[Senate Hearing 109-95]
[From the U.S. Government Publishing Office]
S. Hrg. 109-95
OFFSHORE HYDROCARBON PRODUCTION
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
TO
DISCUSS THE CURRENT STATE OF OUR NATION'S OFFSHORE ENERGY PRODUCTION
AND THE RECENT TECHNOLOGICAL ADVANCEMENTS MADE IN THE EXPLORATION AND
PRODUCTION OF TRADITIONAL FORMS OF ENERGY, STEPS THAT THE OFFSHORE OIL
AND GAS INDUSTRY HAS TAKEN TO ENSURE WORKER SAFETY AND TO MEET
ENVIRONMENTAL CHALLENGES, THE WAYS IN WHICH THE FEDERAL GOVERNMENT CAN
FACILITATE ADDITIONAL EXPLORATION AND PRODUCTION OF RESOURCES IN THE
OUTER CONTINENTAL SHELF WHILE ENSURING WORKER SAFETY AND THE
MAINTENANCE OF ENVIRONMENTAL INTEGRITY, AND NEW APPROACHES TO HELP
DIVERSIFY THE ENERGY MIX ON THE OUTER CONTINENTAL SHELF
__________
APRIL 19, 2005
Printed for the use of the
Committee on Energy and Natural Resources
______
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD M. BURR, North Carolina, TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia JON S. CORZINE, New Jersey
GORDON SMITH, Oregon KEN SALAZAR, Colorado
JIM BUNNING, Kentucky
Alex Flint, Staff Director
Judith K. Pensabene, Chief Counsel
Bob Simon, Democratic Staff Director
Sam Fowler, Democratic Chief Counsel
Frank Macchiarola, Counsel
Patty Beneke, Democratic Senior Counsel
C O N T E N T S
----------
STATEMENTS
Page
Alexander, Hon. Lamar, U.S. Senator from Tennessee............... 3
Allen, Hon. George, U.S. Senator from Virginia................... 47
Angelle, Scott A., Secretary, Louisiana Department of Natural
Resources...................................................... 61
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 2
Bunning, Hon. Jim, U.S. Senator from Kentucky.................... 26
Boger, Debbie, Deputy Legislative Director, Sierra Club.......... 55
Burr, Hon. Richard M., U.S. Senator from North Carolina.......... 8
Burton, R.M. ``Johnnie'', Director, Minerals Management Service.. 26
Corzine, Hon. Jon, U.S. Senator from New Jersey.................. 49
Davidson, Charles, Chairman, President and CEO, Noble Energy,
Inc............................................................ 71
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
Feinstein, Hon. Dianne, U.S. Senator from California............. 10
Landrieu, Hon. Mary L., U.S. Senator from Louisiana.............. 4
Martinez, Hon. Mel, U.S. Senator from Florida.................... 6
Murkowski, Hon. Lisa, U.S. Senator from Alaska................... 11
Talent, Hon. James M., U.S. Senator from Missouri................ 2
Thresher, Dr. Robert, Director, National Wind Technology Center.. 37
Wagner, Frank W., Senator, 7th District, State of Virginia....... 69
Watkins, Admiral James D., Chairman, U.S. Commission on Ocean
Policy......................................................... 13
APPENDIX
Responses to additional questions................................ 79
OFFSHORE HYDROCARBON PRODUCTION
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TUESDAY, APRIL 19, 2005
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m., in
room SD-366, Dirksen Senate Office Building, Hon. Pete V.
Domenici, chairman, presiding.
OPENING STATEMENT OF HON. PETE V. DOMENICI,
U.S. SENATOR FROM NEW MEXICO
The Chairman. Thank you, everyone, for being here. I think
it should be pretty obvious to everyone that we cannot possibly
mark up an energy bill and take it to the floor without a clear
understanding of the current situation with reference to
offshore oil and gas production and its current limitations.
The gas industry is a tremendously important one now and
obviously will continue into the future.
The question will be: Are there any significant changes
that can be made so as to make those assets even more important
to America in the future? So as we consider the state of oil
and gas production on the Outer Continental Shelf and the
technological advancements made in offshore exploration and
production, we are going to hear testimony on the emergence of
renewable sources of energy, such as wind, wave, tidal and
ocean thermal along with it that is in the OCS.
We are going to look at what the Federal Government might
do to advance that renewable project in the OCS. Oil and gas
production amounts to approximately 1.7 million barrels of oil
per day and 12.5 billion cubic feet of natural gas per day.
Annually, this production equals approximately 600 million
barrels of oil per year, 4.7 trillion cubic feet of natural gas
per year.
These numbers amount to about 30 percent of our U.S.
domestic oil production and 23 percent of our domestic natural
gas production. It is estimated that by next year production of
OCS will amount to 40 percent of domestic oil production and 25
percent of the domestic natural gas production. Now that is not
singularly or solely from offshore or--this is a living--this
is the reality of America's onshore production having peaked
out and coming down.
With respect to the natural gas in the Gulf, this is a--it
is failing to maintain its level of contribution to domestic
natural gas supply. In fact, the natural gas production has
fallen off in 1997 from its peak of 5.1 trillion cubic feet
down to 4.7. Rather than decrease, I wish there was some
politically acceptable way that the OCS production would
increase. And I will be watching and listening and reviewing
the suggestions made by the Senator from Tennessee, Senator
Alexander, and his natural gas bill. He appears to have some
very exciting proposals for this resource.
In 2004, the United States consumed 20 million barrels of
oil a day. In 2025, the United States is predicted to require
27.9 million barrels a day. I think it makes more sense from an
economic and environmental perspective to meet that consumptive
demand through domestic production, if we can, and with
increasing our reliance upon imported natural gas or crude oil.
However, I am pragmatic about the politics and realize how
challenging the position is. Nonetheless, I am more than
willing to address it if the committee wishes to address it.
Our witnesses today will share their diverse views on these
challenges. And we thank them in advance for being here today
and for giving us their time and their expertise.
Senator Bingaman, do you have an opening statement that you
would you like to give now?
[The prepared statement of Senator Talent follows:]
Prepared Statement of Hon. James Talent, U.S. Senator
From Missouri
Mr. Chairman, Thank you so much for holding this hearing and thank
you to our witnesses for their testimony today.
We are facing an energy crisis and we need to take quick action to
address a problem that has been decades in the making. I realize that
we need a balanced, comprehensive approach to energy policy which
includes conservation and improved technologies, but we can't ignore
that there is something fundamentally wrong with our energy policy.
Our country has contradictory policies on natural gas--on one
front, we encourage its use. On the other front, we limit access to its
supply. We must amend our country's contradictory policy on natural gas
access.
For example, U.S. natural gas consumption is expected to grow from
22 trillion cubic feet (tcf) in 2003 to almost 31 tcf in 2025. Domestic
production, however, is predicted to grow from 19.1 tcf to 21.8 tcf,
meeting only about 30 percent of projected growth demand.
We have a tremendous supply of oil and gas just off our shores, but
we can't touch it. The economy is suffering because of the decisions
we've made regarding domestic energy reserves.
Everyone agrees that the OCS holds the greatest potential for
development, but approximately 85% of lower-48 state OCS acreage is
off-limits to leasing activities. At the same time, Canada and other
countries are not hindered by these same regulatory burdens. They have
access to these resources and they are taking advantage of our
moratorium.
Sen. Alexander has done a tremendous job looking at the state of
the natural gas industry and I support his efforts. He has worked
tirelessly and developed an extremely comprehensive bill that strives
to strike a balance between conservation and increased supply.
I strongly support the concept of additional state authority on the
outer continental shelf It seems clear to me that these states should
be able to decide what is best for their coastline, not the federal
government.
I support Sen. Alexander's bill and I will continue work with him
to support finding a workable solution that address both the demand and
supply side of the equation.
STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR
FROM NEW MEXICO
Senator Bingaman. Thank you very much, Mr. Chairman.
Thanks for calling this hearing. I want to first welcome
Admiral Watkins back before the committee. He has made many
contributions to this country and this government in many
different capacities. I understand he is here now as the
Chairman of the U.S. Commission on Ocean Policy, which I think
his expertise will be very valuable to us.
I know that the other witnesses are also extremely capable,
and I look forward to hearing from them. Thank you.
The Chairman. Thank you very much.
Senator Alexander, I understand you would like to make a
statement. And you are welcome to do so. Do not cut it short,
whatever you would like to say. You have been working hard on
this issue.
STATEMENT OF HON. LAMAR ALEXANDER, U.S. SENATOR
FROM TENNESSEE
Senator Alexander. Well, thank you, Mr. Chairman. I want to
thank you for having this hearing. And what I wanted to do, and
I can summarize it, is to mention the proposal that Senator
Johnson and I made in our natural gas legislation that has to
do with what happens offshore. I mean, we have $7 natural gas
in this country, which is hurting blue collar workers. It is
hurting farmers. It is hurting homeowners. And with the
encouragement of Chairman Domenici, Senator Johnson and I have
put together a comprehensive natural gas bill to try to address
this aggressively on all fronts to see if any of these ideas
might be useful for the energy bill as it comes along.
So we were aggressive on conservation and aggressive on
alternative fuels, aggressive on research and development,
aggressive on importing liquified natural gas, and also on
supply. And as Chairman Domenici said here and as he said last
year on the floor, if you address supply and do not address
offshore supply, you are not addressing supply.
So what we have tried to do is to think of environmentally
sensitive ways to take more advantage of natural gas supply
offshore as a way of bringing down the $7 price. This comes
from a Senator who supports mandatory caps on carbon.
So we--and, Senator Domenici, what I wanted to do was
mention in a sentence or two the three areas that are in this
bill, so that if any of the witnesses want to comment on it,
they could. I will also ask questions about it.
The first proposal was to permit the Department of the
Interior to issue natural-gas-only leases. A State might find
it easier to work with such a lease, not deal with the possible
environmental problems that may come from oil.
The second proposal was to instruct the Secretary of the
Interior to draw the State boundary between Alabama and Florida
out into the ocean. We call this lease 181. If it is in
Alabama, it would be leased. If it is in Florida under the
current moratorium and rules, it would not.
And the third is to create a way that the Governor of, say,
Virginia, whose legislature recently acted a similar way, that
they could find out whether they have gas offshore, decide
whether they wanted to lease it and give them a share of the
revenue. And that proposal is in the legislation, but basically
it allows the Governor to write, on behalf of the State and the
Secretary of the Interior, and say: May we have an inventory of
what is offshore? He is trying to get one for the whole
inventory, but--and then an explanation of the planning
process.
And the Secretary would then provide that to the Governor.
The State would then decide what it wanted to do. If Virginia
wanted to put a gas-only rig 20 miles offshore, further than
they can see it, and use the revenues to improve its university
system or reduce its taxes, it can do that.
There would also be a conservation royalty on top of that
that would go to conservation purposes all across the country.
And adjacent States could veto it, if they could see it.
So that is the idea. And it is a different way of
approaching it. But I--one thing, Mr. Chairman, as these tens
of thousands of jobs move overseas and as farmers' prices go
higher and as home heating and cooling prices go higher,
somebody is going to ask us: What did you do to increase the
supply of natural gas?
And if we do not deal with offshore gas, I do not see, as
well as conservation research and development, alternative
fuels and liquified natural gas, I do not see that we are doing
our job properly.
Thank you for your time.
The Chairman. Senator Alexander, before you stop
addressing, could I just inject a question and could you answer
it with reference to in your legislation or what you--what
about offshore production of renewable energy, like wind? Can
you address it? What is the current status, I guess is the real
question.
Senator Alexander. Well, we felt that--the current status
is that it is confused.
[Laughter.]
Senator Alexander. But it is offshore. It is not clear who
is in charge of what. The current status also is--and, you
know, I care about visual pollution. I do not want to see a gas
rig. I do not want to see 46 square miles of windmills that are
100 yards tall either.
So one area we might want to address, and maybe our
witnesses can help us with it, is: How could we make it clear
who is in charge of that?
There are also, so far as I can find, no real clear rules
about what to do about highly scenic areas offshore, how they
might be protected. And perhaps that is part of our
responsibility. The short answer is we do not try to clarify
that situation offshore in our bill.
The Chairman. Okay. Now I understand that Senator Landrieu
would like to comment. And I think that both Senators on this
side would like to also.
STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR
FROM LOUISIANA
Senator Landrieu. Thank you, Mr. Chairman. Just briefly, I
would like to follow up on some of the things that the Senator
from Tennessee mentioned. But before I do, let me just thank
you, Mr. Chairman, for calling this very important hearing,
because this issue is going to be a crucial piece and a
foundation, really, for our energy bill. And I think the
testimony that we are going to receive this morning is going to
be extremely helpful on that line.
On the second panel, we are pleased to have Scott Angelle,
who is the Department Secretary of Natural Resources from
Louisiana, a former parish president, a real expert on the
subject. And I am really happy that our committee could have
such a man testify this morning on a subject that is so
important.
Mr. Chairman, thank you for visiting Louisiana, for flying
out to an offshore rig, for standing on the beaches and the
barrier islands of Louisiana and really getting a firsthand
look at the situation that exists today in the Gulf, which is
extremely promising. And so much progress has been made.
I want to thank Senator Bingaman for doing the same, for
flying over the largest coastal wetland in the United States,
seeing the oil and gas production, and how things are managed
well and wisely. We can create jobs, preserve the environment,
and create prosperity and wealth and, most importantly in this
time and age, economic security and military security for our
nation.
I want to just begin by saying that I guess in the last 200
years the country has become very comfortable with the focus on
the Western frontier. It is really what, you know, manifest
destiny and the concepts of that frontier and the West meant to
the development of our country.
I think we sit on the beginning of looking at our oceans as
a new frontier. And of course, we have space as an additional
frontier, physical frontiers. There are others. Technology is
in a different category. But I would like us to think, as we
begin this hearing this morning, of this great frontier that is
our ocean, as our Outer Continental Shelf, and ways in which in
this energy bill we could lay down policies that respect that
frontier but put the resources that are available there to work
for the American people and for the world in general, and
having the right balance between developing that frontier and
preserving that frontier.
When we think of Louisiana, of course we know that
Louisiana, Texas, Mississippi, and Alabama have probably
experimented more with that concept than any State in the
Union. Not only do we have offshore oil and gas production, but
we are also a robust fisheries. We have commercial shipping
through these channels, inland waterways, fishing, all sorts of
economic activities that have benefited not just our States,
Mr. Chairman, but the entire Nation and, I would say, the
world.
And so we have also known over the course of our using this
great frontier, which is the Outer Continental Shelf, there
have been some mistakes made. But having the benefit of
hindsight, having the new technologies that are in place, can
help us to lay out a plan for using this great frontier to the
benefit of our Nation.
Just two points in particular: The OCS, the Outer
Continental Shelf, has generated $145 billion for the U.S.
Treasury since offshore oil and gas production began. It is the
second biggest contributor of revenue to the Federal Treasury
after the income tax. This is not pocket change. It is not
money that can be left on the table.
America is desperate for revenues and resources. And if we
do this correctly, we can provide riches and investments for
our nation.
One comment about the environment: I understand the
history, as many of us do, with the terrible spill that
occurred--Senator Feinstein is here--off the coast of
California and how so much of this regulatory regime came into
place. And I am aware of the dangers associated with offshore
oil and gas drilling.
But I will say that from 19--the new technologies that
exists today are not your grandfather's technologies. 97
percent of offshore oil spills were less than one barrel or
less in volume. From 1985 to 2001, pipelines accounted, Mr.
Chairman, for only 2 percent of the oil released in U.S.
waters. There is more oil released from underground natural
reserves of oil and gas than there is from our pipelines or
from our OCS activity. Now having said that----
The Chairman. From seepage.
Senator Landrieu. Seepage. I am sorry. Natural seepage.
Having said that, I am aware that the politics is very
different across the country. And as I look at my colleagues
and I want to work with them to try to find the appropriate
ways that are sensitive to the different regions. I am
confident, Mr. Chairman, with your leadership and Senator
Bingaman, that we can find a way to use these resources in a
responsible way, to be good stewards of our oceans, invest back
some of these billions of dollars in protecting and enhancing
our environment for future generations and create jobs for the
here and the tomorrow.
Thank you.
The Chairman. Thank you very much.
Senator Martinez.
STATEMENT OF HON. MEL MARTINEZ, U.S. SENATOR
FROM FLORIDA
Senator Martinez. Mr. Chairman, I want to thank you and the
ranking member for holding this very important hearing.
And I would like to have my full statement be part of the
record.
The Chairman. It will be made part of the record.
Senator Martinez. Thank you. I would like to make a few
comments, I think, that would be helpful. As the new Senator
from the State of Florida, I follow in the footsteps of former
Senators Connie Mack and Bob Graham, as well as my Senate
colleague, Senator Bill Nelson, as well as our Governor Jeb
Bush and almost, I would say, the entire Florida delegation, in
my firm opposition to drilling off Florida's coast.
You know, Mr. Chairman, every State has differences, and
every State has their own unique situation. And Florida's is
certainly driven by what is in our State our No. 1 economy,
which is tourism, the fact that people come to our State by the
millions, 58.9 million in the most recent years, to come to our
State to enjoy its wildlife, its natural beauty, its privileged
climate, as well as amusement parks and other amenities.
The tourism industry alone directly employs nearly 840,000
Floridians and provides an economic impact of about $47 billion
a year for our State's economy. For the 58.9 million visitors,
a great many of them come to Florida to enjoy the pristine
coastline and the wonderful climate. And they return year after
year to their favorite vacation spots to relax under our skies,
as well as the beautiful beaches and the wonderful waters off
our coast.
And our appreciation for this very unique ecosystem in
which we live in Florida is a combination of the Atlantic
coast, the Gulf of Mexico, and then these vast areas of inland
wetlands that all work together to create this complex
ecosystem.
And the reason I bring up these facts is to just share a
concern of the people of Florida that drilling off of our
coast, the need that there is for furthering the sources of
energy for our country's security and for the cost that it
represents and the burden that it is on people, that the
solution to that does not rest on Florida's coastline. We are
adamantly opposed in Florida to oil and gas exploration on our
coastal waters.
It is something that has become clearly entrenched as a
Floridian point of view. I understand it differs from those of
our other Gulf coast neighbors. But it is one that I think
nonetheless ought to be strongly expressed in this committee.
As we seek solutions to energy independence, to the issues
of cost, please be assured that the people of Florida do not
wish for there to be oil exploration off of our coast. And it
is something that there is a fairly strong consensus of opinion
by the leadership of our State, shared by both parties, that
this is just simply off limits, that our coastline ought to be
maintained and ought to remain as the pristine coastline that
it is today.
I thought it was important--and I appreciate the entire
statement going into the record--but I thought it important to
express our strongly held point of view. I realize that as
technologies change, that there may be a temptation to view
things differently. The people of Florida do not. The people of
Florida want to continue to maintain the very strong position
in opposition to drilling off of Florida's coast, and also, of
course, as we define that coast to be.
So thank you, Mr. Chairman.
The Chairman. Thank you very much.
[The prepared statement of Senator Martinez follows:]
Prepared Statement of Hon. Mel Martinez, U.S. Senator From Florida
Mr. Chairman, I am pleased to attend today's hearing and listen to
our witness panel discuss an issue that is of great concern to
Floridians--the development of offshore energy resources.
I follow in the footsteps of former Senators Connie Mack and Bob
Graham as well as my Senate colleague, Senator Bill Nelson, our
governor Jeb Bush, and almost the entire Florida congressional
delegation in my firm opposition to drilling off Florida's coasts.
Every year roughly 58.9 million people visit the Sunshine State to
enjoy its beautiful beaches, exciting amusement parks, and wonderfully
abundant wildlife and natural splendor. The tourism industry alone
directly employs nearly 840,000 Floridians and provides an economic
impact of $46.7 billion to our state's economy. Of the 58.9 million
visitors, a great deal come to Florida to enjoy its pristine coastline
and wonderful climate. Families return, year after year, to their
favorite vacation spots to relax under our brilliant blue skies,
powdery white beaches, and crystal-clear emerald waters. The people of
Florida share a love and appreciation of the Atlantic Ocean and the
Gulf of Mexico, its coastal habitat, and our wetlands which make it a
very complex ecosystem; and a very special place to live.
I share these facts, for one reason: the people of Florida are
concerned that their coastal waters are coming under increased pressure
to exploit its possible oil and gas resources. The people of Florida do
not want that to happen.
Floridians are adamantly opposed to oil and gas exploration off its
coastal waters. They have serious concerns that offshore drilling will
increase the threat of potential oil spills, seriously damaging and
threatening marine wildlife and their coastal habitat.
In addition, Floridians are extremely concerned that drilling
operations would produce massive amounts of waste mud and drill
cuttings that would be generated and then sent untreated into the
surrounding waters.
Our fears are by no means unfounded. We have seen what has happened
to the beaches of Texas and Louisiana as a result of offshore drilling
in those states.
I am in no way making light of the energy crisis we are facing in
this country.
Over 90 percent of all new power plants are being fueled by natural
gas.
Currently, our nation relies on coal for 52 percent of our nation's
electricity generation. By far, this is our cheapest and most abundant
energy source, with enough domestic supply to meet our country's
electricity needs for the next 250 years. However, we must continue to
fund new technologies that will address the impacts this abundant
resource has on our environment. We must provide long-term incentives
for other renewable energy sources, like solar and wind energy, as well
as promoting new technologies like coal gasification and carbon
sequestration.
Mr. Chairman, the time for action on a national energy policy is
now.
Without a comprehensive energy policy that adequately examines and
addresses our energy and conservation needs, we will remain in this
frustrating and increasingly expensive situation. According to the
Energy Information Administration, Florida is the third largest energy
consuming state in the country; consuming 20.8 million gallons of oil a
day.
We must have a more balanced energy portfolio that also focuses
more federal resources on renewable energy sources, which currently
make up about 6 percent of nation's energy consumption. There are other
promising new discoveries through research and development that could
also reap environmental benefits for my state, like desalination, that
will reduce our dependence on groundwater in my fast growing state.
I will say Mr. Chairman, that I look forward to working with you
and Senator Bingaman to reach a bipartisan solution to our energy
problems.
There is much work to do, but we must work to solve our nation's
energy problems without looking to Florida's coasts. They are not open
for consideration.
The Chairman. Senator Burr.
STATEMENT OF HON. RICHARD BURR, U.S. SENATOR
FROM NORTH CAROLINA
Senator Burr. Thank you, Mr. Chairman. And, Mr. Chairman, I
thank you and Senator Bingaman and your staff for a very open
process, one that I think has looked at all options that might
be incorporated. And those talks continue. And I do not think
that we could ask for any more than what you have provided.
I have the distinct honor or the curse of being, I believe,
the only member here who has drafted, debated, and voted on
twice in the House of Representatives an energy bill. As Vice
Chairman of the Energy and Commerce Committee, we voted out of
committee 2 years ago a bill that I believe will be very close
to what we mark up hopefully in this committee.
One of the issues that the House did not include was an
inventory of potential oil and gas reserves in the Outer
Continental Shelf, areas designated to be under the moratorium
for drilling. The issue of prohibiting drilling off the coast
of North Carolina has been active for the past three decades
and one that has transcended political parties. Local, State,
Federal Government officials, environmentalists, property
owners, conservationists, and fishermen, overwhelmingly they
have shared the view that the moratorium in North Carolina
should be honored.
When developing my position to support exploration in ANWR,
I took into account the local communities closest to ANWR, who
overwhelmingly supported exploration. I also took into account
the support of the Alaskan State House and Senate, as well as
the support of the last two governments, Democratic and
Republican, for exploration.
And I took the Alaskan congressional delegation's support
for ANWR into consideration when deciding to support
exploration there. I used the same rationale, but came to a
different conclusion while formulating my opinion to support
the OCS moratorium off the coast of North Carolina. This is not
a view that I developed over the past 12 months, even though
North Carolina's Fifth Congressional District was landlocked.
I heard from a number of my constituents who either
vacationed or owned property on the Outer Banks about their
support for a moratorium. Over the course of deliberating two
energy bills in the House, I came to a better understanding of
the views of our General Assembly, the past three Governors,
Democratic and Republican, in support of the drilling
moratorium.
I came to a better understanding of the support for a
moratorium within our State's congressional delegation and the
support of Senator Dole and my two predecessors in this seat,
Republican and Democrat. In fact, it was former Senator Lauch
Faircloth, a Republican, who successfully lobbied President
Clinton, to have North Carolina added to the moratorium list in
late 1990.
Taking all these views into consideration, I came to the
conclusion that the moratorium off the coast of North Carolina
should be honored as long as North Carolinians remained in the
overwhelming support of such restrictions. As I stated earlier,
this is a view that has evolved over time and one that I came
to when natural gas was cheaper and more readily available.
Now we find ourselves in a time when the demand for natural
gas is at an all-time high and domestic supply is stretched
thin. The promise of importing liquified natural gas must be
tempered with the reality that these imports will most likely
come from regions of the world with the greatest political
unrest.
So in light of this challenge, I do not want my support for
the moratorium to preclude other States from reviewing their
inclusion in the OCS moratorium. I will take under
consideration any proposals that incorporate the idea that each
State wishing to review and possibly repeal its inclusion under
the moratorium be given that opportunity.
But let me make clear this one point: I will have serious
reservations about any legislation or amendment that repeals or
compromises the OCS moratorium before a State has taken action
to request the inventory of its prohibitive offshore waters.
Some of the proposals I have reviewed would lift the moratorium
before a State had a chance to take the appropriate steps to
request an inventory of its resources.
Any moratorium repeal should only be triggered after the
appropriate State officials have made the formal request of an
appropriate Federal agency that an inventory be conducted.
Endeavors like these can only be successful if they are done in
a bottom-up process that incorporates the support of local,
State, and Federal Governments, in conjunction with property
owners, conservationists, outdoor enthusiasts, in an open and
inclusive process.
That is why they call this a groundswell of support. Any
approach that advocates a top-down, one-size-fits-all approach
is doomed for failure, I believe, and leaves us nowhere closer
to addressing the overwhelming challenge of the energy crisis.
Mr. Chairman, I look forward to working with you and the
rest of my colleagues. We may hold a very specific belief in
North Carolina. But I do believe that States should have the
ability on their own to make determinations about how they
should proceed here. And I appreciate the Chairman's
willingness to let me clarify my statement on this. And I yield
back the time.
The Chairman. Well, I really appreciate your observations
and your conclusion. I think your contributions to this
committee are going to reflect the fact that you have spent a
lot of time and a lot of effort in this area from your
immediate past life in the House. And we are glad to have you
on board.
Senator Burr. Thank you.
The Chairman. Senator Feinstein. First, let me suggest, if
you do not mind, Senator, I made this rather generous decision
to let you all speak when there were only three of you present.
[Laughter.]
The Chairman. As more of you have arrived, my generosity is
changing.
[Laughter.]
The Chairman. Nonetheless, I certainly would not
discriminate, Senator.
STATEMENT OF HON. DIANNE FEINSTEIN, U.S. SENATOR
FROM CALIFORNIA
Senator Feinstein. I appreciate that, Mr. Chairman. And let
me just say that I think Florida and California have a similar
point of view here. And I very much appreciate the comments
from the Senator from Florida.
I want to just point that with respect to California, we
are adamant on maintaining a moratorium. Governor
Schwarzenegger has publicly opposed offshore drilling. He has
called for the Federal Government to buy back the remaining 36
undeveloped Federal offshore oil and gas leases from the Outer
Continental Shelf off the coast of central California.
California's Resources Secretary Mike Chrisman, the
Secretary of the California Environmental Protection Agency
Alan Lloyd, and the Lieutenant Governor have all been on record
opposing any effort to lift the congressional moratorium on
offshore oil and gas leasing activities.
As someone earlier pointed out, we are all too familiar
with the consequences and what happened in 1969. And I think
Californians--and I think Floridians possibly share this--
really believe that a healthy coast is vital to a healthy
economy and to our quality of life. We also believe that the
oceans are a unique preserve. And they should be kept that way.
And there is already tremendous oil and gas production on
the Outer Continental Shelf amounting to approximately 1.7
million barrels of oil a day, 12.5 billion cubic feet of
natural gas a day. Annually the production equals approximately
600 million barrels of oil per year. That is 30 percent of U.S.
domestic production. And 4.6--4.7 trillion cubic feet of
natural gas a year.
According to the Minerals Management Service, activity on
the Outer Continental Shelf has produced approximately 15
million barrels of oil and more than 155 trillion cubic feet of
natural gas. The estimate is that by 2006 this will be 40
percent domestic oil and gas. I think we really need to protect
our Outer Continental Shelf.
There are so many things that are happening that I see that
are carried in scientific journals that really worry me
tremendously. And this is a very unique preserve. And we ought
to preserve it as much as we can. But I can tell you this:
Californians feel very strongly about the moratorium. And I
think in this instance Florida and California will mount a real
challenge to any effort to remove that moratorium.
Thank you very much.
The Chairman. You did not comment on what you would like to
happen for other States. And I will not ask you at this point.
Senator Feinstein. I agree, I think individuals States
should play a role in this.
The Chairman. Good.
Senator Feinstein. I think, for example, my colleague,
Senator Landrieu, and I are really poles apart on this. And
Louisiana may have very different needs than California does.
But I think, too, the Outer Continental Shelf is, you know, not
close to land. And it represents a unique challenge of how we
come together as people from States in a Federal Government. I
do not have all the answers to that.
The Chairman. Thank you very much.
The Senator from Alaska. Again, you do not have to have any
comments, but we welcome them.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Well, I cannot resist, Mr. Chairman. So
thank you for your indulgence. And I am most appreciative of
the comments from my colleagues very clearly stating the
positions from their States, because I think it is important to
this debate that we know where the individuals, where the
residents come down when it comes to drilling off of their
coast. And we do need to listen to their opinions. We do need
to pay attention.
I am appreciative of the fact, Mr. Chairman, that we are
holding this hearing this morning on OCS energy development
nationwide, but not just on oil and gas but also on the
renewable forms of energy that can be produced off the coast.
When it comes to the oil and gas, we know that the
administration is now in its final process of looking at what
areas to even consider for possible oil and gas leasing between
2007 and 2012.
And when we look at the estimates that are out there, 50/50
chance that there is 76 billion barrels of oil, 406 trillion
cubic feet of conventional gas in the OCS, at this point in
time we are looking at a domestic energy shortage and
incredibly high prices, I think it makes sense for us to look
at whether the technological conditions have changed to permit
environmental safe extraction of oil and gas from the offshore
areas.
The Senator from California has made reference to the
incident off Santa Barbara in 1969. I would like to think that
since 1969 we have made advancements to our technology, so that
we can prevent incidents and accidents like that from ever
happening again. We are very mindful of the environmental
issues relating to oil production and, to a lesser extent, to
the gas production, the integrity of the ocean pipelines to
carry the oil, the ability of leak detection systems to work to
stop the leaks in the event of a pipeline leak, some of these
things that might mitigate against development in some high
valued areas.
Alaska has a microcosm in this debate. We have a number of
basins off of our 33,000 miles of coastline that may contain
oil and gas. We are currently estimating that Alaska's OCS may
hold up to 40 billion barrels of oil and 220 trillion cubic
feet of gas in our 6 main lease areas. But for various reasons,
whether it is a valuable commercial fisheries, whether it is
the difficulty of development in northern icing conditions, we
do have a Presidential moratorium in one of our potential lease
areas and partially restricted in two other areas.
We have potential up there. I mentioned the renewables. I
just got an opportunity to sit and listen to proposals to
generate power from ocean current generators and from offshore
wind generators. So there are some ideas that are flowing
around that are worthy of exploration.
Some of the issues about revenue sharing that I know my
friend from Louisiana has raised, you experience a great deal
of impact to your State as a result of leasing and drilling off
your areas, and yet the return to your State, we have talked
about the inequity there. And that is something that needs to
be addressed, needs to be looked at.
If we were to have offshore development off of Alaska's
coast, we would not be seeing the same revenue sharing that we
currently enjoy from our onshore. So there is inequity there
that needs to be addressed. And I look forward to doing that
with you, Mr. Chairman and members of the committee.
Thank you.
Senator Feinstein. Mr. Chairman.
The Chairman. Thank you very much, Senator Murkowski.
Senator Feinstein.
Senator Feinstein. I neglected to do something. And Admiral
Watkins is, I think, one of the most respected people I know.
He was Chief of Naval Operations when I was mayor.
He has done so many fine things in his life. And I have not
seen him for a while. I have the greatest respect for him.
And I just wanted to say welcome. It is great to see you.
Admiral Watkins. You should know, Mr. Chairman, that Mayor
Feinstein and Admiral Larkins, when I was Commander in Chief of
the Pacific Fleet, came together and we brought the Navy back
to San Francisco. It had disappeared after World War II. And we
brought it back, did we not, Dianne?
Senator Feinstein. That is right.
The Chairman. Well, I would assume that today's mayor of
San Francisco could not bring the Navy back to San Francisco.
Senator Feinstein. We will not get into that.
The Chairman. We will not get into that.
[Laughter.]
The Chairman. Even with your tremendous power, I do not
know that that would be possible. In any event, that is enough
from me.
