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I can’t stop hearing that famous Isley Brothers song Shout in my head as I write this post: “A little bit louder now, a little bit LOUDER now, A LITTLE BIT LOUDER NOW.” About a year ago, speaking at a popular oil and gas conference Chevron tipped its hat to McMoRan’s Jim Bob Moffett and his work in the Gulf of Mexico Shallow Water Ultra Deep (SWUD) play that has been ongoing for more than five years.  That event was truly noteworthy because major oil companies rarely, if ever, acknowledge a little player like MMR as being out front and leading the wave on any important new geological play.  Chevron has recently promoted the Shallow Water Gulf of  Mexico to one of its top three areas of geologic focus around the world.  And it is becoming more vocal about its involvement.

Chevron is no longer whispering. In fact, there is a crescendo building in what CVX is saying about the Gulf of Mexico and what it is doing itself and with partners, both onshore and offshore.  Many MMR watchers know that at 2011 year’s end, Chevron spud a well onshore in Cameron Parish, LA called Lineham Creek. It has a proposed total depth of 29,000 feet targeting the Eocene and Paleocene objectives below the salt weld. This is Chevron’s well in the Rockefeller Preserve, land that was donated to the State of Louisiana years ago. However, the royalty rights on the land were retained and passed to Chevron.

In recent months, Chevron invited MMR to participate in the Lineham well and Moffett agreed as long as his Ultra Deep partners were also included in the project. What’s significant is that giant Chevron wanted MMR to join it in this project as an equal partner. After Moffett made sure his partners were along for the ride:  MMR is participating for 36%, EXXI for 9%, and W.A. “Tex” Moncrief for 5%.  Why? Because MMR now knows more about the SWUD than any other company.  For sure, the view is that perhaps geologically this play extends onshore and not just in the shallow water. This well will explore that concept and is located halfway between (on an east/west axis) Davy Jones and Chevron’s Bear Hump well which has been completed and is now being evaluated. What MMR has mastered over these last few years at Blackbeard West, Blackbeard East, Lafitte, and its Davy Jones’ discoveries is now critical for anyone who is also pursuing bounty in the general area and at the depths below 20,000 feet that have become the new  exploration frontier.

During February, Bobby Ryan, Chevron’s VP of Global Exploration, spoke at another oil and gas conference about their enthusiasm for the SWUD and the work they are doing with MMR.  On page 15 of its presentation, it describes the UltraDeep Gas Play as new play in a mature basin.  Chevron can easily be a player because it already controls major acreage from wells drilled long, long ago and that are still producing to retain the leases. On that same slide, Davy Jones is listed as an exploration discovery. Who knew CVX was a player in DJ?

The transcript contains the following information:

“All eyes are focused on Davy Jones, that McMoRan-operated well, which we’re into a royalty position, is preparing for a test soon, 25,000 pound test equipment. This is a significant environment in the sense of geologically from what we’re typically used to. So we’ll be watching the results of that well. Meanwhile, we’re drilling and just spudded on December 31st, the Lineham Creek well you see onshore Louisiana there. In fact, Bear’s Hump was actually onshore as well.”

If you have ever wondered why the DJ participation percentages never quite added up to 100%, now we know.  Chevron does not have a working interest but it does have a royalty interest in DJ.  In probing, we also learn that somehow in the negotiations that have gone on this year between CVX and MMR, Chevron has also obtained access to the DJ logs and geological evaluations and interpretations which would not normally be available to a royalty interest holder.

Moffett has told us in no uncertain terms that he intends to bring in a partner with very deep pockets to help develop the Ultra Deep play.  He has also told us he plans to follow the model he used for the development of the Grasberg Mine at Freeport Copper and Gold (FCX) years ago.  In that case, Rio Tinto came along for the ride after paying FCX $1.5 billion for which it received ZERO participation in anything that had already been discovered up to that point.  It then paid up for a half participation of what came after.  Perhaps we are in the very early stages in the mating dance between MMR and Chevron.  Don’t expect a rush on that. For sure, Jim Bob won’t do anything until he has proved up exactly what he has so the reserve engineers are happy and he is fully paid for all the hard pioneering work of the last several years.

