Paul W. Parfomak
Specialist in Energy and Infrastructure Policy
Nearly half a million
miles of pipeline transporting natural gas, oil, and other hazardous liquids crisscross
the United States. While an efficient and fundamentally safe means of
transport, many pipelines carry materials with the potential to cause
public injury and environmental damage. The nation’s pipeline networks are
also widespread and vulnerable to accidents and terrorist attack. Recent
pipeline accidents in Marshall, MI, San Bruno, CA, Allentown, PA, and Laurel,
MT, have heightened congressional concern about pipeline risks and drawn
criticism from the National Transportation Safety Board. Both government
and industry have taken numerous steps to improve pipeline safety and
security over the last 10 years. Nonetheless, while many stakeholders agree
that federal pipeline safety programs have been on the right track, the spate
of recent pipeline incidents suggest there continues to be significant
room for improvement. Likewise, the threat of terrorist attack remains a
concern.
The federal pipeline safety program is authorized through the fiscal year
ending September 30, 2015, under the Pipeline Safety, Regulatory
Certainty, and Job Creation Act of 2011 (P.L. 112-90) which was signed by
President Obama on January 3, 2012. The act contains a broad range of provisions
addressing pipeline safety and security. Among the most significant are
provisions that could increase the number of federal pipeline safety
inspectors, require automatic shutoff valves for transmission pipelines,
mandate verification of maximum allowable operating pressure for gas transmission
pipelines, increase civil penalties for pipeline safety violations, and mandate
reviews of diluted bitumen pipeline regulation. The Transportation
Security Administration Authorization Act of 2011 (H.R. 3011) would
mandate a study regarding the relative roles and responsibilities of the
Department of Homeland Security and the Department of Transportation with
respect to pipeline security.
As it oversees the
federal pipeline safety program and the federal role in pipeline security, Congress
may wish to assess how the various elements of U.S. pipeline safety and
security fit together in the nation’s overall strategy to protect
transportation infrastructure. Pipeline safety and security necessarily
involve many groups: federal agencies, oil and gas pipeline associations, large
and small pipeline operators, and local communities. Reviewing how these groups
work together to achieve common goals could be an oversight challenge for
Congress.
Date of Report: March 13, 2012
Number of Pages: 36
Order Number: R41536
Price:
$29.95
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Friday, March 23, 2012
Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
Michael Ratner, Coordinator
Specialist in Energy Policy
Paul Belkin
Analyst in European Affairs
Jim Nichol
Specialist in Russian and Eurasian Affairs
Steven Woehrel
Specialist in European Affairs
Europe as a major energy consumer faces a number of challenges when addressing future energy needs. Among these challenges are a rapidly rising global demand and competition for energy resources from emerging economies such as China and India, persistent instability in energy producing regions such as the Middle East, a fragmented internal European energy market, and a growing need to shift fuels in order to address climate change policy. As a result, energy supply security has become a key concern for European nations and the European Union (EU).
A key element of the EU’s energy supply strategy has been to shift to a greater use of natural gas. Europe as a whole is a major importer of natural gas. Russia is Europe’s most important natural gas supplier, accounting for 34% of Europe’s natural gas imports. Europe’s natural gas consumption is projected to grow while its own domestic natural gas production continues to decline. If trends continue as projected, Europe’s dependence on Russia as a supplier is likely to grow. And, while it could be in Europe’s interest to explore alternative sources for its natural gas needs, it is uncertain whether Europe as a whole can, or is willing to, replace a significant level of imports of Russian natural gas. Some European countries that feel vulnerable to potential Russian energy supply manipulation may work harder to achieve diversification than others.
Russia has not been idle when it comes to protecting its share of the European natural gas market. Moscow, including the state-controlled company Gazprom, has attempted to defeat Europeanbacked alternatives to pipelines it controls by proposing competing pipeline projects and attempting to co-opt European companies by offering them stakes in those and other projects. It has attempted to dissuade potential suppliers (especially those in Central Asia) from participating in the European-supported plans. Moscow has also raised environmental concerns in an effort to stymie other alternatives to its supplies, such as unconventional natural gas.
