GULF COAST OFFSHORE WIND SPURS ENERGY INNOVATION

In the transition to cleaner and more secure domestic energy sources, offshore wind presents a significant opportunity for local economic growth and job creation. Notably, on June 8, 2021, the U.S. Department of the Interior (DOI) announced its intent to assess potential opportunities to advance clean energy development on the Gulf of Mexico Outer Continental Shelf. This article discusses opportunities and challenges for offshore wind in the U.S., the Biden administration’s goals, and a comparison of offshore oil & gas leases vs offshore wind leases.

Offshore Wind in the United States

Offshore wind has the significant advantage of being located close to population centers along the coast of the United States. Locating offshore wind farms near populated or industrial areas can help reduce the amount of energy sourced from non-renewable sources. Offshore wind serves as a compelling alternative to long-distance transmission of onshore electricity generation.^[1]

Data suggests that over 2,000 gigawatts could be accessed in state and federal waters along the coasts of the United States and the Great Lakes. Though only a portion of the technical resource potential will realistically be developed, “the magnitude (approximately two times the combined generating capacity of all U.S. electric power plants) represents a substantial opportunity to generate electricity near coastal high-density population centers.”^[2]

The National Renewable Energy Laboratory (NREL) evaluated multiple clean energy technologies for resource adequacy, technology readiness and cost competitiveness and found that offshore wind in the Gulf of Mexico has the highest technical resource potential—508 gigawatts.^[3] In particular, significant potential lies off the coasts of Texas and Louisiana. “The Gulf Coast States comprise 32 percent of the shallow-water offshore wind potential in the United States, with the highest potential wind resources off the Texas and Louisiana coasts.”^[4] It is estimated that, “if current cost trends observed in Europe and the northeast United States …continue, the economics of offshore wind in the Gulf of Mexico over the next decade will approach positive net values in…Texas and Louisiana.”^[5]

Offshore wind technical resource potential in the Gulf of Mexico^[6]

Biden Administration’s Offshore Wind Goals and Upcoming Renewable Lease Sales

On January 27, 2021, President Biden signed Executive Order 14008, “Tackling the Climate Crisis at Home and Abroad.” The Executive Order provides for a review of the siting and permitting processes in offshore waters to increase renewable energy production in those waters.^[7] The Executive Order commits to expand opportunities for the offshore wind industry and double offshore wind in the United States to 30 gigawatts by 2030.^[8]

The Executive Order directs the Secretary of the Interior to halt new oil and gas leasing on public lands and offshore waters pending completion of a review of federal oil and gas activities, including climate and other related impacts.^[9] In response, on February 12, 2021, the Bureau of Ocean Energy Management (BOEM) announced its rescission of the Record of Decision for the Gulf of Mexico Outer Continental Shelf Oil and Gas Lease Sale 257 (Lease Sale 257). Lease Sale 257 was to be the eighth offshore sale pursuant to the 2017-2022 Outer Continental Shelf Oil and Gas Lease Program. The decision suspends planning for the proposed sale that was expected to occur in March 2021.^[10]

Following the DOI’s announcement that it will be assessing opportunities to advance clean energy development on the Gulf of Mexico Outer Continental Shelf, on June 11, 2021, it issued a Request For Interest (RFI) commencing a 45-day public comment period to “solicit indications of competitive interest and additional information on potential environmental consequences and other uses of the proposed area.”^[11] The RFI is focused on the Western and Central Planning Areas of the Gulf of Mexico offshore, the states of Louisiana, Texas, Mississippi, and Alabama, and the primary focus of the RFI is on wind energy development.^[12] The deadline for submissions related to the RFI is July 26, 2021.^[13] Following the public comment period, BOEM will review the information received from the RFI to determine its path forward with respect to the renewable energy leasing process in the Gulf of Mexico. Depending on the feedback received, BOEM will either proceed with a competitive lease sale or issue a non-competitive lease.^[14] As part of the determination process, BOEM held its first Gulf of Mexico Intergovernmental Renewable Energy Task Force meeting on June 15, 2021. The task force includes members representing federal, Tribal, state and local governments from Louisiana, Texas, Mississippi and Alabama.^[15] The Task force is intended to bring together members to “coordinate and share information on proposed offshore renewable energy-related activities in federal waters in the Gulf of Mexico.”^[16]

