INSIGHT: A daring new bid for US offshore gas

21 June 2007 16:29  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--A bipartisan congressional group has launched a daring bid to end the quarter-century bar to offshore energy development by linking natural gas to renewable energy - and calling on environmentalists to help end the drilling ban.

 

Congressmen John Peterson (Republican-Pennsylvania) and Neil Abercrombie (Democrat-Hawaii) head a core group of three Republican and three Democrat members of the House who - seemingly against daunting odds - hope to put a legislative fork in the 26-year-old congressional moratorium that blocks drilling in 85% of US outer continental shelf areas.

 

Natural gas is the principal feedstock for US chemicals production and is a key raw material or energy source for a wide range of other manufacturing sectors. The price of natural gas has jumped three-fold from around $2/m Btu until 2000 to the current $8 range with spikes to $15 in 2005.

 

Those sharp gas price increases have forced the shutdown of chemical facilities, especially among fertilizer and methanol producers, and has forced other manufacturing offshore as well.

 

Peterson has long championed an end to the congressional drilling ban, which was put in place in the early 1980s when US natural gas was plentiful and cheap and shoreline states along the US east and west coasts were worried about possible drilling pollution of their popular tourist beaches. 

 

Abercrombie took up the cause last year when Peterson convinced him that the congressional ban could be lifted for gas drilling only, thus increasing supply of much-needed domestic energy while simultaneously assuring environmentalists that pristine coastal beaches would not be marred.

 

Peterson, who hails from the Pennsylvania region where the first US oil well was drilled in 1859, never tires of telling environmentalists and others that no natural gas well has ever polluted the ocean or a shoreline, simply because the gas can’t do either.

 

That is why his newly revived offshore energy development bill, the National Environment and Energy Development (NEED) Act, would open broad sections of the 200-mile wide US outer continental shelf regions to gas drilling only.

 

In addition, the Peterson-Abercrombie measure offers still further enticements to environmentalists and coastal states.

 

First, the bill would prohibit drilling within 25 miles of any state’s shoreline. Gas leasing would be allowed in the 25 to 100 mile section of each state’s underwater shelf only if the state authorised it. (The outer 100 miles of the 200-mile wide shelf would be open to gas drilling regardless of coastal state support.)

 

Second, those states that elect to allow drilling off their shores would get 37.5% of federal royalties earned from that energy development.

 

And, third, some of the other federal royalties from offshore gas leasing would be set aside and directed to a range of environmental remediation work and energy efficiency and renewable fuels research.

 

Abercrombie was emphatic that natural gas is the key to the ongoing US development of renewable fuels, such as ethanol, noting that natural gas is probably the single largest component of ethanol production when counting the gas-based fertilizer used to grow corn and gas energy heavily used in refining corn-based ethanol.

 

The environmental work would benefit not only coastal states. Peterson is specifically directing much of the offshore royalty funds - which he estimates at $400bn over ten years - to remediation work in US interior states. 

 

Billions of dollars would be spent to help clean up the Great Lakes in the US heartland. In theory, this would help swing support to Peterson’s bill from representatives and senators from five states that border the Great Lakes. Other billions would be directed to remediation along the Colorado River, which serves seven western states.

 

Other royalty revenue, some $60bn, would go into research on energy efficiency, renewable fuels and the capture and sequestration of carbon dioxide (CO2). The latter is seen by many environmentalists and coal-mining states as essential if the US is to continue to benefit from its vast supply of coal as an environmentally friendly electric utility fuel.

 

Lastly, Peterson’s bill would set aside still more offshore royalty funds to provide assistance to low-income families that depend on natural gas for home heating and cooling.

 

Not incidentally, the measure would throw a lifeline to US chemicals manufacturers and other industrial sectors.

 

In short, the bill has something in it for almost everyone. It is with that rich grease of financial and commercial incentive that Peterson hopes to ease his bill through a Congress that otherwise would seem stiffly resistant to any proposal for offshore energy development.

 

Indeed, the new Democrat controlled Congress is at work on legislation that would undo many of the energy development features of the 2005 Energy Policy Act (EPAct). Democrats seek to repeal tax incentives, raise permitting fees and lengthen permitting periods for oil and gas development, instead directing funds to renewable energy such as ethanol, wind and solar power.

 

Even so, Peterson and Abercrombie are convinced they can get the bill through Congress. They expect to garner at least 150 cosponsors in the 435-member House, and Peterson said he is already talking with sympathetic senators who will back a Senate version of the bill.

 

If Peterson and Abercrombie fail, it won’t be for lack of trying - or for lack of daring.

By: Joe Kamalick
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