NES WILL SET WASHINGTON PACE FOR ACTION ON OIL AND GAS ISSUES

Patrick Crow
Washington Editor

The Bush administration's National Energy Strategy (NES) will set the agenda for oil and gas issues in the 102nd Congress, but legislators will be making the key decisions.

President Bush and Congress will be preoccupied with the Persian Gulf stalemate as 1991 gets under way, particularly the Jan. 15 deadline for Iraq to quit its occupation of Kuwait.

As a result, Bush is unlikely to send the NES to Capitol Hill until February or later-and it could be much later.

Congress is unlikely to work on NES legislation with any sense of urgency unless hostilities erupt in the Middle East and a crisis mentality seizes lawmakers.

Apart from the NES, Congress will take up several routine energy issues this session, including reauthorization of the Resource Conservation and Recovery Act (RCRA), and review of the Minerals Management Service's proposed 5 year offshore leasing plan.

PERSIAN GULF CRISIS

Normally, Congress convenes early in January to swear in its members, then adjourns until the State of the Union Address in late January.

For 1991, Democratic leaders plan to convene Congress early and keep it in session for all of January due to the possibility of a conflict with Iraq.

Many legislators think Congress should debate and decide whether war with Iraq is warranted because the U.S. constitution gives Congress the sole authority to declare war.

Bush maintains his powers as commander in chief permit him to order U.S. armed forces into offensive action, especially action authorized by United Nations resolutions.

Rep. Dick Gephardt (D-Mo.) said, "I think we could see a constitutional crisis because Congress feels very strongly we should be involved in a debate and a vote" on going to war with Iraq.

Congress may continue to investigate the effects of higher petroleum product prices, a fallout of Iraq's Aug. 2 invasion of Kuwait.

Sen. Howard Metzenbaum (D-Ohio) has threatened to use the Senate antitrust subcommittee, which he chairs, to investigate why gasoline prices have not fallen as quickly as crude oil prices in the past 2 months.

Another topic may be the progress of the Justice Department's investigation into whether companies conspired to raise gasoline prices following the invasion (OGJ, Oct. 15, p. 29).

The crisis also will keep the Strategic Petroleum Reserve in the limelight. Energy Sec. James Watkins has pledged a "substantial" SPR drawdown if war breaks out. He believes oil supplies will be adequate, but a drawdown would be valuable in calming markets and restraining price spikes.

Reps. John Dingell (D-Mich.), House energy committee chairman, and Phil Sharp (D-Ind.), energy and power subcommittee chairman, recently warned Bush that a war would send oil markets into panic.

They said the nation is unprepared for the energy problems that hostilities would bring and urged the administration to begin building petroleum stocks and stressing conservation (OGJ, Dec. 3, p. 35).

CONGRESS TAKES OVER

As Sen. Tim Wirth (D-Colo.) says, "There is a bromide in American politics: The president proposes, Congress disposes."

That will be especially true with the NES. Dingell and Sen. Bennett Johnston (D-La.), energy committee chairman, are well versed in the nation's existing energy policy. Most of the current laws were written when they sat on or chaired their respective energy committees.

If Bush waits too long to send the NES to Congress next spring, he could lose the initiative.

Republicans on the House energy committee drafted a wish list of energy policy changes late last year. Democrats may promote their own program early this year. Johnston is expected to have his committee take an early look at energy policy options,

Oil lobbyists say if the NES debate continues into 1992, as it well might, politics of the presidential campaign may kill it for the session. They say the Democrat controlled energy committees and Congress are unlikely to hand a Republican president an achievement like the NES just before the election.

Lobbyists also are concerned about procedure. They think NES provisions would have the best chance of passage if considered together in an omnibus bill so balance can be maintained and special interests cannot defeat individual provisions.

But Congress will be inclined to split the NES into multiple bills that would be referred to committees with the appropriate jurisdiction such as energy, environment, taxation, government operations, and the like.

Although most of the NES will require federal legislation, some parts will call for federal administrative action or will urge states to change legislation or regulations.

ANWR LEASING BILL

The Alaskan Coastal Plain east of giant Prudhoe Bay oil field is the most promising unexplored region on federal land. Leasing it is No. 1 item on API's legislative list.

