API to Congress: Resist politically expedient energy fixes

Nick Snow
Washington Correspondent

WASHINGTON, DC, Jan. 18 -- The US Congress must resist the temptation to pass energy legislation that may be politically popular now but create serious long-term damage, American Petroleum Institute Pres. Red Cavaney said Jan. 17.

"In these first days of the new Congress, we have already heard much talk of energy legislation, prefaced by the need for quick action. Many old and discredited measures are again being put forth, with calls for action to pass bills as soon as possible," he told the US Energy Association's third annual State of the Energy Industry conference.

"Given these circumstances, our industry message to Congress is: 'Slow down.' It is better to get energy policy right than to get it fast but potentially harmful," Cavaney said.

His remarks came as the House appeared ready to take up HR 6 on Jan. 18. The bill includes a provision to repeal oil and gas incentives contained in the 2005 Energy Policy Act (EPACT) and direct revenues to energy alternatives and efficiency research.

The bill, introduced on Jan. 12 by House Ways and Means Committee Chairman Charles B. Rangel (D-NY) and Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.), has 194 cosponsors. It is due to arrive on the floor under special rules that prohibit amendments and limit debate to 3 hr.

"It may be easy to enact energy policy overnight, but it can be very difficult to reserve a well-intentioned but counterproductive action. Once enacted, bad energy legislation has a decades-long shelf life, through both its adverse direct effects as well as its chilling effect on investment through fear of 'what's next,'" Cavaney said.

"On energy policy issues, thoughtfulness, thoroughness, and 'getting it right' should trump speed," he maintained.

An industry association beyond oil and gas came out in opposition to HR 6 on Jan. 17. "Instead of seeking to ensure an adequate and affordable energy supply for all Americans, the bill seeks to punish oil and gas companies and their employees, ruling them ineligible for the Section 199 deduction for domestic manufacturing activities and changing current depreciation rules for the geological and geophysical costs incurred in energy exploration," said Jay Timmons, senior vice-president for policy and government relations at the National Association of Manufacturers.

'Very bad precedent'
NAM also opposes the provision in the bill that would require holders of deepwater leases issued in 1998-99 without price thresholds to negotiate new terms or potentially be barred from bidding on future leases. "The proposal sets a very bad precedent for the nation and infringes upon the bedrock principle of the sanctity of contracts," said Timmons.

He said NAM's Key Vote Advisory Committee has indicated that votes on HR 6, including votes on potential amendments and procedural motions, merit designation as Key Manufacturing Votes in the 110th Congress.

Cavaney said politically expedient bills ignore long lead times, huge investments, and the enormous scale of operations that are part of the domestic oil and gas industry.

If a new discovery is offshore, particularly in the deepwater Gulf of Mexico out 100-200 miles or more, it can take years to complete the engineering and have a new offshore production facility built onshore, moved to its offshore location, and made operational, he said. "This says nothing of the up to $1 billion in expenditures before the first barrel of product is produced." he added.

Lead times also are very long in Alaska, where Prudhoe Bay field was discovered in 1968 but did not begin providing oil to the Lower 48 until 1977, he continued.

"Expanding refinery capacity at an existing refinery typically runs into hundreds of millions of dollars. A new refinery, if you can get one permitted in the US, can easily cost $3 billion," Cavaney said.

Proposals to repeal provisions of EPACT that are considered favorable to the oil and gas industry come as earnings appear ready to drop with commodity prices, he added.

"The question we need to ask ourselves is this: If we are serious about ensuring our nation's energy and national security, if we are serious about continuing to grow our economy and create more jobs, and if we are serious about improving the standard of living for all consumers, then how does reversing recent energy provisions or enacting punitive energy taxes support these objectives?" Cavaney said.

Contact Nick Snow at nsnow@cox.net.

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