U.S. Energy Innovation (Part III: Federal Land Potential)

By Mary Hutzler -- February 8, 2013

“Onshore development on federal lands – which is roughly estimated at 700 million acres of subsurface mineral estate – is extremely limited and is increasingly so. In 2009, for example, the current administration leased fewer onshore acres for energy development than in any preceding year on record.”

“Offshore development on 1.76 billion acres of mineral lands has suffered from a de-facto administration embargo, with lease plans cancelled, moratoria imposed, and cumbersome regulatory activity that serve to discourage exploration.”

“Today, permitting delays by federal regulators have driven the wait to more than 300 days before drilling can begin on federal lands, about twice as long as it took in 2005. By contrast, states like North Dakota are now turning permits in 10 days; Ohio, 14 days; Colorado, 27 days.”

The United States is an energy-rich country with large quantities of U.S. energy resources found on federal lands. The federal government owns 28 percent of the land in the United States, and a majority of the land in the energy-rich western states. [1]

The federal government also controls oil and natural gas leasing on the Outer Continental Shelf (OCS)—the submerged area between land and the deep ocean. Developing oil and natural gas production on federal lands is becoming more difficult and time consuming. As a result, oil production is decreasing in the federally-controlled offshore areas and Alaska, but increasing on state and privately-controlled onshore areas.

Furthermore, the federal government offers very little of its land for energy exploration or production. In fact, the federal government has leased less than 2.2 percent of federal offshore areas [2] and less than 6 percent of federal onshore lands for oil and gas production. [3]

The extent of the government’s energy holdings is little understood. The United States owns roughly 700 million acres of subsurface mineral estate onshore throughout the nation. Additionally, it owns 1.76 billion acres of offshore mineral lands, for a total of 2.46 billion acres.

The U.S. government’s mineral estate acreage holdings therefore are larger than the land masses of all nations on earth except Russia and Canada.

The extent to which this mineral estate has been examined for energy wealth for the benefit of U.S. citizens has been extremely limited and is increasingly so. If additional lands were leased, more domestic energy production, jobs and economic development could be pursued.

History of Government Moratoria

In 2009, the Obama administration leased fewer onshore acres for energy development than in any preceding year on record. [4] But the declining trend did not begin with the Obama administration. For example, President Bush leased less land than President Clinton. [5] The next graph shows the decline in federal lands leased by the Bureau of Land Management since the 1980s. [6]

 

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Part of the reduction in area offered for lease occurred because in 1982, Congress banned the development of oil and natural gas resources on most of the Outer Continental Shelf. America’s OCS encompasses 1.76 billion acres of submerged, taxpayer-owned lands, with over 97 percent of these offshore lands not leased for energy exploration and development. [7]

The Bureau of Ocean Energy Management (BOEM), an agency of the U.S. Department of Interior, estimates that the OCS contains 86 billion barrels of technically recoverable oil (over 12 years of supply at current consumption rates) and 420 trillion cubic feet of technically recoverable natural gas (about 18 years of supply at current consumption rates). [8]

The Congressional prohibition was reinforced by a presidential moratorium instituted in 1990 by President George H. W. Bush. These moratoria made the United States the only developed country in the world that comprehensively banned access to its own offshore energy sources.

The moratoria remained in place until the price of oil rose to more than $145 a barrel in 2008, prompting a public outcry that led President George W. Bush to finally lift the presidential offshore ban. Congress followed by allowing its moratorium to expire on September 30, 2008. It was finally permissible for the United States to move forward with developing its offshore energy resources.

Following the removal of the moratoria, the Department of the Interior issued a plan to lease newly opened offshore areas between 2010 and 2015, but this plan was quickly rescinded by the Obama administration. President Obama proposed opening a few additional offshore areas in March of 2010, [9] but canceled those plans less than a month later, following the Deepwater Horizon accident in the Gulf of Mexico. Instead of offering more areas for energy production, the Obama administration halted all drilling in the Gulf, initially as a six-month moratorium.

