Biden pauses new oil, gas leases on public lands pending review

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."