Oil and gas industry faces obstacles beyond moratorium

The Obama administration’s moratorium on deepwater drilling in the Gulf of Mexico is not the only obstacle facing the oil and gas industry, according to experts. Proposed tax hikes, major regulatory challenges and a de facto moratorium on other types of drilling also encumber it — even as jobs, regional economies and energy independence depend on its success.

“The spill has been a convenient political issue for the White House to accelerate an agenda that they had sought prior to the spill,” American Energy Alliance President Tom Pyle said on a conference call Thursday. “I don’t expect, even if they lift this moratorium, for them not to continue to force these rigs overseas and out of this country.”
That agenda includes tax proposals that some critics call “misguided.” One such proposal would erase industry eligibility for a particular manufacturing tax credit. Another would doubly tax the foreign incomes of companies headquartered in the United States.

“They’re talking about taking $80 billion from the industry,” said American Petroleum Institute economist John Felmy this week at The Bloggers Briefing. “We tried that back in the ‘70s and ‘80s with the tax increases that happened. They failed miserably. It reduced production, reduced employment, increased imports and then they poured the money down the drain on things that didn’t work.”

Tax increases, just like a continued ban, would reduce production today, too — and, unfortunately, that reduced production would have the same devastating effects as it did in the past.

“The economy is less robust when you have higher energy costs,” Heritage energy expert David Kreutzer said at The Bloggers Briefing. “When you restrict energy use, income drops $2,400 per year per family.”

Unemployment increases, as well, he said. A continued permanent ban on drilling would cost the U.S. more than a million jobs over the course of 25 years.

Then, too, reduced production equals increased imports. The U.S. could expect to spend some $737 billion in the next 25 years to import petroleum to offset the inevitable decrease in production if the ban on drilling — official or unofficial — continues, Kreutzer said.

That money wouldn’t exactly go to friendly countries, either.

“Last time I checked, Hugo Chavez wasn’t a big fan of ours,” Pyle said. “We do get a lot of imports from our friends, including in Canada, but part of this war on energy involves what’s called an imposition of low-carbon fuel standards, which is basically a target at the Canadian oil stands. The oil that we get from Canada in the Alberta area has a higher carbon content and, so, even if we do pick up more of our oil from there, they’re literally proposing an agenda that will make it impossible for us to import it from countries that like us so it will continue to push us into areas where they’re not as friendly.”

It might be that government officials and others don’t realize just how important domestic oil production actually is — or what it could do for our country.

“Very few people understand that 9.2 million Americans owe their jobs to the oil and gas industry,” Felmy said. “We think that producing more oil and gas in this country would be a win-win-win circumstance. It’ll generate jobs, it’ll produce revenue for the U.S. economy and for the federal-state-local governments and it’ll improve the trade deficit.”

In other words, what the administration wants to do — reduce production — is exactly the opposite of what needs to be done.

Tina Korbe is a reporter in the Center for Media and Public Policy at The Heritage Foundation.

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