The Biden administration has been active over the past month in producing policies to put future domestic oil and gas production on public lands in jeopardy. Specifically, he has proposed removal of 13 million acres from the National Petroleum Reserve—Alaska, finalized policies that increase the cost of producing oil and gas on federal land, and cut the amount of land to be leased for oil and gas development in a New Mexico auction by over 3000 acres. These are on top of holding the fewest OCS sales in the history of the program and leasing fewer acres than any President since WWII. These actions harm national security, reduce jobs, and raise prices for oil and gasoline for American consumers. With global oil demand increasing, global oil production slowing, and geopolitical tensions high, it is a dangerously vulnerable time to put further restrictions on domestic oil and gas production, but Biden is working to gain votes from people unfamiliar with energy facts for this November and doing what he can to demonstrate he is serious about his campaign pledge to end oil and gas production.
Biden Blocks Oil Development in the National Petroleum Reserve—Alaska
The Biden administration is preparing to finalize a rule to restrict future oil and natural gas development across approximately 13 million acres of the National Petroleum Reserve-Alaska and increase requirements for future drilling in the rest of the reserve. The U.S. government set aside 23 million acres of Alaska’s North Slope to serve as an emergency oil supply a century ago, but Biden wants to block production on half of it, most likely to gain the votes of environmentalists during an election year. According to Biden’s Interior Department, the rule would not affect existing leases, so it would not affect ConocoPhillips’s 600-million-barrel Willow oil project in the reserve. But oil companies and Alaska lawmakers believe the regulation could hamper investment and infrastructure development. There have been mammoth discoveries in the reserve, which means decades of potential production needed to sustain the Trans-Alaska Pipeline. As such, Biden’s actions would harm America’s energy security, defy federal law, and ignore rising energy prices and growing global volatility.
The proposed regulation would limit future oil development in around 13 million acres or 20,000 square miles of designated “special areas” within the reserve, including territory currently under lease. There would be an outright prohibition on new leasing in 10.6 million acres. Biden’s proposal would create a formal program for expanding protected areas at least once every five years and make it difficult to undo those designations. It would also raise the bar for future development elsewhere in the reserve.
While the Interior Department said the regulation would not affect existing leases, the proposed rule text does not explicitly offer that assurance. Instead, it gives the government broad authority to limit or bar access to existing leases, “regardless of any existing authorization.” Oil leasing and infrastructure development would be presumed not to be permitted unless specific information clearly demonstrates the work can be done with “no or minimal adverse effects” on the habitat.
According to the Interior Department, the proposal would not have a significant effect on the nation’s current energy supply as it takes years to develop a new drilling site. But the reserve would be a notable source of future fuel, holding an estimated 8.7 billion barrels of recoverable oil, according to the U.S. Geological Survey. New discoveries have been made in the Nanushuk field, and the state of Alaska expects oil production from the reserve to increase from 15,800 barrels per day in fiscal 2023 to 139,600 barrels per day in fiscal 2033—almost 9 times more.
According to the Biden Administration, the proposal is necessary to balance oil development with the protection of sensitive landscapes that provide habitat for polar bears, migratory birds and the 61,500-strong Teshekpuk caribou herd. Biden’s proposal would shift the role of the reserve to conservation instead of oil development, which is contrary to congressional intent as the current statute indicates that the primary purpose of the reserve is to increase domestic oil supply as expeditiously as possible.
ConocoPhillips, which has 156 leases in the reserve, warned the regulation would violate its contracts and “drive investment away from the NPR-A.” Santos Ltd., which leases more than a million acres within the reserve and is developing the nearby Pikka Unit joint venture with Repsol SA, indicated that the proposal would infringe on its holdings, with impacts “as extensive as whole projects being denied.” And Armstrong Oil & Gas Inc., whose leases in the reserve span 1.1 million gross acres, said the measure could block it from building the infrastructure needed to access those tracts. The proposed rule would effectively nationalize the company’s leases, the company told the White House.
Biden Finalizes Reforms Against Oil and Gas Drilling on Public Lands
On April 12, the Biden administration finalized a range of changes to government policies pertaining to oil and gas drilling on public lands and the returns the government receives from oil and gas companies pursuing that development, incorporating provisions contained in Biden’s 2022 Inflation Reduction Act (IRA). The rule also incorporates provisions in the 2021 infrastructure law and recommendations from an Interior Department report on oil and gas leasing issued in 2021 that recommended an overhaul of the oil and gas program to limit areas available for energy development and raise costs for oil and gas companies to drill on public lands and waters. The report came after the Department of Interior issued Secretarial Order 3398, which among other things, repealed “American Energy Independence” as a goal of the Department.
