As an economist, it startles me when representatives of the business community ignore basic economic relationships such as supply and demand. Yet oil and gas interests have been doing exactly that recently.
It is hard to believe anyone in the country could not know we are in a deep recession. It has dramatically cut the demand for and, therefore, the price of most basic raw materials, especially energy. But the oil and gas industry keeps pretending this has not happened and instead has been blaming Interior Secretary Ken Salazar for the decline in the leasing of and drilling on federally owned lands and the resulting job losses.
Oil and gas firms know better. Randy Teeuwen, spokesman for EnCana, North America's largest oil and gas producer, characterized the current slowdown in drilling more accurately this past spring. He told the Pinedale Roundup in Wyoming, "We're like most industries right now—banking, finance, auto industry, real estate. All the economic sectors are experiencing some downturn, and are sort of at the mercy of the national economy and the local economy."
In June, EnCana announced it would shut down large numbers of its producing natural gas wells in Canada and the United States until natural gas prices rose again. Other natural gas companies have done the same, as have most coal companies.
So it makes no sense to blame Secretary Salazar for the decline in interest in new federal oil and gas leasing. Blame the recession for causing the prices of oil, natural gas and coal to tumble dramatically, by 40 to 70 percent between the summer of 2008 and the summer and fall of 2009. That is why there has been less enthusiasm among companies for leasing more federal lands for oil and gas development.
It is also why only 3,267 wells were drilled last year, even though the Obama administration's BLM issued 4,487 drilling permits. Access to leases is simply not an issue these days for the oil and gas industry. Nationwide, over 65 percent of the on-shore oil and gas leases that industry held in 2008 were not being developed. These undeveloped leases cover a huge amount of land that's mostly in the West—over 32.5 million acres.
On Jan. 6, Secretary Ken Salazar introduced a new set of onshore oil and gas lease reforms, arguing they will provide more economic certainty for the industry and increased savings for the taxpayer. Going slower, according to Salazar, will reduce the likelihood of legal battles. Only 1 percent of oil and gas leases were protested in 1998, he said, as opposed to 40 percent in 2008. Fewer protests mean fewer costs for the American taxpayer, because less money ends up going to help resolve protests and lawsuits. Reform will also provide more certainty for the industry, as companies will not end up bidding on leases that then turn out to be inaccessible due to unresolved protests.
Yet, for some reason, we continue to hear industry arguing that reform of leasing policy will curb development of domestic resources.
Secretary Salazar has an enormous responsibility over the management of our public lands and our need for energy development. The current slowdown in oil and gas drilling is an opportune time to find the right balance between our need for fossil fuels, our continued development of renewable energy sources like wind and solar, and the long-term health and safety of our air, water and wildlife. As Salazar recently put it, "Trade groups for the oil and gas industry need to understand they don't own the public lands. Taxpayers do."
He is right, and he needs to work to strike the right balance. After eight years of an energy policy highlighted by a tilt toward industry and a historic lack of oversight, it is perhaps understandable that oil and gas companies now resist a more balanced approach. Our nation is better served by a measured approach that reduces the boom-and-bust extremes the West has suffered through in the past. That's especially true for those communities where resource extraction is occurring.
Thomas Power is a contributor to Writers on the Range, a service of High Country News (hcn.org). He has been an economics professor at the University of Montana for 40 years and is the author of six books on natural resource economics.