The National Wildlife Refuge System is an American institution, with roots going back to the early years of the 20th century. The Arctic National Wildlife Refuge in Alaska is its crown jewel, celebrated as “one of Planet Earth’s own works of art”.
So, it is no surprise that the attempt to start oil exploration in even a small portion of ANWR has been fiercely controversial. But while the battle over drilling there has been a burning public issue for decades, its real significance to the US oil industry is marginal.
Recent decisions from the Biden administration have shown that decisions over ANWR do not tell you very much about the regulatory environment for oil and gas production more generally.
The administration this week said it was suspending all activities relating to oil and gas leases in ANWR’s Coastal Plain, which were issued on President Donald Trump’s last full day in office. The move fulfilled a pledge that President Joe Biden made on his first day in office, when he signed an order promising a temporary moratorium on development in the area. The order cited “alleged legal deficiencies underlying the [leasing] program”, and said “a new, comprehensive analysis of the potential environmental impacts” would be needed.
The announcement was welcomed by environmental and indigenous groups, which said they “look forward to working with the administration on stronger action to correct this unlawful leasing program”. But oil development in ANWR always looked like a difficult proposition. The lease sale held by the Trump administration in January attracted only limited interest.
And meanwhile, some lower-profile actions from the administration have been more favourable for oil and gas producers. The decision on ANWR followed soon after a separate move relating to Alaska that angered environmental campaigners and pleased the industry’s supporters.
The administration argued in a court case that ConocoPhillips’ Willow project should be allowed to proceed, despite opposition from conservation and indigenous groups.
Lisa Murkowski, a Republican senator for Alaska, said she was pleased that the administration was “committed to supporting the project moving forward”, while Greenpeace USA described the intervention as “a serious misstep”.
More broadly, after a sharp slowdown for a couple of months while authorisations to drill on federal lands had to be approved by a small group of senior officials in Washington, the government has resumed awarding permits at a brisk pace.
In February and March of 2021, an average of 254 applications for permit to drill on federal lands in the Lower 48 states were approved each month, well down from the average of 386 per month in fiscal year 2020.
But in April, the number of approvals jumped to 671 for the month, almost 75% more than the monthly average for 2020.
The sharp increase does not appear to have been a result of more companies seeking permits: the number of new applications went down. Instead, it appears that officials at the Bureau of Land Management are making up for lost time.
“With approval powers back at the BLM offices, the data implies processes are back to business as usual,” said Pablo Prudencio, Wood Mackenzie’s senior research analyst for the Lower 48. “And the agency might even be looking to put a dent in the 5,000-plus backlog of pending federal drilling permit applications.”
With the government apparently doing little to obstruct US producers, drilling and completions activity has been steadily recovering from last year’s slump, although it is still running well below pre-pandemic levels. The active rig count and the frac spread count have recovered to about 60% and 70%, respectively, of their levels before the oil price crashed.
Lower 48 oil production has remained broadly stable at about 8.8 million barrels per day for the past six months, except for weather-related disruption. The trends in activity mean we expect that production to decline slightly in the second half of the year, before recovering next year.
Linda Htein, Wood Mackenzie’s senior research manager for the Lower 48, says increased cash flows thanks to the rebound in WTI crude prices, while capital spending remains under control, are a great opportunity for US tight oil producer to cut their debts “and — maybe — regain investor trust”.
The administration has not left US oil and gas producers entirely unscathed. There is a moratorium on new lease sales, which if prolonged could ultimately have a significant impact on US production
. The president’s budget proposal would change the tax treatment of the oil and gas industry in various ways, to raise an additional $35 billion for the government over the next ten years.
He has also promised tighter regulations on methane leakage from oil and gas operations, which will increase costs for some producers. But overall, the Biden administration’s policies so far seem to have had little impact on the outlook for US production.
That makes sense, because the administration’s ambitious goals for cutting greenhouse gas emissions, including a 50-52% reduction from 2005 levels by 2030, are really a demand-side rather than a supply-side issue. The US could cut its oil production to zero, and if its consumption remained the same its emissions would decline only a little.
President Biden has not yet filled in much detail for how he hopes to put the US on course to achieve his challenging objectives for emissions, but the ideas he has proposed, including extended tax credits for wind, solar and storage, and incentives for electric vehicle sales, mostly affect demand for fossil fuels.
Measures that hit US supplies of oil and gas, while not affecting demand, look like the worst of both worlds: hitting employment, investment, tax revenues and export earnings for the US, with only a limited benefit in cutting emissions.
