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May 3, 2019

Strong state and judicial opposition to expanding US Outer Continental Shelf

The 2019-2024 programme proposed to open up areas in Alaska, the Atlantic, the Gulf of Mexico and the Pacific for further hydrocarbons activities.

By GlobalData

The US offers regular licensing rounds paired with favourable fiscal and stable regulatory terms, which score well for licensees when compared with neighbouring countries’ petroleum fiscal frameworks.

US oil and gas 2019

However, the administration’s decision of halting the opening up to hydrocarbons exploration of practically all parts of the US Outer Continental Shelf (OCS) as a result of strong political and judicial opposition leaves the schedule of the lease sales based on the 2017-2022 programme.

The result will be slowing investments pace as initially planned when the administration introduced the draft programme 2019-2024.

The 2019-2024 programme proposed to open up areas in Alaska, the Atlantic, the Gulf of Mexico and the Pacific, for further hydrocarbons activities so that more than 98% of the OCS would have been open for exploration.

The opening would have reversed the Obama administration’s policies banning drilling in the Atlantic and parts of Alaska. Several coastal states (governed both by Republican or Democratic administrations) and environmental groups oppose offshore hydrocarbon activities as a result of the potential threats to their coastal economy and environment.

The only states supporting the new programme were Alaska, Alabama, Louisiana, and Texas.

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In March 2019, a judge of the US District Court for the District of Alaska established that President Trump’s dismissal of President Obama’s ban on hydrocarbons activities in the Arctic Ocean and the North Atlantic was illegal, though it is probable that the decision will be appealed.

This ongoing opposition and legal challenges to the policy mean that the extent to which Alaska, the Pacific, the Atlantic and the eastern part of the Gulf of Mexico will be opened by this current administration is uncertain.

Whether or not the additional areas are opened, the Gulf of Mexico is likely to continue to contribute to the bulk of licensing activity.

The 2017-2022 lease sales programme schedules 11 sales, of which 10 in the Gulf of Mexico and 1 in the Cook Inlet (the latter scheduled for 2021). The latest successful lease sale for Alaska, the Atlantic, and the Pacific occurred in 2008, 1983 and 1984, respectively. While the opening of these areas may attract some companies into frontier exploration, interest is likely to be limited by the higher risk and lack of infrastructure.

Figure: Regime flow chart

Source: GlobalData

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