BLM’s Fuzzy Math, Part 1

by Kathleen Sgamma, Vice President of Government and Public Affairs on April 29, 2016 - 9:14am

fuzzy mathBLM’s proposed venting and flaring rule is the administration’s latest regulation targeting oil and natural gas production. BLM’s proposal suffers from wide-ranging problems including jurisdictional overreach into air quality, technologically infeasible requirements, and implementation costs that far exceed the rule’s benefits. Our comments on BLM’s proposal were 90 pages and spoke to the myriad problems, but I want to hone in on a few key numbers that demonstrate the flaws in BLM’s assumptions about the proposed rule’s impact.

An economic analysis from John Dunham & Associates (JDA) shows the proposed regulations would impose $1.26 billion in costs to society and result in 5,630 lost jobs while only providing $90 million in benefits, a cost-benefit ratio of 14:1. In its own economic analysis, BLM included a number of assumptions that should not have been used, the most glaring problem being natural gas prices more than double today’s prices. Since BLM’s claimed benefits rely heavily on revenue from selling additional captured natural gas, those inflated prices have an enormous impact on the rule’s bottom line.

BLM claims the rule will provide an additional $11 million in federal royalties. However, JDA estimates that figure drops to $3.68 million when current natural gas prices are used. The benefits shrink further and even approach zero when realistic market conditions are used, such as those surrounding the oversaturated natural gas market in the Bakken.

Let’s put that into perspective. Even if we use BLM’s number, $11 million is 0.5% of the $2.1 billion in royalties that the oil and natural gas industry delivered to the American taxpayer in 2015. BLM is chasing down $11 million in royalties, and possibly much less than that, while putting at risk billions of dollars by further discouraging development on federal lands. Not only that, the $11 million in supposed new royalty revenue is canceled out by the $114 million in lost federal, state and local tax revenue.

Despite its name, the proposed rule is far from a “waste prevention” measure. JDA estimates that the proposed rule will ultimately reduce development and leave 112.4 million barrels of oil in the ground. Even at today’s low oil prices, that’s $646 million in lost royalties. Wells abandoned prematurely represent a huge waste of oil and natural gas resources, yet BLM has not adequately quantified such waste in this so-called “waste prevention” rule.

BLM’s economic analysis is fuzzy government math at its “best.” The rule is not really about waste prevention. It’s part of a broader agenda to drive development off public lands.