Editor's note: This column first appeared in the January-February 2023 issue of Offshore magazine. Click here to view the full issue.
By Erik Milito, National Ocean Industries Association (NOIA)
Major economic, energy, and geopolitical upheaval and uncertainty made 2022 the Year of the Unexpected. However, the US offshore energy sector was able to capture a substantial legislative victory, giving it far more momentum heading into 2023 than one year prior.
To begin with, a Democrat-controlled Congress granted American offshore oil and gas production an unexpected reprieve from cancelled lease sales and permitting delays. In August 2022, Congress passed the sweeping Inflation Reduction Act (IRA). The result of a deal between Senate Energy & Natural Resources Chairman Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY), the IRA, surprisingly, included a levy of provisions supporting a diversity of offshore energy segments, including, oil and gas, wind, and carbon sequestration.
The IRA reinstated the previously vacated Gulf of Mexico oil and gas Lease Sale 257. The legislation also requires the Department of the Interior to hold the previously cancelled offshore Lease Sales 258, 259, and 261 and established a clear timeline of when these lease sales must be held. The bill also creates a 10-year tie-in for the issuance of offshore wind leases, under which oil and gas leasing acreage of 60 million acres (roughly an area-wide Gulf sale) must be offered in lease sales within a year of issuing an offshore wind lease.
The IRA also provides a boost for offshore wind. Along with tax credits, language lifting a 10-year offshore wind leasing moratorium in the Southeastern US and Eastern Gulf of Mexico was included. States like North Carolina have a clearer line of sight for new offshore wind opportunities. BOEM is already looking at the next round of Central Atlantic offshore wind lease sales which may include lease sales offshore North Carolina.
The IRA will help jumpstart the US offshore carbon sequestration sector. While the Department of the Interior is still promulgating the first offshore carbon sequestration regulations, many companies are moving ahead with their plans to break into this important space. The Inflation Reduction Act increases the federal 45Q tax credit and offers direct pay for offshore carbon sequestration projects.
Additionally, the outlook for offshore carbon sequestration is bright. Carbon capture and storage (CCS) offers a way to trap GHG emissions right at the source and then transport and inject the emissions underground based upon technological expertise rooted in oil and gas. CCS technology can help flatten GHG emissions as lower-carbon energy alternatives mature in the market.
The first federal regulations overseeing offshore CCS are on the horizon and could be finalized this year. A clear and stable regulatory framework will provide the certainty needed to build an emerging sector, spur American leadership, and ensure the effective deployment of a critical tool to address climate change.
During 2022, the US offshore oil and gas outlook went from cancelled and vacated lease sales to every Democrat in Congress voting to restore and resume near-term offshore oil and gas lease sales. As the IRA shows, even the most plugged-in prognosticator cannot always predict what Congress is going to do. Predicting the Congressional outlook is even more difficult when heading into a new Congress with significant turnover in both Chambers.
Part of the IRA deal between Senators Manchin and Schumer included an agreement on permitting reform. Ultimately, the permitting legislation stalled in the lead-up to the midterm elections, but we expect that permitting reform will continue to be a priority for both Senator Manchin and Republican leadership.
Regardless of party, there is broad recognition that NEPA reform is essential for timely and thorough environmental reviews. Steps must be taken to make sure red tape does not unnecessarily or arbitrarily impede critical infrastructure projects, especially as the US tries to modernize its infrastructure and scale and deploy additional solutions to address climate change, such as offshore wind and carbon sequestration.
Maintaining lease sales is fundamental when it comes to keeping energy flowing. Continued American offshore oil and gas production means good-paying jobs, affordable energy supplies, important funding for local infrastructure needs, coastal restoration and resiliency, and parks and recreation programs, and providing Americans and our allies a stable source of lower carbon energy. These benefits cannot continue without a long-term leasing program. In the global energy marketplace, US energy policy should serve to encourage and attract investment to the US offshore region.
The lesson of 2022 is that energy should be non-partisan. Sweeping offshore energy provisions, including oil and gas, were included in the historic Inflation Reduction Act because offshore energy benefits every American, regardless of party. Everyone wins through affordable energy, good-paying and accessible jobs, and domestic energy production that advances climate solutions and provides an alternative to energy from higher-emitting geopolitical adversaries such as Russia.
As the dust clears from the 2022 midterms, policymakers should work together to advance a balanced energy strategy based upon principles of affordability, energy security, national security, and continued environmental and emission progress.
About the author: Erik Milito is the president of National Ocean Industries Association (NOIA).