Oil panel comes up dry on offshore drilling

With gasoline prices at unusually high levels for this time of year, a report from a presidential commission Tuesday did little to break the political deadlock over offshore drilling, prompting some observers to warn that the United States is headed toward another gas-price crunch this summer.

The nationwide average price of regular gas over the weekend rose to $3.08 a gallon while crude-oil prices have surged to more than $90 a barrel — levels seen in only one previous winter, in 2007-08. Gasoline prices then ran up dramatically in the 2008 spring-summer driving season and reached an all-time high of more than $4, prompting public outrage and demands that the government open offshore drilling for the first time in 30 years.

But despite the threat of much higher gas prices again this summer, the momentum for increased drilling has been effectively snuffed out by the disastrous Macondo oil spill in the Gulf of Mexico last year. The Obama administration has withdrawn most of its proposals to expand drilling off U.S. coasts and has imposed more layers of regulation that have stifled new development even in the well-pocked Gulf of Mexico.

Tuesday’s report from a commission appointed by President Obama to investigate the oil spill blamed it on “complacency” within the industry and the government bureaucracy that regulates drilling, and mostly ratified the administration’s moves toward heavier regulation.

That prescription keeps the White House and most Democrats in Congress on a collision course with the oil industry and conservatives in the Republican-led House, who warn against regulatory overreaction and say it will lead to higher oil and gas prices.

David Holt, president of the Consumer Energy Alliance, an activist group pushing for more drilling, said the commission failed to help break the gridlock over the critical issue of dwindling energy supplies in the U.S.

“This commission had an opportunity, and some might even say a mandate, to move the current energy debate past politics and toward a reasonable consensus on the best and safest way to allow Americans continued access to the energy resources they own offshore,” he said.

But the recommendations for tighter regulation will have the effect of “shutting down” drilling, rather than enabling producers to access oil reserves in a safer way, he said.

“Consumers should be very concerned that the price of oil crossed the $90 threshold in the month of January,” said Richard Moskowitz, vice president of the American Trucking Associations, also expressing disappointment with the report. “Absent a rational change in domestic energy policy, we are concerned that the price of oil will continue to climb and have a dramatic and negative effect on our already struggling economy.”

One member of the House’s class of freshman Republicans, which is expected to fight heavier regulation by the administration, predicted that efforts to stifle drilling will provoke a public backlash.

Rep. Bill Flores, Texas Republican and former chief executive of Phoenix Exploration, a Houston oil firm, compared the situation today to 2008, when public pressure forced Congress and the Bush administration to drop government restrictions on offshore drilling.

“You saw a public outcry for improved accessibility to oil and gas properties,” Mr. Flores told Platts Energy Week television. “The theme was, ’Drill here, drill now’ … I think now that we’re seeing higher prices, the American public is going to say we’ve had enough of the silliness regarding regulatory slowdowns and removing public areas from access.”

Environmental groups and other supporters of stronger regulation hailed the commission’s report and urged Congress to pass the laws needed to incorporate recommendations, such as a new independent safety regulator. They said the panel’s conclusions confirm their long-standing argument that the oil industry cannot be trusted to regulate itself because it always puts profits ahead of safety.

“Big Oil and their allies are continuing to lust after huge profits at the expense and welfare of the American people by ignoring the recommendations,” said Daniel J. Weiss of the Center for American Progress. “Their rush to drill first and reform later comes in direct contrast to the report’s findings that the BP spill was a result of ’systemic’ problems in the oil and gas industry, and ’absent significant reform in both industry practices and government policies, might well recur.’”

Mr. Weiss added that permitting more drilling offshore would do little to reduce the price of oil, which is set in world markets.

“Expanded drilling can never address our imbalance between domestic oil production and consumption, as the United States has only 2 percent of the worlds oil reserves, yet it consumes 20 percent of the worlds oil,” he said.

But industry groups and drilling proponents were rankled by the commission’s sweeping indictment of an entire industry when many in the business think that only a few misguided companies and individuals were at fault in the Macondo incident.

“This does a great disservice to the thousands of men and women who work in the industry and have the highest personal and professional commitment to safety,” said Erik Milito of the American Petroleum Institute.

He noted that the industry already has set up a cooperative effort to develop better oil-spill technology, while regulators have adopted other safety measures developed by oil companies in the wake of the disaster.

Randall Luthi, president of the National Ocean Industries Association, said the commission’s idea of setting up an oil industry safety institute is worth considering. But, like other drilling advocates, he was alarmed by its recommendation for a slowdown in drilling activity in Alaska and the Arctic — areas many contended were outside the scope of the commission’s mission.

William K. Reilly, a former Environmental Protection Agency administrator who was a panel co-chairman, said he tried to strike a balance between industry’s concerns and the clear need for greater oversight of the drilling industry.

“Like it or not, oil and gas companies are in this together, and they must adopt rigorous standards through an industrywide safety institute, or risk losing access to these leases or resulting profits,” he said.

Mr. Reilly emphasized that the safety problems arise primarily in connection with deep-water projects, where the technology for limiting and preventing disastrous spills has not been perfected.

“The oil and gas industry, which may not have been a high-risk industry when it was in shallow waters, has become so when it has moved into deeper waters,” he said.

Commission member Bob Graham, a former Democratic senator from Florida, made the same point, and suggested that regulation should be tighter and potential liabilities greater with riskier, deep-water projects.

“One approach that I would suggest we consider is, if there is to be a liability cap, that it ought to be variable, based on the actual risk that a particular site could impose, and thus it could be dramatically different for well-known shallow waters, as opposed to the unknown ultra-deep waters,” he said.

Jim Noe of the Shallow Water Energy Coalition, said those comments are encouraging and run counter to the blanket drilling regulations issued by the administration in the aftermath of the spill, which did not distinguish between safer shallow-water drilling and less-tested deep-water activities.