Week in News: December 11 – 17, 2006
U.S. Supreme Court rules against oil and gas industry in royalties case International Herald Tribune; December 11, 2006; http://www.iht.com/articles/ap/2006/12/11/business/NA_FIN_US_Oil_Royalties.php
Oil firms celebrate Gulf gain Houston Chronicle; December 12, 2006; http://www.chron.com/disp/story.mpl/business/energy/4395321.html
Democrats promise yearlong spending resolution Greenwire; December 12, 2006; http://www.eenews.net/Greenwire/2006/12/12/#3
Democrats added to Energy, Transportation panels E&ENews PM; December 13, 2006; http://www.eenews.net/eenewspm/2006/12/12/#5
OPINION: Castles in the Sand New York Times; December 13, 2006; http://www.nytimes.com/2006/12/13/opinion/13pilkey.html
CEOs, ex-military leaders present plan to bolster energy security Greenwire; December 13, 2006; http://www.eenews.net/Greenwire/2006/12/13/#1
EDITORIAL: Ships That Don’t Dare to Sail New York Times; December 14, 2006; http://www.nytimes.com/2006/12/14/opinion/14thu1.html
Bipartisan House group seeks DOJ review of flawed royalty waivers E&ENews PM; December 14, 2006; http://www.eenews.net/eenewspm/2006/12/14/#1
House Dems vow early focus on 'royalty relief' E&ENews PM; December 14, 2006; http://www.eenews.net/eenewspm/2006/12/14/#2
OPINION: Pacts Americana? New York Times; December 15, 2006; http://www.nytimes.com/2006/12/15/opinion/15kaye.html
Interior deals on flawed leases fail to quell critics Greenwire; December 15, 2006; http://www.eenews.net/Greenwire/2006/12/15/#1
Transocean Drillship Sets Water-Depth Completion Records Rigzone; December 15, 2006; http://www.rigzone.com/news/article.asp?a_id=39035
New coalition aims to chart course on energy Greenwire; December 15, 2006; http://www.eenews.net/Greenwire/2006/12/15/#4
OPINION: States like Texas deserve payday for offshore energy Senator Kay Bailey Hutchison; Houston Chronicle; December 18, 2006; http://www.chron.com/disp/story.mpl/editorial/outlook/4408937.html
U.S. Supreme Court rules against oil and gas industry in royalties case International Herald Tribune; December 11, 2006; http://www.iht.com/articles/ap/2006/12/11/business/NA_FIN_US_Oil_Royalties.php
WASHINGTON: The Supreme Court ruled against the oil and gas industry Monday in a dispute over how many years into the past the government can reach to collect money for leases on federal land.
In a 7-0 decision, the court refused to limit the number of years the government can reach back to collect unpaid royalties. The ruling applies to administrative proceedings the Interior Department brought against two companies. At issue is whether a federal law imposing a six-year time limit for the government to file lawsuits based on federal contracts also applies to administrative orders.
Ten years ago, the Interior Department's Minerals Management Service ordered BP America Production Co. and ARCO to pay $4.1 million (€3.1 million) and $780,000 (€591,940) respectively to cover royalty deficiencies on coalbed methane. The companies pumped the natural gas from wells in the San Juan Basin, which is in northwest New Mexico and southwest Colorado.
The government's administrative claim was based on royalties allegedly owed going back more than eight years from the time the Interior Department demanded the money. BP and ARCO say the limit should be six years, which would reduce the amount of royalties the Interior Department is able to claim.
BP and ARCO say unfavorable rulings in lower courts on the issue would add hundreds of millions of dollars to the royalty obligations of the oil and gas industry over the life of existing leases.
The industry's arguments "are insufficient to overcome the plain meaning" of federal law, said the decision by Justice Samuel Alito.
The justices normally do not publicly disclose the reason for not participating in cases, though Chief Justice John Roberts participated in the case as a federal appeals court judge.
When the dispute between the Interior Department and the companies began a decade ago, it involved Amoco Production Co., Atlantic Richfield Co. and Vastar Resources, ARCO/Vastar, according to court papers filed in the case.
In 2001, Amoco Production Co. and Vastar Resources Inc. merged and formed BP America Production Co. Atlantic Richfield Co. is wholly owned by BP America Inc.
___
The case is BP America v. Watson, 05-669.
Gulf States Hit Pay Dirt Offshore Washington Post; December 12, 2006; http://www.washingtonpost.com/wp-dyn/content/article/2006/12/11/AR2006121101326.html
Back in June, former Louisiana senator John Breaux warned Sen. Mary Landrieu (D-La.) not to get greedy in lobbying to get their state a big chunk of oil and gas royalties from federal waters.
"Harry Truman offered us almost half, and we ended up with nothing," he said.
Breaux was recalling that in 1949, Gov. Earl Long was so determined to get all of the oil and gas royalties from drilling off his state's shores that he turned down an offer from Truman that would have put a portion of that revenue into Louisiana's coffers. Louisiana ended up with nothing, and since then the Treasury has collected $160 billion from offshore oil and gas production all over the United States.
The last bill passed by the 109th Congress, early Saturday morning, ended up giving Louisiana, Texas, Alabama and Mississippi a good bit of what was turned down half a century ago.
The legislation opens about 8 million acres in the Gulf of Mexico to oil and gas drilling, and U.S. industrial consumers of natural gas hope it will boost supplies and moderate prices.
But the bill's landmark aspect was a deal that diverts 37.5 percent of federal royalties from future drilling to the four Gulf of Mexico states -- the same percentage Truman offered Long. The accord could ultimately be worth $650 million a year for Louisiana, the biggest beneficiary.
"This was the best Christmas present I could ever, ever have gotten or that the state of Louisiana could have gotten," Landrieu said in an interview yesterday. Foes of the legislation fear it will lure states opposed to offshore drilling such as California, Virginia, Florida and North and South Carolina into supporting exploration off their shorelines in return for a gusher of new revenue. "A lot of folks don't want the revenue sharing because they're afraid that people won't be as opposed" to offshore drilling, Breaux said in June.
Landrieu says the legislation will help Louisiana restore coastal wetlands and take measures to protect such energy infrastructure as ports, pipelines and oil refineries. To ease congressional concerns that Louisiana will treat the royalties as a windfall for general spending, the state has amended its constitution to restrict use of the money to those purposes.