[Laughter.]
The Chairman. Now we have to get to you-all. Frankly, I
thought it was good that we let the Senators talk about this
issue, because it is volatile, but it is big, important.
And we would like to hear from you, Admiral Watkins. I did
not say anything at the beginning, but you already know what I
know about you and what I think about you. My respect for your
public service is just immeasurable.
So with that, I do now want to tell you that I will do
exactly what you think about our offshore resources, but I am
sure we will all be interested in what you think.
STATEMENT OF ADMIRAL JAMES D. WATKINS, CHAIRMAN,
U.S. COMMISSION ON OCEAN POLICY
Admiral Watkins. Thank you, Mr. Chairman, members of the
committee. I am pleased to be here today with you in my
capacity as the Chairman of the U.S. Commission on Ocean
Policy, to discuss Outer Continental Shelf energy-related
recommendations and the Commission's final report, which I have
here in front of me, if I can lift it, ``An Ocean Blueprint of
the 21st Century.''
Before I proceed, I would like to briefly summarize the
Commission's core recommendations, which should help put my
comments in the proper context.
There is virtually universal agreement that our oceans are
in trouble. And the current governing system is poorly
structured to address the complicated cross-jurisdiction,
ecosystem-based problems we are facing. In our final report,
the Commission recommends a new approach to the national ocean
policy that focuses on the transition toward ecosystem-based
management, a process that will require changes in three major
areas, and one with which all stakeholders agree. That is, the
administration, Congress, Governors, and the public.
So first we need to create a new national ocean policy
framework to streamline and improve how the government makes
and implements decisions that must be horizontally integrated
across multiple agencies, multiple legislative committees, and
the States.
Concurrently, we need to strengthen science and generate
high quality, credible, accessible information, particularly
that emanating from the new Global Earth Observing System
Initiative now committed to by the Administration. This will
require support for basic and applied research, as well as the
development of new sensing and observing technologies and a
capacity to manage and fully utilize the huge amount of data
that is being generated by these systems.
And finally, we need to greatly enhance ocean education to
inspire the current and future leaders and citizens to adopt a
strong stewardship ethic. Knowledgeable citizens and
policymakers will be the driving force behind this new approach
to ocean and coastal management. And progress is needed in all
three areas if we are to have a comprehensive national ocean
policy.
Let me now focus on the Commission's recommendations
related to Outer Continental Shelf energy management. As
Congress considers expanding energy-related activities in
Federal waters, it should reevaluate current management regimes
and consider how to coordinate the growing sweep of activities
in these areas. The Nation's vast offshore ocean areas are
becoming increasingly appealing places to pursue economic
activities, such as wind farms, agriculture, eventually bio-
prospecting. And yet there is no coherent management regime for
these activities, as the wind farm debate in the Northeast has
clearly demonstrated.
A comprehensive offshore management regime is needed that
enables us to realize the ocean's potential while safeguarding
human and ecosystem health, minimizing conflicts among users,
and fulfilling the Government's obligations to manage the sea
in a way that maximizes long-term benefits for all the Nation's
citizens.
The Commission has recommended that each current and
emerging activity in Federal waters be administered by a lead
Federal agency, which would coordinate with other applicable
authorities to ensure full consideration of the public
interest. For example, we recommend establishment of a coherent
and predictable Federal management process for offshore
renewable sources, such as offshore wind energy, wave energy
conversion, and ocean thermal energy conversion.
This renewable energy focus management process would in
turn eventually be fully integrated into a balanced ecosystem-
based comprehensive offshore management regime that sets forth
guiding principles for the coordination of all offshore
activity. Such a regime is crucial, if we are to balance
competing activities on the OCS.
Now let me turn my attention to environmental issues
related to offshore oil and gas. Along with the economic and
energy-related benefits of OCS oil and gas production are
actual and perceived risks with the environment, coastal
community, and competing users. Since the 1969 Santa Barbara
blowout, the U.S. oil industry's environmental and safety
record has improved significantly. Today, safety stipulations
are more stringent, technologies are vastly improved,
inspections are regular and frequent, and oil spills response
capabilities are in place.
Nevertheless, there remains numerous environmental issues
associated with development and production of oil and gas in
the OCS. The most obvious of these is more of a perceived risk,
as we now understand it. The one most commonly cited is the
potential for oil spills, including drill rig blowouts,
pipeline spills, and releases from production platforms.
However, information compiled by the Minerals and Management
Service indicates that OCS offshore facilities and pipelines
accounted for only 2 percent of the volume of oil released into
the United States waters for the period 1985 to 2001, as
mentioned by Senator Landrieu.
By comparison, the National Research Council recently
reported that 690,000 barrels of oil entered North American
ocean waters each year from land-based human activity. And the
other 1-million-plus barrels result from natural seeps
emanating from the sea floor. Well, those 690,000 barrels from
urban runoff highlight the importance of education and outreach
if we are to be successful in changing perceptions and the
behavior of the Nation's citizens.
The Commission also highlights the need to increase support
for science and technology. The desire for increased
exploration and production and increasing capability of
drilling in even deeper waters requires a better understanding
of the cumulative, synergistic, and long-term impact of OCS oil
and gas development.
The Environmental Studies Program and the Minerals
Management Service and other agencies need to be fully funded
to ensure public confidence and guide the decision of
policymakers. They have been on a serious decline in the last
few years, and they have to be brought back or we are not going
to have the credibility with the American people.
This is an essential ingredient to measuring the
feasibility of bringing the vast reserves of methane hydrate
for practical use, for example.
And this brings me to the final issue, and that is funding.
There is a clear nexus between activities in Federal waters and
the programmatic, regulatory, and management responsibilities
they engender. The critical nature of ocean assets and the
challenges faced in managing them justify establishment of an
ocean policy trust fund in the U.S. Treasury to assist Federal
agencies in Coastal States in carrying out the comprehensive
ocean policy recommended by our Commission.
The trust fund will be composed of returns from commercial
uses of offshore resources, including OCS oil and gas revenues
not currently committed to other programs from allowed uses of
Federal waters. Trust fund money should be disbursed to Coastal
States, other appropriate coastal authorities, and Federal
agencies to support improved ocean and coastal management based
on an allocation determined by the Congress. The trust fund
should be used to supplement, not replace, existing
appropriations for ocean and coastal programs.
Let me close by saying the Commission recognizes the
importance of balancing the economic needs of the Nation with
the protection and conservation of the ecosystems and natural
resources that are of economic, as well as aesthetic,
importance to our citizens. To utilize these resources in a
manner that does not jeopardize the health of the ecosystem
requires a much greater degree of coordination and integration
among all the entities that have a vested interest in their
long-term welfare.
The Commission's report provides a comprehensive strategy
for moving our Nation toward such an ecosystem-based management
approach. Its implementation requires great political will and
new fiscal investment and strong public support, but in the
long run all of America will benefit. Leadership from this
committee, Mr. Chairman, and others in the Congress and from
The White House are essential.
Thank you, Mr. Chairman.
[The prepared statement of Admiral Watkins follows:]
Prepared Statement of Admiral James D. Watkins, U.S. Navy (Retired),
Chairman, U.S. Commission on Ocean Policy
Mr. Chairman and Members of the Committee, I am pleased to appear
before you today in my capacity as the Chairman of the U.S. Commission
on Ocean Policy, to discuss Outer Continental Shelf energy-related
recommendations from the Commission's Final Report, ``An Ocean
Blueprint for the 21st Century.''
As you may be aware, in keeping with the broad mandate given to us
by Congress, the Commission's report covers a huge range of topics--
from coastal watersheds out to the deepest ocean and from fundamental
science to practical problems. It includes over 200 recommendations,
primarily directed at the executive and legislative branches of
government. I will focus my remarks on the issues related to the topic
of this hearing, energy resources on the Outer Continental Shelf.
However, I would like to take this opportunity to familiarize the
Members of Committee with the report's key findings and recommendations
so you can more fully appreciate the broader context in which I am
making my comments today.
OUR PRICELESS OCEAN ASSETS
America is a nation intrinsically connected to and immensely
reliant on the ocean. All citizens--whether they reside in the
country's farmlands or mountains, in its cities or along the coast--
affect and are affected by the sea. Our grocery stores and restaurants
are stocked with seafood and our docks are bustling with seaborne
cargo. Millions of visitors annually flock to the nation's shores,
creating jobs and contributing substantially to the U.S. economy
through one of the country's largest and most rapidly growing economic
sectors: tourism and recreation.
The offshore ocean area under U.S. jurisdiction is larger than its
total land mass, providing a vast expanse for commerce, trade, energy
and mineral resources, and a buffer for security. Born of the sea are
clouds that bring life-sustaining water to our fields and aquifers, and
drifting microscopic plants that generate much of the oxygen we
breathe. Energy from beneath the seabed helps fuel our economy and
sustain our high quality of life. The oceans host great biological
diversity with vast medical potential and are a frontier for exciting
exploration and effective education. The importance of our oceans,
coasts, and Great Lakes cannot be overstated; they are critical to the
very existence and well being of the nation and its people. Yet, as the
21st century dawns, it is clear that these invaluable and life-
sustaining assets are vulnerable to the activities of humans.
Human ingenuity and ever-improving technologies have enabled us to
exploit--and significantly alter--the ocean's bounty to meet society's
escalating needs. Pollution runs off the land, degrading coastal waters
and harming marine life. Many fish populations are declining and some
of our ocean's most majestic creatures have nearly disappeared. Along
our coasts, habitats that are essential to fish and wildlife and
provide valuable services to humanity continue to suffer significant
losses. Non-native species are being introduced, both intentionally and
accidentally, into distant areas, often resulting in significant
economic costs, risks to human health, and ecological consequences that
we are only beginning to comprehend.
Yet all is not lost. This is a moment of unprecedented opportunity.
Today, as never before, we recognize the links among the land, air,
oceans, and human activities. We have access to advanced technology and
timely information on a wide variety of scales. We recognize the
detrimental impacts wrought by human influences. The time has come for
us to alter our course and set sail for a new vision for America, one
in which the oceans, coasts, and Great Lakes are healthy and
productive, and our use of their resources is both profitable and
sustainable.
It has been thirty-five years since this nation's management of the
oceans, coasts, and Great Lakes was comprehensively reviewed. In that
time, significant changes have occurred in how we use marine assets and
in our understanding of the consequences of our actions. The final
report from the U.S. Commission on Ocean Policy provides a blueprint
for change in the 21st century, with recommendations for creation of an
effective national ocean policy that ensures sustainable use and
protection of our oceans, coasts, and Great Lakes for today and far
into the future.
THE VALUE OF THE OCEANS AND COASTS
America's oceans, coasts, and Great Lakes provide tremendous value
to our economy. Based on estimates in 2000, ocean-related activities
directly contributed more than $117 billion to American prosperity and
supported well over two million jobs. By expanding the area to include
economic activities along the coast, the numbers become even more
impressive; more than $1 trillion, or one-tenth of the nation's annual
gross domestic product, is generated within the relatively narrow strip
of land immediately adjacent to the coast that we call the nearshore
zone. When the economic activity throughout the entire area of all
coastal watershed counties are considered, the contribution swells to
over $4.5 trillion, fully half of the nation's gross domestic product,
accounting for some 60 million jobs (Figure 1*).
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* All exhibits have been retained in committee files.
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The United States uses the sea as a highway for transporting goods
and people and as a source of energy and potentially lifesaving drugs.
Annually, the nation's ports handle more than $700 billion in
merchandise, while the cruise industry and its passengers account for
another $12 billion in spending. More than thirteen million jobs are
connected to maritime trade. With offshore oil and gas operations
expanding into ever deeper waters, annual production is now valued at
$25-$40 billion, and yearly bonus bid and royalty payments contribute
approximately $ 5 billion to the U.S. Treasury.
Ocean exploration has also led to a growing and potentially multi-
billion dollar industry in marine-based bioproducts and
pharmaceuticals. The commercial fishing industry's total annual value
exceeds $28 billion, with the recreational saltwater fishing industry
valued at around $20 billion, and the annual U.S. retail trade in
ornamental fish worth another $3 billion. Nationwide, retail
expenditures on recreational boating alone exceeded $30 billion in
2002. In fact, tourism and recreation is one of the nation's fastest-
growing business sectors, enriching economies and supporting jobs in
communities virtually everywhere along the shores of the United States
and its territories.
These concrete, quantifiable contributions are just one measure of
the value of the nation's oceans, coasts, and Great Lakes. There are
many even more important attributes that cannot be given a price tag,
such as global climate control, life support, cultural heritage, and
the aesthetic value of the ocean with its intrinsic power to relax,
rejuvenate, and inspire.
TROUBLE IN PARADISE
Unfortunately, our use and enjoyment of the ocean and its resources
have come with costs, and we are only now discovering the full extent
of the consequences of our actions. In 2001, 23 percent of the nation's
estuarine areas were considered impaired for swimming, fishing, or
supporting marine species. In 2003, there were more than 18,000 days of
closings and advisories at ocean and Great Lakes beaches, most due to
the presence of bacteria associated with fecal contamination. Across
the globe, marine toxins afflict more than 90,000 people annually and
are responsible for an estimated 62 percent of all seafood-related
illnesses. Harmful algal blooms appear to be occurring more frequently
in our coastal waters and non-native species are increasingly invading
marine ecosystems. Experts estimate that 25 to 30 percent of the
world's major fish stocks are overexploited, and many U.S. fisheries
are experiencing serious difficulties. Since the Pilgrims first arrived
at Plymouth Rock, over half of our fresh and saltwater wetlands--more
than 110 million acres--have been lost.
Coastal waters are one of the nation's greatest assets, yet they
are being bombarded with pollutants from a variety of sources. While
progress has been made in reducing point sources of pollution, nonpoint
source pollution has increased and is the primary cause of nutrient
enrichment, hypoxia, harmful algal blooms, toxic contamination, and
other problems that plague coastal waters. Nonpoint source pollution
occurs when rainfall and snowmelt wash pollutants such as fertilizers,
pesticides, bacteria, viruses, pet waste, sediments, oil, chemicals,
and litter into our rivers and coastal waters. Other pollutants, such
as mercury and some organic chemicals, can be carried vast distances
through the atmosphere before settling into ocean waters.
Our failure to properly manage the human activities that affect the
nation's oceans, coasts, and Great Lakes is compromising their
ecological integrity, diminishing our ability to fully realize their
potential, costing us jobs and revenue, threatening human health, and
putting our future at risk.
U.S. COMMISSION ON OCEAN POLICY CORE RECOMMENDATIONS
Last year the President stated, ``We have a changing world. And,
yet, the fundamental systems haven't changed . . . (they) were created
for the world of yesterday, not tomorrow.'' Our Commission
wholeheartedly agrees with him. While he made these statements in the
context of economic policy reforms, they are equally applicable to the
management of our oceans and coasts.
There is virtually universal agreement that our oceans are in
trouble and the current governance system is poorly structured to
address the complicated, cross jurisdictional, ecosystem-based problems
we are facing. There is a lack of coordination at all levels. Rather
than continue on this path and deal with problems piecemeal as we do
now, we have recommended a new approach to national ocean policy, one
grounded in an understanding of ecosystems, guided by strong science,
and capable of addressing the complex interrelationships among the
ocean, land, air, and all living creatures, including humans.
In our Final Report, the Commission identified three major
categories of recommendations, each of which is a critical component in
supporting the overarching goal of transitioning towards ecosystem-
based management:
First, we need to create a new national ocean policy
framework to streamline and improve how the government makes
and implements decisions. A new governance regime is essential
if we are to make the transition toward ecosystem-based
management.
Concurrently, we need to strengthen science and generate
high-quality, credible, accessible information. This will
require support for basic and applied research, as well as the
development of new sensing and observing technologies and a
capacity to manage and full utilize the huge amount of data
that are generated by these systems.
And at the same time, we need to greatly enhance ocean
education to inspire future leaders and instill citizens with a
strong stewardship ethic. Knowledgeable citizens and policy
makers will be the driving force behind this new approach to
ocean and coastal management.
I want to make it clear that an effective, coordinated and
comprehensive national ocean policy will require action in each of
these cross-cutting areas: governance, science and education. There is
no ``silver bullet'' or single action that can replace a balanced
approach to reform, progress is needed across all three areas. However,
we recognize the need to take advantage of opportunities for
improvement when they arise; and one area that appears ripe for making
progress is the management of federal waters.
COORDINATED GOVERNANCE OF OFFSHORE WATERS
As Congress considers expanding energy-related activities in
federal waters, it should take the opportunity to reevaluate the
current management regimes and consider how to coordinate the growing
suite of activities in these areas. The nation's vast offshore ocean
areas are becoming an increasingly appealing place to pursue economic
activities (Figure 4). Well-established institutional frameworks exist
for longstanding ocean uses, such as fishing and energy extraction;
however, authorities governing new activities, such as the placement of
wind farms or aquaculture facilities, need to be clarified. A
comprehensive offshore management regime is needed that enables us to
realize the ocean's potential while safeguarding human and ecosystem
health, minimizing conflicts among users, and fulfilling the
government's obligation to manage the sea in a way that maximizes long-
term benefits for all the nation's citizens.
The Committee on Ocean Policy, which was established by the
President through Executive Order 13366 in December, 2004, supported by
congressional action where necessary, should ensure that each current
or foreseeable activity in federal waters is administered by a lead
federal agency. Well-developed laws or authorities that cover existing
programs would not be supplanted, but the lead agency would be expected
to continue and enhance coordination among all other involved federal
partners. For emerging ocean activities whose management is ill
defined, dispersed, or essentially non-existent, the Committee on Ocean
Policy and Congress, working with affected stakeholders, should ensure
that the lead agency provides strong coordination, while working toward
a more comprehensive governance structure.
Based on an improved understanding of offshore areas and their
resources, the federal government should work with appropriate state
and local authorities to ensure that the many different activities
within a given area are compatible, in keeping with an ecosystem-based
management approach. As the pressure for offshore uses grows, and
before serious conflicts arise, it is critical that the Committee on
Ocean Policy review the complete array of single-purpose offshore
programs with the goal of achieving coordination among them.
Ultimately, a streamlined program for each activity should be
combined with a comprehensive offshore management regime that considers
all uses, addresses the cumulative impacts of multiple activities, and
coordinates the many authorities with interests in offshore waters. The
Committee on Ocean Policy, the proposed President's Council of Advisors
on Ocean Policy, federal agencies, new regional ocean councils, and
states will all have roles to play in realizing more coordinated,
participatory management of offshore ocean activities.
exercising jurisdiction over nonliving resources in federal waters
In addition to its responsibilities for living marine resources,
the federal government also exercises jurisdiction over nonliving
resources, energy and other minerals located in the waters and seabed
of the more than 1.7 billion acres of the Outer Continental Shelf
(OCS). Offshore oil and gas development has the most mature and
broadest management structure of all such resources. It also has the
longest and richest history, characterized by major changes to the
underlying law that established the more comprehensive administrative
regime, as well as intense political conflict resulting from divisions
among stakeholders and tensions inherent in American federalism. The
development of other ocean energy resources--some of which are newly
emerging technologies--have differing levels of management, but none
are currently making any noteworthy contributions to domestic
production numbers. Historically, there also have been varying
expressions of commercial interest in non-energy minerals in the U.S.
exclusive economic zone (EEZ), but only sand and gravel have been used
in recent years by coastal states and communities, because of a change
which eased access to those resources.
MANAGING OFFSHORE OIL AND GAS RESOURCES
OCS oil and gas development is a classic example of the politics of
multiple-use resource management, including federal-state tensions,
competing user issues, arguments over the interpretation of data, and
disagreements concerning tolerable levels of risk. Despite its
political problems, which are best understood through an awareness of
the historical context associated with it, today the OCS oil and gas
program has a well institutionalized and reasonably comprehensive
management regime. While not without its critics, the program seeks to
balance the many competing interests involved in offshore energy
activity, requires state and local government input in federal
decisions, and specifies detailed procedures to be followed by those
seeking offshore leases. It also manages the various processes
associated with access to non-energy minerals on the OCS. Energy
development in federal waters is big business and has become an
important part of the fabric of the U.S. ocean policy mix. Most
observers agree that the federal OCS oil and gas program benefits
America by helping to meet energy needs, creating thousands of jobs,
and contributing billions of dollars to the U.S. Treasury. Despite the
limited offshore geographic area from which production flows and in
which leasing is authorized, the amount of oil and gas production from
the OCS is significant.
ENVIRONMENTAL ISSUES RELATED TO OFFSHORE OIL AND GAS PRODUCTION
As with most industrial development activities, along with the
economic-and energy related benefits of OCS oil and gas production, are
actual and perceived risks to the environment, coastal communities, and
competing users. Since the 1969 Santa Barbara blowout, the U.S. oil
industry's environmental and safety record has improved significantly,
as has the regulatory regime of DOI. Today, safety stipulations are
more stringent, technologies are vastly improved, inspections are
regular and frequent, and oil spill response capabilities are in place.
Nevertheless, there remain numerous environmental issues associated
with the development and production of oil and gas from the OCS.
Foremost among these are:
Physical damage to coastal wetlands and other fragile areas
by OCS-related onshore infrastructure and pipelines.
Physical disruption of and damage to bottom-dwelling marine
communities.
Discharge of contaminants and toxic pollutants present in
drilling muds and cuttings and in produced waters.
Emissions of pollutants from fixed facilities, vessels, and
helicopters.
Seismic exploration and production noise impacts on marine
mammals, fish, and other wildlife.
Immediate and long-term ecological effects of large oil
spills.
Chronic, low-level impacts on natural and human
environments.
Cumulative impacts on the marine, coastal, and human
environments.
The most obvious of these risks, and the one most commonly cited,
is the potential for oil spills including drill rig blowouts, pipeline
spills, and chronic releases from production platforms. The impacts of
large oil spills can last from years to decades, particularly in
critical habitats, such as wetlands and coral reefs. According to MMS,
97 percent of OCS spills are one barrel or less in volume and U.S. OCS
offshore facilities and pipelines accounted for only 2 percent of the
volume of oil released into U.S. waters for the period 1985-2001.\1\
The total volume and number of such spills over that period declined
significantly due to industry safety practices and improved spill
prevention technology. By comparison, the National Research Council
(NRC) estimated that 690,000 barrels of oil enter North American ocean
waters each year from land-based human activities, and another
1,118,000 barrels result from natural seeps emanating from the
seafloor.\2\
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\1\ Minerals Management Service. ``OCS Oil Spill Facts''
Washington, DC: U.S. Department of the Interior, September 2002.
\2\ National Research Council. Oil in the Sea Ill: Inputs, Fates
and Effects. Washington, DC: National Academy Press, 2003.
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Since 1981, the volume of oil spilled from OCS pipelines is four to
five times greater than that from OCS platforms.\3\ Third party impacts
due to events such as anchor dragging and ship groundings, and damages
resulting from natural disasters such as hurricanes and underwater
landslides, are leading causes of pipeline spills. As noted by the NRC,
spills due to structural failures in aging pipelines are also a growing
concern.\4\
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\3\ Minerals Management Service. OCS Oil Spill Facts. Washington,
DC: U.S. Department of the Interior, September 2002.
\4\ National Research Council. Oil In the Sea Ill: Inputs, Fates
and Effects. Washington, DC: National Academy Press, 2003.
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Long-term exposure to weather and marine conditions makes pipelines
older than twenty-five years considerably more susceptible to stress
fractures and material fatigue that can lead to spills and leaks. In
addition, older pipelines do not incorporate the advanced oil spill
detection and prevention technologies that have been developed in
recent years.
The MMS Environmental Studies Program (ESP) is a major source of
information about the impacts of OCS oil and gas activities on the
human, marine, and coastal environments. Since 1986, annual funding for
the program has decreased, in real dollars, from a high of $56 million
to approximately $18 million in 2003. Even accounting for the
contraction in the areas available for leasing, the erosion in ESP
funding has occurred at a time when more and better information, not
less, is needed. There continues to be a need to better understand the
cumulative and long-term impacts of OCS oil and gas development,
especially in the area of low levels of persistent organic and
inorganic chemicals, and their cumulative or synergistic effects.
Also, as noted, OCS oil and gas exploratory activities in the Gulf
of Mexico are now occurring in water depths approaching 10,000 feet
with projections that the industry will achieve 15,000 feet drilling
capabilities within the next decade. The technological ability to
conduct oil and gas activities in ever deeper waters on the OCS places
a significant and important responsibility on MMS to collect the
essential environmental deep-water data necessary for it and other
agencies to make informed management and policy decisions on
exploration and production activities at those depths. Thus, as the
knowledge base increases and the industry expands its activities
further offshore and into deeper waters, new environmental issues are
emerging that cannot all be adequately addressed under the current ESP
budget.
Therefore, the Commission recommended that the U.S. Department of
the Interior should expand the Minerals Management Service's
Environmental Studies Program. Priorities for the enhanced
Environmental Studies Program should include:
conducting long-term environmental research and monitoring
at appropriate outer Continental Shelf (OCS) sites to better
understand cumulative, low-level, and chronic impacts of OCS
oil and gas activities on the natural and human environments.
working with state environmental agencies and industry to
evaluate the risks to the marine environment posed by aging
offshore and onshore pipelines, particularly in the Gulf of
Mexico.
This is one of many examples where Congress and the Administration
can act now to respond to outstanding ocean-related funding needs,
needs that should not have to wait until a comprehensive national ocean
and coastal research strategy is developed.
ASSESSING THE POTENTIAL OF OFFSHORE METHANE HYDRATES
Conventional oil and gas are not the only fossil-based fuel sources
located beneath ocean floors. Methane hydrates are solid, ice-like
structures composed of water and natural gas. They occur naturally in
areas of the world where methane and water can combine at appropriate
conditions of temperature and pressure, such as in thick sediment of
deep ocean basins, at water depths greater than 1,650 feet.
The estimated amount of natural gas in the gas hydrate
accumulations of the world greatly exceeds the volume of all known
conventional gas resources.\5\ A 1995 U.S. Geological Survey (USGS)
estimate of both marine and Arctic hydrate resources revealed the
immense energy potential of hydrates in the United States.\6\ These
deposits have been identified in Alaska, the east and west coasts of
the United States, and in the Gulf of Mexico. USGS estimated that the
methane hydrates in U.S. waters hold a mean value of 320,000 trillion
cubic feet of natural gas, although subsequent refinements of the data
have suggested that the estimate is a slightly more conservative
200,000 trillion cubic feet.\7\ Even this lower estimate is enough to
supply all of the nation's energy needs for more than 2,000 years at
current rates of use.\8\
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\5\ U.S. Department of the Interior, U.S. Geological Survey. ``Gas
Hydrates--Will They be Considered in the Future Global Energy Mix?''
Posted December 10, 2003; accessed March 12, 2004.
\6\ National Oil and Gas Resource Assessment Team. 1995 National
Assessment of United States Oil and Gas Resources. U.S. Geological
Survey Circular 1118. Washington, DC: U.S. Government Printing Office,
1995.
\7\ Congressional Research Service. ``Methane Hydrates: Energy
Prospect or Natural Hazard?'' Updated February 14, 2004; accessed March 12, 2004.
\8\ Monastersky, R. The Ice That Burns: Can Methane Hydrates Fuel
the 21st Century? Science News 154, no. 20 (November 14, 1998): 312.
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However, there is still no known practical and safe way to develop
the gas and it is clear that much more information is needed to
determine whether significant technical obstacles can be overcome to
enable methane hydrates to become a commercially viable and
environmentally acceptable source of energy.
In the United States, federal research concerning methane hydrates
has been underway since 1982, was intensified in 1997-98, and received
further emphasis with the passage of the Methane Hydrate Research and
Development Act in 2000. That Act established an interagency
coordination mechanism that includes the U.S. Departments of Energy,
Commerce, Defense, and the Interior, and the National Science
Foundation, and directed the National Research Council to conduct a
study on the status of research and development work on methane
hydrates. At the time that the Commission's final report went to press
the NRC report had not been released.
In our report, the Commission recommended that the proposed
National Ocean Council, working with the U.S. Department of Energy and
other appropriate entities, should review the status of gas hydrates
research and development to determine whether methane hydrates can
contribute significantly to meeting the nation's long-term energy
needs. If such contribution looks promising, the President's recently
established Committee on Ocean Policy, should recommend an appropriate
level of investment in methane hydrates research and development, and
determine whether a comprehensive management regime for industry access
to hydrate resource deposits is needed.
DEVELOPING OFFSHORE RENEWABLE ENERGY RESOURCES
Environmental, economic, and security concerns have heightened
interest among many policy makers and the public in renewable sources
of energy. Although offshore areas currently contribute little to the
nation's supply of renewable energy, the potential is significant and
could include wind turbines, mechanical devices driven by waves, tides,
or currents, and ocean thermal energy conversion, which uses the
temperature difference between warm surface and cold, deep-ocean waters
to generate electricity.
OFFSHORE WIND ENERGY DEVELOPMENT
While the offshore wind power industry is still in its infancy in
the United States, it is being stimulated by improved technology and
federal tax credits that have made it more attractive commercially.
Additionally, developers are looking increasingly to the lead of
European countries such as Denmark, the United Kingdom, and Germany,
where growing numbers of offshore projects are being licensed. In fact,
the United States already has a wind energy management program
applicable on some federal lands onshore. This comprehensive program is
carried out by DOI's Bureau of Land Management under broad authority
provided by the Federal Land Policy and Management Act.
Conversely, there is no comprehensive and coordinated federal
regime in place to regulate offshore wind energy development or to
convey property rights to use the public space of the OCS for this
purpose. In the absence of a specific regime, the U.S. Army Corps of
Engineers (USACE) is the lead federal agency responsible for reviewing
and granting a permit for this activity. Its authority, however, is
based on Section 10 of the Rivers and Harbors Act, which, although it
has a public interest requirement, primarily regulates obstructions to
navigation, including approval of any device attached to the seafloor.
In reviewing a proposed project under Section 10, the USACE is required
by the National Environmental Policy Act to consult other federal
agencies. Depending on the circumstances, these agencies and
authorities may include:
The U.S. Coast Guard, which regulates navigation under
several federal statutes.
The Federal Aviation Administration, which regulates objects
that may affect navigable airspace pursuant to the Federal
Aviation Act.
The U.S. Environmental Protection Agency, which may conduct
a review for potential environmental impacts of a project
pursuant to the Clean Water Act and Clean Air Act.
The National Marine Fisheries Service (NMFS), which may
review projects for potential impacts to fishery resources
pursuant to the Magnuson-Stevens Fishery Conservation and
Management Act. In addition, NMFS' review includes assessing
potential impacts to endangered or threatened species under the
Endangered Species Act or the Marine Mammal Protection Act.
The U.S. Fish and Wildlife Service, which may review
projects for potential impacts to endangered species or marine
mammals under its jurisdiction pursuant to the Endangered
Species Act or the Marine Mammal Protection Act.
In addition, depending on its location, a wind energy
project, or at least its Section 10 permit, may be subject to
review by one or more state coastal management programs in
accordance with the CZMA federal consistency provisions.
The Section 10 review process stands in stark contrast both to the
well established DOI regulatory program for onshore wind energy and, in
the marine setting, to the robust regulatory program for offshore oil
and gas that has developed under the Outer Continental Shelf Lands Act
(OCSLA). Using the Section 10 process as the primary regulatory vehicle
for offshore wind energy development is inadequate for a number of
reasons. First and foremost, it cannot grant leases or exclusive rights
to use and occupy space on the OCS. It is not based on a comprehensive
and coordinated planning process for determining when, where, and how
this activity should take place. It also lacks the ability to assess a
reasonable resource rent for the public space occupied or a fee or
royalty for the energy generated. In other words, it lacks the
management comprehensiveness that is needed to take into account a
broad range of issues, including other ocean uses in the proposed area
and the consideration of a coherent policy and process to guide
offshore energy development.
WAVE ENERGY CONVERSION--CURRENT AND TIDAL
Various technologies have been proposed to use wave or tidal
energy, usually to produce electricity. The wave energy technologies
for offshore use include floating or pitching devices placed on the
surface of the water that convert the horizontal or vertical movement
of the wave into mechanical energy that is used to drive a turbine.
Currently, the offshore wave, tidal, and current energy industry is in
its infancy. Only a small proportion of the technologies have been
tested and evaluated.\9\ Nonetheless, some projects are moving forward
in the United States, including one to install electricity-producing
wave-energy buoys more than 3 nautical miles offshore Washington State,
in the Olympic Coast National Marine Sanctuary. Internationally, there
is considerable interest in wave, tidal, and current energy, but the
projects are almost all in the research and development stage.
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\9\ California Energy Commission. ``Ocean Energy.''
Accessed December 16,
2003.
