National Poll: Keystone XL Support Nears 70 Percent

A new Fox News poll shows continued support for building the Keystone XL pipeline. The survey of 1,100 registered voters conducted Feb. 6-9 found 67 percent of respondents said the pipeline should be built, while just 25 percent oppose it.

The numbers are comparable to those in a Rasmussen Reports poll last month, which found the Keystone XL enjoyed a 56-27 percent edge. Interestingly, opposition to the project appears stuck in the mid-20s over the two polls.

Another important point: The Fox survey question on the Keystone XL was pretty fair and balanced:

"A proposed oil pipeline known as the Keystone XL would transport oil from Canada to refineries in the U.S. Supporters of the pipeline say it would bring needed oil to the U.S. ... lowering gasoline prices and creating jobs. Opponents of the pipeline have environmental concerns, including risk of a spill, and also say the pipeline would increase American dependence on oil."

The question accurately reflects the current divide over the pipeline -- which actually is quite lopsided in the project's favor. Clearly, a big majority of Americans favor the pipeline's energy and jobs. Additionally, it can't be said respondents didn't have enough information before answering; just 8 percent said they didn't know enough to respond.

Again, 67 percent is a big number on an issue, especially in an election year: If you're looking for votes, who will you stand with -- the 67 percent or the 25 percent?

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The State of Gulf Production

The New Orleans Times-Picayune reports that permitting in the Gulf of Mexico in the year since the administration’s deepwater drilling moratorium ended is slightly lower than it was in the year before the 2010 Macondo accident:

“Feb. 28, 2011, was the date that the Interior Department approved the first permit for an oil company to drill a new well in more than 500 feet of water after it had implemented new safety rules. In the year since then, there have been 61 permits to drill new wells in more than 500 feet of water issued by the Bureau of Ocean Energy Management, Regulation and Enforcement and its successor agency, the Bureau of Safety and Environmental Enforcement. In the same one-year period from Feb. 28, 2009, to Feb. 27, 2010, the government issued 67 such permits.”

The pace of permitting is important – so it’s concerning that, approaching two years since the administration’s drilling ban, the trajectory of permitting is, at best, flat instead of growing.

New resource access is absolutely crucial to America’s energy security. The oil and natural gas industry is ready to invest in new development if given the chance. Currently, it looks like the opportunities are still limited. Check out U.S. Sen. Mary Landrieu trying to make that point with Interior Secretary Ken Salazar during a hearing this week (h/t Ed Morrissey at Hot Air).

Another data set offers more perspective. The Energy Information Administration’s February “Short-Term Energy Outlook” shows that while overall domestic production increased in 2011 (more on this below), federal Gulf production is estimated to be down 21 percent this year from 2010:

“Domestic crude oil production increased by an estimated 110 thousands bbl/d to 5.59 million bbl/d in 2011.  A 380-thousand bbl/d increase in lower-48 onshore production in 2011 was partly offset by a 40-thousand bbl/d decline in Alaska and a 230-thousnd bbl/d decline in output in the Federal Gulf of Mexico (GOM).”

According to EIA, Gulf production was down from 1.55 million barrels per day in 2010 to 1.32 mb/d in 2011 and is estimated to fall to 1.23 mb/d in 2012 – the 21 percent decline.

Now, here’s an even starker figure: EIA forecast in 2010 that Gulf production would reach 1.76 mb/d this year. The difference between that forecast and the most recent estimate for Gulf production this year is a whopping 30 percent.  Here it is in a chart:

The red represents lost oil – lost energy and lost revenue to government. Total lost government revenue (in royalties and corporate tax payments) as a result of the Gulf slowdown from May 2010 until December 2011 is an estimated $5 billion, according to API analysis of EIA data.

Now, about overall domestic production. Steven Hayward at Powerline notes a report in the New York Times’ Greenwire publication that 2011 oil production on federal lands fell by 100 million barrels from 2010. Hayward details what that stat does to the administration’s claim about boosting domestic output:

“The increase in domestic oil production is occurring on private and state land, such as North Dakota. As I’ve noted here before, the explosion in the production of the Bakken field in North Dakota almost stops completely at the Montana border.”

In other words, production has increased in areas not under government control. More domestic oil was produced despite the administration’s policies, not because of them.

