The rules, which were expected, would lower emissions of volatile organic compounds that contribute to smog by nearly 25 percent across the oil and gas industry and by 95 percent from natural gas wells drilled using the controversial technique of hydraulic fracturing, or fracking.

The proposal marks the first federal air standards for wells that are hydraulically fractured, which occurs when companies inject chemicals, water and sand deep underground to break up rock and free trapped gas.

U.S. natural gas production is growing as more than 25,000 new and existing wells use fractured drilling each year, according to EPA.

EPA said the proposed rules would still allow U.S. oil and gas production to increase. By using technologies to capture and sell natural gas that now escapes into the air, the industry would actually save nearly $30 million a year even as it cut dangerous emissions, the agency said.

“Reducing these emissions will help cut toxic pollution that can increase cancer risks and smog that can cause asthma attacks and premature death – all while giving these operators additional product to bring to market,” said Gina McCarthy, assistant administrator for EPA’s Office of Air and Radiation.

The rules are part of a raft of measures the EPA is taking on toxic and greenhouse gas emissions on petroleum and other heavy industries this year. Industry groups and lawmakers from energy-intensive states are trying to stop the EPA regulations, saying they will hurt the economy.

Howard Feldman, the American Petroleum Institute’s Director of Scientific and Regulatory Policy, said his group will review the proposed rules “to ensure that they don’t inadvertently create unsafe operating conditions, are cost effective and truly provide additional public health benefits, and don’t stifle the development of our abundant natural resources.”

Environmentalists cautiously welcomed the proposals, with the Clean Air Task Force (CATF) saying they were a “first step.” But the group said the proposals would not go far enough to reduce emissions of methane, a powerful greenhouse gas. “CATF will strongly urge EPA to correct this omission in its final rule,” the group said in a release.

The EPA said the proposals will reduce 3.4 million tonnes of methane, or the equivalent of 65 million tonnes of carbon dioxide.

The draft rules cover the production, processing, transmission and storage of oil and natural gas. However, crude oil sent to refineries would not be covered by the proposal.

The measures resulted from a lawsuit by two environmental and consumer groups, which sued the EPA for failing to review the air toxic standards for the oil and gas industry.

A federal appeals court ordered the agency to release draft rules by July 28 and issue final standards by next February 28.

The EPA will take public comment on it proposal for 60 days.

Feldman said API wanted the February 2012 deadline for issuing the final rules to be extended by at least six months to give EPA adequate time to collect and analyze comments on the proposal.

(Reporting by Tom Doggett and Timothy Gardner; Editing by John Picinich and Lisa Shumaker)

Pipeline safety has becoming a bigger priority in Congress
after Exxon Mobil’s (XOM.N: Quote, Profile, Research, Stock Buzz) Silvertip pipeline ruptured earlier
this month and spilled an estimated 1,000 barrels of oil where
it crossed the Yellowstone River in Montana.

The legislation cleared by the House Energy and Power
Subcommittee on Wednesday calls on the Transportation
Department to determine within one year whether current
regulations for pipelines crossing waterways wider than 100
feet (30 meters) are adequate.

Current federal safety rules say pipelines crossing rivers
must be buried at least 4 feet under the riverbed or just 18
inches if rock has to be blasted.

Exxon said it plans to replace the section of the Silvertip
line that leaked and bury it 30 feet under the Yellowstone
River.

The legislation now goes to the full House Energy and
Commerce Subcommittee, which is expected to vote on the bill
after lawmakers return in September from their summer recess.

“The bill demands improvements in both technology and
personnel that can help prevent leaks from occurring in the
first place and reduce the damage if they do,” said
Representative Fred Upton, who heads the full committee.

The House bill is similar to pipeline safety legislation in
the Senate, except the Senate bill does not have language on
burying pipelines deeper under rivers.

Both bills would raise fines for safety violations from
$100,000 a day to $250,000, and from $1 million for a series of
pipeline violations to $2.5 million.

They would also require automatic or remote-controlled
shut-off valves to prevent oil spills and natural gas
explosions, require faster notification to the government of
pipeline accidents and leaks and hire more federal pipeline
inspectors.

The United States has about 2.5 million miles (4 million
km) of pipelines that move oil, natural gas and other hazardous
liquids. The death toll from pipeline safety accidents
increased from nine in 2008 to 13 in 2009 and reached 22 last
year.

(Reporting by Tom Doggett; Editing by Lisa Shumaker)

Despite years of research, testing and some hype, the next-generation ethanol industry is far from the commercial success envisioned by President George W. Bush in 2006, when he pledged so-called cellulosic biofuels would be “practical and competitive” by 2012.

