New Offshore Oil & Gas Drilling Ban: Implications For Clean H2 – CleanTechnica

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This can’t be a coincidence. Just days after oil and gas stakeholders applauded the US Treasury Department for supporting natural gas in the domestic hydrogen supply chain, the White House pulled the rug out from under them with a newly announced offshore drilling ban. To the extent that the drilling ban puts the squeeze on the domestic supply of natural gas, it will help support the growth of green hydrogen and other more sustainable hydrogen pathways.

This Ban On Offshore Oil & Gas Drilling Is Permanent, Trump Or No Trump

There’s a lot to unpack here, so let’s start with the drilling ban first. Bloomberg reporter Jennifer A. Dlouhy was among those getting the scoop last week, citing anonymous sources.

“Biden is set within days to issue the executive order barring the sale of new drilling rights in portions of the country’s outer continental shelf, according to people familiar with the effort who asked not to be named because the decision isn’t public,” Dlouhy wrote on January 2.

Dlouhy emphasized that Trump cannot simply undo the Biden EO with a countermanding order. The Biden EO is similar to other permanent protective orders issued by Republican and Democratic presidents alike under the authority of the 1953 Outer Continental Shelf Lands Act, including Dwight Eisenhower and George H.W. Bush.

“Trump, himself, has actually used the same statute to block oil and gas leasing in waters near Florida and along the Southeast US in a bid to appeal to voters in the final weeks of the 2020 presidential campaign,” she pointed out.

The New Offshore Drilling Ban Protects Other Economic Stakeholders

Of course, anything is possible under a unified Trump administration. Just because the courts have never before invalidated a protective EO under the Outer Continental Shelf Lands Act doesn’t mean that they won’t. For the time being, though, environmental organizations are celebrating and so is the White House.

“Today President Biden will take action to protect the entire U.S. East coast, the eastern Gulf of Mexico, the Pacific off the coasts of Washington, Oregon, and California, and additional portions of the Northern Bering Sea in Alaska from future oil and natural gas leasing,” the White House announced this morning.

“In protecting more than 625 million acres of the U.S. ocean from offshore drilling, President Biden has determined that the environmental and economic risks and harms that would result from drilling in these areas outweigh their limited fossil fuel resource potential,” the White House continued.

The White House further emphasized that coastal counties account for a significant proportion of the US population, at about 40%. That makes protecting these counties from risks related to offshore drilling a matter of national economic interest, not just a coastal one. “With these withdrawals, President Biden is protecting coastal communities, marine ecosystems, and local economies – including fishing, recreation, and tourism – from oil spills and other impacts of offshore drilling,” the White House emphasized.

Drilling Ban Levels The Sustainable Hydrogen Playing Field

As noted by the White House, the areas covered by the new drilling ban only account for a “limited” amount of domestic oil and gas reserves. Still, even small variations in the availability of fossil energy can impact prices. The Gulf of Mexico, for example, currently accounts for about 5% of total US gas production in federal offshore waters. All else being equal, the drilling ban will shave down gas production in the Gulf in future years. The difference will have to be made up elsewhere or costs will rise.

That’s where the hydrogen angle comes in. Hydrogen has crossed the CleanTechnica radar as an input for zero emission fuel cells and as a carbon-free combustible fuel, but it is also plays a central role in key industries including refining, metallurgy, and food systems.

To date, the US domestic hydrogen supply chain has depended almost entirely on extracting hydrogen from natural gas. Diversifying that supply chain has become a matter of national energy policy, most visibly expressed by the newly formed Regional Clean Hydrogen Hubs program. The program was seeded with funding from the 2021 Bipartisan Infrastructure Law and is administered by the Department of Energy (see much more Hydrogen Hubs background here).

Alternative supply chains are available, particularly in the area of water electrolysis. Biomass, biogas, and other sustainable sources are also emerging. These alternative pathways are expensive, and they face significant competition from low-cost natural gas. To the extent that the drilling ban impacts the cost and availability of the domestic natural gas supply, the playing field will be leveled.

What Will Happen To The Clean Hydrogen Hubs Now?

Moving along to last week’s announcement from the US Department of the Treasury, the agency issued a long-awaited Final Rule on the production tax credit for “clean” hydrogen described in section 45V of the Inflation Reduction Act of 2022. The tax credit covers natural gas under the definition of “clean,” but only if carbon capture systems are included. Those things are expensive, and they have the potential to flip the script in favor of alternative supply chains.

In its new rule, the Treasury Department did not remove the carbon capture requirement. Nevertheless, the American Petroleum Association greeted the news with good cheer. “This framework offers an opportunity for natural gas, when paired with carbon capture and storage, to compete more fairly in new markets and meet growing demand for affordable, reliable, lower-carbon energy,” the organization stated on January 3.

API was singing a different tune earlier today in response to the drilling ban.

“Congress and the incoming administration should fully leverage the nation’s vast offshore resources as a critical source of affordable energy, government revenue and stability around the world. We urge policymakers to use every tool at their disposal to reverse this politically motivated decision and restore a pro-American energy approach to federal leasing,” API stated.

Good luck with that. If anything, the new drilling ban will provide Trump and his allies in government with a bright, shiny object to chase while the real work of decarbonization continues.

For that matter, in terms of vast offshore resources the US offshore wind industry is in a better position to grease the wheels of the US economy, without the risks involved in offshore oil and gas drilling. In addition to generating zero-carbon electricity for running water electrolysis systems, offshore wind resources can help fill the surging demand from data centers and elsewhere — if only offshore drillers and their allies in government would step aside, that is.

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Image (cropped): The new offshore drilling ban could help the US Department of Energy achieve its mission of diversifying the US hydrogen supply chain beyond natural gas (courtesy of US Department of Energy).