Stalemate in the struggle over untapped local sources

By Sheila McNulty
Published: November 3 2008 02:00

When petrol prices rose to $4 a gallon, Americans pulled back on demand and supported opening environmentally protected areas to exploration and production.
Yet the financial crisis has led to a drop in oil prices that has pushed petrol down below $3 a gallon. The crisis for many Americans has passed. And with it has gone the momentum for finding new sources of oil and gas.
"People were traumatised for a while," says Robin West, chairman of PFC Energy, the consultancy. "Unfortunately," he says, "an extended period of lower prices is likely to usher in complacency again."
The problems oil and gas companies have trying to grow reserves in the US will continue. About half of all federal lands are off-limits to the industry. Restrictive regulations mean even more land, while officially open to production, is not producing.
Yet, until this year, there has not been much appetite among Americans to change that, in part because environmentalism was on the rise, but also because other anti-drilling lobbyists had the ear of the people. The consequence has been a stalemate between the oil and gas developers and those opposing their rapid development of resources.
The Bureau of Land Management (BLM), which controls federal land, is stuck in the middle, trying to carrying out its mandate to allocate land for multiple uses.
"Someone is always unhappy," says Mike Stiewig, head of the bureau's office in Price, Utah, overseeing the Nine Mile Canyon, where a battle between industry and historians is raging over plans to develop natural gas resources amid ancient Indian carvings. "If everybody is mad at me, I'm probably about where I have to be."
Congress has yet to recognise energy decisions may have a cost for the consumer. By continuing to side with the special-interest groups against increasing domestic production, it is maintaining such stalemates to keep energy costs high.
Yet Robin West, chairman of PFC Energy, says, "The intrusion of oil exploration and production [in the US] - the footprint - is quite modest. The potential for environmental damage is very, very slight. Politicians must recognise the cost of their decisions and that refusal to act will have a cost.''
If Senator John McCain is elected president, protected areas off the Florida coast are likely to be opened to exploration and production.
Yet the industry will approach any drop in regulations cautiously. They remember that, in the 1980s, Chevron leased acreage off the Florida coast from the federal government and discovered what it estimated to be up to 1,300 bn cubic feet of gas. The Destin Dome project was estimated to be one of the nation's largest gas reserves, and Chevron invested almost 10 years in planning the field's development before the protests of environmentalists led Washington to block the project.
"I'm one of the guys who lived the experience," says David Duplantier, Chevron's senior counsel on the project, adding that it left him "black and blue". Chevron sued the government and spent three years in litigation before recovering $47m to cover out-of-pocket expenses - but not the legal fees or wasted commitment of equipment and people.
"Governments understand we have the ability to produce in a way that is sensitive to the environment in other parts of the world," Mr Duplantier says. "Why this government doesn't accept that is beyond me."
Except for the Exxon Valdez disaster in Alaska in 1989, when the tanker ran aground, spilling 11m gallons of oil in Prince William Sound, there has not been a big disaster in the US in recent years.
Yet environmentalists note countless examples of land, sea and air spills each year in the development of fossil fuels in the US.
"Throughout the entire lifecycle of the oil process, from exploration to extraction to transport to burning, there are routine releases of oil and other contaminants into land, air and water, not to mention when we are burning that oil, it is like a spill in the sky because it contributes to global warming," says Melanie Duchin, climate campaigner for Greenpeace.
She says increasing oil and gas production in the US will only give the country a false sense of security.
New technologies being used to tap unconventional sources - tar sands, for example, or shale gas - are not only more expensive, but more damaging to the environment. Ms Duchin thinks money being poured into finding and producing more oil and gas in the US should be used to improve fuel efficiencies and develop alternative energies.
This is the position Senator Barack Obama, the Democratic presidential candidate, appears to favour.
Yet Mr West insists the US needs every responsible energy source it can get given that an oil production crunch is coming. And while alternative energies were competitive when oil and gas prices were high, it is more difficult for them to compete with the commodities at these levels.
"The challenge,'' he says, "is how you sustain these alternative businesses between the boom and bust cycles, because we're going to need these energy sources in the future."
Copyright The Financial Times Limited 2008