WASHINGTON TO DETERMINE OCS LEASE SALE SCHEDULE

Jan. 8, 1990
Patrick Crow Washington Editor The U.S. government will make critical decisions on the future of Outer Continental Shelf leasing this year. And it will do so in a political atmosphere the oil industry finds troubling. Here's the agenda:
Patrick Crow
Washington Editor

The U.S. government will make critical decisions on the future of Outer Continental Shelf leasing this year.

And it will do so in a political atmosphere the oil industry finds troubling.

Here's the agenda:

  • Late this month President Bush is expected to announce the fate of two controversial lease sales off California and one off Florida. An interagency task force is due to send Bush a report on those sales this week and offer him options for his decisions. What the president decides will set the pace for OCS leasing for the rest of his administration, which could be another 7 years.

  • In March the Interior Department's Minerals Management Service will release the first draft of its next 5 year schedule for lease sales on the OCS.

  • And by Apr. 1 the Department of Energy is due to release the first draft of its National Energy Strategy (NES), which will place offshore leasing in the context of other U.S. energy policy goals (OGJ, Nov. 6, 1989, p. 26).

All that action isn't necessarily good news for the petroleum industry.

Charles Matthews, president of the National Ocean Industries Association (NOIA), voices this concern: "What bothers me is that all three decisions are going to be made not on the basis of facts but on politics and emotion."

He pointed out that the Exxon Valdez oil spill has placed its mark on the political dialogue on OCS leasing even though most new offshore fields will be produced via pipeline.

TASK FORCE REVIEW

In his budget message last year, Bush put a hold on California and Florida lease sales scheduled for 1990 (OGJ, Feb. 20, 1989, p. 24).

He ordered an interagency task force to review the environmental concerns behind Sale 91 off northern California, Sale 95 off southern California, and Sale 116 off southern Florida, near Everglades National Park, south of 26 N. Lat.

Bush maintained he remains committed to offshore oil and gas development in an environmentally sound manner.

The task force decided not to recommend whether the three sales should be held but to give the president a series of findings and options.

A spokesman explained, "They didn't want to undermine the president's authority to make the decisions himself."

Interior Sec. Manuel Lujan expects Bush to announce his decision about the time of his State of the Union address late this month. It may be part of that address.

Matthews said, "Since he is going to get a range of options, I'm afraid politics is going to be involved more heavily than facts. We're very concerned about it. We should all be communicating our views to the president and his advisers in the meantime."

NAS FINDINGS

The task force report will be influenced by a study the National Academy of Sciences was asked to prepare for it (OGJ, Nov. 20, 1989, p. 23).

NAS reported to the task force that Interior doesn't have enough environmental and socioeconomic data to justify offshore oil and gas leasing and development in the three sale areas. The finding triggered a volley of criticism.

NAS said there is not enough scientific and technical information available about potential environmental effects for the government to make sound decisions on development and production.

The NAS report did not offer an opinion on whether the sales should be held after more data are gathered.

But it will heavily influence the task force's report. That document cannot brush aside the claim that more information is needed to justify the sales. And the collection of that data is certain to delay the three sales-if Bush decides to let them proceed.

Lujan has criticized the report, complaining about the lack of firm recommendations.

"I rather expected a 'yes' or 'no,' " Lujan said. "But they did point us in the direction of the areas we have to study. We will make those studies they say we are deficient in."

Matthews said, "NOIA was very disappointed in the study, primarily because the environmental aspects of offshore drilling have been studied to death. But apparently they have come up with some areas they feel are not adequately covered."

An internal report for the House merchant marine committee said the NAS study "impeaches the process whereby the Interior Department evaluates the environmental impact of offshore energy exploration, production, and development activities, as well as the quality of data that process produces."

Rep. Roy Dyson (D-Md.), chairman of the committee's Panama Canal/OCS subcommittee, said, "I find this particularly disturbing. We have been conducting environmental impact statements for 20 years.

"We have case law, regulations, and statutes that define how these should be conducted and what sorts of data should be included. Yet now we discover that the information available on three of the most controversial offshore lease areas is 'inadequate' for making a reasonably informed decision on whether to proceed with the lease sale or stop where we are."

SPLIT PROCESS

The NAS report made another recommendation neither Interior nor the oil industry liked but one that opponents of drilling are likely to seize upon.

NAS said there appears to be no separation in MMS decisions on whether to lease tracts and whether to permit postlease development.

It noted that although Interior has required some OCS development and production plans to be changed it has never denied one.

NAS said that has led the public to believe that leasing means development.

"Until this problem is resolved, effective environmental assessment and credible public dialogue will be difficult," NAS said.

