Courts revoking permits for oil and gas projects creates chilling effect on investors, experts say

Two recent court decisions could have far-reaching impacts on oil and gas projects.

The Sierra Club, the Center for Biological Diversity, and other anti-fossil fuel groups recently sued the National Marine Fisheries Service, claiming the agency’s “biological opinion” failed to properly assess the risks that offshore oil and gas drilling poses to endangered species. 

Last month, U.S. District Judge Deborah Boardman ruled in favor of the plaintiffs.

Typically, according to the Wall Street Journal editorial board, when the courts find issues with permits, they remand environmental assessments to the permitting agencies for revision. However, Boardman, who was appointed by President Joe Biden, vacated the assessment entirely. This means that new permits and leases for drilling canot be issued until a new biological opinion is published. The decision may also void existing ones.

Elmer Peter Danenberger, who authors the blog “Bud’s Offshore Energy,” the ruling could have an unprecedented impact on the offshore oil industry.

“The biological opinion process will likely be lengthy given the political considerations in an election year and the prospects for related litigation,” he wrote.

Offshore oil production in the Gulf of Mexico accounts for 14% of the total oil production in the U.S., and the industry has had a rough few years under the Biden administration. 

Production in the Gulf has remained unchanged for the past five consecutive months, which Danenberger said is the flattest production line he could find looking at data from the U.S. Energy Information Administration.

Andy McConn, director of commercial intelligence at Enverus, testified at a House Oversight and Accountability subcommittee field hearing in Texas in April. 

He said that Enverus' forecasts that, with the current slate of approved projects, the Gulf region can keep oil production near flat for only about two years, and exploration drilling, which is needed to replenish discoveries and maintain growth, has been declining at an annual rate of 14% since 2014.

The Sierra Club was also among the plaintiffs who sued the Federal Energy Regulatory Commission, known as FERC, over a permit that allowed the construction of the Rio Grande LNG project, a liquified natural gas (LNG) export terminal in Brownville, Texas. The lawsuit argued that FERC had not considered the “environmental justice” and greenhouse gas emissions impacts of the project.

On Aug. 6, a D.C. Circuit Court agreed and vacated the FERC approval, which the Sierra Club claims was the first time a court has voided one of the commission’s approvals. The $18 billion project has been under construction for more than a year.

Energy analyst David Blackmon, who publishes his work on his “Energy Absurdities” Substack, told Just the News that the court’s decision could have far-reaching implications. 

Investors in multi-billion dollar projects that get the green light from appropriate agencies have no assurance that their project has been officially approved. Blackmon said that NextDecade, the company behind the project, will likely appeal to the Supreme Court. The company has filed a request to extend the deadline for a rehearing.

“The problem for the industry is sourcing capital. Who's going to want to invest $18 billion in a project when permits that are duly issued by the regulatory agency can just be willy-nilly reversed by the courts on some novel interpretation of another statute?” Blackmon asked.

The Wall Street Journal editorial board argued that it takes several years to obtain permits for energy projects, and these recent decisions signal to investors that their approvals can be revoked at any time. The board said Congress should seek permitting reforms to limit abuses of the legal system.

Danenberger also said Boardman’s decision to vacate the NMFS assessment could impact Biden’s goal of building 30 gigawatts of offshore wind by 2030. 

A provision in the Inflation Reduction Act prohibits the Interior Department from issuing leases for offshore wind development unless an offshore oil and gas lease sale has been held in the prior year. That would be on Dec. 20, 2024, which is the effective date of Boardman’s ruling.

The irony is that the Sierra Club fervently supports offshore wind development. When a blade broke off a turbine in the Vineyard Wind project off the shores of Martha’s Vineyard in July, scattering fiberglass, foam and epoxy across pristine beaches, the Sierra Club appeared primarily concerned with how it would impact public perceptions of offshore wind instead of the environmental impact. 

“Now we must all work to ensure that the failure of a single turbine blade does not adversely impact the emergence of offshore wind as a critical solution for reducing dependence on fossil fuels and addressing the climate crisis,” Nancy Pyne, Sierra Club senior adviser for offshore wind, said in a statement.

Blackmon, however, said that if Boardman’s ruling gets in the way of the Biden administration’s offshore wind goals – or possibly a Harris-Walz administration after November – the provision in the Inflation Reduction Act will just be ignored.

“This administration has consistently ignored the provisions of the Mineral lands Leasing Act, which requires them to hold lease sales on a regular basis," he said. "It's basically a scofflaw administration. So they'll just ignore whatever parts of the law they find to be inconvenient. And I think we can be sure that a Kamala Harris administration would just continue that."