Later, the administration claimed to have relaxed the moratorium, but a de facto moratorium remained in place because the administration granted only a handful of the necessary government permits needed for drilling on federal land (including offshore areas). A federal judge eventually held the administration in contempt for their “determined disregard” to take action on drilling permits. [10]

Obama Anti-Development Bias

After a disaster like the Deepwater Horizon, a review is understandable, but the response was considered by many experts as overblown. For example, the drilling moratorium and the subsequent de facto moratorium not only affected deepwater drilling, but also shallow-water drilling in the Gulf of Mexico. Yet shallow-water operators have a very impressive safety record. Over the last 15 years, 11,070 wells were drilled in shallow water and less than 15 barrels of oil were spilled. [11]

Since March 2011, the administration has been slowly issuing deep-water offshore permits for the Gulf of Mexico. [12] The administration has also approved a few supplemental plans to applications for deepwater drilling that were originally submitted in the 1980s. But these moves were made too late for the deepwater drilling rigs that had already moved to Brazil, French Guiana, Egypt, and other parts of Africa. [13]

Additionally, the administration’s proposed leasing plan for 2012 through 2015 is the most anemic 5 year OCS leasing plan since the Outer Continental Shelf Leasing Act of 1978 (OCSLA). In sum, the 5 year plan in place through 2017 includes virtually none of those areas removed from the moratoria by Congress and the President in 2008. Barring changes, the OCS moratorium will be 35 years old when it expires at the end of the current OCS lease plan in 2017.

Thus for two generations, the federal government has denied its citizens access to the energy resources they own on their own lands.

Data from the Energy Information Administration (EIA) show that production in the Gulf of Mexico slowed significantly following the moratorium. In 2010, 1.55 million barrels of oil a day was produced in the federal offshore Gulf of Mexico and only 1.32 million barrels a day in 2011. Thus, after the moratorium and permitting difficulties, oil companies produced 15 percent less oil a day in 2011. [14]

In 2012, EIA expects oil production in the federal offshore Gulf of Mexico to drop further to 1.27 million barrels per day before increasing to 1.37 million barrels per day in 2013. Even in 2014, the agency does not expect oil production from the Federal offshore Gulf of Mexico (1.44 million barrels per day) to reach the level of 2010 production. [15]

The large increases in oil production that have occurred in the United States are mainly on private and state lands. The Congressional Research Service (CRS) found that oil production on private and state lands makes up about 70 percent of total U.S. oil production. According to CRS, 96 percent of the increase in oil production between fiscal years 2007 and 2012 came from private and state lands and production there increased 11 percent in fiscal year 2011 from fiscal year 2010 levels.

In contrast, the CRS report found that oil production from the federal onshore mineral estate was a mere 306,000 barrels per day (5.5 percent) out of a total of 5,590,000 barrels produced daily in the United States in fiscal year 2011.. [16]

Total natural gas production on federal and Indian lands has decreased each year since fiscal year 2003, the first fiscal year that EIA provides the information. In FY 2011, production was 4,859 billion cubic feet—a 10-percent decrease from fiscal year 2010, and a 31-percent decrease compared with the fiscal year 2003 level. Offshore natural gas production has been on a consistent downward trend over the last 9 years, falling more than 60 percent. [17]

Non-Federal Land Development, By Contrast

Oil and gas producers prefer to explore and drill on private and state lands because there is a lot less red tape involved and much shorter approval times, which means it is less costly to invest and drill for them on state and private lands than on federal lands.

The states and private land owners have just as much interest in the protection of their lands, but they have found ways to balance environmental protection with economic growth. In any enterprise, time is money, and as it stands now, it takes over 300 days to process a permit to drill on Federal lands onshore, while it takes less than a month to process a permit to drill on private and state lands.

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Oil and gas production projects frequently have very long lead times, unlike some other businesses. We know, for example, the speed with which information technology progresses, and know that most high tech firms would quickly abandon economic commitments constrained by government policies that take a decade or more before deployment.

Multi-billion dollar projects, such as many of the large offshore oil projects, take years to plan and build the necessary infrastructure to bring oil to market. For example, the Thunder Horse field was discovered in the Gulf of Mexico in 1999, but the first barrel of oil was produced in 2008. This long lead time means that decisions made today affect oil production for years in the future.

