Friday, August 24, 2012

In Romney plan, oil drilling unfettered by politics

In unveiling his energy policy on Thursday, Republican presidential candidate Mitt Romney tapped into the oil industry's giddy optimism about shale drilling to paint a rosy picture of U.S. economic renaissance fueled by hydrocarbons.

A 21-page energy policy white paper distributed by the Romney campaign is also notable for what it doesn't address: The document contains no mention of climate change, few proposals to curb U.S. fossil fuel demand, and sparse paragraphs on the merits of renewable energy.

The promise of a drilling frenzy takes center stage. After decades of failed plans to wean the world's top economy off foreign oil, huge new domestic oil and gas resources can now be easily tapped by high-tech drilling, the plan says.

By opening more territory for drilling and expediting permits, private companies will be enabled to bring an oil and gas bonanza to market at record pace, the plan says. One key to the plan is handing states the power to permit for drilling on acreage owned by the Federal government, which controls nearly 30 percent of U.S. lands.

That move could expedite permits since several states -- including North Dakota, Ohio and Colorado -- have shown they are many times faster to issue drilling permits than the Federal government, Romney's plan says.

Such a major regulatory overhaul would require legislative approval, however, and could face resistance in a divided Congress. Meanwhile, the prolific drilling method known as hydraulic fracturing, or fracking, faces staunch resistance in some quarters, over fears it could contaminate water supplies. New York State has maintained a fracking moratorium since 2008.

Democratic Rep. Henry Waxman, in a statement, called Romney's plan an "oil-above-all" policy, contrasting it to the Obama administration's stated "all-of-the-above" policy that promotes a broad mix of renewable energy sources and less hydrocarbons usage, in addition to more oil and gas drilling.

"The Romney plan takes us in the wrong direction by increasing our dependence on oil, ignoring the reality of climate change, and attacking commonsense environmental protections and successful clean energy programs," Waxman said in a statement.

But Romney's plan is sure to appeal to many voters wary of U.S. dependence on foreign oil and gasoline prices near an all-time high this year. Increasing drilling could turn the United States into an energy super power by 2020, creating 3 million jobs and adding $500 billion to U.S. gross domestic product, while slashing reliance on "unstable" foreign oil-producing nations, the plan says.

The plan promises to open territory from Alaska to the Virginia coastline up for more drilling.

"It's clever because it's an effort to catch the shale drilling wave, and embrace the excitement and optimism sweeping through the U.S. oil industry," said Sarah Emerson of energy consultancy ESAI.

"It's not a 'we'll try anything' approach. It says 'we've got this new resource, let's develop it and it will have a huge impact on GDP and jobs."

In betting heavily on a fossil-fueled U.S. energy future, the plan also carries economic and environmental risks.

"There is now really a path toward U.S. energy independence and it's welcome that politicians are thinking about this," said Ed Morse, head of commodity research at Citi in New York, whose recent research on the potential of U.S. shale drilling is cited in Romney's plan.

"This is enviable for a country that has been the world's only super power and could sustain its power through a (shale-fuelled) reindustrialization."

The plan is still vulnerable to global energy prices, Morse said. Expanding U.S. oil development hinges on relatively high global oil prices, and if OPEC producers like Saudi Arabia or Iraq were to boost oil production and cause prices to fall to $70 a barrel -- around 27 percent below current rates -- many North American projects could lose their economic appeal.

The United States would also have to nearly double its oil production to becoming a net exporter, raising the risk of new accidents following the 4.9 million barrel Gulf of Mexico spill in 2010.

"There's some good stuff in this plan," said Michael Levi, a fellow at the Council on Foreign Relations in New York. "But it's a plan for oil production, not a comprehensive energy strategy."


Romney, whose chief energy advisor is Oklahoma oil billionaire Harold Hamm, the CEO of shale driller Continental Resources, borrows heavily in his white paper from research notes by oil and gas industry experts.

He slams the Obama administration for allegedly dragging its feet on new drilling. Permitting has languished - allegedly by 37 percent - a key pipeline hasn't been approved, and rich offshore prospects remain off limits to drillers, the plan says.

In many ways, however, a proliferation of new drilling -- mostly for fracking projects -- has already transformed the U.S. energy industry, putting domestic natural gas output on track for a second annual record, and helping to lift U.S. oil production to a nine-year high in 2011 from shale-rich states like North Dakota and Texas.

The United States remains the top net oil importer, although U.S. reliance on foreign fuel has waned after gasoline demand fell by more than 6 percent since peaking in 2007, in part due to more renewable fuels and higher fuel efficiency standards.

According to Romney's plan, oil companies currently wait an average 307 days for drilling permits from the Federal government. In North Dakota, permits to drill on state-owned lands take just 10 days.

"The economic consequences of not getting permits for years is brutal," said Mark Mills, an energy expert and fellow at the Manhattan Institute, who authored a paper cited in the Romney plan. "The limitation to drilling is access to land, and that can be solved with the stroke of a pen."

Romney also pledged to forge a U.S. energy alliance with neighboring oil exporting nations Canada and Mexico, and to approve the Keystone XL pipeline, a project to carry Canadian oil sands crude to the U.S. Gulf Coast that has drawn concern from environmentalists.