The US oil and gas industry should prepare to be actively involved as the administration of President Barack Obama applies its recovery–and–reform strategy to energy and the environment, a leading consultant said on Apr. 20.
“There’s a new transformative energy playing field being put in place. Although the oil and gas industry has not been talked about much in a positive way by the policymakers who are involved, it has to be brought to the table,” said Joseph A. Stanislaw, one of the founders of Cambridge Energy Research Associates, who now runs his own firm, JAStanislaw Group LLC.
“As it is, it will have to play by the new rules which call for less consumption and more greenhouse gas reduction. Eventually, the oil and gas business will have to compete alongside cleaner alternatives. That could be its biggest long–term challenge,” he told reporters during a press briefing at the 2009 Deloitte Energy Conference in Washington, DC.
Stanislaw, who also is an independent senior advisor to the financial services firm’s energy and natural resources practice, said that in President Obama’s “second 100 days,” the strategy will also include building on local green energy initiatives to forge a national energy framework, asserting global leadership by agreeing to the principles of a carbon framework, and investing heavily in education and basic research and development to support all forms of energy.
But the administration’s environmental agenda also could lead to substantially higher energy costs, another Deloitte expert indicated. Branko Terzic, the firm’s energy and resources regulatory policy leader, said that in Deloitte’s survey of 60 state regulators in March and April, 81.3% said they believed the administration’s proposed cap–and–trade system for carbon dioxide emissions would increase electricity costs in their states.
‘Very ambitious’
Energy industries face the prospect of higher taxes even if current environmental bills aren’t enacted, according to Clint Stretch, managing principal for tax policy at Deloitte Tax LLP. “These are a very ambitious set of proposals. If they don’t pass, it will leave a big hole in the deficit,” he said. “I predict that by 2011–12, we will have a major discussion about how to pay for government services that we’ve dodged the last 30 years. Carbon auctions, a carbon tax, a fuel tax or a broad–based consumption tax will be the only real revenue–raising players when we do,” Stretch added.
Stretch said discussions of ending oil and gas financial incentives that some politicians consider loopholes went on for years in Washington before several became part of the Obama administration’s proposed fiscal 2010 budget. “Some of them frankly are naive. They don’t consider the consequences going forward,” he said.
This push for higher taxes comes as oil and gas prices have plunged, added Gary A. Adams, US oil and gas leader in Deloitte’s energy and resources industry group. “Right now, the US independent producers are feeling this hardest. Their cash flows are their lifelines. This could lead to mergers and acquisitions in the future. Companies with cash think values could drop further so this may not occur immediately,” he said.
As demand has fallen, so have revenues for national oil companies whose governments rely heavily on energy to operate, Adams said. This could lead to improved contracts for integrated oil companies with the technical resources that are continuing to invest through the worldwide economic downturn, he suggested. “Majors also are reducing their costs, including centralizing more operations around the world,” he said.