Unlike Long, who asserted state ownership over waters up to 37 miles from shore, Landrieu merely asserted state "partnership" with the federal government. While she initially sought half of federal royalties, she later agreed to put 12.5 percent of federal royalties into a conservation fund to be used for all 50 states, a move that was designed to blunt environmental objections to new drilling.
Opponents of the bill call it fiscally irresponsible and say that any royalties from drilling in federal waters, which begin three miles from shore and extend up to 200 miles out, belong to the federal government. Those are the boundaries Congress drew in 1953 and the Supreme Court affirmed. Given the size of the federal budget deficit and future Social Security and Medicare obligations, many lawmakers say the federal government is in no position to give away big revenue streams.
"According to estimates, the bill will drain $170 billion from the federal treasury over the next 60 years," said Rep. Lois Capps (D-Calif.), a member of the House Energy and Commerce Committee, during last week's floor debate. "This is a great deal for these four states, and I certainly understand why they support it. What I don't understand is why my colleagues from the other 46 states would agree to it."
Capps added that "the offshore waters of the Gulf Coast belong to all Americans, as do the Pacific and Atlantic oceans, the Great Lakes and other public lands. Mr. Speaker, we have record deficits as far as the eye can see, and it is simply irresponsible to add billions more in new debt through legislation like this."
Environmentalists have also fought the measure. "We believe that tying coastal restoration funding to money derived from new offshore drilling . . . would simply exacerbate the problem," said Carl Pope, executive director of the Sierra Club. "There is agreement that oil and gas drilling in the Gulf of Mexico has contributed to the destruction and loss of Louisiana wetlands. Thus, we don't see the logic in funding restoration when the trade-off is incentives for new drilling that would jeopardize other coastal areas."
In marshaling arguments for the legislation, Landrieu bridged the gap between proponents of unlimited offshore drilling and foes of all offshore drilling.
She noted that the federal government gives states 50 percent of royalties for minerals, oil and gas taken from federal land. And she argued that the Gulf Coast states suffered environmental degradation from serving as a base for the petroleum industry. After hurricanes Katrina and Rita hit the region in 2005, the Gulf Coast states were also able to tap into sympathy and concerns over the country's energy infrastructure.
Because of the way legislation is scored for budgetary purposes, the money diverted from the Treasury does not show up in the bill's cost estimates. Moreover, because the states get a share of future drilling revenue, their big payday doesn't come for more than 10 years, beyond the window used by congressional budgeteers.
Instead, because it opens up new areas for drilling, the measure is scored as a plus for federal revenue. That helped cover other giveaways in the tax extender bill the drilling measure was attached to. Some of those were energy-related. One example: the ability to depreciate 50 percent of the cost of a cellulosic ethanol plant in its first year of operation. Despite all the talk about this potential energy source, technological and financing issues remain. Judging from the scoring of this item -- $17 million over the next five years -- lawmakers don't expect more than one plant to be built before the end of 2012.
In the end, House and Senate Democratic leaders did not attempt to rally their party caucuses against the offshore drilling measure despite fiscal and environmental objections. That was, in part, out of deference to Landrieu, the only Democratic senator in Alabama, Mississippi, Louisiana or Texas. "There were a lot of Democrats who voted against this," Landrieu conceded. But she said "millions" of jobs for middle-class Americans depended on continued natural gas supplies. She said party leaders realized "when there are places in the country willing to drill that Democrats should be in favor. It is not good to stick your head in the sand and pretend we don't need oil and gas."
Oil firms celebrate Gulf gain Houston Chronicle; December 12, 2006; http://www.chron.com/disp/story.mpl/business/energy/4395321.html
Oil companies are cheering legislation that will soon open a new section of the Gulf of Mexico to drilling, but it will still be years before they pump their first barrel of oil from the site.
The amount of time will depend on how quickly the Interior Department's Minerals Management Service begins drawing off the waters into leasable parcels. Other variables include the economic climate for drilling once that occurs and the financial position of oil and gas companies in the future.
"All of the pieces have to be there for people to drill," said Michelle Michot Foss, head of the University of Texas' Center for Energy Economics, who cautioned not to view the newly opened patch as the next gold rush.
On Saturday at the close of the 109th Congress, federal lawmakers passed a measure that will open 8.3 million acres in the east-central Gulf for oil and gas exploration. The area, near the Florida Panhandle, is believed to contain about 1.3 billion barrels of oil and 6 trillion cubic feet of natural gas.
The country uses about 21 million barrels of oil a day. The gas at the site would be enough to heat 6 million U.S. homes for 15 years, according to the Minerals Management Service. Calls to the agency Monday for comment were not returned.
The energy industry had pushed for the measure as part of a broader effort to open up more U.S. coastal waters to drilling, which it claims is critical to reduce the nation's dependence on foreign energy sources.
But environmental groups blasted it as an eleventh-hour attempt by the outgoing Republican Congress to help friends in the oil and gas industry and a missed opportunity to endorse alternative fuel sources and more conservation by U.S. consumers.
The bill still must be signed by President Bush. Then, the Minerals Management Service has up to one year from the law's enactment to lease the waters to energy firms.
A number of oil companies have already indicated their interest in investing millions to explore for oil and natural gas at the patch, said Aaron Bernstein, spokesman for the Independent Petroleum Association of America, which represents U.S. companies that drill 90 percent of the nation's oil and natural gas wells.
But he would not disclose names of members who are considering those plans.
"We know there is very keen interest," said Karen Matusik, a spokeswoman for the American Petroleum Institute in Washington, D.C.
Foss said foreign companies, such as Norway's Statoil and Brazil's Petrobras, may also see opportunity in the new area to increase their holdings in the Gulf.
Industry groups estimate it could be as little as two years and as much as six years before operators begin producing in the newly opened waters.
Yet it could easily stretch longer.
Oil companies could get bogged down building under- water infrastructure such as pipelines as well as the hugely complex drilling platforms needed to mine the deep waters.
And an industry downturn could make certain projects less attractive, Foss said.
For now, however, operators like Anadarko are celebrating the news as a victory. "Anytime we're given additional acres," said Susan Richardson, a company spokeswoman, "it's a benefit not only to us but to consumers."
