Chapter 9 Domestic Petroleum

In 2007, 27 percent of U.S. oil production and 14 percent of natural gas production came from wells located just off our nation’s coast. Bosselman, 285. These wells lie in an area called the outer continental shelf (“OCS”). Bosselman, 285-86. The OCS is part of the internationally recognized continental shelf of the United States, which does not fall under the jurisdictions of the individual states. Wikipedia, “Outer Continental Shelf.” According to the federal government, the OCS consists of the submerged lands, subsoil, and seabed lying between the seaward extent of the United State’s jurisdiction and the seaward extent of Federal jurisdiction. See 43 USC § 1331. The OCS is home to a considerable portion of our country’s undiscovered oil and gas reserves. Bosselman, 286.

The question about whether to harvest these reserves has always been a political one. The United States OCS has been divided into four leasing regions: Gulf of Mexico, Atlantic, Pacific and Alaska. Wikipedia, “Outer Continental Shelf.” The Gulf States are divided on issues. States on the western coast of the gulf have been open to OCS leasing but states on the eastern coast, like Florida, have strongly opposed any drilling. Bosselman, 286. Likewise, coastal states such as California and Massachusetts have not been welcoming to offshore drilling. Bosselman, 286. In a similar vein, drilling off the coast of Alaska has provided its own unique set of problems. Bosselman, 286.

The next few sections will seek to discuss the statutory framework that governs offshore drilling, the unique problems posed by harvesting Alaska’s oil reserves, and the moratoria currently in place on offshore drilling.

Almost all of the legislation governing offshore drilling for oil and natural gas can be traced backed to a singular event: the Santa Barbara oil spill of January 1969. Bosselman, 286. See Wikipedia, “1969 Santa Barbara Oil Spill.” In that case, an oil rig being drilled by Union Oil Company blew out and leaked between 24,000 and 71,000 barrels of oil over the span of 11 days. Bosselman, 286. After this incident Congress rapidly enacted a succession of environmental acts: the National Environmental Policy Act of 1969 (NEPA), 42 USC § 4321 et seq., the Marine Protection Research and Sanctuaries Act of 1972, 33 USC § 1401 et seq., the Coastal Zone Management Act of 1972 (CZMA), 16 USC § 1451 et. seq., the Endangered Species Act of 1973, 16 USC § 1531 et seq., massive Clean Water and Clean Air Acts of 1977, 33 USC § 1251 et seq.; 42 USC § 7401 et seq., and a revision of the Outer Continental Shelf Lands Act of 1953 (OCSLA) in 1978, 43 USC § 1331 et seq. Bosselman, 287-88.

These legislative enactments came at a time when the country was in the throes of an energy crisis brought on by the OAPEC oil embargo of 1973. Thus, the last part of the decade saw energy competing with the environment for national attention. The federal government sought to form a compromise with the environmental lobby. The revision of OSCLA attempted to achieve such a balance. Its 1978 amendments expanded the role of state and local government officials in the federal OCS leasing process in hopes that this would put an end to litigation between costal states and the federal government, so that oil could be expedited to markets in the wake of the price shocks caused by the embargo. Bosselman, 288.

However, opposition to OCS leasing continued unabated. In 1977, the Department of Interior (DOI) was prepared to issue another lease sale off the coast of Santa Barbara. Bosselman, 288. However, the state government of California opposed and asked the U.S. Supreme Court to interpret the CZMA and the new OSCLA in light of this leasing decision. See Secretary of the Interior v. California (US 1984).

The case before the Supreme Court hinged on language in the CZMA that stated activities that “directly affected” a coastal zone must comply with state standards. The states sought to use the “directly affected” language to prevent oil exploration from being conducted off their coasts. However, the Court held that the DOI’s leases were not an activity that “directly affected” coastal zones and the sales were allowed to continue. This issue would be revisited in the 1990s when Congress chose to remove “directly” from the language of the statute, thus lowering the burden for states wishing to prevent offshore drilling. See 16 USC § 1456(c)(1)(A).

