Writers on the Range: It’s time to call the gas industry’s bluff
February 5, 2008
There’s been a steep falloff in friendly chitchat around the local gas pumps, and no wonder. With diesel at $3.40 a gallon and gasoline only somewhat cheaper, it’s common to see someone drop $’00 on a tankfull.
A typical American family will spend more than $3,000 on liquid fuels this year, and another two grand on electricity and natural gas. Lodgepole pine is $250 a cord, which seems pricey, but is much cheaper than the profane price I’m paying for propane.
The hemorrhaging of family energy budgets is infusing billions into the ledgers of Shell, BP, Exxon, Anadarko, Williams, Chevron, and EnCana, the large multinationals that now dominate natural gas production in the Rockies. Next year, the combined global profits of those seven companies will approach $100 billion.
If there’s a silver lining here, it’s that some state governments’ severance tax collections are also rising. Severance taxes are designed to capture some of the wealth that is lost when non-renewable natural resources are extracted from the earth. Wyoming and New Mexico, two states where gas drilling has boomed over the past decade, now boast billions of dollars in their severance tax funds.
But my “progressive” state of Colorado, the fastest-growing gas producer in the nation, we continue to play the rube when it comes to severance taxes. Coloradans are a smug bunch. We don’t think of Wyoming as the state that makes energy extractors pay their fair share, we think of it as the Tetons, half a million antelope, and a bunch of rednecks. But if energy is an IQ test for Americans, we’re the dumb ones.
Although Colorado’s nominal severance tax rate is 5 percent, the state collects less than 2 percent, because we allow energy companies to deduct the county property taxes they pay from their severance tax bill, and because three-fourths of the state’s wells pay no severance tax at all due to Colorado’s “stripper well” exemption. This provision made sense when oil was $15 per barrel and natural gas was $1 per thousand cubic-feet. Since 1999, these prices have soared. Today, oil prices are above $90 and natural gas trades at $6.
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By piggybacking the property tax and stripper-well exemptions together, oil companies have worked the Colorado tax code like a broken slot machine. The poster child is Weld County in the northeastern part of the state, where producers extracted $7 billion of oil and gas between 2002 and 2006. In three of those years, Colorado collected not one dollar in severance taxes in Weld County.
The upshot is that since 2002, Colorado has left $1.3 billion on the table, even as the state has struggled to meet its obligations for higher education, health care and roads. In Colorado, we aren’t giving it away; we pay them to take it.
I have nothing against natural gas. It is the planet’s finest fossil fuel. I admire the roughnecks who work grueling 12-hour shifts on the drilling rigs. From a geotechnical perspective, the wizardry being deployed in the Rockies is a marvel. My friend Charlie’s job is to dowse an eight-foot-thick oil seam a mile underground, then thread a drilling bit along it, horizontally, for a mile. This makes heart surgery look like child play.
When it comes to politics, though, the petroleum industry is a playground bully. Recently, one industry-funded propaganda outfit, Americans for American Energy, accused eight mayors in western Colorado of aiding and abetting Osama bin Laden by opposing natural gas drilling on the Roan Plateau, a rare wilderness highland. Since 1990, the petroleum industry has drilled more than 150,000 wells in the Rockies and leased ” in what historians may dub the Cheney Giveaway ” 30 million acres of federal land.
That’s the equivalent of 15 Yellowstones, yet the industry’s henchmen continue to whine about what they call unreasonable limits to access.
They also avoid any discussion of severance taxes. When Colorado Rep. Kathleen Curry recently proposed hiking our severance tax rate so that it would be equal to Wyoming’s, oil and gas companies suggested they might leave the state.
This is a well-worn ” and empty ” bluff that Colorado legislators should call. The Rockies are the only place in North America where gas production is increasing. Colorado’s gas production has increased fivefold since 1990, and adjusting our severance taxes wouldn’t slow the rush a bit.
The current gas boom won’t last forever, and we should not squander the opportunity to reap long-term benefit. Wise public policy recognizes that fossil fuels are nonrenewable, and that the citizens of Colorado and other states have a legitimate claim to a fair share of their state’s mineral bounty. Legislators should also ensure that some portion of that wealth is saved for future generations, who are likely to look back at the current bonfire and wonder what we were thinking.