Bashing Oil Industry is Counterproductive
In a recent speech, President Obama set a goal to reduce America’s oil imports by a third by 2025 — about 3 million to 4 million barrels a day. Unfortunately, Obama’s own energy policies undercut his goal.
To reduce America’s dependence on foreign sources, domestic energy producers will need to increase production significantly at competitive prices to make up the difference. It’s unclear how the president expects them to do this under his “less drilling, more taxes” energy policies.
The drilling moratorium imposed by the Obama administration last year following the Gulf oil spill has cost the country 240,000 barrels of oil a day, according to the U.S. Energy Information Administration. Rather than lift the moratorium, Obama seems determined to double down: On Dec. 1, he vowed to keep the waters off America’s east and west coasts as well as the eastern Gulf of Mexico off-limits to exploration. Meanwhile, longer public-comment periods are delaying the approval of what drilling leases could be granted.
The domestic drilling permits Obama granted earlier this year are steps in the right direction, but not enough to achieve his goal. Besides, even if Obama approved the entire backlog of drilling permits tomorrow, Obama’s tax proposals would undercut domestic oil production.
The president’s budget proposes $46.2 billion in new taxes over the next decade on American oil and natural gas producers. And congressional Democrats recently proposed more taxes on oil and gas companies to supposedly pay down the federal debt.
These proposals to tax an unpopular industry may score political points, but the idea that oil and gas companies aren’t paying their fair share of taxes is untrue. Between 1981 and 2008, U.S. governments collected more in taxes from the oil industry than the industry earned in profits for its shareholders, according to the EIA.
And while it’s tempting to attack energy companies when their profits are high, it’s important to remember the sector is cyclical and subject to lean times, too. Domestic exploration and drilling is always expensive and requires substantial capital. Eating into energy company profits now with tax increases means robbing them of capital needed to supply oil tomorrow (or by 2025).
Under these tax and regulatory constraints, no industry could be expected to increase production by a third at low cost in little more than a decade.
Perhaps Obama recognizes this too and is banking instead on foreign imports to reduce our foreign dependency (yes, you read that correctly).
On a recent trip to Brazil, Obama congratulated the country’s president on the huge offshore oil reserves Brazil recently discovered, and assured them “when you’re ready to start selling, we want to be one of your best customers.” Granted, Brazil as an energy source would be preferable to many Middle Eastern countries. But make no mistake; Obama is subsidizing oil production in other countries while choking it in the U.S. because he’s bowing to America’s green lobby. Brazil’s oil exploration was funded, in part, by U.S. taxpayer-supported loan programs.
In Obama’s Alice in Wonderland world, higher oil taxes, less domestic drilling, and more imports will reduce U.S. dependency on foreign sources.
In an effort to bash an unpopular industry and coddle the greens, Obama has gotten himself stuck in contradictions of his own making.
If Obama truly wants America to get its oil at home, he will find willing partners in domestic energy producers. But they would have a much easier time working with Obama if he stopped working against them.