Biden May Kill A Quarter Of US Oil And Gas Production

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President Biden is expected to announce a moratorium on future oil and gas drilling permits today, Wednesday January 27, fulfilling in part his campaign pledge to end drilling on federal lands and the continental shelf. The move, which has long been anticipated by the O&G industry, comes on the heels of a January 20^thorder signed by Acting Secretary of the Interior Scott de la Vega mandating a 60-day restriction for new onshore and offshore fossil fuel leases. Should the Senate confirm Deb Haaland as the Secretary of Interior, the order might be extended further or even made permanent, though Republicans will doubtless try to ally with pro-business Democrats in opposing such a move.

Almost a quarter of US oil production and 12 percent of natural gas production takes place on federal land and water. According to the Interior Department’s Office of Natural Resource Revenue federal drilling programs generated $11.7 billion in tax revenue. If the moratorium extends to all active leases on federal lands, this will be gone, despite the mushrooming 2020 federal debt of $27 trillion and budget deficit of over $3 trillion – a whopping 16 percent of the GDP.

In the short term, the tangible impact of the order may be negligible. The president did not conceal his intentions to pursue such a strategy, and companies aggressively pursued drilling permits in the months surrounding the election even as they were forced to otherwise downsize amidst pandemic-reduced demand. As the mandate does not inhibit previously acquired permits, those who thought ahead could endure the moratorium in hopes of it being ended by a future administration (President Obama’s coal leasing moratorium was ended by President Trump).

 

Still, the ban will deliver a massive blow to the U.S. hydrocarbon industry. If the Secretary of Interior makes the order permanent, and if the Republican minority fails to find the votes in Congress, then the order may be lifted only by the next Administration. However, there is no guarantee Biden’s successor will be a Republican. The energy industry might be prepared to weather two months or even tighten its collective belt for four years of the moratorium, but what if the ban lasts eight years? The private sector abhors uncertainty.

Environmentalists will be thrilled at the victory, but some are concerned by the change. “Energy demand will continue to rise,” said American Petroleum Institute President and CEO Mike Sommers in a January 21^ststatement. An end to drilling on federal lands will not change America’s need for energy, but will lead to importing from “countries with lower environmental standards” all while deny state and local governments much need revenue.

For the last 11 years, the long term increases in domestic production fueled by hydraulic fracturing has carried the United States toward net exporter status and energy independence. America is now the world’s largest hydrocarbon producer. This trend has seen US imports from the OPEC oil cartel plummet from over six million barrels per day to slightly under 700 thousand. Increased  economic independence from foreign powers, particularly from democracy-averse cartel members, is unquestionably a foreign policy win for the United States. With independence comes the liberty to take moral stances otherwise viewed as bad for business, something Democrats should remember if they intend to confront Saudi Arabia, Russia, Iran and Venezuela.

If the United States cedes its hard-fought oil market share, it is certain others will seek to fill the gap. Already Russia and Saudi Arabia have scrapped for dominance, and Iran and Qatar remain joint owners of the world’s largest natural gas field.. The yielded revenue would go to America’s geopolitical rivals, where democratic norms are trampled, environmental standards are limited and enforcement is lax.

US workers will be the losers. The American Petroleum Institute’s (API) analysis suggests that the job losses as a result of a lasting leasing moratorium could peak at 936 thousand in 2022, hitting hardest those working in high-production states. Those states include New Mexico, where the fossil fuel industry accounts for roughly 100,000 jobs, and half of production takes place on federally-owned sections of the Permian Basin. The permits acquired throughout late 2020 will shield some jobs until they expire, but permit stockpiling will leave smaller, less prepared employers in the cold.

President Biden ran on an aggressively environmentalist platform with an understanding that there exists widespread support for further government action on climate. The entrenchment of energy as a partisan wedge issue has made pragmatic discussion on the issue difficult, but the Biden Administration must consider the global and domestic consequences of a lasting moratorium. With carbon capture technology still underdeveloped; battery storage expensive; and wind and solar suffering from intermittency, this is not the time to abandon natural gas. Nor it is the time to trigger gasoline price increases, or empower petro-dictators. An overly ambitious green transition could leave hundreds of thousands of already struggling Americans jobless and diminish the US leverage in Latin America, Russia and the Middle East.

Forbes