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Center for Offshore Safety Names Director, Former Shell Chief Scientist

The naming of Charlie Williams as the first executive director of the new Center for Offshore Safety marks an important milestone in America's efforts to safely and responsibly develop its vast offshore energy resources.

Williams leads the center after 40 years with Shell, where most recently he was the company's chief scientist for well engineering and production technology. His work included developing high-pressure, high-temperature wells and specializing in drilling and completion equipment for extreme environments, such as deepwater exploration and development. Williams was introduced Wednesday:

"We have assembled the best and the brightest minds to help ensure we develop America's vast resources in the safest manner possible. Our top priority is to develop practices and programs that will help operators perform at their very best in implementing safety and environmental management systems."

The center's governing board includes operators, drilling contractors, service and supply contractors and trade association representatives. The center will help deepwater operators implement advanced safety and environmental oversight management systems, an audit checklist and third-party review systems so operators can measure the effectiveness of those systems against standards developed by API and its members. Williams:

"The role of the (center) is to provide a forum for industry to come together and focus on developing programs, sponsoring activities and sharing good practices aimed at continually learning from and improving industry's safety performance."

Williams said the center faces start-up challenges common to most new organizations, including building a staff and prioritizing its efforts:

"Another unique challenge is finalizing all the audit tools, training auditors, and verifying auditors. This is a very large new effort and one of the first things the center must address.  Although our top goal is a forum supporting continuous learning and improvement of Safety and Environmental Management Systems, auditing of SEMS is both a center and regulatory requirement."

Key to the center is connecting industry efforts to improve safe and responsible offshore operations with the American public. Williams:

"We are committed to communicating with the public and communities regarding the programs and goals of the center. The industry is fully committed to producing oil and gas safely and responsibly.  The creation of the center, the dedication of resources to it, and the broad participation of industry in the center clearly demonstrates this commitment.  The center also demonstrates an enhanced commitment by industry in creating a 100 percent safety focused forum for coming together, learning, and continuously improving safety and environmental management systems and enhancing safety culture."

API President and CEO Jack Gerard welcomed Williams' selection:

"Safe, responsible development of our offshore oil and natural gas is critical for U.S. energy security, and it provides U.S. families and businesses with affordable and reliable energy for our future."

Learn more about the Center, its governance and information on how to become a member at www.centerforoffshoresafety.org.

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Oil & Gas Development on Federal Lands and Waters

The White House had a post up last week with some numbers on production of oil and natural gas on America’s public lands and offshore waters. They want the facts to “speak for themselves,” so let’s chart their numbers over the past six years:

The White House says:

"We know that production levels will fluctuate from year-to-year based on market conditions and industry decisions."

Of course the same is true for private lands where production levels are up.

"It also reflects the fact that the nation battled a major oil spill in the Gulf of Mexico in 2010."

An interesting point, given that 2010 production is the peak for oil. And it doesn’t explain the projected declines this year and next:

"Still, the overall trends show a clear picture of rising domestic production."

True if you include private lands, but on Federal?  Let’s look at the last three years part of their dataset.

Not sure “rising” means what they think it means.

Note:  An earlier version of the first and third charts above showed oil production as “billions” not “millions,”  we regret the error.  Sharp readers have also noted that the some of the numbers do not appear to match with EIA reports.  For this post we were just charting the data in the White House blog post mentioned.  We didn’t want to change the White House numbers lest we appear to be skewing their analysis to fit our commentary.

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O’Reilly - Oh So Wrong On Exports

Bill O’Reilly was beating the drum again last night about oil exports, once again displaying his lack of rhythm.  Here are his arguments in a nutshell:

Many Republicans want to drill baby drill but what's the point if all the oil goes to China?...You are not making as much money in U.S.A. as you could in China so you are just whipping it out and throwing it over to China. Is that right or wrong?... And we own 12 miles of ocean offshore. That's the U.S. sphere of influence. We own that; it's ours. All the 320 million American citizens. The government doesn't own it. The oil companies don't own it. So they take the stuff out of our land, and they send it to China. Does that make sense to you?

