The oil and natural gas industry and GOP lawmakers are clashing with the Biden administration over its public lands policy for energy production as oil prices sit at multiyear highs.
Oil and gas output from federal lands makes up a small portion of national production, and the White House and the administration's defenders have noted that many approved leases are not being used. But industry trade groups and Republicans in Congress have said the administration's policies are nevertheless hampering production at a time of market upheaval.
A new report from a Democrat-backed watchdog group says the recent surge in energy prices is mainly driven by global market factors, including growth in economic activity as the world recovers from the coronavirus pandemic, along with supply disruptions tied to Russia's invasion of Ukraine.
NYMEX April prices for West Texas Intermediate crude oil fell by $2.68 to settle at $106.02 per barrel on March 10.
But less than 10% of both U.S. crude and natural gas output comes from federal lands, and producers are "leaving huge swaths of leases on public lands undeveloped," according to a report from Accountable.US, whose board members include former staff of Democratic lawmakers and past Obama administration staff.
Price pressures analysis
The report said a review of the past 17 years did not show that increased production on federal lands translated to lower residential natural gas prices. Instead, the analysis said residential gas prices have tracked more closely with Henry Hub spot prices, which have surged lately as pandemic restrictions have lifted, inflationary pressures have increased, and Russia's conflict with Ukraine has impacted global markets.
The group's analysis also showed that the oil and gas industry had 26 million acres of public lands under lease at the end of fiscal year 2020, with more than half — 13.9 million acres — unused and nonproducing.
"The oil and gas industry would have us all believe the only thing standing in the way of lower gas prices for consumers is President Biden's supposed refusal to approve new leases and drilling permits on public lands," Kyle Herrig, president of Accountable.US, said during a March 10 briefing. "This is false. In truth, Biden has actually approved more new permits in his first year as president than [former President Donald] Trump did in his first year."
After taking office in January 2021, Biden suspended new leases for oil and gas production from federal lands and waters while the U.S. Department of the Interior reviewed its leasing program. A federal judge in Louisiana later struck down the leasing pause, and the Biden administration held its first oil and gas lease sale in November 2021.
But a U.S. appeals court judge vacated the lease sale results in January, saying Interior had failed to review new research on drilling impacts and did not account for foreign consumption of U.S. oil and gas supply in its calculation of greenhouse gas emissions.
Despite the court's decision, White House Press Secretary Jen Psaki said during a March 9 briefing that there are 9,000 "unused" approved federal permits for oil and gas drilling, meaning producers have access to more public lands if needed to grow output.
"What additional permits do they need?" Psaki said to reporters. "The leases are there. The permits are there. I don't think they need an embroidered invitation to drill."
Industry, GOP push back on White House
Trade group the American Petroleum Institute said the current seven-year high for oil prices stems from a combination of factors, including increased geopolitical instability in Eastern Europe and an economic rebound.
"However, policy choices matter, and the administration has consistently advanced energy policies that hamper production and add additional uncertainty to the market, including restricting access to leasing and permitting on public lands," an API spokesperson said in an emailed statement.
Frank Macchiarola, API's senior vice president of policy, economics and regulatory affairs, said the industry is at a two-decade high for the percentage of leases in production, with nearly two out of every three leases producing natural gas and oil.
"Leases are issued prior to exploration, and not every acreage of leased land has resources to tap into, despite substantial investments by developers," Macchiarola said in an emailed statement. "With production still below pre-pandemic levels and an imbalance between supply and demand that is being exacerbated by the Russian invasion into Ukraine, it's time for the administration to support domestic production and send a message that America is open for energy investment."
Regarding the 9,000 leases repeatedly referenced by the White House, U.S. Sen. John Barrasso, R-Wyo., likened the situation to having "paid the rent for the apartment, but the government won't give you the key to get in the door because they haven't given you the permission yet to drill."
"Once you are able to produce energy from there, they won't give you the permission to put together the pipeline to move the oil or the natural gas from where it's coming out of the ground," the ranking member of the Senate Energy and Natural Resources Committee said March 10 during a hearing examining the use of energy as a tool and a weapon.
Michelle Michot Foss, a fellow at Rice University's Baker Institute, told committee members that she sees the Biden administration's rhetoric around oil and gas as potentially detrimental to the industry's social license and, consequently, the sector's access to capital.
"There are threats against capital for the industry that are just simply not constructive, not necessary [and] really silly in many respects," she said. "The idea is to starve the industry of capital to keep it from upgrading to force us off of oil and gas before we can viably move forward with other things."
But Sen. Catherine Cortez Masto, D-Nev., said oil and gas companies "certainly are not hurting," and pointed to the combined $90 billion in profits the six largest publicly traded oil and gas companies reported last year.
"In recent days, major oil companies in the U.S. have said that they would rather use their earnings from higher prices to boost payouts to shareholders and expand their operations slowly rather than rush to drill new or develop existing wells," she said.
Colette Hirstius, Shell PLC's senior vice president for the Gulf of Mexico, told lawmakers at the hearing that she believed Shell would be successful in increasing its domestic production. But to maintain output, "we need to continue to drill wells, we need to continue to acquire seismic data, and we need to continue to acquire leases that allow that conveyor belt of activity to continue."
The Biden administration could help spur domestic production increases by issuing a five-year offshore leasing plan within the next few months, Hirstius said. The current plan ends in June.
Jasmin Melvin is a reporter for S&P Global Platts, an offering of S&P Global Commodity Insights. S&P Global Commodity Insights is owned by S&P Global Inc.
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