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Gas Industry's Complaints About Drilling Downturn Challenged

The Wilderness Society, in a policy brief issued last week, said the natural gas industry has unfairly blamed the Obama administration for the downturn in drilling activity on public land.

The report, written by Michelle Haefele, Dave Alberswerth and Jyhjong Hwang, is based on a position paper published last November by the Independent Petroleum Association of Mountain States (IPAMS). The IPAMS position paper said the Department of Interior (DOI) under Secretary Ken Salazar had implemented oil and natural gas policies that "severely impacted project environmental analyses, permitting and lease issuance in some states" resulting in "less American energy, less economic activity and fewer jobs for Intermountain West states."

Dan Naatz, vice president of federal resources for IPAMS, spoke about the DOI's policies in an interview with NGI last year (see NGI, Nov. 30, 2009).

However, the IPAMS conclusions were based on a skewed set of facts, The Wilderness Society's report stated.

"Though natural gas drilling throughout the U.S. dropped significantly in 2008 (during the Bush administration), observations by industry experts within and outside of the gas industry tell a very different story on why investments in natural gas exploration and development projects have dropped off, and belie the industry's public claims faulting Obama administration oil and gas policies," the authors said.

"Industry experts point to one obvious factor: plummeting natural gas prices," said the trio. The decrease in gas development "in the past year is wholly unrelated to the availability of federal land for development or to regulatory frameworks that apply to federal lands. As in most economic endeavors, price is the relevant factor in drilling activities."

The authors cited energy industry experts to make their point.

"Within the industry, experts argue that the only way for natural gas prices to rebound is to reduce production," the report stated. However, "Art Gelber, the president of Gelber and Associates, a natural gas consulting firm in Houston, points out: 'The battle between pricing signals and the propensity to want to drill in a low-price environment will keep the exploitation of these shale gas reserves at a relative low rate. It's only when prices are up that drillers will drill more aggressively.'"

Kenneth Medlock, an energy fellow at the Baker Institute at Rice University in Houston, also was cited. "Not until you start shutting in wells that are part of a long-term drilling program will you really see significant reductions in supply," Medlock said.

Even comments by a staff member of the American Petroleum Institute were cited by the authors. "Hazem Arafa of the American Petroleum Institute commented in July 2009: 'The U.S. drilling decline that began last quarter in connection with the current downturn in economic activity has continued in earnest in the second quarter of 2009 as companies proceed with caution in an uncertain year.'"

Industry groups also are protesting the limited availability of federal lands open to drilling, but data show most public lands under lease aren't even being used, according to The Wilderness Society.

"Of the 45,365,693 federal onshore acres under lease in 2009, only 12,842,209 acres, or less than 30% of the total leased lands, were in production," the report stated. "In other words, the industry has tens of millions of acres of leased federal lands -- an area the size of the state of Wisconsin -- that it has not developed."

In response, IPAMS said the environmental group had "missed the point of the 2009 report" because policies enacted now will have a lasting effect on gas and oil production.

"Drilling is down because of the economy. I don't think anyone denies that," IPAMS' Kathleen Sgamma, director of government affairs, told reporters. "As the economy recovers, these policies will affect companies two or three years out and slow the recovery of the West."

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