Closer look at the U.S. offshore drilling controversy

The Natural Resources Committee of the House of Representatives started on February 11 the first of a series of three hearings on the U.S. offshore oil and gas drilling policy. I summarise hereafter the main elements of the current discussion.

Why a ban on offshore drilling? The background for the current discussions is the end of two bans on offshore drilling in most of the U.S. waters. The bans consist of: (1) a presidential ban adopted by President George Bush Senior in 1989, in reaction to the 1989 Exxon Valdez oil spill in Alaska, and lifted by his son G.W. Bush in July 2008; (2) a Congressional ban from 1981, under the form of a moratorium, renewable each September, and which expired in September 2008. These bans restricted areas that could be offered by the Minerals Management Service (MMS) for outer continental shelf (OCS) leasing. The remaining restrictions concern: the “Presidential Withdrawal”, which excludes all marine sanctuaries from oil and gas leasing activities; and the 2006 Gulf of Mexico Energy Security Act (GOMESA) restricting drilling activities in some portions of the Central Gulf of Mexico Planning Area (CPA) and most of the Eastern Gulf of Mexico Planning Area (EPA).

The practice - Even under the regime of the previous bans, offshore drilling occured and occured to a great extent at the large of the U.S. costs by the way of exemptions to the bans. Most of the latter have been approved in the central Gulf of Mexico, and recently off the coast of Florida. According to the Minerals Management Service, ”82% of the oil and 84% of the natural gas in the OCS are in those areas that were already available for drilling before the congressional moratorium expired last year.” Similarly, the currently leased OCS production areas (43 million acres) accounts for approximately 15% of the domestic natural gas production and about 27% of the domestic oil production. Along the coast of California, 78,000 barrels of oil are produced every day. (Ibid) (See Map of Oil and Gas Fields within the OCS along Californian coasts. Source: MMS)

Upcoming challenges: endorsing a new offshore drilling policy - Although the bans are lifted, and offshore drilling made legal, the Obama administration is reserved on the topic. During the first Congress hearing this month, Republicans asked President Obama to endorse a proposal put forward by his predecessor of a five-year plan aimed to expand offshore drilling, i.e. authorise 31 exploration lease sales in the period 2010-2015 off California, Alaska and East Coast. The proposal is opposed by environmental organisations such as the American Oceans Campaign, but also by local politicians such as California Governor Arnold Schwarzenegger.

Follow-up question: what is the repartition of jurisdiction between States and the federal government over offshore resources? It is only several years after the 1945 President Truman Proclamation on the Policy of the United States with Respect to the Natural Resources of the Subsoil and Sea Bed of the Continental Shelf, that the jurisdiction issue has been solved by the Legislature and case law. The main piece of legislation is the Outer Continental Shelf Lands Act (OCS Lands Act), which provides in section 1331 (a) that the Federal Government has jurisdiction over the submerged lands, subsoil, and seabed, lying between the seaward extent of the States' jurisdiction and the seaward extent of Federal jurisdiction (= EEZ, 200 miles). The federal authority is exercised by the Minerals Management Service, part of the Department of the Interior. The States jurisdiction is limited to 3 miles from shores, except in Louisiana (3 imperial nautic miles), and Texas and the Gulf Coast of Florida (9 miles).

Not a short-term strategy – Connecting the freshly drilled petroleum products to the transportation network is a mid-term strategy. It requires permits, investment and construction. The leasing procedure is lengthy (still undergoing for the areas opened in 2006). The U.S. Department of Energy foresees that the offshore resources to be opened for exploitation will fully contribute to the domestic production by 2030.

For the consequences of a forthcoming ratification of the Law of the Sea Convention and offshore drilling, see end of precedent message.

"International Law Challenges Facing Obama"

I would like to report here on a seminar I attended this week on the topic in title, at UC Berkeley Law School, where Prof. Oona Hathaway presented brillantly her views. She classifies challenges into three categories: framing, structure and substance. I reproduce hereafter my notes from her presentation.

