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and implementing appropriate tax policies. If the federal government takes the

proper steps, economically justified investments in domestic energy development will be made in response to market signals.

Question 3: As you are aware, S.341 contains a provision which would establish a price differential between domestic and imported crude oil and petroleum products. This is accomplished by requiring that approximately 9 percent of crude oil and petroleum product imports, or the equivalent, be furnished to the Federal government for use in both filling the Strategic Petroleum Reserve and meeting the fuel requirements of the Department of Defense.

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Would you agree that this requirement is in effect surcharge on the importation of crude oil and petroleum products?

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What mechanism would you propose to fund expansion of the Strategic Petroleum Reserve under the present Federal budgetary constraints?

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Answer: The proposed requirement would have many of the effects as a surcharge on imported oil, which I discussed in my testimony. Since the Strategic Petroleum Reserve serves a general public interest benefitting all Americans by protecting the economy in case of an oil supply disruption it should be funded from general revenues. In addition, P.L.101-383, which was enacted last year, permits the government to lease oil for storage in the Strategic Petroleum Reserve. This concept offers the potential for considerable federal budget savings in the near term. Such ways of saving money on the Strategic Petroleum Reserve should be fully explored.

Appendix II–Additional Material Submitted for the Record

STATEMENT

on
THE NATIONAL ENERGY SECURITY ACT OF 1991, S. 341

for submission to the
SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES

for the
U.S. CHAMBER OF COMMERCE

by
Jeffrey H. Joseph
March 11, 1991

The U.S. Chamber of Commerce appreciates this opportunity to express its views on Title VIII of the National Energy Security Act of 1991. All business enterprises require abundant supplies of energy at affordable prices in order to remain competitive, create jobs, and help pull the economy out of recession. Energy exploration and development on the Outer Continental Shelf (OCS) is an essential part of a balanced, effective energy policy. The Chamber supports a policy of sharing OCS lease revenues with coastal states affected by offshore oil and natural gas development. In particular, the establishment of an Impact Assistance Fund will assist development of the OCS by easing the burden on states and local governments that must provide the transportation, education, and other community services for the work force drawn to drilling regions. Providing a greater share of the financial benefits of new and existing development to coastal communities directly affected by OCS leasing activity is sound national policy and will create an incentive for states to become involved in the OCS leasing program.

THE CURRENT CRUDE OIL AND NATURAL GAS SITUATION

The Chamber is concerned about the current domestic oil supply situation. According to the U.S. Department of Energy (DOE), over the past 10 years oil has supplied approximately 42 percent of the nation's energy needs. Oil is not only critical component of the nation's energy supply, but also is virtually the only liquid transportation fuel. The transportation sector alone consumes roughly 10 million barrels of oil each day.

Jeffrey H. Joseph is Vice President, Domestic Policy

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Despite its importance to the national economy, domestic crude oil production has been allowed to fall to its present level of 7.3 million barrels per day (mb/d), a 21 percent reduction since 1973. Production fell by 0.2 mb/d in the lower-48 states last year, and by 0.1 mb/d in Alaska. The U.S. Department of Energy projects that domestic production will continue to decline into the near future, worsening a burgeoning dependence on oil imports. Our dependence on foreign oil has grown from 27 percent to more than 40 percent during the past five years; our dependence on OPEC oil alone has grown from 11.6 percent to more than 26 percent.

The Chamber is also concerned that adequate supplies of natural gas may not be available to meet growing demand. The consumption of natural gas, which currently provides 24 percent of the nation's energy demand, rose from 16.2 trillion cubic feet (tcf) in 1986 to 18.9 tcf in 1989. Demand is projected to rise in future years due to the ozone nonattainment, acid rain, and alternate fuels provisions of the recently passed Clean Air Act.

