Obama and oil

Sept. 9, 2013
With Barack Obama in the White House, energy commentators never lack for subjects. Because Oil & Gas Journal editorials about Obama's energy policies have been frequent and usually negative, the question sometimes arises whether the OGJ editor dislikes the president.

With Barack Obama in the White House, energy commentators never lack for subjects. Because Oil & Gas Journal editorials about Obama's energy policies have been frequent and usually negative, the question sometimes arises whether the OGJ editor dislikes the president.

To set the record straight: Without knowing the man personally, the editor likes President Obama. The president seems decent and personable. He's devoted to his wife and daughters. He has a sense of humor. He's supremely smart. He has won election twice to the world's most important political position yet still seems to enjoy rolling up his sleeves and engaging with mainstream Americans. He's probably a great guy to have a beer or play golf with.

It's Obama's approach to oil, not Obama himself, that the OGJ editor dislikes.

Working against oil

Obama doesn't like oil. The evidence is clear. Through policies enacted and proposed, the president consistently works against the supply and consumption of oil. His administration, for example, has been stingy with access to federal land. It imposed a moratorium on offshore leasing to study the issue after taking office and another one after the Macondo tragedy of 2010. In the 5-year Outer Continental Shelf leasing schedule adopted last year, average acreage offered per year is 20% below that of the 20 years before Obama took office.

The administration devalued leases with royalty changes and shortened lease terms. It persists with a "diligent development" initiative based on the groundless supposition that companies buy leases in order to do nothing with them.

The same approach hinders oil and gas work on federal land onshore. Since 2008, according to the Western Energy Alliance (WEA), federal acreage offered for lease in the West has declined by 66%, and acreage issued has fallen by 54%. Onshore federal leaseholders also face drill-it-or-lose-it pressure.

When operators do receive onshore federal leases, they encounter huge delays. At the beginning of this year, WEA says, outstanding projects delayed more than 3 years by National Environmental Policy Act compliance issues represented 25,177 proposed wells.

The average time required for approval of drilling permits on federal land is 228 days. Federal drilling permits issued overall dropped 39% in the West during 2008-12, according to WEA.

Each year, the Obama administration threatens in its budget proposal to batter the economics of oil and gas supply with repeal of tax preferences such as current-year expensing of intangible drilling costs and accelerated expensing by independent producers of geological and geophysical costs. The effort hasn't succeeded, but Obama's aides say it will be made again.

The administration wants the federal government to join states in the regulation of hydraulic fracturing, an unnecessary move that will delay and increase the cost of now-booming work in shales and other low-permeability reservoirs.

Obama's refusal to approve the Keystone XL pipeline border crossing, forcing producers in the Canadian oil sands to find other routes to market, represents a similar impediment to development of richly promising unconventional resources.

With a range of initiatives, the administration would raise the costs of refining crude oil and, ultimately, the price of oil products. It promises to act further on climate change if Congress doesn't, which it probably won't. Refiners thus might face new permitting delays and operational restrictions as the Environmental Protection Agency tightens its control over emissions of greenhouse gases.

EPA also continues to manipulate fuel chemistry, preparing rules lowering the sulfur content of gasoline and toughening standards for ground-level ozone. These initiatives will raise costs of vehicle fuel far more than they'll improve environmental quality.

In these and other ways, the president has produced a record clearly hostile to oil. And he recently stipulated that the antagonism applies more to oil than to natural gas. In a July 30 speech in Chattanooga, Tenn., he cheered the "clean energy and natural gas revolutions" while promising efforts to "shift our cars and trucks off oil for good."

Unrealistic goal

Obama might consider the "off-oil" goal realistic. This editor, while acknowledging oil's drawbacks, does not. Substitutes for oil, especially in mobile uses, cost far too much.

But that judgment isn't personal. Obama has this editor's wholehearted respect—not to mention gratitude for providing so much material for commentary.