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In July 2014, as the Obama administration was really beginning to work through its future plan for offshore oil and gas leasing, the industry was hopeful that the plan would include expanded drilling in nearly all US Gulf of Mexico waters, much of offshore Alaska and even off the East Coast.
Some in the industry were quietly optimistic that President Barack Obama's Interior Department would give serious consideration to opening some of the Pacific Ocean to drilling in the 2017 to 2022 offshore leasing plan, although this was viewed as a serious longshot.
“From our long-term energy planning standpoint, both from the government and the industry, it's important to keep options on the table and not take them off the table,” Erik Milito, the American Petroleum Institute's upstream director, said at the time.
Those hopes were dashed and a years-long push by the offshore industry appears to be for naught as the Obama administration last week not only scrapped planned lease sales in the Atlantic and Arctic, but also moved last week to permanently bar drilling in the majority of US Arctic waters and a large chunk of the Atlantic.
The move may ultimately be at the heart of a, likely, multi-year legal battle between the offshore industry and environmentalists. It has complicated President-elect Donald Trump's ability to increase production in federal waters, one of his few, clear energy policy goals of his presidential campaign. It may also launch a new legislative effort by Alaska's congressional delegation.
But, looking forward, it also raises the question: Will Trump want to burn political capital, federal resources and time to lift an offshore drilling prohibition at a time when the industry is not looking to immediately expand its offshore drilling activities?
Withdrawn from disposition
On December 20, the White House announced that Obama would permanently block new oil and gas development in the Chukchi and Beaufort seas, covering about 115 million acres in the Arctic, and about 3.8 million acres off the US East Coast, from Massachusetts to Maryland. Canadian Prime Minister Justin Trudeau also announced that all oil and gas leasing would be off limits in all of Canada's Arctic waters, but those prohibitions would be reviewed every five years.
Obama is blocking Arctic and Atlantic drilling through authority under Section 12(a) of the Outer Continental Shelf Lands Act, a 63-year-old law which allows the president to “withdraw from disposition” any unleased lands in federal waters.
The decision followed the Obama administration's announcement in November that it was removing two planned lease sales in the Chukchi and Beaufort seas from its 2017-22 federal offshore leasing plan. A proposed Atlantic lease sale had been scrapped from that plan back in March.
President-elect Trump was expected to undo that plan, although it was expected to take years to do so. But Obama's move to permanently block oil and gas development in the Arctic and Atlantic complicates Trump's expected path when it comes to opening more US waters to drilling.
The legal battle
Just minutes after the White House announced the decision to permanently bar drilling, industry interests claimed there was no legal standing to permanently block development in those waters and environmental pledged to defend the action in court.
“If Donald Trump tries to reverse President Obama's withdrawals, he will find himself in court,” said Marissa Knodel, a Friends of the Earth spokeswoman.
But Christopher Guith, a senior vice president for policy at the US Chamber of Commerce's Institute for 21st Century Energy, said the decision could be easily reversed by Trump once he is sworn into office and pointed to a 2008 action by President George W. Bush to reverse previous leasing prohibitions made under 12(a) authority.
“There's no such thing as a permanent withdrawal,” Guith said. “It can be repealed with the stroke of a pen.”
The Trump question
As with seemingly almost everything on energy policy these days, it is unclear what Trump may do on offshore drilling when he moves into the White House next month.
In a conference call with reporters the day after the White House announced the withdrawals, Jason Miller, a Trump spokesman, said the president-elect had no “immediate reaction” to the move.
While he has pushed for more drilling on federal lands and waters, it is uncertain if Trump views undoing Obama's Arctic and Atlantic withdrawals as a priority, particularly since much of the industry appears uninterested in drilling in new offshore areas in light of current oil and gas prices.
Prices weighed at least partially on Obama's decision last week, claiming in a statement that a “significant production in the Arctic will not occur” at current prices.
“That's why looking forward, we must continue to focus on economic empowerment for Arctic communities beyond this one sector,” Obama said.
Brian Scheid, Senior editor, oil news
Brian Scheid has worked for Platts for six years and has covered multiple beats, including futures and swaps trading, Dodd-Frank financial reform efforts, Congress, the White House and multiple federal agencies, including the Department of Interior, Department of Energy, the Commodity Futures Trading Commission, and the Federal Energy Regulatory Commission. He currently covers US crude oil policy and is co-host of Platts Capitol Crude, a weekly podcast. Previously, he worked for daily newspapers in Connecticut, New Jersey and Pennsylvania. Mr. Scheid is a graduate of Boston College.
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