Offshore Oil Industry Encouraged by Senate Bill

Friday, August 04, 2006
Big oil has been pressing Congress for years to expand its rights to drill for domestic offshore oil and gas, with little to show for its efforts. But with tensions in the Middle East and gasoline prices in the U.S. rising, its fortune in Capitol Hill may be changing. Both houses of Congress have now passed legislation on new exploration, and though the bills differ, any final version is expected to liberalize offshore drilling for the oil companies. According to the New York Times, there is a sense around the industry that a break may be coming from a quarter-century of federal policy that put a higher priority on environmental concerns than on opportunities to produce energy supplies offshore. On August 1, the Senate voted to open for bidding 8.3 million acres of federal waters in the Gulf of Mexico, thought to hold 5.8 trillion cubic feet of natural gas and 1.3 billion barrels of crude oil. That would be enough gas to heat and cool six million homes for 15 years, and enough oil to satisfy two months’ demand in the United States. The House passed a far more ambitious bill in June that would effectively end a federal moratorium since 1982 on offshore drilling on most of the outer continental shelf in the Atlantic and the Pacific. Because it has been so long since exploration has been done, industry officials say it is anyone’s guess just how much oil and gas are out there, especially in deep waters 50 miles or more from the coast. But industry officials say the potential could be enormous. As the energy companies see it, either version of the legislation would be a step in the right direction, although they prefer the broader House bill. But with drilling still in disrepute among some senators, the companies say they will be delighted to see virtually any compromise worked out in conference and enacted after the summer recess. The most important part of the Senate bill would require the Interior Department within a year to open bidding on leases in and around an area known as Lease Area 181, a section about the size of Vermont situated 125 miles south of the Florida Panhandle and 235 miles west of Tampa. The water there is relatively shallow and close to pipelines and other infrastructure built for previous development, so it would be economically attractive to explore at a time of mounting project costs. Industry lobbyists said they expected Exxon Mobil, Shell, BP, ConocoPhillips and less-known independents to make bids. But there is much in the Senate bill the industry does not like. While the House version would prohibit drilling within 100 miles of the Florida gulf coast, the Senate version would prohibit drilling over a far greater area, to 125 miles off most of the state’s west coast and farther out in some places. Moreover, the Senate measure extends a drilling moratorium to the year 2022, from 2012, in some areas off the Florida coast, a provision the oil companies strongly oppose. The House bill would give the coastal states the power to override the current federal moratorium and decide whether they wanted drilling conducted off their coasts. State legislatures would have to explicitly vote for drilling within 50 miles of the shore. Drilling would be allowed 50 to 100 miles out, unless legislatures voted to forbid it. Beyond 100 miles, drilling would be authorized and states would have no authority to stop it. But energy industry officials noted that they would need the cooperation of state governments for the installation of pipelines and other infrastructure. Some states, particularly Florida and California, have long opposed offshore drilling. But the House bill offers an inducement by allowing the states to share in the revenue from offshore leases and royalties, and energy industry officials say they hope that Virginia and the Carolinas will become interested in drilling off their coasts. According to government estimates, there are reserves of 21 trillion cubic feet of gas and 13 billion barrels of oil off the Pacific coast and 37 trillion cubic feet of gas and 3.8 billion barrels of oil off the Atlantic coast. Those figures pale in comparison with known reserves in the Gulf of Mexico and off Alaska. And industry officials say that the government estimates were obtained in an era when exploration technology was relatively primitive compared with what is available today. Still, at the end of the legislative process, it is unlikely that the Senate will accept anything close to the House version, and the oil and gas industry will probably have to accept a partial victory.(Source: New York Times)
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