House, Senate to Negotiate Offshore Drilling

Published October 1, 2006

On August 2 the U.S. Senate passed a bill to open up 8.3 million acres in the Gulf of Mexico for oil and natural gas recovery.

More modest than a competing House bill passed in June, the Senate bill’s passage initiates a conference committee process where House and Senate negotiators will attempt to reach an agreement on drilling for oil and natural gas on the outer continental shelf (OCS).

The two bills vary greatly in scope, and working out a compromise acceptable to both sides will be no easy task. To many observers, the future of domestic energy production is at stake in the final agreement, if one is reached.

Over the past 20 years, U.S. crude oil production has fallen by 43 percent, while demand for petroleum products nationwide has increased by 31 percent.

House, Senate Bills Differ

The House bill gives a green light to drilling on some 356 million acres along the Pacific and Atlantic coasts, lifting moratoria on offshore exploration that had been in place for a quarter-century. The bill allows drilling in all areas beyond 100 miles and gives coastal states the option of permitting exploration and extraction of oil and natural gas closer to shore.

The more modest Senate bill focuses solely on the Gulf of Mexico. It would open up 8.3 million acres in the eastern Gulf, containing an estimated 1.26 billion barrels of oil and 5.8 trillion cubic feet of natural gas.

In a bid to win approval of Florida lawmakers concerned about drilling’s effect on tourism, the Senate measure bars drilling within 125 miles of the Florida Panhandle and within 235 miles west of Tampa Bay and points south.

Supporters of the Senate bill project royalties to government from the new oil and gas drilling in the Gulf will total $1.5 billion over the next 10 years. Under their bill, the federal government would receive 50 percent of the royalties; the four Gulf states–Alabama, Louisiana, Mississippi, and Texas–would collect 37.5 percent; and the remaining 12.5 percent would go to land and water conservation funds in all 50 states.

Explosive Fight Possible

Although the Senate bill passed by an impressive 72-to-25 vote, its backers have let it be known support could collapse if a House-Senate conference committee recommends too many changes in the legislation.

Senate Minority Leader Harry Reid (D-NV) has pledged to lead a filibuster if a more ambitious offshore drilling measure emerges from the conference.

Reid’s threat is more than just posturing. Majority Leader Bill Frist (R-TN), concerned about mustering a 60-vote, filibuster-proof majority, said, “We have got the most expansive bill I am going to be able to get through the Senate. I am going to make my case to the House that is the reality, and then we will see.”

Though aware of the delicate political situation prevailing in the Senate, House leaders show no signs of allowing the terms of the debate to be dictated to them. “Both the House and the Senate are now in agreement: America must produce more deep-sea energy to provide relief to consumers,” said Rep. Richard Pombo (R-CA), chairman of the House Resources Committee. “The only remaining question is, just how much relief will Congress grant.” Pombo will be the lead negotiator for the House.

A House source close to the issue noted the Senate bill does little if anything to boost the nation’s energy reserves. Most of the area targeted by the Senate was scheduled to be opened for leasing to drill in FY 2007 anyway, he pointed out. He rejected claims by the Senate bill’s backers that they “can’t do any better.”

“They don’t want to do any better,” he said, adding the Senate bill has nothing to do with energy and everything to do with providing revenue to Gulf states while denying such royalties to states along the Atlantic and Pacific coasts. “We would be better off with no bill than with the Senate bill,” he said.

Awash in Oil, Gas

According to the Minerals Management Service (MMS) of the U.S. Department of Interior, the OCS contains 76 billion gallons of oil in yet-to-be-discovered fields. Offshore oil reserves in the Gulf of Mexico are estimated by MMS to be 40 billion barrels.

MMS estimates the Gulf alone contains 200 trillion cubic feet of undiscovered, technically recoverable natural gas (meaning all gas that can be recovered, regardless of economic feasibility).

The offshore oil and gas reserves are even more impressive when combined with the oil contained in the Arctic National Wildlife Refuge (ANWR). According to the U.S. Geological Survey, ANWR’s northern coastal plain contains a mean expected value of 10.4 billion barrels of recoverable oil.

In addition to hammering out a compromise over drilling on the OCS, Congress in September will again be deciding whether to open up a 2,000-acre tract in ANWR for oil and gas exploration.

Majorities in both houses favor opening up ANWR for domestic energy production, but in the Senate supporters have not been able to come up with the 60 votes necessary to break a filibuster.

Bonner R. Cohen ([email protected]) is a senior fellow at the National Center for Public Policy Research in Washington, DC.