1. Framing, answering shortcomings of previous administration and attacks.
Several U.S. politicians expressed strong criticisms against the international institutions, and in particular the United Nations (U.N.)system and the necessity the defend the country sovereignty. Prof. Hathaway quoted among others Congressman Ron Paul or Pat Buchanan (the latter having said that UNCLOS "represents a permenant loss of national sovereingty"). The previous decades saw the withdrawal of the U.S. from several international treaties, and a switch in public opinion regarding the U.S. role in international politics. Only 35 % of the world population see the U.S. as an important international player today. A dramatic change compared to the influence of the U.S. after WWII. Also, although a large majority of U.S. citizens is in favour of a greater involvement of their government in international diplomacy, only one fourth expresses confidence in international organisations such as the U.N.

2. Structure, the manner public international law is made in the U.S.
Prof. Hathaway recalls the recent U.S. Supreme Court decision Medellin v. Texas which reconsiders the fact that international obligations cannot be enforced by domestic courts in the U.S. This represents a major challenge in terms of implementation of international law.
The manner how treaties are adopted in the U.S., and in particular Article II Treaties where the president does not need to consult or be backed by the Congress, is a democratic issue, because the legislative branch is not involved. Articles II treaties where the U.S. president can sign international agreements without Congress consent, have dramatically increased since 1950s.

3. Substance, the sectoral challenges.
Prof. Hathaway named the following: (1) global warming; (2) laws governing the war on terror, in particular the closing of Guatanamo, the detention of unlawfull combattants, and the rebuilding of a norm on torture; (3) legal restraints on use of force (e.g., the manner how the U.S. invaded Irak and its legality); (4) International Criminal Court and international criminal law (Should the U.S. participate? Is the proliferation of tribunals a good thing? The U.S., due to their wide presence abroad in peace keeping operation, could also be sued for ingerence); (5) UNCLOS, which may represent the easiest step forward internationally; (6) Civil liability and Alien Tort Claims Act; (7) renewed commitment to human rights law; (8) global approach to private international law, such as tax law and commercial arbitration; (9) the proper role of the Security Council and the reform of the U.N.; (10) economic sanctions (Are they appropriate? Are unilateral sanctions legal?)

To my question on the ratification of UNCLOS and the impact of the current revived discussion on offshore drilling along the U.S. coasts, Prof. Hathaway recalled that: even if the U.S. has not ratified UNCLOS, most of the rules have been implemented through customary law. The direct and positive effect of the ratification would be to get a seat at the table of negotiations, and in doing so influence rules and framework definitions. What could limit the U.S. action, would be UNCLOS institutional and judicial infrastructure, such as the dispute resolution procedure and possible legal suits before the tribunal, optional reference to the ICJ and arbitration procedures. The only real challenge regarding offshore drilling lies with the maritime boundaries. The ones on offshore regions are pretty much set, but the ones located in ice-smelting areas could be a challenge for further exploitation of natural resources.

The Secretary General of the Energy Charter Treaty answers criticisms over shortcomings in the gas dispute between Ukraine and Russia

… in a declaration to read on the Energy Charter website, here.

Smart Grid (1)

For those not familiar with the Superbowl, one of the side entertainment to the sport event is the competition for getting the best TV-ad (at the most dramatic moment of course). And it was with interest that we could watch this year a General Electric advertisement featuring smart grid technologies (on the song "If I only had a brain" from the Wizard of Oz).

Link: http://www.youtube.com/watch?v=m1XqLPa9BoA

I will shortly comment on some aspects of the smart grid in a latter message. But to introduce the theme, "smart grid" technologies aim, among other things, to manage energy more efficienctly in particular at the consumption level, increase energy storage capacity (such as in the transport sector), work on transmission and distribution systems, develop large-scale integration of renewable energy.

Security of Energy Supply Put in Practice: a Massive Energy Recovery Plan for the EU

Facing the urgent challenges of the financial crisis and security of energy supply after the Russia-Ukraine gas dispute, the European Commission is pursuing the foundation of a consistent European energy policy.

