On the second leg of a four-city tour to hear from stakeholders as an Outer Continental Shelf (OCS) energy policy is crafted, Interior Secretary Ken Salazar Wednesday faced a crowd in New Orleans that was decidedly more friendly to oil and natural gas. Gulf Coast congressional members and industry representatives said the Obama administration’s plans to move toward renewables is a solid idea, but conventional gas and oil production remains paramount to domestic energy security.

Salazar in February scheduled four public hearings across the country to discuss OCS energy development after placing a hold on a new five-year OCS plan (2010-2015) that was issued in the final days of the Bush administration (see Daily GPI, Feb. 11). The first hearing, held Monday in New Jersey, was contentious — many of the stakeholders said they favor renewable energy development offshore, but oppose any gas and oil drilling in East Coast waters (see Daily GPI, April 7).

Several people on Wednesday also voiced their concerns about expanding OCS energy development along the Gulf Coast, particularly proposals to open portions of the eastern Gulf of Mexico (GOM) to drilling. However, those comments were tempered by a healthy contingent from the pro-drilling sector, especially industry representatives and congressional members representing the Gulf Coast states — Texas, Louisiana, Alabama and Mississippi. Salazar remained neutral through most of the morning testimony, taking notes and asking questions. And he attempted to make clear that the Department of Interior’s goal is not to expand alternative energy resources at the expense of the vast supply of domestic fossil fuels available, especially natural gas and coal.

“As the oil and gas industry has moved forward, technology continues to advance,” Salazar said. “Directional drilling is more safe than it was 30 years ago. Efficiency, advanced technology…those agendas are important to us.” The financial commitments made by producers to develop conventional resources are notable, he said. “We depend on conventional fuels, and we need strong economics and a strong energy policy. Here, oil and gas are part of America. We cannot shut down that part of the energy world…this is part of the critical agenda facing all of us.”

Going forward, he said, conventional fuels and alternative development of the OCS will be a “significant component” of the nation’s future energy plan.

“Some have said we are at war with the oil and gas industry…I would beg to differ,” Salazar said. “Yes, we want a balanced approach to how we develop oil and gas. In some places we don’t feel it is appropriate to drill…On the other hand, we are moving forward with our production agenda. Since Jan. 21 [the day after Obama took office], we have offered 987 lease parcels on 1.3 million acres for sale…and on the Gulf Coast, I participated two weeks ago to help lease 34 million acres in [Central GOM] Lease Sale 208” (see Daily GPI, March 19).

Louisiana’s Democratic Sen. Mary Landrieu told Salazar that she shared the administration’s “vision for energy security for our country. I would like to achieve energy independence, and I think we can achieve energy security…” However, the domestic energy industry has to be supported as alternative energies are pursued. “The industry has changed, and it has rapidly become more environmentally sensitive.”

Landrieu said she toured the “front line” of several independent producers in Louisiana in the past few days and found many of them operating “more like the space industry than the old-fashioned rigs and derricks people are familiar with…The breadth and depth of this technology to find resources 10,000 feet below the water level and to find it safely and securely is truly breathtaking…

“So I come here today to plead and urge you to look very hard at promised tax changes that would diminish the muscle and the power of this industry.” Now is not the time to take away drilling and development tax incentives, she said.

“There are large differences between large, integrated oil and gas producers and our…thousands of independent production companies,” Landrieu told Salazar. “The large production companies that we are familiar with, they raise capital through public offerings spreading the risk among many…The independents…have direct investment by the owners, who use their personal money to take risks, and the result is that the personal risks are far larger…The small independents employ a large amount of people and they reinvest 100% of their money right here in America, As we search for security independence, we need to support the industry…”

Louisiana Rep. Charles Boustany said it “disturbed” him that more taxes might be imposed on the energy industry “at a time when the industry’s needs are important…The bottom line is, this is about jobs. We have tens of thousands of jobs involved in the energy industry along the Gulf Coast. We’re not talking about just killing exploration and production jobs, but we’re also talking about welders, pipe fitters, painters…blue collar jobs and white collar jobs in the face of the worst recession that we have ever had.”

Michael Willis, COO of privately held Century Exploration, which is based in Louisiana, said more taxes could doom many of the small producers.

“We rely on cash flow in order to drill wells,” Willis said. “We don’t have access to public funds. If we have these increased tax burdens put on us, we won’t have enough capital to replace our reserves and keep our business viable. We have bank debt and we have to meet our obligations to bankers, and to the extent that we can’t replace our reserves, the banks can come to us and tell us to give the money back…When oil is at $140, you can’t go wrong…When gas is at $9-10, we can’t go wrong. But when gas falls to $3-4 in just a short space of time, it’s of particular concern to us.” Century Exploration has 50 employees, but it creates “1,000 jobs when we have three to four rigs running and producing gas and oil.”

Some speakers were wary of producers having less access to the OCS. Although Louisiana accounts for only 13% of the total net exports of the energy-producing states, “almost 77% of the natural gas consumed in Louisiana is for industrial consumption,” said Virginia Sawyer, vice president of the Louisiana Association of Business & Industry. Louisiana’s 154,000 manufacturing jobs depend on oil and gas access in the OCS, she said.

The potential for generating electricity from alternative energy sources “does not mean that federal policy should focus solely on electricity generation at the expense of carbon-based energy,” Sawyer said. “While tens of thousands of jobs may be created by the development of alternative electricity sources, hundreds of thousands of jobs in Louisiana and along the Gulf Coast will be negatively affected if OCS oil and gas production is not aggressively continued. Orderly development of energy should be as fuel-neutral as possible.”

A third hearing by the Interior Department is scheduled for next Wednesday in Anchorage, AK, and the final meeting is planned the day after in San Francisco. In addition to the public hearings, MMS will accept comments about offshore energy development in the OCS until Sept. 23.

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