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The Federal Energy Regulatory Commission (FERC) asserts
jurisdiction, under the Federal Power Act (FPA), over private,
municipal, and state (not federal) hydropower projects seaward to 12
nautical miles. FERC has formally asserted jurisdiction over the
Washington State project, and is likely to assert jurisdiction over all
forms of wave, tidal, or current energy projects whose output is
electricity, from the shoreline out to 12 nautical miles offshore, on
the basis that they are ``hydropower'' projects under the FPA. Although
in issuing a license for a wave, current, or tidal project, FERC is
directed by the FPA to equally consider environmental and energy
concerns, it is not an agency with a broad ocean management mission. As
with wind energy, several other federal laws may apply to ocean wave
projects. For example, NEPA, the federal consistency provision of the
CZMA, the National Historic Preservation Act, and the Fish and Wildlife
Coordination Act may apply, as may the consultation provisions of the
Endangered Species Act and the Marine Mammal Protection Act. But there
is no comprehensive law that makes clear which of these individual laws
may be applicable, nor is there any indication that overall
coordination is a goal, thus leaving implementation to mixed federal
authorities.
OCEAN THERMAL ENERGY CONVERSION
The surface waters of the world's tropical oceans store immense
quantities of solar energy. Ocean thermal energy conversion (OTEC)
technology could provide an economically efficient way to tap this
resource to produce electric power and other products. The U.S.
government spent over $200 million dollars in OTEC research and
development from the 1970s to the early 1990s that produced useful
technical information but did not result in a commercially viable
technology.\10\ Early optimism about the potential of OTEC led to the
enactment of the Ocean Thermal Energy Conversion Act in 1980, and the
creation of a coordinated framework and licensing regime for managing
that activity if and when economic considerations permitted. NOAA
issued regulations to implement the Act, but because of investor risk
for this capital-intensive technology and relatively low fossil fuel
prices, no license applications were ever received and NOAA
subsequently rescinded the regulations in 1996. Thus, the United States
currently has no administrative regulatory structure to license
commercial OTEC operations.
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\10\ Jones, A.T., and W. Rowley. ``Global Perspective: Economic
Forecast for Renewable Ocean Energy Technologies.'' Marine Technology
Society Journal 36, no. 4 (Winter 2002-2003).
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COMPREHENSIVE MANAGEMENT FOR OFFSHORE RENEWABLE ENERGY
Offshore renewable technologies will continue to be studied as a
means of reducing U.S. reliance on potentially unstable supplies of
foreign oil, diversifying the nation's energy mix, and providing more
environmentally benign sources of energy. Similar to offshore
aquaculture described in Chapter 22 of the Commission's report, the
offshore renewable processes described in this section present obvious
examples of the shortcomings in federal authority when it comes to
regulating specific new and emerging offshore activities. As long as
federal agencies are forced to bootstrap their authorities to address
these activities, the nation runs the risk of unresolved conflicts,
unnecessary delays, and uncertain procedures. What is urgently needed
is for the Committee on Ocean Policy to develop a comprehensive
offshore management regime (as recommended in Chapter 6) that considers
all offshore uses within a larger planning context. A coherent and
predictable federal management process for offshore renewable resources
that weighs the benefits to the nation's energy future against the
potential adverse effects on other ocean users, marine life, and the
ocean's natural processes, should be fully integrated into the broader
management regime.
In light of the growing interest in renewable energy, the
Commission has recommended that Congress, with input from the Committee
on Ocean Policy, should enact legislation providing for the
comprehensive management of offshore renewable energy development as
part of a coordinated offshore management regime.
Specifically, this legislation should:
be based on the premise that the oceans are a public
resource.
streamline the process for licensing, leasing, and
permitting renewable energy facilities in U.S. waters.
subsume existing statutes, such as the Ocean Thermal Energy
Conversion Act.
ensure that the public receives a fair return from the use
of the resource and that development rights are allocated
through an open, transparent process that considers state,
local, and public concerns.
DEDICATING REVENUE FROM OCEAN USES FOR IMPROVED OCEAN MANAGEMENT
EXISTING AND EMERGING USES
Various parts of the Commission's report discuss federal revenues
that are, or may be, generated from offshore activities. Chapter 6
introduces the concept of resource rents, the economic value derived
from the use or development of a natural resource. It recommends that
the use of a publicly-owned resource by the private sector be
contingent on providing a reasonable return of some portion of the
revenues to taxpayers. Chapter 24, on nonliving resources in federal
waters, discusses the substantial revenues already flowing into land
conservation and historic preservation funds and the U.S. Treasury from
outer Continental Shelf (OCS) oil and gas development. The Commission
goes on to suggests that a greater share of the revenues received from
the extraction of OCS oil and gas resources should be granted to
coastal states for the conservation and sustainable development of
renewable ocean and coastal resources. OCS oil and gas producing states
would receive a larger portion of such revenues to address the impacts
in their states from the activity in adjacent federal offshore areas.
Chapter 24 also addresses the potential emergence of offshore
renewable energy resources, including the growing interest in offshore
wind farms, and wave and ocean thermal gradient energy conversion. As
recommended in Chapter 6, these emerging activities will require a
comprehensive management regime that ensures a fair return to the
public for the use of marine resources.
REVENUES FOR OCEAN AND COASTAL MANAGEMENT: THE OCEAN POLICY TRUST FUND
The nexus between activities in federal waters and the
programmatic, regulatory, and management responsibilities they engender
is clear. The actions recommended in this report are all linked in some
way to our use of the ocean. The critical nature of ocean assets, and
the challenges faced in managing them, justify the establishment of an
Ocean Policy Trust Fund in the U.S. Treasury to assist federal agencies
and coastal states in carrying out the comprehensive ocean policy
recommended by this Commission. The Trust Fund would be composed of
returns from commercial uses of offshore resources, including OCS oil
and gas revenues not currently committed to other programs, and any
future revenues from allowed uses of federal waters. The Land and Water
Conservation Fund, the National Historic Preservation Fund, and the OCS
oil and gas revenues currently allocated to coastal states from the
ocean areas that lie 3 nautical miles seaward of state waters would not
be affected. Only after the revenues for those programs were provided
in accordance with law, would any remaining OCS monies be deposited in
the Trust Fund.
As a practical matter, now and for the foreseeable future, all the
revenues flowing into Trust Fund would come from OCS oil and gas
revenues, virtually all of which are derived from activities in the
central and western Gulf of Mexico. The drilling in the Gulf is an
ongoing activity and an important contributor to our domestic supply of
energy. The revenues coming from the Gulf that are not allocated to
other purposes are currently credited to miscellaneous receipts of the
Treasury. They are either used for other governmental activities or are
counted against the deficit. The Commission has determined that funds
generated from activities in offshore waters are an appropriate and
important source of revenues to dedicate to a new and comprehensive
national ocean policy.
Approximately $5 billion is generated annually from the various
forms of OCS oil and gas revenues. Protecting the three programs noted
above would remove about $1 billion. Thus, some $4 billion a year of
oil and gas money remains available for the Ocean Policy Trust Fund
under current projections, enough to fund the full cost of implementing
the Commission's recommendations. While it would be purely speculative
to estimate the amount and timing of revenues that might be produced by
newer uses in federal waters, such resource revenues should also be
deposited in the Trust Fund as they begin to flow.
Consequently, the Commission has recommended that Congress should
establish an Ocean Policy Trust Fund in the U.S. Treasury, composed of
unallocated federal revenues from outer Continental Shelf (OCS) oil and
gas activities, plus revenues from any new activities approved in
federal waters, to support the nation's new coordinated and
comprehensive national ocean policy. Trust Fund monies should be
disbursed to coastal states, other appropriate coastal authorities, and
federal agencies to support improved ocean and coastal management,
based on an allocation determined by Congress with input from the
Committee on Ocean Policy. The Trust Fund should be used to
supplement--not replace--existing appropriations for ocean and coastal
programs.
The Ocean Policy Trust Fund should be distributed as follows:
$500 million in the first year, increasing to $1.0 billion
in the third and subsequent years, among all coastal and Great
Lakes states, territories, and federally-recognized tribes with
coastal resource treaty rights. A larger share should go to OCS
producing states to address offshore energy impacts. The funds
should be used for the conservation and sustainable development
of renewable ocean and coastal resources, including any new
responsibilities that arise as a result of Commission
recommendations and the expansion of programs and activities
that are currently underfunded.
the remainder of the funds to federal agencies to address
the new or expanded activities assigned to them as a result of
Commission recommendations.
The sole intent of the Trust Fund is to ensure a dedicated source
of funding for improved ocean and coastal management, including the
sustainability of renewable resources. It is not intended to either
promote or discourage offshore uses authorized under existing laws, and
the Fund itself would not drive activities in offshore waters. Rather,
all proposed actions would be evaluated under established statutes and
governance structures, including the NEPA process. Chapter 6 recommends
an offshore management regime in which all activities in federal waters
are better coordinated and are guided by principles including
sustainability, stewardship, good science, ecosystem-based management,
and preservation of marine biodiversity. Once an activity is deemed
acceptable, the resulting resource rents due to the American taxpayer
for the use of a public resource would be deposited into the Trust Fund
to be devoted exclusively to ocean and coastal issues, as noted above.
The design and establishment of the Trust Fund are within the
jurisdiction of Congress. Thus, Congress will need to determine how the
Fund will be set up, the process and criteria for the distribution of
the monies, the formula or method for allocating the funds among
coastal states, the eligible uses of the funds, and appropriate
connections to existing laws and authorities. The Committee on Ocean
Policy and the proposed nonfederal President's Council of Advisors on
Ocean Policy will be in an excellent position to provide input on these
questions.
CLOSING STATEMENT
The Commission fully understands the importance of balancing the
economic needs of the nation with the protection and conservation of
the ecosystems and natural resources that are of such economic as well
as aesthetic importance to our citizens. To utilize these resources in
a responsible manner, in a manner that does not jeopardize the health
of the ecosystem, requires a much greater degree of coordination and
integration among all of the entities that have a vested interest in
their long-term welfare. The Commission's report provides a
comprehensive strategy for moving our nation closer to implementing
such an ecosystem-based management approach.
While I have discussed those recommendations most closely
associated with activities in federal waters on the Outer Continental
Shelf, I hope that you and your staff take the time to review the
comprehensive suite of recommendations we have developed at your
request. It has taken more than 35 years for the nation to refocus its
attention on these vital resources. Our report provides a blueprint for
the 21st century. Its implementation will require great political will,
significant fiscal investment, and strong public support, but in the
long run all of America will benefit. The time to act is now and
everyone who cares about the oceans and coasts must play a part.
Leadership from this Committee and others in Congress, and from the
White House, will be essential.
The Chairman. Admiral, did you read your entire statement?
Admiral Watkins. Yes, sir, I did.
The Chairman. Could I just inject an observation? And then
we will proceed right to you, ma'am.
I think heretofore when we consider offshore resources and
drilling, one of the principal objectives had always been: How
much revenue does the national treasury get? And, Senator
Landrieu, you stated in your opening remarks the terrific
amount of money that has gone into the treasury.
This is just your chairman's observation. I think the time
has come to change. And I do not think the primary concern
ought to be how much money goes into the treasury. I think the
concern should be: How do we better distribute the money so as
to get conservation and assurances that the program will yield
better results in terms of safety and welfare?
Simply put, I think we ought to decide where the money goes
rather than just simplistically saying the Federal Government
gets it and it will do the right thing. I think we should be
saying what we think it should be used for. Maybe it goes to
the States for their use, if they are the ones put at risk. And
I just state that as a part of any consideration that we might
have as a committee.
Now having said that, I want to thank the Senators that
have just arrived. Thank you very much for coming. Senator
Bunning, thank you.
We are going to move along unless you have statements that
you want to give now.
Yes, Senator Thomas.
Senator Thomas. I just wanted to welcome Johnnie Burton to
the panel, who of course is a Wyoming native and has done a
great deal for us in Wyoming. And we are delighted to have you
here, Johnnie.
Ms. Burton. Thank you, Senator.
The Chairman. Senator Bunning.
Senator Bunning. Mr. Chairman, I would just like to enter a
statement into the record.
The Chairman. It will be done.
[The prepared statement of Senator Bunning follows:]
Prepared Statement of Jim Bunning, U.S. Senator From Kentucky
Thank you, Mr. Chairman.
I am happy we are having this hearing today to discuss the
important topic of examining OCS to increase our domestic energy
production.
Natural gas and oil prices are an important issue for many
businesses and consumers in Kentucky and the rest of the country.
Many businesses have talked to me about the financial crunch they
are experiencing from the high price of oil and natural gas. The high
prices are having an effect on Americans' wallets too.
Americans need to have access to adequate supplies of energy at
affordable prices in order to keep our economy running.
Now is the time for us to boost our domestic energy sources as well
as promote conservation.
I hope that we can learn more about the possibilities of OCS today
and how it could affect our country's supply of energy.
I appreciate the time our witnesses have taken today to come
testify.
Thank you.
The Chairman. Now, ma'am, would you proceed, please? Your
statement will be made a part of the record as if read. And go
ahead and abbreviate your statement, if you would.
STATEMENT OF R.M. ``JOHNNIE'' BURTON, DIRECTOR, MINERALS
MANAGEMENT SERVICE
Ms. Burton. Mr. Chairman, before I start I would like to
draw the attention of the committee to the fact that you should
have a package of visual graphics that I will refer to when I
talk. And I would like this to be made part of the record, if I
could.
The Chairman. It will be attached to the record, but we do
not have it here. They are getting it. Are you going to put it
up there?
Ms. Burton. No, sir, I was not planning to.
The Chairman. But what are those things up there for? Are
they for us? For the second panel. Okay.
All right. Please proceed.
Ms. Burton. Thank you. Mr. Chairman, members of the
committee, I appreciate the opportunity to appear here today to
highlight for you the important and vital role Federal offshore
lands continue to play with respect to our Nation's energy
future.
In passing the OCS Lands Act, the accompanying
congressional declaration of policy states, ``The OCS is a
vital national resource reserve held by the Federal Government
for the public, which should be made available for expeditious
and orderly development.'' The administration has directed the
Minerals Management Service to meet this mandate through
specific policy initiatives provided in the President's
national energy policy. This policy direction is critical in
the face of the worldwide energy-tight markets. The situation
in which we find ourselves today did not develop overnight and
cannot be fixed overnight.
The Federal OCS is a major supplier of oil and natural gas
for the domestic market. OCS production accounts for over 30
percent of domestic oil production and 23 percent of domestic
gas production.
Today, MMS administers over 8,200 leases and oversees about
4,000 offshore facilities. As you can see from chart one, this
represents 190 percent increase in leases since MMS was formed
in 1982. As chart two illustrates, the OCS is projected to
increase its share of oil production to over 40 percent within
the next 5 years.
For natural gas, although the near-term projections
indicate a slight decline in OCS production, as shown on chart
three, it is estimated that the OCS will provide an increased
share in the future as deep gas play in shallow water is
developed.
Clearly, the most significant trend on the OCS is the surge
of interest in the deep water areas of the Gulf. There have
been about 150 discoveries in deep waters over the past 10
years with about 90 fields now in production. Over the past 3
years, in ultra-deep water, there have been 24 significant
discoveries.
We are similarly enthused about the potential for deep and
ultra-deep drilling for natural gas on the traditionally
explored areas of the shelf. Some of the ultra-deep gas plays
currently being targeted are estimated to contain as much as 4
trillion cubic feet of natural gas. MMS has approved five such
exploration plans in the last year.
The positive trends in both deep water and deep geologic
horizons are in part a result of the National Energy Plan
directives to provide royalty incentives for these high-cost
frontier provinces. MMS has established a suite of economic
incentives to promote discovery of new sources of energy and to
stimulate environmentally preferred natural gas production both
in the Gulf of Mexico and offshore Alaska.
Regarding the long term, we must understand that there are
long lead times for accessing frontier areas of the OCS. Lease
sales cannot be held unless they are part of the 5-year
program. Once a lease sale is held, it could take 5 to 8 years
before drilling starts and another 5 years before production
flows.
In the last 30 years, technological advancements in the
offshore industry have made production safer and more
environmentally sound. Technological advances help companies
better identify prospects, allow for more efficient well
placement, and improve the chances of success. A single
platform today may accommodate five or six fields. Other
improvements include better treatment of produced water, better
air pollution control, and more energy efficient production.
MMS has increased its inspection activities over 60 percent
since 1999, as chart four demonstrates. Thanks to technological
advances and industry's commitment to safety, the number of
lost workday incidents is down 65 percent since 1996, as
illustrated in chart five.
The OCS environmental record is exemplary and improving. As
chart six indicates, the spill rate for a billion barrels of
oil produced has decreased dramatically over each of the past
three decades. There has not been a significant OCS platform
spill for the past 35 years. As the recent National Academy of
Sciences report revealed, the offshore operations contribute
about 2 percent of the total oil in the sea, as shown on chart
seven.
MMS has worked diligently for the past 20 years to create a
framework for science-based decision in consultation. The U.S.
Ocean Commission on Ocean Policy in its report stated, ``The
scope and comprehensiveness of the OCS oil and gas program can
be a model for the management of a wide variety of offshore
activities.''
The OCS is estimated to hold about 60 percent and 41
percent of the Nation's remaining undiscovered oil and gas
resources, respectively. However, there is great uncertainty
regarding the potential in areas where the last geophysical
surveys and drilling exploration occurred more than 25 years
ago. We simply do not have specific reliable estimates without
the information new geophysical and exploration methods would
provide.
Over the past few years, we have witnessed increased
interests in alternative uses of the OCS, such as wind and wave
energy, which was mentioned before. However, we are confronted
with a lack of legislative authority to consider some of these
proposals. The administration developed a legislative proposal
to address these alternative use issues. Enactment of this
proposal is called for in the President's Ocean Action Plan.
In conclusion, Mr. Chairman, MMS stands ready to apply our
management experience to implement whatever policy decision is
directed. And I will answer questions when you are ready, sir.
The Chairman. Thank you very much.
[The prepared statement of Ms. Burton follows:]
Prepared Statement of R.M. ``Johnnie'' Burton, Director, Minerals
Management Service, Department of the Interior
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to appear here today to highlight for you and Members of
the Committee the important and vital role Federal offshore lands
continue to play with respect to our Nation's energy future.
America faces an energy challenge. Energy use sustains our economy
and our quality of life, but high prices and increasing dependence on
foreign energy supplies raises important national policy issues. There
is no one single solution. Achieving the goal of secure, affordable and
environmentally sound energy will require diligent, concerted efforts
on many fronts on both the supply and demand sides of the energy
equation.
President Bush's National Energy Policy (NEP) report laid out a
comprehensive, long-term energy strategy for securing America's energy
future. That strategy recognizes that to reduce our rising dependence
on foreign energy supplies, we must also increase domestic production,
while pursuing energy conservation and the use of alternative and
renewable energy sources.
Most media coverage focuses on the parts of the National Energy
Policy that discuss production of traditional energy, but increased
energy conservation and alternative and renewable sources are also
critical components of the President's balanced, comprehensive policy.
Good stewardship of resources dictates that we use energy efficiently
and conserve resources. Thus, fossil fuel development is only a part of
the solution to our Nation's energy issues.
The Outer Continental Shelf Lands Act directs the Secretary of the
Interior to make resources available to meet the nation's energy needs.
The accompanying Congressional Declaration of Policy states, ``The OCS
is a vital national resource reserve held by the Federal Government for
the public, which should be made available for expeditious and orderly
development.'' As the Department of the Interior's offshore resource
management agency, the Minerals Management Service (MMS) has a focused
and well established ocean mandate--to balance the exploration and
development of oil, gas, and marine minerals resources of the Outer
Continental Shelf (OCS) with environmental protection and safety.
CURRENT ENERGY PICTURE
Oil is vital to the American economy. Currently, it supplies more
than 40 percent of our total energy demands and more than 99 percent of
the fuel we use for cars and trucks. According to the Energy
Information Administration, over the next 20 years Americans' demand
for energy is expected to grow at an annual rate of 1.4 percent. This
growth projection incorporates continued gains in energy efficiency and
movement away from energy-intensive manufacturing to service
industries. Despite a continuing emphasis on expanding other sources of
energy, petroleum products and natural gas are projected to account for
almost 65 percent of domestic energy consumption in 2025, a slightly
larger share than today.
U.S. natural gas consumption is expected to grow from 22 trillion
cubic feet (tcf) in 2003 to almost 31 tcf in 2025. Domestic production,
however, is predicted to grow from 19.1 tcf to 21.8 tcf, meeting only
about 30 percent of projected growth demand. In the past, any
difference between the growth in demand and the growth in domestic
production was predominantly met by imports of gas from Canada.
However, Canada's National Energy Board has concluded that their future
production will not support increased U.S. import requirements. Most
additional supplies will need to come from Alaskan natural gas, coalbed
methane, the OCS, imports of LNG, or possibly other undeveloped
sources.
Predictably, markets are responding to this outlook with higher
energy prices, and an increased demand for OCS resources. This is
apparent from recent interest in lease sales and an increasing pace of
exploration and development. The mandate of the OCSLA and prudent
policy considerations also warrant an increased examination of the OCS
energy option.
OFFSHORE FEDERAL OCS OIL AND NATURAL GAS PROGRAM
The Federal OCS is a major supplier of oil and natural gas for the
domestic market, contributing more oil and natural gas for U.S.
consumption than any single state or country in the world. As steward
of the mineral resources on the 1.76 billion acres of the Nation's OCS,
MMS has, since 1982, managed OCS production of 9.6 trillion barrels of
oil and more than 109 tcf of natural gas for U.S. consumption.
Today, MMS administers approximately 8,200 leases and oversees
approximately 4000 facilities on the OCS. This compares to about 2,800
leases and 2000 facilities in 1982. OCS production accounts for over 30
percent of the Nation's domestic oil production and approximately 23
percent of our domestic natural gas production. Within the next 5
years, offshore production will likely account for more than 40 percent
of oil and 26 percent of U.S. natural gas production, owing primarily
to deep water discoveries.
As the OCS resource management agency, MMS has worked diligently
for over 20 years to create a framework for OCS mineral resource
development. Principles guiding our management of the resources of the
OCS include: conservation of resources by providing for their most
efficient use; assurance of a fair and equitable return to the public
for rights conveyed; protection of the human, marine, and coastal
environments; involvement of interested and affected parties in
planning and decision-making; and minimization of conflicts between
mineral activities and other uses of the OCS. MMS also has over two
decades of experience working with coastal states regarding coastal
zone issues related to development on the OCS. The U.S. Commission on
Ocean Policy in its report, ``An Ocean Blueprint for the 21st
Century,'' stated, ``the scope and comprehensiveness of the OCS oil and
gas program can be a model for the management of a wide variety of
offshore activities.''
ECONOMIC/ENERGY BENEFITS FROM THE OFFSHORE PROGRAM
(REVENUES, RESOURCE ESTIMATES, HYDRATES)
OCS lease sales and production have generated more than $156
billion in revenue from bonus bids, rentals, and royalty payments. The
OCS oil and gas industry directly employs about 42,000 workers, mostly
in the Gulf of Mexico area. Spending by suppliers and other companies
that support the industry, as well as by employee households, account
for another 90,000 or more jobs throughout the country.
The billions of dollars in revenue collected by MMS annually from
energy companies for offshore and onshore oil and gas leasing and
production is one of the largest sources of non-tax revenue to the
Federal Government. OCS leasing and production provides the majority of
oil and gas annual revenue collected by MMS--about 66 percent of the $8
billion collected in FY 2004. Annually, nearly $1 billion from OCS
revenues go into the Land and Water Conservation fund for the
acquisition and development of state and Federal park and recreation
lands. Additionally, more than $3 billion from OCS oil and gas
production royalties has been disbursed to the Historic Preservation
Fund to help protect and preserve hundreds of American battle fields,
historic building, historic landmarks, and tribal properties and
cultural traditions.
NATIONAL ENERGY POLICY ROLE
The President's NEP provides us with directives to diversify and
increase energy supplies, encourage conservation, and ensure adequate
energy distribution. One of the NEP challenges is to increase energy
supplies while protecting the environment. MMS has implemented a number
of NEP directives to increase domestic energy supplies and enhance
national energy security by ensuring continued access to Federal lands
for domestic energy development, and by expediting permits and other
federal actions necessary for energy-related project approvals.
For example, we are helping to ensure that the OCS remains a solid
contributor to the Nation's energy and economic security by holding OCS
lease sales in available areas on schedule. Since May 2001, DOI has
held 14 OCS oil and natural gas lease sales on schedule while going
through a comprehensive consultation process with other Federal
agencies, State and local governments, and the public. These sales
resulted in leasing of almost 19 million acres of OCS lands to industry
for oil and gas exploration and development, and generated about $2.4
billion dollars in bonus bid revenue (not counting future royalties and
rentals) for the U.S. Treasury. Production from leases issued as a
result of these sales will contribute substantially to future domestic
oil and gas production. MMS is on track for completing the next 5-Year
Program by July 2007, which will establish the schedule for future OCS
lease sales during the 2007-2012 timeframe.
The NEP also recommended that we consider economic incentives for
environmentally sound offshore oil and gas development where warranted
by specific circumstances. MMS has established a suite of economic
incentives to promote discovery of new sources of energy for the Nation
and stimulate domestic oil and natural gas production. For 2001-2005
OCS lease sales, we continued the royalty incentive program--first
established by the Deep Water Royalty Relief Act of 1995--to promote
interest in deep water leases, and expanded the incentive program to
promote development of new natural gas supplies from deep horizons in
the Gulf's shallow waters. A new regulation in January 2004 extended
the deep gas incentive to leases issued before the incentives were
first provided in 2001, to promote additional deep drilling for natural
gas on the shelf. MMS has, also developed policies for extending lease
terms to aid in planning wells to be drilled to sub-salt and ultra-deep
prospects, accounting for the additional complexity and cost of
planning and drilling such wells.
MMS has also provided economic incentives for all Alaska OCS lease
sales to promote leasing interest and encourage oil and gas exploration
development in this area of high cost and little infrastructure.
The NEP also directs us to permit energy production in an
environmentally sound manner by expediting permits and other Federal
actions necessary for energy-related project approvals. To help
streamline our procedures, the offshore program is implementing an e-
Government Transformation project known as OCS Connect, to reform and
streamline MMS's offshore program operations by 2008. It is foremost an
integrated business process re-engineering project that will change the
manner in which MMS delivers its mission. By moving to online service
delivery, our organization will be more ``connected'' to our customers:
industry, citizens and other government agencies. OCS Connect will:
Maximize citizen involvement by delivering essential
information and allowing input via the Internet
Streamline mission delivery by automating major business
transactions and providing ``digital'' data management, such as
plan review, resulting in more timely decisions
Simplify and unify government by minimizing redundant
reporting, and streamlining government interactions with
industry and the public
Leverage market-based practices by using common oil and gas
standards and solutions (e.g., data model, exchange standards)
Ensure timely approvals of plans and permits
In addition, we have been working closely with other agencies to
develop a more efficient means of issuing permits. We have been working
with NOAA to achieve prompt and efficient consultations under the
Endangered Species Act and rulemakings under the Marine Mammal
Protection Act; and on revisions to their Coastal Zone Management Act
consistency regulations.
MMS also is working in partnership with the U.S. Coast Guard to
improve regulatory oversight of oil and gas operations where there is
overlapping jurisdiction. Under a new Memorandum of Understanding
(MOU), we have streamlined the process for inspections of offshore
facilities, improving government efficiency and reducing a reporting
burden on industry. The NEP also directed that the Administration
determine whether or not to resume deliveries of oil for the Strategic
Petroleum Reserve (SPR), the nation's supply of emergency crude oil.
Responding to a Presidential directive issued in November 2001, the
Department of the Interior (DOI), in partnership with the Department of
Energy, launched the SPR Fill Initiative to fill the SPR to 700 million
barrels using royalty in kind oil produced from OCS Gulf of Mexico
leases. This initiative should be completed by summer 2005.
CURRENT STATUS
Technology Advances
In the last 30 years, technological advancements in the offshore
oil and natural gas industry that make production safer and more
environmentally sound have occurred in every step of the process. In
the area of exploration, technological advances help companies better
identify prospects, allow for more effective well placement, improve
the development of resources, reduce the number of dry holes, and cut
exploration time. This reduces the footprint left by exploration,
generates less waste, and improves understanding of reservoirs to
improve production.
Once production begins, combined with advances in extended reach
and directional drilling advanced recovery techniques allow for
increased production, recovering 50 percent more oil and 75 percent
more gas from a well than was recovered 30 years ago. Improved
reservoir management reduces the amount of water produced. Other
improvements include better treatment of produced water, better air
pollution control, more energy-efficient production, and reduced
emissions of greenhouse gases.
Additionally, using new techniques in reservoir management, more
oil and natural gas can be produced today, with fewer wells than 30
years ago. Technology applied to reservoir management includes
artificial lift, for increased production; downhole oil/water
separation; and advanced data management. And advancements in materials
engineering have led to the increased use of advanced composite
materials for parts of structures and mooring systems. These materials
are strong, lightweight, and able to withstand the offshore
environment. This allows for platforms that are lighter and smaller,
leaving a smaller footprint. These platforms also require less
maintenance and repair.
Deep Water Gulf of Mexico
The strongest trend on the OCS today is the continuing development
of the Gulf of Mexico deep water acreage. The U.S. is now in its ninth
year of sustained expansion of domestic oil and gas development in the
deep water area of the Gulf of Mexico (GOM). Deep water means that from
water surface to where a drill bit first touches mud is at least 1,000
feet--that is almost twice the height of the Washington Monument. So
for a moment imagine a floating drill ship perched in water the height
of two Washington Monuments, subject to the forces of waves and ocean
currents, maintaining its position while remotely directing drilling
operations through 1,000 feet or more of pipe casing to reach a
reservoir of oil or natural gas, while controlling for extreme
temperature and pressure.
In 2004, operators announced 14 new deep water producing projects
and 12 new deep water discoveries. Anticipated production from these
facilities will help sustain production increases in deep water, and
fields with names such as Thunder Horse, Atlantis, and Mad Dog will
dramatically raise production in 2005 and 2006. We expect that it will
be several years before deep water areas of the Gulf of Mexico reach
their full potential. The continued use of royalty incentives in the
deep waters of the Gulf is intended to keep industry moving forward on
new technologies and exploring deeper water frontiers. The deep water
activity in the Gulf of Mexico has been a major success story. Deep
water oil production has risen 386 percent and deep water gas
production is up 407 percent since 1996.
There are now about 140 deep water discoveries of which more than
90 are producing. This has helped to increase total offshore production
from 980,000 barrels per day in 1995 to 1.7 million barrels per day in
2003. Additional deep water rigs are being built or moved to the Gulf
from other parts of the world. The number of deep water exploration
wells drilled in 2004 increased 27 percent compared to 2003.
This steady advancement in deep water production over the last
decade and for the coming decade would not be possible without major
advances in offshore technologies that are truly amazing. Advances that
allow remote control of drilling operations from control rooms that are
miles away; dynamic positioning of drill ships using multiple engines
that are the size of the meeting room we are sitting in; floating
production platforms with surface area the size of football fields;
anchoring cables to hold facilities in place that are made up of a
combination of traditional steel and synthetic materials; pipe laying
ships that can lay miles of pipeline in thousands of feet of water. In
fact, the recent Thunder Horse development required over one hundred
technological advancements--things that had not been done before--to
bring online the largest oil field discovered in the U.S. in the last
30 years.
The industry ingenuity that we see in deep water is the same
approach that is being used in deep shelf drilling operations on the
traditional shelf where operators are targeting deep natural gas
reservoirs that require drilling 15,000, 20,000 and in some instances
35,000 feet deep through extremely high temperature and pressure
conditions.
As we sit here, operators are drilling the Blackbeard project to
more than 35,000 feet--6 miles. This well will take almost a year to
drill and there is no ironclad guarantee of success.
Managing Other Uses
For much of the past 50 years offshore development has been largely
focused on producing oil and natural gas. However, over the last decade
MMS has nurtured the development of an OCS hard minerals program. MMS
has established partnerships with 14 coastal states focusing on
collecting and providing geologic and environmental information to
identify and make available sand deposits in Federal waters suitable
for beach nourishment and wetlands protection projects.
To date, more than 23 million cubic yards of OCS sand has been used
in 15 projects that nourished 76 miles of shoreline in Florida,
Louisiana, Maryland, South Carolina, and Virginia. Most recently,
Florida has come back to MMS to identify possible OCS sand sources to
repair coastlines damaged by the 2004 hurricane season, and Louisiana,
which has lost half a million acres of wetlands to coastal erosion
since the 1950s, has requested OCS sand to restore barrier islands and
coastal wetlands.
The oceans may also hold the key to realizing significant potential
new energy sources to support America's growing energy needs--for
example: natural gas hydrates, and renewable energy such as wind, wave,
and solar.
In addition, the oil and gas industry is contemplating ancillary
projects, such as staging and emergency medical facilities, to support
ongoing activities in the deep water Gulf of Mexico. MMS, as a leader
in reviewing environmental and safety issues pertaining to facilities
placed on the OCS, is actively providing guidance and review of the
various new technologies and projects proposed for offshore areas.
MMS' expertise in resource assessment, regulation of offshore
energy and mineral development, environmental protection, and design,
fabrication, construction, operation, maintenance, and inspection of
offshore facilities has put the Agency in the forefront of planning for
appropriate government oversight for such projects.
