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A coming oil crash? Offshore permits hit 19-year low under Biden.

By Heather Richards | 10/10/2023 06:57 AM EDT

An E&E News analysis of data since the George W. Bush era reveals a steady decline in permitted oil wells, raising questions about the industry’s future.

An oil and gas platform in the Gulf of Mexico.

An oil and gas platform in the Gulf of Mexico in 2010. Joe Raedle/Getty Images

The Biden administration has green-lighted a record low number of new offshore oil wells, a data point that could inflame the already fierce debate over President Joe Biden’s throttling of the aging offshore oil sector in the Gulf of Mexico.

An E&E News analysis of available data since the George W. Bush administration shows a steady decline in permitted offshore wells, reaching the lowest points during Biden’s tenure. The data comes as the president is about his domestic oil policies given the uncertain trajectory of global prices in the wake of Hamas’ attack on Israel this past weekend.

The price of global benchmark Brent crude jumped 4.2 percent Monday to $88.15 a barrel. It eased slightly early Tuesday, falling 13 cents a barrel.

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Permitting has been tight since Biden took office during a period of low oil prices and sluggish drilling due to the Covid-19 pandemic. Even as demand picked up and industry began to revive, the Interior Department during the president’s first two years approved 30 percent fewer oil and gas wells off the nation’s coasts compared with the same period during the Trump administration.

The Bureau of Safety and Environmental Enforcement permitted 105 wells in Biden’s first two years. That’s compared to approving 148 during Trump’s first two years in office and 275 when Barack Obama took office in 2009 and 2010.

Experts say this decline reflects realities at sea as much as shifts in federal oil policy. The data highlight that oil companies are drilling fewer wells in the Gulf of Mexico — where almost all the U.S. offshore drilling occurs — as companies move into deeper waters where drilling is more expensive. They are also responding to tougher regulations and the constant influence of oil prices.

“It really is the economics and the strategy driving these things and not government policy,” said Scott Nance, a Gulf of Mexico research analyst with Wood Mackenzie. “The bigger economic trends are what drives permitting, far more than any one administration.”

But even before the outbreak of war in the Middle East, tension over U.S. oil and gas policies has been high, following the Biden administration’s decision last month to in history — one of the administration’s boldest moves to potentially curb future development. Under the plan, Interior will hold three lease sales between 2025 and 2029.

Many climate activists weren’t satisfied, slamming the White House for holding any oil sales, while drillers and GOP allies of the industry said so few opportunities to buy new drilling rights will exacerbate existing pressures to reduce activity in the Gulf of Mexico and undermine national production.

Holly Hopkins, vice president of upstream policy for the American Petroleum Institute, said the administration’s actions, from the constrained five-year oil plan to trying to shrink access to offshore waters for endangered species and other reasons, have a combined effect of chilling industry willingness to invest in the United States.

“[Biden’s policies] make it more difficult to substantiate the long-term, capital-intensive investments required for production in the Gulf of Mexico,” she said in an email. “This is a concerning trend for the future of American energy security.”

The White House has been battered by oil and gas debates since Biden took office, fresh off a campaign promise to end federal drilling. Biden’s early policies aimed at curbing the scope of the oil program offshore were reversed by litigation from the oil industry and Republican-led states.

“I wanted to stop all drilling,” Biden said in an August interview on the Weather Channel. “I lost in court. But we’re still pushing. We’re still pushing really, very hard.”

At the same time, Biden and his energy team struck different notes when gasoline prices climbed last year, particularly after Russia's invasion of Ukraine, with the president urging domestic drillers to with existing, but untapped, permits.

While permitting may be down, offshore production in the Gulf of Mexico has, in fact, climbed over Biden’s time in office, reaching 630 million barrels of oil in 2022. While comparatively high, that still ranks behind the most extreme highs of the Trump administration, when more than 690 barrels were produced in 2019.

If production continues its steady rise, the Biden administration could oversee a new peak for the nation’s offshore oil, helping the U.S. maintain its position as the world’s largest producer.