"A more comprehensive environmental impact statement (EIS) at the development and production stage could take advantage of improved knowledge and additional studies to gain information."

It recommended MMS should try harder to split decisions regarding leasing/exploration and development/production "with distinctly different phases of scientific data gathering and analysis."

NOIA strongly disagreed with that approach.

"When a company spends the money, time, and effort to buy a lease and explore it, that should carry with it the opportunity to proceed to development unless a very compelling reason not to drill is found in the meantime," Matthews said.

He noted the OCS Lands Act amendments offer ample opportunity for public comment in the process prior to leasing and production.

Dyson disagreed. "A decision to lease is tantamount to a decision to develop if the leaseholder considers the discovered reserves to be economically viable. The way I see it, that makes our environmental information virtually useless."

FIVE YEAR PLAN

Lujan has said Interior will consider establishing more distinct leasing and production phases in its next 5 year leasing plan and is even considering stretching the plan to 10 years to allow more time for environmental and other prelease studies. It also is considering different treatment for different OCS areas.

Matthews noted, "The law calls for a 5 year plan, so a change in the law would be needed.

"But I don't think that's going to give us any relief from the activist environmental groups. They've tried to get the courts to throw out all three 5 year plans so far. There's no doubt that they will continue to use every opportunity to try to stop offshore development."

NOIA has urged Interior to maintain the "geographical balance" of the lease sale schedule in the next plan.

Although the current plan has geographic diversity built in, environmental objections and poor economics for frontier sales have resulted in many lease sales being dropped or delayed.

Few lease sales are likely to be held outside of the Gulf of Mexico. In fact, the last four sales were gulf sales, as will be the next two.

NOIA said sales should continue to be held in the central and western gulf but "at the same time we urge you not to omit lease sales in other areas simply because the level of controversy has been high.

"Some of the most promising areas of the OCS lie off states where the program has been most controversial, California being the prime example. The OCS resources are in federal public lands and therefore are national resources to be managed and developed in the national interest."

THE LEASING PROCESS

Although the current schedule is not very old (OGJ, May 4, 1987, p. 26), the legal process for drafting a new schedule is lengthy and must begin this year to be ready next year.

The first draft of a 5 year leasing plan is critical for the oil industry. It will be the best-case scenario, the starting point for the debate.

The final plan will contain no more sales than the first draft, and typically, the Interior secretary will dilute the schedule in response to comments from the public and state and local governments.

The next 5 year plan will cover 1991-96. The draft proposed program will be issued in March. After comments are reviewed, the proposed program will be issued in November. Then after more comments are reviewed, the proposed final program will be issued in September 1991 and the final program in November 1991.

Congress will then have 2 months in which to reject the program.

Barry Williamson, MMS director, says his agency plans to work closely with coastal state and federal agencies, the general public, the oil and gas industry, and environmental and other interested groups in developing the new program.

He said, "We want to take a fresh look at the way we put together a 5 year plan. We are committed to laying a foundation for long term cooperation and improved planning."

STRATEGY DUE

DOE's NES will be influential in the debate over the future of offshore drilling.

Energy Sec. James Watkins has responded to complaints about the lack of an energy policy during the Reagan administration with the announcement that the Bush team will issue a policy and more.

Watkins said previous energy policies have failed because they were goals without a follow-through effort.

So he is trying to develop an energy strategy that will outline those goals, mesh them, and provide an action blueprint for achieving "ample supplies of competitively priced energy."

Watkins said, "This strategy will be a dynamic, living process-not just a document-from this day forward. This strategy will be responsive to changes in the marketplace, advances in technologies, and domestic and international geopolitical and environmental developments."

Based on new energy statistics, the NES will contain specific, short term, midterm, and long term mileposts in an effort to balance energy supply and demand requirements.

It will try to emphasize protection of health, safety, and the environment, as well as ensure an adequate supply of energy to maintain a growing economy.

Watkins plans to unveil a first draft of the NES Apr. 1.

After comments are considered, the NES will be refined and submitted to the president in December.

EXPECTATIONS

Environmentalists have argued that an NES is needed to demonstrate that offshore drilling will do little to enhance the nation's energy security. When environmental risks are weighed against potential production, the scales will tip against leasing, they say.

Oil industry officials say an NES is needed because it will prove the opposite point.

A Washington oil lobbyist following the issue says neither side should expect a vindication.

"These are bureaucrats working on this report, and they are not known for going out on limbs," he said. "I look for a middle of the road approach calling for offshore drilling but with even more environmental safeguards. And neither side will like it much."

