Unless you’ve been living under a rock for the past week, you know that President Obama made an announcement on offshore oil and gas development on Wednesday.  There’s been a lot of coverage about the announcement—almost all of it unbalanced or flat out incorrect.  Let’s review some basics.

The driving factors behind the President’s comments were two-fold. 

First, his administration—specifically the Department of Interior—needed to respond to a court ordered review of the environmental analysis behind lease sales in Alaska.  On April 17th, 2009, the Federal Appeals Court in the District of Columbia Circuit issued a decision in a number of lawsuits filed by the Center for Biological Diversity and Native Village of Hope Point, Alaska. The lawsuits challenged the Environmental Impact Statement (EIS) process for certain leases in Interior’s 2007-2012 Five Year Plan. In its decision, the Circuit Court found that the Federal government did not adequately assess the environmental risks associated with oil spills over a range of coastal landscapes. The court ruled that the Department of Interior needed to conduct a more thorough analysis and reassess its leasing schedule, and “vacated and remanded” the 2007-2012 Plan.

The net impact of the court’s decision was to postpone the remainder of sales contained in the Plan until Interior came back to the court with an updated analysis.  Interior was instructed to: “conduct a revised environmental sensitivity analysis, and further, to rebalance the timing and location of the leasing program so as to obtain a proper balance between the potential for environmental damage, the potential for the discovery of oil and gas, and the potential for adverse impact on the coastal zone,” as required by the Outer Continental shelf Lands Act.

After a number of delays, Interior completed its assessment, which resulted in the Preliminary Revised OCS Oil and Gas Leasing Program for 2007-2012.  You can access that document here.  There will now be a 30-day public comment period (published in the Federal Register today).  After consideration of any comments received, the Secretary of the Interior will finalize the leasing program for 2007-2012.

Along with changes in the Revised Program, the administration has made a number of changes with respect to the original Plan.  President Obama (actually, Secretary Salazar) announced on Wednesday that Interior would cancel the four remaining 2007-2012 lease sales off the North Slope of Alaska in the Beaufort and Chukchi Seas (lease sales 209, 212, 217 and 221).  The President also issued a Memorandum (http://www.whitehouse.gov/the-press-office/presidential-memorandum-united-states-outer-continental-shelf) that bans leasing in the Bristol Bay area of the North Aleutian Basin until June 30, 2017.

The Revised Program retains the two special interest sales in the Cook Inlet offshore Alaska.  Planning for a sale off the coast of Virginia (Sale 220) scheduled for 2011 under this plan will continue.  According to DOI, “The announcement does not guarantee that that area will be leased, evaluated, explored and developed for oil and gas.  Secretary Salazar has said that the lease sale will depend on whether there is interest from industry, whether development can be done in an environmentally responsible manner, and whether development can be shown to not compromise critical military training in the Atlantic.”

The second—and apparently more newsworthy—purpose of the President’s remarks was to signal his intentions regarding the next Five Year Plan, which will cover the period from 2012-2017. 

Recall that in the waning days of the Bush Administration, then-Interior Secretary Dirk Kempthorne issued a Draft Proposed Program that would have replaced the existing 2007-2012 Plan with a new one running from 2010 to 2015.  Suffice to say that that plan, which you can access here, was little more than an industry wish list.  It was not widely expected to be adopted whole cloth by the incoming President.  What was notable about the Bush/Kempthorne proposed program was that it included program areas in the Eastern Gulf of Mexico, Atlantic and Pacific planning areas for the first time in decades.   The Atlantic and Pacific areas had been made available back in 2008 when Congress and then-President Bush lifted statutory and executive bans on drilling there.  The Eastern Gulf was—and remains—completely off limits to drilling due to a Congressional ban through 2022 that was incorporated into the 2006 Gulf of Mexico Energy Security Act.

Back to President Obama and his remarks Wednesday; what did he actually say? The next Five Year Plan will come into place on the regular scheduled date in June 2012.  It will run through 2017.  It will not include any areas in federal waters off the Pacific Coast, which MMS estimates to hold between 7.6 and 13.9 billion barrels of technically recoverable oil.  Depending on the results of environmental analysis, it may include planning areas off the Atlantic Coast estimated to hold between 0.6 and 3.8 billion barrels of technically recoverable reserves.  The Western and Central Gulf of Mexico, where most offshore oil and gas production occurs today, will be evaluated for new sales (as expected). 

The Administration is also willing to consider lease sales in the southwest corner of the Eastern Gulf of Mexico—no closer to Florida than 125 miles—assuming Congress lifts the ban.  The entire Eastern Gulf contains between 2.8 and 5.5 billion barrels of oil.  (It’s worth noting that the administration proposal would leave off the table the resource-rich Destin Dome area, which contains enough discovered gas reserves to heat 1 million U.S. households for 30 years.)  Finally, the administration will evaluate continued leasing off the North Slope of Alaska, where Interior estimates there to be anywhere between 2.7 and 63.3 billion barrels of oil.

Bottom line: nothing earth shattering.  It amounts to maintenance of the status quo, for all intents and purposes.  But you would never know that from the coverage.

Here, it’s an environmental catastrophe.

Here, it’s just not good enough.

But our absolute favorite critique comes from energy expert Joseph Romm, who dismisses the Obama plan because it “does little for gas prices.”  We have to ask, when did that become the metric for success?  The fact is, short of a gas tax, almost no individual energy policy measure or technology taken in isolation—higher fuel economy, biofuels, electrification, offshore drilling, hydrogen, you name it—will do anything for gasoline prices over the long-term.  Gasoline prices are almost entirely determined by benchmark crude oil prices, which, as readers of this blog should know, are determined by a myriad of factors well outside the control of the United States.  The best energy policy is one that simply moves us away from gasoline—like electrification of transportation—so that the price of petroleum fuels is largely irrelevant.

But that is going to take decades.

In the meantime, we are running exploding trade deficits, largely driven by our oil imports.  In 2008 alone, the U.S. ran a $388 billion trade deficit in crude oil and petroleum products.  In 2009, a year of soft demand and low oil prices, the oil deficit was over $200 billion.  Increasing our domestic production of crude oil will take several years, no doubt.  But even if first oil from new fields doesn’t flow until 2020, it will still arrive in time to help offset America’s need for imported oil, because it is simply inconceivable that we won’t still be importing oil in that timeframe.  With oil prices expected to rise in the coming years, it makes good sense to produce as much as we can at home, as long as environmental performance standards are world class and we are simultaneously transitioning away from liquid fuels in the transport sector. 

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