Week in News: April 24 – 30, 2006

1. Re-election Deal Breaker? Brown's detractors play the offshore drilling card Myrtle Beach (SC) Sun News; April 23, 2006; http://www.myrtlebeachonline.com/mld/sunnews/news/opinion/14409681.htm

2. BP Integrates Wind With Upstream Gas Unit Oil Daily; April 24, 2006; www.energyintel.com

3. Plains Takes Out Troubled Stone Energy in $1.46 Billion Deal Oil Daily; April 25, 2006; www.energyintel.com

4. A True Test on Energy New York Times; April 24, 2006; http://www.nytimes.com/2006/04/24/opinion/24mon2.html?n=Top%2fOpinion%2fEditorials%20and%20Op%2dEd%2fEditorials

5. Hill in Uproar Over Gas Prices; Options Limited CQ; April 25, 2006; http://www.cq.com/display.do?docid=2163874&sourcetype=6

6. Shell urged to abandon $20bn Siberian pipeline that could drive whale species to extinction London Independent; April 25, 2006; http://news.independent.co.uk/environment/article359939.ece

7. Sen. McCain slams Cape Wind amendment, vows fight E&ENews PM; April 26, 2006; http://www.eenews.net/eenewspm/2006/04/26/#2

8. Rep. Hastert targets early May for floor debate on energy E&ENews PM; April 26, 2006; http://www.eenews.net/eenewspm/2006/04/26/#1

9. API chief defends profits, sees smooth ethanol transition Greenwire; April 26, 2006; http://www.eenews.net/Greenwire/2006/04/26/#2

10. Inhofe may look to other vehicles to move ESA rewrite E&E Daily; April 26, 2006; http://www.eenews.net/EEDaily/2006/04/26/#1

11. Bingaman to challenge to Cape Wind plan E&E Daily; April 26, 2006; http://www.eenews.net/EEDaily/2006/04/26/#5

12. Kennedy faces fight on Cape Wind Boston Globe; April 27, 2006; http://www.boston.com/news/nation/washington/articles/2006/04/27/kennedy_faces_fight_on_cape_wind/

13. Second Thoughts in Congress on Oil Tax Breaks New York Times; April 27, 2006; http://www.nytimes.com/2006/04/27/business/27oil.html?pagewanted=2&_r=1

14. Democratic supplemental strategy comes into focus E&E Daily; April 27, 2006; http://www.eenews.net/EEDaily/2006/04/27/#1

15. How Much Oil Is Really Down There? Daniel Yergin; Wall Street Journal; April 27, 2006; http://online.wsj.com/article/SB114610122696037164-email.html

16. China Eyeing Cuba Offshore Oil NewsMax.com (FL); April 28, 2006; http://www.newsmax.com/scripts/printer_friendly.pl?s=pf&page=http://www.newsmax.com/archives/ic/2006/4/27/224539.shtml

17. Congress Gone Wild Wall Street Journal; April 28, 2006; http://online.wsj.com/article/SB114618930500438351.html?mod=opinion_main_review_and_outlooks

18. Chevron Prepared for New Hurricane Season Washington Post; April 26, 2006; http://www.washingtonpost.com/wp-dyn/content/article/2006/04/26/AR2006042601902.html

19. Few risks in offshore drilling Miami Herald Opinion Column; April 30, 2006; http://www.miami.com/mld/miamiherald/news/opinion/14455241.htm

20. Support hardens for Gulf drilling Sarasota Herald-Tribune; April 30, 2006; http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20060430/NEWS/604300388/0/FRONTPAGE

Re-election Deal Breaker? Brown's detractors play the offshore drilling card Myrtle Beach (SC) Sun News; April 23, 2006; http://www.myrtlebeachonline.com/mld/sunnews/news/opinion/14409681.htm

Did U.S. Rep. Henry Brown, R- Hanahan, sow the seeds for a tough re-election campaign last year when he co-sponsored a bill that could allow oil and natural gas drilling off the S.C. coast? That's what local supporters of his principal Democratic opponent, Charleston real estate investor Randy Maata, are hoping.

The Sun News and The State newspaper in Columbia reported Brown's co-sponsorship of the measure months ago. But with the help of a recent article in a Charleston newspaper, the gentleman's political detractors have "discovered" the issue and hope to use it to undermine the strong voter support he has enjoyed since he won the his U.S. House seat in 2000.

The measure, H.R. 4761, which has 71 co-sponsors, would amend the Outer Continental Shelf Lands Act to expand offshore domestic oil and gas production - though it does not mandate that such exploration take place off South Carolina. Brown's co-sponsorship is in line with his belief that expanding domestic oil and gas production could help reduce U.S. dependence on foreign oil and natural gas.

As we have noted before, the prospect that gas and oil rigs one day could set up off the S.C. coast is daunting. Though any drilling would take place far out to sea, the potential for oil spills that reach shore would come into being. A good case can be made that our federal representatives should do nothing to jeopardize the state's attractiveness to tourists or to harm fragile beaches and marshes.

An equally good case can be made, however, that a state whose economy depends heavily on drive-in tourist traffic would be hypocritical to declare itself too good for offshore oil exploration. Tight global oil supplies guarantee high gas prices - and reduced tourist visits.

Having declared for domestic exploration, Brown now is obligated to help voters understand how offshore drilling would benefit South Carolina. Maata, in contrast, must explain why voters are better off paying ever-higher energy prices when a possible solution lies close to home. The coming debate on this issue promises to be interesting.

BP Integrates Wind With Upstream Gas Unit Oil Daily; April 24, 2006; www.energyintel.com

BP will join Royal Dutch Shell and Exxon Mobil in integrating renewable energy technology with exploration and production (E&P) operations.

Last week, Shell announced the start-up of the Cutter natural gas field in the UK North Sea, which is powered by the sun and the wind. Shell can economically recover 100 million cubic feet per day of natural gas from small pockets at the field (OD Apr.20,p7).

At the American Wind Energy Association’s economic conference in Houston last week, BP told Oil Daily it has similar plans, but on a larger scale using only wind power.

The conference provided a platform for discussion of the benefits to oil companies of investing in wind energy, or integrating wind with the upstream oil and gas business.

BP plans to add 450 megawatts of wind power in the next five years, of which some will power large North American gas fields, Erik J.W. Bakker, director of wind development for BP Alternative Energy North America, told Oil Daily.

He extolled the efficiency of integrating wind power in the upstream and midstream sectors, particularly in gathering and processing systems to get natural gas to markets.

BP is evaluating its large North American portfolio for the best options to execute the strategy of integrating wind and natural gas. The projects would power large natural gas field operations, and sell excess power sold to electricity markets, many of which demand clean power to meet renewable mandates.

For BP, the effort will be concentrated in North America because of the skills and opportunities that the US and Canadian business environments offer, he said. BP holds the largest reserves of natural gas in the US.

Bakker would not identify potential properties under review, but hinted that those with the highest wind resources would yield the best fruit. BP has major E&P operations in the second and third windiest states, Texas and Kansas.

In Texas, BP operates in the Permian Basin, and in Kansas, it operates the Hugoton Field, the largest natural gas field in North America and the second-largest in the world.

BP has operations in other major wind-resource states, including Wyoming (the Wamsutter fields) and Oklahoma (in Anadarko and Arkoma Basins), and Colorado (the San Juan Basin).

Plains Takes Out Troubled Stone Energy in $1.46 Billion Deal Oil Daily; April 25, 2006; www.energyintel.com

Don’t blink, or you might miss the next merger or acquisition in the US upstream.

Plains Exploration & Production plans to pay $1.46 billion in stock for Stone Energy, creating a company with daily output of around 100,000 barrels of oil equivalent from operations in California, the Rockies, the Gulf of Mexico and Texas.

Monday’s announcement by Plains and Stone follows Petrohawk’s $1.6 billion acquisition of KCS Energy and Pogo Producing’s $750 million buyout of Latigo Petroleum (OD Apr.24,p2). Two big Gulf of Mexico asset sales were also announced last week.

Plains — which up to now has mainly focused on its California oil operations — will also spend about $600 million to get rid of hedges on some of its 2007 and 2008 production. The hedges would have capped oil price realizations at $35 per barrel.

Plains Chief Executive Jim Flores said the combined company will have growth platforms in the Gulf of Mexico and the Jonah and Pinedale natural gas fields in the Rockies, with further long-term growth potential in the Williston and Uinta basins.

“We have a lot more tools in the box to deliver good operating results and not be as concentrated as we once were in California,” he told analysts in a conference call.

Merrill Lynch analyst John Herrlin said he was not surprised to see Stone get bought out in view of its recent woes, including a big downward revision of its reserves, which drew the attention of the Securities and Exchange Commission last year.

“Given [Stone’s] recent problems, we do not anticipate any other suitors,” Herrlin said in a research note.

Plains expects the acquisition to close in the third quarter of this year. It is projecting 2007 production of 100,000 to 110,000 boe/d, an increase of about 7% over combined 2006 production, followed by a similar percentage increase in 2008. The combined company will have proved reserves of around 500 million boe, anchored by 385 million boe in California. Oil will account for around 80% of reserves and 70% to 75% of production.

Some of the growth that Plains is projecting will come from the restoration of production in the Gulf of Mexico that remains shut in as a result of damage caused by last year’s hurricanes.

