Boxing’s former heavyweight champ Mike Tyson famously said that “Everybody has a plan until they get punched in the mouth.”
This certainly applies to the Biden administration and its plan to end oil and gas leasing on federal lands.
Pushed by climate activists, Biden had hoped to end leasing any new federal areas to oil and gas companies for exploration and development. But it has been punched hard in the mouth by political and market realities, including the recent spike in oil prices to $75 a barrel.
Team Biden recently suffered a major defeat in a federal court, which blocked its pause on oil and gas leasing on public lands and waters after Louisiana and 12 other states challenged the move.
And now word comes that the administration has been granting federal approval for drilling applications at a record pace in recent months despite its bold promises to slash carbon emissions and tackle climate change.
Biden has so far approved roughly 2,100 drilling applications since taking office, with New Mexico and Wyoming leading in approvals, according to an Associated Press report. That’s the highest level since Republican George W. Bush, a former oilman, was president.
It is possible that Interior Department officials are working through Trump-era backlogs of permit applications, but this can’t explain away a volume that size. The administration has more likely seen the writing on the wall in energy markets.
The price of benchmark West Texas Intermediate (WTI) crude has surged to nearly $75 a barrel, and average U.S. gasoline prices at the pump have risen 30% to around $3.15 a gallon since Biden took office in January. Pump prices are up nearly $1 a gallon from a year ago.
Administration officials have increasingly expressed concern about rising energy prices, which threaten to slow the economic recovery from the Covid-19 pandemic. They recently held a number of high-level conversations with OPEC+ members, including Saudi Arabia and the United Arab Emirates, to encourage the cartel to add more supply to the market and take some heat out of oil markets.
It’s unclear if this pressure helped Saudi Arabia and the UAE reach their compromise last week, which should allow OPEC+ producers to gradually add 2 million barrels a day of additional supply to the market before year-end. But it shows that Biden, despite his radical climate agenda, is not above lobbying OPEC to cool off red-hot oil prices — just like every president before since the cartel was formed in 1960.
In fact, Interior officials have frequently sought to reassure lawmakers in Western states that the Biden administration would continue to issue permits despite freezing new leasing auctions at the start of Biden’s term. That won’t make climate radicals and progressives happy, but it implies an understanding of the oil and gas industry’s importance to the American economy.
It will be interesting to see where things go from here. The administration is in the process of performing a wholesale review of the federal leasing program. A report from the Interior Department is expected imminently that will set the tone for any future oil and gas leasing offered by the administration.
Given the price spike and tightness in oil markets — not to mention the legal uncertainty surrounding a federal leasing ban — it would be prudent to back off the policy.
Energy lobbyists expect the administration to do just that — but with certain provisions. These could include tighter methane controls, stricter financial assurance requirements, or even higher royalty rates. However, Biden can’t overreach on royalties because U.S. oil and gas projects must compete with opportunities elsewhere in the world.
America has been able to become a top three producer in the world because of its competitive fiscal environment for exploration and development. Royalty rates for onshore leases have stayed at 12.5% since the 1920s, despite multiple efforts to raise them over the years. Offshore rates remain at 12.5% for shallow-water operations and 18.75% for deepwater.
Jacking up these rates too high could effectively amount to a leasing ban by making American projects too expensive compared to opportunities in other producing regions like Russia and the Middle East. That might be tempting for the administration, but most other major producing areas care less about climate change than America does.
Indeed, deepwater Gulf of Mexico projects are less carbon-intensive than all but one of the countries from which America now imports oil: Saudi Arabia.
That should not be difficult for the administration to understand, but explaining it to the climate radicals that helped Biden get elected is another story.