Environmentalists and many others committed to the energy transition were up in arms at the Biden Administration’s approval in March 2023 of the controversial $8bn (£6bn) drilling project on Alaska’s North Slope. The decision drew fierce opposition from environmentalists and Native Alaskan communities, as well as other vocal parties round the world, who argued that it will accelerate climate change and undermine food security.

The ConocoPhillips Willow project is estimated to be one of the largest of its kind in the US, involving drilling for oil and gas at three sites for a few decades on the 8mn-hectare National Petroleum Reserve, which is owned by the Federal government and is ‘the largest tract of undisturbed public land in the US’, according to The Guardian.

Strategically, these fields are estimated to be able to produce up to 576mn barrels of oil over 30 years, with a peak of 180,000 b/d, as an extension of the Alpine field, which is currently producing about 37,000 b/d of oil.

The US Department of the Interior’s Bureau of Land Management claimed that the approval ‘strikes a balance’ by allowing ConocoPhillips to use its long-standing leases in the Arctic – as Alaska’s largest oil producer – while also limiting drilling to three sites rather than five with a larger footprint and more surface infrastructure, which the company had pushed for.

For its part, ConocoPhillips insists that ‘the project has undergone multiple years of rigorous regulatory review and environmental analysis, with extensive public involvement’.

However, the Willow project approval has met with a storm of protest, from environmental campaigners and Native Alaskan representatives, who said it fatally undermines Biden’s climate agenda. The development is anticipated to create about 260mn tonnes of greenhouse gases over its lifespan – equivalent to creating about 70 new coal-fired power plants. The decision was said to avoid the threat of significant legal action if the development hadn’t been given the go-ahead by the US Administration.

Mixed messages 
Interestingly, there were ‘mixed messages’, as the US Interior Department gave approval that same month (March 2023) to a ban on any future oil and gas drilling in the US Arctic Ocean, as well as promising to protect millions of acres of Alaska land deemed to be sensitive to Native communities.

Opposition to the Willow project is understood to have included more than a million letters to the White House, a Change.org petition with over 3mn signatories, and a viral #stopwillow campaign on the TikTok social media platform.

Indeed, approval of the project is likely to face a barrage of legal challenges.

Former US Vice President Al Gore commented to press reporters that projects of its kind are ‘recklessly irresponsible’ and that allowing it would cause ‘climate chaos’.

Earlier on – the Keystone line cancellation 
The Alaskan project approval also comes as a surprise given President Biden’s cancellation of the Keystone XL pipeline soon after his election. The pipeline was scheduled to carry 830,000 b/d of ‘dirty’ Alberta oil sands crude to Nebraska, and had been delayed for the past 12 years due to opposition from US landowners, Native American tribes and environmentalists.

Keystone XL was halted by owner TC Energy after Biden revoked a key permit needed for the US stretch of the 1,930 km project. The $9bn oil pipeline had become a symbol of the fight by climate change activists and a ‘flashpoint’ in US–Canada relations, when it was officially cancelled in June 2021. The Keystone XL pipeline was initially proposed in 2008 to bring oil from Canada’s Western tar sands to US refiners. Opponents had fought its construction for years, saying it was ‘unnecessary’ and would hamper the US transition to cleaner fuels, such as renewables.

Alberta Premier Jason Kenney expressed ‘disappointment and frustration’ with the circumstances surrounding the Keystone XL project, including the cancellation of the presidential permit for the pipeline’s border crossing. Former US President Donald Trump had approved a permit for the line in 2017, although it continued to face legal challenges that hampered construction.

The landmark project cancellation came as plans for other North American oil pipelines, including Dakota Access and Enbridge Line 3, faced continued opposition from environmental groups.

IRA legislation spurs renewables 
Launch of the Biden-Harris Administration’s multi-billion Inflation Reduction Act (IRA) in December 2022 was lauded by the US Department of Energy as ‘the single largest investment in climate and energy in American history’. Designed to ‘tackle the climate crisis, advancing environmental justice and securing America’s position as a world leader in domestic clean energy manufacturing’, the Act aims to advance the Biden Administration’s climate goals, including a net zero economy by 2050.

With its massively impressive energy and climate provisions, the IRA appropriated about $11.7bn for the Loan Programs Office and added a new loan programme, the Energy Infrastructure Reinvestment Program (section 1706), to help ‘retool, repower, repurpose or replace energy infrastructure that has ceased operations or to improve the efficiency of energy infrastructure that is currently operating’.

The new loan authority is designed to stimulate all currently eligible Title 17 Innovative Clean Energy technology categories, including nuclear and fossil energy – also expanding support for projects involving minerals processing, manufacturing and recycling.

