When I interviewed Interior Secretary Ryan Zinke at Denali last year, he complained about how Interior’s revenues from natural resource commodities had crashed over the decade since President George W. Bush left office. “In 2008, just offshore, the DOI made about $18 billion a year,” he said. “Last year was $2.3 [billion].” Total oil and gas revenues were $21.6 billion in 2008, according to the Office of Natural Resources Revenue, compared to $4.3 in 2016, so there’s no doubt: It was a huge drop. As I mentioned in my profile of Zinke in the January issue of Outside, I asked him what caused the shortfall.
“The price of oil and gas declined. True, no doubt,” Zinke said. “But also, the regulatory framework in some cases became punitive and arbitrary.”
Zinke has a quick fix for this discrepancy: Hold a fire sale of public land and offshore energy leases and get government regulation “out of the way.” With these silver bullets, Zinke says he can drive revenues back toward the high-water mark, and he intends to: Zinke says he’ll use the windfall to pay for nearly $12 billion worth of deferred maintenance in the national parks.
Zinke calls this plan the Public Land Infrastructure Fund, linking it to President Trump’s pledge to rebuild America’s highways and bridges. On March 7, a mostly Republican group of senators introduced a bill modeled on the concept. “Our parks and refuges are being loved to death,” Zinke said in recent comments about Trump’s 2019 budget, which would cut Interior’s funding by close to $2 billion, or about 13.3 percent. The budget also zeroes out most conservation grants to the National Park Service and the Land and Water Conservation Fund, which Zinke went to bat for as a Montana congressman. But not to worry: The Public Land Infrastructure Fund initiative, according to Interior’s fiscal year 2019 Budget Justification, “has the potential to generate up to $18 billion over ten years” for parks and other public lands infrastructure.
The idea that Americans should throw open the gates on public lands and the seafloor to energy developers, inviting landscape and habitat degradation in order to raise funds to fix roads and bathrooms in the national parks, is a tough sell. Especially when we’re asked to entrust this plan to what may be the most overtly anti-conservation administration in history. On the economic side, it’s also a fantasy.
For starters, the years Zinke cites as his bookends are not representative. In 2008, when Interior brought in $15.7 billion in oil and gas revenues, oil hit an all-time high of more than $140 per barrel. Then the global recession sharply reduced demand and sent prices tumbling to about $40, a collapse that was compounded by OPEC manipulations and an oil glut caused by rapid expansion of fracking operations. North American natural gas prices took an even wilder ride, tumbling from a peak of about $15 per MMBtu in 2005 to less than $2 at the lowest point in 2016. Oil prices have since climbed back above $60, and gas prices are hovering around $3, but not much of any of this has to do with deregulation, federal energy policy, or Trump.
“Ryan Zinke can talk as much as he wants about energy dominance, and they can offer the entire West for lease,” says Jesse Prentice-Dunn, advocacy director for the Center for Western Priorities. “But just saying that is not going to make that happen.”
This is where Zinke’s dreamscape is most vivid: In the low-price environment of a saturated energy market—especially one in which the biggest plays are on private land—there’s not much demand for new public land and offshore energy leases. If there aren’t many bidders, there won’t be many new leases, which means there won’t be much in the way of new production or royalties.
“The market is screaming, ‘We don’t want these leases,’” says Collin O’Mara, president of the National Wildlife Federation. O’Mara highlighted the recent lease offering on the Northern Petroleum Reserve-Alaska (NPR-A) as an example. In October, the Bureau of Land Management offered leases on 900 tracts in the NPR-A totaling 10.3 million acres. Only seven tracts, amounting to about 80,000 acres, received bids, generating a grand total of $1.16 million in fees, half of which went immediately to the state of Alaska. The same thing happened last August, when the Bureau of Ocean Energy Management offered the biggest offshore lease sale in U.S. history: 14,220 blocks totaling 76 million acres in the Gulf of Mexico. The government received successful bids for just 90 tracts totaling about 500,000 acres. O’Mara says that what’s being bid on now is “a fraction of nothing.”
Zinke increased available onshore acreage sixfold from the previous year but ended up leasing fewer acres for about the same amount of money. Lack of market-driven competition means low bid prices, and data assembled by the Center for American Progress shows that 29 percent of lease sales in 2017 received only the minimum bid. Bonus money paid on the front-end of a lease sale—roughly equivalent to the bid price—is often the only significant government revenue from a lease. That’s because companies develop only some of the leases they take on, which is one reason factoring royalties from future production borders on the impossible. The other reason is that no one can accurately predict energy prices a year from now, let alone five or ten years out.
One thing we know is that companies aren’t usually excited to spend large amounts of capital on new production in slow markets. After all, adding supply only widens the glut. This partly explains why oil and gas producers were sitting on more than 7,500 unused onshore drilling permits at the end of 2015, while in 2016, less than half of the country’s 27.2 million acres of leased land was in production. And while those companies sit on the land, Judith Kohler, communication manager for the National Wildlife Federation, says the “BLM will often refuse to manage areas for recreation, conservation, and wildlife.” In an example from a recent Colorado planning process, Kohler says, “BLM decided against managing lands for protection of wilderness characteristics in the Grand Hogback unit based specifically on the presence of oil and gas leases, even though the leases were nonproducing.”
In Denali, Zinke told me something I’ve heard him repeat elsewhere, including in his recent remarks at the Conservative Political Action Conference (CPAC): “It is better to produce energy here, under reasonable regulation, than watching it produced overseas with no regulation…If you want to watch how energy should not be produced, invite people to take a tour of the Middle East or Africa.”
