President Obama Wednesday defended his energy policy from the ongoing attacks of industry and Republicans on Capitol Hill, and championed natural gas as a new source of energy. The threat of a cut in oil imports due to the political implosions of a number of Middle Eastern countries has added fuel to the verbal battle between the administration and the oil and gas industry over the de facto moratorium on Gulf of Mexico (GOM) drilling.

Speaking at Georgetown University in Washington, DC, the president disputed claims that his administration was discouraging offshore oil and natural gas production by working at a snail's pace to issue new permitting, and closing off offshore frontiers to oil and gas development. He also accused the industry of sitting on millions of acres of leases.

The key to the administration's blueprint for a secure energy future is reducing the nation's dependence on crude oil. The administration wants to cut the country's oil import dependency by one-third in a little more than a decade.

"In terms of [developing] new sources of energy, we have a few different options. The first is natural gas. Recent innovations have given us the opportunity to tap large reserves, perhaps a century's worth of the shale under our feet. [But] we've got to make sure that we're extracting natural gas safely without polluting our water supply," Obama told the packed audience,. which included several Cabinet members and university students.

"That's why I've asked [Energy Secretary Steven] Chu to work with other agencies, the natural gas industry, states and environmental experts to improve the safety" of hydraulic fracturing (fracking), he said.

Obama said "the potential for natural gas is enormous. And this is an area where there's actually been some broad bipartisan agreement" in Washington. He noted that last year more than 150 members of Congress from both sides of the aisle offered legislation to provide incentives for natural gas vehicles.

As the president spoke Wednesday the Environmental Protection Agency released a final rule easing the vehicle conversion process for alternative fuels including compressed natural gas (CNG). Also, stocks of natural gas-weighted production companies jumped, mostly on the order of 1-3%, but with some pure plays such as Range Resources, Cabot Oil and Gas and Petrohawk going up 4-5%.

The mention of natural gas as a key plank in his energy policy was championed by two gas trade groups -- America's Natural Gas Alliance (ANGA), which represents independent gas producers, and the American Gas Association (AGA), which represents gas utilities. "We were pleased that President Obama highlighted the 'enormous' potential natural gas offers for our transportation and power sectors," said ANGA Executive Vice President Tom Amontree.

"We at AGA applaud his commitment to reduce American consumption of foreign supplies of oil by increasing the role natural gas, renewable energy and emerging technologies can play," said AGA President Dave McCurdy.

Don Santa, CEO of the Interstate Natural Gas Association of America, applauded Obama for recognizing the important role natural gas will play in the nation's energy future as well as the resource's ability to decrease dependence on foreign energy sources. "In fact, when it comes to natural gas, the United States already has achieved near energy independence, with 98% of gas supplies coming from either the United States or Canada." he said. “Moving forward, it's about more than just promoting natural gas vehicles, although that is a worthy effort. It's also about converting more of our power generation to reliable, clean-burning natural gas to help reach the president's goals.”

Oil and gas billionaire T. Boone Pickens, who was "encouraged" by Obama's speech, predicted Wednesday that the New Alternative Transportation to Give Americans Solutions Act -- known as the NAT GAS Act -- would pass Congress with strong bipartisan support and be signed by Obama by the end of the year, adding that opposition to hydraulic fracturing by some environmental groups would not be a roadblock (see related story).

The Pickens Plan, which encourages more heavy duty fleet vehicles to run on domestic resources, is included in the NAT GAS Act, which is being prepared for introduction next week in the U.S. House of Representatives by Congressman John Sullivan (R-OK), Congressman Dan Boren (D-OK), Congressman John Larson (D-CT) and Congressman Kevin Brady (R-TX).

And to further "keep reducing that reliance on [oil] imports, my administration is encouraging offshore oil production and exploration as long as it's safe and responsible," the president said. "Lately we've been hearing folks say, 'Well the Obama administration [has] put restrictions on how oil companies operate [in the] offshore.' Well, yes, because we spent all that time, energy and money trying to clean up a big mess. I don't know about you, but I don't have amnesia" when it comes to the explosion aboard the Deepwater Horizon rig and subsequent oil spill, he noted (see Daily GPI, April 22, 2010).

