As congressional debate began last week on US energy policy, a dilemma emerged for oil and gas producers.
A Republican proposal in the House of Represen- tatives offered tax changes and other measures that producers have sought for years. Many of those provisions have reasonable chances of becoming law.
Because other initiatives with greater potential to add US oil and gas production stand no chance for passage, however, contributions to national interests will be limited. The low-hope measures involve access to the petroleum resource.
Fortunately for producers, there's no need to make a politically strategic choice between access improvement and the package of measures aimed at boosting production where access already exists. This Congress isn't likely to approve leasing of the Arctic National Wildlife Refuge coastal plain. And it won't encourage leasing of the Outer Continental Shelf off states squeamish about drilling and production.
Energy compromises
With the ANWR-leasing provision passed by the House doomed in the Senate and access in general highly controversial, compromises over energy in Congress will balance production enhancements against conservation mandates and subsidies for nonfossil energy. Within these bounds, the industry is right to pursue whatever it can achieve.
But it should calibrate its promises about national benefits to the resource open for exploration and development. By that standard, through no fault of the producing industry, the US denies itself much.
Last month, the Independent Petroleum Associ- ation of Mountain States listed measures beneficial to independent producers in bills over which debate began in the House last week (OGJ Online, July 27, 2001). Many of the measures, the group said, "could impact independent producers for years."
Tax provisions include expensing of geologic and geophysical costs, a credit to extend production from marginal wells, and elimination of the net income limitation of percentage depletion. Regula- tory proposals in the legislation address issues such as federal rights of way for pipelines and power transmission lines, production potential of federal land, and federal onshore leasing and permitting.
It's a comprehensive list, most elements of which have been proposed before and should have been enacted long ago. That chances for passage seem good, at least in the House, is a welcome sign. It's better for Congress to do the right thing late than never to do the right thing at all.
Encouraging domestic production is always the right thing. Production of a natural resource creates wealth, which in turn creates jobs and government revenue. And increasing domestic production reduces import rates.
The measures cited by IPAMS would assure progress toward those goals and should be enacted. Under energy policy enacted in a political climate averse to work on petroleum frontiers, however, benefits would be confined to those parts of the resource to which producers now have access.
Opponents of ANWR and offshore leasing often argue that production from areas currently unleased, whatever their potential, wouldn't eliminate US dependency on oil from abroad. They are correct. The US can't eliminate its need for imported oil. It can reduce the need, however, by whatever amount it produces domestically. The best reason to do so is economic. To the extent the country crimps domestic production by foreclosing resource development, it exports wealth creation.
This lapse deserves more attention than it receives in most debates about energy policy (OGJ, July 30, 2001, p. 23). The point will be lost in the current debate if the industry doesn't press it.
Last week the Congressional Budget Office said leasing and royalty provisions of the Republican energy proposal would reduce federal revenue by $462 million over 10 years. In fiscal terms, the amount is insignificant. As an argument against leasing, however, it will have enormous influence.
Wealth effects
The industry needs to respond. It should of course point out that the alleged "cost" is negligible. But it should also note how meaningless it is for an economic study to concentrate on direct payments from bonus bids, rentals, and royalties and ignore wealth effects.
Until Congress takes better account of the economic benefits of resource development, any energy policy it's likely to enact will only scratch the surface of US potential to solve problems and advance national interests. If it enacts the Republican legislation now in the House, however, it will at least scratch a little harder than before.
