Targeted Gas Effort More Likely than Sweeping Legislation

Despite persistently high natural gas costs, lawmakers may have to limit efforts to win wider offshore energy leasing this year to a coveted eastern Gulf of Mexico region, and even that faces substantial hurdles, a variety of sources on and off the Capitol Hill said yesterday.

Several lobbyists and Capitol Hill sources say election year politics, the election-shortened session and other factors make enactment of a broad offshore bill unlikely. So more ambitious plans in circulation -- chiefly allowing coastal states to "opt-out" of the coastal leasing bans -- may have trouble getting off the ground.

"Floor time is going to be precious this year. It is an election year and a number of senators want to spend as much time as they are able in their home states," a Senate aide said.

Sen. Pete Domenici (R-N.M.), the chairman of the Senate Energy and Natural Resources Committee, this week indicated he hopes to move quickly on a targeted plan focused on the gulf's Lease Sale 181 area. Most of the area has been withheld from leasing, but it is not covered by formal congressional and presidential offshore leasing bans.

Opening the 181 area would not require changing the formal moratoria in place. "It is easier to find a compromise on a targeted issue like 181," than a broader outer continental shelf measure, said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America, which backs leasing in that area but also advocates for wider offshore access overall.

Gas prices have fallen back in recent weeks after spiking to the $15 range in mid-December, but remain high by historical standards. Futures for February delivery were trading above $8 on the New York Mercantile Exchange yesterday.

Sens. John Warner (R-Va.) and Mark Pryor (D-Ark.) are said to be planning some type of opt-out measure. Rep. Richard Pombo (R-Calif.) has not yet decided whether to introduce his opt-out plan this year, a spokeswoman said. It was included in the House Resources Committee contribution to the budget reconciliation bill last year but was jettisoned before the floor debate. The plan also included revenue sharing and Pombo has been negotiating with some Florida lawmakers over the size of a no-drilling buffer for that state.

Advocates of wider access agree that while any broad offshore leasing policy changes now appear difficult to advance, dynamics could change, such as the mild winter becoming substantially colder or another tough hurricane season hurting energy supplies and prices. Producer groups and industrial users grappling with the price surge in recent years, such as chemical companies, are pushing for wider OCS access.

"It is unclear if there will be an opportunity for something broader this year," said Bill Whitsitt, president of the Domestic Petroleum Council. Whitsitt added that he thinks important public discussion of the issue is under way, at the very least.

"We are seeing the beginnings of a meaningful debate on what to do with the areas that are off-limits," Whitsitt said. "The question is what will the pace of that debate be."

Current leasing restrictions essentially cover both coasts, most of the eastern gulf and part of Alaska.

Jack Gerard, president of the American Chemistry Council, said in a statement yesterday that he thinks advocates are making progress. "Prices are skyrocketing because of a contradictory energy policy that drives up demand for natural gas on the one hand and restricts our nation's access to its supplies on the other," he said. "I believe that this year you'll see more and more members of Congress looking for a long-term solution to help their constituents.

Several sources, though, caution that even a targeted effort that focuses on the Lease Sale 181 area, which Domenici on Wednesday indicated he planned to pursue, could face major hurdles. Sen. Bill Nelson (D-Fla.) has vowed to fight -- with legislation of his own if needed -- plans that would allow drilling any closer to Florida's shores.

One open question is how the Bush administration will proceed on the 181 question and other OCS leasing issues. The administration can open the area using its administrative power and floated an eastern gulf legislative plan that addressed the area during last summer's energy bill negotiations. That plan would not have allowed leasing within 100 miles of Florida's shores, according to an Interior Department release in July.

Expected in coming weeks is the Minerals Management Service's 2007-2012 leasing plan, but MMS has not said whether it will offer sections of the 181 area for leasing. The Bush administration has vowed not to allow leasing within 100 miles of Florida. This would prevent the "stovepipe" part of the 181 area that juts close to the Florida panhandle from being offered, but the wider section is outside that range.

Adding more pressure to lawmakers are agriculture groups, which are concerned with natural gas costs because the fuel is used in fertilizer production as feedstock, crop drying and for other needs. A group called the Agriculture Energy Alliance wrote to Pombo on Jan. 20 asking him to continue his efforts to allow wider offshore access.

The letter highlights the effects of natural gas prices on anhydrous ammonia fertilizer costs. "Today, the cash cost of production is approximately $340 per ton when using a $9 price per [million British thermal units] for the natural gas input. The natural gas component of this cost is approximately $320, or 94% of the total production cost," the letter states.

>Reprinted from E&E Daily with permission from Environment & Energy Publishing, LLC. 202/628-6500.