Democrats promise yearlong spending resolution Greenwire; December 12, 2006; http://www.eenews.net/Greenwire/2006/12/12/#3
Democratic leaders in the House and Senate said yesterday they would pass another resolution next year to cover spending for the rest of fiscal 2007 and wipe out earmarks included in left-over appropriations bills.
The incoming chairmen of the Appropriations Committees -- Sen. Robert Byrd (W.Va.) and Rep. David Obey (Wis.) - - said in a joint statement that with other legislative priorities facing the 110th Congress, Democrats have little choice than to punt quickly on the remaining spending bills.
"There are no good options available to us to complete the unfinished work of the Republican Congress," the statement says. "While the results will be far from ideal, this path provides the best way to dispose of the unfinished business quickly, and allow governors, state and local officials, and families to finally plan for the coming year with some knowledge of what the federal government is funding."
With the current continuing resolution set to expire Feb. 15, Democrats have expressed concern that trying to move the unfinished appropriations bills would hamper Congress' ability to act on items such as the party's initial agenda, another war supplemental and President Bush's fiscal 2008 funding request, which would also arrive in early February.
For fiscal 2007, Congress has only passed spending bills for Defense and Homeland Security, leaving virtually all domestic spending unfinished.
The continuing resolution, as it was structured under the Republican-controlled Congress, would fund agencies for the remainder of fiscal 2007 at the lower rate of the either the House- or Senate-passed appropriations bill or the previous year's level.
But a spokesman for Byrd said no decision has been made as to whether Democrats will follow that pattern in structuring the next resolution.
"At this point there is no formula," Byrd spokesman Tom Gavin said. "The two new chairmen are going to look at what realities they are going to face as they start working on this joint resolution."
Appropriators will make "limited adjustments" to the resolution to fix what they see as problems in the GOP's spending bills, although the extent of those changes will not be determined until the committee starts meeting next year, Gavin said.
Energy, environment spending
But allowing agencies to work under fiscal 2006 allocations could have a significant effect on many energy and environment programs.
For example, President Bush's program for building a near-zero emission coal-fired power plant would have likely have received the requested $54 million had fiscal 2007 spending bills been passed. But fiscal 2006 levels provide only $18 million (Greenwire, Dec. 8).
The resolution likewise puts into question several Energy Department programs -- among them, those dealing with nuclear proliferation and waste disposal. Outgoing Senate Energy and Natural Resources Committee Chairman Pete Domenici (R-N.M.) said last week the fissile materials disposition program has essentially stopped construction because of questions about federal funding.
And the resolution could doom efforts to boost spending for conservation and lift caps on spending for the Wetlands Reserve Program and the Conservation Security Program, both of which are part of the fiscal 2007 Agriculture spending bill. Obey and Byrd also said that there will be no earmarks in the resolution. Provisions inserted into spending bills for agencies will be considered when Congress takes up fiscal 2008 spending bills.
Democratic leaders have long promised to reform the current earmarking process and the chairmen said there would be a moratorium on earmarks until a "reformed process" is implemented.
Dem leaders, White House split on plan
Byrd and Obey's plan was quickly endorsed by Senate Majority Leader Harry Reid (D-Nev.) and House Speaker Nancy Pelosi (D-Calif.), who tried to head off likely Republican criticism. "It is not a perfect solution, but it is the best available given the fiscal mess the 109th Congress has left behind," the two said in a statement yesterday.
Office of Management and Budget Director Rob Portman criticized the Democrats' decision and said the White House would "maintain fiscal discipline and avoid gimmicks and unwarranted emergency spending."
"The announcement from the incoming Congressional majority is disappointing because we want to work with the new Congress to finish this important work," Portman said in a statement. "There are still more than nine months remaining in the fiscal year, and we believe we should be working through the remaining bills."
The Democrats' move, however, could gain support from fiscally conservative Republicans, who have clashed with their party's leaders on spending and blocked some on appropriations bills in the lame-duck session because of their concerns over earmarks.
"There may be some who want to mess up the Democrats' schedule with the unfinished spending bills, but that's not my goal," said Sen. Jim DeMint (R-S.C.), who earlier this week was elected to lead a caucus of conservative senators. "Passing a yearlong stopgap spending measure would freeze spending at current levels, avoid thousands of special interest earmarks and save taxpayers billions."
Democrats added to Energy, Transportation panels E&ENews PM; December 13, 2006; http://www.eenews.net/eenewspm/2006/12/12/#5
Eight new Democrats will join the House Energy and Commerce Committee when the 110th Congress convenes next month.
And the House Democratic Steering Committee placed 12 new Democrats on the Transportation and Infrastructure panel, including 10 freshmen, and appointed one freshman to the Agriculture Committee.
A spokesman for incoming House Speaker Nancy Pelosi (D-Calif.) said today other committee assignments will be made soon, with Appropriations Committee assignments expected tomorrow. The focus for this week is placing members to exclusive committees and managing assignments for new members. Other committee assignments will be made at a later date.
Pelosi has yet to decide the committee ratio of Democrats to Republicans, but there are indications the majority- minority ratio will be comparable to that of the 109th Congress.
New Democrats on Energy and Commerce: Reps. Jane Harman (Calif.), Leonard Boswell (Iowa), Darlene Hooley (Ore.), Anthony Weinder (N.Y.), Jim Matheson (Utah), G.K. Butterfield (N.C.), Charlie Meancon (La.) and Baron Hill (Ind.).
Joining Transportation and Infrastructure: Reps. Grace Napolitano (Calif.) and Dan Lipinski (Ill.), and newly elected Michael Arcuri (N.Y.), Bruce Braley (Iowa), Chris Carney (Pa.), John Hall (N.Y.), Mazie Hirono (Hawaii), Steve Kagen (Wis.), Jerry McNerney (Calif.), Harry Mitchell (Ariz.), Heath Schuler (N.C.) and Zack Space (Ohio).
The Ways and Means Committee will add Reps. Earl Blumenauer (Ore.), Ron Kind (Wis.), Bill Pascrell (N.J.), Shelley Berkley (Nev.), Joe Crowley (N.Y.), Kendrick Meek (Fla.), Chris Van Hollen (Md.), Allyson Schwartz (Pa.) and Artur Davis (Ala.). The Steering Committee also made the following freshmen committee assignments: Tim Walz (Minn.) to the Agriculture panel and Paul Hodes (N.H.) and Chris Murphy (Conn.) to the Government Reform Committee.