NOIA's Matthews expects the study will have to place greater emphasis on conservation and alternative energy sources, but he said it cannot afford to ignore the energy potential of offshore development.

MORATORIUMS

This spring and summer congressional committees will debate whether to continue moratoriums blocking the funds for planning several controversial lease sales.

Oil lobbyists will work against the moratoriums and probably will lose.

For the past 9 years-fiscal years 1982 through 1990-Congress has denied funding for sale planning through provisions in the Interior Department appropriations legislation. Because the legislation can cover only the current fiscal year, the moratoriums have to be renewed every year.

The areas covered have varied year to year, but the total has grown to 84 million acres from only 736,000.

The latest moratorium required Interior to study the possibility of buying back leases sold to oil companies in the North Aleutian basin.

Matthews doesn't expect a substantial expansion in the size of the moratoriums this year.

"There's not a whole lot further they can go," he said.

"I hope the people of inland states would begin to understand the implication of what the coastal areas are doing to the nation's energy future. The inland states have a critical stake in offshore drilling, and they are allowing the coastal people to take it away from them."

BOXER BILL

Members of the House of Representatives who oppose offshore drilling have viewed leasing moratoriums as largely a defensive measure. Now they are beginning to switch to the offensive.

Rep. Barbara Boxer (D-Calif.) and 24 other congressmen have pledged to press their recently filed bill to establish "drill free" zones around coastal states, in effect making existing moratoriums permanent and creating new ones.

The bill would ban drilling 50 miles off Massachusetts and Maryland, 100 miles off Florida, Georgia, South Carolina, Delaware, New Hampshire, Maine, Oregon, Washington, and Alaska, 125 miles off New Jersey, New York, Connecticut, and Rhode Island, 145 miles off California, and 175 miles off North Carolina.

It would require the government to buy back leases on "particularly sensitive" tracts: those in the North Aleutian basin and off the Everglades, located south of 26 N. Lat. and east of 86 W. Long.

Boxer said, "We learned a very harsh and frightening lesson when the Exxon Valdez crashed off the Alaska coast. We learned that we must not take for granted our magnificent coastline or fisheries, and we must not put our faith in oil spill technology which simply cannot do the job."

NOIA said, "Proponents of this bill are playing on America's renewed concern for a clean environment and on the aftermath of the Alaskan oil spill, which had no connection with offshore development.

"Unreasonable proposals to indiscriminately lock up vast areas of the OCS from oil and gas exploration will prove to be self-defeating."

The American Petroleum Institute called the Boxer proposal "emotional and misguided."

API said, "We note that Louisiana, Texas, Alabama, and Mississippi coastal areas are not included as part of the proposed 'drill free' zones. Why? Citizens and legislators from those states know from years of experience that offshore oil and gas exploration and production activities are compatible with marine life, tourism, and other activities in the coastal areas, and bring with them substantial economic benefits."

FACTS VS. EMOTIONS

Matthews said, "We in the oil industry obviously have failed in our efforts to communicate with the public regarding offshore leasing.

"We rely on facts and cite our long experience in offshore exploration and production and our exemplary safety record. But our opponents are talking in emotional terms."

Deputy Energy Sec. Henson Moore agreed in a recent speech. He pointed out that virtually all major oil spills in the past 54 years came from tanker accidents, not blowouts.

He said, "The U.S. offshore industry has produced nearly 5 billion bbl of oil the past 15 years and lost less than 900 bbl because of blowouts. Nine hundred bbl out of 5 billion bbl in 15 years. That's 20 millionth of 1% or 0.0000002.

"In contrast, natural seepage along the California coast alone accounts for more than 20 times this amount of discharge in a single year.

"We must get these facts out to people. Make them understand that offshore operations are extremely safe. Stringent regulations and modern technology virtually preclude major well blowouts. And since more than 98% of offshore oil moves to market via pipelines, the possibility of tanker spills is remote."

Moore added that limiting offshore production increases imports, "requiring more tankers in our waters and more chance of ship accidents, oil spills, and environmental damage."

The tanker vs. rig spill argument may be correct, but it carries little weight in Congress.

Rep. George Miller (D-Calif.) noted last year, "The distinction between sources of spills is a distinction without a difference in political terms."

WHAT'S NEEDED

Moore said, "The industry needs a sound course because right now it is being nibbled to death. There have been far too many fits and starts in this program, far too many lease sales proposed and then canceled, far too many '1 year' moratoriums that are then routinely rolled over year after year.

"Industry must be assured of stable national policy to justify investment in offshore leasing, exploration, and development. The OCS is our last frontier area outside of Alaska for significant reserve additions, and we need this production."

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