TEST and TEST
There were few surprises in this vote. Members from agricultural states voted against it, just as members from oil and gas producing states oppose efforts to end federal tax provisions which that industry considers necessary for its economic well-being. “We should be having this debate in the context of a comprehensive energy plan,” Charles E. Grassley (R-Iowa), a member of the Agriculture, Nutrition and Forestry Committee, said during floor debate.
“Nearly every type of energy gets some market-distorting subsidy from the federal government,” he continued. “An honest energy debate should include ethanol, oil, natural gas, hydropower, wind, solar, biomass, and probably a lot of other alternative energies I don’t think of right now. By discussing it in the context of an overall energy policy instead of singling out ethanol right now, we would then be able to make sure we have a level playing field for all forms of energy because the government shouldn’t be choosing between petroleum and alternative energy, as an example.”
But Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) said that while he preferred to let the subsidy expire at the end of 2011 instead of ending it immediately, he voted for the amendment to make clear that he wants the 2004 Volumetric Ethanol Excise Tax Credit to end. Refiners who blend ethanol into gasoline, not ethanol producers, claim the 45¢ credit for each gallon of ethanol they blend into gasoline, he explained. It costs the federal government an estimated $5-6 billion/year in taxes, he added. Many people consider the 2005 and 2007 federal renewable fuel standards more effective tools in increasing domestic ethanol production, Bingaman said.
Ethanol advocacy groups quickly pointed out that the Senate also defeated an amendment proposed by John McCain (R-Ariz.) to prevent federal investment in ethanol blending pumps or storage facilities by 59 to 41 votes. “This vote signifies that an anti-ethanol wave in Congress isn’t swelling, but rather that all this attention on ethanol was little more than political posturing,” the Renewable Fuels Association said in a June 16 statement. “Lawmakers must now pivot to fact-based, comprehensive discussions about diversifying America’s fuel markets and weakening the grip of OPEC and other nations over our economy and energy security.”
Oil and gas industry associations did not issue formal comments, probably because they were preoccupied with trying to increase access to federally-controlled domestic resources or trying to get the US Department of State to make a decision about the Keystone XL crude oil pipeline project’s cross-border permit. But they also couldn’t have missed that several supporters of the Feinstein-Coburn ethanol amendment said during floor debate that it’s also time to end federal tax incentives for oil and gas.
It was John D. Rockefeller IV (D-W.Va.) who got to the heart of the matter when he said the 5 witnesses “get caught up in your profits and can’t understand the concept of sharing. You seem out of touch not only with what we’re trying to do, but also with the American people. I don’t think you have any idea what the size of your profits does to their ability to accept what you say.”
Witnesses reiterated statistics showing that the oil and gas industry is the most heavily taxed US business, and studies showing that greater access to domestic oil and gas resources would generate more government revenue than increasing the industry’s taxes. None of this seemed to matter to the committee’s Democrats. They apparently were determined to get so-called Big Oil to pay a bigger share to help reduce the budget deficit.
With the exceptions of Louisiana’s Mary L. Landrieu and Alaska’s Mark Begich, Senate Democrats overall believe that requiring the nation’s 5 biggest oil companies to surrender tax deductions enjoyed by smaller producers and the rest of American business is a small price to pay because the majors made so much money in 2011’s first quarter. “We have a responsibility to review everything,” said Debbie Stabanow (Mich.). “Taxpayers expect us to ask tough questions. It’s very appropriate to look at whether a tax deduction which was enacted in 1916 is still appropriate. It’s not that we don’t want you to be successful. It just may not make sense to subsidize what you’re doing.”
Thomas R. Carper (Del.) said that congressional Democrats and Republicans have been conferring with the administration on ways to reduce the federal budget deficit. “We basically were told to look in every nook and cranny,” he said. “There’s a strong belief in this country that some of the tax deductions for your industry do not get us results we deserve. We’re going to vote on this bill sometime next week, but it should not be the end of the conversation. Later this year, we’re going to vote on reducing the deficit by some $4 trillion and everything will be on the table.”
ExxonMobil Corp. chief executive Rex W. Tillerson responded that the nation’s top multinational oil company supports comprehensive tax reform. “Everything should be on the table. If you’re going to repeal Section 199, repeal it for everyone,” he said. “The object is to create conditions for greater investment in this country. That’s where a lowering of general rates would help. The foreign tax code needs an overhaul as a well. The principals we live by are to make US investments attractive and don’t harm US operations overseas.”
“I don’t think the American people want shared sacrifice,” observed Chevron Corp. chief executive John W. Watson. “They want shared prosperity. Oilfield workers who can’t work today because their companies can’t receive drilling permits or access to more leases feel the pain.”
That idea did not sit well with Rockefeller. “I think the main reason you’re out of touch, particularly with respect to Americans as we try to balance the budget, is that you always prevail in the halls of Congress for a variety of reasons from your lobbyists to where you do business,” he said. “The size of the amount of money you make is hard for average people in West Virginia to understand. They’ve always in the process of losing. Everything is an uphill battle. My view is that I’m holding onto a huge boulder with 2 hands and trying to push it uphill. If I take one hand off, the boulder and I disappear into the gulch.
“I have never seen any industry so successful that it gives you a sense of assurance I don’t see from the steel or automobile executives I’ve seen sitting there at the witness table,” he continued. “I don’t think you have any reason to feel threatened because of how votes line up in this Congress. But I yearn for at least one of you to see what American people are facing in terms of losing health and unemployment insurance, and consider what you can do to address that.”
The Menendez bill’s chances of passing the full Senate when it comes to a vote aren’t good. The hearing about it revealed a deeply felt attitude among most Democrats on that side of the Capitol that the industry is a perfect tax increase target because they believe it isn’t paying its fair share now. It’s an attitude that could make matters difficult if this committee begins the serious deficit reduction discussions its chairman, Max Baucus (D-Mont.), wants later this year.
The committee, which the 1990 Oil Pollution Act established, should also evaluate contributions from its completed research and provide an update of efforts to revise its plans in its 2012 biennial report to Congress, GAO said in a report it publicly released on Apr. 25.
It said that the committee’s member agencies, which include the US Bureau of Ocean Energy Management, Regulation, and Enforcement; the US Coast Guard; the US Environmental Protection Agency; the National Aeronautics and Space Administration; the US Navy; the National Oceanic and Atmospheric Administration; and the US Pipeline and Hazardous Materials Safety Administration, have spent $163 million on oil pollution research.
About $145 million of this amount came from the Oil Spill Liability Trust fund which OPA established and which was funded primarily from a tax collected on domestically produced and imported crude oil, the report said. The tax was 5¢/bbl when OPA became law, but expired in 1994. It was reinstated in 2005 and increased to 8¢/bbl.
GAO said that federal agencies have conducted at least 144 research oil pollution prevention and research projects since 2003, “but the inter-agency committee had a limited role in facilitating the coordination of agency efforts.” It established a joint research plan in 1997 which identified oil pollution risks and research priorities, but has not updated it in light of oil production and transportation changes, the report added.
