Industry pushes for next offshore oil, gas leasing program

April 4, 2022
Oil and gas industry representatives released a report Mar. 29 in the hope of galvanizing the Biden administration into writing the next 5-year federal plan for offshore oil and gas leasing.

Oil and gas industry representatives released a report Mar. 29 in the hope of galvanizing the Biden administration into writing the next 5-year federal plan for offshore oil and gas leasing.

The current plan ends June 30, and officials of the American Petroleum Institute (API) and the National Ocean Industries Association (NOIA) expressed doubt during a news conference that a new plan can get through the regulatory steps in time to prevent a gap between plans.

“It’s fairly clear that there’s not going to be a leasing program in place by July first,” NOIA President Erik Milito said.

To support investment decisions, “we need some certainty that it’s going to be completed on time. We expect that it won’t,” said Frank Macchiarola, API senior vice-president of policy, economics, and regulatory affairs.

The process of developing a new 5-year plan requires issuance of a draft proposed rule and a draft environmental impact statement, then a proposed rule (possibly narrower in scope than the draft proposed rule), then a final rule, and the first two stages need to include the gathering and consideration of public comments before the subsequent stage can be triggered.

“There’s no indication that any of that is coming up soon,” Milito said.

Warnings of trouble

 A report commissioned by API and NOIA was released to estimate the economic impacts of a long lag in offshore oil and gas leasing. The analysis, by Energy & Industrial Advisory Partners, a consulting firm focused on investment banking, looked at projected impacts of a 5-year leasing program delay, which would mean no new leasing until 2028.

The report said such a pause in offshore leasing could lead to average annual reductions of capital investment and spending by $5.3 billion, of jobs by more than 57,000, of GDP contributions by $5 billion, of government revenues by $1.5 billion, and of oil and gas production by 480,000 boe/d. All of those reductions were from a base case that assumed a continuous leasing program.

President Biden has expressed hope for an upsurge in oil and gas production to lower domestic prices, and he has advocated an increase in exports of LNG to help Europeans shrink their dependence on Russian gas, and more generally he has sought creation of American jobs at good pay scales to help people and the nation climb out of a pandemic-induced economic slump.

But Macchiarola said the administration’s rhetoric does not square up with its actions.

At the Energy Department there are four applications for LNG export approvals that API would like to see expedited, Macchiarola said. But beyond that, he and others in the news conference focused on leasing for exploration and development.

Courts and conveyor belts

When the Bureau of Ocean Energy Management and the Bureau of Land Management announced moratoriums on new leasing in their respective offshore and onshore spheres of authority, industry litigation produced a federal court ruling in 2021 that required them to get back to work on leasing to comply with the Outer Continental Shelf Lands Act and the Mineral Leasing Act of 1920 (OGJ Online, June 16, 2021).

The litigation is still in the courts, its final details unresolved, Milito said. NOIA raised the lack of progress on a 5-year program as part of that case, he said, pointing to the possibility that a court might have questions about an administration failure to write the next 5-year plan.

Leasing does not produce fast short-term increases in production, but Paul Danos, chief executive officer of Danos, a family-owned oil and gas services company, said deepwater offshore projects need a “conveyor belt” of projects in overlapping sequence to maintain and boost production. If a new 5-year plan is not written soon, “that conveyor belt is going to have a gap in it,” he said during the news conference.

Milito added that some offshore projects, when they can be connected to a nearby existing production operation, can be brought online relatively quickly, sometimes in a year.