-

By JOHN M. BRODER

WASHINGTON — The last year and a half has brought a rapid sequence of reversals in the Obama administration’s policy toward oil and gas exploration on public lands and in United States waters.

Since the beginning of 2010, Washington has caromed from a restrictive approach to drilling to a permissive policy closely mirroring that of the Bush administration to a near-total shutdown of offshore drilling after the Deepwater Horizon blowout in the Gulf of Mexico. After that fatal accident, the administration decreed a deepwater drilling moratorium, lifted it six months later, then took five more months before beginning to issue drilling permits.

Throughout that time, the American public’s attitudes toward domestic oil and gas development have been remarkably consistent: Americans are in favor of it, though Democrats and those on the coasts are much less likely than Republicans and those in the South and Southwest to be supportive.

National support for offshore drilling and for domestic oil and gas development generally dipped for a time after the BP disaster — from a strong majority to a bare majority — but quickly rebounded.

A Gallup poll taken immediately after the gulf spill showed that 50 percent of Americans supported offshore drilling while 46 percent opposed it. By March of this year, public support had risen to 60 percent versus 37 percent.

The administration’s offshore drilling policy, like its fervor for domestic production more generally, has gone through rapid changes. In March 2010, President Obama announced that the United States would make vast tracts of the Gulf of Mexico and the Atlantic and Arctic oceans available for leasing by oil and gas companies. After the BP spill began on April 20, 2010, he declared those areas off-limits for at least five years. Then, last month, the president announced that he would permit accelerated development in Alaska, the gulf and along parts of the Atlantic coast.

Administration officials defend the policy changes as reasonable responses to changed circumstances. Mr. Obama came to office as a proponent of increased domestic oil and gas development, as part of a broader strategy to reduce oil imports. Accordingly, they said, he took steps to accelerate development. He then imposed a sharp cutback after the BP disaster to give regulators and oil companies time to put new safeguards in place.

After the president was satisfied that drilling could resume safely, and in response to public anxiety about high fuel costs, he shifted back to a more pro-development stance, the aides said.

“These spikes in gas prices are often temporary,” Mr. Obama said on May 14 in a radio and Internet address, “and while there are no quick fixes to the problem, there are a few steps we should take that make good sense.”

The public’s support for offshore drilling has tracked changes in the price of gasoline. When gas prices were near record highs in the summer of 2008 and again this spring, support for domestic drilling was highest.

Conversely, unease about the effects of offshore drilling peaked after the BP accident, which killed 11 rig workers and spewed nearly five million barrels of crude into the gulf.

“News of that incident has faded, possibly lessening Americans’ resistance to coastal area drilling,” Gallup said when releasing its poll in March that showed 60 percent of Americans supportive.

The poll found that 49 percent of Americans favor opening the Arctic National Wildlife Refuge for oil exploration, a step the Obama administration strongly opposes. That is the highest level of support for drilling in the Arctic refuge since Gallup first asked the question in 2002.

The nationwide poll of 1,021 adults was conducted by telephone in early March.

“Timing is everything,” said Jack N. Gerard, president of the American Petroleum Institute, the industry’s most prominent lobbying group in Washington. “As the price of gasoline has increased, public attention has turned once again to the question of energy. When they hear their elected officials continue to resist development of American resources, they are appalled.”

The Gallup survey found that men are more likely than women to support drilling offshore and in Alaska and support is much higher among Republicans than Democrats. It also found regional variations, with the strongest backing for aggressive oil exploration in the South and the most significant opposition along the East and West Coasts.

And while the public appears to support exploiting domestic oil and gas resources, there is also skepticism about the economic and environmental costs of America’s continued reliance on oil. A New York Times/CBS News poll taken in March asked how important it was for the United States to develop an alternative to oil as a major source of energy. Fully 94 percent of respondents said it was very or somewhat important to do so.

The Times/CBS News poll was conducted by telephone with 1,266 adults nationwide.

Daniel J. Weiss, a senior fellow in Washington at the Center for American Progress, said that while the public tends to support more domestic oil and gas drilling, they see it as only one egg in a basket of policies to lower energy costs, reduce dependence on foreign oil and clean up the environment.

“Americans generally support an all-of-the-above strategy,” Mr. Weiss said. “They say, ‘Let’s have more offshore drilling, but also higher mileage standards for our cars and trucks. Let’s crack down on the speculators and invest in electric cars, natural gas trucks and biofuels.’ ”

Mr. Gerard said that Mr. Obama’s sporadic and reluctant support for increased domestic production was largely politically driven and not part of a comprehensive energy strategy. But he praised the president for at least appearing responsive to public opinion in calling for more American oil and gas.

