Wednesday, June 18, 2008

Energy on Wednesday

And thus we begin today's coverage of energy issues with this release from the Institute for Energy Research:
Washington, DC – President Bush today called on Congress to repeal its 27 year-old ban offshore energy production, but stopped short of eliminating the executive moratorium on production originally established by his father in 1990. The Institute for Energy Research (IER) urged the president last week to exercise his authority to eliminate that ban entirely. Its president, Thomas J. Pyle, renewed that call again today:
“The president has chosen to speak softly when American consumers need him to wield a big stick,” Pyle said. “He has the authority to tear up the executive moratorium immediately, and we believe he should. Eliminating this senseless ban would show the world that the United States is finally getting serious about producing more of its own energy instead of just talking about it. This was a missed opportunity.”
Two outdated federal bans make the U.S. the only developed nation in the world that restricts access to its own offshore energy resources. The Executive Moratorium was instituted in 1990 and is set to expire in 2012, but can be eliminated by the President at any time. The Congressional Moratorium is an annual appropriations rider in Congress. It expires every year and must be renewed annually by a vote in the Congress. Neither have the force of permanent law.

Facts About Outer-Continental Shelf (OCS) Energy:

  • 97 percent of America’s 1.76 billion acres of OCS lands are not being used for their energy potential.

  • The U.S. Minerals Management Service (MMS) estimates that the outer continental shelf contains nearly 86 billion barrels of oil and 420 trillion cubic feet of natural gas. (The U.S. consumes roughly 7.5 billion barrels of oil and 23 trillion cubic feet of natural gas annually). This estimate is conservative, at best, because it has been illegal to explore; we simply have not looked.

  • The U.S. Department of Energy issued an extensive report – the Environmental Benefits of Advanced Oil and Gas Explorations and Production Technology – outlining the innovations that make oil and gas production safe, even in sensitive environments.

  • According to National Academy of Sciences research, the vast majority of oil found in North American oceans comes as a result of natural seeps from the ocean floor and transportation, not production.
  • Item #2 on the energy post today is this release from last night from Rep. Bob Latta (OH-05) praising Sen. McCain's energy plan:
    WASHINGTON- Congressman Bob Latta (R-Bowling Green) made the following statement today after Senator John McCain (R-AZ) called on Congress to lift the current federal ban on exploration and recovery of gas and oil in deep ocean energy zones.

    “Senator McCain’s call on Congress to lift the current deep ocean energy zone drilling ban is just one way to reduce rising fuel costs and our dependence on Middle Eastern oil. Unfortunately, under the current Democrat leadership of Congress, this option will never become a reality because they repeatedly refuse to consider this option, along with other forms of domestic exploration. With recent poll numbers showing a majority of Americans supporting domestic exploration of oil and gas, Senator McCain is simply heeding the call of the American people.

    “With 86 billion barrels of oil and 420 trillion cubic feet of natural gas directly off our shores, it is only logical that we permit responsible, environmentally safe exploration in these areas.
    Item #3...Speaking of Rep. Latta, he did a "one-minute" on energy issues on the floor of the US House of Representatives this morning:
    Madame Speaker, as Congress continues its debate on domestic energy policy, we must be aware of what our constituents are saying, both at home and at work.

    During this past week, I had the pleasure of touring two manufacturing plants in my district. These manufacturing plants provide hundreds of good paying jobs and produce high quality products for our nation’s economy.

    During my tours, the management of these companies said that hands down, rising energy costs are their number one concern. As energy costs rise, production costs rise as well at these plants.

    As production costs rise, companies all over the United States face competition from foreign manufactures who have lower labor costs and in some instances lower fuel costs.

    Countries like China and India, who are currently exploring many forms of domestic energy production are able to offer lower production costs directly tied to their lower energy costs.

    Under the current Congressional leadership, Congress will not even consider domestic exploration and recovery of an abundance of energy resources that we have here in the United States. With these energy resources, we can grow our own economy, retain American jobs and prevent them from being taken overseas.

    The bottom line is that energy equals manufacturing which equals jobs, and we in Congress must remember that as our energy debate continues.
    Item #4:
    WASHINGTON, DC – Congressman John Boehner (R-West Chester) today issued the following statement on a discharge petition filed by Rep. Phil English (R-PA) to force Democratic leaders to schedule a vote on the Expand American Refining Capacity Act (H.R. 2279), legislation authored by Rep. Joe Pitts (R-PA) to allow the President to recommend closed military bases suitable for new refinery construction:
    “Thanks to our nation’s costly dependence on foreign sources of energy, American families and small businesses are struggling with $4 per gallon gasoline prices that are continuing to surge higher each and every day. Unfortunately, this Democrat-controlled Congress flatly refuses to schedule a vote on legislation that would increase production of American energy and reduce the pain at the pump. Neither the American people nor House Republicans will stand for such inaction. My GOP colleagues and I will continue offering a series of discharge petitions aimed at forcing the Democratic leadership in Congress to schedule bills that will increase production of American-made energy and lower gas prices.

    “I thank Rep. Phil English for offering the next discharge petition in this effort. By forcing Speaker Pelosi and Majority Leader Hoyer to schedule Rep. Joe Pitts’ Expand American Refining Capacity Act, this petition would pave the way for the first new refinery in the United States since the 1970s and reduce our dependence on gasoline imported from foreign countries. At the same time, it will generate new, good-paying jobs in areas of the country that have been hit hard by military base closings. House Republicans have an ‘all of the above’ energy plan to harness new technologies, encourage more efficiency and conservation, and increase production of American energy. Rep. English’s petition is a key part of our plan – and a win-win for consumers and workers alike. The Democratic leadership should not delay in bringing it to the House floor.”
    NOTE: The Expand American Refining Capacity Act would call for the President to identify three military bases slated for closure under the Base Realignment and Closure (BRAC) Commission that would be suitable for locating new oil refineries. For more information on the House Republican’s comprehensive plan for lower gas prices, please visit the House GOP’s “Real Energy Solutions at More information is also available at
    Item #5: A Primer on Federal Oil and Gas Leases from the Institute for Energy Research:
    Skyrocketing energy prices have led many to question the wisdom of federal government policies that make it illegal to produce energy domestically. Others have charged that high prices are due, in part, to malfeasance on the part of energy companies.

