June 2010 Vol. 237 No. 6


BP Accident Imperils Offshore Gas Expansion; Consideration Of Renewable Incentives Worries Gas Advocates

Despite the different and superior safety profile for offshore natural gas exploration, the BP deepwater oil spill may well dissuade Congress from approving the addition by the Obama administration of gas-rich areas to the Minerals Management Service (MMS) 2007-2012 leasing plan.

Despite the different and superior safety profile for offshore natural gas exploration, the BP deepwater oil spill may well dissuade Congress from approving the addition by the Obama administration of gas-rich areas in the eastern Gulf of Mexico, the Virginia coast and near the Cook Inlet in Alaska to the Minerals Management Service (MMS) 2007-2012 leasing plan.

Bucking environmentalists who are generally part of the Democratic coalition, the Obama administration announced March 31 it would open those previously closed areas to energy exploration. In terms of the leases off the Florida coast, development would require lifting of a legislative moratorium against development there. “If the proposed areas ultimately end up being leased, it will represent the most significant increase in access to domestic energy from our oceans in decades,” says National Ocean Industries Association (NOIA) President Randall Luthi.

Many in the Capital had forgotten the Senate Energy and Natural Resource Committee had actually taken a step toward burying the moratorium in the eastern Gulf in July 2009 when it passed an omnibus energy bill (S.1462) called the American Clean Energy Leadership Act of 2009. It allows leasing in the eastern Gulf 45 miles beyond the Florida shore. But that bill has gone nowhere.

The latest effort to drop the eastern Gulf moratorium was expected to come in the form of an amendment to a Senate Climate Change bill being readied by a group of bipartisan senators led by Sen. John Kerry (D-MA), Joseph Lieberman (I-CN) and Lindsey Graham (R-SC). Graham recently gotten cold feet because of issues unrelated to the bill. Lieberman and Kerry had been moving forward and were planning to endorse the Obama eastern Gulf opening in their bill. The accident has forced them to step back and think twice about the wording of any moratorium-ending amendment. Even so, the chances of the Senate passing a Climate Change bill, with or without a Gulf amendment, are considered relatively slim

The eastern Gulf areas covered by the moratorium are natural-gas rich. According to MMS estimates, they could contain 42 Tcf of natural gas. Brian Petty, executive vice president of government affairs for the International Association of Drilling Contractors, explains that 25% of America’s natural gas supplies already come from the Gulf.

Even if Congress did pass a Climate Change bill ending the eastern Gulf moratorium, the areas off the Florida coast Obama is willing to lease would not come into play for some time. The updated 2007-2012 leasing plan contained all sorts of caveats. “True access to the areas included in the plan will require a number of interim actions, scientific analyses, and permitting processes that are the foundation of these larger plans and often take several years of work to accomplish. We hope that the release of this plan, which is largely a scoping document, truly represents an actual commitment to actual sales in new areas,” emphasizes Luthi. “This should be more than a virtual reality process.”

The irony is that the environmental risks of offshore gas drilling are nowhere near those of offshore oil drilling. There have been gas accidents offshore, but they have been minor. In March 2008, for example, a natural gas explosion injured six crew members of a pipeline maintenance vessel off the coast of Louisiana. The problem is that exploration companies drilling in the Gulf or anywhere else offshore are never sure whether they will find oil or gas.

If anything, the outcry from environmentalists will result in the imposition of new safety regulations on offshore drilling from the MMS. BP, like any other company asking for approval to drill offshore, completed an environmental impact statement (EIS). It downplayed the possibility of an accidental oil spill, according to a story in the Washington Post.

Consideration Of Renewable Incentives Worries Gas Advocates
The main focus of Climate Change legislation, of course, is not canceling the eastern Gulf drilling moratorium but providing a spur to the development and use of renewable energy sources such as solar and wind. And while Congress huffs and puffs on the “development” side of the equation, the FERC is working on the “demand” side, with potential dangers for interstate pipelines. That danger could arise if the FERC decides to make it easier for regional electric transmission grids to use renewable sources, thereby disadvantaging natural gas sources.

That is the concern raised by FERC’s issuance of a Notice of Intent in January. The comment period ended in April.

Patricia W. Jagtiani, vice president of regulatory affairs, Natural Gas Supply Association, says not only should renewable sources not be favored over gas, but that quick-start gas generation will be needed to “offset the reliability challenges posed by renewable resources.” Equity dictates, she adds, that if, for instance, the Commission was to provide enhanced balancing procedures over broad geographic regions, such flexibility should be provided not only to variable energy resources (VERs) but to conventional sources to avoid discrimination. The costs of transmission system upgrades to accommodate VERs should be allocated in a fair manner.

Andrew K. Soto, senior managing counsel of regulatory affairs, American Gas Association, says not only is gas needed in a flash when solar and wind are in short supply due to the elements, but “large swings in gas consumption as a result of gas-fired generation being dispatched in response to variable energy resources cycling on and off can present significant challenges to natural gas transmission and distribution systems.” Depending on the magnitude of the potential variations, gas systems may need to be re-configured to accommodate the swings.

New OSHA Administrator Talks Tough
David Michaels, new administrator of the Occupational Safety and Health Administration (OSHA), is turning up the heat on industry, and critics of the agency under George W. Bush are pointing the administrator toward the pipeline and underground construction industries. Peg Seminario, director safety and health, AFL-CIO, and one of the Capital’s top OSHA critics, told a Senate committee in April that Congress should pass new legislation allowing OSHA to levy higher civil fines and criminal penalties and used a January 2009 trench cave-in in Freyburg, OH and a July 2009 pipeline fatality case in Batesville, TX as examples of why higher penalties are needed. In the Batesville case, one worker was killed and two injured when natural gas was ignited during oxygen/acetylene cutting on a natural gas pipeline. The employer, L&J Roustabout, Inc. was cited for three serious violations with $3,000 in penalties. The case was settled for $1,500, according to Seminario.

Michaels has already sharpened the agency’s focus on enforcement and inspections in his first five months on the job. That is not surprising given the fact that Michaels, an epidemiologist, is author of the 2008 book: Doubt is Their Product: How Industry’s Assault on Science Threatens Your Health. He has established a new Severe Violator Enforcement Program and implemented what he termed “long-overdue” administrative modifications to penalty formulas, which will have the effect of raising OSHA penalties. But those penalties can only be raised so high since civil penalties are capped at essentially 1970 levels.

That is why Michaels and Seminario asked the Senate Health, Education, Labor and Pensions (HELP) Committee on April 27 to pass the Protecting America’s Workers Act which would increase the current maximum penalty for a serious violation, one capable of causing death or serious physical harm, from $7,000 to $12,000 and the maximum penalty for a willful violation from $70,000 to $250,000. The bill has been introduced in both the House and the Senate, and the Senate HELP hearings, coming after House hearings in March, signify that votes are in the offering. Votes in both houses are doubly likely because of political pressure stemming from the Massey mining accident in West Virginia where 29 men were killed, even though mines are regulated not by OSHA but the Mine Safety and Health Administration.

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