Successive U.S. administrations and Congresses have viewed European energy security as a U.S. national interest. Promoting diversification of Europe’s natural gas supplies, especially in recent years through the development of a southern European corridor, as an alternative to Russian natural gas has been the mandate of the State Department’s Special Envoy for Eurasian Energy. The George W. Bush Administration viewed the issue in geopolitical terms and sharply criticized Russia for using energy supplies as a political tool to influence other countries. The Obama Administration has also called for diversification, but has refrained from openly expressing concerns about Russia’s regional energy policy, perhaps in order to avoid jeopardizing the “reset” of ties with Moscow. Additionally, a change in tenor from the Obama Administration towards the Nabucco pipeline project may indicate waning interest in the southern corridor strategy.
This report focuses on potential approaches that Europe might employ to diversify its sources of natural gas supply, and Russia’s role, as well as identifying some of the issues hindering efforts to develop alternative suppliers of natural gas. The report assesses the potential suppliers of natural gas to Europe and the short- to medium-term hurdles needed to be overcome for those suppliers to be credible, long-term providers of natural gas to Europe. The report looks at North Africa, probably the most realistic supply alternative in the near-term, but notes that the region will have to resolve its current political and economic instability as well as the internal structural changes to the natural gas industry. Central Asia, which may have the greatest amounts of natural gas, would need to construct lengthy pipelines through multiple countries to move its natural gas to Europe.
Date of Report: March 13, 2012
Number of Pages: 32
Order Number: R42405
Price: $29.95
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Tuesday, March 6, 2012
Oil and Natural Gas Industry Tax Issues in the FY2013 Budget Proposal
Robert
Pirog
Specialist in Energy Economics
The Obama Administration, in the FY2013 budget proposal, seeks to eliminate certain tax expenditures that benefit the oil and natural gas industries. Supporters of these tax provisions see them as comparable to those affecting other industries and supporting the production of domestic oil and natural gas resources. Opponents of the provisions see these tax expenditures as subsidies to a profitable industry the government can ill afford, and impediments to the development of clean energy alternatives.
The FY2013 budget proposal outlines a set of proposals, framed as the termination of tax preferences, that would potentially increase the taxes paid by the oil and natural gas industries, especially those of the independent producers. These proposals include repeal of the enhanced oil recovery and marginal well tax credits, repeal of the current expensing of intangible drilling costs provision, repeal of the deduction for tertiary injectants, repeal of the passive loss exception for working interests in oil and natural gas properties, elimination of the manufacturing tax deduction for oil and natural gas companies, increasing the amortization period for certain exploration expenses, and repeal of the percentage depletion allowance for independent oil and natural gas producers. In addition, a variety of increased inspection fees and other charges that would generate more revenue for the Department of the Interior (DOI) are included in the budget proposal.
The Administration estimates that the tax changes outlined in the budget proposal would provide $22.133 billion in revenues over the period FY2013 to FY2017, and $38.56 billion from FY2013 to FY2022. These changes, if enacted by Congress, also would reduce the tax advantage of independent oil and natural gas companies over the major oil companies. They would also raise the cost of exploration and production, with the possible result of higher consumer prices and more slowly increasing domestic production.
Date of Report: February 27, 2012
Number of Pages: 12
Order Number: R42374
Price: $29.95
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Specialist in Energy Economics
The Obama Administration, in the FY2013 budget proposal, seeks to eliminate certain tax expenditures that benefit the oil and natural gas industries. Supporters of these tax provisions see them as comparable to those affecting other industries and supporting the production of domestic oil and natural gas resources. Opponents of the provisions see these tax expenditures as subsidies to a profitable industry the government can ill afford, and impediments to the development of clean energy alternatives.
The FY2013 budget proposal outlines a set of proposals, framed as the termination of tax preferences, that would potentially increase the taxes paid by the oil and natural gas industries, especially those of the independent producers. These proposals include repeal of the enhanced oil recovery and marginal well tax credits, repeal of the current expensing of intangible drilling costs provision, repeal of the deduction for tertiary injectants, repeal of the passive loss exception for working interests in oil and natural gas properties, elimination of the manufacturing tax deduction for oil and natural gas companies, increasing the amortization period for certain exploration expenses, and repeal of the percentage depletion allowance for independent oil and natural gas producers. In addition, a variety of increased inspection fees and other charges that would generate more revenue for the Department of the Interior (DOI) are included in the budget proposal.
