Copyright 1999 Federal News Service, Inc.
Federal News Service
JANUARY 27, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
1679 words
HEADLINE: PREPARED TESTIMONY OF
DR.
DONALD F. OLTZ
STATE GEOLOGIST OF ALABAMA
BEFORE THE
SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES
BODY:
Mr. Chairman, thank you for the
invitation to appear here today. I am Don Oltz, State Geologist of Alabama. In
my position as Supervisor of the State Oil and Gas Board of Alabama, I have
regulatory authority for oil and gas operations in Alabama. As Director of the
Geological Survey of Alabama, I head an agency which provides current,
competent, and complete information and research on Alabama energy, minerals,
water, and biology. Also, I am the current vice chairman of Minerals Management
Service(MMS) Outer Continental Shelf (0CS) Policy Committee and was one of the
votes to move the assistance concept to the Department of the Interior. I also
have many years' experience in the oil and gas industry. Today I would like to
provide a short summary of the OCS Policy Committee's report on coastal
impact assistance, briefly touch on how Alabama handles current income
from OCS activities, and then discuss how offshore exploration and production
activities for natural gas and oil impact the coastal area of Alabama.
The
OCS Policy Committee was established to provide advice to the Secretary of the
Interior through the MMS on policy issues related to oil and natural gas
activities on the OCS. Members represent the coastal states and constituencies
impacted by federal OCS programs. At the Spring 1997 meeting, the OCS Policy
Committee reiterated its support for impact assistance and
revenue sharing to coastal states and communities directly
affected by oil and gas development. The MMS asked the OCS Policy Committee to
develop a proposal to implement an impact assistance program.
The resulting report entitled, "Coastal Impact Assistance" was
approved by the OCS Policy Committee and transmitted to the Secretary of the
Interior.
The OCS Policy Committee report identified two fundamental
justifications for a revenue sharing or impact assistance program: (1) mitigate
the various impacts of OCS activities and (2) support sustainable development of
nonrenewable resources. The committee report states that" 'OCS development
can.., affect community infrastructure, social services and the environment in
ways that cause concerns among residents of coastal States and communities.'
These effects cannot be entirely eliminated and they underscore the fact that,
while the benefits of the OCS program are national, a disproportionate share of
the infrastructure, environmental and social costs are local."
Impacts
listed in the OCS Policy Committee report are:
- the need for
infrastructure, such as ports, roads, water and sewer facilities, to support
expanded economic activity accompanying OCS development;
- the need for
public services, such as schools, recreation facilities, and other social
services, to support the population growth accompanying OCS development;
-
the need to mitigate the effects of occasional accidents (e.g., oil spills) or
cumulative air, water, and solid waste discharges on coastal and marine
resources and on the economic activities (e.g., tourism and fisheries) that
depend on those resources;
- the need to mitigate the physical impact of OCS
activities (e.g., pipelines, wakewash, road traffic, canal digging, and
dredging) on sensitive coastal environments,
- the visual impact on
residents and tourists from production platforms and facilities, waste disposal
sites, pipeline rights of way, canals, etc.; and
- the costs to State and
local governments of effective participation in OCS planning and decision-making
processes and permitting, licensing, and monitoring onshore activities that
support offshore development.
Mr. Chairman, I thought it might be
informative to briefly mention revenues the State currently receives from oil
and gas production including the offshore. In Alabama, severance taxes are
charged on natural gas production. A two percent production tax and a six
percent privilege tax are assessed on all production. The counties from which
the production is severed receive 25 to 30 percent of the privilege tax. The
majority of severance tax revenues are deposited in the State General Fund which
supports all noneducational State programs. Two trust funds have been
established that receive offshore revenues. The Alabama and Heritage Trust Funds
will be merged in 2001 and currently have a combined corpus of 1.61 billion
dollars. These funds include royalties and other revenues derived from State
waters and all 8 (g) revenues. Investment income last year approached 122
million dollars which was transferred to the State's General Fund.
Now I
would like to focus on Alabama and discuss how offshore exploration and
production activities for natural gas and oil impact our coastal area. Our
coastal area comprises two counties: Mobile and Baldwin. Mobile County is more
populated and has a strong industrial base which includes: paper products, ship
building, aviation, chemicals, lumber products, textiles, seafood processing,
and oil and gas production. Baldwin County is less populated but has the fastest
growing population in the State.Retail trade and real estate are the industries
which support a strong and growing tourist industry.
