August 23, 2012
Obama's Oil and Gas FollyBy Jeffrey Folks
Obama's campaign speeches always seem to include a line about how he can take credit for increasing domestic oil and gas production. As the official White House website has it, "domestic oil and gas production has increased every year President Obama has been in office."
On Wednesday, however, his administration put into effect yet another new regulation making it harder for America's oil and gas companies to increase production. In fact, that regulation, as the head of the American Petroleum Institute recently wrote, would make American companies unable to compete with foreign competitors. That may be exactly why the president supported it.
The new regulation, Section 1504 of the Dodd-Frank bill, would require American companies to release information detailing expenditures on foreign operations. That proprietary information would immediately be available to foreign and domestic competitors alike, and would be used to undercut whatever advantages American companies have achieved as a result of their own hard work. Section 1504's "extractives transparency rules," as interpreted by Obama's activists at the SEC, force American companies to compete with one hand tied behind their back. Competitors in Moscow and Beijing must be dancing for joy now that the rules have been finalized. Obama has just handed them the keys to the world's oil riches.
The problems with Section 1504 go beyond the "competitive disadvantage" to which it puts American energy companies. When implemented, Section 1504 will also place American companies in conflict with foreign countries which prohibit the very same disclosures that 1504 mandates. As a result, American companies might well be forced to cease operations in nations where they have already invested tens of billions of dollars in order to avoid running afoul of the law.
As one study pointed out, there are also serious security implications involved in implementing Section 1504. American companies working in dangerous environments overseas may be placing their employees at risk if they fully disclose the locations, funding, and status of their operations. The safety of American workers and their local employees overseas should be a paramount concern, but the SEC ruling does not appear to address this concern.
In addition to the risk of violence, Section 1504 exposes American companies to the risk of greater shareholder litigation. Like all complex securities regulation, Section 1504 is a boon for trial lawyers, but not for American workers or consumers, who will end up paying the costs of litigation.
In fact, it appears that the SEC has proceeded in the most intrusive manner possible, though it need not have done so. Dodd-Frank allowed the agency broad leeway to interpret transparency rules in a manner that would not have materially harmed American companies. It appears that, under Obama's direction, the agency has gone out of its way to punish American companies. Yet nothing in Section 1504 applies to foreign state-run competitors that are not listed on U.S. markets.
All of this raises the question, of course, of why Dodd-Frank should have singled out oil and gas (and mining) companies for a transparency ruling that does not apply to other industries. That decision, in and of itself, would seem to be blatantly unfair and discriminatory. It is another manifestation of the left's obsession with creating a carbon-free future that fails to take into account economic impact or even basic feasibility. In the absence of fossil fuels, America's economy would be reduced to the level of Mali and then some.
Far from increasing domestic oil and gas production, Obama has already cut future production from what it would have been. As the American Petroleum Institute states, current policies "prevent us from adequately preparing for the long-term." Energy production has a long lead time -- as long as two decades, if one includes locating promising acreage, leasing, permitting, drilling, and building the infrastructure for getting production to market. This means that the consequences of current policies don't become apparent for at least a decade. When they do, Obama's policies will be seen to have curtailed domestic production and placed America's energy security in jeopardy.
The increased production for which Obama is taking credit can be attributed to leasing and advances in drilling technologies that took place during previous administrations. By contrast, Obama has been consistently hostile to fossil fuel development.
Since Obama likes to boast about his so-called achievements in domestic energy production, here is a brief list of what he has actually done:
-reversed commitments to allow development of offshore Atlantic reserves, and failed to expand drilling on Alaska's North Slope and offshore Alaska
-shut down Gulf of Mexico deep-water drilling entirely for six months and slowed new permitting there indefinitely
-reversed previous commitments to allow drilling for oil shale on federal lands in the Rockies
-vetoed the Keystone XL pipeline, shutting off major supplies of oil from Canada
-slowed hydraulic fracturing on public and private lands by imposing new EPA regulations, and allowed the EPA to issue hasty determinations of fracking pollution that have since been discredited
-continued to support a devastating corn ethanol program that is raising food prices worldwide and costing U.S. taxpayers billions in taxes to pay for subsidies and additional billions in higher fuel costs
-driven up the cost of electricity by mandating and subsidizing wind and solar generation instead of promoting use of natural gas (and coal)
-accused "speculators" of driving up oil prices (except when those prices are falling, which is then not attributable to speculation) while it is his own actions that are driving up those prices in anticipation of future declines in U.S. oil and gas production
To this long list of Obama's policy mistakes we can now add Section 1504, the SEC requirement that American oil and gas companies reveal much of their proprietary information with regard to foreign exploration to their foreign competitors.
In other words, Obama's oil and gas policy has been nothing less than an assault on fossil fuels. The administration's plan all along has been "to wean America off dependence on fossil fuels" (a "national mission," as Obama has called it). Yet no practical alternative exists to supply America's energy needs. Meanwhile, foreign rivals -- China, in particular -- are locking up oil and gas reserves around the globe. Recently, CNOOC (China National Offshore Oil Company) has offered to purchase Nexen for $15.1 billion. That purchase that would greatly expand Chinese ownership of oil and gas reserves in the Gulf of Mexico and elsewhere in North America. This deal follows Chinese purchases of reserves throughout North America, Africa, Latin America, and the Middle East. In future decades, China will reap the benefit of its pro-fossil fuels policy while America suffers from the folly of what Obama has done.
Meanwhile, American companies are hobbled with new regulations and taxation that make it harder for them to produce energy. The cumulative effect of Obama's green energy policy has been to gut future domestic energy production, putting America in the hands of foreign producers, many of whom are hostile to the U.S. Decades from now, with domestic production of oil and gas inadequate to meet our needs, we will have Obama to blame.
But as Obama stresses in his campaign appearances, his work is not yet finished. He has not yet totally dismantled America's oil and gas companies. That job he has left for his second term.
Jeffrey Folks is the author of many books and articles on American culture including Heartland of the Imagination (2011).
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