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Producer Group Says 'Gang of 10' Offshore Plan Falls Short

House and Senate Democratic leaders are said to be considering a bipartisan Senate proposal that would allow drilling in waters off four Atlantic Coast states and increase activity in the eastern Gulf of Mexico. However, the president of the American Petroleum Institute (API) contends that it "falls short of what is needed" to expand domestic oil and natural gas production.

"Unfortunately the proposal appears to be a classic case of one step forward, two steps back -- or in this instance 'light on new production/heavy on new taxes,'" wrote API President Red Cavaney in a recent letter to the Senate.

"The proposal's approach to access to federal oil and natural gas resources is far too limited in its scope. And it is unfortunately paired with the imposition of at least $30 billion in new taxes on the oil and natural gas industry that would have the effect of limiting needed oil and gas investment...These measures create an environment that will virtually assure a future with less, not more, domestic production."

The proposal by five Senate Republicans and five Democrats -- known as the "Gang of 10" -- was unveiled in early August as part of a comprehensive energy package. It seeks to open additional Gulf of Mexico areas and allow the states of Virginia, North and South Carolina and Georgia to opt into leasing off their shores (see NGI, Aug. 4). The measure would not open coastal areas off states such as New Jersey and California, which have bitterly opposed offshore drilling.

The Gang of 10's Energy Reform Act of 2008 would permit production only beyond 50 miles from shore. It also would create a commission to make recommendations to Congress on future areas of the Outer Continental Shelf (OCS) that should be considered for leasing. And the bill would provide for revenue sharing with states that allow leasing off their coastlines. The Democratic leadership in both the House and Senate are said to be considering legislation that would reflect the offshore drilling principles outlined in the Gang of 10's proposal.

Under the bipartisan bill, "development in federal waters less than 50 miles [from shore] would be banned -- despite the fact that offshore facilities would need to be [just] 12 or fewer miles from shore to be visible from land. Leasing in the North Atlantic and off the Pacific Coast would be banned and plentiful hydrocarbon resources in Alaska would remain off limits," Cavaney said.

While commending the Gang of 10 for its efforts, Cavaney called on Congress to "aggressively pursue policies that make greater supplies of oil and gas available to American consumers, while avoiding changes that run counter to that goal."

House Speaker Nancy Pelosi (D-CA) indicated during the August recess that she is considering OCS language that would mirror the Senate compromise proposal. Such legislation "will consider opening portions of the Outer Continental Shelf for drilling, with appropriate safeguards, and without taxpayer subsidies to Big Oil, " Pelosi said in a Democrat weekly radio address.

But the apparent softening of her long-standing opposition to expanded offshore drilling comes with conditions. "A responsible domestic drilling program means an end to royalty holidays that deprive taxpayers of the royalties they deserve; an end to subsidies for profit-rich oil companies; and a requirement that Big Oil drill the leases they already own," she said.

House Republicans remained skeptical, saying that "if her record is any guide, Speaker Pelosi will keep the vast majority of America's offshore energy reserves under lock and key, instead casting her...'use-it-or-lose-it' talking point as 'opening portions' for 'drilling.'"

In addition to addressing the offshore, a House Democratic energy bill would seek to reduce the price of gasoline within 10 days by releasing crude oil from the Strategic Petroleum Reserve; would expand drilling in the Alaska oil reserve already designated for drilling; would require producers to pay the billions of dollars that they owe in royalties on production from 1998-1999 deepwater leases to invest in clean energy resources; would create a federal renewable electricity standard; would cut mass transit costs for commuters; would curb "excessive" speculation in energy futures markets; and would increase the use of natural gas, according to Pelosi.

Senate staffers also were working to put together energy legislation that would allow limited offshore drilling, said Bill Wicker, spokesman for Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee. The measure is expected to reflect some of the principles in the bipartisan Gang of 10 energy bill.

At the Democratic national convention last Thursday, Democratic presidential contender Sen. Barack Obama of Illinois pledged to back exploration and production of natural gas if elected in November.

"As president, I will tap our natural gas reserves," Obama, the first African American to win a major party's presidential nomination, told a packed stadium of more than 80,000 supporters in Denver. He broke somewhat with the Democratic party line by at least conceding that drilling was part of the solution to meet growing energy demand, calling it a "stop-gap measure" rather than a "long-term solution."

Obama last month said he would be open to allowing drilling off certain coastal states as part of a larger compromise on energy policy (see NGI, Aug.11). This marked a subtle shift in his position opposing repeal of the 27-year-old congressional ban on oil and natural gas activity in much of the federal OCS.

Obama said a "clear goal" of his presidency would be to end the United States' dependence on Middle East oil within 10 years, and to focus instead on the development of alternative energy.

The energy platform espoused by Democrats at the national convention gave the oil and natural gas industry little, if anything, to cheer about. Despite Obama's support for limited offshore drilling, there was no mention of this in the Democrats' 54-page platform.

Proponents of greater offshore drilling decided against offering an amendment to the Democratic platform, saying that Democrats attending the convention viewed the issue as too controversial. However, the matter is expected to be front and center when Congress returns from its recess in September.

Drilling, whether it be offshore or onshore, was viewed as something of a dirty word in the Democrats' energy plank. "We know we can't drill our way to energy independence" was their mantra.

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