Industry and environmentalists alike expect the NES to propose ANWR leasing. But wrapping ANWR in the flag of the NES may not overcome roadblocks in Congress that have prevented leasing so far.

In the last session, the Senate energy committee dropped its ANWR leasing bill after the Exxon Valdez blanketed the shores of Prince William Sound with North Slope oil. Even before the spill, the House interior committee never considered marking up a bill.

Environmentalists pledge a pitched battle against leasing this year, saying it would jeopardize caribou herds and other wildlife, and oil development cannot occur without significant deterioration of the environment there.

The oil industry counters that the U.S. needs all possible production from ANWR to help back out oil imports and fill the gap left by the natural production decline in Prudhoe Bay field.

The Coalition for American Energy Security says leasing of the Coastal Plain would help the budget deficit too, netting the government about $3.1 billion in 1993-95.

American Petroleum Institute Pres. Charles DiBona thinks the political climate will shift to favor ANWR leasing in this Congress. He noted oil spill legislation is in place and the industry has launched its oil spill response organization.

DiBona said, "The spill issue probably has calmed down a bit, and fair minded people will recognize we have made every effort to prevent such accidents.

"People also will see Alaskan oil production declining. U.S. oil imports will exceed 50% of supply. And the Middle East situation is an example of what energy supply trouble you can get in."

If and when Congress does approve leasing, it is likely to be no more than a gradual approach with small, spaced sales. Of course, exhaustive environmental studies and mitigation efforts would be required.

CONSERVATION

Two pillars of the NES will be measures promoting energy efficiency and conservation, but perhaps not to the extent environmentalists want. Watkins says the NES will stress conservation. "Without that, we know it will be dead on arrival."

Green groups argue the NES should have the goal of reducing U.S. oil dependence 20% by 2000 "using least cost strategies that do not compromise environmental protection or infringe upon sensitive ecosystems like ANWR." The American Council for an Energy Efficient Economy, consisting of 16 groups, said electricity demand should be stabilized within 5 years and the average fuel efficiency of new vehicles increased 60% within 10 years.

Sen. Richard Bryan (D-Nev.) is expected to renew his bill to require manufacturers of autos and light trucks to increase their average fuel economy by at least 20% based on the 1988 average, beginning with the 1995 model year, and 40% beginning with the 2001 model year.

Bryan, who nearly won passage of the measure in the last Congress, said the standards would result in a fleet fuel economy average of 34 mpg for passenger cars and light trucks by 1995 and 40 mpg by 2001.

Environmentalists say the bill would lower oil imports and reduce the growth of carbon dioxide emissions, one of the principal "greenhouse gases."

OFFSHORE LEASING

Congressional committees are expected to hold oversight hearings on the first draft of the Minerals Management Service's next 5 year offshore leasing program. MMS is likely to revise the plan before submitting the final version to Congress (OGJ, Oct. 8, p. 40).

Barry Williamson, MMS director, says the schedule will offer fewer sales than the current one, but there will be greater probability they will be held as planned.

MMS plans to limit sales to attractive basins within planning areas, a repudiation of area-wide leasing. Most of the sales will be in the Gulf of Mexico and off Alaska. There may be a few sales off the East Coast and probably only one off California.

MMS also plans to propose that Congress consider legislation permitting the federal government to share its OCS revenues with coastal communities.

Williamson said economic models of the "impact assistance" bill suggest "there's a good chance this won't be a cost to the federal government but will have economic benefits because it will bring on new production."

Congress also may review MMS progress in seeking ways to buy back 73 leases oil companies hold off Southwest Florida (OGJ, Aug. 13, p. 27).

Appropriations committees are likely to renew spending moratoriums that prevent MMS from holding lease sales off specific states.

ENVIRONMENTAL ISSUES

One of the key environmental issues before Congress will be reauthorization of RCRA, which controls disposal of hazardous wastes.

Congress tried to take up RCRA reauthorization last session, but that was preempted by work on the Clean Air Act reauthorization.

The oil industry, as always, is concerned Congress will consider regulating drilling muds and produced fluids as hazardous wastes under RCRA.

