Study Quantifies Lands Ban Costs

Exploring and developing the natural resources on U.S. public lands has been subject of debate for decades.

AAPG’s view on this issue is clear:

• As an association we support the leasing, exploration and development of petroleum resources on the nation’s public lands.
• It can and must be done in an environmentally responsible manner.
• These resources belong to the American people, and should be developed for their benefit.

What is the cost for not doing so?

A study released in February strives to answer this question by looking at the social, economic and environmental effects of not allowing oil and natural gas exploration and production on federal lands.

The study, “Analysis of the Social, Economic and Environmental Effects of Maintaining Oil and Gas Exploration and Production Moratoria on and Beneath Federal Lands,” was commissioned in 2007 by the National Association of Regulatory Utility Commissioners (NARUC), with the support of the Interstate Oil and Gas Compact Commission.

NARUC represents the state public service commissioners who regulate utilities, such as electricity, gas, telecommunications, water and transportation. Their job is to protect consumers and ensure that these utilities are offered at fair rates.

The study was conducted by the Science Applications International Corporation (SAIC), a consultancy, with the support of the Gas Technology Institute (GTI). Their analysis consisted of two steps.

First, GTI reviewed the latest federal estimates of petroleum resources on onshore and offshore federal lands. They then updated these estimates based on new scientific understanding and technological improvements available since the previous estimates were made.

According to GTI’s estimates, the undeveloped oil resource on federal lands increases from 186 billion barrels of oil (Bbo) to 229 billion Bbo. The undeveloped natural gas resource increases from 1,748 trillion cubic feet (Tcf) to 2,034 Tcf. These increases are due to the expansion of shale gas activity nationwide and the opportunity to deploy new technology and play concepts in regions that were previously restricted.

Second, the study group evaluated different “energy futures” using the 2009 National Energy Modeling System (NEMS). NEMS is the energy model developed and used by the Energy Information Administration for its analyses and forecasts through 2030.

The team ran a series of scenarios using NEMS looking at the social, economic and environmental effects from 2009 to 2030. The scenarios evaluated the impact of opening various areas to exploration and production, as well as the effect of GTI’s updated resource estimates.

The principal conclusions of the study are based on the comparison of two scenarios – (1) EIA’s current resource estimates and maintaining production restrictions with (2) GTI updated resource estimates and lifting production restrictions.

When you make this comparison, the costs of restricting access to federal lands become apparent:

• Domestic oil and natural gas production decreases (oil down 15 percent annually, natural gas down 9 percent annually).
• Imports of oil and natural gas increase.
• Energy prices increase (natural gas up 17 percent annually, electricity up 5 percent annually, petrol up 3 percent).
• Energy costs to consumers increase 5 percent annually.
• Gross domestic product decreases 0.52 percent annually.

These are just some of the conclusions reached in the study, which is available free online.

They also look at the impact of just removing production restrictions, using EIA’s current resource estimates.

You can quibble with any model – its inputs, its outputs and the conclusions reached – but the value of this study is that it begins to quantify the impact of not developing the oil and natural gas resources on the nation’s public lands. It does so using the same energy model the government uses for its forecasts. And it clearly shows that failure to develop public resources has real social, economic and environmental costs.

But wait! Hasn’t the moratorium been lifted?

In July 2008, President George W. Bush lifted the presidential withdrawal on the nation’s outer continental shelf (OCS), and on Oct. 1, 2008, the Congressional moratorium on OCS development lapsed. But there have been no lease sales in moratoria areas.

In large part that is due to the formal process that the Minerals Management Service uses to manage OCS resources. The five-year OCS leasing program lays out the areas where the federal government will hold lease sales. Areas not included in the five-year program are not offered for leasing.

Interior Secretary Ken Salazar undertook a thorough review of the OCS leasing program upon entering office, but has not yet released the results of that review.

The state of Virginia actually petitioned the Interior Department to include its OCS in the current 2007-2012 five-year program, which MMS did, scheduling a lease sale in 2011 if the moratorium was lifted by then.

However, with the scheduled lease sale looming, Interior has yet to begin its environmental reviews for the lease sale. It hopes to complete these reviews and reach a decision by spring 2012. If the decision is favorable, then Virginia can be added to the sale schedule.

Virginia’s two senators, Jim Webb and Mark Warner, both Democrats, responded in a letter to Secretary Salazar, saying that Virginia’s governor and politicians from both parties support this lease sale. They continued, “Recent media reports highlighting additional delays are a source of frustration to Virginia and to a nation that is looking to turn around the economy while simultaneously addressing energy security.”

Virginia is just one example.

Onshore federal land also are seeing rule changes that, according to Bob Abbey, director of the Bureau of Land Management, quoted by Bloomberg.com, “ …will slow leasing.”

The fact that the moratoria are no longer in place does not ensure the resources on federal lands will be developed. As the NARUC study shows, this carries a significant cost to the American people.