Plains’ ambitions extend to the deepwater Gulf of Mexico where it holds a 12.5% stake in the Big Foot discovery announced by Chevron earlier this year (OD Jan.5,p1). The company will also participate this year in deepwater wells drilled on the Caesar and Grand Cayman prospects, both operated by Kerr-McGee, and the Friesian prospect, operated by Shell.

Plains expects to set a 2007 capital spending budget of $900 million to $1 billion, with roughly 50% allocated to the Gulf of Mexico, 20% to California and 30% divided between the Rockies and Texas. That compares with a budget for Plains alone of $430 million for 2006, with roughly 60% allocated to California.

Plains is offering 1.25 shares of its own stock for each Stone Energy share, worth around $1.46 billion at Friday’s closing prices. It will also assume some $483 million of Stone’s debt as a result of the acquisition.

A True Test on Energy New York Times; April 24, 2006; http://www.nytimes.com/2006/04/24/opinion/24mon2.html?n=Top%2fOpinion%2fEditorials%20and%20Op%2dEd%2fEditorials

Congress will soon face a test of its professed new interest in energy independence and legislative transparency. It comes in the form of a flawed amendment, hatched in secret, that would prevent the construction of a wind farm off the coast of Massachusetts.

The wind farm is opposed by some but not all Massachusetts politicians and by some extremely wealthy people with homes on Nantucket, Martha's Vineyard and Cape Cod for whom the windmills would present an aesthetic annoyance on the distant horizon. It is supported by nearly every major environmental group and by citizens who see it as a source of clean energy at a time of soaring prices for oil and natural gas, as well as an alternative to coal-, oil- and gas-fired power plants that contribute in varying degrees to global warming.

The amendment, never debated in either house, was inserted into the Coast Guard authorization bill at the insistence of two Alaskans, Representative Don Young and Senator Ted Stevens. The sources of their opposition remain a mystery, but it seems unlikely that it is due to any principled concern about wind farms on the other side of the continent. Their amendment would give veto power over the project to the commandant of the Coast Guard, who could say no for navigational reasons, and the governor of Massachusetts, who could say no for any reason.

The Coast Guard has not found fault with the project, but the present governor, Mitt Romney — hardly a profile of courage on energy issues in recent months — is a sworn opponent.

Apart from its negative implications for the country's energy future, the amendment would create a terrible precedent by giving a single governor absolute veto power over energy projects in federal waters. And the fact that a few members of Congress can emerge from nowhere at the last minute to kill a project on which millions of dollars and countless hours have already been spent is almost certain to discourage entrepreneurs and investors from pursuing similar projects in the future. The Senate's two most influential members on energy policy, Pete Domenici and Jeff Bingaman, will try to strip this amendment on the floor. Any senator who cares about this country's energy future — and who cares, too, for the idea of open debate — should join them.

Hill in Uproar Over Gas Prices; Options Limited CQ; April 25, 2006; http://www.cq.com/display.do?docid=2163874&sourcetype=6

Lawmakers returned to Capitol Hill on Monday in a frenzy over rising gasoline prices, calling for hearings, investigations and legislation that many experts call futile.

While members of Congress focused on allegations of price gouging, oil company mergers and corporate profits, industry analysts blamed the spike in prices at the pump primarily on geopolitics and growing worldwide demand for crude oil.

The national average for a gallon of regular gasoline reached $2.91 on Monday and crude oil futures topped $73 per barrel. Many industry analysts expect oil and gasoline prices to rise even farther — regardless of what Congress does.

“The increase in U.S. oil imports over the past, say, decade and a half, is greater than total oil consumption for the entire country of China,” said Amy Myers Jaffe, associate director of Rice University’s Energy Program. “So when we wax poetically about the fear of rising Chinese demand for oil, we need to look in the mirror.”

House Energy and Commerce Chairman Joe L. Barton, R-Texas, announced yet another series of hearings on energy prices, while Sen. Arlen Specter, R-Pa., made headlines over the weekend suggesting he would consider a windfall profits tax. Specter also is pushing legislation that would toughen antitrust review of oil industry mergers.

Meanwhile, Republican leaders, who just nine months ago were proudly touting the enactment of a comprehensive energy bill (PL 109-58) that took years to complete, were scrambling to demonstrate anew to voters that the majority party can manage what is likely to be an increasingly sensitive issue in an election year.

House Speaker J. Dennis Hastert, R-Ill., and Senate Majority Leader Bill Frist, R-Tenn., released a letter to President Bush calling for investigations into any allegations of price gouging, collusion or other antitrust violations in the petroleum markets.

“Given the severity of the current situation regarding gas prices, we believe that the attorney general and the Federal Trade Commission [FTC] should devote all necessary resources to expedited review of complaints of price gouging against wholesalers or retailers of gasoline and other distillates,” they wrote.

Democrats sought to capitalize on the energy price increases and keep Republicans and the administration on the defensive as the November elections approach. House Democratic Leader Nancy Pelosi of California accused Hastert and the Republicans of “empty rhetoric.”

“Democrats have a common-sense plan to help bring down skyrocketing gas prices by cracking down on price gouging, rolling back the billions of dollars in taxpayer subsidies, tax breaks and royalty relief given to big oil and gas companies, and increasing production of alternative fuels,” Pelosi said.

Speaking at a campaign lunch in Las Vegas, Bush said there is “no magic wand to wave.”

“We’ll make sure that the energy companies are pricing their product fairly,” he said. “If we catch them gouging . . . we’ll deal with them at the federal government. But it’s a sign for the American people to understand that we [have] got to do something about our dependence upon oil.” Industry officials say the prices reflect tight international oil markets and geopolitical problems combined with ongoing domestic refinery shortages from last year’s hurricanes.

The problems have been compounded by shortages of the additive ethanol, which is blended with gasoline to produce cleaner-burning fuel. In a letter to Transportation Secretary Norman Y. Mineta, Sen. Jeff Bingaman, D-N.M., suggested relaxing federal regulations limiting the number of hours truck drivers can be on the road in an effort to speed up tanker deliveries of ethanol fuel blends.

Ethanol must be shipped by truck, which has created logistical problems and left some regions short on supply.

Although some analysts say relaxing clean-fuel mandates for refiners could make a difference in price, most agree that Congress can do little to affect the cost of oil, which is the largest factor in the price of gasoline.

In addition to rising world demand, international markets have been buffeted by instability in major oil- producing regions, including Iran, Iraq, Nigeria and Venezuela.

“This is not simply classic supply-demand economics that is driving up petroleum markets,” said Ken Stern, an analyst with FTI Consulting in New York. “These are very significant geopolitical considerations that require heads of state to get together and get them resolved.”

The Bush administration so far has said new legislation is not necessary, maintaining that existing antitrust laws guard against large-scale price collusion and that market forces best prevent individual operators from setting extreme prices.

FTC officials say they have repeatedly examined the causes of gasoline price spikes and consistently found that the fluctuations stemmed from normal market forces — not illegal or anti-competitive activity. The agency is finishing a congressionally requested report on post-Katrina energy prices that should be ready next month, a spokesman said.

The Energy Department, meanwhile, maintains a Web site where consumers can report suspicious pricing. The department bundles the information and forwards it to appropriate state and federal officials. The agency said it received some 35,000 complaints last year after hurricanes Katrina and Rita damaged Gulf of Mexico production and refining operations.

Oil industry officials said lawmakers would be wise to let the market operate freely rather than interfere with a misguided proposal. If lawmakers are not careful in structuring price-gouging legislation, said Jim Ford, vice president for public affairs at the American Petroleum Institute, “you run the risk in essence of imposing price controls, and we’ve seen in the past that price controls have a hugely adverse impact.”

Shell urged to abandon $20bn Siberian pipeline that could drive whale species to extinction London Independent; April 25, 2006; http://news.independent.co.uk/environment/article359939.ece

Spring is being keenly awaited on Sakhalin in Russia's far east after another long winter. But when it finally comes in June it offers little prospect of a thaw in relations between environmentalists and Shell.

With the melting of the ice after eight months, the Anglo-Dutch oil giant is set to enter a crucial offshore construction phase in the development of its $20bn [£11.2bn] oil and gas programme. Wildlife campaigners say the price of the pipeline could be the extinction of a species of whale.

Campaigners, including WWF, are demanding that Shell abandon its plans to begin the work, claiming the company has failed to persuade an independent panel of scientists that its activities will not harm a critically-endangered population of western grey whales. The cetaceans are due to arrive in their breeding grounds when work begins. An international panel of scientists, which met recently in Vancouver, said that the loss of a single breeding mother could result in the extinction of the species. WWF and others have also highlighted the existence of emaciated whales in the area which, it is claimed, suggests disruption to their feeding patterns.

Opponents of the underwater pipeline say Shell's own evidence shows that noise from last year's work exceeded 130decibels - the point at which whales become disorientated and change their direction of travel. There is also concern over reports of mass bird kills with more than 5,000 oil-covered guillemots, crested auklets and thick-billed murres discovered on the shores of the Shiretoko Peninsula in Japan last month. While there is no evidence to link the deaths to the project, they have raised further fears over the devastating effect a future oil spill could have on the environment around Sakhalin.

Campaigners hope such concerns have been considered by the European Bank of Reconstruction and Development (EBRD) whose latest consultation on a planned $300m loan for the project ended in London on Friday. The EBRD has been under pressure from green groups, including Friends of the Earth, Greenpeace, CEE Bankwatch and Pacific Environment, to reject the application by Sakhalin Energy Investment Company of which Shell owns 55 per cent. The application will now be considered at board level.

