[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
H.R. 1229, ``PUTTING THE GULF BACK TO WORK ACT''; H.R. 1230,
``AMERICAN OFFSHORE LEASING NOW ACT''; AND H.R. 1231, ``REVERSING
PRESIDENT OBAMA'S OFFSHORE MORATORIUM ACT''
=======================================================================
LEGISLATIVE HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
Wednesday, April 6, 2011
__________
Serial No. 112-20
__________
Printed for the use of the Committee on Natural Resources
Available via the World Wide Web: http://www.fdsys.gov
or
Committee address: http://naturalresources.house.gov
U.S. GOVERNMENT PRINTING OFFICE
65-600 WASHINGTON : 2011
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COMMITTEE ON NATURAL RESOURCES
DOC HASTINGS, WA, Chairman
EDWARD J. MARKEY, MA, Ranking Democrat Member
Don Young, AK Dale E. Kildee, MI
John J. Duncan, Jr., TN Peter A. DeFazio, OR
Louie Gohmert, TX Eni F.H. Faleomavaega, AS
Rob Bishop, UT Frank Pallone, Jr., NJ
Doug Lamborn, CO Grace F. Napolitano, CA
Robert J. Wittman, VA Rush D. Holt, NJ
Paul C. Broun, GA Raul M. Grijalva, AZ
John Fleming, LA Madeleine Z. Bordallo, GU
Mike Coffman, CO Jim Costa, CA
Tom McClintock, CA Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Jeff Denham, CA CNMI
Dan Benishek, MI Martin Heinrich, NM
David Rivera, FL Ben Ray Lujan, NM
Jeff Duncan, SC John P. Sarbanes, MD
Scott R. Tipton, CO Betty Sutton, OH
Paul A. Gosar, AZ Niki Tsongas, MA
Raul R. Labrador, ID Pedro R. Pierluisi, PR
Kristi L. Noem, SD John Garamendi, CA
Steve Southerland II, FL Colleen W. Hanabusa, HI
Bill Flores, TX Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Charles J. ``Chuck'' Fleischmann,
TN
Jon Runyan, NJ
Bill Johnson, OH
Todd Young, Chief of Staff
Lisa Pittman, Chief Counsel
Jeffrey Duncan, Democrat Staff Director
David Watkins, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
DOUG LAMBORN, CO, Chairman
RUSH D. HOLT, NJ, Ranking Democrat Member
Louie Gohmert, TX Peter A. DeFazio, OR
Paul C. Broun, GA Madeleine Z. Bordallo, GU
John Fleming, LA Jim Costa, CA
Mike Coffman, CO Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Dan Benishek, MI CNMI
David Rivera, FL Martin Heinrich, NM
Jeff Duncan, SC John P. Sarbanes, MD
Paul A. Gosar, AZ Betty Sutton, OH
Bill Flores, TX Niki Tsongas, MA
Jeffrey M. Landry, LA Vacancy
Charles J. ``Chuck'' Fleischmann, Edward J. Markey, MA, ex officio
TN
Bill Johnson, OH
Doc Hastings, WA, ex officio
------
CONTENTS
----------
Page
Hearing held on Wednesday, April 6, 2011......................... 1
Statement of Members:
Hastings, Hon. Doc, a Representative in Congress from the
State of Washington........................................ 6
Prepared statement of.................................... 8
Holt, Hon. Rush D., a Representative in Congress from the
State of New Jersey........................................ 4
Prepared statement of.................................... 5
Lamborn, Hon. Doug, a Representative in Congress from the
State of Colorado.......................................... 1
Prepared statement of.................................... 3
Markey, Hon. Edward J., a Representative in Congress from the
State of Massachusetts..................................... 41
Statement of Witnesses:
Danos, Hank, President, Danos and Curole Marine Contractors,
Inc........................................................ 13
Prepared statement of.................................... 14
Domenech, Douglas W., Secretary of Natural Resources,
Commonwealth of Virginia................................... 9
Prepared statement of.................................... 11
Mason, Joseph R., Ph.D., Hermann Moyse/LBA Professor of
Finance, Louisiana State University, and Senior Fellow, The
Wharton School............................................. 17
Prepared statement of.................................... 18
Woglom, Emily, Director of Government Relations, Ocean
Conservancy................................................ 24
Prepared statement of.................................... 26
LEGISLATIVE HEARING ON H.R. 1229, ``PUTTING THE GULF BACK TO WORK
ACT''; H.R. 1230, ``AMERICAN OFFSHORE LEASING NOW ACT''; AND H.R. 1231,
``REVERSING PRESIDENT OBAMA'S OFFSHORE MORATORIUM ACT''.
----------
Wednesday, April 6, 2011
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Natural Resources
Washington, D.C.
----------
The Subcommittee met, pursuant to call, at 10:02 a.m. in
Room 1324, Longworth House Office Building, Hon. Douglas
Lamborn, [Chairman of the Subcommittee] presiding.
Present: Representatives Lamborn, Fleming, Duncan, Gosar,
Landry, Fleischmann, Johnson, Hastings, Wittman, Holt, Tsongas
and Markey.
STATEMENT OF HON. DOUGLAS LAMBORN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF COLORADO
Mr. Lamborn. The Subcommittee will come to order. The
Chairman notes the presence of a quorum, which under Committee
Rule 3[e] is two Members.
The Subcommittee on Energy and Mineral Resources is meeting
today to hear testimony on H.R. 1229, ``Putting the Gulf Back
to Work Act,'' H.R. 1230, ``Restarting American Offshore
Leasing Now Act,'' and H.R. 1231, ``Reversing President Obama's
Offshore Moratorium.''
Under Committee Rule 4[f], opening statements are limited
to the Chairman and Ranking Member of the Subcommittee.
However, in the case of today's hearing, we will be
accommodating the Chairman and Ranking Member of the full
Committee.
However, I ask unanimous consent to include any other
Member's opening statement in the hearing record if submitted
to the clerk by close of business today. Hearing no objection,
so ordered. And I will yield to myself first for an opening
statement.
Today we will examine the first bills before this Committee
under the American Energy Initiative. These bills introduced by
Natural Resources Committee Chairman Doc Hastings are the first
steps in reforming our domestic energy policies to set us
forward on a new path of expanding production of nation's
resources.
The purpose of the American Energy Initiative is to stop
Washington's policies that are driving up gasoline prices and
to expand American energy production to help lower costs,
create jobs, and generate revenue. These specific proposals
meet the goal of the Speaker to avoid the complicated and
comprehensive 300- or 1,000-page bills that have been done in
the past.
Specifically, these three bills we are considering today
are H.R. 1229, ``Putting the Gulf Back to Work Act,'' which
will establish a requirement for a permit to drill in statute
and require safety review; H.R. 1230, ``The Restarting American
Offshore Leasing Now Act'' that will resume Outer Continental
Shelf lease sales delayed or canceled by the Obama
Administration; and H.R. 1231, ``Reversing President Obama's
Offshore Moratorium Act.'' When the Administration took office
in 2009, there was a proposed 2010 to 2015 OCS plan on the
table. This Administration immediately scraped that plan and
delayed the development of a new plan by two years. This delay
period is where we are now with rising gasoline prices and
declining production in the Outer Continental Shelf.
While these bills deal directly with our oil and natural
gas policies, these bills will not be the last words from this
Subcommittee. In the months ahead, the Subcommittee will
continue to focus on expanding renewable energy, onshore oil,
natural gas and mineral production onshore, coal, and other
critical minerals that are vital to renewable energy and new
technology.
The Subcommittee will consider future specific proposals
that generate more energy, create jobs, and more revenue for
the Federal Government that are offered by Members on either
side of the aisle.
When Congress talks about creating jobs, you will hear
various proposals from different sides, often trying to pick
and choose those industries that should be favored. But we
should work to ensure that as many industries and sectors of
our economy as possible are creating jobs. Many seem to think
that renewable oil and gas are an either/or equation, but the
truth is we can and should do both.
Off the coast of Virginia, there is no reason we cannot
proceed forward with a progressive program of wind development
and promoting responsible oil and natural gas development,
while at the same time ensuring that the defense, fishing, and
tourism jobs that exist today are protected. There is no one
right choice in this recipe; we must choose to do all these
things.
Doing so can have a tremendous benefit for the American
people. Just the offshore oil and gas development is projected
to create more than a million new jobs all across America if
implemented. But resource development is not just about
drilling everywhere. We must develop our resources where the
resources are. This simple concept seems to elude many people,
but I believe it is one the American people understand.
Last year during the height of the BP disaster, the
American people were wondering why we are drilling in deeper
and deeper water which is more risky. The reason is simple.
That is where the oil is located. But that isn't the only place
our oil resources are. It is just the only place we are
allowing drilling to take place.
America has vast oil resources in the Outer Continental
Shelf off Alaska and off the coast of California in shallow
water. And at a shallower depth under the earth, these
resources are significantly easier to develop and produce and
present less risk to the people and the environment.
Finally, these bills are about raising revenue for the
Federal Government. In 2008, bonus bids and rentals from the
OCS totaled nearly $10 billion. In Fiscal Year 2011, the budget
estimate is $150 million, a decline of $9.85 billion. This
tremendous decline is because of the decisions made by this
Administration not to hold any lease sales in the OCS in 2011,
the first time that this has happened since passage of the
Outer Continental Shelf Lands Act in 1957.
In closing, the bills before us today are the first steps
in an aggressive energy agenda this Committee will address to
help make America more energy secure, create jobs, and generate
revenue to help us balance our budget.
At this point, I would like to yield to the Ranking Member.
[The prepared statement of Chairman Lamborn follows:]
Statement of The Honorable Doug Lamborn, Chairman,
Subcommittee on Energy and Mineral Resources
Today, we will examine the first bills before this Committee under
the American Energy Initiative. These bills introduced by Natural
Resources Committee Chairman Doc Hastings are the first steps in
reforming our domestic energy policies to set us forward on a new path
of expanding production of our nation's resources. The purpose of the
American Energy Initiative is to stop Washington policies that are
driving up gasoline prices and expand American energy production to
help lower costs, create jobs and generate revenue. These ``bite size''
proposals meet the goal of the Speaker to avoid the complicated and
comprehensive 300- or 1000-page bills that have been done in the past.
Specifically, the three bills we are considering today are H.R.
1229, ``Putting the Gulf Back to Work Act'' that will establish a
requirement for a permit to drill in statute and require safety review;
H.R. 1230, the ``Restarting American Offshore Leasing Now Act'' that
will resume Outer Continental Shelf lease sales delayed or canceled by
the Obama Administration; And H.R. 1231, the ``Reversing President
Obama's Offshore Moratorium Act.''. When the Administration took office
in 2009, there was a proposed 2010-2015 OCS plan on the table.
This Administration immediately scrapped that plan, and delayed the
development of a new plan by two years. This delay period is where we
are now with rising gasoline prices and declining production in the
OCS.
While these bills deal directly with our oil and natural gas
policies, these bills will not be the last word from this Subcommittee.
In the months ahead, the Subcommittee will continue to focus on
expanding renewable energy, onshore oil, natural gas and mineral
production, coal and other critical minerals that are vital to
renewable energy and new technology.
The Subcommittee will consider future ``bite size'' proposals that
generate more energy, create jobs, and more revenue for the federal
government offered by members on either of the side of the isle.
JOBS
When Congress talks about creating jobs you will hear various
proposals from differing sides, often trying to pick and choose those
favored industries that should be creating jobs, but we should work to
ensure that as many industries and sectors of our economy are creating
jobs. Many seem to think that renewables and oil and gas are an either
or equation, but the truth is we can and should do both.
Off the coast of Virginia there is no reason we can't proceed
forward with an aggressive program of wind development, promoting
responsible oil and natural gas development, while at the same time
ensuring that the defense, fishing and tourism jobs that exist today
are protected. There is no one right choice in this recipe we must
chose to do all these things. And doing so can have a tremendous
benefit for the American people; just the offshore oil and gas
development is projected to create more than a million new jobs all
across America.
RESOURCES
But resource development isn't just about drilling everywhere. We
must develop our resources where the resources are. This simple concept
seems to elude many people, but I believe it is one the America people
understand.
Last year, during the height of the BP disaster, the American
people were wondering why we are drilling in deeper and deeper water
which is more risky. The reason is simple, that is where the oil is
located. But that isn't the only place our oil resources are, it is
just the only place we are allowing drilling to take place. America has
vast oil resources in the OCS of Alaska and off the coast of California
in shallow water. And at a shallower depth under the earth, these
resources are significantly easier to develop and produce and present
less risk to the people and environment.
REVENUE
Finally, these bills are also about raising revenue for the federal
government. In 2008, bonus bids and rentals from the OCS totaled nearly
$10 billion, in FY2011 the budget estimate is $150 million, a decline
of $9.85 billion. This tremendous decline is because as a result of
decisions made by this Administration not to hold any lease sales in
the OCS in 2011, the first time that has happened since passage of the
Outer Continental Shelf Lands Act in 1957.
CLOSING
The bills before us today are the first steps in an aggressive
energy agenda this Committee will address to help make America more
energy secure, create jobs and generate revenue to help us balance our
budget.
______
STATEMENT OF HON. RUSH HOLT, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF NEW JERSEY
Mr. Holt. Thank you Chairman Lamborn.
Mr. Chairman, two weeks from today it will be one year
since the worst oil-related environmental disaster of our
lifetime. Fifteen people were injured. Eleven workers were
killed. Oil spewed from the blown-out well for 87 days,
polluting rich waters of the Gulf of Mexico and shattering the
livelihoods of thousands of Americans who depend on these
resources.
Nearly one year after the BP Deepwater Horizon disaster,
Congress has not enacted a single reform to improve the safety
of offshore drilling.
Now I am sure some of you would say why are we revisiting
that in light of this legislation before us today. Chairman
Hastings is a thoughtful person, but I must put in perspective
this legislation before us today. It seems that I must remind
us of the events of the past year.
Rather than having a hearing today on legislation that
Ranking Member Markey and I have introduced to implement the
reforms of the independent BP Spill Commission, the majority is
holding a hearing on three bills that could potentiall,y and I
would say would likely, make offshore drilling less safe. We
must put this in perspective.
Now H.R. 1229 would impose artificial and arbitrary
deadlines on the Department of the Interior to approve permits
to drill. Under this bill, after 60 days--whether or not the
safety and environmental review has been completed by the
Interior Department--the drilling application would be deemed
approved.
It is hard to imagine that a policy response to the
Deepwater Horizon disaster that you would want to present
before the American people could be less rigorous oversight and
regulation of offshore drilling. I can't believe that the
American people would want that. And the result of the
majority's legislation could be to actually hamper new permits
being issued as the Department might be forced in some
instances to deny permits if the environmental review was not
completed and the clock was about to run out.
This legislation would issue a blanket extension of
existing leases in contrast to this across-the-board approach
the Department is already working on a case-by-case basis to
extend existing leases where the action is warranted.
Indeed, five extensions have been issued by the Department
and H.R. 1229 would give a free ride to companies even if their
leases are many years from expiring, which is completely
unwarranted. H.R. 1229 also contains wholly unwarranted
provisions designed to close the doors of the courthouse to
plaintiffs who believe the Federal Government is not complying
with the law. For heaven sakes, we have had the results of this
Commission that show so many things that should have been
brought to light, perhaps through the courts.
H.R. 1230 would force the Department to rush to hold new
lease sales in the Gulf of Mexico by prohibiting any further
environmental review pursuant to NEPA. Somehow the proponents
of this legislation watched footage of millions of barrels of
oil spilling into the Gulf and decided that a full NEPA process
to try to learn from this disaster was to be avoided.
By deeming the pre-spill NEPA work as sufficient, this
legislation would transport us back to a time when spill
response plans were so sloppy they mentioned walruses in the
Gulf of Mexico and blowout preventers were believed to actually
prevent blowouts.
In addition, this legislation would force the Department to
move forward on a lease sale off the coast of Virginia within
one year. Mr. Lamborn has said we can drill there without
harming fishing and tourism. Americans, particularly I would
say in central New Jersey whom I know well, would disagree.
H.R. 1231 would open up massive swaths of public land off
the East and West Coast to drilling. This legislation would
force the Interior Department to open all of California as well
as the Mid- and North Atlantic to drilling. Oil companies are
already holding tens of millions of acres of public land on
which they are not producing oil and thousands of leasing on
which they are not even exploring. But here we are considering
legislation that would reward these companies by giving away
nearly all of our beaches and coastal areas. It is hard to
think that before we even enact legislation to improve the
safety of offshore drilling, which we badly need, we would put
more economies, more beaches, and potentially more lives at
risk for another spill and blowout.
These bills were written as though the Deepwater Horizon
disaster had never occurred. Another ten seconds, if I may.
These bills would take us in completely the wrong direction.
They make offshore drill less safe rather than more safe. This
Committee and this Congress should be enacting real reform to
ensure that similar disasters never happen again. Thank you,
Mr. Chairman.
[The prepared statement of Mr. Holt follows:]
Statement of The Honorable Rush D. Holt, Ranking Member, Subcommittee
on Energy and Mineral Resources, on H.R. 1229, H.R. 1230, H.R. 1231
Thank you.
Mr. Chairman, two weeks from today is the first anniversary of the
worst oil-related environmental disaster in our nation's history.
Fifteen people were injured and eleven workers were killed. Oil spewed
from the blown-out well for 87 days, polluting the rich waters of the
Gulf of Mexico and shattering the livelihoods of thousands of Americans
that depend on those resources. Nearly one year after the BP Deepwater
Horizon disaster, Congress has not enacted a single reform to improve
the safety of offshore drilling.
Rather than having a hearing today on legislation that Ranking
Member Markey and I have introduced to implement the reforms of the
independent BP spill commission, the majority is holding a hearing on
three bills that could potentially make offshore drilling less safe.
H.R. 1229 would impose artificial and arbitrary deadlines on the
Department of Interior to approve permits to drill. Under this bill,
after 60 days, whether or not the safety and environmental review has
been completed by the Interior Department, the drilling application
would be deemed approved. It is hard to imagine that the policy
response to the Deepwater Horizon disaster could be less rigorous
oversight and regulation of offshore drilling. And the result of the
majority's legislation could be to actually hamper new permits being
issued, as the Department might be forced in some instances to deny
permits if the environmental review was not completed as the clock was
about to run out.
This legislation also would issue a blanket extension of existing
leases. In contrast to this across-the-board approach, the Department
already is working, on a case-by-case basis, to extend existing leases
where such action is warranted. Indeed, 5 extensions have already been
issued by the Department. H.R. 1229 would give a free ride to companies
even if their leases are many years from expiring, which is completely
unwarranted.
H.R. 1229 also contains wholly unwarranted provisions designed to
close the doors of the courthouse to plaintiffs who believe the federal
government is not complying with the law. These provisions are aimed at
environmental plaintiffs but will almost certainly impair the legal
rights of many other potential plaintiffs.
H.R. 1230 would force the Department to rush to hold new lease
sales in the Gulf of Mexico by prohibiting any further environmental
review pursuant to NEPA. Somehow, the proponents of this legislation
watched footage of millions of barrels of oil spilling into the Gulf
and decided that a full NEPA process to try to learn from this disaster
was to be avoided at all costs. By deeming pre-spill NEPA work as
sufficient, this legislation would transport us back to a time when
spill response plans were so sloppy they mentioned walruses in the Gulf
of Mexico and blow-out preventers were believed to always prevent blow-
outs.
In addition, this legislation would force the Department to move
forward with a lease sale off the coast of Virginia within 1 year.
Rather than pausing after the BP spill to reevaluate whether the risks
of drilling off the east coast are warranted, this legislation would
require that it happen by a date certain.
