Senate Energy & Natural Resources hearing to Examine the Bureau of Ocean Energy Management’s 2017-2022 OCS Oil and Gas Leasing Program

In her opening statement, Sen. Lisa Murkowski (R-AK) said that over the past seven years the Department of Interior (DOI) has slowly but steadily abrogated its duty to properly manage the nation’s outer continental shelf.

“We now effectively have a Gulf of Mexico leasing program, and the shadow of a program for three major planning areas in Alaska,” she said.

DOI is making just 13 percent of the U.S. OCS acreage available for leasing, she added, and has cancelled sales in Alaska, where development has overwhelming support. DOI’s “bare minimum” 2017-2022 plan is unacceptable.

Sen. Murkowski’s other main points were:

The U.S. is at a rare moment where it can plan ahead for its future needs without facing low supply or rising price emergencies. But, the U.S. isn’t taking advantage of this situation.
By choosing not to produce oil domestically, the U.S. is giving away the jobs, revenue, growth, and the security that comes from energy development.
DOI’s Alaska OCS treatment is extremely frustrating. The proposed program includes just three sales with targeted acreage, not the area-wide sales that Alaskans have wanted over the past decade. Interior officials have implied that industry interest is waning in Alaska. But, the chaotic federal regulatory regime is actually discouraging investment in Alaska.
DOI’s improper OCS management means that Alaska Native communities that have survived for thousands of years in the earth’s harshest environment may lose schools, health clinics, or home heating. Also, the Trans-Alaska Pipeline System—nationally important infrastructure that’s vital to the entire West Coast—is at risk of becoming uneconomic, and per law, dismantled.
Committee members are urged to read the Energy Security Leadership Council’s recent report, which recommends re-opening the 2017-2022 five-year leasing program. Oil prices won’t remain low if domestic supplies are cut off.

(In related news, Alaska’s congressional delegation sent a letter to Interior Secretary Sally Jewell urging the department to keep all three of Alaska’s proposed lease sales in the five-year schedule.)

In her opening statement, Sen. Maria Cantwell (D-WA) said the potential oil and gas resulting from the leasing program won’t contribute to the energy market in a meaningful way for a decade or more. In the meantime, the U.S. energy landscape will change greatly. Leasing activities need to be planned in the context of the future energy economy.

New science from the BP Deepwater Horizon disaster and other events must be incorporated into oil exploration, production, and spill response decision-making.

Final offshore drilling safety regulations published last month addressed some of the Deepwater Horizon’s primary causes and codified industry and regulatory advances made over the last five years.

DOI is still working on its Arctic drilling rules. Additionally, Oil Spill Commission recommendations still need to be implemented by the Congress.

The U.S. Coast Guard (USCG), National Oceanic & Atmospheric Administration (NOAA), and oil spill experts have testified repeatedly that the U.S. is still not prepared to handle a large oil spill, Sen. Cantwell said. USCG has repeatedly stated that the ability to clean up oil in ice doesn’t yet exist. Oil spill response plans and infrastructure haven’t been updated while the industry explores and develops oil in increasingly challenging environments.

Other concerns are that basic Arctic navigational charting hasn’t been completed and Arctic weather forecasting capabilities are minimal, despite unpredictable and severe conditions. Sen. Cantwell concluded that exploration activities pose significant risk, and this needs to be considered in the decisions about Arctic OCS leasing.

Abigail Hopper, Director of the Bureau of Ocean Energy Management (BOEM), testified on the development of the 2017-2022 OCS Oil & Gas Leasing Program, based on the Interior Secretary’s efforts to consider the potential for environmental damage, discovery of oil and gas, and coastal zone adverse impacts. The new proposed schedule includes sales in offshore areas where there is a high level of industry interest, currently existing leases, and known or anticipated hydrocarbon potential.

BOEM is in the process of developing its 2017-2022 plan. Its Draft Proposed Program (DPP), released in January 2015, received over one million comments and was the subject of 23 public meetings.

BOEM’s revised program and draft Programmatic Environmental Impact Statement (PEIS) were released on March 15, 2016. The comment period for the proposed program closes June 16, 2016. The Final Proposed Program and Final PEIS are expected to be released in late 2016.

The DPP includes ten potential lease sales in the Gulf of Mexico and three in Alaska’s OCS. It continues the 2012-2017 leasing strategy.