[LK: case here that revisited the issue?]

As stated earlier offshore drilling of the coast of Alaska presents its own unique set of challenges. Prudhoe Bay in Alaska is the largest oil field in North America. Wikipedia, “Prudhoe Bay Oil Field.” It was discovered in 1967 on land that the state had selected under the Alaskan Statehood Act of 1958. Bosselman, 300. This Act gave Alaska the right to select over 100 million acres from unreserved lands. Bosselman, 300; See Alaska Statehood Act. Native Americans in Alaska objected to 80 percent of the state’s claims. Bosselman, 300. Congress resolved these disputes with the Alaskan Native Claims Settlement Act (“ANCSA”) of 1971. Bosselman, 300; See 43 USC § 1601 et seq. In the ANCSA Congress allowed native Alaskans to select 44 million acres of land for their use as long as they relinquished all “aboriginal rights” to the exclusive use of the lands and waters in Alaska. Bosselman, 300.

“Aboriginal rights” was a theory long recognized by both Alaskans and the U.S. Courts alike. Bosselman, 300. These rights included hunting and fishing, and were extremely important as most native Alaskans lived a subsistence life-style based on harvesting wild resources. Bosselman, 300. The Settlement Act did not vest native Alaskans right to fish or hunt in the large part of Alaska that was now in federal hands. Bosselman, 300. However, the federal government remedied this problem by the passing of another act 9 years later: the Alaska National Interest Lands Conservation Act (“ANILCA”). Bosselman, 300-01; See 16 USC § 3101 et seq. ANILCA established a priority for non-wasteful subsistence fishing and hunting on federal lands. Bosselman, 301.

Outer Continental Shelf (OCS) leasing began to come into conflict with the subsistence rights of native Alaskans living in coastal villages. Bosselman, 301. These native Alaskans claimed that OCS leasings would adversely affect their aboriginal rights to hunt and fish on the OCS under ANILCA. Bosselman, 301. However, the Supreme Court in Amoco Production Co. v. Village of Gambell (1987) disagreed and held that ANILCA did not apply to OCS leasing activity. Bosselman, 302. The Court held that ANILCA only applied to the right to hunt on lands “in Alaska” and the OCS, which began well past the territorial waters of Alaska, could not be considered to be “in Alaska.” Bosselman, 302.

[LK: more research here; doesn’t seem that relevant/important to the main discussion of domestic petroleum as is]

9.4.4 Moratoria and Withdrawals of Land From Leasing

A moratorium movement, prohibiting OCS leasing, began gaining momentum under Ronald Regan’s administration in 1981. Bosselman, 308. A moratorium is an injunction issued by either the Executive or Congressional branch to delay or suspend an activity. The movement began at the insistence of the coastal states that were frustrated with the results of litigations aimed at prohibiting offshore drilling. In 1982 Congress wrote prohibition into the Department of the Interior’s (DOI) appropriation’s bill that banned offering certain OCS areas on the California coast up for lease. Bosselman, 308. By 1989 succeeding appropriation bills had extended the moratoria to more than 181 million acres off the coasts of California, the North Atlantic, and the eastern Gulf of Mexico. Bosselman, 308. This off limits acreage equaled more than twice the acreage that had ever been leased in the history of the OCS program. Bosselman, 308.

Congress cited a planned sale of 1 billion acres by the Secretary of the Interior as the reason for the moratoria. Bosselman, 308. Congress explained that the rapid pace and magnitude of the leasing proposed under that sale would undermine the ability of state and local governments to adequately asses the environmental impact of leasing. Bosselman, 308. Congress further stated that since the Regan administration refused to continue funding for state coastal management systems, include the states in OCS revenue sharing, or maintain consistent program requirements left the states and local citizens taking all the risks of OCS activity without receiving any of the benefits. Bosselman, 308.

