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US President Joe Biden signed an order 27 January freezing new
oil and natural gas leases on public lands in lieu of a review of
climate impacts from these activities as part of his
administration's effort to reduce the country's carbon
footprint.
"Today is climate day at the White House, which means it is jobs
day," said Biden, prior to signing the executive order that directs
the federal government to takes steps to curb greenhouse gases
(GHGs), such as methane and carbon dioxide, at home and abroad.
The lease pause already has generated one lawsuit from the Western Energy
Alliance in federal court in Wyoming.
Since taking office, Biden renewed a campaign pledge to reduce
GHG emissions across the economy by mid-century, and has already
recommitted the US to the non-binding 2015 Paris Agreement, which
aspires to limit global warming below 2 degrees Celsius.
Biden's commitment to reducing oil and gas emissions is part of
the US' return to the stage on climate change, said US Special
Climate Envoy John Kerry at the press conference to announce the
sweeping executive order. "President Biden is deeply committed,
totally seized on this issue… and he knows this is urgent," Kerry
said.
One of the most prominent features of the executive order is a
directive to the US Department of the Interior to pause new oil and
gas leasing on public lands and waters, concurrent with a
comprehensive review of the federal oil and gas program. The order
also directs the Interior Department to find ways to increase
renewable energy generation from public lands and offshore
waters.
"The President's action will provide a chance to review the
federal oil and gas program to ensure that it serves the public
interest and to restore balance on America's public lands and
waters to benefit current and future generations. Fossil fuel
extraction on public lands accounts for nearly a quarter of all US
greenhouse gas emissions," the
Interior Department said in a statement.
The Interior Department as well as oil and gas sector analysts,
however, said the freeze will not affect the oil and gas industry
in the near term, as it already anticipated this action. However,
critics warned that Biden's action could pave the way for a
moratorium, as environmental groups have been seeking.
'Not a great impact'
The impact of the pause on oil and gas production is not
significant in the short term because producers can use existing
leases and permits, the Interior Department said. It also does not
affect operations or permits for existing leaseholders, and it does
not restrict energy activities on private or state lands, or lands
that the United States holds in trust or restricted status for
tribes or individual Native Americans.
But over time it could have an effect if federal lands are
off-limits when leases are exhausted, as Biden's policy represents
a turnabout from the "Energy Dominance" agenda of the Trump
administration.
In the near term, however, the lease pause on new oil and gas
permits "would directly impact less than 10% of likely near-term
national production opportunities," said Kip Hunter, a partner and
shareholder at law firm Hall Estill.
"While an indefinite halt on oil and gas leasing on federal land
would inhibit some future oil and gas development, it does not have
a great impact when looking at the big picture," Lauren Droege,
senior analyst for plays and basins at IHS Markit, said.
IHS Markit data, however, show oil and gas operators
anticipating a Biden policy change sought permitting in record
levels on federal lands in New Mexico in 2020.
The number of permits granted for wells on federal land was 60%
higher in 2020 than in 2019, as top operators EOG, Devon,
Occidental, and ConocoPhillips hurried to develop their federal
leaseholds. These four operators alone accounted for 85% of all
permits filed in 2020. "The majority of permits were processed in
the third quarter, about the time that Trump's disapproval ratings
soared and Biden's 'ban plan' gained more traction among news
outlets," IHS Markit wrote in a 22 January report.
Permian Basin impacts
Droege said the impact would be felt most in the part of the
Delaware Basin, a component of the Permian Basin, in New Mexico,
which already has been targeted by another Biden executive order
that ordered regulatory reviews of the prior administration's
actions.
"The New Mexico portion of the Permian Basin has arguably
received the most scrutiny following Biden's 60-day permitting
suspension on federal lands issued last week, due to the sizable
amount of federal land situated in Eddy and Lea counties, where the
prolific Bone Spring and Wolfcamp plays of the Delaware Basin are
located," she said.
A permitting ban disables operators from filing for new permits
and developing current federal leases. "About 48% and 51% of Class
1 acreage in the Wolfcamp and Bone Spring, respectively, is
situated on federal land, narrowing the future potential for highly
productive wells on non-federal land considerably," Droege
said.
On the other hand, all but 45,000 acres of about 2 million
federally managed acres in the Delaware Basin are leased. "In other
words, the vast majority of prime federal acreage is already
leased, so a ban on additional leasing would have a minimal effect
on future production," she said.
Interior itself noted that the oil and gas industry currently
has leases on more than 26 million acres of federal lands, of which
13.9 million (or 53%) are unused and non-producing. Offshore, of
the more than 12 million acres of public waters under lease, over
9.3 million (or 77%) are unused and non-producing. "Onshore and
offshore, the oil and gas industry is sitting on approximately
7,700 unused, approved permits to drill," Interior added.