James Leaton of WWF said Shell had failed to make its case. "Shell must stop this project now and assess the condition of the whale population this summer ... Shell is ignoring the science, and the EBRD cannot guarantee the future of the whales, so they should not finance the project."

Shell, however, said it had been given the green light by the panel, which was convened to mollify international concern over the plight of the whales. "It is clear that the scientists are ready for us to go ahead with the offshore work programme for 2006," a Shell spokesman said. The company said it hoped to finish the pipelines within a year to minimise disruption, scheduling the loudest activities away from the whales' feeding areas, and making changes to its vessels to reduce the risk of collision with whales. Shell also claimed to have changed the route of the pipeline to avoid the feeding area of the whales.

Shell is not the only oil giant on the receiving end of criticism this week. BP's chairman, Peter Sutherland, announcing record profits of £11bn, was forced to face down claims the company had an "endemic problem" with its safety record. It followed a fatal fire at its Texas city refinery, a pipeline leak in Alaska and the capsizing of its $1bn platform in the Gulf of Mexico.

An industry analyst, Iain Armstrong of Brewin Dolphin Securities, believes the record profits resulting from soaring oil prices is masking turbulent times. Last year, companies were forced to contend with accidents, natural disasters, mounting environmental scrutiny and an increased tax burden. Ironically, one of the most promising areas was in renewable energy sources, with companies investing huge amounts in the new technologies, he said.

Sen. McCain slams Cape Wind amendment, vows fight E&ENews PM; April 26, 2006; http://www.eenews.net/eenewspm/2006/04/26/#2

Sen. John McCain (R-Ariz.), a leading advocate of legislative transparency, today criticized language attached to U.S. Coast Guard programs legislation aimed at killing a proposed offshore wind farm in Massachusetts.

The conference report for the Coast Guard authorization bill includes language that would give the Massachusetts governor power to block the Cape Wind project, a 130 turbine wind farm slated for Nantucket Sound that would be the nation's first such facility. The language was added during a House- Senate conference committee earlier this month.

"I think it is clearly a violation of the way we do business around here, and I would oppose it as strongly as I can," McCain told reporters in the Capitol today. He said he would join efforts to strike the language. "I think we may challenge, get a point of order to start with," he said. McCain's pledge follows similar comments this week by Sen. Jeff Bingaman (D-N.M.), the ranking member of the Energy and Natural Resources Committee, about challenging the language on the Senate floor (E&E Daily, April 26).

Sen. Ted Stevens (R-Alaska) and Rep. Don Young (R-Alaska) negotiated on the language. Stevens' aides have said he was approached on the issue by Sen. Ted Kennedy (D-Mass.), who opposes the project, but the precise origins of the provision remain murky.

Rep. Hastert targets early May for floor debate on energy E&ENews PM; April 26, 2006; http://www.eenews.net/eenewspm/2006/04/26/#1

A collection of energy initiatives could move to the House floor as early as next week, according to House Speaker Dennis Hastert (R-Ill.), who today announced House Republicans are crafting a package that would open the Arctic National Wildlife Refuge to oil and gas exploration, tackle price gouging, and limit boutique fuels and summertime filling of the Strategic Petroleum Reserve.

The announcement, intended to show quick movement on efforts to curb high gasoline prices, comes amid escalating rhetoric in speeches, news conferences and bill introductions as the cost of oil remains high and average nationwide gas prices hover around $3 a gallon.

As part of that effort, the House tomorrow is expected to vote on a Democratic motion to instruct conferees on the tax reconciliation package to push for the repeal of $5.4 billion in oil and gas industry tax credits. A Senate Democratic effort to eliminate the Foreign Tax Credit for the oil and gas industry and "royalty relief" provisions in the recent energy law during the supplemental appropriations debate in the Senate was declared nongermane last night, but the language is expected to resurface over the coming weeks, lobbyists say.

As for the House GOP plan, Hastert directed Rep. Adam Putnam (R-Fla.), chairman of the Republican Policy Committee, to spearhead the legislative effort that likely will involve the Resources, Energy and Commerce, and Science committees.

Legislative text on the package was not yet available at press time, but it seems certain to focus on issues the House can deal with in a quick fashion, including: resuscitation of plans to open ANWR, which usually passes easily through the House but gets locked up in the Senate; price-gouging legislation that provides for federal civil penalties and strengthens the role of the Federal Trade Commission; limits to the numbers of boutique fuels; limits on the amount of summertime oil deposits for the Strategic Petroleum Reserve; and some sort of hydrogen power legislation.

The House has taken up most, if not all, of these issues over the course of the multi-year energy bill debate that culminated in last year's Energy Policy Act of 2005. Besides engaging in the long-running ANWR battle, House lawmakers debated and rejected price gouging legislation after last year's back-to-back hurricanes destroyed much of the Gulf Coast's oil and gas production but did add language to the new energy law on boutique fuels. Section 1541 of the Energy Policy Act prohibits states from creating any new boutique fuel requirements without prior U.S. EPA approval, and EPA only can grant approval for new fuel requirements if it does not create more fuels than the number that existed as of Sept. 1, 2004.

Insiders say House Democrats are backing a bill introduced yesterday by Rep. Bart Stupak (D-Mich.) that requires over-the-counter speculators to report to the Commodity Futures Trading Commission. The idea is to raise confidence in the market and help eliminate the unreasonable inflation of crude oil prices. The bill also would hike penalties for speculators found to be unfairly manipulating the oil futures market.

Stupak also is the sponsor of a bill that would require FTC to define gas price gouging and would empower the commission and the Justice Department to go after price gouging suspects.

On the Senate side, Energy and Natural Resources Committee Chairman Pete Domenici (R-N.M.) said on the Senate floor today he is planning to address energy issues as well, noting he wants a Senate vote on opening up a Lease Sale 181, in the offshore Gulf of Mexico, to gas exploration. He called for a reconsideration of opening ANWR to oil and gas exploration as well as elimination of the same oil and gas industry tax incentives that President Bush called for in his speech yesterday.

API chief defends profits, sees smooth ethanol transition Greenwire; April 26, 2006; http://www.eenews.net/Greenwire/2006/04/26/#2

A key oil industry official said today he does not expect gasoline shortages during the peak driving season this summer and defended surging industry profits amid calls for windfall profits taxes and criticisms of high prices and earnings.

Red Cavaney, president of the American Petroleum Institute, also said that in general the transition toward greater ethanol use -- which is occuring as refiners phase out the additive MTBE -- is going well but cautioned there could be "localized hiccups."

"We do not anticipate that consumers are going to have any kind of widespread problem," Cavaney said. "There may be a problem in an individual station or area, but we are working very hard to try and mitigate those as well."

Cavaney also said there are few short-term steps that can be taken to mitigate high gasoline prices. He said energy prices are the result of market factors including growing oil demand worldwide, thin spare production capacity, and policy decisions not to develop certain domestic areas.

Asked when high pump prices -- which are around $3 a gallon -- may drop, he said, "That is a matter of two factors: supply and demand." He said industry is making major investments but cautioned there are not short-term answers.

"There are very few short-term solutions in the energy business. They are all long term," he said. The comments come as the Bush administration, under pressure on price issues, has announced steps including a halt to shipments into the Strategic Petroleum Reserve and investigations to see if price gouging and market manipulation is occuring, which Caveny strongly denied.

API chief economist John Felmy said already there is a "consumer behavior response" visible. He said API data shows a March demand decline of 0.6 percent. He said customers should use gasoline "wisely" by tuning cars, inflating tires and other steps.

Cavaney also said a windfall profits tax -- which some lawmakers are calling for amid record profits -- would be a bad idea that could harm domestic production and cost jobs. "There is nothing good that comes of it," he said.

Cavaney several times defended industry profits that continue to be impressive and attract criticism from lawmakers in both parties. He said that over the past five years, oil and gas industry earnings have averaged 5.9 cents per dollar of sales, compared to 5.6 cents for U.S. industry combined.

Sen. Menendez' gas tax plan falters

An effort by Senate Democrats to attach gas price provisions to emergency supplemental spending legislation faltered yesterday when an amendment to create a federal gas tax holiday was ruled nongermane.

Sen. Robert Menendez (D-N.J.) offered the plan to suspend federal gasoline taxes for two months and make up the revenue by nixing tax breaks in the recent energy law as well as "royalty relief" provisions that benefit offshore producers. Inhofe may look to other vehicles to move ESA rewrite E&E Daily; April 26, 2006; http://www.eenews.net/EEDaily/2006/04/26/#1

Senate Environment and Public Works Committee Chairman James Inhofe (R-Okla.) said yesterday he may turn to other vehicles to move Endangered Species Act legislation on the Senate floor in light of an apparent deadlock in negotiations and little hope of moving a bill through committee.

"We're watching everything as it comes along to see the best way to do it," Inhofe told reporters yesterday.

Inhofe had been deferring to Fisheries, Wildlife and Water Subcommittee Chairman Lincoln Chafee (R-R.I.) and ranking member Hillary Rodham Clinton (D-N.Y.) to lead the process, but earlier this month he said their negotiations were making little headway and that he would look at other alternatives for moving legislation forward.

Inhofe admitted yesterday that moving his own bill through committee is not a likely option, saying he probably lacks the votes to move a bill. He blamed the deadlock on Chafee.

"My strategy doesn't seem all that important right now," Inhofe said. "I am committed to get a bill on the floor, and I am not too particular, but every time I talk to Senator Chafee, it doesn't matter what it is, he will not support it."

