Why not embrace America's oil and gas boom to revive the moribund economy?

By Bernard L. Weinstein
Associate Director of the Maguire Energy Institute

Over the past three years, we have seen a dramatic rebound in America’s oil and natural gas production after a hiatus of almost 40 years.  This has occurred despite falling output in Alaska, the moratorium on deep-water drilling imposed in the wake of the Gulf of Mexico oil-rig blowout last year, and extremely low prices for natural gas.  New technologies for extracting oil and gas from deep under the ocean floor as well as shale formations have been largely responsible for the country’s fossil fuel renaissance.

All this is good news for America’s consumers. Though gasoline and diesel prices have jumped 25 percent over the past year, absent the 11 percent increase in oil production from U.S. fields, consumers might be paying even more.  At the same time, falling oil imports chopped about $20 billion off America’s trade deficit last year.  Abundant new supplies of natural gas at low cost have reduced the home heating and electric bills for millions of American households.

In a sluggish economy, energy-producing states like Texas, Oklahoma, Arkansas, North Dakota and Louisiana are benefiting from the job and income growth associated with the resurgent oil and gas sector.  Each of these states currently posts unemployment rates below the U.S. average of 9.1 percent and each has posted job gains over the past year, led by energy.

According to a study by Quest Offshore Resources, drilling and production in the Gulf of Mexico currently support about 182,000 jobs in Texas, Louisiana, Mississippi and Alabama—a number that would have been even higher in the absence of the deep-water moratorium.  Should drilling permits return to their pre-Macondo pace, by 2013 Gulf of Mexico operations could support 320,000 jobs in these states.

Non-energy states are also benefiting from the nation’s fossil fuel revival.  According to the American Petroleum Institute, 9.2 million jobs across the county can be attributed directly and indirectly to spending by the oil and gas industry.

Would that President Obama had even mentioned the domestic energy sector as a vehicle for reviving the sluggish economy in his recent “Jobs for America” speech.  For instance, why didn’t he propose developing oil and gas resources currently off-limits in the Outer Continental Shelf (OCS), Alaska and the Rockies, a policy change that could create another 160,000 jobs by 2030?  Why didn’t he talk about supporting the shale gas revolution and its potential for substituting domestic gas for imported oil?   Why didn’t he discuss the huge investments currently underway in the Marcellus, Eagle Ford and Utica shales and the Canadian oil sands that could add a further 620,000 jobs over the next 20 years?   And why didn’t he publicly express his support for the Keystone XL pipeline that would create 20,000 jobs over the next year and increase the flow of oil from Alberta to refineries along the Gulf Coast?

Instead of talking about the industry’s potential for new job creation, and the revenues that would accrue to federal, state and local coffers, the President dragged out his well-worn clichés about “obscene profits” and the need to make the industry pay its “fair share” of taxes.  (Other than hedge funds, no other industry was targeted in the President’s speech.)

Specifically, he once again proposed ending the tax rule that allows companies to deduct nine percent of their production costs as well as some intangible drilling expenses and the tax credit for royalties paid to foreign governments.  In fact, the oil and gas industry currently pays more than $85 million to the federal government every day in taxes and fees. Repealing the tax credit would put American firms at a competitive disadvantage to foreign companies who often receive sweetheart tax and regulatory deals from their home governments.

The Energy Information Agency believes more than 59 billion barrels of recoverable oil reside in U.S. offshore waters. The U.S. Geological Survey recently estimated total recoverable oil reserves in North Dakota, home to the Bakken Formation, at four billion barrels.  Alaska, California, New York, Ohio, Pennsylvania and Texas also possess great potential for additional oil and gas recovery, if only we have the political will.

Investing in North America’s energy resources, especially oil and gas, can revive our economy, lessen our dependence on imports, and increase our national security.  But restrictions on drilling and higher taxes will hinder us from achieving these goals.

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