SPECIAL REPORT: AEPC sees reversals of ’05 gains in new energy bills

Oct. 15, 2007
US independent oil and gas producers and their industry associations are fighting a political storm as energy bills that would hamper their work head toward a House-Senate conference.

US independent oil and gas producers and their industry associations are fighting a political storm as energy bills that would hamper their work head toward a House-Senate conference.

HR 3221, passed by the House this summer, for example, would slow US gas production, points out Bill Whitsitt, president of the American Exploration & Production Council (AEPC).

The effects on supply and, therefore, consumer prices were highlighted in an Aug. 1 memorandum that AEPC sent to House members.

The AEPC memo said provisions in the bill by the House Natural Resources Committee to extend project permitting times and increase producers’ taxes, fees, and other costs would “reverse a range of energy-permitting reforms put in place less than 2 years ago by the bipartisan Energy Policy Act of 2005 (EPACT).”

The EPACT reforms, AEPC said, “are already starting to produce results” in the form of increased gas supply.

The memo said producers are “frankly baffled as to why policy-makers would consider such a reckless course of action.”

Earlier this month, AEPC Pres. Bill Whitsitt told OGJ that there is even more evidence now than in 2006-EPACT’s first full year of operation-that EPACT has begun to enhance gas supply, particularly onshore production.

According to AEPC, EPACT was part of the reason US gas production increased by about 1.5% in 2006 after adjustments for the effects of Hurricanes Rita and Katrina.

Reality check

Whitsitt told OGJ that with US energy he has sensed a “disconnect” between policy-making driven by politics and that backed by logic and data.

“We are seeing an extremely wide gap between ‘reality’ and ‘hopes or expectations’ with regard to energy policy,” he said. “In fact, the gap is the worst I’ve seen in a not-so-short career here in Washington.”

Whitsitt said the movement in Congress to unwind many features of EPACT when they’re beginning to boost energy supply makes no sense.

Whitsitt cited a meeting he witnessed between an executive of one of AEPC’s member companies and a Democratic member of Congress. After a short, polite discussion about future gas demand and supply, Whitsitt said, the congressional member ended the meeting with a comment to the effect that: “I’ve heard what you said, and you might be right, but as a country we still need to change direction regarding energy policy.”

Whitsitt said that line of thought typifies many current policy discussions.

“How else could you explain a House energy bill that clearly leads to a reduction in natural gas production?” he asked. “How else can you explain something that’s that reckless? You can’t explain it as rational policy.”

‘Back to basics’

Whitsitt said members of AEPC and other industry associations have gone “back to basics” with educational outreach, particularly for politicians.

“It’s astounding that we had producing-state Democrats, particularly, who voted to decrease energy supplies,” Whitsitt noted about the most recent energy bills. “What are we not doing right that would convince these members from producing states-and some congressional districts that produce oil and gas-that to vote for this bill is to vote against a fundamental sector that should be important to them?” he asked.

Whitsitt said the outcry has been strong for industry to supply information for decisions about energy policy.

“We’ve heard specifically from some members of Congress who have told us that they don’t see enough of us in their town-hall meetings,” he said.

Whitsitt said outreach occurs in the framework of an association such as AEPC as well as individual companies.

“Over the past 2-3 years, we have actually been on a targeted basis trying to reach out to Democrats and Republicans who might be nontraditional supporters of the industry in the future,” he said. Those efforts were overwhelmed by the politics of the change from Republican to Democratic control of Congress.

AEPC also continues outreach efforts to natural gas consumers.

“We really hit a nice stride with our consumer groups when we were able to pass in 2006 the relatively modest-but still important-eastern Gulf of Mexico access legislation,” Whitsitt said. He added that this legislation would not have passed had it not been for the involvement by industrial gas users, from farm groups concerned about fertilizer prices, to the American Chemistry Council, to the gas distributors of the American Gas Association.

Climate change

The latest wrinkle in the fabric of effective energy policy-making that would affect independent producers has been climate change legislation, Whitsitt noted.

Policy-makers are beginning to understand that any effort to lower emissions of carbon dioxide will increase demand for natural gas, he said.

“You can’t do climate change policy in a vacuum when it comes to natural gas supply policy,” Whitsitt said. That message has been difficult for some lawmakers, especially those from districts opposing LNG terminals or offshore drilling.

Earlier this month the Natural Gas Council released a study highlighting the need for conventional gas from basins subject to restrictions on exploration and development if the US mandates reductions in greenhouse gas emissions (see story, this page). The NGC-commissioned study was of S. 280, the Climate Stewardship and Innovation Act, which US Sens. Joseph I. Lieberman (I-Conn.) and John McCain (R-Ariz.) introduced on Sept. 12.