Obama: More US production vital for reducing oil imports

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 30 -- US President Barack Obama set a goal of reducing imports of foreign oil by one-third in a little more than a decade, and said that US production will need to rise significantly as a result. That includes adopting incentives to encourage federal leaseholders to begin producing more quickly from tracts they already hold, he said.

“Last year, American oil production reached its highest level since 2003, and for the first time in more than a decade, oil we imported accounted for less than half the liquid fuel we consumed,” he said in an address to students at Georgetown University. “To keep reducing that reliance on imports, my administration is encouraging offshore oil exploration and production—as long as it’s safe and responsible.”

Obama said his administration is working to expedite drilling permit approvals, adding that the US Bureau of Ocean Energy Management, Regulation, and Enforcement has approved 39 new shallow-water drilling permits and 7 deepwater drilling permits since tougher regulations imposed in the wake of the Macondo well accident and crude oil spill were put in place.

The administration also is pushing the oil and gas industry to take advantage of opportunities it already has, he continued. “Right now, [it] holds tens of millions of acres of leases where it’s not producing a drop—sitting on supplies of American energy just waiting to be tapped,” Obama said. “That’s why part of our plan is to provide new and better incentives that promote rapid, responsible development of these resources.”

‘Variety of incentives’
Testifying before the US House Natural Resources Committee at about the same time, BOEMRE Director Michael R. Bromwich said the agency believes there are additional ways to encourage companies to produce more quickly from leases they already hold, and that it already has considered shorter leasing periods offshore and a $4/acre fee on all new federal onshore and offshore nonproducing leases. He said one reason the US Department of the Interior did its latest report on nonproducing leases, and one of the reasons the president asked for it, “was to explore a variety of incentives for oil and gas companies to push forward on development.”

Oil and gas industry groups immediately challenged the idea that shorter lease terms and new fees are incentives. “The administration says on one hand that we’re not developing resources on leases the industry holds, and on the other is delaying approvals for companies to move ahead,” said Erik Milito, the American Petroleum Institute’s upstream and government operations director. “Companies analyze leases before they even purchase them. Once they get them, they do seismic work before they begin to apply for drilling permits and line up the necessary equipment and financing.”

“We are encouraged when we hear the president talk about the need to ‘embrace a diverse energy portfolio’ that includes the ‘responsible development and production of oil and gas at home,’” said Independent Petroleum Association of America Pres. Barry Russell. “While he talks a good game, his administration is putting in place policies that halt, rather than encourage, the production of US energy, and instead is touting oil and gas production in other parts of the world, most recently Brazil.”

Jim Adams, president of the Marine Offshore Service Association, said, “Once again, President Obama is sending us into the Bizarro World. He says he wants to cut America’s dependence on foreign oil, then his administration refuses to approve but a handful of deepwater drilling permits in the Gulf of Mexico. He says he wants incentives for domestic drilling, then seeks new limits on drilling leases. Even Superman could not find his way out of this convoluted logic.”

Kathleen Sgamma, government affairs director at the Western Energy Alliance in Denver, said, “Increasing costs and regulatory uncertainty only serve to make federal lands less attractive for companies to develop, and shortening the lease term is unworkable, since the government's own processes can take 10 years or more. We applaud the president for mentioning the potential of natural gas vehicles for reducing foreign oil imports, but these same disincentives for production on federal lands would also negatively affect natural gas development.”

Gas’s strategic role
When Obama described potential alternatives to US oil in his address, he mentioned natural gas first. “Recent innovations have given us the opportunity to tap large reserves—perhaps a century’s worth—in the shale under our feet,” he observed. “Now, we have to make sure we’re doing it safely, without polluting our water supply. And that’s why I’m asking Energy Sec. Steven Chu to work with other agencies, the natural gas industry, states, and environmental experts to improve the safety of this process.”

It’s also an area of broad bipartisan agreement, he continued. “Last year, more than 150 members of Congress from both sides of the aisle proposed legislation providing incentives to use clean-burning natural gas in our vehicles instead of oil,” the president said. “They were even joined by T. Boone Pickens, a businessman who made his fortune on oil. So I ask them to keep at it and pass a bill that helps us achieve this goal.”

Gas industry association executives applauded his statement. "We were pleased that President Obama highlighted the 'enormous' potential natural gas offers for our transportation and power sectors,” said Tom Amontee, the executive vice-president of America’s Natural Gas Alliance. “The emphasis on the impact gas can have on our country's energy future was particularly encouraging, given the domestic abundance of this clean energy resource.” ANGA also appreciated the president’s statement regarding the contribution natural gas vehicles can make to improving US energy security, he continued.

“New fuel economy and emissions standards will support a larger role for clean, efficient natural gas vehicles in securing America’s clean energy future,” said American Gas Association Pres. Dave McCurdy. “Tough fuel standards will raise average fuel economy to 35.5 mpg by 2016 and the administration’s national fuel economy and greenhouse gas emission standards for commercial trucks, vans, and buses will help to cut oil use and further promote the increased deployment of NGVs.” Obama’s support of responsible development and use of domestic gas, particularly shale gas, also is a step in the right direction, he added.

Obama also described potential contributions from biofuels, clean coal technology development, properly managed nuclear power, and continued government support for research and development of renewable energy sources in reaching his goal of reducing US crude imports by one-third in a little more than 10 years. “I set this goal knowing that imported oil will remain an important part of our energy portfolio for quite some time,” he said. “And when it comes to the oil we import from other nations, we can partner with neighbors like Canada, Mexico, and Brazil, which recently discovered significant new oil reserves, and with whom we can share American technology and know-how.”

Contact Nick Snow at nicks@pennwell.com.



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