Obama Rules Drop Oil Supplies 13% Gas Now $3.10

With demand down, one need look no further than the Obama drilling ban in the Gulf followed by the imposition of impossible new rules to explain $100 oil and $3.00 gas predicted to hit $4.00 soon.

Drilling Is Stalled Even After Ban Is Lifted

By BEN CASSELMAN And DANIEL GILBERT JANUARY 3, 2011 Wall St Journal

More than two months after the Obama administration lifted its ban on drilling in the deep-water Gulf of Mexico, oil companies are still waiting for approval to drill the first new oil well there. Experts now expect the wait to continue until the second half of 2011, and perhaps into 2012.

The administration says it is simply trying to enforce new safety rules adopted in the wake of the April 20 explosion of the Deepwater Horizon drilling rig, which killed 11 workers and set off the worst offshore oil spill in U.S. history. Environmental groups say the administration is right to take its time because the Gulf disaster exposed the risks of offshore drilling.

But the delay is hurting big oil companies such as Chevron Corp. and Royal Dutch Shell PLC, which have billions of dollars in investments tied up in Gulf projects that are on hold and are paying hundreds of thousands of dollars a day for rigs that aren't allowed to drill. Smaller operators such as ATP Oil & Gas Corp., which have less flexibility to focus on projects in other regions, have been even harder hit.

The impact of the delays goes beyond the oil industry. The Gulf coast economy has been hit hard by the slowdown in drilling activity, especially because the oil spill also hurt the region's fishing and tourism industries. The Obama administration in September estimated that 8,000 to 12,000 workers could lose their jobs temporarily as a result of the moratorium; some independent estimates have been much higher.

The slowdown also has long-term implications for U.S. oil production. The Energy Information Administration, the research arm of the Department of Energy, last month predicted that domestic offshore oil production will fall 13% this year from 2010 due to the moratorium and the slow return to drilling; a year ago, the agency predicted offshore production would rise 6% in 2011. The difference: a loss of about 220,000 barrels of oil a day.

Drilling in waters of less than 500 feet also has been snared by the government's increased scrutiny. Regulators requested modifications to 101 shallow-water drilling plans in 2010, compared with 59 such requests in 2009 and just 31 in 2008. Rig operators say drilling permits once approved in a matter of weeks have taken up to five months to process as the government introduced new rules.

The lengthy delays in reviewing new permits have caught the industry off guard. When the Obama administration lifted its ban on deep-water drilling on Oct. 12, many experts had expected a few permits to be issued before the end of 2010, followed by a gradual ramp-up of activity this year.

Among the new rules: Companies must hire outside engineers to certify key well-safety equipment and subject the gear to more rigorous tests. They require more worker training, more documentation and detailed plans of how they would respond to a worst-case well blowout.

Environmentalists say the Deepwater Horizon disaster proved reviews needed to be more thorough. "The process can work efficiently. Maybe not as quickly as it did before, but that's understandable," said Elgie Holstein, a staff expert at the Environmental Defense Fund.

But with no deep-water permits yet issued and companies still struggling to comply with new, tougher safety rules, experts say it could be 2012 before drilling approaches pre-disaster levels. Even when it does, projects that were once approved in weeks will likely take months to get past increased regulatory scrutiny.

"There was a sense that we would start to see deep-water permits approved by year end," said Arun Jayaram, an energy analyst with Credit Suisse in New York. Mr. Jayaram said he now doesn't expect much deep-water drilling at all this year.

Some companies are shifting investments out of the Gulf. BP PLC recently said it would move a brand-new rig that was meant to work in the Gulf, Pride International Inc.'s Deep Ocean Ascension, to Libya. Marathon Oil Corp. has tried to cancel a contract for a newly built Gulf rig owned by Noble Corp. Noble declined to comment, but last month it said it would "vigorously defend its rights under the drilling contract." Wall St Journal