Spurred by high commodity prices, energy production revenues on federal lands surge
Energize Weekly, November 16, 2022
Energy production on federal lands and offshore areas in 2022 generated $22 billion for the federal and state governments – the highest in revenues since 2008 and second highest in 39 years, according to the U.S. Department of the Interior.
The surge in revenue – double the receipts for 2021 – was due to higher commodity prices and increase in royalty rates and fees. Production of oil, natural gas, coal, and other minerals on federal lands was relatively flat.
There was also a record increase in revenues from renewable energy leasing led by $4.4 billion generated from the sale of six offshore wind leases in the New York Bight. Revenues from geothermal leases were also up 13 percent to $21 million.
The revenue is split between the federal government and the states where the energy development takes place. About 6 percent of total U.S. oil production and 8 percent of natural gas production comes from federal lands.
In April, the Biden administration increased the royalty rate for oil, natural gas, and coal to 18.75 percent from 12.5 percent for new leases, and the federal Bureau of Land Management, which oversees mineral leasing, raised the fees for dozens of types of applications, permits and renewals.
“One of the big improvements we’ve seen in this past year was raising the royalty rate,” said Kris Smith, a researcher at Headwaters Economics, a nonprofit natural-resource research group.
“The 12.5 percent rate has been around since the 1920’s, so this is an important change that will help the federal government and states capture more revenue,” Smith said.
A bigger driver, however, was soaring commodity prices as a result of a reviving economies after COVID pandemic shutdowns, supply chain problems, and the Russian invasion of Ukraine, which roiled world energy markets.
For example, the price of natural gas delivered to Colorado for use by distributors rose to $9.31 for a thousand cubic feet in August of 2022 from $3.37 a year earlier, according to the U.S. Energy Information Administration.
There was a run-up in oil prices in 2022 with the price of a barrel of West Texas Intermediate (WTI) oil peaking at $114 in June, about 60 percent more than in June 2021. About 10.5 million barrels of oil were produced on federal lands in Colorado.
In October, U.S. coal prices rose above $200 a ton for the first since the EIA began tracking prices in 2005.
Meanwhile federal lease oil production was flat at 1.1 billion barrels, natural gas output, measured in thousand cubic feet or mcf, was down 5 percent to 4.4 billion mcf, and coal production was up 2 percent to 252 million tons.
“We see a lot of volatility on royalties since it depends on commodity prices,” Headwaters’ Smith said. “States in general are spending the revenue rather than saving it, so there is a risk of becoming dependent on the revenues.”
The federal government disbursed $4.36 billion in fiscal year 2022 funds to 33 states.
New Mexico, which holds the western end of the Permian Basin, the nation’s largest and most heavily drilled oil field, received the largest share in 2022, $2.74 billion. Federal lease revenues to New Mexico have quadrupled in the last five years.
Wyoming received $786 million, followed by North Dakota with $164 million and Colorado at $142.6 million.
An addition, $1.59 billion was distributed to tribes and individual Native American mineral owners.
In announcing the revenues, the Interior Department focused on the record-breaking offshore wind sale and made no direct mention of oil and gas revenues, which frustrated Kathleen Sgamma, president of the Western Energy Alliance, an industry trade group.
“Oil and natural gas account for $16.7 billion in revenue, almost four times higher” than the wind sale, Sgamma said in an email. “Oil and natural gas provide 76 percent of the disbursements, but there was no mention of our contribution.”