Oil Industry Reels as Biden Targets Fossil Fuels in First Days

(Bloomberg) -- Hours after taking office, President Joe Biden made good on a campaign promise to cancel the Keystone XL oil pipeline. Later that day his Interior Department mandated that only top agency leaders could approve new drilling permits over the next two months.

Next week, according to people familiar with the plans, Biden will go even further: suspending the sale of oil and gas leases on federal land, where the U.S. gets 10% of its supplies.

The actions sent oil producers’ stocks tumbling and raised blood pressure across the industry.

“In the first couple of days of the new administration, they are taking actions that will harm the economy and cost Americans their jobs,” said Frank Macchiarola, a senior vice president of policy for the American Petroleum Institute. “We’re concerned, and everyone in the country should be concerned.”

The Interior Department’s order, signed late Wednesday, changes procedures for 60 days while the agency’s new leadership gets into place. It requires top brass to sign off on oil leases and permits as well as decisions about hiring, mining operations and environmental reviews.

The industry took it as a bad omen. Officials are worried that technical permitting decisions are being placed in the hands of political appointees, rather than expert regulators in the field. And they’re concerned permits -- or simply changes to them -- will be delayed for existing drilling operations.

Moreover, many interpreted it as a prelude to broader actions, including the administration’s plan to next week impose a moratorium on all oil, gas and coal leasing across some 700 million acres (2.8 million hectares) of federal land.

This “announcement is intended as a temporary ban on leasing and permitting but is also a precursor to a longer-term ban,” said Kathleen Sgamma, head of the Western Energy Alliance, which has threatened to go to court to battle any such blockade.

While Biden’s campaign promises - and his initial moves to fulfill them - are a threat to some U.S. oil producers, the actions could be a boon for crude prices by restraining supply.

The administration’s early moves mark a dramatic shift from the course under former President Donald Trump, who sought to accelerate drilling permits and open up more places to oil exploration.

And the change in direction is already apparent in early staffing decisions. Under Trump, the top offshore drilling regulator at Interior was Scott Angelle, a longtime oil industry ally and former Louisiana official who pushed for rapid permitting of Gulf of Mexico oil projects after the 2010 Deepwater Horizon disaster.

By contrast, one of Biden’s first hires at the Bureau of Ocean Energy Management that oversees offshore oil leasing and wind farms is Marissa Knodel, a former activist with Friends of the Earth. Knodel was one of about 150 people whose rowdy protest of a bureau auction of oil drilling rights in March 2016 prompted the agency to shift subsequent oil and gas lease sales online.

On the campaign trail, Biden called for phasing out fossil fuels and promised to halt new oil and gas permitting on federal land. Worried oil producers stockpiled leases and drilling permits last year in anticipation of more restrictions under Biden.

But the suddenness of this week’s moves still took many in the industry by surprise, prompting frantic phone calls as lobbyists and lawyers sought to plan their next moves. They are strategizing their options, including litigation, and looking at any political levers they can pull to forestall a broader leasing ban.

Senator Dan Sullivan, a Republican from Alaska, said permitting changes threaten operations in his state during the current winter season, when companies such as ConocoPhillips rely on ice roads and ice pads to support drilling and other activity in the National Petroleum Reserve-Alaska.

“If you put a 60-day moratorium on drilling in the NPR-A, guess what? You lose the whole season,” Sullivan said Friday on the Senate floor.

Environmentalists are delighted. They say throttling fossil fuel development on federal land is necessary to pare the greenhouse gas emissions driving climate change. The oil, gas and coal extracted from federal lands and waters is responsible for about 24% of U.S. carbon dioxide emissions, according to a U.S. Geological Survey report.

“Pausing new fossil fuel decisions brings us closer to healthier communities, a healthier climate and healthier wild places,” said Dan Ritzman, director of Sierra Club’s Lands, Waters and Wildlife campaign. “Public lands can and must be part of the climate solution.”