U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
September 27, 2001

Energy Tax Credits Instrumental in Major Energy Companies'
Shift to Natural Gas Production

Tax credits received by major energy companies for non-conventional fuel production were a key factor in the growth of their U.S. natural gas production in the 1990's, according to a report released today by the Energy Information Administration (EIA) entitled The Majors' Shift to Natural Gas.

Nearly half of the major oil and gas producers reporting to EIA's Financial Reporting System (FRS) received tax credits for non-conventional fuel production under Section 29 of the Windfall Profit Tax Act. Coalbed methane, which is natural gas produced from coal seams, accounted for most of the majors' production qualifying for Section 29 credits. Coalbed methane production accounted for 7 percent of total U.S. natural gas production in 1999 and represented 57 percent of the growth in U.S. natural gas production in the 1990's. Majors reporting to the FRS accounted for two-thirds of U.S. coalbed methane production in the 1990's.

The credits appeared to be a stimulus to the majors' U.S. natural gas production. According to the report, majors receiving Section 29 credits increased their U.S. natural gas production by 26 percent between 1990 and 1999 (the most recent year of FRS data) while other majors' U.S. natural gas production declined by 14 percent (Figure 1). Although production from wells drilled after 1992 is not eligible for Section 29 credits and the credit is due to expire at the end of 2002, the majors continued to develop coalbed methane resources. According to the report, after 1992, majors receiving the credit drilled about 900 more U.S. gas wells annually than other majors and several majors made outlays for acquisitions of independent coalbed methane producers in recent years totaling $3.4 billion.

The report points out that the major energy companies' shift to natural gas production has been a long-running trend that started in the mid-1980's, long before the growth of coalbed methane production. Beginning in 1986, natural gas grew steadily from 38 percent of the majors' combined U.S. oil and natural gas production to 52 percent in 1999. This trend was a reversal of the majors' earlier flight from natural gas (Figure 2). The report finds that these trends were driven by the profitability of natural gas production relative to the profitability of oil production. Beginning in the early 1980's, the profitability of U.S. natural gas production generally increased compared to oil production, and from 1993 on, exceeded the profitability of oil production in all but two years.

• Growth in the majors' Canadian natural gas production and investments in liquefied natural gas (LNG) transport and facilities should increase their volume of natural gas exports to the United States.
• The majors' continued interest in coalbed methane production should increase their share of total U.S. natural gas production.
  
• The prevalence of the majors in Alaska reserve ownership and production will increase their share of U.S. natural gas supply if a pipeline is built to transport natural gas to the lower 48 states.

The Majors' Shift to Natural Gas is available electronically on the EIA Website at: http://www.eia.gov/emeu/finance/sptopics/majors/index.html.

EIA Program Contact: Jon A. Rasmussen, (202) 586-1449
EIA Press Contact: National Energy Information Center, (202) 586-8800

EIA-2001-10

Contact:

National Energy Information Center

Infoctr@eia.doe.gov

Phone:(202) 586-8800

FAX:(202) 586-0727

URL: http://www.eia.gov/neic/press/press180.html

If you are having technical problems with this site please contact the EIA Webmaster at mailto:wmaster@eia.doe.gov