We know that for a long time, the SWUD detractors have said there is nothing to be found in the Ultra Deep. So much has now been found that viewpoint has become ridiculous. Of course, flowing these wells is still to come.  Another key in the shallow water is that offshore LA there are existing pipelines to carry these new discoveries to market right away. Billions will not have to be spent over future years to accomplish that part of the equation from the deepwater discoveries.   As our country shifts, ever so slowly,  away from coal and nuclear power and toward Natural Gas, nearby infrastructure is a very good thing.

The detractors have also said repeatedly, if this is such a great play, then why aren’t any majors involved?  Well, clearly now there are!  They aren’t just talking about it in whispers any longer.  Chevron is starting to SHOUT about it. It’s about time.   Or as Jim Bob said on a conference call last year: “Hallelujah, Hallelujah!”

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Governor Bobby Jindal announced a legislative proposal today to bond out half of the State Highway Improvement Fund, which will generate $325 million to repair nearly 1,000 miles of roads across Louisiana, in nearly every parish.

The State Highway Improvement Fund was created exclusively to fund state roads classified as Non-Federal Aid routes that are not eligible for federal funding.  Non-Federal Aid routes are made up of mostly rural roads. Unlike major roadways, Non-Federal Aid routes are not eligible for matching funds from the federal government, which means there is less money available to fund projects for rural roads throughout the state.

Governor Jindal said, “There’s a major need to repair roads in rural parishes. Many of these roads have been severely worn and are unsafe for drivers. The wear and tear is due to rapid economic growth, including the Haynesville Shale boom in Northwest Louisiana and the agricultural industry, and because of natural disasters like hurricanes and flooding.

“The reality is that many of our rural roads have not received any significant repairs in over 30 years due to a lack of funding.  That’s unacceptable and we have a solution to bring more dollars to these projects and make sure every part of our state has a solid infrastructure. This legislation shows that we are continuing to make our roads and bridges a top priority so that families in every area of our state have safe roads to travel and businesses have the quickest route possible to move their products.”

The State Highway Improvement Fund receives dedicated funding from commercial vehicle registration and license fees. The legislation will bond out half of the State Highway Improvement Fund, and the bonds will be structured so they do not last longer than the life of the roads being repaired.

State Representative Jim Fannin will author the legislation. Rep. Fannin said, “For Louisiana to be successful, we have to provide our rural communities with quality roads, so local businesses can move goods safely and efficiently to better meet the needs of our local and national economy. I’m proud to join the Governor in this proposal and will work closely with the Legislature to get this bill passed for the benefit of our rural communities.”

“Improving these roads, many of which haven’t been repaired in over 30 years, will make them safer,” said DOTD Secretary Sherri H. LeBas. “Additionally, our farming and natural resource industries will further benefit from enhanced access and ride quality.”

“We commend Governor Jindal and the Department of Transportation and Development for investing state funds in the Louisiana’s non-federal aid roads.  Many of these roads are in the northern part of the state where the Haynesville Shale natural gas field was named the top producing field in the United States during 2011,” said Kevin McCotter, Vice President – Corporate Development of Chesapeake Energy Corporation. “The Haynesville Shale has been a massive economic engine for investment, job creation and state and local tax payments over the last several years and these investments in roads will ensure that Louisiana remains competitive with other natural gas and oil producing states.”

“I so appreciate Governor Jindal’s support of Louisiana’s rural highways,” said Robert E. Gorman, Chairman and CEO of Tango Transport, LLC. “By improving both local and regional access he is helping to strengthen economic development across the state.”

“In northwestern Louisiana, because of the many businesses, employees and trucks that poured into the region related to the Haynesville Shale natural gas exploration, we’ve felt some growing pains,” said Don McClure, vice president of government, stakeholder relations and legal for Encana Oil and Gas (USA) Inc. “Investments in rural roads only strengthens our economic future and we appreciate the Governor’s support of our industry.”

Since taking office, Governor Jindal has invested more than $4.1 billion for transportation projects throughout Louisiana, which translates into more than 1,700 transportation system improvement projects, including roughly 4,000 miles of roadway and 446 bridges. Additionally, for the first time in a decade, Louisiana’s backlog of road and bridge projects has been reduced by $1.6 billion.

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Gas prices continue to rise nationwide, pushing more people to consider other alternatives to the standard gasoline-powered vehicles.

