Offshore on Obama’s Terms

7 May 2009 (Last Updated May 7th, 2009 18:30)

President Obama's policy for oil and gas drilling and exploration cannot be isolated from his larger energy plans. His strategy is designed to make the US a frontrunner in global climate policy and change. But why are so many in the upstream industry hitting out at the new President's rules? Ozge Ibrahim reports.

Offshore on Obama’s Terms

In the first 100 days of his administration, President Obama put together an energy and environment policy that sits at the heart of plans for America's future. In contrast with George W Bush, the new US president aims to take a lead in securing future energy supplies by using traditional fossil fuels and renewable sources, while also working to implement policies for a greener world.

When he took office, Obama set the bar high, saying: "We know that the future of our economy and national security is inextricably linked with one challenge: energy." But 100 days into his presidency, critics have objected to his plans.

US energy independence

"Oil and gas explorers may be in for a tough ride and Obama's plans could result in tighter regulation."

A poll of oil and gas executives surveyed by accountants KPMG found that, despite the emphasis on alternative energy sources in current and proposed government energy policy, the US cannot attain energy independence by 2030. This is mainly due to the fact that the US, like most non-OPEC states, sells its oil and gas into a global market.

The present energy plans might not make a difference to attaining full energy security or indeed alter barrel prices, but these are not the issues that lie at the heart of complaints by oil and gas executives.

Oil and gas companies are in fact hitting back at Obama's move to delay the lifting of offshore drilling bans in the US. Bush's plans to lift the long-running bans would have governed offshore drilling through to 2015.

But Obama's plans for an energy package that calls instead for a comprehensive approach to drilling including building renewable energy projects such as offshore wind farms, means lifting the bans will inevitably be delayed. Speaking recently at the Offshore Technology Conference in Houston, Texas, the president of Chevron's North American exploration and production arm, Gary Luquette, said that he was troubled by the decision to delay the plan. In a panel discussion on the subject, the CEO of Devon Energy Corp, Larry Nichols, questioned claims by the Administration that more time is needed to study the plan.

Obama's vision

At the other end of the scale, independent oil analyst Richard Miller believes the president's plans are not designed to achieve energy independence but are instead part of a wide-reaching and necessary long-term strategy: "The policy is to broaden the base of energy supply and to start to meet global warming concerns." Miller says that Obama's vision for the future has been a long time coming, offering a welcome break from
previous leaders.

"Obama is making the best of a bad job – by that I mean that the state of the world."

But while plans may be in place, the big question is whether Obama be able to put them into action. In Deloitte's report 'America's Renaissance: Energy, Environment, Security and Global Leadership', energy analyst and author Joseph A Stanislaw asks the pertinent question: "In the first 100 days the president held out an ambitious vision of where we need to go. In the next 100 days, however, he will need to work with
various political interests to prevail on precisely how we will get there."

But Miller argues that, in the case of oil and gas exploration and drilling, the 'how' will be down to the industry – an industry that is already coming to blows with Obama's plans, as is demonstrated by Chevron and others.

Miller says the president is unlikely to back down on his plans for the offshore industry because of his broader vision for a more comprehensive energy mandate. Oil and gas companies may find it hard, however, to adopt the necessary infrastructure to expand oil and gas production to include clean technology, such as carbon capture and storage on site.

As a result, oil and gas explorers may be in for a tough ride and Obama's plans could result in tighter regulation across the US energy sector.

"I am pretty positive about the next 100 days. Obama is making the best of a bad job – by that I mean that the state of the world, in terms of a growing population and expectation levels – and he will not be swayed," says Miller.