America’s burning question: To drill or not for more oil & gas

As the raging global energy crisis turns up the heat on countries to ensure energy security while propelling forward the transition to green energy sources, the United States of America’s prevailing concern continues to be whether investments in the exploration and development of more oil and gas projects should be ramped up along with the deployment of renewables and other low-carbon energy sources.

While calls to phase out fossil fuels are growing stronger and renewables and other low-carbon sources are gaining ground by leaps and bounds, many still agree that oil and gas are needed to power the energy transition, especially as renewables and technologies needed for the large-scale deployment of clean energy sources are still in the development stage and do not have the capacity to replace fossil fuels.

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Given the current trend of doubling down on clean energy initiatives in pursuit of a low-carbon future, the U.S. has ramped up its efforts and investments in renewable energy – onshore/offshore wind, solar, green hydrogen – and other clean energy sources during 2022.

This has been done through the Clean Energy Corps, President Biden’s Climate Agenda, Bipartisan Infrastructure Law, $84 million programme to demonstrate enhanced geothermal energy systems, $3 billion to boost domestic battery manufacturing and bolster supply chains, $2.3 billion to cut U.S. pollution and combat climate change through carbon storage and management, Inflation Reduction Act (IRA), the CHIPS and Science Act which authorized $68 billion for the Department of Energy and National Labs, the first ever Global Clean Energy Action Forum, etc.

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Regarding the Inflation Reduction Act, Huw van Steenis, vice-chair at Oliver Wyman, wrote in a Financial Times article last week that the green subsidies recently announced by the U.S. could be “a game-changer for renewables,” as issues such as energy security and climate policy make changes to the global investment landscape. He believes that France’s pivot to nuclear in the 1970s – the Messmer plan, seen as “the world’s most successful energy security and decarbonisation plan” up to now – offers potential lessons and insights on the IRA impact for bankers and investors.

“The bottom line is energy security, and decarbonisation policy programmes are now at such scale that they will accelerate and shift the transition to a lower-carbon future. The complex transition will be bumpy and create clear winners and losers as the market narrative shifts,” concludes Huw van Steenis.

The U.S. Department of Energy confirmed that one of the major scientific breakthroughs in 2022, expected to bolster clean power, was made on 5 December by a team at Lawrence Livermore National Laboratory, when they achieved the first-ever fusion ignition. It is believed that this is a big deal as nuclear fusion involves smashing atoms together to generate enormous amounts of power, which will not have adverse effects on the land, water, and atmosphere the way fossil fuels do nor will it create radioactive waste in the same way nuclear fission does.

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However, the question remains whether oil and natural gas investments should be increased along with those in renewables and clean energy technologies or whether oil and gas plays are truly becoming a thing of the past, as environmentalists would want.

Given the global energy security concerns and the recently renewed memorandum of understanding (MoU) between the Asociación Mexicana de Empresas de Hidrocarburos (AMEXHI), the American Petroleum Institute (API), and the International Association of Oil & Gas Producers (IOGP) in regards to operational performance across North America’s natural gas and oil operations, this does not seem likely in the foreseeable future.

Commenting on this MoU, Anchal Liddar, API’s senior vice president of Global Industry Services, pointed out: “By updating and extending the MOU, our associations will continue to collaborate on further advancing safe and sustainable operations across North America.”

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In 2022, API presented a 10-in-2022 plan, which set out ten actions for Washington as a roadmap to unleash American energy and foster economic growth while API’s Climate Action Framework detailed solutions to the dual challenge of meeting energy demand and reducing carbon dioxide emissions on the journey to a lower-carbon future.

This was also emphasised by Amanda Eversole, API EVP & Chief Advocacy Officer, who underscored that “natural gas and oil should be recognized as reliable and realistic partners to enable renewables’ growth – as well as the lead energy sources in places without enough wind and sunlight to generate sufficient energy to meet demand.”

Keeping the current energy crisis at the forefront, oil and gas are seen as key players in the American-made energy arsenal by many, who argue that the ramp-up of these energy sources is essential to ensure the security of supply at home while keeping the U.S. status as the top energy exporter abroad. In line with this, the American Petroleum Institute highlighted last week that “natural gas and oil are the safe, reliable energy option for America’s present and future energy security.”

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In an article published a few days ago, API’s Mark Green hammered this home by claiming that the U.S. can strengthen not only its own energy security but also that of its allies “from a position of strength – safe, reliable American natural gas and oil.”

While referring to a point about “secure and reliable oil and gas production” being “compatible with reducing CO2 over the long run,” made by Jamie Dimon, JPMorgan Chase chairman and CEO, in Wall Street Journal, Green underscores that this is part of Dimon’s argument for “a Marshall Plan for global energy and food security, which is certainly timely and follows similar encouragements for policymakers to support American energy production with greater urgency.”