Chafee, a key swing vote on the EPW Committee, has said he would not support an Inhofe bill and would only get behind legislation if Democrats were also on board. If Democrats and Sen. Jim Jeffords (I-Vt.) joined Chafee in voting against a bill, a 9-9 tie would result, mirroring the same result that sank "Clear Skies" legislation earlier in the session.

"I can't do it with the votes," Inhofe said of the committee process.

Still, he said ESA legislation is "important enough" to look at the full range of options for bringing changes to the act to the floor, possibly as an amendment on other legislation.

Chafee and Clinton had formed a working group with Inhofe and Jeffords in an effort to find compromise ESA legislation. Chafee said earlier this month that negotiations were "stuck" on about five issues, including funding, critical habitat and the jeopardy standard, and that legislation this year was improbable.

Lincoln unsure on future for ESA tax incentives

In a related matter, Sen. Blanche Lincoln (D-Ark.) said she is not sure if the proposal that she and Sen. Mike Crapo (R-Idaho) put forward last December will see any time in the Finance Committee. "I hope so, but we have a lot of issues on our plate," Lincoln said of advancing the ESA bill.

Lincoln and Crapo introduced S. 2110 last December. The measure would give landowners tax breaks as incentives for helping to recover endangered and threatened species and includes "conservation banking," a market-based initiative that would allow landowners to benefit from the sale of conservation credits.

Bingaman to challenge to Cape Wind plan E&E Daily; April 26, 2006; http://www.eenews.net/EEDaily/2006/04/26/#5

The top Democrat on the Senate Energy and Natural Resources Committee intends to launch a procedural challenge against U.S. Coast Guard authorizing legislation over language that could effectively kill a proposed Massachusetts offshore wind farm.

The conference report for the Coast Guard authorization bill includes language that would give the Massachusetts governor power to block the Cape Wind project, a 130 turbine wind farm slated for Nantucket Sound that would be the nation's first such facility. But Sen. Jeff Bingaman (D-N.M.) said yesterday he would challenge its inclusion on the floor when the Senate takes up the measure. Senate rules allow a point of order to be raised against conference reports if conferees add language that was in neither chamber's underlying bill or is not germane.

"I think it is outside the scope of the conference, and we would like to see if the Senate does not agree," he said in a short interview yesterday. "Hopefully it would set in motion a reconsideration of the conference report and a reconsideration of that provision."

The conference report was completed this month with the Cape Wind language added by Sen. Ted Stevens (R-Alaska), who was approached on the issue by Sen. Ted Kennedy (D-Mass.), who opposes the project. Both Bingaman and the energy committee's chair, Sen. Pete Domenici (R-N.M.), oppose the Cape Wind language. But it is not clear whether the measure's opponents have enough support to prevail.

Kennedy faces fight on Cape Wind Boston Globe; April 27, 2006; http://www.boston.com/news/nation/washington/articles/2006/04/27/kennedy_faces_fight_on_cape_wind/

Key lawmakers oppose his bid to block project

WASHINGTON -- As record oil prices turn attention to the need for renewable fuels, momentum is building in Congress to buck Senator Edward M. Kennedy's bid to block the proposed Cape Cod wind energy project, potentially reviving efforts to construct the sprawling windmill farm in Nantucket Sound.

The chairman and the top Democrat on the Senate Energy and Natural Resources committee said yesterday that when the bill Kennedy backs that would effectively halt the wind farm comes up for a vote in the Senate, they will object on procedural grounds. They say they'll argue that a renewable energy project shouldn't be lumped in with a bill governing the Coast Guard.

Meanwhile, a group of rank-and-file House members, worried about the political ramifications of rejecting alternative energy sources while motorists pay $3 a gallon at the gas station, have persuaded House leaders to sidetrack the entire bill for at least several weeks, even though it was slated for action this week. The delay could give supporters of the wind farm time to make their case to members of Congress.

''Are we going to be for developing alternative energy or not?" said Representative Charles Bass, a New Hampshire Republican who helped persuade House leaders to table the bill until at least mid-May. ''The longer you delay it, the longer there is for people to examine the issue, and to determine what's going on here."

The efforts to move the wind farm forward occur amid growing attention to Kennedy's role in the secret, behind-the-scenes maneuvering to stop it. Republican Ted Stevens of Alaska, the senator who inserted the wind-farm provision into the Coast Guard bill, has acknowledged discussing the matter privately with the Massachusetts Democrat.

Environmental groups have launched an aggressive advertising and lobbying campaign to persuade Democrats to abandon Kennedy and back a promising source of renewable energy. If the wind farm becomes a reality, advocates say, it could provide three-fourths of the Cape and Islands' energy needs and could set an example for the nation.

The maneuver to stop the wind farm ''is clearly a backroom deal, and they're going to get called publicly on it," said John Passacantando, executive director of Greenpeace USA. ''The Democrats are going to kill the first big offshore wind farm in the United States because of their relationship with Ted Kennedy."

The 130-turbine, 24-square-mile cluster of windmills would be about 8 miles from Kennedy's home in Hyannis Port, and he has long opposed it. The Coast Guard bill would give Governor Mitt Romney, another wind farm opponent, the power to veto it, even if the project clears all other hurdles. Kennedy rejected suggestions that he doesn't like the wind farm because it would be near his Cape home, and said the project probably wouldn't be visible from the Kennedy compound. He said he's against the project because it would create a range of environmental and navigational problems and would hurt tourism, one of the area's key industries.

The Cape Wind developers, he said, want to erect a sprawling, for-profit field of giant windmills on public, state-owned territory. Kennedy noted that the project was the beneficiary of more lenient regulations included in last year's energy bill, which could have put it on a faster track to construction; therefore, a special deal was warranted to stop it.

Ultimately, Kennedy said, Massachusetts and its governor should get to decide yes or no on the site for the farm, Kennedy said.

''We had an opportunity to right a wrong," he said of the provision in the Coast Guard bill. ''The people who ought to be irate ought to be the citizens of Massachusetts. I don't shrink from my advocacy for them. I welcome it. I'm going to continue to make sure that . . . a wealthy developer is not going to ride roughshod over the state's interests."

Kennedy said the effort to block the wind farm started in the House, where Transportation Committee Chairman Don Young, another Alaska Republican, originally inserted it in the House version of the Coast Guard bill. Young and Stevens maintain that states should have a say in energy projects off their coastlines.

''I just believe it's a state's right," Stevens said yesterday. ''If that were in Puget Sound, don't you think people in Washington would want to say something about it? If it's off our coast, we'd want to know."

Stevens said he ''conferred" with Kennedy about adding a provision to the bill that would allow the state to veto the Cape Cod project. He said Kennedy agreed with that idea, an account that Kennedy confirmed.

But the project's supporters don't like the manner in which the provision was included in the bill, an argument that appears to be catching on with some lawmakers. The final language was hashed out in secret by a small handful of lawmakers -- a group that included Young and Stevens.

''They've lost in the court of public opinion, so they're taking this to the back room because it's the only way they can get it done," said Sue Reid, a staff attorney for the Boston-based Conservation Law Foundation, which backs the wind farm. ''There's growing outrage against this provision," said Reid, who was in Washington yesterday to lobby Congress.

Senator Jeff Bingaman of New Mexico, the ranking Democrat on the Senate energy committee, said it's important to encourage development of renewable energy sources like wind power.

Bingaman and Chairman Pete V. Domenici, Republican of New Mexico, will try to round up enough senators to strip the provision from the Coast Guard bill. That would send the bill back to the conference committee -- with the Senate on record against interference with the Cape Wind project.

The Kennedy-backed provision ''would short-circuit the process and kill the project, which I think would be a mistake," Bingaman said.

''If there are problems with the project, they ought to come out and be discussed. But they shouldn't be dealt with this way."

Bass said the Cape Wind project has been treated differently in Congress because powerful lawmakers and special interest lobbyists vacation on Cape Cod and treasure the ocean views.

''It's odd that the people who are against it are the people who have [scenic] views," Bass said. ''I'm sorry about that, but the project ought to rise or fall on its merits." Kennedy dismissed such talk as ''their response to any kind of raising of questions" about the project's problems. ''It's just an easy response to an argument that has merit."

Second Thoughts in Congress on Oil Tax Breaks New York Times; April 27, 2006; http://www.nytimes.com/2006/04/27/business/27oil.html?pagewanted=2&_r=1

WASHINGTON, April 26 — As anxiety spread in Congress on Wednesday over soaring oil prices, lawmakers in both parties said they were ready to take a tough look at oil and gas incentives they passed as recently as eight months ago.

Citing record industry profits and huge executive pay packages, the top Republican and top Democrat on the Senate Finance Committee asked the Internal Revenue Service to turn over tax returns for the nation's 15 biggest oil and gas companies.

Leading Republicans echoed President Bush's call Tuesday to trim about $2 billion in tax breaks Congress passed as part of the energy bill last August. Several prominent Democrats, not to be outdone, pushed for repealing oil and gas tax breaks worth more than $10 billion over the next five years.

"Nobody has any sympathy for oil companies on Capitol Hill right now," said Representative Jack Kingston, Republican of Georgia and vice chairman of the House Republican Conference. "You talk to someone driving to work in an F-150 pickup and paying $75 to fill up his tank, and everybody's on his side."

Both parties jockeyed for political advantage even as they were grasping for ideas. Most experts contend that the government has few options that would quickly reduce gasoline prices, and competing party agendas could block Congressional agreement on any meaningful legislation.

