Much of the area that makes up the outer continental shelf (OCS) is now off-limits to oil and gas companies because of federal moratoriums on drilling there. But as high prices force job cuts in sectors that rely heavily on natural gas, pressure is building to give states the option of “opting out” of the drilling ban, sources in Congress and along K Street say.
Various proposals have been discussed, but lobbyists said the version most likely to survive is based on a bill introduced by Sens. Lamar Alexander (R-Tenn.) and Tim Johnson (D-S.D.). In exchange for opting out, states would get a share of royalty payments typically reserved for federal coffers, an effort to recast a politically hot-button issue as a matter of state’s rights even though areas now off-limits are currently defined as federal waters.
Critics who fear the loss of a key protection against oil spills, and their potential to spoil beachfronts that may bring in millions of tourist dollars, oppose the provision and are likely to mount a fierce fight if it is included in energy legislation.
“We’re concerned this will start eroding a national moratorium that’s been in place for more than 20 years,” said Anna Aurilio, the chief lobbyist of the U.S. Public Interest Research Group.
Underscoring the regional nature of the issue, California Gov. Arnold Schwarzenegger, a Republican, wrote senators last week urging them to strengthen, not weaken, the drilling ban.
It is not certain that the measure will find its way to the draft bill being put together by Energy and Natural Resources Chairman Pete Domenici (R-N.M.), likely to be released next week. Industry backers say they will try to add it as an amendment in committee if it is not included in the draft bill.
Staffers and lobbyists say the fact that the issue is being seriously discussed is itself surprising, and a testament to the lobbying campaign mounted by both oil and gas companies and industrial consumer groups.
“I do think the issue has some momentum on the committee,’ said Martin Edwards, the chief lobbyist for the Interstate Natural Gas Association of America.
Chemical and agricultural businesses have been especially active in trying to remove the drilling moratorium and easing federal restrictions in other areas like along the Rocky Mountains. These companies rely on natural gas as a feedstock for their products.
Constricted supplies have pushed prices up. Natural gas was trading at nearly $6.50 this week, with futures trading at nearly $8 per million British thermal units (Btu).
For much of the 1990s, natural gas prices were under $3 per million Btu.
“There is a desperate need to increase domestic supply of natural gas,” said Paul Cicio, the executive director of the Industrial Energy Consumers of America, a group formed to promote more domestic production of natural gas.
In a letter sent to senators last week, the group noted government estimates that domestic gas production declined by 5 percent from 2001 to 2004 even as more drilling rigs were opened.
Chemical companies estimate high gas costs have caused 90,000 job losses in their industry alone, as manufacturers shift production overseas where natural gas is cheaper.
Congressional staffers said the political dynamic has shifted. Inland senators, who had little cause to upset their coastal colleagues by pushing for a removal of the moratoria, are taking a more active interest, as evidenced by the Alexander-Johnson bill.
“A lot more members are seeing this as a jobs issue,” one chemical-industry lobbyist said.
But while they may be finding more sympathetic ears, industry backers still face an uphill fight.
An attempt to add a provision during a House-Senate conference committee last Congress to allow gas and oil companies to assess reserves in the outer continental shelf prompted the entire Florida House delegation except Rep. John Mica, a Republican, to write a letter of opposition.
Opponents feared the provision amounted to the proverbial camel’s nose under the tent, and that it would eventually lead to more drilling along the coastline.
One way backers are trying to overcome opposition is by limiting drilling to natural-gas reserves, thereby minimizing the potential risk to shorelines.
An industry lobbyist said the provision was impractical because natural gas and oil are often found together. But Cicio said some areas along the OCS have little oil but lots of natural gas.
According to a map the Consumers Alliance for Affordable Natural Gas (CAANG) has shown to lawmakers, areas in the OCS where drilling is now restricted, either partially or totally, could collectively hold as much as 95 trillion cubic feet of natural gas. CAANG is an umbrella industry group that includes the American Forest & Paper Association, the American Chemistry Council and the Association of American Railroads.
By comparison, Americans used 22 trillion cubic feet of natural gas in 2003, according to the Energy Information Administration.
Besides environmental worries, Energy and Natural Resources ranking member Jeff Bingaman (D-N.M.) has also raised concerns about allowing states to share in royalty payments, according to several industry sources. Now, states and the federal government split royalties from inland oil and gas production but royalties produced from offshore drilling in federal waters go solely to Washington.