Salazar sees role for industry in developing full US energy strategy

The Obama administration will need the oil and gas industry's help in developing a comprehensive US energy strategy, Interior Secretary Ken Salazar told the American Petroleum Institute's board of directors on Mar. 19.

"Yes, this administration is changing how things have been done before. [It's] restoring honesty and fiscal responsibility to the budget, making hard choices [and] seeing where we can get a better deal for the American taxpayer. But this is not, as some have suggested, a war on the oil and gas industry," he said.

"We need the best ideas and common sense solutions. We need an open and candid discussion that moves this debate away from the same old rhetoric, the same old divisions, the same old gridlock. You can help," Salazar told API's board, which includes the chief executives of several major oil companies.

He said that some Washington "nay-sayers" try to argue that large-scale alternative energy development is impractical or can only come at the expense of traditional energy sources, or that being better stewards of the land means the nation can't responsibly develop remaining oil and gas on public lands. "These are false choices," he maintained.

"This year, we will hold over 40 onshore federal oil and gas lease sales. Through the Bureau of Land Management, we have already held seven oil and gas lease sales in the last seven weeks. The 830 leases we have offered cover almost 1.2 million acres in the West. The 326 leases that sold generated $32 million in revenue for American taxpayers," Salazar said.

'A sensible addition'

He said that the Mar. 17 Central Gulf of Mexico lease sale in New Orleans, which included newly opened acreage in the so-called "181 South" area, was "a sensible addition to our nation's energy supplies." He noted that the Central GOM is an area with proven resources and the necessary infrastructure, "an area that we all agree is appropriate for drilling."

Salazar said that during the next few weeks, he will travel around the country to have open, honest conversations about the US Outer Continental Shelf, to hear ideas on how an offshore energy plan which includes wind, wave and tidal sources as well as oil and gas can be integrated into Obama's comprehensive strategy, and to look for common ground.

"These conversations will begin with an honest accounting of the information we have, and the information we do not have, about the resources on the outer continental shelf. As a general matter, we know that the oil and gas resources off our coasts are not, unfortunately, enough to meet our nation's energy needs. We also know that much of America's proven reserves on the outer continental shelf are in areas already open for development, and of the acreage already leased, only one quarter is currently producing," he said.

There also are large portions of the OCS which have not been leased where oil and gas resource data either does not exist or is badly out of date, according to Salazar. Information about potential resources off the Atlantic Coast is 20-30 years old, he said.

"This is a challenge we need your help to address: How do we gather the information the American people, and your industry, need to make wise decisions about the [OCS]? Gathering seismic data, for one, is expensive. How do we manage the costs? Are there areas on the OCS that should be of priority for information collection?" Salazar said.

'Important partners'

"I am here today because you are important partners in America's energy future. You and the men and women who work in the oil and gas industry help fuel our cars, heat our homes, and power our businesses. Oil and natural gas are, and will remain for many years to come, a cornerstone of our nation's energy base," the secretary said.

But America's oil and gas supplies are not endless, and the country consumes 25% of the world's oil while sitting atop 3% of its reserves, he continued. "We rely on imports. And more and more, the readily recoverable oil and gas reserves of our planet are under the control of nationalized oil companies. These companies do not respond to market forces in the same way that yours do. Governments often work through these companies to exert geopolitical pressure on their neighbors. And world markets sit on pins and needles awaiting an [Organization of Petroleum Exporting Countries] production decision," he said.

"Our dependence on foreign oil is as much a dependence on the countries that directly supply our oil as it is a dependence on the markets and forces that can, in a six-month period, drive oil up to $147/bbl and then down to $45/bbl. It is a dependence on our military to keep oil flowing through the Strait of Hormuz. And it is a dependence on carbon that, for the sake of our planet, we cannot sustain," Salazar said.

He said that he expects that many in the US oil and gas industry will disagree with elements of the Obama administration's approach. "I believe, for example, that the previous administration's decision to allow oil and gas development near national parks in Utah deserves a second look. I believe we should support research and development on oil shale, but that a 5% royalty rate for commercial production is simply too low," he said.

But there also are many areas on which the administration and the oil and gas industry can agree, Salazar continued. "In Colorado, I know many oil and gas companies who work closely with local communities to mitigate the impacts of development. We can and should do more to help spread best management practices around the industry," he suggested.

An American Petroleum Institute spokeswoman said following the meeting that the group appreciated the opportunity to meet with the secretary. "He recognizes the important role of oil and natural gas in meeting the nation's economic and energy goals, and we look forward to working with him," she said.

Contact Nick Snow at nicks@pennwell.com