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Opening Eastern Gulf in Bush Administration's Hands; Congress Shies Away from OCS

While proponents of expanded offshore drilling were disappointed that the Senate Energy and Natural Resources Committee did not take up the issue in its budget reconciliation package last Wednesday, Chairman Pete Domenici (R-NM) said he would continue to press President Bush to exercise his power to open up a portion of the gas-rich eastern Gulf of Mexico to production activity.

It's a "difficult political issue," but "I'm hopeful that the president will move in this area since he has the authority" to do so, Domenici said last Tuesday during a Senate energy panel hearing into the fuel supply and price situation facing consumers this winter.

Along with conservation efforts, "there is one big thing that we can do...and that's to move ahead rapidly with Lease 181 in the coastal area between Florida and Alabama," he said. The portion of that lease sale richest in resources was put on hold by Bush's Interior Department secretary four years ago and could be put back into operation by the administration (see NGI, Nov. 5, 2001).

"I'm going to push the president, we're going to push it very hard," he told reporters following the hearing, according to a report by Dow Jones Newswires.

Domenici has been working on a proposal that would allow individual coastal states to opt out of the moratorium on drilling on much of the Outer Continental Shelf and open their shores to production, but he signaled last Tuesday that it was unlikely that such legislation would be introduced in Congress this year. He said there was a lack of momentum in Congress to tackle the issue this session even in the wake of Hurricanes Katrina and Rita, which have caused more than 300 Bcf of production in the Gulf of Mexico to be lost since late August.

The non-leased portion of Lease 181 that is now under moratorium holds approximately 6 Tcf of gas more than 100 miles from any state coastline, according to Domenici. The American Petroleum Institutes estimates that 1 Tcf could heat one million homes for 15 years. "That is a huge contribution," he said.

"Even though it would take a couple of years" for drilling activity to begin in the protected waters, "we have been told that it would have a dampening effect [now on prices] because it is a known commodity that could be expected," Domenici noted.

In addition to expanded drilling in the Gulf, the American Gas Association and the Edison Electric Institute called on Congress to appropriate the full $5.1 billion in funding for the Low-Income Home Energy Assistance Program in fiscal 2006, and to approve emergency funding of $1 billion for this winter.

In other developments on Capitol Hill last week, Rep. Joe Barton (R-TX), chairman of the powerful House Energy and Commerce Committee, and other House Republicans last Wednesday rebuffed the natural gas price complaints of Democrats whose states they argue consume large amounts of gas, but have done little to contribute to supply. The states -- notably Florida, California and the New England region -- oppose pipeline and liquefied natural gas (LNG) projects within their boundaries and/or object to drilling off their coastlines, while fueling their electric generation plants mostly with natural gas.

"It's with great concern that I review the list of energy projects -- these are real projects, folks, these aren't make-believe -- that have been delayed, killed [or] postponed in the very areas of the country where the prices for winter fuels are expected to be the highest," Barton said during a hearing by the House energy panel's Energy and Air Quality Subcommittee that also examined the outlook for winter fuel supply and prices.

In California, the second largest natural gas-consuming state, at least two LNG terminal projects have been delayed -- the proposed Cabrillo Port and Port of Long Beach terminals, he noted. In the Northeast, where 51% of the households rely on natural gas, blocked projects include the Connecticut-to-Long Island Islander East Pipeline, the proposed Broadwater LNG terminal facility in Long Island and Weaver's Cove LNG terminal in Fall River, MA, Barton said.

The Weaver's Cove project, a joint venture of Amerada Hess and Poten Partners, "showcases the lengths [to which] opponents will go to stop a project," he noted. "The real conspirators seem to be the very people we are trying to help -- the people of New England." These projects that "would have provided more natural gas to heat...homes have been stopped cold."

Barton said his district in Texas produces 1 Tcf of natural gas annually, much of which will flow to other regions of the country, and that producing rigs are located within 10 miles of his backyard.

"So it really, really upsets me when I look around the country and see these high prices and we have a clamor to do something about it. But when we try to do something about it, the very people we're trying to help say 'No.'"

This is the "height of hypocrisy," agreed Rep. John Shadegg (R-AZ). "It is the exact parallel of a child who kills their parents and then complains about being an orphan."

Several Republican committee members also said they opposed increased funding for LIHEAP, arguing that the program, as currently structured, offers financial assistance to heating customers in the Northeast and Midwest during the winter, but provides little or no funding for air-conditioning customers in the South during the summer months. The GOP lawmakers are seeking a reform of the program.

A number of GOP lawmakers called for the removal of the restrictions on drilling on the federal OCS, with Rep. John Shimkus (R-IL) saying the lack of access was tantamount to "criminal negligence and it has to stop." He noted the United States was the only developed nation without access to its OCS.

Barton expressed concern about the need to develop more market-area storage. "Isn't it true that if my producers in Texas and everywhere [else] in the country produced as much as they could, we'd still have a price problem because we can't store the natural gas for the demand that exists in the winter [in the] Northeast?" he asked.

"I definitely think we'd still have a price problem because the problem is ultimately we were not producing enough new gas to meet the growth in demand in the last decade," responded Guy Caruso, director of the Energy Information Administration.

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