WASHINGTON, DC, Oct. 28 -- Interior Sec. Gale A. Norton and Energy Sec. Samuel W. Bodman probably expected to spend most of their time discussing their agencies' responses to Hurricanes Katrina and Rita when they went before the Senate Energy and Natural Resources Committee on Oct. 27.
The hearing's title was "Hurricane Recovery Efforts." But committee members were more interested in hearing whether the two members of George W. Bush's Cabinet had any fresh ideas about expanding US oil and gas production and increasing domestic refining capacity.
"You can tell, Mr. Secretary, that there's a high degree of frustration over our inability to get our arms around this energy problem," the committee's chairman, Pete V. Domenici (R-NM), told Bodman late in the hearing. "Are there any lessons to be learned from Hurricane Katrina? I would think there should be some possibilities for us to prevent the shutdown of the oil and gas industry. The problem seems not to be physical impacts from the storms, but making sure there's still electricity to keep these facilities running."
Earlier, Sen. Mary L. Landrieu (D-La.) asked the two secretaries if they knew of any changes that would be made in electricity transmission systems along the Gulf Coast as a result of the two storms.
"I don't have specific recommendations," Bodman replied. "I'm assuming that when the transmission lines are reconstructed in western Louisiana, they will be built to higher codes."
Landrieu wasn't satisfied. "This is a very integrated energy system. You can have the most sophisticated production platforms, pipeline systems, and refineries," she observed. "But if we haven't spent two minutes considering how we get electricity to them during and following an emergency, we can't expect them to continue functioning reliably."
The hearing came the same week that another Senate committee, Environment and Public Works, marked up a bill aimed at facilitating additions to US refining capacity. A similar bill came out of the House Energy and Commerce Committee and passed the full House by two votes on Oct. 7.
Responding to a question by Sen. Daniel K. Akaka (D-Ha.) about why more refineries aren't being built, Bodman said, "The reason usually given by oil companies is that they have not found it profitable to invest in refining capacity."
Then, referring to House Speaker J. Dennis Hastert's remarks earlier in the week urging oil companies to spend more money on increasing domestic refining capacity, the energy secretary continued, "I think the speaker got it right in his press conference a couple of days ago that these companies are reporting record profits and have a responsibility to invest in more refining capacity. I think there's every reason to expect that there will be more capacity, but we and the public have a right to demand it."
But he also said that it probably will take more time to restore offshore oil production than refining capacity that was lost during the two hurricanes. "The refineries are expected to be up by the end of this calendar year," he said.
Asked by Sen. Craig Thomas (R-Wyo.) if lost oil production or refining has the greater current impact on consumers, however, Bodman said, "The refining."
Thomas immediately replied, "Putting refineries back in shape doesn't address the capacity question. The problem is being able to get permits to expand existing refineries and to build new ones."
Bodman said additional domestic refining capacity is more likely to come from expanding existing plants than building new ones. "We have a significant problem with respect to siting new refineries. People want the energy, but not the facility that creates it in their own back yard. There's a problem with coordination between federal and state and local authorities," he said.
The administration supported the refining bill that passed the House, said Bodman. "And we believe that more coordination of permit issuance would help significantly. Having seen the recent higher prices, we also believe that the refining margins are quite strong now and justify the additional capacity."
In her prepared statement, Norton said that while oil and gas production is being restored following the storms, "it is fair to say that oil production in the Gulf of Mexico won't be back to 100% for many months."
Companies are telling Interior's Minerals Management Service division that repairs to damaged facilities could take several more months to a year, she continued. "For example, we estimate, based on industry reports, that 30% of pipelines have not been leak-tested, and approximately 60% of underwater riser inspections have not been completed," Norton said.
The storms demonstrated that domestic energy supply geographic diversification must remain a top priority, she maintained. Some committee members agreed, suggesting that a key step would be to move Outer Continental Shelf production beyond the central and western Gulf of Mexico.
"We're hearing from states like Virginia, where there hasn't been production in the past, who are interested in possible development if more revenue is shared," Thomas said.
The public is expressing similar views, according to Norton. She said that in late August, the MMS sought comment for its 2007-12 OCS leasing plan on whether existing withdrawals or moratoriums should be modified or expanded and whether the Interior Department should work with Congress to develop gas-only leases.
"Of all the comments received to date on the 5-year plan, the MMS has received 8,998 comments for opening additional areas of the OCS and 2,276 against," the secretary said.
Several letters came from senior citizens expressing strong support for opening more of the OCS because of the impact of higher gas bills on their fixed incomes, she indicated. Several local and state Chambers of Commerce also wrote about lost jobs and higher operating costs for businesses, Norton said.
Lease Sale 181
In his opening statement, Domenici said that while opening additional OCS areas to oil and gas leasing is important to consider, leasing more acreage in already available regions also matters.
"I know one supply topic that several members will want to talk about today is Lease Sale 181," the committee chairman said. "Currently, only 1.47 million acres of this area are available for leasing. The remaining nonleased 4.43 million acres of Lease Sale 181 are not under moratoria, but we are not accessing available natural gas there."
He said that there is an estimated 7.2 tcf of gas in the nonleased, nonmoratorium portions of the Lease Sale 181 area and that an estimated 6 tcf is in portions of the lease sale that are more than 100 miles from any state coastline.
During the hearing, Landrieu said she was encouraged to hear that other coastal states beyond Texas, Louisiana, and Alabama might be interested in seeing oil and gas resources off their coasts developed.
But she added that it isn't fair for such states to get large shares of federal revenues from new production without increasing royalty and revenue shares for states with current adjacent OCS production.
Domenici agreed but noted that congressional budget rules make it more difficult to reopen existing revenue-sharing agreements than to set up new ones. Nevertheless, he continued, "I intend to insist that we equalize royalties—that if we're going to add royalties for the new, we equalize royalties for the old."
Norton said that while opening new parts of the OCS is important, "Onshore is very significant in getting more production."
She said that with additional funding the Interior Department has received from Congress, the Bureau of Land Management can move quickly to improve its processing of drilling permit applications. Interior also is working with other federal departments under a memorandum of understanding to facilitate permitting for more onshore production, she said.
"We anticipate that with this additional funding, we can get up to an additional 1 tcf of gas per year onshore. That would help offset production lost as a result of the two hurricanes in the gulf," Norton said.
Contact Nick Snow at [email protected].