Abstract
For hundreds of Wyoming workers and companies involved in oil and gas exploration and development, the ripple effect of pausing new federal leases generates an enormous amount of fear and uncertainty. The lost jobs and revenue caused by Biden’s actions inhibit Wyoming’s ability to invest in new energy projects and generate revenue from future lease sales. In the longer run, Wyoming may find itself with no choice but to increase the costs of doing business with other energy sources in order to balance their budget.
Key Points
- At the end of Trump’s presidency Wyoming was granted a 5,000-well oil and gas project spanning over 2,300 square miles in eastern Wyoming. The development of the new field would create an estimated 8,000 jobs and bring $18-$28 billion in revenue to the state.
- Biden’s moratorium has created pushback from Wyoming legislators who are concerned about jeopardizing the revenue oil and gas development brings to the state. This has already come to fruition as the administration stopped the first quarter lease auction scheduled on March 15th. The anticipated sale was about 6 times larger than Q1 2020, which resulted in a $3.4 million auction, of which half of the proceeds as well as future royalties went to Wyoming.
- The state produces 51% of its oil and 92% of its natural gas on federal land. As revenue from coal production continues to decline, Wyoming has increased its revenue reliance on other forms of energy production. Taxes and payments from fossil fuel development supports a large portion of the state’s budget for public education, infrastructure, and the local and state government.
- With $1.67 billion in state revenues coming from oil and natural gas in 2019, if a mandatory drilling ban is implemented the state will lose an estimated $640 billion through 2040 from reduced production, energy investment, and tax revenue. A leasing moratorium would also eliminate an estimated 15,269 jobs per year for the first 5 years.
- Wyoming Governor Mark Gordon signed an executive order directing state agencies to evaluate the financial impacts of the president’s ban on federal lease sales and other legal options available to the state. His request included a waiver from federal drilling restrictions and, along with governors in 16 other states, urged the president to withdraw his executive order on new federal leasing.
- A 2018 report found that Wyoming was responsible for 57% of the nation’s greenhouse gas emissions originating from oil, coal, and natural gas mined from federal lands. With federal support, Governor Gordon has pledged to advocate for the development of carbon capture technology in the state.
- As state revenue from federal oil and gas development begins to dry up, many in Wyoming are worried about the impact it will have on the future of the state’s economy. Fear exists that energy producers will move elsewhere, either to other states or overseas. The waiver request from Biden’s executive order is the state’s attempt to protect its income stream, jobs, and energy independence from what it deems to be unfair regulations compared to other states.
Introduction
During President Joe Biden’s first two months in the Oval Office, he has taken sweeping action on the global pandemic, the economy, and climate change. But many of his actions were initiated during his first few days in office. As discussed in various previous RP Releases, the Biden Administration’s moratorium on all new drilling permits on federal lands for 60 days and his executive order banning all leasing of federal land indefinitely will hurt the economies of a number of U.S. states, especially the nation’s second largest fossil fuel provider, Wyoming. As a result, Wyoming Governor Mark Gordon has requested a waiver for Wyoming from federal drilling restrictions enacted by President Joe Biden’s administration and is a move supported by Wyoming political leaders and industry groups. They fear the economic fallout from what is applauded by conservationists hoping to see the system reformed. With the temporary drilling moratorium set to expire on March 21st, Wyoming has announced they will push back against any federal regulations brought by the Biden administration that hinder development of fossil fuels and other resources.
Federal Actions
Before diving into the various actions taken by the Biden Administration to hinder further development of fossil fuels in Wyoming and across the United States, one must first wind back the clocks to the end of President Donald Trump’s tenure in the White House. Just a few days before the new year, U.S. officials approved a 5,000-well Converse County Oil and Gas Project that spread across more than 2,300 square miles in eastern Wyoming [1]. Five major oil and gas companies proposed the development between Glenrock and Douglas that has stirred concern over its massive size and plans to drill year-round. Approval from the Bureau of Land Management finalized the development plan, although actual construction will require separate approvals. Regardless, Federal officials say the new field would create more than 8,000 jobs and between $18 billion and $28 billion in revenue [1]. After nearly a decade of environmental review resulting in thousands of pages of documentation, the BLM determined the project could move forward, but that progress is in jeopardy.
