August 2005 How ExxonMobil and the Oil Industry Benefit from the 2005 Energy Bill Big Money to Big Oil How ExxonMobil and the Oil Industry Benefit from the 2005 Energy Bill August 2005 1 Acknowledgements Written by Alison Cassady, Research Director with the U.S. PIRG Education Fund © 2005, U.S. PIRG Education Fund Cover photo of the LNG tanker courtesy of the Federal Energy Regulatory Commission. Cover photo of Granite Point oil platform, Cook Inlet, Alaska, courtesy of Robert Visser/Greenpeace. Cover photo of Exxon gas station sign taken by Alison Cassady. U.S. Public Interest Research Group (U.S. PIRG) is the national association of the state PIRGs. The state PIRGs are a network of independent, state-based, citizen-funded organizations that work to protect our environment, encourage a fair and sustainable economy, and foster a responsive democratic government. U.S. PIRG and the U.S. PIRG Education Fund are founding members of the Exxpose Exxon campaign. The Exxpose Exxon campaign is a collaborative effort of several of the nation’s largest environmental and public interest advocacy organizations to activate and educate the public about ExxonMobil, the world’s largest and most irresponsible oil company. For more information about the campaign, visit the campaign’s website at www.ExxposeExxon.com. U.S. PIRG Education Fund 218 D Street SE Washington, DC 20003 (202) 546-9707 www.uspirg.org 2 Table of Contents Executive Summary ............................................................................................................. 4 Introduction ......................................................................................................................... 6 Trampling on States’ Rights ................................................................................................. 7 Siting Liquefied Natural Gas Facilities.............................................................................. 7 Drilling America’s Fragile Coasts ...................................................................................... 8 Limiting States’ Control of Their Coasts............................................................................ 8 Fleecing Taxpayers and the Federal Treasury..................................................................... 10 Royalty Relief and Subsidies for Deepwater Drilling....................................................... 10 Royalty Relief for Drilling in Alaska............................................................................... 11 “Royalties-in-Kind” Program ......................................................................................... 11 Tax Breaks for Profitable Oil Companies......................................................................... 12 Exempting the Oil Industry from Environmental Protections ............................................ 12 Polluting America’s Waterways ...................................................................................... 12 Polluting America’s Drinking Water ............................................................................... 12 Conclusion .......................................................................................................................... 15 Notes .................................................................................................................................. 16 3 Executive Summary As the oil industry continues to collect Trampling on States’ Rights record profits from high oil and gasoline prices, President George Bush is poised to • The new energy law preempts state sign into law an energy bill that allows the authority in the siting and construction of oil companies to pay even less in taxes and liquefied natural gas (LNG) facilities, less in royalties for publicly-owned which pose legitimate safety concerns best resources. Meanwhile, the new energy law addressed by states and local communities. will exempt the oil industry from several The law also weakens states’ rights under environmental laws, allowing even the the Clean Water Act and the Clean Air Act most profitable companies to pollute our in the permitting of LNG facilities and waterways and drinking water. Finally, on natural gas pipelines. ExxonMobil and several issues that affect the oil and gas Qatar Petroleum have plans to deliver 15.6 industry, the new energy law will wrest million tons a year of LNG from Qatar to decision-making power away from state the U.S. As such, ExxonMobil is working and local governments, giving it instead to to build onshore LNG receiving terminals more industry-friendly federal agencies. near Corpus Christi and Port Arthur, ExxonMobil, the world’s largest private oil Texas and potentially more. The new company, could benefit handsomely from energy law will make it easier for this flawed energy plan. ExxonMobil to win approval for these and future LNG facilities even if the states or The energy bill that passed the House on local communities object. July 28, 2005 and the Senate on July 29, 2005 includes at least $4 billion in • The new energy law calls for conducting subsidies and tax breaks for the oil a “seismic inventory” of oil and gas in the industry, which is reaping enormous Outer Continental Shelf along America’s windfalls at a time of rising oil and coasts, including areas that are currently gasoline prices. Between April and June off-limits to energy development. This 2005, BP recorded profits of $5 billion and could pave the way for offshore drilling in ConocoPhillips $3.1 billion. ExxonMobil’s protected areas, such as Florida’s Gulf second quarter profits of almost $8 billion coast. The energy policy also limits states’ gave the company more than $15 billion in ability to influence and participate in profits in the first half of 2005 alone. This decisions about federal projects that affect adds to the company’s record-breaking their coasts. ExxonMobil could reap the profit of $24 billion in 2004. benefits of easier access to coastal waters. Aera Energy, a joint venture of Rather than moving America toward a ExxonMobil and Shell, owns more than cleaner energy future, the new energy law half of the 36 undeveloped leases along is a boon to Big Oil. ExxonMobil, as the California’s southern coast. Moreover, largest and most profitable private oil ExxonMobil already is one of the largest company in the world, stands to benefit drillers in the Gulf of Mexico. from this energy policy in several ways. 4 Fleecing Taxpayers and the Federal currently has an interest in 187,000 acres Treasury on- and off-shore. • The new energy law also will allow the oil Polluting America’s Water industry to avoid paying its fair share of taxes and royalties for publicly-owned • Several provisions of the new energy resources. It offers the oil industry, policy will weaken the Clean Water Act including ExxonMobil, $1.7 billion in new and Safe Drinking Water Act, allowing tax breaks and untold millions in ExxonMobil and other oil companies to additional “royalty relief” programs to pollute America’s waterways and drinking make oil and gas development cheaper and water with impunity. more profitable. Although the Bush administration embraced the final energy • The new energy law allows the producers bill, Energy Secretary Samuel Bodman and distributors of MTBE, a toxic gasoline berated the bill’s tax breaks and royalty additive, to remove new MTBE claims exemptions to oil and gas companies “that from state court to federal court. This don’t need incentives with oil and gas could unfairly deprive injured parties of prices being what they are today.” their right to have claims heard in state courts and could derail legal claims. • The new energy law will suspend the ExxonMobil is one of the country’s top payment of royalties for publicly-owned MTBE producers and also owns service oil and gas from offshore leases in the stations across the country implicated in deeper waters of the Gulf of Mexico. In MTBE contamination of groundwater. addition, the law authorizes up to $1.5 billion in new subsidies to the oil industry Even though ExxonMobil stands to for ultra-deepwater oil drilling and benefit a great deal from this energy exploration. ExxonMobil is an industry policy, the company has the power to leader in deepwater development and direct the oil industry and American estimates that deepwater oil and gas will decision-makers toward a new energy account for more than 20 percent of the future. As the largest independent energy company’s production by 2010. company in the world, ExxonMobil’s decisions can affect the rest of the industry • The new energy law will allow the oil over the long term. The “Exxpose Exxon” industry to forgo royalty payments to the coalition, comprised of a dozen of the federal treasury for oil drilled in areas off nation’s largest environmental and public Alaska’s coastline. It also offers royalty interest groups, calls on ExxonMobil to exemptions for natural gas production on use its leadership position to craft a new the Outer Continental Shelf and for on- energy strategy that goes beyond drilling shore federal lands in Alaska. According to the last drop. to the State of Alaska, ExxonMobil 5 Introduction Big Oil hit payday with the energy weakens environmental protections while legislation passed in July 2005, collecting a doing nothing to reduce America’s bevy of tax breaks, subsidies, and other dependence on oil or relieve consumers at incentives despite rising oil and gasoline the pump. prices and record profits. Even though ExxonMobil stands to Between