INSIGHT: US energy growth is mired in politics

12 June 2008 17:51  [Source: ICIS news]

By Joe Kamalick


US offshore energy policy mired in political mudWASHINGTON (ICIS news)--At a time when $140/bbl oil and US retail gasoline prices of $4/gal would seemingly compel frantic efforts to develop abundant domestic energy reserves, access to oil and natural gas resources remains stuck in the mire of politics.


Earlier this week a key US House committee voted to continue the 27-year-old ban on drilling in 85% of US offshore areas in what a chemical industry official called a “stunning missed opportunity”.


In a straight party-line vote, Democrats on the House Interior Appropriations Subcommittee defeated an amendment that would have ended the nearly three-decades-old congressional prohibition on energy exploration and development off of the US East and West Coasts and along Alaska’s lengthy shoreline.


Those areas of the US outer continental shelf (OCS) are estimated to hold 86bn barrels of oil and some 420,000bn cubic feet (bcf) of natural gas. Congress has maintained a ban on offshore drilling in those areas since 1982 on grounds that energy development might put recreational beaches and coastal states’ tourist industries at risk.


However, US chemicals producers and a broad array of other manufacturers have pressed Congress for years to lift the drilling ban, arguing that modern deep-sea drilling is environmentally safe and the US needs the energy resources.


The US chemicals industry is heavily dependent on natural gas as a feedstock, and the sector has seen plants shutdown and production move offshore since gas rose from $2/m Btu in 1999 to today’s price in the range of $12/m Btu.


The amendment voted down was sponsored by Representative John Peterson (Republican-Pennsylvania), who has championed an end to the congressional offshore moratorium for several years.  His amendment would have opened the areas from 50 miles offshore to the outer 200-mile limit of the US territorial claim in the shelf regions.


Jack Gerard, president of the American Chemistry Council (ACC), said the vote to maintain the offshore drilling ban “represents a stunning missed opportunity for action that could have helped put America on a path toward a more affordable, secure energy future”.


Gerard said that because of the increased cost of natural gas, which in addition to being a major feedstock for the chemicals industry also is an energy fuel, “American chemistry has gone from a $19bn [€12.4bn] trade surplus to becoming a net importer of chemicals, with substantial ‘ripple effects’ given that our products go into 96% of US manufactured goods”.


The National Association of Manufacturers (NAM) echoed Gerard’s criticism, with NAM president John Engler saying the subcommittee “opted to continue restrictions on domestic supplies of natural gas and oil and to keep energy prices at record highs for America’s manufacturers and consumers”.


All nine Democrat members of the House panel voted to kill Peterson’s bid to lift the offshore ban while all six Republicans on the subcommittee voted in favour.


Peterson’s spokesman said the congressman had hoped to sway some Democrats on the subcommittee in light of $4/gal US gasoline prices and $140/bbl oil.


But those energy costs apparently were not persuasive. Why?


Representative Norm Dicks (Democrat-Washington), chairman of the subcommittee, said that opening those offshore areas to energy development simply isn’t necessary.


“Proponents of opening additional lands to oil and gas leasing assert that vast quantities of oil and gas are closed to energy development,” Dicks said in opening remarks at this week’s subcommittee hearing.


“In fact,” Dicks said, the Interior Department “estimates that 82% of the known OCS reserves of natural gas and 79% of the known OCS reserves of oil are in areas already fully open for drilling.”


That is true as far as it goes, but the argument is disingenuous. Dicks is referring to “known” offshore oil and gas reserves, those that have been seismically surveyed and measured.


The 86bn barrels of oil and 420,000 bcf of natgas in those parts of the outer continental shelf still closed to development are “estimated” reserves, not proven, so they would not be included in an official tally of “known” OCS resources.


In fact, the oil and gas reserves in the 85% of US outer continental shelf regions subject to the drilling ban may be three or four times more abundant than estimated. No one knows for sure, because those OCS areas have not been surveyed since the late 1970s, before the availability of reliable three-dimensional seismic technology.


The likelihood that those US offshore areas contain vastly more oil and gas resources than now estimated is supported by the fact that Congress has even barred seismic surveys of the closed OCS regions - knowing that news of huge new finds off the US East and West Coasts would only fuel popular pressure for developing those assets.


The real reason that Democrats don’t want to authorize offshore drilling is that the energy industry is generally seen as an ally of Republicans, while Democrats are more solidly aligned with liberal environmental constituencies. President George Bush is routinely referred to among Democrats as “that oilman in the White House”.


Democrats seek to demonize the energy industry as the real villain behind high US automotive and home heating fuel costs, recently advancing legislation that would have eliminated existing tax incentives for oil and gas exploration and development and would have imposed a 25% windfall profits tax on producers.


Democrats advocate conservation, energy efficiencies and alternative energy resources, such as biofuels, rather than development of available domestic hydrocarbon reserves.


They also are the principal proponents of climate change legislation that would impose a mandatory cap on US emissions of carbon dioxide and other greenhouse gases (GHG) and then sharply reduce them over the next 30 years. Voting for increased domestic production of hydrocarbon assets would be inconsistent with that Democrat policy objective.


All of this feeds into election campaigns that are now building to full steam in the run-up to the 4 November vote when US voters will chose a  new president, return or reject all 435 members of the House, one-third of Senate members and a slew of governors and state legislators and local officials.


Even some Republicans, including President Bush, are reluctant to take a bold stand in favour of offshore development for fear of alienating voters in coastal states that could determine election outcomes at the national level. 


California, Florida, New Jersey and other coastal states command enough electoral college delegates to swing the the presidential election one way or the other - even though, as proponents of offshore development will argue, the energy resources that lie off those states' shores belong as much to Montana, Indiana, Nevada, Colorado and other inland states.


While none of them would admit it, there are probably a fair number of Democrats who oppose lifting the offshore drilling ban because $140 oil and $4 gasoline work to their favour.  he worse the US economy is in the months and weeks before the election, the more likely it is that voter anger will be directed toward the guy in the White House and the party he represents.


But that is a risky play, and it could backfire for Democrats. Public sentiment in favour of allowing access to more domestic US energy resources is building.


Congressman Peterson said he will put the amendment forward again next week when the full House Appropriations Committee meets to vote on the Interior Department’s fiscal year 2009 appropriations bill. 


If he is again defeated at the committee level, Peterson said he will introduce the amendment in the full House when it votes on the Interior Department measure. 


If House members are obliged to register their “no” vote on broader access to domestic energy development, that could be a vote they’ll regret if by early November US retail gasoline costs $5 or $6 per gallon.


($1 = €.65)


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By: Joe Kamalick
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