Reacting to increasing gasoline prices, President Bill Clinton will ask Congress to approve two tax credits to increase US oil production.
The oil measures, plus energy-efficiency tax credits, would cost the government less than $1 billion over 10 years. The White House was not specific about how they would be funded.
The administration also proposed creation of a 2-million-bbl home heating oil stockpile in the Northeast US.
In his weekly radio address Mar. 18, Clinton noted, "High oil prices are causing hardship for many Americans," but also warned, "There's no overnight solution to this problem."
Clinton said, "We need to take action now, for both the short and the long term, to protect consumers and strengthen America's energy security.
"In the short term, I'll continue to work with foreign countries to help close the gap between production and consumption. Several important oil-producing countries already have expressed their support for a production increase.
"But we also need to take a longer view-one that rejects environmentally damaging alternatives, like drilling in the protected and treasured natural habitats of Alaska."
Oil measures
Clinton proposed that Congress allow producers to expense the geological and geophysical (G&G) costs of exploration and development.
Current law allows G&G costs to be deducted in the current year if exploration activity is unsuccessful, but they must be capitalized if a well is successful.
The White House said, "By allowing the industry to expense these costs, we will be encouraging the discovery of new reserves. The Department of Energy estimates that G&G [expensing] will add 126,000 b/d of oil to domestic production."
The administration also will ask Congress to allow the expensing of delay rental payments. Lessees make the payments to lessors when production from a lease is delayed.
The tax code requires delayed rental expenses to be capitalized to the depletable base of the property, if the property is being held for development. Before 1993, they could be expensed in the year incurred.
Sen. Jeff Bingaman (D-NM) has been an advocate of the two tax proposals. He said, "We need to find ways to stabilize domestic oil production despite fluctuations in the price of oil. These production and exploration incentives are small but important tools, and I'm pleased the administration has taken action."
The administration said it would continue to study methods to preserve marginal-well production, which accounts for over 20% of onshore oil production in the Lower 48 states.
Barry Russell, Independent Petroleum Association of America president, said Clinton's actions were only a "first step."
He said, "Higher prices have enabled producers to stabilize production and to restart their maintenance and development programs. But there is still a long way to go. Middle-sized and small independents continue to face a capital crunch.
"Tax reforms could be a major step toward directing capital to finding oil and gas and bringing these resources to market for the benefit of all Americans."
Russell said the administration also should give producers greater access to public lands.
Energy efficiency
The administration also proposed an array of tax incentives to improve energy efficiency and promote the use of renewable energy.
It will ask Congress to extend through 2006 the current 10% tax credit (up to $4,000) for electric vehicles and fuel-cell vehicles. The credit was due to be phased out by 2005.
It suggested a $500-3,000 credit for all qualifying hybrid-fuel vehicles, including cars, minivans, sport utility vehicles, and pickup trucks.
It proposed a tax credit of $1,000-2,000 for new energy-efficient homes. To encourage the purchase of electric heat-pump water heaters, natural gas heat pumps, and fuel cells, a 20% tax credit would be offered for equipment purchased during 2001-04.
The administration proposed a 15% tax credit for purchasers of solar energy systems. The maximum credit would be $2,000 for rooftop photovoltaic systems and $1,000 for solar water-heating systems.
It would extend for 2.5 years a 1.5¢/kw-hr tax credit for the production of electricity from wind energy. And it would expand use of a 1.5¢/kw-hr credit for biomass energy production and give 1-1.5¢/kw-hr credits for electricity produced from landfill methane.
Heating oil
Clinton said the US should establish a home heating oil stockpile in the Northeast to ward off future shortages.
He ordered the Department of Energy to begin environmental studies. A DOE study last year determined that leased storage in the New York Harbor area might be economically feasible.
Although Clinton has the power to create a heating oil reserve, he asked Congress to pass a bill authorizing and setting conditions for its use.
Gene Sperling, National Economic Adviser, said, "After significant consultation with members of Congress from the Northeast, as well as the Department of Energy and other experts, the feeling was that a reserve in the Northeast could put us in a better capacity to deal with those types of short-term interruptions and spikes that we saw happen this last winter.
"We are calling for legislation because we think that would be the best way to do it. We also think it would be the most effective if there was an agreed-upon criteria or trigger for when such oil would be released so that there is a clear understanding of what the circumstances are that justified this."
