Oil and gas lobbyists are developing a broad agenda in response to energy-infrastructure weaknesses exposed by Hurricane Katrina, including tax breaks and the relaxation of clean-air rules to increase fuel supplies.
The latest push, driven in part by lawmakers anxious to reduce high energy costs, comes a month after Congress passed the first comprehensive energy policy in more than a decade, providing $2.5 billion in tax help for the oil and gas industry.
But House and Senate leaders, and lobbyists, have said Katrina has underscored the need to do more.
One-third of the nation’s domestic oil production and one-fifth of its natural gas are produced in the Gulf Coast region.
Although Katrina’s impact on the region’s energy infrastructure wasn’t as dire as initially feared, it did shut down 10 refineries in Louisiana and Mississippi that produce around 12 percent of the gasoline consumed in the nation and several offshore production facilities.
Gasoline prices shot up to record highs in the week after Katrina hit. Congressional investigations into price gouging at the pump and the introduction of bills to tax industry “windfall” profits leave industry officials wary of congressional overreach.
But energy lobbyists are also hopeful that Katrina has put new force behind some of their highest priorities left off of energy legislation.
At the top of the list may be the expansion of oil and gas drilling in the Outer Continental Shelf (OCS) and other areas.
“From our standpoint, [the hurricane] reiterates the idea that we should be looking at as broad of development of [oil and gas reserves] in the United States as we can,” said Lee Fuller, the chief lobbyist for the Independent Petroleum Association of America.
Already, Rep. Joe Barton (R-Texas), the chairman of House Energy and Commerce Committee, has said a silver lining to the hurricane could be that it will spur Congress to open more areas for drilling.
A particular focus is likely to fall on lease 181, an area in the eastern Gulf of Mexico thought to have huge reserves that is now off-limits.
“This is our nearest-term supply addition and, among other things, could save manufacturing facilities from shutting down while saving good jobs that would otherwise be lost,” according to a letter more than 100 chemical, manufacturing and agricultural companies sent to House leaders last week.
Drilling advocates have sought to alleviate concerns from the Florida delegation, which almost unanimously views drilling off its coasts as a threat to its tourism industry, by proposing to keep drilling at least 100 miles off the shore, an energy lobbyist said. States that allow drilling would also share a royalty revenue.
Another carrot: letting Florida out of an Energy Department inventory of gas reserves directed by the energy bill passed in August, the lobbyist said.
Drilling advocates also want to allow oil wells in the Arctic National Wildlife Refuge (ANWR), which is likely to be included in the budget reconciliation package.
But while OCS and ANWR are two of the biggest, and most controversial, efforts, a series of less dramatic proposals is also being pushed. They include allowing refineries to depreciate their infrastructure more quickly, which amounts to an additional tax break, and delaying new rules to reduce sulfur content in diesel fuel slated that are slated to go into effect next year.
Bob Slaughter, the president of the National Petrochemical and Refiners Association, told a House committee last week that Congress could expand tax incentives included in the energy bill as a way to encourage growth of the refining industry.
He called, for example, for the reduction of the depreciation period for refining investment from 10 to seven or five years to encourage investment.
A provision in the energy bill that Congress approved in August already allows refineries to expense half the cost of refinery investments that increase capacity by at least 5 percent or increase production of certain fuels by 25 percent. That provision costs $406 million. Reducing the depreciation period, which Sen. Orrin HatchOrrin HatchGOP senator to Dems: 'What's all the whining about' on Supreme Court? Trump, time to end outsourcing ... at the IRS Hatch: I may retire if Romney runs to replace me MORE (R-Utah) has pushed, would cost even more.
But advocates point out that there hasn’t been a new refinery built in 30 years. As demand for gasoline increased 20 percent in the past two decades, U.S. refining capacity has decreased 10 percent.
Industry officials partly attribute the decline to the difficulty of getting plants built in face of strong not-in-my-back-yard opposition and delays in getting permits to build or expand plants.
Slaughter said it can take up to two years to add capacity to an existing plant.
But Bob Linden, an energy analyst for PA Consulting, said relatively low profits were a larger problem the industry.
“It’s been a terrible business for those 30 years,” with profits around only 5 percent, he said.
As pump prices have risen, however, the business has improved so significantly that Linden said additional tax breaks should no longer be needed.
“This industry doesn’t need any other economic incentives right now,” Linden said.
In addition to tax help, lobbyists are focusing on a series of environmental regulations. One focus is on new ultra-low sulfur standards for diesel fuel used by trucks and buses.
At the time the rules were issues, the Environment Protection Administration estimated the standards would prevent more than 8,000 premature deaths a year by reducing the level of particulates in the air.
“It would be a very big blow to public health if the [new standards] are delayed,” said Frank O’Donnell of Clean Air Watch.
A lobbyist for an oil company said the industry the administration to delay for a yeah the new sulfur standards, set to kick in 2006, to allow the industry to recover from Katrina.