On Inauguration Day (January 20th), the department of the interior issued a 60-day moratorium on federal leases and drilling permits but those actions were taken a step further with Executive Order 13990 signed by President Biden on January 27th that extended the ban on all federal leasing activities indefinitely “pending completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices” by the Secretary of the Interior [2,3]. The announcement quickly drew pushback from Wyoming’s three federal delegates, who subsequently introduced bills that would require congressional approval before such a moratorium could be implemented. Their biggest concern: the revenue oil and gas development brings to the state; revenue that has already been jeopardized by the actions of the Biden Administration. The Bureau of Land Management, a branch of the Interior, auctions parcels of federal land to oil and gas companies for mineral development four times a year in the state of Wyoming [4]. The fate of Wyoming’s upcoming first-quarter sale in March was in question until February 12th when the Administration stopped the half-million-acre Wyoming oil and gas lease sale. The BLM had scheduled the first-quarter 2021 sale of development rights on 383 parcels of federal land for March 15 after deciding the sale would not “significantly affect the rate of change” in the environment [4]. Last year, the first quarter sale brought in $3.4 million after energy companies leased 75 parcels covering 71,689 acres – less than a sixth of the acreage that had been proposed for the March 2021 sale [4]. Wyoming received about half the sale’s proceeds and will also get a share of future production royalties, if production ever occurs. With the Converse County Oil and Gas Project in limbo due to drilling restrictions and the BLM lease sale postponed, the concerns over the effect Biden’s actions might have on states has now come to fruition. Wyoming has now missed out on a multi-million dollar sale that would have supported much needed state revenue and will potentially miss out on an economy altering energy project.
Effect on Wyoming
Biden’s actions could have wide-ranging consequences for fossil fuel dependent states like Wyoming. In the United States, about 10% of oil and gas production nationwide occurs on federal lands, but in the Cowboy State, about 51% of oil is from federal minerals, along with an overwhelming 92% of natural gas [5]. As a result, the state has come to deeply rely on oil and gas production for revenue, especially as money from coal production disappears. Fossil fuel production from federal minerals provides significant tax revenue to Wyoming. The revenue comes from severance taxes, ad valorem taxes, federal royalty payments and lease payments. In addition, oil and gas companies must pay property taxes, as well as sales and use taxes [6]. These payments fund the bulk of public education, infrastructure, local and state governments, and more. “The President’s decision to halt Federal leasing on oil and gas under the guise of a ‘pause’ is beyond misguided,” Governor Mark Gordon said in a statement. “The lost jobs and revenue caused by this action inhibit Wyoming’s ability to invest in CO2 capture and likewise the ability of the oil and gas industry to contribute to those projects. In the longer run, Wyoming may find itself with no choice but to increase the costs of doing business on other energy sources to balance our budget” [6]. Many agree with Gordon and hold a view that the moratorium on new federal oil and gas authorizations has severe implications that devastate the State of Wyoming’s revenue in the near-term with the potential to spell a long-term blow for the State’s economic wellbeing.
A large portion of their concern is the massive presence of the coal industry in Wyoming. As the nation has slowly been phasing out coal from the energy mix, Wyoming has been forced to do the same. But the leaders of Wyoming still believe in an “all of the above” approach to energy which includes both traditional energy sources as well as renewables [7]. As Wyoming is still the highest producer of coal in the United States, transitioning away from all fossil fuels for Wyoming would spell economic disaster. Part of the state’s new approach for a waiver from federal drilling restrictions is presenting Wyoming as a leader in energy development, while highlighting the state’s efforts to develop carbon capture and sequestration technology and to regulate methane emissions and sage grouse protections [7]. Without the much-needed fossil fuel revenue to advance carbon-capture technologies, Wyoming will drag the rest of the nation down in its goals to reach net-zero emissions in the power sector by 2035 as the nation still relies heavily on the energy Wyoming currently produces.
