President Obama’s Anti-energy, deficit increasing policies

Representative Doc Hastings, chair of the House Natural Resources Committee, is introducing a long-overdue bill designed to increase domestic oil production by overturning the Obama administration’s de-facto moratorium on new offshore oil and gas exploration and production that has been in place since the Deepwater Horizon blowout last year. 

Hastings is introducing a packet of three bills and the House plans on taking up the bills perhaps as early as 5/5/11.  The bills would, in short, reopen the Gulf of Mexico to drilling, open lease sales off the coast of Virginia and expedite the permitting of new drilling.  These bills, in my opinion, do not go far enough, but they are a great start. 

Claims that increasing domestic supply would not affect world price are simply wrong.  Increased domestic supply would help reduce prices in two ways.  First – and this the first day of first year economics – increasing supply of a good in short demand tends to reduce prices.  Second, new oil supplies, particularly from the U.S., would have an inordinate impact on the world market.  Uncertainty due to the ongoing unrest in the Middle East is a significant factor in the current high prices. Though an additional 2 million barrels a day from ANWR and the OCS would only be a drop in the bucket of world oil demand, because it is coming from the stable U.S. it would reduce the uncertainty that impacts global oil prices.  Just holding the lease sales and granting the permits to drill, long before any oil flows, would tell the market that medium and long-term help is on the way.  This would have an outsized moderating influence on high prices and the volatility in the market – beyond that the simple addition of the oil would have. As I’ve stated before, in commodities markets, where oil comes from counts.

Aside from its affect on prices, new oil production would also help reduce the federal budget deficit and, perhaps, moderate some of the budget cuts facing coastal states.  A recent paper by my friend and colleague Rob Bluey explores the fiscal impact of the current offshore oil moratorium.

Bluey points out, based on Obama administration actions and statements, that 2011 could be the first year since 1965 that the federal government did not sell any leases in the Gulf.  And this at a time of declining production from existing wells — the U.S. Energy Information Administration projects a decline of 240,000 barrels per day in oil production from existing production in the Gulf of Mexico this year.

The result: the government will collect less less in rent, royalties, lease payments and taxes.  How much takes one’s breath away.  Offshore leases currently generate more than $200 million in rent payments per year.  In addition to lease payments, oil companies pay an 18.75 percent royalty to the federal government on the oil produced.  With oil currently trading above $100 a barrel, that equals $4.7 million in lost revenue each day.  If the government’s own projections are accurate, that would amount to $1.7 billion this year.  Royalties, leases and rent make up a sizable amount of revenue each year.  In 2008, the offshore industry paid $237 million in rent, $8.3 billion in royalties and $9.4 billion for bids on new leases.   By comparison, last year those numbers dropped, while rent increased modestly to $245 million,  royalties fell by more than half, to $4 billion, and lease bids fell by approximately 90 percent to just $979 million.  This year, if no leases are offered, lease bids will fall to zero – from 9.4 billion to zero in just three years. 

Who says the Administration lacks an energy plan; it’s clear that  they have one.  the Obama plan is for Americans to pay more and live with less – straight out of the radical environmental playbook. 

In an insightful article written by long-time Washington insider (former Chief of staff for two U.S. Senators), Jim Guirard, the author creates a pointed and accurate term for the President’s energy plan: “LEAHP – Less Energy at Higher Prices.”  As in the great LEAHP backwards.   I recommend the article as Guirard links much of Obama’s anti-energy policies to his pre-election commitment to environmentalists (which Guirard refers to as the “Branch Carbonian Cult” – I wish I had come up with these labels) to cut CO2 emissions to prevent human caused global warming.

Comments (2)

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  1. P.L. Sonis says:

    I don’t understand the fealty to drilling as the necessary solution for our dependency on oil. “Drill here, drill now” isn’t a bad thing since it will increase the supply of crude. However, all that oil will go on a global, not domestic, market. The better policy to reduce U.S. gasoline prices is “refine here, refine now.”

    • H. Sterling Burnett says:

      Refiner’s have a very low profit margin so high prices aren’t due to refinery costs. I would agree that building new refineries would be a good thing but it is almost impossible to get approval. Haven’t built a new one in the U.S. in more than 20 years — though, through efficiency gains and modest expansions we have gained some capacity but not enough to make up for refineries that have ceased to operate due to environmental regulations and the fact that they were out of date and at the end of their useful life. They’ve been trying to build a new refinery for more than 10 years in Arizona but NIMBY’s keep it out. A colleague and I wrote about this a couple of years ago and nothing has changed. The paper is linked here: http://www.ncpa.org/pdfs/ba603.pdf
      Boutique fuel requirements also limit refining capacity and raise the costs of gasoline at the pump. The NCPA also published a paper about this linked here: http://www.ncpa.org/pub/ba557/

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