The Americanization of the Exclusive Economic Zone

Forget the “dog days of summer” sitting under the veranda fan and put down that iced beverage, because Capitol Hill wants to Americanize the 200-mile Exclusive Economic Zone. Yes, lines have been drawn in the sand as Congress intends to rectify statutory liabilities and update inadequate aspects of OPA-90 and modernize the Merchant Marine Act of 1920, also known as the Jones Act.

The BP oil spill has created a firestorm of opinions, controversy, and proposed legislation, which is quite frankly unprecedented. Personally, I was in San Francisco when OPA-90 passed and during its implementation. At the time, I thought this new oil pollution act was a tough and onerous piece of legislation, but legislators could have never addressed the oil deepwater activities of today nor could they have perceived the magnitude of the BP Gulf of Mexico spill.

Yes, OPA provides blanket provisions when handling hydrocarbons within US waters, but remember the states of Oregon and California had to pass their own laws to enhance environmental protection in their territorial waters. To put a fine point on OPA, only the West Coast has mandated tanker escorts as the rest of the nation has basically been waiting for 2015 when all tank vessels must be doubled-hulled. However, on July 30th, the House passed the “Consolidated Land, Energy, and Aquatic Resources (CLEAR) Act” by a vote of 209 to 193, which includes Section 713, that will prohibit single-hull tankers from offloading at the Louisiana Offshore Oil Platform or U.S. lightering areas beginning on January 1, 2011, instead of the current law deadline of January 1, 2015.

As we all know, the oil industry has another self-inflicted wound again, and the Senate and the House have gone about their business of drafting 16 and 17 bills respectively to deal with future oil spills and the management of oil resources onshore and offshore. Representative Nick J. Rahall (D-WV), Chairman of the House Natural Resources Committee, got his “CLEAR” bill passed and incorporated provisions from James Oberstar’s (D-MN) “Oil Spill Accountability and Environmental Protection Act of 2010” (HR 5629) as well as items from Henry Waxman’s (D-CA) “Big Oil Bailout Prevention Liability Act of 2010,” which wants to move oil spill liability from $75 million to $10 billion. Additionally, Gene Taylor’s (D-MS) Americanization of the EEZ was approved and included in Title VII, Section 709 of the bill.

The 200 mile Exclusive Economic Zone (EEZ) is relatively new, in that, President Reagan extended it from 20 miles to 200 miles in 1983. Did you know, the US recently challenged Brazil’s EEZ rights at the World Trade Organization (WTO) when major deposits of hydrocarbons were discovered about 170 miles offshore Rio de Janeiro? Of course, the US lost and today that country is a hot-bed of oil exploration and production. When Reagan proclaimed the 200 mile EEZ, which includes the Commonwealth of Puerto Rico and the Commonwealth of the Northern Mariana Islands, he was establishing US sovereign rights for everything living and non-living, including the winds and the currents within 200 miles of US shores.

What is taking place today in Congress is really quite interesting, because all things Jones Act have been under attack as being a major factor in the BP oil spill’s ultimate destruction along the Gulf coast. Obviously, what’s taking place is a reversal of fortune as Cabotage proponents are now taking a stab at nationalizing the EEZ. And, as circumstances dictate, this may be one of the best chances for Cabotage advocates to take control of their own destiny. But, it may prove difficult for the Senate to approve many items in the House bill, which is often the case.

When the subcommittee of the Committee on Transportation and Infrastructure met on June 17th, the Deepwater Horizon’s Marshall Islands registry was convincingly made part of the problem. Rep. Cohen went on to remark; “If the BP spill taught us anything, it is that we cannot permit companies to cut corners at the expense of safety. My bill would ensure that only American-flagged assets and American citizens, all of which meet the highest standards in the world, can only conduct offshore drilling in US waters.”

The commotion you can’t avoid hearing in the background; well that’s the oil industry packing up its collective tents and moving on. Meanwhile, the U.S. Coast Guard has indicated there are 37 US-flagged and 57 foreign-flagged mobile offshore drilling units (MODU) engaged in activity on the outer Continental Shelf (OCS). And, there are 38 US-flagged facilities and one foreign-flagged floating facility (platforms) working on the OCS. However, the Coast Guard has no idea how many foreign flagged vessels are in the EEZ because unlike foreign MODU and floating facilities, which must be inspected by the USCG, foreign vessels are not required to give notice of their arrival on the OCS because the Coast Guard has failed to finalize rule making required under the SAFE Port Act (P.L. 109-347). Nonetheless, the Coast Guard estimates there are 1,307 US flagged and 67 foreign flagged support vessels operating on the OCS, which is information obtained from Offshore Marine Service Association (OMSA).

According to the Congressional Research Service (CRS), there are currently 275 drill rigs in US waters, but they could be in various states such as stacked, cold stacked, undergoing inspection, undergoing repairs or retired. Of this number, 243 are operating in the Gulf, four are offshore Alaska, and 28 are offshore at other US locations. CRS was able to ascertain the flags of 125 of the drill rigs as being US (80), Panama (14), Liberia (14), Marshall Islands (13), and Vanuatu (5). Additionally, it was learned by congress that as of June 2010, there were 442 offshore support and supply vessels deployed in the Gulf. Of these 390 are US flagged, and the others are from about 25 different flagged registries. The Coast Guard is now developing a rule requiring foreign flagged vessels to report their arrival on the OCS.

Republicans were quick to point out CLEAR’s pitfalls, especially addressing the new tax of $2 per barrel and 20 cents per million BTU of natural gas. They have pointed out the tax will cost $22 billion over ten years, with the tax eventually climbing to nearly $3 billion per year. They further claim the new tax, which is only on domestically produced oil resources on federal leases, will impact American families and businesses due to higher energy cost, destroy jobs and increase US dependence on foreign oil, which will be cheaper. They also assert the bill will threaten onshore energy projects such as natural gas, wind, solar, oil and geothermal by explicitly removing leasing authority from the US Forest Service and the Bureau of Land Management, and handing it over to the beleaguered and dismantled Minerals Management Service (MMS), which is now been renamed the Bureau of Ocean Energy Management.

While the House bill will be torn apart by opposing members close to the oil industry claiming it’s a job killer, there is much that can happen in a lame duck session. One thing the CLEAR bill does not address is the Presidential Moratorium on deepwater drilling, which has already had a huge impact on Gulf coast families dependent on oil production in the OCS. The Americanization of the Exclusive Economic Zone may be farfetched, but it’s now in play. Anti-Jones Act proponents and Cabotage advocates are about to slug it out, and you thought you had spent a fortune on Pay Pre-view to see a brawl of a good fight. Stay tuned.