Big Oil seeks natural gas deal in U.S. climate bill

People gather on the steps of New York City Hall protesting the states plan for shale oil drilling in the city's watershed in New York January 4, 2010.

WASHINGTON (Reuters) - Major oil companies were calling on three U.S. senators struggling over a compromise climate bill to provide new breaks for natural gas drilling as the lawmakers said the legislation might not be unveiled until at least the end of April.

For the second time in a week the senators crafting the compromise, John Kerry, a Democrat, Lindsey Graham, a Republican, and Joe Lieberman, an independent, met with industry groups and oil companies in hopes of advancing ideas on the long-delayed legislation.

"Within a couple weeks after the Easter break we hope to unveil a bill," Graham told reporters after the meetings on Thursday. Congress is scheduled to return on April 12 from its recess.

Lieberman indicated he would like to have the bill introduced on April 22, the 40th anniversary of Earth Day.

If it takes longer, it would mark yet another in a string of delays for a bill that proponents originally had hoped the Senate would have passed by last October.

Lieberman said there had been "no alteration" of their goal to reduce U.S. carbon emissions by 17 percent by 2020, from 2005 levels, which is in the range President Barack Obama favors.

But thorny issues remained unresolved, such as putting fees on motor fuels during tough economic times, and regulating the drilling of vast supplies of natural gas from shale.

Lieberman said it was "not clear yet" where an oil industry fee would be applied. Graham on the other hand said it would be applied at the refinery level.

"The longer we've talked about it, the more momentum we've gotten, but that won't last forever, so we need to bring this thing to a conclusion," Graham said about crafting a bill.

SHALE GAS TRADE SECRETS

ConocoPhillips, BP and Shell Oil Co have submitted a document to the three senators calling for states, not the federal government, to regulate shale gas drilling methods that could double U.S. supplies of the relatively low-carbon fuel.

States have historically have been less stringent in regulating hydraulic fracturing, or "fracking" which injects water, sand and chemical fluids into rock formations to get to the fuel.

Exploitation of natural gas from shale could allow the United States to slash greenhouse gas emissions and cut its dependence on coal.

But as critics say fracking pollutes water, the Environmental Protection Agency will begin to study if human health is impacted by fracking fluids.

Senator Robert Casey, a Democrat, said he would work hard to defeat any move to keep states as the regulators.

"If that kind of provision were in it, that would be an area where I would want to spend a good deal of time either altering it or removing it," Casey told Reuters.

Kerry, the lead proponent of the bill, needs every vote he can get as it will likely face opposition from lawmakers in states whose economies depend heavily on fossil fuels.

The oil companies want states to disclose the chemical composition of fracking fluids to doctors or agencies only when needed to protect human health but to keep "the confidentiality of trade secrets information," on the chemicals, the document said.

The companies would not comment on the document.

In addition, the wider oil industry would like to see expansions in offshore drilling in the bill.

Bruce Josten, a vice president at the Chamber of Commerce, told reporters he understood that the offshore oil part of the bill would set up two levels for states to say whether they want to participate in expanded oil drilling.

The first would give states the opportunity to say whether they wanted to have new offshore oil drilling from their coasts up to 35 miles out.

A second level would let them veto drilling from 35 to 75 miles out, but Josten said this was still in discussion stages and he has not seen specific legislative language on any proposals.

(Reporting by Timothy Gardner)