A wide-ranging moratorium on new oil and gas leases on federal land and water that is expected Wednesday from President Joe Biden could have a long-ranging impact on Louisiana’s economy and an already struggling oil and gas industry.
The biggest long-term impact would be in the Gulf of Mexico, where drilling has been ravaged in recent years by low prices and reduced demand caused by the coronavirus pandemic, while the effect of the pause is expected to be minimal onshore because Louisiana has a relatively small amount of drilling happening on federal lands, said Eric Smith, associate director of the Tulane Energy Institute. Drilling on private lands is largely regulated by states.
Smith also foresees a potential hit to the downstream sector, where chemical plants and refineries depend on a stable supply of low-priced oil and natural gas as raw materials for the products they make and potentially would shift their oil needs to overseas sources if prices rise.
According to figures from the U.S. Bureau of Land Management, there were just under 59,000 acres of producing oil and gas leases on federal land in Louisiana in fiscal 2019. That compares to 1.1 million acres of producing leases in Utah, 1.5 million acres in Colorado, 3.9 million acres in New Mexico and 4.1 million acres in Wyoming.
As for downstream operations, Louisiana and Texas account for 16% of the nation’s crude oil refining capacity, 30% of the ammonia production and a large chunk of the plastics business, Smith said.
One-third of the products from Louisiana refineries are used in other states. “If you start screwing around with the delicate balance of production, then taxis aren’t running in New York,” he said.
And Smith said depending how the regulatory changes are handled, it could have the same effect on Louisiana’s oil and gas industry as the offshore drilling moratorium put in place in the Gulf of Mexico after the Deepwater Horizon disaster in 2010. Because multiple permits are needed to drill for oil offshore from multiple federal agencies, there are a number of ways to shut down drilling.
“We could certainly see a revision if they start strictly enforcing leasing and permitting in the deepwater Gulf,” he said.
The president's expected action follows a 60-day suspension of new drilling permits for U.S. lands and waters announced last week and follows Biden’s campaign pledge to halt new drilling on federal lands and end the leasing of publicly owned energy reserves as part of his plan to address climate change and long-term transition to renewable energy, including solar and wind power. The moratorium does not affect existing oil and gas leases, which could keep the industry active for years to come. The moratorium is intended to allow time for officials to review the impact of oil and gas drilling on the environment and climate.
"All of these signals are really bad for a big industry in our state," said economist Loren Scott.
Offshore drilling activity and the number of people working in the oil and gas industry has declined since 2014, mirroring the drop in crude oil prices after production surged with the widespread use of new drilling technology. Back in 2014, the average price for a barrel of crude oil was $93.17. In 2020, the price was $38.52, exacerbated by declining worldwide demand caused by the coronavirus pandemic. During that same period, the offshore and onshore Louisiana active rig count has dropped from 111 in 2014 to 45 in 2021.
The state has already lost more than 10,000 oil and gas jobs as a result of the pandemic, said David Dismukes, executive director and director of policy analysis at the LSU Center for Energy Studies. A moratorium on drilling and new restrictions will make clawing back those jobs “pretty tough.”
“This makes a recovery very difficult,” he said. He wouldn't speculate on how many jobs could be affected.
Even though the moves are expected to primarily impact oil and gas activity in the West, Dismukes said a number of Louisiana workers will be impacted.
“Oil and gas workers are pretty mobile,” he said. “They work two weeks on, two weeks off in west Texas, New Mexico.”
Stephen Barnes, director of the Blanco Public Policy Center at the University of Louisiana at Lafayette and an associate professor of economics, said Biden’s expected moves may have more of an impact on the economy than the environment.
“This will be devastating to the oil and gas extraction industry,” he said. That includes businesses in Houma-Thibodaux that support activity at Port Fourchon. Port Fourchon services more than 90% of the deepwater oil production in the Gulf and is the base for the Louisiana Offshore Oil Port, which handles up to 15% of the nation’s domestic oil supply.
If the domestic crude oil extraction industry is crimped, then American petrochemical plants and manufacturers may be forced to turn to foreign petroleum in order to keep running.
“This may not have the effect of reducing consumption,” he said. “The global oil market may respond with higher prices and more sales for the Middle East and Russia.”
The key is how long any sort of drilling moratorium will last, Barnes said. If domestic drilling is halted for a year, then companies will have to readjust and make bigger changes quickly.
“If it’s for a shorter term, then they will just hold their breath and see,” he said.