Waxman to eliminate energy subcommittee
Separately, incoming House Government Reform Committee Chairman Henry Waxman (D-Calif.) announced today that he will restructure his panel and eliminate the Energy and Resources Subcommittee.
His plan would pare the panel from seven subcommittees to five, also eliminating the Regulatory Affairs subcommittee.
"My goal is to consolidate the jurisdictions of some of the subcommittees so that the jurisdiction of each subcommittee will have broad appeal and will engage the attention of the subcommittee members," Waxman said.
Waxman has not yet announced what lawmakers will lead the five subcommittees, although most of the current Democratic ranking members are expected to move into the top spots.
OPINION: Castles in the Sand New York Times; December 13, 2006; http://www.nytimes.com/2006/12/13/opinion/13pilkey.html
AT this year’s meeting of the Geological Society of America, which took place in Philadelphia in October, representatives of the United States Army Corps of Engineers presented proposals to re-engineer the Mississippi Gulf Coast. Some 200 coastal and marine scientists attended the meeting; most of them were stunned by the scope, expense and sheer wastefulness of the projects the corps is considering.
The corps’ proposals include a large seawall to protect parts of Bay St. Louis on the coast along with storm surge gates, similar to those that the British use on the Thames, to close off local bays. One particularly awe-inspiring proposal calls for reconfiguring the Mississippi Gulf Islands to approximate their circa 1969, pre-Hurricane Camille length and width, while adding sufficient sand to the islands to achieve elevations of roughly 20 feet. These barrier islands are part of the Gulf Islands National Seashore and include designated wilderness areas. The proposed project would dump an estimated 50 million cubic yards of sand on the national seashore solely to protect redevelopment of the mainland coast.
At the very least, these proposals would cost billions of dollars to realize, aside from the environmental damage that would ensue. Yet as the corps acknowledged at the Geological Society meeting, its proposed “coastal improvements” would not provide protection from the kind of Category 4 and 5 hurricanes that have destroyed coastal Mississippi twice in the past 37 years. So what, exactly, is the point?
The corps’ failure to devise a rational redevelopment plan points to the futility of trying to maintain coastal development in such an unstable place. A realistic appraisal would conclude that the long-term outlook for coastal development there is bleak. Yet the corps, urged on by developers, seems determined to wage a quixotic fight.
This is particularly galling in light of a recent report issued by the British government under the leadership of Sir Nicholas Stern, who is widely viewed as a pragmatist. The Stern report concluded that it will probably cost global economies more to ignore climate change than to take steps to address it. It seems we are about to learn this lesson in coastal Mississippi. Rather than use a creative, flexible approach to redevelopment on a vulnerable, changing coast, the corps is commanding nature to behave itself.
The clear consensus among coastal scientists at the Geological Society meeting was that the corps’ ambitious plans for Mississippi will fail — either all at once in a major hurricane or gradually through shoreline erosion and other long-term changes. It is an effort in futility.
Pragmatism, fiscal and otherwise, dictates that we cannot afford to continue the cycle of development and destruction. The vulnerability of our nation’s shores will only increase over the next decades as global climate change leads to rising sea levels, increased coastal erosion and stronger hurricanes of greater duration.
The time has come to step back from this extraordinarily hazardous shoreline, perhaps to replace the blocks of destroyed buildings with rows of protective dunes in a seashore park. We should not rebuild on the shoreline of vulnerable areas like the Mississippi Gulf Coast. We certainly shouldn’t be doing it with federal dollars or destroying a National Seashore in order to provide a false sense of security for redevelopment.
If the corps follows through on its proposals, the United States will once again miss an opportunity to respond sensibly to the threat of global warming.
Robert S. Young is the director of the Program for the Study of Developed Shorelines at Western Carolina University. Orrin H. Pilkey is a professor of earth sciences at Duke.
CEOs, ex-military leaders present plan to bolster energy security Greenwire; December 13, 2006; http://www.eenews.net/Greenwire/2006/12/13/#1
A group of CEOs and retired military officers focused on energy security issued a report today urging tougher vehicle fuel-efficiency standards, wider access to offshore petroleum, greater incentives for biofuel development and increased production of flex-fuel cars.
The Energy Security Leadership Council report comes as lawmakers are setting energy policy agendas for the 110th Congress. The council is meeting with congressional and White House officials to pitch their plan.
Calling for a "meaningful reduction" in the U.S. economy's oil reliance and a "prudent expansion" of secure oil supplies, the council hopes to end what it describes as a paralysis of U.S. energy policy. The report raises alarms about the nation's reliance on imported oil and its vulnerability on supply disruptions.
The council is co-chaired by FedEx CEO Frederick Smith and former Marine Corps. Commandant X.P. Kelley. Top executives with Southwest Airlines, Dow Chemical and Royal Caribbean are members, as is former Navy Secretary John Lehman.
"Political forces have often portrayed increased supply and decreased demand as mutually exclusive ambitions," the two co-chairs say in an open letter to the White House and Congress. "In fact, both goals are indispensable components of any comprehensive policy for obtaining genuine energy security."
In a news conference, Smith cited the report's focus on both expanded domestic production and efficiency, calling for a "grand compromise" from players on both sides in the debate. "We've probably made everyone on the right and the left mad at us," he said.
The council's plans are similar to proposals already circulating on Capitol Hill. Nonetheless, one key lawmaker -- incoming House Majority Leader Steny Hoyer (D-Md.) -- told the New York Times the report should carry weight. "When prominent CEOs and military leaders get together to advocate an issue as important as energy security, people listen," Hoyer said.
The group calls for cutting U.S oil "intensity" in half by 2030 -- and is not shy about calling for a strong federal role in doing it. "Existing and proven regulatory tools" allow the government to play a critical role, the report says. Current domestic use is about 21 million barrels of oil per day, nearly 60 percent of which is imported.
"To talk about the free market solving this problem," Smith said, "is not realistic."
Recommendations
Specifically, the group calls for 4 percent annual increases in fuel economy standards for cars and light-duty trucks but allows an "off-ramp" if the improvement is not feasible, safe or cost-effective in a given year.
