Tom Fry, President, National Ocean Industries Association
“Inside the Beltway,” it is often remarked that change can best be undertaken in odd-numbered years when policy makers can tackle major initiatives without looming elections consuming all their attention – or at least most of their attention.
Tom Fry
Add to that the complexity of a presidential election, and the conventional wisdom would seem to indicate that 2008 will not be a watershed year in energy policy development.
The current state of global energy supply and demand may render the old conventional wisdom obsolete this year, however. Global issues of supply and demand do not care much about the schedule of American electoral politics, and so oil is now consistently trading at or above $100/bbl while natural gas prices hover around $10/MMcf. As a result, American consumers are loudly expressing their discontent with the status quo.
At the same time, developing nations are raising the standards of living of their populations and hundreds of millions of people each year are becoming more energy-intensive consumers.
Energy policy makers must consider a world of ever-rising demand and increasing international competition for supply against requirements to develop new and reliable sources of alternative and conventional energy and the infrastructure for delivering them while answering calls to improve environmental stewardship and enhance conservation efforts. Navigating these often conflicting goals can seem like a massive tightrope act.
Beneath this complexity, however, one core issue remains straightforward. Success over the next decade, at least, hinges on increasing supplies of traditional energy sources such as oil and natural gas. If we are going to get serious about energy policy, therefore, we must address the biggest immediate obstacle to increasing supply: limitations on access.
Playing solid defense
Before any changes can be made to the existing regulatory hurdles to greater access, we must first ensure that the current levels of access remain unrestricted.
NOIA has worked hard with other energy advocates over the past year to ensure that no new geographic or economic limitations are put onto the offshore industry.
For example, on Dec. 18, 2007, the president signed into law the Energy Independence and Security Act of 2007. When the House passed its first version of the bill in January 2007, it was awash in provisions that would have undone the Energy Policy Act of 2005. Among other things, it would have repealed the provisions making deepwater royalty relief mandatory, the provisions adding incentives for a fourth tier of relief for deepwater and adding a third tier of relief for deep gas, and the provision extending deepwater royalty relief to waters in the Outer Continental Shelf (OCS) off Alaska.
The House bill would also have required that any companies holding leases with deepwater royalty relief provisions that are not limited by price thresholds be barred from participating in future lease sales or from acquiring any additional leases by other means unless they did one of two things. First, they could have modified their leases to include price thresholds, or second, they could have paid an additional “conservation” fee of $9/bbl for oil and $1.25 per million Btu for natural gas for producing leases. In addition, the bill would have placed a $3.75 per acre fee on all non-producing leases. This latter “conservation” fee would have been in addition to the already existing rental fee of $9.50 per acre for deepwater non-producing leases, and $6.25 per acre for shallow water non-producing leases.
In June 2007, the Senate passed amendments to the bill, transforming it into a 500-page omnibus energy policy bill, with a primary focus on energy efficiency and renewable energy. In August 2007, the House passed an omnibus energy bill that included provisions to use taxes and royalties from oil and gas companies to pay for new investments and incentives for energy and efficiency and alternative energy sources. Like the bill passed earlier that year, it would have repealed incentives set up to spur energy production in the Energy Policy Act of 2005. It would also have forced holders of leases with deepwater royalty relief provisions not limited by price thresholds to amend their leases to include thresholds, pay excessive fees, or be barred from future oil and gas leasing in the Gulf of Mexico.
NOIA fought to stop the Congress from repealing the Energy Policy Act of 2005 provisions. We succeeded in having nearly every section that would have rolled back incentives removed from the bill. While the final law does contain a provision that excludes the major integrated oil companies from the geological and geophysical amortization provision, all of the other offshore provisions, including those providing deep gas, deep water and Alaska OCS royalty incentives and those that added new taxes and royalties on the industry, were removed from the final bill before it became law.
There are several members of Congress that have expressed an intention to roll back the incentives for offshore development and to impose new taxes and fees on the industry. NOIA continues to fight to stop Congress from repealing provisions that will spur energy development in US waters, and continues to lobby for legislation and policies that will improve industry’s geographic and economic access to the country’s energy resources.
Playing defense, however, will not be enough to move the country in the positive direction we need to address our energy challenges. It is time, therefore, to begin looking beyond the typical battlegrounds for our issues and begin to reframe how we view the problem. It is no longer enough to simply look at this as a conflict between energy and the environment. We need to think of new solutions.
