U.S. Auctions Giant Stretch of Gulf of Mexico for Oil and Gas Drilling

The U.S. held its first auction of oil and gas drilling leases in the Gulf of Mexico in more than a year on Wednesday. The sale — mandated by the Inflation Reduction Act (IRA) — garnered $264 million in offers from oil companies, including BP, Chevron and ExxonMobil.

The auction in federal waters came just two weeks following the Biden administration’s approval of the Willow oil drilling project on Alaska’s environmentally sensitive North Slope.

Environmental groups — who have challenged the lease sale in federal court — were not pleased with President Joe Biden going back on a campaign promise to stop the extraction of fossil fuels on federal lands.

“Once these leases are offered and issued, it is going to lock in oil and gas development in the Gulf for the next 50 years,” said George Torgun, an attorney with Earthjustice, as CBS News reported. Torgun is representing the environmental groups in the lawsuit. “Coming on the heels of the Willow decision, this certainly feels like another step backwards in the fight against climate change, which this administration has said is an existential threat.”

According to one government assessment, once developed, the Gulf oil and gas leases will produce more than four trillion cubic feet of natural gas and as many as 1.1 billion barrels of oil over five decades, reported The Associated Press. The analysis found that carbon dioxide emissions would increase by tens of millions of tons from its use.

As the top bidder, Chevron offered $108 million on 75 lease tracts, BP bid $47 million and Shell $20 million. The total bids were a 38 percent increase from the previous auction.

Another lease sale in the Gulf is scheduled for September.

“There’s been a lot of talk from the administration about taking climate change seriously and moving our economy away from fossil fuels, and yet we continue to see massive oil and gas projects, both onshore with Willow and offshore in the Gulf of Mexico,” Torgun said, as The Associated Press reported.

Sami Yahya, an analyst with S&P Global, said companies might be trying to lock in leases in the event auctions become restricted in the future.

“From a global perspective, we are perpetually moving toward an environment with stronger anti-fossil fuel sentiment, as operators will continue to face more public scrutiny regarding emissions,“ Yahya said, as reported by The Associated Press.

In a compromise with West Virginia Democratic Senator Joe Manchin, the IRA not only includes mandates for oil and gas lease sales on public lands, but prohibits renewable energy leases on the lands unless the federal government first offers tens of millions of acres for the extraction of fossil fuels.

The total area offered for auction was 114,000 square miles — an area larger than the State of Arizona — but the bids only covered 2,600 square miles.

Oil and gas could be produced on the parcels well past 2030, since offshore developments take years before the oil is actually pumped.

Exxon has been going after a carbon capture and storage (CCS) collaboration with industrial plants in the Houston Ship Channel.

“They purposely went out to lease property where the geology was right for storage and they knew any oil and gas production on a commercial scale was not a possibility,” said Eric Smith, associate director of the Tulane Energy Institute, as The Associated Press reported.

CCS is less effective at reducing carbon in Earth’s atmosphere than making the transition to renewables, but companies are counting on it to keep fossil fuel facilities operating longer.

“There might be some risks associated with whether they’re actually able to use it for carbon capture,” said Justin Rostant, a principal analyst with the industry consulting firm Wood Mackenzie, as reported by The Associated Press. “That is a big question mark.”

The Biden administration has additional plans to auction more than 500 square miles of oil and gas leases onshore in several states, including Nevada, New Mexico, Wyoming and Montana.

“The sanctioning of huge fossil fuel extraction commits the U.S. to long-term fossil fuel dependency and continues a current path of rising carbon emissions that according to available science will lead to disastrous consequences and enormous costs for the U.S. and global economies,” Woody Martin of the Sierra Club’s Delta Chapter in Louisiana told NPR.