Market Intelligence: US Congressional and Senate leaders face off on offshore drilling vote

Offshore showdown

21 August 2008 20:13  [Source: ICB]

THE OFFSHORE energy issue is heading for a showdown vote in the US Congress next month, and it is shaping up as a major, one-time, all-or-nothing decision that could impact the US chemical industry for years.

Members of Congress who want to open US offshore regions to oil and gas development said they will force a federal government shutdown on October 1 unless they get a vote on expanded drilling.

Representative John Peterson (Republican, Pennsylvania) said that when Congress returns from its recess on September 8, he and other pro-drilling members of the House will force a vote on whether to continue a 21-year-old congressional ban on offshore drilling in 85% of the US outer continental shelf (OCS) regions.

According to the US Department of the Interior (DOI), those offshore areas that are closed to drilling may contain 18bn barrels of oil and some 77 trillion cubic feet (2.2 trillion m3) of natural gas.

But those estimates are based on old-technology seismic measurements that were taken in the 1970s, and the moratoria areas may yield much more.

The US consumes 8bn barrels of oil and more than 22 trillion cubic feet of gas a year.

The congressional ban on drilling in most of the OCS areas off US coasts is contained in the DOI's appropriations bill that typically is renewed each year by Congress.

Democrat leaders in the House have delayed committee and floor action on the fiscal year 2009 DOI appropriations bill, apparently in order to avoid a vote on the offshore drilling ban, fearing the moratorium would be ended.

What Peterson and other Republicans and a number of Democrats want is just a straight up or down vote on the record to renew or end the OCS drilling ban in the DOI appropriations bill.

But House Speaker Nancy Pelosi (Democrat, California) and Senate Majority Leader Harry Reid (Democrat, Nevada) don't want that simple yes or no vote to take place, for two very unpalatable reasons.

First, if the OCS ban were to be voted down, that action would infuriate environmentalists and other liberal groups among the Democrats' core constituencies.

In the second place, if Pelosi and Reid want to avoid seeing the offshore ban eliminated and their core constituencies angered just before the election, they would have to twist arms among enough congressional Democrats to ensure that the ban is maintained and extended for another year.

But with US consumers paying around $4/gal (€0.72/liter) for gasoline and higher costs for electricity, food and other necessities, Democrats would not want to be on record as voting against increased US domestic energy production.

So that simple yes or no vote on the offshore drilling ban embedded in the Interior appropriations bill is a lose-lose proposition for Pelosi and Reid.

However, the Democrat leadership in the House will have to do something soon. Unless the offshore drilling moratorium is renewed by a vote of Congress within the next month, it will automatically expire on October 1.

House leaders could still avoid a confrontational vote on the offshore moratorium by postponing the DOI's and other appropriations bills until next year, when Democrats expect to have wider majorities in both the House and Senate and perhaps a Democrat in the White House.

But if they do that, to keep the federal government in operation for the last three months of this year, Congress would have to pass a continuing resolution, which would maintain funding authority for the DOI and other federal agencies at current levels.

If they cannot get a straight-up vote on the DOI drilling ban, Peterson and other House Republicans, along with some Democrats, want action on a bill, HR-6709, that would repeal all offshore drilling bans, but bar development within 25 miles (40km) of shorelines.

Pelosi has long opposed offshore drilling and, until recently, has vowed to block any House vote on ending the OCS moratorium. However, she has indicated that she might allow such a vote if ending the offshore ban was to be coupled with alternative energy, conservation and efficiency measures.

If US manufacturing industries cannot now win access to the offshore oil and gas they need, their chances of ending the OCS moratorium will be even slimmer.

If, as expected, Democrats expand their majorities in both the House and Senate in the November elections and Senator Barack Obama wins the White House, opposition to expanded offshore drilling will be more deeply entrenched.

In addition, US production of natural gas is already growing, according to the Department of Energy (DOE), with expanded development of onshore conventional gas reserves and newly promising shale gas production.

In addition, the DOE says it will soon fund research projects that it is confident will deliver carbon capture and sequestration technologies to enable environmentally friendly use of the nation's abundant coal reserves by 2020.

As a consequence, if next month's vote on offshore energy fails, when advocates of OCS development go knocking on congressional doors next year and beyond, they are almost certain to meet replies of: "See, we don't need the offshore reserves!"

So the offshore vote that is approaching could be one of the most crucial energy decisions that this country will make for the next decade and beyond.

By: Joe Kamalick
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