When US President George W. Bush signed HR 6, the Energy Independence and Security Act, into law on Dec. 19, 2007, he called it an example of what can be accomplished when Congress and his administration worked together. The bill that arrived at his desk actually was a survivor of several confrontations, including a threatened presidential veto until Senate leaders removed provisions for new taxes.
Administration and congressional leaders nevertheless basked in their accomplishment for a few hours. Then they resumed fighting when the US Environmental Protection Agency said California and other states could not adopt tougher greenhouse gas emission controls than the agency’s new national standards.
It was not surprising that the White House and Congress often were at odds over energy strategies during 2007 after Democrats assumed control of both the House and Senate in early January. House Speaker Nancy Pelosi (D-Calif.) included energy in the bills passed during the first 100 hr of work that month. Congressional Democrats on both sides of the Capitol pushed bills designed to stop alleged gasoline price gouging and repeal 2005 Energy Policy Act incentives they considered oil and gas industry giveaways. But when they finally sent the 2007 energy bill to the White House for Bush’s signature, it raised automotive fuel efficiency requirements, increased the federal ethanol mandate, and established new consumer lighting and other appliance efficiency standards.
Several House and Senate Democrats have said they will reintroduce proposals that were not adopted in 2007 because the changes are still needed. Now that they have had a full year of working with a Congress where the Democrats are back in the majority following 12 years of Republican control, oil and gas industry associations and their leaders have a better idea of what they are facing. Their assessments of 2008’s prospects range from guardedly hopeful to warily grim.
‘Better understanding’
“We’re beginning to see a better understanding that taxing the oil and gas industry punitively for its own sake is counterproductive in many ways,” American Petroleum Institute Pres. Red Cavaney observed. He listed three main reasons: The industry reinvests heavily in its business, consumers feel new taxes because they are simply passed through, and taxing an industry with a proven record to fund new technologies is risky because there’s no guarantee that such investments will be as productive.
Cavaney also suggested that federal lawmakers and their staffs increasingly recognize the massive role that hydrocarbons play in the nation’s energy mix, and that alternatives, even growing at supersonic speeds, won’t be able to take their place for several decades. “They’re beginning to understand that energy is not a pure political football. It has real effects on real people. We need to get serious about creating a stable energy security framework,” he said.
William F. Whitsitt, president of the American Exploration & Production Council, said much of the initial congressional activity during the 110th Congress’s first session reflected Democrats’ pent-up agenda frustration. “By not being in charge for so long, we saw a very partisan, very intense release of that frustration when they regained control, particularly in the House. With these energy bills and HR 6, the Democratic leadership exercised surprising strength in keeping its members in line. In most votes, fewer than 11 Democrats broke ranks over punitive legislation,” he said.
“With this latest energy bill, some of that frustration may have subsided. While the leadership still exercised discipline, we may have seen the first indication that it recognizes there needs to be decent policy among the politics. That makes me hope, going into 2008, that we might have some breathing room,” Whitsitt continued.
‘Year of the attack’
“This has been the year of the attack,” National Petrochemical & Refiners Association Pres. Charles T. Drevna said of 2007. “It made great political gamesmanship to use the refining, oil, and gas industries as targets. Fortunately, most of the punitive legislation did not have the votes to be enacted. Fortunately, rational behavior arrived.”
That did not apply to the ethanol mandate in the final energy bill, he continued. “It’s unrealistic and fraught with potential unintended consequences that haven’t been fully investigated. Its timeframe may be unrealistic and difficult to achieve. It clearly will have the biggest impact on gasoline quality and quantity in the near future. We don’t consider it consumer-friendly,” he said.
Cavaney pointed out that when the federal renewable fuel standard was enacted as part of the 2005 Energy Policy Act, the refining industry knew it had the capacity to make the product to meet the goals. “This new structure is not the same. To reach these higher numbers means relying on processes that haven’t worked yet on a production-size operation. We think there will need to be periodic technology reviews and time-outs if the volumes don’t materialize. The latest bill doesn’t have that kind of language,” he told OGJ.
“The only reason the oil and gas industry dodged the bullet is that we had a number of Republican friends, particularly in the Senate, said Brian T. Petty, International Association of Drilling Contractors senior vice- president for government affairs. “The leadership is no friend. We’ll continue to work with the House’s Blue Dog Democrats and similar groups, and try to educate new lawmakers from red states,” he said.
Early versions of congressional legislation would have seriously inhibited producers’ ability to find oil and gas domestically, Petty said, adding, “But there are other insidious efforts to reduce production, particularly through regulations.”
