CONGRESS POISED TO BEGIN MESHING BUSH AND LEGISLATIVE ENERGY PLANS
Patrick Crow
Washington Editor
With the Middle East war essentially over, Congress can turn a great deal more attention to forging sweeping changes in U.S. energy policy.
President Bush recently released his administration's National Energy Strategy, the product of 19 months of hearings and analysis (OGJ, Feb. 18, p. 36; Feb. 25, p. 19).
The NES was greeted with scant praise in Washington. Oil industry groups complained it does not encourage U.S. production enough. Environmental groups said it does little to promote conservation. For those reasons or others, congressmen were unanimously critical.
Although legislators may adopt some NES components, they will write the final NES, and it will include tradeoffs congressmen think will be required to win passage.
House and Senate energy committees have begun holding hearings on legislation. Sens. Bennett Johnston (DLa.) and Malcolm Wallop (RWyo.), respectively chairman and ranking Republican on the Senate energy committee, have offered a comprehensive bill. Rep. Phil Sharp (D-Ind.), chairman of the House energy and power subcommittee, has filed a series of energy bills.
Energy Sec. James Watkins said the Bush administration recognizes "the realities of the legislative process"-that Congress will extensively revise the NES.
A likely change is that the NES will not be budget neutral, as the administration's proposes. And it may require more taxes or federal regulation, which the administration's plan avoids.
Watkins said, "Government alone cannot be the answer." Thus the administration's NES calls for no import fees, taxes, or federal regulations to spur production or encourage conservation.
FREE MARKET TILT
The NES was Watkins' brainchild.
When he took office, he was disappointed with existing energy policies, which did not state energy goals. He began a process to develop a document that would contain not only a balanced set of goals, but also a road map for achieving them, thus "an energy strategy."
In releasing the NES, Bush said, "The driving force behind this strategy is straightforward. It relies on the power of the marketplace, the common sense of the American people, and the responsible leadership of government."
Bush conceded, "America will have to continue to import energy for years to come. We also know that unwise and extreme measures to reduce oil imports would seriously hurt the consumer in this country and adversely affect the working man and woman in this country, American jobs, and American industry."
SHORT ON STRATEGY
Legislators and interest groups were quick to complain the proposal is short on strategy and too willingly accepts dependence on oil imports.
Sen. Jeff Bingaman (D-N.M.) said, "The administration has articulated a set of objectives for the NES that are commendable. What it has not done is take the next logical step and establish concrete goals. Rather, the administration prefers to make projections of where we will be in the future.
"It is difficult to know whether we have the right road map when we do not know what the destination is."
Eli Bergman, executive director of the Americans for Energy Independence, called the NES "half a loaf" that lacks "clear targets that would commit us to reducing oil consumption and imports, a set of priorities for achieving the goal, and a timetable in which it would be accomplished. And it ideologically neglects the demand side, with meaningful conservation measures that are the public's favorite energy solutions, and which could contribute mightily to energy independence."
WHAT IT WOULD DO
The Bush administration estimates adoption of its NES would decrease U.S. oil demand 3.4 million b/d by 2010 while increasing domestic oil production by 3.8 million b/d.
The proposal contains programs to increase the efficiency of power generation, increase coal use, and develop new designs for nuclear power plants.
It would promote energy efficiency in transportation, including use of alternative fuels but would study ways to improve the fuel economy of new automobile fleets before requiring higher gasoline mileage requirements,
The plan would lease the Coastal Plain of the Arctic National Wildlife Refuge in Alaska and increase research and development on enhanced oil recovery.
It would lease the Elk Hills Naval Petroleum Reserve in California to private industry, encourage the use of natural gas for steam generation in California heavy oil fields, promote the export of 25,000 b/d of California heavy crude, and decontrol oil pipelines except the trans-Alaska crude oil line.
The NES calls for more decontrol of interstate natural gas transportation and changes to facilitate building of interstate pipeline facilities.
