Louisiana Squares Off With Treasury Over Revenue Sharing
An increase in revenues and a rise in natural gas prices could bring big money to Louisiana
NEW ORLEANS, La. – Louisiana and other states rich with offshore oil and natural gas are fighting to keep more revenues destined for federal coffers.
As new shale gas plays continue to be discovered in Louisiana, the federal government is seeking to take its slice of revenues in order to help plug its $14 trillion budget deficit.
A proposal, backed by Senator Mary Landrieu (D-LA) and Lisa Murkowski (R-AK), would allow Louisiana and other producing states to keep a 37.5 percent share of oil and gas revenues that would otherwise fall into federal coffers.
At the moment, nearly all royalties and revenues from energy production in federal waters – about $5 billion to $10 billion annually – goes to the U.S. Treasury Department.
However, according to a 2006 law, Louisiana already retains 37.5 percent of severance tax revenues, but wont see any of the money until 2017. Landrieu feels that if other states were given the same economic incentive, they may be more attracted to offshore drilling.
Federal opposition to the revenue sharing plan is palpable, as Senate Energy and Natural Resource chairman Jeff Bingaman (D-NM) staunchly opposes the proposition.
Bill Wicker, a spokesman for Bingaman, claims that directing money to only a few states “doesn’t make sense,” and that the Treasury cannot withstand additional pressure on its finances.
“With the government at risk of default, how could anyone seriously consider blasting an enormous new hole in the Treasury, to the tune of many, many, many billions of dollars.”
Don Briggs, president of the Louisiana Oil & Gas Association, says he would be in favor of severance tax revenue sharing as it would incentivize states to drill off of their coasts. However, Briggs contends that states would be heavily dependent on Louisiana’s pipeline transportation and infrastructure, thus, “Louisiana should still retain a larger portion of those tax dollars, given our risk position in the Gulf.”
An alternate plan, proposed by Texas oil and gas billionaire T. Boone Pickens, attempts to start a new natural gas program whereby commercial trucks, certain auto fleets and vans are converted from diesel fuel or gasoline to natural gas.
In addition, the plan calls for a $1 trillion investment in wind turbine farms to offset the use of natural gas for power generation.
Pickens claims the conversion would enrich natural gas producers, in addition to diminishing the nation’s dependence on imported oil to the tune of $300 billion per year.
Briggs says as long as Pickens’ plan does not include “unsustainable and uneconomical wind power projects” and instead revolves around cost effective and proven technologies like natural gas, he would endorse the plan.
Unconventional drilling methods, such as hydraulic fracturing and horizontal drilling, have drastically increased production, which is expected to quadruple by 2040 according to a recent Baker Institute for Public Policy study.
The increased supply of natural gas has reduced prices, after a period of volatility during 2006 and 2008. Natural gas had traded between $4 and $5 per thousand cubic feet (MCF) on the New York Mercantile Exchange in 2011.