Washington (Platts)--29Sep2008

A 26-year-old congressional ban on oil and gas drilling in most US waters
outside the Gulf of Mexico is set to end on Wednesday, following Senate
passage Saturday of a temporary funding bill for the government.

President George W. Bush was expected to sign the continuing resolution,
which the House of Representatives approved earlier last week.

The measure, which would fund the government from the start of the new
federal fiscal year on Wednesday until March 6, allows the US Department of
the Interior to lease tracts on virtually all of the Outer Continental Shelf
for oil and gas development, ending a congressional ban enacted in 1982 for
most of the OCS.

The measure, which the Senate passed in a 78-12 vote, also ends a
congressional prohibition on Interior's development or regulations for
oil-shale development in western states.

While Congress has now opened the door to more oil and gas exploration
and production in waters starting three miles from shore, actual development
cannot take place until Interior revises its OCS plan and conducts leases, a
process that would take several years.

Moreover, Democrats have indicated they will reconsider offshore
development when a new Congress and new president take office next year, and
industry executives have made clear that companies are unlikely to count on
more access to federal waters until lawmakers arrive at a long-term solution.

House and Senate Democratic leaders opted for a stop-gap spending bill
this year mainly to avoid a conflict with the White House over spending
priorities. Lawmakers have included the offshore ban in annual appropriations
bills for Interior.

Democratic leaders also decided to drop the ban on offshore development
after many Republicans said they would vote against the temporary spending
measure if it continued the prohibition, even if it meant shutting down the
federal government. Adding to pressure on Democrats was Bush, who dropped an
executive moratorium on OCS drilling this summer, and threatened to veto the
measure if it continued to restrict oil and gas development.

"Unfortunately, the president's willingness to veto any sensible
compromise on offshore oil drilling, which would have threatened to shut down
the government and sent a dangerous signal during these hard economic times
and a financial crisis on Wall Street, led to the expiration of the current
moratorium," House Speaker Nancy Pelosi said Wednesday, when the House
approved the bill.

Democrats also decided to end a year-old ban on the development of
regulations for leasing oil shale reserves in the west, a rider backed by
Colorado lawmakers that was included in the fiscal 2008 funding bill.

Republicans hailed the spending bill as the first step toward reducing US
reliance on foreign oil.

"For the last several months, Americans have been demanding Congress act
to lower high prices at the pump and develop new domestic sources of
energy--particularly by opening up the Outer Continental Shelf to drilling and
allowing access to our vast western oil reserves," Senate Minority Leader
Mitch McConnell said after his chamber passed the funding measure. "And today
Congress responded."

Dropping the OCS ban will not affect the eastern Gulf of Mexico, where
drilling is prohibited under a 2006 law. The central and western Gulf of
Mexico are where most US offshore oil and gas production takes place.

Among other provisions, the temporary funding bill would allow the
federal government to offer direct loans to US automakers, to help them build
more fuel-efficient cars and trucks. The Energy Independence and Security Act
of 2007 authorized $25 billion in loans to help auto manufacturers cope with
higher fuel economy requirements, but the law required additional action by
Congress to make the loans available.

The temporary measure would provide $2.5 billion above 2008 levels for
low income home heating oil assistance, and $250 million more than last year
for weatherization assistance for low-income home owners. The program had been
marked for elimination by the Bush administration.

The bill will increase the limit on low-enriched uranium that Russia is
allowed to export to the US, in return for further work by Russia to
down-blend high-enriched uranium to LEU
--Jean Chemnick, jean_chemnick@platts.com
--Bill Loveless, bill_loveless@platts.com