Impact of Halting New Lease Sales in the Gulf of Mexico with New Transportation Policies

OnLocation was asked by the Natural Resources Defense Council (NRDC) to examine the impact of new and updated transportation policies and stopping new offshore oil and gas leasing in the Gulf of Mexico (GOM) after May 2021 (i.e., no Lease Sale 257, 259, and 261), while continuing all leases prior to May 2021. The analysis assumed that the remainder of onshore production continued to be developed per “current laws and regulations.” The updated transportation policies include the Advanced Clean Trucks (ACT) rule for medium- and heavy-duty vehicles, proposed EPA greenhouse gas (GHG) standards for light- medium- and heavy-duty vehicles for model years 2027 and later, and higher assumed qualifications for Inflation Reduction Act (IRA) tax credit provisions for the transportation sector. The effects of the leasing moratorium alone and in combination with the updated transportation policies are described below.

For the analysis, OnLocation created a version of the U.S. Energy Information Administration’s Annual Energy Outlook 2023 (AEO2023) National Energy Modeling System, here referred to as “NRDC-NEMS.” The results of the NRDC-NEMS analysis were compared to the AEO2023 Reference case for the years 2020 to 2050 for the following metrics: 1) Production, demand, and prices of crude oil and natural gas, 2) Prices of gasoline and diesel, 3) Imports and exports of oil and gas, and 4) Emissions of carbon dioxide (CO₂) and methane (CH₄).

Key highlights from comparing the results of ‘No new offshore leasing’ (NNL scenario) in the GOM with the AEO2023 Reference case are:

• Crude oil and natural gas demands in NNL are slightly lower than the projected demands in the AEO2023 Reference case (~0.7% by 2050).
• Domestic U.S. production of natural gas starts to decrease around 2040 and is 0.5% lower in 2050 than projected natural gas production in the AEO2023 Reference case.
• Domestic U.S. production of crude oil starts to decrease in 2025 and is 3% lower in 2050 than projected oil production in the Reference case.
• Crude oil and natural gas production from the GOM are 53% and 80% lower respectively in 2050 than the Reference case.
• Combined oil, petroleum products and other liquids, and natural gas imports are higher than the Reference case after 2025 (up to 4.5% by 2050) due to lower domestic production.
• Total oil and gas exports remain roughly the same as the Reference case through 2050.
• Oil and natural gas prices increase slightly by $0.6/barrel and $0.2/Mcf by 2050 relative to the Reference case.
• Gasoline and diesel prices increase over time to $3.33/gallon and $3.95/gallon respectively in 2050 in the ‘No new leasing’ scenario, which is 2 cents/gallon higher than those prices in the Reference case in 2050.
• From 2020 through 2050 and relative to the Reference case, the ‘No new leasing’ scenario results in cumulative CO₂ and CH₄ reductions of 290 MMT CO₂ eq.* from oil and gas production, distribution, and consumption in the U.S.

Key highlights from comparing the results of the ‘No new offshore leasing in the GOM & transportation policy’ scenario with the AEO2023 Reference case are:

• In response to higher assumed qualifications for IRA tax credits for electric vehicles (EVs), the ACT rule, and proposed EPA GHG standards for light-, medium-, and heavy-duty vehicles in the transportation sector, total U.S. petroleum consumption is up to 19% lower than the Reference case by 2050. The market penetration of EVs and electricity generation from natural gas increases. This results in increasing natural gas demand over time (by 7% in 2050).
• Domestic U.S. production of natural gas begins to increase in 2025 and is 4.5% higher than the Reference case in 2050.
• Domestic U.S. production of crude oil starts to decrease in 2025 and is 6.5% lower in 2050 than projected oil production in the AEO2023 Reference case.
• Crude oil and natural gas production from the GOM are 53% and 80% lower respectively in 2050 than the Reference case. The decrease in oil production from the GOM was caused by the leasing moratorium itself and not due to reductions in oil demands.
• Significant reductions in domestic oil demands due to high EV deployment result in a 95% increase in crude oil exports relative to the Reference case by 2050.
• Oil prices decrease by $11/barrel due to lower oil demands in the transportation sector and estimated global market impacts and natural gas prices increase slightly ($0.2/Mcf) by 2050 relative to the Reference case.
• The gasoline price is $2/gallon in 2050 and $1.35 /gallon lower than the Reference case due to higher EV adoption and significantly lower gasoline consumption in the transportation sector. This effect may be overstated in NRDC23-NEMS, as greater flexibility in product mix and exports/imports of refined products may exist than is portrayed in the model.
• From 2020 through 2050, the cumulative CO₂ and CH₄ emissions from oil and gas supply chain and consumption in the U.S. are 6150 MMT CO₂ eq.* lower than the Reference case.

*The following sources of CO₂ and CH₄ emissions are assumed to occur outside of the U.S. and are excluded from this analysis: Emissions from the exploration and production of imported oil and gas, processing of imported gas, combustion of exported oil and gas (emissions from combustion of imported oil and gas are included), oil refining of exported crude oil (emissions from imported crude oil are included), and distribution and post-meter leakage of exported gas (emissions from imported gas are included).