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http://www.bloomberg.com/news/2012-05-09/obama-warms-to-energy-indu...

By Mark Drajem - May 9, 2012 7:26 AM PT

Huddled around the West Wing table were an unlikely group of co-conspirators with the administration of U.S. President Barack Obama.

One participant had been fighting Obama’s proposal to raise taxes by $24 billion on oil companies; another had complained that a federal labor board is hampering hiring; a third pushed Congress to repeal Obama’s provision to clean up pollution from boilers. On the one issue they were called to discuss on that April day, however, they could rally around the Democratic administration: its recent embrace of natural gas.

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Natural Gas

President Barack Obama put his initial emphasis as president on boosting solar panels and wind turbines, but now natural gas is front and center. Photo: Mike Mergen/Bloomberg

President Barack Obama put his initial emphasis as president on boosting solar panels and wind turbines, but now natural gas is front and center. Photo: Mike Mergen/Bloomberg

Chart: White House Warms Up to Natural Gas

For a president who has drawn withering criticism from the energy industry on issues ranging from the Keystone XL pipeline to environmental restrictions on coal-fired power plants, the White House meeting -- and a series of decisions that followed - - illustrate his embrace of one fossil fuel.

While Obama put his initial emphasis as president on boosting solar panels and wind turbines, natural gas is now front and center even as skepticism about hydraulic fracturing, or fracking, is rising among Obama’s environmental allies such as the Sierra Club.

“They’re more responsive, and they’re listening more closely to our views,” Jack Gerard, the president of the American Petroleum Institute in Washington and one of the participants in that meeting, said in an interview. “The energy and economic reality is starting to sink in.”

Won Small Battles

At that April 13 meeting with trade groups representing companies including DuPont Co. (DD), Noble Energy Inc. (NBL) and Caterpillar Inc. (CAT), the Obama administration unveiled an interagency task force to coordinate the development of natural gas. And since then industry has won a series of small battles: officials downplayed reports of water pollution from fracking in Wyoming and Pennsylvania; they turned down a request by environmentalists to ban diesel in fracking; and they eased off on two gas-drilling regulations.

In response, Obama has gained two -- not three -- cheers from industry groups, and an issue that may be politically potent this year.

“It took a while for the administration to realize the role it could play,” Michael Walls, vice president of the American Chemistry Council and another person in the Roosevelt Room that day, said in an interview. “What we’ve seen is an evolution in thinking.”

Contributions to Republicans

While Obama is unlikely to gain the full-throated support of the oil and gas industry -- which gave 88 percent of its $22 million in contributions to Republicans in this campaign, according to the Center for Responsive Politics -- gas production is taking off in key electoral battleground states such as Pennsylvania, Ohio and Colorado. And the surge in natural gas production and fall in prices offers Obama a ready rebuttal to Republicans on energy issues.

“This is a counter-argument to those attacking him on gasoline prices,” Bruce Oppenheimer, a professor at Vanderbilt University who studies the politics of energy, said in an interview. “It becomes a real talking point for him when he gets attacked on energy.”

Of a list of nine energy options polled by the University of Texas in March, expanding production of natural gas was seen as the most likely to generate support for a candidate, topping expanding drilling off the Gulf Coast, eliminating the Environmental Protection Agency or backing renewable energy.

The growth in natural gas production from shale has pushed down prices by 50 percent in less than a year and led to a spurt in employment and production of steel, chemicals and fertilizer.

Fracking-Linked Pollution

At the same time, many local residents and activists complain that the process of hydraulic fracturing to free that gas has led to contamination of drinking wells, toxic wastewater seeping into streams and hazardous smog in the air.

The administration is tacking in response to the surprising boom in natural gas, which pollutes less than coal when burned in a power plant, while also trying to mitigate risks, officials say. Obama himself claimed in his State of the Union address this year that the U.S. has a century’s worth of natural gas reserves, and developing that gas could boost employment by 600,000 jobs by the end of the decade.

