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Administration Cuts Oil, Gas R&D Funding to Zero

Independent producers blasted the Bush administration's decision to cut oil and gas research and development (R&D) funding to zero in both the Department of Energy's (DOE) $23.5 billion budget for fiscal year 2007 and from the R&D program specified in the Energy Policy Act of 2005.

The administration said $64.4 million in R&D funding was cut out of DOE's budget because there already are "sufficient market incentives for private industry support" of these efforts. Instead, funds were shifted to other administration priorities, such as science, nuclear nonproliferation, nuclear cleanup, alternative fuels, clean coal and zero emissions power generation. DOE's total budget was held flat.

"The decision reflected a strategic consideration by assessing the [oil and gas R&D] program's technical effectiveness and comparing it to other programs which have achieved more clearly demonstrated and substantial benefits," the administration said in DOE's budget request.

The administration also plans to repeal the new mandatory oil and gas research and development program that was specified in the Energy Policy Act of 2005. The "Ultra-Deep and Unconventional Natural Gas and Other Petroleum Research" program was to be funded from federal revenues from oil and gas leases beginning in fiscal year 2007. But the Bush administration said these R&D activities are "more appropriate for the private sector oil and gas industry to perform." As a result, the administration proposes to repeal the program through a separate legislative proposal.

These decisions will represent significant reductions in research funding at a time when gas and oil supply is tight and prices are high. "It doesn't make sense to have an Energy Department that doesn't have a portion of its mission directed to America's largest energy resources," said Mike Linn, chairman of the Independent Petroleum Association of America (IPAA), which represents independent oil and gas producers. "Certainly it's important to develop new fuels and clean coal, but domestic oil and natural gas development is essential, too -- particularly to pursue the president's objective of reducing dependence on foreign oil." Oil and natural gas account for 65% of the nation's energy supply, Linn noted.

"The main customers of DOE's oil and natural gas technology programs are not major, integrated companies," he said. "Eighty-five percent of the Energy Department's research efforts are directed toward independent producers who drill 90% of the nation's oil and natural gas wells. These companies are providing American energy."

IPAA noted that many of the research projects funded through DOE's Fossil Energy programs were managed primarily by universities rather than production companies. "Maintaining strong university programs to educate the essential engineers and scientists to meet the workforce needs of the domestic energy industry is critical and consistent with the President's American Competitiveness Initiative," said Linn, who also is CEO of Pittsburgh-based Linn Energy.

"To meet the president's national challenges as described in his State of the Union speech last week, America's domestic producers of oil and natural gas must be included, and federal oil and gas research and development must be a part of the mix," he said.

The total Fossil Energy budget was cut 23%, or $193 million, to $649 million. Energy efficiency and renewable energy received a 0.2% increase ($2.6 million) to $1.18 billion. The funding budgeted for electricity delivery and energy reliability was cut 23% to $124.9 million. The total energy budget fell 4.8% to $2.58 billion.

DOE's budget request includes $4.6 million to support the Alaska Natural Gas Pipeline activities authorized by Congress in 2004. About $2.3 million will be used to support an office of the federal coordinator and the remaining $2.3 million will support the loan guarantee portion of the program.

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