On Wednesday, President Joe Biden is set to temporarily suspend all new oil and gas leasing on federal lands pending an administrative review, part of an early blitz of executive orders seeking to undo former President Donald Trump’s denialist legacy on climate.
Although the move is a first step toward Biden’s campaign promise to ban new drilling leases, it is more of a political statement, experts say, than a policy change. The pause will have little immediate effect on an industry that stockpiled federal leases and permits to drill on public lands and waters in the final weeks of the Trump administration.
“This really is just about symbolism,” said Andrew Logan, the oil and gas program director at Ceres, an investor-focused climate nonprofit. “This will not significantly impact the direction of the U.S. energy industry in the short term.”
That didn’t temper criticism from oil and gas allies — particularly bigger trade organizations, which pilloried the order as an attack on the industry.
Still, activists hope it is just a first step toward a total ban on new leases, and part of a more comprehensive plan to keep global temperatures from surging past 1.5 degrees Celsius above preindustrial averages by rapidly phasing out fossil fuel production.
“A pause on drilling and fracking is good news, but only if it is followed by a strong plan to permanently ban all dirty energy extraction on public lands,” Wenonah Hauter, the executive director of the left-leaning group Food & Water Watch, said in a statement. “The simple truth is that we need to stop drilling and fracking everywhere, as soon as possible.”
Some analysts saw the temporary pause as a way to avoid making the administration into a boogeyman for the industry, sidestepping the conditions that allowed Appalachian leaders and business executives to blame the decline of coal on Obama-era environmental regulations despite overwhelming evidence identifying cheap natural gas as the cause of the fuel’s economic demise.
By leaving open the possibility of future leasing, the Biden administration could engage local and labor leaders in struggling oil-producing regions to put in place a new, clean development plan.
“It used to be the ‘war on coal,’” said Clark Williams-Derry, an oil analyst at the Institute for Energy Economics and Financial Analysis, a nonprofit that tracks the industry’s finances. “If it turns into the war on oil, you’re going to miss a golden opportunity to actually realign the strategy for oil country.”
An Industry No Longer In Lockstep
Even before the details of Biden’s executive order were made public, the industry decried the move as a major blow to American energy production.
“Restricting development on federal lands and waters is nothing more than an ‘import more oil’ policy,” Mike Sommers, CEO of the American Petroleum Institute, the oil and gas sector’s largest trade group, said in a statement Tuesday. “Energy demand will continue to rise — especially as the economy recovers — and we can choose to produce that energy here in the United States or rely on foreign countries hostile to American interests.”
That critique, however, ignores the reality that the oil and gas industry has faltered financially, meaning actions like Wednesday’s order will hurt some companies and benefit others. For five of the last seven years, the oil and gas sector notched the worst performance in the entire S&P 500, a stock market index including many of the nation’s publicly-traded largest firms. Those conditions give groups that represent the industry as a whole an incentive to hold together what looks increasingly like a splintered coalition.
“The whole oil and gas industry used to move in lockstep in many ways, something used to be good for oil and gas or bad oil and gas,” Williams-Derry said. Now “what’s bad for one company will be good for another company, and we’ll see winners and losers in the oil and gas sector.”
It used to be the ‘war on coal.' If it turns into the war on oil, you’re going to miss a golden opportunity to actually realign the strategy for oil country. Clark Williams-Derry, oil analyst at IEEFA
Shares of EOG Resources Inc., for example, plunged since Biden took office last week, largely due to investors’ perception that the Houston-based drilling firm is too dependent on federal leases. Yet while ConocoPhillips’ stock dropped even lower in price, the oil giant’s value is expected to bounce back because only a small fraction of its production takes places on federal lands, analyst Michael Fitzsimmons wrote on the investor site Seeking Alpha in a piece headlined: “Ironically, Biden could be great for the stock.”
The response from industry groups and their allies also ignores the preferential treatment the sector enjoyed during Trump’s four years in office, when federal agencies dismantled clean air and offshore safety rules as part of the administration’s quest for “energy dominance.”
In a call with reporters Tuesday, representatives of the federal and state chambers of commerce argued that the move will disrupt energy systems across the country, divert oil and gas production elsewhere, including private U.S. lands and overseas, and do nothing to reduce emissions.
“This ban will not impact the demand for oil, it will just move where the oil comes from and who benefits,” said Rob Black, president and CEO of the New Mexico Chamber of Commerce. “If the world is going to use a barrel of oil,” he added, “that oil should be produced as cleanly as possible. Unfortunately, a proposed ban on federal leases will not further that effort, but undermine it.”
Asked what urgent action to combat climate change should look like, Marty Durbin, president of the U.S. Chamber of Commerce’s Global Energy Institute, stressed that the “only way” to deal with the threat is through “durable, bipartisan” legislation in Congress.
The order could contain a seed of how that may come to be. It is likely to omit coal mining from the lease moratorium. Coal struggles to turn a profit today and is expected to grow even less appealing in the years to come. But leaving coal off the list benefits a lawmaker who’s become more powerful now that Democrats hold a mere 50-50 majority in the Senate: coal country Sen. Joe Manchin (D-W.Va.).