As Oil Prices Surge... Biden Resumes Permits for Oil and Gas Drilling

by Park Pyunghee

Published 18 Apr.2022 08:39(KST)

Updated 18 Apr.2022 11:30(KST)

[Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] The U.S. government will resume bidding for oil and gas development on federal lands this week. President Joe Biden signed an executive order to halt leasing sales for oil and gas development on federal lands shortly after taking office in January last year, citing environmental pollution concerns. However, the policy direction has been reversed recently as U.S. gasoline prices have soared.

According to major foreign media, the U.S. government announced on the 15th that it will auction 144,000 acres of federal land this week. Instead of suspending sales bids, the federal government plans to raise the royalty rate imposed on companies from the existing 12.5% to 18.75%. It also intends to significantly reduce the amount of federal land put up for bidding compared to the level requested by the industry.

The resumption of federal land bidding can be seen as President Biden breaking his campaign promise. Biden, who selected an eco-friendly administration as a key policy task, stated during his presidential campaign that if elected, there would be no more drilling operations on federal lands. He signed an executive order freezing new lease sales on 245 million acres of federal land shortly after taking office.

The energy industry strongly opposed President Biden's executive order, and 13 states including Louisiana, Texas, and Alabama filed administrative lawsuits demanding the suspension of the executive order. In June last year, the Louisiana federal court ruled in favor of the plaintiffs, stating that the federal government does not have the legal authority to halt oil and gas extraction on federal lands without congressional approval.

President Joe Biden of the United States [Photo by AP Yonhap News]

The reason President Biden is risking controversy over breaking his campaign promise to resume federal land lease auctions is the soaring gasoline prices in the U.S. As of the 15th, the average gasoline price nationwide was $4.07 per gallon. Although this is lower than the $4.33 per gallon recorded last month, it has risen by 70% compared to when President Biden took office. The U.S. Department of the Interior suggested reviewing the suspension of federal land bidding in a report last November when international oil prices rose to around $80 per barrel.

President Biden has recently taken various measures to lower oil prices, including releasing strategic reserves and demanding increased production from Middle Eastern allies. The resumption of federal land bidding is also part of efforts to curb rising oil prices.

However, some analyses suggest that resuming federal land bidding will not have a significant impact on oil prices. This is because oil and gas production from federal lands accounts for less than 10% of total U.S. production, and it takes several months from bidding resumption to actual production.

Frank Macchiarola, Vice President of the American Petroleum Institute (API), welcomed the resumption of bidding but said that limiting the scale of federal land bidding and raising royalty rates could hinder investment in the energy industry.