THE BENEFITS OF OCS PRODUCTION

Since 1954, OCS production has exceeded 8.5 billion barrels of crude oil and condensate and 88 tcf of natural gas. In 1990 alone, more than 3200 offshore platforms produced an average of 836,000 barrels of crude oil and 11.5 billion cubic feet of natural gas daily, or 11 percent of the oil and 25 percent of the natural gas produced in the United States. In addition, the OCS accounts for a significant portion of existing U.S. oil and gas reserves; one-third of the estimated undiscovered, recoverable reserves in the United States are in the OCS.

The benefits of the development of this vast resource potential are significant, as indicated below.

OCS development will reduce the risk of oil spills by reducing the need for imported oil.
Roughly 95 percent of the oil from the OCS comes onshore by pipeline, not tanker.
Since current federal offshore regulations went into effect more than 15 years ago, less
than 0.001 percent of the oil produced from the OCS has been spilled.

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OCS development will increase federal revenues. From 1954 to 1990, the federal
government received more than $93 billion in lease sales and royalties. According to the
U.S. General Accounting Office, oil and gas royalties account for approximately 40
percent, and 60 percent, respectively, of the total OCS revenues earned by the Federal
government. In 1989, the Gulf region accounted for more than 90 percent of oil and gas
royalties paid. The U.S. Department of the Interior's Minerals Management Service, the
agency responsible for managing federal offshore oil and gas operations, produces more
revenue for the federal government than any other agency except the Internal Revenue
Service. Currently, only the Gulf of Mexico and the Pacific regions have producing
offshore leases.
OCS development will provide additional time for the implementation of new and
alternative sources of energy. Although conservation of energy resources must be an
integral part of national energy policy, the U.S. will continue to be dependent on oil for
a long time to come. Although the use of alternate fuels is increasing, oil supplies 97
percent of the energy used in the transportation sector; this is not fikely to change in the
near future. It is estimated that at current consumption levels, alternate transportation
fuels (e.g., ethanol, propane, electricity, and compressed natural gas) could operate our
transportation system for less than four days. Additional research and development must
be conducted to extend the use of alternate-fuel vehicles.
OCS development will strengthen the national economy as jobs are created and spending
is generated in the drilling and related services industries. Coastal state economies could
also be expected to improve as employment opportunities expand in these areas.

At the very least, the Chamber supports a vigorous, environmentally responsible leasing program in all offshore areas, such as that proposed by the U.S. Department of the Interior in its recently released draft Five-Year Plan. These areas include the Mid- and South-Atlantic coast; the Eastern, Central, and Western Gulf of Mexico; the Pacific coastline from San Luis Obispo to Santa Barbara; and Alaska's Beaufort Sea, Chukchi Sea, Cook Inlet, Bering Sea, and Yukatat region. Furthermore, because it can take as long as 15 years to bring a new offshore field to full production, Congress should remove restrictions on developing existing leases. If

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the United States is to develop new oil and gas resources that will reduce its demand for imports and reduce the threat of oil spills, access to these federal lands must be provided.

OCS DEVELOPMENT IS ENVIRONMENTALLY RESPONSIBLE

The petroleum industry's record of more than 35 years provides overwhelming evidence that OCS operations can take place without harming the environment. Oil companies must obtain 17 major permits and comply with 90 sets of federal regulations to operate on the OCS. These operations must also be consistent with state coastal management programs.

Evidence also indicates that offshore activities have minimal impact on onshore air quality. For example, OCS operations in California's Santa Barbara Channel account for less than five percent of the onshore emissions inventory. Indeed, such emissions are regulated under the Clean Air Act.

CONCLUSION

Continued orderly oil and gas development, under responsible environmental safeguards, is vitally important to the nation's energy and economic well-being. Production of oil and gas from the OCS has the potential to make a substantial contribution to domestic energy supplies. Such affordable sources of energy would help keep down the price of virtually all U.S. goods and services, preventing this nation from losing further ground to its international competitors in the global marketplace.

Steps must be taken now to provide access to the OCS. A national policy, in which coastal states and communities affected by leasing are permitted to share in offshore oil revenues, will provide new incentives for the OCS program, and provide a portion of the nation's resources for the benefit of all.

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