Will 'Drill, Baby, Drill' Be Watchword in Trump Era?

January 31, 2017

 

Special TipSheet:  Will 'Drill, Baby, Drill' Be Watchword in Trump Era?

 
As part of our Journalists’ Guide to Energy & Environment 2017 special report, TipSheet has prepared a series of look-aheads for key issues to watch in the coming year.

Drilling for oil and gas has long been lucrative in the United States, and federal laws and regulations on drilling have been a battleground for decades. The presidency of Donald Trump is likely to be the same. But more so.

Donald Trump is eager to drill and the oil industry is applauding.

There was a time when oil Democrats dominated Congress (remember House Speaker Jim Wright, D-Texas?). But the pro-oil-and-gas party today is the GOP — and the 2016 election gave Republicans the rare opportunity of controlling House, Senate and White House. Signs point to a gusher of petroleum-friendly laws and regulations in the next few years.

Oil and gas exploration and production have many kinds of environmental consequences. As fossil fuels, their burning creates carbon dioxide, the main cause of global warming. But natural gas emits far less carbon dioxide than coal, which it is replacing at a steady pace in the United States. Environmentalists hope the nation’s electric grid will evolve past gas to clean renewables like solar and wind.

Two big arenas where the federal government connects with oil and gas are the leasing of public lands for drilling, and federal regulation of oil and gas operations for environmental reasons. We recently discussed offshore leasing here and will focus on onshore drilling in this TipSheet.

Millions of acres may be at stake

Vista in Arctic National Wildlife Refuge
View of Arctic National Wildlife Refuge in 2006. ANWR, a battleground over drilling for years, may be back in the sights of Republicans controlling Congress. Photo: Hillebrand/U.S. Fish & Wildlife Service, Flickr Creative Commons

The federal government owns some 640 million acres of land, about 28 percent of the U.S. total, most of it in the West and Alaska. There is oil and gas beneath some of these lands (also beneath state and private lands).

The Bureau of Land Management and U.S. Forest Service oversee much of this land, and federal law allows leasing of oil and gas from such categories intended for multiple use. The BLM manages leasing of Forest Service lands. Other federal lands, such as those managed by the National Park Service, are intended mainly for conservation, and the law does not allow drilling on them.

Over past decades, oil and gas leasing on federal lands has gone forward at a fairly steady pace. Leases are actually auctioned off, and when industry demand results in fewer and lower bids, lease offerings may be adjusted to reflect market conditions.

The federal Treasury receives revenue from the “bonus bids” that win the auction, as well as from royalties (12.5%) based on the amount of oil or gas actually extracted. Terms of the leases can include various environmental protections.

Of all the lands BLM administers, some 279 million acres are considered to have oil and gas potential. BLM also manages subsurface mineral rights on some land where the surface is privately owned. Of those 279 million acres, “over 145 million are closed to leasing and another 20 million are inaccessible because surface occupancy or ground disturbance is prohibited,” according to BLM.

According to the Environmental Working Group, the federal government “has leased or offered for oil and gas drilling 229 million acres of public and private land in 12 western states” since 1982. Interested companies can actually nominate land parcels to be included in BLM auctions.

The oil and gas industry has complained for decades, under administrations of both parties, that not enough federal land is offered for leasing. But the facts often belie that assertion. As the price of oil has declined, so has actual bidding interest in the tracts offered. According to the Interior Department, companies bought just 23 percent of the tracts offered for lease in 2016.

Return to battle over Arctic refuge?

What oil and gas companies want most is access to the lands they think have the highest chance of paying richly — and these may often be the most problematic or environmentally sensitive.

Case in point: the Arctic National Wildlife Refuge on the North Slope of Alaska, particularly a 1.5 million acre portion of the low-lying coastal plain facing the Arctic Ocean (known as the 1002 area). This portion of ANWR is rich in wildlife and important in the life-cycle of migrating caribou.

Since 1977, an epic contest has been fought over whether to allow drilling on this land. Currently, it is protected from drilling, but the legal complexities are many. Under the 1971 law apportioning Alaskan lands, an act of Congress is required to open it for drilling. Congressional efforts to open it up almost succeeded in 1996, but President Clinton vetoed the bill.

Now, with the GOP controlling House, Senate and White House, many see another opportunity to drill ANWR. Democrats will oppose them. But it’s worth noting that the pro-drilling faction will have Senate Energy Committee Chairman Lisa Murkowski, a Republican from Alaska, on their side. Murkowski has already introduced a bill to do so.

ANWR is hardly the only example. On Jan. 25, the BLM finally auctioned off a controversial tract near the Chaco Heritage National Historical Park in New Mexico.

While individual tracts may grab headlines, what may matter more in the end is the overall leasing program and the pace at which tracts are offered and drilled.

The drilling rush, though, may run into market realities. OPEC nations, and even Russia, have been trying to limit production in order to prop up the price of oil, which has sagged since 2014. If the United States pumps more oil into this market (or even raises the expectation that it will) that will add to downward pressure on prices.

In conditions like that, the industry will be less enthusiastic to bid on federal tracts. Critics over the years have complained that companies often buy up leases and do not produce oil and gas from them, simply holding them as assets.

Regulatory issues will also emerge as Trump takes hold. One example is the U.S. Environmental Protection Agency rule to control methane and toxic air emissions from new oil and gas production facilities — something the Trump administration and Congressional Republicans will inevitably try to undo.

A new factor in recent years is the advent of hydraulic fracturing, which has increased production in areas that were unproductive before. Improperly done, fracking can threaten to pollute both air and water, but the federal government has left regulation largely to the states.

A single exception applies to public lands. Former President Barack Obama’s Interior Department issued a rule in March 2015 to regulate fracking on public lands. But a federal district court struck that rule down in June of 2016. Now, with Trump in office, the prospects for any appeal or further litigation seem dim.


* From the weekly news magazine SEJournal Online, Vol. 2, No. 5. Content from each new issue of SEJournal Online is available to the public via the SEJournal Online main pageSubscribe to the e-newsletter here.  And see past issues of the SEJournal archived here.

 

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