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Oil Industry Sees Ongoing Leasing Pause in New Biden Gulf Plan

July 6, 2022, 9:30 AM

A “de facto moratorium” on offshore oil and gas leasing is taking hold over the next several months while the Biden administration considers its options for a proposed five-year leasing plan for the Gulf of Mexico, an oil and gas industry attorney said.

But the industry has little legal recourse because the remedy would be for a court to order the Interior Department to do what it’s already doing—take steps to finalize the new five-year plan, said Jason Hill, counsel at Hunton Andrews Kurth LLP in Houston, who represents industry clients.

Interior is proposing as many as 11 lease sales over the next five years, according to the draft plan made public late July 1. They include 10 in the Gulf of Mexico and one in the Cook Inlet off the Alaskan coast. The plan also includes an option to conduct no lease sales.

The proposal signals the agency is “confirming that they’re not planning on having any lease sales this year,” Hill said.

“What you’ve got with the agency not completing the five-year plan is a de facto moratorium on leasing,” he said. That indicates to industry that the Biden administration has little interest in producing oil in the Gulf of Mexico, and it’s having a “chilling effect” on companies’ interest in further development in the region, Hill said.

Agency Flexibility?

Some environmental attorneys said Interior’s proposal gives the agency flexibility to deal with the climate crisis and high energy prices even if lease sales are scheduled.

“Just because leases are proposed doesn’t mean they will be offered,” said Pat Parenteau, an environmental law professor at the Vermont Law School.

The Interior Department “for the first time is saying that the scale and pace of the leasing must take the overarching need for decarbonization into account,” Parenteau said.

The Interior Department’s leasing proposal was the first issued after the agency let the previous five-year leasing plan expire.

Unlike the draft for the previous five-year plan that expired last week, the Interior Department didn’t identify its preference among the various leasing options it outlined.

The agency is expected to decide how many lease sales it plans to hold through 2023 when the plan is finalized later this year. The draft proposal will be open for a 90-day public comment period after it is published in the Federal Register.

Gap Between Plans

The Biden administration in May scrapped oil and gas lease sales in the Gulf of Mexico and Alaska’s Cook Inlet that were scheduled under the previous five-year plan, which expired June 30 as the White House issued the new plan.

Nearly 11 million acres of the Gulf of Mexico are already under lease, and more than 75% of the leased waters aren’t yet producing oil, the Interior Department said last month.

It will be months before the 2022-2028 five-year plan is finalized, leaving a gap between plans, possibly running afoul of the Outer Continental Shelf Lands Act, Hill said.

The Interior Department didn’t immediately respond to a request for comment.

The Outer Continental Shelf Lands Act requires a plan for offshore oil and gas leasing to be issued every five years, setting out a specific schedule for offshore oil and gas lease sales, including information about the size, location, and timing of each sale.

Proposed plans normally are published long before the existing plan expires. The previous five-year plan for lease sales held from 2017 to 2022 was first proposed in 2015. That was enough lead time for the agency to analyze possible leasing scenarios, including no leasing at all, so it would take effect immediately as the previous plan expired.

‘Business as Usual’

The proposal says decarbonization in the energy sector is crucial to addressing climate change, but environmental groups say any proposal suggesting possible lease sales shows the Biden administration isn’t taking the climate crisis seriously enough.

“Instead of meeting the climate moment with some real change, they’re continuing on with business as usual,” said Brettny Hardy, senior attorney for Earthjustice. If the administration really intends to avoid leasing, “we’d see a draft plan that didn’t have any lease sales in it.”

But the proposed plan acknowledges that demand for fossil fuels is likely to decline as global warming takes hold and the Interior secretary can respond to falling demand by canceling lease sales at her discretion even if a lease sale schedule is approved.

The agency legally has the flexibility to decide whether, when, and how it wants to hold offshore oil and gas lease sales, said Sam Kalen, a law professor at the University of Wyoming.

Given the urgency of climate change and advancing clean energy technology, it’s “anachronistic” for the agency to be required to precisely project offshore oil and gas demand five years into the future, he said.

“It seems only natural that the administration would at this stage in the planning process put forth an array of strategies,” he said. “That is what it has done.”

Tangle of Litigation

Gulf of Mexico oil and gas leasing has been embroiled in litigation and the Biden administration’s climate change agenda, which calls for curtailing fossil fuels development. A 2021 federal court ruling required leasing to proceed, but a separate January ruling vacated some Gulf of Mexico leases.

In that ruling, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia vacated a 2021 Gulf of Mexico lease sale because he said Interior’s Bureau of Ocean Energy Management acted arbitrarily in its environmental review of the lease sale required under the National Environmental Policy Act.

Environmental attorneys expected the vacatur in Friends of the Earth v. Haaland to act as a warning to the administration that it should fully consider the climate impacts of offshore oil and gas leasing before proceeding with future lease sales.

As a major source of U.S. crude oil, future Gulf of Mexico oil drilling and production could affect gasoline prices and the level of U.S. crude oil reserves.

On a bipartisan basis, lawmakers have pushed for the Interior Department to restart Gulf of Mexico oil and gas leasing amid Russia’s invasion in Ukraine and the resulting global efforts to reduce dependency on Russian energy.

To contact the reporter on this story: Bobby Magill at bmagill@bloombergindustry.com

To contact the editor responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com