August 23, 2005

Republicans eye offshore drilling in U.S. budget bill

By Richard Cowan

WASHINGTON (Reuters) - Republicans next month may try to
open new U.S. offshore areas to oil and gas drilling in a move
that would bring in billions of dollars in new revenue and let
politicians claim progress in boosting domestic energy supplies
at a time of record prices.

Such a plan would face stiff opposition from environmental
groups as well as influential California, Florida and New York
lawmakers who fear offshore drilling's impact on tourism.

The move could come when the U.S. Senate and House of
Representatives return from summer recess on September 6 and
try to craft a package of federal spending cuts and tax
reductions that Congress outlined last spring.

Opening more of the Gulf of Mexico and all areas of the
Outer Continental Shelf (OCS) to energy exploration and
production could raise billions of dollars in revenue for the
U.S. government from auctioning federal leases.

A similar effort to expand drilling failed earlier this
year during congressional debate of the recently enacted broad
energy law. That law instead offers billions in tax breaks for
expanding drilling in existing onshore and offshore areas.

"They're looking at considerable dollars coming from OCS
lease sales," said one oil industry source who asked not to be
identified. The source added that while figures were not yet
firm, $3 billion in potential revenue was possible.

Currently, federal offshore drilling is allowed only in
four states: Alaska, Alabama, Louisiana and Texas.

Already attached to the budget legislation is a Republican
plan to open the Arctic National Wildlife Refuge (ANWR) to
drilling, which should raise $2.4 billion over five years.

The budget bill is an attractive vehicle for such
controversial initiatives because it is protected by special
procedural rules to ease passage.

Aides to Sen. Pete Domenici, the New Mexico Republican who
heads the Senate Energy Committee and is seen as a powerful
backer of expanded drilling, were not available for comment.

According to government estimates, the Outer Continental
Shelf running along the U.S. coasts may hold as much as 76
billion barrels of oil and 406 trillion cubic feet of natural
gas that can be recovered with existing technology.

On Monday, the U.S. Interior Department asked interested
parties, including the energy industry and environmentalists,
for suggestions on how to develop a leasing plan through 2012.
That move would dovetail with efforts in Congress to lift the
moratorium on offshore drilling.

Debbie Boger, deputy legislative director for the Sierra
Club environmental group, on Tuesday said that merely
conducting the survey was harmful to fish populations.


Besides bringing in new revenue to the government, the
offshore plan would let politicians take credit for bolstering
domestic energy supplies at a time of runaway prices.

In mid-August, U.S. crude oil prices hit a record $67.10 a
barrel and U.S. natural gas prices marched to a record $9.91
per million British thermal units. Retail gasoline also raced
to a new high of $2.61 per gallon nationwide.

Still unclear is whether any additional revenue from
drilling would ease pressure to cut food stamps, farm
subsidies, elderly health care or other domestic programs.

But even with the procedural protections that would block
opponents in the Senate from filibustering a new energy
initiative, passage is not certain.

One Senate veteran of budget fights noted that this
autumn's bill to cut $35 billion from federal spending over
five years could "become an explosive cocktail" for Congress.

"When you have student loans, farm price supports,
Medicare, PBGC and ANWR all in one bill, it's a delicate
balance," he said, referring to politically popular programs
that Congress targeted for spending cuts in the spring. PBGC is
the Pension Benefit Guaranty Corp., a deficit-ridden agency
that could face $6.6 billion in budget savings.

Lawmakers from Florida, California and New York warned they
would aggressively oppose expanding offshore drilling, largely
due to environmental and tourism concerns. Sen. Bill Nelson, a
Florida Democrat, also contends that drilling in the eastern
Gulf of Mexico could threaten the U.S. military's weapons
testing in that region.

Further complicating the debate is the possibility that in
order to blunt some opposition, especially from
environmentalists, the legislation might close the door to
offshore oil drilling even for crude found while developing
natural gas.

"We don't see, as major producers, a reason to discriminate
among the energy sources when they can all be produced in a
safe manner," said Mark Stultz, a spokesman for the Natural Gas
Supply Association,

But environmental groups like the Sierra Club are working
toward a much different result.

"We think the conversation should be moving toward
permanent protections for sensitive coastal areas," Boger said,
adding, "We need to protect local fishing and tourist
economies, not to mention the marine life itself," while
developing renewable energy sources.

The oil industry source said that language giving states
the option to participate or not in expanded drilling "may be
the ticket. That may make it happen."