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The largest component of the lost gas is methane, which leaks from drilling rigs, storage tanks, pipelines, and outdated equipment.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.