Energy: The White House Reverses Itself on Offshore Drilling [UPDATE]

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An offshore oil rig drills near Grand Isle, La. Greg Lovett / Palm Beach Post / Zumapress

The official announcement will come at from Interior Secretary Ken Salazar at 1:30 EST today, but sources are already reporting that the White House will be pulling back on offshore oil and gas drilling. Drilling will only be allowed in the central and western Gulf of Mexico, and in parts of the Alaskan Arctic—both territories where drilling has been underway for some time. The eastern Gulf of Mexico, along with the Atlantic and Pacific shores, will likely be kept under a moratorium for at least the next five years, pending additional safety and environmental testing.

This decision, should it be confirmed, represents a significant shift from the Obama Administration’s earlier moves on offshore drilling. Back at the end of March, if you can remember that far, President Obama announced that he would be opening the eastern Gulf to drilling leases, along with parts of the Atlantic coast and the Beaufort Sea in Alaska. It was part of Obama’s great energy compromise—he would encourage Democrats and environmentalists to support expanded domestic oil drilling, in exchange for Republican support of progressive energy and climate legislation. As Obama told an audience at Andrews Air Force base on March 31:

We need to move beyond the tired debates of the left and the right, between business leaders and environmentalists, between those who would claim drilling is a cure-all and those who claim it has no place. This issue is just too important to allow our progress to languish while we fight the same old battles over and over again.

The timing would not prove ideal. Less than a month later, the Deepwater Horizon would explode, beginning the worst oil spill in U.S. history and destroying Obama’s drilling compromise. Now it seems clear that the White House recognizes that it made a mistake when it moved to expand offshore drilling, and the new policy will likely be hailed by environmentalists who’ve sought to stop the growth in drilling. You can expect resurgent Republicans to fight back, but the Interior Department and the White House have authority over drilling policy, so expect this freeze to stay. I’ll have more details this afternoon after Salazar makes his statement.

[Update 12/01/10 2:13 PM]: As reported, the White House will be scaling back offshore drilling sales in light of the Deepwater Horizon accident. Interior Secretary Ken Salazar announced that in order to husband his department’s resources for reviews of current drilling oversight, there won’t be an expansion of lease sales into the eastern Gulf of Mexico or the Atlantic coast. The current areas already under some development—the western and central Gulf of Mexico, Cook Inlet and the parts of the Chukchi and Beaufort Seas in Alaska—will be considered for new lease sales under the government’s 2012-2017 five-year plan. “Our goal is to safely and responsibly develop the nation’s offshore energy resources in the right ways and the right space,” Salazar said. “We believe the most appropriate course of action is to focus on existing lease sales and not expand at this time.”

So what’s changed between March 31 and December 1? The Deepwater Horizon. Salazar and Michael Bromwich—director of the new Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE)—were fairly open about the fact that the regulatory problems stemming from the BP oil spill made it technically difficult to expand drilling when the government was still trying to figure out just what went wrong on the Deepwater Horizon. (Though they didn’t say so, it wouldn’t look so great politically either.) That’s especially true for the Alaskan Arctic territory, where the harsh climate and sheer remoteness—not to mention significant doubts on the part of native Alaskans living along the north shore–should make regulators tread cautiously. “The Arctic is a very extreme and remote and fragile place,” says Marilyn Heiman, director of the offshore drilling reform campaign and the U.S. Arctic program for the Pew Environment Group. “Any kind of consideration of development in the Arctic Ocean should be conducted with a great deal of caution and really listening to the people of the area.”

Lease sales in the Gulf of Mexico that has been scheduled for this spring will now take place at the end of 2011 or even into 2012, as the Administration analyzes the safety and environmental impact of drilling. That will upset the oil and gas industry, along with members of Congress—mostly Republicans, but also Democrats like Louisiana Senator Mary Landrieu—who’ve been pushing for offshore drilling to get back onto gear. Jack Gerard—president of the American Petroleum Institute, a trade group—warned that Salazar’s decision could cost the U.S. economy jobs:

As our country looks for ways out of the hole of lackluster economic growth and job creation, today’s decision shows that this administration would rather keep digging than take the ladder to increased economic prosperity offered by developing our nation’s domestic energy resources.The oil and natural gas industry is a reliable vehicle for growing the economy and creating good-paying jobs. This decision shuts the door on new development off our nation’s coasts and effectively ensures that new American jobs will not be realized. It will stifle investment, deny billions in revenue for critical government services and increase our dependence on foreign energy sources.

But that’s not quite right. As Salazar took pains to point out, the U.S. is still putting up new areas for sale in the Gulf of Mexico. And more importantly, oil and gas companies have already leased nearly 30 million acres in the Gulf that they have not yet developed. (Federal offshore oil and gas territory is put up for lease in regular auctions—companies bid to purchase a lease over a patch of ocean, and then have the right to develop it.) “Companies are moving ahead on oil and gas [development] on less than one-third of the leases they hold,” Salazar said.

That probably won’t be enough to placate the White House’s critics in Congress or the industry, but control of offshore drilling remains in the hands of the Administration. Salazar signaled that the White House might be still be ready to deal with Congress on energy and offshore drilling, echoing the compromise President Obama wanted to make when he expanded drilling back in March. “Energy policy is an area where the Administration and Congress can work together in a bipartisan fashion to support jobs and energy,” he said. “But we need a comprehensive approach that just can’t be drilling. If Congress wants to lift the moratorium on the eastern Gulf of Mexico the Administration will listen only if it is part of a balanced energy package…including renewables, electrification of vehicles and clean energy R & D.”

Such a deal still makes sense—but in a polarized Washington, I’m skeptical it will happen soon.