American Oil and Gas Reporter - January 2015 - 229

CBO observes.
Another consideration is whether a
particular method of meeting environmental standards would be more cost-effective if it was put to use on a larger

scale. CBO says the argument for federal
regulation would be stronger under this
scenario. It adds the argument also has
more validity when a method of meeting
environmental standards would have ef-

fects outside the state in which it was
used, while constraints on states' willingness and ability to select efficient
methods of meeting standards likewise
would argue for federal regulation.
Ì

GAO Confirms Crude Export Benefits
WASHINGTON-A report from the
U.S. Government Accountability Office
confirms removing export barriers for
crude oil will benefit both domestic oil
producers and consumers. The report outlines that such a repeal may:
* Spur more U.S. production;
* Create jobs;
* Lower the trade deficit; and
* Place downward pressure on gasoline prices.
American Petroleum Institute Chief
Economist John Felmy comments that
the United States has become an energy
superpower, but laments that U.S. trade
policies harken back to the 1970s.
"The GAO report simply confirms
what many economists have been saying
for months: that American consumers
and workers will be among the first to
benefit if we lift restrictions on crude exports," he remarks.
Market Dynamics
API observes that drilling and completion innovations have made the United
States the world's top natural gas producer

and projected leader in oil. "Allowing
free trade in energy will mean more jobs,
downward pressure on fuel costs, and
can further reduce the impact of global
unrest on oil markets," Felmy states.
"U.S. energy production already is having
a major impact on world markets, and if
policymakers embrace free trade, that influence will continue to grow in a way
that benefits our economy."
According to GAO, the studies it has
reviewed and the stakeholders it has interviewed agree that removing crude oil
export restrictions likely will increase
domestic crude oil prices but decrease
consumer fuel prices.
The GAO report concludes that increasing U.S. crude oil production while
decreasing consumption and crude oil
imports have affected the country's crude
oil markets profoundly during the last
decade. These changes can carry important
implications for national energy policies
and programs, it says.
"The Strategic Petroleum Reserve is
a significant national asset," the report
describes, "and it is important for federal

agencies tasked with overseeing such
assets to examine how, if at all, changing
conditions affect their programs."
According to GAO, the U.S. Department of Energy already has taken several
steps to reexamine various aspects of the
reserve in light of these changes, including
its location and composition. However,
the report continues, DOE's most recent
comprehensive examination of the SPR's
appropriate size was in 2005, when the
country's experts generally expected it
would have to rely increasingly on foreign
crude oil.
Removing export restrictions likely
will decrease net imports, which would
affect the SPR's role, the GAO report
states. Without re-examining the SPR to
consider whether a smaller or larger
reserve is in the national interest-especially
in light of evolving market conditions-
DOE cannot be assured whether the SPR
is holding appropriate amounts of reserve
crude oil. Thus, its ability to make appropriate decisions regarding the reserve's
maintenance could be compromised, the
report suggests.
Ì

NOIA, IPAA Warn About Overbonding
WASHINGTON-Oil and natural gas
producer advocates have submitted a
series of comments to the U.S. Bureau
of Ocean Energy Management about its
bonding requirements, which the agency
says it is seeking to rewrite as companies
look to drill wells in deeper waters.
According to the BOEM, its risk management system requires oil and gas operating companies to put up bonds that
can range from $50,000 to more than
$10 million for offshore leases, depending
on the level of activity.
Published reports suggest the requirements have come into focus as production
in the Gulf of Mexico has ticked upward
following the 2010 Macondo incident
and subsequent drilling moratorium. The
U.S. Energy Information Administration
reports that Gulf crude production climbed
to more than 1.44 million barrels a day
in August 2014, up from a full-year 2013
average output of 1.26 MMbbl/d.
Both the National Ocean Industries

Association and Independent Petroleum
Association of America have submitted
comments to the BOEM, asking it to update the self-insurance program on risk
management for the Outer Continental
Shelf in a way that does not discourage
responsible OCS activity.
NOIA's comments express concern
that BOEM is searching for a problem,
considering that the federal government
never has used taxpayer money to plug
abandoned wells or platforms. "However,
the current process, in many cases, results
in bonding amounts far in excess of what
is the reasonable liability," the association
maintains. "We understand the need and
concern that there be sufficient bonding
amounts to guarantee the safe removal
of platforms and structures on the OCS,
but the current method of overbonding is
simply overkill."
IPAA's comments maintain that, during
the past four years, the bureau and its
sister agency, the Bureau of Safety and

Environmental Enforcement, have been
restraining more companies' capital in
bonds the government does not need or
use.
"While IPAA members agree that there
is a role for government-required bonds
to assure production facilities are removed,
they also agree that the era of overbonding
must end," the association states. "To
bring that era to a close, IPAA has recommended several steps to assure that
bonds cover actual and imminent removal
costs, not multiplicative and speculative
removal costs."
IPAA President and Chief Executive
Officer Barry Russell remarks that the
American oil and gas industry has played
a "unique and critical function in OCS
development," covering 95 percent of
America's oil and gas wells and reinvesting
billions of dollars into the economy.
"The current system for assuring that
companies have adequate capital to remove
offshore production facilities is broken
JANUARY 2015 229

American Oil and Gas Reporter - January 2015

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