Alaska’s latest lease sale shows ‘demand for Cook Inlet natural gas remains high’

Thanks to the provisions stipulated in the Inflation Reduction Act (IRA), the U.S. Bureau of Ocean Energy Management (BOEM) has held an oil and gas lease sale for acreage in Cook Inlet, offshore Alaska. On the other hand, the Alaska Department of Natural Resources (DNR), Division of Oil and Gas (DO&G), also held the Cook Inlet Areawide Winter 2022W (CIA 2022WW) Competitive Oil and Gas Lease Sale.

In a bid to comply with the Inflation Reduction Act (IRA) of 2022, which President Joe Biden signed into law in August 2022, BOEM reinstated in September 2022 the first oil and gas lease sale held under the Biden administration for acreage in federal waters in the Gulf of Mexico, which was invalidated by a U.S. judge in January 2022 on the grounds of failure to properly account for the lease sale’s climate change impact.

This energy bill, which is expected to open the door to more federal onshore and offshore lease sales, outlined that it would reinstate the vacated Gulf of Mexico Lease Sale 257 and hold the cancelled Lease Sales 258, 259, and 261. Come October 2022, BOEM disclosed the next steps for oil and gas leasing on the Outer Continental Shelf (OCS), including a proposed sale for the Gulf of Mexico region and completion of an environmental review for Cook Inlet, offshore Alaska.

At the time, a final environmental impact statement (EIS) analysing the potential impacts of Cook Inlet OCS Oil & Gas Lease Sale 258, which Congress directed BOEM to hold by the end of 2022, was published on BOEM’s website. This Final EIS analysed the relevant environmental resources and uses – such as sea otter and beluga whale populations; subsistence activities; commercial fishing of pacific salmon and halibut; etc. – within the Cook Inlet planning area and identified mitigation measures to be considered in leasing the area.

In addition, it identified the preferred alternative, which would offer for lease 193 unleased OCS blocks – approximately 387,771 hectares or 958,202 acres –  and deferred the 17 OCS blocks wholly or partially overlapping beluga whale and northern sea otter critical habitats. It also applied additional mitigation measures to reduce potential impacts to the beluga whales and their critical habitat and feeding areas, sea otters and their critical habitat, and the gillnet fishery.

On 30 December 2022, the Bureau of Ocean Energy Management held the first of three lease sales resulting from a provision in the Inflation Reduction Act that directs BOEM to hold lease sales for new offshore oil and gas drilling. As a result, the Cook Inlet OCS Oil and Gas Lease Sale 258 generated one bid in the amount of $63,983 for one tract, which was submitted by Hilcorp Alaska LLC. 

“The Cook Inlet lease sale terms include stipulations to protect biologically sensitive resources, mitigate potential adverse effects on protected species, and avoid potential conflicts associated with other inlet users,” highlighted BOEM in its statement.

Following the sale, the bid is expected to go through a 90-day evaluation process to ensure the public receives fair market value before a lease is awarded, and a Department of Justice review of antitrust considerations.

Furthermore, the Alaska Department of Natural Resources’ Division of Oil and Gas released bid data for the Winter 2022 competitive oil and gas lease sales bid opening – announced in October 2022 and held on 30 December 2022 – where more than 2.8 million acres were offered in 721 tracts over the entire Cook Inlet sale area.

During this lease sale, six bids were received on six offshore tracts and the average bonus bid was $15.78 per acre for a total of $359,483.23 on 22,783 acres. The apparent high bidder on all tracts is Hilcorp, currently holding 239,000 acres in Cook Inlet on 137 leases.

Commenting on this, Mike Dunleavy, Governor of Alaska, remarked: “Alaskans will be encouraged to see that the conventional oil and gas industry continues to invest and develop in Alaska. This is especially important for our Railbelt, which relies on Cook Inlet natural gas to meet the energy needs of residents and businesses.”

According to DNR, which confirmed that Hilcorp also placed a bid on a tract – near acreage it already holds in the area – in BOEM’s lease sale in the federal Outer Continental Shelf, this company is the primary producer of natural gas in the region and this marks the tenth year since it began participating in Cook Inlet lease sales.

John Crowther, DNR Deputy Commissioner, underlined: “It’s clear there is interest in ongoing Cook Inlet exploration and development. Alaskans’ demand for Cook Inlet natural gas remains high and the market is favourable for new development. With these promising sale results, the State of Alaska remains open for business to ensure a stable local energy supply, contribute to more predictable prices for consumers, and support national energy independence.”

Meanwhile, environmental organisations have previously urged President Biden to stop new drilling on federal lands and offshore territories under U.S. control to bolster climate action and lower emissions. In line with this, the Cook Inlet lease sale is facing opposition from environmentalists.

After BOEM held Lease Sale 258 for offshore oil and gas drilling in Alaska’s Cook Inlet, which consists of about 958,000 acres for new offshore oil and gas development, stretching from Kalgin Island in the north to Augustine Island in the south, Oceana underscores that the latest oil and gas lease sale off Alaska’s coast “threatens the environment” and “undermines U.S. climate goals.”

Diane Hoskins, Oceana campaign director, criticized this lease sale at the end of December, saying: “Today’s lease sale for dirty and dangerous offshore drilling represents the dark side of our nation’s climate law, the Inflation Reduction Act. Continued leasing for oil and gas undermines efforts to address the climate crisis.

“Where oil companies drill, they spill, and that’s why it’s time for President Biden to fulfill his campaign commitment to end new leasing for offshore drilling. The president can make good on his promise by finalizing a five-year plan for offshore drilling with no new leases.”

Oceana further emphasises that the government data shows the new offshore drilling in Cook Inlet comes with around a 20 per cent chance of a large oil spill, defined as a spill of 42,000 gallons – 1,000 barrels – or more, that could happen over the course of the lease.

With approximately 400,000 people living in the watershed, Oceana points out that the Cook Inlet region is “a wild and diverse environment,” heavily influenced by tides. This region often experiences sea ice cover.

Additionally, the region includes several “critical habitat designations,” under the Endangered Species Act, adds Oceana, elaborating that this includes waters important for the critically endangered Cook Inlet beluga whale. This area also provides habitat for myriad wildlife including brown and black bears; all five species of Pacific salmon; and humpback, orca, and beluga whales.

Moreover, Oceana reminded that Biden, during his presidential campaign, pledged to end new leasing for offshore drilling while the International Energy Agency said that nations must stop developing new oil and gas fields if global warming is to stay within relatively safe limits.

Dyani Chapman, director of Alaska Environment, also expressed dissatisfaction with more drilling off Alaska: “Alaska has a long history with oil, but we are so much more than just our crude. We should be looking forward to a cleaner, greener future in the coming year. Instead, we’re closing out 2022 with a lease for more dirty, dangerous offshore drilling.

“For the sake of our beluga whales, northern sea otters, salmon and more, we urge companies to recognize that drilling in Cook Inlet should be left in the past.”

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