And finally, H.R. 1231 would open up massive swaths of public land
off the East and West Coasts to drilling. This legislation would force
the Interior Department to open all of California, as well as the mid
and North-Atlantic to drilling. Oil companies already are holding tens
of millions of acres of public land on which they are not producing oil
and thousands of leases on which they are not even exploring. But here
we are considering legislation that would reward these companies by
giving away nearly all of our beaches and coastal areas. It is hard to
think that before we even enact legislation to improve the safety of
offshore drilling, we should put more local economies, more beaches and
potentially more lives at risk from another spill.
These bills were written as though the Deepwater Horizon disaster
had never occurred. These bills would take us in the completely wrong
direction. They could make offshore drilling less safe rather than more
safe. They could endanger the lives of our workers, our economy, and
our environment. Instead, this Committee and this Congress should be
enacting real reforms to ensure that a similar disaster never happens
again.
______
Mr. Lamborn. Thank you. I now recognize the full Committee
Chairman for his opening statement.
STATEMENT OF HON. DOC HASTINGS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WASHINGTON
Mr. Hastings. Thank you, Chairman Lamborn for the courtesy
of holding this hearing today on the three bills that I
introduced to create jobs and lower energy prices.
President Obama is traveling the country this week talking
about energy. Unfortunately, these speeches represent more
rhetoric, in my opinion, that doesn't match the President's
long record of blocking and delaying American energy
production. The speeches are full of sound bites, but lack
specific plans on how to create more American energy.
Meanwhile, House Republicans are taking action. We have
launched the American Energy Initiative, an effort to expand
all types of American energy to create American jobs and lower
energy prices. The three bills that we will be discussing today
are part of this initiative. These bills take proactive steps
to expand American energy production and directly reverse Obama
Administration policies that have placed our American energy
resources off limits.
H.R. 1229, The Putting the Gulf Back to Work Act would end
the Administration's de facto moratorium on the Gulf of Mexico
in a safe, responsible, transparent manner by centering first,
firm timelines for considering permits to drill. And it reforms
current law by requiring the Secretary to issue a permit to
drill and also requiring the Secretary to conduct a safety
review.
H.R. 1230, the Restarting American Offshore Leasing Now Act
would require the Administration to move forward promptly and
conduct offshore leases in the Gulf of Mexico and offshore
Virginia, leases that the Obama Administration has delayed or
canceled.
And finally, H.R. 1231, The Reversing of President Obama's
Offshore Moratorium Act would lift the President's ban on new
offshore drilling by requiring the Administration to move
forward in the 2012 to 2017 lease plan with energy production
in areas containing the most oil and natural gas resources. The
bill sets a production goal of 3 million barrels per day in
2027, which would reduce foreign imports by nearly one-third.
When faced with rising gasoline prices and high
unemployment, why would we not look for our own American energy
resources to help find a solution to this problem? Why would we
turn to OPEC to provide us with more energy when we have
available resources here at home? Why tell Brazil that the
United States will be one of their best customers instead of
producing our own onshore resources? Quite frankly, I am
baffled by the Obama Administration policies.
It is unacceptable that the Obama Administration continues
to slow-walk permits in the Gulf. It is unacceptable that,
because of the Obama Administration, 2011 will be the first
year since 1958 that there will not be a single offshore lease
sale. And it is unacceptable that the Obama Administration has
singlehandedly placed areas in the Atlantic and Pacific off
limits to new drilling, areas that were open by both Congress
and President Bush in 2008. That is why it is crucial that we
move forward with these bills.
I propose a drill smart plan, one that targets our efforts
toward areas where we know we have the most oil and natural gas
resources. In contrast, the Obama Administration has a drill
nowhere plan that threatens both our economic recovery and
frankly harms our national security.
I once again want to emphasize that these are just the
first three bills to be introduced as part of the American
Energy Initiative. There will be an array of bills coming soon
from this Committee that will focus on renewable energy,
onshore energy, hydropower, and the critical materials that
make up our energy mix.
With American energy comes American jobs. So I am eager to
hear from our witnesses today to see how these bills to expand
offshore energy production will help put employers and
employees in the Gulf of Mexico back to work and create new
energy jobs from coast-to-coast.
With that, Mr. Chairman, thanks for your courtesy and I
yield back my time.
[The prepared statement of Mr. Hastings follows:]
Statement of The Honorable Doc Hastings, Chairman,
Committee on Natural Resources
Thank you Subcommittee Chairman Lamborn for holding this
legislative hearing today on three bills I recently introduced to
expand American energy production, create jobs and lower prices.
President Obama is traveling the country this week talking about
energy. Unfortunately, in my opinion, these speeches represent more
rhetoric that doesn't match the President s long record of blocking and
delaying American energy production. The speeches are full of sounds
bites, but lack specific plans on how to create more American energy.
Meanwhile, House Republicans are taking action. We ve launched the
American Energy Initiative--an effort to expand all types of American
energy to create jobs and lower energy prices. The three bills we ll be
discussing today are part of this Initiative.
These bills take proactive steps to expand American energy
production and directly reverse Obama Administration policies that have
placed our American energy resources off-limits.
H.R. 1229, the Putting the Gulf Back to Work Act, would end the
Administration s de facto moratorium in the Gulf of Mexico in a safe,
responsible, transparent manner by setting firm time-lines for
considering permits to drill. It reforms current law by requiring the
Secretary to issue a permit to drill and also requiring the Secretary
to conduct a safety review.
H.R. 1230, the Restarting American Offshore Leasing Now Act, would
require the Administration to move forward promptly to conduct offshore
lease sales in the Gulf of Mexico and offshore Virginia that the Obama
Administration has delayed or canceled.
Finally, H.R. 1231, the Reversing President Obama s Offshore
Moratorium Act, would lift the President s ban on new offshore drilling
by requiring the Administration to move forward in the 2012-2017 lease
plan with energy production in areas containing the most oil and
natural gas resources. The bill sets a production goal of 3 million
barrels of oil per day by 2027, which would reduce foreign imports by
nearly one-third.
When faced with raising gasoline prices and high unemployment, why
would we not look to our own American energy resources to help provide
a solution?
Why would we turn to OPEC to provide us with more energy when we
have available resources here at home?
Why tell Brazil that the United States will be one of their best
customers, instead of producing our own offshore resources?
Quite frankly, I m baffled by these Obama Administration policies.
It s unacceptable that the Obama Administration continues to slow-
walk permits in the Gulf.
It s unacceptable that because of the Obama Administration, 2011
will be the first year since 1958 that there will not be a single
offshore lease sale.
And it s unacceptable that the Obama Administration has single
handedly placed areas in the Atlantic and Pacific Coasts off-limits to
new drilling that were opened by both Congress and President Bush in
2008.
That s why it s crucial that we move forward with these bills.
I ve proposed a drill smart plan one that targets our efforts
towards areas where we know we have the most oil and natural gas
resources. In contrast, the Obama Administration has a drill nowhere
new plan that threatens both our economy recovery and our national
security.
I once again would like to emphasize that these are just the first
three bills to be introduced as part of the American Energy Initiative.
There will be an array of bills coming soon from this Committee that
will focus on renewable energy, onshore energy, hydropower and critical
minerals.
With American energy comes American jobs. I m eager to hear from
our witnesses today about how these bills to expand offshore energy
production will help put employers and employees in the Gulf of Mexico
back to work and create new energy jobs from coast to coast.
______
Mr. Lamborn. Thank you for your statement. Seeing that the
Ranking Member is not here----
Mr. Holt. If I could ask unanimous consent that sometime
later in the hearing, the Ranking Member of the full Committee
be given the opportunity to make a statement.
Mr. Lamborn. I have no objection. Is there any other
objection? If not, we will honor that request.
At this point, let us proceed. But we will have to find the
best moment, maybe between panels or after the panel or
something like that.
At this point, let us proceed to our witness testimony. We
have four witnesses with us today. The Honorable Doug Domenech,
Secretary of Natural Resources for the State of Virginia; Mr.
Hank Danos, President, Danos and Curole Contractors, Inc.; Dr.
Joseph R. Mason, Professor, Louisiana State University and
Senior Fellow at the Wharton School; and Ms. Emily Woglom,
Director of Government Relations for the Ocean Conservancy.
And Mr. Domenech, you may begin. Now when you do start, you
have five minutes as we outlined in our invitation letter. And
your full statement will appear in the record, of course--your
full written statement.
The microphones aren't automatic. You have to affirmatively
switch them on. The yellow light will come on after four
minutes and then the red light will come on at five minutes.
Mr. Domenech, you may begin. Thank you.
STATEMENT OF MR. DOUGLAS DOMENECH, SECRETARY OF NATURAL
RESOURCES FOR THE STATE OF VIRGINIA
Mr. Domenech. Good morning Mr. Chairman and Members of the
Subcommittee.
On behalf of Virginia Governor Bob McDonnell, thank you for
inviting me to discuss the three energy bills introduced last
week.
I am Doug Domenech, Secretary of Natural Resources for the
Commonwealth of Virginia. In my secretariat, I oversee six
state agencies and work to implement the Commonwealth's energy
policy.
Virginia applauds Chairman Hastings and the other Members
for the introduction last week of H.R. 1229, H.R. 1230, and
H.R. 1231. These three bills together expand offshore energy
production and will create jobs, lower energy costs, generate
revenue to help pay down the national debt, and improve
national security by lessening our dependence on foreign
sources of oil.
Virginia Governor McDonnell believes that America must have
an all-of-the-above energy strategy aimed at making certain we
are developing all our energy sources in an economically and
environmentally responsible way. This means supporting both
conventional and renewable sources of energy, including coal,
oil, natural gas, and also wind, solar, biomass, and nuclear
production as well. He firmly believes it is critical we reduce
our dependence on foreign sources of oil.
The Deepwater Horizon accident was devastating to the Gulf
states. We know that lessons are being learned and new
standards have been put in place. We in Virginia believe we
need nothing less than the safest standards for any operations
in the Atlantic, but we must not allow this unfortunate
accident to constrain American energy policy at the expense of
future domestic energy production, jobs, and rising energy
costs on every American family and business.
The Restarting American Offshore Leasing Act now expands
American energy production and creates jobs by requiring the
Secretary of the Interior to conduct oil and gas lease sales in
the Gulf of Mexico and offshore Virginia that have been delayed
or canceled by the Administration. Governor McDonnell has
requested directly to President Obama and to Interior Secretary
Salazar that Interior proceed with the previously scheduled,
then canceled lease sale off the coast of Virginia.
Interior initiated the first step for a potential lease
sale offshore Virginia in November 2008. The area covered by
the call was about 2.9 million acres and at least 50 miles
offshore Virginia. Interior estimates that the area may contain
130 million barrels of oil and 1.14 trillion cubic feet of
natural gas. Another study estimates the area could produce
more than a half a billion barrels of oil and 2.5 trillion
cubic feet of natural gas.
It is important to note that there is bipartisan support in
Virginia for offshore oil and gas production. Our bipartisan
General Assembly is on record in support of offshore
development as well as local governments, a majority of our
congressional delegation and both of our U.S. senators.
Last March 2010, we were grateful and excited that the
President announced that lease sale 2020 would move forward as
part of the 2007/2012 five-year plan. However, after the
Deepwater Horizon accident on April 20, Interior announced an
indefinite postponement of the comment period on the Virginia
sale and on May 27 the President canceled the lease sale and
announced that no areas off the Atlantic Coast would be
available for energy development, even in the following five-
year plan. This cancellation means no domestic oil and gas in
the Atlantic will be accessible for development until sometime
between 2017.
In response to the President's announcement, Governor
McDonnell issued the following statement, ``It is my hope that
the President's action does not signal the end of offshore
energy exploration and production off Virginia in the years
ahead. Once we have learned the lessons from this tragic
accident and made the necessary changes and improvements in the
offshore industry and government oversight, we should move
forward with environmentally responsible domestic offshore
energy production for oil and gas.''
Since the decision to cancel the Virginia lease sale the
worldwide conditions affecting oil and energy security
availability and price have continued to deteriorate. The price
of crude oil has increased more than 27 percent and the price
is now over $104 per barrel. It is more urgent than ever that
we proceed with the responsible development of our domestic
energy resources off of Virginia and the rest of the South and
Mid-Atlantic Coast.
The Restarting American Offshore Leasing Act now would
require the Secretary to hold Virginia lease sale no more than
one year after the bill has been signed into law. This bill
would proceed now with the scheduled lease sales in a prompt,
timely, and safe manner.
These bills go a long way toward increasing America's
energy security; however, there are two issues that should be
addressed by future legislation--revenue sharing and an
improved leasing map. In 2006, Congress passed the Gulf of
Mexico Energy Security Act of 2006 (GOMESA) creating revenue
sharing with oil-producing states and the Land and Water
Conservation Fund for coastal restoration projects. It led to
nearly $30 million in revenue sharing to the states. Virginia
believes it is important to share the revenues of oil and gas
exploration with coastal states in a similar way and we
encourage you to do that in future legislation.
The Governor has also expressed his concern about the size
and shape of the Virginia 2020 map. Virginia has a long and
cooperative relationship with the Navy. In February 2010, DoD
indicated that 72 percent of the lease area of 2020 should be
restricted to no oil and gas activity. Virginia believes
Congress should in future legislation consider redrawing the
Virginia lease area or include provisions to add additional
lease blocks for any block that is considered in conflict with
military operations.
Thank you very much.
[The prepared statement of Mr. Domenech follows:]
Statement of The Honorable Douglas W. Domenech, Secretary of Natural
Resources, Commonwealth of Virginia, on H.R. 1229, H.R. 1230, and H.R.
1231
Good morning Mr. Chairman and members of the Committee. I am Doug
Domenech, Secretary of Natural Resources for the Commonwealth of
Virginia. In my Secretariat, I oversee six state agencies; the
Department of Environmental Quality, the Department of Conservation and
Recreation, the Virginia Marine Resources Commission, the Department of
Historic Resources, the Virginia Museum of Natural History, and the
Department of Game and Inland Fisheries. In addition, my Secretariat
works closely with the Department of Mines, Minerals and Energy located
within the Secretariat of Commerce and Trade to implement the
Commonwealth's energy policy, and my Deputy, Maureen Matsen, serves as
the Governor's Senior Energy Advisor.
Virginia applauds the House Natural Resources Chairman, Congressman
Doc Hastings, and the Committee for the introduction last week of H.R.
1229 the ``Putting the Gulf Back to Work Act'', H.R. 1230, the
``Restarting American Offshore Leasing Now Act'', and H.R. 1231, the
``Reversing President Obama's Offshore Moratorium Act''. These three
bills expand offshore energy production in order to create jobs, lower
energy costs, generate revenue to help pay down the national debt, and
improve national security by lessening our dependence on foreign
sources of oil.
Virginia Governor Bob McDonnell believes that America must have an
``all-of-the-above'' energy strategy aimed at making certain we are
developing all of our energy resources in an economically and
environmentally responsible way. He also firmly believes it is critical
to reduce our dependence on foreign sources of oil. His approach in
Virginia recognizes that there is a need for a broad energy plan that
utilizes all aspects of Virginia's natural resources and that benefits
both the producer and the consumer. This means supporting both
conventional and renewable sources of energy including oil, coal and
natural gas, but also wind, solar, biomass, and nuclear production as
well. By exploring new energy technologies and improving current energy
processes, Virginia aims to become the ``Energy Capital of the East
Coast.'' An effective energy plan cannot just rely on a variety of
energy sources and research and development; it must also address the
core issue of what we can do to conserve our energy resources and
improve efficiency.
The Deepwater Horizon accident was devastating to the Gulf States.
We know that lessons are being learned and that new standards have been
put in place. We in Virginia believe we need nothing less than the
safest standards for any operations in the Atlantic. But we must not
allow this unfortunate accident to constrain American energy policy at
the expense of future domestic energy production, jobs, and rising
costs on every American family and business.
The Restarting American Offshore Leasing Now Act expands American
energy production and creates jobs by requiring the Secretary of the
Interior to conduct oil and natural gas lease sales in the Gulf of
Mexico and offshore Virginia that have been delayed or cancelled by the
Obama Administration.
Governor McDonnell has requested, directly to President Obama and
to Interior Secretary Salazar, that Interior's Bureau of Ocean Energy
Management, Regulation and Enforcement (BOEMRE) proceed with the
previously scheduled, then cancelled, offshore energy lease sale off
the coast of Virginia.
In 2008, in response to record-high gasoline prices, both Congress
and the President lifted the decades-long ban on offshore drilling.
This opened the entire Pacific and Atlantic Coast to new offshore
development.
Interior initiated the first step for a potential lease sale
offshore Virginia with a Call for Information published in the Federal
Register on November 13, 2008. The area covered by the Call was about
2.9 million acres offshore Virginia in the Mid-Atlantic Planning Area,
and is at least 50 miles offshore. The Bureau estimates that this area
may contain 130 million barrels of oil and 1.14 trillion cubic feet of
natural gas.
The current five-year plan (2007-2012), included a lease sale
(#220) off the Virginia Coast in 2012.
There is bipartisan support for oil and gas production offshore of
Virginia. Our General Assembly is on record in support of offshore
development, as well as local governments, the majority of the
Congressional delegation including our two US Senators. On March 31,
2010 the President announced that lease sale 220 would move forward as
part of the 2007-12 5-year Plan, opening the possibility for
exploration and production of oil and natural gas off the coast of
Virginia. Interior published a Notice reopening the comment period.
After the Deepwater Horizon accident on April 20, 2010, Interior
announced an indefinite postponement of the comment period. On May 27,
2010 the President cancelled the lease sale effective immediately, and
announced that no areas off the Atlantic Coast would be available for
energy development in the next five-year plan (2012-2017).
This cancellation means that no domestic oil and gas available in
the Atlantic will be accessible for development until sometime beyond
2017. 2011 will be the first year since 1958 that the federal
government will not have held an offshore lease sale.
In response to the President's announcement, Governor Bob McDonnell
issued the following statement; ``It is my hope that the President's
action does not signal the end of offshore energy exploration and
production off Virginia in the years ahead. Once we have learned the
lessons from this tragic accident, and made the necessary changes and
improvements in the offshore industry and government oversight, we
should move forward with environmentally responsible domestic offshore
energy production for oil and natural gas. This nation needs more
domestic energy production. If we decrease the amount of energy
produced here in the United States, we will only increase the amount of
energy we must import from overseas. We must have the foresight and
objectivity to not let this tragic accident cripple our ability to
increase energy production in the United States. That would be a
tragedy in its own right.''
Since the decision to cancel the Virginia lease sale, and to
withdraw the South and Mid-Atlantic from planning the next Plan for OCS
lease sales for oil and gas development, the world-wide conditions
affecting oil and energy security, availability, and price have
continued to deteriorate. The price of crude oil has increased more
than 27 percent since September 2010, and the price is now over $104
per barrel. It is more urgent than ever that we proceed with the
responsible development of our domestic energy resources off of
Virginia and the rest of the South and Mid-Atlantic Coast.
The Restarting American Offshore Leasing Now Act would require the
Secretary of the Interior to hold the Virginia lease sale no later than
one year after the bill is signed into law. This bill will reverse the
Administration's actions and proceed now with the scheduled lease sales
in a prompt, timely and safe manner. The nation cannot afford to wait
more than 6 years for meaningful expansion of our domestic oil and gas
resource development. We certainly agree that it is critically
important for the EIS to incorporate the lessons learned from the
tragic deep water drilling accident in the Gulf of Mexico. Indeed, we
have expressed our strong support for a thorough examination of
prevention, preparation and mitigation strategies. But we remain
confident that the foundations for effective planning to protect the
environment can be developed in the course of the EIS scoping, drafting
and issuance. Further, the time and multiple opportunities for review
between preparation of a 5 year Lease Plan, and actual issuance of a
drilling permit, allow ample opportunity to include provisions and
conditions necessary in light of events and consequences in the Gulf.