The Environmental Protection Agency has advised against that in the past but may change its mind. The General Accounting Office (GAO) told Congress oil wells were contaminating drinking water supplies in several areas.

While considering RCRA legislation, Senate environment committee staff discussed expanding regulation to oil drilling and production wastes.

DiBona predicts, "That will be a big issue for us. Requirements for special treatment of production wastes would have a big impact on our ability to produce oil."

Congressmen from coastal states also will press for legislation to relax wetlands permitting under Section 404 of the Clean Water Act.

Wetlands permitting affects oil operations in all coastal areas, pipeline construction nationwide, and even oil development on Alaska's North Slope.

Energy companies have formed the National Wetlands Coalition to press for a relaxation of the wetlands definition, and a "realistic" approach to development of acreage with wetlands values.

OIL IMPORTS, EXPORTS

The Persian Gulf crisis has heightened congressional concern about the rising level of U.S. oil imports. Last year the Senate approved a measure requiring an administration reaction if imports exceed 50% of supply, but it did not become law.

Last fall, Louisiana's Johnston urged Bush to limit U.S. dependence on oil imports through his powers under Section 232 of the Trade Expansion Act.

Meanwhile, oil companies and Alaska want Congress to lift the ban against exporting Alaskan North Slope oil (OGJ, May 7, p. 56).

That would permit export of Alaskan crude to Pacific Rim countries, and although it would require offsetting oil imports it would result in lower transportation costs.

It also would increase the price of Alaskan crude $12/bbl, boosting royalty payments to the state by $150-300 million/year.

A GAO report said lifting the ban on Alaskan North Slope crude exports probably would decrease net U.S. oil imports to the extent that refinery efficiency is improved.

GAO said because of declining production on the North Slope, shipments of Alaskan oil to U.S. ports on the East Coast and the Gulf of Mexico will cease in the next several years.

"Independent California refiners are likely to be hurt if the export ban is lifted because they will have to pay higher prices for Alaskan and California crudes," GAO said. "Refiners can be expected to mitigate this loss by purchasing lighter crudes, which are more ideally suited for producing gasoline. Lower costs of processing these lighter crudes may, to some extent, help offset increases in refiners' crude oil acquisition costs.

OTHER ISSUES

Congressional committees, responding to complaints from pipelines, plan to put the Federal Energy Regulatory Commission under pressure to streamline its certification process for new gas pipelines (OGJ, Nov. 5, p. 13).

Rep. Mike Synar (D-Okla.), chairman of a House government operations subcommittee, held hearings on the issue last year and plans more sessions early in 1991 on that and related FERC issues.

The oil pipeline industry again will press for decontrol, and the NES may be its best opportunity yet. Although the Department of Energy has supported decontrol of all crude and products pipelines except the Trans-Alaska Pipeline System for several years, Congress has been reluctant to do it.

Natural gas producers will try to win amendments to the Public Utility Regulatory Policies Act to require large utilities to buy supplemental electricity supplies from independent power producers. Gas groups estimate that could increase gas demand for power generation.

The gas industry also will seek legislation to remove from FERC jurisdiction the sale of compressed natural gas used as a fuel in motor vehicles.

The Petroleum Marketers Association of America may seek legislation to require refiners to sell their retail marketing operations, or at least ban them from selling the same product to different marketers at different prices.

Congress also will renew efforts to give EPA cabinet status. The House has approved such a bill, but senators and the Bush administration objected to extra provisions in the measure.

Legislators are expected to act quickly to extend the Defense Production Act, a 1950 law that permits the federal government to allocate oil supplies during emergencies. The bill expired last Oct. 20.

REGULATION

Critical new federal regulations also are expected to be drafted next year.

EPA will be developing rules implementing the sweeping Clean Air Act reauthorization passed this year.

DiBona said, "Immediate steps will have to be taken to ensure that the oil industry can be producing reformulated gasolines, as required by the act, over the next several years. Those rules cannot be delayed, and I think EPA is acutely aware of that."

Oil operations also will be affected by regulations implementing the Coastal Zone Management reauthorization bill passed this year.

And the Treasury Department may elaborate on various oil related tax measures Congress passed in the budget bill last fall.