Barack Obama

Senate OKs gulf drilling

Wednesday, August 2, 2006

Chicago Tribune

WASHINGTON -- For 25 years, Congress has barred oil companies from drilling in U.S. coastal waters. During that time, it had been considered virtually taboo for politicians from affected states to call for as much as a relaxation of the freeze.

Now, with control of Congress at stake in a key election year, soaring energy prices have suddenly wiped away that old political calculus.

Following up on recent House passage of a bill to end the ban, the Senate on Tuesday approved a measure to allow oil and gas development in a portion of the Gulf of Mexico's coastal waters.

"This bill is welcome news for the consumers of the United States," said Rep. Pete Domenici (R-N.M.), chairman of the Senate Energy Committee, just before the Senate approved the measure by a bipartisan 71-25 vote.

But the story is not as simple as that. The ban is a long way from dead. The two bills are as different as gasoline and kerosene, and perhaps just as politically volatile. The House bill affects more territory in that it includes all coastal waters, including those along the Pacific and Atlantic Coasts, and is consequently more controversial.

But while limiting the area of permitted drilling, the Senate measure would give four key offshore states--Texas, Louisiana, Mississippi and Alabama--a huge federal windfall beginning in 2017 in the form of greater federal royalties from offshore leases.

"This is a terrible precedent to allow a few states to benefit at the expense of all the rest," said Sen. Mark Dayton (D-Minn.).

The Senate bill would allow drilling in 8.3 million acres in the eastern Gulf of Mexico. The area has enough natural gas to heat and cool nearly 6 million homes for 15 years, but only enough oil to meet U.S. demand for about two months, according to Senate figures. Domenici conceded the oil reserves in the region are "secondary" to natural gas supplies.

Environmentalists sharply oppose lifting the ban, saying the U.S. cannot drill its way to energy independence. But many energy experts believe the supplies of natural gas off the U.S. coast could keep prices in check and provide years of a guaranteed supply.

"The security of energy supplies from offshore sources continues to get significantly worse," said Paul Cicio, president of the Industrial Energy Consumers of America, a non-profit group representing manufacturing interests seeking a stable and lower supply of natural gas.

Florida's two senators, Democrat Bill Nelson and Republican Mel Martinez, backed the Senate version, as did Gov. Jeb Bush, the president's brother and a one-time staunch opponent of drilling on the continental shelf. But they did so only with a pledge written in the bill that the drilling would be at least 125 miles from the Florida coastline, far enough away to provide "protection" in case of an accident.

Nelson also secured the support of Senate Republican Leader Bill Frist of Tennessee that Frist would not agree to a compromise with the House in a House-Senate conference committee to resolve differences between the two bills. Such pledges do not go over well with the House and could sink the entire bill.

The House measure would permit drilling within 50 miles of coastal states, but state legislatures could extend this limit to 100 miles. Gov. Bush in Florida has indicated that his state would extend the limit to 100 miles if the House version became law.

Environmentalists opposed to both the Senate and House bills said oil companies have yet to develop oil and natural gas reserves on leases they hold in the Gulf of Mexico.

"We're opposed to this bill," said Sierra Club spokeswoman Annie Strickler. She said better automobile mileage, as proposed in a bill co-sponsored by Sen. Barack Obama (D-Ill.), would yield greater energy independence at less cost to the environment.

Obama voted against the bill and said the Republican leadership was being "dishonest" by believing the nation's energy problem could be solved with more drilling.

Environmentalists also expressed fear that opening up more of the gulf to drilling could lead to pressure for exploration on the East and West Coasts.

Tina Vital, an equity analyst for Standard & Poor's, said wider coastal drilling could occur if the nation grows critically short of oil.

"There are a lot of oil reserves that are off limits," she said. "If the lights go out, the environmental rules and regs get pushed aside."

John Felmy, chief economist for the American Petroleum Institute, said it would take five years and huge sums of money for companies to complete wells able to produce gas or oil. The cost of building a deep-water drilling platform could be as much as $1 billion, he said.

Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate Energy Committee, opposed the bill on grounds that it did not open enough territory in the gulf's coastal waters to drilling.

By limiting the area to 8.3 million acres, the Senate essentially excluded natural gas supplies that are 10 times higher than reserves in the area opened for development, he said.

He also questioned what he called a new "entitlement" for the four gulf states. Beginning in 2017, these states would receive 37.5 percent of royalty payments on new oil and gas leases outside the 8.3 million acres.

Bill Wicker, Bingaman's spokesman, said this provision would cause the diversion of billions of dollars in royalty payments that would normally go into the federal treasury to the states.

William Neikirk reported from Washington and Robert Manor from Chicago. Tribune staff reporter Marni Goldberg contributed to this story.