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By Bob Tippee

When US President Barack Obama declared, in his Jan. 25 State of the Union speech, “We are part of the American family,” he didn’t mean Americans who produce oil and gas.

When he cheered, “Corporate profits are up,” he didn’t extend the good wishes to companies that supply oil products.

For the oil and gas industry, Obama has only disdain.

In an address full of high-minded generality, Obama spoke specifically about oil companies.

“I’m asking Congress to eliminate the billions of taxpayer dollars we currently give to oil companies,” he said.

A White House fact sheet explained the reference as “the approximately $4 billion/year in tax subsidies to oil, gas, and other fossil fuel producers.”

This means Obama will try yet again to repeal tax incentives such as the expensing of intangible drilling costs, accelerated amortization of geologic and geophysical costs for independent producers, and oil-company use of the manufacturer’s deduction.

These aren’t subsidies. Most of the targeted measures are timing preferences that don’t lower government revenue over time. The manufacturers deduction, half the savings supposedly in prospect, is available to companies in other industries.

Obama’s assertion that the measures represent a gift by taxpayers to oil companies amounts to crass distortion.

The president is proposing a huge tax increase on one industry. The burden would crush small independent producers, slash drilling programs of large independents, and divert spending by integrated companies to non-US projects. US oil and gas production would fall. Oil imports would rise. US jobs, incomes, and tax revenue would be lost.

Obama betrayed his dislike of the industry when, after his deception about giving oil companies money, he smirked and said, “I don’t know if you’ve noticed, they’re doing just fine on their own.”

So it’s good when corporate profits are up. But increased profits by oil companies are something to disparage, even punish.

“We are still bound together as one people,” purred the unifier-in-chief. But he didn’t mean oil and gas people.

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By Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) — Natural gas has played the part of an outcast, wallowing in a supply surplus, even as most other commodities managed to turn heads with their impressive gains over the past several months.

“Natural gas is the ugly duckling of the commodities,” said Ben Smith, president of First Enercast Financial, an information vendor serving energy markets.

But just like the beloved Hans Christian Andersen fairly tale, the natural-gas story has the potential to transform — if investors are patient enough to wait.

Many commodities had seen a downtrend since the peak in prices in 2008, but copper, gold and agricultural commodities have been making new highs, and oil and iron ore have rebounded, said Evan Smith, co-manager of the $900 million Global Resources Fund /quotes/comstock/10r!pspfx (PSPFX 12.01, -0.06, -0.50%) , which climbed 38% last year.

“Natural gas is probably the only commodity that has set lows recently, with no rebound,” he said.

Natural gas prices /quotes/comstock/21n!f:ng\g11 (NGG11 4.32, 0.00, 0.00%)   have dropped 68% from a peak of about $13.60 per million British thermal units in July 2008, finishing Thursday at $4.37. They sank to a low of $2.50 in September 2009.

Natural gas has “truly undergone a significant fundamental shift, with the discovery of cheap and plentiful shale-gas supply,” said Ben Smith.

The U.S. Energy Information Administration estimates domestic recoverable unproved shale-gas resources at 827 trillion cubic feet, according to a preliminary 2011 Annual Energy Outlook report released in mid-December. That’s more than double the estimate of 347 trillion in the 2010 report.

The larger resource also leads to about double the shale-gas production and over 20% higher total natural gas production in the lower 48 states in 2035, than was projected in the 2010 report, the EIA said. Read more about the impact of shale gas production.

The shale-gas resources are “very large, prolific deposits of natural gas,” said Evan Smith. “Many of these fields were known but are now rediscovered” so the market’s seen a “big swing from offshore to onshore production as a portion of overall supplies.”

At the same time, the natural-gas market has had about $28 billion of capital come in over the last couple of years, in the form of joint ventures, largely from foreign oil companies such as India’s Reliance Industries Ltd. /quotes/comstock/29m!e:reliance.eq (IN:500325 914.50, -28.50, -3.02%)   or France’s Total S.A. /quotes/comstock/13*!tot/quotes/nls/tot (TOT 58.94, -0.56, -0.94%) , he said.

There’s too much capital coming in from foreign oil companies, and this “has largely led to continued drilling, which keeps the supply higher than it should be,” he said. And it could take a year before the market sees an incremental decline in drilling activity from companies reducing capital commitments to drill natural gas.

Even then, it could take even longer before the market reacts.

“The market currently believes this massive [shale] supply windfall will keep prices suppressed for many years,” Ben Smith said.

Futures contracts traded on the New York Mercantile Exchange don’t show prices above $6 until the December 2015 contract.