"Today we're working to expedite new drilling permits for companies that meet these higher [safety] standards," Obama said. So far he reported that his administration has issued 39 permits for drilling in the shallow waters in the GOM and seven new permits for drilling in the deepwater Gulf. The latest (seventh) deepwater permit was approved Wednesday for Shell Offshore to drill a a new well.

The Macondo well blowout that resulted in the Deepwater Horizon rig explosion and subsequent halt to drilling occurred nearly a year ago. Only in the last month has the Interior Department sanctioned a restart of activity in the Gulf (see Daily GPI, March 1).

'If you're going to drill offshore, you got to have a [containment] plan to make sure we don't have the kind of catastrophe that we had last year," Obama cautioned.

"Moreover, we're actually pushing the oil industry to take advantage of the opportunities that they've already got. Right now the industry holds tens of millions of acres of leases where they're not producing a single drop. They're just sitting on supplies of American energy that are ready to be tapped. That's why part of our plan is to provide new and better incentives that promote rapid, responsible development of these resources," he said.

"For its offshore leasing program, [Interior] has already begun to employ incentives, including the shortening of some lease terms, to encourage earlier development, and requiring drilling to begin before an extension can be granted on a lease. [Interior] is also evaluating the potential use of graduated royalty rate structures, such as those adopted by the state of Texas, to encourage more rapid production," the White House said.

The announcement of the incentives comes one day after Interior released a report, which was ordered by Obama, that showed about 70% of the undiscovered technically recoverable resources currently under lease in all areas of the federal GOM are not producing or not subject to approved or pending exploration/development plans (see Daily GPI, March 30). For onshore leases, the review found that approximately 45% of all leases on federal land and about 57% of all leased acres were inactive as of March 14.

In addition to the incentives to promote more production, "we're also exploring and assessing new frontiers for [offshore] oil and gas development from Alaska to Mid- and South Atlantic states," Obama said.

The industry immediately fired back at the White House leasing statements. "The administration is again blaming oil and natural gas companies for failing to produce on federal lands, yet it is the very same administration that is throwing up new obstacles to development," said Kathleen Sgamma, director of government and public affairs for the Western Energy Alliance, which represents independent producers in the West.

"The truth is that companies are doing all they can to develop federal energy resources, but a lease is not a green light to drill -- it's the first step in a long, expensive process that is fraught with bureaucratic red tape and lawsuits by environmental groups determined to stop domestic energy development," she said.

"It's a paradoxical situation in which the government has created a cumbersome process that takes years to complete, environmental groups throw up legal roadblocks at every stage, and then the government and environmental lobby turn around and blame the industry for not 'diligently developing.'"

According to Sgamma, "an oil and natural gas lease is no more than a definite maybe -- maybe you'll get through all the environmental analyses and regulatory hurdles, maybe you'll get permission to drill, maybe your project won't be held up by legal challenges from obstructionist groups, [and] maybe you'll find oil or natural gas.

"If the president is really concerned about undeveloped leases and domestic energy production, he would direct the Department of Interior to roll back some of the eight layers of analysis and regulation now imposed on western energy producers."

The report "sadly perpetuates the misguided charge that the oil and gas industry is not developing its existing leases," according to ExxonMobil's Perspectives Blog. "For the record, ExxonMobil is actively producing or working 93% of its federal leases. Of the remaining 7% that are currently inactive, the majority of those leases expire this year and will be returned to the U.S. government," it said.

ExxonMobil took issue with the report's definition of an inactive lease or nonproducing leased areas, which Interior said could include areas that may be subject to certain "ancillary activities" such as geophysical and geotechnical analysis, including seismic and other types of surveys.

"Did they just call a seismic survey -- one of the most fundamental activities of finding oil and natural gas -- ancillary?...Yes, they did. And that proves my point. You don't have to be an industry expert to know that seismic surveys -- along with a whole host of other activities -- are among the most essential activities in oil and gas exploration, and anything but a sign of 'inactivity,'" according to the ExxonMobil blog.

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