The national average for a gallon of regular gasoline on Tuesday was $3.53.

A lower-cost alternative has made its way to the Ark-La-Tex. It’s a new Honda Civic that runs solely on compressed natural gas (CNG). It’s running below $2.00 per GGE, or gasoline gallon equivalent.

“It approaches about nine gallons equivalent of normal fuel, and it takes about $15 to fill it up,” says Mark Johnson with Holmes Honda.

“Natural gas will continue to stay at a sustainable price, while gasoline will continue to fluctuate,” adds Katie McCullin with Chesapeake Energy.

This is the first car manufactured to run solely on CNG. Mark Johnson says it drives like a regular car.

Under the hood, this car looks similar to a gasoline-powered car. Its trunk is significantly smaller than any other car. And it costs a little more than a standard Civic.

“There’s about a $3,000 difference between this and a gas-powered Civic equipped the same,” Johnson says.

However, the state of Louisiana offers a 50-percent tax credit for that up-charge. Between that tax credit, and the smaller amount spent on gas, Mark Johnson says the savings start immediately when you buy this car.

If you don’t want to buy a new car just to save on gas, you can covert what you have. But that comes with a hefty price tag.

“For us, Southern Automotive, to convert a vehicle for you per se, the cost of the kit and the labor involved together would probably be somewhere in the $6,500 to $7,000 range,” says Sammie Goldman.

He tells us the availability of cng and the lower cost make it enticing for customers.

“When we sit down and start talking about the cost involved, that’s a big deterrent.”

But he predicts it will eventually become a more viable option.

“I truly feel natural gas is going to be good for the public in the long run, he says. “I don’t believe it’s going away.”

“If you’re going to get a new car, and a lot of your driving is in the city where natural gas fueling stations like this one are abundant in our area, there’s a reason to give it some strong consideration,” Johnson adds.

There will soon be another “first” in the Ark-La-Tex. Natural gas producer Encana plans to open the first public liquefied natural gas (lng) fueling station in Louisiana.

It will open later this month in Frierson. The lng station will be at the Relay Truck Stop on highway 175. That’s at the intersection of highway 175 and Interstate 49 in Desoto Parish.

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A cab driver fuels up his CNG taxi on February 8, 2012 in San Francisco, California. San Francisco city officials announced today that 92 percent of San Francisco’s taxi fleet is comprised of hybrid or CNG vehicles

Chesapeake Energy has agreed to work with technology firm 3M to produce and market compressed natural gas tanks for the US transportation sector.

The second-largest natural gas producer is seeking to stimulate demand for the fuel at a time when natural gas prices have fallen to 10-year lows, forcing Chesapeake and some of its competitors to cut production and reduce the number of operating drill rigs because reserves are not economic at current market prices.

CNG tanks produced by the new partnership will reduce the current high cost of the vessels for gas-driven vehicles, and increase their performance, the companies said in a joint statement.

Using enhancements including liner advancements, barrier films and coatings, the tanks will be 10-20% lighter and have 10-20% greater capacity than currently available tanks, the companies said.

Chesapeake Energy chief executive Aubrey McClendon said increased use of natural gas as a transportation fuel will help reduce US dependence on imported oil.

“We applaud 3M for recognizing the future of natural gas as a low-cost, cleaner alternative to gasoline, and for creating innovative tank technology that will make natural gas vehicles more affordable and accessible to fleets and individual consumers nationwide,” McClendon said.

The Problem Isn’t The Price According to Chesapeake, natural gas now sells for the gasoline equivalent of $1 to $2 a gallon, or around half the current price of retail gasoline.

Efforts to promote the use of natural gas for transportation, especially for private cars, may run into safety and capacity challenges, said Sam Jaffe, research manager at IDC Energy Insights, a global research and advisory company in Boulder, Colo.

With the space constraints of private cars, it will be difficult to make a CNG tank that’s big enough to provide the vehicle with a significant range, and such a vessel will increase the risk of explosions, Jaffe said.

“The problem isn’t the technology, it’s the fuel itself,” he said. “You are trying to put a square peg into a round hole.”

But the fuel has greater potential for trucks and buses because they have a more centralized refueling infrastructure that doesn’t require as much investment as a car-centered system would, Jaffe said.

