Delay and Uncertainty Still Surround Administration's Offshore Approach

Mark Green
Posted March 29, 2023

Kudos to the Biden administration on offshore Lease Sale 259 for the Gulf of Mexico. It’s a positive step for America’s offshore energy and America’s energy security.

The Bureau of Ocean Energy Management (BOEM) reported that 32 companies participated in Wednesday’s sale, submitting nearly $310 million in total bids. The sale generated almost $264 million in high bids for 313 tracts covering 1.6 million acres in the Gulf, the agency said. Below, BOEM Director Liz Klein reads bids:

A little difficult to read, but here’s BOEM’s map showing the tracts that received bids – blue indicating one bid received; red indicating two bids received; green three bids and yellow four bids.

But there remains a pretty big “but” despite the sale.

America needs more than just an isolated offshore lease sale now and then. The U.S. currently lacks a five-year offshore leasing program and is at risk for future declines in production from one of the country’s most important oil and natural gas production zones – given that offshore oil made up nearly 15% of U.S. production in 2022, and the vast majority of it came from the Gulf.

Lease Sale 259 was mandated by the Inflation Reduction Act (IRA). One more IRA-required lease sale is scheduled by the end of September. At this point, that’s it – and it’s simply not enough to meet America’s future energy needs. Holly Hopkins, API vice president of Upstream Policy:

“While today’s lease sale is a belated but positive step toward a more energy-secure future, it should not take an act of Congress to get us to this point. Continued production in the Gulf of Mexico is essential for delivering the energy the world needs while supporting lower carbon goals, but U.S. energy producers need certainty from policymakers in order to meet the growing energy demand. It is well past time for the Department of the Interior to finalize a five-year program for federal offshore leasing that will empower U.S. energy producers to meet the needs of consumers here at home and around the world.”

It's unclear whether the administration acknowledges these points, and that’s a big concern.

It has been 279 days since the Interior Department allowed the previous five-year leasing program to lapse without an immediate replacement. That’s unprecedented since the program was instituted in the early 1980s.

The program determines where lease sales will be conducted, providing clarity and predictability for companies – an important factor because offshore production has long lead times and involves billions of dollars in investment. Delay and uncertainty are significant headwinds against the kind of robust investment in offshore production that America needs. Earlier this year, Hopkins said:

“You don’t make a decision today to set up an offshore platform a few weeks or months in the future. … The value of the offshore is that it affords America a level of energy security measured in large amounts of energy for long periods of production. But this production must be sustained with continued leasing and access to new areas for exploration.”

That the administration may lack urgency on offshore planning and production could be seen in Interior Secretary Deb Haaland’s exchanges with U.S. Rep. Jake Ellzey of Texas during her appearance Tuesday before a House Appropriations Committee subcommittee:

Ellzey: “So, it's been said that there might be 11 sales, there might not be any.  Can you confirm that there's going to be some lease sales in this five-year plan?”

Haaland: “I can't essentially pre-decide what the five-year plan will say, but I can say that when it's out [in draft form] in September, we will all know.”

Then, a few minutes later:

Ellzey: “Do you have any discretion at the Department of Interior on how you're going to conduct those sales, or did Congress stipulate how that was going to be?”

Haaland: “What I could say is that we’ll absolutely follow the law. Lease Sale 259 is scheduled for March 29^th, 2023, and 261 the end of September. And those will happen.”

Ellzey: “Do you have the ability to remove any acreage from that?”

Haaland: “Once the plan goes through, we decide what is up for lease.”

Based on the above, the only sure thing is that Interior will hold one more IRA-mandated sale. Again, it’s good we have the IRA-required sales, but not good that it took an act of Congress to get the administration to act.

Indeed, it took a court proceeding and ensuing settlement, prompted by API and 11 other industry associations, to get Interior to agree that it will have a finalized leasing program in December – when the lapse between programs will have grown to more than 500 days.

Even then, as can be gleaned from Haaland’s statements, there’s no guarantee there will be any additional offshore lease sales in the new program.

The impacts could be devastating to American energy and the economy. A study last year found that a lapse in the five-year leasing program could jeopardize energy security, cost thousands of jobs, and billions in lost state and local revenues.

Restricting U.S. offshore production – ostensibly to further the administration’s climate goals – could have the perverse effect of making emissions worse as demand is met by other suppliers. Demand isn’t going away, and BOEM itself has acknowledged that consumers would turn to other sources.

That would squander an edge the U.S. Gulf has in the emissions effort. A recent study by energy consultant McKinsey & Co. found that oil produced in the Gulf has one of the smallest carbon footprints of any oil produced on the planet, on a per-barrel basis.

The study found oil from the Gulf has a low-carbon advantage for four reasons:

• Most of the natural gas produced in the Gulf is sold to local markets, which results in minimal routine flaring and less greenhouse gas emissions.
• Offshore production facilities have efficient, modern designs that minimize methane leakage.
• Wells and production facilities have a high throughput, minimizing the number of energy-intensive processes required to bring on new supply, such as drilling.
• Operators have made active decarbonization efforts to stay in line with environmental sustainability goals and in compliance with regulations.

All of this adds up to something less than optimal for American offshore production and American energy security.

Lease Sale 259 is progress, but the path ahead is uncertain. The absence of a strong, well-conceived offshore leasing blueprint for the next five years grows more concerning with each passing day – again, because of how long it takes to develop offshore energy.

That’s not the way it should be, given that oil and natural gas are projected to supply more than 60% of America’s energy out to 2050. Hopkins, from earlier this year:

“Delay and uncertainty over the next offshore oil and natural gas leasing program has put the United States in the risky and unprecedented position of having a substantial gap between leasing programs for the first time since the process started in the early 1980s. Because a finalized leasing program is not yet in place, American producers are at a significant disadvantage on the global stage, which could threaten our country’s economic and national security.”