Tuesday, July 22, 2008

Congress Diddles Around With

“Use It or Lose It”

Last week ended with a rising stock market, news that the economy showed an estimated two percent gain in the second quarter, and the price of oil falling, but Americans are still paying a national average of $4.10 for gasoline and $4.84 for diesel fuel. Right now, nothing is more important than getting fuel prices down.

Despite the pain that people express over high fuel prices, Congress still hasn’t gotten the message that 60 percent of its constituents want to drill for domestic oil supplies, and do it now. Instead of opening up prohibited areas for drilling, and removing or easing the regulatory obstacles to developing new supplies, Congress has been dilly-dallying with a bill Democrat leaders fondly refer to as “use it or lose it.” Championed by West Virginia’s own Rep. Nick Rahall, Chairman of the House Natural Resources Committee, the intention of the bill is to force oil companies to look for oil on land they already hold leases on, or lose the leases. This may sound sensible at first, but after looking deeper into the situation it appears to be a waste of time, since (1) oil companies have invested millions of dollars in these leases; (2) geologists tell us that it is less certain that the leased areas contain oil than the areas where drilling is prohibited; (3) many of the leased areas where oil has been found have been pumped out; (4) it is usually more expensive to explore in those leased areas than elsewhere; and (5), most of the provisions of the bill are already law.

Willard R. Green heads up the American Association of Petroleum Geologists, an organization which rarely takes public positions on political issues. Yet, he felt moved to comment on this current dilemma. The problem, Green said in a letter to leaders of the House of Representatives, is that people tend “to think of exploration as a process of simply drilling a well in each grid block to determine whether it contains oil. But because of the natural variation in regional geology, one cannot assume that oil and natural gas are evenly distributed across a given lease [area] or region. Rather, exploration is about unraveling the geologic history of the rock underneath that grid block, trying to understand where oil or natural gas may have formed and where it migrated. If the geology isn't right, you won't find oil or natural gas," he explained. Equally as important as conservation efforts and improvements in vehicle efficiency, he said, “is increasing long-term supply from stable parts of the world, such as our very own federal lands and Outer Continental Shelf," and he warned that enacting legislation to force federal oil and gas lease holders to develop their leased blocks could increase prices, not reduce them.

Green told the House leaders that “exploration is not simple and it is not easy. It requires geological ingenuity, advanced technologies, and the time to do the job right. It also requires access to areas where exploration areas can be tested—the greater the number of areas available for exploration, the higher the chance of finding oil and gas traps."

"Use it or lose it" also concerns independent producers, who say that "[w]ith the regulatory hurdles that are already in place, most companies are in an all-out sprint to develop the energy on a lease within a 10-year period." According to Marc Smith, an executive of the Denver-based Independent Petroleum Association of Mountain States, if the bill were to become law, “the resulting burden on domestic energy producers would make it difficult for them to meet our nation's long-term energy needs."

Opponents of this bill argue that it is designed to provide political cover to rank-and-file Democrats who are caught between a rock and a hard place: on one side are their constituents, who strongly support more American energy production; on the other, their liberal leaders who are under the thumb of radical environmentalists who want oil and gas prices to rise even higher to further discourage their use. To date, while the bill has majority support, it has not had the two-thirds majority required to pass under rules for expedited consideration. Given their failure to hear the message of their constituents on the energy issue, we can expect Congressional leaders to try again to pass this bill.

Far worse, however, is the news over the weekend that lawmakers are quietly considering raising the tax on gasoline and diesel fuel by ten cents a gallon to offset a projected $3 billion deficit in the Highway Trust Fund, a figure that will grow proportionately as we cut back on driving due to the high price of fuel.

Instead of taking positive action that would lead to increasing the supply of oil on the market, and thereby exert downward pressure on crude oil prices, Congress is more interested in blaming oil companies and speculators for high prices, hamstringing oil producers’ efforts to look for oil in the most likely places, and are considering raising the price we pay for gasoline by a dime a gallon. Or more.

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