Energy

Biden administration cites lackluster industry interest in canceling Cook Inlet oil and gas lease sale

Alaska Dispatch News

The Biden administration has announced it will cancel a proposed oil and gas lease sale in the federal waters of Cook Inlet, citing a lack of industry interest.

The decision closes off 1 million acres of waters west of the Kenai Peninsula to a lease sale that was originally planned for last year. The administration also announced it would cancel two offshore lease sales in the Gulf of Mexico.

“Due to lack of industry interest in leasing in the area, the Department will not move forward with the proposed Cook Inlet OCS oil and gas lease sale 258,” an Interior official said in an email to reporters. “The Department also will not move forward with lease sales 259 and 261 in the Gulf of Mexico region, as a result of delays due to factors including conflicting court rulings that impacted work on these proposed lease sales.”

The decision generated anger among industry supporters and some politicians in Alaska who said that with oil and gas prices soaring, now is not the time to take oil and gas prospects off the table. They said it’s another move by the Biden administration to throw roadblocks in front of resource development in Alaska.

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A longtime observer of the industry in Alaska questioned whether any oil companies would have shown up to bid in a sale, which could have been held this year. Industry groups, on the other hand, said there’s no way of gauging industry interest without holding a sale.

An Interior official said in an email that the department “received no comments indicating specific company interest in leasing during the scoping period or in DEIS comments.”

“The industry hasn’t exactly been clamoring for Cook Inlet leases,” said Larry Persily, a former Alaska deputy commissioner of revenue and former federal coordinator for an Alaska gas line project. ”Of course, the industry is always interested in leasing potential, but this wasn’t an area where they have eagerly and energetically, with open checkbooks, been waiting to drill.”

Cook Inlet was once Alaska’s leading region for oil and gas production, but its fortunes have since faded. Only about 10,000 barrels of oil are produced there daily, the equivalent of about 2% of North Slope production. But Cook Inlet natural gas provides electricity for most of the state’s population.

In 2017, Hilcorp was the lone bidder in the last federal Cook Inlet lease sale, acquiring 14 leases for more than $3 million.

That was the first time in 20 years that a company had bid on leases in the area. A 2004 federal lease sale generated no bids, and the federal government canceled three lease sales between 2006 and 2010, citing a lack of industry interest.

Persily said that oil companies are generally looking for quicker payoffs for their investments than they can get in Alaska, with its huge upfront costs and potentially a decade-long wait until first oil flows.

“A lease sale in Cook Inlet this year wasn’t going to do anything to solve high prices at the pump or global oil prices,” he said.

Kara Moriarty, head of the Alaska Oil and Gas Association, said the Interior Department is wrong to say there was no industry interest in a Cook Inlet lease sale. The association in December called on the Bureau of Ocean Energy Management to hold the sale, she said.

She said she did not know if specific companies planned to submit bids if a lease sale was held, adding that they keep their plans confidential.

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“Obviously this administration would prefer our energy comes from other countries if they don’t want to have lease sales on their own land,” she said.

Moriarty said the move is another round of mixed signals from the Biden administration that will add uncertainty into industry interests in Cook Inlet.

Early last year, the Bureau of Ocean Energy Management halted a public comment period required before the sale could be held, after President Joe Biden issued an order pausing new oil and gas leases on federal lands and waters during a review of the program.

Planning for the sale got back on track after a federal district court judge struck down the pause. The moratorium is now being heard before a federal appeals court in Louisiana, with Alaska one of 13 states arguing against the administration.

The Biden administration’s plans to cancel the Cook Inlet sale slipped out when White House climate advisor Gina McCarthy copied a CBS News reporter in an email, the news outlet reported on Wednesday.

In response, Interior Department officials initially said a final decision has not been made on the Alaska sale, the news outlet said. The agency later confirmed the decision.

Alaska Republican Sen. Dan Sullivan blasted the decision Wednesday, calling it another example of the Biden administration moving to halt oil and gas activity in the state.

“I just think it’s more of the same, but this one is pretty deceitful because Gina McCarthy came out and broke this news, then they had to walk it back and then they had to make this excuse that there was no interest among the producers,” he said.

He said that as Alaska’s former commissioner of natural resources in 2011, he held an unexpected “blowout” lease sale in state-owned Cook Inlet waters, within 3 miles of the coast.

“It was incredibly successful, and you have very high oil and gas prices right now, and that almost automatically drives interest,” he said. “But you just don’t always know until you hold a sale.”

With Russia’s invasion of Ukraine, oil prices have risen above $100 a barrel for the first time in eight years, and gas prices are topping $5 a gallon in some states.

In Alaska, Biden has halted oil and gas activity in the Arctic National Wildlife Refuge for further review, and last month scaled back drilling opportunities in the National Petroleum Reserve-Alaska, two massive tracts of land in northern Alaska.

But his administration in court supported the Willow project in the oil reserve. ConocoPhillips is pursuing that project, which is undergoing additional review by the Bureau of Land Management following a federal judge’s decision last year.

Rich Ruggiero, a former longtime oil and gas analyst for the Alaska Legislature and Alaska governor’s administrations, said the decision shows the Biden administration has failed to adopt a reasonable energy policy. It’s trying to force renewable energy to rapidly replace fossil fuels like oil and gas, he said.

“They think if they deny access (to oil companies) they can force the transition, but I don’t think people realize how much fossil fuels is embedded in the products we use in our everyday lives,” Ruggiero said.

Conservation groups praised the announcement.

“The decision to protect our local sustainable economies by not locking Cook Inlet into 40-plus years of exploration and drilling for carbon-based fuels is a critical step to combat the climate crisis.” said Liz Mering, advocacy director at Cook Inletkeeper.

The League of Conservation Voters said the move can help rein in climate change in the future.

“Selling new offshore leases that won’t produce oil for years is not a solution to today’s gas prices, but it would lock in new infrastructure that is incompatible with our moral responsibility to leave a habitable planet for our kids,” said Alex Taurel, conservation program director for the group.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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