According to a study by the Southeast Energy Alliance, offshore
energy development in Virginia could create nearly 2,000 jobs and
produce more than a half billion barrels of oil and 2.5 trillion cubic
feet of natural gas.
These bills go a long way toward increasing America's energy
security. However, there are two issues that should be addressed by
future legislation: revenue sharing and an improved leasing map.
In 2006, Congress passed the Gulf of Mexico Energy Security Act of
2006 (GOMESA). GOMESA created sharing of leasing revenues with oil
producing states in the Gulf and the Land & Water Conservation Fund for
coastal restoration projects. Between fiscal years 2008-2010, it led to
nearly $30 million in revenue sharing to the states and coastal
political subdivisions.
Virginia believes it is important to share revenues from oil and
gas exploration with coastal states in a similar way as it is
constructed in the Gulf and would encourage Congress to consider such
legislation in the future.
The Governor has also expressed his concern about the size and
shape of the lease sale 220 map. Virginia has a long and cooperative
relationship with the US Navy. In a February 2010 report, the DOD
indicated that 72% of the lease area 220 should be restricted to ``no
oil and gas activity.'' Virginia believes that Congress should in
future legislation consider redrawing the Virginia lease area or
include provisions to add additional lease blocks for any block that is
considered in conflict with military operations.
Thank you for the opportunity to testify on behalf of the
Commonwealth of Virginia on these important bills.
______
Mr. Lamborn. Thank you. We will now hear from Mr. Hank
Danos.
STATEMENT OF MR. HANK DANOS, PRESIDENT,
DANOS & CUROLE CONTRACTORS, INC.
Mr. Danos. I want to thank the Chairman and the Ranking
Member for the opportunity to be here this morning and provide
testimony.
My name is Hank Danos. I am President of Danos & Curole
Marine Contractors and we are located in Little Rose,
Louisiana. Our company was formed 47 years ago as a small
tugboat business, furnishing transportation to the oil and gas
industry.
While we remain a family-owned business, since that time we
have grown considerably as an oil field service company with a
wide range of services and what we believe is an outstanding
track record of performance, a commitment to safety and the
development of more than 1,000 employees.
The issues that have resulted from the moratorium and the
effort to get the industry back up and running are significant.
And I am pleased to be here to testify in support of these
legislative efforts and in representation of many companies,
such as ours, along the Gulf Coast.
While we have done our best in weathering the storm of
uncertainty as a result of the moratorium and the slow to
uncertain pace of permitting, we have had to let construction
and logistical support people go. It is our hope that the
operational certainty that would come through these legislative
efforts, such as these bills would allow us to restore not only
the jobs that were lost, but also to add new jobs as a result
of expansion in new areas of OCS.
We are not a producer, but we are a service company,
consequently, we are not the applicant submitting the actual
permit to drill. However, put simply, a lack of exploration
plans and permits to drill means a lack of rigs working to
drill new wells and a lack of opportunities for us to provide
the essential services that these companies look to us to
facilitate. The supply of new permits to drill is the critical
life blood for our business and for many businesses like ours.
Uncertainty about what is required or why a permit might be
returned can be not only frustrating to applicants, but can
cause unnecessary delays. The approach taken in H.R. 1229 seems
to be a common sense way to provide some guidance to the
applicant and also that the agency will get information to make
a decision, if, indeed, there are some missing parts in the
application.
It now appears that without legislative intervention such
as H.R. 1230, 2011 will be the first year since 1958 that the
Federal Government will not hold a lease sale. Leasing is
simply the first step in a long process of getting to actual
development. There are numerous steps and regulatory
requirements that must be met before getting the green light to
actually drill a well on a lease that a company likely paid
millions of dollars for earlier and the well may or may not be
productive. When businesses are unsure of the future, they have
a tendency to be conservative in adding new jobs and making new
commitments. Going forward with these lease sales would be a
very important and reassuring signal to businesses that would
like to add new jobs and make key investments in the future.
Any energy strategy that simply pays lip service to
increasing domestic oil and gas production without highlight
where that energy will come from is not a serious strategy.
H.R. 1231 would take a bold response to the present and future
needs of our energy plans by directing us to areas in OCS with
the greatest potential. In addition, I am especially pleased to
see that, under this legislation, the five-year plans would no
longer occur without a strategic production goal in mind. This
provision would ensure greater government accountability for
the results of an administration's proposed policy outcomes.
Our nation indeed has vast oil and natural gas resources
off our shores that provide a tremendous opportunity for us to
enhance and control our energy future. We simply need the will
as a nation to use these resources.
In conclusion, these bills take a productive, proactive
approach to enhancing security and certainty for our businesses
that are attempting to create additional jobs and economic
growth, but also these will help us meet the energy challenges
of the future. I urge the Committee to support these bills. I
appreciate the opportunity to be here today and will be glad to
continue these discussions with you.
[The prepared statement of Mr. Danos follows:]
Statement of Hank Danos, President,
Danos and Curole Marine Contractors, Inc.
I want to thank the Chairman and Ranking Member for the opportunity
to be here this morning to provide testimony on these three bills--H.R.
1229, The ``Putting the Gulf Back to Work Act'', H.R. 1230, The
``Restarting American Offshore Leasing Now Act'', and H.R. 1231, The
``Reversing President Obama's Offshore Moratorium Act.'' The issues
that have resulted from the moratorium and the effort to get the
industry back up and running are significant and I am pleased to be
here to testify in support of these legislative efforts. I feel like I
represent many companies from the Gulf area that are similar to ours.
My name is Hank Danos and I am the President of Danos & Curole
Marine Contractors, Inc. located in Larose, Louisiana. Our company was
founded in 1947 as a small tugboat business furnishing transportation
to the oil and gas industry. While we remain a family owned business,
since that time we have grown considerably as an oilfield services
company with a wide range of services, and what we believe is an
outstanding track record of performance, a commitment to safety, and to
the quality work experience and development of our more than 1000
employees.
While we have done the best we can in weathering the storm of
uncertainty as a result of the moratorium and the slow to uncertain
pace of permitting, we have had to let some construction and logistical
support workers go. It is our hope that the operational certainty that
would come through legislative efforts such as those bills before us
today would allow us to not only restore some of those lost jobs but
also to add new jobs as a result of the expansion in access to new
areas in the Outer Continental Shelf (OCS). Having spoken to numerous
other businesses about their own operational uncertainty in the region,
I believe that other gulf based businesses would also be able to add a
significant amount of jobs if the legislation before us today were
enacted.
H.R. 1229, the ``Putting the Gulf Back to Work Act''
As mentioned earlier, we are not a producer, but rather a service
company. Consequently, we are not the applicant submitting the actual
permit to drill. However, put simply--a lack of exploration plans and
permits to drill means a lack of rigs working to drill new wells and a
lack of opportunities for us to provide the essential services that
these companies look to us to facilitate. This means that the supply of
new permits to drill is the critical lifeblood of new business for us
and for many businesses like us.
Uncertainty about what is required or why a permit might be
returned can be not only frustrating to the applicant but can cause
further unnecessary delays. It seems to be common sense to ensure that
if a permit cannot be approved, that guidance be provided as to what in
the application is lacking to ensure that the agency will get the
information it needs to make a decision on the permit without repeated
returns, only to see the clock reset.
In addition, it is essential that the legislation requires that
permits meet ``all critical safety system requirements, including
blowout prevention; and oil spill response and containment
requirements.'' The Department of the Interior has stated that it would
not be issuing new permits if they were not confident that these
requirements had been met. It is appropriate to require that new
permits should continue to clear that bar.
As I see the threats in the papers from potential litigants opposed
to new wells in the gulf, I think it is essential to remind the
committee that we will not be able to judge our post spill ability to
get up and running and provide the essential energy this country needs
until we actually have rigs moving on to location and wells being
drilled. I applaud the inclusion of provisions that would ensure that
decisions in the court system are made in an expedited fashion as a
means of mitigating against the further uncertainty from lawsuits that
has come to the industry as a result of these new threats to block new
energy development.
H.R. 1230, the ``Restarting American Offshore Leasing Now Act''
It now appears that without legislative intervention, 2011 will be
the first year since 1958 that the federal government will not hold an
offshore lease sale. It has been disappointing to see so many recent
confusing messages about why leasing is so important. Leasing is simply
the first step in a long process of getting to actual development.
There are numerous explorative steps and regulatory requirements that
must be met before getting the green light to actually drill a well on
a lease a company likely paid millions for years earlier. The well may
or may not lead to actual production.
We cannot expect to meet ambitious national goals about ``boosting
domestic production'' and ``reducing our dependence upon foreign oil''
without feeding potential new leases into the pipeline of future
production. This legislation would accomplish that by setting
previously anticipated lease sales back into motion. These lease sales,
previously a part of the 2012-2017 five year plan, would include two
Gulf of Mexico lease sales in 2011, one in 2012, and the anticipated
lease sale off the coast of Virginia in 2011.
When businesses are unsure of the future they have a tendency to be
conservative in adding new jobs and making new commitments that invest
in our economy's growth. That uncertainty is incompatible with lofty
goals of ``adding new jobs'' and getting the nation's economy back to
work again.'' Going forward with these sales would be a very important
and reassuring signal to those businesses that would like to add new
jobs and make key investments in the future.
H.R. 1231, the ``Reversing President Obama's Offshore Moratorium Act''
As I mentioned earlier, our nation simply cannot approach lofty
goals of ``energy independence'' and ``reducing reliance upon foreign
oil'' with the same policies we have always pursued with regard to the
development of domestic oil and gas. While I recognize that there are
also other policy strategies, such as enhancing energy efficiency,
which will play a role in meeting these goals, we must be bold with
regard to using the resources that we have here off our own shores. It
should be noted by the committee, that the U.S. Energy Information
Administration (EIA) is forecasting that domestic energy demand will
grow by 14 percent between 2008 and 2035, with more than half of that
demand expected to be met by oil and natural gas. In addition, they
anticipate that oil will supply 33 percent of total domestic energy
consumed, and 85 percent of transportation fuels, with oil continuing
to be the largest share of our energy need. Any strategy that simply
pays lip service to increasing domestic oil and gas production without
highlighting where that energy will come from is not a serious strategy
and is doomed to fail.
H.R. 1231 would take a bold response to the present and future
needs of the nation by directing plans for future development in the
areas of the OCS with the greatest potential. In addition, I am
especially pleased to see that under this legislation five year plans
would no longer occur without a strategic production goal in mind. This
rudderless approach is presently underscored by the incompatibility of
a publicly stated goal by the administration of boosting domestic oil
and gas production in the future with a proposed five year plan for
2012-2017 that contains no new areas for production. This ensures
greater government accountability for the results of an
administration's proposed policy outcomes.
Our nation indeed has vast oil and natural gas resources off our
shores that provide a tremendous opportunity for us to enhance our
control over our energy future and provide desperately needed jobs here
at home. While any energy strategy must recognize that we will continue
to draw from resources around the world, there are often efforts to
lowball America's energy resources. The Bureau of Energy Management,
Regulation, and Enforcement (BOEMRE) estimates that the undiscovered,
technically recoverable oil and natural gas resources located in the
OCS range from 66.6 billion to 115.1 billion barrels of oil and 326.4
trillion to 565.9 trillion cubic feet of natural gas. These estimates
are likely quite conservative given that they were not performed with
the benefit of new technology and that many areas are largely
unexplored. In fact, the Gulf of Mexico has already exceeded by six
times its original resource estimates.
Conclusion
In conclusion, these three bills take a proactive approach to
enhancing certainty for not only businesses that are attempting to
create additional jobs and economic growth, but also certainty in how
this nation will meet its energy challenges both now and into the
future. Each time consumers see an increase at the pump, we see an
increased attention to these issues--for a time. That focus is always
met by those who oppose expanding oil and gas production with the
response that there is not much that can be done in the short term to
impact prices now. While it is true that we cannot simply snap our
fingers and produce more instantaneously, that response continually
avoids the larger question of what policy choices need to be made now
to change that outcome in the future.
According to a recent study, the oil and natural gas industry
already provides approximately 9.2 million jobs and more than $1
trillion dollars to our nation's economy. Desperately needed jobs are
there for the taking if we will simply allow common sense policies to
ensure orderly development of our nation's OCS resources.
I appreciate the opportunity to be here today and provide testimony
and would be happy to answer any questions that members of the
committee might have for me.
______
Mr. Lamborn. Thank you for being here and for your
testimony. We will now hear from Professor Joseph R. Mason from
Louisiana State University.
STATEMENT OF JOSEPH R. MASON, Ph.D., MOYSE/LBA ENDOWED
PROFESSOR, LOUISIANA STATE UNIVERSITY AND SENIOR FELLOW, THE
WHARTON SCHOOL
Dr. Mason. Good morning and thank you Chairman Lamborn,
Ranking Member Holt and Members of the Committee for having me
here to testify today on this very important topic.
As an economist, my opinions are based on one simple truth,
every legislative and regulatory decision has implications for
jobs and output. Hence, foregoing access to energy resources in
the Outer Continental Shelf in the Gulf of Mexico inextricably
has economic consequences.
During the Gulf moratorium, the courts acknowledged such
views. In response to the Administration's policy, a Federal
judge in New Orleans blocked enforcement of the moratorium,
writing that, and I quote, ``The blanket moratorium with no
parameters seems to assume that because one rig failed, all
companies and rigs drilling new wells over 500 feet also
universally present an imminent danger, which was not in the
Court's opinion sufficient justification for taking economic
value from private sector jobs and firms.''
In the field of economics, such value-destroying economic
takings are not as rare as one might think. Previous research
gives a worrying indication of what can be expected from the
regulatory responses to events like Fukushima, Deepwater
Horizon and the mortgage crisis. The results show that
regulatory decisions are influenced by many factors beyond the
dispassionate evaluation of the economic costs and benefits.
For instance, a recent study by Mian, Sufi, and Trebbi in
2010 found that Congressional Representatives whose
constituents had higher rates of mortgage defaults were likely
to be in favor of the Foreclosure Prevention Act, despite
economic evidence that foreclosure prevention has unavoidable
economic costs. Other research by Moran and Weingast from 1982
showed that politicians influenced the activities of the
Federal Trade Commission, skewing the work of a supposedly
independent regulatory agency.
Grabowski and Vernon, in 1978, showed that the NASA
Consumer Product Safety Commission (CPSC) tended to focus on
products where risks were well understood already, ostensibly,
to better justify their creation to lay outsiders. Moreover,
only five of the CPSC's top 21 priority products for regulation
at that time had measurable economic benefits that exceeded
proposed regulatory costs.
What we can observe from a large body of economic research
on the political economy of regulation, therefore, is that both
elected officials and regulatory agencies are influenced by
political factors which may lead to suboptimal solutions to
complicated problems such as energy policy and the mortgage
crisis.
In recent years, regulatory agencies have continued to
impose costly policies upon the economy without congressional
approval. For instance, while the EPA ruling that carbons
should be treated as a pollutant was ultimately supported by
the Supreme Court many in Congress still maintained that the
agency overstepped its bounds in such a dramatic and
potentially costly reinterpretation of its rules.
The carbon ruling, however, is somewhat less problematic
than the EPA's December 2009 backdoor regulation of phthalates
used to soften plastics. Although the EPA did not have sound
scientific evidence upon which to ban phthalates outright, the
agency imposed the precautionary principle to temporarily halt
their production until evidence could be provided that they are
completely safe.
The Bureau of Ocean Energy Management, Regulation and
Enforcement's recent Gulf of Mexico drilling policy seems to
have been based on similar policy reasoning. While specific
companies, a specific type of platform design, and BP itself
have been blamed for the Deepwater Horizon blowout, BOEM
continue to severely restrict not only deepwater but also
shallow-water drilling in the Gulf of Mexico, despite ongoing
economic damage to the Gulf region. Then blatantly disregarding
the Commission's finding, BOEM's first deepwater permit
approval went to BP.
In looking at the political economy of new regulatory
arrangements, therefore, we must look with skepticism and
concern upon both the political motivations of the regulatory
officials charged with enforcing the rules and the uncomic
power that will be concentrated in those regulatory officials
as a result of their influence over the implementation costs
and economic redistribution. Without restraint, a toxic mix of
politics and power may damage both the industry and the
environment.
When new agencies like BOEM and the Consumer Financial
Protection Board, for instance, are created they have a strong
incentive to prove their worth to their creators and flex their
muscle with regard to their related industries. As such, new
agencies regularly undergo dramatic power shifts before
settling into anything that could be considered a stable role
in the U.S. regulatory framework.
The proposed legislation before us can in some ways help
that evolution by leading the process, balancing regulatory
accountability and economic growth is therefore a useful lens
that sharpens our focus on regulatory rent-seeking. Thank you.
[The prepared statement of Dr. Mason follows:]
Statement of Dr. Joseph R. Mason, Hermann Moyse, Jr./
LBA Professor of Finance, Louisiana State University \1\
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\1\ The opinions expressed here are my own and are not necessarily
reflective of those of LSU or any other entity.
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I. The Impetus for Increasing U.S. Offshore Oil Production
Maintaining energy independence by increasing U.S. offshore oil and
natural gas production has long been recognized as a national
imperative. In 2006, the U.S. Minerals Management Service (MMS)
reported to Congress that, ``much of the growth in the Nation's energy
demand will have to be met by OCS. . .if further increases of imported
supplies are to be avoided.'' MMS also estimated that, ``OCS oil
production could account for as much as 40 percent of domestic oil
production by 2010.'' Furthermore, the MMS indicated that the OCS
natural gas resources would become an essential source of energy as
imports from other countries--particularly Canada--decline.
Apart from national energy concerns, however, economic
considerations also favor increased development of OCS energy
resources. Specifically, the boost provided to local onshore economies
by offshore production would be particularly welcome in the present
economic climate. Similar to fiscal alternatives presently under
consideration, OCS development would provide a long-run economic
stimulus to the U.S. economy because the incremental output,
employment, and wages provided by OCS development would be spread over
many years. Unlike those policies, however, this stimulus would not
require government expenditures to support that long-term growth.
A. The Present State of Offshore U.S. Oil and Gas Production
Despite its importance, U.S. oil and natural gas production in
offshore areas is currently limited to only a few regions. At the
present time, oil and gas is only actively produced off the coast of
six U.S. states: Alabama, Louisiana, Mississippi, Texas, California,
and Alaska. The Energy Information Administration (EIA) reports that
Alabama, Louisiana, Mississippi, and Texas are the only coastal states
that provide access to all or almost all of their offshore energy
resources. Only two additional states--Alaska and California--are
producing any offshore energy supplies. All California OCS Planning
Areas and most Alaska OCS Planning Areas, however, were not open to any
new facilities until the recent end of the Congressional and
Presidential moratoria. The remaining 16 coastal states are not open to
new production and are not presently extracting any offshore energy
resources.
Even without those remaining sixteen states, plus California and
Alaska, the OCS is already the most important source of U.S. energy
supplies. According to the MMS, ``the Federal OCS is a major supplier
of oil and natural gas for the domestic market, contributing more
energy (oil and natural gas) for U.S. consumption than any single U.S.
state or country in the world.'' That is, OCS production presently
meets more U.S. energy demand than any other single source, including
Saudi Arabia.
B. Offshore Oil Production Stimulates Onshore Economies
Offshore oil and gas production has a significant effect on local
onshore economies as well as the national economy. There are broadly
three ``phases'' of development that contribute to state economic
growth: (1) the initial exploration and development of offshore
facilities; (2) the extraction of oil and gas reserves; and (3)
refining crude oil into finished petroleum products. Industries
supporting those phases are most evident in the sections of the Gulf of
Mexico that are currently open to offshore drilling.
