US budget cuts may slow Alaska drilling -official

Tue Jul 12, 2011 4:54pm EDT

Related Topics

* House bill to cut DOI, EPA budget $4 bln from Obama plan

* Inspectors, technical experts could be hurt by cuts

* More Alaska output would protect TAPS pipeline

By Timothy Gardner

WASHINGTON, July 12 (Reuters) - The U.S. Interior Department is concerned potential cuts in the government's 2012 budget, to take effect this October could slow oil and natural gas drilling off the Alaskan coast, an official said on Tuesday.

"The Arctic is an very good example of an area that could be affected in very significant ways by budget negotiations," David Hayes, the Deputy Secretary of the U.S. Department of Interior told a meeting at the Center for Strategic and International Studies.

Hayes said proposals by Republicans in the House of Representatives to slash next year's budget would mean the Interior Department would not have "close to what we think we need in order to have sufficient inspectors, technical experts and others to do the work necessary" for offshore oil and gas drilling.

A House spending panel is mulling a bill that would cut a few billion dollars from what President Barack Obama requested for the combined 2012 budgets for the Interior Department and the Environmental Protection Agency.

The bill faces an uncertain future in Congress, but is a sign of increasing pressure on the government to cut spending as the August 2 deadline on raising the debt limit looms.

EXECUTIVE ORDER

With billions of barrels of oil and trillions of cubic feet of natural gas estimated to be in Alaska's Beaufort and Chukchi Seas, the state is an important part of Obama's plan to reduce dependency on foreign oil by boosting U.S. production.

In addition, the 800-mile (1290 km) Trans Alaska Pipeline System, or TAPS, which brings oil down to the U.S. West Coast, desperately needs a greater flow of oil from the state. Without more oil it could face problems, such as wax build up and water separation, that could hurt its operation, said Thomas Barrett, the president of Alyeska Pipeline Services Co, which operates TAPS.

Hayes said an executive order Obama signed on Tuesday to create an interagency working group coordinating energy development in Alaska should ensure "timely" oil and gas permitting for companies.

That would be good news for oil companies such as Shell (RDSa.L) which is trying to breathe new life into its exploratory drilling program in waters offshore Alaska. Those plans have been delayed by local opposition, litigation and fallout from last year's BP oil spill in the Gulf of Mexico.

Pete Slaiby, Shell's vice president for Alaska, said he was hopeful the working group could speed up permitting.

But the budget talks are a concern.

"The House budget would likely affect our ability to execute our offshore platform across the board, in a negative way," Hayes told reporters.

(Reporting by Timothy Gardner; Editing by David Gregorio)

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