Lawmakers glean little from Haaland on Interior's next move on offshore oil, gas leasing

US Interior Secretary Deb Haaland offered lawmakers little insight into progress towards holding offshore oil and natural gas lease sales during a July 13 congressional hearing that saw Democrats urge the secretary to finalize a no-sales option while Republicans argued that approach would be nonsensical.

The hearing, convened by a Senate Appropriations Committee panel to discuss the Interior Department's $18.1 billion budget request for fiscal year 2023, quickly homed in on the partisan divide over domestic oil and gas production and how best to rein in gasoline prices, with lawmakers debating the aptness of comparing the country's reliance on crude oil with heroin addiction.

A major sticking point was Interior's July 1 proposal to hold up to 10 auctions for Gulf of Mexico acreage and one for Alaska's Cook Inlet over 2023-2028 as part of the next National Outer Continental Shelf Oil and Gas Leasing Program.

The last five-year program expired June 30, and Republicans lashed out over the delay in implementing a new plan as well as the ambiguity of the proposal which fails to guarantee any new lease sales in federal waters. The draft plan also stands in stark contrast to the Trump administration's 2018 proposal to hold 47 sales.

Questions probing the likelihood that Interior would exercise the option to hold zero lease sales, Interior's consideration of emissions and costs impacts from turning to non-Gulf produced oil, and the potential timing for the restart of lease sales mostly went unanswered as Haaland said she could not prejudge the issue.

July 8 marked the start of a 90-day public comment period on the draft five-year plan, which is not expected to be final for some time after.

Haaland offered that those comments would factor into any decisions made and that Interior would work to have a balanced approach in the final plan. She also pointed the finger at the Trump administration for the delay in issuing the new five-year plan for offshore leasing.

"They took no further action after releasing the draft proposed plan in 2018, so we're moving forward expeditiously on the next steps," Haaland said, noting that two of the five steps have been completed.

"We will incorporate input to develop and publish the proposed final program, which can be approved by the secretary and adopted 60 days later following presidential and congressional consideration," she added.

No near-term impact

Platts Analytics does not anticipate a near-term production impact from what will be at least a two-year gap between offshore lease sale auctions and gauged the price influence of Interior's proposal as neutral as operators have secured enough leases to develop.

Gulf of Mexico drillers currently pump about 1.8 million b/d, roughly 15% of total US output, and Platts Analytics expects that production to peak at just under 2 million b/d in 2024 before steady declines set in.

"Production through the current decade is largely supported by sanctioned projects and fields earmarked for likely future developments, after which time steeper declines will materialize unless new discoveries are bagged," Platts Analytics' Sami Yahya and Rene Santos said in a recent note.

Medium- and long-term impacts of delayed or cancelled lease sales could be significant, according to Platts Analytics, as it could take from four to 12 years from lease award to first production, with Gulf of Mexico volumes potentially being reduced to half by 2040.

Responding to a claim that energy prices across all commodities could rise if no offshore lease sales were held, Haaland told lawmakers that Interior does not "take cost into consideration in that respect because we're focusing on managing our natural resources," but said she appreciated the perspective.

Pressed further on price implications, particularly as the US reported a higher than expected 9.1% surge in inflation in June driven by record gasoline prices, Haaland asserted that many factors go into the price of fuel and reiterated the Biden administration's position that oil companies have 9,000 approved drilling permits and millions of nonproducing acres under lease that they could tap to increase domestic oil and gas production.

Partisan divide

Senator Bill Hagerty, Republican-Tennessee, shot down that explanation as a distraction.

"You sent every message since this administration took office that the Biden administration will ensure that oil and gas investments do not pay off in America," he said. "What we need to see is a message to the marketplace that expands production, not constrains it."

Senator Jeff Merkley, chair of the appropriations subcommittee on Interior, environment and related agencies, rejected the notion that the Biden administration has created a hostile economic environment for oil and gas companies, pointing to the oil industry's record profits as evidence.

Addressing arguments that high gasoline prices warrant more drilling, Merkley said "it's like a heroin addict saying that the solution to heroin addiction is more heroin."

The Oregon Democrat urged Haaland to pursue the no leasing option presented in the draft five-year plan.

"The answer, in the long term, to the high cost of petroleum at the pump is an end to our addiction to that petroleum by rapidly building a renewable energy economy," he said.

The top Republican on the subcommittee, Senator Lisa Murkowski of Alaska, countered that "there is no upside to heroin addiction," whereas oil continues to power and allow modern societies to function and remains in demand by the US and its allies.

"I truly believe that our national security interests require that we increase our domestic supply of these resources, including from our offshore areas," she said.

She pressed for a leasing plan that "keeps at least the current acreage available for offshore leasing" and allows for annual sales at Alaska's Cook Inlet, rather than one sale every five years. She insisted that the no sales option was "unacceptable," particularly given geopolitical supply disruptions and unrest that have roiled the global oil markets.