DOE'S OIL, GAS POLICY MOVE MIXES SIGNALS

Talk about mixed signals... "Too often," says U.S. Energy Sec. Hazel O'Leary, "the government has sent mixed signals to domestic producers, making producers unable to make business decisions based upon a clear understanding of regulatory policy." So the Department of Energy will consult producers and other federal agencies to develop a plan for increasing domestic oil and gas production.

May 17, 1993

3 min read

Talk about mixed signals...

"Too often," says U.S. Energy Sec. Hazel O'Leary, "the government has sent mixed signals to domestic producers, making producers unable to make business decisions based upon a clear understanding of regulatory policy." So the Department of Energy will consult producers and other federal agencies to develop a plan for increasing domestic oil and gas production.

"By working with industry to set forth this type of strategy, we will develop a joint plan that will lead to expanded opportunities for domestic oil and gas producers," O'Leary told a joint session of the Louisiana legislature. The initiative, she said, will seek more jobs, increased domestic production, and diminished reliance upon foreign oil.

BTU TAX CONFLICT

Great. But how does industry reconcile those goals with the petrophobia implicit in the Clinton administration's BTU tax proposal? On the one hand the administration says it wants more domestic production. On the other hand it singles out oil for special taxation to make Americans consume less. The message: Produce more for a shrinking market. That's bad business and bad policy.

Still, O'Leary's initiative gives the industry a forum. Oil and gas companies and trade groups should not miss the chance to at least identify principles that would shape an effective oil and gas policy.

One such principle is the demonstrated superiority of markets over regulation in the commercial aspects of oil and gas. Markets select fuels, determine appropriate levels of demand, set prices, and choose supply sources better than governments do. Always. Governments create hardship when they dabble in these areas. A simple review of history should make even the activist Clinton administration wary of overreaching.

Another principle is the proper position that security of energy supply holds on the list of things worthy of official concern. A healthy economy requires that work be accomplished, and work cannot occur without energy. At another level--now usually overlooked--a government cannot wage warfare, if the dreadful need arises, without large supplies of fuel. O'Leary's aim of increasing U.S. production serves this principle well.

Official concerns for supply, however, must not conflict with the principle about the primacy of markets. Energy supplies must be not just secure but also economic. Policy should promote the role of economics in energy decisions. The government should not intrude except to ensure the free operation of markets. DOE, for example, should indeed worry about growing U.S. dependence upon imported oil. But it should concentrate on reasons behind the trend, which is in fact inevitable. Why is oil from elsewhere cheaper than oil produced in the U.S.? Why can't the U.S. produce more oil on competitive terms?

REMINDERS

Two last principles of oil and gas policy amount to simple but apparently necessary reminders. First, oil and gas cannot be produced unless someone is free to buy a lease, bulldoze small parcels of land, drill wells, and make money. Moreover, companies will not perform this type of work if environmental and safety laws force them to bet their net worths that they will not have accidents. The second reminder is that a healthy producing industry serves national interests best when it works in conjunction with healthy refining, pipelining, gas processing, and petrochemical industries. O'Leary made the imminent DOE study sound limited to problems of "producers," in which case it would ignore too much.

Maybe this is just a semantics problem. Or maybe it's another mixed signal.