Republicans and oil-state Democrats are challenging Interior Secretary Ken Salazar's comments this week that oil and gas production in the United States has increased even as permitting for deepwater drilling in the Gulf of Mexico remains at a virtual standstill.
While Interior on Monday issued the first deepwater drilling permit since BP PLC's April 2010 oil spill in the Gulf, drilling proponents remain critical of the pace of approvals and argue that regulatory uncertainty has stifled new applicants.
Salazar, who appeared in Senate and House hearings this week to defend Interior's fiscal 2012 budget, sought to quiet the criticism with data indicating oil and gas production has risen over the past five years and that oil imports have dropped by 10 percent over the same time frame.
"I would ask both Republicans and Democrats on this committee to take an honest look at what we have done over the past two years," Salazar told the House Natural Resources Committee yesterday. He cited expanded development opportunities both onshore and offshore and pointed to 29 oil and gas lease sales by the Bureau of Land Management in 2010 that have opened 41 million acres for development.
But those number belie the most recent forecast by the federal Energy Information Administration that oil production in the Gulf is expected to decline by 250,000 barrels per day over each of the next two years due in part to the moratorium placed on deepwater drilling and the subsequent slowdown in the issuance of new permits.
Gary Long, a petroleum engineer for EIA in Dallas, said the forecast declines are based on a range of factors including the moratorium, declining rates on older production, prospects for new production from current drilling and assessments of a couple of larger fields in the Gulf.
Oil production in the Gulf, in fact, has dropped slightly since peaking at about 1.7 million barrels per day before the Macondo well blowout, Long said.
The recent increase in production can be largely attributed to development in North Dakota's Bakken and Three Forks-Sanish formations and, to a lesser extent, the Eagle Ford Shale formation in south Texas. The formations -- which underlie mostly private or state lands -- are expected to help offset some of the production declines in the Gulf, Long said.
Interior's moratorium -- imposed in mid-July of last year and lifted in mid-October -- was a "major" factor in the forecast declines in the Gulf and was assumed to be in effect months after it was lifted because no permits were being issued, Long said.
Worth noting, Long's team assumes the number of rigs drilling in the Gulf is expected to return to pre-Macondo levels by the end of the year. "That's the assumption," said Long, who estimated that the rig count was cut in half after the Macondo incident. But, "there's a million possible scenarios you could build."
With oil prices on the rise amid recent unrest in the Middle East, Republicans and oil-state Democrats have redoubled calls for Interior to speed permitting in the Gulf and open other areas of the country to drilling.
Sen. Mary Landrieu (D-La.), yesterday issued a statement responding to Salazar's Wednesday testimony to the Senate Energy and Natural Resources Committee warning that the current pace of permitting will be felt hard in the coming years.
"His statements do not tell the full story," said Landrieu, who rejected Salazar's statement that current production is not affected by the moratorium or his agency's new regulations. "This is true if we lived in a static world, but the point that seems to be amiss on this administration is that while current production might not be impacted, future production will be impacted."
Oil companies depend on new production to replace oil fields as they dry up, Landrieu said, adding that today's permitting delays will add up in the coming years.
For example, wells drilled in the Gulf may take between three and five years to be brought online, EIA's Long said.
"While the secretary is correct that current production is not impacted, future production is," Landrieu said. "What we don't produce and develop here in the U.S., we will be forced to get from other countries."
Others have taken stronger steps to encourage permitting. Sen. David Vitter (R-La.) is continuing a hold he placed last month on the Fish and Wildlife Service nominee for director, Dan Ashe, until Interior permits 15 new deepwater wells in the Gulf.
"The point is, the real production declines we will see and feel [are] in the future as no new wells are available to replace ones that are completed," said Frank Maisano an energy specialist at Bracewell & Giuliani, a law firm that represents utilities, refiners, drilling companies and wind developers.
Salazar and Interior Deputy Secretary David Hayes this week said they are confident that Monday's permit for Noble Energy to drill in 6,500 feet of water could serve as a "template" for more deepwater permits in the coming weeks and months. But they warned that containments systems developed to respond to out-of-control wells are still limited to relatively shallow areas of the deep water and cannot handle a 100,000-barrel-per-day spill.
Worth the slowdown
Regardless of production declines, BP's spill last year of some 4 million barrels of oil into the Gulf was a stark reminder of the need for a more cautious approach to offshore drilling, said Miyoko Sakashita, oceans director at the nonprofit Center for Biological Diversity.
"A dip in oil production is a small price to pay compared to the need to protect our oceans and coastal economies from another oil spill," she said. "If efforts to rein in risky misconduct in the oil industry slow oil production, then that oil is far too expensive for any society."
The "incremental" steps Salazar has taken to reform Interior's Bureau of Ocean Energy Management, Regulation and Enforcement and impose new safety regulations since lifting the moratorium in October fall short of what is needed to safely resume activity in the Gulf, Sakashita said.
"Irrespective of the pause in deepwater exploration after the BP oil spill, oil production in the Gulf never ceased and continues to this day," she said. "Although it may seem contrary to common sense, Secretary Salazar continued with business as usual for nearly all oil and gas operations in the Gulf."
Salazar appears to have allies in Democratic leaders in the House and Senate who have endorsed his plan to boost funding for BOEMRE through increased inspection fees and a new fee on nonproducing leases.
"Some have criticized the slow pace of oil and gas leasing," said Rep. Ed Markey (D-Mass.). "Of course, what the critics fail to mention is that oil production last year on federal lands was higher than in the last year of the Bush administration. And they won't disclose that oil companies are not even producing on many of the leases they currently hold."
While 80 million acres are presently under lease, the oil and gas industry is only producing on 19.5 million of those acres, Markey said. In addition, BLM issued 4,090 permits to drill last year, but 1,480 new wells were drilled.