GAO Report Released: Oil and Gas Management: Continued Attention to Interior's Revenue Collection and Human Capital Challenges Is Needed

Recently, the Government Accountability Office (GAO) released a report, titled Oil and Gas Management: Continued Attention to Interior's Revenue Collection and Human Capital Challenges Is Needed GAO-13-647T (May 16, 2013). The details of the 12-page report, available here, are discussed below:

Why GAO Did This Study

Interior issues permits for the development of new oil and gas wells on federal lands and waters; inspects wells to ensure compliance with environmental, safety, and other regulations; and collects royalties from companies that sell the oil and gas produced from those wells. In recent years, onshore and offshore federal leases produced a substantial portion of the oil and gas produced in the United States. In fiscal year 2012, Interior collected almost $12 billion in mineral revenues including those from oil and gas development, making it one of the largest nontax sources of federal government funds. Previous GAO work has raised concerns about Interior's management and oversight of federal oil and gas resources.

This testimony focuses on (1) Interior's oversight of offshore oil and gas resources, (2) Interior's collection of oil and gas revenues, and (3) Interior's progress to address concerns that resulted in its inclusion on GAO's High Risk List in 2011. This statement is based on prior GAO reports issued from September 2008 through February 2013.

GAO is making no new recommendations. Interior continues to act on the recommendations that GAO has made to improve the management of oil and gas resources. GAO continues to monitor Interior's implementation of these recommendations. 

United Kingdom Country Analysis Brief -- EIA

This Report from the U.S. Energy Information Administration finds that the United Kingdom (UK) is the largest producer of oil and second-largest producer of natural gas in the European Union (EU). After years of being a net exporter of both fuels, the UK became a net importer of natural gas and crude oil in 2004 and 2005, respectively. Production from UK oil and natural gas fields peaked in the late 1990s and has declined steadily over the past several years, as the discovery of new reserves has not kept pace with the maturation of existing fields. In response, the government has begun a three-pronged approach to address the predicted domestic shortfalls: 1) increasing domestic production; 2) establishing necessary import infrastructure, such as liquefied natural gas (LNG) receiving terminals and transnational pipelines; and 3) investing in energy conservation and renewables.

Prohibitions On Market Manipulation in Subtitle B of Title VIII of The Energy Independence Act of 2007

In this document, the Federal Trade Commission (“Commission” or “FTC”)
issues its Statement of Basis and Purpose (“SBP”) and final Rule, pursuant to Section 811 of Subtitle B of Title VIII of The Energy Independence and Security Act of 2007 (“EISA”).1 The final Rule prohibits any person, directly or indirectly, in connection with the purchase or sale of crude oil, gasoline, or petroleum distillates at wholesale, from (a) knowingly engaging in any act, practice, or course of business – including the making of any untrue statement of material
fact – that operates or would operate as a fraud or deceit upon any person, or (b) intentionally failing to state a material fact that under the circumstances renders a statement made by such person misleading, provided that such omission distorts or is likely to distort market conditions for any such product.

Energy Markets: Refinery Outages Can Have Varying Gasoline Price Impacts, but Gaps in Federal Data Limit Understanding of Impacts

This report by the Government Accountability Office (GAO-09-700) dated July 2009 argues that while some unplanned refinery outages, such as those caused by accidents or weather, have had large price effects, GAO found that in general, refinery
outages were associated with small increases in gasoline prices.

Large price increases occurred when there were large outages; for example, in the
aftermath of hurricanes Katrina and Rita. However, large price increases were rare, and on average, outages were associated with small price increases.

Factors influencing price volatility included whether the gasoline was branded—gasoline sold at retail under a specific refiner’s trademark—or unbranded—gasoline sold at retail by independent sellers.

Another factor that affected the size of price increases associated with
outages was the type of gasoline being sold. Some special blends of gasoline
developed to reduce emissions of air pollutants exhibited larger average price
increases than more widely used and available conventional gasoline,
suggesting that these special gasoline blends may have more constrained
supply options in the event of an outage.

Existing federal data contain gaps that have limited GAO’s and Department of
Transportation’s (DOT) analyses of petroleum markets and related issues.

The Peak Oil Debate

This article by Laurel Graefe in the November 2009 issue of the Federal Researve Bank of Atlanta's Economic Review (Volume 94, Number 2, 2009) finds that a "number of factors cloud the energy outlook: Estimates of remaining resources are typically given as a range of probabilities and are thus open to interpretation. Variations also occur in estimates of future oil production and in the ways countries report their reserve data.

The lack of a common definitional framework also confuses the debate. The author provides definitions of frequently used terms, delineating types of reserves
and conventional versus nonconventional resources. She also discusses how technological innovations, government policies, and prices influence oil production.
Regardless of the exact timing of peak oil production, the world must address
the challenge of adapting to a new model of energy supply.

Perhaps the world would be better served, the author notes, if the peak oil debate could be more solution-oriented, focusing on discovering the best way to transition to a world with less conventional oil rather than locking horns about discrepancies in terminology."

Crude Oil: The Supply Outlook

This report from the Energy Watch Group dated October 2007 (EWG-Series No 3/2007) argues that world peak oil occurred in 2006. By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame.

Oil and Gas Leasing: Interior Could do more to Encourage Diligent Development

This GAO Report Dated October 2008 (GAO-09-74) finds that the rate of leases by the Interior Dept. falls behind the rate of exploitation. Most aggressive leasing could result in greater royalties and domestic production.

Energy Markets: Refinery Outages Can Impact Petroleum Product Prices,but No Federal Requirements to Report Outages Exists.

This GAO Report (GAO-09-87) discusses the impact closed petroleum processing plants have on end user prices and the fact that there is no federal requirement to report such outages.