White House endorses bill; Senate begins OCS deliberations
Nick Snow
Washington Correspondent
WASHINGTON, DC, July 27 -- The administration of President George W. Bush on July 26 endorsed a bill aimed at increasing oil and gas leasing in the eastern Gulf of Mexico as the legislation arrived on the US Senate floor.
White House support of S. 3711 contrasted with its June 29 criticism of the House's more ambitious US Outer Continental Shelf leasing reform bill HR 4761, which elicited Office of Management and Budget concerns over potential loss of federal income from sharing revenue with coastal states.
OMB expressed similar concerns over S. 3711's provision to share 37.5% of future gulf federal offshore oil and gas revenue with Alabama, Louisiana, Mississippi, and Texas because it "creates an expectation for an amount of shared revenue" that would exceed the bill's spending cap.
OMB nevertheless will support S. 3711 if future spending is held below the cap, because the bill expands OCS oil and gas activity while recognizing the concerns of Florida, which opposes federal oil and gas leasing off its coast, and the four other Gulf Coast states, where US offshore activity has been concentrated for more than 2 decades.
Like their counterparts in the House when that bill reached the floor, several Senate Democrats protested the Republican leadership's decision to not allow amendments to S. 3711. Debate is expected to continue this week, with a vote scheduled for early next week.
Minority Leader Harry Reid (D-Nev.) said the bill falls short of what the nation needs because it doesn't provide aggressive development of energy alternatives, promote conservation and efficiency, or protect consumers.
"We [Democrats] want to transform the nation's energy policy. . .now. The Republicans in Congress have been content to do business as usual and continue to cater to Big Oil," he said.
"This bill is good for Gulf Coast states and will do much to repair damage from Hurricanes Katrina and Rita and accelerate coastal restoration. It will not reduce oil or gas prices," said Reid, who nevertheless plans to vote for the measure.
Deepwater royalties
Ron Wyden (D-Ore.), who sits on both the Finance and the Energy and Natural Resources committees, questioned the wisdom of creating a revenue-sharing program with Gulf Coast states before correcting mistakes made in the administration of deepwater royalty relief.
He said he is "skeptical that oil companies are going to come to the table and leave behind $20-60 billion of breaks they received under the 1990s royalty program."
He said that he and Finance Committee Chairman Jon Kyl (R-Ariz.) have proposals to correct the omission of deepwater royalty relief price thresholds over a 2-year period, while Dianne Feinstein (D-Calif.) and Judd Gregg (R-NH) also addressed the problem with their amendment to the Department of the Interior's fiscal 2007 budget in the Appropriations Committee.
Wyden charged that Senate Republicans refuse to act on bills to protect consumers or remove oil and gas tax breaks. "The legislation before us authorizes at least a 50-year commitment. The oil companies have parlayed suffering on the Gulf Coast into what could become an entirely new gravy train," he said.
Jack Reed (D-RI) suggested it would be more appropriate to directly assist Gulf Coast states' hurricane impact recovery and coastal restoration efforts with separate legislation. "If we reduce federal resources now with a very narrow revenue-sharing program for four states, it will reduce our ability to respond when future calamities occur," he said.
But senators from the four states that would benefit from the bill's revenue-sharing provision defended it. "We want our fair share for a change," said Trent Lott (R-Miss.).
Reasonable compromise
Mary L. Landrieu (D-La.) said the compromise in S. 3711 giving the four states a 37.5% share of future federal OCS revenues off their shores was reasonable, saying inland states with oil and gas production on public land already receive a 50% share of federal revenues.
But Jeff Bingaman (D-NM), the Energy and Natural Resources Committee's chief minority member, countered: "The policy rationale for the permanent revenue diversion in this bill is highly flawed," because the onshore share aims to compensate states for tax revenues lost when the federal government assumed control of the land.
Federal offshore acreage, however, is a national resource with benefits that should be shared by all 50 states, Bingaman maintained, and coastal states already get significant revenue from offshore oil and gas activity.
Landrieu responded that governments in Louisiana, Alabama, Mississippi, and Texas, representing what she calls "the US Energy Coast," also feel significant cost impacts in providing services to support offshore producers.
"These five Gulf Coast states—four that are producing oil and gas, and one that does not—came together to resolve their differences and help this bill move forward. It's that important to us," she said.
Bingaman remained firm in his opposition. "This bill sets bad precedents both in the energy policy and fiscal policy areas. There's no reason to expect that other coastal states won't demand similar treatment," he declared.
Lisa Murkowski (R-Alas.) did just that a few hours later, saying the bill "doesn't provide revenue-sharing with all those states which allow oil and gas development off their coasts and have borne its impacts. There's no rationale for this," she said.
'Very real costs'
Alaska has sought federal assistance in mitigating OCS development impacts off its 3,400 miles of coastline because "there are very real costs which are borne by coastal states," Murkowski said. Although some of this can be recovered by taxes on business and through the Coastal Zone Management Act, she said, "The amounts are so small that it soon becomes a question why coastal states would welcome offshore development."
Noting that she still plans to vote for S. 3711, she added, "I sometimes wonder if opponents want to deny coastal states a share of revenues simply to keep limits on offshore oil and gas leasing."
Establishing limits off Florida represents the other major compromise leading to the current Senate OCS bill. Florida's US senators, Republican Mel Martinez and Democrat Bill Nelson, separately said the provision creating a 125-mile buffer zone off the state's coast and barring oil and gas activity east of a designated military mission line through 2022 is essential.
HR 4761's provision would have given coastal states a way to opt out of offshore oil and gas leasing moratoriums and withdrawals, whereas S. 3711 "assures that the federal government will continue to be responsible for oil and gas activity off our coasts. It should not be left to state legislatures," said Martinez. He said the current Senate bill would protect Florida's coasts while opening more offshore areas to natural gas development.
"Sharing 37.5% of future oil and gas revenues [with the other four Gulf Coast states] will not bankrupt the federal treasury," Martinez observed.
Robert Menendez (D-NJ) opposes S. 3711, saying it provides an opening to undermine other states' coastal protection. "The supporters of this bill believe it is a ticket into a conference with the House and its bill, which is stunning in the way it would remove moratoria and open new offshore areas to oil and gas drilling," he said, adding that it would open an area having little gas and far from pipelines, which would take years to develop.
Extend bans
"I don't begrudge Florida for attempting to protect its western Coast through 2022," Menendez said. "I only ask for similar protection for New Jersey's coast." He and senators from Maine and California filed an amendment that would protect the East and West coasts with moratoria for the next 16 years.
Bingaman said the compromise with Florida effectively puts more oil and gas off limits than S. 3711 would open. "I don't think we should give up 21 tcf of gas for 16 years just to get access to 2.7 tcf," he said.
Domenici responded that such reasoning overlooks the US Department of Defense's needs to conduct maneuvers and other activities off Florida's coast, which preclude leasing east of the military mission line.
Jeff Sessions (R-Ala.) said that gas production in the gulf must expand. "We paid $200 billion last year for foreign oil and gas—wealth that could have been invested in our country. This bill. . .would benefit American consumers," he said.
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