For example, to support the increased need for liquefied natural
gas (LNG) imports, and for safety and efficiency reasons, many proposed
LNG terminals may be located on the OCS, with some terminals using
existing OCS infrastructure such as pipelines, platforms, and salt
cavern storage.
The U.S. Commission on Ocean Policy recommended the development of
legislation providing for the comprehensive management of offshore
renewable energy development as part of a coordinated offshore
management regime. The Commission's report cited the Department's
experience in managing the oil, gas, and mineral programs on the OCS as
providing a successful management model for a wide variety of offshore
activities. The Administration proposed legislation during the 108th
Congress, which has been reintroduced this Congress, that would amend
the Outer Continental Shelf Lands Act by establishing a uniform
permitting process coordinated across appropriate Federal agencies,
with DOI serving as the lead Federal agency. The Administration's
proposed legislation would direct the Secretary of the Interior to
establish an authorization process and regulatory framework for non-
traditional energy projects including, but not limited to, renewable
energy projects such as wind, wave, and solar energy. The
Administration's bill would also authorize DOI to permit OCS facilities
to be converted to other approved uses. The President's Ocean Action
Plan, in response to the final report and recommendations of the U.S.
Commission on Ocean Policy, calls for enactment of the Administration's
proposal. The purpose of the legislation is to provide clear authority
for oversight of energy-related activities on the OCS.
OCS Resource Assessments
OCS oil production could increase to as much as 40 percent by 2010.
Its contribution is projected to grow significantly over the next few
years as the OCS is believed to hold about 60 percent and 41 percent of
the Nation's remaining undiscovered oil and gas resources,
respectively. It also may hold a potential future supply of methane
hydrates that could, if it proves safe to develop, supply another
important source of natural gas for domestic consumption.
MMS recently completed an interim update of estimates for
undiscovered technically recoverable resources underlying the OCS. Our
mean estimate is 76 billion barrels of oil and 406 tcf of natural gas,
which is a 12 percent increase since 2000 for natural gas because of
new information obtained from recent exploration in the Gulf of Mexico.
MMS conducts a comprehensive national assessment of the undiscovered
oil and gas resources on the OCS every 5 years. The main objective of
these assessments is to forecast the oil and natural gas endowment of
the U.S. OCS for planning purposes, but there is much uncertainty in
the estimates for those areas which have been off limits to exploration
and development for many years due to a lack of data. In portions of
the eastern Gulf, the west coast and the Atlantic OCS, the last
acquisition of geophysical data and drilling of exploration wells
occurred more than 25 years ago.
Yet, in the interim there have been enormous advances in
exploration and production technologies and a myriad of new drilling,
completion, and production technologies that could be used in these
frontier areas today. Additionally, worldwide, there has been an
enormous amount of exploration and production activity in frontier
offshore basins that would provide new geologic analogs and exploration
and production insights to use in exploring frontier U.S. offshore
basins.
The Nation's energy potential may not rest entirely on conventional
hydrocarbon resources. Scientists are now studying the possibility that
a unique and puzzling frozen ``ice'' crystal may hold the key to future
energy resources. Methane hydrates are naturally occurring ice-lie
solids in which water molecules have trapped gas molecules. Hydrates
are found in locations with high pressure and low temperature--over 98
percent of natural gas hydrate resources are estimated to occur in
offshore ocean sediments. Discovering a method to locate, produce and
transport the gas from formations to the market is key to their
potential use.
The next MMS resource assessment, to be completed this summer, will
also for the first time include a preliminary estimate of technically
recoverable methane hydrate resource potential for the OCS. MMS is
working closely with USGS to develop the methodology used in the
hydrate assessment. In anticipation of industry's move to develop
natural gas from methane hydrates, MMS is also developing a methodology
for tract-specific resource economic evaluation for bid evaluation,
mapping the Gulf of Mexico seafloor to assist in assessing hydrate
resources, and funding studies on hydrates extraction technologies and
their potential environmental impacts to facilitate development of
environmentally protective measures. We are also participating in the
Joint Industry Drilling Project (JIP) in the Gulf of Mexico. This
project is a joint industry/Government research consortium to address
the location and possible production of methane hydrates in the Gulf.
Under the JIP, the consortium is now preparing to drill the first 2
boreholes in the Gulf of Mexico in order to assess drilling conditions.
Other information gathering efforts include the study of
chemosynthetic communities that are associated with hydrate deposits,
mapping the Gulf of Mexico seafloor to assist in assessing hydrate
resources, and funding hydrate research activities conducted at the
Center for Marine Resources and Environmental Technology.
5-YEAR OIL AND NATURAL GAS LEASING PROGRAM
The OCS Lands Act requires the Secretary of the Interior to prepare
and maintain a schedule of proposed oil and gas lease sales on the
Federal OCS that is determined to best meet national energy needs for
the 5-year period following program approval. The 5-year program
specifies the size, timing and location of areas proposed for Federal
offshore oil and gas leasing. In order for a lease sale to be held on
the OCS, the sale must be included in the 5-year program. To be on this
schedule, the area must have been part of the multi-phased analyses
required under section 18 of the OCSLA.
MMS's goal is to develop a program that is responsive to the
Nation's energy needs, ensures environmental safeguards, and addresses
public concerns. In developing the 5-year program, section 18 of the
OCSLA requires that we analyze and compare areas of the OCS in terms of
hydrocarbon potential, environmental sensitivity, and other factors. We
also take into consideration laws and policies of affected coastal
States.
MMS will soon commence the process for development of a new program
for 2007-2012. Throughout the 2 to 3 year process of developing a new
5-year program, MMS consults with its constituents, ensuring that the
program takes into account the concerns of all parties. The MMS
requests comments from states, local and tribal governments, American
Indian and Native Alaskan organizations, the oil and gas industry,
federal agencies, environmental and other interest organizations, as
well as the general public. Consultation with affected parties also
occurs at the local level through MMS regional offices.
The current 5-year program for 2002-2007 includes 20 sales in eight
OCS planning areas--annual sales in the Central and Western Gulf of
Mexico and periodic sales in part of the Eastern Gulf of Mexico,
Beaufort Sea and Cook Inlet, Alaska. Three other planning areas in
Alaska--Norton Basin, Chukchi Sea, and Hope Basin--also have sales
scheduled if there is any interest expressed by industry at the
beginning of the sale process. Part or all of nine OCS planning areas
are currently withdrawn from leasing consideration by the President
under section 12 of the OCSLA until 2012 and by annual Congressional
moratoria. These include North Aleutian Basin (recently Congress voted
to eliminate the North Aleutian moratorium but the Presidential
withdrawal is still in place), Alaska; Washington-Oregon; Northern,
Central, and Southern California; most of the Eastern Gulf of Mexico;
and South, Mid, and North Atlantic.
PROTECTION OF THE ENVIRONMENT
MMS requires all operator plans for exploration and development
have associated environmental documentation under the National
Environmental Policy Act and they are also subject to CZMA provisions
that allow review by coastal states. The OCSLA 1978 amendments mandated
that the Department have a comprehensive environmental studies program
to provide sound scientific analysis of the potential impacts of
offshore development, and an Oil and Gas Information Program to provide
offshore operators and Federal and State governments with data and
information from OCS activities.
For example, in the Gulf of Mexico the development of deep water
oil exploration and extraction has increased rapidly in recent years.
During the last couple of years, strong bottom currents were reported
during deep water exploratory operations. As a result, a series of deep
mooring stations designed by MMS have been established to study the
shelf/slope/rise dynamics to fill the information gap. One of the pilot
studies for deep water currents was completed last year. The data
collected included bottom pressure, velocity, temperature, and salinity
depth profiles from various current meters and other sensors. After
peer review of the findings, the results will be incorporated into our
regulatory decision-making process and shared with all stakeholders.
In general the MMS regulatory requirements and monitoring of
operations are specific and stringent concerning the performance of
offshore oil and gas operations. For example, we require
specific training for offshore workers in well control or
production safety systems;
installation, regular testing, and maintenance of drilling,
production, and pipeline safety systems;
submission for approval of exploration and development/
production plans that include comprehensive environmental
reports and oil spill contingency plans before operations
start; and
use of the best and safest technology available.
MMS also has a comprehensive accident investigation program
followed by safety alert to all companies to prevent recurrence of
similar incidents; and an effective and vigorous civil and criminal
penalties program.
Over the past three decades, MMS has established an .enviable
environmental and safety record. We have seen the oil-spill rate
continue to drop from decade to decade resulting in a 67 percent
decrease over this 30 year period. Offshore production is one of the
safest ways to provide for our nation's oil and natural gas energy
needs.
SAFE OPERATIONS
The past five decades of experience and events have led the U.S. to
a regulatory system that has a strong emphasis on environmental
protection and safety of offshore workers. Indeed, the statistics show
offshore to be one of the safer workplaces in America. The most recent
MMS and Bureau of Labor Statistics data indicate that the offshore
industry's injury and illness rate was almost 50 percent less than the
petroleum industry as a whole.
The OCSLA mandates that MMS ensure safe and environmentally sound
operations on the OCS through its regulations, including crucial and
applicable applied research that supports regulatory requirements
relative to safety and pollution-free operations. A wide variety of
laws, regulations, and other communications between MMS and industry
govern all offshore oil and gas leasing, exploration, development, and
production activities.
The MMS and the offshore oil and gas industry share the paramount
goal of preventing offshore accidents. Both work cooperatively to
protect the environment and to keep workers safe. MMS also promotes
international cooperation for research and development initiatives to
enhance the safety of offshore oil and natural gas activities and the
development of appropriate regulatory program elements worldwide.
MMS has a permanent workforce inspecting offshore facilities for
compliance with safety regulations and has particular expertise in the
engineering, structural, and environmental issues related to building
fixed facilities in the ocean. The MMS conducts over 20,000 inspections
of offshore facilities a year and recently began an interagency
partnership with the U.S. Coast Guard, in which MMS conducts
inspections on behalf of that agency. The MMS also partners with
Federal, state, and local agencies in standardizing oil spill plan
requirements, response standards and in conducting regular drills. In
addition, our comprehensive regulatory program includes:
Technical and environmental reviews of all plans of
exploration and development.
A comprehensive program of inspection and enforcement which
includes the issuance of civil and criminal penalties.
Accident investigations, data collection, and analysis.
An annual awards program that recognizes operators who
conduct safe and environmentally sound operations.
Technical research related to operational safety and oil
spill response.
Coordination with other agencies to ensure protection of our
ocean resources as well as the Department of Homeland Security
to ensure the security of critical assets.
To continue this admirable safety record, our goal is to use the
``best available and safest technologies.'' We must therefore continue
to investigate technology, practices, and procedures that might further
reduce risks to offshore workers and the environment. In that regard,
our offshore program has benefited tremendously from our international
research partnerships. For the past 25 years, we have worked with
international agencies on offshore safety research projects--one
quarter of our 529 safety and pollution prevention projects have
involved international partners or contractors. Participating countries
have included Canada, Norway, the UK, Sweden, Germany, France, Italy,
Mexico, Brazil, Argentina, the Netherlands, Kazakhstan, Japan, Russia,
Australia, and South Korea. This cooperation has enabled us to leverage
our research funds and have access to the world's leading technical
specialists.
SCIENCE BASED DECISION-MAKING
MMS is committed to strong scientific research to ensure that
decisions are based on the best available information. Reviewing
environmental and technological issues that have been raised by state
and local governments, other federal agencies, environmental groups,
industry, as well as issues identified by MMS staff have helped shape
our research agenda since the agency's beginning. Working with colleges
and universities, other federal and state agencies, and a variety of
research firms, MMS identifies partnerships and opportunities to
maximize research funding. Much of MMS research is accomplished through
co-operative funding with universities, inter-agency agreements, and
joint funding with industry.
MMS conducts research specific to issues associated with OCS
mineral leasing and development.
The Environmental Studies Program assesses the potential
environmental risks of offshore development, provides
information necessary to minimize any adverse risks, and
provides a comprehensive database of baseline science that is
critical to the OCS program decision-making. For example, MMS
is working collaboratively with other agencies and academic and
international experts to determine if offshore industry noise
and marine seismic operations represent a threat to marine
mammals and, if so, how to mitigate those effects. The U.S.
Ocean Action Plan also recognizes MMS for its leadership in
promotion of deep sea coral conservation and education through
its ongoing survey of deep sea coral communities in the Gulf of
Mexico.
The Oil Spill Research Program provides information on oil
spill response capabilities and conducts studies on spilled oil
and its effect on the marine environment.
The Technology Assessment and Research Program investigates
and assesses safety and engineering related technologies. The
results support the technology basis for MMS's permitting of
drilling and production operations as well as other regulatory
requirements.
The U.S. Commission on Ocean Policy in their final report to the
President and to the Congress, acknowledged the role, and the success,
of the MMS Environmental Studies Program (ESP). The Commission cited
that the ESP ``is a major source of information about the impacts of
OCS oil and gas activities on the human, marine, and coastal
environments.'' To meet the increased demand for environmental
information and to compensate for shrinking budgets, the MMS has
aggressively sought opportunities to leverage its resources through
partnering. For example, through close collaboration, the USGS
continues to focus about $2.5 million annually to meet some of the
biological research needs of the MMS. MMS has also created research
partnerships with universities in Louisiana and Alaska, leveraging
federal funds on a one-to-one basis amounting to over $3.0 million per
year. MMS partners with other federal agencies including NASA, NOAA,
EPA, DOE, and the Office of Naval Research on research projects when
common interests exist, and recently has accomplished a number of its
research objectives through leveraging opportunities under the auspices
of the National Ocean Partnership Program.
This is a particularly exciting time for ocean science and resource
management, and the MMS is in a unique position to participate with
other agencies as a developer, implementer, and user of our Nation's
(Coastal) Integrated Ocean Observing System (IOOS) system being planned
today. MMS has been involved in the development and planning of this
System from the beginning. The MMS is a charter member of the National
Oceanographic Partnership Program (NOPP) and the Executive Committee of
its Ocean U.S. office, which stemmed from a congressional request to
NOPP's governing body, the National Ocean Research Leadership Council
(Council), for ``a plan to achieve a truly integrated ocean observing
system.''
Even as the IOOS is being developed, the MMS and its industry
partners are already contributing. Due to a need for more site-specific
data for forecasting ocean currents that may affect structural design,
fatigue criteria, or daily operations, MMS established and implemented
an ocean current monitoring and data-sharing program in the Gulf of
Mexico. Under this program, deep water oil and gas platform operators
will collect ocean current data from deep water drilling and production
sites, and report to the National Oceanic and Atmospheric
Administration National Data Buoy Center internet website making it
publicly available to help ensure that OCS activities are conducted in
a safe and environmentally sound manner.
Other ongoing MMS monitoring programs such as the Flower Garden
Banks National Marine Sanctuary Monitoring Program, our Bowhead Whale
Aerial Surveys, and our support for inter-tidal monitoring are well
past the decadal mark and well placed to contribute to the biological
components of IOOS.
MMS has been an active participant in Federal ocean efforts as a
member of the National ocean partnership program and all of its
subsidiary bodies. The Ocean Action Plan specifically recognizes its
Deepwater Ocean Currents Monitoring Program as an important component
of the proposed Integrated Ocean Observing System (IOOS).
MMS also supports the goal of advancing international ocean science
and policy. MMS's expertise in managing OCS oil and gas and marine
minerals has been acknowledged internationally. The MMS takes an active
approach to identify and to become involved in international
initiatives that promote better integration of safety and environmental
concerns into offshore decision-making. To do this MMS focuses on:
monitoring, developing, and refining safety and
environmental standards;
technical and information exchanges with our international
regulatory counterparts; and
providing technical advice to the U.S. Department of State.
CONCLUSION
The Department of the Interior remains committed to the production
of traditional energy, as well as increased energy conservation, and
alternative and renewable sources as critical components of the
President's balanced, comprehensive policy. For this reason, the
Department of the Interior has ensured that the OCS remains a solid
contributor to the nation's energy needs. The relative contribution
from federal offshore areas will increase in the upcoming years due to
activity in deep water areas of the Gulf of Mexico.
Regarding the longer term, I should note that there are long lead
times for accessing frontier areas of the OCS. Lease sales cannot be
held unless they are part of the current 5-year program. Once a lease
sale is held, it could take 5 to 10 years for drilling to commence.
Production could take another 5 years after a discovery. In a very real
sense, regarding OCS policy decisions, there are few ``quick fixes.''
The environmental record of the OCS program is outstanding. There
has not been a significant platform spill in the last 35 years. Natural
gas production offshore represents one of the most environmentally
sound energy investments this country could make. A decision to not
produce OCS resources also carries consequences. Mostly, it will mean
more imported oil and LNG. Mostly, it will mean more imported oil and
LNG from countries with less stringent environmental requirements and
increased tanker traffic into U.S. waters.
In this time of uncertainty, MMS stands ready to respond--to apply
our best science, technical experience, and sound management principles
to benefit the nation.
Mr. Chairman that concludes my statement. Please allow me to
express my sincere appreciation for the continued support and interest
of this committee for MMS's programs. It would be my pleasure to answer
any questions you or other members of the Subcommittee may have at this
time.
The Chairman. You may proceed, Doctor. Feel free to
abbreviate your testimony. Please proceed.
STATEMENT OF DR. ROBERT W. THRESHER, DIRECTOR,
NATIONAL WIND TECHNOLOGY CENTER, NATIONAL RENEWABLE ENERGY
LABORATORY, GOLDEN, CO
Dr. Thresher. Yes. Thank you. Thank you, Mr. Chairman.
I am pleased to appear before the committee as it considers
the future of energy production on the Outer Continental Shelf.
I am the Director of the National Wind Technology Center, which
is located at the National Renewable Energy Lab and is DOE's
primary renewable energy research organization. I will talk
about wind and wave technology and some of the associated
environmental concerns.
First with regard to wind technology, in the United States
today there are 6,700 megawatts of wind installed. And
worldwide, there are 47,000 megawatts of wind. It is one of the
fastest new growing energy technologies. Offshore, the United
States has no wind energy installed at this time. The European
Union has about 600 megawatts installed. And they have plans to
install about 50,000 megawatts of wind in shallow water in the
Baltic primarily.
The U.S. offshore potential is fairly large for wind
energy. Our estimates show about possibly 50,000 megawatts of
potential wind in shallow water and 10 to 20 times that amount
if you go to deeper water. So the United States is blessed with
a huge amount of wind potential, both onshore and offshore.
For the United States to exploit this, we see the evolution
of the technology and the R&D needed needs to proceed in three
steps. Currently, wind turbines installed offshore are
basically onshore turbines put on a tower and put in the water
with a marinization package. And they are not cost optimized at
this point, nor are they necessarily designed for all the
environmental effects that are out there.
So the first step would be to optimize the shallow water
turbines that are currently being used and then to move to
slightly deeper water, say out to 60 meter, using some of the
technology from our oil and gas friends to put them on towers.
That needs to also be cost optimized. The ultimate vision would
be to go to deep water. And in deep water, we would probably
float the turbines, maybe on a buoy or some kind of a platform.
That is really an open issue at this point.
The vision would be in the longer term to be able to build
the turbines and floating structures in a dry dock locally,
float them into place, drop anchor, and plug it into a cable to
shore. These would be installed in very large arrays to be cost
effective. But that technology basically is not here today. It
is probably 10 to 15 years off at the minimum.
Moving to wave technology, wave technology is currently in
its infancy. And in Europe and to some degree in the United
States, people are building and developing prototype machines.
In the U.K., there is an aggressive R&D program. And they
have just commissioned the European Marine Energy Center on
Orkney Island in Scotland where the first prototype is under
testing now. They just started that in the last few months.
In the United States, the Electric Power Research Institute
just completed a year-long research study on the feasibility of
wave technology. And the next year they are working on tidal
and current stream technology. They have been working with five
Coastal States. And from the study, EPRI estimates shows that
the incident wave energy flux for the United States is roughly
equivalent to about 60 percent of the yearly electricity
consumption. So it also is a fairly large resource.
Right now in the United States there is one prototype under
development. Eight companies at last count were developing
prototype systems someplace in the development stage. And my
own opinion is that wave energy is about where wind was 20 to
25 years ago. I also believe that the wave energy has the
potential over the long term to be as cost effective and
competitive as wind is today.
Moving just for a minute to talk about environmental
issues, wind and wave power generate no greenhouse gases. There
is no fuel consumed. So they are environmentally sound in that
sense. But you do have to worry about siting issues. As has
already been discussed by the committee, visual acceptance is
one thing, but interference with sea birds, marine life, visual
noise, conflicts with other uses such as fishing, do come up.
There is also sediment transport issues associated with the
structures and some downstream blocking effects. You block the
flow or you block the waves as you put these systems in.
However, preliminary environmental studies in the EEU have
shown that there are no significant impacts due to wind energy.
And the same is expected of wave, to be not an issue or at
least a small issue.
The United States needs to start to investigate some of
these wind and wave environmental issues to establish baselines
and set the R&D, just as the oil and gas industry has done with
Minerals Management Service.
So in conclusion, the U.S. is blessed with a great
potential for both wind and wave technology, which is at this
point not be harvested.
Thank you. I am open to questions at the committee's
request.
The Chairman. Thank you very much.
[The prepared statement of Dr. Thresher follows:]
Prepared Statement of Robert W. Thresher, Director, National Wind
Technology Center, National Renewable Energy Laboratory, Golden, CO
Mr. Chairman, I am pleased to appear before the Committee as it
considers offshore hydrocarbon production and the future of alternative
energy resources on the Outer Continental Shelf. The National Renewable
Energy Laboratory (NREL) is the Department of Energy's primary
laboratory for renewable energy and energy efficiency research and
development. I am the director of the National Wind Technology Center
at NREL. My testimony will address the opportunities and challenges
facing offshore wind energy and wave energy development.
INTRODUCTION
Oil and gas produced on the Outer Continental Shelf have made
significant contributions to the U.S. energy supply since the 1960s.
Oil and gas offshore industries have developed technologies to overcome
barriers resulting from increasing water depths, harsh ocean
conditions, and growing environmental constraints to exploit the
nation's domestic petroleum reserves. In a similar fashion, wind and
wave energy technologies can make a significant contribution to the
nation's domestic energy supply at a reasonable cost, while sustaining
the environment by reducing emissions and strengthening our national
security.
WIND ENERGY TECHNOLOGY
Wind energy is currently cost competitive in many areas of the
country, producing electricity at 4-6 cents/kilowatt-hour (kWh) at good
wind speed sites. Approximately 6,700 megawatts (MW) of wind capacity
is installed in the U.S. Worldwide capacity is more than 47,000 MW.
Building on this technology base, further development of offshore wind
energy technologies has the potential to provide up to 70,000 MW of
domestic generation capacity to the nation's electric grid by 2025,
based on estimates using the National Energy Modeling System (NEMS).
European nations have announced plans for deployment of almost
50,000 MW of wind power in shallow offshore waters by 2025. NREL
studies indicate more than 50,000 MW of shallow offshore resources
(<30-m) are available near coastal load centers, and the resource in
deeper waters is 10 to 20 times larger, as shown as shown in Table 1.
Table 1.--ESTIMATED U.S. OFFSHORE WIND ENERGY POTENTIAL
[Between 5 and 50 Nautical Miles from Shore]
------------------------------------------------------------------------
Water Depth (Meters) 0-30 30-60 60-900 >900
------------------------------------------------------------------------
Energy Potential (Megawatts) 50,000 200,000 500,000 250,000
------------------------------------------------------------------------
The United States, however, has no direct experience with offshore
wind turbines or the infrastructure to install them, and experience
worldwide is still relatively limited. About 600 MW is currently
installed offshore versus 47,000 MW installed onshore. No offshore
turbines been installed in waters deeper than 20 meters.
To enable commercial exploitation of the domestic offshore wind
resource at a competitive cost, research and development is needed to
overcome current depth limits, improve accessibility and reliability,
develop design methods, establish safety and environmental standards,
and demonstrate the technology through testing and operational
experience.
As illustrated in Figure 1,* the next technology step envisions a
taller truss structure to support the wind turbine, allowing
installations in waters up to about 60 meters.
---------------------------------------------------------------------------
* All figures have been retained in committee files.
---------------------------------------------------------------------------
The final and most difficult technology step allowing access to
deeper waters requires R&D to develop floating platforms similar to
those used for offshore oil rigs. This step would open vast sea regions
for wind deployment and increase the wind resource potential to 750,000
MW, as shown in Table 1, for water depths less than 900 meters. The
vision for floating platform systems is that they will be mass produced
and assembled in a local dry dock facility, towed out to sea, anchored,
and plugged into the electrical connector to an undersea cable that
delivers the power to shore. Through economies of scale and mass
production at local U.S. shipyards, work at sea would be minimized,
high paying manufacturing jobs would be created, and competitive energy
costs could be achieved. The goal of an R&D program would be to achieve
a 3 to 4 cents/kWh cost of energy by 2020.
There are significant advantages to deepwater floating turbine
systems. They can be installed in higher wind regimes farther from
shore where they will be out of sight and away from environmentally
sensitive areas closer to shore.
In summary, the U.S. can begin tapping into the vast resource of
offshore wind power on the Outer Continental Shelf (OCS) today to
diversify our domestic energy sources and strengthen our national
security.
WAVE ENERGY TECHNOLOGY
Wave energy is currently in its infancy. Although there are
currently no commercial-scale installations that are similar to wind
energy, a number of companies are developing prototype systems for sea
trials and demonstration projects. These development activities are
most active in Europe, where multi-million dollar R&D funding is
provided by the European Union and individual countries. The United
Kingdom is particularly interested in exploiting marine energy sources,
and they have established an aggressive R&D program, including the
recently commissioned European Marine Energy Center on Orkney Island
for testing wave energy machines.
Wave power has significant potential in the U. S. as well. A recent
study conducted by the Electric Power Research Institute (EPRI)
estimated that the total incident wave energy flux for the U.S. is
about 2,300 TWh/year, which is about 60% of the electrical energy
consumption of the entire country.
The current status of development for wave technology is roughly
equivalent to where wind energy was about 25 years ago. There are a
wide variety of technologies with different physical operating
principles under development both in the U.S. and in Europe. The first
full-scale prototype wave energy machine is currently being sea tested
at the European Marine Energy Center. In addition, two other wave
energy machines are being tested, one in Denmark and another in
Portugal. In the U.S., there are four projects at various stages of
development, and one is undergoing ocean testing. At the time of the
EPRI study, eight U.S. companies were developing wave energy
generators.
Wave energy machines will need a sustained period of R&D. U.S.
companies could benefit greatly from a comprehensive research,
development, and operational testing program. These new prototype
machines will need to be perfected and demonstrated to prove cost
effectiveness and reliability, prior to large-scale deployment. With
adequate R&D, wave energy systems have the potential to become as cost-
effective and reliable as wind turbines.
ENVIRONMENTAL ISSUES AND PERMITTING
The most important environmental benefit from utilizing wind and
wave energy technologies is that they generate no greenhouse gas
emissions, or other pollutants. The environmental and security risks
associated with the production and transportation of fuel are
eliminated because no fuels are consumed. There are, however, several
environmental issues that need to be considered when siting wind and
wave facilities. The most important considerations are: interactions
with marine life and seabirds, visual appearance and noise; conflicts
with other uses of the sea space; construction and decommissioning
impacts; changes in sedimentary transport in the local region; and low-
energy zones downstream of the facilities that may be created by the
use of the wind and wave energy. Preliminary European studies on
offshore wind facilities indicate that these potential impacts are not
significant, nor are they expected to be for wave energy projects. The
U.S. needs to begin investigating these issues just as the oil and gas
industry and Minerals Management Service have collaborated over the
last several decades on offshore oil and gas production.
Environmental studies required for permitting are expensive and
time consuming. More than three years are required to permit an
offshore project in Federal waters. Due to the fact that renewable
energy technologies are new and unfamiliar to these permitting
agencies, the evaluation of issues and impacts lack hard data and
scientific baseline studies. There are many regulations and agencies
with no clear jurisdictional responsibilities making each state and
project a unique case. The primary Federal agencies with ocean
jurisdiction include: the Federal Energy Regulatory Commission, the
U.S. Army Corp of Engineers, the National Oceanic and Atmospheric
Administration and the Minerals Management Service. In addition, there
is no ``fast track'' approval process for short-term demonstration and
testing of projects.
CONCLUSION
Renewable electricity generation from wind and wave energy has
significant potential for contributing to the country's energy supply
and national security. However, major technical challenges must be
addressed before this potential can be realized. Mr. Chairman, I
appreciate the opportunity to testify before you today and I will be
pleased to answer any questions the Committee might have.
The Chairman. Let me say the interest is obvious, but the
time is short. So I am going to try to--I know the next panel
is of great interest to a number of Senators. And we have a
vote at a quarter of, which probably means we have to be out of
here by 12 noon. And I do not think anybody will come back,
because we both have meetings after that.
So what would you think of moving rapidly in terms of 2
minutes each on questions? Unless you did not give any opening
remarks; then you can have a little bit more time. Is that fair
enough? Is that all right?
Senator Bingaman, you can go first. I will go second. And
we will go around.
Senator Bingaman. Thank you very much, Mr. Chairman. I
thank all the witnesses for your testimony.
Let me try to just see if I--maybe this would be a
question, I am sort of leading up to a question for you,
Director Burton, I am trying to understand what the obstacles
are to developing these resources offshore that we are all
talking about. My understanding is there are two obstacles
currently. One is congressional moratoria, which we enact. As I
understand it, we enact it every year as part of the Interior
appropriation bill. And that congressional moratoria covers a
lot of States.
And then there are Presidential orders withdrawing lands
from leasing. And we gave the President that authority under
the Outer Continental Shelf Lands Act. We gave the President
authority to withdraw lands from leasing. And the President has
used that authority in several occasions. So those are the two
big obstacles.
The proposal here is that we should pass authorizing
legislation to authorize States to go ahead with leasing or
make decisions to go ahead with leasing off their own shore. If
a State desires to do that, I would think a more direct way to
do it would be to just amend the language that we put in the
Interior appropriation bill every year, which provides this
moratorium.
The States of Maine, New Hampshire, Massachusetts, Rhode
Island, Connecticut, New York, New Jersey, Delaware, Maryland,
Virginia, North Carolina, South Carolina, Georgia, Florida,
part of Alaska, Washington, Oregon, and California all are
covered by this language in the appropriations act. It would be
very easy to just put a proviso in there saying that this
moratoria language does not apply to the State of South
Carolina or New Jersey or whichever State wanted out. That
would be the simplest way to eliminate the legal impediment to
leasing off the shore of any State.
Am I right about that?
Ms. Burton. Yes, sir. If the moratorium is lifted from a
congressional viewpoint, then you still have the Presidential
withdrawal in place. But because this administration is very
mindful of the States' needs or wants, I think that the
administration would seriously again study its own withdrawal,
if Congress signified that the State wanted to move off the
moratorium.
This is the situation right now in the North Aleutian Basin
in Alaska, where part of that basin was under congressional
moratorium. It was lifted in September 2003 at the Alaskan
delegation's request. We would like to study this area, if the
President decides to consider changes to the Presidential
withdrawal. So certainly that can be done that way, if Congress
would like to do it that way.
Senator Bingaman. I see my time is up, Mr. Chairman. I had
some other questions, but I will wait for another round.
The Chairman. And we all can submit questions. I think
everybody wants to get something in.
Let me move to our side, and I will come back to myself.
Shall we go in the order of arrival? Is that all right with
everybody?
Okay.
Senator Alexander would be next on our side.
Senator Alexander. Thank you, Mr. Chairman.
In continuing the discussion about the State option,
Federal law treats States differently in terms of offshore
production, as opposed to onshore production. For example, in
Wyoming, if there is drilling on Federal lands, Wyoming gets a
royalty of 50 percent of that before the money comes in to the
Government. Alaska gets 90 percent.
Now, offshore, if you get beyond 9 miles, States get
nothing from Federal lands. So our proposal was to give States
12.5 percent of that, which they might use to lower taxes or
improve universities or whatever.
Admiral Watkins, this question is for you. It also suggests
we take another 12.5 percent and create in effect a
conservation royalty; the idea of taking some of the money that
comes from drilling offshore and using it to fully fund the
land and water conservation fund, wildlife preservation, or
others.
In addition to that, Senator Landrieu and I have introduced
legislation which we call the American Outdoors Act, which also
relies upon a conservation royalty of about $2 billion a year
for coastal management of the type Louisiana needs, as well as
other conservation purposes. Now as I understand your proposal,
you would in effect create a trust fund funded by some of the
money from offshore drilling, which we might call a
conservation royalty. And it would go to help the ocean.
Does all of this seem consistent? One reason we call it a
conservation royalty is we are trying to avoid the budget act.
Because if the money comes into the State treasury or to the--
or if it is a royalty and never gets here, then it is scored in
a different way. And I will not get into all that. So this
concept of a conservation royalty, I wonder if you would talk
about that a little more and whether it is consistent with
these other proposals that have been made to use these funds in
that way.
Admiral Watkins. Well, Senator, what we recommended was an
ocean policy trust fund. And we debated long and hard about
this. And we recognized that is very difficult to do. It does
come under the appropriations control process up here in the
Congress. But today, $5 billion comes in annually from oil and
gas revenues, basically, off the coast. Of that $5 billion, $1
billion is allocated. Land and water conservation fund, some
other--we would not touch any of that.
