Natural gas sector set up by Obama to be sabotaged?

President Obama spoke of the role natural gas must play in America’s energy future during his State of the Union address last week, but industry insiders fear it’s merely lip service designed to distract from what they consider the administration’s behind-the-scenes plan to sabotage the sector.

“They’re trying to make it more difficult for the industry to survive while the president is standing in front of the country saying we’re going to create jobs through hydraulic fracturing,” said Ken von Schaumburg, former deputy counsel at the Environmental Protection Agency during the Bush administration.

Mr. Obama “is talking the game, but you can’t support the industry and then have this aggressive rule-making process going on,” Mr. von Schaumburg said.

At the same time the president boasts of the nation’s vast shale gas deposits, his EPA is poised to make extracting that fuel much more difficult. The agency will this year release a widely anticipated study on hydraulic fracturing, or “fracking,” the use of water, sand and chemical mixtures to crack underground rock and release huge quantities of gas. The practice is widely used in Pennsylvania, North Dakota and other states, and has helped revitalize small-town economies and led directly to the creation of thousands of jobs in recent years.

Many in the gas industry fear that the upcoming EPA study will call for harsh new regulations on the process, and many environmental groups - a key constituency for Mr. Obama during this year’s re-election bid - are publicly pushing the administration to outlaw fracking entirely.

The EPA has already dealt a severe blow to fracking with the release of a report last year alleging the process was responsible for water contamination in Pavillion, Wyo. That study was met with ridicule from across the natural gas business because it was put out before being subjected to an independent, third-party review. While the EPA has promised such an unbiased look will be conducted, the study has likely already had a negative impact on the public perception of fracking.

Possibly making matters worse, Mr. Obama has over the past week repeated his calls for increased federal investment in the renewable energy sector, a policy some view as an effort to stack the deck against natural gas.

“Job creators and American consumers should welcome the president’s latest energy promises with suspicion,” Thomas Pyle, president of the nonprofit Institute for Energy Research, said in a statement following Mr. Obama’s State of the Union speech, during which he called for an “all-of-the-above” approach toward energy independence that relies heavily on American oil and gas reserves.

“In the same breath that he extolled the virtues of natural gas development and called for higher energy taxes on the companies that produce it, President Obama continues to press for more taxpayer subsidies for Solyndra-style green energy companies,” Mr. Pyle said.

Mr. Obama’s positive rhetoric toward natural gas could also represent a desire to please both sides of the debate, though the move to the middle has, thus far, seemed to satisfy no one. After the speech, environmental groups blasted the administration for being too timid and called for an all-out war on fracking.

“We can’t wait much longer for the clean energy revolution. We need to clean up a fossil fuel industry run amok, by ensuring … natural gas safeguards that go much further than what the president suggested,” Sierra Club Executive Director Michael Brune said in a statement after the State of the Union address.

So far, however, the administration has stopped far short of what the Sierra Club and other liberal groups want to see. Mr. Obama did, however, call for legislation requiring any company drilling on public land to disclose all chemicals used during the fracking process. Several states, such as Texas and Colorado, have already passed disclosure bills, and many leading companies voluntarily post detailed breakdowns of their chemical mixtures to the website fracfocus.org, an online clearinghouse.

Potential state or federal regulations aren’t they only problems confronting the gas industry. The explosion of natural gas extraction in areas like the Marcellus Shale region has glutted the market, keeping prices low for consumers but leading to diminished returns for drilling companies.

Last week, Chesapeake Energy, one of the largest players in the game, announced plans to reduce daily gas production by 500 million cubic feet, an 8 percent drop. The firm said it’s considering slashing production even further and predicts “flat or lower total natural gas production in the U.S. in 2012” as supply outstrips demand.