“We recognize that there is this important potential here, and we want to make sure we get it right,” Heather Zichal, the top White House aide on energy, said in an interview. Given the boom in production, “our thinking has truly evolved, both on the production and utilization side.”

Industry Lobbyists

After Obama embraced natural gas as part of an “all-of- the-above” approach this year, Zichal held a series of conversations with Gerard, whose group represents companies such as Exxon Mobil Corp. (XOM) of Irving, Texas, and ConocoPhillips of Houston, and Dave McCurdy, the president of the American Gas Association, a Washington group representing companies that distribute natural gas including Consolidated Edison Inc. (ED) of New York and Southern California Gas Co. of San Deigo.

Gerard, who had visited the White House only a few times since Obama took office and donated $2,500 to the presidential campaign of Republican Mitt Romney, was an unlikely partner.

McCurdy wasn’t.

A former Oklahoma Democratic congressman, McCurdy, as the head of the Alliance of Automobile Manufacturers when Obama took office in 2009, had used his low-key charm to coax the administration into negotiating new fuel-efficiency standards with automakers.

Just as with the automakers, McCurdy said the White House recognizes “that with the natural gas community, they don’t have to be in natural conflict,” he said in an interview.

Separate Agendas

Both Gerard and McCurdy had been emphasizing one point: While Obama had called for more gas production, as many as a dozen federal agencies were considering various rules or policies that could deal drilling a setback.

“You had a president setting a broad policy position, and then you had agencies off implementing their own agendas,” McCurdy said.

After weeks of these discussions, the White House called Gerard, McCurdy, and officials from America’s Natural Gas Alliance, the National Association of Manufacturers, the American Chemistry Council and the U.S. Chamber of Commerce into the White House meeting, held just steps from the Oval Office.

Not in attendance: environmental or health groups.

From the administration were Zichal and Cass Sunstein, the administration’s top regulator. Together they told the group that Obama would start an interagency group, made up of 13 federal departments or offices, to tackle just the points industry had raised: the conflicting agendas within the administration seeking to regulate fracking, in which water, sand and chemicals are shot into the ground to break apart underground rock and free gas trapped there.

Praise for Obama

The lobbyists then laid out their issues: one pushed for EPA to delay and scale back new rules on air pollution from gas drilling; another wanted help in permitting new pipelines; a third asked the White House to get EPA to reevaluate how it measures methane, a greenhouse gas that escapes when a well is first fracked.

And in the end, both sides collected victories.

Instead of criticisms, the groups praised Obama for launching the effort. The White House dutifully collected the statements and e-mailed them around to reporters.

Over the weeks that followed, the EPA delayed requirements that drillers capture the gas emitted when a well is first tapped until 2015, a key demand of Gerard’s group. The Bureau of Land Management eased off on requirements for disclosure of chemicals used in fracking. And the EPA disregarded a plea from environmentalists to outlaw the use of diesel in fracking.

Politically Powerful

Just yesterday, the Interior Department approved Anadarko Petroleum Corp. (APC)’s $10 billion natural-gas project to drill 3,675 wells in Utah’s Greater Natural Buttes area in Uintah County.

“The oil and gas industry is a very powerful and politically influential industry,” Amy Mall, a senior policy analyst at the Natural Resources Defense Council in Washington, said. “They’re making it hard to make a case that companies can and should clean up their act.”

Industry groups aren’t entirely satisfied either. Even with the changes to each of the EPA and BLM rules, Gerard says the administration is imposing needless costs, and should leave regulation to the states.

They are also still fighting on other issues. Gerard, called Obama’s attacks on oil companies’ tax bills “misleading” and “offensive.” And he has a clear-eyed sense of why he has a new ally in the White House now.

“You are seeing the president begin to pivot, because he is on the wrong side of the American people,” Gerard said. “And it’s election time.”

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net