‘Fractious’ might be a fair way to describe the relationship between the US oil industry and the now-departed Obama administration. This was especially true in the latter stages of Obama’s term, when the outgoing president enacted a range of measures intended to protect the environment at the expense of fossil fuel industries before leaving office.
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December’s blanket ban on exploratory drilling in US Arctic waters and 3.8 million acres of the northern Atlantic Seaboard – deemed “indefinite” under the 1953 Outer Continental Shelves Land Act – prompted indignant responses from oil industry associations, with American Petroleum Institute (API) upstream director Erik Milito arguing the block “weakens our national security, destroys good-paying jobs, and could make energy less affordable for consumers”.
Even before the ban, stricter regulations on offshore licensing, project management, safety and environmental protection in the wake of the Deepwater Horizon disaster have been a consistent source of chagrin for offshore producers. API president and CEO Jack Gerard has described such measures as “a regulatory onslaught, with 145 new rules and regulations aimed at hindering the development of our nation’s energy resources”.
It’s little surprise, then, that the offshore fossil fuel sector has been so receptive to an administrative change after the electoral victory of President Donald Trump, the Republican candidate who signalled a change of direction for American energy policy during the election campaign by pushing for more extensive use of the country’s existing domestic energy resources, both onshore and offshore.
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“The only thing left to say is that January 20th [Trump’s inauguration date] cannot come soon enough,” said National Ocean Industries Association president Randall Luthi in early January, as part of a response to offshore regulator the Bureau of Ocean Energy Management’s (BOEM) denial of seismic survey permits for the Atlantic continental shelf.
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By GlobalDataSecretary Perry: powerful oil industry ally
If Trump’s more oil-friendly stance on the campaign trail gave some solace to oil companies keen to develop untapped offshore resources in the US, the new commander-in-chief’s picks for key energy-related federal positions has given them even more cause for optimism.
Former Texas governor and twice-unsuccessful presidential candidate Rick Perry was confirmed as Trump’s Secretary of Energy in early March, much to the chagrin of many energy-conscious critics who compared the records of Perry’s predecessor, Stanford-educated nuclear physicist Ernest Moniz, with a new chief who pledged to eliminate the department entirely during the 2012 Republican presidential nomination campaign.
At least on the surface level, Perry represents a considerably friendlier face for the oil and gas industry. The new secretary comes with deep ties to the Texas fossil fuel sector since retiring as the state’s governor in January 2015, including consulting work for a local oil exploration equipment manufacturer and corporate roles at two companies – Energy Transfer Partners and Sunoco Logistics Partners – seeking federal approval for the deeply controversial Dakota Access Pipeline project. This is not to mention the extensive political contributions Perry has received from fossil fuel companies.
Although Perry will have input on policy decisions related to domestic hydrocarbon development and oil exploration research, there will certainly be others in government who will be closer to the coal-face of offshore oil regulation, especially as the US Department of Energy’s (DoE) role also incorporates the massive task of designing and maintaining America’s nuclear arsenal. Nevertheless, as a statement of the fledgling Trump administration’s willingness to work with oil companies, the industry could hardly have asked for better.
Oil bigwigs and climate change sceptics
Just as the appointment of the seemingly DoE-hostile Perry as energy secretary has sparked speculation about what he might do with the department, the selection of former Oklahoma attorney general Scott Pruitt as the new head of the Environmental Protection Agency (EPA) raises similar questions about the agency’s fate.
As attorney general, Pruitt operated as a self-described “leading advocate of the EPA’s activist agenda” and has initiated lawsuits against the agency on several occasions, targeting, among others, regulations limiting methane leaks from hydrocarbon drilling operations.
Pruitt is also deeply sceptical of man-made climate change, a position starkly at odds with his own agency’s scientific assessment up to this point. “I think that measuring with precision human activity on the climate is something very challenging to do, and there's tremendous disagreement about the degree of impact,” Pruitt told CNBC in March. “So no, I would not agree that it's a primary contributor to the global warming that we see.”
