Fix broken US energy policy

April 3, 2000
Truck drivers and consumers in the Northeast and across America are screaming about high fuel prices

Truck drivers and consumers in the Northeast and across America are screaming about high fuel prices. Politicians are complaining and discussing the option of selling oil from the Strategic Petroleum Reserve.

The US energy policy is broken and must be fixed. During 1998 and early 1999, crude oil prices-adjusted for inflation-fell to their lowest levels since the great depression of the 1930s. Oil producers warned that domestic production would drop drastically and large price increases would follow. Now, 1 year later, prices have risen dramatically to about $30/bbl, and howls of protest are being heard from consumers and politicians across the country. Ignoring the situation last year helped cause today's high prices.

It is frustrating. Last year when independent oil and gas producers told politicians what was going to happen, they did not pay attention. Now, many of those politicians are looking for someone to blame for higher oil prices.

Last year, we testified that the domestic petroleum industry was being severely damaged, and oil imports were at dangerously high levels. But it was implied that we should just learn to live with low prices; the US could import all the cheap oil we need. We hope they now understand why a healthy domestic oil industry is needed in the US.

Last year's low prices set the US petroleum industry back many years. In order to survive, we literally cannibalized our own equipment. We used all of our cash reserves, we robbed parts off of stacked drilling and workover rigs in order to keep a few rigs operating. We cannot recover overnight, even at $30/bbl.

The quick rise in oil prices has caused many people to recognize the need for stable prices and a healthy domestic oil and gas industry. The sharp turnaround in world oil prices certainly brought welcome relief to American oil field workers, but our industry has lost billions of dollars and thousands of workers. We witnessed the destruction of much of our infrastructure. Now, before we have recovered, calls for lower prices are being heard from President Clinton and Energy Sec. Bill Richardson. Last year we were told, "The oil industry will just have to adjust to low prices, the administration will not intervene in the market." Now they are trying to intervene.

When American drivers purchase gasoline or diesel fuel at the pump, they should realize that one of the reasons for the high cost of gasoline and diesel fuel is taxes. Federal and state highway taxes average 40-50¢/gal. The price producers receive is much less than most Americans realize. The price of crude oil is 60¢/gal at $25/bbl and 71¢ at $30/bbl. In addition, about 10¢ more is taken due to severance and ad valorem taxes and another 10-15¢ goes to the royalty owners. I receive 40-50¢/gal to operate my wells. Most Americans do not realize that the government takes as much in taxes as producers receive.

We understand why fuel consumers are shocked at today's increasing prices, and we don't blame them. If we are going to fix these problems, we must first understand them.

There are two opportunities to address this problem in the near future. President Clinton has until late April to consider what policy changes he will implement under Section 232, which considers the impact that oil imports have on our national security. He should include provisions proposed by Sen. Pete Domenici's Foreign Oil Reversal Act S. 595. Also, we must address the problems with the national energy policy. The energy policy needs to help promote a healthy domestic energy industry and stable production. The policy must recognize that stable production depends on stable prices in order to drill and develop oil and gas fields.

Today's challenge for the petroleum industry is to provide the fuel for Americans in the 21st century. The US energy policy must address these challenges and work with the petroleum industry in order to do so.

John D. Bell
Kermit, Tex.