The Administration estimates that the tax changes outlined in the budget proposal would provide $22.133 billion in revenues over the period FY2013 to FY2017, and $38.56 billion from FY2013 to FY2022. These changes, if enacted by Congress, also would reduce the tax advantage of independent oil and natural gas companies over the major oil companies. They would also raise the cost of exploration and production, with the possible result of higher consumer prices and more slowly increasing domestic production.
Date of Report: February 27, 2012
Number of Pages: 12
Order Number: R42374
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
Friday, February 24, 2012
Financial Performance of the Major Oil Companies, 2007-2011
Robert Pirog
Specialist in Energy Economics
Periods of rising oil prices can result in reduced economic growth, rising prices and reduced disposable incomes for consumers, as well as a deteriorating trade balance. For the oil industry, periods of high oil prices generally imply increasing cash flows and higher profits. While some view the improvement in the industries’ finances under these conditions as a business return no different than those earned in other industries, others view it as a windfall, a direct transfer from consumers, without any significant additional activity attributable to the industry. Although the U.S. oil industry is composed of many firms, to many the face of the oil industry is represented by the five major firms operating extensively in the U.S. market. These firms are: ExxonMobil, Chevron, BP plc, Royal Dutch Shell plc, and ConocoPhillips.
Over the period 2007 to 2011, oil prices were volatile. They increased to a record peak in 2008, declined rapidly at the end of 2008 and early 2009, and increased through 2010, and remained high during 2011. The total revenues and net incomes of the five major oil companies followed a similar pattern. However, the companies’ production of both crude oil and natural gas, their two key products, remained largely unchanged in the face of volatile prices, suggesting that for these firms, market price and the production of key products are not closely related.
During the period 2007 to 2011, the five major companies’ upstream activities of exploration and production contributed more to the total profitability of the firms than the downstream activities of refining and marketing.
During the period, capital budgets were more stable than the price of oil, and the companies’ exploration and production activities did little to increase their ability to produce oil or natural gas. The companies used their profits to carry out a number of activities, to include the distribution of dividends to shareholders, the repurchase of shares on the market to enhance investor holdings, and to carry out business strategies.
Date of Report: February 17, 2012
Number of Pages: 12
Order Number: R42364
Price: $29.95
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Thursday, February 23, 2012
Federal Agency Authority to Contract for Electric Power and Renewable Energy Supply
Anthony Andrews
Specialist in Energy and Defense Policy
The federal government purchases roughly 57 million megawatt-hours of electricity annually (based on FY2007 data, the latest information available), making it the single largest U.S. energy consumer. The Department of Defense (DOD) alone consumes over 29 million megawatt-hours. The federal Power Marketing Administrations (PMAs) sell electricity at more than twice the volume of federal power purchases, over 127 million megawatt-hours of hydropower annually, and are projected to produce wind-generated energy far in excess of the 2005 Energy Policy Act (EPAct) mandates for increasing federal use of renewable energy.
Various statutes and regulations authorize federal agencies to enter into contracts for their utility services and designate the General Services Administration (GSA) as the lead federal contracting agency. Utility services include electricity, natural gas, water, sewerage, thermal energy, chilled water, hot water, and steam. GSA may enter into “area-wide contracts” for up to 10 years with electric utility service suppliers to cover the needs of federal agencies within the supplier’s franchise territory. GSA has delegated certain authority to DOD to enter into utility service contracts on behalf of the military departments, and delegated similar authority to other federal agencies. DOD can also enter into contracts for up to 30 years for services to operate energy generating facilities on military installations. To meet the EPAct renewable energy goals, multiyear “power purchase agreements” (upwards of 10 to 20 years) are proposed with small and merchant renewable power generators. The agreements would fully commit funds up front, contrary to the pay-as-you-go rules of the 1990 Budget Enforcement Act.
In addition to utility service contracts, federal agencies can also take advantage of utility sponsored incentive programs for reducing energy demand. Demand response and load management programs provide rate incentives and/or cash payments to utility customers in exchange for curtailing their energy demand during peak usage periods. Utility energy service contracts (UESCs) enable federal agencies to enter into contracts with utilities to implement energy and water related improvements at their facilities. Agencies may also fund energy-savings improvement projects with appropriations, or the utility may arrange to finance the project’s capital cost up front and recover the investment through its rate charge. Energy saving performance contracts (ESPCs) enable federal agencies to install energy efficiency improvements with no upfront capital costs. The 2007 Energy Independence and Security Act (EISA) authorized federal agencies to combine appropriated funds and energy service companies’ (ESCO) private financing for ESPCs. The authority expands agencies’ opportunities to install solar energy generation.
