US puts new oil and gas leases, permits on federal lands on hold for 60 days

Houston — The US Interior Department on Jan. 20 put new oil and gas lease sales and permits on federal lands and waters on hold for 60 days, according to an order signed by Acting Secretary Scott de la Vega.

The decision gives the Biden administration more time to develop its longer-term plans on oil and gas leases that could involve a broader ban. The order does not impact drilling and activity on existing leases and permits.

The moratorium is for 60 days from Jan. 20 and would presumably provide a window for Biden's Interior secretary nominee, US Rep. Deb Haaland, D-New Mexico, to get confirmed by the Senate.

Haaland's own New Mexico and the US Gulf of Mexico are the most exposed regions from a leasing ban. A majority of the Permian Basin's extension into New Mexico is on federal land, while the Permian in Texas is entirely on unaffected private lands. Other impacted states would include Wyoming, North Dakota, Colorado, California, Utah and others.

The moratorium would still allow for some permitting approvals to be made by high-level staff. It was not immediately clear if a March 17 Gulf of Mexico lease sale scheduled by the Trump administration would be canceled. The Interior Department did not immediately reply to questions seeking to clarify.

A moratorium on new leasing was a Biden campaign pledge, but in a slew of more than 15 executive orders signed on Inauguration Day, the only temporary leasing moratorium signed by Biden applied to the Arctic National Wildlife Refuge. However, within the Interior Department, de la Vega quietly signed the nationwide, 60-day moratorium.

When Biden's press secretary was asked late Jan. 20 whether Biden still felt obligated to follow through on a nationwide leasing moratorium, Jen Psaki said, "We do, and the leases will be reviewed by our team. We've only been in office for less than a day."

So the 60-day moratorium could lead into a much broader ban on new federal oil and gas leases and permits.

Actually banning federal drilling, which is not a part of this order, would put more than 1.6 million b/d of US crude oil production at risk, according to S&P Global Platts Analytics, as part of a "worst-case scenario." It is more likely that closer to 1.1 million b/d would be impacted.

"The largest impact would come through drilling restrictions, which would hit New Mexico shale production the most in 2023-2024, given that operators applied for more than 3,000 drilling permits during the last few months of 2020," Platts Analytics said in a report. "If Gulf of Mexico drilling is also banned, we do not expect any impact until at least 2026, as existing federal offshore permits last for 7-10 years."

The biggest oil and gas producers have ample acreage and reserves to work from if new leases remain banned for some time, but smaller and mid-sized companies would bear more of a brunt from the reduced access.

Because of the loss of demand from the coronavirus pandemic, US crude oil production already has fallen from record highs of nearly 13 million b/d near the beginning of 2020 down to 11 million b/d this January.

The American Petroleum Institute and other industry groups were quick to criticize the move.

"Restricting development on federal lands and waters is nothing more than an 'import more oil' policy," API CEO Mike Sommers said in a Jan. 21 statement. "Energy demand will continue to rise-- especially as the economy recovers -- and we can choose to produce that energy here in the United States or rely on foreign countries hostile to American interests."

The Western Energy Alliance said it was prepared to challenge this de facto ban in court.

"Today's announcement is intended as a temporary ban on leasing and permitting, but is also a precursor to a longer-term ban," said Alliance President Kathleen Sgamma in a statement. "The acting secretary recognizes the limits of his authority, and in actuality, the order has simply taken away the authority to lease and permit from the Bureau of Land Management (BLM) and put it on himself."

Sgamma noted that most oil and gas developments in the Western US involve some kinds of federal lands. "A ban on leasing and permitting is a death sentence to the industry in the West," she added.

CLIMATE PLEDGES

Biden's campaign pledge was part of a sweeping agenda on combating climate change.

Already Biden's executive orders have the US rejoining the Paris climate accord and revoking the permitting for the controversial Keystone XL Pipeline, effectively canceling the project for years to come.

Psaki said Biden's first call with a foreign leader as president will be on Jan. 22 with Canadian Prime Minister Justin Trudeau. She said Biden will discuss his decision on the Canadian heavy crude oil pipeline.

Trudeau weighed in late on Jan. 20, stating, "While we welcome the president's commitment to fight climate change, we are disappointed but acknowledge the president's decision to fulfil his election campaign promise on Keystone XL."

Energy analyst Ethan Bellamy of East Daley Capital said Biden's moves to limit drilling access to federal lands and waters will cede more control of the global oil markets back to the Middle East and Russia. Rising fuel costs and weaker geopolitical leverage are high costs to satisfy climate activists, he said.