Green further pointed out that the energy market turmoil in 2022, which was even more intense in Europe, demonstrated the risks and consequences of the global energy supply falling to keep pace with global demand, as “Europe’s energy plan entrusted energy security to still-growing and not completely reliable energy sources – and Russian natural gas.”

Characterising this as a “bad plan,” Green goes on to explain this further by saying that Russia “weaponized its natural gas,” and that Europe avoided a gas crunch, “chiefly because of American shipments of liquefied natural gas.” As a result of this, “energy security came roaring back as a chief concern for policymakers,” elaborated Green while referring to another Wall Street Journal article.

Basing his views on a forecast by the U.S. Energy Information Administration (EIA) about the use of natural gas and oil up to 2050, Green underlines that “America doesn’t have to hope or trust that other, not-yet-as-reliable energy sources will be able to handle being the country’s lead energies before they’re ready.”

Green concludes his article by urging Washington to pick the right road for “America’s energy security and global energy leadership,” as “there’s needless risk and potential harm in doing anything other than embracing natural gas and oil as the strategic assets they are and using them, safely and responsibly, to help build a lower-carbon future.”

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In a review of the U.S. oil and natural gas production during 2022, Melissa Chicaiza, Energy In Depth (EID) – a project of the Independent Petroleum Association of America (IPAA) – remarked: “By delivering energy security to Europe at its time of greatest need, the American oil and natural gas industry once again demonstrated that it is a vital pillar of the world’s energy system.

“It continued setting production records this year despite the slowdowns brought on by the pandemic and other external pressures experienced over the previous two years, and is doing it cleaner than ever. Once again, 2022 proved that oil and gas is and will remain a reliable and secure energy source for many years ahead.”

This is supported by the remarks made by Jennifer Granholm, the U.S. Energy Secretary, at the National Petroleum Council meeting in mid-December 2022, who acknowledged that oil and natural gas will play an important role in the energy mix for years to come, even though the Biden administration remains committed to the transition to clean energy sources, as this transition depends “on making sure it’s done well, making sure we acknowledge that fossil fuels are not going to go away anytime soon.”

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On the other hand, the environmental activists and organisations advocating for powering everything with clean energy and working to end dependency on fossil fuels in the U.S. are putting the wheels into motion to stop fossil fuel facilities before they are even built. One of these organisations, Earthjustice, claims that the fossil fuel industry has “aggressive plans” to lock in new oil and gas infrastructure in the form of crude oil and gas export terminals.

To stop this from happening, Earthjustice is challenging the proposed construction of four crude oil and gas terminals in the Gulf of Mexico, which would cause “significant greenhouse gas emissions and pose significant health and environmental risks for Gulf Coast communities.”

This environmental group, which is now lobbying for the Biden administration to reject the offshore deepwater port proposals in the Gulf of Mexico, 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.

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In a bid to tackle the building of the transmission infrastructure required for the climate goals the U.S. has set, Earthjustice drafted a roadmap called Principles for Accelerating Clean Energy Deployment Through a Transmission Buildout in an Equitable Clean Energy Future, which was sent to Biden within a letter. This suite of recommendations provides guidelines for tackling current transmission planning, siting and cost allocation barriers that the Biden administration, FERC, and Congress can implement.

Earthjustice’s Abigal Dillen, said: “We have a once-in-a-lifetime opportunity to create the new clean energy economy that is essential to stabilize the climate. Both the Inflation Reduction Act (IRA) and the Infrastructure Investments and Jobs Act (IIJA) give a huge boost to clean energy development and deployment and dramatically buy down the cost of reducing U.S. greenhouse gas emissions by at least half over the next seven years. But we must do much more to realize the IRA’s promise to build the clean energy infrastructure we need.

There is no question that we need more transmission to meet our climate goals, and that new policies and practices are required to support this buildout. Right now, we have roughly a terawatt of renewable energy trying to connect to the grid to power our homes, offices and cars, and transmission constraints and interconnection roadblocks stand in the way.”

According to Dillen, the U.S. “must reject the false choice between quickly ramping up transmission and protecting communities from harmful permitting decisions,” as this urgency cannot become “a pretext for gutting requirements for environmental review and public engagement” while embarking on “the greatest U.S. infrastructure build-out in nearly a century.”

Therefore, Dillen warns that the U.S. needs administrative and congressional action to do this right, as “many failed proposals, including Senator Manchin’s Building American Energy Security Act of 2022, would do more to incentivize fossil fuels and sacrifice frontline communities.”

