President Joe Biden has ordered the secretary of the Interior Department to suspend new oil and gas leases on federal lands and waters, a move to de-carbonize the energy system and focus on climate change. Along with this new oil and gas lease moratorium to address the alarming climate crisis, the president ordered a comprehensive review of the existing leasing and permitting practices for the development of fossil fuel. Biden also plans to conserve 30% of U.S. land and 30% of its ocean waters by 2030, double the nation’s offshore wind production besides shifting to an all-electric federal vehicle fleet among other changes to mitigate climate change impacts.

A slew of executive orders is in line with the new administration’s campaign promise to bring about clean energy revolution and environmental justice to the United States. Per the White House statement, "These executive orders follow through on President Biden's promise to take aggressive action to tackle climate change".  

Recently, Biden rejoined the Paris Climate Agreement from which the Trump regime had withdrawn the US participation. Per the terms of the deal, the country had agreed to reduce its climate pollution by 26-28% from the 2005 levels within 2025. The president also revoked the permit for TC Energy Corporation’s TRP multi-billion dollar Keystone XL pipeline project that would have transported crude from the oil sands region of Canada to the US markets. This currently Zacks Rank #3 (Hold) company’s 1,947-kilometer conduit is designed to carry 830,000 barrels of oil export per day from Alberta to Nebraska. About 200 kilometers of the pipeline is already installed.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conclusion

The coronavirus pandemic has indelibly affected the global energy sector so far. The industry and local officials opposed Biden’s move and opine that federal leasing bans will dent employment opportunities and ramp down output on lands and waters. Anne Bradbury, president, American Exploration and Production Council, reckons that “penalizing the oil and gas industry kills good-paying American jobs, hurts our already struggling economy, makes our country more reliant on foreign energy sources, and impacts those who rely on affordable and reliable energy”.

Operations in the federal areas account for roughly 10% of the U.S. crude and natural gas supply. Although the same generates billions of dollars in royalties and revenues for local and state economies, it is also to be blamed for one fourth of the nation’s total greenhouse gas emissions.

It is not clear as to when the current halt on leasing will be lifted. A permanent bar on leasing will invite lawsuits. Also, the prohibition will devastate the economic activity and cut government budgets. Many believe that the moratorium is just the initial move toward achieving a much bigger agenda to end drilling on federal land. The leasing suspension could also present a political dilemma for Biden in New Mexico where federal production boomed in the recent years.  

In short, while the eco-friendly policies of Biden are welcomed by environmentalists, his focus on slashing US contribution to global warming could jeopardize the recent recovery in oil prices and put the oil and natural gas industry under increased scrutiny.

As of now, the energy firms are putting on a brave face before the president’s executive order claiming that they have adequate permits in stockpile to last for years. Even management at Devon Energy DVN, one of the top producers on federal land, confirms that the company has around four years of drilling permits in hand. 

Meanwhile, the benefits of clean energy systems have been known for quite some time. Thanks to mounted pressure from investors, supermajors like TOTAL S.A. TOT, Royal Dutch Shell RDS.A, Equinor ASA EQNR, BP plc BP, ExxonMobil XOM and Chevron CVX have long been escalating investments and expanding their renewable foothold. In fact, the ongoing turmoil in the oil market presents a global opportunity to accelerate the transition to alternative fuels.

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