Mixed messages on gas development
President Barack Obama on Wednesday announced a new goal of reducing U.S. dependency on foreign oil by one third over the next decade.
It’s an admirable goal, and one that’s important for this region because it places renewed emphasis on natural gas, both as a transportation fuel and for electric generation.
But natural gas companies can be forgiven if they are more than a little perplexed about the nature of this administration’s commitment to gas development. Just a day earlier, Secretary of Interior Ken Salazar issued a report that criticized energy companies for not moving more quickly to develop gas and oil resources on federal lands and in offshore leases.
That report noted that more than 50 percent of federal onshore leases have yet to be drilled. Salazar said the administration is working with members of Congress to come up with new incentives to encourage energy companies to drill faster. The main incentive being contemplated appears to be fines for the companies if drilling doesn’t occur within a few years.
Industry groups are understandably indignant about the Salazar report. They say it ignores reality about the time it takes to get from leasing a federal tract to actually drilling on it. And a significant part of the time required is due to federal regulations.
One company in western Colorado spent nearly five years to complete an environmental impact statement to meet government requirements for federal lands it leased, said David Ludlam, executive director of West Slope Colorado Oil and Gas Association. No drilling permits could be applied for until that environmental report was completed, despite the fact that the energy company already held the lease.
Not all environmental analyses take that much time, but many take two years or so, he added.
Furthermore, there’s no guarantee a lease has economically recoverable resources. Companies often spend several years performing tests to determine if and where they should drill.
One former Interior Department official, who oversaw lease development from 2007 to 2009, told the Oil and Gas Journal Tuesday that the Salazar report’s “definition of inactive leases includes ones where seismic and other survey work are ongoing.” That work, he said, “cannot be considered ‘inactivity’ by any measure.”
The Interior Department, “continues to ignore all the exploratory, environmental analysis, regulatory and permitting work that companies are doing on their leases, and its own role in holding up development,” said a statement from the Denver-based Western Energy Alliance.
Furthermore, energy companies must plan their activities for years into the future, so they seek leases that they hope to drill upon in coming years. They can’t drill on existing leases until they are completed, then hope they’ll be able to obtain new leases and drill upon them the following year.
Finally, federal leases already have specified time limits, often 10 years. Companies have to develop leases within that time frame or lose the leases. Energy companies cannot simply stockpile file cabinets full of leases and hold them to develop at some indefinite time in the future.
Obama’s push for greater energy independence is laudable. But attempting to demonize and financially punish energy companies for not acting rapidly enough on their leases does little to hasten that energy goal, especially when federal actions contribute to delays in production.