BUSH PLANS TO HIKE ENERGY OUTLAYS

Feb. 5, 1990
President Bush's first budget proposal calls for significantly higher spending f r energy research and development, conservation, and renewable energy. The administration's fiscal 1991 budget, for 12 months beginning Oct. 1, calls for $1.23 trillion in spending and anticipates $1.17 trillion in revenues, leaving a $63 billion deficit. That's barely less than the $64 billion deficit limit set in the Gramm-RudmanHollings budget law. As part of the budget, the Treasury Department

President Bush's first budget proposal calls for significantly higher spending f r energy research and development, conservation, and renewable energy.

The administration's fiscal 1991 budget, for 12 months beginning Oct. 1, calls for $1.23 trillion in spending and anticipates $1.17 trillion in revenues, leaving a $63 billion deficit. That's barely less than the $64 billion deficit limit set in the Gramm-RudmanHollings budget law.

As part of the budget, the Treasury Department renewed the administration's proposal for four "modest" tax changes to help the oil industry (OGJ, Feb. 20, 1989, p. 24). Congress did not act on the proposals last year.

Treasury proposed a 10% credit on the first $10 million of exploration expenditures per year, per company on intangible drilling costs (IDCs) and a 5% credit on the balance.

The credit could be applied against the regular tax and the minimum tax could not eliminate more than 80% of the tentative minimum tax in any year in conjunction with all credits and losses, and unused credits could be carried forward. It would benefit producers an estimated $200 million/year.

Treasury also proposed a 10% credit for new tertiary enhanced recovery projects, valued at $50 million/year.

It urged Congress to eliminate 80% of current preference items generated by independents' exploratory IDCs under the minimum tax which would deny the government an estimated $100 million/year in revenues.

And it said legislators should repeal a depletion provision that discourages independents and majors from buying and selling properties from each other.

It would cost Treasury $50 million/year.

NEW DIRECTIONS

The Department of Energy's $17.5 billion budget request, up $1 billion from 1990, proposes a strong funding increase for conservation and renewable energy programs.

Of the budget, more than $12.4 billion is for programs related to the manufacture of atomic weapons for the Defense Department.

Last year DOE asked for $114 million for renewable energy programs-solar, geothermal, and hydropower-but Congress appropriated $139 million. This year DOE is asking for $177 million, up 55% from its request last year.

For conservation research and development programs, DOE requested $202 million last year, but Congress appropriated $333 million. This year DOE is asking for $359 million, up 78% from its request a year ago.

Energy Sec. James Watkins explained that recent DOE hearings on the proposed National Energy Strategy "convinced us we had to move aggressively in this area."

Although the first draft of the NES won't be released until Apr. 2, Watkins said some changes in the budget were appropriate.

He said among other things, DOE wants to provide more leadership in developing and deploying advanced lighting technology, providing energy audits for industries, commercializing laboratory advances in photovoltaics, and launching a program to make ethanol an economically competitive fuel by using sources other than food crops as feedstock.

RESEARCH SHIFT

DOE has earmarked $40.7 million for research to promote oil production technologies and $13.7 million for gas production technologies.

The department said, "Near term strategies focus on identifying and maintaining economic access to the major conventional and unconventional oil target reservoirs, assuring that the best extraction technology is being considered, and improving recovery of gas from conventional reservoirs.

"Midterm focus of the gas program is on field testing of advanced extraction technologies in selected unconventional reservoirs.

"The oil program concentrates on improving our knowledge of reservoir characteristics and their impact on fluid flow and using this knowledge to improve the technical and environmental predictability and economic performance of advanced extraction technologies."

DOE said the long term focus of the oil and gas programs differ.

The oil effort concentrates on removal of constraints in near and midterm research efforts.

The gas program concentrates on identification and quantification of potential new gas resources.

DOE also plans research on chemistry, kinetics, and emissions related to eastern and western oil shale processing.

NPRS, SPR

DOE proposes to award leases on the Elk Hills Naval Petroleum Reserve (NPR) in California and the Teapot Dome NPR in Wyoming rather than ask Congress again to allow an outright sale. The firm winning the leases would pay a $1.6 billion bonus in three installments and offer the highest dollar per barrel royalty.

Elk Hills is producing 85,700 b/d, Teapot Dome 2,600 b/d.

DOE would use some of the revenues to create a 10 million bbl Defense Petroleum Inventory at a Strategic Petroleum Reserve (SPR) site, filling it with oil during a 5 year period beginning in fiscal 1992. That oil would be reserved for use by the military.

The fiscal 1991 budget proposes to continue constructing the SPR on a schedule to achieve the full 750 million bbl of storage capacity and 4.5 million b/d of distribution capacity by the end of the fiscal year. The fill rate is to continue at 59,000 b/d.

DOE also plans to propose alternative methods for financing SPR crude purchases.

The agency asked $11 million for the Economic Regulatory Administration, down from $12.3 million appropriated this fiscal year. It said ERA is winding down its prosecution of alleged violations of oil price and allocation rules that occurred in the 1970's.

The Federal Energy Regulatory Commission is seeking $122.7 million, up from $114.9 million in fiscal 1990. DOE said FERC will offset all of its budget expenses through fees and annual charges.

INTERIOR, EPA

The Interior Department is asking for $7.7 billion in fiscal 1991, down $516 million from the previous year.

It expects to receive $2.999 billion from Outer Continental Shelf leasing and royalties, up $384 million, and $1.12 billion from onshore minerals leasing and production.

The Minerals Management Service would be budgeted for $677.5 million, up $30.4 million.

It plans to spend $2.6 million for increased environmental studies on the Outer Continental Shelf and $2.6 million to maintain regulatory efforts, expand pollution prevention, and educate the public about offshore drilling.

MMS plans to upgrade its royalty auditing program and begin a program to allow Indian tribes to audit production from their reservations.

The Environmental Protection Agency is asking for $5.6 billion, up $48 million from the current fiscal year.

William Reilly, EPA administrator, said the budget is up 12% at $2.17 billion for operating programs, which write permits, monitor conditions, and support in-house science projects. Reilly said EPA will stress pollution prevention in the 1990's.

"Our traditional approaches to pollution control are no longer sufficient by themselves to do the job," the EPA administrator said.

"Pollution needs to be prevented before it becomes a problem."

Reilly said the agency will increase by 22% its funding for programs to enforce a variety of antipollution laws.

EPA earmarked $75 million for programs implementing and enforcing the leaking underground storage tank law.

Copyright 1990 Oil & Gas Journal. All Rights Reserved.