NES PRELIMINARY DRAFT CONTAINS NO SURPRISES

A preliminary draft of the Bush administration's National Energy Strategy contains no significant new policy provisions.

The plan, expected to be formally unveiled this week or next, proposes leasing of the Arctic National Wildlife Refuge Coastal Plain and Elk Hills Naval Petroleum Reserve to private industry, decontrol of oil pipelines, and reduced regulation of gas pipelines.

Meanwhile, Senate energy committee leaders have introduced a broad energy strategy bill that would require importers of crude and products to hand over 9% of their total imports to either the Strategic Petroleum Reserve or Defense Department without compensation.

Sens. Bennett Johnston (D-La.), committee chairman, and Malcolm Wallop (R-Wyo.), ranking Republican, said their bill hinges upon ANWR leasing because those revenues would fund other programs to reduce dependence on imported oil.

The committee has scheduled a Feb. 19 hearing so Energy Sec. James Watkins can explain the administration's NES. It plans nine other hearings on various aspects of energy policy for February and March, Johnston wants to begin marking up legislation in April.

In the House, Rep. Phil Sharp (D-Ind.), fossil fuels subcommittee chairman, filed five bills that make up his energy policy proposal. Sharp would require oil and products importers to store about 3% of their imports in the SPR, but they would continue to own it.

ADMINISTRATION PLAN

The NES focuses largely on ANWR leasing. It would permit sales of 300,000 acres every 2 years, and all revenues would go to the federal government.

The plan contains a number of environmental safeguards for ANWR and imposes a 5/bbl fee on production to build a $50 million reclamation fund.

The administration again proposes leasing the Elk Hills Naval Petroleum Reserve. But a new provision would give 50% of royalty payments and 7% of bonus payments to California.

The plan also renews the administration's proposal for oil pipeline decontrol, except for the trans-Alaska crude oil line. Oil lines would become common carriers, and lines deemed to have market power would be subjected to tariff limits. New lines would not fall under regulation or the price cap.

The plan makes the Federal Energy Regulatory Commission the lead agency for gas pipelines' compliance with the nation's environmental laws, a shift that the lines say will speed permitting.

It allows gas marketers and end users to obtain Natural Gas Policy Act transportation under Section 311, does not require permits for some deals, relaxes gas pipeline rate regulation, and fully deregulates international gas trade.

The plan has nuclear and hydroelectric power provisions and would require certain motor vehicles fleets to operate on alternative fuels. But renewable energy production incentives has been stricken from the draft plan.

SENATE BILL

Johnston said, "We are asking young men and women to risk injury and death in the Persian Gulf to prevent energy blackmail. We have no right to ask that kind of sacrifice without doing the absolute best we can to put our domestic energy policy in order."

All of Johnston's energy programs would be funded from the federal government's share of $1.9 billion in anticipated bonuses and delay rentals from ANWR leasing.

Alaska's statehood act gives it 90% of federal mineral royalties, but the Johnston bill would allow the state only 50%. The bill stipulates that if the state sues and gets a court ruling reinstating the 90%, provisions allowing ANWR leasing would be void.

The bill would require petroleum importers to give the government 9% of their imports as an "oil security premium."

Importers would be required to arrange for delivery of certain grades of crude to the SPR or types of products to the Defense Department.

Johnston said 9%, which may be adjusted, is the volume estimated to fulfill the Defense Department's annual needs and to fill the SPR at a 220,000 b/d rate, expanding the 586 million bbl reserve to 1 billion bbl in 5 years.

He said the provision would discourage imports and "more importantly, importers and consumers of imported oil will be sharing the cost of the insurance we need because of our dependence on those very imports."

OTHER PROVISIONS

The Johnston-Wallop bill would require improvements in the corporate average fuel efficiency of auto manufacturers' new car fleets. The secretary of transportation would set separate standards for manufacturers and their vehicle classes based on potential fuel saving technologies, emission requirements, safety considerations, and other things.

It would encourage commercialization of advanced nuclear reactor technologies and remove obstacles the Public Utility Holding Company Act of 1935 presents to independent electric power producers.

It does not promote drilling on the Outer Continental Shelf.

Johnston said "The president has taken large areas of the OCS off limits for leasing until beyond 2000. This very unfortunate action has effectively hamstrung those of us who support a strong domestic drilling program for the OCS."

However, the bill would give coastal states and communities "impact assistance" amounting to 37.5% of new OCS federal revenues off their coasts.

It does not contain a variable oil import fee provision, although Johnston and Wallop have introduced such a bill separately. That issue falls under the jurisdiction of the finance committee.

The bill would promote energy efficiency for new buildings, industrial plants, industrial processes, lighting, and appliances. It would encourage renewable fuels and clean coal technology development.

It outlines a research and development program to increase gas production from conventional fields, unconventional sources, surface coal gasification, and biomass.

The bill authorizes interstate pipelines to build facilities without federal permits if the construction is at their own risk and without the benefit of the right of eminent domain. Other provisions would enable and require FERC to act more quickly on applications.

HOUSE BILLS

Sharp filed five bills containing his energy policy goals.

The package would extend expansion of the SPR to 1.5 billion bbl from 1 billion. And it would impose a user fee on imported oil, requiring importers to place about 3% of their imports into the SPR, or about 200,000 b/d.

Importers would continue to own that oil, and if the president ordered an SPR drawdown, theirs would be deemed to be the first oil withdrawn. They would receive sales revenues.

Sharp said, "Even if all the costs of this oil storage program are fully passed through to American consumers-and they probably will be-the motorist and the heating oil consumer will see a price rise of only about 70/bbl or less than 2/gal."

Another bill removes the current 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.

A Sharp bill would streamline and simplify current regulatory requirements for new natural gas pipeline construction. It permits construction of lines without approval if they are not given eminent domain and would offer "fast track" permitting for major projects.

Another bill would offer initiatives to improve the energy efficiency of housing, businesses, and products.

And another Sharp bill would offer a 10 year tax incentive for renewable energy projects. The 2.5/kw/hr "performance incentive" would go to new power plants that run on solar, wind, and geothermal energy.

REACTIONS

The American Petroleum Institute disagreed with measures that would require importers to finance filling of the SPR.

API said, "Because the SPR provides energy security benefits to the nation as a whole it should be owned and operated by the federal government, using government funding."

It noted alternative fuels, conservation, and energy efficiency can help, but "for the foreseeable future they alone cannot meet the energy needs of our country."

The American Gas Association said it supports the legislative goals of the Johnston-Wallop and Sharp bills.

AGA Pres. Mike Baly said, "Americans want clean air and they care about reducing oil imports. These bills get the nation off to a good beginning in achieving these worthwhile goals."

The Sierra Club said the administration plan "mounts an all out assault on the environment and continues this nation's march down the wrong path to solving our energy problems. His proposed NES is nothing more than an answer to the prayers of the oil, nuclear, and auto industries."

Copyright 1991 Oil & Gas Journal. All Rights Reserved.