Therefore, many political leaders have come out against the pauses to oil and gas leasing on federal minerals, saying the economic consequences would be grave, and the environmental returns too small. But how grave would the economic implications be? Well, according to the Petroleum Association of Wyoming, a ban on federal leasing could devastate Wyoming’s economy and upend their way of life since oil and natural gas contributed $1.67 billion in revenues to the state including $740 million to public education, $28 million to higher education and $132 million to local governments in 2019 alone [8]. A state-commissioned drilling-ban impact report by a University of Wyoming energy economics professor further predicts production and investment losses in Wyoming, plus the lost tax revenue, would amount to $640 billion through 2040 [9]. Those are revenues the state cannot live without. In addition, the report finds Wyoming would lose 15,269 jobs a year in the first five years of a leasing moratorium, and leasing or drilling restrictions would have a “spillover effect,” potentially making extraction less attractive or efficient on nearby private or state lands [9]. These staggering numbers paint a bleak picture. But supporters of Biden’s actions, like Dan Smitherman, the Wyoming State Manager for The Wilderness Society, note that “over 90% of the revenue Wyoming reaps from federal oil and gas come from royalties paid on production — which will not be impacted by pausing new leasing. Operators have plenty of opportunity to continue producing oil and gas during this pause” [10]. While this statement is certainly true in the near term, it becomes misguided into the future since oil and gas production require drilling to maintain production levels. While there is certainly a backlog of drilling permits and approved leases to keep operators in business in the near term, they will eventually run out if no new leases or drilling permits are approved. Though Wyoming may not feel pinched by an extended moratorium immediately, economists forecast that by 2023 the effects of a ban will become apparent [9]. Luckily, the temporary moratorium on drilling permits expires on March 21st so it will be exciting to see where Biden goes from there.
Wyoming’s Response
In the wake of President Joe Biden’s executive order imposing an indefinite pause on new oil and natural gas leasing on federal lands, Wyoming Governor Mark Gordon signed an executive order of his own, 2021-01, on January 29th that directs Wyoming state agencies to examine the financial impacts of the president’s ban on new sales of federal oil and gas leases, as well as the potential legal options available to the state [11]. The basis of Gordon’s actions lie in his argument that Biden’s actions will cause immediate and considerable harm to the state of Wyoming, including to the critical services upon which Wyoming residents depend. In addition, he has asked the court system to lift the moratorium immediately and expects other states adversely affected by this moratorium will join in this litigation [7]. When asked about what the state Legislature can do to boost his office’s efforts, Gordon said legislators could pass a joint resolution to the Biden administration and Congress expressing concern about the actions of the order. Actions he believes “shows that traditional Wyoming energy industries are being targeted by climate-only activists” [7]. But Governor Gordon’s actions did not stop there.
After Governor Gordon requested a waiver from federal drilling restrictions, he held a meeting with the Republican Governors Association in order to find ways to resist the regulatory changes at a state level. Since Wyoming Representative Chuck Gray from Casper said he wanted “a tee-to-green strategy that is constructed the most intelligently to say, ‘We’re not going to implement these in the state of Wyoming’”[7], he clearly does not need more support from his state but could use a helping hand at a national level. The meeting was incredibly successful and the association ended up sending a letter to President Biden, urging him to withdraw his executive order pausing new federal leases for oil and gas development as it was a move many state leaders say will devastate Wyoming’s economy. The letter, which was co-signed by Republican Governors in 16 other states, called the January 27th decision and lack of consultation with affected states by the Biden administration “alarming,” saying it showed a “disregard for the citizens we serve” by threatening jobs in energy-producing states and potentially increasing consumer costs by an estimated $1.7 billion [12]. The group had a simple argument: to meet consumer demand and stabilize our electric grid, we depend on energy produced on private land and public land. As the letter reads: “simply put, the Order jeopardizes our national security interests and strips away the opportunity for Americans to be energy independent” [12].