It said that the committee also submitted biennial reports to Congress but did not identify member agencies’ progress addressing gaps which the 1997 research plan identified. “Until recently, it also had not revisited the plan, as the National Research Council recommended,” GAO said. The committee’s efforts to foster communication and coordinate its members’ research, and to reach out to the oil and gas industry, states’ organizations, and other stakeholders, also was limited until recently, according to the report.
In a March 4 response to an early draft of the report, the US Department of Homeland Security, which oversees the Coast Guard, said that it generally concurred with the recommendations and is addressing them. It noted that DHS’s fiscal 2012 budget request includes a full-time position as executive director of the inter-agency oil pollution research coordinating committee, and the position is a key step in the Coast Guard’s efforts to revitalize the program.
“Domestic energy policy cannot be based on crippling access, stifling permitting, and increasing taxes on production – as [US President Barack] Obama has recently proposed – while at the same time loaning billions to foreign government-owned entities to produce abroad,” Vitter said on Apr. 30. “These loans may well create numerous jobs domestically for US businesses to sell product overseas. However, there is no doubt that domestic production creates domestic jobs that cannot be shipped overseas.”
Vitter first mentioned this to Ex-Im Bank President Fred Hochberg in a Mar. 17 letter when he referred to an August 2009 letter he wrote Obama about a $2 billion loan to Petrobras which produced a response from the Ex-Im Bank suggesting there would be a significant return on the investment from interest on the loan as well as an increase in the growth of US manufactured products used by Brazil’s offshore industry.
Noting in his Apr. 29 letter to Hochberg that the bank subsequently approved a $1 billion loan to Ecopetrol, Colombia’s national oil company, Vitter said: “I was very specific about the information I requested from Ex-Im more than a month ago. I requested the particulars of the return on investment the American taxpayer can expect from these loans as well as the US businesses intended to benefit from the financing arrangements. Is it safe to assume that Ex-Im does preliminary analysis before issuing loans that evaluates the return on these loans to the US government and US businesses? Is it also safe to assume that Ex-Im should readily be able to provide that information to Congress upon request?”
The senator noted that while the Ex-Im Bank is an independent federal agency, it also is congressionally authorized and responsible to the US taxpayer. “I would appreciate a full accounting of the return on these ‘investments’ Ex-Im has been making as we develop domestic energy policy in a period when [gasoline] prices are above $4/gal and American families and businesses suffer,” he said. “These loans may well create numerous jobs domestically for US businesses to sell product overseas. However, there is no doubt that domestic production creates domestic jobs that cannot be shipped overseas.”
Working with Cuba’s regime poses a challenge since the United States does not recognize it. Repsol YPF SA, which is leading a consortium planning to drill its first well off the island nation’s coast, is another matter. The Spanish multinational reached out to BOEMRE some months ago to discuss its plans to drill off Cuba, Bromwich said told reporters on Apr. 12. Talks are continuing, he added.
“The places to be drilled are close to Florida’s coast, and in the loop current, so we will be watching them closely,” noted US Interior Secretary Ken Salazar, who also participated in the briefing at the Interior Department's headquarters.
Petroleum ministers in Mexico and Brazil told him that the Apr. 20, 2010, Macondo well accident and crude oil spill shocked the world, and that they were very interested in implementing more effective regulations, he continued.
“Most companies operating in the US deepwater operate globally, so the new standards we are requiring can be implemented worldwide,” Salazar said. That apparently could be the case in Cuba.
“If we’re serious about making the transition from gas-guzzlers to hybrids, then we’ve got to show automakers and truck manufacturers that there’s a real market,” he said. “They're not going to build them if they don't think anybody’s going to buy them. We need to show them that if they manufacture fuel-efficient cars and trucks, people will buy them. We need to put our money where our mouth is.”
UPS, FedEx, AT&T, Verizon, PepsiCo, and other large businesses already have developed large fleets that run on fuels besides diesel and gasoline, Obama noted. “That’s why we’re launching a National Clean Fleets Partnership,” he said. “If you’re a business that needs to transport goods, then I’m challenging you to replace your old fleet with a clean energy fleet that’s not only good for your bottom line, but good for our economy, good for our country, and good for our planet. And if you accept this challenge and you join our Clean Fleets Partnership, we’re going to make a number of tools available – from technical assistance to cutting-edge research and development – that will help you make the transition to a clean energy fleet.”
Obama said that he has heard repeatedly from owners of vehicles which run on petroleum alternatives that refueling infrastructure is critical. “We don’t have the distribution platforms right now. That’s something we’ve really got to work on,” he observed.
Oil and gas industry groups applauded the president’s remarks. “We welcome the president’s focus on natural gas as an option for transportation fuels and hope to see administration policies and programs that will encourage, rather than discourage, the production and distribution of this important domestic resource,” said Bob Greco, the American Petroleum Institute’s downstream operations director. “We also need sensible policies that preserve a robust U.S. refining industry to supply fuels for the existing vehicle fleet for years to come. We hope that the president is signaling a true shift for clear, effective policies that make use of our domestic resources while preserving this important industry.”
“In making his announcement at a UPS facility today, the president selected a company that has a fleet of more than 1,100 natural gas delivery trucks,” said Tom Amontee, executive vice president at America’s Natural Gas Alliance. “[NGVs] outperform conventional fuels with a significantly higher octane rating, better fuel efficiency and lower operating costs - all while offering dramatic reductions in emissions. With the price of natural gas nearing half that of traditional gasoline, greater use of [NGVs] is a smart business decision as well.”
When Christopher A. Smith, who heads the US Department of Energy’s Fossil Energy Office, addressed an American Gas Association Natural Gas Roundtable luncheon on Feb. 22, he noted that Colombia, where he spent three years, has 300,000 NGVs on the road. “The technology is there,” he said, adding that it’s also much more advanced than the technology for electric vehicles.
The bills’ prospects of moving beyond the Republican-controlled House aren’t particularly bright, but they will give members a chance to go on record again about the issue. Many congressional Democrats are saying that the US Department of the Interior’s report on already issued federal leases which aren’t producing or being actively explored, which DOI released as Hastings announced his legislation, justifies so-called “use it or lose it” requirements instead.
“In contrast to the president’s drill nowhere new plan, this is a drill smart plan,” said Hastings. “The majority of Americans support offshore energy production and these bills will allow it to move forward in a safe, responsible, and efficient manner. With thousands unemployed in the Gulf [of Mexico] region and gasoline prices nearing $4/gal, swift action must be taken to reverse course and increase US energy production.”
Two oil and gas industry groups applauded his move. “Bold leadership during these challenging times is necessary to get folks back to work in the gulf and to provide the energy resources so critical to fueling this country’s economic well-being,” said National Ocean Industries Association President Randall B. Luthi. “While much of our attention of late has been appropriately focused on the present day pace of permitting and its impact upon jobs, we are just as concerned with the lack of national policy direction for the future regarding access to the oil and gas resources of the US Outer Continental Shelf.”
Con Lass, senior director of federal relations at the American Petroleum Institute, also welcomed Hastings’s bills. “The energy markets are constantly looking for signals to guide today’s investment strategies for producing tomorrow’s energy. Regrettably, the signals this administration has been sending encourage less investment in future domestic energy production,” he maintained. “Our economy will still need oil and natural gas for decades to come. America must pursue policies that encourage responsible development of our resources instead of relying on imported energy from unstable parts of the world.”
