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In a recently issued opinion carrying potentially far-reaching consequences for the offshore oil and gas industry, the U.S. Court of Appeals for the District of Columbia vacated Interior's current 5-year leasing program (2007-2012) and remanded the matter back to the Secretary of the Interior for reconsideration.  The case, Center for Biological Diversity v. U.S. Department of the Interior, involved a challenge to the Secretary's approval of the leasing program on various environmental and procedural grounds.  Specifically, the petitioners (Center for Biological Diversity, Alaska Wilderness League, Pacific Environment, and the Native Village of Point Hope) expressed concern that the approved leasing program would adversely impact the areas surrounding the lease offerings in the Beaufort, Bering, and Chukchi Seas off the coast of Alaska. 
 
The court's decision injects some uncertainty into the status of lease sales scheduled under the current leasing program as well as leases already awarded pursuant to the plan.  In the near term, the decision may cause the August 2009 Western Gulf of Mexico lease sale to be delayed.  Interior has said, however, the impact of the decision needs to be carefully evaluated before it makes any determinations with regard to leases and sales implicated by the current leasing plan.  Given that the case focused on lease offerings in Alaska and that many environmental studies have been conducted related to oil and gas activities in the Gulf of Mexico, this decision could have a greater impact on future Alaska sales.  In any event, the Secretary will have an opportunity to revisit aspects of the leasing plan formulated by the Bush Administration.       
 
The Petitioners in the case argued that  the  leasing program violated the Outer Continental Shelf Lands Act (OCSLA) and the National Environmental Policy Act (NEPA) because it failed to account for the impact of climate change in the leased areas and was approved without conducting sufficient biological baseline research for the Alaskan Seas.  The Petitioners also claimed that  the program violated the Endangered Species Act (ESA) because Interior did not consult with either the U.S. Fish and Wildlife Service or the National Marine Fisheries Service about the potential harm to endangered species.  The court ruled that the petitioners' NEPA and ESA claims were not yet ripe for review.  The court found, however, that the OCSLA-based challenges were justiciable.  Of the three OCSLA-based claims, the court ruled that the petitioners' climate change and baseline data challenges to the leasing program lacked merit.
 
The Petitioners did prevail on one claim, asserting that the leasing plan violated OCSLA because it irrationally relied on an study by the National Oceanographic and Atmospheric Administration (NOAA Study) when assessing the environmental sensitivity of the leasing program on OCS planning areas included in the leasing program.  OCSLA requires agencies to consider "the relative environmental sensitivity of ... different areas of the [OCS]."  The Petitioners argued that Interior's sole reliance on the NOAA Study to measure environmental sensitivity was improper.  In short, the court held that the NOAA Study only assessed the effects of oil spills on coastal areas, it did not assess the environmental sensitivity of the leasing program on the OCS, which is required by statute.  The court stated, "the law plainly requires that Interior examine and compare the environmental sensitivity of different areas of the OCS."  Because the court concluded that Interior did not properly assess this impact, it found that Interior is unable to adequately balance competing environmental and commercial interests. The court ruled, therefore, that on remand the Secretary has to conduct a more complete analysis, which includes all planning areas in the current leasing plan.

As an update to last week's post, the Florida House of Representatives is moving forward on a bill (H.B. 1219) that would permit exploration and production for oil and gas between 3 and 10.5 miles from the coast. The Miami Herald provides an update on the status of the bill and the lobbying efforts to push the bill through before the end of the legislative session on May 1, 2009 (though the session could be extended, as the state budget has not passed yet). Last week Florida’s Governor Charlie Crist (R) said he was “open minded” on the proposal.

Offshore Blog Note: Late on April 27, the Florida House passed H.B. 1219.

Governor Charlie Crist (R-FL) said earlier this week that he would like to learn more about a state legislative proposal that would allow the governor and state cabinet to authorize offshore drilling projects in state waters. Gov. Crist noted that he is "open minded to reviewing" the proposal. Two Republican members of the state cabinet also said they would consider the proposal, although one Democratic official expressed opposition to the timing of the proposal. The Miami Herald offers additional coverage of the issue.

Senate Energy and Natural Resource Committee Chairman Jeff Bingaman issued a press release yesterday discussing his continuing intent to pursue a comprehensive energy bill.  In the press release, Bingaman reaffirmed his support for developing traditional sources of energy, including offshore oil and gas.

This afternoon MMS released its framework for developing renewable energy projects on the U.S. OCS. The framework addresses topics ranging from siting and permitting to revenue sharing between the federal and adjacent state governments. Find more details in MMS' press statement. Note that the framework is nearly 600 pages long, so expect more focused analyses of the rule over the next few days.

Yesterday, the Kingdom of Norway submitted a proposal to the U.N. Commission on the Limits of the Continental Shelf defining Norway's sovereign territory beyond its continental shelf, becoming the first nation to officially set subsea Arctic boundaries.  Under the Law of the Sea Treaty, which Norway is a party to, nations can claim subsea territory up to 200 nautical miles beyond the end of their continental shelves, giving them the rights to subsea minerals.  This includes oil and gas, which the Arctic is believed to hold in significant amounts, and which is becoming more and more accessible as rising temperatures cause Arctic ice sheets to recede later and later into the year.   
 