The plan unveiled on January 28, 2009 by the Commission aims to invest € 3.5 billion in energy projects over at least the next two years. The overall purpose is to “aid economic recovery by granting Community financial assistance to projects in the field of energy.” In other words, the plan is thought to provide the necessary financial impetus which will not come from elsewhere in a context of financial crisis. This corresponds to the principles of action defined in the European Economic Recovery Plan (COM(2008)800) endorsed by the European Council in December 2008: “injection of purchasing power into the economy”, to boost demand and stimulate confidence; “direct short-term action to reinforce Europe's competitiveness in the long term”, focusing on "smart" investments, i.e. energy efficiency to create jobs and save energy; clean technologies to strengthen sectors like construction and automobiles; infrastructure and inter-connection to promote efficiency and innovation.

The Energy Recovery Plan identifies three priorities, which I summarise under the following titles:

• Reinforcing the infrastructures - Focus on key gas pipelines and storage facilities, and electricity interconnections, based on the Second Strategic Energy Review of November 2008. This includes 20 projects, and among them: the Baltic Interconnection, a Southern Gas Corridor, LNG, the Mediterranean, Central and South-East Europe, and the North Sea offshore grid.
• Developing indigenous resources – Focus on the next generation of offshore wind technology. “Wind is the world’s fastest growing renewable electric energy source.” “While onshore wind technology is close to maturity, the offshore applications still need further technological development based on large industrial scale demonstration projects.” The plan prioritises large-scale offshore new demonstration projects, in deep waters (up to 50m and 100km from shore), and of cross-border significance, be situated in deeper waters (up to 50m) and further from shore (up to 100km).
• Maximising EU coal, oil and gas resources and technologies – Focus on carbon capture and storage deployment, AND, not least, the commercialisation of CCS technologies (5 advanced projects).

One originality of the Plan is to combine the pre-identification of projects with a more traditional procedure of call for tenders for offshore wind. This is to secure the short-term completion of the projects. After the submission of competing bids, the Commission will select the best projects by comitology.
The funds to be allocated come from the “unspent money” from the EU budget, subject to approval by the Council and the European Parliament.

... And what about the U.S. economic recovery bill?

There is here an obvious coordination of strategies and views on the manner to tackle the financial crisis. Both the European Union (EU) and the U.S. new administration see energy security, in all its different components, as a vital sector for the well-being and growth of their economy in the short-term.

The so-called “economic stimulus package” under discussion by the two Houses of the U.S. Congress foresees to invest in clean energy and green jobs, for an approximate amount for $145.3 billion. The House of Representatives have already approved $819 billion under the stimulus bill on January 28, 2009. The bill will now be examined by the Senate.

Hereafter are summarised some of the actions and corresponding stimulus instruments (See Apollo Alliance for details):

• towards a modernised and “smart” electricity grid: funding for R&D, pilot projects, and federal matching funds for the Smart Grid Investment Program, loan guarantees for investment and implementation of infrastructure projects;


• energy efficiency in the building sector: implementation of energy efficiency standards, renovation and green building completion, in both public and private sectors, both at federal and state levels, in the form of loans, grants and direct financial support;


• weatherisation and housing sector: increased resources for the Weatherization Assistance Program aimed to help low-income families reducing their energy costs, help them pay for home heating and cooling at a time of rising energy costs, and provide rebates for the purchase of efficient Energy Star products to replace old appliances;


• renewable energy sources deployment: loan guarantees for renewable energy power generation and transmission projects, federal funding from the DOE in research in clean technologies and engineering, extension of the Production Tax Credit in the residential sector;


• carbon capture and storage: $2.4 billion for CCS technology demonstration projects;


• climate change research: satellite development and acquisitions of technologies, including climate sensors and climate modelling, $400 million to NASA for climate change research, support to repair labs specialised in earth and climate change research.