For example, the U.S. shipbuilding industry--based largely in the
Gulf region--benefits significantly from initial offshore oil
exploration efforts. Exploration and development also requires
specialized exploration and drilling vessels, floating drilling rigs,
and miles and miles of steel pipe, as well as highly educated and
specialized labor to staff the efforts.
The onshore support does not end with production. A recent report
prepared for the U.S. Department of Energy indicates that the Louisiana
economy is ``highly dependent on a wide variety of industries that
depend on offshore oil and gas production'' and that offshore
production supports onshore production in the chemicals, platform
fabrication, drilling services, transportation, and gas processing.
Fleets of helicopters and U.S.-built vessels also supply offshore
facilities with a wide range of industrial and consumer goods, from
industrial spare parts to groceries. As explained in Section IV.G,
however, the distance between offshore facilities and onshore
communities can affect the relative intensity of the local economic
effects.
The economic effects in the refining phase are even more diffuse
than the effects for the two preceding phases. Although significant
capacity is located in California, Illinois, New Jersey, Louisiana,
Pennsylvania, Texas, and Washington, additional U.S. refining capacity
is spread widely around the country. As a result, refinery jobs, wages,
and tax revenues are even more likely to ``spill over'' into other
areas of the country, including non-coastal states like Illinois, as
those are home to many refining and chemical industries that ride the
economic coattails of oil exploration and extraction.
II. Offshore Oil and Gas Reserve Estimates and the Sources of their
Economic Benefits
As described in my 2009 white paper, ``The Economic Contribution of
Increased Offshore Oil Exploration and Production to Regional and
National Economies,'' available at www.americanenergyalliance.org/
images/aea_offshore_updated_final.pdf, significant oil and gas reserves
lie under the U.S. Outer Continental Shelf (OCS). According to the
Energy Information Administration (EIA), the OCS (including Alaskan OCS
Planning Areas) contains approximately 86 billion barrels of
recoverable oil and approximately 420 trillion cubic feet of
recoverable natural gas. As noted by the White House, however, the OCS
estimates are conservative. Of the total OCS reserves, a significant
portion was unavailable to exploration until recently. Specifically,
Presidential and Congressional mandates banned production from OCS
Planning Areas covering approximately 18 billion barrels of recoverable
oil and 77.61 trillion cubic feet of recoverable natural gas. These
bans covered approximately 31 percent of the total recoverable OCS oil
reserves and 25 percent of the total recoverable OCS natural gas
reserves.
Economic benefits of utilizing OCS reserves accrue from three
primary sources: (1) exploration/platform investments; (2) production;
and (3) refining. Sources (1) and (3) produce initial affects--that is,
new industry expenditures--today; in contrast, source (2) produce
economic effects only once production begins. The analysis therefore
considers ``initial'' economic effects as those that flow from
exploration or investments in new refining capacity and long-term
economic effects as those that flow from production and ongoing
refining.
A. Exploration and Offshore Facility Development
In contrast to other industries, the high fixed investment costs
associated with offshore oil and gas production produce large initial
investments that reverberate throughout the economy. Once oil or gas
reserves are located, billions of additional dollars must be spent
before the well produces even $1 of revenue. For example, oil
exploration costs can amount to between $200,000 and $759,000 per day
per site. Additional production in the U.S. will also require a costly
expansion refining capacity as well. Taken together, the fixed
expenditures that precede actual offshore oil and gas production can
amount to billions of dollars.
For example, Chevron's ``Tahiti'' project in the Gulf of Mexico is
representative of the large investments that firms must make before
production is achieved. In 2002, Chevron explored the Tahiti lease--
which lies 100 miles off the U.S. coast at a depth of 4,000 feet--and
found ``an estimated 400 million to 500 million barrels of recoverable
resources.'' Chevron estimates that it will take seven years to build
the necessary infrastructure required to begin production at Tahiti.
The firm estimates that its total development costs will amount to
``$4.7 billion--before realizing $1 of return on our investment.''
As a typical U.S. offshore project, the Tahiti project provides a
wealth of information regarding the up-front investment costs, length
of investment, and lifespan of future OCS fields. As noted above, the
Tahiti field is estimated to hold between 400 million and 500 million
barrels of oil and oil equivalents (primarily natural gas) and is
expected to require an initial fixed investment of $4.7 billion. Using
the mid-point reserve estimate of 450 million barrels of oil
equivalent, up-front development costs amount to approximately $10.44
per barrel of oil reserves or $1.86 per 1,000 cubic feet of natural gas
reserves. These costs will be spread over 7 years, resulting in average
up-front development expenditures equal to $1.49 per barrel of oil and
$0.27 per 1,000 cubic feet of natural gas. Chevron also estimates that
the Tahiti project will produce for ``up to 30 years''. Although
investment and production times vary widely, the analysis that follows
uses the Tahiti project numbers--an average initial investment period
of seven years followed by an average production period of 30 years--as
indicative of the ``typical'' offshore project. I will thus assume an
average initial investment period of seven years followed by an average
production period of 30 years.
The speed of OCS development also factors into the analysis.
Because most areas of the U.S. OCS have been closed to new exploration
and production for almost forty years, it is unclear how quickly firms
would move to develop new offshore fields. Given its large potential
reserves, however, the OCS is sure to attract significant investment.
Without the benefit of government data, a rough estimate suggests that
annual total investment in OCS fields would be $9.09 billion per year.
Those annual expenditures are expected to last, on average, the
full seven years of the development phase. Additional investment in
states that already support significant production--Alabama, Louisiana,
Mississippi, and Texas--are limited. Some of the greatest benefits
accrue to areas that are home to enormous--but unavailable--total
reserves: California and Florida.
B. Production
The likely value of state recoverable oil and gas reserves are
estimated using the likely lifetime revenue that could be generated by
the project. In that case, average wholesale energy prices provide the
information necessary to translate reserves into revenues. Taking the
simple average of the EIA's latest inflation-adjusted energy price
forecasts through 2030 as provided by its Annual Energy Outlook 2009,
the average inflation-adjusted price of oil will be $110.64 per barrel
and the average inflation-adjusted price of natural gas will be $6.83
per thousand cubic feet. At these prices, the estimated OCS reserves
are worth about $13 trillion.
The value of each state's available reserves are calculated as the
sum of (1) its share of available OCS Planning Area oil reserves times
$110.64 per barrel and (2) its share of available OCS Planning Area
natural gas reserves times $6.83 per thousand cubic feet. The same
method applies to the valuation of total state OCS reserves. By those
estimation methods, states such as California, facing a budget crisis
in the current recession, have an estimated $1.65 trillion in resources
available in nearby OCS planning areas. Florida, while not facing as
dire a fiscal crisis, has about $0.55 trillion in resources available
in nearby OCS planning areas. Hence, a permanent relaxation of all
federal OCS production moratoria would unlock more than $3.4 trillion
in new production among all the coastal states.
C. Investments in Incremental Refining Capacity
Since U.S. refineries are presently operating near maximum capacity
increased offshore oil and gas production would also spur investment in
new refineries. The U.S. refining industry is presently operating at
97.9 percent of capacity and can no longer depend on excess foreign
refining to meet production shortfalls arising from seasonality or
repairs. In response, many large refiners are already considering
refinery expansions: ConocoPhillips announced that it planned to spend
$6.5 billion to $7 billion on capacity expansion at its U.S.
facilities; Chevron has also considered a major refinery expansion; and
while Shell is completing a $7 billion expansion and its Port Arthur,
Texas refinery they are considering further expansion elsewhere.
Additional refinery investments are likely to occur in the few U.S.
states that already host significant U.S. refineries. This result is
largely due to environmental restrictions that severely limit the
placement of new refining capacity. Current capacity is primarily
concentrated in California, Louisiana, and Texas.
The U.S. presently has an operating refining capacity of
approximately 6.287 billion barrels of crude oil per year. Conservative
estimates of OCS production would add approximately 3.773 billion
barrels per year, or about sixty percent of current U.S. operating
refinery capacity. Because some OCS refining production would most
likely substitute for foreign production, however, the analysis
conservatively assumes that only one-quarter of this new OCS production
necessitates additional U.S. refinery capacity. That is, I estimate
that U.S. refinery demand would increase by 943.25 million barrels per
year, or 15 percent of current installed capacity.
Even this modest capacity increase would require substantial new
investments. In response to existing capacity constraints, Shell is
already increasing the capacity of its Port Arthur, Texas refinery.
This expansion will take approximately two and one-half years to
complete and cost $7 billion. The facility will add 325,000 barrels per
day (or 118.6 million barrels per year) in new capacity, at a cost of
approximately $59.02 per barrel of new annual capacity.
As noted above, since tough environmental regulations effectively
limit new refinery capacity to a few states, refinery investments are
likely to be limited to only a few states with large existing capacity.
These states can be reasonably assumed to be the same states the
already have large installed refinery capacity. Hence, incremental
refinery capacity will be added predominantly in states already home to
large refining capacity--those with a present capacity of more than 200
million barrels per year. There are seven such states: California,
Illinois, Louisiana, New Jersey, Pennsylvania, Texas, and Washington.
Expected increases in offshore oil production will induce
approximately $22 billion in refining capacity investments each year
for two and one half years. California, Texas, and Louisiana will
receive the bulk of this investment, but investments of more than $1
billion annually can be expected in Illinois, New Jersey, Pennsylvania,
and Washington.
III. Increased Investments in Offshore Oil and Gas Production will
Cause Substantial Increases in Wages, Employment, and Taxes,
and Profound Effects on Communities Throughout the Nation
Onshore state and local economies benefit from the development of
OCS reserves by providing goods and services to offshore oil and gas
extraction sites. Onshore communities provide all manner of goods and
services required by offshore oil and gas extraction. A variety of
industries are involved in this effort: shipbuilders provide
exploration vessels, permanent and movable platforms, and resupply
vessels; steelworkers fashion the drilling machinery and specialized
pipes required for offshore resource extraction; accountants and
bankers provide financial services; and other onshore employees provide
groceries, transportation, refining, and other duties. These onshore
jobs, in turn, support other jobs and other industries (such as retail
and hospitality establishments).
The statistical approach known as an ``input-output'' analysis
measures the economic effects associated with a particular project or
economic development plan. This approach, which was pioneered by Nobel
Prize winner Wassily Leontif, has been refined by the U.S. Department
of Commerce. The most recent version of the Commerce Department's
analysis is known as the Regional Input-Output Modelling System, or
``RIMS II.'' The RIMS II model provides a variety of multipliers that
measure how an economic development project--such as offshore
drilling--would ``trickle down'' through the economy providing new
jobs, wages, and government revenues. This analysis can be broken down
into two parts: (1) a ``direct'' analysis measuring the benefits that
arise from industries that directly supply offshore oil and gas
exploration and (2) the ``final'' analysis that measures the direct and
indirect benefits associated with offshore exploration.
The RIMS II model is the standard method governmental authorities
use to evaluate the benefits associated with an economic development
project. According to the Commerce Department, the RIMS II model has
been used to evaluate the economic effects of many projects, including:
opening or closing military bases, tourist expenditures, new energy
facilities, opening or closing manufacturing plants, shopping malls,
sports stadiums, and new airport or port facilities.
A. Opening OCS Planning Areas would Unleash More than $11 trillion in
Economic Activity
The broadest measure of the incremental effect of increased OCS oil
and natural gas extraction is the effect on total economic output.
Until OCS production begins, onshore communities will realize only the
benefits associated with offshore investment. These benefits take two
forms: (1) the development of the offshore facilities themselves and
(2) the expansion of onshore refining capacity. These two effects,
taken together, provide a rough approximation of the additional output
that would be created by allowing greater access to offshore reserves.
Of course, the investment expenditures and resulting output
estimated above is only made to facilitate oil and gas extraction. Once
extraction begins, additional economic activity continues for the
lifetime of the oil and natural gas reserves.
Using the total U.S. multipliers (2.2860 for refining and 2.3938
for extraction), the total increase in U.S. output from initial
investment is estimated to be a total of about $0.5 trillion, or
approximately $73 billion per year for the first seven years the OCS is
open. For comparative purposes, a $73 billion stimulus amounts to
approximately 0.5 percent of total U.S. output (GDP) per year.
Increased OCS oil and gas extraction would yield approximately
$5.75 trillion in new coastal state output over the lifetime of the
fields. Approximating the total increase in output associated with
increasing offshore resource production throughout the U.S. (including
states in the interior), yields approximately $2.45 trillion in
additional output.
The total increase in output in the United States is estimated to
total approximately $8.2 trillion or about $273 billion per year, which
amounts to just over two percent of GDP. Because the OCS areas are
currently unavailable, the entire amount--$8.2 trillion--is completely
new output created by a simple change in policy allowing resource
extraction in additional OCS Planning Areas.
B. Opening OCS Planning Areas could Create Millions of New Jobs
An economic expansion tied to increased OCS resource production
would also create millions of new jobs both in the extraction industry
and in other sectors that serve as suppliers or their employees.
The annual increase in coastal state employment from initial
investments in previously unavailable OCS planning areas and additional
refining capacity is estimated to be 185,320 full-time jobs per year.
Again, this number does not consider the spill-over effects of
investment in productive capacity and refining to other U.S. states.
The total increase in U.S. employment from the investment phase is
approximately 271,570 full-time jobs per year.
Applying the BEA multipliers to the estimated production value
results in approximately 870,000 coastal state jobs in addition to the
jobs created during the initial investment phase. Again, the total
increase in U.S. employment in all states (including those in the
interior) resulting from increased OCS production is 340,000 greater,
for a total of approximately 1,190,000 jobs be sustained for the entire
OCS production period.
Increased investment and production in previously unavailable OCS
oil and gas extraction and the ancillary industries that support the
offshore industry would produce thousands of new jobs in stable and
valuable industries. Among the 271,572 jobs created in the investment
phase and sustained during the first seven years of the investment
cycle. The majority of new positions (162,541 jobs, or 60 percent)
would be created in high-skills fields, such as health care, real
estate, professional services, manufacturing, administration, finance,
education, the arts, information, and management. Although the largest
total increase in employment in the production phase would occur (quite
naturally) in the mining industry, significant numbers of jobs would be
created in other industries. Again, many of these new jobs would be
created in high-skills fields, representing approximately 49 percent of
all new jobs and approximately 61 percent of all new non-mining jobs.
C. Opening OCS Planning Areas can Release Trillions of Dollars of
Wages to Workers Hit by Recession
Those jobs pay wages. OCS development is estimated to yield
approximately $10.7 billion in new wages in coastal states each year.
OCS production would yield approximately $1.406 trillion in additional
wage income to workers in coastal states over the lifetime of the
fields (or $46 billion per year over 30 years). Across the U.S., the
investment phase would generate approximately $15.7 billion in
additional annual wages per year for the first seven years and $70
billion per year for the next thirty years, or approximately $2.1
trillion in additional wage income.
BLS data suggest that all four broad industry classifications
related to oil and gas extraction pay higher wages and similar jobs in
other industries. Jobs in: (1) Oil and Gas Extraction, (2) Pipeline
Transportation of Crude Oil, (3) Petroleum and Coal Products
Manufacturing, and (4) Support Activities for Mining, typically pay
higher wages than the average American job. Taking this broader
measure, the average job created by increased offshore oil and gas
production pays approximately 28 percent more than the average U.S.
job.
D. Opening OCS Planning Areas can Contribute Trillions of Dollars in
Taxes and other Public Revenues to Local, State, and Federal
Governments
Greater output, more jobs, and higher wages translate into higher
tax collections and increases in other sources of public revenues. The
MMS Report to Congress suggests that public revenues derived from OCS
extraction are significant--the U.S. federal government has collected
more than $156 billion in lease and levy payments for OCS oil and
natural gas production. Note that this amount counts only lease and
royalty payments and thus does not include any sales and income taxes
paid by firms or workers supported by OCS production.
Conservative estimates suggest that seven years of initial annual
exploration and refining investments would produce approximately $4.8
billion annually in coastal state and local tax revenue and $11.1
billion in U.S. federal tax income. Over thirty years of production, I
estimate that the extraction phase of OCS development would yield
approximately $561 billion ($18.7 billion per year) in coastal state
and local tax revenue and approximately $1.64 trillion ($54.7 billion
per year) in new U.S. federal tax income.
E. The Economic Effects Associated with Increasing U.S. Offshore Oil
and Gas Production Vary by Drilling Distance from Shore
Government sources indicate that the economic effects associated
with increased OCS oil and gas production are likely to vary with the
distance from shore. This dynamic has important implications for the
analysis because increasing OCS development includes a mix of both
shallow and deep water projects. Deep water projects are far more
expensive than shallow water projects, however, so far fewer are
undertaken.
According to the MMS, the cost of developing a deep water field can
exceed $1 billion. This cost far exceeds the cost of developing a
shallow field, which the MMS places at approximately $100 million.
While some are tempted to argue that deep water fields are
significantly larger than shallow water fields, that argument in part
arises from an observational bias arising in part because firms will
only bear the high cost of development for sufficiently large fields.
Nonetheless, while it is estimated that deep and ultra deep water oil
reserves are some 35-60 times the magnitude of shallow water reserves,
the economics of exploration and development, as well as production,
dictate that deep and ultra deep projects will not generate sufficient
production to relieve the importance of shallow water projects any time
soon.
The increased cost and offshore distance associated with deep water
operations has several implications for the above economic analysis.
While the increased cost of development translates into increased
purchases of goods and services in local communities, as distance
increases shore operations can be more easily centralized into a few
communities that serve many deep water fields. Thus the local economic
effects associated with deep water production are likely to be greater
and more concentrated than they are for shallow water production.
IV. Summary and Conclusions
The present paper estimates the net local and national economic
effects that can be expected from opening OCS Planning Areas. In
contrast to previous analyses of offshore development, the present
study estimates economic growth and output associated with the
production phase, but also estimates the economic effects of the
exploration and development phases as well. In truth, exploration and
development involve a great deal of economic activity, suggesting that
opening OCS Planning areas can increase economic growth, provide jobs,
increase aggregate wages, and add to public revenues both today and for
years in the future.
Over the life span of development, OCS planning areas will
contribute approximately $8.7 trillion dollars to U.S. economic growth,
of which some $2.2 trillion can be expected to be paid out in wages to
employees in almost 38 million annual jobs, many in high-paying
professional career fields.
That economic growth will also generate just over $1.7 trillion in
Federal tax revenue, almost $0.6 trillion in state and local tax
revenue, and inestimable royalty and lease revenue that will in many
cases be split between the two. Those revenues will contribute to
schools, health centers, and infrastructure projects that will
contribute substantially to the quality of life in not only coastal
regions directly affected by the development, but nationwide. Immediate
revenues from exploration can also help many coastal states weather the
effects of the present recession and mortgage crisis without Federal
aid.
While some are suggesting limiting OCS Planning Area development to
areas located more than one hundred miles offshore, it is important to
point out that such limitations substantially curtail the benefits of
OCS development. Not only are the costs of such deep and ultradeep
water development often prohibitive, but production in such areas is
more volatile as a result and Federal subsidies substantially diminish
the potential public revenue gains from opening OCS Planning Areas.
In summary, investment and development in OCS Planning Areas can
increase economic growth with attendant effects on jobs, wages, taxes,
and other public revenues, helping to both invigorate and stabilize
economic growth while reducing oil price volatility. The resulting
economic growth and public revenues are particularly attractive to
local economies close to previously prohibited OCS planning areas like
those off the coasts of California and Florida, which are experiencing
the full force of recession and mortgage foreclosures. Jobs in these
areas can be particularly powerful in resuscitating the economy and
restoring economic growth. It makes no sense to consciously choose to
forego such a substantial source of economic growth in a recession.
