The Red Herring of Unused Leases

Kevin O'Scannlain
Posted March 4, 2022

Let’s address two claims heard about American natural gas and oil production amid the ongoing Russia-Ukraine crisis.

The first, by some members of the Biden administration, including White House Press Secretary Jen Psaki on Thursday, is that American oil and natural gas producers are sitting on hundreds of unused federal leases and thus do not need access to more. The second, by some industry opponents, is that ramping up U.S. production will not help the Ukrainian people today.

Psaki has made the claim about “unused” federal leases before. It has become a line the White House pivots to when pressed to explain why it isn’t doing more to support American oil and gas production – with soaring demand putting upward pressure on prices and with much of Europe at the mercy of its top energy provider, Russia. Key facts about federal leases:

• The law already requires companies to either produce oil and/or gas on leases or return the leases to the government – the so-called “use it or lose it” provision – generally in the first 10 years.
• When a company acquires a lease, it makes a significant financial investment at the beginning of the lease in the form of a non-refundable bonus bid and pays additional rent until and unless it begins producing.
• For federal onshore, the Mineral Leasing Act prevents any one company from locking up unproductive excessive federal acreage.
• Developing a lease takes years and substantial effort to determine whether the underlying geology holds commercial quantities of oil and/or gas. The lengthy process to develop them from a lease often is extended by administrative and legal challenges at every step along the way.

The argument about “unused” leases is a red herring, a smokescreen for energy policies that have had a hamstringing effect on the world’s leading producer of natural gas and oil. It suggests American producers have been motivated by a desire to manipulate the market during the current crisis in Europe. This is false. American oil and gas producers are able and willing to do their part to support American energy leadership, including providing energy that can help allies abroad.

Ultimately, energy policies affect the energy investment climate. Specifically, they impact the ability of producers – typically accountable to shareholders – to take the risks involved in spending billions of dollars to find and develop oil and gas. Mischaracterizing the way federal leases work does not help foster new investment and risk-taking.

Now, for the second claim, about the usefulness of American energy to Ukraine. Technically, there’s some truth there because, indeed, increasing American oil and gas production will not help Ukraine today. The time for helping Ukraine with American energy was months ago. Then, Biden administration support for robust U.S. production might have helped deter Moscow from thinking that European nations dependent on Russian energy might do less to oppose Russia the aggressor.

Instead, the administration discouraged American energy. For more than a year it has halted new federal leasing – key to future energy investment and production. It canceled energy infrastructure, blocked development in parts of Alaska, entertained new taxes to punish the U.S. energy industry and chilled future investment by signaling that oil and gas wouldn’t be part of America’s future energy mix. All last summer, the administration called on OPEC+, the oil cartel, to increase its production more rapidly in the face of rising energy costs, bypassing American producers.

The current situation is a reminder that American energy abundance requires foresight and planning, investment and policy support. This is the path to sound energy policy that keeps America safe and strong and allows American energy to support allies.

Now is the time for the administration to fully get behind American oil and natural gas. President Biden strongly encouraged made-in-the-USA production during his State of the Union address this week – but omitted home-grown oil and gas. American-made oil and gas are the leading energy sources running the U.S. economy and, when exported, provide significant support for economies around the world. With Russian tanks encircling Kyiv and Russian artillery pounding Ukrainian civilians, the importance of American energy could hardly be clearer.

U.S. liquified natural gas exports are critical for today and tomorrow, because access to trustworthy energy helps nations address multiple challenges. API President and CEO Mike Sommers, in an op-ed on Fortune.com:

Long-term, America is by far the best-prepared nation to help Europe and others meet energy needs amid international turmoil, while furthering our shared energy security and decarbonization goals.

As Sommers noted in a recent blog, the administration should provide clarity on federal leasing and permit energy infrastructure. Most importantly, it should complete work on a long-term plan for offshore oil and gas development, to replace the one that expires this summer. More from the Sommers piece in Fortune:

While it’s unclear what lies ahead as Russia invades Ukraine, we know one thing for sure: American energy is a positive force in difficult times, helping to provide stability and security for allies abroad. … This is what we mean by “American energy leadership”: using abundant American energy as a positive influence that benefits America’s friends. This is exactly what the world’s leading producer of natural gas and oil should do, especially in times of turbulence.