"The silver lining for US oil producers with reserves on private lands: higher oil prices and reduced competition," Bellamy said. "There is no consolation prize for Albertans [in Canada]."

US PRESIDENT BIDEN ENERGY EXECUTIVE ACTIONS AND INITIATIVES

Action/Expected Action

Biden revoked the presidential permit for the long-delayed Keystone XL heavy crude oil pipeline, delivering a potentially fatal blow to the $8 billion project designed to move 830,000 b/d of heavy Canadian crude ultimately to Texas through the entire Keystone system.

Potential impact

Pipeline shortages from Canada to the US have long weakened Canadian crude prices, but the construction of the competing Line 3 pipeline replacement project from Enbridge is well underway and expected to come online in late 2021. Line 3 is expected to alleviate much of the pipeline needs of Canadian producers, and the pending Trans Mountain Pipeline expansion project would move more heavy Canadian barrels when and if it's completed, most likely in 2023. However, Canadian production could become constrained in the early 2030's without additional expansions, according to S&P Global Platts Analytics.

Action/Expected Action

The US Department of Interior issued a 60-day moratorium on oil and gas leases and drilling permits on federal lands, unless approved by high level officials.

Potential impact

S&P Global Platts Analytics expects that a drilling ban on federal lands would put 1.6 million b/d of oil production at risk in a "worst case scenario," although it is more likely 1.1 million b/d would be impacted. "The largest impact would come through drilling restrictions, which would hit New Mexico shale production the most in 2023-2024, given that operators applied for more than 3,000 drilling permits during the last few months of 2020," Platts Analytics said in a report. "If Gulf of Mexico drilling is also banned, we do not expect any impact until at least 2026, as existing federal offshore permits last for 7-10 years." Energy analyst Ethan Bellamy of East Daley Capital said Biden's moves to limit drilling access to federal lands and waters will cede more control of the global oil markets back to the Middle East and Russia.

Action/Expected Action

Biden requires Interior to place temporary moratorium on oil and gas leasing in the Arctic National Wildlife Refuge, and review the existing leasing program for environmental impacts.

Potential impact

ANWR production was not expected to be significant due to the current market conditions and environmental concerns. An ANWR auction held Jan. 6 drew little interest. Interior issued nine leases on Jan. 19. Any exploration and development plans will require permits from a Biden Interior, which may present a challenge to the new leaseholders. There are also lawsuits pending filed by conservation groups against the Trump Interior Department over the adequacy of environmental studies. "For operators it seems clear, the political and regulatory risk under a Biden administration, along with minimal appetite for expensive exploration in the most controversial region in North America, did not currently outweigh the potential huge upside in resource development," S&P Global Platts Analytics analyst Parker Fawcett said.

Action/Expected Action

Biden signed an instrument to rejoin the Paris climate agreement, enabling the US to become a party 30 days later.

Potential impact

A return to the Paris Accord could give a further boost to renewable and clean energy generation in power markets. As much as 238 GW more solar and wind will be needed in the US to meet the accord's targets. "The difference in the renewable -- solar and wind -- capacity additions for year 2050 between the reference case forecast and 2 degree scenario forecast exceed 200 GW," said Jahnavi Nadipi, a Platts Analytics North American power markets analyst. "Specifically, solar capacity additions are 128 GW higher than the reference case and wind capacity additions are 110 GW higher."

Action/Expected Action

Biden expected to issue order calling on agencies to consider revising methane emissions standards.

Potential impact

Platts Analytics estimates an average compliance cost of 5-25 cents/boe, but the impact will likely be higher if Biden resumes the Obama administration's efforts to regulate older oil and gas sources (pre-Sep. 18, 2015). "Most notably, this could introduce prohibitive costs for low-production wells," according to Platts Analytics. "These stripper wells produce roughly 750,000 b/d of oil and 9 Bcf/d of gas, although only a fraction of these volumes would likely be lost, depending on the regulatory and implementation details."

Action/Expected Action

Biden calls for establishing working group to "ensure that agencies account for the full costs of GHG emissions, including climate risk, environmental justice and intergenerational equity."

Potential impact

The action could have bearing on energy project permitting done by the federal government and on the cost-benefit analysis used for energy and environmental regulations. Interim values for social cost of carbon, nitrous oxide and methane to be published in 30 days.