First let’s go back to this chart:

That’s right in 2011 99.7 percent of the crude oil produced or imported into the U.S. was processed here.  We simply do not export crude oil in any significant way.  We do export products manufactured from crude oil, including motor gasoline.  Let’s have a look at that from both the supply and demand side:

Now this might be hard to see because gas exported is quite small compared to gas supplied to U.S. consumers, but where you see spikes in exports corresponds almost exactly to dips in U.S. demand.  In other words the gas we are exporting is not gas taken from U.S. consumers, but rather gas that U.S. consumers aren’t using.  As explained yesterday, this is a good thing.  Having an export market ensures that refiners can operate efficiently and maintain U.S. refining capacity. Contributing both to energy security and keeping our workers working.

There has been a lot of talk recently about the need to boost American manufacturing, well this is what manufacturing looks like.  Taking raw materials and adding economic value to them. In the case of exported petroleum products, the U.S. produces or buys crude oil, refines it at U.S. refineries and then sells finished petroleum products at significantly higher value.   Exporting petroleum products does not increase prices, as John Felmy put it:

…when supplies are available to export – as they are today because of weak U.S. demand – they put downward pressure on the prices of the gasoline and other products we import. Exports also mean jobs for Americans, including good paying U.S. refinery jobs, and a lower trade deficit.  but reducing the supply of the crude oil does.

If O’Reilly really wants to contribute to the gas price debate he should focus on real solutions, not free trade bogeymen.  Back to Felmy for what these solutions look like:

The industry must be allowed to develop at home more of its ample crude oil and natural gas resources. More U.S. barrels on crude markets would help drive down crude costs and reduce gasoline prices. We need policies that ease access to U.S. oil and natural gas resources, which are still very ample. We also need policies that add critical infrastructure, such as building the Keystone XL pipeline, to bring in more of Canada’s vast supplies of oil, and policies that keep regulations and tax policy reasonable.

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The President’s Energy Tax Hikes: Section 199 Deduction

The president’s State of the Union address last month had lots of good stuff in it about domestic oil and natural gas production. Unfortunately, the president’s actions are speaking louder than his words.

His just-released 2013 budget includes proposals to increase taxes on oil and gas companies – more than $86 billion over 10 years – that would take the country in the wrong direction on energy. Research shows higher energy taxes would discourage production, lead to fewer well-paying American jobs and increase our reliance on imports.

Today, let’s take a look at one of his tax-hike proposals – repealing the Section 199 manufacturer’s deduction only for oil and natural gas companies. Benefit to Washington: $11.6 billion over 10 years.

Here’s what the president said back on Jan. 24:

“Let’s remember how we got here.  Long before the recession, jobs and manufacturing began leaving our shores.  Technology made businesses more efficient, but also made some jobs obsolete.”

Indeed, which is why the 2004 “American Jobs Creation Act” included the Section 199 deduction. It was extended to all U.S. manufacturers, to help address the very problem the president identified by benefiting employers who maintain and create well-paying U.S. jobs.

The president went on to talk about tax policies he said would foster more American manufacturing:

“If you’re an American manufacturer, you should get a bigger tax cut.  If you’re a high-tech manufacturer, we should double the tax deduction you get for making your products here.  And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers.”

Too bad the president’s affinity for American manufacturing is more rhetoric than reality – demonstrated by his renewed proposal to eliminate the Section 199 deduction only for American oil and natural gas companies. Talk of tax fairness from the administration is especially hollow here. Under Section 199, a 9 percent deduction is available to all qualifying income from all domestic manufacturers – except that the deduction for the oil and gas industry is limited to 6 percent, and now the president wants to eliminate that.

If the objective, as the president said, is more domestic oil and natural gas production – creating more U.S. energy and more U.S. jobs – then raising taxes on these companies is the wrong way to go. Higher taxes on an industry that already pays more than $86 million a day to the federal treasury and which contributed $476 billion to the economy in 2010 would likely cost jobs, not create them, while undermining efforts to reduce imports.

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Bunk on Oil Issues

Normally, we don’t bother with blog posts from the Center for American Progress on oil issues because, to borrow from an old saying, there’s no point in fact-checking someone who puts out propaganda by the barrel.  But since this post yesterday sought to “debunk” our “claims,” let’s have a look at CAP’s. Warning: These point/counterpoint, counter/counterpoint things can get a little long.