The report also calls for more tax incentives for producing and buying fuel-efficient vehicles, including lifting the current 60,000-vehicle-per-manufacturer limit on tax incentives for advanced-technology vehicles. These efficiency mandates and incentives could together curb oil use by 4.3 million barrels per day, the report says.
The council also calls for both mandates and tax credits for installation of biofuels pumps and infrastructure at gas stations, mandated 10 percent yearly increases in flex-fuel vehicle production, and a suite of tax incentives, loan guarantees and grants for building biorefineries using a range of feedstocks. Biofuels and flex-fuel proposals could together allow the United States to produce 30 million gallons of biofuels per year, the report says.
In addition, the group calls for expanded offshore drilling to increase domestic production by as many as 2 million barrels per day by 2030. It says wider drilling must be accompanied by third-party monitoring, clear penalties for environmental damage and other protections.
Elsewhere on the production side, it recommends stronger federal efforts to develop and deploy "enhanced oil recovery techniques" to boost production from depleted wells beyond what traditional production methods allow.
Other major goals include making "investment access" a greater priority in trade and diplomatic efforts with producing nations; encouraging "burden sharing" with allies to protect oil flows; providing counterterror training and military aid to help producing countries protect supplies; helping producing nations create "attractive investment climates backed by stable civil societies"; and allow China and India to join the International Energy Agency and "participate in updated global strategic petroleum reserve arrangements."
The group also lists several "corollary" recommendations, including setting fuel-efficiency standards for medium- duty trucks, coupled with extended subsidies for hybrid vehicles in this class. It also calls for setting fuel efficiency standards for heavy-duty vehicles and providing subsidies as needed.
ANWR drilling favored
Other second-tier goals include greater federal investment in researching, developing and commercializing carbon sequestration methods to limit the greenhouse gas emissions of oil shale, oil sands and coal-to-liquids technologies.
Potential production from shale and CTL are gaining new attention in the United States, although both are considered far from wide commercial production. Both Chevron Corp. and Shell Oil Co. are researching ways to tap massive Western shale deposits, but decisions on commercial scale production are years away.
The report also cautiously endorses drilling in the Arctic National Wildlife Refuge but says it must be accompanied by stringent safeguards.
ANWR drilling is considered dead in the next Congress, and expanding offshore drilling beyond the recently-passed bill to expand Gulf of Mexico production is also considered a longshot.
The council is part of Securing America's Future Energy. The group's other activities have included staging an elaborate simulation -- with former top U.S. government officials -- of supply disruption scenarios and their effects on the U.S. economy and prices (Greenwire, June 24, 2005).
EDITORIAL: Ships That Don’t Dare to Sail New York Times; December 14, 2006; http://www.nytimes.com/2006/12/14/opinion/14thu1.html
The Coast Guard, supposedly our first line of defense against water-borne terrorists and drug smugglers, has been staggered by a shipbuilding scandal of enormous proportions. A long-term modernization program to replace nearly all of the Coast Guard’s ships, planes and helicopters — begun four years ago in the wake of 9/11 — is foundering while its projected costs are skyrocketing. In Iraq, lax government oversight and incompetence or profiteering by contractors have disabled reconstruction efforts. Now the same disease is undermining our coastal defenses.
The Coast Guard fiasco was laid out in depressing detail by Eric Lipton in The Times last Saturday, and in a similar article in The Washington Post. The misjudgments and slipshod work would be grist for slapstick comedy if the consequences, in cost and weakened defenses, were not so serious.
As described by Mr. Lipton, the estimated costs of the project, known as Deepwater, have ballooned from $17 billion when it started in 2002 to $24 billion today. The plans call for 91 new ships, 124 small boats, 195 new or rebuilt helicopters and 49 unmanned aerial vehicles. But don’t count on any of the new vehicles working.
The initial venture — converting the Coast Guard’s rusting patrol boats into bigger, more versatile cutters — has been canceled because hull cracks and engine failures made the first eight ships unseaworthy. Plans for a new class of ships with an innovative hull design were halted after the design was found to be flawed. And even the radios placed in small open boats proved faulty; they shorted out because they had not been made waterproof.
In the latest chapter in this disgraceful performance, Mr. Lipton reports in today’s paper that the Coast Guard did not inform Congress that it was warned two years ago by its chief engineer that a proposed National Security Cutter, meant to be the flagship of its fleet, had “significant flaws” in its structural design and should not be started until the problems were addressed. The Coast Guard began construction anyway. It plans to reinforce the first two versions that are being built and change the design on the remaining six.
How could this happen? Mostly because the Coast Guard, in an astonishing abdication of responsibility, gave two large military contractors, Lockheed Martin and Northrop Grumman, near total freedom to plan, supervise and deliver the new ships and helicopters. In some cases, the contractors made boneheaded decisions, as when their shipyard partner ignored warnings by Coast Guard engineers that the converted patrol boats might buckle under the extra weight. In other cases, they might have put their own interests ahead of the nation’s, as when they adopted a risky hull material that had never been tried on a large American military ship but was pushed by Northrop, which had just opened a new plant to manufacture the hulls.
No wonder the contractors are ducking for cover as the scandal reverberates, and are leaving all comment to the hapless Coast Guard. The Coast Guard seems, belatedly, to be moving in the right direction by giving its own engineers more supervisory power over the work and creating a division to oversee procurement and maintenance of ships and planes. Even so, the new Congress and the Department of Homeland Security, which is responsible for the Coast Guard, will need to keep a sharp eye on the Coast Guard’s performance. The industrial contractors have proved they were not up to the job.
Bipartisan House group seeks DOJ review of flawed royalty waivers E&ENews PM; December 14, 2006; http://www.eenews.net/eenewspm/2006/12/14/#1
House Government Reform Committee leaders urged the Justice Department today to review the government's legal right to compel petroleum-industry payments of royalties waived by the Interior Department in flawed offshore leases in the late 1990s.
Interior's Minerals Management Service is negotiating with deep water Gulf of Mexico producers over 1998 and 1999 leases that allow royalty waivers but were mistakenly issued without "price thresholds" that end the incentive when energy prices are high.