Tough love

That certainly doesn’t seem to bode well for natural-gas prices, but with natural-gas prices as cheap as they are, there are some good reasons for investors to jump back into the market.

It’ll take some convincing first, and here’s why.

Natural-gas futures fell Thursday even after the EIA reported that domestic supplies in storage dropped 174 billion cubic feet for the week ended Jan. 21, slightly above some analysts’s expectations. Read more about Thursday’s natural gas trading.

“It appears that all this cold weather is draining storage levels at an extremely high rate,” said Ben Smith. “More than 1 billion cubic feet per day is flowing from storage in the Gulf region currently.”

Obama calls for new energy investments

During the State of the Union, President Barack Obama emphasis the need for new clean energy.

It’s still not enough to rally the prices.

Shale production is among the big reasons for that. After all, by applying new technology, Southwestern Energy Co. /quotes/comstock/13*!swn/quotes/nls/swn (SWN 39.27, -0.55, -1.38%) , for example, with its sizable land position in the Fayetteville Shale formation in Arkansas and surrounding states, has been able to see a 400% increase in productivity over the last two years, according to Evan Smith.

And natural-gas producers continue to go strong because prices for natural-gas liquids remain attractive.

Natural-gas liquids include butane and propane, which are parts of natural gas that turn to liquid at the surface and are separated from the gas.

“As it turns out, companies are doing well selling natural-gas liquids, which seems to make it worth drilling for natural gas,” said Chris Mayer, a managing editor for Agora Financial and contributor to the Daily Reckoning.

Right now, pricing for natural-gas liquids is so strong that natural gas producers with wells rich in NGLs can do well even if natural-gas prices are low, he said, noting that NGL prices “vary all over by region.”

“In some places, the NGLs might be more than half of the value of what comes out of a well,” said Mayer. Read his articles on commodities.

“NGLs relate more to the price of crude and motor gasoline than they do natural gas, since a lot of the propane and butane come from crude,” said Beth Sewell, a managing partner at Quantum Power & Gas Services.

“Crude is truly an international commodity and can easily seek the highest price markets, whereas natural gas is pretty much contained within the borders of the country is produced from” because [liquefied natural gas] capabilities aren’t huge,” she said.

Against this backdrop, Charles Perry, president of energy consulting firm Perry Management, said he expects natural-gas prices to stay where they are now for 2011 — in the $4 to $4.50 range.

Unfortunately, that’s a rather precarious pricing range.

“Whenever the price drops to $4, the producers quit drilling shale wells and LNG diverts to other markets. When the price rises to $4.50, the producers start drilling shale wells again and some LNG diverts to the U.S.,” said Perry, a former member of power giant TXU Corp.’s board of directors.

Patience is a virtue

Weather has and always will be a key factor for natural-gas demand — and cheap prices certainly make the energy source even more appealing.

“We’ve officially established the fact that we have ample cheap natural-gas supply to last us many years,” said Ben Smith. But “it is the demand growth rate in response to all this cheap supply that will eventually support this market going forward.”

It’ll take time.

“Much of the growth in demand takes time to build the needed infrastructure to support higher gas use, so the recovery of natural gas will most likely be a gradual occurrence that takes several years,” Ben Smith said.

“I’m seeing positive changes happening in demand growth already, which indicates that cheap prices are working to cure cheap prices,” he said.

Total gas demand has risen by 5.2% since the bottom in 2009, and vehicle use has climbed 11% in 2010 from 2009 figures, he said, citing data from EIA.

Weather reports are also supportive. AccuWeather.com chief long-range forecaster Joe Bastardi said the current winter season could end up being the coldest for the nation as a whole since the 1980s.

“This month and next, gas prices should move with the weather forecasts,” said James Williams, an economist at WTRG Economics. “A hot summer would also support prices.”

Meanwhile, many producers are unable to profitably produce natural gas at current contract prices, so offshore and conventional gas supply is in sharp decline, said Ben Smith. “Natural gas is currently cheaper than coal to burn for electricity generation, [and] we can expect to see continued demand growth from utilities.”

So “yes, it takes years to create all this infrastructure to support demand, but this is the futures market, and I believe the market will see the future,” he said.

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The president’s plans for “clean energy standards” amount to carbon controls by other means.

Cap and trade is dead. Long live cap and trade.

The president presented his new, conciliatory face to the nation this week, and his State of the Union was as notable for what it didn’t include as what it did. He uttered not one word about global warming, a comprehensive climate bill, or his regulatory attempts to reduce carbon. Combined with his decision to give the axe to controversial climate czar Carol Browner, political analysts took all this as further proof that Barack Obama was moving to the middle, making nice with Republicans.

