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Vol. 10, No. 29 Week of July 17, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Senate energy bill chock full of bennies

Legislation packs powerful punch for Alaska even without drilling on Arctic coastal plain; Murkowski on conference committee

Rose Ragsdale

Petroleum News Contributing Writer

Don’t waste time lamenting the absence of provisions for Arctic coastal plain drilling in the energy bill expected to emerge from negotiations in Congress this summer.

The Senate version of H.R. 6, the National Energy Policy Act, still carries a hefty package of provisions that should benefit Alaska. And with Sen. Lisa Murkowski, R-Alaska, on the panel that will reconcile differences between the House and Senate versions, these measures stand a good chance of survival.

“This bill offers provisions to help us develop our oil, natural gas and coal resources and should help us tap our huge gas hydrate reserves,” Murkowski said following passage of the legislation in June. “It offers to advance a lot of exciting possibilities for Alaska’s future.”

Teamed with jobs likely from construction of an Alaska gas line and the opening of the Arctic coastal plain to oil development — to be considered in the budget reconciliation package later this year — the entire energy package could produce more than 2 million new jobs nationwide, Murkowski said.

Bill targets long-term prospects

A provision with positive long-term implications for North Slope oil and gas development allows leases in the National Petroleum Reserve-Alaska to be extended for 10 years to give leaseholders more time to develop hydrocarbons inside the largely untapped 23.3-million-acre petroleum reserve. Currently, oil and gas leases cannot be extended unless they are producing hydrocarbons.

Geologists believe NPR-A holds up to 10.6 billion barrels of oil and 73 trillion cubic feet of natural gas.

The new rule would allow holders of leases deemed capable of production to extend the leases if exploration, including seismic testing, has occurred on the leases, and pay a $100/acre fee for a 10-year extension, according to Greg Noble, energy branch chief for the Alaska State Office of the Bureau of Land Management.

“Our lease sales have been averaging about $78 per acre, so that’s quite a large fee,” Noble said July 13.

The bill also allows for more expeditious lease sales in NPR-A; gives authority for reduced lease royalties if needed to stimulate production; allows for unit agreements to speed oil or gas field development; and allows Interior to waive administration of oil and gas leases when the subsurface estate is held by Arctic Slope Regional Corp., Noble said.

The measure dangles another carrot by creating the North Slope Science Initiative to fund better scientific research into the effects of oil and gas leasing in northern Alaska and authorizes future funding for the effort.

OCS, hydrates get aid

One provision aimed at encouraging oil and gas development in Alaska allows the Interior Secretary to suspend federal royalty requirements in Outer Continental Shelf lease planning areas in Alaska where the aid is needed to encourage oil and gas production. Alaska would be guaranteed a minimum of $2.5 million from $250 million in total funding.

Another measure reauthorizes and expands efforts to develop a commercial process for producing natural gas from methane hydrates — gas locked in ice and permafrost. The nation is estimated to contain a fourth of the world’s total reserves of methane hydrates — about 200,000 tcf — with Alaska holding about 15 percent of the nation’s resource, 600 tcf on-shore and 32,000 tcf offshore.

The provision offers $170 million in funding for research nationwide, but much of it will come to Alaska, said Mark Myers, director of Alaska’s Division of Oil and Gas. Success in this area would quickly offer 20-30 tcf more natural gas reserves on the North Slope under existing infrastructure. This could extend the life of the proposed Alaska natural gas pipeline by 10-15 years, Myers said July 13.

“We estimate there is 100 tcf of methane hydrates in place under Prudhoe Bay and the other North Slope fields,” he said. “If we can commercially produce it, it means the gas pipeline can be amortized over a longer period — maybe 30 years, which would lower the tariff for everyone.”

Recover oil with CO2

Murkowski also tacked an amendment onto the bill that will permit the U.S. Department of Energy to determine the feasibility of injecting harmful carbon dioxide into aging Cook Inlet oil fields. Overall, the bill aims to lock up or sequester 10 billion metric tons of the greenhouse gas underground through enhanced oil recovery efforts.

“That’s kind of a win-win,” Myers said. “You get rid of CO2 and get more oil out of the ground.”

The Department of Energy recently issued a report indicating up to 12 billion barrels of oil could come from Alaska, about 670 million barrels potentially being available from the aging Cook Inlet reservoirs near Kenai, if CO2 is used to force more oil to the surface. This provision is intended to work together with a tax credit that would jump to 20 percent from 15 percent to encourage enhanced oil recovery by using CO2 injection. The process also is aimed at boosting recovery rates of heavy oil deposits on the North Slope.

Tax credits vary

Other key tax credits in the bill:

• A provision that will offset the cost of capital improvements at Alaska’s oil refineries. These are needed to meet ultra-clean diesel fuel requirements in the future.

• Incentives and tax credits for renewable energy sources: wind, solar, biomass, geothermal and clean coal/coal gasification projects that should create more than $6 billion of new investment in renewable sources.

• Three billion dollars in incentives to perfect hydrogen-fueled vehicles and to set up a fuel distribution system by next decade to dramatically cut future greenhouse gas emissions.

In amending the energy bill on the Senate floor, Murkowski joined Sen. Ted Stevens, R-Alaska, in winning approval for a provision specifically allowing ocean wave, tidal, current and thermal energy production to get federal assistance and benefit from a production tax credit currently in place for other renewable energy sources.

Murkowski came up with the idea, thinking it could benefit Alaska’s coastal communities, her spokesman Elliott Bundy said July 12.

The biomass provision also gives a preference for grants to develop power from biomass obtained from disease-infested timber. The Kenai Peninsula, where roughly 5 million acres of spruce have been killed by the spruce bark beetle in the past decade, could benefit from this measure.

The senator also attached an amendment that guarantees Alaska Native corporations can receive renewable energy development incentives for production of renewable energy projects, such as wind or geothermal power, from Native corporation lands.

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