Although Mrs. Peller died in 1987, I couldn’t help thinking of her on Mar. 18 when Offshore Marine Service Association President Jim Adams essentially asked the same question after the US Bureau of Ocean Energy Management, Regulation, and Enforcement announced that it had approved a third federal deepwater drilling permit since new regulations were imposed following the Macondo well accident and crude oil spill into the Gulf of Mexico last year.
Adams basically said that the new permits which have been issued were for operations already under way when US Interior Secretary Ken Salazar suspended drilling at 32 deepwater wells in the gulf late last spring. “Secretary Salazar is merely allowing existing permit holders to resume their operations,” Adams continued. “This administration has yet to approve a new deepwater exploration proposal submitted in the last 11 months.”
BOEMRE issued the new permit to ATP Oil and Gas Corp.’s Well No. 4 in Mississippi Canyon Block 941 about 90 miles south of Venice, La., where a rig had been on-site in April 2010 to resume drilling which had been suspended the previous July when Salazar imposed his moratorium. The agency said that it approved the new permit after reviewing ATP’s containment capability for the well using the Helix Well Containment Group’s capping stack.
“Secretary Salazar is treating gulf workers like peasants, tossing us work crumb by crumb and expecting us to be grateful,” Adams said. “We're tired of fighting for scraps. We want to get back to work – all of us, not just a handful of crews.”
In a separate response to BOEMRE’s announcement, US Sen. David Vitter (R-La.) said that ATP’s receiving the permit was welcome, “but a mere drop in the bucket for where we need to be.” He said that he would continue his hold on US President Barack Obama’s nomination of Dan Ashe to lead the US Fish and Wildlife Service until BOEMRE issues at least 15 deepwater drilling permits and complies with his other requests for answers about the permitting process.
The oil and gas industry representatives are Charlie Williams, chief scientist for well engineering and production technology at Shell Oil Co.; Paul Siegele, president of Chevron Energy Technology Co.; Joseph Gebara, senior manager and structural engineer at Technip USA Inc.; and Don Jacobsen, senior vice president for operations at Noble Drilling Services Inc.
Members representing academia are Nancy Leveson, a system safety and process safety professor at the Massachusetts Institute of Technology; Richard Sears, a senior science and engineering advisor who was chief scientist at the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling; and Tad Patzek, a professor and chairman of the University of Texas at Austin’s Petroleum and Geosystems Engineering Department.
The group also includes a single member from an environmental organization: Lois Epstein, the Arctic Program director at the Wilderness Society.
Members from the federal government include two experienced, high-level officials: Walter D. Cruickshank, deputy director of the US Bureau of Ocean Energy Management, Regulation and Enforcement (who held a similar post when it was the US Minerals Management Service), and Christopher A. Smith, the deputy assistant US energy secretary for oil and gas who leads the Department of Energy’s fossil energy office.
Others may not be as well known, but seem very well qualified: Capt. Patrick Little, commanding officer at the US Coast Guard’s Marine Safety Center; Mathy Stanislaus, the US Environmental Protection Agency’s assistant administrator for solid waste and emergency response; David Westerholm, director of the National Oceanic and Atmospheric Administration’s response and restoration office; and Steve Hickman, a geologist at the US Geological Survey.
Perhaps it’s because I’ve just finished reading the latest daily reports from the Washington Nationals’ spring training, but I can’t resist saying that Salazar put some very heavy hitters in this team’s lineup. It will be interesting to see what happens as they take the field and begin to work out.
Mark Begich (D-Alas.), Thad Cochran (R-Miss.), John Cornyn (R-Texas), Lisa Murkowski (R-Alas.), Jeff Sessions (R-Ala.), Richard C. Shelby (R-Ala.), and Roger F. Wicker (R-Miss.) co-sponsored the Feb. 16 resolution, which also asked that Salazar provide both groups of offshore drilling contractors with a sample application to be used as a template.
Salazar imposed an overall offshore drilling moratorium on May 6 following the Apr. 20 Macondo well blew out, causing the Deepwater Horizon semisubmersible rig to explode and kill 11 workers before sinking and releasing a massive amount of crude oil into the Gulf of Mexico. The US Department of the Interior has issued fewer than 35 shallow water permits since that moratorium was lifted on May 28 and no new deepwater permits since that ban was lifted on Oct. 12, the resolution said.
It charged that DOI has not clearly outlined requirements for either shallow water or deepwater drilling contractors to get new permits, resulting in 12 rigs leaving the gulf. "In spite of the offshore drilling moratoriums being lifted, permit delays are causing rigs to sit idle and threatening to send American jobs and tax revenue overseas,” Hutchison said in a statement. “Energy producers must have adequate guidance on new safety and environmental regulations so they can put Americans back to work and continue to strengthen our domestic energy supply to keep fuel costs low.”
"It has been nearly 10 months since the Deepwater Horizon disaster and the Interior Department still has not streamlined the shallow water permitting process," added Landrieu. "This de facto shallow water drilling moratorium is having a painful impact on the Gulf Coast's economy. Just last week, Seahawk Drilling announced that it will file for bankruptcy primarily because of a lack of permits being issued. I don't know how much more it will take before this administration understands the harsh consequences of its intransigence.”
A DOI spokeswoman responded that production and exploration in the gulf are ongoing, and that offshore producers, drilling contractors, and service and supply companies continue to make progress toward developing the capability to contain blowouts in deep water, which the Macondo blowout made clear is critical to safe deepwater exploration.
“Permits to drill are issued solely based on whether a company’s application meets rigorous safety and environmental standards, including demonstrating containment capabilities,” she told OGJ by e-mail. The US Bureau of Ocean Energy Management, Regulation, and Enforcement continues to issue permits, and is working as expeditiously as is safely possible to review drilling applications as they are submitted and ensure they meet safety standards put in place in the wake of the accident and spill, she continued.
A 10th US senator, David Vitter (R-La.), met with BOEMRE Director Michael R. Bromwich after the lawmaker placed holds on the nominations of Scott Dooney to become chief scientist at the National Oceanic and Atmospheric Administration and Dan Ashe to lead the US Fish and Wildlife Service.
“I wish my meeting with Director Bromwich was more fruitful,” Vitter said following the Feb. 16 meeting. “Unfortunately, pretty much all he did was repeat the administration’s talking point that there is no de facto drilling moratorium in the gulf.”
Majority Whip Richard J. Durbin (Ill.), Policy Committee Chairman Charles E. Schumer (NY), Democratic Conference Secretary Patty Murray (Wash.) and Sens. Bill Nelson (Fla.), Robert Menendez (NJ), Benjamin L. Cardin (Md.), Sherrod Brown (Ohio), Sheldon Whitehouse (RI), and Kirsten Gillibrand joined Reid in making the suggestion to House Speaker John A. Boehner (R-Ohio) in a Feb. 8 letter. President Barack Obama is expected to call for elimination of the percentage depletion allowance, drilling cost expensing, and other oil and gas production incentives, along with the manufacturers’ tax exemption for the oil and gas industry, when he submits his fiscal 2012 budget request to Congress on Feb. 14.