While Wyoming leadership is clearly fighting hard for continued oil and gas development in their state, there are things going against them that must be addressed if they are to be taken seriously by the Biden Administration. A 2018 report found that Wyoming was the largest single contributor of greenhouse gasses from fossil fuels extracted from federal lands [13]. The estimates for the decade between 2005-2014, granted a period before coal companies saw significant loss of demand, showed that fossil fuels extracted from Wyoming were responsible for 57% of greenhouse gasses emitted from oil, gas and coal mined from federal lands nationwide [13]. That is simply unacceptable. A single state cannot be responsible for over half the greenhouse gas emissions by fossil fuels extraction from federal lands nationwide, but that is understood by Governor Gordon. He has pledged the state will also continue to advocate for the development of technology to capture carbon dioxide from coal-fired power plants, but needs a budget to do so [7]. Luckily, Biden has proclaimed, “let me be clear, that includes helping revitalize the economies of coal, oil and natural gas and power plant communities. We have to start creating good paying jobs, capping those abandoned wells, and reclaiming mines” [6]. So while further development of the oil and gas industry may be a far-fetched goal, it seems there will still be support to ensure a steady transition for energy workers.
Conclusion
For hundreds of Wyoming workers and companies involved in oil and gas exploration and development, the ripple effect of pausing new federal leases generates an enormous amount of fear and uncertainty. A state once prosperous on the income of all fossil fuels has gradually come to rely more and more on oil and gas production for revenue, especially as money from coal production dries up. Now, that income stream is threatened. The small glimmer of hope is the fact that the executive order places significant focus on creating good-paying union jobs to modernize the country’s infrastructure and help the U.S. transition to renewable energy. To do so, the Biden Administration plans to form an interagency working group tasked with investing in communities relying on coal, oil and natural gas as the country transitions to new, carbon-free power sources. In other words, Biden has vowed to support communities like those in Wyoming most impacted by his actions.
The problem is, many in Wyoming and across the country feel that energy independence and domestic production of vital resources are central to the nation’s security and furthermore prosperity. Those in Wyoming believe that banning new oil, gas, and coal leases on federal land and waters will do nothing to address climate change as energy producers will simply go elsewhere – likely out of state or overseas. Governor Gordon put it perfectly in an interview when he said, “this misguided policy does nothing to reduce the demand or to improve environmental outcomes, but rather increases reliance on foreign sources of energy not beholden to America’s environmental, labor or safety standards while increasing energy costs for consumers” [7]. Wyoming is an energy heavy state and as the nation moves away from fossil fuels, Wyoming operators will take a huge blow. Unfortunately for many operators across the United States, especially those in Wyoming, the executive order will have a disproportionate impact on the state’s small and mid-size operators. Petroleum Association of Wyoming President Pete Obermueller noted, “about 80% of the operators in Wyoming are small and mid-size, (and) they just don’t have the capacity to have a multi-year process gathering leases and building core areas like some of our larger producers. If (the ban) is indefinite and there’s no movement on that, you will see that the smaller and mid-size operators have a much more difficult challenge. Larger ones might be able to last for a little bit longer than that” [14]. Even though Joe Biden has vowed to fight for the little guys, his actions will do the opposite for places like Wyoming. Even though the state shares the President’s goal for addressing climate change, marked by U.S. innovation and powered by American energy and skilled union workers, Biden’s executive order seems to be a step backwards for both the nation’s economic recovery and environmental progress as it threatens to cost thousands of jobs and much-needed revenue while increasing emissions by slowing the transition to cleaner fuels.
References
[1] https://www.wyomingnewsnow.tv/2020/12/24/5000-well-oil-and-gas-field-approved-in-eastern-wyoming/
[2] https://www.doi.gov/sites/doi.gov/files/elips/documents/so-3395-signed.pdf
[4] https://www.wyofile.com/biden-administration-stops-half-million-acre-wyo-oil-and-gas-sale/
[11] https://drive.google.com/file/d/1EDh8p4ZXxG742g4s4CvIdFTjUVlOhoSZ/view
[13] https://pubs.usgs.gov/sir/2018/5131/sir20185131.pdf
[14] https://www.gillettenewsrecord.com/news/wyoming/article_d400c9fe-302a-51d6-ada4-5a8a9f86878a.html
[15] https://eplanning.blm.gov/eplanning-ui/project/66551/570
[16] https://www.eia.gov/todayinenergy/detail.php?id=12431
[17] https://www.rga.org/gop-governors-call-biden-withdraw-job-killing-eo-threatens-energy-independence/