Instead the only real alternative to traditional gasoline is ethanol made from corn, a fuel environmentalists say is not green at all because of the energy-intensive nature of modern farming.

Critics say it is a failure of government policy, not science, that the U.S. is still so dependent on corn for its biofuels. Washington has backtracked on cellulosic ethanol production targets and failed to provide assurances to investors that the sector would be subsidized over the long term.

While there are dozens of pilot and demonstration cellulosic ethanol projects around the country, the groundwork for the first commercial plants is only now getting underway.

Battered by recession, funding remains scarce for $100-million-plus plants needed for commercial-scale production so cellulosic can compete against cheaper ethanol-based corn.

“The earliest you’re going to see efficient cellulosic ethanol is five years,” said Richard Brock, president of Brock Associates, an advisory firm in Milwaukee.

For the industry to take off, investors need to be reassured that Congress will extend a cellulosic production tax credit for several years and cellulosic output targets will be big enough to encourage blenders to lock in future capacity.

“It would certainly increase volumes at a faster rate than what we’ve seen in the last couple of years,” said Mac Statton, biofuels analyst with the Energy Department’s forecasting arm.

Gasoline in the United States is blended with up to 15 percent ethanol, which helps reduce oil imports.

In the short term, however, the cellulosic industry’s slow growth will make little difference to either America’s addiction to foreign crude oil or the strains on corn supplies that critics claim have pushed up food prices.

Cellulosic biofuels production was supposed to reach 500 million gallons next year under federal mandates that rise each year until it eventually passes corn-based ethanol output.

But no cellulosic production is expected this year and it may grow to only a few million gallons next year.

Because the cellulosic industry is not able to meet the production goals mandated by Congress, the Environmental Protection Agency has the authority to lower them.

That’s what the agency did this month for the third straight year when it proposed lowering the original half billion gallon target for 2012 to between 3.6 million and 15.7 million gallons. EPA issues the final target in November.

The Energy Department doesn’t expect cellulosic output to reach its first 1 billion gallons until 2018. Congress, under its mandates, wants 7 billion gallons that year.

The industry has made great progress in bringing down the production costs of cellulosic ethanol from $5 to $6 a gallon a decade ago to as low as $2.50. However, the first cellulosic plants are expensive to build and will add to that $2.50 cost, putting cellulosic slightly above corn ethanol’s cost.

GOVT HELP FOR COMMERCIAL-SCALE PLANTS

Coskata Inc. was given a $250 million federal loan guarantee in January to build a 55-million-gallon a year plant in Alabama to process wood biomass into ethanol. POET LLC, the world’s biggest ethanol producer, was awarded a $105 million loan guarantee this month for a plant in Iowa to produce 25 million gallons of ethanol from corn cobs starting in 2013.

Other companies aiming to produce big volumes of cellulosic ethanol or provide enzymes that break down cellulose feedstocks are DuPont’s Genencor, Abengoa Bioenergy, Qteros and Novozymes A/S.

About $1.5 billion in venture capital poured into the cellulosic industry to help fund initial pilot projects over the last decade, according to the Advanced Ethanol Coalition that lobbies for the industry.

As cellulosic producers move to large-scale operations, venture capital investors are reluctant to bet on the expensive $150 million plants, said Brooke Coleman, who heads the coalition.

“The venture capital guys will spend $20 million or $30 million on you in the start-up phase,” he said. “They don’t build plants and like to get in and get out in five years.”

It is the big banks, oil firms and major energy companies that will help finance the new commercial-scale plants, but many are scared off by the uncertainty over the $1.01 tax credit and changes in production goals.

Analysts argue that with oil prices high, it should be easier for cellulosic biofuels to attract investors, but incentives from Congress are a big question mark.

A draft bill unveiled in the Senate would extend the $1.01 per gallon tax credit for three years and add ethanol made from algae to the list of cellulosic biofuels eligible to get it.

Extending the credit for cellulosic ethanol is part of a compromise for Congress to end a 45-cent-a-gallon tax credit for corn ethanol, which is exceeding its production targets.

But with lawmakers looking to cut government spending, cellulosic producers may be lucky to get a one-year extension.

“How the hell do you extend a tax credit for a multi-year period, when there’s no money in the Treasury,” said Christine Tezak, energy analyst at Robert W. Baird.

All the uncertainties, however, hurt the industry. Refineries that blend the fuel don’t have a reason to sign long-term contracts with biofuels producers, which would encourage investment in new plants and boost output.

