Wednesday, March 31, 2010

Headfake on offshore drilling

Today the Obama administration will announce an apparent reversal in its stance on offshore oil and gas drilling.  From The Wall Street Journal:
The Obama administration will propose allowing offshore oil and natural-gas exploration and development in a large swath of the eastern Gulf of Mexico, after months of criticism from Republicans who have made expanded offshore drilling a political rallying cry.

In addition, the administration plans to announce new steps to determine how much oil and natural gas is buried off the coasts of Middle and Southern Atlantic states, where oil-reserve estimates are decades out of date.

At the same time, Mr. Obama's plan wouldn't allow new oil and gas development off the coasts of Northern Atlantic states or California, whose political leaders have long opposed offshore drilling. The administration will call off a plan drafted by the administration of former President George W. Bush that would have given oil companies access to Alaska's Bristol Bay, an area teeming with wild sockeye salmon and many commercial fishing interests concerned about the impact of drilling on their livelihoods.
The media is casting this move as a compromise to big oil and domestic "drill baby drill" advocates.  However, skepticism abounds.

Commenter stopevhillary, at Lucianne.com notes:
Didn't Obama yank drilling rights to leases already explored? (which means co's paid for the priveledge of exploring w/o any hope of drilling)

How can any company do business in the age of Obama Bait and Switch?
Another veteran Ldotter, Photoonist, remarks:
According to an article from the other day this administration has increased the fees per well and drill site which is making such ventures increasingly uneconomical. Typical for he First Marxist who previously promised to make the cost of energy skyrocket.
Photoonist is correct.  In a speech earlier this month, Interior Secretary Ken Salazar defended his plan to increase the fees on oil and gas drilling operations:
During Wednesday's hearing, Salazar also defended the administration's plans to impose new fees on drilling leases and increase royalty rates for companies that produce oil and natural gas from public lands.

The administration's budget proposal includes:

• • A new $4-per-acre fee on nonproducing oil and gas leases on federal lands and waters.

• • A new inspection fee for onshore oil and gas drilling that the administration estimates would bring in $10 million in the 2011 fiscal year that begins Oct. 1.

• • Raising existing inspection fees for offshore oil and gas drilling to raise an estimated $20 million in fiscal 2011.

• • Continuing a 1-year-old $6,500 fee for processing drilling permits, expected to bring in $45.5 million in the next fiscal year.

The administration is also considering an increase in the 12.5 percent royalty rate charged for oil and natural gas produced on federal lands, which dates back to 1920 and is far lower than what some states charge. Texas, for instance, collects a royalty rate of 22.5 percent.

Salazar said the proposals were prompted by the need to raise money to pare the deficit in a “tough budget.”

Noting Exxon Mobil Corp.'s record-breaking 2008 $45  billion profit, Salazar said: “I don't think that frankly any of these fees that we are talking about here are going to put anybody out of business.”

“These fees will be part of doing business, but it's not going to have a negative effect” preventing companies from going forward with development, Salazar said.

“We are not — as some people have claimed — taxing the oil and gas industry to death,” he said.

Several oil patch senators said they were concerned that a related administration plan to get rid of tax incentives long used by the oil and gas industry to defray the high capital costs of drilling would curb domestic production.

Sen. Mary Landrieu, D-La., called the budget plan a collection of “draconian taxes on the oil and gas industry.”
Joe Weisenthall at the Business Insider asserts that the President's move is a pure political gambit:
Ok, so the Obama administration is going to allow some offshore drilling.

The surprise decision is being couched in language about creating jobs and reducing dependence on foreign oil.

Yeah yeah.

The real story is that Cap & Trade is back on the table, as Ken Salazar is stating on CNBC right now.

Obama gives a gift to oil drillers, and in exchange he gets the equivalent of an energy tax (though not actually an energy tax) with some corporate support.

Actually, cap & trade has already enjoyed significant corporate support from the likes of Goldman Sachs (GS) and GE (GE), which are eager to make a market in carbon offsets. Now, presumably, we'll see more corporate support.
Finally Barbarian Heretic at Lucianne sums it up nicely:
Be suspicious of this tactic:

-Admin announces 'opening up' to exploration.

-While levying costly fees and restrictions

-One year from now, Obama points finger at Big Oil for not acting on his generous offer.

This is triangulation, nothing more. Obama is preparing to move to the center to win re-election after he gets creamed in mid-terms...

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