Hopper said the program takes into account region-specific considerations, including:

Information about resource potential, the status of resource development and infrastructure to support oil and gas activities and emergency response capabilities;
Recognition of regional interests and concerns;
A balance between the development of offshore oil and gas resources and the protection of marine, coastal, and human environments; and
Public comments and stakeholder engagement.

In Alaska, the DPP identifies one potential lease sale planning area for each year beginning in 2020:

2020 – Beaufort Sea
2021 – Cook Inlet
2022 – Chukchi Sea

Given Alaska Gov. Bill Walker’s request for an earlier Beaufort Sea sale, BOEM is considering moving it to 2019.

Hopper said BOEM has made a lot of progress in Arctic region planning since the Deepwater Horizon incident and the restructuring of the former Minerals Management Service (MMS). BOEM has invested heavily in recent years in Arctic region research and community outreach. It is finalizing region-specific regulations and has tried to incorporate traditional knowledge into its OCS management activities.

BOEM permits, authorizations, and stipulations have required monitoring programs, prescribed mitigation measures, targeted time-area closures, and Conflict Avoidance Agreements to safeguard subsistence whaling and other subsistence harvests.

John Hopson Jr., Mayor of the City of Wainwright and Acting President of the North Slope Borough Assembly, testified that the people and communities he represents are deeply concerned that BOEM appears to be wavering in its commitment to continuing Arctic OCS leasing and exploration. Last October BOEM cancelled the 2016 Chuckchi Sea Lease Sale 237 and the 2017 Beaufort Sea Lease Sale 242. At present, only two Arctic lease sales are scheduled in the Proposed Plan.

Hopson said taxes levied on onshore oil and gas infrastructure support jobs and pay for community water and sewer systems, health services, and heating and housing infrastructure. Through industry contracts with Alaska Native corporations, Native shareholders can obtain jobs in oil field contracting, regulatory permitting, engineering, pipeline design and maintenance, property leasing, and spill prevention and response.

“To put it simply, though we work hard to protect our subsistence way of life, we cannot hunt without bullets and fuel, and we cannot buy bullets and fuel without jobs that provide income,” Hopson said.

With reduced onshore production, local governments are having difficulty making critical infrastructure improvements and maintaining important social, health, and educational programs.

“The reality is that the continued viability of TAPS is contingent upon further development of Alaska’s OCS, and without their measured, responsible development, our communities face a grim economic future,” he said.

Wainwright’s Native village corporation, Olgoonik, has been involved in the preliminary stages of Arctic OCS development. Since 2007, Olgoonik has supported oil industry activities with marine mammal observers, communications coordination between the industry and subsistence hunters, and crew change and supply support services. Olgoonik also has managed marine science studies in the Chukchi and Beaufort Seas.

The Arctic Slope Regional Corporation (ASRC), along with six village corporations, has created its own offshore development company, Arctic Inupiat Offshore.

Hopson said the indigenous people invested proactively in offshore development so that their communities would benefit from development while also protecting their culture and way of life, something not seen anywhere else in the U.S.

“For BOEM to set aside vast areas of the Beaufort and Chukchi seas from development, or to give up completely on its Arctic OCS program, would be to completely fail our communities,” he added.

Hopson said he supports retaining the Arctic lease sales in the Proposed Program, and is committed to working with BOEM to ensure that future leases are developed in a way that protects communities and the environment.

Donald F. Boesch, President of the University of Maryland Center for Environmental Sciences, testified about implementing the January, 2011 recommendations of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling.

Boesch said the Proposed Program needs to be evaluated in the context of the 2010 Deepwater Horizon disaster and of the steps taken by the DOI and the industry to reduce environmental harm and human safety risks.

DOI actions taken to date to implement disaster prevention recommendations include:

The former MMS was reorganized into two agencies—BOEM and Bureau of Safety & Environmental Enforcement (BSEE)—in order to separate the development, revenue, and safety and enforcement functions, thus reducing inherent conflicts of interest.
Offshore operators are required to demonstrate the ability to contain deep-sea blowouts, a capability Gulf of Mexico operators previously didn’t have.
More technically trained risk-compliance officers and inspectors were hired. However, the General Accounting Office found earlier this year that the program fell short of its goals in that investigative and enforcement capabilities were limited, and environmental compliance oversight was weakened.
Safety and Environmental Management Systems II (SEMS II), a performance-focused tool for integrating and managing offshore operations, was implemented.
A final well control rule was issued with requirements for the design, manufacture, repair, and maintenance of blowout preventers. (The American Petroleum Institute has criticized the preventer requirements as too costly and too prescriptive.)
The offshore oil spill liability limit has been increased, though it still only kept up with the 24 years of inflation since it was originally set.

