On June 29th, the House passed H.R.4761, the Deep Ocean Energy Resources Act (DOER), 232 to 187, and by August 1st, a different bill passed the Senate 71 to 25. The House bill lifts a drilling moratorium on 356 million acres and the Senate version on 8.3 million acres, but the bills vary on restrictions in proximity to shorelines (not that you would notice because wells are 50 miles minimum or more from the beach) and the program to allow states' sharing of royalty payments instead of all payments to the federal treasury as it is today. As background for what you read here, remember some of these facts.
The U.S. is dependent on foreign sources for 60% of petroleum (from politically unstable nations mostly) and is the only industrialized nation with coastlines prohibited from new offshore exploration and production. Plus, domestic and international energy demand is rising rapidly, U.S. onshore supplies are declining rapidly, and energy future prices are at or near record highs (the September versus July benchmark price for oil was up $1.16 to $74.40, and gas was up 14% to $8.211). High natural gas prices are a major reason that 70 U.S. chemical facilities closed in 2004, while 120 new plants were under construction worldwide. Hurricanes Rita and Katrina destroyed 111 Gulf production platforms and seriously damaged 437 pipelines, but no significant spills were witnessed. Since 1991, tankers have spilled three times more oil as wells and double the amount as pipelines. It takes years to find and develop energy supplies in spite of "enviro-motionalist" blather that conservation and captured sunbeams will lead America to energy nirvana. Supply relief our nation needs already exists: U.S. Geologic Survey (USGS) estimates 19 billion barrels of oil and 84 trillion cubic feet (TCF) of natural gas in the denied areas. Accounting for recoverable methane hydrate deposits in deep (500+ meters) water, domestic offshore gas supplies may be 360,000 TCF, per USGS.
How this all came about is important because the U.S. energy and mineral leasing system was not always the way it is today. Offshore drilling began in California in 1887. By 1949, 11 offshore fields with 49 producing wells operated in the Gulf of Mexico, and today about 4,000 wells produce in federal waters up to 7,500 feet deep and 200 miles from shore. This "outer continental shelf" (OCS) is the region rarely more than 650 feet deep, extending typically 12 to 250 miles from shore. In the decade after 1995, the share of domestic production has risen (as a percentage) from:
This energy supply came from lands already leased before the moratorium began 24 years ago. Congress used a clever mechanism in 1982 of refusing to fund operation of the Mineral Management Service (MMS) to operate a leasing program. Blocks of OCS land were withdrawn (260 million acres by 1990) when President George H.W. Bush enacted a blanket moratorium on drilling within 50 miles of the coastline until 2000. In 1998, President Bill Clinton extended it through 2012. Curiously, Cuba's Fidel Castro has announced plans to drill wells within 45 miles of Florida, but no American OCS leaseholder can do that. The political reality is that a substantial number of House, Senate and White House people have no grasp of facts and are captive to the fringes that have no understanding that OCS oil and gas production is essential to national economic health and survival. In other words, the politicians, and those they cater to, do not have national interests at heart.
Real issues are largely political posturing and not necessarily partisan. The Senate will not relinquish control of the land area to be decontrolled - the 8.3 million versus 356 million acres. The biggest contention regards the House (good) provision to allow states to collect royalties from energy production from their own lands, climbing from 5% to 50% over 10 years, with coastal communities receiving 40% and states 60% of the non-federal share - all this being a federal issue of lost revenues. In addition, under the House bill the prohibition for exploration and production reverts to the states. Today it seems unlikely that the politicians in Washington will reach agreement and get the job done. It is my suggestion that readers of this journal urge their House representatives to prevail and tell their senators to quit being "stuck on stupid."
FEDERAL TRIANGLE: Government Needs to Wake Up and Smell the Resources
September 1, 2006