U.S. President Joe Biden’s plan to reform permits and leases for oil and gas extraction on federal lands and waters has rattled the U.S. oil industry and some oil-producing states .
Currently, the US government is reviewing relevant regulations. While it’s unclear how restrictive the changes will be, industry players and analysts are trying to quantify how much U.S. oil production will be affected in the medium to long term.
The immediate impact may be negligible, but in the medium to long term, the new regulations may have far-reaching consequences, not only for U.S. shale oil production and offshore conventional There are impacts to oil production, but also to states’ oil revenues and budgets.
Industry insiders expect that the new regulations will have an impact on oil production and taxation in U.S. states, but the specific impact will depend on the final regulations and How far can the industry go in challenging new regulations through legal means?
Wood Mackenzie said that the current temporary ban will have little impact on oil production.
Pablo Prudencio, WoodMac’s senior research analyst covering 48 U.S. oil supplies, said: “However, the review process may More far-reaching measures could be proposed, such as imposing higher royalties on new leases or requiring environmental protection obligations, prohibiting the sale of new leases and/or prohibiting the issuance of new licenses for existing leases.”
About 6% of U.S. oil production comes from federal lands, so only a small portion of shale production will be directly affected by changes to the new lease permitting process. However, Prudencio said: “Banning new federal drilling permits on existing leases is a more extreme scenario that would put future supply at risk and reduce future drilling inventories in some areas.”
New regulations will slow Permian Basin production growth
Pat, economist at the Dallas Fed Research Department Oil production growth in the U.S. Permian Basin will slow, with oil and gas activity shifting from New Mexico, which produces half of its oil, to Texas, Patel said in a report earlier this month. from the Permian Basin.
According to the reference scenario, leasing, permitting and drilling will be almost unchanged through December 2025 compared with the first quarter of 2021, and the Permian Basin Production in New Mexico will increase from 4.3 million barrels per day in 2020 to 5.3 million barrels per day, and New Mexico’s production will increase by 1.5 million barrels per day from the current 1 million barrels per day.
Assuming no new federal lease agreements but existing leaseholders still receive drilling permits, Permian Basin production will rise to 510 million by 2025 Thousands of barrels/day. But the Dallas Fed said New Mexico’s output would only grow by 100,000 barrels per day.
Under the most stringent scenario (no new federal permits or permit extensions starting in 2023), Permian Basin production would still rise through 2025 Annual production will reach 4.8 million barrels per day, but New Mexico’s production will drop to 700,000 barrels per day, 800,000 barrels per day less than the reference scenario.
Major oil-producing states will face huge economic losses
Shale in the Permian Basin The change in expected oil production is a microcosm of how states with more drilling activity on federal lands will see their oil production decline. New Mexico will be one of the hardest hit states, with lower tax revenues and lower employment. The Dallas Fed notes that because “production and employment throughout the basin will gradually shift from federal lands in New Mexico to private and state lands in New Mexico and Texas, with broad economic impacts for the region.”
The American Petroleum Institute (API) said a ban on federal leasing could cost New Mexico 62,000 jobs by 2022, and New Mexico would also face $1.1 billion in lost revenue. .
The fiscal impact on New Mexico will be significant, according to the Dallas Fed. In the fiscal year that ended June 30, 2020, New Mexico generated $2.6 billion in revenue from taxes, royalties and fees from the oil and gas industry, $809 million of which came from the state’s holdings on federal property. Share of mining revenue.
Democratic-led New Mexico faces a dilemma: Supporting President Biden’s climate policies and limiting federal oil extraction means the state uses more for education, schools and other Revenues from government programs will be significantly reduced.
Other states will also be subject to restrictions on drilling on federal lands. In the case of Wyoming, the University of Wyoming’s Enhanced Oil Recovery Research Institute (EORI) said in a report earlier this month that the federal leasing ban would affect 75% of the state’s conventional oil fields and 60% of its drillable land. . The report said the policy would limit or potentially prevent the use of 2.9 billion barrels of potentially recoverable oil reserves on federal lands, as well as associated $12.9 billion in tax revenue.
Offshore oil production will take a big hit
Onshore oil production in states like Wyoming and New Mexico will take the biggest hit impact, but overall, offshore areas of the Gulf of Mexico will be most affected by changes in leasing regulations.
Economists at the Dallas Fed said: “We expectOil production is expected to be lower than normal in other basins, particularly the Gulf of Mexico, where nearly all oil and gas activity is federally regulated. ”
The American Petroleum Institute said in a report last year that by 2030, U.S. offshore oil production will drop by 44% and offshore natural gas production will drop by 68%.
Chevron CEO Michael Wirth said of the moratorium on new leasing during its fiscal fourth-quarter earnings call in January that “risks in the Gulf of Mexico Probably bigger. ”
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