The oil and gas industry's main trade group says President Obama's "fracking" panel ignored an effective regulatory structure, but agrees that the industry has a perception problem.

"We may not have done the greatest job in the past couple years ... in terms of explaining," said Erik Milito, upstream director at the American Petroleum Institute. "We need to make sure that to have a strong resource base in the future, we address environmental concerns and public perceptions."

The Obama administration's panel, led by Massachusetts Institute of Technology professor John Deutch, issued a report last week that deemed valid many of the environmental and health concerns that have been raised by environmental groups, industry critics and neighbors of drilling operations (Greenwire, Aug. 11).

It also indicated an absence of "effective control" over the drilling process by regulators and said the industry should not be so quick to dismiss concerns.

But Milito rejected the idea that a stronger regulatory system is needed.

"Oil and gas states have put together a strong regulatory program," Milito said. "On top of state regulation, we have an overlay of federal law."

In addition, he noted, API has strong standards for well construction that have been widely adopted by the industry. And he said the panel's report was "flat wrong" in asserting that new air rules proposed by U.S. EPA exclude many existing sources of air pollution from natural gas production.

The panel, officially known as the Natural Gas Subcommittee of the Secretary of Energy Advisory Board, should have identified gaps in existing regulations rather than suggesting that more are needed, he said.

The absence of such recognition, Milito said, could have been the result of Energy Secretary Steven Chu's failure to include an industry representative on the panel. Chu did pick Stephen Holditch, whose firm designed hydraulic fracturing treatments before he sold it to field services giant Schlumberger Ltd. in 1997 and now heads the Department of Petroleum Engineering at Texas A&M University.

But Milito said there should have been someone "who has been out in the field and has been out in the field in the last few years. ... The environmental community has a representative on this panel and the oil and gas community does not."

Other industry groups have had different reactions. For example, the Independent Petroleum Association of America, which represents smaller, independent companies, praised the report, saying it shows that drilling is -- "on balance" -- well-regulated.

Chu charged the subcommittee in May with fulfilling President Obama's promise -- part of his energy "blueprint" -- to "make sure that we're extracting natural gas safely, without polluting our water supply."

The group's next task is a report due in three months that Deutch said will delve more deeply into "two or three" of its recommendations. What those suggestions are going to be will be determined from the reaction to the report from DOE, the White House and other agencies, he said. Deutch has also said he has commissioned a review of the available data on drilling's effect on public health (Greenwire, Aug. 16).

Both industry and environmentalists criticized Chu's picks for the panel. Industry and congressional Republicans said the panel was stacked with former Democratic appointees hostile to drilling. Environmentalists and Democrats, by contrast, complained that six of the seven members had financial ties to the oil and gas industry.