A late addition to the document proposed to end the independence of the Federal Energy Regulatory Administration, bringing it into DOE under the administration of an assistant secretary.
INDUSTRY REACTION
The American Petroleum Institute said the NES appropriately encourages U.S. oil and gas leasing, exploration, and production.
But, API said, "More government land onshore and offshore needs to be opened to environmentally sensitive energy development. We hope this proposal will reopen debate on Outer Continental Shelf development as well."
The American Gas Association called the NES "a "major step" that could result in gas displacing 1.7 million b/d of oil within 10 years, or more than the amount the U.S. currently imports from the Middle East.
The Independent Petroleum Association of America said the plan is "short in its overall balanced solutions." It noted the NES could increase oil production in Alaska, but it ignores opportunities in the Lower 48.
The Permian Basin Petroleum Association said the NES provides "some sunshine for the majors but has completely forgotten the foundation of our energy base, onshore production and the independent who has drilled 85% of all exploratory wells."
Environmental Action said the NES "is like giving whiskey to an alcoholic. We should be finding ways to cure our oil addiction, not proposing ways to make it worse."
CONGRESSMEN DISAPPOINTED
Sen. Lloyd Bentsen (DTex.) was especially critical. He termed NES a "hollow, shallow, timid approach."
Bentsen said, "it is a bureaucratic retreat to the lowest common denominators loose amalgam of palliatives and platitudes that evades the real issues and ignores the tough choices."
Louisiana's Johnston said, "if anybody thinks we're going to have a reasonably comprehensive energy strategy based only on more production, he's dead wrong."
Sen. Dale Bumpers (DArk.) said, "Most of this policy is mere happytalk."
Sen. Tim Wirth (D-Colo.) said, "We can't produce our way out of this. We're going to have to think our way out of it."
Rep. Nick Rahall (DW.Va.) called the plan "a paper tiger" and introduced his own bill promoting use of coal.
ANWR LEASING
Leasing of ANWR is a key element of the administration's package and the Johnston-Wallop bill (OGJ, Feb. 18, p. 36).
The Interior Department recently estimated there is a 46% chance oil companies would find economically recoverable reserves if ANWR were leased.
It previously had said that there is a 19% chance an economic field would be found.
The mean resource estimate of economically recoverable oil was raised to 3.57 billion bbl from 3.23 billion bbl, and the minimum economic field size decreased to 400 million bbl from 440 million.
Interior said the revisions resulted from review of four nearby holes-and analysis of 800 line miles of reprocessed geophysical data. It also said 10 new prospects have been identified, based on seismic information.
API said ANWR could contain 9.2 billion bbl, allowing average production of more than 1 million b/d of oil for 20 years, with production peaking at a little less than 2 million b/d by 2005.
LEASING BILLS
Alaska's Republican senators, Frank Murkowski and Ted Stephens, have introduced a bill calling for ANWR leasing. They estimate only 1.5 million acres would be leased and only 20,000 acres would be developed. The state would keep 90% of the federal royalties, as detailed in the Alaska statehood act.
The Johnston-Wallop bill would lease ANWR but keep 50% of the $1.9 billion in anticipated bonuses and rentals to fund conservation and energy development sections in other parts of the bill.
Johnston said, "If we are going to say no to the environmentalist and open ANWR, we need to take that money for programs they want."
Johnston-Wallop says if Alaska sues and wins a court ruling reinstating the 90%, ANWR leasing provisions would be automatically voided. Murkowski has called that "blackmail."
The Bush NES recommends ANWR leasing, but with all of the revenues going to the federal government. It said, "ANWR is a national resource, and the revenues from oil and gas development should be used to benefit all Americans, not just those residing in one state."
The Senate energy committee has reported out ANWR leasing bills in the past two sessions, but the House has declined to act. The House panel with jurisdiction, the interior committee, opposes leasing.
