In a Tight Market, U.S. Concerns Mount Over Offshore Energy Development

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The American Petroleum Institute (API) said Tuesday it would challenge a district court decision to invalidate a federal lease sale to tap offshore oil and gas, saying the decision is short-sighted in an era of supply-side issues.

The U.S. District Court for the District of Columbia invalidated last year's lease for more than 80 million acres in the Gulf of Mexico, saying the federal government had not adequately considered climate issues when deciding to go ahead with the auction.

The decision means the Interior Department, the federal agency in charge of such leases, must go back to the drawing board and assess the potential greenhouse gas emissions that would derive from further offshore development.

The API, which represents the business interests of hundreds of oil and gas companies, said it would challenge the decision.

"At a time of rising energy costs and heightened geopolitical tensions, the misguided decision to cancel the only lease sale held last year is contributing to significant uncertainty for U.S. natural gas and oil producers and limiting access to the affordable, reliable energy that's needed here in the U.S. and around the world," said Frank Macchiarola, the vice president for policy, economics and regulatory affairs at the API.

Click on the image at right for a graph from the U.S. Energy Information Administration (EIA) detailing how crude oil production will increase with new projects in 2021 and 2022.

According to the federal government, the U.S. territorial waters in the Gulf of Mexico account for about 15% of total crude oil production, though gas production has been largely overshadowed by inland shale development. Meanwhile, the API estimated the 2021 lease sale brought in almost $200 billion in total bids, revenue that would go to state and federal coffers.

The U.S. is a world leader in fossil fuel production. The latest estimate from the Energy Department puts total domestic crude oil production, for example, at an average of 12 million barrels per day (BBL/d) for this year, just short of the all-time record average of 12.3 million BBL/d set in 2019. By 2023, the Energy Department expects the average will increase to 12.6 million BBL/d. Saudi Arabia, by contrast, produced an average of 9.9 million BBL/d in December.

The global economy, meanwhile, is under-supplied. In the U.S., the world's leading economy, domestic inventories of crude oil are about 11% below the five-year average for this time of year. That's leaving crude oil prices at highs not seen since 2014. Retail gasoline prices, meanwhile, are a growing frustration for U.S. consumers, as well as a White House struggling with slumping poll numbers.

U.S. President Joe Biden has faced near-constant criticism for his energy policies. In one of his first acts of office, Biden rejoined the Paris climate accord and cancelled a permit for the Keystone XL oil pipeline. Later, however, his office released crude oil from strategic reserves and called on OPEC to put more barrels on the market to help arrest runaway inflation.

But it's not just Biden straddling both sides of the debate over the energy transition. Groups such as the API have been touting their record on environmental issues, saying the industry is taking climate change seriously.

The API, in announcing its challenge to the decision on last year's offshore auction, pointed to a report from 2016 that suggested domestic production had less of a carbon footprint than foreign sources shipped from overseas.

At the Port of Houston, meanwhile, several energy majors are aligned with the development of a major carbon capture and storage hub, which could sequester pollution from regional industries.

Energy is a political and economic issue. Even while the global economy pivots toward low-carbon alternatives, fossil fuels may be necessary until the world can function on renewables.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.