Hydraulic fracturing
One of these regulations would place hydraulic fracturing back under federal water regulation control after it was excluded from the Safe Drinking Water Act in 2004 when a study found no discernible effects. This time, industry opponents are trying to bring it under the Clean Water Act’s authority by focusing on producer water from coalbed methane, which contributes heavily to domestic natural gas production, Petty said.
The Independent Petroleum Association of America will continue mobilizing its members to communicate with members of Congress and encourage them to develop a progressive energy policy, IPAA Pres. Barry Russell said. But the group also recognizes that many federal lawmakers who have defended the oil and gas industry will retire at the end of 2008, particularly in the Senate, he told OGJ. “We spend a lot of time working with Democrats from producing states and in the Blue Dog Coalition. But decisions are being made by a smaller and smaller group,” he said.
Lee O. Fuller, IPAA vice-president of government relations, noted that the 110th Congress so far has relied on the leadership more than committees to develop initiatives, especially in the House. “Many producing-state Democrats are on committees that have jurisdiction. But if those committees don’t get to develop policies, it becomes a very difficult problem,” he said.
Fortunately, domestic producers have begun to feel the benefits of EPACT and of the 2006 law which opened significant new Gulf of Mexico acreage to leasing. Accomplishments during 2007 include the US Minerals Management Service’s completion of its latest 5-year Outer Continental Shelf leasing plan, which included potential new tracts off Virginia and in Alaska’s Bristol Bay as well as the gulf, National Ocean Industries Association Pres. Tom Fry said.
A former director of both BLM and MMS, Fry said new MMS Director Randall Luthi is off to a good start because he recognizes the politics that are a part of the job. “He’s trying to make the agency stronger and better able to do the sort of work it has done in the past,” Fry said. The next federal OCS sale in March could be big because a number of leases have expired and come back onto the market, he continued. “The only damper has been that MMS has raised the royalty rate twice in the last year,” he said.
‘900-lb gorilla’
Industry association executives generally agreed that global climate change will increasingly drive energy legislation. “It will be the 900-lb gorilla for 2008 and beyond,” said Drevna. Unfortunately, what we’ve seen in most proposals is a lot of cost and very little benefit. Until we make that equation much more balanced, the American economy as a whole is in for some sleepless nights.
Donald F. Santa, president of the Interstate Natural Gas Association of America, said,“As we look at changes in the energy economy and climate change, natural gas will have a continuing and increasingly important role. One surprise was the opposition last year to coal in several utility markets. But if the right policies in terms of access to supplies are in place, the gas will be available to meet North American demand, he said.
Martin E. Edwards. INGAA vice-president for legislative affairs, said, “Our greatest challenge is separating natural gas from petroleum policies. I’m not sure that many committee members fully understand the importance of gas supplies and infrastructure.” He said the House was more political again than the Senate during 2007, but added that its leadership may tone down the rhetoric and try harder to govern in 2008.
Lawmakers and their staffs are more receptive when producers and refiners bring along consumers when they call. “Some natural gas users have been the most effective energy advocates. It’s a totally different dynamic, in a meeting with a consuming state’s representative, when a consuming industry from his district is there too,” said Whitsitt.
He sees a growing recognition that gas will need to play a key role in reaching a climate change solution, and that more supplies will be needed. “I think a number of members of Congress in both parties finally recognize this. We saw, through conversations with members’ staffs, that gas can be a success story or a problem. We plan to get back to basics with producing state Democrats and help them make persuasive arguments,” he told OGJ.
Election outlook
Associations and their members also recognize that 2008 is a federal election year. Several are part of the Business and Industry Political Action Committee. Others have their own PACs. Some use both. Most of the executives interviewed said they do not expect energy to be the biggest election issue. But they agreed it could be significant.
Cavaney said, “It certainly will be important. I think the next president will have to deal with it. I think every major presidential and vice presidential candidate will have briefing papers on it. I also think candidates for other offices down to the state and local level also will have to deal with it.”
While the oil and gas industry has acknowledged that it needs to communicate more effectively with external audiences, API’s president said a number of its critics still have been able to conduct their operations without much opposition. “When they kept talking and the industry wasn’t there, a lot of what they said became accepted truths. We ought to welcome a vigorous debate and more visibility. As long as the public continues to demand our products, it will need to become part of the solution and not expect us to solve these problems alone,” Cavaney maintained.
“We’ll continue to look at the presidential candidates and reach out to their staffs in this early stage to let them know that natural gas is important.” Whitsitt said, “Clearly, there will be a change. The people who are discussing energy with the candidates now in the campaigns could wind up as part of the next administration. We want them to know we’re willing to talk to them.”