Boesch described the Congress’ limited response to the Oil Spill Commission recommendations:

Additional funds were appropriated to bolster BOEM’s environmental reviews and BSEE’s regulation and inspection functions.
A law was passed that established Clean Water Act penalties for Gulf of Mexico long-term environmental and economic restoration.

On the failure side, the Congress:

Has not raised oil spill liability limits to a more realistic level.
Has not enacted legislation that requires the oil and gas industry to pay fees that support appropriate environmental science and regulatory review.
Has not passed legislation to provide whistleblower protections to workers regarding OCS oil and gas exploration, drilling, production or cleanup.

In response to DOI deepwater well containment requirements, the industry formed the Marine Well Containment Company and Helix Well Containment Group, which have response systems that are now deployed in the Gulf of Mexico, with similar systems deployed worldwide.

The industry also established the Center for Offshore Safety, which helps set third-party auditor qualifications and training requirements. However, the center falls short of the commission’s recommendation for an independent organization to develop, adopt and enforce standards, and ensure continuous safety and operational improvement.

Though oil and gas drilling is safer now than in 2010, there is still significant room for improvement, Boesch said. Furthermore, the oil price collapse has resulted in industry cutbacks in personnel and equipment maintenance.

Boesch said another policy driver is the national goal of reducing greenhouse gas emissions, leaving open the question about whether new hydrocarbon resources should be developed.

In conclusion, Boesch said the Gulf of Mexico seems likely to remain the source for virtually all of the nation’s oil and gas resources. Ironically, the region is particularly susceptible to sea-level rise and more intense hurricanes. He urged the Congress to provide the Gulf Coast with some leasing and production revenues in order to help the region adapt to climate-related changes and the eventual petroleum extraction phase-out.

Athan Manuel, Director of Lands Protection for the Sierra Club, said his organization strongly opposes any OCS leasing or drilling. Even after the Deepwater Horizon post-disaster reforms, new oil and gas development still leads to more pollution and catastrophic spills, he testified.

“If we are serious about avoiding the most catastrophic impacts of climate change, we have to transition onto clean, renewable energy sources and keep dirty fuels like oil and gas in the ground,” Manuel said. “That should start with protecting fragile areas and regions that have not yet been open to exploration.”

The Sierra Club has called on President Obama to duplicate his administration’s decision for the Atlantic Ocean by also protecting the Gulf of Mexico and Arctic Ocean from offshore drilling. Manuel said the 2017-2022 plan needs to reflect the administration’s strong commitment to a low carbon global economy and addressing climate change, as demonstrated by the Paris agreement and the U.S.-Canada Joint Statement on Climate, Energy and Arctic Leadership, which includes protection for at least 10 percent of Arctic marine areas by 2020.

Manuel said drilling is not compatible with U.S. coasts or climate, citing the current coastal economy, the tourism industry, commercial and recreational fishing, and Alaska village erosion problems.

About the Alaska OCS leasing plans, he said new activity in Cook Inlet, and the Chukchi and Beaufort seas is particularly troubling. The areas are too sensitive, ecologically important, and as Shell’s multiple failures consistently demonstrated, too volatile for oil drilling.

Chukchi and Beaufort waters are home to the U.S.’s entire polar bear population, millions of migratory birds, and endangered Bowhead whales. Oil leasing threatens this area’s natural sustainability and the livelihood and integrity of Alaskan Native communities.

Burning and releasing an estimated 17.75 billion metric tons of new carbon dioxide pollution—generated by Arctic Ocean development—guarantees global climate disaster, he said.

Manuel added that the oil industry seems to be losing interest in the Arctic Ocean as well. Last year, citing a lack of industry interest, BOEM canceled two lease sales for the Arctic in its 2012-2017 plan. A Freedom of Information Request made by Oceana showed that that Shell, ConocoPhillips, Eni and Iona Energy have relinquished more than 350 of their Arctic OCS leases, encompassing more than two million acres.

Manuel said the U.S. needs to transition toward 100 percent clean energy. The Sierra Club believes that the technical solutions already exist, and that with these advances, achieving 100 percent renewable energy is both possible and affordable. Additionally, increased vehicle electrification will lessen reliance on fossil fuel.

