Congress Weighs Oil-Patch Aid

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TOP STORY Congress Weighs
Oil-Patch Aid,
Military's Role

Measures Aim to Increase
Nation's Refining Capacity,
Stimulate U.S. Production
By JOHN J. FIALKA and BHUSHAN BAHREE
Staff Reporters of THE WALL STREET JOURNAL


With a nudge from President Bush, Republican leaders in Congress are moving bills to increase the nation's oil-refining capacity and to stimulate more domestic oil and natural-gas production, largely through regulatory relief for producers and refiners.

The effort, intended to cope with supply shortfalls exposed by hurricanes Katrina and Rita and to damp future price increases, is likely to turn into Energy Bill II -- a second act for the lengthy debates that produced the energy bill signed by President Bush in August. Democrats are likely to try to broaden the measure to push for tougher fuel-efficiency standards on cars and to impose a "windfall profits tax" on oil companies similar to one passed in the 1980s.

"The storms have shown how fragile the balance is between supply and demand in America," Mr. Bush said yesterday during an appearance at the Department of Energy. He pledged to push for incentives and to ease regulations -- steps to encourage companies to build new refineries or expand old ones.

Of course, if the efforts succeed, expanding refining capacity will take years. Even restoring refineries and oil production facilities to pre-Katrina and Rita levels of output will take months at the very least. That realization helped propel crude oil, gasoline, heating oil and natural-gas futures prices higher yesterday.

Yesterday, the U.S. Minerals and Management Service said 1.5 million barrels a day of oil production, or the entire output of the U.S. Gulf of Mexico, remained shut down.

Natural-gas production was beginning to recover modestly with 78% of output shut in yesterday, compared with 81% shut in on Sunday. Meanwhile, three major pipelines transporting oil and petroleum products to the Midwest and Northeast were still operating at reduced capacity. They are expected to resume operations at full capacity in coming days. Several major refineries shuttered in advance of Rita, representing roughly a quarter of U.S. refining capacity, remained down or at less than full strength, though several were in the process of restarting. Jamal Qureshi, an analyst at PFC Energy in Washington, D.C., said by the end of the week, some 75 million barrels of refined petroleum product output will have been lost because of Katrina and Rita. "That's just blown a huge hole in the system and this hasn't registered in the market," Mr. Qureshi said.

On Capitol Hill, House and Senate committee chairmen released draft bills to increase refinery capacity. They say the measures would provide more flexibility to a system that pushed refiners to operate at 95% of capacity before the two storms struck the Gulf Coast, where nearly half of the nation's refinery capacity is located.

In addition, Chairman Richard Pombo of the House Resources Committee said his panel will meet this week on a bill to allow coastal states to waive federal moratoriums on offshore drilling for natural gas and lease promising areas to oil companies for exploration. The bill also includes a new effort to drill for oil on the coast of Alaska's Arctic National Wildlife Refuge.

Mr. Pombo also would reduce federal royalty payments from oil companies that produce oil from oil-shale formations and tar sands in Colorado, Wyoming and Utah. The measure is similar to Canadian incentives that have helped Canada's multibillion-dollar oil industry based on tar sands in Alberta.

Chairman Joe Barton of the House Energy and Commerce Committee unveiled a measure that would encourage the construction of new refinery complexes on former military bases and waive some Clean Air Act requirements. It would order the U.S. Environmental Protection Agency to give refiners the "maximum legal flexibility" to perform maintenance and modify their facilities without triggering rules that require state-of-the-art antipollution controls.

The Barton bill also would authorize the Energy Department to sell some crude oil from the Strategic Petroleum Reserve, the nation's emergency crude-oil stockpile, to finance new storage facilities needed to bring the 700 million barrel reserve to the one billion level that Congress recently approved. The reserve is stored in hollowed-out salt domes along the Gulf Coast. Also yesterday, President Bush reiterated the administration's willingness to open the nation's crude-oil stockpile if needed.

Chairman James Inhofe of the Senate Environment and Public Works Committee also introduced an incentive bill for refiners that would ease federal permit restrictions. Sen. Pete Domenici, who heads the Senate Energy panel and who managed the earlier energy bill, had no specific suggestions for a new one. But he issued a statement noting that the two storms will allow Congress to "take the tough steps...that couldn't be taken before."

While they applauded the new moves, industry officials feared they would get lumped together into one large bill that could get jammed in the Senate. "Unfortunately, the thing about 'must do' bills is that they become the target of a lot of extraneous amendments," said Robert Slaughter, president of the National Petrochemical and Refiners Association. "This needs to be kept focused on supply issues."

"It looks as though we're going to have to object to just about everything they're doing," said Kevin Curtis, senior vice president of the National Environmental Trust, an environmental group. "They seem to be taking advantage of Katrina and high gasoline prices to run through things that they weren't able to do in the five years they spent working on the energy bill."

Oil companies currently assessing the damage said it could take days or weeks before the full extent of destruction is known and even longer to set firm restoration timetables. Among the facilities damaged by Rita was Chevron Corp.'s Typhoon offshore production platform, which produces between 15,000 and 20,000 barrels of oil a day.

Industry officials said that repeated offers by the U.S., and by the International Energy Agency, the energy watchdog for the world's industrialized nations, to provide more oil from strategic stocks if needed were keeping price increases in check. Meanwhile, closely watched data on supply, demand and inventories are skewed and it may be weeks, at least, before a clearer picture of the energy situation emerges.