Could Biden Order Kill GOM Oil and Gas?



Could Biden Order Kill GOM Oil and Gas?
Rigzone talks to experts to see what Biden's executive order could mean for the Gulf of Mexico oil and gas industry.

If U.S. President Joe Biden’s executive order pausing new oil and natural gas leases in offshore waters was made permanent, the Gulf of Mexico (GOM) oil and gas industry would be on a steady march to the end of production, jobs and investment.

That’s according to Erik Milito, the president of the National Ocean Industries Association (NOIA), which represents America’s offshore energy industry. Milito admitted, however, that the GOM oil and gas industry would take a while to disappear completely, especially when accounting for the expected lifespans of some of the newer GOM production projects.

“Under a permanent leasing ban, GOM oil and gas production would drop from the 2.34 million barrels of oil equivalent (boe) per day, which we had in 2019, to 910,000 boe per day by 2040,” Milito told Rigzone.

“Of course, with declining production there is less of a need for companies to retain workers or to keep investing in the GOM. Industry investments would shrink from about $27.7 billion in 2019 to $12.1 billion 2040, with that comes a reduction of close to 195,000 jobs that are good paying, accessible and have historically been an economic lifeline that many families or communities would not normally have access to,” Milito added.

The NOIA president warned that if Biden’s lease pause evolved into an offshore permitting ban, the GOM’s decline would progress more rapidly. “A permitting ban would be a draconian energy policy that would quickly gut jobs, investment, energy production and environmental protection and emissions progress,” Milito said.

“In less than five years, oil and gas production would be about one million boe per day less than what it would have been otherwise under a permitting ban. By 2040, oil and natural gas production would decline from its 2019 level of 2.34 million boe per day to around 322,000 boe per day,” he added.

“We would see the widescale outsourcing of energy, jobs, and investment. By 2040, industry investment would fall from $27.7 billion to less than $5 billion per year. Jobs would be one of the first visible casualties of a GOM permitting ban too,” he added.

The first year of an indefinite GOM permitting ban would cost close to 150,000 jobs, according to Milito. By 2040, Milito highlighted that more than 286,000 jobs would be lost.

Rystad Energy’s head of shale research, Artem Abramov, also highlighted negative impacts for the GOM if Biden’s lease pause becomes permanent. The Rystad representative outlined that, although existing leases in the GOM will still provide enough exploration opportunities in the next five to six years, after that, we would start seeing a “quick decline” in exploration drilling, which would result in a “significant” supply impact in the 2030 to 2040 period. Without new leases, Abramov noted that GOM oil production would decline from 1.8-1.9 million bpd to around one million bpd by 2040.

A permit ban would speed up the GOM’s supply death, Abramov confirmed, stating that, without new permits the natural decline phase will start from 2024 to 2025.

“We will likely see growth in the intervention market, as long as it is still allowed, which will reduce the decline rate but we might get to one million barrels per day already in the early 30s without new permits,” Abramov said.

Stephen Brennock, an oil analyst at PVM Associates, echoed the warnings above, noting that a permanent ban on new oil and natural gas leases in U.S. federal waters would effectively mark a massive blow for the GOM’s oil prospects.

“This is because the deep waters of the GOM are entirely owned by the U.S. government. A permanent ban on drilling would therefore mark the beginning of the end for the GOM’s oil story,” Brennock told Rigzone. “In terms of timeframe, it would most likely cause a gradual decline in output rather than a sudden drop,” he added.

Biden’s executive order covers all of the U.S. Outer Continental Shelf (OCS), which is split into four regions (Alaska, Atlantic, GOM, Pacific) and covers all submerged lands beyond state offshore jurisdictions, up to the edge of the United States’ jurisdiction and control*

The Bureau of Ocean Energy Management (BOEM) notes on its website that the OCS is a significant source of oil and gas for the nation’s energy supply. Offshore federal production in 2019 reached approximately 683 million barrels of oil and 1.03 trillion cubic feet of gas, almost all of which was produced in the GOM, BOEM highlights. This accounted for about 16 percent of all domestic oil production and three percent of domestic natural gas production, according to BOEM.

What About Onshore?

Biden’s executive order also paused new oil and natural gas leases on public lands, although Wood Mackenzie has previously noted that the onshore impact of this would be minimal. Rystad has also outlined that a fracking ban on federal acreage would hardly have any impact on nationwide oil and gas output in the medium term and Brennock told Rigzone that the impact of an onshore drilling ban would be far less severe given that the gross majority of drilling activity takes place on private land.

That being said, some states are more affected than others when it comes to imposing restrictions on public lands. New Mexico, for example, gets 65 percent of its production from federal acreage and Wyoming and Colorado get 37 percent and 11 percent of their production from federal acreage, respectively, Rystad has highlighted. Last year, the American Petroleum Institute (API) warned that a federal leasing ban could see New Mexico lose over 62,000 jobs by 2022.

“Texas, North Dakota and any other state where oil and gas activity is focused on private not federal land will greatly benefit from Biden’s energy policies, because money that would have otherwise been spent drilling on federal lands such as in New Mexico will be redirected to these areas where possible,” James Davis, the director of short-term and head of supply at FGE, told Rigzone.

“This may not be immediately obvious at a company levels but will ultimately be seen through investment capital as those companies with assets on non-federal land will attract more outside investment,” he added.

When asked which oil producing regions would benefit from Biden's new energy policies, Steve Everly, the managing director energy and natural resources at FTI Consulting, also drew attention to Texas.

“Capital can be reallocated from federal lands to non-federal lands,” Everly told Rigzone.

“What that means for a major producing region like the Permian Basin, for example, is some investment will shift from New Mexico across the border into Texas … [where] almost all production is on private and state lands,” he added.

“It’s a cliché, but capital flows like water - it tends to follow the path of least resistance,” Everly continued.

The Bureau of Land Management (BLM) manages the federal government’s onshore subsurface mineral estate, which is said to be about 700 million acres, or 30 percent of the United States. According to the latest BLM data, the number of producing leases on federal lands totaled 24,127 in 2019. Oil and gas produced from the federal and tribal mineral estate accounted for approximately eight percent of all oil, nine percent of all natural gas, and six percent of all natural gas liquids produced in the United States in  2018, BLM notes on its website.

*State offshore jurisdictions lie three International Nautical Miles (6076.10333 feet) seaward of the baseline from which the breadth of the territorial sea is measured. Exceptions are Texas and the Gulf coast of Florida, where offshore jurisdictions lie three marine leagues (9 nautical miles) seaward from the baseline from which the breadth of the territorial sea is measured, and Louisiana, where offshore jurisdiction lies three U.S. nautical miles (U.S. nautical mile = 6080.2 feet) seaward of the baseline from which the breadth of the territorial sea is measured. The U.S. offshore jurisdiction limit is defined as 200 nautical miles seaward of the baseline from which the breadth of the territorial sea is measured or, if the continental shelf can be shown to exceed 200 nautical miles, a distance not greater than a line 100 nautical miles from the 2,500-meter isobath or a line 350 nautical miles from the baseline.

To contact the author, email andreas.exarheas@rigzone.com



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