Roughly a quarter of all crude oil and more than a tenth of all natural gas was produced on territory owned by the federal government in 2021. Though offshore natural gas production has dwindled in recent years, crude oil production on public lands has increased.
While energy production has increased on federal lands, the total amount of land leased to oil and gas developers has gone down since 2008. More than half of all land leased to oil and gas companies remains unused for production.
The Inflation Reduction Act of 2022 promotes domestic energy production in some specific ways. One provision is a requirement making new leases of federal territory for wind and solar energy dependent on offering federal leases for oil and gas producers.
On the surface, this part of the bill appears to tie renewable energy development to the continued production of fossil fuels on federal territory. However, increases to oil and gas production costs on federal territory could impact how many companies choose to acquire development leases.
How much energy do oil and gas companies produce on federal lands?
In 2021, approximately 25% of total US oil production came from federal territory. In the same year, 12% of total natural gas production came from federally leased territory. This includes both onshore and offshore production.
Over the last decade, oil produced on federal territory has increased by roughly 70%. The bulk of this increase comes from onshore oil production, which rose by 200% over the last decade.
Conversely, natural gas production has dropped by 21% since 2012, largely due to a drop in offshore gas production due to aging wells, declining productivity, and damage from tropical storms and hurricanes.
A large portion of lands leased to oil and natural gas developers do not currently produce anything.
As of 2021, of the 25 million onshore acres leased to the oil and gas industry, approximately 12.6 million, or 49%, are currently unused and nonproducing. This doesn’t include leases on Native American territories. Offshore, 77% of the 12 million acres leased are nonproducing.
Of the 10 states with the most public land leased to fossil fuel developers, roughly half of all land remains unused for oil and gas production.
Just because companies aren’t producing on leased land now, doesn’t mean they won’t in the future. Companies can often hold on to leases for years while figuring out whether the territory is viable for oil and gas production.
While the production of fossil fuels on federal land has grown overall in recent years, the amount of federal territory controlled by oil and gas companies has dropped steadily over the same time period.
How have federal land leases changed over time?
In 2021, approximately 26 million onshore and 12 million offshore acres were leased to oil and natural gas companies.
But since 2012, the total amount of land leased to developers dropped by 34%. And the number of leases in effect decreased by 26.5%.
These declines are largely due to fewer companies picking up new federal land leases.
Over former President Donald Trump’s four-year term, his administration offered 25 million acres of onshore and 78 million acres of offshore federal territory. Of this, about 10% of the available acres ended up leased out to oil and gas companies.
In 2021, President Joe Biden put a pause on new federal land leases to oil and natural gas companies to conduct an overview of their environmental impacts. This pause resulted in the lowest level of new land leases in the last 20 years. This order was reversed when the Inflation Reduction Act became law.
Other factors, including low gas prices in recent years and production disruptions from the COVID-19 pandemic, have also impacted the lack of demand for federal territory in recent years. This year saw fewer COVID-19 challenges for the industry and an increase in the price of oil.
However, a provision within the Inflation Reduction Act making oil and gas production on federal territory more expensive may discourage future expansion.
What did the IRA change about federal land leases?
The Inflation Reduction Act prohibits the lease of federal onshore or offshore territory unless a minimum amount of territory is also offered for lease to oil and natural gas companies for production.
For onshore territory, a minimum of 2 million acres of federal lands must be offered up in leases for the purpose of oil and gas production. For offshore territory, a minimum of 60 million acres of territory must be offered up in leases for the same purpose. Leases don’t need to be purchased to meet the law’s requirements.
The law also requires the Bureau of Land Management (BLM) to adjust its leasing program.[1] The BLM is responsible for managing 700 million acres of subsurface lands, or roughly 30% of the United States, mostly located in 12 western states.[2]
Previously, the BLM offered select federal territory for lease through an auction process starting at $2 per acre. Annual rents for federal territory cost $1.50 per acre for the first five years and $2 afterwards. Companies also pay royalties on revenue from oil and gas produced on public territory.
A 2021 report conducted by the Department of the Interior found the oil and gas leasing program of federal territories wasn’t providing a “fair return to taxpayers.” Specifically, the report states that rental rates and minimum bids had not changed in 30 years, and royalty rates had not risen in over 100 years.
The Inflation Reduction Act raised the minimum bid price to $10 per acre and raised minimum rent prices to $3 per acre for the first two years, $5 per acre for the subsequent six years, and $15 per acre after that.
The royalty rate, which generates more than 75% of revenues created by the land leasing program, rose from a minimum of 12.5% to 16.67% as well.
These revisions went into effect this October, meaning revenues generated by all land leases will likely increase by year’s end.
These adjustments only revise the BLM’s land leasing program, and not the lease of federal offshore territory. However, this process remains far more costly due to high installation and operational costs. As of August this year, only 18, or less than 2.5% of all natural gas and oil rigs in operation in the US, are for offshore production.
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[1] The Bureau of Ocean Energy Management (BOEM) manages the leasing of offshore territory for oil, natural gas, and other marine minerals development within the outer continental shelf.
[2] These states include Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.
