Joe Biden's Move to Grant Leases for Oil/Gas Drilling Is So Underwhelming
Amidst growing calls to increase economic pressure on Russia and curtail high gas prices for consumers, the Biden Administration announced last month it will resume issuing leases for oil and gas drilling on federal lands. The announcement, which was made by the Department of the Interior, has been reported as a large policy shift by the Administration, which as recently as 2020 vowed to ban any new drilling on public lands.
The announcement has also garnered plenty of negative attention and anguished reactions from climate activists and environmental groups who see the move as a betrayal of the Administration’s previous promise to transition the country away from fossil fuels and toward green energy. They further worry that the move will open the door to a new era of resource exploitation.
These reactions are off the mark. Far from being a major policy shift, the announcement only reinforces the notion that the administration is doing everything in its power to slow walk permit approvals and discourage drilling on federal lands. This is unfortunate because drilling on federal lands could play a critical role in boosting U.S. oil production necessary for bringing prices down.
The sale announced by the Department of the Interior will only apply to 173 parcels on roughly 144,000 acres of land. This is actually 80% less than what was initially proposed for leasing and represents just 0.00589% of all federal land. In addition, the department said new leases would come with a royalty rate of 18.75%, up from 12.5%. They say this amount is more in line with state prices.
However, the previous royalty rate was one of the few incentives for obtaining a lease on federal land. The regulatory barriers and long wait times a company faces when attempting to drill on federal land already make it a risky investment. Not to mention the unpredictable nature of federal policy which can change from year to year. Therefore, a large jump in the royalty rate may be all it takes for a company decide against applying for a permit.
It is also worth noting that the Administration only recently came around to allowing drilling on federal land. Last summer, U.S. District Judge Terry A. Doughty ruled that the Administration’s ban on issuing oil leases violated the Mineral Leasing Act, which requires the government to hold regular lease sales on state “eligible lands.” Only after this ruling did the Administration again reluctantly begin issuing drilling permits. Therefore, this change in policy was born out of practical considerations, not a new commitment to making America more energy independent.
Once more, the pace of permit approvals in general remains anemic at best. According to the Wall Street Journal, it took the Administration 182 days last year to issue a drilling permit. This is compared to just a few days for the state of Texas. Moreover, the number of leases granted each month remains low. In March, only 446 were approved. While this actually represents an increase from February, the number is still far below the 643 issued last April. Perhaps this is why only 10% of total onshore drilling occurs on federal lands, despite the federal government owning 28% of all land in the U.S., and an even greater percentage of land in oil rich states like Alaska.
Each of these facts paint a picture of an Administration whose attempt to increase domestic oil production looks every bit halfhearted. While the Administration will no doubt point to things like its decision to release oil from the nation’s Strategic Petroleum Reserve as evidence of its commitment to increase supply, the reality is it could be doing far more to bring prices down for consumers. No emergency measure to tap oil reserves, or temporarily allow drilling on federal land, is going to significantly move the needle on domestic oil production.
The Administration itself seems to know this is the case and that’s perhaps why they have gone out of their way to emphasize the role of “robust” environmental reviews and the “American people’s broad interest in public lands” asreasons for reducing the amount of eligible “acreage originally nominated.” Of course, this hasn’t stopped them from holding oil companies responsible for the lack of progress on increasing production. The Department of the Interior has largely attributed the problem to oil companies not applying for new permits or drilling on land they already possess through previous sales.
However, is this a fair assessment? The Administration has previously made every effort to obstruct drilling on federal land. Any company navigating such waters may well conclude it is not worth making sizable investments until the political climate has changed.
Some critics have further argued that since drilling can take as long as six months to a year before the oil produced can impact supply, it is not worth pursuing. However, this is a weak argument. A large part of the reason that the current level of production is inadequate is because the government has spent years discouraging oil exploration and development on public lands. While it is true that any relaxation of federal permitting will not have an immediate effect on domestic oil production, that does not mean it will have no effect. It also does not mean it is not worth pursuing regardless of the timeframe.
It is not too late for the Biden Administration to encourage the Department of the Interior to put in place policies that encourage future oil exploration on federal lands. Similarly, the Administration can look into streamlining the currently burdensome permitting process that discourages investment and delays increasing supply. Actions such as these will go a long way towards reassuring stakeholders in the oil and gas industry that the Administration is serious about increasing domestic oil production both now and in the future.
Nate Scherer is a Policy Analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us on www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal
