25% by 2010 vs. 1990 use.
Federal agencies must increase the fuel economy of new fleet vehicles by at least 3 mpg by 2005 vs. 2000. Half of federal fuel purchases must be alternate fuels by 2005. A $100 million/year program would provide funds for local governments to buy alternate-fuel vehicles.
Homeowners who install renewable energy systems could be eligible for a $3,000 grant.
Reports
Federal agencies would have to inform the energy secretary prior to taking any action that could significantly hinder the supply or distribution of energy. The Department of Energy would prepare an annual report on all such actions, what mitigation was undertaken, and the short, mid, and long-term effects.
DOE would issue an annual report on US progress toward less-than-50% dependence by 2011, with recommendations on use of renewable energy, conservation, and increased production to meet goals. Reports in 2001, 2005, and 2008 must also assess refinery conditions. It would notify Congress if petroleum stocks drop to critical levels, nationally or regionally.
The president would form an interagency panel on the SPR and report to Congress on options to strengthen it.
Each federal agency issuing rights-of-way for transmission lines or pipelines would report to the Federal Energy Regulatory Commission and DOE within 1 year on the ability of existing corridors to support new or additional capacity.
DOE would report annually on the condition of the US refining and distribution system, including possible incentives, streamlining of permitting and siting, and the effect of overlapping regulations.
FERC would report to Congress in 6 months on additional legislation it needs to certify gas pipelines.
DOE and FERC would establish a task force to expedite and facilitate environmental review and permitting of interstate gas pipelines.
The Department of Transportation would develop a research and development program to ensure integrity of natural gas and hazardous liquid pipelines. DOE would also launch a 5-year R&D program to improve reliability, efficiency, and integrity of gas transportation and distribution pipelines.
Industry responds
American Petroleum Institute said, "This bipartisan bill should engender much-needed debate on our national energy policy. Our nation's energy production is operating near maximums. This bill, importantly, recognizes that expanding our nation's domestic energy sources is essential for sustained economic growth. Clearly, our energy challenges must be addressed through increased access to sources of both domestic and worldwide petroleum. Conservation can and should play an important role as well."
The Natural Gas Supply Association agreed that the US needs "a consensus around a clear national energy policy."
Skip Horvath, NGSA president, said, "Producers of natural gas know the realities of what we face as we enter a whole new natural gas market. Demand continues to be strong. Although we are confident supply can keep pace, a key component to increased supply is access to now off-limits federal lands."
David Parker, American Gas Association president, said Congress should enact provisions in the bill to review undrilled gas resources, expand the pipeline delivery system, and develop energy-efficient technologies.
