API lists concerns about pending House, Senate energy bills

American Petroleum Institute officials expressed concern that provisions before the 110th US Congress could effectively reduce available oil and gas supplies and harm US consumers.

Jun 11th, 2007

Nick Snow
Washington Correspondent

WASHINGTON, DC, June 11 -- American Petroleum Institute officials expressed concern that provisions before the 110th US Congress could effectively reduce available oil and gas supplies and harm US consumers.

"In a nutshell, I'm worried that much of the possible legislation simply could repeat the mistakes of the 1970s and '80s," chief economist Jon C. Felmy told reporters in a June 11 teleconference that included other officials from API's upstream, downstream, and tax departments.

Specifically, Felmy said calls to increase taxes on oil companies in a manner similar to the Windfall Profit Tax of the early 1980s would lower domestic production and move investments overseas. Felmy also criticized bills aimed at combating alleged price-gouging, which he characterized as vaguely written, indirect reintroductions of price controls. He also questioned efforts to dramatically increase alternative fuel development mandates.

His remarks came at the beginning of a week in which the full Senate is scheduled to consider a major energy legislation package and the House Natural Resources Committee concludes its markup of a bill that would effectively repeal parts of the 2005 Energy Policy Act (EPACT) and impose restrictions on produced water management, royalty in-kind payments, and other activities.

"Most of the proposals we see have the unintended consequence of reducing supplies and hurting consumers," Felmy said.

Mark Kibbe, API senior tax policy analyst, urged caution in reconsidering incentives in EPACT that were designed to increase domestic production and refining capacity. Efforts to repeal Section 199 of that law could raise $7-12 billion in revenues for the US Treasury Department but would have the equivalent effect of a 3% increase in the corporate tax rate for oil producers, he said.

As for calls in the House to accept a proposal from the administration of President George W. Bush for onshore producers to pay $1,700 for each drilling permit application that the US Bureau of Land Management processes, Doug Morris, API upstream group director, said, "Any additional fees imposed on drilling would have a negative effect on production."

Felmy added, "The costs of investing in the United States have increased dramatically to around $40/bbl to produce oil from an offshore well."

API officials also warned that mandating goals for specific fuel alternatives could cost consumers money. "We support a realistic alternative fuels standard with periodic economic and technology reviews, and possible preemption of often confusing and contradictory state mandates," said Bob Greco, API downstream group director.

In response to a question about adding clean coal and oil shale to technology development incentives, Felmy said, "We feel there's a role for all technologies going forward. Coal-to-liquids technology has been around for decades, but it deserves consideration equal to cellulosic ethanol. The devil is in the details on how much to spend on each of these technologies."

But the officials' main concern apparently was preserving incentives contained in EPACT. "Let's not step backward from good energy policies of 2 years ago," Felmy said.

Contact Nick Snow at nsnow@cox.net.

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