In closing, a caveat. The present analysis is only meant to be a
starting point for discussing the economic effects of unavailable OCS
reserves rather than an exact estimate of the economic effects of OCS
Planning Area development and operation. Clearly there will be debate
about many of the parameters used in the analysis. No amount of debate,
however, should detract from the simple reality that reaffirming the
OCS moratoria will leave valuable economic growth opportunities on the
table precisely at a time when the country owes its citizens access to
jobs and wages that can help them weather the current recession.
______
Mr. Lamborn. Thank you for your testimony. We will now hear
from Emily Woglom from the Ocean Conservancy. Thank you.
STATEMENT OF MS. EMILY WOGLOM, DIRECTOR,
GOVERNMENT RELATIONS, OCEAN CONSERVANCY
Ms. Woglom. Thank you, Chairman Lamborn, Chairman Hastings,
Ranking Member Holt and Members of the Subcommittee thank you
for the invitation to participate in today's hearing.
My name is Emily Woglom and I am the Director of Government
Relations for Ocean Conservancy, a national marine conversation
organization that has brought scientists and citizens together
to promote a healthy ocean for the last 40 years.
I have worked on marine issues since I served as a budget
and policy analyst for ocean issues at the Office of Management
and Budget during the Bush Administration and in my academic
training I focused jointly on research economics and marine
environmental management.
Ocean Conservancy recognizes that together we must all
continue to develop energy sources to sustain and promote
economic growth and support our social needs. And we appreciate
having the opportunity today to discuss ways to responsibly and
safely meet our country's energy demand.
In two weeks it will have been one year since the beginning
of the BP oil disaster that killed 11 people and discharged an
estimated 205 million gallons of oil into the Gulf of Mexico.
Even a year later, there are still places where oil is coming
ashore, shrimp trollers are dredging up oil, unusual numbers of
dead dolphins, turtles, and other wildlife continue to be found
in the Gulf and we do not yet understand the cause.
Local residents have unanswered questions about long-term
health effects of the oil and the dispersants used to combat
it. And of course, hundreds of thousands of jobs in fisheries,
tourism, and recreation are directly tied to the health of the
coastal and marine environment. Fishing and tourism in the Gulf
bring in $57 billion and support over 830,000 jobs. And yet, it
is in this environment only a year later that offshore drilling
continues and Transocean is getting bonuses for their safety
record and even BP itself is eager to drill in the Gulf.
Yet, despite a clear roadmap for reform presented by the
bipartisan National Oil Spill Commission, there has been no
congressional action to address the systemic problems that led
to this disaster, and there is still tremendous work to be done
to fully restore the Gulf ecosystem. But instead of reform and
restoration, we are here to discuss bills to accelerate the
very processes that need to be overhauled.
Under the old system, America gambled on oil industry
promises and lost. Congress must not double down on that flawed
system, and instead do everything it can to ensure that the
highest safety standards are met and proven.
The bills that are the subject of this hearing--H.R. 1229,
H.R. 1230, and H.R. 1231--pursue a lopsided approach, a full
steam ahead path that jeopardizes the health of ecosystems as
well as the people and businesses that depend on them. Each of
these three bills irresponsibly prioritizes development and
production at the cost of safety, science, and environmental
safeguards.
Moreover, we view these bills as forcing a choice, placing
oil companies over fishermen, small business owners, and
employees of the tourism industry. H.R. 1229 rushes secretarial
approval of drilling by declaring that permits would be deemed
approved if the Secretary does not issue a decision within 60
days.
H.R. 1230 would subvert the NEPA process by forcing lease
sales in the Gulf of Mexico and off the coast of Virginia on a
rushed time line. It would deny Interior the opportunity to
conduct a thorough and specific environmental review and would
deny the public the opportunity to learn about and comment on
these lease sales.
H.R. 1231 would effectively force Interior to offer for
lease sweeping areas of the OCS and establish production goals
for the five-year OCS leasing program. This again would
incentivize production over safety. In so doing, it would make
it difficult for the agency to conduct any meaningful, site-
specific analysis of the potential environmental consequences
and risks of oil and gas activity.
The last section of H.R. 1231 would force taxpayers to foot
half the bill for certain oil and gas exploration costs.
Particularly, in our current fiscal climate oil and gas
companies, some of the richest corporations on earth, do not
need another subsidy. To ensure that energy development
minimizes risks to energy workers, ocean and coastal ecosystems
and the coastal businesses and economies that rely on them,
Congress and government regulators must act now.
There have been some attempts to address this, including
the Clear Act and Ranking Member Markey's bill, H.R. 501, but
unfortunately so far no bills have made it to the President's
desk. Ocean Conservancy encourages any legislation to adhere to
some core principles.
First, energy development must protect environmental,
human, and economic health and must be grounded in science and
a commitment to an increased understanding of the environment.
Second, the government must perform rigorous risk assessments
when permitting development. Third, the government and industry
must together ensure that they are prepared to respond to a
worse case disaster, even if such an event is a low
probability. And finally, Congress must provide the funding
necessary to ensure adequate preparedness.
If there is to be a place for oil drilling in the Gulf of
Mexico, then it should be governed by a set of rules that exist
because of, not in spite of the BP oil disaster. It is not too
late to avoid making the same mistakes again. Thank you and I
look forward to your questions.
[The prepared statement of Ms. Woglom follows:]
Statement of Emily Woglom, Director of Government Relations,
Ocean Conservancy, on H.R. 1229, H.R. 1230, and H.R. 1231
Chairman Hastings, Ranking Member Markey, and Members of the
Committee, thank you for the invitation to participate in today's
hearing. My name is Emily Woglom, and I am the Director of Government
Relations for Ocean Conservancy, a national marine conservation
organization that has brought scientists and citizens together to
promote a healthy ocean for the last forty years. I have worked on
marine issues since I served as a budget and policy analyst for ocean
issues at the Office of Management and Budget during the Bush
Administration. In my graduate program at Duke University I focused
jointly on resources economics and marine environmental management.
Through my training and professional career I have experience looking
at the intersection of natural resource issues and economic concerns in
the ocean.
I. INTRODUCTION
Last spring, an explosion rocked the BP Deepwater Horizon offshore
drilling rig in the Gulf of Mexico. The explosion and resulting fire
killed 11 crew members, seriously injured 16 others, and eventually
sank the rig. The explosion marked the beginning of the ``world's
largest accidental release of oil into marine waters.'' By the time BP
effectively stopped the flow of oil on July 15, 2010, its Macondo well
had discharged an estimated 205 million gallons of oil into the Gulf of
Mexico. The Gulf disaster impacted lives, livelihoods, and the rich and
diverse Gulf of Mexico ecosystem that is a national treasure and a
cornerstone of the regional economy.
Ocean Conservancy recognizes that the United States must continue
to develop energy sources needed to sustain and promote economic growth
and support our social needs. But the catastrophe in the Gulf of Mexico
shows that we must learn to do so in ways that are safe for energy
workers and that allow us to maintain a healthy environment for this
and future generations.\1\ At the same time, conservation--including
reducing our use of and dependence on hydrocarbons and other high-risk,
non-renewable energy sources--must be a part of our country's energy
future. Safe and responsible energy development, coupled with sensible
conservation measures and investments, will help ensure that there are
economic opportunities, healthy and diverse ecosystems, and a clean and
safe environment into the future.
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\1\ The Gulf disaster is just one of many energy-related disasters
that have been in the news lately. In 2009, the Montara offshore oil
platform suffered a blowout and released oil into the Timor Sea for
more than 70 days. Shortly before the Deepwater Horizon disaster in
April 2010, there was a massive explosion at the Upper Big Branch coal
mine in West Virginia that killed 29 miners. And, of course, there is
an ongoing crisis at Japan's Fukushima Dai-ichi nuclear complex, where
radioactive water is now leaking into the ocean and slowing response to
the devastation of the tsunami.
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Finding a path to safe, responsible, and ultimately sustainable,
energy development is one of the biggest challenges of our time.
Congress must not view this issue as a political football that can be
used to score partisan points. Instead, it must do all in its power to
bring the nation together and commit to doing energy development right,
including investing in renewable energy sources and conservation
programs. The following basic principles should guide the process:
(1) Energy development must protect environmental, human, and
economic health;
(2) Energy development must be grounded in science and a
commitment to increased understanding of the environment;
(3) Development operations must use the best available, safest
engineering and technology;
(4) Government regulators must perform rigorous risk
assessments;
(5) Government regulators and industry operators must ensure
that they are prepared to respond to a worst-case disaster,
even if such an event is of low probability;
(6) Congress must provide the funding necessary to ensure
adequate preparedness;
(7) Our nation's energy policy must include conservation
programs; and
(8) Congress must commit to restoration in the Gulf of Mexico.
Below, in Part II of this testimony, I expand on these guiding
principles. In Part III, I discuss specific areas where the proposed
bills that are the subject of this hearing--H.R. 1229, H.R. 1230, and
H.R. 1231--diverge from these principles. And in Part IV, I suggest
legislative language that would address some specific aspects of the
energy issue, including funding for restoration of the Gulf of Mexico,
science and oil spill preparedness, and an Arctic research and
monitoring program.
II. Principles for Safe and Responsible Energy Development
To ensure that energy development minimizes risks to energy
workers, ocean and coastal ecosystems, and the coastal businesses and
economies that rely on them, Congress and government regulators should
adhere to the principles articulated below.
A. Energy development must protect environmental, human, and economic
health.
In our pursuit of energy, we must minimize risks to the natural
environment to ensure diverse, healthy ecosystems capable of supporting
the economy and human health--for this generation and the next. Oil and
gas lease sales, exploratory drilling, and development and production
on the Outer Continental Shelf (OCS) are appropriate only when science
shows that such actions can proceed with minimal risk to the health of
ocean and coastal ecosystems. Oil and gas activities and other energy
development activities on the Outer Continental Shelf should be
consistent with the National Ocean Policy's call to ``protect,
maintain, and restore the health and biological diversity of ocean,
coastal, and Great Lakes ecosystems and resources.'' \2\ In addition,
to help ensure that economic sectors other than oil and gas development
are given adequate consideration, we should move toward a more
comprehensive system of regional planning for the conservation and
management of marine resources.
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\2\ Executive Order 13547, 75 Fed. Reg. 43,023, 43,023 (July 22,
2010). The National Ocean Policy also includes calls to ``improve the
resiliency of ocean, coastal, and Great Lakes ecosystems, communities,
and economies,'' and to ``use the best available science and knowledge
to inform decisions affecting the ocean, our coasts, and the Great
Lakes.'' Id. at 43,023-24.
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Instead of eroding existing standards, Congress should bolster
environmental safeguards to help ensure that the marine environment is
adequately protected from the risks of energy development. The National
Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling,
for example, noted the need for a ``comprehensive overhaul of both
leasing and the regulatory policies and institutions used to oversee
offshore activities.'' \3\ To help minimize risks from OCS activities,
expert agencies other than the Bureau of Ocean Energy Management,
Regulation, and Enforcement (BOEMRE) should play a greater role in
decisions about, and preparation of environmental analyses for, oil and
gas operations. These agencies should include the National Oceanic and
Atmospheric Administration (NOAA), the U.S. Fish and Wildlife Service
(USFWS), the U.S. Coast Guard (USCG), and others. To facilitate more
meaningful environmental analysis before exploration and drilling
activities proceed, OCS planning areas--at least in frontier areas--
should be smaller and focused more precisely on specific lease tracts.
Finally, areas of the marine environment that are particularly
significant--such as important essential fish habitat, areas of high
productivity or concentrations of wildlife, migratory pathways, and
subsistence-use areas--should be protected from the impacts of OCS oil
and gas activities. Regulators should preserve the resilience of marine
ecosystems by placing important ecological areas off-limits to
drilling, or by requiring OCS operators to meet specific, stringent
precautions before they conduct on-water activities that may affect
these areas.
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\3\ National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling, Deep Water: The Gulf Oil Disaster and the Future of
Offshore Drilling--Report to the President (Jan. 11, 2011) at 250
[hereinafter National Commission Report].
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B. Energy development must be grounded in science and a commitment to
increased understanding of the environment.
Congress must ensure that adequate baseline science is in place
before OCS activities proceed. Scientific baseline data and risk
analyses should inform decisions about whether, when, and where to
allow OCS oil and gas activities. Certain types of scientific
information are necessary to help plan for and implement oil spill
response operations. In addition, baseline science is necessary in the
natural resource damage assessment process following an oil spill
because the impacts must be measured against the environmental baseline
that existed prior to the spill.\4\ This is not possible without
adequate time series of baseline data, and the costs of obtaining such
data are part of the costs of responsible energy development.
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\4\ See, e.g., 15 C.F.R. Sec. 990.52 (noting that natural resource
trustees ``must quantify the degree, and spatial and temporal extent of
such injuries relative to baseline.''); see also id. Sec. 990.30
(defining ``baseline'' as ``the condition of the natural resources and
services that would have existed had the [oil spill] incident not
occurred.'').
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Before permitting OCS activities to proceed, we should require the
availability of specific types and quantities of baseline scientific
information. This information might include information on physical
characteristics--such as data on the benthic environment, ocean
currents, wind and weather patterns, and water temperature and
salinity--as well as information about the ecosystem, such as the
presence, distribution, and abundance of species and the web of
relationships among those species. Collection of baseline science
should include and incorporate local and traditional knowledge from
affected communities. This approach would ensure that expert concerns
are heard from the outset, and would help avoid later complications.
The need for baseline science information is particularly acute in
the Arctic OCS. Participants in a workshop \5\ on Natural Resource
Damage Assessments [NRDA] in the Arctic convened on April 20, 2010--the
same day as the BP Deepwater Horizon disaster began to unfold--
participants concluded that: ``Even under best-case scenarios, spilled
oil could have serious consequences for natural resources and local
communities, requiring a NRDA to be initiated. However, very little, if
any, NRDA work has been done in the Arctic.'' The National Commission
noted that ``scientific research on the ecosystems of the Arctic is
difficult and expensive. Good information exists for only a few
species, and even for those, just for certain times of the year or in
certain areas.'' \6\ The Commission recommended ``an immediate,
comprehensive federal research effort to provide a foundation of
scientific information on the Arctic (with periodic review by the
National Academy of Sciences), and annual stock assessments for marine
mammals, fish, and birds that use the Beaufort and Chukchi Seas.'' \7\
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\5\ National Oceanic and Atmospheric Administration Office of
Response and Restoration and University of New Hampshire Coastal
Response Research Center. Natural Resources Damage Assessment in the
Arctic: The Dialogue Begins (October 2010) at 4.
\6\ National Commission Report at 303.
\7\ Id.
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C. Development operations must use the best available engineering and
technology.
Going forward, we must ensure that OCS facilities use the best
available engineering, technology, and safety procedures to maximize
the protection of workers, ocean and coastal ecosystems, and the
coastal businesses and economies that rely on them. A recent Department
of the Interior Inspector General Report concluded that BOEMRE's
``process for developing or updating standards and regulations has not
kept pace with new and emerging offshore technologies.'' \8\ Operators
of all new offshore leases should be required to demonstrate that they
are using the most effective safety technology for exploration or
development activity as a precondition to drilling.\9\ Standards
regarding spill prevention technologies should be implemented, as well.
These might require redundant engineering controls, such as multiple or
improved blowout prevention systems, on-site blowout containment
structures, and double-walled pipes or tanks. All OCS leases should be
required to incorporate the most environmentally protective timing and
location stipulations and terms so as to reduce the potential for
environmental damage and the potential for adverse impact on the
coastal zone.
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\8\ Office of Inspector General, U.S. Department of the Interior, A
New Horizon: Looking to the Future of the Bureau of Ocean Energy
Management, Regulation and Enforcement (Dec. 2010), at 44.
\9\ At present, OCSLA provides for ``the use of the best available
and safest technologies...on all new drilling and production operations
and, wherever practicable, on existing operations.'' 43 U.S.C.
Sec. 1347(b). However, this requirement is weakened significantly by
other provisions: it applies only to certain types of equipment, and
the Secretary of the Interior may waive the requirement if he
determines that the additional cost of using the ``best'' or ``safest''
technology outweighs the additional benefits of using the technology.
Id.
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D. Regulators must perform a rigorous risk assessment.
As development activities proceed, regulators must ensure a
rigorous analysis of potential impacts and risks. As noted above,
federal agencies other than BOEMRE should have a greater role in
planning for and conducting environmental analyses of OCS oil and gas
activities. Risk analysis should be science-based, and subject to peer
review. Analysis pursuant to the National Environmental Policy Act
(NEPA) should be substantive--not mere window dressing--and OCS
drilling operations should not be categorically excluded from
environmental review. All OCS drilling activities should be subject to
site-specific NEPA analysis, either an Environmental Assessment or an
Environmental Impact Statement.
The BP Deepwater Horizon disaster highlighted the risk of failing
to engage in worst-case oil spill planning. When making decisions that
involve the potential for catastrophic result--such as a major oil
spill--environmental analyses must take seriously the potential for
disaster. This is true even if the probability of an individual
occurrence is low, because the harm from such an event may be very
great.\10\ In the future, federal regulators must analyze low-
probability, high-risk events to ensure that they are prepared for a
worst-case disaster. The Council on Environmental Quality concluded
that, in light of the BP Deepwater Horizon disaster, BOEMRE must ``take
steps to incorporate catastrophic risk analysis.'' \11\ The National
Commission recommended that BOEMRE ``incorporate the `worst-case
scenario' calculations from industry oil spill response plans into NEPA
documents and other environmental analyses or reviews'' to inform the
agency's ``estimates for potential oil spill situations in its
environmental analyses.'' \12\
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\10\ See, e.g., id. Sec. 1502.22(b)(4) (noting that in a NEPA
analysis when information is missing or unavailable, ``reasonably
foreseeable'' impacts include ``impacts which have catastrophic
consequences, even if their probability of occurrence is low, provided
that the analysis of the impacts is supported by credible scientific
evidence, is not based on pure conjecture, and is within the rule of
reason'').
\11\ Council on Envtl. Quality, Report Regarding the Minerals
Management Service's National Environmental Policy Act Policies,
Practices, and Procedures as They Relate to Outer Continental Shelf Oil
and Gas Exploration and Development (Aug. 16, 2010) at 27.
\12\ National Commission Report at 267.
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Agency assessment of industry oil spill plans must be more
rigorous, as well. In the Arctic, BOEMRE approved an oil spill response
plan in which Shell Offshore, Inc. claimed that it would recover 90
percent of the oil spilled during a worst case discharge from its
proposed facility in the Beaufort Sea \13\--even though a 90 percent
recovery rate is, without question, wholly unrealistic. BOEMRE approved
the plan despite the fact that in earlier planning documents, the
agency had acknowledged that ``[o]n average, spill-response efforts
result in recovery of approximately 10-20% of the oil released to the
ocean environment.'' \14\ This kind of lax oversight led DOI's Office
of Inspector General to conclude that BOEMRE's review of oil spill
response plans ``does not ensure that critical data are correct.'' \15\
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\13\ See Shell Offshore Inc., Beaufort Sea Regional Exploration Oil
Discharge Prevention and Contingency Plan (Jan. 2010) at unnumbered
page following I-12 (containing BOEMRE approval letter); id. at 1-29
(assuming that only ten percent of the discharge from a hypothetical
blowout will ``escape [ ] primary offshore recovery efforts'').
\14\ Minerals Management Service, Final Environmental Impact
Statement: Beaufort Sea Planning Area Oil and Gas Lease Sales 186, 195,
and 202 p. IV-17 (Feb. 2003).
\15\ Office of Inspector General, U.S. Department of the Interior,
A New Horizon: Looking to the Future of the Bureau of Ocean Energy
Management, Regulation and Enforcement (Dec. 2010), at 44.