MMS, citing the need to ensure the "sanctity" of contracts, has maintained that negotiations with industry to gain payment must be voluntary. MMS also said in September the talks are aimed at ensuring payment of royalties on future production from these leases but not from production that has already occurred.
The committee's top Democrats and Republicans question Interior's negotiating stance in a letter sent today to Attorney General Alberto Gonzalez. They included an analysis by a private attorney, Stephen Lowey, that says MMS has solid legal authority to change or set aside the contracts.
"We would like to know your assessment of Mr. Lowey's analysis and whether you agree with him that the Department has the authority to terminate the leases and take other remedial action," states the letter from committee Chairman Tom Davis (R-Va.) and ranking member Henry Waxman (D-Calif.)
"If you disagree with his analysis, we would like you to provide the Committee with a legal analysis explaining why the Department takes a different position," it adds. Also on the letter are Rep. Darrell Issa (R-Calif.), who chairs the subcommittee on energy and resources, and subcommittee ranking member Diane Watson (D-Calif.).
Davis and Issa have attacked Interior's decision not to pursue royalties from past production and said in September, citing a Government Accountability Office estimate, that the missing price thresholds have already cost nearly $2 billion in lost payments. Lost royalties total $1.3B, agency says
MMS Director Johnnie Burton, speaking to reporters that month, estimated the lost royalties from past production at $1.3 billion. Burton cited the difficulty of seeking retroactive payments from past oil and gas production on these leases.
An MMS spokesman could not be reached for comment at press time as to whether the service had revisited the decision not to seek royalties from past production.
The total loss from the missing thresholds, including future production, could eventually total an estimated $10 billion. MMS has been negotiating with companies include Shell and BP and has said it is close to signing agreements.
Some lawmakers, including Rep. Ed Markey (D-Mass.), have been pressing for legislation that would bar offshore producers from being awarded any new Gulf of Mexico leases unless they agree to renegotiate the 1998 and 1999 contracts. Democrats are planning to quickly offer legislation addressing the issue when the 110th Congress convenes (see related story).
Markey, in a separate statement today, cited an anticipated MMS announcement that it has reached agreements with a "handful" of companies in the issue. "Their too little, too late efforts to recoup only a small percentage of the billions of dollars of oil and gas royalties that the American people are rightfully owed is pitiful," he said.
House Dems vow early focus on 'royalty relief' E&ENews PM; December 14, 2006; http://www.eenews.net/eenewspm/2006/12/14/#2
House Democrats' initial legislative energy package will focus on overhauling "royalty relief" for offshore drilling, incoming House Speaker Nancy Pelosi said today.
Pelosi has promised Democrats would pass legislation repealing oil-company tax incentives within the first 100 hours of the 110th Congress, but party leaders have yet to offer specifics. But today, in response to questions, the California Democrat identified royalty relief as a key item.
At issue is the omission of "price thresholds" in deep water gulf leases issued by the Interior Department in the late 1990s. The Government Accountability Office estimated losses from missing thresholds at $10 billion, largely from production that has yet to occur, depending on petroleum prices.
Pelosi described legislation that would force oil and gas producers to essentially pay a fee on production for which royalties are not being paid when oil prices exceed about $40 per barrel.
"That is one of the initiatives that brings tens of billions of dollars to the Congress," Pelosi said. "That is the most, shall we say, useful to us in terms of the money that it produces. There are a couple others as well but that is the biggest one."
In a 205-207 vote, the House rejected an amendment last week by Rep. Ed Markey (D-Mass.) to tax legislation that would have addressed the royalty issue. But the amendment was defeated in large part because it would have sunk a $45 billion tax package that included an expansion of oil-and-gas drilling in the Gulf of Mexico and similar royalty legislation has passed the House twice before.
While it remains unclear exactly what other provisions would be included in a Democratic energy package, Pelosi said that many of the proposed tax-incentive repeals have already been taken up by the House at various points.
Much of the legislation, a Pelosi aide said, will be drawn from the Democratic alternative to last year's energy bill and various other amendments that has been defeated on the floor in the Republican-controlled House.
Since these policies have already been debated on the floor, Pelosi said she does not expect that any of the Democrats "100 hour" agenda -- including the energy package -- will be taken up by committees. "All of these have been vetted through the committee process, some of them have even passed on the floor," Pelosi said. "So these are not new to the Congress."
OPINION: Pacts Americana? New York Times; December 15, 2006; http://www.nytimes.com/2006/12/15/opinion/15kaye.html
WHAT can the incoming Democratic Congress do to help reverse the steep erosion of America’s standing abroad, particularly the impression that the United States has disengaged from global problem- solving? Though the President dominates foreign policy, the Senate can make an impact in one significant area: by giving the required two-thirds majority vote to approve a raft of treaties awaiting action.
The Senate has before it more than two dozen treaties submitted for approval by President Bush and his predecessors — some, in fact, were negotiated as long ago as the Eisenhower administration. These agreements are not like the Kyoto Protocol on climate change or the statute that established the International Criminal Court, which are too controversial even to be transmitted to the Senate.
Indeed, these are widely supported pacts, making it difficult to discern why many stalled in the first place: perhaps it’s as simple as a senator’s vague concerns about “sovereignty,” a lack of domestic constituency or the press of other legislative business.
Early approval of key agreements in areas of great international concern, like the environment and the laws of war, would show the world that the United States is committed to solving global problems. To hit the point home, the Senate should act within the first six months of the next Congress. Quick approval for most is eminently doable.
There is a pressing need to repair America’s image now, even while the Democratic Congress and the White House battle over the future of Iraq policy. Approving treaties from this list would make a good start.
David Kaye and K. Russell LaMotte were treaty negotiators for the State Department in the Clinton and George W. Bush administrations. Peter Hoey is an illustrator in Arcata, Calif.
Interior deals on flawed leases fail to quell critics Greenwire; December 15, 2006; http://www.eenews.net/Greenwire/2006/12/15/#1
Deals inked yesterday between the Interior Department and five petroleum companies on payment of royalties from flawed Gulf of Mexico leases won't blunt Democratic plans to address the "royalty relief" issue more aggressively when the new Congress convenes. "This in no way affects our plans to move forward," a House Democratic leadership aide said today, noting that agreements have been reached with only a fraction of the companies holding the leases.