Any significant increase in the use of CNG as a transportation fuel would also depend on developing an infrastructure of refueling stations, winning public confidence, and on natural gas staying as cheap as it is for a long time, he said.

Boosting The Demand Side

NYMEX natural gas futures hit a 10-year low of $2.23 per thousand Btu in late January because of oversupply caused by booming domestic production and slack demand during an unusually mild US winter.

Chesapeake said on Jan. 23 that it was approximately halving its U.S. rig count to 24 and reducing gas production by 1 billion cubic feet a day in response to the low market price.

The price has increased the need for producers like Chesapeake to boost demand, said Jaffe. “They can’t produce gas at this price and they need to increase demand so that the price will go up so they can get the gas out of the ground.”

Chesapeake said it will invest an initial $10 million in design and certification services and market development, and will use the new tanks for its corporate fleet. The money will come from Chesapeake NG Ventures, a unit that plans to invest $1 billion over the next 10 years in a number of programs designed to increase demand for natural gas.

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Protestations in the mainstream media that we need not worry about a peak in the rate of world oil production anytime soon are suddenly coming fast and furious. As a result, I was reminded both of Shakespeare and Gandhi.

“The media doth protest too much,” I thought (with apologies to Queen Gertrude in Hamlet). As for Gandhi, a quote commonly attributed to him may shed light on where we are in the peak oil debate: “First they ignore you. Then they laugh at you. Then they attack you. Then you win.”

So, it appears that we are now in stage three of a four-stage process. This may not be as farfetched as it seems. I can remember when I first began writing regularly about peak oil in 2004. The main problem was that the media was simply ignoring the issue. It just didn’t fit any category which the vast majority of reporters recognized.

That was followed by a period of ridicule from oil industry representatives, economists, and a few writers in the trade press, but almost no one in the mainstream media. “Pshaw, pshaw,” they seemed to say in chorus, “no sensible person would take the idea of a near-term peak in world oil production seriously.” (Never mind that these people mostly misunderstood the problem of peak oil as being one related to the size of the remaining resource rather than the rate of extraction.)

Now we have come to the point where there are open attacks in the mainstream media. Yes, there have been attacks before, mostly in the trade press and on specialized sites and blogs on the Internet. It was more internecine conflict within the industry, narrow professional circles, and the activist community. But that doesn’t really count as a public brawl when your true audience is the mass of non-specialists. Now, we have the equivalent of that with the publication of a major piece in Nature, a respected scientific journal, but one that mere mortals are able to read. The piece in question has the reactionary forces in full attack mode.

An op-ed in The National, an English-language publication in Abu Dhabi, set the bar very low when it comes to facts and logic. Bloomberg Businessweek emitted a piece entitled “Everything You Know About Peak Oil Is Wrong” on the same day the Nature piece appeared–almost as if the writer knew it was coming. The Bloomberg piece trots out mostly tired, irrelevant arguments and a few that are relevant but factually wrong. Gail Tverberg does a good job of critiquing this very sloppy piece. Chris Nelder at Smartplanet takes on the Bloomberg piece as well as a number of poorly argued responses to the Naturearticle.

But the latest counterattack actually began last fall with Daniel Yergin, the smooth-talking and smooth-writing oil optimist that peak oil activists love to hate. Yergin felt compelled to push back in The Wall Street Journal at peak oil ideas in the course of promoting his new book. Thanks, Mr. Yergin, for bringing up the subject.

Many readers will no doubt be acquainted with the saying: “There is no such thing as bad publicity.” This corresponds perfectly with Gandhi’s phase three of a struggle. The opposition is now forced by obvious circumstances–i.e., no increase in oil supplies despite years of record prices–to explain away something that peak oil theory explains perfectly.

It may be disheartening to see so much disinformation in the media spewed by people who ought to know better. But it is ever so delicious to contemplate the desperation hiding behind their fretful posturing and incantation. I can almost hear them say, “It can’t be so, it can’t be so…it simply mustn’t!” They seem to believe that if they say “Bakken, Brazil, offshore, tar sands, technology” enough times in a row, it will make $100-a-barrel oil go away. But that incantation will not make the data go away, and so we must keep pointing out that the trend remains flat despite all of those things.

