Other Voices

Obama moves will frustrate oil and gas opportunities

A drilling ship off the coast of Alaska in 2007. Large sections of of Alaska’s Chukchi and Beaufort Seas remain off-limits for drilling.
A drilling ship off the coast of Alaska in 2007. Large sections of of Alaska’s Chukchi and Beaufort Seas remain off-limits for drilling. AP

In his recent State of the Union address, President Barack Obama proudly announced that America had once again reclaimed its crown as the world’s No. 1 oil and natural gas producer and that we were well on our way to realizing the oft-professed goal of energy independence.

Two cheers for the president at least acknowledging the tremendous success of the shale revolution, which has boosted domestic oil production by 100 percent in six short years, reduced our imports from more than 55 percent of consumption to less than 30 percent and helped to bring down prices of gasoline and diesel.

Though the president implied America’s newfound energy abundance was partly due to his stewardship, such is not the case. The emergence of the United States as a global energy powerhouse has come about entirely through private initiative, with incremental production occurring almost exclusively on private land.

American innovations such as hydraulic fracturing and horizontal drilling have occurred despite the administration’s clear antipathy toward fossil fuels, as exemplified by restrictions on oil and gas exports, a likely veto of the Keystone XL pipeline and a plethora of new environmental regulations that increase the cost of producing oil, natural gas and coal.

Just days after the State of the Union, the president resumed his battle against hydrocarbons by designating 12.2 million acres in Alaska’s Arctic National Wildlife Refuge (ANWR), including the coastal plain, as “wilderness,” thereby removing huge areas from potential resource development.

In addition, the Department of Interior’s 2017-2022 five-year offshore drilling plan released at the same time puts large sections of the Chukchi and Beaufort Seas on Alaska’s north coast off limits for new leases.

Both of these actions follow moves by the White House in 2010 to shut down nearly half of Alaska’s 23.5-million-acre National Petroleum Reserve.

The consolation prize offered by the administration is to open federal waters off parts of the Atlantic Outer Continental Shelf (OCS) from Virginia to Georgia for lease sales, with a 50-mile buffer.

But this is an area with no current drilling or production, and since little seismic mapping has occurred in recent decades, the amount of technically and economically recoverable oil and gas is pure conjecture.

Meanwhile, the eastern Gulf of Mexico and the Pacific OCS that are known to possess huge amounts of recoverable oil and gas remain off-limits in the 2012-2017 plan.

Together, the Arctic Outer Continental Shelf and the ANWR are estimated to hold at least 37 billion barrels of oil and 35 trillion cubic feet of natural gas.

Developing some of these resources is crucial for two reasons.

The Trans-Alaska pipeline was designed to carry about 2 million barrels per day, but with production in Alaska’s older fields declining rapidly, throughput is now only 500,000 barrels per day. If volumes continue to drop, the integrity of the pipeline could be compromised.

At the same time, greater production in Alaska can move us closer to energy independence while offering the opportunity to export American oil and natural gas to Asia once the current restrictions are lifted.

In another assault against fossil fuels, the just-released Obama budget for fiscal 2016 once again calls for repealing $44 billion of tax deductions used by the oil and gas industry over the next decade.

In particular, the president wants to disallow the expensing of intangible drilling costs, repeal the percentage depletion allowance and prohibit oil and gas companies from using other provisions of the tax code available to most other industries.

In view of declining oil prices, massive layoffs and falling industry profits, these proposed tax hikes could seriously harm the industry while discouraging future investment.

Being the world’s largest producer of oil and gas, while approaching energy independence, gives America tremendous economic and political leverage.

But unreasonable legislative, tax, regulatory and executive constraints on energy development, such as the president’s proposals to severely curtail exploration and production in some of America’s most productive oil fields, will diminish that leverage and could once again make us vulnerable to global energy shocks.

Bernard L. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University.