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Biden pauses new oil, gas leases on federal lands pending Interior review

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


Biden pauses new oil, gas leases on federal lands pending Interior review

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A rig pumps oil near a wind turbine. U.S. President Joe Biden issued a Jan. 27 executive order halting new oil and gas leasing on federal lands.
Source: Robert Körner/Moment Open via Getty Images

In a blow to the U.S. oil and gas sector, President Joe Biden paused new federal onshore and offshore oil and gas leases.

The president's sweeping Jan. 27 executive order included several climate provisions that Biden had promised during his campaign, including a pledge to restrict oil and gas leasing on federal lands.

While the extent of the hold was unclear, it will continue "pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices," according to the order. Federal agencies will also consider adjusting royalties from oil, gas and coal extracted from federal lands and waters "to account for corresponding climate costs" as part of that review.

The order did not reimpose a moratorium on coal leasing, as some early reports had suggested might happen. The move is not expected to affect existing leases.

The U.S. Department of the Interior must "stop issuing new oil and gas leases on public lands and offshore waters wherever possible," Biden said during a Jan. 27 press conference.

"We're going to review and reset the oil and gas leasing program," Biden said. He added that his administration will "properly manage lands and waterways in ways that allow us to protect and preserve the full value that they provide for us for future generations. Let me be clear — and I know this always comes up — we're not going to ban fracking."

Biden also pledged to ask Congress to eliminate fossil fuel subsidies, directing federal agencies to remove such subsidies from their fiscal year 2022 budget requests.

The executive order will not restrict energy development on tribal lands. The Interior will continue working with tribal leaders on the "development and management of renewable and conventional energy resources," according to a White House release. The order also seeks to "identify steps that can be taken to double renewable energy production from offshore wind by 2030."

The move followed the administration's temporary halt on fossil fuel leasing and permitting approvals. On Jan. 20, the Interior suspended its authority to issue final onshore and offshore fossil fuel authorizations for 60 days as officials move to review agency actions.

A short-term leasing moratorium may not have a significant impact on the industry because producers can continue drilling under existing leases. The same cannot be said for a longer-term or permanent ban, said Brian Prest, a fellow with the independent research institution Resources for the Future.

"The industry has stockpiled drilling permits over the past year in anticipation that they might not be able to get new ones," Prest said.

Industry criticizes move

Industry advocates noted that while the moratorium may reduce U.S. fuel supply, it does nothing to curb demand. As a result, producers may shift their operations to private land, or else the nation may rely more on foreign oil sources.

The oil and gas industry has said a leasing ban would force the U.S. to import more oil and hurt its natural gas exports, which help drive out coal-fired power generation in other nations. The move could also slow U.S. coal-to-gas switching, resulting in a 15% increase in coal-fired generation by 2030, according to an analysis released in September 2020 from the energy consulting firm OnLocation. That analysis was prepared for the American Petroleum Institute, a trade group representing the oil and gas industry.

"With the stroke of a pen, the administration is shifting America's bright energy future into reverse and setting us on a path toward towards greater reliance on foreign energy produced with lower environmental standards," API's President and CEO Mike Sommers said. "Limiting energy production is nothing more than an 'import more oil' strategy."

A moratorium could also hurt state economies, especially Western states that generate a significant proportion of their revenue from oil and gas leases on federal lands.

"These are large investments when you're looking at leasing and permitting, and all businesses want certainty," Diane Schwenke, president and CEO of the Grand Junction Area Chamber of Commerce, said on a Jan. 26 call with reporters. "As you're looking down the road at a ban that is a year or longer, then you're going to be looking elsewhere, and you've got opportunity costs that are going to come into play."

Environmental groups look for more

Conservation organizations praised the order, calling it a necessary action to help tackle the climate crisis. Some environmental groups have called for a permanent drilling ban on federal lands and waters. Ending offshore oil and gas drilling in federal waters could prevent roughly $723 billion in damages, according to a recent analysis from TBD Economics LLC, an environmental economics consultancy firm. That study was prepared for Oceana, an ocean conservation organization.

"The fossil fuel industry has inflicted tremendous damage on the planet," said Kierán Suckling, executive director at the Center for Biological Diversity. "The administration's review, if done correctly, will show that filthy fracking and drilling must end for good, everywhere."

Biden's order will likely to draw legal challenges from the industry and some red states that receive a significant share of revenue from federal oil and gas leases. The Western Energy Alliance immediately filed a challenge against the leasing ban.

In the week since his inauguration, Biden has taken numerous actions aimed at curbing emissions from the oil and gas segment. The president revoked a presidential permit for the Keystone XL oil pipeline and directed the Interior to place a temporary moratorium on oil and gas leasing in the Coastal Plain of the Arctic National Wildlife Refuge. He also instructed the U.S. Environmental Protection Agency to publish a proposed rule suspending, revising or rescinding the Trump-era methane rule rollback.

Biden also called on his administration to review dozens of agency decisions pertaining to energy and mineral development on federal lands.