The House Energy and Commerce Committee’s draft energy bill, which reportedly could go through the committee mark-up process next week, includes a broad array of measures aimed at speedily increasing natural gas supplies, including new royalty collection rules and incentives, expedited permitting for drilling, and removal of roadblocks to natural gas transportation, liquefied natural gas (LNG) terminaling and storage. It also includes a mandatory price reporting provision for natural gas.

While initial plans had called for the bill, which is similar to last year’s measure, to go straight to the floor for a quick vote, sources say committee Chairman Joe Barton (R-TX), pressured by committee Democrats, is considering scheduling a mark-up for April 5-7 (see Daily GPI, Feb. 11). The bill includes an extensive oil and gas section from a measure to require that all oil and gas royalty collection be in kind rather than in cash to an examination of mitigating the state of Hawaii’s reliance on oil with encouragement for renewables projects or LNG.

The language on natural gas market transparency differs from earlier proposals and from recent suggestions offered by the Federal Energy Regulatory Commission. It would direct FERC to issue rules requiring all jurisdictional entities to “timely report information about the availability and prices of natural gas sold at wholesale in interstate commerce to the Commission and price publishers.”

The bill states producers would not have to report sales of their own production, nor could FERC condition access to pipeline transportation on fulfilling the reporting requirements. Producers, processors or users who have a de minimis market presence would not be required to report. And the Commission would be prohibited from regulating, competing with or displacing price publishers.

Responding to committee requests for suggestions last month, FERC had said price reporting had improved greatly and asked for “permissive” authority to install more stringent measures if it became necessary (see Daily GPI, Feb. 14). However, as currently written, the bill’s language would require, rather than allow, mandatory reporting.

Other portions of the legislation would respond to FERC’s request for clarification of its civil authority over false reporting and deceptive trading activities and increased penalty limits for violations.

On the subject of royalty in-kind (RIK), the bill strays from the current program in place where only a portion of royalties are paid in kind to the Minerals Management Service (MMS), looking to all but do away with cash payments from producers.

The provision states that “all royalty accruing to the United States shall, on the demand of the Secretary of Energy, be paid in oil or gas.” The MMS would then sell the product for “not less than the market price.” The caveat is that the Interior Department would have to report each year through 2015 on its net revenues and whether they are estimated to be greater than or equal to the benefits to the nation had royalties been taken in-value.

The energy bill proposes that royalty production should be put in “marketable condition” by the lessee, meaning that oil and natural gas used in RIK payments should be “sufficiently free from impurities” and “otherwise in a condition that the royalty production will be accepted by a purchaser under a sales contract typical of the field or area in which the royalty production was produced.” The provision makes clear that the MMS should pay the costs of transportation and processing.

The proposed legislation would put royalty relief for deep wells in the shallow waters of the Gulf of Mexico on a fast track. It would direct the Interior Department to complete its rulemaking for royalty relief for deep gas. In addition, within six months Interior would be directed to issue regulations suspending royalties for not less than 35 Bcf of production from ultra deep wells (20,000 feet or more) leased before Jan. 1, 2003 in shallow waters (less than 200 meters) in portions of the Gulf. The regulations would be retroactive to the date the proposed rules are first published in the Federal Register.

For deepwater production the legislation specifies that royalty suspension volumes shall be increased to not less than five million boe for each lease in water depths between 400 and 800 meters, nine million boe for depths of 800-1,600 meters and 12 million boe beyond 1,600 meters.

Included in the efforts to increase energy supply are changes requiring a new rule to allow subtractions from royalties for the costs of environmental studies performed by lease operators or applicants.

While royalty relief as a production incentive for marginal wells is prescribed only when oil prices go below $15/bbl and gas prices are below $2/MMBtu, the legislation directs the secretary of Interior to develop new regulations defining marginal wells and setting new royalty relief amounts within 18 months of passage of the bill. Development of those regulations should include consideration of the following: oil and gas prices and market trends; production costs; abandonment costs; federal and state tax provisions and the effects of those provisions on production economics; other royalty relief programs; regional differences in average wellhead prices; national energy security issues; and other relevant matters.

Another interesting section of the proposed bill calls for a study of the state of Hawaii’s energy infrastructure, assessing its short- and long-term prospects for crude oil supply disruption and price volatility. The study also should encompass the technical and economic feasibility of displacing the oil with renewables and/or LNG for electricity generation.

Regarding leasing and permitting, the bill would direct the Interior Secretary to review all aspects of his department’s leasing and permitting process and management practices and report in six months on actions taken to improve or expedite activities. It calls for improved consultation and coordination with the states, development of best management practices to ensure timely action on oil and gas lease applications for permits to drill; and improved enforcement of lease operation rules. It also would set time limits for leasing processes.

The secretaries of interior and agriculture would be required within six months of enactment to sign a memorandum of understanding, to coordinate leasing and drilling activities on public lands and National Forest System Lands, establishing administrative procedures and lines of authority and eliminating duplication of effort. The bill calls for Interior to establish a federal permit streamlining pilot project with the cooperation of other affected federal agencies and states — notably Wyoming, Montana, Colorado, Utah and New Mexico.

The legislation also calls for inter-agency studies on energy facilities rights-of-way and corridors on federal lands, and reporting to Congress on designations of existing rights-of-way and potential corridors, first in 11 contiguous western states within one year, and in the rest of the states within four years.

Other miscellaneous provisions would do the following:

(Publisher’s note: NGI, which has not been queried by the House committee, agrees with FERC that significant progress has been made regarding natural gas price reporting. NGI objects to mandatory reporting, believing such a mandate would disrupt the market.)

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.