Obama's speech contains good, bad news for industry

US President Barack Obama called for more domestic offshore oil and gas development in his 2010 State of the Union address on Jan. 27.

There was an update to this story added Jan. 29.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Jan. 28 -- US President Barack Obama called for more domestic offshore oil and gas development in his 2010 State of the Union address on Jan. 27. He also said that it’s time to end tax cuts for oil companies.

The observations came during a speech that emphasized job creation, economic recovery, and deficit reduction as his administration’s top priorities for the coming year. Federal lawmakers should work together to solve serious problems the nation faces, Obama said. “The only reason we are here tonight is that generations of Americans were not afraid to do what is hard,” he maintained.

China, Germany, India, and other countries are moving aggressively, and the US should do the same, the president told House and Senate members. “They’re putting more emphasis on math and science. They’re rebuilding their infrastructure. They’re making serious investments in clean energy because they want those jobs,” he said. “As hard as it may be, it’s time to get serious about fixing the problems that are hampering our growth.”

American innovation should be encouraged, he continued, “and no area is more ripe for such innovation than energy.” He cited a North Carolina company that will create 1,200 jobs nationwide helping to make advanced batteries, and a California business that will employ 1,000 people to make solar panels as 2009 clean-energy successes.

“But to create more of these clean energy jobs, we need more production, more efficiency, more incentives,” Obama said. “That means building a new generation of clean, safe nuclear power plants in this country. It means making tough decisions about opening new offshore areas for oil and gas development. It means continued investment in advanced biofuels and clean-coal technologies. And yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America.”

Oil tax plans
Obama also signaled that his administration would try again to remove federal tax incentives that independent oil and gas producers consider crucial to their operations as part of a wider effort to make the federal government more financially responsible. “We’ve already identified $20 billion in savings for next year,” he said. “To help working families, we’ll extend our middle-class tax cuts. But at a time of record deficits, we will not continue tax cuts for oil companies, for investment fund managers, and for those making over $250,000/year. We just can’t afford it.”

Oil and gas association leaders’ responses varied. American Petroleum Institute Pres. Jack N. Gerard said on Jan. 28 that he was encouraged by Obama’s statement that decisions should be made about opening new offshore areas to development. “These are important and necessary decisions for the American people and the American economy,” he indicated.

Gerard said, “We support the president on jobs and are ready to do our part putting more Americans back to work. But to create these jobs, we will need policies that allow investment and development—policies that are pro-job, pro-consumer and pro-energy.”

Noting that Obama called for passage of comprehensive climate and energy legislation, National Petrochemical & Refiners Association Pres. Charles T. Drevna added that the president did not aggressively promote carbon cap-and-trade legislation.

“He should be applauded for turning his attention to the economy, jobs, continued investment in innovation, and increased domestic energy production. A cap-and-trade climate bill would only run counterproductive to his objectives,” Drevna said. “Aside from promoting new ‘green jobs,’ we hope President Obama will focus on preserving and creating red, white, and blue jobs, and that he will pledge to work with the American oil, gas, refining, and petrochemical community.”

‘Common-sense policies’
“With 1 in 10 Americans still out of work, President Obama was right to say last night that, ‘Jobs must be our number-one focus in 2010,’” Independent Petroleum Association of America Pres. Barry Russell said on Jan. 28. “We couldn’t agree more and are eager to work with his administration and leaders in Congress to craft common-sense policies that will create good-paying oil and gas-related jobs through increasing access to more American energy and ensuring that higher taxes do not discourage US energy production.”

Noting Obama’s reference to the administration’s next proposed budget, Russell said its last request called for more than $36 billion of new taxes on US oil and gas production which would have reduced investment in new production by 20-40%, and potentially would have cut domestic oil production by 20% and gas production by 12%, costing thousands of jobs.

“If the president is sincere in his efforts to encourage responsible American energy production and ensuring that job creation is the No. 1 priority, these damaging tax hikes must be taken off the table,” Russell said.

American Gas Association Pres. David N. Parker commended Obama for noting the critical need for increased offshore oil and gas production. “We should not, however, overlook the sustainable and immediately accessible resources of clean, abundant natural gas to be found throughout America trapped in shale. Our energy security, our environment, and millions of jobs hinge on the development of these resources,” he added in a Jan. 28 statement.

He said AGA also was pleased that the president called for tax incentives for large businesses to invest in new plants and equipment. The association also would like Congress to pass an extension of the temporary 50% expensing, or “bonus depreciation,” provision which expired at the end of 2009. “The extension of the bonus depreciation provision is an important incentive to encourage investments in our industry to serve new gas customers and upgrade existing facilities,” he said.

Congressional responses
Congressional energy leaders also responded. “I’m pleased that President Obama continues to have energy and its connection to American jobs at the top of his agenda,” US Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) said on Jan. 28. “‘Green and clean’ is the best way to create the American jobs of tomorrow, and I look forward to continuing to work with the president on this.”

Committee member Mary L. Landrieu (D-La.) applauded Obama for promoting safe, clean nuclear power and for being open to offshore exploration. She said any energy bill should make the most of domestic resources “and our unmatched skill and innovation to reduce our dependence on foreign oil.”

Republicans on the committee were critical. Sen. John Barrasso (Wyo.) said that in order for the US economy to improve, the administration should stop pursuing job-killing policies. “It should shelve the cap-and-trade scheme that would increase taxes on the American people and employers. It should ditch its bureaucratic, secretive plan to regulate carbon from small businesses. It should end the burdensome oil and gas regulations that will kill more red, white, and blue jobs,” he said.

GOP energy leaders in the House also criticized Obama’s remarks. “If the president really wants to spur job creation and economic growth, he will stop blocking American energy production and allow us to develop our own resources in an environmentally responsible way,” said Doc Hastings (Wash.), the Natural Resources Committee’s ranking minority member. “In addition to creating millions of jobs, it will create an influx of new revenue to the federal government that will help pay down the trillion dollar deficit.”

“Countless energy-related jobs have been lost or prevented by the Obama administration,” said Rep. Rob Bishop (R-Utah), a Natural Resources committee member and chairman of the Congressional Western Caucus. “Though ‘green’ jobs sound nice in speeches, the reality is that we need all jobs, not just those that fit with a special interest agenda.”

Contact Nick Snow at nicks@pennwell.com.

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