America Still Playing Catch-Up in Offshore Leasing

Mark Green
Posted October 26, 2022

It’s good to see the U.S. Interior Department following through with the initial steps of holding three offshore oil and natural gas lease sales, as required by the Inflation Reduction Act (IRA) passed this summer. They would be the first offshore lease sales in nearly a year – two in the Gulf of Mexico and another in Alaska’s Cook Inlet.

It’s incremental progress – and we’ll underscore “incremental.” Much more federal leasing is needed, offshore and onshore, to strengthen America’s future energy security – bearing in mind that offshore projects can take seven to 10 years before any actual oil and natural gas production begins.

It’s progress, but Washington’s recent policies have unilaterally weakened American production. Federal offshore activity provides more than 15% of total U.S. oil production, and the fact the Biden administration has held just one offshore lease sale since it took office – and has leased fewer acres for production on federal lands and waters than any other administration since World War II – means there have been significant restrictions on American production.

And, while the three lease sales are on track for scheduling, the country remains without a robust five-year program for federal offshore leasing, to guide decisions by producers and investors for future offshore projects. There’s a proposal from Interior, but it is uncomfortably ambiguous about the future of oil and natural gas leasing; one option would allow officials to choose zero leases.

Cole Ramsey, API vice president of Upstream Policy:

“While we are pleased that the Department of the Interior is finally moving forward with these lease sales as required by law, this action in no way makes up for the administration’s failure to put forward a comprehensive program for federal offshore leasing that meets America’s long-term energy needs. The Biden administration has broken with decades of bipartisan administrations that prioritized American energy security … We urge the Biden administration to move forward with a final five-year program that includes all of the proposed lease sales.”

Concern for where federal leasing has been and is headed extends to terra firma as well. The government is required by law to schedule an onshore sale each quarter, but the administration has come up short here as well – missing sales in all four quarters in 2021 and in two of the three quarters so far this year.

We’ll dispense right now with the excuse federal officials have used whenever they’ve been called out on federal leasing – the canard about unused permits.

First, there are many reasons a lease might not yet be producing oil and/or natural gas, from supply chain and workforce constraints to inflated labor costs to holdups while operators await additional needed permits. A lack of pipeline capacity also may be a factor. Other critical points:

• The U.S. is at a two-decade high for the percentage of producing leases on federal lands. Nearly two out of three leases in effect are producing.
• There currently are nearly 100,000 producing wells on federal lands – meaning the administration’s claim about 9,000 permits that are still processing to start production represent a small fraction of the overall well count. There are more than 4,600 permits to drill awaiting approval from the Bureau of Land Management, with thousands more tied up in lawsuits.
• The administration, in fact, has slowed the pace of onshore drilling permit approvals. Between October 2021 and August 2022, on average, drilling permit approvals have fallen 34% compared to the fiscal year 2020 monthly average.

So, again, even with the three lease sales that Interior is rightfully advancing, the U.S. is far from where it should be in developing American energy on federal lands and waters.

There’s a price to be paid for what can only be called a lack of energy leadership from Washington. The world continues to lack enough oil production to meet current demand. Energy shortfalls in Europe are an almost daily front-page headline, with winter just around the corner. In the U.S., we’re already hearing talk of rationing energy in New England.

The responsible course is to plan for the energy of today and tomorrow, right now. That’s where federal leasing is critically important. API’s “10 in 2022” plan includes leasing provisions and other actions Congress and the administration can take to strengthen American energy. Frank Macchiarola, API senior vice president of Policy, Economics and Regulatory Affairs:

“The solution to the growing energy crisis is right here in the United States, and U.S. policymakers should be doing everything in their power to produce more energy here in America. It is beyond time for a comprehensive energy policy that ensures access to domestic resources; encourages investment opportunities; and strengthens energy security, affordability, and reliability. A robust offshore leasing program would be an important step.”