American oil and natural gas production has increased dramatically over the last several years, creating hundreds of thousands of jobs not only within the industry, but also in other sectors such as chemical, steel, and manufacturing. The U.S. has led the world in natural gas production since 2013, and in 2014, the U.S. became the world’s largest oil producer, overtaking Saudi Arabia and Russia. None of this would be possible without the advances made with horizontal drilling and hydraulic fracturing technology. This revolution in “unconventional” oil and natural gas production is estimated to have added nearly 1% to U.S. GDP in 2013 and 2014.
This huge success story, one of the few bright spots in an otherwise sluggish economy, has been the result of private-sector investment, innovation, research and development, and is in spite of, not because of federal policies. The success has been so overwhelming that the Obama Administration has tried to claim credit for the increased production. However, where the federal government has the most control–on federal lands–production has been declining. Federal production is just not keeping pace with that on state and private lands.
Federal v. Non-Federal Production
On federal and Indian lands, production has not kept pace because of onerous policies. From 2010 to 2014, overall U.S. oil production increased by 53% or 2.9 million barrels per day and natural gas production rose by 4.7 Tcf, or 21%. During that same time, federal oil production declined by 10% while non-federal production rose by 88%. Federal natural gas production fell 30% even as it climbed 37% on non-federal lands. Production on federal lands is simply not keeping pace with private and state lands.
Whereas it takes states generally about 30 days on average to issue a permit to drill, it takes the federal government 227 days. And that’s after years spent undergoing environmental analysis under the National Environmental Policy Act (NEPA), an extra requirement on federal lands. In addition, there’s no certainty that federal leases will be issued once they’re sold at auction, creating a situation where producers cannot develop a plan for deploying their capital on public lands with any certainty they’ll achieve a return on investment.
Chart Source: Institute for Energy Research
Why the Trend to Non-Federal Lands?
Whereas it takes states generally about 30 days or less to issue a permit to drill, it takes the federal government 228 days. And that’s after years spent undergoing NEPA environmental analysis, an extra requirement on federal lands. In addition, there’s no certainty that federal leases will be issued once they’re sold at auction, creating a situation where producers cannot develop a plan for deploying their capital on public lands with any certainty they’ll achieve a return on investment.
Running rig counts illustrate the effects of this uncertainty. While the total U.S. rig count remained steady from February 2008 to February 2014, states with large amounts of federal acreage like Colorado, Wyoming, and Utah experienced drops of 47%, 29%, and 38% respectively, while states with predominately non-federal production like North Dakota, Ohio, and Pennsylvania saw increases of 211%, 233%, and 179%. Companies are clearly shifting development from federal lands to private and state lands to avoid federal bureaucratic delays.
In the West, overall oil production increased 137.6% from 2008 to 2013, but the increase was only 42.7% on federal lands. Overall western natural gas production increased 1.8% even while it fell 21% on federal lands. The gap in relative federal/non-federal production is generally seen throughout the West.