The People of America's Oil and Natural Gas Indusry

Gasoline Prices and Real Help for Consumers

Mark Green

Mark Green
Posted May 23, 2013

Gasoline prices have been rising with the approach of the summer driving season – up to about $3.66, according to AAA – pushed there by rising crude oil prices. U.S. consumers need help. And they could get it – if the administration pursued a number of energy policies to put downward pressure on global crude costs, while abandoning other choices that could harm consumers.

API Chief Economist John Felmy’s reporter briefing Thursday focused attention on two paths: one that will increase domestic production of oil and natural gas and one that won’t. Unfortunately, the administration – via proposals to increase energy taxes and a new wave of questionable regulation – looks headed down the wrong path, a recipe for disaster for American energy:

Recipe For Disaster

Felmy:

“The White House says it’s concerned about gasoline prices. But its energy policies aren’t helping the American people much. And some of its proposals, especially those on taxes and a barrage of new regulations, are a recipe for disaster.”

Let’s take a closer look at the key ingredients:

Regulation – Existing sulfur content rules for gasoline already have eliminated about 90 percent of that content and continue to reduce it. EPA’s proposed Tier 3 rule would provide very little additional benefit while potentially adding up to 9 cents per gallon to the cost of making gasoline. When Tier 3 is combined with a possible new gasoline vapor reduction requirement, the per-gallon increase in the cost of making gasoline could reach 25 cents, according to Baker & O’Brien. Finally, Renewable Fuel Standard mandates could drive up the costs of manufacturing gasoline 30 percent by 2015, according to a NERA study. Felmy:

“The administration … needs to pull back on the onslaught of multi-billion dollar regulations it has planned for the oil and gas industry. While the benefits of these rules would be negligible, they would drive up refinery costs, potentially putting some refineries out of business, reducing U.S. fuel manufacturing capacity, and increasing reliance on imported fuels. These are costs on the economy and could impact all consumers.”

Higher Taxes – Proposals that single out oil and natural gas companies for $40 billion in higher taxes would depress investment in new production and diminish growth in supplies that could help push crude prices down, according to a Wood Mackenzie study. Wood Mackenzie also estimates that tax increases on the industry could reduce U.S. oil output 700,000 barrels per day, erasing about half of the 1.5 million/per day increase in output the U.S. has achieved over the past two years. Felmy:

“The administration needs to stop obsessing about raising taxes on a single industry. The oil and gas industry pays its fair share. It delivers substantial revenue to our government – about $85 million a day – and pays income tax at effective rates higher than most other industries.”

Restricted Access – Current policy is keeping 87 percent of our offshore acreage off-limits to oil and natural gas development. Meanwhile, leasing and permitting policies have resulted in a marked decline in new wells on federal lands (down 40 percent, 2008-2012). Felmy:

“If the administration really wants to help consumers, it needs to do an about-face on its approach to federal lands development. It advertises the fact that oil production has been increasing on its watch, but in fact its policies have discouraged development. … Total oil production is up, but only because of what is happening on state and private lands.”

Felmy outlined an alternative recipe that could increase oil output and help consumers:

  • An about-face by the administration on oil and natural gas development in federal areas. Increased access could add more than 4 million barrels’ worth of oil and natural gas per day by 2020, Wood Mackenzie says.
  • Adopt a common-sense approach to regulation that seeks input from stakeholders and considers the real-world costs of new regulatory proposals, individually and cumulatively, in the context of actual benefits provided.
  • Pursue pro-growth policies in the place of anti-growth tax increases – policies that create an environment for investment and innovation.

Felmy:

“The administration could do a lot better job on gasoline prices. Efficient use of supplies is important. An all-of-the-above approach to energy is important. But if the administration is really serious about helping consumers, it also will expand domestic oil and natural gas development in federal areas and abandon its counterproductive ideas on more taxes and overly stringent or unnecessary regulations.”

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.