US Congress restores oil and gas research, continues drilling bans

Nov. 5, 2001
Nearing the end of the annual budget making cycle, the US Congress restored oil and gas research funding to historical levels. Spending measures also include legislative riders that bar drilling from some public lands, although those laws are more symbolic than substantive. The White House is expected to approve the measures.

By the OGJ Online Staff

WASHINGTON, DC, Nov. 5 -- Nearing the end of the annual budget-making cycle, the US Congress restored oil and gas research funding to historical levels. Spending measures also include legislative riders that bar drilling from some public lands, although those laws are more symbolic than substantive.

President George W. Bush is expected to sign the spending bills shortly. Congress passes 13 appropriations bills each year to fund the federal government's budget.

Under the Interior Appropriations bill passed earlier this month, congressional budget makers earmarked $101 million for the Department of Energy's petroleum and gas research and development programs for fiscal year 2002, which began Oct. 1. That figure is nearly double what the White House requested this year, but still slightly below the $110 million received under last year's budget.

Additionally, DOE's budget to operate the Strategic Petroleum Reserve was increased 11% to $179 million, about $10 million more than the White House asked for.

Lobbyists say even more money may go to DOE, depending on the outcome of various homeland security proposals now before Congress. The White House may ask for special funds to improve the security of the Strategic Petroleum Reserve; 545 million bbl are stored in more than 50 salt caverns at four sites near the Texas and Louisiana Gulf Coast.

According to energy analyst Adam Siemenski of Deutche Bank Alex. Brown, if a presidential order is issued, the reserves can come on the market within 15 days. The rate could reach 4.1 million b/d for 90 days, after which it would decline.

The White House also is widely expected to endorse a plan to fill the SPR near its 700 million bbl maximum capacity, although the means is still being discussed. More than 30 million bbl will be returned to the caverns over the next 15 months under a previous exchange program that allowed federal leaseholders to give the government oil production in lieu of cash royalty payments. This program is called royalty in-kind or RIK.

The White House may allow an additional 70 million bbl to be added through an RIK program. But the Interior Department and some oil producing states fear RIK may not reflect the true market value of the oil.

Without RIK, the White House will likely have to ask Congress for at least $1 billion to buy oil for SPR.

The SPR program and other energy-related items may be attached to the one remaining spending bill now before Congress that funds the Department of Defense. There is also a chance energy-related legislation may be included under an economic stimulus package now under consideration.

Other budget items
In other budget news, recently passed spending bills include provisions that bar drilling in national monument areas and seek to impose a new ban on state leases or permits for oil and gas drilling in or under the Great Lakes. Lawmakers abandoned a proposal to postpone an eastern Gulf of Mexico sale this December, but only after the White House pared back the scale of the sale by 75% (OGJ Online, Oct. 26, 2001).

Drilling opponents called the provisions a giant victory for the environment. But from a practical standpoint, the legislative riders did not change the rule of law.

Legal experts said the Interior Department already excludes national monument areas from drilling. The Great Lakes provision was also largely symbolic. The bill language prevents the Army Corps of Engineers this fiscal year from using money applied to "the land under the water in any of the five Great Lakes" and other upper Midwest rivers.

But state officials and US producers say the language is largely irrelevant, because the state government has the authority to continue giving leases to US producers who explore for oil using directional drilling along the Lake Michigan and Huron shores. Meanwhile, on the Canadian side of the Great Lakes, producers do drill for gas beneath Lake Erie. They are not bound by US law.

"This is clearly a case of the federal government overstepping its bounds and taking away our rights as Michigan citizens to manage one of our most important resources," said the Michigan Oil and Gas Association.