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Oil: Turning Boom into Bust
Guest Column | By Alan Caruba | November 17, 2008
Energy is called “the master
resource” because every other aspect of life operates off of it. Nations that
are rich in energy resources such as oil, natural gas, and coal, grow wealthy.
There is also something
called “the curse of oil” because, if the price per barrel drops, the fate of
some nations goes with it. This is the case, for example, of the former Soviet
Russia whose government collapsed when it could no longer secure hard currency
when oil and gas prices
fell. Venezuela
is an economic basket case these days, having nationalized oil and most of its
financial and business sectors.
The history of nationalized
oil and gas-rich nations is that they tend not to invest in their energy
industries. They do not engage in sufficient exploration. They do not expand
their capacity to extract their natural resources or to refine it. We have seen
otherwise oil-rich nations like Mexico
encounter financial tremors
as in the 1990s when the Clinton administration
had to loan Mexico
billions to keep it functioning.
America has adopted
anti-energy policies because of incessant environmental propaganda about
“dirty” coal, out of the fear of nuclear power, and the refusal to permit exploration
of 85% of the continental shelf and, of course, Alaska’s ANWR area, a tiny
fraction of that State’s landmass.
If Congress imposes a
windfall profits tax on the American oil industry, it
will quite simply wreck the economy. As my friend, Seldon B. Graham, Jr., a
longtime oil industry attorney as well as a petroleum engineer, points out,
“”President Jimmy Carter started the ethanol subsidy on November 9, 1978 and
signed the oil windfall profits tax on April 2,
1980.”
In effect, Carter put in
motion an anti-oil policy that has existed for over three decades. Why is that
a bad thing? The ethanol policy has severely disrupted the price of food
worldwide as corn is diverted into fuel. The justification for this is “energy
independence” from the purchase of foreign oil, but U.S.-produced oil has always
been cheaper than imported oil.
If, however, the government
creates conditions under which it is simply too risky, too expensive or
prohibited to explore for more oil reserves, obviously oil production declines.
There has been a 59% decline in U.S.
oil production since 1980, the year the windfall profits tax was imposed. It
was later repealed, but U.S.
oil companies have
a responsibility to their investors to act prudently and that has driven them
to explore for oil outside of the U.S. or, to put it another way, to
find foreign oil.
When you add in the idiotic
ethanol mandates, you compound the problem. Graham points out that, “After
thirty years, U.S.
ethanol production was only able to produce less than 3% of our oil demand last
year.” Moreover, “ethanol cost taxpayers $3.3 billion in subsidies in 2007.”
Environmental claims that ethanol is cleaner than oil are false. Not only do
you get less energy and poor mileage when ethanol is blended with gasoline, it
actually emits more carbon dioxide per mile. “It is absolutely impossible for
ethanol to replace foreign oil,” says Graham.
The justification for a
windfall profits tax on oil companies ignores, for example, that ExxonMobil,
just one of the few remaining oil companies operating in the U.S., pays more
than $100 billion in taxes on the average.
Less than 11% of ExxonMobil’s
profits come from marketing and refining in the United States and the company
recently announced it was spinning off its retail outlets. Yes, it made great
profits in recent years, but it also had enormous, risk-filled expenses.
Imposing a windfall profits
tax on oil companies will give them cause to consider moving their corporate
headquarters to other more congenial nations. The city of Dubai
in the United Arab Emirates
has been engaged in a vast office building effort, perhaps anticipating the
movement of corporate headquarters.
Americans greeted the
expiration of the ban on offshore exploration and drilling with the expectation
that American oil would begin to flow and thus lower their costs for this vital
national asset. That will not happen if the President or a Democrat-controlled
Congress reinstates the ban and/or imposes a windfall profits tax.
The city of Houston has been enjoying a boom due to the
increase in the cost of a barrel of oil. Even at $80 dollars a barrel, it is
enough to have created “its strongest resurgence in more than 20 years”
according to a 2007 New York Times article about Houston. “Some energy companies are expanding
and putting up new buildings.” Others, like Schlumberger among the hundreds of
service providers to the energy industry have established their headquarters in
Houston.
Houston is home to the headquarters of ExxonMobil,
ConocoPhillips, and foreign owned companies like Citgo, BP and Royal Dutch
Shell also maintain corporate offices there.
About half of Houston’s jobs, an
estimated 1.1 million positions, are tied to the energy industry. The impact of
a windfall profits tax would prove devastating to Houston.
Destroying the oil industry
in America,
a process that has been in place since the Carter administration, has left the
nation vulnerable to foreign sources. The U.S. already imports some 70% of
its oil. There has been a significant decline in the exploration and
development of national reserves.
Unleashing the energy
industries in America
could dramatically improve our present financial troubles. Congress, having
turned boom into bust, has a historical opportunity to reverse that trend.
FamilySecurityMatters.org Contributing Editor Alan Caruba writes a weekly column, “Warning Signs”, posted on the Internet site of The National Anxiety Center. His book, “Right Answers: Separating Fact from Fantasy”, is published by Merrill Press.
Guest columns do not necessarily reflect the views of Accuracy in Media or its staff.
3 Comments | Post a Comment
“Less than 11% of ExxonMobil’s profits come from marketing and refining in the United States…”
and that means…? what exactly?
“Yes, it made great profits in recent years, but it also had enormous, risk-filled expenses.”
This message paid for by ExxonMobil.
Nevertheless - “record-breaking net operating profit” somehow resulted - even with all those “enormous risk-filled expenses”!
Like Big Pharma, Big Oil operates on the basis of “you NEED it” - so “we’re going to charge as much as the traffic will bear”.
For my money, BOTH engage in predatory price-gouging.
November 18 at 10:46 am | #1 | Link
*Good article…correct. We believe however that
returning to $28 dollar a barrel oil will do a couple of very positive things. It will knock out the giant transfer of wealth for us to “them” and secondly, it will keep energy, electricity and transportation cost affordable while we stabilize the US Real Estate market.