Perhaps the surest sign that the peak oil message is now in fighting form is that the former president of Shell Oil, John Hofmeister, agreed to a debate last week with one of the foremost scientific voices in the peak oil camp. It may be that Hofmeister is just a good, fair-minded citizen who thinks the issue should be aired. But the fact that he chose to give his imprimatur to the notion that peak oil needs to be debated speaks volumes.

Rock-star investors such as T. Boone Pickens and Richard Rainwater have long since put their imprimatur on peak oil. Major banks such as Australia’s Macquarie Bank and Germany’s Deutsche Bank (PDF) are also embracing the near-term peak thesis. And, embarrassing government leaks like this recent one in Australia and this one from the British government last year demonstrate that behind the scenes government planners and politicians are gravely concerned.

Does that mean that peak oil activists have reached their goal of informing the public and policymakers about the risks and opportunities posed by peak oil? Of course not. This is where the hard work begins because the debate has now been elevated to the national and international stage. And, that means we can look forward to a continuous clash that is increasingly in the public eye.

Now is also the opportune time for a well-financed, coordinated communications strategy (which I proposed here in 2008) that can take advantage of a new media environment more open to the idea of resource constraints.

Far from being discouraged by the rash of peak oil denunciations in the media lately, I am invigorated by it. Remember: we’re now on offense; they’re on defence. The opposition has to explain why oil production has been flat since 2005 despite high prices. And, the twisted logic and demonstrably false assertions they offer will provide ever better opportunities to trump them again and again.

I have always maintained that when you are in a public dogfight in the media, if you are explaining, you are losing. The peak oil movement now needs to focus on planting doubt about the official cornucopian story. And, the best way to do that is continuously to poke holes in the arguments of the optimists, arguments that can be shown to be ridiculous by combining simple logic with the data that is publicly available.

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The US Geological Survey (USGS) says that the US holds more than 50% of the world’s known oil shale reserves with the largest known deposits being within a 16,000 square mile area in the Green River formation in Colorado, Utah and Wyoming. Putting the potential resource into perspective, the US shale oil resource is six times that of Saudi Arabia at around 1.5tnbl of oil, which is enough to supply the US’s oil needs for 200 years.

A good deal of the shale oil and oil sands resource lies underneath federal government-controlled land. Nevertheless, oil shale in the US has and continues to be somewhat of a political football. At the back end of the Bush administration it made around 2m acres available for oil shale development and a little over 430,000 acres for oil sands development. However, a change of administration and conservation groups filing a lawsuit in 2009 complaining that the government did not fully review the possible environmental impacts led to the Obama administration taking a new look. Now, ironically with the possibility of the administration switching back to the Republicans in 2012, a recent statement from the US Bureau of Land Management (BLM) seems mindful towards a compromise.

The Preferred Alternative

The BLM has what it calls “The Preferred Alternative” which is open for public review and comment for 90 days. Basically, the BLM suggests that nearly 462,000 acres would be made available for research and development of oil shale of which approximately 35,000 acres would be in Colorado, around 252,000 acres in Utah and a little over 174,000 acres in Wyoming. In addition, around 91,000 acres in eastern Utah would be earmarked for oil sands activities. In essence, BLM is proposing something like a 75% reduction in the amount of land that would be available for oil shale and oil sands. “The preferred alternative continues our commitment to encouraging research, development, and demonstration projects so that companies can develop technologies that can lead to economic and commercial viability,” said BLM’s director Bob Abbey in a statement. “Because there are still many unanswered questions about the technology, water use and impacts of potential commercial-scale oil shale development, we are proposing a prudent and orderly approach that could facilitate significant improvements to technology needed for commercial-scale activity. If oil shale is to be viable on a commercial scale, we must take a common-sense approach that encourages research and development first.”

Clearly not preferred by some

A response from Utah’s Republican governor Gary Herbert to the BLM Preferred Alternative was sharp and robust, “I see absolutely no benefit,” said Herbert in a statement. “This nonsensical, bass-ackwards, peek-a-boo policy is nothing more than political posturing by over-reaching federal bureaucrats. How about they seek our input, we comment on it first and THEN they make a decision? With no science and no data, and with a wave of their federal bureaucratic magic wand, they just take the bulk of the acreage off the market, stifle innovation, and demonstrate, yet again, that this administration is patently hostile toward even the possible development of much needed energy resources.”