The department announced agreements with BP, ConocoPhillips, Marathon Oil Company, Shell, and Walter Oil and Gas Corp. The companies hold leases issued in 1998 and 1999 that allow "royalty relief" but do not contain clauses that suspend the incentive when petroleum prices surpass certain limits.
Stephen Allred, Interior's assistant secretary for land and minerals management, issued a statement yesterday hailing the department's "progress ... on resolving this issue."
"While the omitted price thresholds did not occur during this Administration," Allred said, "we are continuing to work to resolve this difficult problem in a manner that ensures the American taxpayer receives a fair rate of return."
The deals set price thresholds, in 2005 dollars, of $34.73 per barrel of oil and $4.34 per thousand cubic feet of natural gas, Interior's Minerals Management Service said. The agreements address production that occurs on or after Oct. 1, 2006. MMS's decision not to seek royalties from past production on these leases has generated heavy criticism from lawmakers.
But Interior said yesterday that "few leases produced oil and gas before that date." And MMS spokesman said today royalties from past production total around $900 million -- lower than the $1.3 billion figure cited by MMS Director Johnnie Burton in September and the $2 billion Government Accountability Office estimate cited by House Government Reform Committee members.
Total potential losses from the missing price thresholds in all these leases, including future production, has been estimated by GAO to be $10 billion.
Over 50 companies hold leases that lack the price thresholds. The five companies that have reached agreements account together for around 131, or 23 percent, of 570 disputed leases that are active, an MMS spokesman said.
The price thresholds were left out of leases signed during the Clinton administration, but the Bush administration has come under fire for allowing the issue to remain under the radar for years before acting.
The administration pledged to work for more deals. "We appreciate and commend these companies for voluntarily signing these lease amendments. We encourage the remaining companies that have not yet agreed to sign to join us in resolving this issue," Interior said.
The Bush administration has said lease negotiations should be strictly voluntary and that requiring companies to change their lease terms would jeopardize the federal government's committment to the "sanctity" of contracts.
Industry opposes legislation that would effectively force companies to renegotiate the leases, saying it would raise questions about the United States' commitment to stable contracts and could discourage investment.
Red Cavaney, president of the American Petroleum Institute, told reporters today that voluntary talks should continue. "We need to spend time letting the process work," he said, citing the new agreements with five companies. "It is already working."
Pressure from Capitol Hill
But Interior's voluntary negotiating stance came under attack from a bipartisan group of House members yesterday who contend it is needlessly weak. The Democratic and Republican leaders of the House Government Reform Committee yesterday asked Attorney General Alberto Gonzalez to review Interior's legal right to compel payment (E&ENews PM, Dec. 14)
And yesterday's deals did not stop plans for legislative efforts next year. "It is too little, too late. The deals don't go far enough and in the new Congress there will be a renewed effort to fight for what is rightfully taxpayers' revenues from drilling on public lands," said Rep. Ed Markey (D-Mass.) in a statement provided this morning. Markey and Rep. Maurice Hinchey (D-N.Y.) have offered legislation that would bar companies from being awarded any new gulf leases unless they agree to price thresholds in the 1998-1999 contracts.
The incoming Democratic House leadership has vowed to make repeal of several oil industry incentives a top priority. House Speaker-elect Nancy Pelosi (D-Calif.) described yesterday legislation that would force producers to essentially pay a fee on production for which royalties are not being paid when oil prices exceed about $40 per barrel (E&ENews PM, Dec. 14).
Several major Gulf of Mexico producers have not signed deals with Interior, including Chevron Corp. The company told Bloomberg news service in a statement that it has met several times with the agency and "put a reasonable offer on the table."
"We are committed to continuing to work towards a resolution of this issue," the company said.
MMS criminal referrals
Markey's office also said Interior Inspector General Earl Devaney revealed in a briefing with staff that he has made two criminal referrals to the Justice Department related to MMS employees. Markey said the referrals "tangentially involve royalties" but provided no further details.
Tina Kreisher, an Interior spokesperson, said the referrals stem from personnel issues Interior had asked the IG to investigate. She said one of the referrals addresses the "royalty-in-kind" program, in which producers provide Interior with oil and gas directly as an alternative to making royalty payments.
The other addresses MMS's offshore management but is unrelated to royalties, Kreisher said. "To our knowledge the people we have asked for help from the IG to look into were not involved in royalties," she said today.
A recent inspector general report found problems with MMS's system for ensuring companies are paying the full amount of money in royalties they owe for oil and gas production on public lands and waters. The agency does too little to verify company-reported information, the report said (Greenwire, Dec. 7).
And the IG is also preparing a report on the missing price thresholds in the 1998 and 1999 leases that are allowing companies to avoid royalties entirely. The criminal referrals are unrelated to these two inquiries, Kreisher said.
Markey, in a statement yesterday, nonetheless called the referrals "proof positive that the conflicts of interest between Bush administration regulators and those they regulate in the oil and gas industry are costing the American taxpayers billions in royalty revenues."
Devaney's office did not return a call seeking comment this morning.
Transocean Drillship Sets Water-Depth Completion Records Rigzone; December 15, 2006; http://www.rigzone.com/news/article.asp?a_id=39035
Transocean, Inc. said that its ultra-deepwater drillship Deepwater Millennium has set four world water-depth records for completion operations in the U.S. Gulf of Mexico this year, including the most recent record at 8,960 feet of water for Anadarko on its Independence Hub project. That is over 1,000 feet of water more than the record for the deepest water depth for petroleum production of 7,570 feet of water in the U.S. Gulf of Mexico.
The drillship's crews set the latest world record at Lloyd's Ridge block 399 on Anadarko's Cheyenne 2 well, breaking their own records set since June 5, 2006, when the drillship latched onto Merganser (AT 37) for Kerr-McGee.
In addition to the following world records, the Deepwater Millennium has constructed another five wells in approximately the same water depths.
The drillship's world-record water-depth completions are as follows:
Field Block Water Depth in Feet (Meters) Cheyenne Lloyd Ridge 399 #2 8,960 (2,731) Vortex Atwater Valley 261 #1 8,344 (2,543) Merganser Atwater Valley 37 #1 7,933 (2,418) Merganser Atwater Valley 37 #3 7,919 (2,415)
The Deepwater Millennium has been one of the industry pioneers in deepwater drilling and completion. This year, the rig became the first drillship to use the LARS (Launch and Recovery System) Subsea Tree Intervention WorkOver Control System in record water depths on the wells mentioned above. In 2000, the drillship became the first rig to operate in 8,000 feet of water in the U.S. Gulf of Mexico.