But to us, it is illogical. If we want an ocean policy that
is integrated and cuts all these issues and brings them all to
the fore, be able to fund that--and our total funding of the
entire recommendation in this report was $4 billion over
current investment. That is about a 50-percent improvement in
the investment in the oceans today, which we all agree is
inadequate. Thirty-seven Governors agreed with that. Thirty-
seven Governors said, ``Give us a break. Do not give us
unfunded mandate. We want to get some additional help from the
Government to carry out these very complicated issues.''
So we said, ``Let us set that up and grow over time into
something that's predictable.'' The States can involve
themselves up front in the planning process instead of being
tail-end Charley on these issues. And these were unanimously
supported. We went across the country to listen. So we came up
with this fund.
Now some of the things you said, Senator, were very
consistent with that. So, you know, I am not saying we have all
the answers. I am just saying there needs to be a predictable
source of moneys, if we are going to do this. Otherwise it is
just superficial, fig leaf cover, rhetoric only, and we are not
going to do anything. So I really believe that needs to be
looked at.
I have talked to Senator Stevens, when he was still
chairman of the Appropriations Committee, about it. He seemed
to think it had some merit, although it was going to be tough.
Everybody wants to go after those moneys. There is $4 billion
unallocated going into the treasury. We do not think that is
the right way to put that money. We think it ought to be
tailored to what Congress says.
And I think Senator Domenici said, ``We ought to tell them
how to do that.'' We ought to protect it so it does not become
an incentive for States to drill and break moratoria.
California people are very worried about that, that somehow
additional moneys flow back, we will break the moratoria. I do
not think so. We have no indication that the States considered
the $1 billion that is allocated across the Coastal States to
help them out from the current revenues that kept them from
issuing the moratoria. So I do not know where that comes from.
I think it is a red herring that is floated out there
constantly.
So I think that what we have recommended here is the right
thing to do. But I am not saying it is the only thing. I think
what I heard you say was somewhat consistent with that, with
that, with the trust fund concept.
Senator Alexander. Thank you.
The Chairman. Thank you very much.
Let us see. We can move over the Democrat side.
Senator Landrieu.
Senator Landrieu. Thank you.
Admiral, you may want to qualify, or ``clarify'' is a
better word, about this trust fund concept, because the core of
what I think we are all working on, although we come from
different viewpoints, is to try to open up opportunities in the
Outer Continental Shelf, the appropriate opportunities for
development and investment and conservation.
In some States, like Louisiana, Mississippi and Alabama,
Texas, where we are more familiar with oil and gas drilling, we
also want to do a better job of that, open up opportunities for
wind and wave and new technologies. Since our States pioneered
those technologies, we are well positioned to pioneer new
technologies for using the resources in the Outer Continental
Shelf.
But I would just like it if you could clarify the policy of
the Oceans Commission, that you do think that some sort of
revenue-sharing provision is important to the Coastal States.
Is that why you included it in your report?
Admiral Watkins. We made it very clear, Senator Landrieu,
in our report. And it is in my longer statement for the record,
a whole section devoted to the Ocean Policy Trust Fund. It is
shared. It is a shared responsibility, we think, that the
Federal Government has to be a good steward of the ocean, along
with the States. The States have to do the hard work.
And as I said, they were very supportive of our
recommendations here to get some kind of predictable money
stream in there to come back to them to help them out, to carry
out these varied provisions, because they are expensive.
So yes, it is shared. It is not one way. It is give back to
the States at least $1 billion of the unallocated moneys today.
That is right off the bat to get going on this and to kick
start it and really move out, and then gradually migrate up to
the $4 billion a year that are required to carry out an
integrated national ocean policy, as was recommended, or
something equivalent to that.
Senator Landrieu. Mr. Chairman, to briefly follow up on
this point, as we come up with the details of this trust fund
proposal that I think in large measure we all agree on, just
not the details, thinking about sharing with the Coastal States
on a production-based formula, but I mean production not just
of oil and gas. But if you produce wind, you share in wind. If
you produce tidal energy, you share in that. If you produce
hydro, you share.
But as a producing State, I want to say for the record in
this questioning, the other Senators can imagine the difficulty
in Louisiana Senators, Texas Senators, Alabama Senators, and
Mississippi Senators saying: Okay, we agree to do all the
production of everything, but we are happy to share our money
with everyone.
Now, you all understand we could not possibly sell that in
Louisiana, Mississippi, Texas, and Alabama. So we have to come
up with a way that each State can produce what it can and what
it wants and then share those fairly. And that is just what I
ask this committee to focus on, as we go down this path.
Admiral Watkins. But, Senator Landrieu, one of the things
we put in our report that was very clear is that it is not only
the current oil and gas revenue stream that we are talking
about here. It is the future revenue stream. There is no
structure out there. There is no regime right now----
Senator Landrieu. Correct.
Admiral Watkins [continuing]. Under which wind and thermal
and all these other things can be brought in. Do you know what
we are doing today? The Corps of Engineers has the sole
responsibility off Cape Code under the Rivers and Harbors Act
of whenever. And that has got to stop. I do not see how the
States can bring these kinds of new sources of renewable energy
and everything else to bear without some kind of a framework
that the Congress has laid. That is where the revenue stream
can be identified. That is how this policy trust fund could be
running.
It is a total package. It is not just a simple thing of
sending--allocating some moneys down to through the trust fund.
It is a matter of bringing this all together, getting all
revenue streams identified, and do not allow entrepreneurs to
go out there and not return to the American citizens what they
should in Federal waters. So it is a total package. And I think
we have a very extensive review of that in our ``Ocean
Blueprint for the 21st Century.''
The Chairman. Well, thanks for the answer. Thanks for the
questions. We are going to move this as quickly as we can.
Senator Martinez, you are next.
Senator Martinez. Thank you, Mr. Chairman. I will be very
brief.
Ms. Burton, the offshore drilling in the Gulf of Mexico,
the production, it seems, is moving in the direction of deep
water oil, as opposed to shallow. And also I am sure you would
understand the great concern of any potential for drilling in
the future that would be close to the Florida coast.
With that in mind, would the Mineral Management Services
support an effort by those of us who are concerned about
drilling off Florida's coast to buy back existing leases that
are apparently mostly in shallow water and also fairly close to
our Florida coast?
Ms. Burton. Mr. Chairman, we--at this point, I cannot
answer the question, because it is not a matter of the Minerals
Management Service supporting it. It is an administrative
position that has not been taken yet. But certainly we are
aware of it. And we know exactly how many leases are there, and
we can look at that. But the administration has not taken any
position on that yet.
Senator Martinez. So that would have to be a broader
position than just MMS would----
Ms. Burton. That is correct, sir. MMS cannot make that
decision. This is an administration's decision.
Senator Martinez. In addition to that, I know we have
talked about the potential for spillage and so forth. But would
you agree that there are other environmental risks,
environmental hazards, that come about as a result of drilling,
such as the water that is withdrawn and other issues along
those lines that create other environmental problems?
Ms. Burton. There are certainly environmental problems, but
they are studied before any license, any permit, is given out.
And we have a whole group of scientists. We work very closely
with NOAA, the National Oceanic and Atmospheric Administration.
We ensure that there is enough mitigation of any issue that we
see that the marine environment is kept safe. Not to say there
are no issues, but we take care of them. And we think the
regulations are such that it really is done very safely for the
environment, as well as for the people, by the way.
Senator Martinez. It mitigates them. It does not eliminate
them.
Ms. Burton. It mitigates it to a point where it is a fairly
reasonable risk that we are taking. And I think that everything
we do, if there is any kind of impact, we mitigate it to where
the impact is not lasting and not damaging.
Senator Martinez. Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator.
Let us see. Where are we?
Senator Feinstein.
Senator Feinstein. Thank you very much, Mr. Chairman.
My question is for Ms. Burton. And it concerns the 36
Federal oil and gas leases offshore of California. These leases
were issued decades ago, between 1968 and 1984. They have never
produced oil and gas. They are mired in litigation. Two new
marine sanctuaries have been established in the area that could
be affected. California has maintained a complete statutory ban
since 1995 on the areas surrounding the 36 leases.
I am told the following: Notwithstanding specific direction
from the Ninth Circuit Court of Appeals to do a thorough
environmental evaluation of the impacts of these leases, MMS
has failed to prepare an environmental impact statement, failed
to analyze the cumulative and future impacts of a decision to
grant suspensions.
For example, the MMS failed to adequately analyze
cumulative impacts and the effects of extending the life of
existing platforms that the lessees propose to use--proposed to
use and has failed to adequately address the need for new
infrastructure for the leases, which cannot be developed from
existing facilities.
Is it true that MMS again failed to comply with the
National Environmental Protection Act in preparing its
environmental assessments for the lease suspensions for the 36
leases? Is not failure to comply with NEPA the basis for
additional legal actions that have been filed against MMS?
Ms. Burton. Senator, as you very well know, MMS was under
court order to prepare all the environmental assessments
required under the court order that an extension of a lease is
considered an action that needs to go through the NEPA process.
We presented the court with a list of what we were going to do
and a timetable. The court accepted it. I would seriously doubt
that the court would accept something that is in violation of
law.
We have done the environmental assessments. We have filed
them with the court. And we are now waiting to see what the
next step will be.
I want to also assure you that should there be any kind of
activity on those leases, there are more environmental
assessments that will be done. This was strictly for a
temporary suspension of operations on the leases. But there
would be more work done if they were to file, for example, an
exploration plan or a development plan.
All along the way there would be new assessments done. And
the State of California would have a chance to review them and
decide whether they are acceptable or not.
What I do want to tell you also, Senator, regarding those
36 leases, the administration has agreed to buy them back. And
we are in--we have been actually in negotiation for 3 years
with the companies to buy the leases back. As we follow the
court's path to do what is ordered in the California v. Norton
litigation, on a parallel path we are trying to buy those
leases back.
If we were to succeed in a settlement, the whole litigation
becomes moot. The leases would go away. The Department of
Justice is the lead agency for negotiation. The problem we are
having is that the Department of Justice assessment of what
those leases are worth and the company's assessment are so far
apart that so far we have not been able to reach an agreement.
We even went through mediation that was ordered by one of the
judges. We are continuing. We have not given up. We are
continuing our effort to buy them back.
The Chairman. Senator, your time is up.
Senator Feinstein. Thank you very much. I appreciate your
answer. Thank you very much.
The Chairman. Senator Murkowski.
Senator Murkowski. Mr. Chairman, I will yield to my
colleague.
The Chairman. Go ahead, Senator Allen, please.
STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR
FROM VIRGINIA
Senator Allen. Thank you, Senator Murkowski.
Mr. Chairman, thank you for holding this hearing. It is a
very important issue. We need to become less dependent on
foreign sources of energy. The Outer Continental Shelf is
clearly an area of great interest where we can become less
dependent and get increased production here, rather than
relying on foreign gas or liquified natural gas, which costs
more.
As you may know, Mr. Chairman and members of the committee,
this has been an issue in Virginia, particularly this last
year. And I am very much looking forward to putting out the
real facts here in this committee and get this issue on the
table. And I thank all our witnesses.
There is a lot of emotion on this issue. And there has been
no one more knowledgeable and articulate in Virginia than a
State Senator, who I want to introduce, who will be on the
second panel. I am going to have to leave. And that individual
is State Senator Frank Wagner from Virginia Beach.
You have chosen a great witness to testify today. He has a
long history in our Virginia General Assembly and honorable
service to our country as well, as an engineering and diving
officer in the Navy, success in the manufacturing industry, and
he even has a bachelor of science degree in ocean engineering
from the U.S. Naval Academy.
He introduced a measure and passed a bill in the General
Assembly this year that surely showed his interest and the
interest of the people of Virginia in clean, responsible
solutions to the current energy crisis. He is well qualified
for the task of speaking on the energy needs of manufacturing
and the promising advances of OCS technology.
Senator Wagner's hearing will bring some insight. I was
following that legislation. He understands how important this
is for people who heat and use natural gas in their homes, as
well as manufacturers and the jobs therefrom and the
competitiveness of our country.
And so I am not going to ask any questions now of these
witnesses. But, Frank, Senator Wagner, if you would just stand
up, I am just introducing you now. Thank you for taking your
time to be here.
And, Mr. Chairman and members of the committee, thank you
for bringing forward an outstanding witness for not only
Virginia but the country.
The Chairman. Thank you very much, Senator.
We look forward to your testimony, sir.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
Very quickly to you, Ms. Burton. There has been so much
concern and controversy over OCS development as it relates to
oil, perhaps not so much concern and controversy over the
natural gas. My question to you is whether or not you believe
it might make sense for the Congress to consider permitting
gas-only leasing in the OCS areas.
Ms. Burton. There is no doubt, Senator, that gas does not
pollute like oil might. And that is a lot safer type of
activity from that standpoint. There are areas that are known
as being gas prone. We feel, or at least our solicitor feels,
that we do not at MMS, at Interior, have the authority right
now to issue gas-only leases. Gas and oil are tied in the OCSLA
statute. We would need some amendment to the statute to issue
gas-only.
Is it something that we think should be done? I am really
not qualified to tell you that at this point, because I think
the people that are going to drill for it are the ones
qualified to answer this question. And I think industry has to
make that known to you.
Can they drill and produce only gas? And what happens when
they find oil with it? Because a great percentage of the time,
oil and gas are associated. And it would be very difficult to
say, ``I am going to produce only gas.'' What happens when you
find oil?
I think the challenge for the MMS will be to find proper
regulation to see how can we regulate drilling activities that
may produce oil when they do not have an oil lease. So what do
we do? Do we make them reinject it? How do we handle that?
This is something we will come to grips with, if Congress
gives us the authority and shows a desire for gas-only leases.
But I suspect the industry will have to tell you whether that
is feasible or not.
Senator Murkowski. Thank you, Mr. Chairman.
The Chairman. Thank you very much. That is an excellent
suggestion, and we had better make some inquiries with
reference to that, because we do not have time for another
hearing on the subject. So we had better find out.
Now I think following along here, the next Senator would be
Senator Thomas.
Senator Thomas. Thank you, Mr. Chairman. I am not as
familiar with this as I might be. We have relatively little
offshore in Wyoming.
[Laughter.]
Senator Thomas. But I do--we do have Federal land. So as
you talk about where the money goes from these things, remember
that Federal land and Federal water may be kind of the same.
And it does not all go to the States where we are.
Johnnie, where do you think are the most likely areas for
movement and production? And other than the law, what are the
greatest obstacles to moving forward?
Ms. Burton. Well, I think that besides the law and the
moratoria, et cetera, you have the technological challenges
that industry faces every day. They are going to new frontier
areas, extremely deep drilling. There is a well being drilled
right now that is trying to reach 35,000 feet on the Shelf. I
do not know how they will reach it or when, but I think they
think it will take at least a year.
There are challenges when you drill in extremely deep
water. We hold the record in the Gulf of Mexico with a little
over 10,000 feet of water. So these are some of the problems.
But I think that what I--at least when I talk to the people
who do it--because, remember, MMS does not produce one barrel
of oil or one MCF of gas. All we do is regulate the people who
do produce it and, to some extent, facilitate that production.
When I talk to them, they tell me that the biggest obstacle
they have is a lack of access. When you look at the OCS, and it
is about 1.76 billion acres, we really have only about 40
million acres under lease at this point. But there is plenty of
oil and gas in the Gulf of Mexico, as our production has proven
in the last few years and the number of discoveries.
So I really think that technology is a big obstacle. But
industry has shown that they are very capable of moving along
into tougher and tougher environments. And of course, access is
another issue.
The Chairman. Thank you very much, Senator.
Now we are going to have Senator Corzine and then Senator
Salazar. And we will get the next--and I will have a question
then.
Senator Corzine. Thank you, Mr. Chairman. I appreciate very
much you holding the hearing. And I have a statement for the
record to be included.
The Chairman. It will be part of the record.
[The prepared statement of Senator Corzine follows:]
Prepared Statement of Hon. Jon Corzine, U.S. Senator From New Jersey
Thank you for calling this hearing today Mr. Chairman, on this most
important issue. Proper stewardship of our coastal areas and energy
resources is vital for the continued health of our economic security
and environmental stability.
For more than twenty years, a strong, bipartisan moratorium has
protected coastal areas from offshore oil and gas development. This
moratorium on the Atlantic Coast began with the support of President
Reagan in 1982. It was later extended by President George H.W. Bush in
1990, by President Clinton in 1998, and is now set to expire in 2012.
It is my firm belief that this moratorium should be made permanent.
Coastal tourism is New Jersey's second-largest industry, and the New
Jersey Shore is one of the fastest-growing regions in the country.
Tourism at the shore directly and indirectly supports more than 500,000
jobs, more than 12% of total State employment, generates more than
$16.6 billion in wages and brings in more than $5.5 billion in tax
revenues to the State.
In the last two Congresses, I introduced the COAST Act, which would
make permanent the moratorium on oil and gas leasing activity in the
Mid-and North-Atlantic.
As all of my colleagues from coastal states know, keeping our
shores free of drilling will not be easy. We have formed successful
bipartisan coastal coalitions in the past to keep our shores clear of
this kind of activity. In 2001, we fought off the Department of the
Interior. And during the past few Congresses, we banded together to
prevent Outer Continental Shelf inventory provisions from being adopted
as part of the final Energy Bill.
It is clear that this moratorium has had bipartisan support for
over two decades, yet since the beginning of this Administration, we
have seen efforts to weaken this moratorium under the guise of trying
to reduce U.S. dependence on foreign oil.
Increasing domestic energy production is, of course, a necessary
component of a balanced energy policy. However, considering the minimal
amount of oil and gas resources located in the Mid-Atlantic outer
Continental Shelf--estimated in 2000 by the Minerals Management Service
to be approximately 196 million barrels of oil, enough to last the
country barely 10 days--I am concerned a rush to open up the Atlantic
Coast may result in economic consequences that far outweigh the
benefits.
I urge my colleagues and the Administration to protect these vital
coastal communities across the nation by continuing to oppose any
effort to weaken the moratorium on new mineral leasing activity on
submerged lands of the Outer Continental Shelf.
Senator Corzine. Unlike Senator Thomas, New Jersey has just
a little bit of shoreline--127 miles of it. And the second
largest industry in our State is tourism. So there is more than
just a little concern in New Jersey with regard to the issues
of offshore drilling.
And the point that Ms. Burton just made with regard to
inter-mixing of oil and gas, if you were to take one approach,
it is certainly a concern to our citizens, as are a number of
things.
I have actually been listening to the hearing in my office.
And, Admiral, you talked about what you thought was stated in
your Ocean Blueprint with some incoherency with regard to our
overall management of policy relating to coastal and ocean
areas. If we were to follow the approach that is contained in
the language known as SEACOR, would that contribute----
Admiral Watkins. Language? I am sorry, Senator.
Senator Corzine. SEACOR is an attempt to devolve more of
the authority for offshore drilling and exploration to the
States. What kind of impact would that have with our overall
management of coastal and ocean efforts?
Admiral Watkins. I do not know that I can answer that,
Senator. You know, we had a very clear line given to us in
Oceans Act 2000. We debated on this commission throughout. Can
we cross the line into energy generation? And I kept saying,
``No, we cannot.'' It was never in our mandate to do that.
I was the Energy Secretary. I understand the energy
problem. And I understand the interaction with energy and our
ocean policy. So I have to stay pretty much out of any
specifics like that. I would love to have the capacity to get
into something like that, because it seems to have potential
merit. On the other hand, I am so worried about the fact we
have no regime offshore at all that to throw anything into the
mix without having some overall congressional policy and regime
setup would be a mistake. That is all I can go on from my
commission experience.
Obviously, I have some personal views that are really
irrelevant at this point. I am an old, antique Energy
Secretary, been out of the business for 14 years. So I think
that I would have to stop there, Senator Corzine. I would love
to be able to answer you, but I cannot do it.
Senator Corzine. I appreciate your work on raising the
issue that the overall policy needs to be established, which I
think is fundamental.
Thank you.
The Chairman. Senator Salazar.
Thank you, Senator Corzine.
Senator Salazar. Thank you. Let me first of all just say
welcome to the panel and particularly to Dr. Thresher from
NREL. I appreciate you being out here. And all of us, I know,
on this committee appreciate the great work that NREL is doing
for our country, especially as we deal with the huge energy
challenge.
My question for you simply is this: With respect to wind
and power technology, and the offshore development of those two
technologies, what more could we be doing as a country to
further explore those technologies? And what is the realistic
possibility, especially with respect to wave energy, of ever
being able to look at that as a useful energy source for the
nation?
Dr. Thresher. Thank you, Senator. Right now our activities
at NREL are almost totally directed at land-based technology.
And that is where the emphasis has been. We have very small--
less than 10 percent of the wind budget is going toward looking
at offshore. And as the oil and gas folks know, it is very
expensive. It is difficult in the environment.
And so some expanded R&D in that activity, as I mentioned,
kind of first optimizing the shallow water technology, much in
the same way the oil and gas industry has done, shallow water,
intermediate depths.
But the ultimate vision is to be able to float the
technology, get it out of sight, kind of over the horizon,
where the winds are better and it does not interfere with the
environment quite as much out in the deep waters.
So with regard to wave energy, it is absolutely in its
infancy. There are only prototype systems around. There is no
Federal program to support those activities, no R&D. It is all
company sponsored. And it is a little bit fragmented, as
opposed to in the U.K., where there is a concerted effort to
develop that technology.
And as I indicated, the incident energy in waves coming
into this country is about, on a yearly basis, 60 percent of
the electric consumption in the year. So there is a large
resource potential. But it will take time and money to--and a
sustained effort over at least 10 to 15 years to bring that to
fruition.
Senator Landrieu. Mr. Chairman, I know we have to move to
the other panel, but could I just get on the record, since
several members have mentioned the distance from the shore, to
keep out of eyesight the production of whatever we are going to
try to produce, what is the distance? Is it 10 miles, 15 miles,
or 25 miles that the human eye can see?
The Chairman. You are speaking of wind now?
Senator Landrieu. Speaking of any kind of production
platform, how far do you have to be offshore to not see it?
Ms. Burton. From an oil and gas viewpoint, a production
platform is not visible after 15 miles.
Senator Landrieu. Would wind be visible after 15 miles?
Dr. Thresher. At 5 miles, it looks like on the horizon
about my finger, about an inch as to how----
Senator Landrieu. So 15 miles, you could not see it at all.
Dr. Thresher. Fifteen miles with a little bit of haze, you
could not see it.
Senator Landrieu. Okay.
The Chairman. I just have two questions, one first for you,
ma'am. First I want to tell you what a good job I think you do,
and I hope you stay with us, as we try to sort through this
policy.
Ms. Burton. Thank you, sir.
The Chairman. When you give us our estimates of what the
resources are out there, when--nobody will let us adopt the
policy that says ``Let us go on and do a real, current, best
technology estimate of the resources,'' where every time we
talk about it, it is the end of the world. But I note that
whatever estimates you all have given us have been always on
the low side versus reality.
Is it fair to assume that the estimates you are giving us
are vested with the same quality?
Ms. Burton. Yes, sir.
The Chairman. So if we are looking out there, we probably
could expect more resources rather than less from these
offshore resources?
Ms. Burton. I think so. And until we get more drilling and
more exploration, there is no real knowledge. The Gulf 10 years
ago looked like it was a dead province. Look how much it is
producing today.
The Chairman. Yes. My second question is: I am now
knowledgeable about the dramatic change in technology in on-
land development of oil and gas from drilling from 25 years
ago, Prudhoe Bay 1 to Alpine 1 in Alaska. The same increase in
technology, has that occurred in offshore drilling, also?
Ms. Burton. I think it is as much or more. It is incredible
what is happening offshore today. I just went to a platform
that had 100 new technological advances. It is absolutely on a
par with the space program.
The Chairman. So does that mean from the footprint being
this platform, that you go out long distances with many, many
drills off of one platform, as compared with many more than we
did when you started the program?
Ms. Burton. Yes, sir. They can go drill holes from a drill
ship and then the drill ship moves away, then they put in a
production platform. And they can tie in several fields long
distances away from the platform, up to 50 miles away. So
fields that might be even marginal and could not have their own
platform, which would not be economical, now can be produced
because they are all tied back to one central platform. One
footprint, five fields.
The Chairman. Now both you and Admiral Watkins have alluded
to the pollution risk. Admiral, you talked about the fact that
there is the real risk and the perceived risk, I think, of
spills. And you talked about what you found, what your
commission found, versus what some environmental group that you
mentioned was using. Would you state that again? I do not
remember what you said.
Admiral Watkins. What I said, Mr. Chairman, was that I
believe, because of the technological advances that have been
made in 25 years since the blowout in Santa Barbara, that we
need to review those kinds of things on the basis of the kind
of technology explosion that we have had in this interim
period. It is impressive.
I have been out on the deep rigs in the Gulf that were then
drilling to 5,000 feet. The environmental sensitivity, I can
tell you, is as high there as it is anyplace in the country.
Those people are worried about the environment. They also want
to preserve and have sustainable oceans around them.
You cannot shut the drill--as you know, you cannot shut a
drill platform down now, because they are fish habitats.
The Chairman. Right.
Admiral Watkins. So we have learned a lot over time about
these things. And I say perception is--it is not that there is
not a risk. It is just that to stay on the same old issue,
whether it is Exxon Valdez or whether it is a blowout off Santa
Barbara or some tanker off the coast of France, we have got to
start thinking about: What is it 25 years later? It is a
different ball game.
And I just say periodically, as I recommended when we built
the energy strategy in 1991, we should take the energy bill
that came out of that in 1992 and we should have upgraded every
5 years, because of the technology explosion. Did we do it? No.
We have not had a policy now since 1992.
The Chairman. We are going to do it now.
Admiral Watkins. We have to do it now. So this is the
problem I have with perception versus actual. I think actual
changes over time, and perceptions do not. That is the problem.
The Chairman. Yes. The problem in that regard is that even
if we have the reality rather than the perception because of
the new changes, those who are opposed use the old evidence and
continue to tell the public it is the current evidence. And so
it is a great PR battle. And it is a question of who has the
facts. And I do not think it can be doubted that the transition
period has caused it to be much, much safer, rather than less,
and it is obvious. But yet some will not acknowledge it at all.
So we are going to proceed.
My other observation for you, Admiral, as you discuss this
trust fund concept, which you understand is very difficult to
do--I know it better than you because I know what the budgets
are all about. And it is hard to set up a trust fund. And it is
clearly hard for this kind of committee to set one up. I
guarantee you. First you have to get it into the budget. And
that is a devil. And then you have to follow it and put it in
some kind of mandated approach.
But it does seem to me that there is a fallacy in your
argument, in the rationale of your argument, that you should
take a very large portion of the new money that will come from
offshore drilling and put it into a trust fund for the purpose
you say, in that the relationship of how much of the ocean
problem has been caused by drilling is certainly not
established.
It is not as big as the proportion that you are going to
take of the royalty. In other words, if there is a problem in
the ocean, how much of it is caused by drilling? And it is
probably small. If you are suggesting that we should take a
huge portion of the royalty and apply it to that problem, I am
saying we should apply it, but I do not know if we should apply
as much as you say, based upon just common reasoning about
which contributed to the problem, what contributed to the
problem.
I just throw that out. I do not mean to be argumentative.
Admiral Watkins. No. I think you made a good point, Mr.
Chairman. You know, we were talking about the existing revenue
flows. Only $1 billion goes back to use for work----
The Chairman. Right.
Admiral Watkins [continuing]. And the rest goes into the
Treasury's slush fund. Okay. I am just saying there is a logic
to taking the same revenue stream and apply it back to the
oceans which surround these platforms.
The Chairman. You are right.
Admiral Watkins. I think the Gulf of Mexico is taking the
heavy load for this country and all of the others that will not
have a refinery, will not have any sources, all griping about
it. They do not mind the Gulf States taking the burden
environmentally. So I believe there is a need to go back and
use these funds for that purpose.
I think it is a tribute to the stewardship ethic that we
are trying to build in this country, that we should be good
stewards of that ocean. And I think that this is a source, one
source, of revenue that has a logic train. It is called the oil
and gas business. It has matured. It has been there for years.
And we ought to capitalize on it.
The Chairman. Thank you. Thank you, panel.
We are going to proceed to the next panel.
Senator Landrieu. And, Mr. Chairman, just for the record,
it is a $1 billion authorization. But last year the actual
money was only, I believe, around $450 million. So I just want
to clarify for the record that it is a $1 billion
authorization, but we never hit that mark. And it was only
about $400 million.
The Chairman. That is true. It enhances his argument more,
even more so.
All right. Next panel, please. We do not have but 10
minutes, because there is a vote up. But we are going to do
this. And we are going to ask them to hold the vote.
Is there a vote following this vote? Could you find out?
Okay. I am very sorry about the time problem. In the event
we cannot get enough done here, would each of you tell me,
starting right there, ma'am, the Sierra Club, if we waited
until after lunch, could you come back?
Ms. Boger. Yes, sir.
The Chairman. Okay. And how about you, sir?
Mr. Angelle. Yes, sir.
The Chairman. I have a 2:15 here and here. Could you be
back at 1:30?
Senator Alexander. Mr. Chairman, I will do my best. I am
supposed to be--the Foreign Relations Committee is considering
Mr. Bolton this afternoon. And I need to be at that when they
vote. Otherwise I will be here.
The Chairman. Okay. How about--can any Democrats be here at
1:30? I should ask that.
Why do we not do that? Let us go right now until 12
o'clock. If we do not get enough in, we will just recess until
1:30, quarter of 2, and do another 30, 40 minutes.
Please proceed. Let us start right with you, and you can
give your testimony. Whatever you have in writing will be made
a part of the record. We would appreciate it if you would try
and summarize it.
STATEMENT OF DEBBIE BOGER, DEPUTY LEGISLATIVE
DIRECTOR, SIERRA CLUB
Ms. Boger. Good morning. My name is Debbie Boger. I am the
deputy legislative director of the Sierra Club. And I am here
representing over 750,000 members nationwide. Thank you for the
opportunity to testify, Mr. Chairman.
The Sierra Club strongly opposes any moves to open the
moratorium areas of the Outer Continental Shelf to drilling for
hydrocarbons of any sort, including both oil and natural gas.
We oppose lifting the moratorium for six reasons.
First and most importantly our beaches and coastlines are
special, irreplaceable places. It is our responsibility to
protect them. And the existing moratorium is the primary tool
we have used to protect them for over 20 years now.
Second, allowing drilling off our coasts would have very
damaging consequences for our beaches, for marine life and its
habitat, and for the broader environment.
Third, the National Academy of Science has determine we do
not have enough information to ensure that the environment will
be protected if we drill offshore.
Fourth, drilling for oil and gas could have serious
consequences for local tourism and fishing economies.
Fifth, there is no need to sacrifice our coasts in search
of natural gas. Most of the natural gas estimated by MMS as
recoverable is already available for leasing. So there is no
justifiable reason to turn to our special places for drilling.
Finally, there are smarter ways that we can and should
address our energy needs rather than allowing our coastlines to
be threatened with oil and gas drilling.
While there have been significant advances in oil and gas
recovery technologies in recent years, many serious
consequences still result from exploration and drilling for
either oil or natural gas. Seismic surveys, which are an
inventory technology, have been linked to numerous whale
beachings, making fish deaf, and rupturing swim bladders.
People might think, ``Well, who cares if a fish is made
deaf?'' But fish use their hearing to locate prey, avoid
predators, communicate, and sense their surroundings. So
essentially what we are talking about is killing huge numbers
of fish. Salmon are one example of vulnerable fish with swim
bladders.
Other exploratory technologies have been shown to be
extremely destructive to marine life and habitat. There are
also serious consequences onshore from the extensive web of
pipes in sensitive areas like marshes and wetlands.
In addition, exploratory drilling for oil or gas generates
serious air and water pollution. These are numbers from the
2000 lease sale of 181 in the Gulf of Mexico. An average
exploration drill well generates about 50 tons of nitrogen
oxides, 13 tons of carbon monoxide, 6 tons of sulfur dioxide,
and 5 tons of volatile organic hydrocarbons, all released into
the air. And an OCS well will also generate about 180,000
gallons of mud waste and drill cuttings and hundreds of
thousands of gallons of water containing pollutants like
mercury, benzine, arsenic, and lead, and can contain varying
amounts of radioactive pollutants.
There is also the serious, but not well known or well
debated, threat of methane hydrate concentrations in the OCS.
Methane is 20 times more potent as a global warming
pollutant than carbon dioxide. So the release of these hydrates
could be very dangerous.
The National Academy of Sciences found in 1981, after a
study at the request of Former President Bush, that there is
insufficient scientific data available to permit leasing in the
moratorium areas and ensure that the environment can be
protected.
The industrial nature of oil and gas drilling often is at
odds with the economic base of coastal communities, which rely
on tourism and marine industries like fishing. In the case of
the recent Virginia bill, which we will hear about, both the
Outer Banks Visitors Bureau in North Carolina and the Virginia
Beach Hotel/Motel Association oppose the bill because of their
concern for the effects on tourism.
