OFFSHORE DRILLING:

NEPA reviews could stall return of deepwater projects

The future pace of drilling approvals in the Gulf of Mexico might be slowed less by new laws or regulations stemming from last year's massive spill but by a decades-old law that opens the door to longer environmental reviews and litigation.

In the wake of last year's Deepwater Horizon oil spill, environmental groups have dispatched attorneys to the Gulf Coast to challenge drilling under the National Environmental Policy Act, or NEPA. And some experts say that could have a profound impact on domestic oil production.

NEPA has long been a potent weapon for environmental groups and activists skeptical of drilling in Alaska and the Rocky Mountain West. But such groups had hardly ever turned to it in the Gulf.

The legal shift could jolt the delicate choreography that has evolved from steady, predictable and relatively short approval times by Department of Interior regulators. The Gulf could become more like the West, where drilling projects have been delayed for years when judges found that the federal government's environmental analyses were inadequate.

"This industry grew up using very complex schedules, and those schedules were dependent on having predictable time frames," said David Bernhardt, who was solicitor at Interior during the George W. Bush administration. "There's inherent uncertainty in the NEPA process and federal decisionmaking."

NEPA has been dubbed by some the "Magna Carta" of environmental laws. It requires federal officials to do an environmental impact statement (EIS) when approving plans if the project would cause "significant impact." An EIS can take a year or more and cost more than $1 million.

Before BP PLC's Macondo well blew out in April, federal drilling regulators had given oil companies "categorical exclusions" for exploration, permitting them to skip EIS reviews at that step.

Environmental groups dislike such categorical exclusions. But they rarely, if ever, challenged them in the Gulf.

In the eight years of the Bush administration, only one lawsuit was filed by an environmental group to challenge Gulf drilling under NEPA. Compare that to 388 NEPA suits filed during the same time against the Forest Service (Greenwire, Sept. 27, 2010).

But a dozen or more NEPA cases have been filed since the spill by environmental groups like the Center for Biological Diversity, Gulf Restoration Network and Sierra Club.

"There were many people who thought of it as America's industrial sacrifice zone," said Regan Nelson of the Natural Resources Defense Council. "I don't think you'll see the same inattention in the future."

As Hill plays defense, enviros attack

The flurry of suits has come as efforts to pass stricter laws for offshore drilling have been blocked on Capitol Hill.

An Obama administration proposal to allow Gulf regulators 90 days to review plans rather than 30 days was shelved by Congress in the final days of last year. Interior Secretary Ken Salazar and the administration have found themselves on the defensive from industry's charges that they are reviving drilling too slowly.

But environmental groups are on offense.

"We are going to take an extra-close look at deep water, and we might sue them," said Bill Snape, senior counsel for the Center for Biological Diversity, a group considered one of the most aggressive litigants in the environmental field, adding that the group has not ruled out challenges to shallow drilling. "This is when you go through the thousands of pages and do the hard work."

And Interior's new drilling regulator, the Bureau of Ocean Energy Management, Regulation and Enforcement, or BOEMRE, has just started receiving applications for new exploration projects. Once those start coming in, it is likely they too will be challenged.

Environmental groups note that NEPA is not the only law they can use, nor is it the only law they think regulators ignored for years. There is the Marine Mammals Protection Act, the Clean Water Act and others. But they also say that, done properly, NEPA should not make reviews that much longer for projects that are not environmentally destructive.

An EIS for an offshore lease sale has usually taken offshore regulators about eight or nine months to complete. The complex Cape Wind review for an offshore wind project in Massachusetts took four years. By contrast, they have been turning around exploration plans in 30 days.

"An EIS is not something that will be done in 30, 60, 90 or even 180 days," said Bernhardt, who now represents drillers and other energy companies in the Washington office of Brownstein Hyatt Farber Schreck.

Slowing production would have rippling effects into the economy.

The Gulf accounts for about 8 percent of U.S. oil consumption. Since the spill, the Energy Information Administration has dropped by 500 million barrels its prediction for how much the Gulf will produce by 2018. And a Wood Mackenzie study commissioned by the American Petroleum Institute found that if projects are delayed by one year, up to 2.7 billion barrels of oil in the Gulf could become uneconomical to produce.

Industry officials have expressed their irritation at the regulations Interior has already imposed, but they say they are not as worried by potential NEPA delays.

"It is an issue. It could create more delays," said Erik Milito, director of upstream at the American Petroleum Institute. "But over time the government has gotten better at doing NEPA."

But environmental groups say it will be hard to argue that drilling projects do not cause significant impact after a 4 million barrel spill and explanations that deep water drilling is akin to operating in outer space.

"This is a technology that is at its outer limits," said David Guest, a top attorney for Earthjustice, which has filed suits on behalf of the Sierra Club. "BOEMRE doesn't seem yet to have addressed that."

Federal officials who have contended with NEPA say that even when they believed everything was done properly, they often found themselves bogged down by lawsuits.

"It takes file drawers and file drawers for a relatively simple project," said Dale Bosworth, former chief of the Forest Service. "Somewhere deep in there, there's going to be a mistake, and that mistake delays the project."

Interior's statements scrutinized

Some lawyers say that regulators at BOEMRE have already made decisions and public statements that could undermine attempts to get speedy NEPA approval in the future.

When Interior lifted the moratorium on deepwater drilling in October, the department relied on a NEPA document that said environmental conditions in the Gulf "have been substantially affected" by the spill. It also states that the spill "demonstrated that a high-volume, extended-duration spill resulting from a blowout has the potential to result in impacts that could affect the long-term population status of biological resources."

Such assertions could come back to haunt the administration. That language has already been cited by the Center for Biological Diversity when it went to court to reinstate the moratorium to rebut the idea that an exploration plan has "no significant impact."

And the agency's decision to cancel categorical exclusions for projects and re-examine existing environmental impact statements may have undermined past NEPA approvals, said Jack Coleman, a former Interior and House Resources Committee lawyer.

"The administration has laid the land mines," said Coleman, who now consults for energy firms as the founding managing partner of EnergyNorthAmerica. "They're going to say, 'We gave you permission. It's that bad old judge or that bad old environmental group.'"

Interior officials reject the criticism, saying it makes sense to re-examine NEPA documents that were proved inaccurate by the worst spill in U.S. history.

"We are doing the type of environmental analyses that we believe are necessary, appropriate and more rigorous," BOEMRE spokeswoman Melissa Schwartz said. "Any prediction about whether conducting these rigorous environmental reviews will lead to additional litigation is pure speculation."

Some in the industry had been watching to see how the regulators at BOEMRE would handle NEPA in the wake of the spill -- would they return to the minimal reviews done before the spill or require a full-blown EIS for plans that used to get approved in 30 days?

Last week, BOEMRE appeared to signal a middle course when it announced how it would handle the first new exploration plan filed since the spill. The agency would require an environmental assessment, or EA, and also seek public comment. An EA takes less time and money. But an assessment must also find that a project has "no significant impact" or the much longer review will be required.

"This is a first step," Bernhardt said, "in seeing what the 'new normal' actually will be."

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