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To facilitate more serious review of oil spill response plans for
offshore facilities, broaden the scope of review, and promote better
information-sharing in the review process, multiple federal agencies
should review and approve these plans. The National Commission endorsed
the idea of interagency spill plan review:
In addition to the Department of the Interior, other agencies
with relevant scientific and operational expertise should play
a role in evaluating spill response plans to verify that
operators can conduct the response and containment operations
detailed in their plans. Specifically, oil spill response
plans, including source-control measures, should be subject to
interagency review and approval by the Coast Guard, EPA, and
NOAA. Other parts of the federal government, such as Department
of Energy national laboratories that possess relevant
scientific expertise, could be consulted.\16\
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\16\ National Commission Report at 266-67.
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The Commission also noted that interagency review of oil spill
response plans for OCS facilities would facilitate greater integration
of those plans with broader-level area contingency plans and regional
contingency plans because it would ``involve[e] the agencies with
primary responsibility for government spill response planning in
oversight of industry planning.'' \17\ In addition to interagency
review of oil spill response plans for OCS facilities, there should be
public comment on such plans.\18\
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\17\ Id. at 267.
\18\ See id. (``Plans should also be made available for a public
comment period prior to final approval and response plans should be
made available to the public following their approval.'')
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E. Government regulators and industry operators must ensure that they
are prepared to respond to a worst-case disaster.
Worst-case scenario planning will help federal regulators and OCS
operators anticipate their needs in the event of a major oil spill or
other disaster. To protect healthy, diverse ocean ecosystems for future
generations, regulators and the oil and gas industry must also ensure
the immediate availability of equipment and trained personnel
sufficient to contain, control, and clean-up a worst-case discharge.
Estimates following the BP Deepwater Horizon disaster reveal that
despite the massive effort that BP activated to clean up the oil \19\
response efforts were able to remove or chemically disperse--without
removal of the dispersed oil--only about one-third of the oil that was
discharged from the Macondo well.\20\ The National Commission
determined that ``[t]he technology available for cleaning up oil spills
has improved only incrementally since 1990'' \21\ The Commission
further observed that ``[f]ederal research and development programs in
this area are underfunded,'' and the major oil companies have committed
minimal resources to in-house research and development related to spill
response technology.''
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\19\ At its peak, more than 45,000 people were involved in the
response effort. National Commission Report at 133.
\20\ See Jane Lubchenco et al., BP Deepwater Horizon Oil Budget:
What Happened to the Oil? (Aug. 4, 2010) available at http://
www.restorethegulf.gov/sites/default/files/imported_pdfs/posted/2931/
Oil_Budget_description_8_3_FINAL.844091.pdf (estimating that of the 4.9
million barrels of oil that was discharged, responders recovered 17%
directly from the wellhead, skimmed 3%, burned 5%, and chemically
dispersed 8%, for a total of 33%).
\21\ National Commission Report at 269.
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To spur better on-water cleanup results and more investment in
research and development for response technologies, regulators should
require operators to demonstrate the ability to meet specific
performance standards in real-world conditions in the lease area before
allowing operators to conduct drilling operations. The performance
standards should require operators to demonstrate in simulated field
trials that they have in place adequate equipment, personnel, and
resources to respond effectively in the event of a catastrophic spill.
Operators should show that they can deploy their resources in real-
world conditions and that the chosen equipment is effective in meeting
an established oil removal performance target. These spill response
standards should be enforced through independent third-party review of
facility response plans and regular audits during the period of
exploration and production.
F. Congress must provide the funding necessary to ensure adequate
preparedness.
It will not be enough to require adequate oil spill preparedness in
legislation or agency regulations. Congress also must commit the
necessary financial resources to enable relevant federal agencies, such
as the Coast Guard, NOAA, the Department of the Interior (DOI), and
others, to do their jobs. Absent stable and adequate funding for oil
spill preparedness, federal agencies may not be able to carry out their
responsibilities to plan, prepare, and respond to incidents, and to
contain, control, and clean-up a major oil spill.
To ensure that research and development on oil spill response
technologies is not put off until the next catastrophic spill, Congress
should provide steady funding for federal agencies to promote and
conduct such research. The National Commission recommended that
Congress establish a funding mechanism that is not subject to the
annual appropriations process to ``increase federal funding for oil
spill response research by agencies such as [the Department of the]
Interior, the Coast Guard, EPA, and NOAA--including NOAA's Office of
Response and Restoration.'' \22\ In addition, agencies may be able to
increase their own focus on spill response research. For example, the
DOI Inspector General recommended that DOI ``[c]onduct additional
research on containment and control measures to determine appropriate
requirements for containing oil discharge at the source.'' \23\ As
noted above, agencies also can promote industry investment in oil spill
response research and development by instituting strict new performance
standards that require operators of OCS facilities to demonstrate the
effectiveness of their spill response equipment in real-world
conditions before they are allowed to conduct drilling activities.\24\
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\22\ Id. at 270.
\23\ Office of Inspector General, U.S. Department of the Interior,
A New Horizon: Looking to the Future of the Bureau of Ocean Energy
Management, Regulation and Enforcement (Dec. 2010), at 51.
\24\ See supra, Part II(B)(3).
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G. Congress must commit to restoration in the Gulf of Mexico.
A sound energy development policy must include a commitment to
restoration of the Gulf of Mexico ecosystem and communities. The Gulf's
people, businesses, and ecosystem suffered a major blow from last
summer's BP Deepwater Horizon disaster. As we move forward with safer,
more responsible energy development, we must support restoration
efforts by committing to a full Natural Resource Damage Assessment
process and by dedicating Clean Water Act penalties to Gulf restoration
work.
Successful restoration of the Gulf ecosystem--including preserving
the region's unique culture and traditions and promoting its economic
restoration--will require sound management, stable and coordinated
funding, prudent project selection, stewardship of the full ecosystem,
and monitoring and adaptive management over the long-term. Restoration
should focus on five key priorities:
1. Protecting, restoring, and enhancing the coast and
wetlands: Restore resilience to coastal areas and nourish
wetlands through major projects in the Mississippi River delta
region and elsewhere in the five-state region.
2. Maintaining healthy, sustainable fisheries: Restore and
sustain Gulf of Mexico fisheries through investments in
science, technology, fishing fleet performance, and strategies
to restore depleted fish populations and support sustainable
long-term management.
3. Restoring and protecting coastal and marine habitats:
Enhance key coastal and marine habitats like oyster reefs,
seagrass beds, deepwater corals, and nesting sites for birds
and turtles to strengthen and restore critical ecosystems
services, such as shoreline protection, tourism, and fishing.
4. Shrinking the dead zone in the northern Gulf of Mexico:
Implement nutrient reduction strategies in the Mississippi
River watershed to reduce the size and duration of the hypoxia
zone to improve marine health and increase fisheries
productivity in the Gulf of Mexico.
5. Taking the pulse of the Gulf ecosystem: Create a
permanently-funded, long-term Gulf of Mexico ecosystem
monitoring and research program to provide the basis for
adaptive management of coastal and marine natural resources.
Restoration in the Gulf must be well-managed. The restoration
process should be based on a comprehensive, science-based ecosystem
restoration strategy, supplemented by annual work plans, progress
reports, and periodic requests for proposals. Relevant federal entities
and all Gulf States should be active, full participants. The process
should engage the public through a formal and recognized process that
includes broad representation from communities and stakeholders in the
region. Federal and state partners should commit to incorporating local
and traditional knowledge in management decisions. The Natural Resource
Damage Assessment and restoration process (NRDA) conducted in response
to the BP oil disaster must be well-coordinated with the broader
restoration planning functions of the Gulf Coast Ecosystem Restoration
Task Force.
Stable funding will be critical to successful restoration. Congress
should dedicate Clean Water Act penalties to fund restoration in the
Gulf of Mexico, and the National Commission recommended that 80 percent
of such penalties be dedicated to that purpose. This commitment should
be done in a way that results in predictable funding streams that are
consistent from year to year and sustained over the long-term. For
example, an endowment should be established to support long-term
research and monitoring needed to assess the health of the Gulf,
evaluate the efficacy of restoration measures, and facilitate adaptive
management. The funding stream from the endowment could also provide
valuable support for the work of Gulf Coast research institutions,
which are in a good position to make lasting contributions to the
overall recovery of the Gulf ecosystem and economy.
Restoration projects should be selected based on established
criteria that clearly link projects to specific, measurable, feasible
objectives. The selection and evaluation of projects should be subject
to independent scientific peer review, and a comprehensive ecosystem
restoration strategy should coordinate and integrate various
restoration projects.
Gulf of Mexico restoration must embrace the whole ecosystem, from
coasts and marshes under state jurisdictions to open blue-water
environments managed by the federal government. It should include
habitat protection and enhancements that provide long-term resiliency
and sustainability for coastal communities, as well as rehabilitation
of degraded natural resources and ecosystem services that provide
sustainable economic opportunity and human uses.
Finally, successful restoration in the Gulf of Mexico will require
long-term monitoring and management systems to help identify and
address lingering oil spill injuries, evaluate the effectiveness of
restoration projects, and make necessary adjustments. As noted above,
Ocean Conservancy supports a permanent program that ``takes the pulse
of the Gulf'' to track ecosystem health, identifies emerging problems,
and facilitates solutions.
H. Our nation's energy policy must include conservation programs.
Ocean Conservancy recognizes that additional energy development--
consistent with the foregoing principles--must be part of this
country's overall energy policy. Any energy policy must also call for
and incentivize conservation to reduce our overall energy demand.
Congress should identify and support programs that effectively reduce
consumer demand for hydrocarbons. These measures might include
weatherization, alternative transportation, and other projects.
III. The Legislative Language in H.R. 1229, H.R. 1230, and H.R. 1231
Does Not Conform to the Principles for Safe and Responsible
Energy Development.
The bills that are the subject of this hearing--H.R. 1229, H.R.
1230, and H.R. 1231--pursue a lop-sided approach that promotes energy
development without ensuring that such development will be conducted in
a way that maintains a healthy environment for present and future
generations. This ``full-steam ahead'' path jeopardizes the health of
ecosystems, as well as the people and businesses that depend on those
ecosystems. The following section touches on some of the shortcomings
of the three bills.
A. Shortcomings of H.R. 1229, the ``Putting the Gulf of Mexico Back to
Work Act''
H.R. 1229 proposes a series of amendments to the Outer Continental
Shelf Lands Act (OCSLA) intended to hasten Secretarial approval of
drilling permits by imposing limits on the Secretary's ability to delay
or deny approval of such permits, and by declaring that permits would
be ``deemed approved'' if the Secretary does not issue a decision
within 60 days. These proposed deadlines would interfere with--or make
impossible--BOEMRE's ability to conduct thorough, site-specific
environmental analyses of drilling projects, or to ensure adequate oil
spill preparedness and response capability. These deadlines would
effectively elevate production above safety and environmental concerns,
risking another BP Deepwater Horizon-type incident.
In addition, this legislation proposes limits on judicial review of
energy projects in the Gulf of Mexico. These limits are designed to
discourage litigation that might slow down energy development.
Insulating BOEMRE from scrutiny and encouraging the agency to rush
critical environmental analyses and spill plan review simply sets the
stage for the kind of lax regulatory culture that made possible the BP
disaster.
B. Shortcomings of H.R. 1230, the ``Restarting American Offshore
Leasing Now Act''
H.R. 1230 would require certain lease sales in the Gulf of Mexico
and off the Coast of Virginia. It would require the Secretary of the
Interior to hold Lease Sale 216 in the Central Gulf of Mexico within
four months after enactment, Lease Sale 218 in the Western Gulf of
Mexico within eight months after enactment, and Lease Sale 222 in the
Central Gulf by June 1, 2012. For all these sales, the Act deems pre-
existing NEPA analyses sufficient--even though those reviews took place
before the BP Deepwater Horizon disaster. The proposed legislation
would also require the Secretary to hold Lease Sale 220, off the coast
of Virginia, no later than one year after enactment.
By forcing lease sales in quick succession, this legislation would
place a burden on BOEMRE that would likely only be met by conducting
the most cursory reviews and superficial analyses. More importantly,
this legislation subverts the NEPA process. It would deny BOEMRE the
opportunity to conduct a thorough and specific environmental review--
including more comprehensive worst-case discharge analyses--and would
deny the public the opportunity to learn about and comment on the lease
sales. Shortcutting the environmental review process increases risks.
In fact, H.R. 1229 would effectively eliminate BOEMRE's ability to
conduct a rigorous site-specific analysis of environmental impacts at
the drilling stage.
C. Shortcomings of H.R. 1231, the ``Reversing President Obama's
Offshore Moratorium Act''
H.R. 1231 would amend section 18 of the Outer Continental Shelf
Lands Act by requiring the Secretary to open certain portions of
planning areas to oil and gas leasing and open other areas as requested
by state governors. It would also require the Secretary to establish
production goals, set specific production goals for the 2012-2017 five-
year OCS leasing program, and require annual progress reports. The Act
would also require the Secretary to establish regulations for the
issuance of ``seismic surveying cost credits,'' equal in value to 50
percent of the costs of the survey.
This legislation would effectively force BOEMRE to offer for lease
sweeping areas of the OCS. In so doing, it would make it difficult for
the agency to conduct any meaningful, site-specific analysis of the
potential environmental impacts and risks of oil and gas activity.
Moreover, by flooding the market with OCS leases, it could reduce
competition and lower bids for OCS areas--diminishing returns to
taxpayers. The last section of the bill also would harm the American
public by forcing taxpayers to foot half the bill for certain oil and
gas exploration costs. Oil and gas companies do not need this subsidy,
and taxpayers should not have to give their earnings to some of the
most profitable corporations on the planet.
IV. The Path Forward: Legislation to Ensure Safer, More Responsible
Energy Development and Restoration of the Gulf of Mexico.
As noted at the outset, intact and diverse ocean ecosystems are
critical for human health and support a wide array of jobs and
businesses. The amendments proposed in H.R. 1229, H.R. 1230, and H.R.
1231 fail to provide critical protections. In contrast, Ocean
Conservancy supports legislation that will promote energy development
``done right'': legislation that will not only lead to new sources of
energy, but will provide the science, safety, and environmental
safeguards necessary to ensure clean, healthy ecosystems today and in
the future. Ranking Member Markey has introduced H.R. 501 the
Implementing the Recommendation of the BP Oil Spill Commission Act of
2011. We urge the Committee to take up H.R. 501 which addresses many of
the chronic regulatory problems that led to the Deepwater Horizon
disaster and would ensure that energy development occurs in a
responsible manner that would protect our oceans and coasts and the
businesses and economies that depend on them.
The National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling recommended a series of reforms to this country's
administration of OCS oil and gas activities. For example, the
Commission recognized the need for science-based decision-making and
argued: ``To ensure that offshore oil and gas development and
production proceed in ways that minimize adverse impacts to the natural
and human environment, decisions about these activities must be
grounded in strong science.'' \25\ It also recognized the need for
other federal agencies (beyond BOEMRE) to participate in scientific
research, environmental review, and other parts of the OCS process.\26\
The Commission recommendations called for changes in regulatory
processes, including changes in BOEMRE's NEPA processes and
incorporation of ``the `worst-case scenario' calculations from industry
oil spill response plans'' into NEPA analyses.\27\ They also
recommended that NOAA provide advice on especially sensitive areas
``that should be excluded from the leasing program or treated in a
specific manner due to their ecological sensitivity or for other
reasons.'' \28\ The Commission recommended new safety and regulatory
standards for OCS activities and more rigorous oil spill response
planning and preparedness.\29\ In addition, the Commission recommended
funding Gulf of Mexico restoration work with 80 percent of the
penalties associated with the Deepwater Horizon disaster.\30\ Ocean
Conservancy believes that the Commission's recommendations--if fully
implemented by government and industry--would address many of the flaws
in the existing system.
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\25\ National Commission Report at 263.
\26\ Id. at 264, 265.
\27\ Id. at 267.
\28\ Id.
\29\ See, e.g., id. at 252-53, 265.
\30\ Id. at 280.
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In addition to supporting comprehensive OCS oil and gas reform
legislation as envisioned by the National Commission, Ocean Conservancy
supports specific legislative priorities that would advance energy
development while at the same time maintaining a healthy environment
for this and future generations. Specifically, Ocean Conservancy
supports:
(1) Targeted changes to the Oil Pollution Act of 1990 (OPA 90)
that would increase funding available to the U.S. Coast Guard
for annual operating expenses; establish minimum funding levels
for Coast Guard operating expenses related to the
implementation, administration, and enforcement of area
contingency plans and facility response plans for oil spills;
and establish minimum funding levels for Coast Guard operating
expenses related to operations in the Arctic Ocean, where
current capacity is extremely limited.
(2) Establishment of an Arctic scientific research and
monitoring program to be administered by the North Pacific
Research Board, in cooperation with the U.S. Arctic Research
Commission. At present, our understanding of Arctic ecosystems
is limited; and our lack of knowledge precludes informed
decisions about whether to allow oil and gas operations, and if
so under what conditions.
(3) Comprehensive restoration for the Gulf of Mexico ecosystem
and economies, using financial resources from the Natural
Resource Damage Assessment and Clean Water Act penalties for
programs and projects that include restoring coastal wetlands
and marine habitats, long-term monitoring and research,
shrinking the Gulf hypoxic (``dead'') zones, improving
fisheries and wildlife management throughout the Gulf, and
enhancing critical nursery habitat and ecosystem services
through oyster reef and seagrass restoration.
CONCLUSION
The United States must move forward with energy development, but we
must ``do it right.'' Any energy development must be guided by
principles and practices that will ensure a safe, healthy environment
for present and future generations. The bills that are the subject of
this hearing do not clear that hurdle, and Ocean Conservancy cannot
support them. We look forward to working with the Committee on future
legislation that takes a more balanced and measured approach to energy
development on the OCS.
______
Mr. Lamborn. You had perfect timing. That is about as good
as you can get. Thank you all for your testimony and for being
here today.
At this point, I would like to ask unanimous consent for
the gentleman from Virginia, Representative Wittman, a Member
of the full Committee to participate in today's hearing.
Seeing no objection, so ordered.
We will now have our round of questions. Thank you all for
being here. Each Member asking questions will have five minutes
in which to do so. And I will go ahead and start.
Dr. Mason, in your testimony you state that OCS development
would provide a long-term economic stimulus to the entire U.S.
economy, not just the Gulf region. In my home state of Colorado
that is something I am very interested in. For instance, you
talk about--I will go ahead and zero in. According to the
results of your study, do you believe that OCS production
benefits would apply, not just to the coastal states, but to
all 50 states? And if so, what are the economic benefits that
all states would enjoy as a result of OCS development?
Dr. Mason. In an integrated economy, certainly the entire
nation benefits from development in any one particular region.
Development of the Outer Continental Shelf region will involve
ships that may have to be built with steel that comes from
steel mills in the Midwest or the South. Sometimes fabricated
by construction workers in those regions. Food, we will have to
feed people on those ships. That will be produced throughout
the nation. Firms will can food, prepare it for delivery. All
kinds of inputs go into these projects. Some people have called
these projects floating cities that have to be supported with
all the means that you have in a typical home or hotel or
anything else. So those means come from throughout the U.S.
economy and the benefits spread out throughout the U.S.
economy.
By my estimates, the total development of just the
development of the Outer Continental Shelf region would drive
about 250,000 additional jobs, just in the development phase,
not the production phase. Once you start producing, of course,
you are putting out oil. It needs to be refined. You need
additional refineries. Those need to be built. The majority of
refineries are in the Midwest. Those additional jobs and knock-
on jobs would add about 1.2 million jobs per year for the life
of those wells.
