(The Wall Street Journal via Dow Jones Newswires), May 23, 2008
Mounting concerns about global energy supply are fueling a drive by the oil industry and some U.S. lawmakers to end longstanding bans on domestic drilling put in place to protect environmentally sensitive areas.
Increasing U.S. oil production would require overturning decades-old moratoriums that limit offshore drilling and accelerating leasing of federal lands, moves that would trigger a swift and vigorous political backlash. Still, as gasoline prices continue to climb and squeeze household budgets, the momentum appears to be gaining to open up new areas.
Oil prices have soared 36% this year, though the price of a barrel of crude for July delivery settled at $130.81 on the Nymex on Thursday, down 1.8% from its record close Wednesday.
"These prices are making voters realize we need to produce [more] energy" domestically, said Rep. John Peterson, a Republican from Pennsylvania who is pushing legislation to open up new offshore areas for energy exploration. The U.S. imports two-thirds of its oil, though less than one-sixth of its natural gas, according to federal data. The rest is produced domestically.
A century and a half after oil production began, there is ample evidence that a lot of oil -- and natural gas -- remains to be found in the U.S. and its territorial waters. Some of those areas are wide open to oil companies, including most of the Gulf of Mexico where deep-water floating rigs now routinely drill wells hundreds of miles from shore. Even in the gulf, areas are off limits, including most of the waters off the Florida coast. The entire East and West Coasts are off limits for new drilling.
Last week, Exxon Mobil Corp. Chief Executive Rex Tillerson chided President Bush for asking Saudi Arabia to boost its production, while not doing more to increase production at home in the U.S., particularly off the coasts of Florida and California.
"There is no question in my mind that there is significant conventional resources available," Mr. Tillerson said in an interview last week. "If you are looking for larger fields, they will probably be found in the offshore areas that are currently off limits."
Those offshore areas are closed to exploration and drilling under congressional moratoriums and presidential executive orders that command broad support among elected officials in the politically powerful states of California and Florida. Opening these areas up could prove nettlesome.
Little data exist about how much oil and gas might be found under the waters now closed for exploration. Federal agencies are prevented from doing rudimentary geological surveys in most areas to pinpoint areas of interest. The last time the industry shot seismic imagery was in the 1970s when this widely used search technology was in its infancy.
Other promising areas onshore also are off-limits. In a report last week, the federal Bureau of Land Management stated that at current U.S. consumption levels there are four years worth of oil and 10 years worth of natural gas under federal lands. However, more than 90% of that energy was under lands either closed to development or open with significant environmental restrictions. The federal Minerals Management Service said an additional three years worth of oil and gas is in offshore areas where drilling isn't allowed.
"People have no idea what kind of resources might be out here," said Duane Zavadil, vice president for government and regulatory affairs for Rocky Mountains producer Bill Barrett Corp. He said his company could double or triple its production growth if regulatory hurdles were relaxed.
Critics of the land management bureau's report -- including some Democratic congressional leaders -- argue that it gives a false impression that more drilling will lead to lower gasoline prices. They note that drilling on federal lands has increased steadily during the Bush administration, even as gas prices have risen.
"We simply cannot drill our way to lower prices at the pump," Rep. Nick Rahall (D., W.Va.), chairman of the House Natural Resources Committee, said in a written statement.
Environmental critics contend that new gas drilling in the Rockies requires densely packed wells, turning natural vistas into industrial landscapes. But others respond new horizontal wells allow the industry to drill a cluster of wells in a single spot to drain a large area, minimizing the area affected.
"It's undeniable the environmental impact is far less now than it was 25 or 30 years ago. The footprint is something like one-tenth what it used to be," said Kurt Gibson, deputy director of the oil-and-gas division of Alaska's Department of Natural Resources.
Examples exist of environmental groups and the industry finding middle ground to pave the way for exploration. In April, a consortium of environmental groups agreed to drop opposition to an oil development that would drill wells beneath waters off Santa Barbara, Calif., in exchange for several concessions from the oil company, including a promise to conclude production by 2023.
New drilling techniques also are driving production in places such as North Dakota's Bakken field, which the federal government estimated in 1995 held 150 million barrels. This year, an updated assessment put the figure at 3.65 billion barrels, said Brenda Pierce, coordinator of the U.S. Geological Survey's Energy Resources Program. "We have the potential to grow production," she said. "We just have to weigh it against all the consequences."
In Washington, Republican lawmakers and oil-industry lobbyists are arguing that opening restricted areas would boost supply and bring down oil prices. Critics contend not enough is being done to encourage alternative fuels and development of already-leased federal lands. Of the more than 45.5 million acres of federal land under lease, oil companies aren't producing oil or gas on 31 million acres.
"Why would we expect oil and gas companies to rush these new areas into production, when they are sitting on literally millions and millions of acres of existing leases without carrying out any production on them?" said Sen. Jeff Bingaman (D., N.M.).
This snail's pace is leading some to try to wrest back existing leases. Alaskan officials are locked in a legal battle with Exxon, BP PLC and Chevron Corp. to reclaim leases on a North Slope oil-and-gas field that is estimated to hold eight trillion cubic feet of natural gas and hundreds of millions of barrels of oil. The companies acquired the leases decades ago but have yet to produce oil or gas. Exxon, which holds the largest interest in the field, has said in the past that it hasn't drilled because there is no pipeline to move the gas to market.
Copyright (c) 2008 Dow Jones & Company, Inc.
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