Natural gas was
discovered in Alabama State waters in 1979. Additional discoveries of natural
gas in Alabama state waters led to natural gas discoveries in the OCS off
Alabama, Mississippi, and Florida. Offshore production platforms, pipelines and
onshore processing facilities were established to allow for production of these
very large natural gas reserves. Production from Alabama State waters and the
OCS off Mississippi and Alabama constitutes a significant contribution to U.S.
energy production. We fully expect the infrastructure necessary to produce these
energy resources will continue to expand offshore and onshore Alabama.
Currently, gas production offshore Alabama occurs within the 3-mile state
coastal waters, in the federal-state shared "8 (g)" area and beyond the 6-mile
"8 (g)" boundary. Over a billion and a half (1.5 bcf) cubic feet of gas are
brought onshore every day in south Mobile County, Alabama. This gas originates
from offshore Alabama, Mississippi, and soon, possibly Florida. Alabama has over
100 industries that participate in the construction and operation of offshore
drilling rigs. New drilling and production technology will expand exploration
and production operations into very deep water. Geologic creativity continues to
expand the number of "plays" so that more and more prospects are being drilled.
New plays currently being developed in OCS waters include the oil-prone deep
water flex play and the Cretaceous carbonate trend offshore Mississippi and
Alabama.
Alabama infrastructure needs for maintaining current and future
Gulf of Mexico drilling and production include:
1. Roads. Alabama has to
widen a two-lane road south of 1-10 toward the gulf to add lanes to handle
increased industrial traffic. One source of some of that traffic is tankers
carrying molten sulfur. We have four gas-processing plants in three locations in
Alabama; these plants send out 25 to 30 tracks laden with 400 to 500 long tons
of molten sulfur each day. (Sulfur is removed from the "sour" gas prior to
entering sales lines.) Many of the 100+ industries supporting offshore oil and
gas activities also deliver their products to facilities on the coast over
Alabama roads.
2. Docks and Port Facilities. The Mobile area port
facilities service much of the OCS exploration and production operations
offshore Alabama, Mississippi, and Florida.
3. New Pipelines. As projected
production increases occur, new pipelines will need to be brought onshore
Alabama. In some areas they may cross coastal wetlands or other environmentally
sensitive areas. The current plans to add natural gas liquids plants will also
increase current daily throughput and the need for new pipelines.
4.
Accumulations to Federal Production. In the interest of efficiency, some federal
production may be commingled with state production prior to pipelining. Metering
and allowables will become an additional administrative issue for the Alabama
State Oil and Gas Board.
5. Viewshed Issues. Residents of coastal
communities have complained about the visual impacts of offshore exploration and
production facilities.
6. Boat and Air Traffic. Helicopters, crews and
supply boats operate out of onshore or nearshore bases. Alabama has a tremendous
offshore fishing and shrimping industry that compete in the flow of traffic.7.
Air Quality. The south-coastal air basin has air quality problems. Some
contributions that impact air quality may be related to onshore processing,
truck traffic, etc.
8. Oil Spills. All of Alabama's state and "8 (g)"
production is gas. Deep water production will introduce oil production into the
infrastructure of coastal Alabama. Alabama needs support for state coastal-based
response teams because of increased exposure of risk not contemplated by current
planning.
9. Labor and Associated Infrastructure. Increased jobs brings
increased needs for schools, hospitals, water treatment plants, sewers, etc.
Some socioeconomic studies are in progress to address these and other related
issues.
In closing, Senate Bill 25 is designed to provide Coastal
Impact Assistance to State and local governments in order to mitigate
adverse environmental and public service impacts incurred due to OCS
development. Alabama has produced over 1 tcf of gas. I think industry people
throw numbers around that are sometimes hard to envision: 1 mmcf or 1.5 bcf/day
or 5,000 bopd; 1 tcf of gas will cover the area of a football field vertically
for 2800 miles. As I have described, Alabama is currently being impacted by
offshore development activities in a variety of ways and we are carrying more
than our share of the burden. It would be appropriate for the State of Alabama
and local governments to receive additional revenues that could be used to
mitigate adverse environmental and public service impacts incurred due to OCS
development. I appreciate the opportunity to provide these comments. Thank you.
END
LOAD-DATE: January 29, 1999
