Houston—The moratorium on new oil and gas leases on federal lands and waters that President Biden is expected to announce Jan. 27 would hurt US production and pick winners and losers between states, industry and state critics said Jan. 26.
The anticipated moratorium on oil and gas leases -- with no set time limit -- would help fulfill Biden's campaign pledges on climate change and would come one week after the acting Interior secretary placed a 60-day pause on oil and gas permits and leases without the approval of senior Biden staffers.About 22% of US oil production and 12% of natural gas production takes place on federal lands and waters, but the planned moratorium would not undo existing leases and permits, meaning that there would be limited near-term impacts. Many oil and gas producers stockpiled a lot more drilling permits in the final year of the Trump administration in order to build up their inventories, especially in New Mexico's Delaware Basin, Wyoming and other Western states where there's more federal land.
While the longer-term impacts would prove more severe, industry and business representatives said the ripple effects still would come much sooner as producers simply move their activities elsewhere and smaller services companies go out of business.
New Mexico Chamber of Commerce CEO Rob Black said his state stands to lose the most after much of the Permian oil boom shifted to the New Mexico side of the basin in recent years. And a majority of New Mexico's Delaware Basin sits on federal land.
"A ban would just cause production to move a few miles down the road to leases on private land in Texas," Black said on a webinar hosted by the US Chamber of Commerce. Or "it would move overseas to Saudi Arabia or Russia."
And Louisiana Association of Business and Industry CEO Stephen Waguespack, also speaking on the webinar, highlighted how dependent his state is on the leasing and activity in the deepwater Gulf of Mexico, especially with production from the shallower waters much more mature.
"About 94% of our crude oil produced in Louisiana is produced offshore and the overwhelming majority of that is in federal waters," Waguespack said, referencing the revenue-sharing agreement between the state and federal government on deepwater Gulf production off of Louisiana's coastline.
Big inventoriesMost of the broader impacts though are years away after permitting on federal lands surged in the final two months of the Trump administration. The administration approved over 600 wells versus the previous three-month average of fewer than 190 wells per month, according to S&P Global Platts Analytics. More than 60% of the current inventory of federal drilling permits are in New Mexico's Delaware Basin. Nationwide, nearly 4,000 permits for new wells are undrilled or uncompleted.
Rystad Energy's head of shale research, Artem Abramov, said New Mexico shouldn't have too much to worry about for now.
"Most operators can maintain tier-one activity at the current pace in Delaware New Mexico for more than 10 years even without any new federal acreage permits," Abramov said.
He noted that federal acreage accounted for up to 80% of the total permitting activity in the New Mexico region in multiple months last year.
Biden's pick to lead the Interior Department is a congresswoman from New Mexico, Rep. Deb Haaland.
Apart from New Mexico, the American Petroleum Institute said the federal lands accounted for more than 40% of the shale gas production in Colorado, more than 60% in Utah and more than 90% in Wyoming.
Actually banning federal drilling, which is not expected to be a part of this order, would put more than 1.6 million b/d of US crude oil production at risk, according to Platts Analytics, as part of a "worst-case scenario." It is more likely that closer to 1.1 million b/d would be impacted.
Because of the loss of demand from the coronavirus pandemic, US crude oil production already has fallen from record highs of nearly 13 million b/d near the beginning of 2020 down to 11 million b/d this January.
Quick to actPresident Biden hasn't wasting any time making good on his climate change pledges.
On day one, he effectively canceled the long-debated Keystone XL Pipeline project by revoking the necessary presidential permitting, and he had the Interior Department enact the de facto, 60-day permitting and leasing pause for oil and gas.
On Jan. 25, he pledged to replace the government's fleet of cars and trucks with electric vehicles assembled in the US over time. As of 2019, the US government had 645,000 vehicles, more than one-third of which were operated by the US Postal Service.
Now Biden plans to move forward with a broader moratorium on oil and gas lease sales, although it's still unclear if a scheduled Gulf of Mexico lease sale in March will be canceled.
Biden also may not be done with controversial oil pipeline projects. A federal appeals court ruled Jan. 26 that the nearly four-year-old Dakota Access Pipeline is operating illegally without an easement pending a more through environmental review.
While the court order is keeping the pipeline open, the opinion made it clear that Biden and his US Army Corps of Engineers could choose to shutter the primary Bakken shale artery while the Environmental Impact Statement review remains ongoing.
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