Oil and instability

Jan. 22, 2007
The next time anyone complains about oil from “unstable” countries, check the US Congress.

The next time anyone complains about oil from “unstable” countries, check the US Congress. With their Clean Energy Act of 2007, House Democrats test new limits for instability.

The bill, introduced Jan. 12, would:

  • Deny oil and gas producers and refiners use of the manufacturing tax deduction enacted in the American Jobs Creation Act of 2004.
  • Extend by 2 years the 5-year amortization period for geological and geophysical expenditures by major integrated oil companies. In 2005, Congress refused to allow expensing of G&G costs, formerly amortized over the lives of producing properties, but agreed to shorten the amortization period to 2 years for most producers and 5 years for large integrated companies.
  • Coerce holders of deepwater Outer Continental Shelf leases issued during 1998 and 1999 into renegotiation to set oil and gas price limits on deepwater royalty relief. Leases issued in those years omitted price thresholds contained in agreements of different vintage. Under the House measure, companies not renegotiating threshold-free leases would have to pay stiff fees or be excluded from future OCS leasing in the Gulf of Mexico.
  • Repeal incentives in the Energy Policy Act of 2005 (EPACT) for gas production from deep wells on the Gulf of Mexico shelf and for oil and gas production in deep water.
  • Repeal an EPACT cap on fees for drilling-permit applications while a permit-streamlining pilot project is under way.
  • Shorten the terms of leases issued in the National Petroleum Reserve-Alaska, and repeal authority for exploration and production incentives in the area.
  • Use revenue generated by the new measure to pay for federal promotion of renewable and alternative energy sources and conservation.

This mischief isn’t energy policy. It’s punishment. Oil and gas companies provoked public outrage by reporting inevitably high profits after gasoline prices spurted in an extraordinarily strained market. Although prices have fallen by one-third since then, a newly Democratic Congress wants oil-company blood.

If the House bill passes, oil and gas companies will have to degrade investments in US energy supply for the hikes in taxation and political risk. They’ll have to distrust the US government as a contract partner. They’ll have to evaluate the large, long, and risky investments essential to energy supply while wondering what a capricious Congress might do next. This combination of horrors will constrain domestic supply of the energy forms that last year satisfied 63% of US demand.

Oil exporters habitually disparaged in the US as unstable at least see their interests clearly. They have to sell oil. Their economies depend on it. The US economy depends on a ready supply of affordable energy, largely oil and gas. Politics can only nibble at the edges of this dependency. Vindictive laws that discourage the development of oil and gas supply contradict the country’s economic interests. Laws that try to replace oil and gas with costlier fuels waste resources and hurt consumers. Proposals for such laws would not emerge from a Congress led by politicians clear about their country’s energy interests. They reflect instability.

Normally, it falls to the Senate to defend the republic from political lurches of the House. On Jan. 4, however, Democratic senators introduced a bill endorsing steps as sublime as “eliminating tax giveaways to large energy companies” and “preventing energy price-gouging.” From such a group, little sophisticated guidance can be expected.

The last defense against an energy future contorted by senseless political manipulation thus may be the presidential veto. George W. Bush in fact inspired energy lunacy last year with state-of-the-union assertions about a national addition to oil. He can redeem himself on this subject by snuffing the mistakes Congress wants to make.

How Democrats would caterwaul about that! “He’s doing it for the oil companies,” they’d say. To which Bush, if he’s on his game, could respond, “Oil companies can take care of themselves. I’m keeping Congress from hurting consumers and taxpayers.”

With that statement he would begin to reorient energy policy-making to the public interests from which it has strayed and rescue discussion of the subject from political opportunism.