The 1978 Public Utilities Regulation Policies Act (PURPA) defined a new class of small renewable energy generators that produce less than 80 megawatts and required electric utilities to purchase the electricity generated at the utility’s “avoided cost” of power production via a stateauthorized “power purchase” contract (also referred to as a power purchase agreement). However, state laws and regulations vary on the use of the contracts. States are more likely to permit the contracts when the purchaser is a utility, because the utility is responsible for providing firm uninterrupted power to the customer. Four PMAs market and distribute hydropower in 34 states to public utility districts and cooperatives at cost-based rates. EPAct directed the PMAs to study the economic and engineering feasibility of combining wind-generated energy with hydropower and to conduct a demonstration project that uses wind energy generated by Indian tribes. Short of amending federal contract authority, federal agencies may have recourse to meet EPAct mandates by purchasing power through the PMAs.
Date of Report: February 1, 2012
Number of Pages: 24
Order Number: R41960
Price: $29.95
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Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
Specialist in Energy and Defense Policy
The federal government purchases roughly 57 million megawatt-hours of electricity annually (based on FY2007 data, the latest information available), making it the single largest U.S. energy consumer. The Department of Defense (DOD) alone consumes over 29 million megawatt-hours. The federal Power Marketing Administrations (PMAs) sell electricity at more than twice the volume of federal power purchases, over 127 million megawatt-hours of hydropower annually, and are projected to produce wind-generated energy far in excess of the 2005 Energy Policy Act (EPAct) mandates for increasing federal use of renewable energy.
Various statutes and regulations authorize federal agencies to enter into contracts for their utility services and designate the General Services Administration (GSA) as the lead federal contracting agency. Utility services include electricity, natural gas, water, sewerage, thermal energy, chilled water, hot water, and steam. GSA may enter into “area-wide contracts” for up to 10 years with electric utility service suppliers to cover the needs of federal agencies within the supplier’s franchise territory. GSA has delegated certain authority to DOD to enter into utility service contracts on behalf of the military departments, and delegated similar authority to other federal agencies. DOD can also enter into contracts for up to 30 years for services to operate energy generating facilities on military installations. To meet the EPAct renewable energy goals, multiyear “power purchase agreements” (upwards of 10 to 20 years) are proposed with small and merchant renewable power generators. The agreements would fully commit funds up front, contrary to the pay-as-you-go rules of the 1990 Budget Enforcement Act.
In addition to utility service contracts, federal agencies can also take advantage of utility sponsored incentive programs for reducing energy demand. Demand response and load management programs provide rate incentives and/or cash payments to utility customers in exchange for curtailing their energy demand during peak usage periods. Utility energy service contracts (UESCs) enable federal agencies to enter into contracts with utilities to implement energy and water related improvements at their facilities. Agencies may also fund energy-savings improvement projects with appropriations, or the utility may arrange to finance the project’s capital cost up front and recover the investment through its rate charge. Energy saving performance contracts (ESPCs) enable federal agencies to install energy efficiency improvements with no upfront capital costs. The 2007 Energy Independence and Security Act (EISA) authorized federal agencies to combine appropriated funds and energy service companies’ (ESCO) private financing for ESPCs. The authority expands agencies’ opportunities to install solar energy generation.
The 1978 Public Utilities Regulation Policies Act (PURPA) defined a new class of small renewable energy generators that produce less than 80 megawatts and required electric utilities to purchase the electricity generated at the utility’s “avoided cost” of power production via a stateauthorized “power purchase” contract (also referred to as a power purchase agreement). However, state laws and regulations vary on the use of the contracts. States are more likely to permit the contracts when the purchaser is a utility, because the utility is responsible for providing firm uninterrupted power to the customer. Four PMAs market and distribute hydropower in 34 states to public utility districts and cooperatives at cost-based rates. EPAct directed the PMAs to study the economic and engineering feasibility of combining wind-generated energy with hydropower and to conduct a demonstration project that uses wind energy generated by Indian tribes. Short of amending federal contract authority, federal agencies may have recourse to meet EPAct mandates by purchasing power through the PMAs.
Date of Report: February 1, 2012
Number of Pages: 24
Order Number: R41960
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
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