Obama: US oil production growth shows policies are working

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 11 -- Rising gasoline prices in response to political unrest across the Middle East and North Africa show that the US should get moving on a comprehensive energy strategy that pursues more production as well as conservation, US President Barack Obama said in a White House press conference.

“Let me be more specific: First, we need to continue to boost domestic production of oil and gas,” he told reporters. “Last year, American oil production reached its highest level since 2003…. Oil production from federal waters in the Gulf of Mexico reached an all-time high. For the first time in more than a decade, imports accounted for less than half of what we consumed,” he said.

Obama continued, “So any notion that my administration has shut down oil production might make a good political sound bite, but it doesn’t match up with reality. We are encouraging offshore exploration and production. We’re just doing it responsibly. I don’t think anybody has forgotten that we’re only a few months removed from the worst oil spill in our history. So what we’ve done is to put in place commonsense standards like proving that companies can actually contain an underwater spill. And oil companies are stepping up: We’ve approved more than 35 new offshore drilling permits that meet these new safety and environmental standards.”

Oil and gas industry groups immediately challenged his statement. “The Obama administration continues to delay or defer action on developing our domestic resources of oil and natural gas at every turn,” American Petroleum Institute Pres. Jack N. Gerard said. “The trend is alarming. The administration has postponed lease sales in offshore areas. It has cancelled lease sales in onshore federal lands. It has extended permitting timelines for current leases and added unnecessary regulatory burdens. It has chosen inaction on essential energy projects that would create jobs, drive economic growth, and boost federal revenues.”

‘It’s disingenuous’
Congressional Republican energy leaders also were critical. “Near $4[/gal] gasoline is hurting American families and small businesses, increasing the costs of everything from fuel to groceries, and threatening job creation and economic recovery,” said US House Natural Resources Committee Chairman Doc Hastings (Wash.). “Despite President Obama’s talk of increasing American oil production, his rhetoric does not match his actions. Since taking office, the Obama administration has repeatedly blocked access to American energy, from the de facto moratorium in the Gulf of Mexico to canceled onshore lease sales. It’s disingenuous for the president to take credit for increased oil production that is the result of his predecessor’s actions, not his own.”

National Ocean Industries Association Pres. Randall B. Luthi said Obama’s statements contained some inaccuracies. “Most of the current production increase is likely a result of leases that were issued years earlier,” he said. “In fact, most offshore leases, particularly the large producing deep water wells, take years to come to fruition after the lease is issued.”

Production in the gulf actually is 300,000 b/d less than its level before US Interior Sec. Ken Salazar imposed a deepwater drilling moratorium following the Apr. 20, 2010, Macondo well accident and subsequent crude oil spill, he added. “Almost a year later, despite the lifting of those moratoria, we have yet to see one deepwater permit approved for truly new exploratory drilling,” Luthi said. “The approval announced a couple of weeks ago, is the resumption of an existing well that was being drilled a year ago.”

API Upstream Director Erik Milito made a similar point in a teleconference with reporters prior to Obama’s press conference. “Production levels in 2010 are a credit to the vision of previous administrations, which opened areas to development, and to the men and women of the US oil and natural gas industry who have produced more from our resources than anyone anticipated,” he said.

The US Energy Information Administration predicted that production declines in the gulf of 240,000 b/d in 2011 and 200,000 b/d in 2012 resulting from the drilling moratorium and the US Department of the Interior’s slow pace in approving offshore drilling permits will cut total US crude production from 5.51 million b/d in 2010 to 5.4 million b/d in 2011 and 5.27 million b/d in 2012, Milito noted. Amid widespread concern over gasoline prices, the economic recovery, and job security, “it is time for the administration to work as a real partner with an industry that is ready, and waiting, to do more, not less,” he said.

Undeveloped leases
Obama also said the oil and gas industry holds tens of millions of acres of undeveloped onshore and offshore federal leases. “So I’ve directed [Interior] to determine just how many of these leases are going undeveloped and report back to me within 2 weeks so that we can encourage companies to develop the leases they hold and produce American energy. People deserve to know that the energy they depend on is being developed in a timely manner,” he said.