Lawmakers have introduced more than 30 energy bills in the last several months. But they reflect often - conflicting goals of reducing prices, increasing production and soothing consumer anger about oil industry profits.

Democrats called for a 60-day halt on collecting federal gasoline taxes, which are 18.4 cents a gallon, but they were openly split about the more radical step of imposing a windfall profits tax on major oil companies. For their part, many Republicans are torn between wanting to show their sympathy for consumers and maintaining their longstanding support for the oil industry.

"Nobody's happy with gasoline prices being where they are," said Representative Joe L. Barton, Republican of Texas and chairman of the House Energy and Commerce Committee, who last year championed scores of new tax breaks for the industry.

Congressional Republican leaders are negotiating with White House officials over a bill to expand on Mr. Bush's proposals for alternative fuels and conservation, but disarray among lawmakers was evident across Capitol Hill.

The energy industry is also politically divided. Most big integrated oil companies, like Exxon Mobil and Chevron, have shown no interest in defending the $2.7 billion in tax breaks in last year's energy bill.

But the hundreds of smaller independent producers want to preserve as many incentives as possible. In singling out tax and spending incentives to be eliminated, Mr. Bush did not criticize a new expansion of tax write-offs for smaller oil refineries.

"The big companies don't want them, don't need them and are not asking for them," said J. Robinson West, chairman of PFC Energy, an oil industry consulting firm. But the smaller independents, he said, "are not going to give up easily."

The Congressional Joint Committee on Taxation estimated Tuesday that oil and gas companies would receive about $10 billion in tax breaks over the next five years that are specifically aimed at their industry. Most of those tax breaks have been around for many years. They allow energy companies to take substantial write-offs on their investments in new equipment and hefty "depletion allowances" as companies use up the oil and gas in a particular field.

Neither Mr. Bush nor Republican leaders in Congress have suggested an attack on the industry's main tax breaks. Nor are they proposing to trim back tax incentives written primarily for industry in general that also benefit major oil companies.

One obscure tax cut, for example, included in a 2004 law to promote domestic manufacturing, is expected to save energy companies at least $3.6 billion over the next decade. ConocoPhillips, which earned $13.5 billion in 2005, saved $106 million last year on that provision, which reduces the corporate tax rate on profits on goods produced in the United States.

President Bush and Congressional leaders are focusing on about $2 billion in tax breaks in last year's energy bill. Among other things, those tax breaks let companies write off in just two years the geology studies associated with exploration. For decades, the courts and the I.R.S. have said that these are capital investments that can be written off only slowly, as oil is produced from the fields.

Mr. Bush also called for repealing several hundred million dollars in subsidies, also in the energy bill, for an industry-run deepwater drilling research center in Sugar Land, Tex. That project's biggest champion was Representative Tom DeLay, the former House majority leader whose district includes Sugar Land.

Many Democrats had opposed the new tax breaks all along, and Senate Democrats pushed for a provision that would trim them in a broader tax bill that the Senate passed last fall. But that provision was not approved by the House.

On Wednesday, leading Republicans made it clear they were now willing and even eager to eliminate some of those tax breaks.

"I am happy to repeal tax breaks for the development of oil in foreign countries," said Senator Pete V. Domenici, Republican of New Mexico and chairman of the Senate Energy and Natural Resources Committee. "I cannot support the concept of tax breaks for oil companies while some American families are searching their budgets for the extra cash they need to fill their gas tanks."

But Republican lawmakers want to combine their seemingly tough new stance with measures to increase production. High on the list is a new attempt to open the Arctic National Wildlife Refuge to exploration.

Democrats are focusing more on taking things away from the industry. Senator John Kerry of Massachusetts proposed legislation this week to repeal all tax breaks for oil drilling and production — about $10 billion over the next five years.

Senator Ron Wyden, Democrat of Oregon, proposed a measure to force energy companies to pay royalties to the government on all oil and gas they produce on federal leases in the Gulf of Mexico, if the price of crude oil is above $55 a barrel. Some energy companies are now allowed "royalty relief" expected to total about $7 billion over the next five years.

The mounting suspicion of oil companies was apparent in a letter to the I.R.S. from Senator Charles E. Grassley, the Iowa Republican who is chairman of the Finance Committee, and Senator Max Baucus of Montana, the committee's senior Democrat. They demanded that the I.R.S. let them review the past five years of tax returns filed by the nation's 15 biggest oil companies.

The senators pointedly noted an "extremely lucrative retirement plan by one oil and gas industry executive" — an allusion to Lee R. Raymond, former chairman of Exxon Mobil, who received $398 million in compensation on retiring last year.

"We're seeing record profits and significant executive compensation in the oil and gas industry," Mr. Grassley said. "I want to make sure the oil companies aren't taking a speed pass by the tax man." Red Caveney, president of the American Petroleum Institute, which represents the large oil companies, said his group would not fight to retain the newest tax breaks.

"We understand the frustration that consumers have expressed about energy prices," Mr. Caveney told reporters on Wednesday.

Democratic supplemental strategy comes into focus E&E Daily; April 27, 2006; http://www.eenews.net/EEDaily/2006/04/27/#1

Senate Democrats are planning further efforts to attach energy provisions to supplemental spending legislation in a bid to address prices and turn debate on the bill into a referendum on energy policy under the Republican-controlled Congress and high industry profits.

Sen. Chuck Schumer (D-N.Y.) plans to offer a price-gouging amendment today that is backed by Democratic leadership. It would give the Federal Trade Commission and other agencies "hundreds of millions of dollars to make sure oil companies are playing by the rules and aren't exploiting consumers," according to a Democratic leadership press release.

The text was not available at press time. Red Cavaney, the president of the American Petroleum Institute, strongly denied the industry engages in price gouging during a briefing with reporters yesterday.

Schumer's plan is one of several swirling around the supplemental as gasoline prices have reached roughly $3 per gallon. Sen. Joe Lieberman (D-Conn.) has filed an amendment that would would institute a one-time 50 percent tax on windfall profits from oil produced by integrated oil companies in the 2006 tax year, according to his office.

Lieberman said in a statement yesterday that the amendment would "redirect some of that excessive profit from the pockets of rich oil company executives to the pockets of strapped Connecticut consumers trying to make ends meet in the face of skyrocketing fuel prices."

The issue of oil company profits is likely to remain a much-discussed topic as Exxon Mobil Corp. today plans to announce its first quarter profits. The company reported a record $36.1 billion in profits last year, and the earnings combined with former Chief Executive Officer Lee Raymond's $400 million retirement package has added to criticisms of the sector.

Democrats are planning other price and energy-related amendments as well. The effort comes as the Bush administration has announced several plans to address prices, including waivers on reformulated gasoline requirements if they are contributing to shortages; investigations to see if price gouging is occuring; and a halt to shipments into the Strategic Petroleum Reserve.

But Democrats have called the plans too little, too late and insufficient. Schumer, in a brief interview outside the Capitol yesterday evening, said the flurry of amendments, taken together, is aimed at what he called the GOP refusal to challenge large oil companies.

"The bottom line is we still have resistance from the administration and the majority in the House and Senate that believe what is good for the oil companies is good for America. When you have five big oil companies making record profits with high prices, they are not going to change," he said. "We are trying to pass laws, and if we can to at least raise consciousness that there are things you can get done."

But one GOP senator yesterday said the Democratic effort is aimed at upcoming elections rather than addressing high energy costs, and added that solutions proposed by Democrats, including windfall profits taxes, would not affect prices. "It is political season, and everybody wants to demonstrate or try to demonstrate to their constituents back home that they are trying to do something," said Sen. John Sununu (R-N.H.). He does not believe legislators can quickly affect prices. "There is not a lot that the federal government can do, short of price controls, to affect gasoline prices at the pump when oil is $75 a barrel," said Sununu, adding Democrats have opposed increasing domestic production.

Other planned amendments include one by Sens. Bill Nelson (D-Fla.) and Bob Menendez (D-N.J.) that would boost funding for clean energy programs.

The plan would seek to decrease oil reliance through steps such as funding infrastructure for E85 ethanol, military development of clean non-petroleum fuels, and expanding military and other federal procurement of flex-fueled vehicles and hybrids, according to an aide familiar with it.

Aides yesterday said other efforts could include trying to attach Sens. Byron Dorgan (D-N.D.) and Chris Dodd's (D-Conn.) windfall profits tax legislation, which was rejected by the Senate last year. The measure imposes a 50 percent tax on oil company revenue from sales of oil at more than $40 per barrel.

Under the measure defeated last year, the tax would apply to major integrated oil companies, and then only if their profits off those sales were not invested in expansion of refinery capacity, renewable energy projects or in efforts to increase domestic oil and gas supplies. Proceeds from the tax would have been given back to taxpayers in the form of a rebate.

Sen. Ron Wyden (D-Ore.) has an amendment to cancel royalty relief for offshore producers. "The royalty relief program is the granddaddy of all subsidies," Wyden said on the floor last night.

Sen. John Kerry (D-Mass.) announced a bill this week to cancel a host of energy industry tax breaks contained in the recent Energy Policy Act of 2005 and elsewhere, and also nixes "royalty relief" provisions for offshore producers in the recent energy law. His office yesterday said they have not decided whether to offer the plan as an amendment to the supplemental spending bill.

While the Democrats are trying to focus attention on the issues, it is unclear how successful they will be with the plans themselves. On Tuesday, an amendment by Menendez to suspend federal gasoline taxes -- and pay for it by cancelling tax breaks in the recent energy bill -- did not survive a point of order. The point of order said it violated Senate rules about legislating on appropriations bills.

