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Congressional Activity on Expanded OCS Leasing, ANWR Mounts, But Hurdles Remain

There was considerable activity and noise in both the House and Senate last week to open up additional areas -- the federal Outer Continental Shelf (OCS) and the coastal plain of the Arctic National Wildlife Refuge (ANWR) -- to oil and natural gas exploration and production. But it still remains to be seen whether this will translate into concrete action by lawmakers this year.

The House Resources Committee last Wednesday voted out by a 3-to-2 margin legislation that would permit interested coastal states to opt out of existing moratoriums on oil and natural gas drilling on the OCS and would authorize drilling in the northern coastal region of Alaska's ANWR. Also last Wednesday, the Senate Budget Committee, by 12 to 10, approved a budget reconciliation measure that would reduce government spending by $39 billion, in part by opening ANWR to energy development. The budget bill will be taken up by the full Senate this week.

At the same time, Republican and Democratic energy lawmakers agreed that the gas-prone Lease 181 region of the eastern Gulf of Mexico should be opened to leasing and quickly. If ordered by Congress to do so, Interior Secretary Gale Norton testified before a Senate panel that a lease sale could be held in the 181 area offshore Alabama as early as 2006. That area currently is not subject to any moratoriums, but was withdrawn from leasing consideration by the White House in 2001. Many Capitol Hill lawmakers believe the Bush administration, if it wanted to, could get the ball moving on leasing in the 181 area immediately, absent any action by Congress.

The House Resources' OCS and ANWR measures were tucked into its 184-page reconciliation budget package, which was approved by 24 to 16. It has been forwarded to the House Budget Committee for action. The panel estimates that opening ANWR to energy development would produce a minimum of $2.4 billion in added revenues for the federal government over a five-year period, while the Congressional Budget Office projects that expanded OCS activity could result in net federal revenues of $832 million over five years.

This was the first of many hurdles the GOP-crafted House Resources' budget package will have to clear: it still must be incorporated into the House Budget Committee's larger budget reconciliation measure, approved by the entire House, make it through the House-Senate conference process, and then be voted out by the House and Senate. The House Budget Committee said it expects to take up the budget reconciliation package on either Wednesday or Thursday.

The centerpiece of the budget measure are provisions that would give states more authority over their coastal waters. States that back drilling can choose to allow oil and natural gas production off their shores, while states that oppose drilling (Florida, for instance) can extend the ban on offshore activities past the 2012 expiration for their respective states. It gives states, which currently only control three miles of their offshore, control over 125 miles off their coasts, as well as the ability to share revenues with the federal government for new production off their shores.

By 25 to 15, the Republican-led committee rejected a Democratic amendment, offered by Reps. Frank Pallone of New Jersey, Edward Markey of Massachusetts and Jay Inslee of Washington, that sought to strike the entire portion of the bill promoting expanded drilling in the OCS. Pallone charged that the OCS language in the budget measure would "seriously undermine" the ability of small states, like New Jersey, to protect their coasts from neighboring states that engaged in energy production.

He further said he objected to Resources Committee Chairman Richard Pombo (R-CA) negotiating the language in the measure with Florida Gov. Jeb Bush and other Sunshine State officials, noting that Florida was only one of 21 states that would be affected. Bush last Monday said he endorsed the Pombo measure that would codify a 125-mile buffer zone around Florida in return for opening parts of the eastern Gulf of Mexico.

Colleen M. Castille, secretary of Florida's Department of Environmental Protection, negotiated the compromise with Pombo and committee staff, agreeing to the proposal after she became convinced the state's strident opposition to drilling in the gas-rich eastern Gulf -- namely Lease 181 -- might not withstand the mounting support for offshore drilling in the aftermath of the twin hurricanes that struck the Gulf Coast. She urged the governor to accept the compromise.

"While you [Bush] were successful in persuading the federal government to remove 75% of the [eastern Gulf] area from potential drilling in 2001, the area is likely to be opened" either under Interior's upcoming five-year program for leasing or by congressional action, Castille warned Bush.

It's still unclear what parts or how much of the eastern Gulf would be open to drilling under Pombo's measure. "We're waiting to see those maps," said Michael Kearns, spokesman for the National Ocean Industries Association, which represents offshore energy companies. "It looks like they [Pombo and committee] have done quite a bit work with the Florida delegation," and may have broken the long-standing "stalemate" between offshore drilling proponents and opponents. So "we are cautiously optimistic" at this stage, he noted.

Pombo said he asked California to participate in the negotiations, but it did not respond. He noted his committee proceeded with talks with Florida because the state shared many of the same concerns as California and other states that object to expanded offshore drilling. "This underlying bill should be compatible with [the] interests" of states that are against drilling and want to protect their coastlines.

Pombo indicated last week that he believes he has enough votes in the House to pass his measure, but he said he will continue to work with the Florida and New Jersey delegations in the meantime.

Rep. John E. Peterson (R-PA), a proponent of more offshore drilling, said he opposed the Pallone-Markey-Inslee amendment because the sponsors not only took issue with expanded OCS development, but were against the bill's provisions that would open ANWR to leasing and spur tar sands development. "That mindset is why this country is in trouble." Locking up U.S. OCS reserves is an "absolute tragedy," he noted.