Constructed at Samsung Heavy Industries shipyard at South Korea, the Deepwater Millennium is a Pathfinder-class drillship capable of working in up to 10,000 feet of water.
New coalition aims to chart course on energy Greenwire; December 15, 2006; http://www.eenews.net/Greenwire/2006/12/15/#4
Former Democratic Sen. John Breaux of Louisiana and Long Beach, Calif., Mayor Beverly O'Neill will lead a "coalition of coalitions" that plans to introduce consensus energy recommendations next year, the group announced today.
The "Energy Initiative" has 31 member groups representing producers and consumers. It includes the U.S. Conference of Mayors, the National Governors Association, American Automobile Association, the Apollo Alliance, American Petroleum Institute and Edison Electric Institute.
"This is the first time such a far reaching group of energy consumers and producers have come together to work on the very important issue of energy policy," Breaux said at a press briefing in Washington. "The recent elections show the American public demands common sense solutions to challenges, such as America's energy policy, and we intend to fulfill that desire."
The group is starting six months of meetings that will conclude with a report to Congress and the Bush administration. Breaux said the discussions would include production, conservation, energy independence and climate change.
"Everything will be on the table," Breaux said. "There will probably be an intense discussion about climate change as well.
Many of the groups in the coalition have previously released their own energy policy, including a plan from the Apollo Alliance that focused on domestic renewables (Greenwire, Dec. 8). Breaux and O'Neill said the difference with their proposal would be the agreement of the wider-ranging coalition.
"If we can get 10 items we agree on, that will be a big deal," Breaux said.
OPINION: States like Texas deserve payday for offshore energy Senator Kay Bailey Hutchison; Houston Chronicle; December 18, 2006; http://www.chron.com/disp/story.mpl/editorial/outlook/4408937.html
America has been blessed with bountiful natural resources, and developing these vast resources is critical to our long-term economic and national security.
Considerable deposits of oil and natural gas are sitting near our own coasts, yet we remain dependent upon foreign sources of energy because we are unwilling to utilize our own natural energy reserves.
Our country now imports 65 percent of the crude oil we use, leaving us susceptible to fluctuations in the global market. To meet our expanding needs, we are forced to rely upon volatile and politically unstable countries whose support for America's efforts in the War on Terror is benign at best.
Some of the rogue leaders who export oil and gas to the United States are in fact terrorist sympathizers. Continued dependence on these foreign sources jeopardizes our security and plainly makes no sense. Earlier this month, Congress took a critical first step toward increasing domestic energy production by passing the Gulf of Mexico Energy Security Act of 2006. This bill opens 8.3 million acres in the Gulf of Mexico for oil and gas production while providing a political path forward to accessing additional energy reserves off the Atlantic and Pacific coasts that remain off limits.
While this bill will immediately expand oil and gas exploration, a less obvious, but perhaps even more important, part of this legislation is an innovative revenue-sharing program between the federal government and states that feel the impact of such resource development. This revenue-sharing program is a model for future nationwide offshore energy exploration and development proposals.
Over the next several years, as Texas, Louisiana, Mississippi and Alabama enjoy tremendous economic and environmental benefits from this bill, other states will be encouraged to allow the offshore exploration and development that our nation desperately needs.
Newly accessible areas in the Gulf of Mexico known as leases 181 and 181 South are expected to contain more than 1.2 billion barrels of recoverable oil and 5.8 trillion cubic feet of natural gas. This is enough oil to fuel 87 million cars per year and enough natural gas to heat and cool 6 million homes for the next 15 years, or six times our current annual Liquefied Natural Gas imports.
In 1981, Congress enacted a moratorium on offshore drilling, and oil and natural gas production is currently prohibited in 85 percent of America's territorial waters. This has impeded our ability to inventory undeveloped areas that likely contain untapped resources. However, state legislatures beholden to anti-exploration special interests will soon witness an influx of revenue to Gulf Coast states for environmental protection.
When production begins in the newly opened areas, Texas, Louisiana, Mississippi and Alabama will receive income through federal revenue sharing. Private companies that sign production leases with the federal government will pay royalties on minerals extracted from the Gulf of Mexico. Each state will then receive an equitable share of these revenues, which must be used to protect important national ecosystems and prepare for unforeseen natural disasters. These funds will support projects such as wetlands restoration, hurricane protection, beach enhancement and infrastructure construction to preserve our coastlines.
I anticipate that millions of dollars each year will be directed to our state. Beginning in 2007, Texas will receive a guaranteed 10 percent of eligible production revenues from within leases 181 and 181 South, and beginning in 2017, Texas will receive between 21 percent and 28 percent of eligible revenues from new production in Gulf of Mexico planning areas outside leases 181 and 181 South.
Revenue sharing is a strong incentive for states to participate in resource development, because each state can earn revenues proportional to the development off its shore. For example, Virginia's Legislature has shown an interest in allowing additional access to areas off its coast.
In the Minerals Management Service's current draft for its Outer Continental Shelf oil and gas program for 2007- 2012, a small area off Virginia's coast is the only non-Gulf Coast area under consideration for exploration. But with a revenue-sharing proposal such as the one created in the Gulf of Mexico Energy Security Act, Virginia has an added incentive to expand this area.
Additional state legislatures, from Georgia to Maine on the Atlantic seaboard and California to Washington on the Pacific coast, will likely be more willing to consider offshore production if their state is eligible for revenues.
States that provide our nation with a secure energy supply should be compensated for doing their part. Access to undeveloped energy sources is important to all Americans, because we must become more energy independent.
To bring down the cost of gas for our cars and heat for our homes, we must promote alternative renewable sources of energy. This takes time. As we invest in new energy, we must not neglect our own resources.
New technology allows us to protect the environment by digging deeper without disrupting the surface. We now have a path to follow that will provide both tangible and obvious benefits to states and to the nation.
Hutchison, a Republican, is Texas' senior U.S. senator.