    Specifically, lawmakers who support the latter charge point to the fact that oil companies currently hold millions of acres of leases that are not currently producing energy. In support of their claims, the chairman of the House Committee on Natural Resources, which maintains jurisdiction over federal lands energy leasing, issued a report entitled, The Truth About America’s Energy: Big Oil Stockpiles Supplies and Pockets Profits (PDF), and authored legislation, coined the “Use It or Lose It” bill, that would prevent oil companies from “stockpiling” federal leases “to the detriment of the American people.”

    It is a fact that millions of acres currently under lease are not producing. It is not correct, however, that companies are “stockpiling” the leases. The law precludes that. These and other facts are explained below.

    The Basic Stats: Outer Continental Shelf (OCS)

    · Total OCS Acreage: 1.76 billion acres

    · Total Under Lease Now: 41 million acres

    · Percent of Total Under Lease: 2.33%

    · Total Acres Producing: 8.1 million

    · Percentage of Total OCS Acreage Producing: 0.46%

    · Percentage of OCS Off-Limits: 97%

    The Basic Stats: Onshore Federal Lands:

    · Total Onshore Federal Land: 700 million acres

    · Total Under Lease Now: 44.48 million

    · Percent of Total Under Lease: 6%

    · Total Acres Producing: 11.630 million

    · Percentage of Total Onshore Lands Producing: 1.7%

    · Percentage of Onshore Lands Off-Limits: 94%

    The Law:

    Energy companies cannot “stockpile” leases. The relevant laws stipulate that leases must be explored and produced or returned to the federal government for auction in another lease sale.

    · The Mineral Leasing Act (for onshore production): Section 17(e) stipulates that an oil company must have a producing well within 10 years or surrender the leases. Source: 30 U.S.C. 226(e)

    · The Outer Continental Shelf Lands Act: (for offshore production): Stipulates that an oil company must produce energy between 5 to 10 years (in the government’s discretion) or surrender the lease. Source: 43 U.S.C. 1337(b)

    Leases also spell out requirements for surety bonds, royalty payments, and rental payments. Before approval of the lease assignments, the Minerals Management Service (MMS) consults with the Attorney General to avoid antitrust situations.

    All leasing activity is also subject to the following laws and their associated regulations: National Environmental Policy Act, Endangered Species Act, Coastal Zone Management Act, Federal Water Pollution Control Act, Ports and Waterways Safety Act, Marine Mammal Protection Act, Clean Air Act, National Historic Preservation Act, and more.

    Why Are So Many Acres Not Producing Energy?

    The statements made by opponents of increased domestic energy exploration and production might lead one to believe that oil and gas can be found beneath every acre of every lease the federal government issues. This is false.

    Each lease comprises no more than 5760 acres. If and when lease holders are granted permission to explore the leases, there is no guarantee that oil and gas will be discovered at all. The discovery of an “area of hydrocarbon potential,” when one is made, may only cover a few acres of the 5760-acre (or smaller) lease. Discoveries must then be delineated – or proven – before permission to begin production is granted.

    So What Takes So Long to Get To Production?

    Whether it’s onshore or offshore, the Leasing, Exploration, and Development Process (PDF) for developing a federal energy lease is very lengthy, subject to numerous environmental lawsuits and administrative appeals at any time, involves dozens and federal and state laws and agencies, and more. That’s one of the reason why the law gives lease holders anywhere from 5-10 years to explore and develop – if oil and gas is discovered - a lease.

    The Cliff’s Notes version of the leasing process is as follows. Once a company secures a lease, it must begin other processes. The first is the Exploration Plan Approval (PDF) process. Before a lease holder may begin exploration, it must successfully:

    1. Craft and Submit Exploration Plan

    2. Environmental Assessment Conducted

    3. Coastal Zone Management Review Process

    4. Exploration Plan Review

    5. Application for Permits to Drill (exploratory wells) are accepted or denied.

    6. If permits are granted, exploratory drilling begins.

    7. Exploratory wells are completed.

    8. Delineation Well Drilling (if oil is discovered) to define and prove size of field.

    If the exploration is successful, lease holders must complete the Development and Production Plan Approval (PDF) process. It includes:

    1. Craft and Submit Development & Production Plan

    2. Complete and Submit Coastal Zone Management (CZM) Consistency Certification

    3. Await Preparation and Review of National Environmental Policy Act (NEPA) Analysis

    4. Obtain Coastal Zone Management (CZM) Consistency Concurrence from State

    5. Await Decision on Production Plan Decision.

    6. Craft and Submit Production Well Application

    7. Begin Oil and Gas Production

    Re-Leasing What Has Already Been Leased, Explored, and Returned

    When the offshore drilling moratorium was adopted in 1981, the Department of Interior could only issue leases for areas that had already been offered/leased before, and had been found to be lacking in energy potential. The exception was when Congress provided incentives to invest in Ultra Deep Waters in 1995 to stimulate production in areas that were previously too deep for our technology to reach. As such, energy leasing declined after the moratorium. It remains low because the government can only offer leases that have been explored and drilled before. If Congress were to open new areas to production, leasing would increase and so would domestic production.