Norway is the largest offshore producer of oil in the world and the third largest exporter of crude.  The other nations with potential subsea Arctic territory claims are the U.S., Canada, Russia, and Denmark.  The United States is not a signatory to the Law of the Sea Treaty, which has been blocked by conservative Senators who believe ratifying the treaty will result in a concession of U.S. sovereignty to international governing bodies.  However, Secretary of State Hillary Clinton has stressed the need to sign on to the treaty, including in her Senate confirmation hearings, where she stated that the failure to sign has left the U.S. "disadvantaged" in the Arctic.

According to BNA's Daily Report for Executives [subscription required], Rep. Inslee (D-WA) plans to introduce a bill in committee later this month that would (1) create a new permitting office for offshore renewable energy projects and (2) increase research, development and deployment funding for such projects.  Inslee, a member of the House Energy and Commerce Committee, proposes to combine staffs from the relevant executive offices in order to streamline and simplify the permitting process.  This joint permitting office would include staff from MMS, FERC, NOAA, DOE and the Army Corps of Engineers.  Inslee's bill also  would increase federal R&D funding for offshore renewable projects by increasing the DOE's budget authorization for offshore renewable R&D from the current $50 million to $250 million.   As OffshoreEnergyLawBlog has previously noted, there appears to be speculation amongst some members of Congress as to whether the proposed jurisdictional delimitation over offshore renewable energy projects in the recently signed MOU between FERC and MMS is the best outcome for the rapid advancement of such projects.  It's probably not a stretch to speculate that Inslee's proposed legislation is intended to address such concerns.  Stay tuned 'til after the recess ....

The San Luis Obispo County, CA, Board of Supervisors issued a letter opposing further oil exploration proposed for offshore California. The county's action follows a similar move last week by the Board of Supervisors of Santa Barbara County.  The counties acted in anticipation of tomorrow's regional public meeting in San Francisco, CA, addressing OCS energy development.

Yesterday, Interior Secretary Ken Salazar hosted the third in a series of four planned regional public meetings in Anchorage, Alaska,  regarding the future of energy development on the OCS.   The meeting provided a diverse group of local stakeholders, including Governor Sarah Palin (R), the state's congressional delegation, industry, and environmental groups, with an opportunity to discuss the issue of offshore oil and gas development.  The meetings are designed to assist Secretary Salazar and Interior in the preparation of policies that will guide future OCS energy development.  Industry supporters and conservationists rallied outside the Dena'ina Civic & Convention Center prior to the meeting, a display that encapsulates the polarizing nature of the issue.

Governor Palin advocated for OCS development and added, that without such production, the trans-Alaska oil pipeline would be in jeopardy of an early shutdown.   Governor Palin also noted that natural gas from the OCS is essential to the development of a new pipeline supplying gas to the lower-48.  Secretary Salazar responded by saying, "The people who are going to build that pipeline are not going to build it unless they know they have a natural gas supply," an assurance the Secretary suggested can not be given at this time.  Both of Alaska's Senators were supportive of sensible efforts to move forward with OCS oil and gas development.  Senator Begich (D) said, "Oil and gas will continue to supply the majority of this nation's energy for a long time.  I believe most of it should come from secure, reliable domestic production -- especially Alaska."  In contrast to state-wide officials, local fishermen and Mayor Edward Itta of the North Slope Borough argued the benefit of OCS development is not worth the risk of a major oil or gas spill.   Mayor Itta noted, "spill response [is] virtually impossible in Arctic waters." 

 

Local coverage of the meeting can be found in the Anchorage Daily News.  Additional information and a video of the event can be obtained from Interior’s website. The  agency's final  regional public meeting is scheduled for April 16 in San Francisco, CA

MMS announced today in the Federal Register the availability of Site-Specific Environmental Assessments (SEA) and Findings of No Significant Impact (FONSI), conducted under the National Environmental Policy Act (NEPA) for more than seventy proposals relating to exploration, development, production and transport of oil, gas, and mineral resources on the Outer Continental Shelf (OCS) of the Gulf of Mexico and Atlantic Ocean. 

A longstanding skirmish regarding jurisdiction over renewable energy development in the Outer Continental Shelf (OCS) may have been laid to rest.  Yesterday, the Federal Energy Regulatory Commission (FERC) and the Department of the Interior signed a Memorandum of Understanding (MOU) further clarifying each agency's respective jurisdictional authority over offshore renewable energy projects.  The MOU applies to wind, solar, and hydrokinetic energy projects, including wave, tidal, and ocean current initiatives.  The MOU, which is intended to facilitate the development of alternative energy on the OCS, clearly divides the agencies' authorities.
 