Conservatives mount effort to slash supplemental

One day after President Bush signaled that he would veto the Senate's version of the supplemental bill, Republican leaders and fiscal conservatives attempted to put pressure on the chamber to scale back the size of the bill.

Thirty-six senators -- including Majority Leader Bill Frist (R-Tenn.) -- signed a letter yesterday promising to sustain a potential presidential veto of the bill. If the fight over the supplemental ever reaches that point, those votes would be more than enough to insure that Congress could not override the presidential veto.

"The Republican-led Senate is serious about constraining federal spending and ensuring the government uses taxpayer dollars wisely, effectively and appropriately," Frist said. "The Senate's willingness to support a veto reflects that we're not kidding about fiscal restraint and responsibility."

But at least in the short run, there appeared to be little willingness on the part of the majority of senators to scale back the size of the bill. The chamber voted overwhelmingly, 72-26, to table an amendment by Sen. Craig Thomas (R-Wyo.) to return the supplemental bill to the funding levels requested by the White House. Moreover, the Senate defeated by a 68-28 vote a motion by Sen. John Ensign (R-Nev.) to send the full package back to the Appropriations Committee so that it would rewrite the bill to meet the administration's mark.

The Senate also voted to table by a 49-48 vote an amendment by Sen. Tom Coburn (R-Okla.) to remove $700 million that would be used to relocate the CSX Gulf Coast rail line farther from the coast, which opponents charge was crafted to create space for waterfront development. That project has become the top target for fiscal conservatives who have said that the bill is loaded with wasteful spending, with some dubbing the items as the new "Bridge to Nowhere" project.

The White House has requested a total of $92.2 billion for the Iraq war and hurricane recovery but the Senate has bumped up the level of the bill to $106.5 billion. The administration yesterday threatened to veto any bill that exceeded $94.5 billion -- its $92.2 billion request plus an $2.3 billion in funds that the administration has requested for avian flu preparedness.

Smith floats language on rural schools

Fearing that Congress might fail to reauthorize a massive grant program for rural schools popular in the West, Sen. Gordon Smith (R-Ore.) yesterday proposed adding $523 million in the supplemental appropriations bill for the program.

Smith is seeking money that would be directed to states and counties under the Secure Rural Schools and Community Self Determination Act, which passed six years ago to offset the decline in local revenue from timber sales on federal lands. The program, which has distributed over $2 billion, mostly to Western states and counties, is set to expire at the end of September.

Smith is offering his amendment "just in case" Congress does not reauthorize the rural schools law before the Sept. 30 deadline and does not presuppose any outcome, Smith spokesman Chris Matthews said. "It's not operating under that assumption," Matthews said, "it's operating on that possibility."

The Bush administration is proposing selling up to 300,000 acres of national forests to fund an $800 million reauthorization for five years, but lawmakers in both parties have panned that plan and no member has stepped forward to sponsor the proposal.

Thune floats gas tax plan

Not to be outdone, Sen. John Thune (R-S.D.) yesterday called for lifting a portion of federal gas taxes and paying for it by suspending industry tax breaks, to help consumers his office said are paying "astronomical" gas prices.

A statement yesterday announcing the plan said it would suspend tax breaks now in place for activities such as research, development, exploration and drilling costs. "Due to record oil profits, it is apparent many of these incentives are unnecessary. Senator Thune's plan will suspend the tax breaks to oil companies and help bring the savings back to the consumers who are paying astronomical gas prices," the statement said.

The statement from Thune's office said "unlike similar Democrat proposals, Senator Thune's measure will not add to the federal deficit," but did it not elaborate further. An aide said last night that Thune may offer the measure as a stand-alone bill as soon as today.

How Much Oil Is Really Down There? Daniel Yergin; Wall Street Journal; April 27, 2006; http://online.wsj.com/article/SB114610122696037164-email.html

The disclosure of "proved reserves" has been one of the great rituals of the reporting season for oil and gas companies, and one carefully monitored by investors. It's recently taken on even more significance with high and jittery prices, concerns about energy security and plain fear of running out. In a world of uncertainty, these disclosures seem to provide direct, quantitative information on the future oil "inventory" -- at least for companies reporting to the SEC -- and a basis on which investors can evaluate companies.

The reality is different. The current system mandated by the SEC for reporting "proved reserves" has become antique, and the information it provides to investors increasingly diverges from the actual resource position of many companies. Nor does it serve the original intent of disclosure -- energy security. The issue should not be confused with recent cases and settlements involving the practices of certain companies. The significant problem is generic and it is with the rules themselves, which need to be modernized if they are to regain their relevance. The current system is roughly analogous to a doctor restricted to making a diagnosis only on the basis of invasive surgery rather than with a CAT scan.

* * *

Surprising as it might be, the current rules for reporting reserves -- what might be called the "1978 System" -- essentially insist on 1970s technology and methodologies. Back then there was no digital revolution, and the frontier for offshore development was 600 feet of water; today it is 12,000 feet. The rules do not recognize the vast technical progress over the last 30 years, and as a result, standard techniques used today by companies to set multibillion investment programs are not approved, or only partly approved, for use in describing proved reserves for disclosure purposes to investors.

In addition, the rules simply have not kept up with the globalization of the industry. They were devised for onshore operations in "Texlahoma," the "oil patch" of Texas, Louisiana and Oklahoma that was the center of industry activity in the '50s and '60s. Today more than 80% of the total of companies' proved reserves are outside the U.S.; and differences among the fiscal regimes in several countries make it harder, not easier, to compare domestic and international reserves. As perverse as it may sound, under the "production sharing agreements" that are common in many oil-producing countries, when the price goes up, proved reserves go down.

Major projects today dwarf those in the past, both in size and complexity. "Non-traditional projects" are drawing an increasing share of capital, but they are not adequately accommodated under the "1978 System." This includes a significant part of Canadian oil sands, gas-to-liquids and projects in what's called the "ultra-deep water." And yet these "non-traditional liquids" will account for as much as 45% of oil production capacity in North America by 2010. Nor does the current system fully account for the larger, commodity-driven liquefied natural gas business that will be critical to future U.S. natural gas supplies.

The current rules were laid out in response to the 1973 oil embargo that shook not only world politics and global economy, but also American confidence. How much oil was left in the U.S.? This was an urgent matter of energy security, and Congress told the SEC to implement a system for reporting on the resource base. The SEC in turn viewed its mandate through the lens of investor protection.

Though the word "audit" is customarily used for these evaluations, oil and gas reserves cannot be "audited" in the conventional sense of a warehouse inventory or a company's cash balances. Rather, "proved reserves" are an approximation about formations thousands and even tens of thousands of feet below ground. Their size, shape, content and production potential are estimated in a complex combination of direct evidence and expert interpretation from a variety of scientific disciplines and methodologies. Added to the science is economics; if it costs more to produce oil from a reservoir than one can sell it for profitably, then one cannot "book it" as a reserve. Reserves are "proved" if there is a 90% chance that ultimate recovery will exceed that level.

In the face of such complexity, the SEC adopted technical definitions developed by an independent group, the Society of Petroleum Engineers (SPE), the key technical and professional group whose members are experts from both the academy and industry. Specifically, in setting its own standards, the SEC relied on SPE definitions promulgated in 1965 and consultations in the 1970s. This became the basis of the "1978 System." And that is the system still in place today, despite the fact that the SPE has revised the definitions three times since in response to major advances in measuring reservoirs, and is in the process of doing so once again. For the most part, however, the SEC continues to rely on the technology and "best practices" of the '60s and '70s.

The rules describe proved reserves in terms of "reasonable certainty" -- but ties this to direct physical measurement for estimating the volume of oil or gas in a specific reservoir. That works for onshore or shallow-water wells, but is not effective for large offshore projects, where the reservoirs may lie below 7,000 feet of water and another 20,000 feet beneath the seabed, and where gathering the SEC-mandated direct physical data is immensely expensive, and also poses physical risks. Yet in the meantime, the industry has expanded the standard for "reasonable certainty" to include noninvasive means of measure and estimation. Think CAT scan. And very large amounts of money are invested on the basis of these methods. The result is a disconnect between the mandated reserves disclosure and the reality of companies' plans, strategies and activities -- and how they are spending many billions of dollars. Owing to the current rules, much of what they are working on, though particularly relevant to their futures, cannot be counted. That divergence hardly helps investors understand the position of a company and its future prospects.

An example: One company judged that it had 658 million barrels of oil classified as proved, or reportable, under current SPE guidelines using a widely accepted technique called the "pressure gradient" method. Under SEC guidelines, based on the older technological approach, it could only disclose 261 million barrels of proved reserve. At $50 a barrel, this represents a $20 billion difference in future reserves. On the pure science, it is generally agreed that over the 20- or 30-year life of the field, it will bring to market a volume much closer to 650 million barrels.

The current system also insists on using year-end prices to calculate whether oil and gas reserves count as "economic" and thus as proved, rather than some kind of average. But this is no sure guide either to what happened during the year, or what will happen in the coming year -- or even what happened on that particular day. The price for Canadian heavy oil dipped at the very end of 2004, owing to particular short- term pricing conditions, and so a substantial amount of heavy Canadian oils lost their standing as proved because they were temporarily no longer profitable and thus two billion barrels had to be "debooked." Yet the price quickly bounced back, and those reserves once again counted as "proved."