“There’s no incentive for anybody on the consuming side to ring up a cellulosic guy and say: ‘Hey, I’d like to take care of my renewable fuel standard obligations for the next five years, so I need to secure not only present but future production capacity with you,’” said Tezak.

(Editing by Alden Bentley)

The $7 billion line has faced opposition from many lawmakers and environmentalists for greenhouse gas emissions associated with oil sands production, and because the line would run across the one of the world’s largest freshwater resources, the Ogallala Aquifer.

“We still expect to complete the process and make a decision on the permit before the end of the year,” Daniel Clune, the State Department’s Principal Deputy Assistant Secretary in the Bureau of Oceans and International Environmental and Scientific Affairs, told reporters on Friday.

The Environmental Protection Agency last month asked the State Department to do the more extensive environmental review of the line, citing two leaks that occurred on an existing Keystone line in May.

It also pushed the State Department to carefully consider both the route of the pipeline and what measures are needed to prevent and detect spills.

Supporters of the up to 700,000 barrels-per-day line say it would reduce U.S. dependence on oil producers that are less friendly to the country and provide construction and maintenance jobs.

The controversy had pushed some analysts to wonder if the United States would delay a final decision until next year.

After the State Department issues the assessment in August federal agencies, including the EPA, would have 90 days to comment on the department’s final report.

Then the agencies would have 15 days to decide whether to push the decision up to the White House, if they felt the State Department had not adequately assessed the environmental risks. Such a move is unlikely as it could open President Barack Obama to direct criticism from environmentalists.

TransCanada was happy that the State Department was on track. “We’re pleased that they are sticking to the schedule that they had highlighted and we can move the project forward,” said James Millar, a spokesman for TransCanada.

The State Department’s final environmental impact statement which will total more than 1,000 pages, will consider whether oil sands are corrosive to pipelines, said Clune.

It will also consider energy security issues, including the impact of the disruption in Libyan oil exports, when deciding whether to issue a permit, Clune said.

Environmentalists said the State Department is moving too fast. “The State Department cannot possibly address the many glaring gaps in its environmental analysis in the next few weeks, let alone consider lessons from the worrying string of recent pipeline spills,” said Damon Moglen, climate and energy director at Friends of the Earth.

The department is planning to hold a series of meetings in September in the capitals of the states where the pipeline would cross, which are Montana, South Dakota, Nebraska, Oklahoma and Texas.

(Reporting by Timothy Gardner, additional reporting by Tom Doggett; and Scott Haggett in Calgary; Editing by Alden Bentley, Russell Blinch and Sofina Mirza-Reid)

“We will also ensure that the Silvertip pipeline is free of safety and environmental risks before Exxon Mobil is granted permission to restart the line,” Cynthia Quarterman, head of the Pipeline and Hazardous Materials Safety Administration, told lawmakers at a House hearing looking into the leak.

Any violations of federal pipeline safety regulations by Exxon will be “swiftly addressed,” she said.

Quarterman said the Yellowstone River was still too high to examine the section of the pipe that leaked, and it “may take weeks if not months” before the pipeline can be brought up from the river bed.

On Wednesday, Exxon said it had begun preliminary work to replace the pipeline that ruptured and spilled an estimated 1,000 barrels of oil into the Yellowstone River in Montana two weeks ago.

PHMSA said oil from the spill have been found at least 240 miles downstream from the site where the pipeline burst.

The company does not yet know what caused the leak, and is focused on cleaning up the oil, said Gary Pruessing, president of Exxon Mobil Pipeline Co.

“We have not put any end date on a clean-up,” Pruessing told lawmakers, noting the company has been challenged by high water levels.

Exxon plans to replace the damaged pipeline by laying a new section of pipe 30 feet below the river bed, Pruessing said — going beyond federal regulations that require pipelines to have at least 4 feet of ground cover in a river bed that is more than 100 feet wide.

Exxon and the Environmental Protection Agency have said there is no danger to public health from the oil spill, but the National Wildlife Federation disagreed.

“The spill has directly impacted the health and livelihoods of landowners along the river. People have become sick due to exposure of the oil fumes,” said Douglas Inkley, a senior scientist with the environmental group.

(Additional reporting by Anna Driver in Houston; Editing by David Gregorio and Lisa Shumaker)

“We will also ensure that the Silvertip pipeline is free of
safety and environmental risks before Exxon Mobil is granted
permission to restart the line,” Cynthia Quarterman, head of
the Pipeline and Hazardous Materials Safety Administration,
told lawmakers at a House hearing looking into the leak.

Any violations of federal pipeline safety regulations by
Exxon will be “swiftly addressed,” she said.

