NGI The Weekly Gas Market Report / NGI All News Access

Senate Panel Votes to Open More of Lease 181; Prospect on Senate Floor Uncertain

The Senate Energy and Natural Resources Committee overwhelmingly voted out bipartisan legislation last Wednesday that would make a significant amount of additional acreage in the natural gas-rich eastern Gulf of Mexico available for leasing. The bill, however, is expected to face stiff opposition from Florida's senators and other Gulf Coast lawmakers when it comes before the full Senate.

By a vote of 16 to 5, the committee sent to the Senate floor a bill (S 2253), sponsored by Committee Chairman Pete Domenici (R-NM) and ranking Democrat Jeff Bingaman of New Mexico, that could open up as much as 3.6 million more acres in the area known as Lease Sale 181 for leasing by the federal government, possibly as early as a year from now.

Lease 181 in the eastern Gulf "is the most significant American asset available now that could ameliorate...the price of natural gas or stabilize it," Domenici said during the mark-up session. "Even though it would not bring gas [online] for a few years, it is so imminent and so large in quantity" that it will have a stabilizing effect on the market now, he noted. Domenici estimated that the additional Lease 181 acreage would contain approximately 6 Tcf of gas.

Opening more areas of Lease 181 will provide a "very good sign to the natural gas markets," putting them on notice that increased gas supply is on its way, Bingaman said.

The sole Republican on the Senate energy panel to vote against the legislation in its current form was Sen. Mel Martinez of Florida. He and Sen. Bill Nelson (D-FL) are pushing an alternative measure that would include permanent protection for Florida's coasts, and would offer a more limited amount of additional acreage in Lease 181 (1.2 million acres) for exploration and production. "We're not saying 'no' [to drilling]...We're trying to offer a solution," Martinez said.

The Domenici-Bingaman bill proposes a 100-mile buffer to protect Florida from drilling activities, "but it doesn't suggest or hint at what will be the end game," Martinez noted. "We want to seek an end to the threat to Florida's coast...At what point do we get permanent protection?" he asked.

Domenici countered that he believed the 100-mile protection zone proposed in his bill was more than adequate for Florida. With that buffer, "the risk to Florida is so minimal as compared with the benefits to the people," he said.

"I do look forward to an opportunity on the Senate floor to discuss this issue more thoroughly and to offer [an] alternative" measure, Martinez said. Without further concessions to the Sunshine State, Nelson has vowed to filibuster the Domenici-Bingaman bill or "do whatever it takes to kill it" when the measure reaches the Senate floor.

Nelson fired the first volley soon after the bill was passed out of committee. He informed Senate Democratic Leader Harry Reid of Nevada that he objected to any consideration of the bill by the full Senate, which he said will require Domenici and Bingaman to come up with 60 votes in order to bring their Lease 181 measure to the floor.

Four Democrats on the committee -- Sens. Daniel Akaka of Hawaii, Ron Wyden of Oregon, Dianne Feinstein of California and Robert Menendez of New Jersey -- opposed the Lease 181 bill primarily because they fear it could pave the way for more expansive legislation and/or administrative action to open up currently protected waters off the East and West coasts.

"We're worried about the recent actions that have been taken by the [Bush] administration that indicate the willingness to open up an area for oil and gas drilling 75 miles off the beaches of New Jersey," said Menendez. Interior Department's five-year proposal (2007-2012) for leasing on the Outer Continental Shelf (OCS) seeks to explore the potential for development off the coast of Virginia, a neighbor to New Jersey. It also proposes to open up two million additional acres in Lease 181 by late 2007.

Sen. Mary Landrieu (D-LA) voted "present" because "this missing a crucial component necessary for my complete support," namely providing coastal states with a greater share of the revenues from oil and gas production off their shores. Coastal states in the Gulf region -- such as Texas, Louisiana, Mississippi and Alabama -- have been shouldering the brunt of offshore production for the entire nation for years, without receiving a share of the revenues, she said.

"Our time as host may be running short. We want to continue to do our provide the platform for this production," Landrieu said, but she added that pro-drilling coastal states must first be allowed to share the revenues associated with offshore production to restore their wetlands. As it currently stands, the federal government gets more than 90% of the revenues from production on the OCS, but the states receive only a small percentage.

While the revenue-sharing issue could not be worked out at the committee level, Domenici pledged to work with Landrieu on the issue before the bill reaches the Senate floor.

Domenici said he and Bingaman view the legislation as "one thing we could do quickly this year that would have a near-term effect" on natural gas demand and prices. "We did not introduce this bill as a solve-all-the-natural gas problems bill. But it will do something quickly. That is why we don't intend to expand this bill to address any larger issues...We believe that if presented in that manner to the United States Senate, they would adopt it quickly."

Sen. Ken Salazar (D-CO) offered an amendment to the measure that calls for $450 million in revenue from Lease 181 activity to be placed into the stateside land and water conservation fund. He noted that the amount was small in comparison to the royalties ($11 billion) that are expected to be generated from Lease 181, along with bonus bids of $500 million.

While he supported the thrust of the Domenici-Bingaman bill, Salazar said that unless the legislation was changed to include his amendment, he would not be able to vote for it. Salazar withdrew the amendment from committee consideration, and plans to offer it on the Senate floor.

"I would hope to support the amendment when its offered," provided some of the technical problems are worked out, Bingaman said. Domenici did not indicate how he would vote on it.

On the House side last week, Florida lawmakers attacked Interior's five-year leasing plan for the OCS, which has goals that are similar to the Domenici-Bingaman measure. In a letter to Interior Secretary Gale Norton Monday, 21 members of the Florida congressional delegation expressed their "strong opposition" to the Minerals Management Service (MMS) proposal to move a large portion of Lease Sale 181 from the Eastern Planning Area to the Central Planning Area in the Gulf, making two million more acres of Lease 181 available for oil exploration and production. They noted that the new boundaries come within 16 miles of the beaches of Pensacola, FL.

The MMS plan calls for the sale of areas within Lease 181 on five separate occasions, which would make the areas "the most intensively leased region on the entire OCS," the House lawmakers said in the letter, which was drafted by Rep. Jim Davis (D-FL)."We ask MMS to restore the Eastern and Central Gulf of Mexico Planning Area boundaries to their original location and remove the additional two million acres of Lease Sale 181 from consideration."

"Florida's congressional delegation will not simply roll over and let them [Interior] annex the future of our pristine coastline to [the] neighboring states" of Alabama and Louisiana, Davis said in a press statement.

MMS' draft five-year leasing proposal, which was released in early February, seeks to realign the boundaries of its Central Gulf Planning Area to correspond with the new federal OCS offshore administrative areas that were announced in early January (se NGI, Feb. 13) Under the contemplated revision, the line between the central and eastern Gulf would be drawn 100 miles off the coast of Florida and there would be no leasing in the new Eastern Gulf Planning area adjacent to Florida.

The two million acres proposed to be added to the Lease 181 sale are not under any moratoria and could be leased as early as August 2007, according to Interior.

©Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus