Environmental Groups Misquote Their Own Studies And Mislead Senators Into Believing Rule Will Deliver Large Revenues
Environmental groups are being confused by their own misinformation and grossly exaggerating the benefits of the Bureau of Land Management’s (BLM) venting and flaring rule. The Environmental Defense Fund (EDF) claims in a blog post that $330 million worth of natural gas is lost from federal lands. The number is supposedly based on a study that ICF International did for EDF. ICF is a reputable analytical consulting firm. They’re economists and energy analysts who know natural gas. The problem is not with ICF. It’s with how EDF takes a reputable study and then misquotes it.
ICF estimates that 65.9 billion cubic feet (Bcf) of natural gas is lost from federal and tribal lands annually. Using a price for natural gas of $4 per thousand cubic feet (Mcf) as ICF does, that’s a value of $263.6 million, not $330 million. While basic math doesn’t seem to be a strong point for EDF, that number has become even more convoluted by other environmental groups and even EDF itself, with a recent letter to the editor quoting it as $430 million.
What’s even “funnier” is that other environmental groups have confused that number with royalties. For example Western Values Project claims $300 million in lost royalties every year. They apparently don’t understand that royalties are a percentage of the value of the gas. But let’s turn back to ICF, since the experts understand the difference. ICF finds that about $27 million in royalties are lost annually. That’s quite a bit less! That $27 million is again an estimate of the total value of royalties lost, assuming that no losses are legitimate and therefore not royalty bearing.
Like any manufacturing process, there is some waste. Environmental groups ignore the operational, safety, mechanical, infrastructure and bureaucratic reasons that natural gas is lost at times. Requiring 100% of all gas to be captured is not only impossible to achieve in the real world, but would endanger workers. Venting is sometimes necessary to release pressure and avoid the risk of explosion. Maintenance for facilities is also necessary to protect safety and ensure equipment operates efficiently. Gas must be flared during pipeline and gas plant routine maintenance. Other reasons for loss include the regulatory agencies themselves. Delays in permitting the gas gathering lines and pipelines necessary to capture the gas requires flaring to occur in the meantime while waiting for those lines to be approved and built. The good news is that a very small amount of gas is not captured. The 65.9 Bcf annual loss that ICF estimates is less than one day’s worth of U.S. natural gas production, which is 71.8 Bcf.
Because the numbers can get confusing, let’s turn to what BLM is actually claiming with the rule. BLM claims the rule will recover about $10 million to $16 million in royalties annually, not the full $27 million that ICF estimates as lost because BLM recognizes that some venting and flaring is operationally necessary. But BLM’s estimate is inflated because it’s based on a range of projected prices that are higher than actual market conditions. An analysis from economist John Dunham using actual market prices of natural gas prices found $3.68 million in new royalties at the most. On the other hand, John Dunham finds that the rule would shut in 112.4 million barrels of oil, worth over $6 billion at today’s oil prices and garnering over $750 million in royalties. The reality is the rule chases a few million each year from natural gas, while putting much larger royalties at risk from oil. JDA also finds that the $3.68 million in additional royalties would be more than offset by $114 million in lost federal and state taxes annually. So the rule fails completely on returning additional revenue to the U.S. government.
Why bother running through all these numbers being thrown around? Because misinformation is misleading lawmakers who are deciding whether or not to overturn the rules. A group of Senators sent a letter to Senate leadership repeating the flawed $330 million number misquoted from EDF. The letter went on to claim that $26.5 million is lost from just three states, Colorado, New Mexico and Wyoming. Remember that ICF study, which has been misquoted by environmental groups to come up with the $330 million number, only shows $27 million in lost royalties nationwide, figuring in all the major natural gas producing states, not just three. These Senators are being misled into thinking the rule will return more to their states than ICF estimates and even BLM is claiming, and they fail to account for the production and revenues that will be lost because of the costs of the rule.
We urge the Senate not to be deceived by misinformation. The BLM rule will result in $110 million less revenue from federal oil and natural gas annually, not more.
Kathleen Sgamma is the president of Western Energy Alliance. The Alliance represents the Western oil and natural gas industry and is a supporter of Western Wire.