“There is broad, bipartisan agreement on the need to rein in spending, make government more efficient and bring down the deficit,” the senators wrote. “We believe that the question before us is not whether we should do any cutting, but what exactly should be cut. So, as you consider spending-cut ideas for the remainder of this fiscal year, we ask that you focus on cutting programs that are wasteful and inefficient, as opposed to those that help create jobs and spur economic growth.
“We are concerned that some of the cuts you may propose could undermine future growth just as our economy is beginning to recover. Instead, we urge you to consider ending a number of tax loopholes and other subsidies that benefit big oil and gas companies,” they told Boehner. “Closing these loopholes would save the federal government more than $20 billion over 10 years. This is just one example of a wasteful item in the budget that could be cut in order to make a down payment toward reducing the nation’s deficit. If the House chooses to adopt this suggestion, it would represent a good first step towards cutting spending in a bipartisan way.”
The 10 Senate Democrats, who did not include Energy and Natural Resources Committee Chairman Jeff Bingaman (NM), said that ExxonMobil Corp.’s 53% higher fourth quarter earnings and Chevron Corp.’s 72% year-to-year improvement for the period show that “oil and gas companies are doing just fine while many Americans are still struggling to find work and support their families.
“The days of big oil companies making billions in record breaking profits while receiving billions in taxpayer-financed subsidies must end. It defies common sense to cut programs that are creating jobs, helping jumpstart our manufacturing sector and strengthening the middle class while protecting taxpayer-funded handouts to big oil companies that add little to our economic or energy security,” they maintained. “During these tough economic times, closing more than $20 billion in loopholes for big oil and gas companies would send a clear message that we can cut spending while protecting the middle class.”
Boehner did not formally respond, but he apparently does not plan to take the suggestion seriously. Independent producers, stripper well owners, refiners and others do because they would suffer significantly if the repeals find their way into the final fiscal 2012 federal budget.
“We need to get behind this innovation,” he said a few minutes later. “And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”
Oil and gas lobbyists expected him to renew the request he’s made in the administration’s last two federal budget requests. They recognize that Republicans taking control of the House and increasing their numbers in the Senate present an obstacle to its being enacted, but they’re also not complacent. “It’s still going to be a fight,” one told me.
Here’s one reason why: The only other industry he singled out for criticism was health insurance, when he said he was not willing to go back to the days when companies could deny someone coverage because of a pre-existing condition.
More broadly, Obama said that the federal government needs to remove barriers which he said stand in the way of investing heavily in innovation, education, and infrastructure. “For example, over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries,” he maintained. “Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.
“So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years – without adding to our deficit. It can be done,” the president said.
He tried often to strike a conciliatory tone by saying that both sides of the congressional aisle need to work together to meet many significant challenges. It’s very possible that his request to end oil and gas industry the White House believes are outmoded will be the first big test of his call to simplify the federal tax code. And yes, it’s still going to be a fight.
NPRA President Charles T. Drevna said that the order calls for elimination of federal regulations which hinder economic growth and job creation. “At a time when unemployment tops 9% and our nation’s vital manufacturing base is shrinking, President Obama is acting in the nation’s best interests,” Drevna said in a Jan. 18 statement. “By removing unnecessary regulatory burdens, the president can free up the mighty engine of our free enterprise system to create jobs and bring a return to prosperity for families across our nation.”
US Chamber of Commerce President Thomas J. Donohue also welcomed Obama’s order. “While a positive first step, a robust and globally competitive economy requires fundamental reform of our broken regulatory system,” he said on Jan. 18. “Congress should reclaim some of the authority it has delegated to the agencies and implement effective checks and balances on agency power. It also means repealing or replacing outdated or ineffective regulations, ensuring realistic cost-benefit analyses using quality data. No major rule or regulation should be exempted from the review, including the recently enacted health care and financial reform laws.”
At the core of Obama’s order is the idea that each federal agency should propose or adopt a regulation only after reasonably determining that its benefits justify its costs (recognizing that measuring such costs and benefits can be difficult). An agency should structure its regulations to impose the least burden on society while reaching regulatory objectives, “taking into account, among other things and to the extent practicable, the costs of cumulative regulations.”
It should select approaches which maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity. It should, to the extent feasible, specify performance objectives instead of specifying the behavior or compliance methods for regulated entities to adopt. And it should “identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.”
Other responses to Obama’s order undoubtedly will appear after oil and gas and other groups study it more fully. But it initially looks as if the president has accepted the idea advanced by Republicans, the US Chamber, and other business organizations that new regulations’ potential costs should be honestly and objectively determined and considered before rules are finally adopted.
Two officials at the Center for Public Integrity at New York University’s School of Law said that the order is significant because it will give groups seeking stronger environmental, public health, and safety protections more tools. Richard Revesz, the law school’s dean and the center’s faculty director, said that the president made several noteworthy changes to the federal regulatory review process which progressive groups should embrace.
“First, he underscores the importance of considering the equitable distributional impacts of regulation, to protect the well-being of the most vulnerable groups in our society,” he said. “Second, he creates more opportunities for public participation. “Third, he expresses a strong commitment to scientific integrity, to prevent risk assessments from being skewed to promote political ends. Fourth, he incorporates under-regulation into retrospective review of rules, recognizing that too little regulation can be as pernicious as too much. Fifth, he asks for better coordination among federal agencies so that they don’t work at cross purposes. Sixth, he enhances the transparency of the regulatory process, so that the public can better evaluate the actions of the government.
“The cumulative effect of these changes is to balance the scales of cost-benefit analysis in the direction of strong and effective government protections for the American people,” Revesz maintained.
Michael Livermore, the center’s executive director, said that Obama opened new channels for public interest groups to make the case that stronger health and safety policies often make good economic sense. “By signing this document, Obama will reiterate his commitment to the pragmatic notion that data counts for more than demagoguery,” he said. “This move demonstrates the administration’s belief that when cost-benefit analysis is done right, the facts often support stronger protections.
“In the long term, this order is likely to displease those industry groups that want less regulation without regard to public benefits,” Livermore continued. “Balanced economics don’t work that way: Both the costs and the benefits of protecting Americans’ health and environment must be given equal weight. Obama’s move today will help those public interest groups seeking smarter stronger protections, and will help lead to a fairer fight in the regulatory arena.”
Initial responses were generally predictable. Sen. Mary L. Landrieu (D-La.), a Natural Resources committee member, said that she agrees with the commission’s recommendation to raise the $75 million liability cap, but warned that it should not go so high that small independent companies go out of business. She also applauded the idea of increasing the US Bureau of Offshore Energy Management, Regulation, and Enforcement’s budget and workforce.
But she disagreed with the notion that BOEMRE should have 90, instead of 30, days to approve offshore drilling permit applications. “We have successfully drilled more than 58,000 wells using a 30-day approval window, and if we strengthen BOEMRE’s ability to oversee drilling, it should not be necessary to add another 60 days to the approval process. It is not a matter of how long the review period is, it is about the effectiveness of the review,” Landrieu maintained.
