US seeks to raise oil royalties to account for climate change

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Through Jennifer A. Dlouhy to 11/28/2021

WASHINGTON (Bloomberg) – The Biden administration on Friday released a much-anticipated plan to overhaul oil and gas development on federal lands, which includes raising royalty rates despite high gasoline prices that have boosted requests for acceleration of national production.

The Home Office report recommends higher fees and more limits on federal oil and gas rentals to better account for climate change and ensure a higher return for taxpayers. The analysis represents the culmination of a comprehensive review that President Joe Biden ordered in January.

The Home Office said its 18-page plan could modernize oil and gas leasing programs “to better restore balance and transparency in public management of land and oceans and deliver a fair return and fair to US taxpayers “. The current program “fails to serve the public interest” and “bypasses taxpayers,” according to the report.

Among the recommended changes are increasing annual rents and increasing royalties that energy companies pay for the oil and gas they extract. The agency also recommended new restrictions on land made available for oil and gas development, a big change from the current practice in which most federal land is open.

The assessment comes amid rising gasoline prices that have raised concerns in the White House and prompted the Biden administration to move in the opposite direction, ramping up domestic production of oil and gas. After OPEC + countries rebuffed the administration’s call to increase oil production, Biden on Tuesday decided to release 50 million barrels of crude from U.S. emergency stocks.

Frank Macchiarola, senior vice president of the American Petroleum Institute, the oil industry’s largest trading group, noted the report’s timeline just days after the White House said Biden was “using every tool available” to reduce gasoline prices. Instead, Macchiarola said, the Home Office had “offered to raise the costs of US energy development.”

The report, which has spent months under consideration in the White House, has been touted as a “reform agenda” for federal leasing. He is telegraphing a series of changes that the Bureau of Land Management will pursue administratively. Other policy hubs would require congressional action and align with the provisions of the newly passed House taxes and spending bill.

If fully implemented, the recommended changes would winch the land available for oil and gas development while increasing the costs of this activity even when new leases are sold.

The agency halted the sale of new leases during its review, under a directive released by Biden on Jan.27. After a federal district judge declared the moratorium illegal in June, the agency decided to repossess the lease, starting with the sale of drilling rights in the Gulf of Mexico last week.

Disappointed environmentalists

Environmentalists have expressed disappointment that the plan does not ban rental altogether.

“The administration must manage public lands and waters in accordance with its climate commitments, and today’s report does not propose a plan to do so,” said Representative Raul Grijalva, an Arizona Democrat who heads the House natural resources committee. “What it offers is a set of important and long overdue reforms to the federal fossil fuel leasing program, which until now has been a public subsidy for oil and gas drilling and extraction. “

Campaigners have urged Biden to permanently block oil and gas development on federal lands and waters, arguing that a warming world cannot afford to burn the fossil fuels they contain. Yet they are also a major source of US energy, providing over 20% of US oil production and just over 10% of its natural gas production.

Candidate Biden

During the election campaign, Biden vowed to block new oil and gas permits on public lands and waters. And more than 50 groups insisted in a June letter that the president expand his campaign pledge to “not only end federal rental programs, but reduce existing federal oil and gas production.” Activists lambasted the administration’s decision to proceed with the sale of the Gulf of Mexico lease, which was postponed in the face of a potential contempt of court citation.

Collin Rees, a senior activist with environmental group Oil Change US, called the report “woefully inadequate” and said it “reads as if it was written in the 1990s,” with “almost no new ideas. “.

“President Biden has promised to end the rental program entirely because of its deadly climate threat,” Rees said. “Interior’s recommendations fall far short of this goal and ring particularly low after the largest lease sale in US history.”

But industry leaders and their allies argue that the United States cannot afford to restrict oil and gas development on federal lands and waters that provide about a quarter of the country’s crude production. They warned of pivots that could jeopardize production on federal lands and make the United States more vulnerable to spikes in demand like the one currently plaguing the United States.

“Arbitrary rental or license restrictions only create uncertainty for US businesses and strained budgets for state and federal governments as well as local communities,” said Anne Bradbury, Managing Director of the American Exploration and Production Council. “We appreciate where this report recognizes the positive contribution our industry is making to the country and we look forward to working with the administration to build on our environmental and economic progress together. “

The Home Office said the Bureau of Land Management should consider changes to better screen lease buyers and reduce the amount of land available for auction – a change that could ensure the most potential territory is tapped.

The department also said the office is expected to increase rental rates, bond requirements and royalty rates – some established around a century ago. Companies have typically been billed 12.5% ​​of the value of oil and gas extracted from onshore leases, at a rate dating back to the 1920s. For offshore leases, royalty rates have recently ranged from 12.5% ​​to 18.75%. In contrast, in Texas, royalty rates can be double those charged by the federal government.

“The most oil and gas producing states charge royalty rates on state lands that are considerably higher than those assessed on federal lands,” Interior said. Meanwhile, bond requirements have not been increased for 50 years and minimum offers and rents have been set for more than three decades, the department said.


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