Current estimates are that the oil and gas industry will spend some $6 trillion over the next 25 years to meet the future demand for oil and gas. The accuracy and reliability of reserves data are at the heart of the industry's capabilities and its funding of these projects. The real beneficiaries from reforming the system for disclosing proved reserves will be investors, of course -- and the consumers who are counting on the availability of future supplies. And as recent events remind us, it will also be important for energy security.

China Eyeing Cuba Offshore Oil NewsMax.com (FL); April 28, 2006; http://www.newsmax.com/scripts/printer_friendly.pl?s=pf&page=http://www.newsmax.com/archives/ic/2006/4/27/224539.shtml

China and a host of other oil-hungry nations will be tapping into huge offshore oil deposits a mere 50 miles from the United States while this nation is forced to endure rising gas prices as a result of record high demand for oil fueled by such countries as China and India.

According to Sen. Larry Craig, R-Idaho, the U.S. energy sector has been "hamstrung" from seeking additional oil resources while at the same time allowing "the likes of China, Canada, Brazil, Spain, France and others to freely seek energy opportunities 50 miles off our coast without competition from state-of- the-art technologies and expertise of our own U.S. gas and oil industries."

In a speech on the Senate floor, Craig said that a February 2005 U.S. Geological Survey report described "a possible deposit in the North Cuba Basin estimated at 4.6 billion barrels of oil, and possibly as much as 9.3 billion barrels." He then reminded his colleagues "that estimates for Alaska National Wildlife Refuge range from 4 billion to 10 billion barrels."

So, he said, "The question must be asked: 'What is the U.S. doing while foreign companies and countries are exploring right off the U.S. coast in the North Cuba Basin, which is adjacent to the U.S. Outer Continental Shelf and contiguous with this country's Exclusive Economic Zone?' Well, I can firmly tell my colleagues that we are doing absolutely nothing. Not one single U.S. company is exploring in these potentially beneficial waters that extend to within 50 miles off the coast of Florida. So, we sit here watching China exploit a valuable resource within eyesight of the U.S. coast. I say -- not on my watch."

Craig added that he is "certain the American public would be shocked, as this country is trying to reduce our dependency on Middle East oil, that countries like China are realizing this energy resource."

China, which he said is the world's second-largest user of petroleum products "is using this area off our coast, and in Cuban national waters, as a strategic commodities reserve. It is doing this by acquiring exclusive rights in the emerging Cuban offshore oil sector -- thereby forever closing the door on those resources to the U.S. industry and drastically impacting our foreign policy in the region."

According to the Bush administration's "National Security Strategy," China is "expanding trade, but acting as if they can somehow lock up energy supplies around the world or seek to direct markets rather than opening them up."

A shocking report aired on the Lou Dobbs show Thursday night revealed that Cuba has not only allowed China to drill but also to service an old Soviet refinery in Cuba while U.S. companies are locked out of the game. The Dobbs report also revealed that Venezuela's Castroite president, Hugo Chavez, has offered Chinese oil firms operating rights in his country.

Craig wants to introduce legislation that will allow the United States to operate in these waters off our southern coast, adding that we cannot allow China to lock up a potentially lucrative oil supply for life in our own backyard

Pander at the Pump New York Times; April 28, 2006; http://www.nytimes.com/2006/04/28/opinion/28fri1.html?_r=1&hp&oref=slogin

The battle to see which political party can out-pander the other on the subject of gasoline prices is embarrassing. If American consumers are having sticker shock at the pumps, it's because of a series of policy failures that stretch back decades. The last thing the country needs now is another irresponsible quick fix.

Senate Republicans have proposed to assuage the pain of high gas prices by sending many taxpayers $100 apiece — enough for about two tanks of gas. Meanwhile, a cadre of Senate Democrats is carrying on about a temporary suspension of the federal gas tax, which is 18.4 cents per gallon, the same level it was in 1993. At best, the suspension would temporarily reduce prices a fraction, causing car owners to drive a little more. That rise in demand would send prices back up again.

Lawmakers from both houses and parties are calling for investigations into any price gouging or other rip- offs by oil companies and filling stations. It's perfectly all right to look into these things, but no one imagines that the result will be much more than a series of photo-ops.

Suspending environmental safeguards — as President Bush proposed in his energy speech earlier this week — might send prices down a bit, at the price of dirtier air. It's appalling that a generation after the first oil shock, in 1973, politicians are still reacting with such hysteria.

The main problem is not environmental regulations or even rapacious oil companies. It certainly isn't the fact that the Arctic National Wildlife Refuge has been kept off limits for drilling. Americans' outsized demand for oil and gasoline pushes up prices, and now that the economies of huge countries like China and India have taken off, there will continue to be more competition for the world's available oil. There are policy solutions for the problem of excess demand, chief among them higher fuel economy standards. But more than five years into the Bush administration, there has been only a minuscule increase in mileage standards for S.U.V.'s and no increase for cars.

The oil companies' mind-boggling profits have produced calls for a windfall profits tax. It would not be too difficult to set up a system that would capture a percentage of the companies' extraordinary profits, and the money could be used for long-term solutions, like research into alternate fuels and mass transit. That would be fair. Oil companies are indeed profiting from events that have little to do with their efforts. If some of those profits were taxed and flowed into the public treasury, the money could go toward public purposes.

But critics who say such a tax discourages investment in exploration and drilling have a point. Though they invariably overstate their case, their opposition would make a windfall tax a heavy lift politically, thereby draining effort from other, more direct, solutions, like better mileage standards and ultimately — the hardest sell of all — a bolstered federal gas tax to encourage conservation.

It's important during this debate not to discount the genuine pain being felt by the poor and middle-class families who must drive long distances just to get to work and school. But their problem is more than gasoline prices. It's their vulnerability to the price increases, which results from stagnating wages and a lack of savings. If the Bush administration had devoted as much political capital in the past five years to wage and job growth initiatives as it has to cutting taxes for the wealthy, these struggling families would be better able to weather higher prices at the pump.

Congress's frantic gestures this week are, at bottom, an attempt to divert attention from its past failures to act, and its resulting inability to shield Americans from the burden of high prices at the pump. But the pain of high gas prices will only get worse unless Congress changes its priorities, now.

Congress Gone Wild Wall Street Journal; April 28, 2006; http://online.wsj.com/article/SB114618930500438351.html?mod=opinion_main_review_and_outlooks

Let's hope the folks who make those cable-TV videos of loopy college kids vamping on spring break are headed for Capitol Hill. The Members aren't yet taking their shirts off in response to higher gasoline taxes, but give them time. They're certainly pulling enough other stunts to laugh at.

Take the Senate Republican proposal for a $100 rebate, unveiled yesterday but destined for the pandering hall of fame. "As we see skyrocketing gas prices around the country, it is time for this Congress to act," declared South Dakota's John Thune on the Senate floor. And so the Members shall, bravely marching off to battle higher prices by writing every taxpayer (below a certain income level) a one-time check worth about two tanks of gas if you're driving an SUV.

The gesture calls to mind other great moments in feckless legislating, such as Jimmy Carter's "$50 rebate," offered in 1977 to spur the economy. As one wag noted at the time, this was about as useful as scattering money from airplanes. Adjusting for inflation, the GOP's $100 version is worth a lot less now than $50 in 1977 -- and Republicans should expect it to do about as much for their political standing as it did for Jimmy Carter's.

But wait, there's more. Mr. Thune also disclosed that Congress will attempt to waive the 18.4-cent-a-gallon federal gasoline tax -- but only through September 30, when presumably the summer driving and political panic seasons will have passed. Lest you think any of this will add to the deficit, the GOP will pay for it by suspending "a number of tax credits and royalty waivers received by oil corporations."

Now, we don't think oil companies need tax incentives or subsidies to drill for oil at $70 a barrel, or for that matter at $25. What they need is the permission to drill where oil and gas can be found. And one reason for today's high prices is that Congress has systematically ruled out huge parcels of American land, on- and off-shore, for energy exploration. However, now that prices are high, Congress is reacting to the problem it helped cause by temporarily rescinding whatever paltry incentives it offered companies to explore for oil in the fewer places where they are allowed to drill.

As for suspending the gas tax, one way to reduce gas prices is by lowering the demand for gasoline, and the fastest way to do that is by letting the price system work. Liberals in particular want gas taxes to be high (to reduce carbon emissions, for example), except when gas prices are high. In other words, the goal of all of these temporary policy changes isn't really to change anyone's behavior in the long run. The point is merely to redistribute money from the oil companies to voters, er, consumers in an election year. We trust that the voters, being smarter than politicians, will treat all this with the snickering it deserves.

Oh, and let's not forget the contribution made yesterday by Senator Arlen Specter's Judiciary Committee. By bipartisan voice vote, the Committee created a new federal and state task force to investigate information-sharing among oil companies. As a grandstanding bonus, it would also allow lawsuits against OPEC for controlling output and fixing oil prices. Even the Members know that cars will run on nuclear power before suits against OPEC succeed in U.S. courts.

And the idea that oil companies are colluding to raise prices has been contradicted by countless Federal Trade Commission studies. Oil exploration is a capital-intensive business that requires huge economies of scale and long time horizons. From the time a potential drilling site is spotted to the day any oil gets to the pump can take a decade. Bigger companies can afford to take bigger risks. So busting up oil companies would almost certainly lead to less oil exploration and production, and thus higher oil and gas prices.