Sen. Bill Nelson (D-Fla.) said that the commission’s report confirmed many of his “longstanding concerns about a lack of industry safeguards, poor regulatory oversight and our limited response capabilities. So I’m going to keep pushing for raising the liability limits to make sure polluters, not the taxpayers, foot the bill; and, to fix the ways we prevent and respond to spills. I’m also going to try to persuade enough of my colleagues in Congress to join with me. And I’m going to continue to fight any industry effort to place oil rigs off Florida’s coast.”
“The report and recommendations released today underscore the significant safety and environmental risks associated with offshore drilling, and spotlight the systemic lapses that led to the tragic Deepwater Horizon spill,” Senate Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.) said. “Some steps have already been taken to improve safety, but this report makes clear that more needs to be done to prevent a disaster like this from ever happening again. I am committed to working with my colleagues in the Senate to move forward on legislation that addresses the commission’s recommendations, ensures that oil companies are held accountable, and protects jobs, coastal communities and the environment.” She said that the committee also will hold a hearing with commission members in the coming weeks.
On the House side of the Capitol, Rep. Doc Hastings (R-Wash.), the Natural Resources Committee’s new chairman, said that he has emphasized, from the outset, the importance of having all the facts surrounding the Apr. 20 Macondo well accident, which killed 11 people, and subsequent massive crude oil spill so that Congress, the federal government, and the oil and gas industry could make smart, educated, and effective reforms. “Several of the recommendations put forward deserve real consideration and will be more closely examined during our committee hearings,” he said. “Reforms should accomplish our shared goals of improving safety, allowing drilling to move forward in a timely manner, and putting people back to work. Proposals that prolong the de facto moratorium in the Gulf, cost American jobs, or delay future energy production will be viewed skeptically in both the House and Senate.”
Rep. Nick J. Rahall (D-W.Va.), the committee’s ranking minority member, noted that the commission’s report contained several recommendations identical to many in legislation he sponsored last summer when he was chairman. He said that H.R. 3535, the Consolidated Land, Energy, and Aquatic Resources (CLEAR) Act, would have increased oil rig safety to prevent the next oil spill and protect workers, cracked down on ethical lapses, required businesses to be responsible for their actions, and reduced the federal deficit by $5.3 billion over the next five years. The House passed the bill by 209 to 193 votes in July, but Senate Republicans blocked the bill in the last Congress, Rahall said.
Rep. Lois Capps (D-Calif.), another Natural Resources committee member, endorsed the commission’s findings and said that “it’s imperative we all work together to implement [its] recommendations, especially ensuring federal agencies have the proper training, personnel and funding needed to do their critical oversight and enforcement jobs properly.” She said that the recommendations include a number of other key reforms, some of which were included in legislation the House passed last year, including “changing the law so that polluters, and not taxpayers nor victims, are responsible for the economic and environmental damages from an oil spill; giving [the National Oceanic and Atmospheric Administration] an enhanced role in offshore oil and gas leasing decisions; and separating scientists responsible for environmental review of projects from the leasing process to ensure the integrity of these reviews.”
House Energy and Commerce Committee leaders also responded. Chairman Fred Upton (R-Mich.) said that he was disappointed that, “even after completing its final report, the commission has left unanswered the fundamental question of what went wrong. Rather than clearly identifying the root cause of this unprecedented disaster, the commission’s report is limited to general assertions about the enforcement agencies and industry as a whole. Neither this nor any investigation should be used as political justification for a pre-determined agenda to limit affordable energy options for America. Without clear and specific evidence of what went wrong with this isolated well, unlike the tens of thousands that have never experienced similar failures, we will not learn the lessons needed to ensure a disaster like this will never happen again.”
Rep. Ed Whitfield (R-Ky.), who chairs the committee’s Energy and Power Subcommittee, said that he would continue to review the commission’s report, and monitor cleanup and recovery efforts to make sure that its recommendations and current regulations are protecting the environment without shutting down responsible exploration in the gulf. “We must strike the appropriate balance between protecting our environment and not tying the hands of responsible development. A ‘one size fits all’ moratorium on off shore exploration is not that balance,” he declared.
As the commission issued its final report, the US Energy Information Administration said in its latest short-term energy outlook that global crude oil markets will tighten over the next two years as consumption grows by an average 1.5 million bbl/day annually and growth in supplies outside the Organization of Petroleum Exporting Countries increases less than 100,000 b/d yearly. It said that it expects domestic crude oil production, which grew by 150,000 b/d in 2010 to 5.51 million b/d, to decline by 20,000 b/d in 2011 and 130,000 b/d in 2012. The 2011 forecast includes declines of 50,000 b/d in Alaska and 220,000 b/d in federal Gulf of Mexico production, which are almost offset by a projected 250,000 b/d increase in non-gulf production in the Lower 48 states, it said. In 2012, EIA said that it expects Lower 48 non-gulf output to grow by 70,000 b/d, Alaskan production to fall by 20,000 b/d, and output in the gulf to decrease by 180,000 b/d.
The idea has been gathering momentum since early November. “Truly one of America’s greatest wild places, the Arctic Refuge contains a rich diversity of landscapes, wildlife and habitats – unparalleled in North America,” the Alaska Wilderness League and seven other organizations said on Nov. 19. “[Its] coastal plain hosts an amazing array of wildlife including polar bears, grizzly bears, musk oxen, wolverines, and more than a hundred thousand caribou. This ‘biological heart’ of the refuge is connected to the entire country, as well as to countries all around the world. Every year, birds that begin their lives on the coastal plain migrate to all 50 states and across six continents, before heading back to the Arctic where the cycle of life begins again.”
ANWR’s coastal plain also is where a substantial amount of oil and gas is waiting to be produced. If Obama chose to exercise his authority and designate ANWR a national monument, the action effectively would put those resources off-limits.
The Sierra Club, Defenders of Wildlife, and similar national environmental organizations are asking people who support that goal to contact the White House. US Sen. Joseph I. Lieberman (I-Conn.) and 24 of his colleagues reportedly sent the president a letter supporting the idea. Alaska’s two US senators felt otherwise.
"Attempts to lock up America's energy resources are misguided, and this particular one is not legal," Lisa Murkowski, a Republican and the Energy and Natural Resources Committee’s ranking minority member, said on Nov. 22. "The coastal plain of ANWR holds valuable oil and natural gas reserves that are vital to our nation's energy security, which is why Congress designated it for oil exploration and included language in the Alaska National Interest Lands Conservation Act to ensure no further ‘wilderness’ designations in Alaska. Instead of trying to lock up our resources, we should be developing them as part of a balanced energy plan that creates jobs and bolsters the sluggish economy."
“This is another misguided attempt to lock up ANWR by Sen. Lieberman and others who truly don’t understand its potential to help bring national and economic security to our country,” Democrat Mark Begich said on Nov. 19. “The vast majority of ANWR is already off limits to development, but Congress specifically set aside 1.5 million acres in the 1002 area for oil and gas exploration. It has enormous potential and should be part of a national energy plan for our country.”