Snort. Guffaw. Chortle.

Listen carefully to Mr. Obama’s speech and you realize he spent plenty of it on carbon controls. He just used a different vocabulary. If the president can’t get carbon restrictions via cap and trade, he’ll get them instead with his new proposal for a “clean energy” standard. Clean energy, after all, sounds better to the public ear, and he might just be able to lure, or snooker, some Republicans into going along.

The official end of cap and trade, and Mrs. Browner, wasn’t conciliation—it was necessity. The public now understands that cap and trade is an economy killer, and no small number of Democrats lost their seats in midterms for supporting it. Few in the party want to take it up again, and House Republicans won’t let it pass. Mr. Obama would be crazy to continue calling for it.

Mrs. Browner, for her part, had become a political liability. As czar, she’s had sweeping control over administration policy—all of it unaccountable. This worked under a Democratic Congress, but House Republicans had made clear they intended to call her to testify. This had the makings of an ugly fight over executive privilege and would have forced the White House to defend a lack of transparency. Better to let the lightning rod go.

But Mr. Obama has no intention of letting go of his carbon-free world. He instead went to plan B. Specifically, he called in his speech for the nation to “join” him in a “new goal: by 2035, 80% of America’s electricity will come from clean energy sources.” What the president was in essence calling for—in happier, fuzzier, broader language—is what policy wonks refer to as a “renewable portfolio standard.” This is a government mandate requiring that utilities produce annually a specific amount of their electricity from renewable sources—wind, solar, biofuels.

It’s also cap and trade by another name. Consider: The goal of cap and trade is to impose crushing taxes on fossil fuels—oil, coal, natural gas—thereby forcing utilities to switch to costly renewables. Under Mr. Obama’s new proposal, the government skips the tax part and outright requires the use of costly renewables. The result is the same: dramatically higher energy prices, from carbon-free sources. Now you know why even climate warrior John Kerry was so sanguine about the president’s failure to say “climate change” in his speech. “I’m very sympathetic,” said the Massachusetts senator, who clearly got the strategy memo.

Many Republicans understand the situation. Michigan Rep. Fred Upton, chair of House Energy and Commerce, put out a statement following the speech that insisted “the answer is not to hyper-subsidize preferred industries or to force consumers and job creators to purchase energy they can’t afford.” Reached on the phone, Mr. Upton elaborated, telling me the president’s remarks “smell like cap and trade all over again.” He noted that 28 states already have their own renewable standards and so “why have a federal mandate?”

Then again, some Republicans—the self-styled energy progressives—have let it be known they’d be open to a new government diktat, if only the price is right. South Carolina Sen. Lindsey Graham has noodled with legislation to require an energy standard that includes nuclear energy (like that produced in his home state) along with renewables. Indiana Sen. Dick Lugar has floated what he calls a “diverse” energy standard that would mandate renewables, nuclear and . . . coal with carbon sequestration. (Indiana relies on coal.)

This is why Mr. Obama took care in his speech to refer broadly to a “clean energy” standard and make clear he was open to including in it “nuclear” and “clean coal”—along with renewables. He’ll lure Republicans into negotiations, then cement their support with lavish energy pork for their home-state nuclear, clean-coal, wind, biofuels and solar projects. As a bonus, the plan gives cover to nervous coal state Democrats.

What the White House also knows—as do most sensible people—is that these promises mean little. The president has made grand nuclear gestures, but his regulators continue to sit on projects. Clean coal remains a pipe dream. Here’s to betting that if and when the president’s “clean energy” standard kicks in, the only mandated sources utilities have to choose from are wind, solar and biofuels.

The GOP has spent some long, sometimes uncomfortable, years explaining the perils of cap and trade. Yet they risk getting the same policy, all because they’ve yet to find the moxy to resist the “clean energy” drumbeat.

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By Kathrine Schmidt

HOUMA – The federal government has yet to own up to failures in its

own planning and poor coordination during the oil spill last year, Plaquemines Parish President Billy Nungesser said Wednesday in Houma.

Nungesser, elected to office in Plaquemines just after Hurricane Katrina, became something of a national spokesperson for coastal states impacted by the spill following the explosion of the Deepwater Horizon oil rig April 20. He blasted federal response officials for failing to get parishes the needed support to keep the oil out of the delicate marshes and away from wildlife.

“I lose my temper sometimes. I wear my emotions on my sleeve,” Nungesser told the Houma Rotary Club members and their guests over lunch. “But I can’t stand for people to lie, cover up or give excuses for something.”

