Oil & gas to stay America’s darlings for decades to come with low-carbon shift as industry’s paradigm

In the midst of what is deemed to be the first global energy crisis, renewables have seized their long-awaited day in the sun, as multiple countries, along with the U.S., turn towards green alternatives to mitigate the effects of energy and climate crises. Despite this trend, the reign of oil and gas is far from over, but the shift to low-carbon is the energy industry’s paradigm, thus, the oil and gas sector will need to rise to the challenge to curb its carbon footprint.

As Offshore Energy reported last week, the U.S. is increasingly taking a gamble on upping the ante in clean energy deployment, however, many, including the American Petroleum Institute (API), believe that scaling up the exploration and development of oil and gas projects will safeguard the security of energy supply for years to come not only at home but also abroad. The struggle to address the current energy challenges is making it difficult for countries to draw a clear line in the sand when it comes to the future of fossil fuels and their long-term role within the energy mix.

While some countries, like Scotland, have set their cap on renewables as the holy grail of energy security and are pondering a phase-out of fossil fuels in the foreseeable future, other countries, such as the U.S., are more openly divided on this issue, as the energy landscape shows that oil and gas no longer have free rein but will still have their designated spot within the low-carbon future.

This is further heightened by the projections from organisations like the U.S. Energy Information Administration (EIA), outlining that natural gas and oil will be in charge of covering nearly 50 per cent of the world’s energy in 2050.

Keeping this forecast at the forefront, in the report titled State of American Energy 2023: The Solution is Here, API offers – what it describes as – an American solution to a global energy crisis. This solution encompasses three areas where “well-reasoned policies” can empower progress through American oil and natural gas. This three-part plan – make, move and improve –  which is expected to help solve today’s energy woes while creating a stronger future, lists key action items like increasing U.S. production, strengthening infrastructure and developing lower-carbon technologies.

Mike Sommers, API President and CEO, remarked: “American energy leadership is vital, perhaps more than ever, for our own prosperity and security in uncertain times and for the world. A global energy crisis – driven by surging post-pandemic demand outstripping supply and exacerbated by Russia’s invasion of Ukraine – has shown that the world needs more natural gas and oil, not less. America can and should lead the world out of this crisis.

The U.S. is the world’s leading producer of natural gas and oil and, with the right policies from Washington, must champion a reliable path forward that directly addresses today’s energy challenges. But first, there must be a course correction. Europe’s energy struggles show what can happen when countries lean too much, too soon on still-developing energy sources and energy from unstable regions while turning away from reliable natural gas and oil resources.”

The American Petroleum Institute outlines in its report that the U.S. needs to put more effort into boosting investment in oil and natural gas development and work on bolstering U.S. refining. Based on the report, this requires production that follows “some of the highest environmental standards in the world to deliver long-lasting economic and security benefits – reliable energy, high-paying skilled jobs, more investment in America, stronger communities and a lower trade imbalance.”

API’s report claims that the U.S. Interior Department (DOI) leased fewer acres for drilling on federal lands and waters during the Biden administration’s first 19 months in office than any other administration in its first 19 months since the end of World War II. As DOI’s proposed five-year offshore leasing programme entails an option to hold zero lease sales, the American Petroleum Institute finds this counterproductive, as “producers need policy certainty.”

With this in mind, API urged the U.S. Interior Department to increase access to energy development by issuing “a robust, five-year offshore leasing programme” and holding quarterly onshore lease sales, with equitable terms. In addition, the U.S. should protect refining technology competition, according to the findings of this report, which underlined that “federal rules should continue to allow U.S. refineries to use critical process technologies to provide necessary fuels to consumers.”

The report states that “reasonable and smart energy policies are critical to supporting investment in long-lived natural gas and oil production, as well as billions of dollars in large capital projects supporting U.S. economic growth and strengthening U.S. energy security.”

Therefore, API calls on the U.S. government to signal its support for needed energy investment with federal regulators reconsidering the Securities and Exchange Commission’s (SEC) overreach on climate disclosure and supporting needed capital investment in oil and natural gas. Otherwise, the report emphasises that “without policies to help create a hospitable environment for investment in future projects, the U.S. will not meet demand and could once again become a significant importer of foreign energy.”