Obama could go ahead and embrace the proposal to shore up his support in the environmental community. But in the hours before Thanksgiving arrives, the idea looks like a real turkey.
“It advances our Republican all-of-the-above approach to energy,” he said in a Nov. 18 letter to House Republican Conference members. “The Natural Resources Committee currently oversees all energy development on federal lands and offshore: oil, natural gas, hydropower, wind, solar, coal, geothermal, uranium, minerals…everything. The Commerce Committee currently oversees the Department of Energy and general energy policy as it relates to oil, natural gas, nuclear, renewable, etc. Energy is currently divided in two halves – and this proposal would marry together our nation’s broad energy policy with the vast majority of America’s actual energy resources that are on our federal lands and offshore.”
It also would make the two committees’ power more level, Hastings argued. He called Energy and Commerce “a Goliath” which spawned both health-care reform and global climate change legislation, including a provision to establish a domestic carbon cap-and-trade program, in the current Congress. He said his proposal would enable both House committees to be more effective and achieve real oversight and legislative accomplishments. “It also aligns jurisdiction with the Senate Energy and Natural Resources Committee – a simplification that advances our ability to ultimately achieve legislative successes,” he maintained.
Consolidating House energy jurisdiction into the Natural Resources Committee has been discussed for some time, Hastings said. “But this is the moment that a decision can be made to align the structure of the House toward creating a cohesive and comprehensive national energy policy that has the capability to spur real, long-term job creation and economic growth,” he declared. “Energy deserves the concentrated attention of a committee with full jurisdiction over such a sweeping issue.”
“We are all for CNG conversion. It’s a good technology and has been around for 20 years,” said Mike Cantrell, president of the Oklahoma City alliance of producers, royalty owners, oilfield service companies, and national and state independent oil and gas associations. “Where we draw the line is on the proposed method of payment.”
He said that S. 3815, as proposed, would raise the tax on each barrel of domestic and imported oil from 8¢ to 21¢ in order to fund the Oil Spill Liability Trust Fund.
“Didn’t Americans just speak in the elections last week? We need to allow the marketplace to decide the next step,” Cantrell said. “This is absolutely not a decision that should be mandated by ‘big government’.”
Expect Joe Barton (R-Tex.) to look more critically at proposals to manage global climate change than Henry A. Waxman (D-Calif.) did in his two years as Energy and Commerce Committee chairman. Doc Hastings (R-Wash.) almost certainly will be more receptive as chairman to complaints by the Natural Resources Committee’s western Republican members that US Department of the Interior agency policies are stifling oil and gas development than Nick J. Rahall (D-W.Va.) was.
Among Natural Resource subcommittees, Doug Lamborn (R-Colo.) is in line to succeed Jim Costa (D-Calif.) as chairman of Energy and Mineral Resources. Costa lost his re-election bid, which is unfortunate. He tried to run the subcommittee reasonably while he was in charge and could have helped develop bipartisan legislation in the next Congress. Rob Bishop (R-Utah) won his re-election bid, which means he’ll be back not only as one of the more vocal Republicans on the full committee but also as chairman of the National Parks, Forests, and Public Lands Subcommittee.
Stevan Pearce (R-NM) also will be returning after regaining his House seat which he vacated in 2008 for an unsuccessful bid to succeed retiring Sen. Pete V. Domenici (R-NM). Pearce often acted as a one-man truth squad when he asked oil and gas opponents often embarrassing questions during hearings. He’s probably looking forward to doing so again. Democrat Martin Heinrich held onto New Mexico’s other House seat, which he won in 2006 when Tom Udall was elected Domenici’s successor.
Over at Energy and Commerce, Fred Upton (R-Mich.) is in line to succeed Edward J. Markey (D-Mass.) as chairman of the Energy and Environment Subcommittee. Markey also stands to lose his bully pulpit as chairman of the Select Committee on Energy Independence and Global Warming because House Republican leaders probably will dissolve it. It’s a safe bet that he’ll continue speaking out on climate issues, however.
Another significant change will take place at the Oversight and Government Reform Committee, where ranking minority member Darrell E. Issa (R-Calif.) is in line to succeed Adolphus Towns (D-NY) as chairman. Issa was a bulldog when he demanded a fuller accounting by what was then the US Minerals Management Service in 2005 and 2006 of alleged offshore oil and gas royalty underpayments. Many expect him to launch several investigations once he takes over in January.
“Tonight was a referendum on the Obama agenda and the American people rejected it,” he said late on election night. “The American people have sent a clear and direct message to Washington that they want less spending, limited government and more accountability. The mandate is clear: Advance an agenda that will create real jobs – not government jobs – but real jobs to get our economy moving again. Reduce the footprint of government in our lives, get government to live within its means, and make government more transparent and accountable.”
It’s always possible, however, that if House Republicans decide to heavily restrict funding in the next Congress for programs enacted by this one that they do not like, Democrats will make it a 2012 election issue – especially if it involves hiring more inspectors and auditors to improve enforcement at the Bureau of Ocean Energy Management, Regulation, and Enforcement, the Bureau of Land Management, and the Pipeline and Hazardous Materials Safety Administration.
Rendell asked Senate and House Democrats and Republicans in an Oct. 19 conference call for counterproposals to a compromise he outlined the previous week after the Democrat-controlled House passed a 39¢/thousand cubic feet levy on Sept. 29 which the Senate’s Republican majority immediately said would not be considered.
The governor proposed a severance tax in February of 5% of the gas’s value at the wellhead, plus 4.7¢/Mcf. On Oct. 11, he offered a compromise which would have called for a phased-in tax of 3% the first year, 4% in the second, and 5% in the third. Rendell said that he met several times with legislative leaders and gas producers as he developed the proposal. He said that when he received no reaction and saw that Senate Republicans did not intend to bring the House-approved bill up for debate, he made the conference call.
One day later, Senate GOP leaders responded with a letter which Rendell said restated their previous proposal for a 1.5% severance tax, with other provisions that the governor said provide giveaways to producers. House Republicans did not immediately respond, he added.
“It is irresponsible for Senate and House Republicans to refuse to compromise and simply turn their backs on these negotiations after days and weeks and months of work,” Rendell said on Oct. 21. “They signed a pledge to the people of Pennsylvania to enact a tax that requires drilling companies to pay their fair share for removing our state’s natural resources from the ground, and now they are walking away from that commitment.
“Their clear unwillingness to change their previous proposal or to resolve differences with the House Democrats and with my administration makes it obvious that they have killed the severance tax in this legislative session,” he continued. “It is a broken promise, as well as a misguided policy decision that will harm our environment, will leave our local governments without the financial wherewithal to deal with the impacts of drilling in their communities, and will increase the budget challenges that Pennsylvania will face in the years to come.”
Rendell, who is not running for re-election, noted that Pennsylvania’s general assembly has begun its election recess, adding that Senate Republicans have said they will allow no votes when the House returns for a lame duck session on Nov. 8. “With little time left to enact the severance tax, the Senate and House Republicans’ adamant refusal to advance a meaningful counter-proposal speaks volumes about their intentions,” he said. The tax’s prospects in 2011 are not particularly good since Attorney General Tom Corbett, a Republican who could succeed Rendell as governor, has said that he would not raise taxes if he’s elected.