Quarterman said the Yellowstone River was still too high to
examine the section of the pipe that leaked, and it “may take
weeks if not months” before the pipeline can be brought up from
the river bed.

On Wednesday, Exxon said it had begun preliminary work to
replace the pipeline that ruptured and spilled an estimated
1,000 barrels of oil into the Yellowstone River in Montana two
weeks ago. [ID:nN1E76C076]

PHMSA said oil from the spill have been found at least 240
miles (386 km) downstream from the site where the pipeline
burst.

The company does not yet know what caused the leak, and is
focused on cleaning up the oil, said Gary Pruessing, president
of Exxon Mobil Pipeline Co.

“We have not put any end date on a clean-up,” Pruessing
told lawmakers, noting the company has been challenged by high
water levels.

Exxon plans to replace the damaged pipeline by laying a new
section of pipe 30 feet below the river bed, Pruessing said –
going beyond federal regulations that require pipelines to have
at least 4 feet of ground cover in a river bed that is more
than 100 feet wide.

Exxon and the Environmental Protection Agency have said
there is no danger to public health from the oil spill, but the
National Wildlife Federation disagreed.

“The spill has directly impacted the health and livelihoods
of landowners along the river. People have become sick due to
exposure of the oil fumes,” said Douglas Inkley, a senior
scientist with the environmental group.
(Additional reporting by Anna Driver in Houston; Editing by
David Gregorio and Lisa Shumaker)

The coordinated release last month of some 60 million barrels of emergency oil will mean industrialized nations won’t have to dip as deep into their commercial oil stocks for the rest of this year, the U.S. Energy Information Administration said in its short-term outlook.

Western nations will draw down their commercial oil stocks by 71 million barrels during the second half of this year, much less than 127 million barrels previously forecast, the EIA said.

But, “EIA still expects oil markets to tighten as growing liquid fuels demand in emerging economies and slowing growth in non-OPEC supply maintain upward pressure on oil prices,” the agency said.

EIA said it expects West Texas Intermediate oil prices to average $98 a barrel in 2011, down from its previous forecast of $102 a barrel, but about 24 percent higher than last year.

In 2012, oil prices are expected to average $103 a barrel, down from the $107 a barrel forecast projected in last month’s report.

Top OPEC producer Saudi Arabia has boosted its oil output, raising its June production to 9.5 million barrels per day in June from 8.9 million bpd in May, the EIA said.

Global oil demand will increase this year and again in 2012, but not has much as the EIA had previously thought.

The agency cut its forecast for 2011 world oil demand growth by 270,000 bpd to a 1.43 million-bpd increase this year. Oil demand in 2012 will rise about 1.58 million bpd, about 10,000 bpd lower than the agency forecast last month.

In the United States, which is the world’s biggest oil consumer, oil consumption is expected to increase by just 30,000 bpd this year, down sharply from the 150,000 bpd growth previously estimated.

The EIA said the low 0.2 percent growth in 2011 fuel demand was due to a weak economic growth and high gasoline prices.

U.S. oil demand in the third quarter is forecast to be 60,000 bpd less than a year earlier, but fuel consumption will rebound in the fourth quarter and increase by 110,000 bpd over the same period last year, the agency said.

Earlier on Tuesday, OPEC said world oil demand would grow more slowly in 2012 because of a fragile global economy and deepening decline in consumption in Europe.

(Editing by Lisa Shumaker)

The full 30.6 million barrels of oil initially awarded was
sold, the department said, with the largest amounts going to
Valero Energy Corp (VLO.N: Quote, Profile, Research, Stock Buzz), Vitol Inc, ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz),
Plains Marketing, Hess Corp (HES.N: Quote, Profile, Research, Stock Buzz) and Marathon (MRO.N: Quote, Profile, Research, Stock Buzz).

“The Department is currently coordinating with the
successful contract awardees, the Maritime Administration, and
the Department of Homeland Security to facilitate and
streamline deliveries, including those for companies that have
requested early delivery of the crude oil in July 2011,” the
department said.

The department previously said deliveries of the emergency
oil would begin in August and be completed by the end of that
month.

The department did not immediately provide details on how
much oil would move in July.

The release of the final contracts completes the initial
phase of the drawdown of the oil reserves ordered by the White
House last month as part of the International Energy Agency’s
coordinated release of 60 million barrels of the world’s global
oil stockpiles.

The Obama administration and the IEA said additional oil
was needed to offset the disruption in the oil supply caused by
unrest in the Middle East.

For a list of successful contracts, please see:
link.reuters.com/vyb62s
(Editing by Jim Marshall)

The Environmental Protection Agency measure, known as the Cross State Air Pollution Rule, will add costs for some power generators, but should cut health care bills for Americans.

