By: Brandon Evans – S&P Global Platts – The US Department of the Interior delved deeper into its review of federal minerals, a move that affects 12% of natural gas and 22% of crude production, as it develops a plan focused on climate and sustainability.
The Interior plans to hold a virtual forum with industry, labor, and environmental representatives on March 25 and release an interim report on its leasing moratorium sometime this summer.
“The federal oil and gas program is not serving the American public well,” said Laura Daniel-Davis, the department’s principal deputy assistant secretary. “It’s time to take a close look at how to best manage our nation’s natural resources with current and future generations in mind. This forum will help inform the Department’s near-term actions to restore balance on America’s lands and waters and to put our public lands’ energy programs on a more sound and sustainable conservation, fiscal and climate footing.”
The moratorium on approving any new drilling leases on federal lands was enacted on Jan. 27. If made permanent, it places substantial volumes of future oil and gas production at risk, according to S&P Global Platts Analytics and the Federal Reserve Bank of Dallas.
A ban on federal drilling permits could place as much 3.7 Bcf/d of future gas production at risk by the end of 2024 with roughly 3 Bcf/d of those losses coming solely from the New Mexico Delaware portion of the Permian Basin, according to Platts Analytics. The scenario in question allows for no further drilling or completion activities on federal land or offshore. If operators are allowed to continue with completions on DUC wells and utilize active permits, future production falls by 2.7 Bcf/d.
The potential for 3 Bcf/d less production from the Permian would cause the US Southwest and Southern California markets to see significant price premiums as the region’s two main supply sources, the Permian and the Rockies, stand to lose the most following a federal permitting ban.
Onshore and offshore, the industry holds 7,700 unused, approved drilling permits, according to the Interior.
“We estimate that by the end of 2025, the Permian will produce between 230,000 and 490,000 b/d less than if drilling activity continued at its current pace,” according to a Dallas Fed analysis. “As a result, production and employment across the basin will gradually shift from federal lands in New Mexico to private and state lands in New Mexico and Texas, with wide-ranging economic implications for the region.”
Similar to natural gas, New Mexico would account for the bulk of the lost production.
However, operators must wait until at least this summer to learn how restrictive the new federal drilling regulations will be.
“The information gathered at the forum, which will be live-streamed, will help inform an interim report from the department that will be completed in early summer,” according to the Interior. “The report will include initial findings on the state of the federal conventional energy programs, as well as outline next steps and recommendations for the department and Congress to improve stewardship of public lands and waters, create jobs, and build a just and equitable energy future.”