Statements from both Trump and Pruitt seem to make the case for a drastic about-turn for the EPA’s direction, which could become much more pliable to demands of the energy industry. “The American people are tired of seeing billions of dollars drained from our economy due to unnecessary EPA regulations, and I intend to run this agency in a way that fosters both responsible protection of the environment and freedom for American businesses,” Pruitt said after his nomination for the EPA role in December.
Other appointments that will prove encouraging to the offshore industry include prominent oil investor Carl Icahn as Trump’s special advisor on regulatory reform, who Trump has said will lead efforts to “shed job-killing regulations that stifle economic growth”. In late February, Trump introduced an executive order to establish regulatory reform task forces for all government agencies to identify regulations that could be changed, replaced or repealed. The move was welcomed by the API, with Gerard stating that “today’s action by President Trump will unleash innovation across the nation”.
And then there’s the new US Secretary of State and face of American foreign policy, former ExxonMobil CEO Rex Tillerson. His mandate places him outside of the US domestic energy sphere, but that hasn’t stopped speculation that his experience of partnering with Russian state oil firm Rosneft on exploring for oil in the country’s Arctic waters could see him play a role in resurrecting the project if US sanctions on Russia are eventually lifted. Nevertheless, the intense scrutiny surrounding the Russian links of Trump and his cabinet, not to mention conflict of interest concerns, might well be enough to keep Tillerson well away from such a development.
Offshore leasing: big changes in the pipeline?
The leasing of federal waters for oil exploration and production operations is an area where big changes to Obama’s restrictive policies could be afoot. Admittedly, the Trump administration so far seems to be following the Obama playbook, at least in terms of offshore leasing in the Gulf of Mexico.
Trump’s new plan, announced in early March, to offer 73 million acres of gulf waters for drilling over the next five years (starting in August this year) is a slight expansion of Obama’s Gulf of Mexico leasing plan, which was to open 66 million acres, but is broadly similar. The 13,700 leasing blocks on offer are located between three miles and 230 miles offshore.
Even environmental groups have expressed surprise at how closely Trump’s team has cleaved to Obama’s proposal for the gulf’s future. “It does look like it’s kind of par for the course,” the Sierra Club’s Land Protection Program director Athan Manuel told the Washington Post. “It’s interesting politically that they’re following the Obama administration’s five-year plan. We expected them to throw out the Obama plan and start anew.”
Significantly more controversy can be expected as Trump turns his attention to potential Arctic and Atlantic development. As newly confirmed Secretary of the Interior Ryan Zinke implied after the leasing plan announcement, the Gulf of Mexico is unlikely to be the extent of Trump’s offshore ambitions.
“Opening more federal lands and waters to oil and gas drilling is a pillar of President Trump’s plan to make the United States energy independent,” Zinke said.
But what about the Obama administration’s last-minute ban on drilling and seismic testing in the Arctic and down the US East Coast? As has been pointed out, Obama’s protective measure may not be as permanent or as irreversible as believed.
Presidents are authorised to add new expiration dates to these sorts of bans, as President George W Bush did in 2008 to make areas of the Gulf of Mexico available for drilling that had been withdrawn by his father, President George HW Bush, in 1990. Legal and political challenges from environmental groups would surely follow, but with a Republican-dominated Congress and Trump’s conservative Supreme Court justice pick Neil Gorsuch in place, there is every chance that the moratorium could be overturned.
There will undoubtedly be more clarity on the intentions of Trump and his cabinet as his rather chaotic term continues. There are still pieces that have yet to fall into place – not least, from an offshore perspective, the appointment of a new permanent director of the BOEM after the departure of Abby Ross Hopper. But all signs point to a sustained attack on offshore oil regulations and licencing policies, supported by industry and a federal energy team that may prove to be the cooperative cabinet that big oil has been waiting for.