Meanwhile, Kathryn Z. Klaber, president and executive director of the Marcellus Shale Coalition in Canonsburg, Pa., said that the organization and its members will continue to work with the state’s lawmakers and agencies to modernize Pennsylvania’s legislative and regulatory framework.
“As part of a well thought out and considerate comprehensive overhaul that includes legislative and regulatory modernizations, our industry maintains its support for a competitively structured severance tax that allows for capital recovery and reinvestment, comparable to other leading shale gas producing states, such as Arkansas, Texas, and Louisiana,” she said on Oct. 21.
“The leadership in the state senate deserves credit for their months of work in crafting a competitive, well-balanced package of reforms that would help ensure Pennsylvania remains a leader in responsible shale gas development,” Klaber added. “While our commitment to achieve these shared goals remains steadfast, we’re regretful that there wasn’t closure brought toward achieving these commonsense initiatives during this legislative session. We must get this historic opportunity right; we cannot afford not to.”
The commission also posted 4 preliminary staff reports online at www.oilspillcommission.gov/library#supporting-documents dealing with decision making in the spill response’s unified command, the use of surface and subsea dispersants, spill response challenges in the Arctic, and the amount and fate of the spilled oil.
White House officials were miffed with an assertion in one of the draft reports that the administration was not aggressive in determining how much oil actually was leaking early on, and that it prematurely reported on Aug. 4 that most of the spilled crude had biodegraded.
“Look, I think it is important to understand that our response attacked the oil spill in an unprecedented way,” Press Secretary Robert Gibbs said during his Oct. 7 daily briefing. “It was the largest environmental disaster that we have ever faced and we attacked it with the largest federal response. We did all that was humanly possible in the most challenging of environments.”
Jane Lubchenco, National Oceanic and Atmospheric Administration administrator, sent a letter to the spill commission that same day that worst case scenarios issued early in the response had nothing to do with flow rate calculations, but did inform the Unified Command’s preparations for possible eventualities. “And the worst case scenario was made public,” she added.
Commission members so far have confined themselves to questions and short observations. The meeting in another few days will give them a chance to say much more. It could be interesting.
Industry sources told me that their biggest immediate concern is with the blowout preventer requirements in the interim final rule aimed at strengthening offshore oil and gas safety equipment, well control, and BOP requirements. They basically worry that DOI and BOE will mandate specific equipment which would not be effective in some situations or work as well as well as other approaches outside the BOPs. Producers have said that each well is different, and that they need to be able to adapt quickly when situations change, which raises a question about reporting requirements.
Federal regulatory policymakers generally have tried to avoid overly prescriptive “one size fits all” requirements in recent years so regulated industries could be more flexible in addressing problems. The fact that the Apr. 20 Macondo well blowout and rig explosion took 11 lives and subsequently spilled 5,000 bbl of crude into the Gulf of Mexico has largely trumped this philosophy the past few months. Too much is at stake when people die, a major spill results, and the livelihoods of a US region’s entire population are put in jeopardy, proponents of stricter regulation contend.
Everyone seems to agree that more information needs to be shared and employees need to be better trained. When the International Association of Drilling Contractors testified in New Orleans on July 13 before President Obama’s independent oil spill commission, it recommended subjecting all offshore personnel to industry and government-accepted standards for well control such as IADC’s own Well Control Accreditation Program (WellCAP). IADC also has a rig-floor orientation program, RIG PASS, which many of its members use for their new employees.
A fact sheet which BOE issued with its announcement of a new offshore workplace safety rule said operators would be required to develop and maintain a Safety and Environmental Management System on each rig and platform. Each SEMS is a comprehensive management program to identify, address, and manage offshore operational safety hazards and impacts, it explained. “Many companies objected to this common-sense rule when we put it out for public comment before Apr. 20,” Salazar said.
The workplace safety rule makes mandatory current voluntary practices in American Petroleum Institute Recommended Practice 75. BOE said that it was preparing to finalize it before the Macondo well accident and subsequent crude oil spill. It continued to analyze RP 75 and decided to incorporate all of it in its workplace safety rule. It also said that it would address other safety concerns it identifies in future rulemakings.
These could include possible work hour limits and other ways to combat employee fatigue. BOE did not mention this in its workplace safety fact sheet, but the federal government has tried to address this issue in other industries as well as other parts of the US oil and gas business. I’ll be surprised if it isn’t raised here.
I won’t be surprised if API, IADC, the Independent Petroleum Association of America, and the National Ocean Industries Association weigh in with substantial comments and recommendations concerning both of these new regulations in the coming weeks. Too much is at stake for them not to.
John F. Hatley, vice president of Wartsila Corp.’s Americas division in Houston, invoked instructions given to Revolutionary War patriot Paul Revere more than 225 years ago at a recent American Gas Association Natural Gas Roundtable. This time, he indicated, the signal isn’t coming from Boston’s Old North Church, but from a marine engine market which will have to meet new government environmental regulations.
The United States and Canada have agreed to establish an emissions control area within 200 miles of their coasts, and the US Environmental Protection Agency plans to tighten requirements beginning in August 2012, Hatley said. “It’s a regulatory game-changer for fuel and nitrogen oxide in the marine marketplace,” he maintained.
He said that the United States represents 8% of total global ocean vessel calls, second only to China, and is ripe for 284 billion cubic feet of annual gas sales for marine NGVs. Wartsila is looking initially at the nation’s more than 6,000 inland barges and workboats (which Hatley termed “a very focused track for your infrastructure”); dockside power supplies for 60,000 oceangoing ships (concentrating initially on the ports of Los Angeles-Long Beach; New York; Savannah, Ga.; Houston; and Seattle-Tacoma), and 4,300 cruise ships which visit US ports annually.
“Because of who they serve, we believe the cruise industry will be one of the earliest adopters of clean natural gas,” said Hatley. “We’re working very closely with some major lines. There may be some announcements in the future.” Targeted annual demand in the 3 markets is 213 Bcf for inland barges and workboats, primarily on the Mississippi River and its tributaries; 29 Bcf for ocean vessel ports (with the 5 mentioned above representing about two-thirds of the possible demand), and 4 Bcf for cruise ships (with about half the demand occurring at Miami, Port Canaveral, Fort Lauderdale, and Los Angeles).
These marine transportation markets are also ripe for gas because it’s so much less expensive than petroleum fuels, Hatley suggested. Delivery can be accomplished by compressing or liquefying the gas onshore, and putting it in a delivery truck which pulls up alongside the docked vessel, he said. Wartsila has been doing this for years overseas, he noted.
Typical of such presentations about NGV markets, actual infrastructure details weren’t immediately forthcoming. So I asked former US Energy Information Administration chief Guy F. Caruso after the luncheon, where he also spoke, how he thought more efficient refueling systems might be developed in one case: the domestic inland waterways along the Mississippi River and its tributaries. “One large facility in New Orleans and another in St. Louis possibly could do the job,” he replied.
