NGI The Weekly Gas Market Report / NGI All News Access

Senate Debuts Broad-Based Energy Legislation

Senate Debuts Broad-Based Energy Legislation

Alarmed by the U.S. appetite for foreign oil, key Senate Republicans last week introduced a broad-based legislative package that would open up areas that have been closed to drilling in the past, as well as offer tax measures and other incentives to stimulate the production of crude oil, natural gas and alternative energy in the Lower 48 states and Alaska.

The legislation, which was the product of a ten-member task force led by Senate Energy Committee Chairman Frank Murkowski (S-AK), seeks to open up for the first time the Arctic Coastal Plain to oil and gas development, turn over regulation of oil and gas leases on federal lands to the states, provide royalty relief for producers in remote Outer Continental Shelf (OCS) areas, offer tax incentives for marginal oil and gas producers, allow the expensing of exploration costs and the delay of rental payments, expand the tax credit for renewable energy sources, establish a Northeast home heating oil reserve and a number of other measures.

Independent producers praised the bill, calling it a "blueprint for a coherent [domestic] energy policy," but Energy Secretary Bill Richardson knocked the measure for allowing drilling in the Arctic Coastal Plain and for its absence of investment in energy efficiency. Public Citizen, a Washington, D.C.-based consumer advocacy group, denounced the initiative as "yet another example of industry-written legislation." It especially was critical of the provision on Arctic Coastal Plain drilling, saying it was a "phenomenally poor idea."

The goal of the legislation is to reduce the nation's dependence on foreign oil to at least 50% by 2010. Currently, it's estimated the United States depends on foreign sources for nearly 60% of its energy needs. The full Senate "should take this bill up before we leave this year because a disaster is looming on the horizon," Majority Leader Trent Lott (R-MS), who formally introduced the "National Energy Security Act of 2000" last Tuesday, said during a press briefing on Capitol Hill.

This is happening on "my watch as Majority Leader. I'm not going to stand by and not.....try to do something about it. If the administration [wants to] join us, that would be great," Lott told reporters. But Congress can no longer " [wait] on the administration to do something, to do anything" to lessen U.S. reliance on foreign oil.

Because only a short time remains in the session, Lott has attached "special rules" to the legislation that essentially would allow him to pull the bill out of committee for a vote on the Senate floor before Congress recesses for the year. "We did set it up in such a way," he said, but added that taking such action would be a last resort. Lott noted he intends to discuss the bill with the House Speaker J. Dennis Hastert (R-IL) to "coordinate our efforts," as well as with key Democrats in Congress to win bi-partisan support.

The cornerstone of the bill, S. 2557, is a proposal for Energy Secretary Bill Richardson to set up an Interagency Work Group on Natural Gas within the National Economic Council. The aim of the group would be to develop a "strategy and comprehensive policy for the use of natural gas" to ensure energy security, economic growth and environmental protection. The group would include representatives from every federal agency that has a "significant role" in developing and implementing gas policy, resource assessment or technologies for gas exploration, production, transportation and use.

The legislation calls for the group to prepare and submit to the Energy Secretary a report outlining its recommendations on a comprehensive gas policy within six months after the bill is enacted. The secretary then would have three months to review the report and submit it along with his own "recommendations for administrative or legislative actions" to the president and Congress.

Another key provision of the legislation proposes that the Energy Secretary "establish, maintain and operate" a home heating oil reserve in the Northeast, which if built could reduce the immediate demand for natural gas and additional gas pipelines to that region. The Department of Energy (DOE) would authorize releases of petroleum distillate from the reserve only in the event of severe energy supply disruption, severe price increase or another emergency affecting the Northeast, according to the bill.

In a move that already has evoked controversy, the bill authorizes the Interior Secretary to take the necessary steps to establish and implement a "competitive oil and gas leasing program" for drilling in the Arctic Coastal Plain, which is part of the Arctic National Wildlife Refuge (ANWR). Sen. Murkowski has been trying for years to open up ANWR to drilling, but has been fought every step of the way by environmentalists.

"I've always maintained if the Senators and Congressmen from Alaska want to do it [open up ANWR], then it surely is safe," Lott said. The initial Arctic lease sale would be held within 20 months following the enactment of the legislation, and would be for no less than 200,000 acres and not more than 300,000 acres, according to the energy bill.

Additionally, the Senate initiative directs the Interior Secretary, in consultation with the director of the U.S. Geological Survey. to publish a "science-based national inventory" of all the oil and gas reserves and potential resources underlying federal lands and the OCS. It also proposes a number of initiatives to encourage the exploration, development and production of these reserves.

For starters, the legislation would give the states the go-ahead to regulate oil and gas leases on federal lands in an effort to speed up the permitting process. States first would have to notify the Interior Secretary 180 days after the bill is enacted of their intention to accept this responsibility. Interior would retain authority over issuance of leases, approval of surface-use plans of operations and project environmental analyses.

In an effort to stimulate development of federal lands and the OCS during times of depressed energy, the legislation would give producers a royalty credit for oil and gas production when the cash price of West Texas Intermediate crude oil drops to less than $18 per barrel for 90 consecutive pricing days or when the price for gas delivered at Henry Hub, LA, falls below $2.30 MMBtu for 90 consecutive days. The credit would be equal to 20% of a producer's capital expenditures on exploration and development (E&P) activities on federal leases.

Similar royalty credits are proposed to enhance production from onshore and offshore marginal oil and gas wells when prices are depressed. It also incorporates a proposal by Sen. Kay Bailey Hutchison (R-TX) that calls for tax credits for low-volume marginal oil and natural gas wells. The bill would offer a $3 a barrel tax credit for oil that is triggered when prices fall to between $14-$17 per barrel. The credit would apply only to the first three barrels of daily oil production. Marginal gas producers would be eligible for a tax credit of 50 cents/Mcf for the first 18 Mcf of daily production when prices fall to between $1.56/Mcf and $1.89/Mcf.

In the Arctic Alaska region, the bill would reduce a producer's "future royalty or rental obligation" on any federal lease by an amount equal to 1) 10% of the qualified costs of exploratory wells drilled or geophysical work performed, whichever is greater; and 2) an by additional 10% of the qualified costs of any exploratory wells that are located 10 or more miles from another oil or gas well.

Moreover, producers would be able to deduct geological and geophysical costs related to the exploration or development of oil or gas. The deduction would be made in the taxable year in which the expenses were paid or incurred, according to the bill. Only expenses that were incurred or paid after the date of the enactment of this legislation would be eligible for this treatment.

Susan Parker

©Copyright 2000 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part 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