And ANWR leasing is anathema to many environmental groups, especially following the 1989 Exxon Valdez oil spill. They have launched a campaign to kill the ANWR leasing provisions.
SPR FILL MEASURES
The Middle East conflict has given Congress a renewed appreciation of the Strategic Petroleum Reserve. A test drawdown was ordered to calm the market, along with a regular drawdown when fighting began last January.
Congress always has liked the SPR more than the administration has and last year required an expansion from the 750 million bbl goal to 1 billion bbl. That highlighted the problem of paying for increased purchases.
Johnston-Wallop would require crude and products importers to give a volume of oil equal to 9% of their total imports to either the SPR or Defense Department, without compensation, as an "oil security premium." The government would specify that importers provide certain grades of crude or types of products.
Johnston said 9% would provide enough oil to meet the Defense Department's needs and to fill the SPR at a 220,000 b/d rate, expanding it to 1 billion bbl from 586 million bbl in 5 years.
Johnston said, "Importers and consumers of imported oil will be sharing the cost of the insurance we need because of our dependence on those imports."
The senator earlier filed a bill calling for a variable oil import fee, which would maintain a $20/bbl floor price for imported oil. However, it falls under the jurisdiction of the finance committee, not Johnston's energy panel.
Sharp would broaden the SPR goal to 1.5 billion bbl from 1 billion, requiring crude oil and products importers to store about 3% of their imports in the SPR as a user fee. However, they would continue to own that crude and products. In the event of an SPR drawdown, their petroleum would be deemed to be the first withdrawn, and they would receive the sales revenues.
Sharp estimated the program would cost consumers less than 2/gal.
Sharp also would remove the requirement that an oil shortage must exist before the SPR can be used. instead, the president could order a sale if he decides oil, prices have risen too high.
The administration bill seeks another approach to SPR oil costs. it proposes leasing oil from a major exporting country to meet the 1 billion bbl goal.
AUTO FUEL EFFICIENCY
Most Washington observers agree that whatever bill emerges from Congress likely will contain tougher corporate average fuel efficiency (CAFE) standards for auto manufacturers' new car fleets.
Sen. Richard Bryan (DNev.) has refiled his bill requiring greater fuel efficiency.
Bryan's bill, which has 34 cosponsors, is similar to one that had the support of 57 senators at one point in the last Congress. It would require a 20% improvement in automakers' average passenger car fuel efficiency by model year 1996 and 40% by 2001.
The Motor Vehicle Manufacturers Association called the standards "unachievable with any known technology." The Coalition for Vehicle Choice said they would result in smaller, lighter cars that would be more dangerous to drive.
Watkins said if passed, the Bryan bill would be "the Highway Death Act of 1991." He said the bill would not save 2.8 million b/d, as Bryan estimates, but only 500,000 b/d.
John D. Dingell (D-Mich.) quietly made it clear the Bryan bill will not pass the House energy committee. He fears enactment of the measure will throw the auto industry into a depression. And he is skeptical it will work as intended.
The Johnston-Wallop bill would require CAFE improvements but allow the Transportation secretary to set separate standards for manufacturers and their vehicle classes based on potential fuel saving technologies, emission requirements, safety considerations, and other things.
Johnston said the committee will set a CAFE target after a number of questions are answered during hearings.
Setting CAFE standards also has proved difficult for Sharp. He plans to submit a bill later.
The administration's NES does not include a recommendation to increase CAFE standards. It said the effect of the 1990 Clean Air Act amendments emissions requirements on the auto industry is not fully understood.
The NES document says, "Before proceeding with additional fuel economy requirements, it is important to assess all of the regulatory requirements facing the automobile industry in the 1990s and beyond, including those related to emissions, safety, and fuel efficiency."
It adds that new CAFE requirements will not have any appreciable effect on U.S. oil demand until after 2000 because they cannot affect new vehicle production before 1995.
The Bush NES does propose a program to remove 2 million old, inefficient cars from roads by 2000, reducing oil demand 10,000-15,000 b/d and ozone and smog producing emissions 1-2% nationwide.
