It is a Buyer’s Market: Now is Not the Time to Sell Government Leases for Offshore Drilling

In early 2018, the Trump Administration announced that it will open nearly all U.S. coastal waters to new offshore oil and gas drilling, establishing 47 potential areas where companies can buy leases between 2019 and 2024. However, given lower oil prices, now is not the time to lease federal resources because it is a buyer’s market. The government will lose out on much bigger future profits from the sale of these leases when oil prices rise and a real interest to explore and develop the offshore oil and gas prospects increases.

Some argue that offshore drilling is a strong demonstration of a long overdue ‘new path for energy dominance in America.’ After all, it was President Obama who hamstrung our energy industry and its ability to provide jobs for people who need them, and now President Trump is just addressing this wrong.

However, more officials across the political spectrum think that now is not the time to drill offshore. Over the past few weeks, 64 environmental groups, Republican and Democratic governors including Trump’s ally Chris Christie of New Jersey, close to a dozen attorney generals, more than 100 U.S. lawmakers, and the Department of Defense have all spoken out against this plan put forward by the Department of the Interior.

Drilling is already happening offshore, and new leases were offered by the Department of Interior for 2017 to 2022 in Cook Inlet, Alaska, and the Gulf of Mexico. These strategic areas are co-located with current drilling operations and/or have the necessary infrastructure to get the fuels to market. The latest offshore leases would mostly effect the Atlantic and Pacific zones.

The primary argument over the past four decades for not opening the coastal ocean regions to new drilling has been that it will endanger our country’s natural resources, tourism, and fishing industries—as exemplified by the 2010 Deepwater Horizon rig disaster—as well as threaten our military installations nearby. The Pentagon has argued for many years that the Eastern Gulf of Mexico must be free from oil rigs due to sensitive military assets and a need for unfettered access.

A more current argument is cost. After booming in 2007 into early 2008, the offshore drilling industry has slumped. It remains to be seen how economical it is for companies to invest in the more expensive offshore oil and gas extraction when prices remain lower and onshore opportunities in shale basins remain robust.

A third, and perhaps the most immediate concern, is lower revenue for the federal government. At present, only the big oil companies with infrastructure in place will buy leases. Companies can hold onto these leases for years, often extending them for up to 20 years, and sell the leases when oil prices are much higher. This leads to a big profit for the energy company and a loss of revenue for the government from both lack of production and a significantly lower leasing bonus.

The federal government’s role in securing our future supply of oil and gas at a reasonable price requires a strategic plan for future production that taps into the most precious of resources only when necessary for the highest possible price. It should not be sold off when prices are low and other resources are available at a lesser cost. Rather, focus should stay on technology that could drive down demand growth for oil, such as alternative transportation fuels and electric vehicles; this will ensure a more secure energy supply in the future.

Interior Secretary Ryan Zinke says that ‘nothing is final’ regarding the plan at this stage. Therefore, it is crucial that leaders on both sides of the aisle in Congress continue to oppose this unnecessary and potentially harmful move.

Stacy Closson is an Operation  Free supporter, a Security Fellow with Truman National Security Project and the co-author of the MIT press book, Energy, Economics, and Geopolitical Futures. Views expressed are her own.


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