Industry lukewarm to Obama's offshore drilling plan

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U.S. President Barack Obama plans to open the U.S. Atlantic coast to offshore drilling for the first time in more than two decades, but that doesn't mean drillers will be lining up to develop an area with limited energy prospects.

The plan to expand areas open for offshore drilling was called the "largest expansion of our nation's available offshore oil and gas supplies in three decades" by Secretart of the Interior Ken Salazar Wednesday.

But while it will provide new access to the U.S. east coast and eastern areas of the Gulf of Mexico - provided such plans are cleared on environmental grounds - the new strategy also cancels one planned lease sale in Alaska's Bristol Bay, considered too environmentally sensitive, and delays two others.

Those sales, which had been planned in the Beaufort and Chukchi seas, won't be reconsidered until at least 2012, a move that drew anger from those who had counted on developing those areas. Mr. Obama said leases in those areas would only be brought back after further scientific study and community consultation.

"Taking Alaska's Bristol Bay out of consideration just a couple years after the Bush administration allowed it to be considered is demonstrating once again that zigzag politics controls our energy policy more than substantive long-term strategy," said John Hofmeister, the former head of Royal Dutch Shell PLC's U.S. operations.

Oil companies can't operate effectively with "on-again, off-again" policies, said Mr. Hofmeister, adding that the delays mean that "OPEC wins again."

The U.S. Interior Department released figures estimating that 39 to 63 billion barrels of crude and 198 to 294 trillion cubic feet of natural gas could be economically recoverable from the areas it is proposing to open.

The vast majority of that, however, will come from new leases it plans to open in the central Gulf of Mexico coast, an area that already produces four million barrels of crude and 40 trillion cubic feet of gas a month.

The U.S. currently consumes about 6.8 billion barrels of liquid fuels a year.

The entire Atlantic region, by contrast, is expected to hold a billion or fewer barrels of oil. And interest in that area could be dampened by the fact that it's believed to be a better source of natural gas than oil. With gas prices depressed in part by the discovery of massive new onshore shale gas resources, some doubt that companies will be willing to spend more drilling for offshore deposits.

"There isn't going to be the appetite," said Thomas Wallin, president of international oil research and consultancy Energy Intelligence.

"But that also means that when [the Department of Interior]gets around to licensing and leasing the properties, they'll probably focus on the more oil-prone ones. That will be where the greatest industry interest is going to be."

But some energy experts faulted Mr. Obama for ignoring some of the country's most potentially productive offshore areas - such as the southern parts of Alaska's Aleutian Islands - while making only marginal improvements to what is available elsewhere.

In the eastern Gulf of Mexico, for example, companies are currently allowed to explore to within about 280 kilometres of the Florida shore. The new strategy will drop that to 200 kilometres.

"That's a bone," said George Littell, a principal with Houston-based energy analysis firm Groppe, Long & Littell.

"It all sounds like good theatre but not much practicality."

The U.S. Competitive Enterprise Institute accused Mr. Obama of taking a small step forward "after taking 10 steps back," since much of Alaska and the entire Pacific coast will remain off-limits.

BP America Inc. president Lamar McKay called the proposed offshore changes "a constructive step," although Chevron Corp. pointed to the difficulty of working in areas that have been left untouched for decades.

"We need a modern, accurate inventory of key areas of the outer continental shelf to understand the potential," the company said. "Most of the data was collected 25 years ago using outdated technology."

With files from Bloomberg News