Giving
oil and gas companies royalty-free fuel is a huge waste of taxpayer money.
Getting something for nothing is a pretty sweet deal — at least if you’re the one getting something. Not so much if you’re the one receiving nothing in exchange.
Oil
and gas companies are extracting gas from federal lands and paying nothing for
much of it, according to a new Taxpayers for
Common Sense report.
One
of our most troubling findings was that gas companies drilling on federal lands
have avoided paying over $380 million in royalties on the fuel they’ve
extracted over the past eight years.
That’s a lot of money — and it could be a lot more, because it’s based on self-reported data provided by the oil and gas industries.
And
it’s a lot of gas.
By
the American Natural Gas Alliance standards, the amount of royalty-free gas
either consumed as fuel or lost by operators since 2006 would be enough to meet
the needs of every household in New York State for a year.
Like
most subsidies for
the oil and gas industry, the provision that allows companies to
avoid paying royalties on gas they use as fuel for their drilling rigs is
decades old.
During
World War II, the federal government, in search of more revenue, wanted to
start charging oil and gas companies a royalty on the gas they were using as
fuel on well sites.
When
the industry protested, Congress rolled over. The Mineral Leasing Act was
subsequently amended in 1946 — with language directly provided by industry
lobbyists — to permanently exempt this fuel from royalty payments.
At
the time, Congress presented the change as a way to promote public resource
development. The result? Royalty-free fuel for oil and gas companies joined the
growing list of financial incentives enjoyed by the most profitable industry in
the world.
The
Bureau of Land Management (BLM), the Department of Interior agency that
administers drilling on federal lands, is considering updating the
rules for what kinds of gas should incur a royalty payment. BLM
should establish a reasonable limit for leaked gas, above which any emissions
are considered wasted and not exempt from royalty payments.
The
largest component of the lost gas is methane, which leaks from drilling rigs,
storage tanks, pipelines, and outdated equipment. This leaked methane not only
costs taxpayers in lost royalty revenue, but since methane is a potent
greenhouse gas, it also creates climate liabilities down the road.
It
costs money to replace leaky pneumatic devices and “high-bleed” compressors,
and if the gas these companies are using isn’t costing them anything, there’s
less incentive to pay for better equipment.
It’s
been almost 70 years since Congress wrote into law the exemption for royalty
payments on the gas that companies use as fuel. Maybe it was an
important part of the calculation in 1946, but it’s hard to believe it
plays a significant role in the decision of where and when to drill in today’s
market.
Individual
companies must weigh trends in the global price of gas, the location of a
drilling site, its distance to the market, the type of formation where the
gas is held, how much processing it will need, etc., when considering the
profitability of drilling a particular well.
In
other words, giving oil and gas companies royalty-free fuel is a waste of
taxpayer money. And when you add up the amount of lost revenue, year after
year, for all drilling on all federal lands, it comes to a significant loss for
taxpayers — and a lot of extra methane for the atmosphere.
With
annual budget deficits still in the half-trillion-dollar range, Uncle Sam can’t
afford to keep giving freebies to some of the most profitable companies in the
world.
Ryan
Alexander is president of Taxpayers for Common Sense. Taxpayer.net. Distributed via OtherWords.org.