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Critics warn of ripple effects from Biden's planned oil, gas leasing moratorium

President Joe Biden is expected to announce a moratorium on new oil and gas leases on federal lands and waters on Jan. 27, a move that critics said would hurt U.S. production and pick winners and losers between states.

The anticipated moratorium — with no time limit would help fulfill Biden's campaign pledges on climate change and would come one week after the acting secretary for the U.S. Department of the Interior suspended agencies' authority to issue oil and gas permits and leases for 60 days.

About 22% of U.S. oil production and 12% of natural gas production takes place on federal lands and waters, but the planned moratorium would not undo existing leases and permits, meaning that there would be limited near-term impacts. Many oil and gas producers stockpiled drilling permits in the final year of the Trump administration in order to build up their inventories, especially in New Mexico's Delaware Basin, Wyoming and other Western states where more land is federally owned.

While the longer-term impacts would prove more severe, industry and business representatives said the ripple effects would come much sooner as producers simply move their activities elsewhere and smaller services companies go out of business.

New Mexico Chamber of Commerce CEO Rob Black said his state stands to lose the most after much of the Permian oil boom shifted to the New Mexico side of the basin in recent years. A majority of New Mexico's Delaware Basin sits on federal land.

"A ban would just cause production to move a few miles down the road to leases on private land in Texas," Black said on a Jan. 26 webinar hosted by the U.S. Chamber of Commerce. Or "it would move overseas to Saudi Arabia or Russia."

Louisiana Association of Business and Industry CEO Stephen Waguespack, also speaking on the webinar, highlighted how dependent his state is on the leasing and activity in the deepwater Gulf of Mexico.

"About 94% of our crude oil produced in Louisiana is produced offshore and the overwhelming majority of that is in federal waters," Waguespack said, referencing the revenue-sharing agreement between the state and federal government on deepwater Gulf production off Louisiana's coastline.

Most of the broader impacts, though, are years away after permitting on federal lands surged in the final two months of the Trump administration. The administration approved over 600 wells versus the previous three-month average of fewer than 190 wells per month, according to S&P Global Platts Analytics. More than 60% of current federal drilling permits are in New Mexico's Delaware Basin. Nationwide, nearly 4,000 permits for new wells are undrilled or uncompleted.

Rystad Energy's head of shale research, Artem Abramov, said New Mexico should not have too much to worry about for now.

"Most operators can maintain tier-one activity at the current pace in Delaware New Mexico for more than 10 years even without any new federal acreage permits," Abramov said.

He noted that federal acreage accounted for up to 80% of the total permitting activity in the New Mexico region in multiple months in 2020.

Biden's pick to lead the Interior Department is a congresswoman from New Mexico, Rep. Deb Haaland.

The American Petroleum Institute said federal lands accounted for more than 40% of the shale gas production in Colorado, more than 60% in Utah and more than 90% in Wyoming.

Banning drilling on federal lands, which is not expected to be a part of this order, would put more than 1.6 million barrels per day of U.S. crude oil production at risk, according to Platts Analytics, as part of a "worst-case scenario." It is more likely that closer to 1.1 million b/d would be affected.

Because of the loss of demand from the coronavirus pandemic, U.S. crude oil production already has fallen from record highs of nearly 13 million b/d near the beginning of 2020 to 11 million b/d this January.

Jordan Blum is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.