“Until the economy gets back on track, until the unemployment rate comes down, and with the price of energy high, I think you’ll see the president focus more and more on the supply side,” he said. “And as pressure continues to mount as we get closer to Election Day, I think you’ll see more of that.”

Original Article

-

* One rig headed to Liberia for Chevron, other to Egypt

* Follows Diamond saying a rig to depart Gulf this year

HOUSTON, June 16 (Reuters) – Two floating Transocean (RIGN.VX: Quote) rigs are leaving the Gulf of Mexico to work off Africa as the slow return to normal in the region’s deeper waters leads oil companies to put rigs to work elsewhere.

The Discoverer Spirit, contracted to Chevron Corp (CVX.N: Quote), will move this month to work off Liberia and Sierra Leone before returning to the Gulf of Mexico next March, according to Transocean’s latest fleet status report released on Thursday.

Bobby Ryan, Chevron vice president for global exploration, said on Wednesday that the Gulf of Mexico and West Africa remained focus areas, but the pace of permitting in the Gulf of Mexico was not near what he would like. [ID:nN1585448]

Greater scrutiny from U.S. regulators after last year’s Gulf of Mexico oil spill has led to delays in deepwater permit awards.

The Transocean Amirante, a rig now under contract with Eni (ENI.MI: Quote) for $364,000 per day, will move to Egypt to work for Burullus Gas Co in August on a contract of $247,000 per day that runs for 10 months, the fleet status report said.

Burullus has also signed an eight-month extension for Diamond Offshore Drilling Inc’s (DO.N: Quote) Ocean Endeavor rig, Diamond said this week. The Endeavor was the first rig to depart last summer during the U.S. deepwater moratorium.

Diamond also said this week that its Ocean Monarch would leave the Gulf to work for BP Plc (BP.L: Quote) in Vietnam in November.

Two other Transocean rigs departed last year. Nearly a third of the 30-plus deepwater rigs in the Gulf of Mexico in April 2010 will have ended up leaving due to the drilling stoppage that followed the Deepwater Horizon disaster, though one returned and two more could come back later this year. [ID:nN14231051] (Reporting by Braden Reddall)

Original Article

-

WASHINGTON (Dow Jones)–The Obama administration said Thursday it will conduct a lease sale in Alaska’s National Petroleum Reserve before the end of the year, following weeks of criticism from Republicans who accuse the president of discouraging domestic oil production.

The administration also announced it will accept applications from oil and natural gas companies that want to extend leases in the Gulf of Mexico, where a temporary ban on deepwater drilling forced several companies to suspend operations following the Deepwater Horizon oil spill.

Both announcements fall on the heels of a May 14 radio address in which President Barack Obama said he would undertake several measures to try to boost oil production in the U.S.

The lease sale planned for the National Petroleum Reserve in 2011 will be followed by regularly scheduled annual sales in the same region, the Interior Department said. The department plans to solicit nominations or comments on available tracts of land available in the National Petroleum Reserve.

The reserve, located west of Prudhoe Bay in Alaska’s North Slope, contains 900 million barrels of conventional, undiscovered oil and 53 trillion cubic feet of non-associated gas, the department said.

As for companies that want to extend existing leases in the Gulf of Mexico, the department said the companies need to prove they weren’t producing on their leases as of May 15 and that the leases are scheduled to expire before the end of 2015. The leases also have to apply to operations in more than 500 feet of water.

Original Article

-

Oil companies that need water for “fracking” wells compete for H2O

Bruce Frasier sweats in the 106F heat at his Carrizo Springs, Tex., farm while stacking 42-pound boxes of cantaloupes bound for Kroger (KR) supermarkets and Wal-Mart Stores (WMT). But he’s turning away all offers for his most prized commodity: water. Texas’s worst drought since record-keeping began in 1895 is fueling a rally in water prices as energy prospectors from ExxonMobil (XOM) to Korea National Oil expand the use of a drilling technique known as hydraulic fracturing, or fracking, that uses up to 13 million gallons in a single well.

Frasier, whose Dixondale Farms is the state’s largest cantaloupe grower, has been offered as much as 70¢ per 42-gallon barrel of water he pumps from an aquifer beneath his land. That same water fetched no price at all as recently as three years ago, before oil exploration boomed in Texas’s Eagle Ford Shale rock formation. So far, Frasier is standing firm. “I’ve got to have that water for my farming operation,” he explains.

