A program intended to enable oil and gas development on the U.S. outer continental shelf (OCS) has expired, leaving domestic energy producers at a loss as to whether it will be replaced any time soon. In the short term, this means no new leases will be offered under the program run by the Interior Department. However, the effects will not be felt immediately, since many existing leases remain active and it takes time for exploration to yield production. Nevertheless, the expiration of the program is troubling as it signals to oil and gas producers–and ultimately consumers–that the government has an antagonistic attitude towards more domestic energy production.
The federal government’s 5-year lease program for offshore oil and gas projects is a system by which the government leases tracts of federal waters on the OCS to private companies for exploration and extraction of oil and gas resources. The Department of Interior oversees the program, as it is responsible for managing the nation’s offshore energy resources and ensuring that they are developed in an environmentally responsible manner.
The 5-year lease program is structured around a schedule of lease sales. The DOI identifies tracts of federal waters that are potentially rich in oil and gas resources and offers them up for lease to private companies through a competitive bidding process. Companies submit bids for the right to explore and extract resources from these tracts, with the highest bidder winning the lease.
Once a company has won a lease, it can take seven to ten years to start producing energy. Hence, a drop-off in lease sales will not curtail production immediately, but rather will be felt with time.
The Biden Administration proposed a regulation last year to extend the previous 5-year lease program. The rule came out last July, just as the previous program was expiring. However, the proposal—which includes the option of approving zero new leases over the next five years—still hasn’t been finalized.
The lapse in the 5-year lease program is unprecedented and potentially illegal. The program stems from a 1978 law that requires a schedule be maintained for oil and gas leasing on the OCS. The law requires “expeditious and orderly development,” subject to environmental safeguards, of the OCS, but it does not specify an exact timing for the plan’s release. Hence, a legal debate has emerged surrounding the issue, which may not be settled until a court gets involved.
Some environmental groups have praised the lapse, arguing that climate change necessitates that further drilling on the OCS be curtailed. However, domestic oil and gas production is critical for energy security as well as for the economic benefits involved. If oil and gas is not produced within the United States, the gap will likely be filled elsewhere, potentially by countries less friendly from a national security standpoint and less environmentally conscious as well.
In the near term, the Inflation Reduction Act mandates some offshore lease sales. That will alleviate some concerns, at least in the short run. But without the 5-year leasing program in place, the long-term outlook for America’s energy security is grim with respect to the OCS. At the end of the day, the Biden Administration should make its intentions clear with a final rule. If nothing else, that would create added certainty and likely push the date closer when a court rules on the legality of the administration’s approach.