Alaska

One frequent criticism of the development of the Alaskan National Wildlife Refuge (ANWR), for instance, is that it would take years to start producing oil. In 1995, President Clinton vetoed a bill to permit oil exploration and development in ANWR. If he had signed that bill, oil would be produced in ANWR today, and the Trans Alaskan Pipeline would not be running at about one quarter of its capacity.

Meanwhile, Shell has paid the government over $2.5 billion and spent in excess of $4 billion to explore for oil offshore Alaska, but has yet to receive permits from the government to drill for oil and gas. If more oil is not allowed to be produced soon from Alaska, the Trans Alaskan Pipeline System, one of North America’s most valuable energy assets will be at risk.

The pipeline, which once delivered 2.1 million barrels of oil per day to the West Coast, now has sufficient underutilized capacity to accommodate twice the amount of oil that is currently being produced in North Dakota, the second largest oil producing state in the Union. There is no lack of oil in Alaska or off its coasts; the problem is that government policies stand in the way of additional oil production in Alaska.

Potential Openings

Areas that the federal government could open to oil and gas development include:

· The 10.4 billion barrels of oil and 8.6 trillion cubic feet of natural gas in the Arctic National Wildlife Refuge

· The 86 billion barrels of oil and 420 trillion cubic feet of natural gas in the outer continental shelf of the lower 48 states

· The 896 million barrels of oil and 53 trillion cubic feet of natural gas in the Naval Petroleum Reserve-Alaska

· The 25 billion barrels of oil in the outer continental shelf of Alaska

· The 90 billion barrels of oil and 1,669 trillion cubic feet of natural gas in the geologic provinces north of the Arctic circle

· The 982 billion barrels of oil shale in the Green River Formation in Colorado, Utah, and Wyoming.

These technically recoverable resources total 1,194 billion barrels of oil and 2,150 trillion cubic feet of natural gas that is owned by the federal taxpayer. At today’s prices ($100.00 per barrel of oil and $4.00 per thousand cubic feet of natural gas), the value of the estimated oil resources is $119.4 trillion and the value of the estimated natural gas resources is $8.6 trillion for a grand total of $128 trillion. [18]

The Congressional Budget Office (CBO) estimated that under current policies, revenues from royalties, rents, and bonuses from oil and gas leases on public lands will generate about $150 billion over the next 10 years. The CBO further estimated that if certain resources currently off limits were immediately opened to oil and gas leasing, another $7 billion would be realized over that period. [19] The CBO study estimates are considered to be conservative when compared to historical data and estimates by other analysts and do not consider the earnings from taxes paid by these industries or their employees.

Mason Study: Untapped Bounty

Partially in response but also for education purposes, IER commissioned a groundbreaking paper that will soon be released highlighting the larger economic effects, including economic growth, wages, jobs, and federal and state and local tax revenues, of opening Federal lands and waters to oil and gas leasing.

The IER paper relies on the CBO natural resource and oil and gas price estimates to maintain direct comparability with the CBO analysis while recognizing that those figures have historically been proven to vastly underestimate resources and revenues. The government’s resource information is poor in large part due to the lack of exploration resulting from practices limiting access to federal lands such as the moratoria.

The study finds that if the federal government opened up additional federal lands and waters to exploration and production, the increase to GDP would be $127 billion annually for the next seven years, and $450 billion annually in the long run. Most impressively, the opening of federal lands would have a cumulative increase in economic activity of up to $14.4 trillion over a period of 37 years.

The ripple effect of that boom would be 552,000 in job gains annually over the next 7 years with annual wage increases of up to $32 billion over that time period and an increase of 1.9 million jobs annually in the long run with annual wage increases of $115 billion. Federal and state and local tax revenues would also increase to the tune of $2.7 trillion in federal revenues and $1.1 trillion in state and local revenues over 37 years. [20]

Conclusion

The United States has more combined oil, coal, and natural gas resources than any other country on the planet. As we used these energy resources over the past 50 years, not only did we grow our economy and improve our quality of life, but we improved our air quality as well. We are energy rich, not poor. We have enough energy resources to provide reliable and affordable energy for decades, even centuries to come. The real question is whether the federal government will permit us to have access to our abundant energy resources, not whether sufficient resources exist.

