Nick Snow
Washington Correspondent
WASHINGTON, DC, June 29 -- The Senate overwhelmingly passed a wide-ranging energy bill last week that embraces conservation and alternative fuels, in contrast to the House version approved in April, which provides more incentives to produce oil and gas.
Leaders on both sides of Capitol Hill nevertheless applauded the Senate's approval, by 85 to 12 votes, of a bill that Energy and Natural Resources Committee Chairman Pete V. Domenici (R-NM) was determined to keep bipartisan.
Domenici said the vote was a personal high point, but added, "We still have a lot of work ahead of us. I anticipate the swift naming of conferees and immediate progress to conference. President [George W.] Bush has asked us to have a bill on his desk before August. I intend to do everything I can to meet that deadline."
"The bill puts the Senate on record, for the first time, as saying that global warming is a problem we need to take seriously," said Jeff Bingaman (D-NM), the Energy and Natural Resources Committee's chief minority member. "The bill calls for increasing the amount of renewable energy that we use to make our electricity and power our cars and trucks. . .It was a good bill coming out of committee, and was made even better on the Senate floor."
House Energy and Commerce Committee Chairman Joe Barton (R-Tex.) praised Domenici's efforts. "Obviously, the House and Senate bills have differences to work out, and that is what conference committees are for. I look forward to partnering with Sen. Domenici and working hard to send a positive, bipartisan bill to the president's desk by the August recess," he said.
Bill details
That could prove to be a challenge, since the Senate's bill did not address either methyl tertiary butyl ether liability protection for refiners, which was in the House bill that came out of Barton's committee, or oil and gas leasing authorization in the Arctic National Wildlife Refuge, which was in a separate bill approved by the House that came out of the Resources Committee.
Resources Committee Chairman Richard W. Pombo (R-Calif.) said the Senate's energy bill "brings Americans one step closer to affordable energy and moves us farther from unreliable, expensive foreign energy." He added, "But we must do more. Developing countries such as China have begun to seek international energy sources in order to fuel their growing economies. This should serve as a loud wake-up call for the United States to get as serious about energy supplies."
Increasing domestic supplies would help the US rely less on foreign producers, he continued. "At a time when global oil supply surpluses are just 1 million b/d, the 1.5 million b/d we could produce on the northern plain of the Arctic National Wildlife Refuge are critical to our economic security and job growth," Pombo said.
Provisions in the Senate's energy bill that directly affect oil and gas include provisions to accelerate development of existing federal leases, an inventory of oil and gas resources on the Gulf of Mexico's Outer Continental Shelf, and a requirement for the government to devise a plan to reduce US oil consumption by 1 million b/d by 2015.
The House version has provisions aimed at streamlining the federal leasing process, allowing new domestic exploration, increasing domestic refining capacity, and expanding the Strategic Petroleum Reserve's capacity to 1 billion bbl. Both bills address permitting for LNG terminals.
State oil and gas officials, represented by the Interstate Oil and Gas Compact Commission, said that the $18 billion of incentives to boost domestic production in the Senate bill now must be reconciled with an $8 billion package in the House version.
IOGCC has advocated provisions of the Senate bill for some time, Executive Director Christine Hanson noted. "With proper research, technology and regulations by producing states, our nation's resources can be conserved and efficiently recovered without compromising our environment," she said.
Industry reactions
Oil and gas industry associations generally reacted positively to the Senate's bill. The American Petroleum Institute applauded its comprehensive approach, saying that it addresses problems that have plagued fuel providers and consumers for years, "including repeal of the federal oxygenate requirement for reformulated gasoline."
The Independent Petroleum Association called Senate passage of the bill an encouraging sign that Congress is serious about US energy problems.
"Domestic oil and gas producers have identified three broad policy solutions that could help domestic production: increased access to nonpark, nonwilderness federal lands; encouraging new capital to flow into the industry, and protecting the industry from unnecessary regulations," IPAA President Barry Russell said. "All three of these policy issues are addressed, in part, by the Senate energy bill."
In addition to the OCS inventory and federal permitting sections, IPAA said provisions in the Senate bill that would benefit producers include royalty relief to protect production if commodity prices drop dramatically and royalty incentives to encourage drilling of ultradeep gas wells that would be too costly otherwise.
The bill also contains tax provisions that would expand the enhanced oil recovery tax credit to onshore deep gas wells, and that would raise the EOR tax credit for projects using carbon dioxide stimulation, IPAA said.