But forgive us for talking about actual substance. Like college kids on spring break, Congress is letting it all hang out in a political bender of a kind we haven't seen in years. This is what happens when a President is at 36% job approval, and there is no Beltway chaperone. And to think there are still six long months until Election Day.

Chevron Prepared for New Hurricane Season Washington Post; April 26, 2006; http://www.washingtonpost.com/wp-dyn/content/article/2006/04/26/AR2006042601902.html

HOUSTON -- Chevron Corp. has "beefed up" preparations at its Gulf Coast oil refineries and production facilities as the hurricane season approaches, the company's CEO said Wednesday at the annual stockholders meeting.

San Ramon, Calif.-based Chevron, the country's second-largest petroleum producer, has backup computer systems, some spare inland offices and procedures for evacuating 2,500 employees who work on offshore platforms and drilling rigs.

"We have beefed up our plans," chairman and CEO Dave O'Reilly said. "I think we're about as ready as we can be."

He said Chevron is still producing about 100,000 barrels a day less than it had been _ down about a third of its oil and gas production in the Gulf, a fraction of Chevron's worldwide production.

Its Pascagoula, Miss., refinery was shut down for six weeks after Hurricane Katrina last year, and many small, unmanned platforms in the Gulf of Mexico were destroyed. A larger platform about 165 miles southwest of New Orleans was lost in Hurricane Rita.

But most damage from the hurricanes, which temporarily shut down more than 28 percent of the nation's refining capacity, was at Chevron's older facilities, O'Reilly said. Some of its large platforms and the new floating production facility at Tahiti field, nearly 190 miles southwest of New Orleans, fared well, he said.

Chevron has not finished repairing its damaged platforms and rigs because equipment, parts and workers are in high demand among several oil companies whose facilities were hit by the storms, said spokesman Mickey Driver.

Chevron posted a record profit of $14.1 billion in 2005 and is to report its first-quarter earnings Friday.

Responding to a stockholder's question about the soaring price of gasoline, O'Reilly blamed crude oil prices of about $70 a barrel plus refinery, shipping and distribution costs, as well as the costs of adding ethanol to gasoline.

"High gas prices tend to stir up emotion," he said.

In other business, Chevron stockholders defeated with a 91 percent vote a proposal calling on Chevron's board to report how much the company has spent on cleaning up a contaminated Amazon rain forest and on defending a related environmental lawsuit filed by Ecuadoreans. Two Ecuador Indians said at the meeting that their culture and health have been harmed since one of Chevron's predecessor companies, Texaco Petroleum Co., dumped more than 18 billion gallons of toxic water into a rain forest over three decades.

O'Reilly said the area has already been cleaned up and told them to voice their concerns to the Ecuador government.

Few risks in offshore drilling Miami Herald Opinion Column; April 30, 2006; http://www.miami.com/mld/miamiherald/news/opinion/14455241.htm

The United States is the largest consumer of petroleum and petroleum products in the world. Our addiction to oil is about 21 million barrels a day, while we produce only about 8.5 million barrels a day.

Our economic growth depends on 13 million barrels a day of foreign imports. Our dependence on foreign oil is, in part, the reason why geopolitical events in countries such as Iran, Venezuela and Nigeria have driven gas prices to current high levels.

Along with energy conservation, we must continue to develop our nation's crude-oil and natural-gas reserves to reduce price volatility.

I am disappointed that The Miami Herald continues to advocate a moratorium on oil and natural-gas drilling off Florida's Gulf of Mexico. Moratorium proponents continue to exploit environmental scare tactics without any scientific and/or technical data to support their position. There are currently more than 4,000 offshore oil and natural-gas wells operating in the Gulf; more than 300 of them were destroyed and/or damaged by hurricanes Katrina and Rita, without one single major crude-oil spill.

On the other side of the Atlantic however, we have the risk of Port Everglades, where more than five billion gallons of oil are transshipped every year by marine vessels. Have we forgotten the Exxon Valdez, the Amoco Cadiz and the Prestige? Are we monitoring the enforcement of the Oil Pollution Act of 1990, particularly as regards to foreign-owned tankers? Marine transportation is a greater proven risk than deep- water offshore oil and natural gas production.

I agree with The Miami Herald that the fact that Cuba is drilling for oil just 65 miles southwest of Key West should not influence how we handle the stewardship of our natural resources. But it is interesting to note that if the drilling of Cuba's Yamagua No. 2 is successful, that country could become energy self-sufficient based on its current consumption of 160,000 barrels per day, while the United States would continue to be vulnerable to Venezuela's Hugo Chávez's threats of an oil embargo.

JORGE R. PINON, Miami

Support hardens for Gulf drilling Sarasota Herald-Tribune; April 30, 2006; http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20060430/NEWS/604300388/0/FRONTPAGE

Some lawmakers are using high pump prices to push leases for natural gas in the eastern Gulf.

WASHINGTON -- An exasperated Rep. John Peterson of Pennsylvania waved his arms last week while pleading for Floridians to understand why drilling for natural gas is not a threat to their beaches.

It's not like drilling for oil, the Republican said at a press conference outside the Capitol. And if the public is in an uproar over gasoline prices, he said, wait until they get air conditioning bills this summer or lose their jobs because natural gas prices are killing businesses.

"Natural gas shouldn't even be an argument," he said.

The headlines these days are about $3 gasoline. But Republicans and some pro-drilling Democrats are using the uproar to press for drilling in the eastern Gulf of Mexico -- where supporters say the main enticement has been an abundance of natural gas, not oil.

Anger over pump prices is fueling debates far removed from how Americans get to work as some lawmakers argue it is evidence of a general energy crunch.

"It's very easy for members of Congress, who are scrambling to act like they're doing something, to say, 'We've got to drill in ANWR,'" said Annie Strickler, spokeswoman for the Sierra Club, referring to the oil-rich Arctic National Wildlife Refuge in Alaska, "and, 'We've got to drill offshore' -- even though offshore drilling is talking about natural gas."

While gasoline prices doubled from 1998 through 2005, natural gas prices tripled.

Some proposals to lift drilling bans that cover most U.S. waters distinguish between oil and natural gas to blunt concerns in coastal states such as Florida. Peterson's bill, for example, would lift prohibitions against natural gas production but give states control over oil production near shore. He has 156 co-sponsors, more than a third of the House.

Emphasis on natural gas helps drilling supporters soften resistance in coastal states that, unlike Alaska, don't tend to like oil production. Now the Florida delegation is split, after decades of near unanimity, over competing plans to allow drilling east of the Alabama land line in exchange for a buffer zone of 150 to 200 miles and other concessions.

There is some oil in the eastern Gulf, and the Bush administration is considering a plan to open part of a large zone known as Lease Sale Area 181 for oil and gas drilling beginning 100 miles from shore. But there seems to be little disagreement that the driving force in the debate is natural gas.

In the past few years, Area 181 has become to natural gas what ANWR is to oil.

Sen. Pete Domenici of New Mexico, the Republican chairman of the Energy and Natural Resources Committee, last week argued for opening ANWR and for passage of his legislation to open 2 million acres of Area 181 to oil and gas production.

Domenici said his Area 181 bill is boosted by the gasoline debate.

"It's going to get done," he said.

Drilling foes argue offshore drilling wouldn't add much to domestic oil supplies, and they want voters to imagine oil slicks hitting pure white beaches. Asked about the prospects for natural gas production in the Gulf, Sen. Bill Nelson, a Florida Democrat, was fixated on oil.

"All of this perception of an energy crisis is finally bringing everyone to the realization that oil drilling is not going to solve the problem," he said.

In an effort to take political advantage of outrage over gasoline prices, Democrats selected Nelson to deliver a weekly national radio address April 23, in which he bashed the Bush administration's energy policy.

Nelson, who has proposed some drilling concessions in the Gulf, has threatened to filibuster rival legislation and block the confirmation of Bush's nominee for Interior secretary, earning him a high profile on energy.

In Florida, where opposition to drilling has been a virtual given in politics, candidates are being forced to decide how much drilling they would accept and how close to shore. That's tricky. Nelson's likely opponent, Rep. Katherine Harris of Longboat Key, is still working on her answer.

Asked last week to clarify her position on Area 181, aides to Harris said they were discussing the specifics internally for possible legislation.

"She wants the moratorium in place," said Fred Asbell, Harris' chief of staff, "but understands the moratorium isn't forever and there needs to be a more structured deal in place."

Republicans across Capitol Hill are scrambling to blame Democrats for pump prices. They see opportunities to win battles they previously lost, such as opening ANWR.

House Speaker Dennis Hastert has asked Rep. Adam Putnam of Bartow to coordinate energy bills for votes by the end of June. An aide to Putnam, chairman of the Republican Policy Committee, said he expects renewed debate about offshore drilling proposals that some Florida Republicans have already supported.

Energy producers also are under fire and could lose billions of dollars in drilling incentives that Congress gave them in the 2005 energy bill, but they still see positives. Thomas Moskitis, lobbyist for the American Gas Association, said natural gas producers are jostling for position in a debate that is enveloping all aspects of energy production and use, from windmills to nuclear reactors.

"This is a renewed push. ...We don't want natural gas to be left out of the mix," he said.

Rep. John Mica, a Republican from Winter Park, until last year was the lone Florida lawmaker who supported natural gas production in the eastern Gulf.

"I've gained a lot of allies, and I think I'll gain even more," he said. "If people are getting sticker shock at the pump, they're going to be absolutely petrified when they see their electric bills this summer."