“We’re also taking steps that will enable us to gather data on potential gas and oil resources off the mid and south Atlantic [coast], and we’re working with the industry to explore new frontiers of production, safety measures, and containment technology,” the president continued. “We’re looking at potential new development in Alaska, both onshore and offshore. And when it comes to imported oil, we’re strengthening our key energy relationships with other producer nations, something that I will discuss with President [Dilma] Rousseff when I visit Brazil next week.”

Such actions can increase domestic production in the short and medium term, but aren’t enough for the long run, he declared. “We can’t place our long-term bets on a finite resource that we only control 2%t of, especially a resource that’s vulnerable to hurricanes, war, and political turmoil,” he said. “So beyond increased domestic production, if we want to secure our long-term prosperity and protect the American people from more severe oil shocks in the future, the way is to gradually reduce demand and then do everything we can to break our dependence on oil.”

He cited tougher national fuel efficiency standards for cars and trucks enacted last year which he said would save 1.8 million b/d of oil; investments in developing and deploying clean energy technologies; and the goal he announced in his 2011 State of the Union address for 80% of the nation’s electricity to come from clean energy sources including solar, wind, and other renewables; biofuels; natural gas; clean coal; and nuclear power.

“We’ve been having this conversation for nearly four decades now,” Obama observed. “Every few years, gas prices go up; politicians pull out the same old political playbook, and then nothing changes. And when prices go back down, we slip back into a trance. And then when prices go up, suddenly we’re shocked. I think the American people are tired of that. I think they’re tired of talk. We’ve got to work together—Democrats, Republicans, and everybody in between—to finally secure America’s energy future. I don’t want to leave this for the next president, and none of us should want to leave it for our kids.”

Other responses
Other organizations and federal lawmakers questioned Obama’s assessment of the US oil production picture. “While we welcome the president’s attention to the increasing cost of gasoline, he did not paint an accurate picture of America’s energy reality on oil,” said Karen A. Harbert, president of the Institute for 21st Century Energy at the US Chamber of Commerce. “Last year’s increase in domestic oil production is entirely a product of decisions to encourage new production that were made several years ago, in previous administrations. The reduction in the percentage of oil we import occurred due to these previously-approved permits, as well as lower US oil demand due to our weak economy.”

Producers are holding nonproducing federal leases because administration policies won’t let them explore and develop the tracts, and because the government’s process for obtaining permits is arduous and time-consuming, she maintained. “Only one deepwater drilling permit has been issued in the last 10 months. [DOI’s] new 5-year plan on offshore exploration prohibits any new exploration through 2017. If the administration is serious about a more secure energy future and a robust economic recovery, it will revisit these decisions and let America’s oil and gas industry get back to work,” Harbert said.

US Sen. Mark Begich (D-Alas.) said following Obama’s press conference that he was pleased that the president apparently recognizes the need to increase domestic oil and gas production, and that new development in Alaska, both onshore and offshore, is part of the equation. “Unfortunately, the reality we have seen so far from the administration includes stalled exploration in the Beaufort and Chukchi seas, a series of federal hang-ups preventing development in the National Petroleum Reserve-Alaska and an unwillingness to recognize the enormous potential of the resources in the Arctic National Wildlife Refuge,” he said.

“The gap continues to widen between what President Obama claims to be true about domestic energy production and what Louisianans know is true,” said US Sen. David Vitter (R-La.). “With prices at the pump climbing toward $4/gal, the president is asking us to believe that his administration supports expanded drilling off the Gulf Coast. I guess that’s true only if you don’t actually need a permit.”

Louisiana’s other US senator, Democrat Mary L. Landrieu, and Sen. Kay Bailey Hutchison (R-Tex.) introduced a bill on Mar. 9 to automatically extend federal deepwater leases of producers who have been unable to develop their tracts because of the deepwater drilling moratorium and permitting delays. “Giving back this time is simply a matter of fairness,” Landrieu explained. “This would be an automatic extension to one year of leases that were already in effect, thus cutting down on paperwork, cutting down on regulation, and giving time back that was taken away from these companies.”

Contact Nick Snow at nicks@pennwell.com.



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