Coming off Cop26, US to auction crude oil in Gulf of Mexico

Sale comes despite pledges from Biden administration to ween nation off of fossil fuels

The US Interior Department on Wednesday will auction vast oil and gas reserves in the Gulf of Mexico estimated to hold up to 1.1 billion barrels of crude, the first such sale under President Joe Biden and a harbinger of the challenges he faces to reach climate goals that depend on deep cuts in fossil fuel emissions.

The live-streamed sale invited energy companies to bid on drilling leases across some 352,000 square kilometres — about twice the area of Florida.

It will take years to develop the leases before companies start pumping crude. That means they could keep producing long past 2030, when scientists say the world needs to be well on the way to cutting greenhouse gas emissions to avoid catastrophic climate change.

The auction comes after a federal judge in a lawsuit brought by Republican states rejected a suspension of fossil fuel sales that Mr Biden imposed when he took office.

The Democrat campaigned on promises to curb fossil fuels from public lands and waters, which including coal account for about a quarter of US carbon emissions, the US Geological Survey said.

Yet even as he has tried to cajole other world leaders into strengthening international efforts against global warming, Wednesday’s sale illustrates Mr Biden’s difficulties in gaining ground on climate issues at home.

The administration last week proposed another round of oil and gas lease sales in 2022 in Montana, Wyoming, Colorado and other western states. Interior Department officials proceeded despite concluding that burning the fuels could lead to billions of dollars in potential future climate damages.

“We had [former president Donald] Trump’s unconstrained approach to oil and gas on federal lands and Biden’s early attempt to pause drilling. Now it looks like the Biden administration is trying to find a new policy,” said Robert Johnston, a researcher at Columbia University’s Centre on Global Energy Policy.

“They’re being very cautious about undermining their fragile momentum” on climate issues, he added.

The energy bureau said in presale documents released on Tuesday that it had received bids on 307 tracts totalling about 6,950 square kilometres — the largest total for a single sale since Gulf-wide bidding resumed in 2017. The seven prior sales generated almost $1 billion in total revenue.

Environmental reviews of the latest sale — conducted under Mr Trump and affirmed under Mr Biden — reached an unlikely conclusion: extracting and burning the fuel would result in fewer greenhouse gases than leaving it.

For coming sales, representative Melissa Schwartz said the Interior Department is conducting a more comprehensive emissions review than any prior administration. It is also appealing the court order that forced their resumption.

Erik Milito, president of the National Ocean Industries Association, said he was uncertain that using the new approach would have changed the government’s conclusions, since drilling for oil in other parts of the world is less efficient and hauling imports also adds to carbon costs.

The continued use of the old analysis rankles drilling opponents who say Mr Biden is not following through on his climate pledges.

“We’re talking about transitioning away from a fossil fuel economy and they are selling a giant carbon bomb of a lease sale,” said Drew Caputo, a lawyer with Earthjustice, which has a pending federal lawsuit against the Gulf of Mexico sale.

Some Democrats also objected to the sale. House Natural Resources Committee Chairman Raul Grijalva said the president “needs to do better” after promising to lead on climate issues but continuing a fossil fuel programme with a long history of mismanagement.

The Gulf of Mexico accounts for about 15 per cent of total US crude production and 5 per cent of its natural gas.

Industry analysts had predicted some heightened interest in Wednesday’s sale since oil prices rose sharply over the past year. It is also a chance for companies to secure drilling rights before the administration or Congress can increase drilling fees and royalty rates, said analyst Justin Rostant with industry consulting firm Wood Mackenzie.

“Different companies have different approaches and different strategies,” Mr Rostant said.

“Some could think this might be the year to go big.”

Updated: November 17th 2021, 4:01 PM
EDITOR'S PICKS
NEWSLETTERS