We submit that there is no need to look to additional
natural gas or oil resources because enough is available
already. Eighty-five percent of Federal onshore oil resources
and 88 percent of Federal onshore natural gas resources in the
Rocky Mountain region are already available for leasing and
development. Only 12 percent of Federal onshore natural gas
resources are off limits to leasing. Eighty percent of the
national economically recoverable OCS gas is located in the
central and western Gulf of Mexico, which is not subject to
moratorium.
Importantly, instead of drilling off our coasts, there are
smarter, cheaper, and faster solutions for rising gasoline and
natural gas prices. The United States has about 5 percent of
the world's population, but we consume about 25 percent of the
world's energy. There is no way we can drill our way to energy
independence.
The Union of Concerned Scientists found that by getting 20
percent of our energy from clean sources, like wind and solar,
we can reduce natural gas consumption by 6 percent by 2020.
This step will save more than all the natural gas off the
Pacific Coast. Increasing renewables and efficiency would cut
consumers' energy bills, encourage innovative and new
technology, create jobs, and decrease our reliances on foreign
sources of energy.
In conclusion, we are at a crossroads in terms of how we
produce energy for our country. There are those who believe we
should open up remaining wild and special places to drill for
oil and natural gas. We are seeing efforts to open the Arctic
Refuge, record applications for permits to drill in the West,
and proposals to open our shorelines for drilling. This adds up
to an approach where few places, no matter how special they
are, are off limits to oil and gas.
There are, however, places, that are too special to
develop. I believe we need to make a choice now for a future
where our beaches and offshore waters are free of oil and gas
drilling.
Thank you very much.
The Chairman. Thank you very much.
[The prepared statement of Ms. Boger follows:]
Prepared Statement of Debbie Boger, Deputy Legislative Director,
Sierra Club
Mr. Chairman and members of the Committee, good morning. My name is
Debbie Boger, and I am the Deputy Legislative Director of the Sierra
Club. I am here representing over 750,000 Sierra Club members who
belong to more than 65 chapters and 450 groups nationwide. We are the
largest environmental grassroots organization in the country. I'm very
appreciative of the opportunity to testify this morning on the question
of oil and gas activity on our Outer Continental Shelf (OCS).
SIERRA CLUB OPPOSES LIFTING THE COASTAL DRILLING MORATORIUM AND
SUPPORTS PERMANENT PROTECTIONS FOR BIOLOGICALLY SENSITIVE MARINE
HABITATS
Sierra Club strongly opposes any moves to open the Outer
Continental Shelf to drilling for hydrocarbons of any sort, including
both oil and natural gas. We believe instead that there should be
permanent protections for biologically sensitive marine habitats. We
oppose lifting the existing moratorium for a number of reasons. First
and most importantly, our beaches and coastlines are special,
irreplaceable places. It is our responsibility to protect them, and the
existing moratorium is the primary tool we have used to protect them
for over 20 years. Second, allowing drilling off our coasts would have
very damaging consequences for our beaches, for marine life and its
habitat, and for the broader environment. Third, any Congressional
decisions about drilling for oil and gas off our coasts should be based
upon accurate science, and the National Academy of Science has
determined we do not have adequate information about appropriate steps
yet. Fourth, drilling for oil and gas could have serious consequences
for local tourism and fishing economies. Fifth, there is no need to
sacrifice our coasts in search of natural gas. Most recoverable natural
gas estimated by the Minerals Management Service is already available
for leasing, so there is no justifiable reason to turn to our special
places for drilling. Finally, there are smarter ways that we can and
should address our energy needs rather than allowing our coastlines to
be threatened with oil and gas drilling.
LIFTING THE OCS MORATORIUM WILL HAVE DAMAGING CONSEQUENCES FOR OUR
BEACHES, FOR MARINE LIFE AND THEIR HABITAT, AND FOR THE BROADER
ENVIRONMENT
Damage to Marine Life and habitat: While there have been many
advances in oil and gas recovery technologies in recent decades, many
serious consequences still result from exploration and drilling for
either oil or gas.
Seismic Surveys
The first step to drilling for oil and gas involves doing an
inventory of estimated resources. One technology used for this type of
inventory is a ``seismic survey.'' This technology involves ships
towing multiple ``airgun'' arrays with tens of thousands of high-
decibel explosive impulses to gather geologic profiles of seabed rock
structures. These airgun arrays fire regular bursts of sound at
frequencies in the range of 20 to 150 Hz, which is within the auditory
range of many marine species, including whales.
Marked changes in behavior in marine species in response to loud
underwater noises in the ocean have been well documented. Seismic
survey devices and military sonars (which operate at a similar decibel
level) have been implicated in numerous whale beaching and stranding
incidents, including a December 2001 mass stranding of 16 whales in the
Bahamas, an incident of Cuvier's beaked whales being beached and
stranded in the Galapagos Islands and a more recent stranding in the
Canary Islands.\1\
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\1\ NMFS, NOAA Fisheries Status Report: Preliminary Findings on the
Stranding of Beaked Whales in the Bahamas (June 14, 2000); NMFS, NOAA
Fisheries Status Report; NMFS, NOAA Fisheries Status Report on the One
Year Anniversary of the Stranding of Beaked Whales in the Bahamas (Mar.
26, 2001).
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The auditory organs of fish are particularly vulnerable to loud
sounds such as those produced by survey airguns. As fish rely on their
ability to hear to find mates, locate prey, avoid predators, and
communicate, damage to their ears can seriously compromise their
ability to survive.\2\ In addition, mortality is possible in species
like salmon that have swim bladders (the flotation organ that fish use
to orient themselves vertically in the water), which have been shown to
rupture on exposure to intense sounds.\3\
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\2\ McCauley, R.D., J. Fewtrell and A.N. Popper, 2003. ``High
intensity anthropogenic sound damages fish ears.'' J.Acoust.Coc.Am.
113, January 2003.
\3\ Id.
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``Dart Core'' Seabed sample extractions
``Dart core'' sampling, another survey technique, consists of
dropping large hollow metal tubes from ships to vertically puncture the
seafloor. The samples are retrieved and analyzed for information about
subsea rock structures. This technique is extremely destructive to
seafloor benthic organisms and fish habitat, discharging silt plumes
that are transported on ocean currents and smothering nearby life on
the seabed.
Seafloor ``Grab samples"
``Grab samples'' are retrieved from the seafloor sediments with
large hinged ``buckets'' dropped from the shipboard into the seafloor
to analyze silt, rocks, and seabed sediments and seafloor organisms.
These buckets damage benthic organisms at the seafloor and cause silt
plumes.
Directional Drilling
Directional drilling has been used to access oil and gas reserves
under our National Parks, the Great Lakes, and the Gulf of Mexico. In
the case of drilling off shore, the well head is on shore while the
bottom of the well may be thousands of feet offshore. In 1997, Governor
Engler of Michigan directed the Michigan Environmental Science Board to
study the impacts of directional drilling on environmental and human
activities. This study concluded impacts from directional drilling
could result in the contamination of groundwater aquifers and loss of
habitat while also increasing noise levels, odor, and congestion,
impacting recreation and tourism.\4\
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\4\ Long, D.T., W.E. Cooper, W.B. Harrison III, R.H. Olsen, B.J.
Premo and K.G. Harrison. 1997. Evaluation of Directional Drilling under
the Great Lakes, October 1997. Michigan Environmental Science Board,
Lansing, Michigan.
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Onshore damage: The onshore infrastructure associated with offshore
oil or gas causes significant harm to the coastal zone. For example,
OCS pipelines crossing coastal wetlands in the Gulf of Mexico are
estimated to have destroyed more coastal salt marsh than can be found
in the stretch of coastal land running from New Jersey through
Maine.\5\
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\5\ Boesch and Rabalais, eds., ``The Long-term Effects of Offshore
Oil and Gas Development An Assessment and a Research Strategy.'' A
Report to NOAA, National Marine Pollution Program Office at 13-11.
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Water pollution: Drilling muds are used to lubricate drill bits,
maintain downhole pressure, and serve other functions. Drill cuttings
are pieces of rock ground by the bit and brought up from the well along
with used mud. Massive amounts of waste muds and cuttings are generated
by drilling operations--an average of 180,000 gallons per well.\6\ Most
of this waste is dumped untreated into surrounding waters. Drilling
muds contain toxic metals, including mercury, lead and cadmium.
Significant concentrations of these metals have been observed around
drilling sites.\7\
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\6\ MMS, 2000. Gulf of Mexico OCS Oil and Gas Lease Sale 181, Draft
Environmental Impact Statement (DEIS), p. IV-50.
\7\ Id.
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A second major polluting discharge is ``produced water,'' the water
brought up from a well along with oil and gas. Offshore operations
generate large amounts of produced water. The Minerals Management
Service estimates that each platform discharges hundreds of thousands
of gallons of produced water every day.\8\ Produced water typically
contains a variety of toxic pollutants, including benzene, arsenic,
lead, naphthalene, zinc and toluene, and can contain varying amounts of
radioactive pollutants. All major field research programs investigating
the fate and effects of produced water discharges have detected
petroleum hydrocarbons, toxic metals and radium in the water column
down-current from the discharge.\9\
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\8\ Id., p. IV-32.
\9\ Id., pp. IV-32-33.
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Air pollution: Drilling an average exploration well for oil or gas
generates some 50 tons of nitrogen oxides (NOX), 13 tons of
carbon monoxide, 6 tons of sulfur dioxide, and 5 tons of volatile
organic hydrocarbons. Each OCS platform generates more than 50 tons per
year of NOX, 11 tons of carbon monoxide, 8 tons of sulfur
dioxide and 38 tons of volatile organic hydrocarbons every year.\10\
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\10\ Id., p. IV-40.
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Global Warming pollution: Methane hydrates are ice-like structures
formed from frozen water and methane. These structures are found in
Arctic permafrost and beneath the seafloor of the Outer Continental
Shelf where water depths are greater than 500 feet. The Congressional
Research Service reports that ``safety problems related to gas hydrates
may be anticipated. Oil and gas operators have recorded numerous
drilling and production problems attributed to the presence of gas
hydrates, including uncontrolled gas releases during drilling, collapse
of well casings, and gas leakage to the surface.'' The report continues
that methane hydrates easily become unstable, potentially triggering
seafloor subsidence and catastrophic landslides. In addition, a single
unit of methane hydrate can release 160 times its own volume in
gas.\11\ As methane is a greenhouse gas more than twenty times more
potent than carbon dioxide in contributing to global warming, this
volume of gas release would be extremely dangerous.
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\11\ Congressional Research Service, Report RS20050, ``Methane
Hydrates: Energy Prospect or Natural Hazard?'' James E. Mielke.
February 14, 2000.
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Oil spills: If offshore areas are leased for gas exploration there
is always the possibility that oil also will be found. There is no
known example of a case where a lease prohibits an oil company from
developing oil if oil is found in a ``gas prone'' region. There is no
documented instance of any company ever agreeing to such a condition in
the history of the OCS leasing program. Without such a restriction
included in a lease there would be no assurances that oil would not in
fact be developed, raising the possibility of an oil spill. According
to statistics compiled by the Department of the Interior, there were
some 3 million gallons of oil spilled from OCS oil and gas operations
in 73 incidents between 1980 and 1999.\12\ Oil is extremely toxic to a
wide variety of marine species, and as noted by a recent National
Academy of Sciences study, current cleanup methods are incapable of
removing more than a small fraction of the oil spilled in marine
waters.
---------------------------------------------------------------------------
\12\ MMS, 2000. Gulf of Mexico OCS Oil and Gas Lease Sale 181,
Draft Environmental Impact Statement (DEIS), p. IV-50.
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It is important to note that, with the exception of oil spills, the
environmental damages described above result from drilling or exploring
for either oil or natural gas, so any suggestion that restricting
leases to natural gas drilling only will not adequately reduce risk of
environmental impacts.
SCIENCE SHOULD GUIDE FUTURE CONGRESSIONAL DECISIONS ABOUT COASTAL
DRILLING
The prestigious nonpartisan National Research Council (NRC) of the
National Academy of Sciences (NAS) issued a peer-reviewed finding in
1991, after a year-long study conducted by this body at the request of
former president George Herbert Walker Bush, Sr. The NAS found that
there is insufficient scientific data available to permit leasing in
the moratorium areas and ensure that the environment can be protected.
The Minerals Management Service (MMS) Environmental Studies Program has
done virtually no new work to fill these identified data gaps found
within the OCS moratorium areas since the NAS study, in spite of the
fact that the Congressional moratorium does not preclude this type of
scientific research by the MMS Environmental Studies Program. Current
concerns about the cumulative impacts of ongoing routine marine
discharges of spent drilling muds, cuttings, and produced waters were
highlighted by the recent late-2004 report of the President's own US
Commission on Ocean Policy as a primary priority topic needing serious
scientific evaluation.
DRILLING IN THE OCS COULD HAVE DAMAGING EFFECTS ON LOCAL ECONOMIES
The industrial character of offshore oil and gas development is
often at odds with the existing economic base. of the affected coastal
communities, many of which rely on tourism, coastal recreation and
fishing. In Dare Country, NC, the Outer Banks Visitors Bureau has been
fighting efforts to lift the ban on coastal drilling precisely because
it realizes what a crushing effect coastal drilling could have on the
Outer Banks' tourist economy. Carolyn McCormick, managing director of
the Visitors' Bureau, was quoted in the Virginian Pilot last month
saying, ``If there's one spill or one disaster, you could destroy us
for a very long time.''\13\ In Virginia Beach, the Hotel-Motel
Association has supported the mayor's request to veto the recent bill
to lift the drilling moratorium.
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\13\ The Virginian-Pilot, Norfolk, VA. Friday, March 25, 2005.
``Offshore Drilling Issue Pits Energy against Tourism.'' Page A1
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In addition to potentially catastrophic effects on the tourism
industry, drilling for gas and oil off our coasts could have
significant negative impacts on commercial fishing. In a Norwegian
study conducted in the central Berents Sea, seismic shooting severely
affected fish distribution, local abundance, and catch rates over a
large geographic area. In this study, catch of cod and haddock fell
precipitously within a 38-nautical-mile by 38-nautical-mile area, and
remained depressed for at least five days following the conclusion of
seismic survey activities.\14\
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\14\ ``Engas, Arill, Svein Lokkeborg, Egil Ona, and A.V. Soldal.
Institute of Marine Research, 1996. Effects of Seismic Shooting on
Local Abundance and Catch Rates of Cod (Gadus morhua) and Haddock
(Melanogrammus aeglefinus). Can. J. Fish. Aquat. Sci. 53: 2238-2249.
---------------------------------------------------------------------------
In addition, the Canadian T. Buck Suzuki Environmental Foundation
and the United Fishermen and Allied Workers Union--CAW recently weighed
in on the Canadian Statement of Practice on the Mitigation of Seismic
noise, citing their concern for the B.C. marine-based industries, which
employ over 20,000 and contribute over $2 billion in revenues and
$600,000 in total GDP. These groups point to mortalities in fish eggs,
fish and shellfish larvae, and adult fish with swim bladders; trawl
catch declines from 50 to 70% and longline catch declines by 44% for 5
days after cessation of seismic shooting; and the particular concern
about seismic activity during salmon migration or herring spawning.
Salmon are of particular concern because of the endangered status of
some populations off the Atlantic and Pacific coasts, and because of
their apparent inability to detect and avoid low-frequency sound until
damaging levels are reached.
PLENTY OF NATURAL GAS IS ALREADY AVAILABLE FOR LEASE AND PERMITTING
The majority of federal oil and gas resources are already available
for development. According to the 2003 Energy Policy and Conservation
Act (EPCA) report issued by the Department of the Interior, 85% of
federal onshore oil resources and 88% of federal onshore natural gas
resources (122.6 trillion cubic feet, or tcf) occurring on federal
lands in Montana, Colorado, New Mexico, Utah and Wyoming are already
available for leasing and development. Only 12% of federal onshore
natural gas resources are off-limits to leasing.\15\ Eighty percent of
the nation's undiscovered, economically recoverable Outer Continental
Shelf (OCS) gas is located in the Central and Western Gulf of Mexico,
which is not subject to the moratorium.\16\ Thus, a permanent
protection for the coastal moratorium areas will leave the vast
majority of the nation's OCS gas available to the industry.
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\15\ BLM, ``EPCA Inventory Fact Sheet,'' 1/15/03, p. 3
\16\ U.S. Department of the Interior, Minerals Management Service
(MMS), 2000. Outer Continental Shelf Petroleum Assessment, 2000, page 5
and Gulf of Mexico Assessment Update.
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In addition to availability for leasing, Bureau of Land Management
(BLM) data indicates that the vast majority of federal lands currently
under lease are not being developed. Of the more than 35,000,000 acres
of public lands under lease, development is occurring or has occurred
on approximately 12,000,000 acres.\17\ Drilling permit approvals on
Western public lands by the BLM increased by 62 percent in 2004, to a
record number of 6,052, while the number of new wells that were drilled
declined by nearly 10 percent, to 2,702.\18\
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\17\ BLM, ``Total Number of Acres Leased'' (unpublished table,
January 31, 2005) and BLM, ``Number of Producible Acres on Federal
Lands'' (unpublished table, January 31, 2005)
\18\ BLM, ``Number of APDs approved by Year on Federal Lands''
(unpublished table, January 31, 2005) and BLM, ``Number of Well Spud
During the Year on Federal Lands'' (unpublished table, January 31,
2005)
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Based on this data, it is clear that the vast majority of federal
oil and gas resources occurring on federal lands in the Rockies are
available for development. In addition, most of the leased lands are
not in development, and the BLM has issued thousands more drilling
permits than the industry is actually able to drill. The oil and gas
industry clearly has plenty of access to our public lands already;
there is no reason to grant access to additional areas currently under
moratorium for additional leasing.
THERE ARE SMARTER, CHEAPER, AND FASTER SOLUTIONS FOR RISING GASOLINE
AND NATURAL GAS PRICES
The United States has about 5% of the world's population but
consumes about 25% of the world's energy. There is no way we can drill
our way to energy independence. We must decrease our energy dependence
by other means. Instead of opening up more of our lands to exploration
and drilling, the Sierra Club proposes that we invest more time and
money into clean energy solutions. A recent study by the Union of
Concerned Scientists found that by getting 20% of our energy from clean
sources like wind and solar by 2020 we can reduce natural gas
consumption by 6% by year 2020. This step would save 20.6 Tcf
cumulatively, more than all the natural gas off the Pacific Coast.\19\
According to an April 2005 study by the American Council. for and
Energy Efficient Economy, if we use technology available today to make
our homes, buildings, and industry more energy efficient, we can save
up to 12.6% of the natural gas they project we would be using by
2020.\20\ Studies have indicated that implementing these programs would
create thousands of new jobs and save consumers hundreds of dollars a
year in energy bills every year.\21\ Promoting renewable energy and
efficiency would also encourage innovation and new technology, reduce
pollution, and decrease our reliance on foreign sources of energy.
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\19\ Union of Concerned Scientists. Fact Sheet: ``Renewable Energy
Can Help Ease Natural Gas Crunch"
\20\ Nadel, Steven. ``A Choice of Two Paths: Energy Savings from
Pending Federal Energy Legislation.'' April 2005. American Council for
an Energy Efficient Economy
\21\ World Wildlife Fund: ``Clean Energy: Jobs for America's
Future'' October, 2001 and Redefining Progress: ``Smarter, Cleaner,
Strong: Secure Jobs, A Clean Environment, And Less Foreign Oil''
October 2004
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THE PUBLIC SUPPORTS THE BAN ON DRILLING OFF OUR COASTS
Concerns over environmental consequences of offshore oil and gas
development have led Congress to impose restrictions on OCS activities
in sensitive areas off the nation's coasts every year since 1981. These
moratoria now protect the east and west coasts of the U.S. and most of
the Eastern Gulf of Mexico. The moratoria reflect a clearly established
consensus on the appropriateness of OCS activities in most areas of the
country, and have been endorsed by an array of elected officials from
all levels of government and diverse political persuasions, including
former Presidents George H.W. Bush and Clinton and the current
President Bush.
CONCLUSION
Right now we are at a crossroads in terms of how we produce energy
for our country. There are those who believe we should open up most
remaining wild and special places to drill for oil and natural gas. We
are seeing efforts to open the Arctic National Wildlife Refuge, record
applications for permits to drill for oil and gas in the West, and
proposals to open our shorelines to oil and gas drilling. This adds up
to an approach where few places, no matter how special, are off limits
to oil and gas drilling. My strong belief is that there are places that
are too special to drill, and some of those areas are along our coasts
and beaches. We can choose to set aside invaluable places to preserve
for our children, or we can choose to open the majority of our country
for oil and gas development. I believe we need to make the choice now
for a future where our beaches and offshore waters are free of oil and
gas drilling. There are appropriate places to drill and inappropriate
places to drill. Our beaches deserve our protection as places that are
inappropriate to drill. There are smarter and better choices we can and
need to be making.
Thank you for the opportunity to testify to the perspective of the
Sierra Club.
The Chairman. Let us now proceed to with Mr. Angelle.
STATEMENT OF SCOTT A. ANGELLE, SECRETARY,
LOUISIANA DEPARTMENT OF NATURAL RESOURCES
Mr. Angelle. Mr. Chairman, Mr. Ranking Member,
distinguished----
The Chairman. Help me out. Say your last name.
Mr. Angelle. Sure. Angelle.
The Chairman. Thank you.
Mr. Angelle. Mr. Chairman, Mr. Ranking Member, and
distinguished members of the Senate Energy and Natural
Resources Committee, I would like to thank you for the
invitation to come here before you. I congratulate all of you
on providing the leadership style on America's energy issues.
And on behalf of the great State of Louisiana, a special thanks
to Senator Landrieu.
I hope that my comments will aid you in making the
important decisions that you are considering in this Congress
to shape the future our Nation's energy supply. It is
imperative that we, as a Nation, stop reacting to energy
situations imposed on us by outside forces, and instead
proactively start shaping our own energy future.
One of the ways to do that is to develop the full potential
of the Nation's offshore energy resources and to assist those
States that make that production possible off their coasts by
sharing some of the offshore revenues. This would encourage
those States to pursue more development. And it would help
offset infrastructure costs those States incur that is
associated with that development.
Louisiana has a long and distinguished history of oil and
gas production, providing much of America's energy supply.
Currently, 34 percent of the Nation's natural gas supply and
almost 30 percent of the Nation's crude oil supply is either
produced offshore in Louisiana or moves through the State and
its coastal wetlands. Together with the infrastructure in the
rest of the State, this production is connected to nearly one
half of the total refining capacity in the United States.
It is our State's desire to not only continue this
production, but to seek additional ways to increase it and to
continue to ensure that this supply is provided to the rest of
the Nation. You see, we in Louisiana understand just how vital
these energy resources are to the Nation's economy. At the same
time, Louisiana can look at experience and footnote that
offshore development and associated onshore infrastructure
construction and operations can be done in an environmentally
responsible way today.
Louisiana, like other coastal producing States sustains
impacts on coastal communities and bears the cost of onshore
infrastructure to support this production activity. In my
State, pipelines, canals, and other infrastructure features
exacerbate the loss of more than 24 square miles of our coastal
land each year, believed to be the fastest rate of land loss
anywhere on the planet.
In fact, Mr. Chairman, you have heard me say before that if
what is happening today in coastal Louisiana were happening in
our Nation's capital, the Potomac River would be washing away
the steps of this building today, the White House next year,
and the Pentagon soon thereafter. During the course of this
morning alone, Louisiana will lose a football-field-wide area
from the Capitol Building to the Washington Monument.
When States like yours, Mr. Chairman, force drilling on
Federal lands onshore, they receive 50 percent of those
revenues in direct payments and consequently have the financial
resources to support that infrastructure. In fiscal year 2004,
Wyoming and New Mexico together received about $928 million
from those revenues, which we believe it is an appropriate
revenue-sharing procedure.
In contrast, for example in 2001, of the $7.5 billion in
revenues generated in the Federal Outer Continental Shelf area,
only a fraction of 1 percent came back to those States. This
inequity is truly profound.
Does it not make sense to encourage the coastal producing
States which provide that revenue for the benefit of the rest
of the Nation, does it not make sense that when so many, like
the U.S. Ocean Commission, are targeting offshore OCS revenues
to pay for worthwhile preservation of natural resources, that
this Nation first protect those who make these resources
possible?
While we are all interested in new sources of energy, might
I suggest that we make sure to protect our current sources? In
this case, a bird in the hand is better than two in the bush.
Stepping up to the plate to help the Nation obtain new
supplies of energy including LNG, Louisiana is home of one of
the four country's existing LNG import terminals built some 20-
plus years ago. And when high energy prices and Alan
Greenspan's comments caused an increase in the siting of LNG
facilities, Louisiana answered the call for America once again.
The world's newest LNG permitted facility, which is also now
the continent's largest permitted facility, accomplished in a
record-setting permit application time of 364 days, is in
Louisiana, all because the Federal Energy Regulatory Commission
and the State of Louisiana did it right.
But again, our Governor has said time and time again: While
we remain open to LNG activity, we will not forsake protecting
our land, air, water, and public safety. We just seem to
understand perhaps more than other States our need to help
America in these critical times. But it also is important to
understand that there is no free lunch. And we are now in here
to get help to save coastal Louisiana.
To help bring the point of infrastructure vulnerability, we
need only look at this past summer and the effects of Hurricane
Ivan. While the storm made landfall some two States away, much
of the damage occurred along pipeline routes. It made a
significant impact on oil and gas production. I shudder to
think of the environmental damage and economic impacts to this
Nation had Ivan gone a relatively few miles further west with a
direct hit on the infrastructure off Louisiana's shore.
According to analysts, oil prices would realistically be at
$75 a barrel. In fact, some of our production in Louisiana is
still shut-in from the effects of that storm some 7 months
after making landfall.
In conclusion, it is vital to the Nation's security and
prosperity that new energy sources be developed. The Federal
Government has proven that it has the ability to steer
investment, as in the case of deep water drilling in the Gulf
and coal seam gas.
Section 29 of the Internal Revenue Service Code granted tax
relief, a tax credit for the production of natural gas from
unconventional resources. The effect of the application for
coal bed methane gas production was astounding. The section 29
credits need to be instituted for State borders and onshore
areas, at least in those States allowing Federal offshore
production.
The Chairman. We are just about to run out of time. I want
to tell you, hold you to your agreement to come back and holds
us to ours. We will be here at 2 o'clock. We will take your
testimony and ask some questions. You use your own judgment.
We may or may not have questions, but if you want to be
there in case we do--thank you. We will recess temporarily.
[Recess.]
Senator Landrieu [presiding]. We will go ahead and, at the
chairman's instructions, proceed to continue the hearing. I
know that Senator Domenici is on his way. And I am trusting
that some of the other members will be joining us shortly.
But I thank you all for your patience and for being
flexible because of the schedule and the votes that occurred
right before we were going to break for lunch.
But I think, Mr. Angelle, you were in the middle of
wonderful, inspiring, and encouraging testimony. So would you
continue? And then we will hear from Senator Frank Wagner and
also our noble Energy Director.
Mr. Angelle. Thank you, Senator.
I would just wrap up very briefly by saying: With effective
policies and incentives, the Federal Government can steer
investment into the offshore areas. And by receiving an
equitable share of revenue generated offshore, the coastal-
producing States can be in a position to ensure that this
production will be made available to the rest of the Nation.
As the granddaddy of all producing States, Louisiana
desperately needs immediate revenue-sharing financial
assistance from a source that is not subject to annual
appropriations, to continue to maintain existing and to develop
future energy supplies for the nation. It would be a travesty
for the Congress to enact national energy legislation without
substantial OCS revenue sharing in the form of direct payments
to the coastal-producing States from the revenue derived from
offshore productions similar to the automatic payments for
drilling on Federal lands onshore and before any other
disbursal of those moneys.
Thank you.
Senator Landrieu. Thank you, Mr. Angelle.
[The prepared statement of Mr. Angelle follows:]
Prepared Statement of Scott A. Angelle, Secretary,
Louisiana Department of Natural Resources
Mr. Chairman, Mr. Ranking Member, and distinguished members of
Senate Energy and Natural Resources Committee, I would like to thank
you for your invitation to come before your Committee today. I hope
that my comments will aid you in making the important decisions that
you are considering in this Congress to shape the future of our
nation's energy supply. It is imperative that we, as a nation, stop
reacting to energy situations imposed on us by outside forces, and
instead, proactively start shaping our energy future. One of the ways
to do that is to develop the full potential of the nation's offshore
energy resources and to assist those states that make that production
possible off their coasts. This can be accomplished by sharing with
those coastal producing states some of the offshore revenues generated
off their coasts. This would encourage those states to pursue more
development, and it would help offset infrastructure costs those states
incur that is associated with that development.
LOUISIANA'S ROLE AS A PRODUCING AND CONSUMING STATE
Energy is the lifeblood of an industrialized nation and a key
economic driver for the country. A reliable and affordable supply of
energy is necessary for economic development, prosperity, and
expansion. Although technological improvements and investments in
energy efficiency have reduced this country's energy consumption per
unit of Gross Domestic Product over the past 20 years, increased
economic prosperity is still dependent on increased energy consumption.
In the U.S., the availability of energy has generally been taken for
granted, but recent blackouts in California and other parts of the
country, the emergence of 50 plus dollar per barrel oil and $7 to $8
per million BTU natural gas, and the drive to build terminals to import
foreign natural gas in the form of a cryogenic liquid, have highlighted
the need for addressing energy supply.
I come to you representing a state to which energy is its middle
name. The words Louisiana and energy are almost synonymous. Among the
50 states, Louisiana ranks (2003 Energy Information Administration--EIA
data):
1st in crude oil production
2nd in natural gas production
2nd in total energy production from all sources
The importance of energy to Louisiana is further highlighted in the
following rankings in which Louisiana is (2002 EIA data latest
available):
2nd in petroleum refining capacity
2nd in primary petrochemical production
3rd in industrial energy consumption
3rd in natural gas consumption
5th in petroleum consumption
7th in total energy consumption
but, only 22nd in residential energy consumption
Usually, when national energy issues are discussed, Louisiana is
cast in the image of a rich producing state floating in a sea of oil
and gas that is being inequitably shared with the consuming states.
Often misunderstood or overlooked, is the fact that about two thirds of
the production from the state is in the Louisiana federal OCS territory
and, hence, produces no revenue for the state, while at the same time
incurring significant infrastructure support costs to the state, which
I will discuss in more detail later.
Also often overlooked or not explained, is the fact that, though
Louisiana is the 2nd highest energy producing state in the nation,
Louisiana is also 7th highest in total energy consumption. Therefore,
Louisiana is more of a consuming state than 43 other states! This story
is never told, nor are Louisiana's difficulties as a key consuming
state given much concern at the federal energy policy level. Thus, when
Louisiana, the energy producing state speaks, it is also Louisiana, the
energy consuming state speaking. Louisiana is inexorably tied into the
issues of all states in the nation, whether considered producing states
or consuming states. However goes the energy situation in Louisiana, so
goes the energy situation in the United States of America.
SUPPLYING THE NATION: LOUISIANA--AMERICA'S ENERGY CORRIDOR
Louisiana has a long and distinguished history of oil and gas
production, providing much of America's energy supply. Currently,
nearly 34% of the nation's natural gas supply and almost 30% of the
nation's crude oil supply is either produced in Louisiana, produced
offshore of Louisiana, or moves through the state and its coastal
wetlands. Together with the infrastructure in the rest of the state,
this production is connected to nearly 50% of the total refining
capacity in the United States.
When it comes to developing the nation's offshore energy resources,
there would not be much if it were not for Louisiana's leadership and
participation. The OCS territory offshore Louisiana is the most
extensively developed and matured OCS territory in the world. According
to preliminary 2004 data, the Louisiana OCS presently produces
approximately 91% of oil and 75% of natural gas production in the OCS.
Louisiana OCS territory has produced 88.7% of the 15.5 billion barrels
of crude oil and condensate and 83.2% of the 154 trillion cubic feet of
natural gas ever extracted from all federal OCS territories from the
beginning of time through the end of 2004.
Stepping up to the plate to help the nation obtain new supplies of
energy including liquefied natural gas (LNG), Louisiana is the home of
the largest throughput facility (Southern Union in Lake Charles) of the
four existing LNG import terminals in the U.S., and it is undergoing
more than a doubling of capacity from 1 billion cubic feet per day to
2.5 billion cubic feet per day. While almost every state in the nation
is trying to prevent the siting of any new LNG facilities, Louisiana is
the site of the newest permitted LNG terminal (Shell's 1 billion cubic
feet per day Gulf Landing facility offshore Louisiana) and of the
largest permitted LNG import terminal in the nation (Cheniere Energy's
2.6 billion cubic feet per day facility in Sabine Parish).