He visited as the guest speaker of the Rotary Club and by request of Terrebonne Parish President Michel Claudet.

“Billy certainly has lived the oil spill, has been the voice of the oil spill,” Claudet said after the talk. “We appreciate him taking time out of his busy schedule.”

There were the unfulfilled requests for boom. There were officials who refused to let locals pitch in and help. There were incomplete plans, crossed wires and broken promises. That extends to birds who are still dying in the coastal areas of Plaquemines after being exposed to residual oil caught in the marshes, Nungesser said.

Nungesser said he never saw these kinds of lapses in communication acknowledged in the Oil Spill Commission’s report to President Obama and no mention of the ongoing issue in the president’s State of the Union Address Tuesday night.

“We can hold them accountable and change a system that doesn’t work,”

he said. “Still today, I can’t tell you who’s in charge. There’s no

sense of urgency.”

Nungesser has his share of experience with the oil industry, he told the group. His father ran an offshore-catering business, so he sometimes got sent offshore when a cook didn’t show up for work. Later, he made his name as a businessman building offshore living quarters.

He remembers the disagreements out on the rig, probably not unlike the disputes said to have occurred before the Deepwater Horizon explosion, he said. Sometimes those fights, which nearly came to blows, were over money or over time, but sometimes it was so the rig could finish its job so everyone could get home for Christmas, he said.

He believes that independent inspectors on those rigs would help diffuse those kind of situations, he said. “There’s a code of silence in the industry,” he said. “It’ll make them do a better job.”

That said, safety measures shouldn’t be an excuse just to shut down drilling. But he’s concerned that the safety measures being contemplated will be too bureaucratic and be crafted by those who lack practical experience.

“I told the president, ‘You want us to paint the rigs yellow, give me the paint,’ ” he said. “But don’t shut us down.”

Fines assessed on BP as a result of the spill will likely represent an unprecedented opportunity to address the coastal-restoration issues that have long plagued the parishes. But that money must be used wisely because an opportunity like it is unlikely to come along again, he said.

He’s doing his best to bring the messages of the coastal parishes to higher voices in Washington. But if he doesn’t see the change he seeks happening, he said he might try for a higher office.

“I’d consider it,” he said. “I’m not going to rule it out.”

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By AMY WOLD

Four Louisiana congressmen have signed on to support proposed legislation to prevent the U.S. Environmental Protection Agency from regulating greenhouse gases as a pollution.

Reps. Rodney Alexander, R-Quitman; Charles Boustany, R-Lafayette; John Fleming, R-Minden; and Steve J. Scalise, R-Metairie, have signed on to HR 97 — also called the Free Industry Act.

This act would amend the Clean Air Act and exclude greenhouse gases such as carbon dioxide from the definition of air pollution.

Currently, EPA considers greenhouse gas as a pollutant that falls under the Clean Air Act and as such can be a regulated air emission.

“Our elected officials should hold big polluters accountable,” said Dan Lashoff, director of the Climate Center with Natural Resources Defense Council, during a news conference Thursday.

However, 123  House members from 35 states have already signed on to co-sponsor legislation to limit EPA’s ability to regulate greenhouse gas emissions, he said.

According to the council, more carbon dioxide pollution “increases the risk of heat stress, promotes the spread of infectious diseases and makes it more difficult to reduce smog pollution.”

Not regulating greenhouse gases will have a health impact on people living in the United States and that should be a large consideration for lawmakers, said Brenda Afzal, a nurse and Climate Policy Coordinator with the international Health Care Without Harm organization.

“Some members of Congress want to turn the clock back on air quality,” she said.

However, congressmen disagree.

“This bill will prevent the EPA from sneaking through a backdoor ‘cap and trade’ energy tax that will run millions more jobs out of our country and jeopardize America’s energy security,” Scalise said in a statement.

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By Ken Cohen

Want to know how much energy the world will need over the next couple of decades and where it will come from?

Take a look at ExxonMobil’s newly released Outlook for Energy. There, you’ll find that growing populations, coupled with economic and social progress, mean the world is going to need more energy by the year 2030. And we’ll need a diverse mix of affordable energy sources to meet this demand.

Released today, our Outlook found that the world’s single largest energy source through 2030 will continue to be oil because of its importance as a transportation fuel, which will be especially in demand in fast-developing economies worldwide. But overtaking coal for the No. 2 spot in the world’s energy lineup is a cleaner-burning fuel that can help meet the world’s enormous power generation needs: natural gas.

Natural gas is abundant, affordable, versatile and can reduce CO2 emissions by up to 60 percent compared to coal when used to generate electricity. Because of these qualities, natural gas will be the fastest-growing major fuel through 2030, as worldwide demand increases by more than 60 percent from 2005.