Offshore Oil and Gas Lease v. Offshore Wind Lease

Both the BOEM Oil and Gas Lease of Submerged Lands Under the Outer Continental Shelf Lands Act (Offshore O&G Lease) and the BOEM Commercial Lease of Submerged Lands for Renewable Energy Development on the Outer Continental Shelf (Offshore Wind Lease) are issued pursuant to the Outer Continental Shelf Act. However, the Offshore O&G Lease and Offshore Wind Lease differ in various ways, as described below:^[17]

• Rights of Lessee. The Offshore O&G Lease provides that the lessee has the exclusive right to explore a defined area of the Outer Continental Shelf for oil or gas, including the nonexclusive right to explore, build offshore platforms and drill water wells. The Offshore Wind Lease does not, by itself, authorize any activity within the leased area. Rather, it provides that the lessee may submit to the government a Site Assessment Plan and Construction and Operations Plan identifying the activities to be conducted (including any offshore project).
• Term. Offshore O&G Leases continue from the effective date of the lease for the primary term and thereafter, so long as oil or gas is produced from the leased area in paying quantities, or drilling or well reworking operations are conducted. In contrast, Offshore Wind Leases continue for a fixed term that can be extended or modified in accordance with 30 CFR 585.
• Environmental and Safety Considerations. Pursuant to the Offshore O&G Lease, the lessee must maintain all operations within the leased area in compliance with regulations or orders intended to protect the environment and the Outer Continental Shelf. The lessee must also allow access at the site of any operation, subject to safety regulations, to any authorized federal inspector and provide any documents that are pertinent to safety or environmental protection. Additionally, when an oil rig is decommissioned, the lessee must mitigate any environmental impact. The Offshore Wind lease provides that the government retains the right to disapprove a Site Assessment Plan or Construction and Operations Plan based on the determination that the proposed activities would have unacceptable environmental consequences. Further, the lessee may not carry out any activities in a manner that would cause any undue harm or damage to the environment or that would adversely affect sites or objects of historical, cultural or archaeological significance.
• Royalties and Payments. For Offshore O&G Leases, all oil and gas (except helium) are subject to a royalty. Any helium produced remains the property of the United States. If oil or gas is lost due to the lessee’s negligence, the lessee is liable for those royalty payments. For an Offshore Wind Lease, unless otherwise specified in the lease, the lessee must make rent payments and operating fee payments in accordance with 30 CFR Part 585. Rent for a commercial lease is $3 per acre per year, with additional rent due (i) at the beginning of each subsequent 1-year period for the entire lease area until the facility begins to generate commercially and (ii) for any project easements.^[18] After a lease begins commercial generation of electricity, the lessee must pay annual operating fees as determined by BOEM in accordance with the formula in 30 CFR 585.506.^[19]
• Conduct of Activities. The Offshore O&G Lease allows for directional drilling in areas adjacent to the leased area. In contrast, the Offshore Wind Lease provides that the lessee must conduct all activities in the leased area and project easements in accordance with the Site Assessment Plan or Construction and Operations Plan.
• Disposition of Production. Pursuant to the Offshore O&G Lease, the government may purchase up to 16 ²/₃ percent by volume of the oil and gas produced at the regulated price or, if there is no regulated price, at the fair market value at the wellhead of the oil and gas saved, removed or sold. In addition, the lessee must offer 20 percent of the crude oil, condensate and natural gas liquids produced on the lease at market value to small or independent refiners as defined in the Emergency Petroleum Allocation Act of 1973. No such equivalent provisions exist in the Offshore Wind Lease.

Challenges in Offshore Wind Development

The barriers to offshore wind development continue to include the mitigation of impacts on the environment, the technical challenges of installation, and the challenges related to grid interconnection.^[20] Environmental surveys, monitoring tools and resources are employed to understand the impact of offshore wind construction on wildlife and marine life. This information can be used to guide energy developers on how to implement sustainable ocean energy projects.^[21] Due to the nature of offshore wind projects, there is an increased risk for corrosion and damage to the offshore wind systems. As such, the systems must be designed to withstand the wear and corrosion that results from exposure to seawater.^[22] Finally, operating changes and equipment upgrades will likely be required to facilitate and integrate offshore wind on a widespread basis.^[23]