At the end of December 2022, several environmental organisations, including Oceana, expressed their opposition to the recent Cook Inlet lease sale, reminding that Biden promised during his presidential campaign 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.

While calling for a rejection of new oil and gas leases, Center of Biological Diversity, recently said: “Massive oil and gas leases that would destroy vast swaths of public land — reaching from the border with Canada all the way south to Mexico — were illegally approved under Trump without a valid climate analysis.

“Lawsuits have now forced the Biden administration to consider rejecting this giveaway to Big Oil. A valid climate analysis will show what scientists have been telling us over and over again: Our climate can’t afford any new fossil fuel expansion, including oil and gas development.”

Environmental groups like Oceana believe that leasing for oil and gas exploration and extraction is undermining efforts to address the climate crisis and demand a five-year leasing plan, which will put a stop to further expansion of offshore drilling by containing no new oil and gas leases.

Oceana justifies these demands by saying that “offshore drilling for oil and gas threatens marine life, and pollution from burning fossil fuels is the leading cause of climate change and ocean acidification.” In addition, the group’s opposition to oil and gas lease sales stems from its belief that “opening new areas to offshore drilling poses dangerous and unacceptable risks.”

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Furthermore, Oceana highlights that drilling in deeper and more remote waters increases the risk of spills, which can “irreversibly damage the ocean, and threaten coastal businesses and people’s way of life. The 2010 BP Deepwater Horizon disaster shows that no amount of oil is worth the results of a disaster. Where we have drilled, we have spilled, but oil interests are still pushing for access to areas that had until now been free of that threat.”

Centuries ago, Shakespeare’s Hamlet said in a soliloquy: “To be, or not to be, that is the question.” While this phrase can be modified in numerous ways to express a myriad of different things, it can also be adapted to showcase America’s current dilemma, as the U.S. – just like many other major energy players throughout the world – is divided on the further extraction and development of oil and natural gas. Thus, the question, which illustrates this struggle would be along the lines of: To drill or not to drill.

On Monday, 9 January 2023, the Bureau of Ocean Energy Management (BOEM) announced it had prepared a Final Supplemental Environmental Impact Statement (EIS) for two Gulf of Mexico oil and gas lease sales – 259 and 261 – to comply with the Inflation Reduction Act of 2022. This energy bill is expected to open the door to more federal onshore and offshore lease sales, as it reinstated the vacated Gulf of Mexico Lease Sale 257 and stipulated that the cancelled lease sales 258, 259, and 261 will be held.

BOEM’s announcement comes after a Draft Supplemental EIS from October 2022, following which feedback was received from the public during a 45-day comment period. BOEM says that it received nearly 76,000 public comments. The Final Supplemental EIS includes an expanded greenhouse gas (GHG) analysis and provides an analysis of monetized impacts from these estimated GHG emissions. The Inflation Reduction Act mandates lease sales 259 and 261 to be held no later than 31 March 2023 and 30 September 2023, respectively.

Bearing in mind both the advantages and the drawbacks of further oil and gas extraction and developments, Offshore Energy set up a poll on social media over the weekend, inviting participants to weigh in on this by asking: Should the U.S. scale up investments in oil and gas along with the deployment of renewables and clean energy technologies? The voters were provided with four different choices:

• Yes, all will be needed
• No, just focus on clean energy
• Invest more in oil and gas
• Focus more on gas investments

While the poll was open, the landslide vote or 68 per cent went to the first option, which said that all energy sources – including oil and gas, renewables and other clean sources –  will be needed to power the future. Meanwhile, 9 per cent of the participants voted to end financing for oil and gas projects to focus exclusively on clean energy while 20 per cent cast their votes in favour of stepping up investments in the oil and gas sector and 3 per cent of voters said that energy investments should focus more on gas projects.

The final results of this poll are in accordance with the views, which outline that fossil fuels, especially gas, will need to be burned a little longer to ensure the security of supply and respond to the energy trilemma until the right solutions are in place for a shift to a green, sustainable energy future. In addition, these results align with the findings from Offshore Energy’s other recent poll, which confirmed that no stone should be left unturned to bring down the oil and gas industry’s emissions.

As previously pointed out, recent global energy trends indicate that the drive towards low-carbon and low-cost is the oil and gas industry paradigm, thus, companies and governments, which are able to achieve it, are expected to enjoy the benefits and advantages in the long term.

As the oil and gas industry has been given a clear mandate to secure supply in the short term while transitioning to cleaner energy in the long term, Deloitte’s 2023 Oil and Gas Industry Outlook lists several factors that could facilitate or impede this energy transition in 2023. Among the main factors are hydrogen and CCUS developments, regulatory lag, supply chain constraints, grid expansion and modernisation, and macroeconomic headwinds.

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