Impediments to Oil and Gas Exploration and Production Constricts Supply

The oil and gas industry has been a mainstay of the Louisiana and Texas economies for decades. Investments in exploration, production, transportation, refining, and distribution of oil, gas, and related products create jobs and a steady living for those who work in and supply those areas. Unfortunately, fossil-fuels are not considered ‘green’ enough by this administration. As a result, decisions have been made that negatively impact oil and gas production.

With gasoline prices on the rise, there is so much more that can be done to create additional jobs and secure additional supply of oil and gas here in the United States. A good first step is a federal administration that actually encourages oil and gas production.

In 2008, Energy Secretary Steve Chu famously said: “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” Wall Street Journal, Dec. 12, 2008. Although Mr. Chu states he no longer shares that view, the current policies of this administration seem to suggest that they have figured out how to decrease supply and increase price.

President Obama recently rejected the Keystone XL Pipeline Project, a $13 billion investment by TransCanada designed to transport over 700,000 barrels of oil per day from Alberta, Canada to US refining markets. Not only would the project create construction jobs for several years, the supply of oil available for refining would be increased.

The Bush administration opened up most of the Outer Continental Shelf (OCS) for leasing and production. However, the Obama administration shelved that plan in its first few weeks and has a five-year plan that closes virtually all of America’s OCS area until 2017 (except mainly the central and western Gulf and northern Alaska). Further, the so-called ‘permitorium’ (the slow rate that permits have been issued for drilling in the Gulf after the permit moratorium was lifted) has limited the number of drilling rigs exploring for oil in the Gulf. Predictably, OCS oil production has declined.

Exploration and production on federal lands (which, by the way, are lands we all own) has also been restricted. It declined by about eleven per cent in 2011 and will decline almost as much this year. The number of leases on federal lands in the Rocky Mountain States fell by fifty per cent in 2010. By way of contrast, exploration and production on private and state lands has increased. For example, in North Dakota, where the reserves of the Bakken Formation have been tapped, production has dramatically increased. In 2005, production was 98,000 barrels per day; in 2010, it was 310.

However, supply can also be affected at the state level as well. The LSU Center for Energy Studies estimates that ‘legacy lawsuits’ have a negative impact on conventional drilling (i.e., non-hydraulic fracturing) activity. Over 1,200 new conventional wells have been lost, along with the $6.8 billion in Louisiana drilling investments these new wells would have brought. Dismukes, D., The Impact of Legacy Lawsuits on Conventional Oil and Gas Drilling in Louisiana, LSU Center for Energy Studies, February 28, 2012.

Current domestic production of oil is about six million barrels per day. Some estimates indicate that about two million barrels of oil per day can be added to domestic supply simply by reversing the downward trend on leasing federal lands and building the Keystone XL Pipeline. These two steps, which are wholly within the power of this administration and which can be implemented immediately, will increase domestic supply by thirty per cent. Such an increase would beneficially impact oil and gasoline prices here and most probably the entire world.

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