Understandably, the state and people of Utah have much to gain and the shale oil debate will likely continue throughout the presidential election period of 2012 and possibly beyond. Whether there is a Republican or Democratic president in the White House by the end of 2012 could make a huge difference to short- to medium-term shale oil and oil sands development in the US. And, for the oil and gas industry in the US – much of which would be quite happy, given the low price for natural gas in the US right now and for the foreseeable future, to switch to more profitable oil operations – the U-word looms large again. U is for uncertainty and uncertainty means that, while the desire is there to switch, the ability to do so, on government land anyway, is off limits for now.

The industry viewpoint to the BLM’s proposals has been swift in coming. The American Petroleum Institute (API) says that it represents 490 oil and natural gas companies employing over 9m workers and that those companies have invested over US$2tn in capital projects since 2000. “Within a week of encouraging an ‘all of the above’ energy strategy the administration has put on hold development of one of the nation’s most energy-rich areas,” said API’s president and CEO Jack Gerard in a statement. “There will be no opportunity to invest for years. The administration is sending negative signals to industry and capital markets at exactly the wrong time. Consistent and stable regulations are needed to promote the commercial development of oil shale, an important and strategic national resource. Reliable governance from the BLM in the management of this resource is essential to attract the significant investment capital needed to both advance needed technologies and begin development.”

Finding a balance

The oil is in the US and one way or the other, however long it may take, that resource will be exploited. It is just a matter of how and when. Any administration cannot ignore the kind of asset that oil shale and oil sands represents. However, one would hope that lessons have been learned from the shale gas gold rush and that sometimes being first out of the blocks does not mean winning the race. There is merit in what BLM director Abbey says in that development should be prudent and orderly and the frustrations of Utah Governor Herbert and API CEO, Gerard are also understandable. Furthermore, there are also the concerns of the people that are living on and around the potential boom sites. Many of them will be happy to see the oil shale resource developed and be part of the opportunity but not at breakneck speed when urban and rural infrastructure could be stretched to their limits as local inflation soars and shortages abound. It will all be about finding the essence of one word – “balance.”

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Well here’s your science lesson for today: What exactly is “fracking,” aside from an alternative exclamation of contempt?

With the costly controversy surrounding oil and gas prices and where to source America’s fuel, many scientists are turning to natural gas and conjuring up unconventional ways to discover where and how to locate this alternative. That’s where hydraulic fracturing, aka “fracking,” comes in.

“Fracking” is the process of extracting natural gas from shale rock beneath the earth’s surface. In order to accomplish this, untapped reserves are “horizontally drilled” into wells and then “proppants,” a combination of high pressure, water, chemicals and sand, are released into the shale rock to form cracks.

The sand holds open the cracks, which allows the natural gas to flow through to the surface; the entire process can trap gas over hundreds of acres. If you didn’t understand a word of that, check out this animation or “The Fracking Song.” Either will help you better understand what the frack fracking is all about.

Because fracking involves gases, chemicals and groundwater (an alarming mixture), environmentalists are firing back and claiming that fracking won’t just contaminate our drinking water, but will also pollute the air and cause myriad other health problems.

But a recent University of Texas study argues otherwise, and says there is no direct correlation between water contamination and fracking.

The evidence comes from The Energy Institute at UT Austin and its researchers, who have been studying shale rock and untapped reserves in Pennsylvania, Louisiana and Texas. They say that the fracking process itself isn’t the cause of contamination; it’s external factors involved prior to the actual extraction of natural gas.

Casing failures, poor cement jobs, above-ground spills and mishandling of wastewater are included factors to blame, and any natural gas found in drinking wells can be traced to natural resources that were already present, the study says.

Researchers continue to argue that fracking is a beneficial process to detect natural gas because it’s an important energy source. Research at the Energy Institute will continue with two follow-up projects, one set for April on the study of water contamination in North Texas and another that’s still under development involving an investigation into whether hydrological connectivity exists in shale rock during the fracking process.

What do you think of the study? Are you convinced?

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President Obama’s re-elect team defended White House energy policy on Sunday as gas prices shoot toward the $4 mark and beyond, a level that could devastate voters’ pocketbooks as well as Obama’s chances for a second term.