With the region having received less than 2 inches of rainfall since Oct. 1, oil producers are buying water from anyone willing to sell. “It’s pretty dry down here and a lot of oil companies are looking for water,” says Robert Mace, a deputy executive administrator at the Texas Water Development Board.

The water crisis in Texas, the biggest oil- and gas-producing state in the U.S., highlights a continuing debate in North America and Europe over fracking’s impact on water supplies. Environmentalists say the method poses a contamination threat, while farmers face growing competition for scarce water.

Fracking is a 60-year-old method of shattering rocks to unleash oil and natural gas with high-pressure jets of sand- and chemical-infused water. In the past decade, the technique has been refined and coupled with new ways of drilling sideways through oil-rich shale formations, spurring an onshore exploration boom, says Robert Ineson, senior director of global gas at researcher IHS CERA.

The Eagle Ford’s peculiar geology means each well fracked requires an amount of water equivalent to that used by 240 adults in an entire year for cooking, washing, and drinking. A study by the Texas Water Development Board and the University of Texas at Austin’s Bureau of Economic Geology estimates fracking-water demand in the area will jump tenfold by 2020 and double again by 2030. “This is not the drilling your grandparents knew in West Texas,” says Sharon Wilson, an organizer for Earthworks’ Oil & Gas Accountability Project, which lobbies for tougher regulation of oil drillers. “It’s a heavy industrial activity with massive amounts of water and chemicals.”

For now, local water departments, farmers, and oil drillers near Laredo are relying on water from two reservoirs and underground aquifers filled by last summer’s tropical storm season. But that won’t last forever.

The bottom line: A record drought in Texas is boosting water prices and competition between agricultural and energy interests over the commodity.

Original Article

-

State senators have rejected a Slidell lawmaker’s proposal that would ban the use of dispersants in responding to oil spills in Louisiana waters.

Republican A.G. Crowe says he proposed the ban because the federal government hasn’t responded to requests to switch oil spill strategy to a less-toxic alternative. Dispersants break up oil into smaller particles. They are generally less toxic than oil.

Use of the chemicals became a concern for environmental groups after they were used in response to last year’s Deepwater Horizon oil spill.

State and industry officials say Crowe’s proposal could prevent a necessary strategy in the case of another spill. The Senate voted 21-10 against Crowe’s bill Wednesday, likely killing it for the regular session.

Original Article

-

By Bill Barrow

BATON ROUGE — The push to phase out the state individual income tax hit a potentially fatal snag Thursday in the House of Representatives, with Rep. Hunter Greene putting the bill on the shelf after his colleagues voted to amend the measure into a study resolution.

By a vote of 57-35, the House opted to restore a trigger for the tax cuts first adopted by the Senate. As it stands now, Senate Bill 259 would not guarantee any tax cuts but instead create a panel comprising legislative leaders and the governor, with that body being charged with exploring ways to cut government or modify the tax code to make up for lost income tax revenues. Only after receiving recommendations from that panel could a future Legislature vote to cut taxes.

Greene, a Baton Rouge Republican who chairs the Ways and Means Committee, attempted to roll back the amendment, but failed on a 46-46 vote. He then opted to put the bill back on the House calendar with a week left in the legislative session.

Greene said he’s not moving the bill, sponsored by his Senate counterpart, Revenue and Fiscal Affairs Chairman Rob Marionneaux, as long as it ties any tax cuts to the action of an appointed commission. That study commission version of the bill, Greene said, is merely a disingenuous maneuver for lawmakers to brag in an election year that they voted to repeal income taxes, without actually doing so. “What you’re doing is nothing,” he told a colleague.

Opponents of the measure have accused Greene and Marionneaux, D-Livonia, of political maneuvering in their own right. Greene tried to shoot that down as he presented the bill, saying that he has long sought a way to dramatically reduce the size and scope of state government. What better way to force a reassessment of priorities than to put the Legislature on the clock, facing the reduction of about a third of its annual state general fund revenue: $2.8 billion out of about $7.8 billion this year?

The two tax chairmen advocate shaving 10 percent off the personal income tax levy starting in 2014, with the same proportion cut annually thereafter until the tax is eliminated. Legislative analysts estimate that such cuts would sacrifice $120 million in tax collections the first year, increasing markedly each year thereafter to $5.4 billion in 2024.

Greene also rejected any notion that he and Marionneaux have pursued this issue to box in Gov. Bobby Jindal, a self-styled small-government, tax-cutting conservative. Jindal has never taken a position on the measure, but administration aides and legislative allies have worked to kill the bill.