Decisions made today about access to energy resources affect energy production for years and decades into the future. The more areas that are accessible to energy production today increases the likelihood of more domestic energy production later. Increased energy production promotes jobs, government revenues from taxes and lease sales, and increased economic activity.

In turn, this supplies the revenue, wealth and technology to provide the energy breakthroughs of the future. Energy is defined as “the capacity to do work.” Its reliability, affordability and abundance are critical to the future work of our nation.

Footnotes —————————————————————————–

[1] Bureau of Land Management, BLM Public Land Statistics 1999, Table 1.3, March 2000.

[2] Bureau of Ocean Energy Management, here. According to the administration’s website, the outer continental shelf is 1.76 billion acres, and only 38 million acres are leased (Department of Interior, Oil and Gas Lease Utilization – Onshore and Offshore). That is 2.16 percent of the entire Outer Continental Shelf.

[3] According to the Department of Interior, 38 million acres of onshore lands are leased for oil and natural gas production. See Table 3 in Department of Interior, Oil and Gas Lease Utilization – Onshore and Offshore. According to the Congressional Research Service, the federal government owns just over 650 million acres of land. See Appendix A. Congressional Research Service, Major Federal Land Management Agencies: Management of Our Nation’s Lands and Resources, May 15, 1995. The federal government also controls an additional 58 million acres of federal mineral estate below privately owned surface estate. See Bureau of Land Management, Split Estate.

[4] Institute for Energy Research, Obama Administration Breaks (non) Leasing Records, Presents a Clear and Present Danger to U.S. Energy Security, November 24, 2009.

[5] Congressional Research Service, Federal Lands Offered for Lease Since 1969 by Administration, January 14, 2009,

[6] Bureau of Land Management, Number of New Leases Issued during the Year, November 9, 2011. In the chart, the average for each administration includes the fiscal years where there is overlap between two administrations. For example, FY2008 is used in the average for both Bush 42 and Obama.

[7] Institute for Energy Research, Who Benefits from Federal Lease Hoarding, July 16, 2008.

[8] Bureau of Ocean Energy Management, Regulation and Enforcement, Outer Continental Shelf Oil & Gas Assessment 2006.

[9] New York Times, Obama to Open Offshore Areas to Oil Drilling for First Time, March 31, 2010.

[10] Bloomberg, U.S. in Contempt Over Gulf Drill Ban, Judge Rules,February 3, 2011.

[11] Houston Chronicle, Drillers fear sinking in shallow waters: They saw federal delays in permit process threaten companies’ existence,August 18, 2010.

[12] Institute for Energy Research, The Obama Administration is Slowing Reissuing Offshore Drilling Permits, March 23, 2011.

[13] Forbes, Why U.S. Oil rigs left Gulf of Mexico for Brazil, March 23, 2011.

[14] Energy Information Administration, here.

[15] Energy Information Administration, Short-Term Energy Outlook, January 8, 2013.

[16] Congressional Research Service, U.S. Crude Oil Production in Federal and Non-Federal Areas, March 20, 2012.

[17] Energy Information Administration, Sales of Fossil Fuels Produced on Federal and Indian Lands, FY 2003 Through FY 2011, March 2012.

[18] Institute for Energy Research, Federal Assets Above and Below the Ground.

[19] Congressional Budget Office, Potential Budgetary Effects of Immediately Opening Most Federal Lands to Oil and Gas Leasing, August 2012.

[20] Joseph R. Mason., Economic Effects of Immediately Opening Federal Lands to Oil and Gas Leasing: A Response to the Congressional Budget Office (Institute for Energy Research: February 2013).

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Note: This three-part post series( Part I: Expanding “Depletable” Resources Wednesday; Part II: Coal Issues yesterday) is taken from testimony presented by Mary J. Hutzler on February 5, 2013, before the Subcommittee on Energy and Power, Committee on Energy and Commerce. The hearing was titled: American Energy Security and Innovation: An Assessment of North America’s Energy Resources. A summary of her remarks is here.