US President Joe Biden on Jan. 27, 2021, signed an executive order pausing oil and gas leasing on federal lands and waters pending a comprehensive review by the Department of the Interior. No timeline was provided for completion of the review, making the “pause” indefinite. The move was instantly criticized as job killing and damaging to both the environment and the country’s energy security.
The concern, of course, is that the ban will become permanent. Or that new terms will be so onerous as to disincentivize leasing. A joint American Petroleum Institute—Louisiana Mid-Continent Oil Gas Association study estimated that a federal leasing ban would decrease offshore Gulf of Mexico (GoM) oil production by 44% and GoM natural gas production by 68%. The report also estimated a 5.5% increase in CO2 emissions from the power sector by 2030 stemming from a predicted 15% increase in coal burn resulting from the ban.
The Mineral Leasing Act of 1920, however, requires the federal government to hold quarterly leases, leaving any permanent ban that lacks underlying legislation open to legal challenges. Such legislation has yet to be proposed, but a group of Republican senators have introduced a bill intended to preemptively block a more permanent ban.
The Protecting our Wealth of Energy Resources (POWER) Act of 2021 would block the President from prohibiting or substantially delaying issuance of new oil, gas, or coal leases. The President would also not be able to withdraw any Federal land from mineral and geothermal leasing unless the withdrawal has been authorized by an act of Congress.
But the POWER Act is a nonstarter. Even if the Senate were to bring it to a vote, it would take 60 votes to pass with the filibuster in place and only one Democrat, Joe Manchin of West Virginia, would be likely to cross party lines to support it. Then there’d need to be reconciliation with the House.
Twenty-three Democrat Senators, meanwhile, led by Martin Heinrich of New Mexico, are approaching the looming energy battle by seeking to restore strict emissions controls. They have asked President Biden to begin the process of enacting tougher air pollution restrictions by reversing former President Donald Trump’s rollbacks of the Environmental Protection Agency’s New Source Performance Standards governing methane emissions and volatile organic compounds released during hydrocarbon extraction.
The Democrat senators were pragmatic enough to realize that legislating to achieve these goals would go nowhere. So, given the inability to move anything through Congress, Pres. Biden can either attempt to make his indefinite ban permanent or not. If he chooses to do so, however, he’ll need to figure out how to craft an order that won’t be summarily overturned.
Political quagmire
Biden’s ruminations come at a time when global majors are leaning further into the energy transition than ever, increasing investments in wind and solar even while maintaining overall capital discipline. Many 2020 federal lease sales were postponed or scaled back, and those that have been held since the start of the pandemic have moved fewer acres at lower prices. Winning bids for the last sale of 2020 averaged $41/acre, down dramatically from the $875/acre average bid experienced as recently as 2018.
With less than half of the tens-of-millions of acres currently under 10-year lease producing oil or gas—and the small percentage of overall output that comes from federal lands—the net effects of any permanent Biden leasing ban wouldn’t likely be felt until 2030 or later.
Given this, while attempting to overturn a ban or shape future terms, the industry should avoid positions that will give Biden a ‘bad guy’ to demonize and at the same time continue providing the best, most reliable energy available as safely and cheaply as it can. There’s still plenty of room and time to do that, and great rewards for doing so.