Rep. Chris Roy, who sponsored the amendment restoring the power of the study commission, made familiar arguments against the bill. The Natchitoches Democrat said, “We don’t have any solid contingency plans,” as he painted a dim portrait of poor roads, closed hospitals and shoddy schools.

Greene retorted, “Folks, this is not going to shut down government.” Greene has pointed to state general fund growth over the last decade that moderately exceeds inflation. A phase out, he contends, would give lawmakers time to contemplate a strategy to deal with the lost revenue.

Marionneaux has advocated revisiting the billions of dollars in tax exemptions, deductions, rebates, credits and abatements the state grants each year on business, income, consumer and energy taxes. According to the Department of Revenue, the 2009-10 exemptions included, among others: $3.895 billion in exempted sales taxes, more than the $2.465 billion that was collected; $1.33 billion in exempted corporate income tax, three times the $435 million the state took in; $1.074 billion in individual income taxes, compared with $2.24 billion in what was collected; and $354 million in waived severance taxes, compared with $774 million in collections.

Greene said he was willing to look at those breaks, but wanted to focus more on cutting spending on government services.

Original Article

-

Oil prices might be high, but there’s no shortages around the world, right? Think again, says Anas Alhajji, chief economist at NGP Energy Capital Management in Dallas. The U.S. might be getting all the oil it demands, but the story is different in places like China and Iraq, where because of electric power shortages governments and private citizens are turning to diesel. China has banned exports of diesel in efforts to secure enough to combat outages and has reduced production of chemicals to conserve fuel.  Iraq in March bought 50 diesel generators to ease outages, with the nation’s electricity minister promising 16 hours of power a day by 2012.

This is a real power shortage. Whether the shortage is the result of insufficient oil, gas, coal, nuclear, hydro, is almost beside the point–there is not enough energy available (especially diesel) to meet demand. This is why Alhajji doubts that any efforts by the Saudis or like-minded OPEC nations will be able to forestall a shortage of oil this summer.

“We have a major problem right now, especially in July and August,” he says. The Saudis and Gulf allies may say that they intend to ramp up oil production, but not much of any increase will make it through to export markets. “Most of the increase in crude oil production will be burned in utilties’ power plants and in private generators in the oil producing countries to mitigate power shortages,” he says. Anything left will be burned up in China.

Thus, Alhajji says that as the summer heats up in the Middle East, “We will see a price spike relative to today. Prices are not going to collapse even with a double dip recession.”

You have to take what Alhajji says with a few grains of salt. His employer, NGP Energy Capital Management, has some $9.5 billion invested in mostly oil and gas companies.  Before joining NGP in 2008, Alhajji taught economics at Ohio Northern Univ., the Colorado School of Mines and the Univ. of Oklahoma.

He’s convinced that OPEC’s power to bring down oil prices is evaporating. With production capacity for high-quality, low-sulfur crude offline in Libya, Yemen and Sudan, the cartel is unable to compensate. The Saudis have been trying — in the wake of Libya’s outages Saudi Aramco concocted a blend of crudes seeking to replicate Libya’s, but buyers have been reticent. And Aramco in advance of last week’s OPEC meeting (as revealed in this fascinating Reuters story last night) even tried to forge an oil swap with the U.S. government–proposing a loan of light, sweet crude from the Strategic Petroleum Reserve in exchange for later shipments of cut price heavy oil. The deal didn’t happen, but the fact that it was even in negotiation shows a sense of panic on the part of OPEC.

Despite the current supply problems, Alhajji says he doesn’t believe that peak oil is around the corner. “I don’t believe in peak oil. The best cure for high prices is high prices,” he says. Speculation has nothing to do with it,” says Alhajji. “It is all supply and demand. OPEC wants the world to think that speculation is the cause because it takes the pressure off them. We’ve had an oil futures market since 1981. Why is it only since 2006 that people have blamed speculators for artificially influencing price? The main job of the futures market is to find out what the price is.”

That said, it will be a struggle for the industry to move fast enough to bring enough new production on line. Alhajji sees a number of vicious cycles that will support continued strength in oil prices for the foreseeable future.

First and foremost is the explosion in demand from the Middle East. As oil prices go up, so to do oil revenues. Oil revenues support more government spending, which helps stimulate economic growth, which stimulates further oil demand. Furthermore, oil-dependent governments, facing a population boom and realizing that they need to diversify their economy to create jobs and wealth, are subsidizing the industrial sector to manufacture plastics, chemicals and aluminum, all energy-intensive goods. As a result, even if an OPEC nation is producing more oil, it won’t necessarily have any more for export.