Zinke seems to want to burden Interior with the same “resource curse” that plagues producers like Iraq, Nigeria, and Libya. “In general, the idea of using resources to develop infrastructure in national parks isn’t a bad idea,” says Mark Haggerty, a researcher and economist at Headwaters Economics, a Montana-based land management think tank. “But in practice, what it leads to is that you become dependent on that revenue stream, and you can’t afford to not develop [those resources]. You start to make poor choices on how to manage land you privilege extraction over other options that might have better economic outcomes. That dependence can actually discourage economic diversification and growth.”
You don’t have to go to Nigeria to understand the resource curse. Go to Scranton, Pennsylvania, and ask about the collapse of the anthracite coal industry. Travel to the Iron Range of northern Minnesota and see the hollowed-out port cities of Lake Superior. Go to Youngstown, Ohio, and ask about the decline of American steel. Or read in a newspaper today about the budget crises states like Wyoming, Oklahoma, and Alaska are currently experiencing because of their overly energy-dependent economies.
“The West has done a really good job of moving forward with a burgeoning recreation economy and diversification, and what this administration seems to be doing is wrecking any semblance of balance and multiple use,” says Robert Godby, director of the Energy Economics & Public Policies Center at the University of Wyoming. “This Interior Department is turning back the clock to a time that the West had really moved past, when extractive industries were king and all communities in the West were held hostage to that boom and bust cycle.”
At CPAC, sharing the stage with Secretary of Energy Rick Perry, Zinke said that “we produce here today about 10.3 million barrels a day in this country, and for the first time in 60 years we’re a net exporter of liquid natural gas, and that’s President Donald Trump.”
Zinke was misrepresenting some pretty basic facts. While Trump’s pro-energy, pro-pipeline, and deregulatory policies may have thawed a few investors still reeling from the recent slump, it will be a long time before we’ll know whether deregulation and lease sales have moved the needle one way or the other.
The fracking boom happened during the Bush and Obama administrations, and the United States was going to become a net exporter of liquid natural gas no matter who won in 2016. According to a report by Deloitte, the consulting and financial advisory company, optimism about the U.S. energy industry is focused on cost-reduction strategies, including new technology, that cut the break-even price for frackers in half.
To push revenues to 2008 levels, Zinke would have to do more than sell leases and help companies shortcut environmental regs. He would also have to figure out how to wield OPEC-like control over the global energy market, and that would probably mean looking for ways to clamp down on current production, not ways to increase it.
Since early 2017, OPEC has been ratcheting down supply to drive prices toward a goal of $70 to $80 per barrel, and while its disciplined cuts have played a large role in oil’s tepid recovery, U.S. supply expansion has had the opposite effect.
Even if the United States could turn the global energy market on a dime, an increase in oil prices to the $140 per barrel mark that helped generate $15.7 billion in revenues in 2008 would make fuel heinously expensive, putting a gallon at or above $4. In such an environment, Americans at the middle and lower ranges of the income spectrum suffer most. Americans feeling the pinch at the pump are less likely to pile their kids in the car and head to the national parks, and they’re less likely to spend the money along the way that drives the outdoor recreation economy, which now amounts to $887 billion, and which has helped cure western states of the resource curse.
You can always see an upside somewhere if you squint hard enough, but Zinke’s deregulatory and leasing frenzy just doesn’t make sense if you take him at his word—that he strives to be the “steward of our greatest holdings,” inspired by the conservation ethic of Teddy Roosevelt and founding U.S. Forest Service director Gifford Pinchot. It only makes sense if he’s doing favors for the industry lobbyists he’s surrounded himself with at Interior, and for the companies whose interests they serve.
Only then does it make sense to open the entire Pacific and Atlantic seaboards to oil leasing against the wishes of millions of citizens and numerous governors; or for Zinke to kill the Obama-era methane rule, which holds oil and gas producers responsible for gas wasted by leaky pipes and excessive flaring; or for Zinke to reduce the minimum royalty rates for shallow-water oil and gas production in the Gulf of Mexico from the 18.75 percent proposed by the Obama administration to 12.5 percent—a gift that Zinke now wants to extend to deepwater operations.
And only if Zinke is concerned more for the welfare of industry than the multiple-use stewardship of public lands does it make sense that Zinke would fight to help coal companies continue to skirt royalty reforms designed to stop them from dodging fair-value payments.
Zinke essentially confirmed where his loyalties lie at an energy conference in Houston earlier this month, saying, “Interior should not be in the business of being an adversary. We should be in the business of being a partner.”
This could not be further from the Roosevelt-Pinchot model of multiple use. Roosevelt believed limited resource extraction could occur on federal lands and waters while still safeguarding resources and wildlife, but it was the latter prerogative that dominated his conservation ethos. “As a people we have the right and the duty…to protect ourselves and our children against the wasteful development of our natural resources,” Roosevelt said at a White House conference on conservation in May 1908. Teddy would have blown his lid at the suggestion that Interior should be “in the business.”
Zinke’s job is not to increase the competitiveness of federal land in the natural resources market. His job is to steward the nation’s prized public lands, waterways, and oceans and our tremendous wealth of wildlife. His job is to defend our natural resources against corporate exploitation and to jealously guard our last remaining refuges from an increasingly noisy and chaotic world.
Overseeing development is part of the job, but it’s nowhere near the heart of it.