Plenty for Alaska in Senate energy bill

Legislation contains numerous provisions for tapping Alaska’s resources, other measures to stimulate production, conservation

By Rose Ragsdale

Petroleum News Contributing Writer

The U.S. Senate version of a national energy bill, approved by the Senate Energy and Natural Resources Committee May 26 in a 21 to 1 vote, authorizes hundreds of millions of dollars in federal spending across Alaska. Alaska Sens. Lisa Murkowski and Ted Stevens said the measure contains provisions that offer historic opportunities for Alaska and its Native residents to both develop their energy sources for the benefit of the economy and to generate low-cost power for residents statewide.

“This bill offers provisions to help develop our oil, natural gas, huge coal resources and the future gold mine of our vast gas hydrate reserves,” Murkowski said. “It also provides the means to help Alaskans build a modern electrical system involving a range of both renewable and non-renewable sources.

“Alaska has oil, natural gas, coal and immense gas hydrate reserves,” said Stevens. “Developing our natural resources is critical to providing our nation with a dependable, secure source of energy and with providing Alaska with jobs and economic development well into the future.”

At least a few months from passage

Murkowski said that she will continue to work to improve the bill, both on the Senate floor and in a later conference with House members.

The committee proposal and adopted amendments contain the following Alaska-specific provisions:

• National Petroleum Reserve Oil-Gas Leasing Changes: This provision allows oil leases to be extended for 10 years to give lease holders more time to develop oil inside the 23.3-million acre petroleum reserve, which holds an estimated 10.6 billion barrels of oil and 73 trillion cubic feet of natural gas. It allows for speedier lease sales, reduced lease royalties where needed to stimulate production and unit agreements to speed oil or gas field development. It also creates the North Slope Science Initiative to fund better scientific research into the effects of oil and gas leasing in northern Alaska authorizing future funding for the effort.

• Alaska Offshore Royalty Suspension: This provision allows the Secretary of the Interior 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. The authority is the same that the secretary enjoys in other areas nationwide and is intended to help increase Alaska OCS production. The bill provides $500 million in OCS revenues to producing states based on production, with Alaska receiving a guaranteed minimum of $5 million in funding.

• Indian Energy Assistance: The bill provides grant assistance and up to $2 billion in loan guarantees to help tribes nationally and Alaska Native corporations develop energy resources on their lands. The bill gives priority for federal funding to projects that will utilize new technology, such as coal gasification, carbon capture and sequestration and renewable energy-based electricity generation.

• Gas Hydrate Research and Development Assistance: The measure, authored by Murkowski, Stevens and Sen. Daniel Akaka of Hawaii, is designed to continue research and expand 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 trillion cubic feet - with Alaska holding about 15 percent of the nation’s resource – 600 trillion cubic feet onshore and 32,000 trillion cubic feet offshore.

• Cook Inlet Carbon Dioxide Oil Enhancement Program: Murkowski won an amendment that permits the U.S. Department of Energy to determine the feasibility of using carbon dioxide to increase oil output from maturing Cook Inlet oil fields. DOE issued a report in May that indicated about 670 million barrels of oil could be recovered from aging Cook Inlet reservoirs near Kenai.

• Alaska Natural Gas Pipeline Provision: Building on last year’s success in winning loan guarantees and two tax deductions for pipeline segments and a North Slope gas conditioning plant, the bill includes a provision requiring DOE to write a progress report every six months on how work is proceeding on an Alaska gas line – a provision designed to help maintain momentum for the project.

• Rural Energy Assistance: The bill authorizes $550 million over the next decade for improvements to Alaska’s energy infrastructure. The Denali Commission can spend some $55 million yearly to fund a host of projects including energy generation and development, alternative energy sources transmission networks, interties, fuel tank replacement and cleanup, fuel transportation networks and related facilities and coal energy generation and alternative coal fuel projects.

• Power Cost Equalization: Funding to the Denali Commission is also intended to provide up to $5 million a year for a decade to endow the Alaska Power Cost Equalization program. Currently that fund contains $185 million. Interest on the money is used to subsidize the first 500 kilowatts of electric usage by rural residents. The funding is intended to increase the size of the endowment to fully fund the program, which currently cuts the cost of power by 20-30 cents per kilowatt hour in 175 rural communities.

• Healy Clean Coal Loan: The bill authorizes a market-rate loan of up to $80 million to fund improvements to get the Healy clean coal power plant up and running. The nearly $300 million clean-coal technology power plant has not operated since its testing period because of concern over the reliability of the plant.

The Alaska Industrial Development and Export Authority, the state agency that owns the generator, has said the plant could become operational with just $25 million.

• Renewable Energy Provisions: The bill provides assistance to renewable energy projects, anticipating a continuation of a production tax credit for wind, solar, biomass and geothermal energy among other forms of renewable energy. The bill includes assistance to development of ocean energy including tidal, current and thermal ocean energy electricity projects. The biomass provision also gives a preference for grants to development of power from biomass obtained from disease-infested timber, which could affect the Kenai Peninsula where roughly 5 million acres of spruce have been killed by the spruce bark beetle in the past decade.

• Coal Production Assistance: The bill includes $200 million per year in aid for projects to use the nation’s coal resources, with 80 percent especially intended to aid construction of clean coal gasification combined cycle plants. Alaska, with an estimated 160 billion short tons, leads the nation in known reserves of low-rank, low-sulfur coal.

• Alaska Science Provisions: While the Senate bill does not contain earmarked appropriations, projects that were included in the House energy bill and will be considered during conference include funding for an Arctic Engineering Research Center at the University of Alaska Fairbanks and a $61 million authorization for a Barrow Geophysical Research Facility to provide a home for climate research in the Far North.

The bill also includes two provisions that would assist Alaska hydropower projects.

Murkowski said she will be working with the Senate Finance Committee to include provisions in the tax title of the bill to further a host of energy developments in the state and across the nation. The tax component is likely to be developed by the Finance panel in mid-June.

ANWR likely stay out of energy bill

A conference committee will work out differences once the Senate finishes and passes its bill, but few expect the final compromise will contain ANWR language because of filibuster threats.

Pro-drilling forces plan instead to put ANWR language in a budget bill later this year that is immune to filibuster.

Other major provisions of the energy bill include provisions for royalty relief on marginal oil wells, incentives for natural gas production from deep wells in the shallow waters of the Gulf of Mexico; suspension of royalties for leases in water depths greater than 400 meters in certain offshore areas; clarifying FERC’s authority for siting, construction, expansion and operation of LNG import/export terminals (see related article on page 10 of this issue) and testing new technology for producing oil from oil shale. The western United States is estimated to contain 1.8 trillion barrels of oil — more reserves than the Middle East — locked in rock underground.

The bill also contains numerous conservation measures directing the President to develop and implement measures to save 1 million barrels of oil per day by 2015.