The budget package "cracks the window open a little bit. It gets [Lease] 181 going" in the Eastern Gulf, Peterson said, but he conceded the bill didn't go as far as he would like. He favors lifting the existing moratoriums completely with respect to natural gas leasing.

The bill "may give states more options to drill, but for states that want to protect [their coastlines], it gives them less options," countered New Jersey's Pallone. "You cannot control the pollution that comes from other states."

At the urging of Pombo, Rep. Louis Gohmert (R-TX) withdrew an amendment that would have barred anti-production states (or states that refuse to limit their energy consumption) from receiving oil and natural gas from states that open their borders to producers. "Everyone has to carry their own weight...[It is] extremely hypocritical to sit back and suck up" energy from producing states, Gohmert said.

"I understand the spirit [with which] this was offered," said Pombo, but he requested that Gohmert withdraw the amendment.

By 21 to 10, the committee defeated an amendment offered by Markey that called for the Interior Department to increase royalty payments of producers to raise $2.4 billion in additional revenues, as an alternative to opening ANWR to development. "We're talking about one-half of 1% of [producers'] profits to offset the revenue [that] we need," Markey argued.

"How does raising the cost [of production] help us encourage or increase production?" asked Peterson. The amendment "does nothing to get to the root cause" of the nation's energy problems, agreed Rep. Jim Gibbons (R-NV).

The House panel's measure calls for the first lease sale in ANWR to be completed within 18 months of enactment of the budget reconciliation package. It further requires that the revenues from leasing and other activities be evenly divided between Alaska and the federal treasury.

The Senate Energy and Natural Resources Committee also included ANWR development in its budget reconciliation package, which the Senate Budget Committee approved last Wednesday, but it chose not to address the OCS issue. Committee Chairman Pete Domenici (R-NM) said at the time he didn't think there was enough momentum in Congress to tackle the ticklish OCS issue this year. But he said he would continue to press President Bush to exercise his authority to open up a portion of the Eastern Gulf to production activity (see NGI, Oct. 24).

A Capitol Hill aide said he wouldn't be surprised to see an amendment on OCS development offered this week as the Senate begins consideration of its budget reconciliation package.

The House Resources' bill also would promote oil shale and tar sands activity in the western states, specifically in Colorado, Utah and Wyoming. Rep. Mark Udall (D-CO) objected to the provisions, saying they would gut the oil shale language in the energy policy act in order to carry out "crash development" of oil shale. His amendment that sought to prevent "fast track" development was defeated.

In related developments on Capitol Hill last week, Interior Secretary Norton said the department could hold a lease sale in currently unavailable parts of the gas-rich eastern Gulf of Mexico as early as 2006, if ordered to do so by Congress.

"We are actively...looking at the Lease Sale 181 area [in the Eastern Gulf]," excluding areas within 100 miles of the Florida coast, in preparation of Interior's five-year leasing plan (2007-2012) for the federal OCS, she said. But under that process, which requires environmental planning to be conducted, a lease sale in the 181 area wouldn't likely occur until the second half of 2007, Norton noted.

Both the Republican and Democratic leaders of the Senate Energy and Natural Resources Committee agreed that the 181 area should be opened to leasing and quickly. They believe the Bush administration could single-handedly accomplish this, without any action by Congress, since the 181 area is not currently subject to any restrictions.

"I believe 181 has to be done. I don't believe five-year plans and all that business are very important," said Chairman Domenici during the panel's fourth post-hurricane hearing last Thursday on recovery efforts and needed energy policy changes. "We've been told that it is the single most significant act" that can be taken to stabilize and/or possibly reduce the price of natural gas. "This shouldn't be delayed."

"I encourage you in that regard," Sen. Jeff Bingaman, the ranking Democrat on the panel, told Norton. It "seems to be No. 1 on the list" of potentially large natural gas reserves, he noted.

"It could come on line very quickly," responded Norton, adding that the 181 area of the Eastern Gulf was close to existing energy infrastructure and contained "very significant reserves."

She further said that public sentiment favored more OCS production. Of all the comments submitted to Interior on its upcoming five-year leasing plan, Norton reported that 8,998 supported opening more offshore areas to leasing, while 2,276 were against it.

In a somewhat surprising statement that provoked a heated exchange, pro-drilling Sen. Mary Landrieu (D-LA) said she would "vigorously" oppose any attempt to open Lease 181 to new leasing if the Bush administration did not agree first to share revenues from offshore production with coastal states.

"The energy coast is flat on its back," she said, and yet the Bush administration is considering opening new areas to production, while opposing revenue sharing with existing producing states, such as Texas, Louisiana and Mississippi. This "is really an insult to my state."

Landrieu's remarks touched a nerve with Domenici. "I don't believe that those of us on this committee that have been working to help your state deserve the comments you just made," he said. "I don't think we need any threats. We need your help."

Noting that the offshore holds a total of 420 Tcf, Domenici said "[we need to] look at the continental shelf with a new vision," rather than tying the OCS up in knots. He warned that the knots are starting to come undone in the wake of the hurricanes. Domenici applauded the House Resources Committee's efforts to open up the OCS to expanded development.

Domenici asked Norton to provide the committee in writing with her recommendation for the "most expeditious way" of proceeding with 181 "in whole or in part." He also called on Norton to estimate in writing the amount of natural gas to be found in the 181 area.

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