Some would call it sensational to say or to suggest that the White House has declared war on the U.S. oil and natural gas industry. Certainly our industry has seen its fair share of aggressive confrontations by different political and environmental groups over the years, so why is President Obama’s attack on the industry more than a mere skirmish?
President Obama’s proposed fiscal year 2010 budget strips from U.S. oil and natural producers economic incentives that are vital to the existence of the industry as we know it today. President Obama’s proposed budget is not a mere confrontation but instead a direct frontal attack on the core economic fundamentals that help provide capital to a high-risk, capital-intensive industry. (Figure 2 is a list of the incentives President Obama is proposing to cut.)
The rationale given by the Obama administration for stripping the U.S. oil and gas industry of incentives is this:
“The credit, like other oil and gas preferences the administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent the credit encourages overproduction of oil, it is detrimental to long-term energy security and is also inconsistent with the administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program.”
Now, in an effort to understand, let’s break this down:
“The credit ... distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system.” Our country is importing nearly 70 percent of the energy source oil, which provides 96 percent of the fuel that runs the transportation engines of the country. We must encourage investment or we will find ourselves totally dependent for our primary energy fuel.
“To the extent the credit encourages overproduction of oil ...” Overproduction? U.S. oil production peaked in the early ’70s and has been in steady decline since. Were it not for the very incentives President Obama is now proposing to eliminate from the industry, we would most probably be producing 2 million, instead of 5 million barrels of oil per day.
“ ... [the credit is] detrimental to long-term energy security ...” That is beyond my understanding. Are we to believe that by discouraging domestic energy production we are going to be more energy-secure over the long term? I think what the president is really trying to say here is that by sacrificing our energy security in the short-term, and by making us more dependent on foreign oil in the short term, it can force American consumers to stop using oil and natural gas and switch to alternative fuels, i.e. wind and solar.
“... is also inconsistent with the administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program ...” Ahh, the real truth behind the president’s plan. It has nothing to do with energy security or neutral markets; it is all about satisfying his green agenda. Somehow, oil production is being linked to carbon emissions and then cap-and-trade. Let’s break this down a little further.
“... of reducing carbon emissions ...” If the president’s policy were really focused on reducing carbon emissions, the first step would be to actively promote compressed natural gas and natural gas. CNG-powered automobiles have, according to the EPA, “the world’s cleanest internal-combustion engine,” generating 90 percent cleaner emissions than the average gasoline-powered automobile. The next step would be to move away from coal to wind/solar in electrical plants. Natural gas would also work, but the president is including natural gas as part of his plan to phase out.
“... renewable energy sources through a cap-and-trade program ...” Here is the real kicker: The administration is looking to catapult two programs/industries off the backs of the oil and gas industry. According to this budget explanation, by bringing an end to the oil and gas industry, we can move to renewable fuel sources through a cap-and-trade program. Could this be saying that once we get America and Congress to buy in to the repeal of these incentives, adding more taxes and costs through cap-and-trade will be extremely easy? Then, we can transfer all of these new tax dollars into incentives for renewable energy programs.
“... distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system ...” Isn’t this exactly what the president is doing? If by repealing these incentives the market is then neutral, should we not assume then that by adding additional incentives for the research, development and production of renewable fuel sources that the market is not neutral, and instead would be heavily favoring the renewable fuel sector?
Oil and natural gas exploration will become intensely more expensive under President Obama’s plan. The American consumer will pay dearly with higher prices for the thousands of products produced from oil and natural gas, and will suffer the consequences of the war on the U.S. oil and gas industry.