Gas prices are on the rise and the president will be taking hits from his political opponents…..and as predictable as the sun will rise is the bumper sticker attacks and answers….like Drill Baby Drill…….before one can use the bumper sticker solutions they need to be aware of what is involved with the politics of oil……
First, let us look at the tax incentives for oil companies that the GOP is trying hard to protect….
Theodore Seto, a professor of tax law and policy at Loyola Law School Los Angeles, notes the distortion in the tax code toward investment in oil exploration with “the U.S. tax rate on profits from petroleum and natural gas structures … the lowest imposed on any type of corporate capital asset”:
Why Oil Companies Don’t Drill, Understanding Tax: U.S. oil companies are pushing hard to get Congress to allow the current Administration to issue more oil leases before its term expires. In response, skeptics have noted that three-quarters of the 90 million-plus acres of federal land already leased for oil drilling are not being worked. Oil companies deny this. Regardless of who is right, the number of operating oil rigs in North America declined across the course of 2007.
In the meantime, OPEC has raised its quotas by only 20% since 1998 – a measly 2% per year. World GDP grew by about 85% over the same period. The International Energy Agency reports that non-OPEC oil countries are also underproducing and predicts that they will continue to do so.
Everyone seems to be holding back. … So what to do?
On the tax side, Congress has done almost all it can do to stimulate U.S. production.
A 2005 Congressional Budget Office study concluded that the effective 2002 U.S. tax rate on profits from petroleum and natural gas structures was the lowest imposed on any type of corporate capital asset: 9.2%. Profits from computers, by contrast, were taxed at an effective rate of 36.9%.
A 2000 study by the Institute on Taxation and Economic Policy concluded that in 1998, of all U.S. industries, petroleum and pipeline companies were taxed at the lowest effective rates: 5.7%. Health care companies, by contrast, were taxed at an effective rate of 32%.
If tax incentives were going to induce U.S. oil companies to drill, they probably would have done so by now. Interestingly, Sen. McCain and Sen. Obama both propose to eliminate oil production tax incentives. After all, if oil companies are not responding by increasing production, those breaks are just gifts from you and me to Exxon. …
Remember that prices are a measure of value. If oil prices are going to be much higher 10 years from now, that means oil will be more valuable then than it is now. Valuable to us.
If so, should it really be our policy to drain U.S. reserves as quickly as possible? Or should our policy be to save at least some of those reserves for the day when gas is $10/gallon?
More domestic drilling will lower gas prices here in the US…….is that true? From CNN Money…….
The problem is this: While increased oil and gas drilling in the United States may create good-paying jobs, reduce reliance on foreign oil and lower the trade deficit, it will have hardly any impact on gas and oil prices.
That’s because the amount of extra oil that could be produced from more drilling in this country is tiny compared to what the world consumes.
Plus, any extra oil the country did produce would likely be quickly offset by a cut in OPEC production.
“This drill drill drill thing is tired,” said Tom Kloza, chief oil analyst at the Oil Price Information Service, which calculates gas prices for the motorist organization AAA. “It’s a simplistic way of looking for a solution that doesn’t exist.”
After OPEC got done adjusting its production to reflect the increased American output, gas prices might drop a whopping 3 cents a gallon, the study said.
“More production from anywhere would tend to lower prices,” said Adam Sieminski, chief energy economist at Deutsche Bank. “But the amount that we’re talking about domestically, it wouldn’t move gas prices from $4 a gallon to $3.”
In fact, more domestic oil is just what we’ve been seeing and gasoline prices are still going up.
The next talking point that the GOP and its spokespeople use is that most of the domestic oil production in the US is on private land and the oil companies want public lands open to drilling……why?
My thought is that it would be more expensive for the oil companies on private land and that they could have their friends n Congress see that they get a free ride while drilling on public land….but could this be the case, really?
The magazine, Economist is reporting……
The main problem is that Congress obviously doesn’t want to be handing out royalty-free drilling leases on sites that would be commercially attractive even at the going rate. That’s just handing out taxpayer money to a few corporations for no good reason; among other things, it’s not fair to other drillers who have to pay for their leases. And when the price of crude goes above a certain level, those tough-to-develop deepwater wells become commercially attractive even without the free leases. So Congress sensibly instructed the Minerals Management Service (MMS) to award these free leases only when the price of oil was at a level low enough that they wouldn’t otherwise be profitable to exploit.Whoops! We all remember the MMS, right? So apparently, in 1998-99, the folks at the MMS were too busy flirting with each other, or accepting private-jet rides to college football games, or whatever, to notice that the price of oil had gotten pretty high and they shouldn’t be handing out free leases anymore. As a result, 24 companies got free leases they shouldn’t have gotten. And ever since, they’ve been making extra money that they really ought to be returning in the form of leases on public property to the American taxpayer. As of 2008, the bill came to $1.3 billion; this year, the losses will be $1.5 billion. Over the decades-long lifetime of the wells it’ll add up to a lot more. According to the Government Accountability Office it’ll come to $53 billion over the next 25 years. Last week, representative Ed Markey and a few other Democrats on the House Natural Resources Committee offered an amendment to the Republican budget bill to make those oil producers pay the standard amount in the future on the royalty-free leases they mistakenly received due to bureaucratic error. The amendment was voted down, 251-174
Oh, one more thing. Some years back, Shell, BP, and two other oil companies that also mistakenly received royalty-free leases signed agreements with the federal government to voluntarily pay the normal lease on their wells from that date on. They probably did so less out of any concern for fairness to the American taxpayer than out of a desire to avoid the possibility that the government would try to retroactively recover leases for prior years. Nonetheless, voluntarily agreeing to pay the royalties going forward was the right thing to do. So, in the spirit of encouraging good behaviour: Shell and BP, good show. Chevron and the other guys, you need to go sit in the corner for a while and think about what behaviour this situation calls for.
It now is making more sense! Public land drilling would make the companies more profits with less overhead….and that is what capitalism is all about, right? Keeping capitalism in mind….would the price of gas come down? My guess would be ….NO!
I hope this post will help those that think ‘Drill Baby Drill’ is the answer to all our oil and gas problems…..the solutions that are used in these political times will only benefit the oil companies and you and your Hummer will still be using and buying high price gas.
If you really want lower gas prices then focus on…..speculation…..control that and you can somewhat control prices.
Drill Baby Drill is a slogan, a bumper sticker not a viable policy….