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U.S. Oil Thirst Defies Easy Fix of Drilling on Federal Lands (1)

March 15, 2022, 10:00 AMUpdated: March 15, 2022, 3:54 PM

High oil prices resulting from Russia’s invasion of Ukraine aren’t expected to prompt the Biden administration to abandon its climate policy and turn to federal oil and gas leasing to bring more crude to the U.S. market, legal experts say.

The Interior Department, which oversees all federal oil and gas deposits, has limited options to do so even if it wanted to produce more oil and gas from federal lands to help alleviate spiking gasoline prices. It also has few options to expedite renewable energy development more than it already has.

“The administration has signaled that it has no plans to change its tactics on these issues,” said Thomas Jensen, a partner at Perkins Coie LLP. “When the president and his entire leadership team has a uniform view of the urgency of the climate crisis, nobody down the food chain feels exposed when taking a hard line on these issues.”

Republicans are pressuring the White House to produce as much domestic oil and gas as possible to offset Russian energy imports.

President Joe Biden “must recognize the need and potential to increase resource production here at home, especially in states like Alaska. If there was ever a time to change course on harmful policies that have restricted domestic production, it is right now,” said Sen. Lisa Murkowski (R-Alaska) in a March 8 joint statement with Sen. Joe Manchin (D-W.Va.).

The Biden administration has committed to cutting greenhouse gas emissions in part by curtailing oil and gas development on federal lands and waters, including on Alaska’s North Slope, even though less than 10% of onshore U.S. oil and gas production occurs on public land.

Ample Drilling Opportunities

Interior has currently halted new oil and gas leasing following a February court injunction that prevents the agency from using an estimate of the social cost of carbon in its environmental reviews, including those governing oil and gas-related decisions.

For now, Interior’s view is that there’s already plenty of capacity to produce oil and gas from federal land, but the industry just can’t turn on the tap and start producing oil, said Ann Navaro, a partner at Bracewell LLP.

Oil and gas companies are fully able to drill using roughly 9,000 already-approved drilling permits on federal lands in addition to obtaining permits for undeveloped oil and gas leases on 12.3 million acres of federal land nationwide, Interior communications director Melissa Schwartz said Monday.

But there’s no guarantee that oil and gas exists on those leased lands—and even if they did, some leases require a time-consuming environmental review before drilling permits can be issued, Navaro said.

Companies ‘Gun Shy’

It’s not clear oil and gas companies are eager to take advantage of high oil prices and mobilize their drilling rigs on federal land if the Biden administration were pushing them to do so, said Kelly Johnson, a partner at Holland & Hart LLP, who represents industry clients.

Oil and gas companies are “gun shy” of making long-term investments based on high oil prices because they’ve seen prices collapse just months after peaking, which happened in 2008, Johnson said.

Developing on federal lands is also a risky bet because if companies have to deal with a de facto moratorium on leasing, they’re likely to send their rigs to private land, she said.

That’s likely to happen in New Mexico, where Interior Department data show most recent federal drilling permits have been issued.

It’s easy for companies drilling on federal land in New Mexico to jump over the border into Texas to drill on private land where they can be more certain of favorable economic and regulatory conditions, Johnson said.

Permitting Challenges

Expediting renewable energy permitting on federal land is also no quick fix for energy supply problems, Jensen said.

Most renewables projects take years to permit because of court challenges and lengthy environmental reviews, he said.

“The fastest way to free up new domestic resources is for the administration to go to bat aggressively for the major energy infrastructure projects that are now hung up in court,” including the Mountain Valley Pipeline in Virginia and Cardinal-Hickory Creek electric transmission line in Wisconsin, Jensen said.

Jensen said he’ll be watching whether the Interior Department hires new staff and consultants to help expedite federal infrastructure permitting.

The Interior Department and other regulatory agencies have staffing shortages, making it more difficult for developers to push a project through the regulatory and permitting process, Jensen said.

The Bureau of Land Management and the Bureau of Ocean Energy Management plan to use funding in the fiscal 2022 spending bill Congress passed last week to hire new workers who will “accelerate” renewable energy projects, Interior Department spokesman Tyler Cherry said.

The bill gives the land bureau $1.28 billion for its operations for fiscal 2022, but it doesn’t earmark funding specifically for renewable energy projects. The same is true for BOEM’s $206.7 million appropriation, which is to be used on any oil, gas, minerals or other marine energy projects.

“Even the most environmentally benign proposals from the private sector have struggled to get attention due to lack of institutional capacity,” Jensen said. “The bipartisan infrastructure bill and new bipartisan budget agreement should begin helping with the human resource problem, but there is a lot of catching up to do.”

(Adds comments from Tyler Cherry and new reporting beginning in the 21st paragraph. )

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

To contact the editors responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com; Zachary Sherwood at zsherwood@bgov.com