The OPEC+ group sticks to its plan to increase output
The volume of gasoline supplied to US consumers and retailers in the four weeks to May 28 was just 2% lower than in the equivalent period of 2019. It was another sign of how the world is slowly coming closer to a pre-pandemic normal in economic activity, as reflected by the steady climb in crude prices. Brent crude this week rose above $71 a barrel for the first time in two years, while WTI went above $69.
It was a backdrop that gave the OPEC+ group of leading oil producers the confidence to stick with their plan to allow an additional 791,000 b/d of oil back on to the market between May and July.
The ministers of the OPEC countries and their allies including Russia held their online meeting on Tuesday, and confirmed the planned relaxation of production limits that they first agreed in April.
The statement issued after the meeting said the ministers were committed to “a stable market” in the mutual interest of oil-producing nations and consumers, as well as “a fair return on invested capital”.
Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, noted that “the demand picture has shown clear signs of improvement,” but was cautious about the need for further increases in supply in the future. Mohammad Barkindo, OPEC’s secretary-general, warned: “Covid-19 is a persistent and unpredictable foe, and vicious mutations remain a threat.
Ann-Louise Hittle, Wood Mackenzie’s vice-president of Macro Oils, said that the ministers’ decision to stay the course on providing more barrels was “what the market needs” as consumption picked up. She added: “Demand growth is outpacing supply gains, even with the agreed month-by-month OPEC+ production increases taken into account.”
As the European oil and gas companies have pursued strategies of diversification into lower-carbon energy, some have decided to change their names to send a signal about their new direction. Dong Energy became Ørsted, Statoil became Equinor, and now Total is becoming TotalEnergies. The web page explaining the change says the new name is intended to represent “all energies and all talents”.
The page has some good data points illustrating TotalEnergies’ ambition to become one of the world’s top five renewable energy companies by 2030. It also explains aspects of the new branding, including the logo, which is made up of the joined-up letters ‘T’ and ‘e’. It represents a journey from the old business to the new, the company says: a little graphical representation of the energy transition.
For anyone who has been missing supersonic air travel since Concorde went out of service in 2003, or who just wants to fly from Newark to London in three and a half hours, there was some potentially good news this week. United Airlines has signed a conditional deal with aerospace company Boom to buy up to 50 of its proposed new supersonic passenger aircraft, the Overture.
Given concerns about growing aviation emissions, and the fuel-hungry demands of supersonic flight, the carbon footprint of the planned new airliner is clearly an issue, but Boom is promising that the Overture will use only Sustainable Aviation Fuel.
Would-be passengers will have to be patient, however. Boom says United will buy the aircraft “once Overture meets United’s demanding safety, operating and sustainability requirements”, and it has not yet flown. A first flight is scheduled for 2026, and Boom hopes to be carrying commercial passengers in 2029.
Pembina Pipeline Corporation has agreed a C$8.3 billion all-share deal to buy Inter Pipeline, which has also been the subject of a takeover approach from Brookfield Infrastructure. If the Pembina / Inter deal goes through, it will create one of the largest energy infrastructure companies in Canada.
CWP and the government of Mauritania have signed an MoU for a huge $40 billion green hydrogen project that would use 30 gigawatts of wind and solar power. CWP said it had identified Mauritania as “one of the best locations on the planet” for the production of low-cost green hydrogen.
Generac, the backup generator manufacturer, reported booming sales for the first quarter, driven in part by the electricity crisis in Texas in February.
TerraPower, the advanced nuclear reactor company chaired by Bill Gates, is going to build a demonstration plant in Wyoming, it was announced this week. The company is looking at sites at retiring coal-fired plants, to make use of existing grid connections.
And finally, a different kind of energy transition metal. The members of the thunderous Norwegian heavy metal band Kvelertak come from Stavanger, capital of the country’s oil industry, and at the start of their career they were supported by a grant from Statoil, as Equinor was then known.
They have a new electronic EP just out, but for their best work you have to hear the album ‘Splid’, released last year. The opening track, ‘Rogaland’, is an anthem for their region, which includes a tongue-in-cheek celebration of the local energy industry, from oil to hydro and wind power.
“We have plundered everything since 973, so don’t come to me and say we have to leave the oil be. Yeah Viking blood, it pumps like never before,” they sing. “I see a waterfall, and I’ve got to get a pipe. And when it’s windy, I put up a windmill.”
Source: Wood Mackenzie