As states across the West face major budget shortfalls caused by declining oil and gas revenues, a potential solution is literally being sent up in flames. Each year, oil companies vent and flare hundreds of millions of dollars worth of natural gas they develop in the process of capturing and selling more-profitable oil resources. This wasted gas has real market value – if captured and sold, revenues from its sale would have a significant impact on western state budgets.
Right now, western states are in a major, ongoing battle to make up for lost oil and gas revenues. In its last budget year, New Mexico collected half a billion dollars less than the previous year, almost wholly because of declines in oil and gas-related income. The state legislature used rainy day funds and a broad package of spending cuts, including cuts to higher education programs, to make up for the shortfall. Lawmakers worry New Mexico is at risk of having its credit downgraded.
Wyoming is also reeling from energy-related budget shortfalls. Normally, Wyoming collects 70 percent of its revenue from oil, gas and coal development, but budget analysts predict that low oil and gas prices will cost the state half a billion dollars in income over the next 2 years. In June, Governor Mead imposed roughly $250 million in budget cuts, mostly across state agencies, causing hundreds of layoffs.
Looking more broadly across the West, a recent WVP report showed that leasing and development on state-owned lands—a major source of western state budget revenue—is at historic lows. Compared to 2005 levels, leasing of state-owned minerals in New Mexico, Utah, Wyoming, Montana and Colorado declined 66% in 2015, and permitting of new wells fell another 26%.
In Colorado, which is already facing a $300 million budget shortfall, the State Land Board predicts that revenues from state lands oil and gas development will decline 50% over the next 3 years, a difference of more than $100 million in annual income. Declining development on state lands is certain to have a major impact on western state revenues in coming years.
Moving forward, western states will need to foster new sources of budget income, but they should also be looking for ways to maximize their existing sources of revenue. One of the simplest and most obvious ways to increase existing revenues would be to capture and sell gas that operators vent and flare, as a new BLM rule requires for development on federal lands.
Earlier this year, WVP calculated that, since 2010, New Mexico has lost $50 million dollars from venting and flaring on federal lands alone. And a broader, previous analysis found that if vented and flared gas from development on all federal lands were instead captured and sold, it would generate an additional $800 million in revenue for state governments over the next decade.
This is revenue that would make a real difference to state budgets during bust times and recessions, and it provides a compelling fiscal reason why western states and western citizens should support measures that promote the capture and sale of natural gas, like the new BLM rule. Cutting natural gas waste, and making the most of our energy resources, is a simple, commonsense reform that westerners would be wise to embrace, especially now.