In the United States, Alhajji sees the Federal Reserve’s moves to keep interest rates low and to debase the dollar through quantitative easing as also contributing to high prices. As the dollar sheds value it will naturally lead to high dollar-denominated oil prices. As the U.S. pays ever more for foreign oil, the trade balance will worsen, further eroding the value of the dollar and further propping up oil prices.

Undergirding it all, says Alhajji, is the simple truth that even at $100 a barrel, or $4 for a gallon of gasoline, petroleum is still cheap. Demand so far has been inelastic because there’s still no cheaper way to get people and goods from one place to another or to provide emergency power in the heat of summer. Alhajji sees increased use of natural gas as the best way for the U.S. to reduce it’s reliance on oil. Gas, for the same amount of energy, costs about one-tenth of what oil does. And that price differential won’t soon narrow because of the mammoth gas finds that U.S. drillers keep making. Fueling cars with compressed gas, powering electric cars with electrons made from burning gas, will help reduce oil demand both here and in the rest of the world. We need some sort of solution, he says, becauase, at least for the short-term, “OPEC cannot deliver.”

Original Article

-

The International Energy Agency raised its forecast for global oil demand growth to 1.3 percent annually over the next five years on economic expansion in China, cautioning that gains in prices threaten the recovery.

Consumption will increase to 95.3 million barrels a day in 2016 from 88 million barrels a day in 2010, with China accounting for about 41 percent of the gain, the Paris-based adviser to oil-consuming nations said in its Medium-Term Oil Market Report today. Crude prices are “weighing” on the developed nations that make up the Organization for Cooperation and Development, the agency said.

“The resilience of emerging economies, which navigated relatively unscathed through the rough waters of the Great Recession of 2008 to 2009, will likely alter the balance of global economic power,” the IEA said. “Prices around $100 are weighing down an already-fragile macroeconomic and financial situation in the OECD.”

Global oil consumption will increase 1.2 million barrels a day, or 1.3 percent, annually over the next five years, the IEA said. That’s 700,000 a day more than the agency’s last forecast for 2010 to 2015 in December and will leave a “fairly thin” cushion of spare production capacity, it predicted.

“This expected rise in demand will be the consequence of sustained economic growth,” concentrated in Asia, the Middle East and Latin America, according to the IEA.

Substantial Upgrade

“The IEA’s update to its growth rate is quite substantial, though the fact that China will drive this growth isn’t new,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “While it’s true that over the long run prices at $100 could be damaging for the developed economies, I think we’d need to see higher levels to really hurt demand.”

Brent crude futures have advanced 20 percent this year, trading today at $114 a barrel in London, as world consumption increases and conflict halts exports from Libya, holder of Africa’s largest reserves.

Worldwide oil production capacity is set to accelerate 1.1 million barrels each year to 100.6 million a day by 2016, the agency said. That compares with 93.8 million last year.

Capacity among members of the Organization of Petroleum Exporting Countries will likely expand to 37.85 million barrels a day in 2016 from 35.72 million barrels a day in 2010, largely because of higher production in Iraq, Angola and the United Arab Emirates, the IEA said.

OPEC Needed

“There is a clear need for the organization to boost supply” this year, the agency said in a separate report today, raising its forecast for the amount of OPEC crude needed by 400,000 barrels a day. Saudi Arabia pledged on June 8 to keep markets adequately supplied after an OPEC meeting that day failed to reach an agreement on production.

The 12 OPEC members must provide 30.7 million barrels a day in the third quarter, or about 1.5 million more than they pumped in May, according to the IEA’s Monthly Market Report.

Libyan production, which has fallen to 200,000 barrels a day from pre-conflict levels of about 1.6 million, will recover gradually from 2012. The IEA doesn’t expect the country to pump full volumes until 2015.

Iraq will increase oil output capacity by 1.5 million barrels a day to 4.1 million by 2016, it said.

Non-OPEC supplies will be boosted to 55.4 million barrels a day in 2016, versus 52.7 million barrels in 2010.

“The outlook for non-OPEC supply growth has improved due to sustained investment on the back of high oil prices and moderate success at slowing mature field decline,” the IEA said. “Combined with higher output from Canadian oil sands, Brazilian deepwater and Colombian crude, the Americas now contribute virtually all incremental non-OPEC oil supply.”

Original Article