Surrounded by disruptions of the Middle East oil supply and nuclear devastation in Japan, President Obama finally recognized the virtues of home-grown natural gas last week, labeling it “first” among the options available to shore up U.S. energy policy.

But, they are somewhat dubious virtues, the president indicated, calling on three government agencies to join in launching a quickie study of hydraulic fracturing of gas shale. And, he continued his administration’s bitter feud with the oil and gas industry, most recently over the drilling moratorium in the Gulf of Mexico and claims of idle leases held by oil companies.

At the same time, as the leader of a nation with rapidly deteriorating energy options, President Obama for the first time embraced natural gas in a major way, in particular commending legislation to further natural gas-powered vehicles.

And as the president outlined his revised energy policy last week in a speech at Georgetown University, the Environmental Protection Agency (EPA) was issuing a final rule easing the way for conversion of older vehicles to alternate fuels, including compressed natural gas (CNG) (see separate story).

The market took note. Stocks of natural gas-weighted production companies jumped Wednesday, 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 key to the administration’s blueprint for a secure energy future is reducing the nation’s dependence on imported crude oil, the president said, setting a goal of cutting the country’s oil import dependency by one-third in a little more than a decade. His message included a pledge to raise automobile mileage standards.

“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 reserves…in 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.

The Secretary of Energy Advisory Board (SEAB), an independent advisory committee that serves Chu, has been tasked with establishing a subcommittee to examine fracking issues.

The subcommittee will be supported by the Department of Energy (DOE), Environmental Protection Agency (EPA) and Interior Department, and will include leaders in industry, environmental experts and the states. The panel will work to identify within 90 days any immediate steps to improve the the safety and environmental performance of fracking, and will develop within six months consensus recommendations on practices for shale extraction to ensure the protection of public health and the environment.

Following up Interior’s Bureau of Land Management (BLM) said it will hold a series of regional public meetings later this month to discuss the use of fracturing techniques.

At the same time, DOE and EPA “are establishing a mechanism to provide technical assistance to states to assess the adequacy of existing state regulations” for fracking, the White House said. “EPA will continue to perform a strong backstop role under federal environmental laws and will take actions, as necessary, to protect public health and the environment,” it noted.

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.

The mention of natural gas as a key plank in his energy policy was championed by gas trade groups — America’s Natural Gas Alliance (ANGA), which represents independent gas producers, the American Gas Association (AGA), which represents gas utilities, and the Interstate Natural Gas Association of America (INGAA), which represents interstate gas pipelines.

“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.

INGAA CEO Don Santa applauded Obama for embracing natural gas. “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 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 fracking by some environmental groups would not be a roadblock (see related story).

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 NGI, April 26, 2010).

“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 Gulf of Mexico (GOM) and seven new permits for drilling in the deepwater GOM. A seventh deepwater permit was approved Wednesday for Shell Offshore to drill a a new well, and an eighth permit for deepwater drilling was approved for ENI US Operating Co. Inc. Friday.

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 NGI, March 7).

‘If you’re going to drill offshore, you’ve got to have a [containment] plan to make sure we don’t have the kind of catastrophe that we had last year,” Obama told producers last week.

“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 drilling incentives followed the release last Tuesday of an Interior report that concluded that 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 related story). 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.

Capitol Hill reaction to Obama’s energy blueprint ran the gamut from supportive to skepticism about whether his goal of reducing foreign imports can be met. Republicans and the oil and gas industry said there is a huge disconnect between what Obama said last Wednesday and his anti-drilling policies.

“The president’s plan to reduce America’s reliance on imported oil is ambitious, but achievable. It’s going to take a lot of concerted effort by Congress and our committee, but the course of action the president set for the country…makes a lot of sense,” said Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee.

Sen. Mary Landrieu (D-LA), a champion of the oil and gas industry, said she backed Obama’s goal to reduce imports, but she added that it wouldn’t happen unless the administration stepped up permitting in the GOM.

“The recent deepwater permits issued by the Interior Department are encouraging, but if the president is serious about reducing our dependence on foreign oil, then we need to rapidly accelerate the permitting process in the Gulf to increase production,” she said. The president “can do something right now to advance his goals, and I hope he takes this opportunity to direct [Interior Secretary Ken Salazar] to approve pending drilling applications and [Energy Secretary Chu] to approve pending DOE loan applications.”

Rep. Doc Hastings (R-WA), chairman of the House Natural Resources Committee, introduced legislation last week that also seeks to cut foreign oil imports by one-third by requiring the Obama administration to conduct lease sales in offshore areas that have abundant oil and gas resources (see related story).

“While the president and I share the same goal, we have very different ways of getting there. The president wants to decrease imports by telling Americans to use less and to pay more. Republicans want to decrease imports by increasing U.S. production,” Hastings said.

Energy analysts and experts weren’t impressed by the president’s speech. “History says presidents [who] make broad pronouncements about reducing oil imports via earthshaking energy policy changes are usually ‘all hat and no cattle.’ As with prior presidents’ plans, we are skeptical about this one. Can this administration really embrace natural gas…because it means loving fracturing?” asked Tudor Pickering Holt analysts.

Obama’s singling out of natural gas as a critical energy source was important, according to researchers at Barclays Capital. “When heard through a natural gas filter, President Obama’s ‘Blueprint for a Secure Energy Future’ was notable. The status upgrade of natural gas to the center of the discussion is important. Gas should be well positioned if Congress decides to pursue energy legislation. If resurgent gasoline prices catalyze a public push for Congress to react, natural gas should have a front row seat at the debate.”

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