The disastrous oil spill in the Gulf of Mexico has not only put a freeze on plans to expand offshore drilling, it has added to an already chilled environment for developing oil and gas resources on public lands in the West.
The specter of the oil spill was raised two weeks ago when Interior Secretary Ken Salazar announced the department’s final reforms of its oil and gas leasing policies. Under the new guidelines, the Bureau of Land Management will develop “master leasing plans” in consultation with the public, allowing the agency to review other natural resource issues before deciding to lease lands for development.
“We must continue to move forward quickly and responsibly on our agenda to reform the management of our nation’s onshore and offshore energy resources and our oversight of the companies that develop them,” Salazar said in a statement. “The BLM reforms we are finalizing today establish a more orderly, open, and environmentally sound process for developing oil and gas resources on public lands. The BP oil spill is a stark reminder of how we must continue to push ahead with the reforms we have been working on and which we know are needed.”
Salazar started 2010 proposing these new restrictions on oil and gas leases and drilling permits, following up on his withdrawal one year earlier of nearly 2 million acres in three states that had been approved for development by the Bush administration.
Salazar took another step backward—at least in the view of energy producers—in March when he tightened limits on the use of “categorical exclusions” that had been authorized in the 2005 Energy Policy Act to streamline environmental reviews for new wells on public lands. The action, initially proposed in the changes announced in January, officially came in a settlement of a lawsuit over exemptions from environmental studies that had been granted for thousands of wells in the Rocky Mountain region from 2006 to 2008.
Two weeks ago, Salazar confirmed the agency’s new policy requiring a review of “extraordinary circumstances” before applying the “categorical exclusions” provision. A review would be triggered if the proposed actions were deemed to be of a degree or nature that they warranted environmental analysis.
Already, U.S. Sens. John Barrasso of Wyoming and Robert Bennett of Utah have sponsored legislation to block the reforms, responding to what they see as policies that exacerbate the already “uncertain business environment on public lands,” threatening jobs and communities throughout the West.
The pullback from drilling on federal lands in the West comes just as the need is growing to produce more energy from a region that has an estimated one-quarter of the gas reserves in the continental United States. Additionally, the Gulf spill triggered the recent Obama Administration announcement to freeze new deepwater drilling for six months as well as halted scheduled new exploration in Alaska waters and an upcoming lease sale off the Virginia coast.
Slowing offshore production would be a huge setback in efforts to increase domestic energy supplies, says Barry Russell, president and CEO of the Independent Petroleum Association of America. He cites estimates that there are 288 trillion cubic feet of natural gas and 59 billion barrels of oil still untapped in the Outer Continental Shelf off the U.S. coast, not counting Alaska.
More than half of all domestic supplies of natural gas come from federal lands, with roughly equal amounts produced onshore and offshore, according to the Interior Department.
The Gulf crisis has already made a bad situation worse in the western states, say independent oil and gas producers who do 90 percent of the drilling in the region, providing 236,000 jobs and nearly $6 billion in annual revenues for the federal government.
“It’s kind of hard to imagine it being any more difficult to operate on public lands in the West,” said Kathleen Sgamma, government affairs director for the Independent Petroleum Association of Mountain States, which represents more than 400 energy companies in the region. “Already this year we’ve seen $3.9 billion leave our region as a result of Interior policies that make it even more difficult to operate in our region.”
Now some members of Congress are having “knee-jerk reactions” to the Gulf spill, Sgamma said. “There are already several pieces of legislation that would make it even more difficult to operate onshore in the Rockies,” she said.
One is a bill introduced by Rep. Edward Markey, D-Mass., on the day after the oil rig exploded off the coast of Louisiana on April 20. The legislation would impose new fees on oil and gas leases on public lands that are inactive for more than 90 days per year. The bill is targeted at offshore leases that were exempted from making federal royalty payments under a 1990s law aimed at expanding domestic energy production. But Markey’s bill would apply to leases on both “onshore and offshore lands,” in effect assessing an added annual tax of $4 to $6 per acre for any leases not yet producing oil and gas in the West.
Western producers say Salazar put a chill on their industry as soon as he took office last year and halted leasing on 77 parcels near national parks in Utah that had been opened up by the Bush administration. A few weeks later, Salazar also rescinded lease offers and canceled a low royalty rate that had been granted for oil-shale development on 1.9 million acres in Colorado, Utah and Wyoming.
Last September, Salazar responded to an earlier scandal in the department’s Minerals Management Service (MMS) by eliminating the ability of producers on federal lands to fulfill royalty obligations with oil and gas in lieu of making cash payments. MMS officials were accused several years ago of using the royalty-in-kind program to solicit gifts and personal favors from the industry.
Then Salazar capped a year of new restrictions on western development by announcing regulatory reforms in January 2010 requiring extensive scrutiny of every proposed lease, including “public participation, an interdisciplinary review of available information, confirmation of Resource Management Plan (RMP) conformance, and national, state, and local guidance.”
Salazar also took a swipe at the Bush administration when he announced the changes, saying, “Under the previous administration, the oil and gas companies were kings of the world, with Interior their handmaiden.”
The energy industry responded that such claims are based on misconceptions, when in reality the Bush administration put more than 2 million acres off limits to drilling, designated 750,000 acres as “Areas of Critical Environmental Concern,” and increased the stipulations added to lease agreements.
Oil and gas production did increase on federal lands during the previous administration, the drillers acknowledge, but it has dropped precipitously under President Obama. There were 1,934 fewer leases and 1.1 million fewer acres open to development in 2009 than there were in the first year of the Clinton administration, according to statistics compiled by the Independent Petroleum Association of Mountain States.
Even some Democrats are upset about the trend. “To stifle the growth of this industry in the midst of record-setting national deficit and unemployment levels is not only outrageous but irresponsible,” said Rep. Dan Boren, D-Okla.
Perhaps adding insult to injury, Interior announced in April that it would launch a study of how other countries collect royalties on oil and natural gas as part of an effort to increase the return on development of energy resources on public lands.
U.S. royalty rates are currently 12.5 percent of the value of oil and gas produced from onshore leases and up to 18.75 percent for offshore leases, but a recent study by the Government Accountability Office found that U.S. revenues are well below the royalties received in other countries from oil and gas leases.
Despite the Administration’s claims of support for new domestic oil production, its recent actions both before and after the Gulf spill undermine the important goal of U.S. energy security—and at a significant cost to jobs and local economies.
The wrenching news and photos of the oil spill in the Gulf of Mexico have emboldened opponents of domestic oil and gas development, leaving supporters of this key industry to silently wait their turn until the next oil shortage or spike in gas prices.