Analyst Note| Dave Meats, CFA |
As he was widely expected to upon taking office, U.S. President Joe Biden has halted the issue of new oil and gas leasing on U.S. federal land. The authority of the Department of the Interior to grant drilling permits has been suspended for 60 days initially, and a more permanent moratorium is likely to be installed when this order expires. This is really just a shot across the bow for most U.S. oil producers. It enables Biden to bolster his climate credentials and underscores his willingness to get tough with the industry, but it won't put him in the awkward position of severely hurting U.S. firms, threatening jobs, and triggering economic chaos (unlike the fracking bans endorsed by his more left-leaning colleagues). That's because: 1) under 10% of onshore volumes are derived from federal lands, with ample substitution opportunities; and 2) firms with federal exposure accelerated permitting activity in anticipation of the ban and as existing permits are not affected, this creates a substantial buffer. Offshore volumes could eventually be impacted, albeit modestly: our revised forecast for Alaska and the Gulf of Mexico, assuming no further permitting, is 200 mbpd lower in 2026 and 500 mbpd lower in 2028.