The vehement opposition to LNG facilities almost everywhere but in
Louisiana and Texas is causing developers to get creative. Such is the
case with the offshore Energy Bridge LNG gasification terminal promoted
by El Paso Energy and sold to private interests. It is simply a seabuoy
attached to a pipeline header to shore. The gasification facility
equipment is all located onboard specially constructed LNG tankers
using an open seawater system as the heat source for regasification of
the LNG. Three such tankers are on order. The first is already
operational and has just made its first delivery to the U.S. Although
this onboard ship system avoids much of the controversy of siting a
permanent LNG terminal, it also liberates the ship from having to
unload its cargo at an expensive fixed terminal, enabling it to easily
deliver its cargo of LNG to any place in the world that it can merely
hook up into a receiving pipeline. This lack of a physical dependence
on a limited number of expensive receiving terminals is good for the
supplier, but not necessarily for the purchaser, who in the future
could be outbid by another purchaser virtually anywhere in the world,
which might just not be a seabuoy in the U.S.
Louisiana is also the home LOOP (Louisiana Offshore Oil Port), the
only deepwater offshore oil import terminal in the world.
All of this represents only the direct supply line of oil and
natural gas. Additionally, Louisiana's 7th highest ranking among the
states in energy consumption is attributable to the fact that Louisiana
is consuming most of this energy as a through-processor of energy
supplies for the rest of the nation, consuming colossal amounts of
energy for their benefit. An example of how Louisiana is consuming
energy resources for the primary benefit of other states is petroleum
refining. The energy equivalent of 10% of Louisiana's entire petroleum
product consumption is required just to fuel the processes that refine
crude oil into gasoline, diesel fuel, jet fuel, heating oil and other
products consumed out of state. The oil refining industry employs only
about 10,400 workers in the state; whereas tens of millions of jobs
throughout the country are dependent on the affordability and
availability of the products from the continued operation of these
refineries and associated petrochemical facilities in Louisiana.
Many other examples could be cited of the numerous energy intensive
natural gas and oil derived chemical products Louisiana (and also
Texas, Oklahoma, and California) through-processes for the rest of the
U.S. Per unit of output, these industrial processes in Louisiana are
characterized as capital (equipment), energy, raw material, and
pollution discharge intensive, and low in labor requirements and dollar
value added, essentially the opposite of the downstream industries in
other states that upgrade these chemicals into ultimate end products.
Much of the energy Louisiana technically consumes is really the
transformation of oil and gas into primary chemical building blocks
that are shipped to other states where the final products are made,
whether it be plastic toys, pharmaceuticals, automobile dash boards,
bumpers and upholstery, electronic components and cabinets, synthetic
fibers, or thousands of other products dependent on this flow of energy
and high energy content materials out of Louisiana.
Governor Blanco has asked me to convey to you today the State's
desire to not only continue this production, but to seek additional
ways to increase it and to continue to insure that this supply is
provided to the rest of the nation and to ask for your help in doing
so. You see, we in Louisiana understand just how vital these energy
resources are to the nation's economy.
OCS INFRASTRUCTURE AND ITS IMPACTS AND NEEDS
It is important to understand that there is no free lunch.
Louisiana, like other coastal producing states, sustains impacts on
coastal communities and bears the costs of onshore infrastructure
required to support this production activity. In Louisiana, pipelines,
canals, and other infrastructure features contribute to the loss of
more than 24 square miles of our coastal land each year. In fact, and
Mr. Chairman, you have heard me say before, that if what is happening
today in coastal Louisiana were happening in our nation's capital, the
Potomac River would be washing away the steps of this building today,
the White House next year, and the Pentagon soon after that. In fact,
during the course of this morning alone, Louisiana will lose a football
field wide area from the Capitol Building to the Washington Monument.
There are many causes of this coastal erosion in Louisiana,
including what may be the most significant factor: building levees and
channeling the Mississippi River. Whatever the cause of its demise, the
health and restoration of Louisiana's coastal wetlands are vital to
protecting the offshore and onshore infrastructure that is essential
for the continuation, as well as the expansion, of offshore energy
production in the Gulf of Mexico.
Obsolete Practices of the Past Cause Louisiana's Problems Today
This raises one issue I would like to address. If offshore
exploration and production causes or adds to coastal erosion and other
environmental harm, why would any state want to support it? Simply
stated, Louisiana's environmental damage issues pertaining to petroleum
drilling and production are primarily related to two issues:
(1) Forces of nature that have nothing to do with the petroleum
industry, but which threaten its existence, and
(2) Impacts from legacies of obsolete practices of the past
continuing to cause problems in Louisiana's ultra-fragile mostly marsh
coastline.
Louisiana's first well was drilled in 1868. The first oil well over
water in the world was in Louisiana in 1910 in Caddo Lake. The first
well drilled offshore Louisiana was in 1933 near Creole, Louisiana.
Louisiana was the site of the first well drilled out of sight of land
in 1947.
Things have changed dramatically since 1910, 1933, 1947, or even
1960, 1970, or 1980. Offshore drilling was pioneered in Louisiana, long
before modem sensitivity to the environment, advanced technology and
environmental regulations. Simply put, it was like the old Wild West
out there. Once, hardly anybody gave a second thought to the oil
companies slicing and dicing the coastline to build canals and
pipelines or to discharging produced water and drilling fluids
overboard; it was all considered a sign of progress.
Everything is different now. That world and those practices have
nothing more in common with modem exploration and production techniques
than Conestoga wagons crossing the Oregon Trail in the 1800's have in
common with jet airliners flying overhead today. Offshore development
and the associated onshore infrastructure construction and operation
are done in an environmentally responsible way today and under the
oversight of several State and federal regulatory agencies.
Once the State realized magnitude of the coastal erosion problem,
we got serious about doing something about it. In 1980, the coastal
restoration permitting program was moved to the Department of Natural
Resources (DNR). In 1981, $40 million of state oil and gas revenue was
set aside in a legislative trust fund for coastal restoration projects.
The State has a dedicated revenue stream of up to $25 million per year,
depending on the level of revenue collections from oil and gas
production within the state, to replenish the fund. In the past few
years, that replenishment stream has been at the $25 million level. In
1989, the Office of Coastal Restoration and Management was created in
DNR, and the magnitude of the program was greatly expanded.
Extent of Louisiana Infrastructure Supporting OCS Production
The total value of the Louisiana OCS infrastructure and the onshore
infrastructure supporting it is difficult to ascertain. The estimated
depreciated investment in offshore production facilities is over $85
billion, depreciated offshore pipeline infrastructure is over $10
billion, and public coastal port facilities is $2 billion, for a total
of approximately $100 billion, depreciated, and not counting highways,
sewer, water, fire and police protection, schools, and other public
works structures that also have ongoing operation and maintenance
costs. The replacement of all of this would be several times the $100
depreciated figure. It also does not count the onshore coastal
infrastructure of pipelines, storage facilities, pumping stations,
processing facilities, etc.
This infrastructure is vulnerable if not protected by the State's
barrier islands and marshes. As these erode and disappear,
infrastructure is exposed to the open sea and all of its fury. As the
coast recedes, near shore facilities become further offshore and
subject to greater forces of nature, including subsidence, currents,
and mudslides. Erosion in the coastal zone is already beginning to
expose pipelines that were once buried.
A Wake-up Call from Hurricane Ivan
To bring home the point of infrastructure vulnerability, we need
only look back to this past Summer. Hurricane Ivan was not even a
direct hit on Louisiana's offshore and coastal oil and gas
infrastructure, striking two states away; yet, its effects on the
nation's supply of oil and gas were significant, even many months after
it hit. Most of the damage occurred along pipeline routes rather than
actual structural damage to the producing platforms. As of February 14,
2005, when the Minerals Management Service (MMS) released its final
impact report on Ivan, 7.42% of daily oil production and 1.19% of daily
gas production in the Gulf of Mexico was still shut-in. The cumulative
shut-in production through February 14 was 43.8 million barrels or
7.25% of annual Gulf of Mexico OCS production and 172.3 billion cubic
feet of natural gas or 3.9% of annual Gulf of Mexico OCS gas
production.
As more of the protection from Louisiana's barrier islands and
coastal wetlands wash away, increasingly more of this offshore
production will be damaged or destroyed by even less powerful storms
than Ivan, and particularly by storms whose paths more directly pass
through the producing areas off of Louisiana's coast. Direct hits to
the prime production area by hurricanes and tropical storms will cause
incalculable damage to this production infrastructure, as well as to
the onshore support infrastructure.
HOW TO INCREASE OFFSHORE ENERGY PRODUCTION
Share Offshore Revenue with the States that Allow Offshore Production
When states like yours, Mr. Chairman, host drilling on Federal
lands onshore, they receive 50% of those revenues in direct payments,
and consequently have the financial resources to support that
infrastructure. In Fiscal Year 2004, Wyoming and New Mexico together
received about $928 million from those revenues, which is an
appropriate revenue sharing procedure.
In contrast, for example in 2001, of the $7.5 billion in revenues
produced in the federal outer continental shelf area, only a fraction
of one percent came back to those states. The inequity is truly
profound.
We are pleased this committee is investigating ways to increase
offshore energy supply. The need to sustain the existing supply that
Louisiana provides must simultaneously be addressed. The most effective
answer to both issues is share offshore revenues with the coastal
producing states that make that production possible. It is critical
that coastal producing states receive a fair share of revenues to build
and maintain onshore infrastructure and, in Louisiana's case, to help
stem our dramatic land loss, which is occurring at a rate believed to
be the fastest on the planet.
Production off Louisiana's shores alone contributes an average of
$5 billion a year to the Federal treasury, its second largest source of
revenue.
Does it not make sense to encourage the coastal producing states
which provide that revenue for the benefit of the rest of the nation?
Does it not make sense, that when so many, like the U.S. Ocean
Commission, are targeting offshore OCS revenues to pay for worthwhile
preservation of natural resources, that this nation first protect those
who make these resources possible?
Already, in Louisiana's coastal zone, many of the pipelines and
other infrastructure that our wetlands have historically protected are
now exposed to open Gulf of Mexico conditions.
I shudder to think of the environmental damage and the economic
impacts to this nation, had Ivan gone a relatively few miles further
west with a direct hit on the infrastructure off Louisiana's shore.
According to analysts, oil prices would realistically have hit $75
dollars a barrel.
Maintaining any ongoing operation requires reinvestment to
maintain, repair, and replace worn out or outdated equipment and
facilities. As any farmer can tell you, you cannot just take from the
land forever without putting something back into the operation. Out of
the harvest of crops, the farmer has to set aside a portion as seed to
plant for the next harvest. He has to fertilize the land to replace
depleted nutrients, plow and till the soil, rotate crops, control
runoff and erosion, irrigate, apply pesticides and herbicides, buy and
repair machinery. Likewise, to maintain, much less increase, production
from off our coasts, we must reinvest in the infrastructure that makes
all of the activity possible, whether it be port facilities, roads to
transport equipment and supplies, erosion control, or barrier island
and wetlands storm protection.
Extend Section 29 Tax Credits to Deep and Ultra-Deep Production in
States Allowing Offshore Production
Section 29 of the Internal Revenue Service (IRS) Code granted a tax
credit for the production of natural gas from unconventional resources
(coal bed methane and tight sands gas). The effect of the application
to coal bed methane gas production was astounding in those areas of the
country that have significant deposits of this kind, which is not along
the Gulf Coast. Natural gas reserves from coal bed methane rose from
6.3% of U. S. reserves at the end of 1993 to 9.9% at the end of 2003.
Annual natural gas production from coal bed methane rose from 4.2% of
U. S. dry gas production in 1993 to 8.2% by the end of 2003.
Deep natural gas reserves (15,000-24,999 feet sub-surface) and
ultra-deep gas reserves (greater than 25,000 feet sub-surface) are the
next most immediate resources for meeting the supply and deliverability
needs of the U. S. market. These resources should be granted the same
tax credit as was granted to coal bed methane producers. The resulting
stimulus to production should be at least equal to the coal bed methane
results, and would very likely far exceed it in time as capital is
brought to bear on this drilling domain. The MMS has recently
instituted significant deep shelf royalty incentives for the shallow
federal waters of the Gulf of Mexico shelf. This does no good for the
adjacent state waters and onshore areas. The Section 29 credits need to
be instituted for state waters and onshore areas, at least in those
states allowing federal offshore production.
Encourage New Energy Sources and Technology
Recent studies show that the Gulf of Mexico has a significant wind
energy potential. Although wind power does not have the energy density
of petroleum, it is an inexhaustible, renewable source of clean energy.
Again, much to my consternation, it appears that there are many parts
of the country that use a lot of energy and want it low prices, but do
not want the production of any kind, anywhere near them, including wind
energy. Again, Louisiana is stepping up to help encourage this clean
energy source. The State of Louisiana is currently working with private
sector investors who are interested in developing wind farms in state
and federal waters off Louisiana's coasts. My office is submitting wind
power legislation before the Louisiana Legislature in the session
starting later this month, to facilitate offshore wind power
development in Louisiana's State offshore waters.
Natural gas hydrates probably offer the greatest untapped energy
resource the nation has. The Oil and Gas Journal recently reported that
the U.S. Geological Survey estimates that methane hydrate deposits are
greater than all other forms of fossil fuels combined. Large deposits
of gas hydrates are believed to lie below the offshore waters of the
U.S. Unfortunately, technology to tap these resources needs to be
developed. Once the technology is available, the first areas to be
developed will be the areas adjacent to the existing offshore producing
areas where the infrastructure is in place to get it to shore and into
the nation's pipeline distribution system. The federal government needs
to fund meaningful research into developing the technology to produce
gas hydrates, assessing the resource base, and producing it.
IN CONCLUSION
It is vital to the nation's security and prosperity that new energy
sources be developed. The federal government has proven that it has the
ability to steer investment, as in the case of deep water drilling in
the Gulf and coal seam gas. In addition to its significance in
producing 30% of oil and 23% of natural gas produced domestically,
which is mostly off Louisiana, the OCS is probably the single most
promising area for the U.S. to obtain significant new energy supplies.
These supplies, whether conventional oil and gas, imported oil,
imported LNG, wind and ocean energy, or gas hydrates, need the support
of coastal states to cooperate and to supply and maintain critical
production and support infrastructure.
LNG facilities are being built where the existing U.S. pipeline
infrastructure exists (essentially Louisiana and Texas) in order to get
the gas from the coast into the delivery system to supply the nation.
The same will be true when the technology is developed to commercialize
methane hydrate production off the coasts. This Louisiana and Texas
infrastructure will also be used when deep and ultra-deep shelf
production comes on stream. This is another reason why offshore revenue
should be shared with the coastal producing states and why the
extension of Section 29 tax credits should be extended to deep gas
exploration at least in the states that are allowing onshore and
offshore drilling and allowing the siting of LNG facilities to make
energy available to the rest of the country.
With effective policies and incentives, the federal government can
steer investment into the offshore areas, and by receiving an equitable
share of revenue generated offshore, the coastal producing states can
be in a position to ensure that this production will be made available
to the rest of the nation. As the granddaddy of all producing states,
literally and figuratively, Louisiana desperately needs immediate
revenue sharing financial assistance from a source not subject to
annual appropriations, to continue to maintain existing, and to develop
future energy supplies for the nation. Governor Blanco is submitting
legislation for a State constitutional amendment to dedicate to coastal
projects, any future new OCS revenue the State may receive, to show
Louisiana's commitment to use money the federal government shares with
the State to put into coastal restoration to rebuild and protect the
OCS production infrastructure.
It would be a travesty for the Congress to enact national energy
legislation without substantial OCS revenue sharing in the form of
direct payments to the coastal producing states from the revenue
derived from offshore production, similar to the automatic payments for
drilling on federal lands onshore, and before any other dispersal of
those monies.
Thank you for this opportunity to appear before you.
Senator Landrieu. Senator Wagner.
STATEMENT OF FRANK W. WAGNER, SENATOR, 7TH DISTRICT,
STATE OF VIRGINIA
Mr. Wagner. Thank you, Madame Chairwoman.
During the 2005 session of the Virginia General Assembly, I
introduced Senate bill 1054, which, after amendment, requested
the Virginia Liaison Office to lobby in Washington, to lobby
Congress on behalf of Virginia to lift the moratorium for
development of natural gas off the Atlantic Seaboard with a
shared royalty plan with States and coastal localities similar
to that proposed in the SEACOR legislation.
Madame Chairwoman, this is a win-win-win situation, as I
see it. The Federal Government wins because it is going to
derive royalty payments currently not available to them. The
States and local jurisdictions win because they will receive a
new stream of revenue that is currently not available to them.
However, the biggest winners are the American people, those
Americans who are struggling to pay their energy bills, those
whose jobs rely on reasonably priced, reliable sources of
natural gas, those American farmers whose very livelihood
depends on access to reasonably priced fertilizers, and those
Americans who will be employed harnessing our own domestic
energy.
Madame Chairwoman, the inclusion of a conservative estimate
of 30 trillion cubic feet of natural gas off the Atlantic
Seaboard will not solve our nation's energy problems, but it is
one brick in a wall that we must build.
I was also surprised to learn that the moratorium on
offshore drilling in the Atlantic Basin has already been
lifted, not by the United States, but by our friends to the
north, Canada. Canada is presently recovering over 500 million
cubic feet of natural gas per day off of Nova Scotia. This
supply of gas provides much of eastern Canada's natural gas
needs, as well as the gas that is currently exported to the
Northeastern United States.
The fact that this offshore operations are adjacent to the
Grand Banks, arguably one of the most important fishing grounds
in the world, is a testament to the innovations and engineering
and technology that have made offshore drilling a safe, cost-
effective, and reliable method of recovering natural gas.
Senate bill 1054 was an outgrowth of the joint legislative
study on the needs of the future of manufacturing in Virginia.
Virginia has lost 70,000 manufacturing jobs in the past decade,
many attributable to threefold increase in the price of natural
gas over the past 5 years. A reliable and reasonably priced
source of natural gas is vital to Virginia's pulp and paper
industry, chemical and fertilizer industries, and those
manufacturers who rely on heat treating as part of the
manufacturing process. Every new electric generation plant
built in Virginia over the past 10 years burns natural gas due
to air permitting requirements.
And then there are constituents, the families in my
district or your State who are working hard to pay their bills
and are now faced with soaring prices at the gas pump along
with skyrocketing utility bills.
Senate bill 1054 passed the General Assembly in a
bipartisan manner. And while the Governor vetoed the bill, in
his veto explanation he cited only two reasons. He felt it was
not within the purview of the General Assembly to direct the
Virginia Liaison Office. And second, he did not feel it was
appropriate to begin lobbying efforts before a formal bill had
been introduced in Congress.
And, Madame Chairwoman, I can tell you I sat down at length
with the Governor. And I told him that I felt we probably ought
to get on board, because I felt this year Congress was going to
move if not on an energy bill, certainly a natural gas bill.
And I believe us being up here today probably says I was more
correct than I thought I was.
The Governor also directed that a study be conducted on
offshore operations and has indicated to me that he has a very
decidedly open mind on the issue. I am quite certain that when
his study is complete, the Governor will come to the same
conclusion that many of us already have, that given the
technological advances over the past 20 years, that offshore
development of our natural gas reserves is altogether
appropriate and the moratorium should be lifted.
Virginia's General Assembly has spoken. We want to develop
our offshore resources, and we would like to share in any
royalty payments that are made. I would also like to add that
since the Virginia General Assembly's passage of Senate bill
1054, the positive responses I have gotten from my constituents
have far outweighed the few negative letters on the issue.
I thought I might have gone out on a political limb by
pushing this legislation. However, I find I have climbed an oak
tree as solid as any in Virginia. I can only conclude that
Virginians recognize there is something fundamentally wrong
with our energy policy. They understand that our foreign
policy, our trade deficit and inflation concerns are, to a
certain degree, driven by our need for foreign energy.
They also are reminded constantly at the gas pump and when
they open their utility bills that there is a growing problem.
To the maximum extent possible, they want domestic
solutions to our energy problems, solutions that employ
Americans, using American technology to provide energy for
American use.
Madame Chairwoman, I believe Virginia has spoken. We in
Virginia and indeed the entire nation look to your committee to
provide us the legislative framework to move America toward a
sound and progressive national energy policy.
Thank you.
Senator Landrieu. Thank you, Senator, for your good work.
Mr. Davidson.
STATEMENT OF CHARLES DAVIDSON, CHAIRMAN, PRESIDENT AND CEO,
NOBLE ENERGY, INC.
Mr. Davidson. Thank you, Madame Chairwoman. I truly
appreciate the opportunity to be here today. My comments are
going to focus on technology and some of the questions that we
heard earlier today in terms of what is evolved in terms of
technology and our industry. And I will be making a few brief
comments that basically supplement the written testimony that
was provided earlier.
I am Charles Davidson, chairman, president, and CEO of
Noble Energy, a leading independent here in the United States.
I am also vice chairman of the Domestic Petroleum Council. I
also chair the Offshore Committee of the IPAA. And my comments
today are on behalf of both of those organizations. And also
supporting our testimony is the International Association of
Drilling Contractors, the International Association of
Geophysical Contractors, the National Ocean Industries
Association, and U.S. Oil and Gas. So I had lots of help, and
some say I need it.
But anyway, in looking at technology, it has had truly an
amazing impact on our industry. And it is a real shame that we
have lost sight of the fact that when we first began putting
coastal waters into moratoria in the early 1980's, a lot of
that technology was not available then. And we have lost sight
of how it has evolved since then.
So what I want to do is talk a bit about our exploration
technologies, our drilling technologies, and some of the things
that are allowing us to develop further offshore with greater
and much reduced impact on the environment as we go forward. So
if you will permit, I am going to show a few slides, as I think
really pictures are worth a thousand words here.
This is focuses more on exploration. And it just shows that
with new technology, in terms of seismic and visualization
techniques, our explorationists can now look and see much more
clearly the reservoirs and targets they are going for. The
impact is that we have greater success with our drilling. It
takes fewer wells to develop these fields.
So I will move this forward a little bit.
You can see this is a visualization. We are looking down on
top of the well right now. That colored surface down there is
actually salt. This particular field was drilled through salt
in the Gulf of Mexico with the field actually below it. And so
as we let it roll further, we suddenly see the visualization of
the field, which was again done by using seismic imaging along
with a great computing technology we have. And they would say
even sometimes a CEO could pick out a few locations there.
But what it is doing is it is showing the seismic is
actually in the background. The red represents hydrocarbon-
bearing strata; the blue, water-bearing. And as you can see,
you can optimize your well location, find out perhaps where
there are some new locations. Again, it allows the industry to
better develop fields, fewer wells, more successful wells, as
we go forward.
Other areas that we have looked at in terms of advanced
drilling technologies--and again, I will just add a couple of
points to what is in the written testimony--you can see some of
the benefits here, as we are able to reach multiple targets
with fewer well bores, better environmental capabilities.
The advanced drilling technology is just truly amazing. A
question was asked this morning about how does it compare
offshore with some of the other areas we have seen, say in
Alaska. And I think Director Burton answered it very well. But
they are truly amazing. And the things that we are doing,
directional drilling offshore, where we link multiple
reservoirs that may not be aligned with a single well, or we
use horizontal drilling that puts a well bore through a large
portion of the reservoir, extended reach, where we can go out
very long distances away from a platform to get to remove
reservoirs, or multilateral drilling, where we actually take a
well bore and split it so that we can go two opposites
directions to develop reservoirs.
Subsea tiebacks. This is a technology that has truly
evolved and, as you know, has been a major development offshore
Louisiana in some of the deep water areas. This is an example
my company is involved in. It is 5,000 feet of water, basically
a mile deep. There was a smaller prospect, called Ticonderoga
that you can see there. It could not justify its own surface
penetrating facility, but we put the well heads on the floor,
we flow it back to an existing spire. Actually, this one is
being built right now. And so as a result, we are able to
recover additional resources that would not have been recovered
before.
The amazing thing about these is that it is growing very
rapidly. This just shows in the Gulf of Mexico how subsea well
completions are evolving. But when you look at this technology
throughout the world, there is many other places in the North
Sea and others where it has gone even more rapidly.
But I think the key is resources. And again, this is a
point that was raised this morning. Early on, our resource
estimates tend to be low. And you can see here in 1974, the
Gulf of Mexico's gas resources were estimated to be 50 trillion
cubic feet. Since then, we have produced 160 trillion cubic
feet, and the estimate is there is another 232 trillion cubic
feet left. Clearly, a tremendous growth in the resources.
And again, it is interesting to note that that 1974 Gulf of
Mexico resource estimate of 50 trillion cubic feet is about now
what is estimated for the Atlantic and Pacific areas. Although,
as was noted earlier, there is very limited data.
So again, it is a real pleasure to be here. I think that in
just a few minutes it is hard to describe all the technology
our industry has developed over the past few years, but it has
clearly enabled us to do so much more than we were ever capable
of doing 15 years ago.
Thank you. It is a pleasure.
Senator Landrieu. Thank you, Mr. Davidson.
[The prepared statement of Mr. Davidson follows:]
Prepared Statement of Charles Davidson, Chairman, President and CEO,
Noble Energy, Inc.
Thank you, Mr. Chairman, for the opportunity to be here today to be
part of an increasingly important national energy policy discussion.
I am Charles Davidson, Chairman, President and Chief Executive
Officer of Noble Energy, Incorporated, one of the largest independent
natural gas and oil exploration and production companies in the United
States.
I am also vice chairman of the Domestic Petroleum Council that
represents the largest US independents, and I chair the Offshore
Committee of the Independent Petroleum Association of America (IPAA)
that represents thousands more independents of all sizes. I am
providing comments today on behalf of both organizations.
Members of the DPC alone have approximately 4,500 Gulf of Mexico
lease interests, including operator designations on some 2,900 leases,
400 in ultradeepwater (1,600 meters or deeper). With the other IPAA
members who are active offshore, you can see that independents are
truly leaders in providing natural gas and oil from the US waters that
are open to exploration and production. And we are leaders around the
world.
The sad fact, however, is that only some ten percent of US waters
outside of Alaska are available for us to apply the best energy
technology in the world.
Put another way, the United States is the only developed country in
the world with our type of ``blanket moratoria'' areas that have
prevented even the consideration of energy development for decades.
When we began placing coastal areas off limits to energy
development in 1981, many of the technologies we use today were not
available--and perhaps not even imagined. Today we have an important
opportunity to focus on the future--and different policies that may
allow careful consideration of offshore energy activity in selected
areas--building on exciting technology improvements.
Today I want to build on that point, and in doing so answer a
number of questions about the 21st Century technology that
increases our ability to find resources;
decreases the number of wells needed in both exploration and
development of those resources;
decreases the need for surface facilities;
decreases the visibility of our operations; and,
does all this in ways that are very compatible with the
environment. In the few minutes I have, I would like to touch
on each of these topics.
First, geoscience improvements, including use of 3-D seismic and
visualization technologies.*
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* All illustrations have been retained in committee files.
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These may also involve the most sophisticated use of supercomputer
analyses to allow us to better ``see'' and understand geology and
potential resource deposits deep underground. These improvements allow
better success in finding natural gas and oil, more accurate targeting
of wells--meaning fewer, more successful ones--and less capital
investment risk.
Drilling technology continues to rapidly advance resulting in many
benefits, including fewer surface penetrating facilities such as
platforms and the ability to develop distant reservoirs.
Specific examples include directional drilling that allows
development of reservoir or several reservoirs not directly beneath a
platform. Other examples are shown in the graphic.
There has also been rapid growth in the number of ``subsea'' well
completions--placing wellheads and other facilities on the ocean floor
rather than on the surface.
These subsea completions include both shallow water and deepwater
production facilities that utilize the latest technology. One benefit
is to reduce the visibility of offshore platforms.
One of the best tools for offshore producers in the Gulf of Mexico
is the utilization of subsea tiebacks to central manifolds. These
tiebacks, some of which cover over 20-30 miles, allow producers to
produce natural gas and oil over great distances from a single
production platform. The graphic of the Ticonderoga project, in 5,000
feet of water, provides an excellent example of subsea technology put
to use.
The U.S. and worldwide increase in subsea projects has been
dramatic. This technology can allow many wells to be produced from
fewer facilities, perhaps well over the horizon. In addition, subsea
developments enable smaller reservoirs to be developed that were not
justified in the past.
Which brings us to estimates of resources in areas under moratoria.
As you see here, our estimates of U.S. offshore resources have
grown substantially over time in areas that have been open to
exploration.
In essence, the more we explore, the better we are able to estimate
resources.
Look at the 1974 Gulf of Mexico natural gas resource estimate of
some 50 trillion cubic feet. Compare that to today's estimate of 232
trillion cubic feet--on top of the 160 trillion cubic feet that has
already been produced from the Gulf of Mexico. We have produced three
times what we thought existed in 1974--and we now estimate almost five
times more remaining. The more we explore, the more we know.
(It is interesting to note that the current natural gas resource
estimates for the Atlantic and Pacific add up to about what we thought
was in the Gulf of Mexico in 1974.)
In conclusion, we are very pleased to see serious discussion of how
we as a nation might approach making decisions as to whether to open
some additional offshore areas to help meet the energy needs of
consumers. We are convinced that the technology used around the world
today in the search for, and production of, natural gas and oil will
provide a solid underpinning for sensible policies that move in that
direction.
Thank you.
I'll be glad to answer questions.
Senator Landrieu. I do have a couple of questions, and I
would like to start on this technology question. Because some
of the members, I think, are particularly interested in this
and the extraordinary advancements of technology.
I want to just be sure for the record that we got the final
slide, which I think is very telling, that according to MMS
with sort of the old technologies that existed in the last 20
years, it was predicted that where we are drilling now would
result in 51 trillion cubic feet of gas. But the fact, as we
have actually put the actuals, it is like the difference
between what you have budgeted and what you actually spent, we
have found our identified 380 trillion. Is that basically what
I heard you say?
Mr. Davidson. Yes. Yes. Between what we have produced since
then plus what is still remaining, when you add up those two
bars. So it is roughly five times more remaining than what we
had in the original estimate.
Senator Landrieu. And talk a moment, if you would, about
the new technologies for inventory. When you showed the slide
up there that actually could show a picture under the lease
tracks of what is there, what is not there, actually there was
a map as to almost how you would get to it, what are some of
the things that you would share with members that are either
for or have not made their mind up or might even be negative
about the inventory and exploration? Can that inventory be
done, at least the inventory of what might be there, without
intrusive or negative environmental effects, with the new
technologies, whether they be satellite or others? Could you
comment for the record about that?
Mr. Davidson. Yes, I would. Clearly, there can be better
resource estimates made today with our technology. But it is
still going to be limited. And the reason is that in really
providing and developing good resource estimates, it takes a
combination of some of the new seismic data that we have now.
But it also takes integrating that with geological data.
And as you know, in some of these areas there have been
very limited wells drilled. And as a result, as we explore, as
the slide kind of noted at the top, as we explore more, we
learn a lot more. I think that exploration, as we as an
industry have shown, can be done in a very compatible way with
the environment, not intrusive to the environment. But as we
learn, it will give us a better sense as to the total resources
that are there.
Generally, my experience has been, in almost basin, is they
tend to grow. Because what happens is our technology builds, we
go after new targets that we did not think we had seen before
or were too small before, and we just increment and increment.
And so as we get into a basin, we almost always tend to see the
resources grow as we develop it.
Senator Landrieu. Well, that is a big help.
Senator Wagner, I understand there was a lot written about
this subject, as you were moving this bill through with really
phenomenal success and bipartisan support. And despite the
veto, as you have qualified what the basic issues of that veto
revolved around, what were some of the kind of comments or
unexpected editorial support that you might want to add to the
record?
Mr. Wagner. Well, Senator, I really have been overwhelmed
since the bill has passed of just the people that have come up
to me that said, ``I am glad somebody is pushing something and
moving something forward.'' I suspected it earlier, when we did
the study on the needs of manufacturers in Virginia and had a
gentleman from the Gas Institute tell us initially about the 30
trillion cubic feet conservative estimate off the eastern
seaboard that was available. And after that meeting, he pulled
me aside. He said, ``You have no idea that, you know, there is
absolutely no will or no support for this.''
And I told him that I felt just the opposite, that there
has been a paradigm shift in this country, that it started with
9/11, and I think that has been aggravated certainly by what we
have seen recently at the gas pump and what we are seeing with
the utility bills, the loss of jobs. In one plant alone,
Senator, we have--Honeywell is the largest user of natural gas
east of the Mississippi. It is down in Hopewell, Virginia, 15
million cubic feet a day. And it has had to lay off 750 people
just from the rise of natural gas at that particular plant.
People want sources. People, as I indicated earlier in my
testimony, have watched our national foreign policy being
dictated by our energy needs. They have tied inflation to that.
And I think clearly that is an issue. Even as near as retail
sales that we have seen recently fall directly attributable to
people having to make a decision, do they buy the clothes or do
they pay to fill up their gas tank.
And people are looking for solutions. And I have just been
overwhelmed by the amount of support that I have gotten. As I
mentioned in my testimony, I thought I might be going out on a
limb. And just the opposite. There have been a few naysayers,
but overwhelmingly it has been a very positive support base. It
has only encouraged me to push it even harder. And I am really
thankful for this opportunity to come up and explain to this
body that you have a lot more support out there than you think.
And in fact, I really think that it is just the opposite.
