March 6, 2013

First,  a postcard from Raleigh to the coast — While fracking has used up most of the oxygen in recent  discussions of  state energy policy, offshore energy development has  taken on new political life.   The sections of Senate Bill 76 dealing with shale gas production have gotten more attention, but the bill also revives  legislative proposals on offshore  energy  development that did not survive  the 2011-2012 session. These sections of the bill apply to all kinds of offshore energy generation (including ocean  wind  turbines), but the bill clearly intends to  signal support for  offshore oil and gas drilling.

In Section 7, Senate Bill 76 proposes a way to divide up state revenue received from  offshore energy  production.   Whatever the merits of the Senate plan  — and it seems designed to promise money for every good thing possible —  it is not certain that the state will ever receive revenue from offshore  energy  production.   The United States has had no experience with  offshore wind turbines and the economics of ocean wind energy make it  an unlikely revenue  source.  Most oil and gas drilling sites are in federal  waters outside the limits of state jurisdiction;  all revenue from drilling in federal waters goes to the  United States  treasury unless Congress authorizes  revenue sharing with the   states.   Gulf Coast states benefit from a federal formula for sharing revenue from production in the Gulf of Mexico and something similar would be needed to allow  Atlantic coast states to receive revenue from production along the eastern seaboard.  Assuming Congress allows revenue sharing for Atlantic coast oil and gas production, the benefit to North Carolina  will depend on where  drilling  occurs and how  the revenue sharing formula works.

Note: The U.S. Department of Interior is not currently issuing offshore oil and gas leases in Atlantic coast waters.  Under the department’s  5- year lease plan, no Atlantic coast leases will be offered until 2018 at the earliest.

The bill also encourages the Governor to negotiate an interstate offshore energy compact with the governors of Virginia and South Carolina. As described in the bill, the purpose of the compact would largely be to lobby for earlier issuance of  oil and gas leases  off  the  east coast of the United States; revenue sharing for Atlantic coast states; and quicker permitting of offshore oil and gas activities.

Although Senate Bill 76 has not yet become law, Governor McCrory has already checked off two  items on the bill’s to-do list. Governor McCrory   joined the governors of South Carolina and Virginia in sending a letter to the President’s nominee for Secretary of the Interior, Sally Jewell,   urging her to  open east coast waters for oil and gas drilling  sooner.  A February 14 press release  issued by Gov. McCrory’s office includes excerpts from the letter and a link to the full text of the letter.

The following week, Governor McCrory joined the governors of Alaska, Louisiana, Texas, Virginia, Mississippi, Alabama, and South Carolina   as a new member of the Outer Continental Shelf Governor’s coalition.  The coalition advocates for more offshore leasing, quicker permitting of offshore oil and gas operations, and revenue sharing for all states with offshore energy production.

Senate Bill 76 has passed the Senate; the bill will go through three House committees (Commerce, Environment and Finance) before reaching the House floor.