The administration's probably has been criticized more on the CAFE issue than any other, but Watkins said, "We think it's a faulty assumption to say that if you can't agree with CAFE, you're against conservation.
NATURAL GAS PROPOSALS
All three proposals-Johnston-Wallop, Sharp, and NES-would continue reforms in natural gas regulation.
NES says its proposals would increase gas consumption by about 900 bcf in 1995 and 1.1 tcf in 2010, displacing 300,000-400,000 b/d of oil after 1995.
Further, it says, revenues for U.S. producers will increase by about $8 billion in 2000 and $7.5 billion in 2010 because prices and volumes will increase. Transportation revenue for pipelines and distribution companies will increase by about $2 billion as a result of the greater gas consumption and more efficient use of transmission and distribution systems.
The administration would streamline the gas pipeline construction review process and develop more efficient environmental review procedures. It would deregulate pipeline sales rates in competitive markets and reform gas pipeline rate designs.
The plan would improve third party access to gas pipeline transportation and promote use of gas in alternative fuel vehicles.
And an addendum would merge FERC into DOE, eliminating the five FERC commissioners in favor of a single administrator.
The Johnston-Wallop and Sharp approaches propose less gas regulation and would try to facilitate construction of gas facilities. The Senate bill goes further than the House in several respects. For instance, it would make FERC the lead federal agency in determining if facilities comply with environmental rules.
OTHER PROVISIONS
NES and Johnston-Wallop proposals would reform nuclear power plant licensing and develop standardized designs, as well as set up programs to promote coal use.
All three approaches call for programs to improve power generation and promote energy efficiency for new buildings, industrial plants, industrial processes, lighting, and appliances.
Sharp's bill would offer a 10 year tax incentive for renewable energy projects. The 2.5/kw/hr "performance incentive" would be earmarked for new power plants that run on solar, wind, or geothermal energy.
All are silent on OCS drilling, tacitly accepting the Bush administration's 5 year leasing plan. Johnston-Wallop would give coastal states and communities "impact assistance" amounting to 37.5% of new OCS federal revenues off their coasts. Bush may send a similar bill to Congress later.
Neither the Johnston-Wallop nor Sharp bills would specifically help the oil industry, although the former's requirement that importers provide oil for the SPR would work to bolster domestic prices.
The administration said its oil provisions would increase U.S. production by as much as 3.8 million b/d in 2010, boosting economically recoverable reserves by 25-70 billion bbl.
The NES would encourage oil production in countries outside the Persian Gulf through "trade negotiations and consultations" with foreign leaders. The government will sponsor more energy related investment programs and encourage other countries to remove barriers to external investment.
DOE will work with industry and states to remove regulatory barriers to horizontal drilling and examine the negative effects of the Clean Air Act Amendments on the refining industry.
THE FUTURE
Dingell and Sharp have said they are open to proposals for government intervention in energy pricing.
Dingell asked, "As long as energy prices are low, how much can we do that is effective? What incentive is there to conserve?"
Sharp said one advantage in the debate will be "we don't have to revisit the old ideological arguments over decontrol of oil and natural gas," avoiding another battle between consuming and producing state congressmen.
Sharp said the House will emphasize conservation and energy efficiency from the beginning, and legislation will move forward this year.
Johnston wants his Senate energy committee to begin marking up legislation this month and send it to the Senate floor in April.
The House will not move so quickly.
Dingell hopes a House-Senate conference committee can be working on a compromise bill 1 year from now. He said, "My experience with energy legislation is that it takes about 5 months to get it through the floor and 13 months to get it through conference."
Watkins, perhaps realizing the NES might become a political issue in presidential and congressional campaigns that will begin next summer, told the Senate energy committee: "if we don't pass this in 1991, 1 don't think we're going to have an energy strategy."
Copyright 1991 Oil & Gas Journal. All Rights Reserved.