Under the new policy, oil and gas companies will pay higher bonding rates to cover the cost of plugging abandoned oil and gas wells, as well as increased lease rents, minimum auction bids and royalty rates for the fuels they extract. The rules also limit drilling in certain wildlife and cultural areas. Higher costs to extract fuels from federal lands are likely to raise oil prices for consumers and increase U.S. reliance on foreign supplies at a time when global supplies are tight, global oil demand is rising and geopolitical factors are volatile. About 10 percent of the nation’s oil and gas comes from drilling on federally owned land.
Minimum lease bonds will increase to $150,000 under the new rules from $10,000—a factor of 15. Drillers are required to pay upfront bonds to cover future cleanups should they fail. Royalty rates will increase by a third to 16.67 percent from 12.5 percent, and the minimum amount companies can bid at oil and gas auctions will increase to $10 an acre from $2—a factor increase of 5. The rental rate for a 10-year lease will double to $3 an acre for the first two years, eventually rising to $15 per acre in the final years. The fees can be adjusted for inflation after 10 years.
The new royalty rate codified by the IRA is expected to remain in place until August 2032, after which it can be increased. The new rate would increase costs for oil and gas companies by an estimated $1.8 billion over that period, according to the Interior Department.
Unfortunately, the rule changes will result in less drilling, fewer jobs and more dependence on oil from the Middle East at a time when oil markets are extremely tight. As energy demand continues to grow, oil and natural gas development on federal lands is needed for maintaining energy security and powering the U.S. economy. Overly burdensome land management regulations will put oil and gas supply at risk when no alternative exists, despite Biden’s energy transition plans, which are not working to the extent needed to put an end to oil and gas consumption that is continuing to rise around the world. Biden threatened to end oil and natural gas production on federal lands during his last campaign and he is demonstrating to his constituents that he will continue to make it economically impossible to produce energy on federal lands, in hopes of gaining votes in November.
Interior Cuts Federal Land for Lease in New Mexico Auction Sale
Federal officials cut a proposed public land auction for the oil and gas industry by over 3,000 acres in southeast New Mexico. The Bureau of Land Management (BLM) initially proposed to lease 18 parcels in New Mexico but removed seven, cutting the sale by 3,152 acres. BLM proposed leasing four parcels of land in Eddy, five parcels in Lea and two in Chaves counties in the southeast Permian Basin region, combining the New Mexico sale with eight parcels of land in Kansas. The sale offered 760 acres in Eddy County, 480 in Lea County and 359 acres in Chaves County for a total of 1599 acres.
The decision was made in response to an instructional memorandum issued by the Department of the Interior in November 2022 which stipulated new guidelines for evaluating lands nominated by the oil and gas companies for lease. Criteria included the lands’ proximity to existing oil and gas operations, giving preference to those that expanded ongoing operations. The Agency also sought preference for lands that would not impact fish and wildlife habitats, cultural resources, or outdoor recreation. The reduction was also in response to several public comments the BLM received on the nominated parcels, calling for leases to be deferred if they did not appear likely to produce oil and gas, could impact wildlife and cultural resources or contribute to greenhouse gas emissions. The smaller lease sale is to be conducted on June 13, 2024.
Conclusion
The Biden administration has undertaken several proposed and finalized policies over the past month to make it more difficult to produce oil and gas in the United States, despite U.S. needs and the needs of our allies. Despite the U.S. government setting aside 23 million acres of Alaska’s North Slope to serve as an emergency oil supply a century ago, the Biden administration is ignoring the intent of Congress by moving to block oil and gas development across more than half of it. President Biden has also finalized rules to increase the cost of producing oil and gas on public lands, which will likely increase the price of oil and gasoline for American consumers. His Interior Department has also cut over 3000 acres from a lease sale in New Mexico. These actions will hurt national security, reduce jobs, increase costs for consumers, tighten an already tight oil market with a volatile Middle East, and drive investment offshore, where Biden is ignoring sanctions against Iranian and Venezuelan oil production. Biden is looking for votes this November and he is continuing his anti-oil and gas policies to gain that support.