But instead, we are going in reverse, taking jobs out of
the Gulf. And now we are also talking about taking jobs out of
Section 199 deductions and dual capacity deductions for the
industry to cost the U.S. about 154,000 by my estimate.
Mr. Lamborn. OK, thank you for that answer.
Mr. Danos, we on this Committee are acutely aware of the
economic hardships that have been facing not only thousands of
Americans put out of work, but also businesses that rely on a
robust Gulf production industry to provide energy for our
nation, employ that workforce, and conduct day-to-day business.
In your testimony you stated that you have had to let some
construction and logistical support workers go. Can you tell
approximately how many you have had to release and in your
opinion what circumstances put you in the position where you
had to make that decision?
Mr. Danos. What I know is that since the moratorium and
since the slow down in permits and drilling in the Gulf of
Mexico our company has released in excess of 200 jobs. And I
would hasten to add that those jobs had faces attached to each
one of them. So this slow down has had an impact. Many of these
employees live in the communities that I live in and I see them
regularly. And some of them have indicated to me that they
would be glad to come back to work if our industry would get up
and moving.
The uncertainty and the lack of permits and the lack of
drilling has cost, not only my company but many companies jobs.
And we feel that if this legislation was enacted, not only
would we go back to work with these jobs, but more jobs would
be created.
Mr. Lamborn. Mr. Danos, are these good paying jobs that can
support families?
Mr. Danos. Absolutely. Many of our people that had these
jobs were full-time workers. Some of their spouses worked as
well. Some of them didn't. But they supported their families,
contributed to our community, and contributed greatly to the
lifestyle in our communities along the coast.
Mr. Lamborn. Thank you for your answers. At this point I
would like to yield to the Ranking Member from New Jersey for
five minutes.
Mr. Holt. Thank you, Mr. Chairman. Thank the witnesses.
I hardly know where to begin, but let me begin with our
witness from Virginia. I can understand that Virginia may feel
that it is in Virginia's interest to allow this drilling. I am
not sure why Virginia would decide that, but I am wondering
whether Virginia has a yet unpublished method for training fish
to observe state boundaries and whether Virginia has a
permanent fence or boom that separates its waters from North
Carolina and Delaware and New Jersey?
As we have seen in the Gulf where you have got Texas and
Louisiana and Mississippi and Alabama and Florida, the fish,
whether they are breeding or feeding don't seem to recognize
state boundaries, nor do oil slicks. The territory that you are
talking about drilling in Virginia is less than one day's oil
slick travel away from New Jersey, the state that I represent.
And I can tell you that this is not just a decision that
Virginia makes.
So let me ask what consideration of neighboring states have
you put into your call, Mr. Domenech for drilling off of
Virginia?
Mr. Domenech. Thank you for the question.
Specifically, we have not had contact with our neighboring
states. Of course, interestingly enough, we do manage our
fisheries in cooperation with other states and the fish do
cross state lines. In this case, of course, the law allows
Virginia to have an identified portion of the Outer Continental
Shelf. And we think there are some resources out there and
there are great benefits to the economy and to jobs and to
American energy security to develop those resources, both
renewable and conventional.
Mr. Holt. Let me ask that both the Department of Natural
Resources that you head and the rest of the government and the
state consult the neighboring states. This is not just a
decision for a single state.
If I may turn to I guess first Mr. Danos. You talked about
the economic dislocation, the hardship for a number of people.
I believe it is the case that BP Company set aside $100 million
for rig workers affected. And because only a few hundred
workers actually reported that they had been affected--that
they were out of work and applied for these funds, BP has now
kind of redefined that fund. Is that your understanding?
Mr. Danos. I am not sure about the amount of money they set
aside or who applied for it. What I do know is that our company
has had to let go approximately 200 people. And that businesses
such as mine are in turmoil and uncertain about the future. And
when we are uncertain and when there is a lack of confidence in
the business community, we are less likely to invest in job
training and equipment and new jobs.
Mr. Holt. I would suggest that you direct those workers to
this BP fund. And I am wondering whether any of the witnesses
would have anything to say about what I thought was glaring
absent, which is the number of tourism workers, the number of
fishers, fishing boat and other processing people who have lost
their income, lost their jobs. The hotel construction and
service--we talk about ship construction or oil rig
construction. The hotel construction, the service industry--
there is enormous economic loss in the Gulf of Mexico there.
Ms. Woglom. Ranking Member Holt, if I could address that
question. Think you raise a great point. And I think that if we
learn nothing else from the BP oil disaster we need to finally
learn that a healthy coastal economy relies on a healthy
ecosystem.
Mr. Lamborn. OK. And thank you. Now the Chairman of the
full Committee, Doc Hastings of Washington.
Mr. Hastings. Thank you, Mr. Chairman.
I would just respond to my friend from New Jersey that the
question that you asked Mr. Danos will be a subject to the
hearing we are having in Louisiana in a couple of weeks, so we
are very concerned about that also.
I also want to make clear too because there has been
allusion today about the fact that these bills will not make
drilling safer, and I just want to point out that H.R. 1229
includes language that requires permitting by law and requires
by law a safety review that includes containment. I point that
out to say that is not in the law today. So to suggest that
these bills ignore safety I think misses the point entirely.
Mr. Danos, there's been a lot of work in drafting these
three bills by adding what we think is certainty into the
process of developing these resources and ensuring,
specifically in the Gulf of Mexico, that the delayed or
canceled leases will be, if you will, re-permitted so that they
can do what they were given before the delay was put into
place. But also the three bills look at expanding OCS to those
areas--now you alluded to this in your testimony--to those
areas where we think the best resources are, which I think is
efficiency.
So my question is pretty simple. You are a support
industry. You are a medium-sized business. What impact would
these three bills have then on your medium-sized business and
service businesses like yours if these bills were to become
law?
Mr. Danos. If these bills became law, as I understand it,
not only would we regain confidence and certainty so that we
could begin planning and investing and reforming the jobs that
were lost. But many companies such as ours recruit people from
all over the country to come to work in our industry. And as we
open up other areas in OCS, we would offer jobs, more jobs to
more people. There is a great source of skill and available
workers from the entire country. Many of them are willing to
relocate. Many of them do not have to relocate.
Because of the nature of our work offshore, they work so
many days at a location and they can return home. So this
legislation would create some certainty, some confidence, and
most importantly, some jobs.
Mr. Hastings. Thank you very much for that.
And Professor Mason, let me follow up on that because you
have done a lot of work on the impact this has on the economy
in that area. And Mr. Lamborn asked you about jobs nationwide.
Let me be more specific. What would be the impact of job
creation, specifically, would this have both short-term and
long-term effects if these bills were to become law?
Dr. Mason. In the short-term, we are looking at something
like 250,000 jobs from exploration and development. That
includes initial surveys of the OCS, which haven't been carried
out for many, many years. That also includes drawing test
wells--things like that with all these functions that have to
be carried out before we can even think about drilling a well
for production. Those activities, by my estimate, will result
in 250,000 jobs for a span of seven years in the OCS regions
that are currently offline today, that is not including the
Gulf.
When we get into the production phase, as I said, you have
the jobs involved in actually producing the oil. Also, refining
that into petroleum products, chemicals, much of which occurs
in New Jersey as well as Illinois and California. More
refineries will be necessary to handle the flow. More flow will
be forthcoming. Pipelines need to be operated, infrastructure
built and operated. That will result, by my estimate, in about
1.2 million jobs for a 30-year average lifetime of a well. So
the job benefits are very substantial.
And I just want to add that I don't think anyone would
advocate here moving ahead without regard to safety. I have to
say I would agree with Ms. Woglom's policy prescriptions. BOEM
has moved forward with safety for spill response in approved
projects. And I am assuming that the Virginia projects would go
forward with those same restrictions. Nobody wants to move
forward and have another Deepwater Horizon, but we do want to
move forward. Thank you.
Mr. Hastings. I appreciate that. And in a slow economy like
we have and hopefully we do have a recovery. Obviously, energy
is an integral part of that. And energy jobs are good-paying
jobs. I think they go very well together. And I might add just
one other point in that regard. In an unstable world, it seems
to me it is in the best interest of our country to be less
dependent on foreign energy as we possibly can, especially when
we are sitting on the known resources that we have. So thank
you very much for your courtesy. I appreciate it.
Mr. Lamborn. I thank the gentleman. And I would like to
recognize now the gentlelady from Massachusetts, Representative
Tsongas.
Ms. Tsongas. Thank you, Mr. Chairman, and thank you all for
your testimony here today.
As I have said before in this Committee, last summer like
the rest of this country I was dismayed by the terrible
environmental tragedy in the Gulf. And today as we consider
these three bills I am again dismayed.
I am dismayed that rather than putting in place new safety
and environmental protections the bills being considered today
are rushing ahead and taking unnecessary risks with the
environment and the economy. I am particularly concerned with
H.R. 1231, which would effectively force the Department of the
Interior to open areas off both the East and West Coast to more
drilling. This could have a devastating effect on areas off the
coast of my home state of Massachusetts.
Massachusetts is home to Georges Bank, which has been at
the heart of the New England fishing industry and has
historically been one of the country's most productive fishing
grounds. Income from Massachusetts fisheries have been valued
at approximately $350 million annually and 130,000 jobs depend
on the Massachusetts fishing industry. Allowing oil and gas
drilling Georges Bank or anywhere in the northeast would
threaten to destroy these rich fishing grounds and could have a
devastating effect on my state's economic.
Ms. Woglom, is there anything in these three bills that
require safer drilling or that will ensure that the areas off
of Georges Bank will be protected from an oil spill should
these areas be opened up to oil and gas drilling?
Ms. Woglom. Thank you for the question, Congresswoman.
I think our concerns are that, in fact, in the wake of the
BP oil spill the National Bipartisan Coastal Commission found
that there were systemic flaws and problems that led us to not
anticipate, not be prepared for, and not be able to respond to
the oil spill that happened. And our view of these bills that
this Committee is considering today is that they, in fact, are
not only rushing ahead, but in fact going backwards in terms of
shortcutting environmental review, not making the systemic
fundamental reforms that the Westville Commission recommended
in terms of improving regulatory oversight and environmental
safety and concerns.
Ms. Tsongas. Thank you for your response. And I think what
we all want to see is the capacity to move ahead economically,
but the certainty we need is not simply around what businesses
can do or not do. Also, as you undertake your important
economic activities, there needs to be certainty around the
protection of the environment that is necessarily impacted as
you undertake some deepwater drilling.
So my hope is that instead of passing the bills before us,
that we will instead pass H.R. 501, which our Ranking Member
Markey has introduced and which would implement the
recommendations of the BP Commission, as you suggest, are not
being heeded in the current legislation before us.
Also, I would like to say it is inconceivable that we would
continue to allow drilling to take place in our public
waterways without oil companies unequivocally demonstrating the
ability to prevent, mitigate, or clean up in the event of an
oil spill. In testimony before this Committee we learned that
tragically insufficient oversight took place at the BP site and
that in recent years important environment regulations were
inappropriately waived on behalf of BP.
With this in mind, I am disappointed that my colleagues are
putting forward legislation like H.R. 1229 that would rush the
agency to make critical decisions about safety and the
environment and that it would deem permits approved without the
proper oversight and review.
As you have put, Ms. Woglom, in your testimony legislation
like H.R. 1229 would ``set the stage for the kind of lax,
regulatory culture that made possible the BP disaster.'' So I
urge my colleagues to reconsider this legislation and instead
put in place real reforms that make for a safer and cleaner
drilling industry. Thank you.
Mr. Lamborn. I thank the gentlelady. Next I would like to
recognize for five minutes the gentleman from Louisiana,
Representative Fleming.
Mr. Fleming. Yes, thank you, Mr. Chairman and thank you
panel.
Just a couple of opening comments. I find interesting some
of the statements that are still echoing here today. One is
those who oppose this legislation are suggesting that we should
continue to have endless deadlines, endless lawsuits and a
trickle of permits. And also the idea that we would send our
workers from Louisiana who are very strong in their work ethics
to the BP fund to be paid instead of having good jobs I find is
unbelievable.
The gentlelady from Massachusetts--her State of
Massachusetts has a 40 percent import of their natural gas from
Yemen, yet we are variable in Louisiana, a variable of Saudi
Arabia of natural gas. So these things really don't add up.
But let us turn to what is happening in the economy.
Gasoline at $3.68, driving toward $4 a gallon. Just the other
day the Federal Reserve Chairman Ben Bernanke said, ``Sustained
rising in the prices of oil or other commodities would
represent a threat, both to the economic growth and to overall
price stability.'' And yet, we also have comments from the
Administration, and this one I find very interesting. Secretary
Chu told the Wall Street Journal that energy prices were the
linchpin to an energy overall. He said, ``Somehow we have to
figure out how to boost the price of gasoline to the levels of
Europe.''
So I would suggest here today, and I there is a question
embedded in this some place. I would suggest to you today that
it seems that despite the rhetoric and even with the rhetoric
that the Administration and all through it are working
diligently to slow down domestic production of our
hydrocarbons. And in fact, we now know that we have 1.3
trillion, with a ``T'', equivalent barrels of oil in both coal,
natural gas, and oil. And yet, we can't get at it because we
are continual stymied in doing that.
And I would say that, being from Louisiana, that the real
imperative here is the loss of petroleum-related jobs, not the
loss of the fishing job industries. That is recovering very
nicely.
So my question is for Dr. Mason. In your study you point
out that under the moratorium, not just the oil and gas jobs
that are lost, but there are also related job losses in fields
such as arts and entertainment, educational services, food
services, health care, et cetera. I would like for you to
comment on that, Dr. Mason.
Dr. Mason. Of course, oil workers themselves go out and buy
things with their wages. They take care of their families and
that is not just food. That is also medical care, daycare,
education. In fact, about 40 percent of the job losses by the
BEA's methods that I used in my study are in professional
fields--teachers, attorneys, finance, insurance, and real
estate. It is an integrated economy. It is not just about the
wages that come from the workers directly on the oil platform.
It is about where they spend that money and the people that
depend on them and the people that depend on them and the
people that depend on them throughout the entire U.S. economy.
The one aspect of my oral testimony I thought I would
reemphasize is the issue before us is really regulatory rent-
seeking. It was that the regulators ignored safety before the
blow up and it is that we want them to pay attention to safety
now, but in a way that also balances the industry. I am talking
about this foreclosure settlement by the CFTB and we are
requiring that banks get back to borrowers within 30 days with
a modification decision. It is not a bad requirement.
Maybe 30 days is not the right set of days for this
legislation. Let us talk about that, but there should be an
accountability provision to the industry to get back with an
answer so that firms can make real business decisions, provide
jobs, and economic growth.
Mr. Fleming. Would you agree, Dr. Mason, that the fact the
President has, or I would say the Interior Department has with
President Obama's approval released now eight permits. And also
his hand-selected panel of experts all of whom said there is no
reason for a moratorium, wouldn't that implicitly suggest that
there's no reason not to move forward with drilling?
Dr. Mason. I don't see a reason unless someone is disputing
here the BOEM's approval of the response plans its now put into
place. If there is something more that is necessary there, let
us certainly put it in place. But it seems like we are building
the framework for moving forward. It seems like BOEM is moving
forward. Let us keep them moving forward and let us get back to
where we were before the spill, which was talking about the OCS
moving forward into those areas with safe technology that can
meet the United States's energy needs.
Mr. Fleming. Yes. Thank you. I yield back.
Mr. Lamborn. Thank you. At this point, I would like to
recognize the Ranking Member of the full Committee, who is with
us today. And in lieu of being here earlier to present his
opening statement, we will grant him his time at this time to
give his opening statement for up to five minutes. Thank you.
STATEMENT OF HON. EDWARD MARKEY, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MASSACHUSETTS
Mr. Markey. Thank you, Mr. Chairman, very much.
When the Challenger shuttle disaster occurred, Congress did
not require NASA to launch in a rush another space shuttle
within 60 days. After Hurricane Katrina, Congress did not
require the Army Corps of Engineers to approve new levees
within 60 days with the same failed designed.
Following the Three Mile Island nuclear disaster, Congress
didn't direct the Nuclear Regulatory Commission to approve
licenses for new nuclear facilities within 60 days. And after
the BP oil spill, the worse environmental disaster in American
history, we should not be legislatively mandating that the
Interior Department get only 60 days to approve new drilling
permits.
We should also not force the Department to use the same
inadequate environment review to hold lease sales that had been
scheduled prior to the BP spill. And we should not be opening
vast new areas of coastlines on the East and West Coasts to
drilling before implementing safety reforms recommended by the
independent BP Commission. But that is exactly what the
Republican majority is proposing today. This legislation will
do nothing to improve the safety of offshore drilling and could
instead send us down the same path that led us to the Deepwater
Horizon disaster.
The Republican majority is continuing to operate with a
pre-spill mentality. Following the BP oil spill, we should be
reviewing the lessons, not lessen the review. The oil industry
assurances and promises on which the Federal Government relied
in formulating safety procedures were not worth the paper they
were written on. They said blowouts could not happen. It did.
They said the rig would not sink. It did. They said the oil
could be captured before it reached the shore. It was not.
The BP Spill Commission concluded that the causes of the BP
spill were systemic to the entire industry. But the Republican
majority continues to be in denial that reforms are needed to
prevent a similar disaster happening again in the future. This
Committee has not held a single legislative hearing on
legislation to improve the safety of offshore drilling.
As part of today's hearing, the majority refused to also
consider H.R. 501, the legislation that Representative Holt and
I have introduced with other House Democrats to implement the
reforms recommended by the BP Commission. The full Committee
Chairman has also, so far, not allowed the request that I have
made so that BP and Transocean and Haliburton and Cameron are
heard here in this Committee on the spill, or for testimony
from the CEOs of the top five major integrated oil companies
who are most active in the Gulf. Those are the people who
should be sitting at that table, telling us what they have done
in order to make sure that we do not see a repetition of what
happened last summer. So far, they are the only ones not
allowed to come in here. They should have been the first ones
and I am going to continue to insist that those CEOs come here
and explain, through this Committee, to the American public
what they have done to make sure that there will not be a
repetition.
We don't need another hearing that pushes the same speed-
over-safety attitudes that plagued BP and led to the worst oil
spill in our nation's history. We don't need legislation that
gives the Interior Department the same amount of time to review
a drilling application as landlords give tenants to vacate an
apartment. And we don't need another bill that ignores any
attempts to end our addiction to oil and move to alternative
energy like wind and solar and geothermal.
What we need is legislation that protects our oil industry
workers, not the corporate special interests which seek a
return to the old status quo. What we need is legislation that
encourages innovation, not technological stagnation, and
legislation that increases the safety of the oil industry, not
just its profits. We need to encourage reforms that will
prevent another disaster, not lead us backwards to a repetition
of last summer's environmental disaster. Thank you, Mr.
Chairman. I yield back the balance of my time.
Mr. Lamborn. Thank you, and please stand by if you wish to
ask questions in the next round, if you so desire.
At this point, I would like to recognize the next Member on
our Subcommittee who was here when the gavel came down,
Representative Fleischmann from the State of Tennessee.
Mr. Fleischmann. Thank you, Mr. Chairman.
My first question, Secretary Domenech, can you please give
us any insight, sir, as to the degree that this Administration
has worked with you, Governor McDonnell and the Commonwealth of
Virginia on the issue of oil and gas leasing? And has this
Administration specifically sought input or comments from your
agency on this matter as it applies to your state? Finally, if
so, what actions have they taken with this information, sir?
Mr. Domenech. Thank you very much. As I mentioned in my
opening remarks, we began an effort to have an offshore lease
in Virginia in 2008. And that, of course, means a number of
scoping and other kinds of meetings that are the regular due
course of doing a lease. So there was early on a good amount of
conversation between Interior and the Commonwealth on the
issue.