Americans are looking to you now. This is incredibly important
to us. It cuts across all fields and all income levels. And it
is absolutely imperative that we come up with some policy here.
And more and more people are wanting to look at nuclear
power again as a viable alternative. And they do not understand
why we are not producing more nuclear power in this country.
They want cleaner coal burning and are willing to bring it
online and do it. And as I mentioned, natural gas is just one
solution. But it is going to take all of that to solve the
energy problems we have. And I have just been overwhelmed with
support.
Senator Landrieu. I just got a note that there is a quorum
call. So I only have just a few more minutes. But I have more
question, if I could try to get it in to you and then Mr.
Angelle. You also, I think, represent, if I read correctly, the
Virginia Beach area. And that is an area that attracts a lot of
tourists and tourism. Virginia is a place where a lot of people
want to go and visit and spend time on the beach.
Can you mention a minute about how that particular coastal
area reacted to this and what the political response was right
there on the coast?
Mr. Wagner. And as you are aware, Senator, and you more so
than everybody because of the State you represent, you
understand the industry, and you understand the technical
innovations that have happened and what it means to the
Louisiana economy, as well as what it is perceived, as well as
what the reality is in terms of the environmental threat.
When I was able to explain that in the General Assembly,
every member, and there are three Senators and six delegates
that represent the city of Virginia Beach in the General
Assembly, every one of us voted in favor of it. Every member of
the Black Caucus, Legislative Black Caucus, be it in the Senate
or the House, voted for this particular measure, because so
many of our African-American citizens in our area depend on the
waterfront for their livelihood. They work in the shipyards,
they work in the longshoreman's industry. It indeed is a
regional input in our area.
And we are also experiencing defense cutbacks, particularly
in the Navy in our area. And over and over we have recognized
the need to be able to diversify our economy in the Hampton
Roads area. And certainly supporting offshore exploration and
drilling would go a long way to provide a diversification in
our economy.
And so our--and even in our city council, our mayor, who
objected to the legislation and asked the Governor to veto it,
put in front of our city counsel a resolution to the effect of
the same thing. And I went down and basically gave an extended
version of what I am giving today to the city council. And her
resolution was defeated six-three. And so there is the advice
of the city council here in Virginia Beach.
And so we recognize that we can have a tourism industry and
we can have--we can take advantage of the offshore deposits
that may be off Virginia's coast. And they can happen together.
They can happen in tandem. And in the end, we will have a much
stronger economy in Hampton Roads, much more diversified
economy in Hampton Roads. And we feel it is a net positive. And
we just want the opportunity to be able to do it.
Senator Landrieu. Thank you for sharing that. I think that
is important, because we heard from several of our Senators
about the fact that their State's economy rests on tourism. And
I think it is one of the things that we want to stress in terms
of the ability, if this is done correctly, for those industries
to basically share the resources.
Secretary Angelle, not only are you a great leader on oil
and gas, but you also are a pretty good fisherman, I hear. You
have caught a few in your day.
I was given this Eco Rig's study that came out several
years ago. And I remember when there was a series of articles
written about it. I will just read the first sentence. ``There
are 4,000 offshore oil and gas platforms in the Gulf of Mexico.
They produce one of the most prolific ecosystems by area on the
planet.'' This particular report reported that 30,000 adult
fish reside around the platforms in an area about half the size
of a football field. Protected fish, endangered species, are
either attracted to or the studies, some of them believe are
actually produced by the artificial reef system that is
produced by these structures in an otherwise sort of
continental shelf that is filled with sand and silt coming down
from our rivers.
As a fisherman yourself, I mean, do you have to read this
report or could you tell us some things about fishing on the
rigs in Louisiana?
Mr. Angelle. What I can tell you, Senator, is that one of
the most difficult things to try to suggest is to actually
remove these rigs once they are up, because of the structure
they create. And, you know, one of the great things about
Louisiana's coastal area is that it is a coastal wetland. And
we have people who hunt and fish and recreate. And we have
ports that are operational. I think five out of the largest ten
ports in America are in coastal Louisiana.
And so we see just a tremendous merging, if you would, of a
lot of different kind of activities in an area that is
productive, not the fourth or fifth or sixth largest, but
perhaps the largest in terms of productive ecosystems in
America. And there is no question that we have found ways in
Louisiana to do this in an environmentally correct way Mr.
Davidson with Noble has done a tremendous job in their
discovery and exploration of some of the resources in
Louisiana.
So we are working in Louisiana right now on two separate
fronts utilizing rigs. One is in a mari-culture type situation
that the House of Representatives and the State Senate approved
last year. And second to see if we can perhaps use wind energy
in the oil and gas rigs to support that infrastructure.
So there is a way for all these things to happen, we
believe, simultaneously without a doubt. And we have proved it
in Louisiana.
Senator Landrieu. Thank you.
I am down to my last 2 minutes. And I have to get to the
floor for an unexpected quorum call. But I think that this has
been a very productive session. I thank all of you for your
patience, for coming back after lunch. Your testimony is going
to be considered with a great deal of thought and care, because
I will agree with all the panelists today that I think the time
is for us to move an energy bill. And there are pressures that
are coming to bear to see that this energy package moves.
And the offshore Outer Continental Shelf piece will be a
very big piece, I think, of that energy bill, how we resolve
these issues about balancing the needs of our coastal
community, being sensitive to the individual States, but also
mindful of the great demands that our Nation has regarding the
production of energy for our economic security and our military
security in the future.
Thank you all for coming. The meeting is adjourned.
[Whereupon, at 2:34 p.m., the hearing was adjourned.]
APPENDIX
Responses to Additional Questions
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Responses of Robert W. Thresher to Questions From Senator Domenici
Question 1. What accounts for the wide discrepancy between the
current 600 megawatts of wind energy offshore and 47,000 megawatts
onshore? How can we close this gap?
Answer. There are several key factors that account for the wide
discrepancy between the 47,00MW of land-based turbines and 600MW of
turbines in the water. As you know, these are global figures. The U.S.
has no offshore projects operating and 6700 MW of land-based projects.
The offshore wind industry began in the early 1990's in northern Europe
with small projects, 2 toll turbines, driven primarily by the limited
onshore wind resource. Of the 600 MW of offshore wind in Europe, about
400 MW is in Denmark. These early research, development and
demonstration projects were funded primarily by the national
government, with support from the European Union.
In the United States, industry and government research and
development (R&D) focused on land-based technologies because of the
tremendous windy land resources available in the Midwest. Land-based
projects are much less costly and complex and today are nearly cost
competitive with conventional fuel generation sources. In addition, 18
states and the District of Columbia have Renewable Portfolio Standards
(RPS) to encourage wind development. One reason that offshore wind
facilities are now being considered is that they are the most viable
source for renewable energy needed to meet RPS requirements in some
states, and it is not currently possible to transport large amounts of
electricity from the wind-rich Midwest to the coasts, where the major
load centers are located. Over 50% of the electrical load for the
country is located on the coasts.
Developing an offshore turbine is much more challenging than
developing an onshore turbine because of the need to design for not
only the wind loads, but also wave and current loads. Another challenge
is installation, which must be done at sea from ships with all of the
associated weather challenges. Furthermore, maintenance is much more
complicated, and access for repairs can frequently become impossible
for extended periods during storms necessitating a much higher
reliability for offshore turbines.
Corrosion protection is also a significant issue, particularly for
the electronic components. All of these factors drive up the initial
capital cost of the turbine and in order to pay for these added costs
each turbine must produce more energy, which forces designers to put
the largest rotor possible on the turbine in order to increase energy
capture. At this point in time, offshore R&D prototype turbines are in
the range of 4 to 5 MW with rotor diameters of about 100 to 120 meters
and they are estimated to cost about twice as much per megawatt as an
onshore turbine. Today, the energy generated by an offshore wind plant
is about twice as expensive as a land-based facility.
To close the gap in cost will require a significant investment in
an aggressive R&D program to overcome current water depth limits,
improve accessibility and reliability, develop design methods, insure
safety, and establish environmental baselines and standards, as well as
demonstrate the technology through testing and operational experience.
Due to these challenges, developing offshore wind technology capable of
cost-effectively harnessing a substantial portion of the Nation's
offshore wind resource base will take at least a decade of research,
development and demonstration, funded at about the same level as the
program for land based turbines. More funding could accelerate the
development and less would stretch it out. To put this in perspective,
current estimates indicate that a single offshore R&D prototype turbine
for shallow water will cost about $50M to design, fabricate, install
and fully test.
The government role should also include support for research on
environmental issues to establish environmental baselines and standards
to determine possible usage benefits and impacts. There is a need for
hard scientific data to environmentally baseline the most likely
regions where wind energy facilities are to be built. This could
include the development of regional programmatic environmental
assessments that map the many uses of a region, screening the areas
with criteria to protect sensitive environmental areas (exclusion
zones), and mitigate potential competing uses of the ocean area. An
important and difficult issue that will need to be addressed is the
impact of cumulative effects on the outer continental shelf. This
requires consideration of the impacts due to all activities, including
oil and gas production, wind, wave, tidal, and current energy
facilities, as well as all other activities. It is essential to
consolidate the leadership for this important environmental work and
permitting at a single federal agency that can permit offshore ocean
renewable energy facilities in a timely fashion at a reasonable cost.
The ultimate vision for offshore wind technology is a floating
platform system that will be mass produced and assembled in a local dry
dock facility, towed out to sea, anchored, and plugged into the
electrical connector to an undersea cable that delivers the power to
shore. Through economies of scale and mass production at local U.S.
shipyards, work at sea would be minimized, high paying manufacturing
jobs would be created, and competitive energy costs could be achieved.
Question 2. Why have no offshore turbines been installed in waters
deeper than 20 meters?
Answer. The European offshore wind industry has been fortunate to
have an abundance of shallow water sites (less than 20 meters) for
deployment of all of their offshore wind power facilities installed to
date. The cost and complexity of an offshore wind generating facility
increase with water depth. Two critical factors limit today's
technology to water depths of 20 meters or less. First, currently the
turbines are supported on the seafloor by a simple tube structure,
which is driven into the sea bottom. This type of support is too
flexible to withstand the wave loading in water deeper than about 30
meters. The second reason is that the ships used to drive these
monopoles into the bottom cannot operate in deeper water. Research and
development is needed to adapt the technology used by the oil and gas
industry for offshore wind turbines in depths of 30 meters and beyond.
This includes truss structures for use at intermediate depths of about
30 to 60 meters, and floating wind turbine platforms (similar to
floating oil platforms) for water depths above 60 meters. The R&D
challenges must focus on minimizing the cost of these supporting
structures. Offshore wind facilities must have a much lower capital and
operating cost than an oil production platform in order to be cost
effective.
Question 3. If administrative problems get worked out and
technology allows access to deep waters on the OCS, what is the best-
case scenario for the amount of wind energy production that you
envision?
Answer. Current projections using the National Energy Modeling
System (NEMS) developed by the Energy Information Administration (EIA)
show that wind energy could provide up to 70 GW on the national
electric grid by 2025, assuming an aggressive R&D program. This
projection is based on no additional government sponsored incentives
(e.g. production tax credit, carbon credit). The very crude estimates
that have been made to date indicate that in the zone from 5 to 50
miles off the coast there is sufficient resource for up to 900 GW of
installed wind capacity, a figure based on exclusion of about 40% of
this area from development. It is extremely unlikely that all of this
remaining area would be developed; however, it does show the resource
base is large. Without storage, and assuming today's electrical grid, a
practical ``best-case'' scenario for wind is about 30% of the
electricity supply for the nation, including both onshore and offshore
generating facilities. Today, we get less than \1/2\% of our nation's
electricity from wind. Currently, Denmark is generating about 20% of
its electricity using wind, and they have a national goal of supplying
50% of their electricity using wind, with the majority coming from
offshore installations.
Question 4. With respect to wave energy technology, you assert in
your written testimony that, ``the current status of development for
wave technology is roughly where wind energy was twenty-five years
ago.''
What can we do to ensure that wave energy on the OCS is not bogged
down with the same types of problems, so that twenty-five years from
now we do not say (as you say about wind technology today) that we have
no direct experience or infrastructure?
Answer. To ensure that wave energy technology, as well as other
potentially viable fluid-dynamic forms of ocean energy--tidal and
current technologies, are developed in a timely and cost effective
manner, the following steps should be taken.
First and foremost, authorize and fund an ocean wave, tidal, and
current energy research, development and demonstration program to work
in partnership with the nation's embryonic ocean renewable energy
industry to evolve the technologies and make them reliable and cost
effective. This can best be accomplished by developing design methods,
ensuring safety, establishing environmental baselines for offshore
ocean renewable energy facilities, and setting standards, as well as
demonstrating technologies through testing and operational
demonstrations. As part of this R&D program, a federal test site should
be identified that is permitted to allow testing of single experimental
units, as well as small demonstration projects without the cost and
time consuming effort of a project-by-project environmental assessment,
as is currently required.
The R&D should assess and estimate the ocean wave, tidal, and
current energy resource potential of the nation by region, and at the
same time perform an offshore environmental inventory in collaboration
with appropriate federal and state government agencies and
environmental stakeholders. This should be done to understand the
highest potential regions for early deployment of demonstration
generating facilities, while assuring minimal negative environmental
impacts.
An important and difficult issue that will need to be addressed is
the impact of cumulative effects on the outer continental shelf. This
requires consideration of the impacts due to all activities, including
oil and gas production, ocean renewable energy facilities, as well as
all other activities. It is essential to consolidate the leadership for
this important environmental work and permitting at a single federal
agency.
The R&D effort should investigate approaches for integrating large
offshore electrical generation facilities with variable output into the
nation's electrical transmission system at minimal costs and with
minimal impact on the system's operation and stability. Additional
study and experimentation is needed to optimize integration of
fluctuating generating system output in the electrical system.
There are a number of economic and knowledge enhancing benefits
that could be realized by a combined ocean renewable energy program. On
the technical side, both wind and water-based renewable technologies
are machines that operate at high torque and low speed. They must both
operate in the same offshore ocean conditions and they will have
similar interactions with marine flora, fauna and the seafloor.
Consolidating all of this R&D effort in one organization would greatly
accelerate learning, and would prevent a duplication of efforts.
The development and use of wave, tidal, and current technologies
can be accelerated by participating in international partnerships. The
Europeans have been actively developing these technologies for several
years and have developed several prototype ocean renewable energy
electrical generators. In particular, the United Kingdom has an
aggressive R&D program in wave, tidal, and current energy, and they
have just opened the European Marine Energy Center on the Island of
Orkney in Scotland. We could greatly accelerate this nation's rate of
knowledge and development of ocean renewable energy technologies in a
very cost effective fashion by authorizing and funding multilateral and
bilateral cooperative research projects with European countries active
in this research. These collaborations could include: participating in
the TEA Ocean Energy Systems Agreement, scientist exchange programs, as
well as joint funding of high value fundamental research and testing
programs.
Responses of Robert W. Thresher to Questions From Senator Bingaman
Question 1. Do you have suggestions on how renewable energy
facilities can be sited to minimize local impacts? What infrastructure
is necessary for the facilities associated with the different types of
energy development contemplated on the OCS?
Answer.
SITING SUGGESTIONS
Ocean renewable energy facilities are made up of arrays of machines
that are structurally supported from the seabed or, if they are on
floating platforms, moored to the seabed using anchors and cables. To
deliver the electricity to shore a cable is trenched into the seabed,
or laid on top of the seabed, depending on the site conditions. The
primary interaction with marine flora, fauna and seafloor is through
direct contact. Marine animals interact with the structure below the
surface and the cable to shore, while birds interact with the surface
structures and with the moving rotor of wind turbines.
An important step that could be taken to vastly improve siting and
reduce impacts would be to establish environmental baselines and
standards now, before facilities are actually built. There is a need
for hard scientific data to environmentally baseline the most likely
regions where wind and wave energy facilities are to be built. This
could include the development of regional programmatic environmental
statements (PEIS under the National Environmental Policy Act--NEPA)
that maps the many uses of a region, screening the areas with criteria
to protect sensitive environmental areas, and mitigate potential
competing uses of the ocean area. Developing such overlay maps and an
environmental inventory of wildlife and commercial uses for a regions
would provide guidance to both the environmental community and energy
developers on the important issues to be addressed when siting energy
production facilities.
Starting such a process under NEPA would also initiate a formal
public involvement process that identifies alternatives and potential
environmental problems. This procedure may streamline the permitting
process in the in the long run. Without such a strategic approach, the
federal and state governments will need to require environmental
assessments for each and every project. Developers will most likely be
asked to fund before-and after, construction impacts (BACI)
environmental studies to identify and verify the scope and intensity of
impacts to the permitting agency and third party stakeholders. The PEIS
process described above will help limit and focus the BACI type studies
to those that are really needed.
Another important and difficult issue that will need to be
addressed is the impact of cumulative effects on the outer continental
shelf This requires consideration of the impacts due to all activities,
including oil and gas production, ocean renewable energy facilities, as
well as all other activities. For this reason, it is essential to
consolidate the leadership for this important environmental work and
permitting at a single federal agency that can permit offshore wind
energy and wave energy facilities in a timely fashion at a reasonable
cost.
NECESSARY INFRASTRUCTURE
Regional facilities will be needed to mass-produce hundreds, if not
thousands, of wind, wave, tidal, and current machines. The devices will
then most likely be transported by ship or towed to a specific sea
station and installed. There will be a need for specialized
installation equipment and vessels specifically designed for installing
ocean renewable energy devices. The operation and maintenance will also
be done from local shipyards harboring work boats of various types, and
probably a jack-up, barge-mounted crane. Some maintenance activities
may also be done by helicopter. For a large wind facility, several
crews will do scheduled and unscheduled maintenance on a daily basis
working from machine to machine as their work progresses.
In the future, if ocean renewable energy facilities grow to cover a
large portion of the electrical load in a region, then an offshore,
high capacity transmission cable may be necessary to connect several
offshore generating facilities to various substations on shore. This
would alleviate transmission congestion onshore, and would provide
multiple injection points for the offshore electrical energy over the
region. In Europe, a high capacity offshore cable is being discussed to
facilitate the interconnection of many wind farms in the Baltic Sea.
This would provide multiple injection points for the wind generated
electricity across several countries, without making major upgrades to
the entire onshore transmission grid.
__________
State of Virginia,
7th District,
Virginia Beach, VA, May 11, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Senator Domenici: Thank you for inviting me to testify before
the Senate Energy and Natural Resources Committee on April 19, 2005
regarding natural gas exploration and drilling off the coast of
Virginia Enclosed, you will find my answers to the list of questions I
received to expand on some aspects of my testimony.
I am sorry that the schedule did not permit me to testify before
you on the subject. I will add that Senator Landrieu did a fine job of
continuing the meeting in your absence. However, I regret that we did
not have an opportunity to personally chat about the natural gas issue.
I would be delighted to meet with you any time your schedule permits if
you would find such a discussion valuable. I can be reached at my
legislative by calling 757.671.2250 or my business office by calling
757.247.0101.
Again, I thank you for allowing me to share my views on this
extremely important issue. I look forward to hearing from you.
With kindest regards, I remain
Very truly yours,
Frank W. Wagner,
State Senator.
[Enclosure.]
Question 1. Senator Wagner, your bill would have allowed the
Virginia Liaison Office to lobby Congress on behalf of legislation that
would lift the moratorium for development of natural gas reserves off
the Atlantic Seaboard. What do you view as the most important
principles to be incorporated into legislation that seeks to increase
production and exploration on the OCS?
Having witnessed the Energy and Natural Resources Committee
members' testimony prior to the hearings, particularly the comments
from Senator Martinez and Senator Burr, I believe that the most prudent
course of action would be to allow states to opt out of the current
moratorium on the OCS. The state and its people--who are closest to any
exploration area--should be permitted to decide the issue of
exploration. If Virginians believe that exploration off their coast is
in their best interest, then it will be Virginians who decide to
welcome or not to welcome exploration for natural gas.
Also, I believe shared royalties with the states that choose to opt
out of the moratorium is altogether appropriate and will act as a
powerful incentive for states to seriously consider the risk/reward
nature of drilling in the OCS and will also recognize that although
production may occur in federal waters, the adjacent state will have a
role to play in providing onshore infrastructure to support that
activity. I believe once state governments study the safety and
environmental records of the offshore industry, they will come to the
same conclusion the Virginia General Assembly did in February 2005. The
conclusion is that it is in the best interests of Virginia to pursue
our offshore energy assets.
Therefore the two major provisions for OCS energy recovery should
be:
1. Opt out of the moratorium by Executive Order from the Governor
or by act of that state's legislative body.
2. Shared royalty payments with only the states that choose to lift
the moratorium.
A third provision I consider extremely important to developing a
plan to harness the full resources of the OCS, is an intensified
Research and Development effort on methane hydrates with a goal of
developing processes to economically harvest this important new
potential resource. Alan Greenspan echoed these comments during his
recent testimony in front of Congress.
Initial USGS surveys suggest that two small areas, less than the
size of Rhode Island, contained ten times more natural gas locked in
these hydrates than was consumed in 1989. One report I read stated that
there was twice the amount of carbon-based fuel reserves locked in
methane hydrates than in all of the remaining carbon-based reserves
(oil, natural gas and coal) combined. If we can put a man on the moon
and an SUV on Mars, we can figure this one out, too.
Question 2. You say that Canada is presently recovering over 500
million cubic feet of natural gas per day off Nova Scotia. What do you
think accounts for the differences in policy between U.S. and Canada?
It is clear that Canada has a far more aggressive approach to
fulfilling their energy needs than we do in the United States. Various
reports and press accounts indicate that Canadian policy makers have
looked at the outstanding safety and environmental record of the
offshore energy industry and concluded that it is altogether
appropriate to recover Canadian reserves off their coastline. The
safety record speaks for itself: it is environmentally sound to pursue
domestic reserves.
I also believe Canadian policy makers have determined that it makes
far more sense to employ Canadians to recover Canadian resources to be
used by Canadian industries and homes (and exported to the U.S.) than
it does to spend Canadian dollars to import their energy sources from
countries that may or may not be friends of Canada
Question 3. Please give me your thoughts on what you believe are
the major distinctions, if any, that should be made between seeking
additional access to resources for exploration and production of oil
and seeking additional access for the exploration and production of
natural gas?
Reports I have read from the Department of the Interior indicate
that the Atlantic OCS is gas prone, with little evidence of oil off the
mid-Atlantic coast. However, there is always the possibility that where
natural gas is discovered, there may also be oil. The fact that there
has not been a major oil spill from over 4,000 oil and gas platforms in
35 years would suggest that there is no scientific basis for making a
distinction between oil and gas.
Therefore, I believe that the moratorium should remain in place out
to 20 miles off the shoreline for deposits made up of primarily natural
gas and 40 miles offshore for deposits made up primarily of oil. Beyond
20 and 40 miles, I believe the individual states should decide whether
or not to lift the moratorium on the remaining OCS.
Question 4. What impact would OCS access off of the Virginia coast
have on jobs in the state and natural gas prices in Virginia?
Answer.
JOB GROWTH
It has always been my contention that OCS access off the coast of
Virginia would have a very positive effect on Virginia's economy and
job growth.
Job growth would increase by three measurable standards:
1. Direct employment in supporting OCS surveying, drilling and
recovery of OCS energy reserves.
2. Increased manufacturing employment due to a stable source of a
domestic supply of natural gas at a reasonable cost.
3. Indirect service sector job growth associated with the expanding
economy in the OCS manufacturing sector.
By way of explanation, actual economic data collected in Nova
Scotia and in Norway proves the economic stimulus that occurs when
supporting OCS exploration and development. A languishing Nova Scotia
economy was actually turned around because of the investments that
major energy companies made to support offshore exploration and
recovery of natural gas.
In terms of manufacturing jobs, the Honeywell plant in Hopewell,
Virginia (largest user of natural gas east of the Mississippi) has laid
off over 750 Virginians due to the threefold increase in natural gas
prices in the past five years. This factory is one of the United
States' major producers of fertilizer and nylon. Logic dictates that a
reduction in natural gas prices will result in an increase in
employment at this one factory.
However, natural gas is a key component in a variety of
manufacturing processes, including national security related chemical
businesses, as well as the paper and pulp industry and those processes
involving heat treating. As long as U.S. natural gas prices remain the
highest in the world, we will continue to see our industrial and
manufacturing base erode.
NATURAL GAS PRICES
With regards to natural gas prices in Virginia, our offshore
production would be piped into the existing natural gas distribution
infrastructure. Since natural gas is traded as a commodity, market
forces dictate the actual cost of gas.
To the extent Virginia would benefit over any other state, our
close proximity to the source may result in a lower distribution cost.
However, the entire country would benefit form every effort we make
to enhance the natural gas supply. Energy commodities have a direct
relation to supply/demand market forces; hence, any increase in supply
(OCS resources, Alaskan gas pipeline, additional LNG offload
facilities) can only result in stabilizing and hopefully reducing
natural gas costs.
To do nothing would have a disastrous effect on our manufacturing
base and household consumers and have serious implications for our
national economy.
Question 5. Please comment on the environmental impact of what you
propose.
The environmental risks associated with offshore drilling are
minimal. As stated by the Secretary of the Interior, ``There has not
been a major spill from an offshore oil platform in 35 years.''
This track record is directly attributable to the safety features
and technology enhancements incorporated into today's modern offshore
drilling platform. When one compares the environmental safety record of
the offshore drilling industry versus oil tankers and barges, it is
obvious that the offshore industry is by far the preferred option if
one is solely concerned with minimizing environmental risk. It also
stands to reason that if we do not increase our domestic production,
then we will be required to increase the tanker traffic and the
inherent environmental risk associated with increased traffic.
No one is proposing a moratorium on tanker traffic for obvious
economic and national security reasons. However, environmental scare
tactics ring hollow when one studies the actual data. Not only are the
environmental risks minimal, I encourage everyone to visit this
website: www.towersoflife.com. I have taken the liberty of including
the following information from the website and I ask you to read it
carefully.
``There are approximately 4,000 offshore oil and gas
platforms in the Gulf of Mexico. They produce one of the most
prolific ecosystems, by area, on the planet. Stanley and Wilson
(2000) reported that 10,000-30,000 adult fish reside around the
platform in an area about half the size of a football field.
Live rock organisms, coral, Endangered Species, and `protected'
fish and invertebrates colonize the platform's submerged
structure. Many blue-water platforms create complex coral reef
ecosystems, comprised of Caribbean flora and fauna that would
otherwise not exist on thousands of square miles of generally
featureless and silty continental shelf These platforms clearly
produce fish rather than merely attract fish. An abundance of
evidence suggest that they are Essential Fish Habitat (EFH),
Coral Habitat, and Endanger Species Habitat (ESH). Over 50
species of federally managed fish, crustaceans, and live rock
organisms settle and forage around the offshore structures. The
ecosystems they create are not designated as `protected
habitat' under any of our current Fisheries Management Plans.
Over 100 of them will be removed every year for the next 40
years.''
www.towersoflife.com/ecorigs/index.html
Like most citizens in our country, I want to enhance the quality of
our environment. However, the environmental threats from offshore
drilling espoused by some, do not jibe with the facts or the
demonstrated 35-year record.
As a former Navy diver and still active sport diver, I have seen
with my own eyes literally thousands of fish congregating around the
Chesapeake Bay light tower. Once erected, offshore towers become an
ecosystem.
Therefore, I have concluded that, based on an increase in tanker
traffic or offshore development of our resources, offshore development
is preferable. Based on a 35-year track record of no major spills, I
believe that the environmental risks are minimal compared to the
potential reward. Furthermore, we have talked about oil and gas
platforms. The Department of the Interior has only stated a
conservative estimate of 30 trillion cubic feet of natural gas and no
mention of oil. Natural gas, since it is a gas, cannot spill.
In closing, platforms established in the Atlantic basin will become
ecosystems. Collected data from existing platforms proves that these
platforms, and from 10-18 miles out from them, become new ecosystems.
Rather than scaring off tourists, I believe the very real possibility
exists that tourism will be enhanced because of new fishing areas that
will be created. I visited a local bait store to gauge the sport
fishermen's reaction after my legislation had become big news here in
Hampton Roads. To a person, they responded positively. They supported
my legislation because they understood the potential for new fishing
opportunities.
__________
Responses to the following questions were not received at
the time the hearing went to press.
Questions to Ms. Burton From Senator Domenici
Question 1. If the strongest trend on the OCS today is the
continuing development of the deep water in the Gulf of Mexico and the
deepwater is primarily oil rich (or more oil-rich than shallow waters),
how can we increase or even just sustain our level of natural gas
production on the offshore?
Question 2. Please comment on what steps MMS is taking to ensure
that OCS operators are complying with applicable environmental laws?
Question 3. What do you think of the principle that each individual
coastal state should have the choice of whether or not oil and gas is
produced off of its coast?
Question 4. Can you give us your thoughts on how effective the
offshore oil and gas industry is at preventing oil spills?
Question 5. What facts lead you to conclude that MMS has the
capability and is the most appropriate agency to administer offshore
renewable energy projects?
__________
Questions to Admiral Watkins From Senator Domenici
Question 1. In your written testimony you state that, the nation's
vast offshore ocean areas are, ``becoming an increasingly appealing
place to pursue economic activities.'' Do you believe that it is time
for us to re-examine whether increased access on the OCS for entities
to pursue economic activity would be beneficial to the nation?
Question 2. How can the federal government best facilitate
renewable projects on the OCS and alter the current scheme which the
Commission viewed as ineffective?
Question 3. In your written testimony, you state that oil and gas
development is a classic example of ``multiple-use resource management,
including federal-state tensions.''
What specific steps can be taken to fairly and equitably deal with
this tension, particularly with regard to changes to the current
revenue structure?
Question 4. With respect to methane hydrates, it is the view of
your Commission that much more information is needed to determine
whether significant technical obstacles can be overcome to enable
methane hydrates to become commercially viable and environmentally
acceptable.
Please comment on what some of these obstacles are and what is
being done to overcome them.
__________
Questions to Admiral Watkins From Senator Bingaman
We are all well-aware of the controversy associated with the OCS
oil and gas leasing program that has resulted in moratoria on large
areas of the OCS. Now some are looking at the possibility of trying to
tap the considerable non-oil and gas energy potential on the OCS.
Question 1a. What do you think are the lessons learned from the oil
and gas OCS experience that we can apply as we move forward with other
energy production on the OCS?
Question 1b. Can we avoid the ``not in my backyard'' syndrome as we
move to develop renewable resources on the OCS? How?
Question 1c. Do you have any other suggestions on how we can
minimize the controversy associated with non-oil and gas energy
development on the OCS?
Question 2. Have you had an opportunity to review section 321 of
the Conference Report on H.R. 6 (108th Congress) relating to alternate
energy-related uses on the OCS? Do you have suggestions on any
modifications to the provision to make it more consistent with the
recommendations contained in the Ocean Commission Report? If so, please
provide them.
Question 3. The Ocean Commission Report calls for a comprehensive
management regime for renewable energy on the OCS. Your testimony
outlines several shortcomings of the current statutory authorities of
the Corps of Engineers and the FERC in this area. Please elaborate.
Given the current responsibilities of MMS for offshore energy
development, do you think the Secretary of the Interior should take the
lead in this area?
Question 4. Your statement discusses the need for a ``comprehensive
offshore management regime'' to coordinate the multiple uses of the
Outer Continental Shelf. What do you envision? Please elaborate.
Question 5. Your testimony recommends a funding increase in MMS's
environmental studies program. Do you think this is necessary to
address concerns where production is currently taking place? Do you
think an increased commitment to addressing environmental concerns is a
precursor to allowing energy production to go forward in other areas?
__________
Questions to Ms. Burton From Senator Bingaman
We are all well-aware of the controversy associated with the OCS
oil and gas leasing program that has resulted in moratoria on large
areas of the OCS. Now some are looking at the possibility of trying to
tap the considerable non-oil and gas energy potential on the OCS.
Question 1a. What do you think are the lessons learned from the oil
and gas OCS experience that we can apply as we move forward with other
energy production on the OCS?
Question 1b. Can we avoid the ``not in my backyard'' syndrome as we
move to develop renewable resources on the OCS? How?
Question 1c. Do you have any suggestions on how we can minimize the
controversy associated with non-oil and gas energy development on the
OCS?
Question 2. During the 107th Congress, the Administration
transmitted legislation to provide a statutory regime for permitting
the development of alternate energy related uses on the OCS. I agree
that comprehensive legislation is needed in this area, and that it
makes sense to give the Secretary of the Interior authority to permit
this type of activity on the OCS.
I believe some aspects of the Administration's proposal need fine-
tuning to clarify the scope of the provision and also to clarify that
certain requirements of the OCS Lands Act apply. Will you work with us
to refine these provisions?
Question 3. Senator Alexander has introduced a bill (S. 726) that
would require that portions of the original Lease Sale 181 area be
offered for lease. Do you support this provision?
Question 4. Has any decision been made yet on whether to include
any portion of the original area of Lease Sale 181 in the next Five-
Year Plan?
Question 5. What are MMS's current resource estimates for the OCS?
Can you explain the methodology used in developing these estimates?