Tapping "Our" Resources: Declining Returns on Fossil Fuel Leases

Friday, 04 February 2011 10:27 By Christine Shearer, t r u t h o u t | News Analysis | name.

Tapping "Our" Resources: Declining Returns on Fossil Fuel Leases
A drilling rig at night. (Photo: Lars Christopher N√

Right now, the government is looking to offer up federal lands to mine up to 5.8 billion tons of coal, while groups like the American Petroleum Institute are pushing to open the eastern Gulf of Mexico and Atlantic Ocean to offshore oil exploration. Proponents say we need to begin leasing these federal lands for mining and drilling immediately to collect revenues for the US Treasury and help secure US energy independence. Seems like a strong argument, but how true is it?

In June 2009, sociologists Bob Gramling and William Freudenburg reported that, since Ronald Reagan's Interior Secretary James Watt moved to area-wide offshore oil and gas leasing in 1983, the US government (that is, all of us) has received steadily declining returns. The federal government leases offshore lands for oil and gas drilling, collecting revenue from both the leases and from royalties. Before Watt's change, the US Geological Survey would conduct resource assessments of the offshore area and a limited number of blocks would be offered up in a competitive bid, often with fixed royalty rates.

After Watt moved to area-wide leasing, however, much larger tracts of land were made available for leasing - so large that soon only huge, transnational oil corporations could conduct the seismic surveys of the areas. This inherent disparity gives those companies insider knowledge - even more knowledge than the federal government itself - when it is time for bidding. After comparing the per-acre leasing data on offshore oil bids before and after the change, Gramling and Freudenburg found that "before area-wide leasing in 1983, 3,520 leases were sold at the $2,224 average rate, while 21,179 were sold from 1983 to 2008 at the $263 rate." In short, the acres leased took off while the money collected sank, without even accounting for inflation. Royalties also decreased, and the US Congress further lowered royalties in 1995 with the Outer Continental Shelf Deep Water Royalty Relief Act, exempting some of the more tenuous offshore operations from paying royalties altogether.

As the Government Accountability Office noted in 2007, total revenues collected by the US federal government for the nation's offshore oil resources is one of the lowest government takes in the world - out of 104 jurisdictions surveyed, only 11 received a smaller portion of oil revenue than the US government.

Interestingly, a similar pattern can be found in the coal industry. The Powder River Basin (PRB) is a region in southeast Montana and northeast Wyoming known for its coal deposits. The region annually produces over 400 million short tons of coal - about 40 percent of the coal produced in the US.

Yet in 1990, the federal government decertified the region as a coal-producing area. The decertification means that rather than requiring the federal government to follow formal leasing procedures, including consideration of environmental and economic impacts and competitive bidding, a looser, "lease by application" process is used. The effect of this process is much like area-wide offshore oil and gas leasing: large coal companies are increasingly designing the lease boundaries in the region where the federal government once did. This pattern gives the companies insider knowledge and the ability to carve out tracts favorable to expanding their existing coal mines, undermining competitive bidding. A 2009 WildEarth Guardians report, "Undermining the Climate," found that in the last 20 years, only three lease sales out of the total 21 in the region had more than one bidder.

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The report also found that, as would be expected, the areas with only one bidder were leased at much lower values than those with more than one bidder. The decertification also thwarts the federal government from doing a regional analysis of global warming impacts in the region from mining, and makes coal seem artificially cheap when compared to cleaner energy sources.

Well, it's okay that these companies pay us less for the leases because the extracted energy is for our use, right? Not necessarily. Fossil fuel companies do not have to sell the oil and coal taken within the US back to the US; they are free to sell the resource as they see fit. Oil is sent to and sold on an international market. A ban on exporting national Alaska oil was overturned in 1995. Meanwhile, coal mined in the US is increasingly being exported: in the first six months of 2010, US coal exports to Asia grew nearly 400 percent compared to exports for all of 2009. Coal companies are looking for more ways to ship coal from the PRB, including one that spurred the recent controversy over a new coal export terminal in Washington that would ship five million tons of coal to Asia annually.

In short, fossil fuel companies are getting the right to dig up fossil fuels on federal lands for ever-lower prices, while remaining free to export the resource as they see fit, even to nations they claim should clamp down on greenhouse gas emissions before the US agrees to do so. Large companies like BP and Exxon have been found posting profits overseas to further lower the financial duties owed here, and still, many oil and coal companies want to pass off responsibility for the multiple environmental and health effects associated with mining and drilling to the public, the costs of which become yet another taxpayer subsidy.

So, when proponents of coal mining and oil drilling on federal land say we should tap "our" natural resources for our benefit, whose benefit are they really referring to? Our benefit might better be served through conservation, energy efficiency and investment in new sources of technology and energy.
 

Christine Shearer

Christine Shearer is a researcher for CoalSwarm, part of SourceWatch, and a postdoctoral scholar at the Center for Nanotechnology in Society at UC Santa Barbara. She is managing editor of Conducive and author of the forthcoming book, "Kivalina: A Climate Change Story" (Haymarket Books, 2011).

Last modified on Friday, 04 February 2011 12:07