September 2021 /// Vol 242 No. 9)
Actions speak louder than words: Biden and the U.S. upstream
Perhaps the most intrepid promise that President Joe Biden made on the campaign trail was to ban oil permitting on federal lands. After taking the Presidential oath of office, he signed an executive order to halt new oil and gas drilling on federal onshore lands and offshore waters.
He ordered the U.S. Department of Interior to take steps toward conserving 30% of public lands and waters by 2030. Moreover, the President halted the implementation of a leasing program in the Arctic National Wildlife Refuge, and he withdrew the permit of the Keystone XL pipeline. Approximately 24% of oil and gas production in the U.S. is coming from federal lands. The moratorium didn’t impact the existing operations or valid permits of existing leases. Nor did the executive order block or limit oil production in private and state lands.
Industry’s acreage position. The oil and gas industry has secured significant acreage on federal lands, thanks to the Trump administration. According to the U.S. Department of Interior, more than 26 million acres onshore are under lease to the industry. Nearly 13.9 million, or 53%, of those acres are unused and non-producing. More than 12 million acres of public waters offshore are under lease. Over 9.3 million, or 77%, of those acres are unused and non-producing. Overall, the oil industry has secured approximately 7,700 unused approved permits to drill both onshore and offshore.
All those companies with existing leases have not been affected. During the Trump administration, several oil companies sought to secure more permits in anticipation of a policy change by President Biden. Moreover, several oilmen were afraid, at the beginning of this administration, that the leasing moratorium would likely signal the beginning of a remarkable energy policy change. A more permanent leasing ban, they thought, would have a substantial impact on robust American oil production.
However, because the moratorium only halted new lease sales, the drilling permit applications on already leased lands have continued to flow. The Bureau of Land Management, despite President Biden’s speeches, has approved more than 2,400 new drilling permits since Jan. 20. When the executive orders were signed, the White House stated that the moratorium would not hurt the industry, because 60% of all leased federal lands are still unused. However several states filled lawsuits and, in June, a Louisiana federal judge ordered an end to the moratorium. However, new lease sales have not resumed yet.
This is a concern. While more than 75% of U.S. oil and gas production comes from private and state lands, an outright ban will cause serious injury to U.S. oil production. The reason being that in the Western states, oil and gas development requires drilling on federal lands, as well. Furthermore, it would be disastrous for states like New Mexico, the third largest state in oil production, because its output is mostly on federal lands.
Biden’s pragmatism. However, the Biden administration doesn’t seem to make the current moratorium permanent. Secretary of Interior Deb Haaland, in a June congressional hearing, stated that “gas and oil production will continue well into the future, and we believe that this is the reality of our economy and the world we’re living in.” Approvals for companies to drill for oil and gas on federal lands are on pace this year to reach 6,000, their highest level since George W. Bush was President.
There are two fundamental reasons for this development. One, President Biden’s reluctance to hold back oil production in the face of high oil prices. Gasoline prices on the pump have reached $3 in several parts of the country. It would be suicidal for the Biden administration to curb oil production and risk higher oil prices. Such a policy would have devastating effects on the economic recovery after the pandemic.
And two, the U.S Senate is split 50-50 between Republicans and Democrats. The President has to be pragmatic in his energy policy toward the oil industry. Leading Republican senators don’t rely only on the pragmatism or the good will of President Biden toward the American oil industry. They have undertaken initiatives in the Senate to secure robust oil production and the strength of our national security.
Republican opposition. Senator Ted Cruz (R – Texas) has introduced a bill to fight back against the Biden administration’s decision to halt oil and gas leases. The Protecting our Wealth of Energy Resources (POWER) Act aims to prohibit the President, and his Secretaries of the Interior, Agriculture, and Energy, from blocking energy or mineral leasing and permitting on federal lands and waters without congressional approval. Upon introduction, Sen. Cruz said: “As America continues to recover from a global pandemic (...), we must work to prevent any administration from crippling our energy industry without approval from Congress.” Moreover, he stated, “It is vital to the economic and national security of the United States to preserve energy production in the Gulf of Mexico and reduce our reliance on foreign powers.”
Since Jan. 20, when it comes to the upstream oil industry, President Biden’s actions speak louder than his words. He has been pragmatic, so far. The political reality in Washington, D.C., and the need for economic recovery after the pandemic, will probably dictate a moderate policy by this administration toward the American oil industry.