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Moratoria may cost U.S. $2.36 trillion New study assesses the impact on U.S. economy of keeping closed federal land off limits for O&G exploration and development Alan Bailey Petroleum News
In 2008, faced with energy security issues and soaring oil prices, President Bush and the U.S. Congress eliminated some decades-long moratoria on oil and gas development in huge tracts of federal offshore and onshore territory. But in a continuing debate over whether oil and gas exploration should in fact be sanctioned in any of this erstwhile closed land, just what is the nature of the trade-off between the economic benefits of oil and gas production and the environmental impacts of oil and gas development?
In an attempt to attach some solid data to the development side of the trade-off balancing act, the National Association of Regulatory Utility Commissioners instituted a study, funded by a wide variety of government and private entities, to model the economic impacts of continued land closures.
Possible cumulative loss of $2.36 trillion And that study, conducted by Science Applications International Corp. and the Gas Technology Institute, has come up with some fairly eye-popping numbers, including a possible cumulative loss of $2.36 trillion from the U.S. gross domestic product over the period 2009 to 2030, if the previously off-limits lands continue closed to the oil and gas industry. That loss amounts to shaving an average annual 0.52 percent from the GDP.
Other key findings include the loss of a potential 9.9 billion barrels of U.S. domestic oil production across that same 2009 to 2030 time frame, with a corresponding increase of 4.1 billion barrels in oil imports from OPEC countries; a loss of 46 trillion cubic feet of domestic natural gas production, with an increase of 15.7 tcf of natural gas imports; and a loss of nearly 13 million jobs in energy-intensive industries.
Reduced economic activity as a consequence of issues with the energy supplies could result in 200,000 fewer housing starts than might otherwise occur, the study found.
The reduced availability of domestic oil and gas would possibly trigger an annual average increase of more than 1.4 percent in the use of renewable energy for power generation, although energy consumption would also increase by an average of 1 percent per year, the study found.
The study predicted a total cumulative loss of $2.34 trillion in people’s real, disposable income, together with a consequent reduction in the U.S. consumption of goods and services. Total consumer energy costs would increase by a cumulative $2.35 trillion; the cost of the shipment of industrial products would increase by $1.68 trillion; and there would be a cumulative increase of $1.6 trillion in the bill for the import of foreign crude oil and natural gas.
If U.S. lands were opened for oil and gas development, environmental impacts of that development would obviously occur. On the other hand, keeping the lands closed would trigger the environmental impacts of producing and transporting imported oil and gas resources, the study said. However, the study did not attempt to model the environmental impact of foreign oil and gas production.
Economic model The study team conducted its assessment by plugging estimated volumes of domestic oil and natural gas available with and without the land closures into separate runs of an adapted version of the NEMS model, a publicly available model of the U.S. economy used by the Energy Information Administration for energy market forecasts, and by White House policy advisors, the U.S. Congress and several government agencies for the analysis of energy and environmental policy, according to the study’s draft report.
“The model is the most robust model of the U.S. economy for energy forecasting, producing a general equilibrium solution for energy supply and demand in the U.S. energy markets on an annual basis,” the report said.
By finding the difference between the economic model outputs when all land is assumed open for development, and the corresponding outputs if the previously off-limits land remains closed, the team could calculate the direct impact of continued land closures and hence derive data such as the projected loss in gross domestic product.
The study team obtained its estimates for recoverable oil and gas in potentially closed lands using U.S. Minerals Management Service resource assessments for offshore oil and gas resources, and primarily using U.S. Geological Survey data for onshore resources. However, the Gas Technology Institute increased the MMS offshore estimates, to reflect the use of new development technologies in the offshore and to reflect a tendency for reserves estimates to increase as oil and gas provinces mature. And in Alaska the team included USGS estimates for oil and gas resources in the Arctic National Wildlife Refuge within its resource totals for lands subject to closure.
Two resource estimates The baseline technically recoverable oil and gas resource estimates used in the model for all U.S. federal land, whether open or closed, came from the Energy Information Administration and amounted to 186 billion barrels of oil and 1,748 trillion cubic feet of natural gas. But, by considering the potential impact of new technologies and anticipated shale gas development, the Gas Technology Institute upped those estimates to 229 billion barrels and 2,034 trillion cubic feet.
The study team did separate model runs using the original EIA estimates and the increased estimates. The study’s headline data, including the $2.36 trillion loss in GDP, then came from a comparison between two economic scenarios: the economics of closing land and developing amounts of oil and gas equivalent to the original EIA resource estimates, and the economics of opening of all land, using the revised, increased estimates.
Other model runs with the increased resource estimates applied to the scenarios for both closed and open lands resulted in economic impact data that simply reflected the effect of land closures, rather than also incorporating some impact from resource estimate revisions. And although the estimated impacts from comparing these model runs still appeared very large, the numbers were somewhat lower than those of the headline data, with a projected loss in GDP of $1.25 trillion and a cumulative increase of $1 trillion paid for imported crude oil and natural gas, for example.
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