Getting to a gentleman’s agreement
One such possible solution might be to create a high-level bipartisan commission to address these concerns outside of the ordinary political arena. Members of such a commission would be appointed in a bipartisan manner, and represent expertise in energy, environmental sciences, economic development, land-use and other pertinent local, regional and national issues. Such a commission could present us with an opportunity to remove difficult energy and environmental decisions from the inherently short-sighted pressures of the electoral cycle, allowing for long-range planning and an appropriate balancing of local, regional, and national interests.
As precedent, we need only look to the well-known military base-closing commissions that were given the onerous task of determining which military bases no longer served US interests. In that case, there was broad consensus that base closures would save billions of dollars without weakening military strength, but no national leaders would allow a base in their district to be closed without a fight. Despite contentious proceedings, several rounds of base-closings were completed, the country is better off, and most stakeholders agree that their views were given adequate consideration.
This model isn’t perfect: neither Congress nor the president are eager to surrender power to an independent commission, nor are the decisions of such commissions universally popular. However, the nation is fast approaching a point at which we will be forced to make decisions. A gentleman’s agreement between the opposing sides today could do much to avert a catastrophe tomorrow.
Cultivating state-level involvement
Another solution for rethinking our energy policy roadblock is taking place in a new battleground for offshore energy: at the state level. In 2005, the state of Virginia’s legislature broke with decades of coastal opposition to offshore drilling by passing a resolution calling on the governor to lobby for a lifting of offshore moratoria. This effort was rejected by then-Gov. Mark Warner on procedural grounds, but was passed again the following year and accepted with some alteration by Gov. Tim Kaine. On May 18, 2006, Gov. Kaine signed the Virginia Energy Plan into law, a plan that among other things “provides that it is the Commonwealth’s policy to support federal efforts to determine the extent of natural gas resources 50 miles or more offshore and to support the inclusion of the Atlantic Planning Areas in the MMS 5-Year Plan.”
The impetus for this legislative effort came from proponents who recognized that cultivating an offshore industry in the state would help spur economic development and address the rising cost of natural gas that has adversely affected the competitiveness of American industry.
Building on the example set by the Commonwealth of Virginia, coalitions of energy producers and energy consumers – such as the manufacturing and agriculture communities – have reached out to state-level leaders around the country to educate them on the negative impact to their economies caused by restrictions on offshore energy development.
NOIA has been pleased to participate in a national effort to inform state houses and business leaders throughout the nation of the importance of providing access to the OCS for exploration and development of the nation’s valuable offshore resources.
NOIA is also working with the Agriculture Energy Alliance, a broad based coalition of more than 110 farm organizations and agribusinesses to reach state legislators and policy makers throughout the nation. Included in this Alliance are the US Farm Bureau, Wheat Growers, Corn Growers, agrichemical and fertilizer companies, local Farm Bureaus, Rural Electric Cooperatives, and manufacturing and pharmaceutical companies.
These coalitions of energy producers and consumers are visiting with governors’ offices, state legislators, county and business officials, and prominent farmers and agribusiness directors. The promise of OCS development to overcome the hurdles imposed by high energy prices is a message that has resonated throughout all of the states.
In 2007, the South Carolina General Assembly unanimously passed a bill creating a 20-person study committee to assess the feasibility of offshore natural gas exploration in the OCS waters off South Carolina. The committee is expected to make a report of its recommendations to the General Assembly in 2008.
The legislatures of Kansas, Oklahoma, North Dakota, Tennessee, and Idaho have passed resolutions supporting the lifting of moratoria. The Montana House of Representatives and the Nevada Senate passed legislation supporting the lifting of moratoria. Governor Purdue of Georgia released a state energy policy in December 2006 that calls on the state to support prudent exploration of natural gas reserves on the OCS. And, state legislators in Utah and Arizona have submitted similar letters to the federal government.
More resolutions and bills have been introduced in state legislatures during 2008, and NOIA is working with state officials and our consumer coalition partners to support grassroots efforts to pass state initiatives that would support OCS energy development.
In summary, while the challenges that face the nation on meeting our growing demand for energy are formidable, they are also something that can be addressed. The United States has significant energy resources that can be safely and sustainably accessed, among them the resources waiting to be harvested in over 80% of the OCS that is currently off-limits to exploration and production. To do so, however, requires that we do three things. First, we must ensure that no new restrictions are placed on access to existing portions of the OCS. Second, we must be willing to look for new methods of determining where it is appropriate to look for energy resources, and where it is not. Third, we must engage the participation of state and local communities in addition to the traditional players at the federal level.
