Unconventional Oil and Natural Gas - Help for Government Budgets

Mark Green
Posted September 11, 2013

There are a number of good reasons to continue developing America’s vast reserves of unconventional oil and natural gas, according to the latest IHS study: 3.3 million jobs that could be supported by 2020, more than $468 billion in annual contributions to GDP, a rise in individual household disposable income of more than $3,500 by 2025 (up from $1,200 per household in 2012). Here’s more good news, especially for federal and state officials dealing with tight budgets. IHS projects that continued unconventional energy development and energy-related chemicals activity could generate:

• $138 billion in annual revenues for governments in 2025, nearly double the $74 billion generated in 2012.

• $1.6 trillion in cumulative revenues to all governments between 2012 and 2025.

• $2.9 billion in federal royalty payments in 2025, up from $1.9 billion in 2012, and a cumulative total of $39.6 billion over the forecast period.

• In addition, IHS estimates upstream oil and natural gas operators will pay $712 million in private lease payments in 2015 and more than $1 billion in 2025. Over the forecast period, IHS says lease payments would total $11 billion.

Bottom line: Just as unconventional oil and natural gas development compounds job creation and economic stimulus – as energy exploration and production creates business for suppliers of materials and equipment, and as families in the industry and support sectors pay for food, housing, clothing and more – the IHS study says it also will be a dynamic revenue raiser for governments:

Increased activity in the entire unconventional energy value chain and energy-related chemicals will also increase the amount of federal, state, and local government taxes paid by energy producers and chemicals manufacturers, their employees, their extensive supply chains, and companies in ancillary industries.

This IHS table breaks it down by revenue categories and year:

First, the IHS forecast shows what could happen with pro-development policies that reject tax increases on energy producers, take a common-sense approach to regulation and encourage energy investment. Second, these revenue figures could be even larger with increased access to public reserves.

IHS notes that the federal government owns about 640 million acres or about 28 percent of the land in the U.S. That ownership is disproportionately greater in the west, where the federal government owns 47 percent of the land in 11 western states, including more than 50 percent of the land in four. IHS:

The relatively limited quantity of federal land that has actually been leased for oil and gas activity makes insight into the resource potential across this significant federal footprint incomplete at best. In fact, in 2012, the total leased acreage of nearly 38 million acres was just 5.9% of the 640 million acres administered by the BLM. … Additionally, given the significant resources that are already identified and accessible on state and private lands, there remains a great deal of uncertainty around the willingness of operators to navigate the complexities of the regulatory structures that govern oil and gas activities on federal lands …

More simply put, to find oil and natural gas you have to be allowed to look for it. And federal policies – access, leasing and permitting – have not been conducive to energy development on federal lands in recent years. That’s why surging U.S. energy output is occurring largely on state and private lands.

IHS’ study depicts the oil and natural gas industry as a major revenue generator for government, a role that will build over the forecast period. With policies that allow increased energy activity, the IHS study suggests, industry could generate even more.