Yesterday, the President signed into law comprehensive energy legislation. The bill, “The Energy Policy Act of 2005,” addresses a wide range of energy issues, including many that impact the oil and gas industries. The legislation has been before Congress for several years and has been the subject of much debate. Now, the focus will shift to the agencies that are responsible for implementing these provisions.
Below we have included an outline of the key elements in the oil and gas title:
Exploration and Production Issues
Provides that the Secretary of Interior shall conduct an inventory of oil and natural gas resources beneath all waters of the Outer Continental Shelf. (§357)
Provides incentives and royalty relief for production from “marginal property” and for oil and gas drilling from deep water wells and deep wells in shallow waters. (§343-346)
Includes a permanent ban on oil and gas drilling under the Great Lakes. (§386)
Provides specific deadlines for the rendering of a decision where a consistency determination issued pursuant to the Coastal Zone Management Act has been appealed to the Department of Commerce. (§381); allows consolidated records for review (§382); and allows a rebuttable presumption that certain activities are not subject to National Environmental Policy Act, e.g., surface disturbance of less than 5 acres. (§390)
Provides a number of measures designed to improve the efficiency of permit issuance for exploration and production activities and the coordination among federal permitting agencies. (§361-372)
Clarifies and limits applicability of the Safe Drinking Water Act and the Clean Water Act to hydraulic fracturing and storm water runoff. (§§322 & 323)
Creates a pilot project in Wyoming, Montana, Colorado, Utah, and New Mexico designed to improve coordination of federal permits for oil and gas use authorizations on federal lands. (§365) Natural Gas Issues
Gives the Federal Energy Regulatory Commission (FERC) the exclusive jurisdiction to authorize the siting, construction, expansion, and operation of liquefied natural gas (LNG) import terminals. (§311)
Codifies the existing FERC “Hackberry” policy, permitting owners and operators of LNG import terminals to determine the most viable commercial arrangements for their facilities for applications acted upon by the Commission prior to 2015. (§311)
Provides for state consultation during FERC siting reviews on safety considerations; allows states to conduct safety inspections of operating LNG terminals. (§311)
Provides for FERC being the lead agency and creates a common record for review of federal permitting decisions associated with projects authorized under §3 (LNG) or §7 (interstate pipelines) of the Natural Gas Act (NGA). (§313)
Allows natural gas companies to charge market-based rates for storage and storage-related service for new natural gas storage capacity at facilities placed in service after August 8, 2005. (§312)
Affirms seven-year depreciation for natural gas gathering pipelines and provides 15-year depreciation for gas distribution lines, for which original use commences with the taxpayer after April 11, 2005. (§§1325 & 1326)
Makes it unlawful to engage in market manipulation under the NGA; authorizes FERC to issue market transparency rules that will provide greater information about natural gas prices. (§§315 & 316)
Increases criminal penalties that may be assessed under the NGA and Natural Gas Policy Act (NGPA) up to $1 million per day, increases civil penalties under the NGPA up to $1 million per day, and creates new civil penalties under the NGA. (§314)
Other Significant Provisions
Mandates the use of renewable fuel in motor vehicle fuels beginning in 2006 rising to 7.5 billion gallons by 2012. (§1501)
Eliminates the oxygenation requirement from the Clean Air Act. Provides for removal to federal courts of cases regarding use of methyl tertiary-butyl ether (MTBE) but does not provide protections against litigation. (§1502)
Allows oil refiners to use a consolidated and streamlined permitting process at the Environmental Protection Agency. (§§391 & 392)
Provides permanent authorization of the Strategic Petroleum Reserve and gives authority to the Secretary of Energy to fill the reserve to 1 billion barrels. (§301)
Establishes a Coastal Impact Assistance Program that will provide $250 million per year from 2007 to 2010 for coastal states that have significant production and are not subject to moratorium (Louisiana, Texas, Mississippi, Alabama, California, and Georgia) for coastal restoration activities. (§384)
Implications
Although the Energy Policy Act of 2005 was stimulated in great part over concerns of rising oil and gas prices and increasing dependence on foreign sources of energy, the final bill will have little near term effect on those problems. No significant new areas of domestic production were opened up: ANWR and OCS areas under moratoria or other restrictions continue to be off limits to exploration and production. The primary impacts of the legislation were to facilitate processing of permits through improved efficiency and coordination by federal departments and agencies, to continue incentives for operating in high cost areas (e.g., deepwater Gulf of Mexico), and to increase recovery from mature declining production areas. From the downstream sector perspective, the most significant aspects of the bill were a mandate to use 7.5 billion gallons of renewable fuels (viz., ethanol) by 2012 and the failure to address liability concerns over prior use of MTBE.
