In a bid to fend off criticism over a dearth of achievements in his first 100 days in office, President Trump plans to sign a flurry of executive orders this week.
Among them is an executive order intended to open up new areas of offshore oil and gas drilling. “This builds on previous executive actions that have cleared the way for job-creating pipelines, innovations in energy production, and reduced unnecessary burden on energy producers,” a White House official told the Reuters earlier this week.
The order calls for a “review of the locations available for offshore oil and gas exploration and of certain regulations governing offshore oil and gas exploration.”
Specifically, the Trump administration is hoping to open up new areas to drill in the Gulf of Mexico, plus areas in the Atlantic and Arctic Oceans. The Obama administration had previously designated the Atlantic and the Arctic off limits, and did so in such a way as to make it legally very difficult for subsequent administration’s to reverse.
The road to new drilling in the Arctic and Atlantic Oceans will be long and bumpy, for several reasons. First, any attempt to open up the Arctic and Atlantic Oceans will be met with tough litigation. The President’s authority to reverse the Obama administration’s move is debatable. Second, the Interior Department will have to include tracts of drilling in its Five-Year plan, and putting acreage into the plan requires extensive environmental analysis that could span several years, especially for the Atlantic Ocean, where no drilling has taken place yet.
On top of that, even if the administration succeeds in leasing offshore acreage – which will be years from now at the earliest – who will be interested? Royal Dutch Shell already had a crack at the Arctic, spending $8 billion and almost a decade of work with nothing to show for it. In 2015, after completing one well in the Chukchi Sea with disappointing results, Shell abandoned the Arctic and wrote down its assets. Shell’s Arctic program came to a halt because of low oil prices and poor prospects in the Chukchi – President Obama shut down the Arctic only after Shell had given up on it. It was a colossal failure for a region that has routinely been hyped as the next big thing in oil exploration.
A greenlight from Trump won’t change the poor economics of Arctic drilling. Although precise breakeven costs are difficult to pin down, particularly since no oil has been produced in the Chukchi Sea, it is generally assumed that oil prices need to trade over $100 per barrel. Hardly anybody expects oil prices to return to triple digit territory anytime soon, so even if the Trump administration somehow manages to open up the Arctic again, there will be very few companies willing to roll the dice on the Arctic. It is better to spend money on U.S. shale.
The Atlantic could be different. The extent of the resource base is unknown, given the lack of exploration to date. There could be a lot of oil on the U.S. eastern seaboard, or not very much at all. The best guess comes from a 2011 assessment by the Bureau of Ocean Energy Management, which put the mean estimate of total oil reserves in the U.S. Atlantic at just 3 billion barrels – which is a small fraction of the 48 billion barrels in the Gulf of Mexico and the 26 billion barrels thought to be off the coast of Alaska. And that volume could turn out to be even lower.
More importantly, as an area new to exploration, production costs will be higher. At $50 per barrel, it is not at all clear that there is an economic case for Atlantic drilling. Compared to the Arctic, the Atlantic does have the virtue of having more hospitable conditions as well as proximity to existing infrastructure, such as pipelines and refineries. Nevertheless, even if Trump succeeds in opening up the Atlantic, it will take years before any acreage is listed for a lease sale, followed by many more years of seismic testing and exploration. Production is far off into the future. And that assumes companies are even interested. Related: Did OPEC Shoot Itself In The Foot?
Separately, President Trump signed an executive order on Wednesday that asks the Interior Department to review previous national monuments designations under the Antiquities Act, which allows the President to protect certain public lands. White House officials have said that “past administrations have overused this power and designated large swaths of land well beyond the areas in need of protection.”
The move comes after President Obama designated Bears Ears a national monument, a scenic area in Utah that is sacred area to Native communities that drew the interest of oil and gas drillers. The designation at the eleventh hour of the Obama presidency put Bears Ears off limits to the oil and gas industry, angering politicians from Utah. Texas shale company EOG Resources had received a permit to drill in the area. President Trump’s executive order this week is clearly an attempt to roll back that designation.
But just as with offshore drilling, the move to rescind public lands protections will also likely face legal challenges and faces an uncertain future.
Like other executive orders signed by President Trump, the latest ones targeting new offshore drilling and drilling on public lands have made splashy headlines, but face an uncertain future.