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Biden Election Likely To Impact Offshore Energy Production Over Time

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Although energy production became a big issue in the closing days of the presidential campaign, the election of former Vice President Joe Biden is not likely to result in significant impacts to oil and gas production, at least in the short term.

However, the one segment of the U.S. energy industry that might see the biggest effect is the offshore exploration-and-production business, and even here, Biden’s policies aren’t likely to have an immediate effect, although his call for a ban on permitting for future projects could significantly slow production in the future.

The Biden Plan for a Clean Energy Revolution calls for “banning new oil and gas permitting on public lands and waters,” as part of the goal to ensure that the U.S. achieves net zero emissions by 2050 to forestall catastrophic climate change.

If enacted, such a ban over time would lead to an inevitable decline in hydrocarbon production from the offshore region, as existing energy-producing fields play out with no new drilling occurring to replace that production.

Erik Milito, president of the National Ocean Industries Association, said a permitting ban would have a devastating effect on offshore energy production.

“I get electioneer rhetoric, but we’re hopeful that we’re going to have smart energy policy. We’ve been producing a million barrels a day since ’97 and more recently 2 million barrels per day within the last year,” Milito said in an interview.

According to a NOIA report, banning the sale of new oil and gas leases in the Gulf of Mexico offshore would have a dramatic impact on offshore energy economics over the next 20 years, while withholding the issuance of new permits to drill would have an even more profound effect. From a baseline production of 1.9 million barrels of oil equivalent per day, by 2040 output would fall to 0.9 million boe/d under the No New Leasing scenario and to 332,000 boe/d under the No New Permitting scenario.

Over the same period, the number of jobs supported by Gulf of Mexico oil and gas activity would fall from an estimated baseline 367,000, to 173,000 under the No New Leasing scenario, and to 80,000 under the No New Permitting scenario.

Path to policy implementation unclear

It’s unclear how President-elect Biden plans to implement his policy of banning new permitting in the offshore. The process for establishing leasing and permitting offshore projects is spelled out in the Outer Continental Shelf Lands Act, and involves numerous steps, including the federal government preparing a five-year plan, scheduling individual sales where it sells the leases to E&P companies, approving a producer’s exploration plan and then approving the development plan. For offshore producers the entire process might take 10 to 15 years from project conception to drilling.

Pro-energy politicians from both parties as well as offshore industry groups are likely to try to block any major reform the Biden administration is likely to undertake.

“As you look at jobs and economic development, I’m not saying we’re not going to have fights on our hands, but it’s going to be interesting to see how President Elect Biden addresses these issues going forward,” Dan Naatz senior vice president for the Independent Petroleum Association of America, said in an interview.

In any case, changes to the regulatory scheme for offshore oil and gas activity are likely to have less of an impact on overall U.S. oil and gas production than would have been the case in the last century.

In previous decades, oil and gas production from the federal offshore region, chiefly the western Gulf of Mexico, made a substantial portion of total U.S. production. However, with the onset of the shale revolution, which dramatically increased U.S. onshore oil and gas production, offshore production has declined as a percentage of total U.S. output.

According to Energy Information Administration data, “In 2019, total offshore production of dry natural gas was about 1 Tcf, of which 89% was from federal waters in the Gulf of Mexico. Federal Gulf of Mexico production equaled about 3% of total U.S. dry natural gas production.”

EIA reported that last year, offshore US oil production totaled around 1.90 million barrels per day, which comprised only about 16% total U.S. crude production of 12.25 million b/d.

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