Pam Radtke Russell
The oil and gas industry, along with other business groups, see the so-called fiscal cliff negotiations as an opportunity to press for an expansion of drilling on public lands and in coastal waters, but there are wildly divergent estimates of the revenue that lease sales and royalties would produce.
The push revives an idea that House Speaker John A. Boehner, R-Ohio, advocated during this year’s debate on a surface transportation authorization, when he suggested revenue from new energy production could help prop up the Highway Trust Fund.
A Congressional Budget Office report dampened enthusiasm about a potential windfall. The report concluded that expanding offshore production and allowing exploration and production in the Arctic National Wildlife Reserve would raise about $7 billion over the next decade. Averaged out, that’s about $700 million a year — a drop in the bucket with the federal government currently running annual deficits in excess of $1 trillion.
“There are key flaws with that analysis,” said Erik Milito, API’s director for upstream and industry operations. The industry claims those figures greatly understate the impact of new energy production.
The U.S. Chamber of Commerce has recently joined the American Petroleum Institute and other industry interests in lobbying for an expansion of drilling as a source of new federal revenue. Pro-oil lawmakers, such as Lisa Murkowski of Alaska, the top Republican on the Senate Energy and Natural Resources Committee, also want to open new areas in the Arctic, the gulf and off the east and west coasts for oil and gas production.
Chamber Chief Executive Thomas J. Donohue, who recently met with White House aides, has called energy revenue the “third bucket” that should be considered, along with raising taxes and cutting entitlements. Donohue calls energy a “cash cow” for the United States.
API, the chamber and others point to a 2011 Wood McKenzie study that the trade group commissioned, which found that expanded oil and gas production could generate $127 billion within that same time period.
Milito said the CBO didn’t fully calculate the impact of the expanded operations.
Although it might take seven to 10 years to start oil production and collect royalties in “frontier” areas such as the offshore Atlantic and Alaska, Milito said, leases issued now would generate bonus bids as soon as a lease sale was held. Leaseholders would have to pay rent on leases until they produced oil or gas, at which point producers would have to pay royalties. In areas like the eastern Gulf of Mexico, near existing oil and gas ports and pipelines, he said, new wells could be producing within two years.
Additionally, Milito said the CBO report doesn’t take into account the impact of loosening currently restrictive regulations on onshore exploration and production activity. “You have a lot of projects that are simply being held up” by National Environmental Policy Act-required environmental reviews, he said.
Robert Dillon, a spokesman for Murkowski, said that even if revenue is “just” $7 billion, that’s money that counts.
“There is no insignificant amount,” he said. Murkowski has been pushing for expanded oil and gas drilling, and believes that some of the additional money could help pay for renewable-energy development. “We know we need these resources,” Dillon said, referring to the oil and gas industry. “Let them work themselves out of a job.”
The chamber is trying to get a better handle on the numbers, said Matt LeTourneau, a spokesman for the chamber’s Institute for 21st Century Energy. Because of the complexities of how much expanded oil and gas production can help with the fiscal cliff, LeTourneau said the chamber doesn’t expect this “third bucket” will be tapped before next year. “But obviously there is going to be a broader debate about revenue in general,” he said, and the chamber expects expanded energy production will be part of the debate.
Even if the projected revenue is closer to the Wood McKenzie report, it’s unlikely that many Democrats and environmental groups would be willing to embrace more oil and gas production.
“Offshore oil drilling is deadly, dirty business,” said Aaron Viles, the deputy director of the Gulf Restoration Network, which led the group’s response to the 2010 BP oil spill. “Just last month three workers were tragically killed offshore in an explosion and fire on a Black Elk Energy platform. Meanwhile, BP’s oil is continuing to wash up in our marsh and show up on our barrier islands. The human and environmental costs never seem to be factored into the math that’s used to justify expanding the oil industry’s dangerous footprint.”