Companies have seen this change in policy coming, Hunter said.
"It is important to note that many E&P companies already
possess permits to proceed with hydrocarbon development on federal
lands, and that the development of such drilling inventory is not
expected to be delayed as a result of the new executive order(s).
In addition, to the extent that such orders do restrict development
of federal leases, many industry players are in a position to pivot
their development attention to portfolios of state and privately
owned leases elsewhere in the country," he said.
Legally flawed
Oil and gas industry advocates said the presidential order is
legally flawed, warning the Biden administration to expect a
challenge.
Biden's order has simply taken away the authority to lease and
permit from the Bureau of Land Management (BLM) and handed it to
the Acting Interior Secretary Scott de la Vega, according to
Kathleen Sgamma, president of the Western Energy Alliance (WEA),
which represents oil and gas drillers in western US states.
Under federal statutes, BLM must hold quarterly lease sales and
process permits in a timely manner, "and cannot just be put aside
with the stroke of a pen," she said.
"We fully expect the acting secretary will indeed not fulfill
his duties under the Mineral Leasing Act and the Energy Policy Act
and are prepared to challenge this intended ban in court at the
appropriate time," Sgamma added. Later in the day, the association
did file the threatened litigation.
Sgamma also cautioned the oil and gas industry that though the
announcement is intended as a temporary ban on leasing and
permitting, it is a "a precursor to a longer-term ban."
And environmental groups hailing Biden's action said they do
want a permanent ban. "Any step that shields the Atlantic Ocean
from risky offshore drilling is a step in the right direction.
However, what coastal communities need are much larger strides that
will protect the Atlantic Coast permanently. We are committed to
working with coastal communities and the Biden administration to
realize that goal," Southern Environmental Law Center Senior
Attorney Sierra Weaver said.
Hitting pause on oil and gas leasing is "a crucial first step
toward reforming a rigged and broken system that for too long has
put oil and gas lobbyists ahead of the American people," wrote
Jesse Prentice-Dunn, policy director at the Center for Western
Priorities, on social media.
However, the American Petroleum Institute (API) said the ban
would cut US oil production by up to 2 million barrels per day oil
equivalent by 2030, and that would reduce gross domestic product by
$700 billion. Lower oil production would result in less production
of associated gas as well, which API said could actually lead to an
increase in GHG emissions if gas becomes more costly relative to
coal, and therefore power plant operators use more coal. API is
estimating that coal demand would rise by 15% above its forecast
levels due to a higher price for gas.
"With the shift of a pen, the administration is shifting
America's bright energy future into reverse and setting us on a
path toward greater reliance on foreign energy produced with lower
environmental standards," API CEO Mike Sommers tweeted 27
January.
Under Trump, Interior ramped up leases to oil and gas
developers, offering more than 25 million acres onshore, of which
5.6 million acres have been leased. Offshore, the department
offered more than 78 million acres, of which 5 million acres were
leased.
With leasing paused, the Democratic-controlled Congress could
enact other policies that discourage oil and gas production. For
example, in past congresses, Democrats have introduced bills to
raise the federal royalty rate from the current maximum of 18.75%.
The Trump administration reduced the actual rate to 12.5%.
In addition, Biden said he would be sending a legislative
package to the Democratic-controlled Congress to ask it to
eliminate fossil fuel subsidies because "I don't think the federal
government should be giving handouts to big oil."
If leasing on federal lands was gradually ended, the Center for
Biological Diversity, citing peer-reviewed science, said US carbon
emissions from federal oil and gas exploration and coal mining
would be reduced by 280 million mt per year, ranking it among the
most ambitious federal climate policy proposals in recent years.
"These are not insignificant figures," Drew Caputo, nonprofit
Earthjustice's vice president of litigation for land, water and
wildlife, told IHS Markit 27 January.
A 2018 US Geological Survey study found that oil, gas and
coal mining on federal land generated 23% of US GHG emissions in a
10-year period beginning in 2005. But only about one-third of that
figure was from oil and gas, which would be affected by the pause
in leasing.
Biden's order, however, did not pause any coal-mining permits on
federal lands. During a 27 January briefing, National Climate
Advisor Gina McCarthy said the order requires the federal
government to properly manage public lands with an eye to climate
impacts.
"This [pause] enables us to look at coal in the mix. We will
manage leases with a view to climate," McCarthy told reporters. She
added that coal wasn't part of the commitments the president made
on the campaign trail, "but we will take a close look."