NES TARGETS OIL DEMAND CUT, OUTPUT GROWTH

The Bush administration says its National Energy Strategy could slash U.S. demand for oil by 3.4 million b/d while it hikes U.S. oil production by 3.8 million b/d by 2010.

That in turn would cut U.S. oil imports to 40-45% from 65% otherwise projected if present trends continue. It would increase use of alternative transportation fuels and technology by as much as 3 million b/d.

President Bush released the NES last week, saying it would diversify energy sources and encourage fuel efficiency and conservation.

"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.

"Every American will benefit from the polices we are laying out here today and over the next two decades this strategy will make us more energy efficient, without new energy taxes. It will mean savings for consumers in energy costs. And it will improve our energy security and reduce our vulnerability in the years ahead."

Bush pledged to "be fully, actively involved" in pressing for passage of the energy strategy on Capitol Hill.

Ahead of the NES release, the new president of Independent Petroleum Association of America said the NES offers "nothing meaningful" to encourage domestic oil and gas production.

OVERVIEW

Major sections of the NES contain proposals and programs to increase the efficiency of electric generation, increase coal use-including construction of coal slurry pipelines-and develop passively safe designs for nuclear power plants.

The NES proposes an expedited environmental procedure for siting major energy facilities, including liquefied natural gas plants. It would promote programs to increase transportation energy efficiency, including encouraging the use of natural gas as an alternative transportation fuel. It would encourage technologies such as gas turbines, electric vehicles, fuel cells, and low heat rejection diesel engines in the midterm. It would encourage scrapping older vehicles, which have higher emissions and lower fuel economy than new cars.

The NES would evaluate changing the corporate average fuel economy (CAFE) program, and, "Should these studies warrant them, changes to the current standards would be considered, including providing credit trading among manufacturers, eliminating distinctions between import and domestic vehicles, and establishing alternative standards based on vehicle size."

OIL PROVISIONS

As expected, the proposal calls for leasing the Arctic National Wildlife Refuge Coastal Plain (OGJ, Feb. 18, p. 32). DOE said that could result in 870,000 b/d of added production by 2005.

It outlines an aggressive program to develop and use advanced technology to recover some of the 300 billion bbl of U.S. oil unrecoverable with conventional methods.

DOE projected that could result in a peak of 1.4 million b/d of additional production by 2005, adding total reserves of 5 billion bbl.

"The R&D program would, if fully successful, increase the amount of economically recoverable reserves by between 20 billion bbl (at $20/bbl) and 65 billion bbl (at $50/bbl)"

The NES called on Minerals Management Service to offer in its new 5 year offshore leasing program "all areas that can be developed in an environmentally sound manner."

DOE pledged to work to remove technical and regulatory barriers blocking development of the West Sak, Point Thompson, Seal Island/North Star, Gwydyr Bay, and Sandpiper Island fields on Alaska's North Slope, saying that could hike U.S. oil reserves by as much as 1 billion bbl.

The NES calls for leasing Elk Hills Naval Petroleum Reserve in California to private industry and decontrol of oil pipelines, except for the Trans-Alaska Pipeline System. It said the latter action would eliminate about $10 million/year of unnecessary government and industry administrative costs.

It said the government would continue to encourage use of natural gas for steam generation in California heavy oil fields and promote export of 25,000 b/d of California heavy crude.

The government will encourage states to modify regulations inhibiting use of horizontal drilling and will concentrate R&D funds on the technique.

The NES said, "A fixed or variable oil import fee is not recommended because it would produce net losses to the U.S. economy that would far outweigh its energy supply benefits." But it said, "The administration recognizes that changing conditions in the oil and gas markets may justify further (financial) initiatives by the federal government" for oil producers.

DOE would encourage exploration in countries outside the Persian Gulf and review costs and benefits of U.S. laws that might discourage U.S. investment in E&D in those countries.

And the NES outlined studies to assess the combined effects of the 1990 Clean Air Act amendments and other environmental regulations on the production, refining, and distribution of crude oil and petroleum products.

NATURAL GAS PROPOSALS

The NES calls for further decontrol in interstate natural gas transportation.

"There is no justification for regulating transactions when the only discernible interest being protected is that of competitors. Where regulation is necessary, it should simulate the incentives to efficiency and innovation that competitive markets provide."

It is proposing legislative changes to facilitate construction of new interstate pipelines. The plan says pipelines should be required to unbundle and sell separately the various services they provide. It also says rate design should be reformed and new pipelines' rates and services should not be regulated if the lines do not have monopoly or monopsony power and existing customers do not bear financial risk of the new facilities.

And it calls for legislation that eliminates DOE's authority over gas import and export transactions, where those transactions are treated differently from similar transactions involving domestic natural gas.

It said the Federal Energy Regulatory Commission should be the sole agency responsible for administering environmental reviews of proposals to build new gas pipelines.

IPAA VIEW

IPAA Pres. Denise A. Bode said the NES "forgets the basics to bet everything on the exotics like offshore and ANWR."

While favoring ANWR Coastal Plain and offshore exploration, Bode said it is "a grave error to ignore the opportunities in the Lower 48 that are a clear first priority."

She cited as needs not contained in the NES:

• Freeing FERC or states to adjust any border price to assure a "level playing field" for domestic suppliers.

• Providing incentives for domestic independent producers.

• Eliminating regulatory barriers to gas use.

• Ending tax penalties on domestic oil and gas production.

• Creating a "stable floor" for oil prices to revive domestic production and reserves.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.