The US Interior Department last month said it would not hold offshore Gulf of Mexico oil and gas Lease Sales 259 and 261 “as a result of delays due to factors including conflicting court rulings” which “impacted work” on them. Interior also cancelled Lease Sale 258 in Cook Inlet, Alas., “due to lack of industry interest.”
Administrations led by both major US political parties have cancelled Cook Inlet sales in the past using the same rationale. But the current situation was made worse by these being the last planned sales of the 2017-22 leasing program and, at the time of the announcement, the Biden administration having not yet begun establishing a new program and being unable to schedule any additional auctions until it had done so.
Industry’s reaction was swift and justified. It had spent most of the past 18 months trying to make sure lease sales would happen, and had seemingly succeeded in doing so, only for them to once again be summarily removed. It’s a tough basis on which to run a business.
“Unfortunately, this is becoming a pattern,” said American Petroleum Institute senior vice-president Frank Macchiarola. “The administration talks about the need for more supply and acts to restrict it. As geopolitical volatility and global energy prices continue to rise, we again urge the administration to end the uncertainty and immediately act on a new 5-year program for federal offshore leasing.”
Sen. Lisa Murkowski (R-Alas.), meanwhile, stated that “a ‘lack of industry interest’ is nothing more than fantasy from an administration that shuns US energy production. Cook Inlet is the sole source of the natural gas that more than 400,000 people in Southcentral Alaska—and significant military bases that are critical to our national security—depend on.” A few days later, media reports indicated Hilcorp Energy Co. had notified Alaskan utilities that its current Cook Inlet gas reserves would not allow it to renew supply contracts as they expire over the next 2-11 years.
Secretary of the Interior Deb Haaland subsequently confirmed that the department would release its proposed program—the next step in the 5-year offshore energy planning process—by June 30, 2022, the date on which the current plan expires. In addition to providing the legal framework under which federal leases can occur, as established by the 1953 Outer Continental Shelf Lands Act, the 5-year plans are intended to balance US energy needs with other factors such as the economy and environment.
Opponents of continued federal leasing, for their part, noted that more than 75% of the 10.9 million acres of offshore waters already under lease remain undrilled and that only a small fraction, 1.7 million acres, of the 80 million acres offered in November 2021 sold. Results of this sale—the largest on record and the only one so far held under this administration—were subsequently vacated by a federal judge who cited flaws in the underlying environmental analysis.
Cards on the table
Up to this point, the Biden administration has not given the oil and gas industry a single indication that its actions regarding hydrocarbon supplies have been taken in good faith. Any steps forward have been rolled back by one mechanism or another and it’s simply untenable that the roadblocks encountered couldn’t have been seen in advance. Along the way the administration has ended up looking incompetent, like a scofflaw, or both.
What it should do instead is follow the letter of the law, hold lease sales, and let the market decide. The industry would have a chance to either put its money where its mouth is and buy a bunch of acreage or not. And opponents would get the opportunity to call industry’s bluff.
Either way, nothing’s going to happen that will change here-and-now market conditions one iota.