Sperling said that 2 million bbl of distillate would be refined from Strategic Petroleum Reserve (SPR) crude stored on the Gulf Coast.
The administration also urged the House of Representatives to pass a bill, already approved by the Senate, renewing the Energy Policy and Conservation Act. That law authorizes the SPR and the DOE's International Energy Program. Current authorization for the 569-million-bbl SPR expires Mar. 31.
Gains cited
A White House statement noted that the US has made dramatic improvements in energy efficiency and reliability in the past 25 years.
"While past shortages have taken a significant toll on the US economy, the recent increases in oil prices have yet to have a major impact on the US economy. Increased energy efficiency-in cars, homes, and manufacturing-has helped insulate the economy from these short-term market fluctuations.
"In 1974, we consumed 15 bbl of oil for every $10,000 of gross domestic product. Today, we consume only 8 bbl of oil for the same amount of economic output."
The White House also said, "Major technological advances in oil exploration, such as three and four-dimensional seismic [exploration], are helping us to find more oil, at greater depths, on and offshore.
"At the same time, these technologies have reduced the environmental footprint left by exploration and production to a tenth the size it was 25 years ago. We need to encourage the use of these advanced technologies at the same time we support exploration for oil and gas."
OPEC meeting
US Energy Sec. Bill Richardson went to Europe and Africa last week for a new round of oil diplomacy.
He was due to meet with energy officials in Nigeria, Algeria, Norway, and the United Arab Emirates to encourage them to increase oil production. He also was meeting with officials of the International Energy Agency and the Organization for Economic Cooperation and Development.
Not all members of Congress were pleased with Richardson's efforts. Sen. Phil Gramm (R-Tex.) complained, "We've seen this administration in the unseemly position of traveling around the world begging countries to increase production."
The Organization of Petroleum Exporting Countries has scheduled a Mar. 27 meeting in Vienna to consider reducing the 2 million b/d shortage in world production.
White House Chief of Staff John Podesta said, "We continue to believe that it is in the interest of both oil producers and oil consumers alike to have a steady and reliable flow of oil, one in which supply does not fall short of demand."
Podesta said, after the OPEC meeting, the administration could reexamine suggestions to draw down the SPR to reduce summer gasoline prices. "But at this point, we don't think [selling oil from the SPR to lower prices] would be a helpful step."
In Congress, the House International Relations Committee approved a measure urging the President to end military aid to OPEC countries if they do not increase production. Earlier this month, the Senate Foreign Relations Committee approved a resolution warning OPEC nations their relations with the US will be jeopardized if they do not increase output.
Legislation
In his radio talk, President Clinton did not support current bills in Congress that would repeal a recent 4.3¢/gal federal gasoline tax increase.
Republican leaders in Congress oppose that step. But Rep. Bill Archer (R-Tex.), chairman of the tax-writing House Ways and Means Committee, said he is neutral on the subject.
Rep. Bud Shuster (R-Pa.), House Transportation and Infrastructure Committee chairman, is leading a fight against repeal. He said it probably would not lower prices for consumers, would do nothing to counteract OPEC's decision to reduce oil supplies, and "would have a devastating impact" on the funding for transportation programs.
Meanwhile, Reps. Peter DeFazio (D-Ore.), George Miller (D-Calif.), Brian Baird (D-Wash.), and Jay Inslee (D-Wash.) urged the administration to reinstate a ban on the export of Alaskan North Slope (ANS) crude. They are considering filing legislation.
A 1995 law allowed exports but allowed the President to suspend them in the case of a national emergency. About 77,000 b/d was exported to the Far East last October, the latest month for which data are available.
DeFazio said, "While OPEC is squeezing American consumers by curtailing oil production, it is absurd to let American oil leave American soil to benefit international corporate oil interests."
Podesta said West Coast congressional representatives have lobbied the administration to suspend the exports. "We're studying what the economic impact would be, and the impact on the market, the impact on contracts, and the impact on foreign policy."
Sen. Tom Harkin (D-Iowa) urged the administration to investigate if oil firms are reaping "windfall profits" from higher oil prices. He said, "The price of crude oil has tripled in a year while the cost of production is about the same."
He said it also should study whether US refiners exacerbated the tight market by letting their inventories fall to historically low levels.
