A first look at Obama’s OCS strategy

As usual, the devil is in the details. But my first impression is that the Obama administration tried to do what was politically possible in its new US Outer Continental Shelf strategy.

That’s why it doesn’t include any Atlantic areas above Virginia or Pacific sites off the west coast of the Lower 48 states. It holds out the possibility of expanding offshore oil and gas activity into the OCS from Virginia and Georgia, and in parts of the Arctic Ocean. But this would occur only after thorough discussion and scientific evaluation, which will take a long time.

US Interior Secretary Ken Salazar drew his boldest line in the eastern Gulf of Mexico, where he would like to consider offering leases 125 miles off of Florida’s coast if the activity doesn’t interfere with military training activities. His main opponent there is US Sen. Bill Nelson (D-Fla.), who admitted that Salazar’s proposal is more reasonable than the one from Florida’s legislature which endorsed leasing 3 miles offshore.

The lawsuit which led to a federal court’s vacating the 2007-12 5-year OCS plan because the US Minerals Management Service tried to take a short cut and apply environmental impact data from areas closer to Alaska’s shore to sites farther out to sea clearly influenced the new strategy, not just in the Far North but also in other OCS areas outside the Central and Western Gulf of Mexico. The Virginia OCS sale is still on, but looks likelier in 2012 than 2011 – if then.

Oil and gas association executives said they welcomed the announcement, but that simply may be because it’s the only indication so far of what this administration has in mind for the OCS. What it does next will determine whether it’s serious about producing more domestic oil and gas from the OCS, or if it’s simply stalling for time before the November elections.

Few surprises in NRDC-sponsored study

It probably was a foregone conclusion, but the Natural Resources Defense Council nevertheless urged Congress on Mar. 17 to pass comprehensive climate legislation in response to rising gasoline and diesel fuel prices.

NRDC also called on federal lawmakers to reform federal transportation policy “to support small, transit-oriented development; assist states and regions in saving oil; and provide ample funding for energy-efficient transportation alternatives including rail and bus lines, bike paths, sidewalks, and other alternatives to driving.”

The recommendations actually were part of a white paper prepared for the environmental organization by David Gardiner & Associates LLC, a climate change and energy strategies consulting firm, which listed the 10 US states that would be hit hardest if gasoline prices spike this summer. Those states, starting with the most vulnerable, are Mississippi, Montana, Louisiana, Oklahoma, South Carolina, Kentucky, Texas, Maine, Georgia, and Idaho. Florida, Washington, Pennsylvania, New Jersey, Colorado, New Hampshire, Maryland, Massachusetts, New York, and Connecticut are the 10 states least vulnerable to a motor fuel price spike, according to the NRDC.

“The impacts of gasoline prices in the midst of a struggling economy make it clear that our country needs to reduce its dependence on oil,” said Elizabeth Hogan, the analyst at David Gardiner and Associates who wrote the report. “By promoting more efficient vehicles, clean fuels, smart growth, and public transportation, our government can put an end to our unhealthy addiction that pinches our wallets and threatens our national security and the environment.”

Resource development advocates, meanwhile, argue that finding and developing more domestic supplies is important too (which also isn’t a surprise). The US Energy Information Administration, which has been warning since January that retail gasoline prices could go above $3/gal this summer, said in its Mar. 22 weekly survey that the nationwide average was $2.819/gal, up from $2.608/gal on Feb. 15. Retail diesel prices (for all grades) averaged $2.946/gal on Mar. 22, compared with $2.756 on Feb. 15, it said.

New OCS program’s delay isn’t surprising

There’s been some sound and fury recently, mostly from congressional Republicans and domestic resource development advocates, about US Interior Secretary Ken Salazar’s supposedly saying the new five-year Outer Continental Shelf program won’t take effect until 2012. Can anyone honestly say they’re surprised?

Salazar has consistently signaled, since he arrived at the Department of the Interior, that he and his agency directors would move more slowly and deliberately on OCS and other energy development programs than their Bush administration predecessors. His decision early on to broaden the next five-year OCS program and include renewable energy projects introduced an element which further complicated the planning process.

When the secretary took questions from reporters at DOI’s fiscal 2011 budget briefing on Feb. 1, I asked him about the OCS programs. He basically responded that he and his officials were moving quickly, but carefully, on the next five-year schedule, but that they also had to correct flaws in the current one which a federal court had thrown out.

One of Salazar’s first steps, on learning of the court’s decision, by the way, was to seek clarification that the US Minerals Management Service could proceed with Gulf of Mexico lease sales under the current program. When anyone questions the Obama administration’s commitment to domestic oil and gas resource development, Salazar always cites those GOM sales as part of what he considers an active and robust leasing program.

After The Hill’s energy and environment Blog posted a story on Mar. 3 (at http://thehill.com/blogs/e2-wire/677-e2-wire/84781-salazar-eyes-sequential-offshore-drilling-plans) quoting Salazar saying that the next five-year program would cover the 2012-17 instead of 2010-15 period, however, critics erupted. “Secretary Salazar has finally confirmed what had long been feared – that the Obama administration has no intention of opening up new areas for offshore drilling during his four years in office,” House Natural Resources Committee Ranking Minority Member Doc Hastings (R-Wash.) said on Mar. 8.

When I contacted Salazar’s office for a statement, a spokeswoman responded: “Secretary Salazar will have a new five-year plan before the current plan expires.” That would be on June 30, 2012. If he expects to meet that deadline, he’ll need to start beginning to develop a programmatic environmental impact statement in the next few weeks if he expects to continue holding lease sales in the central and western GOM, let alone considering any in other parts of the OCS which were off-limits until Sept. 30, 2008.

FTC’s quiet octane test method proposal

It probably wasn’t the biggest recent regulatory development affecting oil and gas. Still, the Federal Trade Commission proposed adopting the on-line testing method to determine gasoline octane ratings as part of a Feb. 26 announcement primarily dealing with ethanol.

Under the 1979 Petroleum Marking Practices Act, a fuel’s octane is the average of its research and motor octane numbers, as determined using American Society for Testing and Materials Standards D2699 and D2700, respectively. ASTM subsequently adopted Standard D2885 covering the on-line comparison technique “which uses the same [test] engines but in an updated methodology that provides acquisition efficiencies and accuracies for the industry,” the FTC said.

Refiners and marketers have been urging its inclusion as an acceptable procedure. So have the American Petroleum Institute and the National Petrochemical and Refiners Association, according to the FTC. “No comments opposed allowing octane determination through the on-line method,” it added.

The more significant part of the notice dealt with adding gasoline-ethanol blends with 10-70% ethanol to the list of fuels which must be rated, certified and labeled. It also proposed new labeling requirements for all mixtures of gasoline and more than 10% ethanol, including E-85 as part of a broader year-long review of agency rules and guides. Comments must be submitted by May 21, the FTC said.