Abundance of Supply: America's Energy Resources

The oil and natural gas industry is one of the most robust industries in the American economy. The industry supports roughly 9.2 million jobs and produced $476 billion state and local revenues in 2010 alone. It is crucial that energy policies reflect the importance of the United States’ continued investment in drilling and refining oil and natural gas.

Oil and Natural Gas

Reaching the Nation's Potential

Why Aren't We There Yet

A Glimmer of Hope

Oil and Natural Gas

Oil accounts for more than 35 percent of total American energy consumed. In 2011, the United States produced over 5.67 million barrels of oil per day, making it the world’s third largest oil producer. Furthermore, the United States has more than 1.44 trillion barrels of “technically recoverable oil resources” that could power the country for the next 210 years at the current rate of consumption. While the potential to recover these resources exists, federal policies prohibit full development of America’s vast resources.

Similar to oil, natural gas makes up 25.5 percent of America’s total energy, generating 24.8 percent of the nation’s electricity (heating half of the homes in the country). Natural gas provides electricity for manufacturers, vehicles, home heating and appliances—in 2011, the United States produced 23.0 trillion cubic feet of natural gas, becoming the world’s largest natural gas producer. It is estimated that more than 2,744 trillion cubic feet of technically recoverable natural gas resources exist; enough to power the nation for another 109 years at its current rate of consumption.

Reaching the Nation’s Potential

Much of the United States’ resources are currently barred from production by federal policies; simply allowing America’s energy producers to explore and drill for oil and natural gas would sustain current levels of consumption for decades. A 2011 Wood Mackenzie study considered the impact of increasing access to resources on lands that are currently off-limits to energy production, specifically the Eastern Gulf of Mexico, Rocky Mountains, the Atlantic Outer Continental Shelf (OCS), the Pacific OCS and the Alaska Wildlife Refuge ANWR federal lands. The study showed that implementing positive federal access policies to these lands could produce an additional 1.27 million barrels of oil per day, by 2015. The study showed that streamlining permitting and lease sales would expand employment in the industry, creating an additional 130,000 direct jobs and an additional 330,000 indirect jobs by 2020. Also a boon for local and federal governments, over $20 billion in revenues would be generated if productive federal policies were put in place.

Why aren't we there yet?

Currently, the federal government owns 28 percent of the land in the United States (a vast majority in the energy-rich western states). This amounts to 1.76 billion of acres of land, both on and off shore. Of that, the federal government leases less than 2.2 percent of federal offshore areas and less than 6 percent of federal onshore lands for oil and natural gas production.

In order to begin drilling on federal lands to produce oil and natural gas, companies are required to obtain government leases and permits. However, under President Obama, oil and gas production on federal lands has declined. In 2012, applications for permits to drill are down 36 percent and natural gas production is down 14 percent from 2010. Compared to ten years ago, oil and natural gas permits are down by more than 40 percent; 2010 saw the lowest number of federal onshore leases issued since 1984.

In addition to these regulatory burdens, for the fourth consecutive year President Obama is proposing taxing energy producers to fund his bloated government. President Obama’s FY2013 budget proposes a whopping $86 billion in tax hikes on oil and natural gas producers. The President hopes to do this by repealing energy producers’ Section 199 tax deduction and a slew of other expensing provisions employed by a variety of industries. Currently, oil and natural gas companies are able to deduct six percent of their income from domestic production—every other industry that employs this deduction is afforded a nine percent tax deduction. In addition to repealing Section 199, the President’s budget also repeals the expensing of drilling costs, LIFO (last- in, first-out methods), the deduction for tertiary injections and percentage depletion mechanisms. Currently, these provisions help companies recover costs and hedge against volatile price swings.

Other provisions under the FY2013 budget include modifying the dual capacity rule wherein oil and natural gas companies will face double taxation on income earned abroad, reinstating superfund taxes and increasing the geological and geophysical amortization period. All of these tax hikes discourage oil and natural gas production and the economic benefits tethered to these activities.

If the total $86 billion in tax increases were to fall in 2012, COGD would increase by an additional 2.0 days. This heavy regulatory burden placed on the industry will prevent research and development as well as the nation reaching sustainable energy practice.

Item Cost
Section 199 Repealed $11.6 billion
Expensing of Intangible Drilling Costs Repealed $13.9 billion
Dual Capacity Rule Modified $10.7 billion
LIFO Repealed $25.8 billion
Deduction for Tertiary Injections Repealed $100 million
G&G Amortization Period Increased $1.4 billion
Superfund Taxes Reinstated $10.5 billion
Percentage Depletion Repealed $11.5 billion
Total $86 billion

A Glimmer of Hope

While development of oil and natural gas on federal lands is down, production on private lands is flourishing. Largely located on private lands, the North Dakota Bakken formation is free of federal government permitting and leasing delays. Without federal interference, the Bakken formation is responsible for creating tens of thousands of jobs, lowering unemployment levels, and vaulting North Dakota to the 2nd highest oil producing state in the U.S.

Rather than hindering the production of the Keystone Pipeline and increasing taxes on energy, the current administration should streamline permitting and codify current tax policies. The last four years represent a foregone opportunity, foregone employment and foregone revenue, creating a later Cost of Government Day.

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