From CAP:

CLAIM: “More domestic production is critical to putting downward pressure on gasoline prices — supply matters.” – Jack Gerard, American Petroleum Institute President and CEO, March 26, 2012

TRUTH: To test whether more U.S. domestic production would lower gasoline prices, the Associated Press just completed an exhaustive analysis of 36 years of monthly U.S. oil production and gasoline price data. AP found that there is:

“No statistical correlation between how much oil comes out of U.S. wells and the price at the pump. If more domestic oil drilling worked as politicians say, you’d now be paying about $2 a gallon for gasoline. Instead, you’re paying the highest prices ever for March.”

Actual Truth: First off, the U.S. is the third-largest producer of oil in the world, so it would defy the laws of economics if there was zero correlation between “how much oil comes out of U.S. wells and the price at the pump.” More on that here. But don’t take our word for it – here are some thoughts from others:

William O’Keefe, the Marshall Institute: “…a policy of NO and a self imposed moratorium on increased exploration has probably resulted in hundreds of thousands of barrels or more not being produced. Adding those unproduced barrels to the current global supply would put downward pressure on crude oil prices which translate into to lower gasoline prices. Instead, there has been a policy of NO to the eastern Gulf of Mexico, NO to offshore drilling, NO to Alaska’s coastal plain, and NO to Keystone XL. With a more enlightened energy policy our oil production over the course of this decade could increase by a million barrels a day or more. That is not trivial.”

Geoff Styles, energy analyst: “Traders have to think about how prices are really set, and they understand that it's the interaction of the last few million barrels per day of supply, demand and spare capacity that really count, along with inventories. An extra million or two barrels per day – a quantity of which North America is certainly capable – can make a huge difference in oil prices.”

Sen. Chuck Schumer and the White House also agree that signals and supply matters.

Back to CAP:

CLAIM: “Opposition to higher energy taxes is rising among the public. A recent ‘What is America Thinking on Energy Issues’ poll showed that 76 percent of voters think that higher energy taxes could equal higher gas prices.” – Jack Gerard, API President and CEO, March 26, 2012

TRUTH: A Center for American Progress Action Fund poll conducted March 10-13, 2012 by Hart Research provided respondents with fourteen policy options asked which “would help a lot to address the issue of gasoline?”  The following option was chosen by 55 percent of the respondents:

“Repeal the four billion dollars per year in federal subsidies that currently are given to the oil companies, and use that money instead to fund investments that will make us less dependent on oil.”

Another 22 percent said that this proposal “would help somewhat.”  The combined totals finished highest among all the options.

Actual Truth:  First of all, CAP’s response is a total non-sequitur. People can believe that higher energy taxes could equal higher gas prices and simultaneously believe that reducing oil use is needed to “address the issue of gasoline.” Second of all, this is a bit of a “garbage-in, garbage-out” question because oil companies don’t get subsidies. Here is a chart from EIA data:

Nor does the industry get tax credits (which reduce taxes dollar for dollar) or grants from the government. They get tax deductions for business investments that will generate tax revenues in the future. Unlike the case of credits or grants, the government will still be paid the full amount of tax owed on our operations. Which means the taxpayer is getting every dollar that’s owed. What the president is proposing is to front-load the tax collection, so that any increases in current collections come at the expense of future taxpayers.

And lastly, oil and natural gas companies are the largest investors in technologies that reduce greenhouse gases. So perhaps this question should be re-phrased: “Do you support the government taking private industry investments in new energy technologies so that the state can direct such research based on political whim?”

Back to CAP:

CLAIM: “API represents more than 500 oil and natural gas companies…that…supports 9.2 million U.S. jobs.” – Jack Gerard, API President and CEO, March 26, 2012

TRUTH: Using API’s NAICS criteria (codes for various occupations) with Bureau of Labor Statistics data, CAP estimates that there were 1,790,000 employees in the oil and gas industry in 2011. Of these, 828,000 – or 46 percent – worked at gasoline stations.

