DOE would cut oil and gas research, pending energy strategy plan

The US Department of Energy's latest budget fiscal 2002 proposal would dramatically reduce research on oil, gas, and renewable fuels in favor of clean coal technologies. Energy Sec. Spencer Abraham said those spending levels may change after an interagency task force issues its energy policy recommendations.


By Maureen Lorenzetti
OGJ Online

WASHINGTON, DC, Apr. 9 --- The US Department of Energy's latest budget fiscal 2002 proposal would dramatically reduce research on oil, gas, and renewable fuels in favor of clean coal technologies.

Energy Sec. Spencer Abraham indicated Monday that the budget is a work in progress until the White House unveils an interagency task force's energy policy recommendations.

He said, "This budget sets a sensible course by clearly fulfilling commitments and establishing key priorities, but at the same time signals our intention to rethink a host of programs while we craft the Bush administration policy."

Vice-President Dick Cheney is leading the task force and recommendations are due before summer (OGJ Online, Apr. 3, 2001). Republican lawmakers plan to retool their own budget and policy proposals to dovetail those recommendations.

Overall, DOE requested $19.2 billion for fiscal 2002, up a slight $300 million from the level appropriated in fiscal 2001. Most of the funding, as in years past, will go for nuclear weapons and atomic waste programs.

Budget authority for fossil energy research and development is $449 million, up $2 million from last year. However, the majority of that money is earmarked for clean coal initiatives, agency officials said. Research for oil and gas falls by 50% from $112 million in 2001 to 51.5 million in fiscal year 2002. Items targeted for elimination include:

� National Laboratory/Industry Oil & Gas Partnership Program (teams national labs with the industry to use lab expertise to solve petroleum engineering problems) -- FY 2001 appropriation was $8.4 million.

� Secondary Gas Recovery Program (develops ways to find and produce natural gas from existing fields that conventional technology misses) -- FY 2001 appropriation was $800,000.

� Natural gas upgrading and coal mine methane recovery (a fourth of all US gas has to be upgraded before it can be delivered through a commercial pipeline; program was to develop lower cost, more effective gas upgrading technologies, plus develop ways to produce and clean gas produced from coal mines) -- Total appropriations for FY 2001 were $3.5 million ($1.6 million for gas upgrading; $1.9 million for coal mine methane recovery).

� Ultraclean fuels R&D (to develop new generation of fuel processing technologies to meet EPA low sulfur diesel standards and future requirements) -- FY 2001 appropriations were $10 million.

Other programs
The energy department budget proposal also would reduce funding involving independent producers, gas hydrate research, environmental compliance technology development, and coordination with states and other agencies to streamline oil and gas environmental regulations.

DOE officials also note that some efforts will be deferred beyond 2002: They include a planned field test of methane hydrate production, field tests of deep drilling systems, research to improve gas storage deliverability and pipeline integrity, and a program to examine the resource potential on Indian tribal lands.

Some of those programs could be reinstated, however, pending the outcome of the task force recommendations or budget negotiations with Congress.

DOE did not propose to buy oil for the Strategic Petroleum Reserve but did earmark $169 million for its maintenance. SPR is 80% full and holds about 541 million bbl. DOE could receive more oil through expanded royalty-in-kind proposals pending at the US Department of Interior. Estimates on how much oil may be collected for the SPR were not detailed in the budget.

Other departments
Outside of DOE, the Bush administration's first formal budget request to Congress would extend all tax breaks currently scheduled to expire this year. Included in that list are tax incentives for marginal wells.

Bush's plan also preserves the tax credits US energy companies receive on their foreign oil and gas extraction income. Currently, firms are eligible for the foreign tax credit if a foreign fee is the equivalent of an income tax and not compensation for a specific economic benefit the foreign government provides.

For natural resource and environmental programs, the White House is requesting $26.4 billion, about $2 billion less than the Clinton administration sought in 2001. Most of those cuts are at DOE, although the Environmental Protection Agency would also be affected. Global warming research would be cut about 4% across various government agencies, including EPA, Commerce, and DOE.

Overall spending at EPA would fall $500 million under the budget proposal.

At the Department of the Interior, the budget is $10 billion, $347 million less than what Congress appropriated last year.

That budget assumes the government would collect bonuses from a sale of Arctic National Wildlife Refuge leases beginning in 2004. Up to $1.2 billion of the expected bonuses paid by winning ANWR bidders would be set aside to help fund enhanced research on alternative energy technologies.

Interior's FY 2002 budget provides increased funding for energy resource programs in the Mineral Management Service and the Bureau of Land Management.

MMS oversees oil and natural gas production in the Outer Continental Shelf and collects on and offshore federal royalties. BLM is responsible for oversight of oil and gas production on federal lands.

Interior Secretary Gale Norton said, "The FY 2002 budget proposes a program increase of $15 million for BLM to expand energy and mineral activities including energy resource surveys, coalbed methane permitting preparation, preparation for lease sales in the National Petroleum Reserve-Alaska, and planning for leasing in the 1002 area [coastal plain] of ANWR, should such leasing be authorized by Congress.

"An increase of $14.7 million is requested for MMS to meet increased workload brought about by OCS program services and to implement a royalty-in-kind program."

Contact Maureen Lorenzetti at maureenl@ogjonline.com

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