This Is No Time to Discourage U.S. Oil and Gas Production

All-time U.S. to be discouraging domestic production of oil and natural gas at this time could be worse. Libyan descent into chaos is causing a rapid rise in oil prices and unrest in oil producing countries in the Middle East and North Africa has led some analysts to predict an unprecedented surge in oil prices may be imminent.
However, the administration of President Barack Obama has not only stopped issuing permits for deepwater drilling in the Gulf of Mexico, also wants to stop "subsidizing energy of yesterday" that the federal government can increase revenues and spending more in developing alternative energy sources. The chairman of Budget 2012, released earlier this month, calls for the elimination of a dozen tax breaks that benefit producers of coal, oil and natural gas. Obama is more willing to eliminate what he calls "costly tax cuts for oil companies."
The oil industry has been a fat piñata for politicians and environmental groups, but a simple cost-benefit analysis shows that eliminating the tax rules for decades-old oil and gas could be a bad deal for consumers .
Two tax breaks for the oil and gas are the most important: the percentage depletion (part of the tax code since 1926) and intangible costs of drilling (. Part of the tax code since 1913) According to the budget Obama, the two items will cost taxpayers about $ 2.4 billion per year over the next decade. A handful of other tax policies related to oil and gas, including an increase in the amortization period for geological and geophysical expenses, taxpayers an additional $ 2 billion per year. That sector's total annual tax benefits amount to about $ 4.4 billion.
depletion of well owners can deduct a certain percentage amount of production value in a given year. It is significant, but the tax law is really important is the deduction of intangible drilling costs, or IDC. That allows drillers immediately expense, rather than to capitalize over the years, many of the costs associated with drilling a well, including labor, supplies and fuel.
The energy industry says that the deduction encourages capital formation and increased production in high-risk business. And many economists have favored such spending to stimulate the formation of capital across the economy. However, even if we assume that the deduction of IDC is actually a subsidy, consumers are getting a tangible benefit?
Consider natural gas. With the increasing use of horizontal drilling and hydraulic fracturing, U.S. production Gas has soared in recent years. The result: prices of methane are about half what they were in 2008.
Several studies, including one conducted in 2009 by Tudor, Pickering, Holt & Co., a Houston-based, energy focused investment bank predicted that the elimination of the deduction of intangible drilling costs could increase prices natural gas by 50 cents per thousand cubic feet. Their reasoning is simple: While the industry sees its increased costs and reduced cash flow, which will drill wells less and less gas is recovered. Given that the U.S. burns about 23 trillion cubic feet of gas per year, simple arithmetic indicates that the elimination of the deduction could mean a higher cost to consumers of $ 11.5 billion per year in the form of higher prices of natural gas.
Change the tax rules could also slow the surprising resurgence of the U.S. oil industry. After decades of declining production, domestic drillers are increasing their oil production because they are taking advantage of the shale deposits with them new techniques that have helped to increase gas production. The result: domestic oil production could jump as much as one million barrels per day in 2015, according to research firm Bentek energy.
This is great news for local governments and tax-hungry state. It is directly in line with one of the stated objectives of 2012, Obama's budget "to improve our national security by reducing dependence on foreign oil."
The president also wants to "break our dependence on oil with biofuels," as he said in his State of the Union. But the use of biofuels to displace oil requires huge subsidies.
Last year, the Congressional Budget Office (CBO) reported that the cost to taxpayers of using corn ethanol to reduce consumption of gas per gallon is $ 1.78. This year, the corn ethanol industry produced about 13.8 million gallons of ethanol, the energy equivalent of about 9.1 million gallons of gasoline. Using the CBO's numbers, that means that the total cost to taxpayers this year for waste of ethanol will be about $ 16. 2 billion. That compares with $ 4.4 billion in lost tax revenues by the tax rules on oil and gas.
So the annual ethanol subsidies are almost four times higher than those for oil and gas, although domestic drilling provides approximately 36 times more energy to the U.S. economy. Per unit of energy produced, tax preferences to corn ethanol is 130 times greater than those listed oil and gas.
If the president is really serious about increasing revenue, then you should remove all tax benefits related to energy and allow all sources to compete on fair ground, any favors. Failing that, he should at least ethanol subject to the same treatment being given to oil and gas.

(Source: http://online.wsj.com/article/SB10001424052748704900004576152431935573812.html)