DOE PLANS TO HELP BOOST U.S. OIL PRODUCTION

The Department of Energy has proposed medium term actions to increase U.S. oil production, including faster permitting for two Alaska fields and gas pipelines that would facilitate more California heavy oil production.

Energy Sec. James Watkins disclosed the actions while briefing the Senate energy committee on DOE's efforts to help offset the loss of 4.3 million b/d of oil on the world market as a result of a United Nations embargo on oil from Iraq and Kuwait.

Watkins said the current market is stable, but the effect of the oil shortfall will not be fully evident until late this month.

He declined to say if there will be a crisis: "I don't like to say there will be a shortage because that would be a self-fulfilling prophecy."

Watkins assured senators DOE is on the lookout for possible price gouging by oil companies. He said gasoline prices are lagging crude prices 4/gal.

STRATEGIC RESERVES

Asked about use of the Strategic Petroleum Reserve, Watkins said, "We are closely monitoring the situation and are in close consultations with our allies and with the member states of the International Energy Agency.

"Should the situation warrant it, we are prepared to implement a coordinated drawdown of the more than 1 billion bbl in strategic stocks held by the U.S. and other IEA states."

Watkins noted that the U.S. could draw down 3.5 million b/d and other IEA countries 2 million b/d, but "coordination is key to strategic stocks drawdown. The world oil market is highly integrated, and strategic stocks placed into the market by one IEA nation will benefit all."

Watkins said a major problem facing the U.S. oil industry is that the crude coming on line to replace Iraqi and Kuwaiti oil will be of lower quality.

"We are very concerned about the ability of refiners to continue operating at near maximum capacity for an extended period of time," he said. "We are more vulnerable to events such as refinery accidents, transportation problems, or bad weather."

Watkins released a list of energy supply and conservation recommendations, which supplement an August list (OGJ, Aug. 20, p. 36). He said together all the initiatives could add 607,500 b/d or its equivalent by the end of 1990 and another 530,000 b/d by the end of 1991.

SUPPLY OPTIONS

The Bush administration is forming an interagency task force to identify Alaska oil production projects that would benefit from expedited processing of federal permits, taking into account all regulatory, environmental, energy, and other policy factors.

Watkins said, "Resolution of permitting problems could result in production of up to 100,000 b/d in 12-18 months from two developed fields in Alaska's Beaufort Sea, Niakuk and Point McIntyre."

DOE will work with federal and state regulators to resolve regulatory barriers preventing delivery of natural gas for steam generation in California heavy oil fields. It said oil production could be increased 50,000-100,000 b/d in 1-2 years from 13,000 shut-in wells.

Watkins added that the administration is continuing to try to find a way to get Point Arguello field off California on stream, but that will not be resolved until the first quarter of 1991 at the earliest.

The administration will renew its request that Congress provide incentives for U.S. oil and gas exploration: a temporary tax credit for new enhanced oil recovery projects and for exploratory drilling outlays, elimination of the percentage depletion transfer rule, an increase in the percentage depletion net income limit, and relief for independent producers from the alternative minimum tax,

Watkins said those incentives would increase exploratory drilling, especially by independent producers, slow the abandonment of marginal wells, and increase production from aging fields. The combined effect would be to add 172,000-196,000 b/d by 1995."

DOE also will ask Congress to allow leasing and exploration of the Coastal Plain of the Arctic National Wildlife Refuge.

"The time has come to move forward on ANWR in an environmentally sound manner acceptable to Congress and the administration," Watkins said.

CONSERVATION, REPLACEMENT

DOE pointed out that a number of gas pipeline construction projects are awaiting federal and state permitting decisions, and projects with in-service dates in 199091 would, if completed, displace 55,000 b/d of oil. Other projects due for completion by 1994 would displace 595,000 b/d of oil.

DOE plans to work with FF-RC to develop procedures to expedite the processing of various gas pipeline projects. In addition, DOE intends to develop legislative proposals to remove barriers to entry and facilitate permitting of natural gas facilities,

DOE will encourage consumers to use lower octane gasoline.

It said about 80% of today's vehicles operate well on 87 octane (regular) gasoline, with no significant effect on engine fuel economy, durability, or emissions. It also said cutting the national average from the current 88.5 to 87 octane would save 30,000-80,000 b/d of oil.

DOE also will encourage better driving habits, as outlined under the Federal Driver Energy Conservation Awareness Techniques (Decat) program. That could save 120,000 b/d.

It will work with petroleum marketers to encourage oil burner tuneups and replacement with more efficient burners, boilers, and furnaces. That could save 35,000-50,000 b/d.

DOE will work with utility companies, particularly 29 in the Northeast and Mid-Atlantic states that use 94% of the 650,000 b/d of oil consumed in electrical power generation, to encourage electricity conservation. It estimated that every 1% reduction in electricity consumption reduces energy inputs to these utilities by the equivalent of 150,000 b/d of oil.

It will help New England local governments build municipal solid waste plants to generate electricity, backing out as much as 35,000 b/d of oil. New England governments are building 13 such plants and plan 28 more.

Manufacturers will be asked to conserve, too. They use 25% of U.S. oil, mostly for feedstock, and a 1% reduction would save 36,000 b/d of oil.