Bush Lifts Oil-Drill Ban in Alaska's Bristol Bay
Royalties to Rise for Some Offshore Wells in Advance of Democrats' Plans to Roll Back Tax Breaks

By Steven Mufson and Juliet Eilperin
Washington Post Staff Writers
Wednesday, January 10, 2007

The Bush administration yesterday moved to boost U.S. oil and gas supplies by lifting a long-standing moratorium on drilling in Alaska's Bristol Bay, as OPEC accelerated plans to reduce supplies in order to prop up sagging crude prices.

Days before the House is expected to roll back oil industry tax breaks, the Bush administration also decided to boost royalty rates by a third for ultra-deep-water oil and gas drilling. The action eliminates extra incentives that had been given to offset some of the high costs of operating in those offshore areas. The Interior Department said the change would generate an additional $4.5 billion over 20 years.

Meanwhile, as the line between environmental and energy policy continue to blur, California Gov. Arnold Schwarzenegger (R) announced a plan yesterday that would boost alternative fuels by requiring a 10 percent cut in the carbon content of vehicle emissions by 2020. He said it would be good for the nation's energy security while slowing climate change.

In Washington, Interior Secretary Dirk Kempthorne announced that the administration would open 5.6 million acres in Alaska's North Aleutian Basin for oil and gas development.

Congress first barred drilling in Bristol Bay in 1989 after the huge Exxon Valdez oil tanker spill damaged Alaska's coast. Congress lifted the ban in 2003 at the urging of Sen. Ted Stevens (R-Alaska). But a moratorium President Bill Clinton declared on drilling in the area in 1998 remained in effect, so it took Bush's action yesterday to open it to development. Bush also lifted a presidential moratorium on part of the Gulf of Mexico that Congress opened for drilling in December.

Kempthorne said the offshore drilling in both areas and the increase in royalty fees would "enhance America's energy security by improving opportunities for domestic energy production, and will also increase the revenues that the federal government collects from oil and gas companies on behalf of American taxpayers."

Bob Greco, group director of upstream and industry operations at the American Petroleum Institute, said that "increasing access to those resources is an important step toward meeting our growing energy demand." But he said that goal would be offset in part by the increase in royalty payments, which he said would undercut industry's enthusiasm for drilling in deep waters off U.S. coasts, where a single well can cost $100 million. Higher royalties could also result in lower bids for leases in deep water, Greco said.

"President Bush's decision to lift this moratorium is welcome news for people who live and work in the Bristol Bay region," Stevens said in a written statement. "Imported farmed salmon, high energy costs, and the area's remoteness have limited economic development and contributed to high poverty in the region."

Other Alaskans decried the decision, saying development would bring in less than $8 billion once all the energy was tapped while undermining a fishing industry that brings in $2 billion a year.

"This decision borders on irresponsible, from our perspective," said Eric J. Siy, executive director of the Alaska Marine Conservation Council. The bay has the world's biggest wild sockeye salmon run as well as abundant red king crab, Pacific halibut and Bering Sea pollock and cod fisheries, he said. "The wise thing to do is to invest in the health of that sustainable economy."

Kempthorne said that any proposed project in Bristol Bay or the Gulf of Mexico "would receive thorough environmental reviews."

But Siy noted that a 1985 federal environmental impact statement suggested that the region posed a danger of a major oil spill. "This is a place with hurricane-force winds, with floating sea ice," he said. An oil spill could be "a nightmare" in an area home to 1 million migrating waterfowl and such marine mammals as endangered right whales, he added.

Meanwhile, the Organization of the Petroleum Exporting Countries was trying to control the winds that have been buffeting oil prices over the past week. Prices on the New York Mercantile Exchange for February delivery slipped to $53.88 a barrel yesterday, below a threshold that many technical analysts said supported high prices. Prices rebounded after reports that OPEC would trim half a million barrels a day from its output immediately instead of waiting until Feb. 1 as planned. The price still closed down 45 cents at $55.64 a barrel, the lowest close since June 15, 2005.

The decline in the value of the dollar has prodded OPEC to try to boost crude oil prices. OPEC oil exports are priced in dollars, but its consumer and industrial imports are largely priced in euros.

In California, Schwarzenegger's administration said that the state would require oil companies to reduce the carbon emitted by their fuels by 10 percent by 2020. Linda S. Adams, secretary of the California Environmental Protection Agency, said that transportation fuels accounted for more than 40 percent of greenhouse gases emitted in the state.

Companies that do not meet that standard could buy credits from other companies that had exceeded the state's goals. This system would resemble what are known as cap-and-trade systems in place for sulfur dioxide emissions in the United States and for greenhouse gases in Europe.

State officials said at a briefing that they hoped that the new regulations would spur development of ethanol, biomass, electric vehicles and hydrogen technology. Schwarzenegger said in a written statement that those alternatives reduce a "petroleum dependency" that "contributes to climate change and leaves workers, businesses and consumers vulnerable to price shocks from an unstable global energy market."

But Charles T. Drevna, executive vice president of the National Petrochemical and Refiners Association, said that "even with global climate change, the energy world is going to revolve around the hydrocarbon molecule for a long time." He said he opposed California's plan. "Last time I checked," he said, "the term was global climate change, not Lower 48 climate change."

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