This development is just one of the significant shifts forecast in the new report. Built upon public and proprietary data for more than 100 countries, the Outlook helps guide ExxonMobil’s global investment decisions. It is, in effect, the foundation for our playbook. So why share it publicly? Because we believe that everyone benefits when consumers and policymakers are well-informed about energy and environmental challenges and options.

Here are just a few more of the report’s key findings:

•    By 2030, global energy demand will be about 35 percent higher than it was in 2005. Growth will be led by China, India and other fast-developing countries, where rapid economic progress and rising living standards are fueling big increases in energy usage.

•    U.S. energy demand will hold steady through 2030, as it will in many mature economies, where relatively slower growth in energy needs can be offset by ongoing improvements to efficiency.

•    Power generation will be the largest and fastest-growing global demand sector. By 2030, power generation will account for more than 40 percent of all energy demand.

•    In the U.S. and other mature economies, CO2 emissions will decline significantly through 2030, while rising energy demand in fast-developing economies will push global emissions up by about 25 percent.

With just these few key facts, you can see the challenges ahead. Growing economies need more energy, including electricity. We must meet this rising demand safely and with minimal impact on the environment. As our Outlook shows, technology has proven to be one of the best means to manage these challenges.

Natural gas is a perfect example. In just the past few years, advances in “unconventional” gas-production technologies have, for the first time, made it economically feasible to tap the enormous supplies of natural gas that are found in tight rock and shale, as well as coal bed methane.

The result is nothing short of revolutionary. A generation ago, unconventional natural gas production was not economically possible. Today, it’s the fastest-growing major energy source on the planet. And by 2030, the world’s unconventional gas production will be nearly one and a half times greater than the oil output of Saudi Arabia.

Meeting our energy and environmental challenges will not be easy. It will require pursuing a diverse mix of economic energy sources, plus continued progress on efficiency. Critically important will be stable, predictable regulatory frameworks that allow for long-term investment in the technology and infrastructure needed to develop the energy that will be required to meet growing demand.

I encourage you to visit our Outlook for Energy website where you can view and download our latest report, and I’d welcome any feedback and questions you might have.

Ken Cohen is Vice President of Public and Government Affairs at Exxon Mobil Corporation.

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Louisiana lawmakers had hoped President Barack Obama would devote part of his State of the Union address to the need for increased Gulf energy production. They were disappointed.

Here’s the extent of the president’s focus on that subject:  “With more research and incentives, we can break our dependence on oil with biofuels, and become the first country to have 1 million electric vehicles on the road by 2015.

“We need to get behind this innovation. And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. …

“Tonight, I challenge you to join me in setting a new goal: by 2035, 80 percent of America’s electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal, and natural gas. To meet this goal, we will need them all — and I urge Democrats and Republicans to work together to make it happen.”

Once more, President Obama has chosen not to engage our lawmakers and the energy industry on a key question: Are federal regulators deliberately delaying shallow, as well as deepwater, exploration and drilling permits in pursuit of an environmental agenda? For the sake of an industry that employs 50,000 people across Louisiana, and 14,000 in Lafayette and St. Martin alone, we need clearer answers than we’re getting.

On the question of oil, we all recognize, even in energy-dependent Louisiana, that oil will become too scarce at some future point to support our energy economy as it now exists.

Biofuels and electric cars are great. We’re all for them. But for the foreseeable future, the economy that must make those research and technology breakthroughs possible depends on our oil supply. Using the tax code to punish companies for exploration is not a good way to fund our path to a carbon-conscious energy future.  It may be, as the president hinted, that he is disposed more kindly toward natural gas, which burns more cleanly and, thanks to new technology, can be produced in states like Pennsylvania that are disposed more kindly toward President Obama’s policies. But — we don’t know if he’s noticed — the Environmental Protection Agency is scrutinizing the “fracking” process that makes that new inland natural gas production possible. It’s time for the federal government to recognize the vital role that Gulf energy production continues to play in the nation’s well-being.

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NEW ORLEANS — U.S. Sen. Mary Landrieu again is urging the Obama

administration to issue deepwater drilling permits.

The Louisiana Democrat called on the administration to approve new permits at a Senate Energy Committee meeting Wednesday. Landrieu says that deepwater drilling has been “virtually shut down” since the Deepwater Horizon oil rig explosion last April. She says drilling can be done safely.

She says five deepwater platforms in the Gulf have left to drill in other parts of the world, costing the Gulf Coast about 5,000 jobs.

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