A raft of potential projects include repurposing shuttered fossil energy facilities for clean energy production; retooling infrastructure from power plants that have ceased operations for new clean energy uses; or updating operating energy infrastructure with emissions control technologies, including carbon, capture, utilisation and storage (CCUS); along with projects utilising innovative technology for sequestering greenhouse gas emissions.

The legislation also removed the $25bn cap on advanced technology vehicles manufacturing loans for development of electric cars, electric, hydrogen cell-fuelled and e-fuel based medium and heavy-duty vehicles, locomotives, maritime vessels, aviation and hyperloop.

European response 
Needless to say, there was uproar by European manufacturers of electric vehicles (EVs) and the like, who claimed the multi-billion dollar IRA was protectionist. UK Chancellor of the Exchequer Jeremy Hunt claimed that Biden’s IRA was ‘massively distortive’... ‘opening some distortive global subsidy race’. Hunt was concerned that US offers of billions of dollars in subsidies and tax credits to incentivise take-up of EVs in the US and build up green infrastructure would siphon-off investment in development of clean tech and new renewable transport systems from the UK and continental Europe.

Concerns about IRA protectionist policy were also echoed by the European Commission.

Biden’s about turn – and Gulf of Mexico development

Then came the surprise volte face by Biden this spring, with approval for development of the Willow project in Alaska – adding flames to the fossil fuel versus renewables debate. This was followed by encouragement of Gulf of Mexico deepwater oil field developments, which are expected to provide 7mn b/d out of 24mn b/d new US supply sources that are needed by 2040, according to McKinsey’s Global Energy Perspective’s current trajectory scenario.

According to McKinsey, the Gulf of Mexico could supply 1–2mn b/d over this period, with ‘important implications for the US economy and global emissions’.

As one of the world’s most prolific oil-producing regions, the Gulf of Mexico currently produces 1.7mn b/d, some 15% of US crude oil production. What’s more, this basin is a significant source of US government revenue and employment, ‘garnering more than $22bn through royalties and lease-sale proceeds over the past five years’, according to McKinsey.

Oil producers claim that the basin is one of the lowest emitting oil sources on a per-barrel basis. However, that does little to assuage those parties, who, like Fatih Birol, Executive Director of the International Energy Agency, suggest that no new oil or gas fields should be developed, in order to meet the Paris Agreement goal of net zero emissions by 2050 and limit post-industrial temperature rise to 1.5°C.

Phase 2 of the Mad Dog field development in the Gulf of Mexico is underway by BP 
Photo: BP

McKinsey suggests that the IRA Act ‘doubles down on the Gulf of Mexico’s role [as a low-carbon basin] in the energy transition – coupling with the development of offshore wind energy through lease sales (with a target of 30 GW of offshore wind capacity by 2030) and oil and gas lease sales, as well as expanding US government incentives for carbon capture and storage (CCS) activities’.

The Bill also requires three additional lease sales through 2023 – despite Biden’s vocal support of renewables. Notably, McKinsey points out that ‘there is still no clarity on lease activity beyond 2023 or on policies regarding seismic data collection, which is needed for oil exploration and continued resource access’. Indeed, the analyst maintains that ‘the longer-term outlook for continued development is therefore uncertain, as is the relative contribution of the Gulf of Mexico’s low-carbon oil to global supplies’.

Summing up, McKinsey suggests that current low investment by the oil and gas sector could actually hinder net-zero goals. ‘In the extreme case, an absence of continued resource access and development in the Gulf of Mexico would result in less of the lower-carbon production needed during the energy transition,’ it says.

According to McKinsey’s Global Energy Perspective model, in the absence of development beyond currently sanctioned projects, production in this region could be 0.8mn b/d lower by 2040 – or 4bn barrels of cumulative production loss in this period. ‘This supply reduction would have to be offset by alternative sources to meet global demand, which could hinder net zero goals significantly,’ it notes.

‘In the extreme case, an absence of continued resource access and development in the Gulf of Mexico would result in less of the lower-carbon production needed during the energy transition.’ – McKinsey’s Global Energy Perspective 2023

Reduced Gulf of Mexico supply (the world’s most mature deepwater basin) would be offset by production increases from other sources, such as deepwater basins, shale and OPEC. Based on the higher emissions per barrel of this new supply, global emissions could increase by 50–100mn tonnes of CO₂e through 2040. Moreover, a shift in production from the Gulf of Mexico to other basins could result in the loss of more than 100,000 jobs and damage the US economy with an estimated $30–40bn reduction in Federal government revenue from reduced royalties and lease sale proceeds.

Added to which, there is the chance that former President Donald Trump may return to the Oval Office after the election and reverse commitment to the Paris Agreement that Biden re-introduced.

Food for thought, indeed.