Nationally, gas prices are $3.53 a gallon, up 25 cents since Jan. 1, and likely headed to $4.25 a gallon by late April. Republicans have demanded more oil production at home, as well as building the Keystone XL pipeline across the middle of the U.S. to allow oil from Canada to reach Texas refineries.

Obama rejected the plan, but one of his spokesmen, Robert Gibbs, said the president is looking to increase domestic energy production.

“Just on Friday, the Department of Interior issued permits that will expand our exploration in the Arctic. The president has increased our fuel efficiency and energy efficiency standards so we do use less energy, which will help drive down the price,” Gibbs said. “Our domestic oil production is at an eight-year high, and our use of foreign oil is at a 16-year low. So we’re making progress.”

But John Hofmeister, former CEO of Shell Oil and founder of Citizens for Affordable Energy, told Fox News that oil production today is only 7 million barrels per day when it used to be 10 million per day.

Hofmeister warned that the global economy is in “the crosshairs” of a precarious situation in which China is growing its demand for oil each year by millions of barrels per day and turmoil in the Middle East is creating “some of the most unpredictable, volatile, geopolitical situations” in the world.

Global oil demand, meanwhile, is expected to increase by another 1.5 percent to 89.25 million barrels a day in 2012, according to the Energy Information Administration.

“The failure of the United States of America, the world’s largest consumer, to adopt government policies to enable domestic production to increase and meet these conditions has been nil, nada, nothing, and that is unfortunate for American consumers,” Hofmeister told Fox News.

“We know where the oil is but the government has to allow the companies to get the oil,” he said, charging the Obama administration with being “anti-drilling,” as demonstrated by the moratorium in the Gulf of Mexico following the BP spill in 2010.

The average price of gas this month so far is $3.49 a gallon — up 21 cents since the beginning of the year — and $1.60 more per gallon than when Obama took office in January 2009.

For every 25-cent jump in gasoline prices over a year, $35 billion — or about one-third of the recently passed payroll tax cut — is removed from other uses in the economy, and much of it is sent abroad. Americans spent 8.4 percent of their household income on gasoline last year when gas averaged $3.51 a gallon — that’s double the percentage a decade ago.

While the economy grew at a 1.7 percent rate in 2011 — modest following a recession — the annual increase in gas prices — compounded by a switch to lighter formula gases sold in the spring and summer — could easily top the July 2008 record of $4.11 per gallon.

As the administration praises the direction of employment and consumption numbers, the president’s economic recovery plans could be severely hampered by a rise in gas prices, warn analysts and politicians.

“One out of every six Americans is unemployed, working part-time, looking for full-time work or so discouraged they’re — they’ve dropped out of the workforce altogether, and gas is now $3.53 a gallon, going to $4,” said former George W. Bush senior adviser Karl Rove, a Fox News contributor.

“If I were in the White House, I wouldn’t be picking out my second term office just yet,” Rove said.

“You can’t guarantee anything. But you guarantee under the Obama plan, there’s going to be less American production, higher prices. We already have highest price on average in history,” said Republican presidential candidate Newt Gingrich, noting that the administration has been aggressive in filing environmental rules and lawsuits that prevent oil production. Gingrich said without domestic production, U.S. oil dependency remains tied to the Middle East.

While the U.S. dependence on foreign sources of oil persists, domestically produced oil from Texas is currently priced at $103 billion per barrel, up 19 percent from a year ago, but still cheaper than the $119 per barrel of North Sea oil, a proxy for Mideast oil. That’s up 11 percent this year.

Hofmeister, who supports increasing biofuel and natural gas production from 3 million to 4 million gallons daily and the development of more fuel-efficient cars, particularly using the know-how of an internal combustion engine, said it’s “almost too late” to get the U.S. back on path toward reasonable prices.

And while Gibbs, who appeared on ABC’s “This Week,” acknowledged that “there are no magic bullets,” he said the president is focused on an “all-of-the-above energy policy.”

“We’re going to have to do all of these things:  We’re going to have to look for more energy here at home. We’re going to have to conserve energy. We’re going to have to make the energy we use more efficient. All of those things will help us get ahead of this problem,” he said.

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