May 21, 2010
On March 31, to the dismay of some environmental groups, President Barack Obama proposed opening new areas to deep-water oil and natural gas drilling along the southern Atlantic coast, eastern Gulf of Mexico and north coast of Alaska. But in response to the recent oil spill in the Gulf, and pressure from some key Democratic senators — who are up for re-election this year — he has now declared a moratorium on all new offshore drilling.
The ban will remain until the administration completes a “thorough review” of factors leading up to the April 20 explosion of the Deepwater Horizon oil rig and the subsequent leakage of crude oil from the well hole. This could take months.
While the moratorium on drilling may make for good politics, it constitutes bad economics. With the global economy growing again and oil supplies tight, sizable increases in the prices of crude, gasoline and diesel can be anticipated. This is just as Americans hit the road for summer vacations. Less domestic drilling and production will mean greater reliance on imports that could reverse our recent progress in reducing the trade deficit. In addition, thousands of high-paying domestic jobs in the oil and gas industry will be put at risk, at least temporarily.
If America is serious about developing domestic energy resources and reducing reliance on imports, offshore drilling must be part of that strategy. Energy analysts estimate there could be 3.8 billion barrels of oil and 21.5 trillion cubic feet of natural gas in the eastern Gulf. An estimated 3.8 billion barrels of oil and 15.1 trillion cubic feet of natural gas could be in the Atlantic between Delaware and southern Florida.
Unfortunately, the recent spill in the Gulf of Mexico will reinforce anti-drilling claims that oil drilling is inherently dangerous, hazardous to the environment and runs counter to the goal of developing sustainable energy sources.
The spill already has released more than 4 million gallons of oil and could be one of the worst spills in U.S. history. Environmentalists liken it to the 1969 oil rig explosion off the coast of Santa Barbara, Calif., which coated the coastline and drew initial attention to the dangers of oil drilling. But during the past 41 years, the industry’s safety and environmental record, although not perfect, has been exemplary. No process of mineral extraction is completely risk-free, and the safety and environmental record of the offshore oil and gas industry certainly compare favorably with that of the coal industry. In addition, the environmental risks associated with transporting crude oil by tanker are much greater than those associated with offshore drilling.
The oil spill also will amplify those voices in Washington who want to hike taxes on the oil and gas industry by roughly $40 billion in order to provide additional subsidies to “safer” energy sources such as wind and solar. According to the Independent Petroleum Association, tax increases would fall disproportionately on small drilling companies and could reduce domestic oil and gas production by 20 percent to 40 percent. Obama has proposed a 13 percent excise tax on offshore production and called for repeal of the manufacturing tax deduction for the nation’s six biggest oil companies. The administration also proposed new taxes on the industry’s foreign operations by changing the rules that apply to certain international earnings.
Hiking the tax burden on America’s oil and gas companies will mean less, not more, domestic energy production. Thousands of jobs will be lost, billions of potential investment dollars will flow overseas, energy prices will rise, and many states and localities that derive revenue from oil and natural gas production will witness further declines in their tax receipts.
The oil spill shouldn’t divert us from increasing domestic energy supplies and reducing our dependence on imports. The moratorium on offshore drilling flies in the face of this goal and will threaten our economy and our national security.
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