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House Dems Propose Lifting Drilling Ban 100 Miles Out

In a significant shift in policy, the House Democratic leadership last Wednesday unveiled an energy package that would lift the 26-year-old congressional moratorium on oil and natural gas drilling 100 miles out from shore and would allow individual coastal states to "opt in" to leasing between 50 and 100 miles from their shorelines.

Democrats also indicated that the spending resolution to keep the federal government operating beyond Sept. 30 will not include the drilling moratorium, which has been a staple item in appropriations bills since 1982. With the absence of the moratorium, this would allow drilling three miles offshore if Democrat leaders fail to win support for their compromise package.

"We have to face the reality that it we don't have something in the bill, it is drilling three miles offshore," House Speaker Nancy Pelosi (D-CA) told reporters last Thursday.

The compromise bill does impose certain restrictions: national marine monuments and national marine sanctuaries are permanently withdrawn from oil and gas leasing; the Department of Defense's authority to designate national defense areas off-limits to drilling remains in force; and the 125-mile, no-drill buffer zone off of Florida's western coast will be effective until 2022.

The energy bill, which is expected to be brought to the House floor this week, signals a major departure for Pelosi, who has resisted Republican efforts to open the offshore since she took office. As a partial concession, she was said to be initially considering a limited expansion of offshore drilling -- removing the bans for drilling off of Georgia, North and South Carolina and Virginia -- but Pelosi was forced to agree to a broader expansion as Republicans, with support from moderate Democrats from producing states, threatened to block the continuing resolution to fund the federal government past Sept. 30 if the drilling issue was not settled to their satisfaction.

But producers and House Republicans have some problems with the bill. By prohibiting drilling within 100 miles from coastlines, it puts "a lot of...promising areas off the table," said Cathy Landry, a spokeswoman for the American Petroleum Institute, which represents major oil and natural gas producers. Nor does the bill provide for sharing of royalties between the federal government and coastal states, she noted, so there's no incentive for states to permit leasing.

Moreover, Landry said "it's going to be enormously expensive" for producers to drill 100 miles off of certain states, such as Virginia, where there is no existing pipeline infrastructure to bring oil and gas to shore and processing facilities. "This is not an access bill. It does not provide an opportunity to increase U.S. supplies. This provides such barrier to entry."

The measure contains some provisions that will draw more criticism from Republicans and industry -- repealing the deduction in the 2004 international tax bill for the Big Five producers (ExxonMobil Corp., Chevron Corp., ConocoPhillips, BP plc and Royal Dutch Shell plc); barring holders of the flawed 1998-1999 deepwater leases from bidding on future leases until they have renegotiated their lease contracts; and requiring producers to drill on the 68 million acres of federal lands that they already control before seeking new leases -- the "use-it-or-lose-it" proposal that the House defeated in late June (see NGI, June 30).

Funds from repeal of the producer tax deduction and payment of royalties on the 1998-1999 leases would go toward investments in renewable energy, energy efficiency and the Low Income Home Energy Assistance Program, according to the House Democratic leadership's bill -- "The Comprehensive American Energy Security & Taxpayer Protection Act."

Democrats estimate that producers holding 70% of the 1998-1999 leases pay no royalties, costing U.S. taxpayers about $15 billion. They noted that the repeal of the tax deduction would not apply to small, independent producers.

The House Democrats' measure also calls for "aggressive steps [to be taken] to crack down on the extreme misconduct at the Minerals Management Service" following the release of three reports last week that revealed that agency employees engaged in drug activity, sex with industry contacts and the rigging of contracts (see related story).

A provision in the bill calls on the Bush administration to mandate annual lease sales in the National Petroleum Reserve in Alaska (NPRA). Currently lease sales are held every other year in the NPRA. It also urges the administration to facilitate the construction of an oil pipeline into the reserve and the construction of an Alaska natural gas pipeline.

The NPRA, a 23-million acre area on Alaska's North Slope, is estimated to hold technically recoverable resources of 1.3-5.6 billion bbl of crude oil and 39.1-83.2 Tcf of natural gas on federal lands, according to the U.S. Geological Survey. But the economic viability of the natural gas resources hinges on the ability to transport them to markets in the Lower 48 states.

In response to high crude oil and gasoline prices, Democrats also propose to temporarily release nearly 10% of the oil stocks from the Strategic Petroleum Reserve, to be replaced later with heavier, cheaper oil.

Moreover, the House measure seeks to raise the use of natural gas vehicles in the United States over the next 10 years by providing incentives to consumers to purchase natural gas vehicles, automakers to manufacture natural gas vehicles, and service stations to install the infrastructure necessary to fuel gas vehicles.

It also seeks to extend and expand tax incentives for renewable energy, including incentives for plug-in vehicles, and would create a Strategic Renewable Energy Reserve to invest in renewable energy resources and alternative fuels, promote new energy technologies, develop greater efficiency and improve energy conservation. The reserve would be paid for by the royalties from the flawed 1998-1999 leases, the Democratic leadership said.

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