Melissa Schwartz, communications director for the Interior Department, highlighted this fact, rejecting the idea that industry is hurting due to Biden administration policies. She said energy production in the country is at “an all-time high, reflecting not only industry security but also the administration’s work to encourage responsible production in existing areas.”

Schwartz noted that there are already millions of acres of leased federal land and waters that currently aren’t producing oil and gas. “The Interior Department will continue to support responsible development of our natural resources,” she said in an email.

What’s happening in the Gulf?

The drop in new drilling permits underscores what many experts have already predicted will happen with or without Biden: the Gulf of Mexico eventually going into decline.

Without major new discoveries of oil, Gulf production is poised to reach a peak high in 2025, falling by 2030 and continuing downward, according to an analysis from Wood Mackenzie that's echoed by federal reports.

Gulf natural gas production has already moved into this decline mode — production has been steadily dropping since the late 1990s. The Gulf produces roughly 5 percent of national natural gas supply compared to roughly a quarter of national supply in 1997, according to the U.S. Energy Information Administration.

As an older oil play, with many areas already drilled, operators have become more selective and strategic about projects, said Nance with Wood Mackenzie. Oil reserves are located increasingly in deeper waters where operations are more complex and expensive. Deep water accounted for just over 3 percent of total production in 1989 compared to 93 percent in 2021, according to federal data. That includes some extremely high-pressure and high-temperature developments — the Bureau of Safety and Environmental Enforcement defines high temperature as more than 350 degrees Fahrenheit — that are particularly time consuming and costly.

These kinds of wells can take a good portion of a year to drill and complete, leading to fewer wells being drilled overall, Nance said.

Additional bouts of high or low interest in drilling have been driven by oil prices.

Offshore well permits climbed to new highs in 2006 when West Texas Intermediate, the U.S. spot price for oil, pushed toward $100. They fell neatly in 2015 when the price of crude suddenly crashed.

In 2021, during the global pandemic that upset oil supply and demand globally, crude prices began to climb back from a historic low but permitting didn’t rebound as quickly. BSEE approved just 52 wells that year.

A spokesperson for the American Petroleum Institute noted that the decline in new wells includes exploration wells, which operators drill to find new oil and develop new fields. That underscores that the decline trend could become worse in the future.

In 2001, companies drilled 149 exploration wells in the Gulf of Mexico compared to just 28 so far this year, according to API.

Drilling offshore is a time-consuming endeavor from buying up a federal lease to studying geology, contracting to drill and permitting pipelines, said Mike Moncla, president of the Louisiana Oil & Gas Association.

“It takes years of planning for oil and gas companies to finally get production to begin in the Gulf of Mexico,” he said.

Today’s production comes from exploration approved years ago. Likewise, a slowdown in exploration now means potentially fewer new oil fields and less production in the future.

“New discoveries have plummeted and the number of new exploratory well starts has dwindled to almost nothing,” said Mark Green, an editor for API in a recent blog post. “It’s a recipe for significant harm to American offshore production.”

Tougher regs

A stiffened regulatory environment than in years past has also affected how long it takes to permit wells, said Mike Minarovic, CEO of the offshore drilling company Arena Energy.

After the 2010 Deepwater Horizon disaster, when a deepwater well blew up, taking the lives of 11 workers and causing the largest single oil spill in U.S. history, Interior bureaus developed a series of new safety standards to prevent well blowouts. That and other updates have helped make permitting more complex.

The well control rule was revised under the Trump administration to ease the burden on industry. The Biden administration said those changes had “weakened” protections and revised the regulations again in 2019.

As well control and other standards have changed, the permitting process has gotten longer, and the documentation swelled, Minarovic said.

“I'm not saying it's right or wrong, but the reality of what is required to get a drilling permit approved has vastly increased,” he said.

But Minarovic echoed what analysts have said about politics having a limited direct impact on permitting offshore. He said longtime federal agents at BSEE’s offices in the Gulf region have told him they are resistant to D.C. influence over how they process their permits.

BSEE did not respond to multiple requests for comment for this story, but Schwartz with Interior echoed the oil driller.

“Offshore permitting reviews are conducted by the same dedicated career civil servants that have always done them," she said.