Congress can help drive sustainable investment and job creation in regions where industry has long abused and abandoned the land, air, water and people, Manuel concluded. It can also help accelerate global clean energy innovation with the goal of making clean energy widely affordable.

Joseph Mason, Director of BOEM, testified that the proposed plan will reduce leasing in the Arctic, Atlantic, and Gulf of Mexico.

Mason said his opinion is that the current environment creates opportunities for BOEM to lease more, not less, in a favorable market environment and create economic output along with jobs, income, and state and local tax revenues that can assist community economic development. The other points Mason made were:

Lease sales are planned for future production, not present. In most cases, oil field development typically requires five to 10 years from discovery to production. The new plan will affect production starting in roughly 2022 and last for 25 to 30 years. If the Congress wants higher energy prices, fuel consumption can be taxed and flexibility retained to meet the energy demands of the next two decades.
Current low oil prices offer no reason to forgo leasing. The first barrel of oil from new lease sale projects will not be sold until 2022-2027, so the current price is not relevant.
To influence development, current interest rates are the more relevant factor. With low inflation expected, firms can still borrow cheaply to develop new leases. The current low rates mean that leases are more valuable now to companies before inflation or market risk “rears its ugly head.” The federal government, in turn, is better off selling leases today instead of waiting for rising inflation expectations.
The economic impact of oil development is still large. The development phase is rich with opportunities for jobs, income, GDP growth, and state and local tax revenues.

In conclusion, Mason said the effect of BOEM’s decisions on carbon dioxide and global warming are important to highlight. Every barrel of oil has a different carbon footprint. Gulf Coast production, for example, can forestall production in the regions that produce dirtier, higher carbon emission oil.

Sen. Murkowski questions the witnesses

Asked by Sen. Murkowski to elaborate on the long lead times for Arctic activity, Hopper said her top priority is to maintain the three lease sale areas in Alaska.

Saying that the Alaska delegation is in support of this, Sen. Murkowski referenced some of the OCS opposition comments and asked Hopper to describe the views of Alaska’s majority, as polls show that more than 70 percent of Alaskans support OCS leasing.

Hopper responded that Alaska’s governor has offered consistent support while, on the North Slope, a variety of opinions were expressed. The Interior Secretary considers many factors in making her decisions. State government positions are one factor, but ocean multiple uses are another.

Sen. Murkowski mentioned an Interior Department tweeted picture that showed opposition to drilling, indicating a lack of impartiality within BOEM. She said DOI hadn’t tweeted any pictures of officials meeting with Alaskans who support oil development.

She asked if the views of a small local minority can override the position of the state’s majority and the state’s governor, especially when deference is awarded to the governor.

Sen. Bill Cassidy (R-LA) added that BOEM appeared to have already made its decision, and worked back from there.

Sen. Murkowski said that given the risks associated with Arctic OCS, people were surprised to learn about all of the favorable responses to Arctic opportunities. She asked Mayor Hopson to talk about his interaction with BOEM.

Mayor Hopson said DOI held a community meeting in Wainwright about a month ago and no opposition was expressed to OCS leasing. He added that though there was only one meeting, he hoped DOI understood the community position. The North Slope needs development and depends on petroleum revenues to support schools, fire departments, and health clinics. There aren’t any alternatives to the 95 percent funding level that oil and gas provides.

Sen. Murkowski asked if subsistence and oil development can co-exist.

Hopson said that Prudhoe Bay oil field operation proved that this is the case. If development shuts down, North Slope residents have only the option of moving to Fairbanks or Anchorage.

Hopson added that climate change is a big topic on the North Slope as well. If the Obama administration believes in climate change, then Washington, D.C. will soon be under water. However, federal agencies are limiting the North Slope’s ability to build and develop infrastructure in its communities.

Sen. Murkowski asked why BOEM wants to move Alaska to an area-wide lease sale approach.

Hopper replied that targeted leasing allows DOI to focus on the areas in which the industry is most interested. Alaska is still a frontier area for development where the Gulf of Mexico isn’t.

Sen. Murkowski responded that the 1980’s were very busy in Alaska, with a significant amount of exploration. The concerns and issues voiced so frequently today did not materialize. Alaska should not be treated differently than other areas when planning OCS lease sales, she said.