However, once the Deepwater Horizon event occurred and the
progression that I mentioned again where initially the
President said we would have lease sale 2020. And then
unfortunately it was canceled. And then not only canceled into
the next five-year plan, but beyond the next five-year plan. We
haven't really had a lot of contact with Interior about the
leasing part.
Ironically, I would say we have an enormous amount of
cooperation with Interior on offshore wind, which is something
else we are pursuing. It is a very aggressive, back and forth
conversation with them on some of the same lease areas that
they would like to do offshore wind. So we have a two-track
relationship with Interior at the moment.
Mr. Fleischmann. Thank you, Mr. Secretary.
My next question is for Professor Mason. Professor, the
Outer Continental Shelf, the OCS, leasing program brings in
billions annually to the U.S. Treasury, sir. Have you done any
analysis that you would be able to share with us today as to
the economic impacts of delayed and scaled-back leasing under
current OCS leasing programs?
Dr. Mason. That is a great question. Thank you very much.
My initial interest in this topic came about at a time
during the financial crisis here when the State of California
rejected $5 billion in order to develop an existing platform
and then turned to Washington for help because of their fiscal
situation.
I think that these resources can help many states,
particularly those affected by the crisis--California, Florida
find their own way out of their own fiscal crisis. I have
estimated that in the short run we are talking about something
on the order of $4.8 billion in state and local taxes that are
being left on the table by not developing the OCS.
In the longer run, state and local tax revenue amounting to
$20 billion a year is on the table here. Federal tax revenue in
the short run of $11 billion in the short run, $55 billion in
the long run. And then that is with royalty revenue on top of
that of almost $14 billion a year. So there are substantial tax
revenues and fiscal revenues that are left on the table here. I
liken this discussion in my mind to a discussion of a worker
who broke a leg and cannot work any more and is looking at
their bank account saying, uh, it is going down a little faster
than I would like. And the worker has a choice. They can either
get back to work earlier when the leg might not be completely
healed, or they can quite spending so much. And that is really
the choice before us, and we have to decide when the healing is
adequate and when we can get back, but also in the meantime if
we are not going to get back right away reign in our spending.
But that is the very real fiscal choice before us. Thank you.
Mr. Fleischmann. Thank you, Professor. Mr. Chairman, I
yield back.
Mr. Lamborn. Thank you. AT this point, I would like to
recognize the gentleman from Massachusetts for up to five
minutes for questions.
Mr. Markey. Thank you, Mr. Chairman.
Secretary Domenech and Mr. Danos, the independent BP
Commission issued a 400-page report making recommendations to
the Congress to make legislative changes that could improve the
environment for safety in offshore drilling. And while some of
these reforms can be done administratively, there are many that
have to be done legislatively.
So let me begin by just asking the two of you do you
believe that $75 million as a penalty for the kind of spill
that we saw in the Gulf is high enough or should it be higher?
Mr. Danos. I am familiar with the Commission report,
generally.
Mr. Markey. So is $75 million high enough or should there
be a higher fine that an oil company is assessed in the event
of an accident like the one that we saw?
Mr. Danos. What I think is that----
Mr. Markey. Is it high enough is what I am saying.
Mr. Danos. What I believe and what I know is that anything
that adds additional costs----
Mr. Markey. Is it high enough or not too high, just yes or
no?
Mr. Danos. I cannot comment if it is high enough or not
high enough, other than any penalties and anything that
Congress does to add costs----
Mr. Markey. I appreciate that, but don't you need a
deterrent as well? Don't you need to ensure that they
understand that there is a price that they can pay? You don't
want to go there? OK,
Mr. Domenech? Yes.
Mr. Domenech. I don't have an opinion on that. I am not an
expert in that area. Of course, that is a fine that the Federal
Government does.
Mr. Markey. OK. How about you Ms. Woglom? Do you have an
opinion, Ms. Woglom?
Ms. Woglom. Yes, we think that the oil companies should be
fully responsible for the damages that they cause.
Mr. Markey. This is just making sure that oil companies are
held responsible and that they also have a big stake in making
sure that safety is built into all of the devices and the
prices that they have.
Dr. Mason, do you think it should be higher?
Dr. Mason. Potentially higher. Yes.
Mr. Markey. OK.
Dr. Mason. I agree with Ms. Woglom. They should cover the
cost of the damages, but I think you were specifically talking
about a fine or a penalty. I think a higher penalty would be
access. I have a problem that BP was the first to be allowed
back in with deepwater drilling permits.
Mr. Markey. Thank you for that comment as well. I would
hope that perhaps the first two witnesses who appear not to be
familiar with the subject would perhaps in writing give us an
answer to that question.
From 2004 to 2005 to 2009, while the fatalities in the
offshore oil and gas industry were more than four times higher
per person hours worked in the United States's waters than in
European waters, even though many of the same companies worked
in both venues. Given that it is four times more deadly to work
offshore in U.S. waters then the Commission found that safety
problems were systemic and that not a single new safety measure
had been enacted into law since the BP disaster, do you think
Secretary Domenech and Mr. Danos that we should first ensure
that offshore drilling operations are safe in order to protect
the lives of the workers since it is four times more dangerous
to work in the Gulf of Mexico in our rigs than on the European
rigs out at the same distance? Don't you think it is wise for
us to pass that safety legislation?
Mr. Domenech. Working on offshore rigs should be as safe as
possible. Yes.
Mr. Markey. So do you think we should try to aspire to be
the most safe in the world rather in the industrialized world
the least safe?
Mr. Domenech. Whatever the industry standard is. I don't
know exactly. I am not familiar with safety standards.
Mr. Markey. You are not familiar with safety standards. Are
you familiar with safety standards, sir? Mr. Danos?
Mr. Danos. What I know is our company is committed--we have
a value, not a priority, but a company value to work safe and
we have an outstanding record.
Mr. Markey. As an industry, though, and you are here
representing the whole industry, it is four times more
dangerous than drilling off of the coast of Europe. Are you
happy with that measure for the whole industry--not you, the
whole industry.
Mr. Danos. Our commitment personally as a company.
Mr. Markey. No, not you personally. I am saying you are
good and obviously you must have dragged the average up to only
four times worse, if you are the best. Do you want the others
to have to meet your very high standards so that we actually
can guarantee the workers that they are protected?
Mr. Danos. We would support safety standards to the highest
means.
Mr. Markey. Good. Thank you. How about you, Ms. Woglom,
would you support that.
Ms. Woglom. Absolutely. I think the BP oil disaster showed
that we had systemic failure both in terms of our safety and
environment.
Mr. Markey. That should be our goal--the highest standards.
And I agree with Mr. Danos. That should be the goal of the
Committee and we have done nothing, thus far, to meet the
highest standards. So thank you. And I yield back.
Mr. Lamborn. Thank you. The gentleman from Ohio, Mr.
Johnson is recognized for five minutes to ask questions.
Mr. Johnson. Thank you, Mr. Chairman, and thank you all to
the witnesses for taking the time to be with us to testify.
I represent eastern and southern Ohio. And when I left the
district on Monday gas prices were headed toward $4 a gallon
and my constituents are justifiably worried that as gas prices
continue to rise and the slow economy recovery that we are
experiencing this is going to slow down or worse yet stop
altogether our energy progress. That is why I am a co-sponsor
of all three of the bills before the Committee today that will
expand offshore American energy production and stop the Obama
Administration from blocking access to our nation's natural
resources.
And I want to affirm the comments from our Chairman,
Chairman Hastings, that failure to begin immediately to access
those resources have, in my opinion, very serious national
security implications. Last week we heard from Director
Bromwich from BOEM and he gave, in my estimation, an
insufficient justification for the long wait time for getting a
permit approved. That is why I think H.R. 1229, The Putting the
Gulf of Mexico Back to Work Act is so important. Businesses
need certainty to move forward with capital investment plans.
And with H.R. 1229 corporations would know within 30 days of
whether or not they are able to go forward with their drilling
plans. America's future generations will continue to be
dependent on foreign sources of oil if we do not unleash
America's natural resources.
Now regrettably, I must challenge my colleague from
Massachusetts assertion that the Deepwater Horizon event and
the government's response afterwards could reasonably be
compared to the space shuttle Challenger or to the Hurricane
Katrina events. It would be different if the Deepwater Horizon
event were just the start of the regulatory roadblocks by the
Obama Administration that have hampered our movement forward
with tapping into America's resources. But rather it served as
an accelerate of an already reckless energy policy were we have
seen a systematic decline in the number of permit approvals.
Specifically, though, I have a couple of questions for Mr.
Danos. Mr. Danos, your company has operations across the globe,
what are the differences that you see in the regulatory
processes and the ability to operate in foreign countries
compared to the United States.
Mr. Danos. In some of the areas that we work there are some
challenging regulatory processes, but most of them are not
nearly as comprehensive on the personnel safety and
environmental side as the regulatory processes are in the Gulf
of Mexico. So what I would say is that we are held to higher
standards in the Gulf of Mexico from a safety and environmental
standpoint than we are in other parts of the world.
Mr. Johnson. I am certainly OK with being held to a higher
standard of safety. I also think that America should be
thriving to be number one in production and be the energy
leader rather than falling behind and having to be so self-
sufficient on foreign countries for our resources.
Do you feel that other countries have policies in place
that allow them easier access to develop their own domestic
resources than here in the United States?
Mr. Danos. What I can tell you Congressman is that there
are many people down in south Louisiana in my part of the
country that know we have the capabilities, know that we have
the natural resources, know that we have the wherewithal within
this country to be less dependent on foreign oil and are
puzzled. And they often ask me why is it that we have these
capabilities to create jobs, to become more energy independent
and yet we aren't doing it and it is easier in other countries.
Mr. Johnson. I am running out of time, so I hate to cut you
off there because what you just said points out when we
questioned Secretary Salazar a couple of weeks ago we asked the
question there what are we going to do about these $4 gas
prices? And his comment was that oil is an international
commodity and America has very little influence over the price
of oil. And it was my assertion then and remains so now that we
are essentially sitting here with our hands behind our back
taking a wait and see approach while the rest of the world is
moving forward. And I submit that that is a failed energy
policy with very serious national security implications. And I
urge that we move forward. I yield back.
Mr. Lamborn. I thank the gentleman. Next we will hear from
another Member of our Subcommittee, Representative Landry from
Louisiana.
Mr. Landry. Thank you, Mr. Chairman. I would like to
recognize again Mr. Danos is not only a solid business owner in
my district, but a constituent as well.
For the record, it was my understanding that the gentleman
from Massachusetts made a statement that the Deepwater Horizon
accident was the largest oil spill in U.S. history and that is
not the case. The largest oil spill in U.S. history was in
1910. It was the Lakeview Gusher, which spilled twice the
amount of oil that the Deepwater Horizon spilled, so I would
like to make sure we have that on the record.
Also, the gentleman from Massachusetts continues to talk
about safety. The Transportation and Infrastructure Committee
has jurisdiction over the safety portion of the industry in the
Gulf of Mexico. And what the gentleman fails to tell you that
he is after a liability issue. And so Mr. Danos, you do a lot
of work for shallow water drilling contractors and companies,
is that correct?
Mr. Danos. Yes, sir.
Mr. Landry. OK, could you tell me what would happen if they
removed the liability cap on the shelf for those oil and gas
companies because those oil and gas companies are small oil and
gas companies, am I correct?
Mr. Danos. That is correct. My understanding that if the
liability cap was removed that there would be more wells shut
in and shutdown and less production in the Shelf in the Gulf of
Mexico.
Mr. Landry. Right. OK, so it would basically destroy the
shallow water drilling industry is what it would do?
Mr. Danos. It could.
Mr. Landry. It could? OK. Thank you.
Ms. Woglom, you are a big tourism advocate. I mean you
think that, and I agree with you. I like to travel.
Particularly, in Florida I guess you would like to see the
tourism industry grow, is that correct?
Ms. Woglom. I think we are simply saying that there are a
multitude of economies in the Gulf that we need to be paying
attention to.
Mr. Landry. Right. But you would say tourism is an
important industry, is that correct?
Ms. Woglom. Certainly, we think tourism and fishing.
Mr. Landry. Could you tell me what high energy prices do to
tourism?
Ms. Woglom. You know, I am concerned about----
Mr. Landry. No, no. The question is pretty direct. I mean
you tell me what $5 gas does to tourism in Florida.
Ms. Woglom. What I can tell you is that we cannot drill our
way to lower gas prices.
Mr. Landry. Can you tell me how we get tourism into
Florida, other than flying them in? Have they invented an
electric plane yet?
Mr. Woglom. What I can tell you is that the government's
own figures show that gas prices are largely unrelated to
domestic offshore oil production.
Mr. Landry. Really? OK, that is a supply and demand
question. I would love to have that argument with you. I am
going to run out a little bit of time, but I would like to
point out something else. Do you know, because last week we had
a number of witnesses and even Director Bromwich wasn't able to
answer this for me, but do you know under what safety and
environmental guidelines Petrobras drills? Do you know what
they are required?
Ms. Woglom. I am not familiar with it.
Mr. Landry. Because you know they are getting ready to
drill in Cuba, right off the coast of Cuba. That is pretty
close to Florida. Would you be concerned--you haven't looked up
to see what requirements they are going to need to meet?
Ms. Woglom. I wouldn't suggest that a lack of safety
requirements in Cuba should suggest that we should have a lack
of safety and environmental review in the U.S.
Mr. Landry. OK. And last, Dr. Mason, the economic situation
in the Gulf of Mexico, would you consider that robust?
Dr. Mason. The economic losses in the Gulf of Mexico?
Mr. Landry. The situation economically in the Gulf of
Mexico in regards to the oil and gas industry right now do we
have a robust economy in the Gulf of Mexico?
Dr. Mason. We had a robust economy before the moratorium
came along and shut it down unnecessarily during a recession.
In fact, there was a great Wall Street Journal report reviewing
FedBiz evidence. It showed that regions with strong
manufacturing were largely insulated from the effects of the
recession.
Mr. Landry. Great. So it is not robust, but would you say
that our domestic energy policy currently is a robust energy
policy?
Dr. Mason. Our energy policy really is not sustainable. I
see, going back to the analogy with the space shuttle
Challenger, there was a very clear desire to launch another
space shuttle after that. I don't see a clear desire to drill
another well here. It seems like if anything there's a desire
to shut down the entire industry and that is why we are not
only shutting it down with the Gulf moratorium, but trying to
tax it out of existence with Section 199 and dual capacity. And
then, of course, trying to keep the OCS shut down and scale it
back further and further, which brings us back to rent-seeking,
which is crucial here.
Removing the regulator from a rent-seeker from the private
sector to a rent-seeker from politicians. And in my opinion, I
see a clear, very dangerous path in energy policy right now for
rent-seeking from wind developers, battery manufacturers, solar
panel manufacturers to get them in the pockets of politicians
and regulators in the same way that the oil companies used to
be.
There are rents on the line here. Let us be very, very
careful with policy moving forward so that it can be
economically meaningful.
Mr. Landry. Than you so much. I yield back.
Mr. Lamborn. Thank you. Before we hear from our last
Member, I just want to remind Members of the Committee and the
public at large that jurisdiction of liability issues in the
Gulf of Mexico is under the Transportation and Infrastructure
Committee, not this Committee, Natural Resources.
OK, with that, I would like to recognize for our last
Member to ask questions Representative Wittman from the State
of Virginia.
Mr. Wittman. Thank you, Mr. Chairman. And members of the
panel thank you so much for joining us today.
I want to begin with Secretary Domenech and pose this
question to you. I know you are aware of Virginia. And you know
in Yorktown our only refinery in Virginia just recently shut
down. We have been working, obviously, to try to get it
reopened. It is a refinery that is critical to the economy
there in the region. It employs several hundred highly skilled
professionals, both production professionals, also chemical
engineers that run that plant.
Obviously, it was a concern to us as it closed down. But as
you look at this total picture, you look at energy production
and you also look at the ability to refine products that are
here in the United States. I want to cast a broader perspective
on this and ask you, do you know that at that refinery in
Yorktown do you know where the raw products came in for that
refinery to produce?
Mr. Domenech. I am afraid I do not.
Mr. Wittman. OK. Those approximately 63,000 gallons of
crude oil a day that they produced actually came from foreign
nations. It came from Canada, the North Sea, South America, and
the Middle East. So it closed for economic reasons. And one of
the economic reasons was the cost of production. So they
weren't able to compete with refined products that were being
actually imported. As you see today, we have a higher
percentage of refined products being imported into the United
States than at any time in the past.
So my concern is, is that as that production capacity goes
away that creates some concerns for us. And there was a study
done by the Southern Energy Alliance that essentially said off
the Virginia shore about a half a billion gallons of crude oil
and about 2.5 trillion cubit feet of natural gas. Obviously, a
significant resource there that I believe we can produce
safely. And we have a refinery right there on the Virginia
shores to be able to refine that. And I wanted to ask this.
While it is no guarantee as where refineries get their feed
stocks, if we were able to develop those offshore energy
resources off of Virginia, do you believe that this would be a
factor in allowing the Yorktown refinery in the future to open
up its refining capacity again? And how would that affect
Virginia as far as Virginia's energy independence.
Mr. Domenech. Thank you for the question.
Yes, we do think that that refinery would be reactivated
and people rehired at that location. As you say, every company
gets to ship its crude to a different location and so it is
likely that some of that might end up in New Jersey and other
locations that have refineries. But we do think that that is
one way to get that refinery up and running as well as
establish a whole new industry infrastructure there in our port
facility.
Mr. Wittman. Very good. I wanted to use that as the
baseline for a perspective about a domestic energy production
and then look at policies elsewhere.
If you listen to the Administration, you heard recently
about them touting production of offshore energy, specifically
oil off the coast of Brazil. How do you believe that direction
in policy equates to the lack of direction in policy on
developing offshore energy resources, specifically hydrocarbons
off the United States?
Mr. Domenech. We also were a little surprised to hear the
President talk that way in Brazil and at the same time telling
us in Virginia that we were not going to be allowed to proceed
with the sale that had already been approved by Interior and
with a green light from the President. And now put off until
beyond 2017. So it was ironic for us to hear him say that.
Mr. Wittman. One other question. I want to again, talking
about now the foreign production and the encouragement of
foreign production, the lack of direction or comprehensive
energy policy that includes the development of domestic
offshore energy, specifically hydrocarbons, how do you see the
long-term nature of our energy policy with the continued
reliance of foreign sources? Do you believe in relation to what
Virginia has to offer, do you believe that is a viable,
sustainable, efficient energy policy for this country?
Mr. Domenech. I do think Virginia's production is part of a
basket of production that we could contribute to and it is the
best way for us to get off of foreign sources of oil. If I
might, on Friday I attended my son's Army Ranger graduation at
Fort Benning. And I have to admit I thought while I was there
about sending all these young men off to wars in foreign
locations when we could be producing that energy here in the
U.S.
Mr. Wittman. All right.
Mr. Lamborn. Thank you for your questions. And I want to
thank each member of the panel for being here today and for
your testimony. Please bear in mind that Members of the
Committee might have additional questions for you for the
record and I would ask that you respond to these in writing,
should you receive those.
If there is no further business----
Mr. Hastings. Mr. Chairman, I do have some questions I
would like to submit to ask for written responses from the
witnesses, if I may.
And if I may ask of you, I would ask that before we proceed
any further with this legislation that we schedule some
hearings to draw lessons from the shocking experiences of last
summer of last year. Thank you.
Mr. Lamborn. OK, I would be happy to take that under
advisement. And if there is no other business, this
Subcommittee stands adjourned.
[Whereupon, at 11:44 a.m., the Subcommittee was adjourned.]