April 19, 2010
Natural gas has been riding high ever since the most recent estimates say that it can feed the country's electric generators for another 100 years. But it got an even bigger boost when President Obama vowed to end a two-decade long ban on drilling throughout much of the Outer Continental Shelf.
The proposal is part political and part economic. The administration came to office on the promise that the offshore energy reserves would play a part in the country's energy picture but that the oil and gas found there would be sensible -- not a pedal to the metal strategy. As such, it reasons that the newfound supplies could held erode the country's dependence on foreign sources as well as raise money from offshore leases.
The policy shift is also meant to appease Republicans and moderate Democrats in an attempt to get them to support a measured approach to curbing carbon emissions. Interestingly, the president made this proposal before he had extracted any favors from those who may be amenable to backing a new carbon policy. It's all an attempt to mend fences with the opposition party while simultaneously pushing through practical policies that can affect real lives.
"This announcement is part of a broader strategy that will move us from an economy that runs on fossil fuels and foreign oil to one that relies more on homegrown fuels and clean energy," says President Obama. "The answer is not drilling everywhere all the time."
According to numbers cited by the National Association of Manufacturers, the Outer Continental Shelf contains enough natural gas to heat more than 100 million homes for 60 years while also providing fuel and feedstock to its members. It also says that as many as 3.5 million new jobs will result.
While the manufacturers' group says that the offshore areas contain 420 trillion cubic feet of natural gas, the U.S. Geological Survey estimates about 37 trillion cubic feet in the Atlantic and another 18 trillion cubic feet in the Pacific. The preponderance of the rest would come from the gas-rich Gulf of Mexico.
Altogether, the Obama proposal would eventually open up two-thirds of the Gulf while allowing drilling in most areas in the Atlantic that are south of New Jersey. That is roughly 167 million acres of ocean. It would also permit discovery in Alaska's Arctic and specifically in the Beaufort and Chukchi seas. While those leases in the Arctic would be assigned by 2013 and total about 130 million acres, the Bristol Bay would be protected. The Florida coastline, which draws tourists, would be insulated for up to 125 miles.
"These energy-rich areas can and should be explored in order to steer us away from foreign resources and to help keep costs down for American consumers," says the American Gas Association.
Long Term Strategy
While the president has sought to draw political moderates into the fold, he now runs the risks of alienating the base of his party. But it's a calculation that he is willing to make as most liberals realize that the best shot of enacting carbon limits is now and with Obama.
Green groups respond that clean air and water is a public right and allowing additional drilling on federally controlled property would assuredly leave an indelible footprint. In terms of offshore drilling, they point out that 191,000 barrels of oil have found their way into the Gulf of Mexico by way of damaged pipelines and hurricane-torn oil facilities. Because natural gas domestic property is limited, such groups maintain that policymakers ought to pursue a sustainable energy strategy.
"Drilling our coasts will doing nothing to lower gas prices or create energy independence," says Michael Brune, executive director of the Sierra Club. "It will only jeopardize beaches, marine life and coastal tourist economies, all so the oil industry can make a short-term profit."
True, any new supplies would take time to develop and to bring to market. The administration plans to devote several years to performing the necessary environmental and geological tests along the Atlantic coastline. The earliest any new leases would be up for sale is 2012, although the state of Virginia had one in the works before Obama's announcement.
Perhaps even more daunting is the fact that the demand for natural gas has been down and therefore has dampened such prices. Prices 18 months ago were close to $14 per million BTUs but today they are around $4.5 for the same unit. Given the high cost of exploration along with the risk of dry holes, some producers may opt out for now.
Needless-to-say, proponents of newfound drilling rights say that it is a long-term strategy that would avail millions of new acres to development. And short term, it will also have a psychological affect and help to dent the leverage that foreign producers now have.
In 2008, President George W. Bush lifted the moratorium on gas drilling along the Atlantic and Pacific shores after it had been established more than 20 years earlier. But the policy was simply too contentious, forcing President Obama to sideline the idea until he could study it further. As promised, the current administration released a more tempered proposal -- one that specifically moderates that of his predecessor and cuts out Alaska's Bristol Bay.
The president is taking a middle ground, ignoring the calls to drill at anytime and at anyplace. Instead, he is opting for a policy that will optimize the use of natural gas while the country makes increasing investments in sustainable energy. It's a practical approach and a concession made just ahead of releasing a new carbon strategy. It's all a risk, particularly Obama's quest to expand the political base so as to advance his agenda.
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Ken Silverstein EnergyBiz Insider Editor-in-Chief
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