The National Petrochemical & Refiners Association, on the other hand, saw problems in the final bill. "There are several aspects of the bill that concern us greatly, including a renewable fuels standard that requires refiners to blend 8 billion gal of ethanol into gasoline by 2012, and an MTBE ban," NPRA Pres. Bob Slaughter said.
The biggest concern, he added, is that the Senate's bill does not contain an MTBE liability limit, which the House version has. He called this "a must-do item in any comprehensive energy bill" and said that NPRA would work to ensure that the provision is included in the final package.
But Slaughter applauded other parts of the Senate energy bill, including a provision to give the Federal Energy Regulatory Commission exclusive siting jurisdiction for LNG terminals, a tax provision allowing refiners to expense certain capacity upgrades, and the OCS resource inventory.
"In particular, the provisions for providing incentives for additional refinery capacity and natural gas development are critical to easing the current and projected energy supply-demand imbalance," he said.
Other industry trade groups cited the Senate bill's provisions directed at gas. "The pleas by consumers and businesses to 'do something' about rising natural gas bills have been heard by the Senate," said American Gas Association Pres. David Parker. "While there is no such thing as a 'quick fix,' the Senate energy bill would lay the groundwork for increased gas supplies, a more diverse mix of energies for power generation and more efficient use of natural gas and other forms of energy."
"Although comprehensive energy legislation should not be viewed as a panacea to resolve all the nation's complex energy issues, it certainly is an urgently needed milestone," said Joseph A. Blount, chairman of the Natural Gas Supply Association and president of Unocal Midstream & Trade.
Additional supplies will be needed not only to alleviate rising energy costs, but also to keep manufacturing jobs in the United States, he continued. "Because the energy needs of the nation are matters of national and economic security, the natural gas industry will continue to emphasize the need for access to viable global and domestic resources," Blount said.
The American Chemistry Council said that the Senate bill is the first real step to halting the exodus of jobs overseas and returning the US chemical industry to a more competitive position. But it said the job would not be complete until increased domestic offshore gas production is allowed.
ACC applauded the OCS inventory provision, but expressed disappointment that senators were unwilling to give individual coastal states the right to opt out of moratoria and open new blocks to federal leasing.
Warner's amendment
Sen. John Warner (R-Va.) floated the idea during Senate debate on the energy bill on June 22, although he conceded "there is very strong opposition on both sides of the aisle to this amendment." He said his proposal for coastal states to permit offshore drilling on federal tracts and share in the proceeds was "entirely discretionary with the states" and "designed to force no burden on any other state."
He noted that Virginia's House and Senate approved legislation earlier this year that would have required Virginia Gov. Mark R. Warner to start exploring this concept, but the governor vetoed it because there was no applicable federal legislation, among other reasons. "I felt it important for the senator from Virginia to stand and advise the Senate of the necessity to put in legislation to allow those states the option of deciding for themselves to do offshore drilling," Warner said.
The proposal was strongly opposed by Sen. Jon Corzine (D-NJ) and by Florida's two senators, Democrat Ben Nelson and Republican Mel Martinez. "I wish there were a simple way that we could simply say: Fine, drill in Virginia if you will, but do not do so in Florida," said Martinez. "There just has not been a mechanism devised. . .that would allow us to draw these seaward boundary lines in a way that protect Florida. Particularly, I am talking about the area in the northwest part of our state around Pensacola."
Corzine said that casting offshore leasing as a state's rights issue was simplistic. "I do not know much about oceanography and how the tides move and the sea moves, but there is a reason we have planning areas—the Mid-Atlantic, the South Atlantic—and did not do it by states because water does not know borders," he said.
Nelson said that a provision establishing a seaward lateral boundary would need to be eliminated before he would consider supporting Warner's amendment. Referring to a map that was displayed, Nelson said, "In all of this area in yellow off the Gulf Coast of Florida that is under moratorium, that seaward lateral boundary would cause that line to come off the coast of Florida. That is what the senator from New Jersey is concerned about. That, then, establishes drilling off of one state that clearly starts to impinge on the rights of another state."
Before he withdrew his amendment, Warner said that he expects the proposal to come back before the Senate. "I predict the halls of this chamber will reverberate with the debate—maybe next year, or the year after—and the subject will be brought back when a solid realization will come to this Senate we have no place to go as a nation to protect ourselves and our energy needs but offshore," he declared.
Contact Nick Snow at [email protected].
