The Party For Oil And Gas

The Party For Oil And Gas

Fuel pump nozzle in hand with flag on background – United States – USA

Many U.S. residents and citizens work for companies that are in business because of domestic and foreign oil and gas production. Many more work for businesses that make money from the pull-through revenue related to water, land and air transportation, restaurants, hotels, consumer goods, taxes and much more. Is there a political party that so clearly favors oil and gas interests that voters can rightly consider ignoring their personal values when they go to the polls?

To answer this question, we consider criteria related to offshore and federal land development and royalty interests, energy price control, fuel economy, alternative energy competition, environmental restrictions and climate rhetoric. To make it easier to follow, I have underscored actions not favorable to oil and gas using bold type. Actions favorable to oil and gas are noted in italics.

The results might not be what you would expect.

The federal government controls oil and gas development access to about 28% of U.S. land and all offshore areas from beyond the three nautical mile limit controlled by a state to the 12 nautical mile territorial limit of U.S. jurisdiction, and charges royalties for lease of these areas where exploration and production (E&P) development is permitted. The U.S. land royalty rate was set to 12.5% by the Mineral Leasing Act passed in the 1920s under the Democratic Wilson administration and stayed at that rate for 90 years, until the current Republican Trump administration this year raised the minimum rate to 16%.

Red states Montana, Wyoming, North Dakota and Utah charge royalties at the 16% rate or higher, and Texas, with more than 95% of the land under private ownership, charges 25%. The federal government returns about half of the federally collected royalty in all states except Alaska, where 90% of royalty revenue is returned to the state and where every state resid­­ent receives an annual check from the Alaska Permanent Fund.

The offshore royalty rate was also 12.5% until it was raised in 2007 to 16% under George W. Bush leadership.

U.S. Royalty RatesL. Kibler

The federal government regulates onshore and offshore E&P access and has prevented E&P in the Alaska National Wildlife Refuge since 1977. The Reagan administration in 1982 stopped federal offshore lease sales in offshore California and Atlantic coastal states. The George H.W. Bush administration issued an executive moratorium restricting federal offshore leasing to Texas, Louisiana, Mississippi, Alabama and parts of Alaska. The moratorium banned federal leasing through the year 2000 off the East Coast, West Coast, the eastern Gulf of Mexico (offshore Florida Gulf Coast) and the Northern Aleutian Basin of Alaska. In 1998 Clinton extended the moratorium through 2012. In 2008, George W. Bush rescinded the executive order, but in 2002 the same Republican administration imposed a moratorium on drilling on or directionally beneath the Great Lakes, a ban that was made permanent by the Energy Policy Act of 2005.

In 2010 the Obama administration announced plans to open Mid and South Atlantic areas to oil and gas exploration, later rescinded by a ban on drilling in federal waters off the Atlantic coast after the disastrous Deepwater Horizon well blowout in the Gulf of Mexico. The state of Florida opposes offshore drilling in state waters and successfully negotiates bans on federal offshore leasing as well.

Alaska and Offshore Exploration & ProductionL. Kibler

Oil and gas price controls under Nixon and Ford administrations in the 1970s likely contributed to the increasing percentage of imported crude oil being consumed by Americans, because price controls inhibited profitable U.S. hydrocarbon production, especially unassociated natural gas. Fortunately the Carter administration began to liberalize price controls in the late 1970s, and the following Reagan administration accelerated this change, which favored increased domestic oil and gas production.

Harvard University economist Joseph Kalt concluded that while the 1970s price controls had saved consumers between $5 billion and $12 billion a year in gasoline costs, stifling domestic oil production caused an artificial domestic crude oil shortage of as much as 1.4 million barrels a day.

Corporate Average Fuel Economy (CAFE) standards were introduced by the Ford administration in 1975. Although U.S. passenger car fuel economy targets have increased by more than 12% since 2000 under George W. Bush and Obama administrations in succession, they are more than 12% less than European standards. The push to introduce ethanol as a replacement for methyl tertiary-butyl ether (MTBE) as an oxygenate promoting cleaner gasoline combustion was introduced by the George H.W. Bush administration in 1990 with the Clean Air Act. Under the George W. Bush administration in 2005, the Energy Policy Act required the use of 7.5 billion gallons of ethanol (from renewable resources such as corn) by 2012 under the Renewable Fuels Standard RFS). The RFS was later increased to 36 billion gallons by 2022 under the Energy Independence and Security Act (EISA) of 2007.

While natural gas would be a less expensive feedstock for ethanol production, American consumers pay higher costs for biofuel production, which also causes greater environmental damage.

Clinton and Obama administration support for wind and solar renewable energy resources has likely had a positive impact on natural gas markets because, unlike coal or nuclear power generation, natural gas electric power generation is readily dispatchable whenever the wind stops blowing or the sun goes down. Electric power generation has little or no bearing on the primary use for crude oil in transportation.

Environmental impacts from hydrocarbon E&P are generally overlooked in favor of well-paying jobs where the development occurs as long as those impacts are not excessive – as in the case of the Deepwater Horizon disaster. While the last Obama administration did interrupt hydrocarbon production in the Gulf of Mexico in the wake of this incident, the same Obama administration offered essentially no barriers to the most accelerated natural gas and then oil development from shale gas and tight oil that has ever occurred in the U.S. or elsewhere.

However, much of the American public is increasingly concerned about climate change that appears to be related to carbon dioxide release into the atmosphere as a result of hydrocarbon and coal combustion for electric power generation, along with oil-based transportation fuels. Climate change initiatives have occurred under both Republican and Democratic administrations. Until there are publically acceptable alternatives to transportation options currently dependent on crude oil, hydrocarbons will continue to dominate the energy supplied to the transportation sector.

Today the Trump administration negotiates to lower global oil prices and impose tariffs on steel, which makes up about 25% of well costs. This Republican administration also claims pipeline security risks for natural gas transport justify preferring coal-fired electric power generation over cleaner, cheaper and more efficient natural gas fired generation.

Based on this analysis, voters should not justify party affiliations on the basis of perceived negative impact on the oil and gas industry. In fact, we might all rather party with the Democrats.

Christine Ehlig-Economides is Professor and holds the William C. Miller Chair honoring Charles V. Fitzpatrick at the University of Houston. Prior to her current position, Ehlig-Economides taught at Texas A&M University for ten years and worked twenty years for Schlumberger. While at A&M, she managed research in production and reservoir engineering in conventional and shale reservoirs and helped the petroleum engineering department to grow and evolve to a broader energy scope. Ehlig-Economides was elected to the U.S. National Academy of Engineering in 2003, was a member of the National Academy of Science Committee on America’s Energy Future, and is currently a member of the NRC Board on Energy and Environmental Systems (BEES). She is one of sixteen Quantum Reservoir Impact (QRI) Scholars and has recently been named a Chief Scientist for the Sinopec Research Institute on Petroleum Engineering as one of the Thousand Talents in China. Ehlig-Economides earned a Bachelor of Arts in Math-Science from Rice University, a Master of Science in chemical engineering from the University of Kansas, and a Ph.D. in petroleum engineering from Stanford University.

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