Viability of US Offshore Oil and Gas Industry at Risk

Jack Belcher is a principal at Cornerstone Government Affairs, where he focuses on regulatory affairs, risk management and ESG matters within the energy and transportation sectors.

The U.S. offshore oil and gas program has been facing severe challenges for the past couple of years. In fact, the National Outer Continental Shelf (OCS) Oil and Gas Leasing Program, which has been the backbone of the industry in the U.S., has been delayed by actions and inactions taken by the Biden administration.

In early 2021, the administration decided to “take a pause” on new oil and gas lease sales, including all offshore lease sales, in order to determine their impacts on U.S. climate goals. It canceled three lease sales in 2022, two in the Gulf of Mexico and one in Alaska’s Cook Inlet. This resulted in no federal OCS lease sales held in 2022—the first year without a sale since 1958.

Also in 2022, the Interior Department initiated the process to develop a new five-year offshore leasing plan for 2023-2028, raising the specter of additional delayed lease sales given the lengthy reviews required prior to actual leasing. The draft proposed plan that it submitted contained options for between zero and 11 lease sales, with a maximum of 10 in the Gulf of Mexico and one in the Cook Inlet and no lease sales in the Atlantic or Pacific.

To address the risk that offshore oil and gas leasing would be further postponed, provisions were included in the Inflation Reduction Act (IRA) passed by Congress in August 2022 that directed the Interior Secretary to hold three offshore lease sales that had previously been scheduled but subsequently canceled by Interior.

In other words, it literally took an Act of Congress for federal lease sales to resume. The IRA also linked continued federal offshore wind leasing with continued offshore oil and gas leasing, stipulating that offshore wind leasing not take place unless there are first federal oil and gas lease sales that result in leases being awarded. The measure was part of a compromise with Senate Natural Resources Committee Chairman Joe Manchin (D-W.Va.), who said the administration had been “putting their radical climate agenda ahead of our nation’s energy security.”

U.S. law directs the Interior Department to issue five-year offshore leasing programs. Contrary to the will of Congress and despite the impact that the war in Ukraine has had on global oil trade, the Interior Department continues to slow-walk the federal leasing process. After significant delays in initiating the five-year plan process, Interior continues to slow-walk the environmental review process, placing the feasibility of any Gulf of Mexico oil and gas lease sales in 2024 in serious doubt, regardless of whether it completes the five-year plan process in 2023 as it has committed to doing.

Other federal actions could jeopardize the future of federal offshore oil and gas leasing, including new administration initiatives to place a value on nature and incorporate it into cost-benefit analysis for all federal regulatory decisions. Known as the “National Strategy to Develop Statistics for Environmental-Economic Decisions,” this initiative formally launched in January has been developed under the premise that GDP is no longer an acceptable way to measure the health of the U.S. economy.

More recently, in late June, the White House launched a new effort to develop a “National Strategy for a Sustainable Ocean Economy,” which among other things will identify new actions to “advance sustainable management.” The effort is part of the administration’s commitment to develop a “Sustainable Ocean Plan” for all federal waters as part of the country’s recent accession to the High-Level Panel for a Sustainable Ocean Economy.

The U.S. offshore oil and gas program has been the envy of the world since the 1950s. It is both a technological and environmental marvel. According to the National Ocean Industries Association, the Gulf of Mexico has about half the carbon intensity of other onshore areas and the deepwater Gulf of Mexico has the lowest greenhouse gas emissions intensity of all oil producing regions. Similarly, the Obama administration determined that outsourcing Gulf of Mexico production would increase overall greenhouse gas emissions. In other words, hindering future U.S. offshore oil and gas exploration and production may actually impede U.S. greenhouse gas reduction goals.

Actions being taken by the Biden administration, under pressure from anti-fossil energy forces, ignore those facts to the peril of U.S. energy and environmental security. Current executive branch policies are threatening the long-term viability of domestic offshore energy development—which provides 15% of the nation’s oil production—increasing uncertainty and the economic viability and investibility of offshore production. Amid these challenges, political and business leaders must use every available lever, including additional potential permitting legislation, to preserve this critical industry.