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Russia-Ukraine Conflict Causes Fallout for Energy Sector; Federal Lands Drilling Halted Again

Tim Tarpley, SVP Government Affairs & Counsel

Analysis by Energy Workforce SVP Government Affairs & Counsel Tim Tarpley

On Tuesday, Russian President Vladimir Putin ordered Russian troops to cross over into eastern Ukraine under the apparent guise of a “peacekeeping” mission. The move was announced during a long, often rambling, speech by the Russian President where he questioned the validity of Ukraine’s status as an internationally recognized country, among other demands and threats of potential further aggression. Speculation is widespread that this move could be the first part of a much larger incursion of Russian forces into Ukrainian territory. The fallout from this move has already had a tremendous effect on worldwide energy markets, and we can expect significant fallout to have multiple implications for our sector for many months to come.

Shortly after this move, Germany announced that it would take a regulatory step to block final certification of the Nord Stream 2 pipeline.  “With regard to the latest developments, we need to reassess the situation also with regard to Nord Stream 2. It sounds very technocratic, but it is the necessary administrative step in order to stop certification of the pipeline,” Chancellor Olaf Scholz said in Berlin.

The 750-mile pipeline was completed in September but has not yet received final certification from the relevant German authorities. Without this final certification, the pipeline will not be able deliver gas into Germany. If it were to become fully operational, Nord Stream 2 could deliver 55 billion cubic meters of gas per year, which is more than 50% of Germany’s annual usage. This is incredibly significant for Germany, as the country has chosen to phase out nuclear power generation and is extremely reliant on natural gas for heating, power generation and to drive the German industrial economy.  

In response, natural gas prices in Europe are up around 10% and oil futures are trading over $100. Further U.S. sanctions could push markets even higher, although the first round did not include direct energy related sanctions. A further round is possible however, depending on whether or not there is further escalation on the Russian side. All of this uncertainty will surely create an opportunity for the prospect of increasing U.S. LNG exports to the European Union in order to provide an alternative to Russian gas. Even if Russian forces halt at their current location and do not cross the line of demarcation, energy security will continue to be a serious concern. 

Biden Administration Hits the Brakes on Oil & Gas Drilling on Federal Lands

After a series of legal victories, the industry appears to have been pushed back a few yards as the Biden Administration has once again halted new leases and permits for federal oil and gas drilling. This comes in response to a judge blocking the Administration from using a metric that estimates the societal cost of carbon emissions.

Earlier this month, U.S. District Judge James Cain of the Western District of Louisiana issued an injunction preventing the Biden Administration from using the social cost of carbon formula in decisions around oil and gas drilling on public land, or in rules governing fossil fuel emissions. The ruling has consequences for a range of Biden Administration actions on climate change, with the Interior Department’s federal oil and gas leasing program perhaps being the most significant. 

In an appeal filed by government attorneys on February 19, the Biden Administration argued Cain’s injunction left them with no choice but to institute a pause on all projects where the Administration was using this calculation. 

Shortly after the ruling, the Interior Department issued a statement making it clear that the decision would delay any upcoming lease sales. The Interior Department has assessed program components that incorporate the interim guidance on social cost of carbon analysis from the Interagency Working Group, and delays are expected in permitting and leasing for the oil and gas programs. The Department continues to move forward with reforms to address the significant shortcomings in the nation’s onshore and offshore oil and gas programs.”  

Where does this all leave the U.S. energy industry that relies on these leases for future production? With increasing energy demand coming from all over the world, now is the absolute worst time for our country to be taking available energy off the table. It will be key for elected officials on both sides of the aisle to put pressure on the Department of Interior and the Administration to quickly remedy any potential defects in the analysis for the lease sales and to expeditiously hold new lease sales as soon as possible. The Council will continue to work this issue to ensure that Americans can access this valuable resource. 

If you would like to get involved with the Council’s advocacy efforts or the Government Affairs Committee, contact SVP Government Affairs Tim Tarpley.

Tim Tarpley, SVP Government Affairs & Counsel, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.


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