State and local governments would need to take the lead, he continued, but since federal subsidization already is being discussed for establishing extensive refueling systems for fleets of gas-burning long-haul trucks, it wouldn’t be that big a leap for inland barges, Caruso said. “The goal in both cases would be to reduce greenhouse gases,” he observed.
The event occurred as the US Environmental Protection Agency held the first of two public forums in Binghamton, NY, on whether development of the Marcellus shale formation potentially threatens drinking water supplies. New York’s legislature has suspended Marcellus development for a year, while Pennsylvania and West Virginia are moving ahead.
“This resource is going to be around for a long time because it’s going to take a long time to develop – not just a few years, but 10 or 20. It could employ more Pennsylvanians than the steel industry,” said Considine, who was at Pennsylvania State University until his recent move to Wyoming.
Because Marcellus gas is dry and requires little treatment, some producers are also building processing plants which could serve petrochemical customers, he indicated. MarkWest Liberty Midstream & Resources announced on Apr. 15 that it reached agreements with several southwestern Pennsylvania and West Virginia Marcellus producers and would expand its processing and fractionation capacity to 625 million cubic feet/day by the end of 2011. Considine said that the midstream partnership will sell the butane and natural gas liquids to a West Virginia petchem plant.
He also tried to temper shale gas’s bright prospects with some realism. Much of the Marcellus in Pennsylvania is in a sparsely populated part of the state, and “there’s going to be some environmental disruption as trees are cut and roads and pipelines are built.” Other problems have occurred, such as when one producer tried to save money by buying imported Chinese pipe which turned out to be substandard and contaminated drinking water supplies – a clear-cut piping problem which Marcellus development opponents have tried to link to hydraulic fracturing.
“There are risks. It’s the responsibility of the industry and government to communicate what the risks are, along with the benefits,” Considine maintained.
But he also said that the 20 known US shale resources plays include a few which are more oily than gaseous, such as the Eagle Ford in South Texas and the Niobara in the Denver-Julesberg Basin as well as North Dakota’s Bakken shale, which is already producing. Considine told me following his presentation that EOG Resources Inc. has extensive Niobara holdings, and a test of its Jake well there flowed 1,558 bbl/day. In a Sept. 16 presentation to a Barclays Capital investors conference, EOG chief executive Mark G. Papa said described the Niobara as a highly fractured play requiring additional production history to evaluate its rock matrix contribution. The Houston independent producer’s four-rig drilling program is concentrating on 100,000 of its 400,000 net acres there, he said.
Considine added that enthusiasm about the Niobara’s prospects helped Wyoming attract nearly $13.3 million in successful bids at its Aug. 4 lease sale because the underlying formation could extend north all the way to the Powder River Basin.
The good news from the latest event is that 13 workers are safe after evacuating the Mariner platform, only 1 of whom was injured. Almost all of them got into insulated suits which protected them as they waited 2 hours in very cold water before being rescued. The US Bureau of Ocean Energy Management, Regulation, and Enforcement has begun an investigation, with help from the US Coast Guard. Democratic leaders of the House Energy and Commerce Committee have requested a briefing on what happened by Sept. 10.
BP senior executives, meanwhile, submitted a 46-page, 4-color report entitled “Deepwater Horizon Containment and Response: Harnessing Capabilities and Lessons Learned” to BOE Director Michael R. Bromwich, who requested the information on Aug 5.
“The nature of the Deepwater Horizon incident – including the scope, scale, and complexity of the response – has driven large capability advances for the oil exploration industry as a whole,” it began. “These new capabilities should be an integral part of an improved planning and response regime for industry, government and other responders. We believe it is valuable to document them even as our response efforts continue. These advances can serve as part of an initial discussion on how to institutionalize the increased capabilities and ensure that they can be readily mobilized in addressing a marine oil spill of any size.”
The report said that these new capabilities and responses could be grouped into 4 general areas: collaboration, because a broad range of stakeholders came together to respond and develop new solutions; systemization, because extensive new systems, procedures, and organizational abilities had to be developed to adapt to changing and unique conditions; information, which had to be timely and reliable for better decisions, safer operations, and more timely reports to stakeholders and the public; and innovation.
In this last regard, said BP, “the result has been a series of developments, ranging from incremental enhancements to step changes in technologies and techniques that have advanced the state of the art and laid the foundation for future refinements as part of an enhanced regime for any type of source-to-shore response.”
Bromwich said that BOE will share the report with other officials in the US Department of the Interior, as well as other appropriate federal agencies, and that he and his staff members will continue to seek additional information and clarification as they carefully review BP's report. The discussions are part of BOE’s ongoing work to evaluate current deepwater drilling safety, containment, and response procedures as it works to strengthen all aspects of offshore regulation, he indicated.
Separately, Bromwich announced on Sept. 3 that he will hold the final of his 8 fact-finding forums on offshore drilling safety reforms, well containment, and oil spill response on Sept. 13 in Lafayette, La. It could be one of BOE’s livelier sessions.
Nine oil and gas producers have reached historic agreements under those regulations which will protect 355,000 acres of wildlife habitat on Colorado’s Western Slope, Gov. Bill Ritter announced on Aug. 10. “By working together, we are protecting important wildlife habitat while also responsibly developing our energy resources,” he maintained. “This balanced approach will drive our economy forward, allow us to maximize our vast energy resources and ensure sustainable communities for years to come.”
He said that the agreements protect more than 550 square miles of land designated as important habitat for deer, elk, raptors, sage grouse, and cutthroat trout, while providing the producers and their project planners more certainty. By consulting with Colorado’s Division of Wildlife before starting to drill, producers will be able to secure approvals for thousands of natural gas wells more quickly, Ritter explained.
He said that the agreements protect more than 550 square miles of land designated as important habitat for deer, elk, raptors, sage grouse, and cutthroat trout, while providing the producers and their project planners more certainty. By consulting with Colorado’s Division of Wildlife before starting to drill, producers will be able to secure approvals for thousands of natural gas wells more quickly, Ritter explained.
He said that Exxon Mobil Corp. and the state wildlife division signed the largest wildlife protection agreement to date, covering 150,000 acres of mainly federal land in Rio Blanco County. Encana Oil & Gas (USA) Inc., whose North Parachute Ranch plan was the first major agreement to be signed, and Williams Production RMT, which has signed 2 separate agreements for acreage bracketing the Colorado River, also have reached new wildlife accords with the state, he said. Antero Resources Piceance Corp., Marathon Oil Corp., Noble Energy Inc., Black Hills Exploration & Production Co., Delta Petroleum Corp, and Gunnison Energy Corp. have reached similar accords.
The agreements range from comprehensive drilling plans to well site density limits. “These plans are a recipe for success,” said David Neslin, director of the Colorado Oil and Gas Conservation Commission. “They will allow for development of needed energy supplies while protecting some of our most iconic wildlife species. They epitomize win-win solutions.”
The governor said that the 9 producers were able to use three different tools available to protect wildlife habitat under the state’s amended oil and gas rules which were developed following the legislature’s adoption of House bills 1298 and 1341 in 2007. The state’s wildlife division is continuing to work with other producers on similar wildlife protection plans, he noted.