API-funded study quantifies benefits of access, harm of taxes

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Jan. 4 -- Increased access to US oil and natural gas resources currently off-limits could, by 2025, create 530,000 jobs; deliver $150 billion more in tax, royalty, and other sources of revenue; and boost domestic production by 4 million boe/d, a study commissioned by the American Petroleum Institute concluded.

Raising taxes on the industry without making more federally controlled oil and gas resources available, by comparison, could reduce US production by 700,000 boe/d (in 2020), sacrifice as many as 170,000 jobs (in 2014), and reduce revenue to the government by billions of dollars annually, according to the Wood Mackenzie study, “Energy Policy at a Crossroads: An Assessment of the Impacts of Increased Access vs. Higher Taxes on US Oil and Natural Gas Production, Government Revenue, and Employment.”

Another 1.7 million boe/d in potential production, which now is economically marginal, would be less likely to be developed under the study’s modeled tax increase, the study said. The study assumed $5 billion more in annual taxes for the industry, less than the amount the Obama administration sought in its proposed fiscal 2011 federal budget, API said. The increased access assumption was based on the eastern Gulf of Mexico, portions of the Rocky Mountains, the Arctic National Wildlife Refuge, and the Atlantic and Pacific Outer Continental Shelf being opened to development.

“US oil and gas companies are a major force in our economy and, with the right policies in place, could drive even greater economic benefits,” said API Pres. Jack N. Gerard as API released the WoodMac report during a Jan. 4 “State of American Energy” event in Washington, DC. “These companies produce most of the nation’s energy, put millions of people to work and deliver billions in taxes and royalties to our government,” Gerard said.

He said, “The study shows increased access to areas currently off-limits would create jobs, grow the economy, and dramatically increase revenues to the federal treasury at a time when the US deficit is of national concern. We urge Congress and the administration to promote energy policies that will aid our economic recovery and reduce our debt. This study shows that increased taxes would take us backwards.”

In his address, Gerard said US voters sent a clear message in November that economic recovery and job creation are the most pressing national issues. “Today, after a year in which we faced and ultimately met unprecedented challenges, I’m glad to say that the state of American energy has been strong, but it will remain strong only if policymakers chart a course of opportunity and certainty,” he declared. “With the right policies in place at all levels of government, our industry stands ready to be the engine of economic growth and recovery this country needs in 2011, and for decades to come.”

Gerard urged Congress and President Obama to discuss energy realities that inevitably include a major oil and gas contribution for decades to come. “We believe, for example, that we’ll be forced to live with the consequences of delaying offshore development 5-7 years for several years beyond that,” Gerard said.

He said the US Bureau of Offshore Energy Management, Regulation, and Enforcement’s Jan. 3 announcement that 13 deepwater Gulf of Mexico producers that had their operations suspended last year may possibly resume previously approved activities without having to submit new exploration and development plans was a positive step. “But it’s only part of the solution,” he added. “The thing to keep an eye on is how many new deepwater drilling permits have been issued. The number is none to date.”

Gerard said aggressive regulation by the administration, such as the US Environmental Protection Agency’s beginning to regulate greenhouse gas emissions from refineries and other large industrial sources under the Clean Air Act, is a mistake. “We will support any means necessary to have Congress make this decision because its economic consequences are so far-reaching,” he said during a press conference following his address. The regulations’ tailoring rule already has been legally challenged, and other lawsuits could follow, he warned.

He said the Macondo well accident and crude oil spill were a wakeup call for the oil and gas industry, but added that the general public generally believes that it was an isolated incident in an area where 42,000 other wells have been safely drilled over 60 years. “We believe the energy reality will require the US to look for other domestic oil and gas sources,” Gerard said. “We still hold out hope that through conversations and dialogue, we’ll find a middle ground and address this reality.”

Contact Nick Snow at nicks@pennwell.com.

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