Actual Truth: Note that CAP focuses on employees (and is off by 400,000 there), ignoring the word Gerard actually used, “supports.” And CAP ignores that the industry’s job creation extends beyond the industry itself, as Caroline Baum notes:

“Oil-and-gas drilling crews need equipment, food, clothing and lodging. They want to frequent bars and restaurants in the makeshift boom towns sprouting up in areas of North Dakota, Montana, south Texas and Pennsylvania. Manufacturers of drilling equipment need raw materials, such as steel and chemicals. So there’s a natural multiplier effect. Think of it as fiscal stimulus without the government first taking from Peter to give to Paul…Every direct job created in the oil-and-gas extraction industry, for example, yields 2.3 jobs elsewhere in the economy, Franklin says. This is expressed as a multiplier of 3.3, higher than the average of 2 for the 195 industries tracked by the BLS. Petroleum-and-coal product manufacturing (refineries) happens to have the highest multiplier at 8.2. And yes, manufacturing industries are at once the most capital-intensive, the most productive and still have the biggest spillover effect when it comes to generating jobs.”

Back to CAP:

CLAIM: “Raising taxes will not lower energy prices for American families and businesses — in fact, the Congressional Research Service says this plan could cause gasoline prices to go higher.” – Jack Gerard, API President and CEO, March 26, 2012

TRUTH: A Congressional Research Service memo, “Tax Policy and Gasoline Prices” to Sen. Harry Reid (D-NV) determined that eliminating tax breaks for big oil companies would have little impact on the price of gasoline.

Actual Truth: So CAP is rebutting our use of a CRS report from March 2012 by quoting from a CRS memo from last year? But since CAP brings it up, here’s what that earlier CRS memo said: 

“… if the changes in taxes did impact domestic, or overseas exploration and development activity, that does not necessarily imply that less oil would be available in the U.S. market. More might be imported, with little or no effect on gasoline prices.”

In other words (which CAP apparently endorses), don’t worry – we can just import more!

More CAP:

CLAIM: The administration “says it is for natural gas, but 10 federal agencies are looking at new regulations that could needlessly restrict it.” – Jack Gerard, API President and CEO, March 7, 2012

TRUTH: Nothing of the sort is underway.  Minority staff of the House Energy and Commerce Committee thoroughly investigated this claim, and debunked it.

“In a fact sheet supporting the 10-agency assertion, API lists numerous agencies that don’t even have legal authority to regulate hydraulic fracturing...”

Actual Truth: Um, that is sort of exactly our point – that a number of agencies with no business regulating hydraulic fracturing are jumping on the regulation bandwagon.

CAP:

CLAIM: “The industry receives not ONE subsidy, and it is one of the largest contributors of revenue to our government of any industry in America.” – Jack Gerard, API President and CEO, February 23, 2012

TRUTH: Numerous Republican leaders have noted that a tax break is the same as a direct government or subsidy, in a different form.  This includes President Ronald Reagan’s chief economic advisor, Martin Feldstein, former Senate Budget Committee Chair Pete Domenici (R-NM), House Ways and Means Committee Chair Dave Camp (R-MI), and Speaker of the House John Boehner (R-OH).

Feldstein: “These tax rules — because they result in the loss of revenue that would otherwise be collected by the government — are equivalent to direct government expenditures.”

Domenici: “Many tax expenditures substitute for programs that easily could be structured as direct spending. When structured as tax credits, they appear as reductions of taxes, even though they provide the same type of subsidy that a direct spending program would…”

Camp: “‘Tax expenditures’ [are] provisions that technically reduce someone’s tax liability, but that in reality amount to spending through the tax code.”

Boehner: “What Washington sometimes calls tax cuts are really just poorly disguised spending programs.”

Actual Truth: Each in turn: There’s no loss of revenue for the government (Feldstein), they’re not tax credits (Domenici), they don’t reduce tax liability (Camp), and they’re not tax cuts (Boehner). See above.

And lastly:

CLAIM: “Oil production on federal lands is flat, and oil production on federally controlled offshore areas is down.” – API, “Energy Myths and Facts”, 2012

TRUTH: The Energy Information Administration reports that 3.7 quadrillion BTUs of energy from crude oil were produced from federal lands and waters in 2011. This is a 12 percent increase over the 3.3 quadrillion BTUs produced in 2008 under President George W. Bush. It is also more than was produced from federal lands and waters in 2006 and 2007.

Actual Truth: Interestingly, they really are into comparing 2011 to 2008, 2007 and 2006. Let’s have a look:

2011 doesn’t look so pretty now.  Especially compared to where we should be in some areas:

So, sorry CAP, your debunking is mostly just bunk. And speaking of bunk, here is what our current energy policy looks like, with all of its self-imposed limitations. Not bunk is what actual American progress looks like.

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