Scenarios: Tighter regulations to follow Gulf oil spill

WASHINGTON (Reuters) - As oil from BP Plc's well continues to gush into the Gulf of Mexico, Washington is debating this week on tougher legislation that will impact the offshore drilling industry.

Several Congressional panels began considering and voting on legislation this week crafted in response to the biggest oil spill in U.S. history.

The Obama administration has vowed to move forward with regulations for oil and natural gas companies operating within federal waters, despite a federal court's ruling overturning its six-month moratorium on deepwater drilling.

The oil disaster is almost certain to reshape the role government plays in overseeing exploration and production activity off U.S. coastlines.

Following is a look at some of the possible actions and new laws and regulations that may result from the spill.

CRACKING THE WHIP ON BIG OIL

Lawmakers in both chambers have begun working on legislation to crack down on the offshore drilling sector in the wake of the Gulf of Mexico spill.

The Senate Environment and Public Works Committee on Wednesday voted to eliminate caps on liability that oil companies would face for damages stemming from offshore spills. The change, if approved and made into law, would apply retroactively to BP.

Democrats had initially pushed for a $10 billion cap, but the severity of the spill convinced them to aim for a more ambitious approach.

Drillers currently enjoy a $75 million cap for compensating communities for economic losses and the impact of offshore spills on natural resources. The full Senate may consider the legislation, which could be included into the broader energy and climate debate, as soon as next month.

While it is unclear if the elimination of liability limits will survive the debate, it is almost certain that BP and other oil companies drilling offshore will be responsible for covering much more than $75 million in economic losses in the future.

The Senate Energy and Natural Resources Committee was expected to vote on several bills relating to the spill, including measures that would increase financial requirements for drillers and raise civil and criminal penalties for rule violators.

The committee is also considering measures that would require that the Interior Department ensure any companies bidding on new leases have met all safety requirements for their existing operations and have complied with any obligations for damages in prior accidents.

This measure, in particular, could affect those companies involved in the Deepwater Horizon rig spill.

Also on Wednesday, the House Natural Resources Committee held a hearing on expansive energy legislation that would eliminate any environmental review exemptions for offshore projects and require drillers to have technology demonstrated to be able to handle oil spills.

TIGHTER DRILLING RULES

Interior Secretary Ken Salazar has pledged to issue an order for a new moratorium after a federal court last week struck down the administration's initial six-month drilling ban.

The department has been scant on details, but Salazar said on Wednesday he is working hard to finalize the new ban. Previously he said the new ban may be more targeted and would include criteria for ending the moratorium.

Any drilling ban will likely face additional legal challenges.

Politically the Obama administration will be under intense pressure from Gulf state lawmakers to shorten or weaken the ban, which they say could cost the region hundreds of thousands of jobs.

In any event it is likely any new drilling will be done under more scrutiny and technological and environmental requirements. The department has already issued new safety rules for projects operating in shallow waters, in addition to mandating more detailed blowout prevention and response plans.

PUNISHING BP

Depending on the outcome of federal investigations, BP and other companies involved in the Gulf oil spill could face criminal prosecution.

The U.S. Justice Department announced early this month it has launched a criminal and civil investigation into the environmental catastrophe.

In a worst-case scenario, criminal charges could lead the Interior Department to limit BP's offshore drilling activities.

The department could strip BP of its ability to operate its offshore oil fields or suspend its leases, but those moves would have to be balanced against U.S. energy needs.

The government also has an interest in not completely crippling BP's U.S. energy business, because it wants the company to pay billions of dollars in damages and clean up. Jobs are also a consideration as offshore drilling employs thousands of workers in the Gulf.

(Reporting by Ayesha Rascoe, Timothy Gardner, Richard Cowan, Tom Doggett; Editing by Sofina Mirza-Reid)