Biden's new threat to American energy security

[Editor's note: This story originally was published by Real Clear Energy.]

By Frank J. Macchiarola
Real Clear Energy

In warning Americans about the looming economic consequences ahead of the invasion of Ukraine by Russia, President Joe Biden said “my administration is using every tool at our disposal” to protect consumers and businesses from rising energy prices.

While API welcomed news that the Department of the Interior has resumed planning for oil and gas development on federal lands and waters, and that the Department of Energy has approved two new LNG export permits, much more needs to be done. The best long-term solutions the administration could implement are policies to allow U.S. oil and natural gas producers to increase supply and utilize our country’s vast energy abundance.

Astonishingly, though, the administration is delaying a new 5-year program for selling offshore leases in the Gulf of Mexico and other federal waters. A lease is a legal agreement conveying a right to explore, develop and produce energy in a particular area. Since 1980, the Interior Secretary has been required to prepare a 5-year leasing program detailing the size, timing, and place of proposed offshore sales.

Under federal law, the next 5-year offshore leasing program must be in place by July 1, 2022, as the current program is scheduled to expire and there will be no opportunities for new leases. Unfortunately, Interior is behind schedule in this lengthy regulatory process and has yet to complete the required public comment period. Simultaneously, a federal judge recently invalidated Lease Sale 257, the only federal lease sale held in 2021.

At a time of rising geopolitical volatility and global energy price shocks, the lack of progress toward a 5-year offshore leasing program could needlessly hinder America’s long-term energy supply. While remarkable given the state of global energy, the failure to make progress on the 5-year program is consistent with misguided executive orders signed by President Biden at the outset of his term.

A new analysis prepared by Energy & Industrial Advisory Partners (EIAP) for API and the National Ocean Industries Association crystallizes the serious consequences of delaying a new 5-year program.

Are Biden's policies threatening American energy security?

The report compared a status quo “base case” with a “delayed 5-year leasing program case.” Under the base case, which assumes that a new program will be in place in 2022, the Gulf alone is projected to produce an average of 2.6 million barrels per day of oil and natural gas equivalent between now and 2040.

But a delay in the program could mean a loss of 500,000 barrels per day over the same period. For context, 500,000 barrels per day is approximately the amount the U.S. was importing from Russia before the crisis in Ukraine began. In all, the report projects that America’s oil and natural gas supplies would be cut by more than 3.2 billion barrels through 2040.

Given the long supply chain fed by industry, the ripple effects would harm communities across America. Under current trends, 370,000 U.S. jobs are and would be supported by Gulf offshore production through 2040. Direct jobs in the industry pay on average $69,650 a year—29% higher than the national average salary. The production is estimated to generate about $31 billion in yearly economic contributions and $7.4 billion in government revenue.

But in addition to significantly less energy production, the EIAP report projects that the failure to implement a new program would undermine our nation’s economic recovery. Industry spending would decline by over $5 billion per year, employment would decline by 60,000 jobs, industry contributions to the economy would fall 16%, and government revenue from offshore development would be 20% less.

Even President Biden’s new budget shows “expected revenues from offshore oil auction bids and annual rental payments on existing leases are set to drop in fiscal 2023 by about $370.4 million to just $25 million,” according to Bloomberg. We cannot afford the potential hits to education, infrastructure, conservation, coastal restoration, and other programs that could be incurred if the administration fails to deliver on a new 5-year program.

Citing government policies and their effects on industry, one unidentified energy executive recently told economic researchers: “We are in for a world of hurt for the next three years.” We hope that is not the case. But if the administration does not put forward a new 5-year offshore program, policymakers risk more self-inflicted harm to the economy at a time of record-high inflation.

The Biden administration should move forward with a new 5-year program and restore a trajectory of growth in oil and natural gas production that will allow America to lead the world in delivering affordable, reliable energy for decades to come.

Frank J. Macchiarola is senior vice president of policy, economics, and regulatory affairs at the American Petroleum Institute in Washington.

[Editor's note: This story originally was published by Real Clear Energy.]

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