The moratorium was met with fierce opposition by the domestic oil industry. Bosselman, 308. However, the 1980’s saw a sharp drop in the price of oil and succeeding presidents did not see the need to lift the moratoria. Bosselman, 309. In 1990 President George H.W. Bush extended the moratoria to most of the U.S. coastline, and in 1998 President Clinton extended this moratoria through 2012. Bosselman, 309. However, in 2008 the moratoria expired because Congress did not include a leasing prohibition in the appropriations bill. Bosselman, 310. President George W. Bush lifted the executive order restricting certain OCS leasing. Bosselman, 310. With the executive order lifted, a new OCS program is now being formulated. Bosselman, 310.

Management of the oil and gas resources of the Outer Continental Shelf (OCS) is governed by the OCS Lands Act (OCSLA), 43 USC 1331, et seq., which sets forth procedures for leasing, exploration, and development and production of those resources. The Bureau of Ocean Energy Management (BOEM), formally the Minerals Management Service (MMS), is the bureau within the DOI that is responsible for implementing the requirements of OCSLA. BOEM, “Leasing.” Specifically, Section 18 of OCSLA calls for the preparation of an oil and gas leasing program indicating a 5-year schedule of lease sales designed to best meet the nation’s energy needs. 43 USC § 1344. In April of 2009, the DOI’s OCSLA 2007-2012 leasing program was vacated and remanded back to the Interior for revision after being challenged in the DC Circuit Court of Appeals in Center for Biological Diversity v. U.S. Dept. of Interior. Under the revised 2007-2012 program, the Secretary of the Interior included 16 sales in 6 areas of the OCS. See Revised Outer Continental Shelf Oil and Gas Leasing Program 2007-2012. The 2007-2012 program expires on June 30, 2012. In accordance with the statutory obligations under OCSLA, the Secretary is in the process of developing a new 5-year program that will govern OCS activities during the period 2012-2017. The proposed 2012-2017 program was issued in November 2011. See Proposed Outer Continental Shelf Oil & Gas Leasing Program 2012-2017. It included 15 lease sales in 6 offshore areas where there are currently active leases and exploration and where there is known or anticipated hydrocarbon potential. Twelve of the 15 leases included in the proposed program are in the Gulf of Mexico. The new program takes effect on July 1, 2012.

[LK: there should have been a final proposed 2012-2017 program issued in early 2012 but I cannot find it anywhere]

The production, transport, refining, and consumption of oil and petroleum products have a significant environmental impact. Bosselman, 319. They can all affect air quality, water quality, and biological resources - either directly or indirectly - through air and water quality changes that they precipitate. [LK: more here]

The takeaway from BP Exploration & Oil, Inc. v. United States EPA (6th Cir. 1995), is learning about the Clean Water Act (CWA) and it multi-stage effluent discharge guidelines. See EPA, “Summary of the Clean Water Act.” The Court first discussed the CWA and its general objective. The objective of the Clean Water Act (CWA) “is to restore and maintain the chemical, physical, and biological integrity of the Nation’s waters.” 33 USC § 1251. Consequently, the discharge of any pollutant is illegal unless made in compliance with the provisions of the CWA.

The CWA formulates national effluent limitation guidelines for those entities that discharge pollutants into the navigable waters of the United States. These guidelines are structured in a multi-stage system, wherein each stage of effluent discharge (based on the type and amount of pollutant(s)) is progressively more stringent than the last.

In order for the emitting entity to obtain a permit to operate, it must meet the standards set forth by the EPA. At the first stage of pollutant reduction, the EPA determines the level of effluent reduction achievable within an industry with the implementation of the “best practicable control technology currently available,” or, “BPT.” At the second stage, the EPA sets more stringent standards for toxic and conventional pollutants. For toxic pollutants, the EPA is to set the standard for the “best available technology economically achievable,” or, “BAT.” For conventional pollutants, the standard is “best conventional pollutant control technology,” or, “BCT.” For new pollutants, the EPA the standard - “new source performance standards” (NSPS) - is tantamount to the application of BAT controls to remove all types of pollutants from new sources within each category.

