How much new US oil? Not a lot.
The energy bill becomes law Monday, but won't spur exploration.
HOUSTON — With alternative energy sources decades from supplying US needs, motorists fretting over the cost of their next fill-up are left to wonder if America will ever wean itself from foreign oil.
The long-awaited energy bill was supposed to do much to push up domestic oil and gas production, but as President Bush signs the legislation Monday in New Mexico, it would appear that a dramatic boost in new US fossil-fuel supplies is unlikely.
One reason is that domestic drilling is already proceeding at a rapid clip, spurred on by a market in which oil is selling for more than $60 a barrel. Another is that much of what's known to be in the ground is running out or hard to reach. As for what's not known, the energy bill did not open up a lot of new territory to exploration.
Some say Congress should have done more to encourage production and cut US dependence on imported oil - now almost 60 percent of total consumption. Others say the energy legislation does that, not by opening up huge tracts for drilling onshore and offshore, but by focusing half of the bill's $11.5 billion in subsidies on renewable energy, such as wind and solar power.
"Although it's not going to change the shape of our energy future, it takes some good fundamental steps," says Bill Stevens, executive vice president of the Texas Alliance of Energy Producers, in Abilene. "It spreads the money or incentives around between renewables, hydrogen, nuclear, coal, oil, and gas. And hopefully that will give us a firm basis from which to increase our overall energy production."
Make no mistake about it, American oil companies are exploring, drilling, and extracting as fast as they can. Last year, for instance, the rig count grew by more than 10 percent over 2003. But the impetus is $60-a-barrel oil, not legislation.
Still, as the easy oil runs out, getting to the difficult oil is becoming more expensive. Houston-based Rowan Cos., for instance, is currently drilling a well on the Gulf of Mexico's shallow-water shelf that will reach 32,000 feet to the sub-sea floor. It will take a year to complete and $100 million to construct.
"The technology of oil and gas drilling in the Gulf of Mexico is advancing fast, but the costs in the [hard-to-reach] frontier areas increased substantially," says Paul Kelly, senior vice president at Rowan, a drilling contractor.
Many of the energy bill's economic incentives for drilling are targeted at the central and western Gulf of Mexico, which already supply 25 percent of the nation's oil and 28 percent of its natural gas. The bill provides royalty relief for both oil drilling in deep water and deep gas drilling in the shallow-water shelf.
That will help Rowan's customers, but Mr. Kelly says the bill does not go far enough and is too little, too late. Last week, for instance, his company said that it is sending five jack-up drilling rigs to the Persian Gulf under contract with a Saudi firm.
"Congress could have been more open-minded about opening up areas off our coast for exploration. We have an extremely long coastline, from Maine to Alaska, and basically we are only allowed to drill in the central and western Gulf of Mexico and offshore Alaska," he says. "The marketplace is demanding that we go internationally."
In all, $1.6 billion of the $11.5 billion in energy bill subsidies is earmarked for the oil and gas industry. Much of that is directed at encouraging unconventional methods of extraction, such as deep-water drilling and the production of coal-bed methane and oil shale. Enhanced oil recovery also got a boost, with the authorization of incentives for injecting carbon dioxide into old wells to increase their production.
Houston-based Anadarko Petroleum Corp. has an oil field in Wyoming that is more than 100 years old, and the company is using technology to "get the last drops," says Teresa Wong, manager of corporate communications. She points to this particular part of the bill as a positive step.
In addition to encouraging unconventional drilling, the new energy bill includes a few provisions to loosen constraints on conventional drilling. The land-use permitting process has been streamlined, hydraulic fracturing of wells has been exempted from the Safe Drinking Water Act (except for diesel fuels), and the regulation of storm-water discharges during the construction of facilities has been limited.
But in the end, industry experts say, incentives for increased production are minimal.
Others in the industry believe the government should butt out altogether. "I don't like the government in private business," says Jeff Johnson, CEO of Cano Petroleum Inc., an oil and gas production company based in Fort Worth, Texas. "Your Microsofts of the world, your ExxonMobiles, your Ford Motor companies - none of these was built with government subsidies."
His enhanced oil recovery company has four old fields in Oklahoma and Texas that currently produce between 400 and 450 barrels of oil a day. With the help of new technology, he expects those same wells to yield 10,000 barrels of oil a day in the next three to five years.
The industry, says Mr. Johnson, is smart and strong and does not need help right now.
"At these current oil prices, there is more money floating around Wall Street looking for energy than I've ever seen," he says. "There are better places that those government dollars can go - people who are serving in the military, teachers, for instance."