First, the agencies recognize that Interior's Minerals Management Service (MMS) has "exclusive jurisdiction" over the production, transportation, and transmission of energy from non-hydrokinetic renewable energy projects on the OCS, including wind power projects.  The agencies do not recognize any role for FERC in the MOU for non-hydrokinetic projects, effectively closing FERC out of regulation in this area of renewable energy development, including, apparently, the transmission of electricity from such projects. 
 
The agencies also agree in the MOU that FERC has exclusive jurisdiction to issue licenses for the construction and operation of hydrokinetic projects on the OCS, pursuant to the Federal Power Act, as well as exemptions for those projects (although the applicability of the referenced exemptions is questionable).  In a significant reversal, however, FERC will not issue preliminary permits for hydrokinetic projects located on the OCS.  Previously, FERC has stated that it would apply its process for hydroelectric licenses to hydrokinetic projects on the OCS, including the preliminary permit process, which generally allows potential developers to secure sites for projects on an initial basis without a comprehensive NEPA review.  This change necessarily will impact several project developers who already have filed applications for preliminary permits with FERC.  The agencies thus far have given no indication of how they will treat those existing preliminary applications that were filed in reliance on FERC's existing regulations and policies. 

MMS will retain a significant role in the consideration of hydrokinetic projects.  Specifically, consistent with MMS' historical authority, the MOU states that MMS has exclusive jurisdiction to issue leases, easements, and rights-of-way regarding OCS lands for hydrokinetic projects.  In addition, MMS has the authority to attach terms and conditions to these contracts, which FERC must include in any license or exemption it issues.  Moreover, FERC cannot issue a license for a hydrokinetic project unless the applicant already has obtained the appropriate lease, easement or right-of-way from MMS.  This places significant power in the hands of MMS and could negatively impact hydrokinetic project proponents who have filed with FERC for a site for which there is also a competing wind power project application pending at MMS.  
 
To this point, FERC and Interior agree in the MOU to work together to develop policies and regulations regarding OCS hydrokinetic projects including processes to address hybrid projects and projects that straddle the boundaries between state and the OCS.  This is a critically important piece that has yet to be fleshed out, as many renewable power developers believe that hybrid projects incorporating both hydrokinetic and wind power represent the most economically viable projects. 

Although the MOU adds important detail to the agencies' respective jurisdictions, significant gaps remain.  It is unclear whether this Solomon-like division of authority actually will result in a more streamlined, efficient consideration of offshore renewable energy projects.  Finally, it also remains to be seen whether members of Congress who have strongly advocated for the development of offshore renewable energy will agree with this new framework. 

Click here to read the MOU.  The agencies' joint press release is here.

Today, the Joint Ocean Commission Initiative released a report calling for the creation of a White House-level ocean policy coordinator and Senate ratification of the U.N. Law of the Sea Treaty.  The report also recommends amending the Clean Water Act, creating an ocean investment fund with offshore revenue, and allocating carbon emissions allowances revenue for research.

Rep. Lois Capps (D-CA) introduced legislation (H.R. 1906) on April 2 that would prohibit oil and gas leasing offshore California. 

At a summit meeting of the 25x'25 America's Energy Future group, on Thursday April 2, 2009, Secretary of the Interior Ken Salazar announced that offshore wind energy is likely to play a very prominent role in America's clean-energy revolution.  Salazar remarked that "[m]ore than three-fourths of the nation's electricity demand comes from coastal states and the wind potential off the coasts of the lower 48 states actually exceeds our entire U.S. electricity demand."  According to the National Renewable Energy Lab, there is more than 1,000 gigawatts of wind potential off the Atlantic coast and more than 900 gigawatts of wind potential off the Pacific coast.  In further comments, Salazar explained, "[w]e are opening our doors not just to oil and gas and coal, but also to the wise development of solar, wind and wave, biofuels, geothermal, and small hydro on America's lands." 

These comments come on the heels of the release of a U.S. Geological Survey-Mineral Management Service report commissioned by Salazar.  The USGS report found huge information gaps regarding the location and extent of offshore oil and gas resources, and determined that some seismic data on file was nearly 25 years old.  This report will be discussed in further detail at meetings around the country addressing offshore energy over the next few weeks.  Click here to read the DOI news release.

On Thursday April 2, 2009, the U.S. Senate rejected an amendment sponsored by Senator Mary Landrieu (D-LA) to the annual budget blueprint (S. Con. Res. 13) that would have given states half of the revenues from offshore oil and gas leases, by a vote of 37-60.  Currently, coastal states receive approximately 37.5% of the revenues.  Included in the amendment was a provision for revenue sharing for leases in newly opened parts of the Outer Continental Shelf where adjacent states currently have no entitlement to revenues. 
 
After Landrieu's amendment was rejected, the Senate approved by unanimous consent an amendment offered by Senator Kay Bailey Hutchison (R-TX).  The Hutchison amendment adds language to the budget bill encouraging expanded offshore oil and gas production as a means to reduce U.S. dependence on foreign energy imports.