In the case at hand, the EPA was essentially being attacked by two different petitioners: oil industry petitioners and the Natural Resources Defense Council (NRDC) petitioner. The former argued that the EPA’s standards were too stringent; the latter argued that the standards were too lenient. Ultimately, the Court affirmed the administrative-level decision based on the broad discretion the agency is given to weigh all relevant factors during rulemaking, and therefore affirmed the multi-stage standards established by the EPA.

9.6 Oil Transportation

9.6.1 Oil Spills

Oil spills often occur as a side effect of the transportation, refinement, and use of petroleum products. Broadly defined, oil spills include the release of crude oil from tankers, offshore platforms, drilling rigs, and wells. Wikipedia, “Oil Spill.” Spills further include the release of refined petroleum products (such as gasoline, diesel) and their by-products and heavier fuels used by large ships such as bunker fuel. Spills may take months or even years to clean up.

When many people hear the word oil spill, they often think of Exxon Valdez and the BP Deepwater Horizon incident. See EPA, “Exxon Valdez”; National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. The BP accident is probably more memorable because it just recently occurred. However, oil spills, albeit on a lower scale, occur often as a part of delivering petroleum products to the market. Oil spills both affect market price and result in negative environmental externalities; therefore, it is in the best interest of consumer and capitalist alike to transport and refine petroleum as safely as possible. [LK: not sure where this information came from- cannot find the source]

[LK: further discussion on the major oil spills?]

When the bill was originally written, it capped liability at $75 million; However, due to the oil spill in 2010 in the Gulf of Mexico, some members of Congress attempted to raise the liability cap to $10 billion. See GPO, H.R. 5214. Both political parties blocked that attempt because there are other wells in that area that need to be protected (at least protected economically). However, on January 26, 2011, the bill was reintroduced as H.R. 492 and assigned to a congressional committee, which will consider it before possibly sending it on to the House or Senate as a whole. See GovTrack, H.R. 492.

The Department of Transportation’s (DOT) Pipeline and Hazardous Material Safety Administration (PHMSA), acting through the Office of Pipeline Safety (OPS), administers the DOT’s national regulatory program to assure the safe transportation of natural gas, petroleum, and other hazardous materials by pipeline. PHMSA, “About Us.” Pipeline safety is a broad yet crucial element in production of petroleum, which is often pushed aside in favor of economic concerns. For example, the OPS has jurisdiction over more than 2 million miles of pipelines but is one of the smallest units within the DOT. See PHMSA, Office of Pipeline Safety. As of 2003, the agency had only 90 pipeline inspectors and was budgeted for only 151 full-time employees. PHMSA, “PHMSA and Pipelines FAQs.” It commonly relies on state and local authorities to perform inspections. For decades, the agency has not known the exact whereabouts of thousands of miles of pipelines under its jurisdiction. [LK: cannot find more current stats on the number of inspectors/employees- I know there is some website that is supposed to have all this info but I cannot remember what its called]

To enhance the security and safety of pipelines, Congress enacted the Pipeline Safety Improvement Act of 2002. This Act brought about many reforms in the OPS. For example, for the first time, the OPS was given the power to order immediate corrective action for potential safety conditions so that ruptures can be prevented instead of only detected after they have occurred. Bosselman, 349. In 2006, Congress again acted to provide for enhanced safety and environmental protection in pipeline transportation and enhanced reliability in the transportation of the Nation’s energy products by pipeline by enacting the Pipeline Inspection, Protection, Enforcement and Safety Act (PIPES Act). See 49 USC § 60101 et seq. After the PIPES Act expired in September of 2010, Congress introduced the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 again to provide for enhanced safety and environmental protection in pipeline transportation and enhanced reliability in the transportation of the Nation’s energy products by pipeline. The bill sought to strengthen pipeline safety programs, improve the nation’s pipeline network, and ensure the regulatory certainty in pipelines transportation necessary to create jobs. AG News, “House Transportation Committee Marks Up Pipeline Safety Reauthorization.” The President signed the bill into law on January 3, 2012. GovTrack, H.R. 2845.

[LK: discussion of these Acts can be expanded]