Companies that could see higher costs include large coal burners Southern Co, Duke Energy and American Electric Power.

“No community should have to bear the burden of another community’s polluters, or be powerless to prevent air pollution that leads to asthma, heart attacks and other harmful illnesses,” said EPA Administrator Lisa Jackson.

The EPA rule will reduce power plant sulfur dioxide emissions by 73 percent by 2014, from 2005 levels, when combined with state environmental laws. It will cut nitrogen oxide emissions by 54 percent by 2014. Those cuts are slightly deeper than ones proposed by the EPA last year.

STEEP COSTS, BUT HEALTH BENEFITS

Power plants have to start cutting their sulfur dioxide emissions in January 2012 and their nitrogen oxide emissions that May.

In addition, the state of Texas will now be required to cut sulfur dioxide emissions in an annual program, a measure that was not included in last year’s proposal.

The agency said the rule would prevent up to 34,000 premature deaths, and save $280 billion per year in health costs. The pollution is linked to heart attacks and lung problems including asthma.

Those benefits outweigh the $800 million projected to be spent by power plants and others annually on the rule in 2014 and the roughly $1.6 billion per year in capital investments already underway from previous rules, the EPA said.

The rule will also level the playing field for power plant operators that are already controlling these emissions by requiring more plants to take similar actions, it said.

Not everyone was happy about the regulation.

“The late decision to apply the rule to Texas and the modeling for the rule have resulted in wholly unreasonable mandates and unrealistic timelines for Texas,” Luminant, a unit of private company Energy Future Holdings, and the biggest power producer in Texas, said in a release.

Shares of Southern Co were down 0.4 percent on Thursday, while Duke Energy and American Electric Power both rose less than 0.5 percent.

RED HERRING

The rule resulted from a federal appeals court order instructing the EPA to strengthen a similar regulation issued in 2005 by the Bush administration.

It is opposed by many Republicans in Congress, who say it will kill jobs and could make transmission of electricity unreliable because it would force companies to shut some of their coal plants.

But the argument that the rule will hurt transmission is a “red herring” because plants integral to power delivery would not be allowed to shut down, said Susan Tierney, a managing principal at the Analysis Group, an organization of economic and financial consultants.

She said only the oldest, least efficient and smaller coal plants would be shut as a result of rules to be issued this year by the EPA on power plants.

Environmentalists praised the EPA. The Clean Air Task Force said the rule was a “solid victory for clean air and public health.”

The EPA will take public comment for 45 days on a supplemental rule that would require six states — Iowa, Kansas, Michigan, Missouri, Oklahoma and Wisconsin — to reduce nitrogen oxide pollution in the summer months. That rule is expected to be finalized late this year.

The Environmental Protection Agency measure, known as the Cross State Air Pollution Rule, will add costs for some coal-fired power plants, but should cut healthcare bills for Americans as polluting emissions that flow across state lines are cut dramatically.

As winds move the pollution, it reacts in the atmosphere and contributes to harmful levels of smog and soot.

“No community should have to bear the burden of another community’s polluters, or be powerless to prevent air pollution that leads to asthma, heart attacks and other harmful illnesses,” said EPA Administrator Lisa Jackson.

Companies that could see higher costs include large coal burners Southern Co, Duke Energy and American Electric Power.

The EPA would reduce power plant sulfur dioxide emissions by 73 percent by 2014, from 2005 levels, when combined with state environmental laws. It will cut nitrogen oxide emissions by 54 percent by 2014.

Power plants have to start cutting their sulfur dioxide emissions in January 2012 and their nitrogen oxide emissions that May.

The agency said its rule will level the playing field for power plant operators that are already controlling these emissions by requiring more plants to take similar actions.

The new air requirements would prevent up to 34,000 premature deaths, the EPA said.

The new rule came about after a federal appeals court ordered the EPA to strengthen a similar clean air regulation issued during the Bush administration.

The measure is opposed by many Republicans in Congress who say it would kill jobs and could make transmission of electricity unreliable because it would force companies to shut some of their coal plants.

Republican lawmakers introduced legislation this week to limit EPA rules on power plants.

Susan Tierney, a managing principal at the Analysis Group, an organization of economic and financial consultants, said the argument that the rule will hurt transmission was a “red herring” because plants integral to power deliver would not be allowed to shut down.

She said only the oldest, least efficient and smaller coal plants would be shut as a result of rules to be issued this year by the EPA on power plants.

The EPA will take public comment on its rule for 45 days.

(Reporting by Tom Doggett and Timothy Gardner; Editing by David Gregorio)