The American Petroleum Institute further noted that a Rystad Energy study, recently found that lifting development restrictions on federal lands and waters could add 395 million barrels of oil equivalent (boe) of production through 2035, which equals, on average 77,000 boe/d from 2023-2035 and nearly $29 billion in investment in the U.S. economy. Additionally, the energy development has the potential to generate $4.8 billion in government royalties, taxes and lease bid revenues from 2023-2035.

“A more realistic energy approach is needed, where abundant American natural gas and oil is prioritized as a long-term strategic asset and a foundation for economic growth and strengthened energy security, today and tomorrow. Our energy resources also will provide opportunity, for decades to come, for other energy sources to mature and take on more significant roles,” added Sommers.

Furthermore, the report underscores that the U.S. lacks not just the export infrastructure needed to help other countries with their energy woes and cement its “leadership in global markets,” but also the infrastructure needed to move energy from production areas to refineries and processing facilities and afterwards to domestic consumers. This includes new natural gas and oil pipelines and investment in maintaining existing infrastructure. Permitting and review delays are seen as the main roadblocks in building this infrastructure.

The report showed that ten major infrastructure projects, reflecting $34 billion in capital expenditures, were cancelled, stalled or were at risk of cancellation due to permitting and review delays in recent years. API points out that 20.9 billion cubic feet per day (bcf/d) of non-FTA export permit applications currently await government approval.

Regarding policy solutions to this problem, API claims that ten of these are available within its 10-in-2022 plan, which set out actions for Washington as a roadmap to unleash American energy and foster economic growth, supporting $53 billion in new infrastructure investment over the next decade. Bearing this in mind, the report indicates that the U.S. needs to designate critical energy infrastructure to be in the national interest and eligible for streamlined review.

In line with this, support for pipeline safety innovation is required with the Pipeline and Hazardous Materials Safety Administration (PHMSA) reauthorization to ensure the ability to deploy the latest safety technologies, emerging fuels and sustainable operations.

Moreover, API underscores that the U.S. needs to revise the National Environmental Policy Act (NEPA), as reviews “should be uniform across federal agencies and limited to two years.” The U.S. should also accelerate liquefied natural gas (LNG) projects and lift supply chain bottlenecks, ensuring “the free flow of energy and commerce by expediting LNG project approval, lifting steel tariffs and relieving port congestion,” emphasised the report.

As European LNG demand is expected to reach 19 bcf/d, API says that either the U.S. ramps up its exports to meet it or other countries will rise to the challenge to meet this demand and fill the supply gap.

With the energy trilemma in full force, API recognises that the world needs more reliable and affordable energy, which is intertwined with ushering in a lower carbon future, thus, meeting the energy demand while reducing greenhouse gas (GHG) emissions is “the challenge of our time – and one the natural gas and oil sector is rising to address.” This confirms the findings from Offshore Energy’s recent poll, which showed that no stone should be left unturned to bring down the oil and gas industry’s emissions.

To this end, API’s Climate Action Framework detailed solutions to the double whammy of meeting energy demand while reducing carbon dioxide emissions on the journey to a lower-carbon future. In a bid to propel decarbonisation further, the American Petroleum Institute’s report underlined that the U.S. should clarify tax credits for carbon capture, utilisation and storage (CCUS), hydrogen and clean fuels.

API further elaborates that “additional guidance for Section 45Q will help advance CCUS and reduce the nation’s carbon footprint” while “Section 45V tax credits for hydrogen from all sources should value equally each ton of carbon dioxide reduced.”

Meanwhile, API further explains that the U.S. needs to advance low-carbon infrastructure, highlighting that the permitting regime for low-carbon infrastructure “should be consistent, timely and predictable to encourage investment.” As STEM education is seen as important, “Washington should continue to support the training and education of a diverse energy workforce through science, technology, engineering and math courses,” concluded the report.

Sommers points out that the U.S. does not need to return to “growing dependence on foreign suppliers. Quite the opposite: American energy must lead in this space, through more domestic production and modernized infrastructure. If America doesn’t lead, others will. We have the resources, yet sound energy policymaking is critically important.

“We invite members of Congress, the administration, and leaders across the country to join us in rolling up our sleeves to unleash American natural gas and oil. It starts with this simple realization: The solution is here.”

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