I think any additional drilling for oil should be done only on the precondition that the additional supply would be offset by a decrease in demand (i.e conservation). That way, it won’t just get pissed away on increasing domestic demand, like what happened in the mid-1980’s when a huge amount of new supply pushed prices way down and ushered in the SUV era. The truck-based SUV era is now dead, at least for the moment, with the year-over-year sales plummeting some 30 to 40%. And the futures of any automaker who relied on SUV-sized profits now uncertain.
I’ve always had this notion that the untapped oil would me more valuable in the ground as a hedge against future calamity when oil might be, oh, say $500 a barrel. But that being as it may, I have this sneaking suspicion that oil companies don’t pay a fair amount in royalties for the right to extract this finite resource that supposedly belongs to the people. Exactly how much oil companies are supposed to pay seems hard to find out, but according to this “During most of the twentieth century, oil and gas companies generally paid between 12.5 and 16.7 percent in royalties for a lease to drill on public land or water”. It seems to me a 700% markup is unwarranted — yes, yes, i know, the drillers have costs and whatnot. At these rates, I think we would all (everyone except the oil comanies, of course) be better off leaving it in the ground IT’S NOT GOING ANYWHERE. Call us back when you are willing to pay a fair amount for the oil — let’s say 50%.
Do oil companies even pay the pittance they owe? An Interior Department Inspector General’s 2006 report found “pervasive problems in the U.S. program for ensuring that companies pay royalties they owe on billions of dollars’ worth of oil and natural gas pumped on federal land and in coastal waters.” see Inquiry concludes that many U.S. oil royalties go unpaid. This isn’t a reason not to drill but it does point out an overly-cozy relationship between the oil industry and the federal government.
This past week, in a WSJ op-ed, Andrew Moylan of the National Taxpayers Union wrote in Let’s Drill our Way to Lower Taxes that “Congressional Research Service recently estimated the potential federal revenue from Arctic National Wildlife Refuge (ANWR) oil development at $191 billion over 30 years — roughly $18.36 per barrel, based on projections of recoverable reserves”. On his blog entry he writes further that “Despite all the hoopla over industry profits, refining and retailing are essentially zero-margin exercises right now. All the money is in exploration and development, which is why oil companies have been itching to tap into our vast domestic resources. I’m sure they wish the taxes were lower, but they’d be happy to pay current rates (leases, royalties, excise, sales taxes, etc.)…” I have no doubt this is true — what I am saying simply is the royalty rates are too low. I.e. we (taxpayers) are not getting a fair return for the extraction and consumption of this valuable and finite natural resouce. How does this work in other democratic oil-producing nations– i.e. how much royalty/tax per barrel… I’m guessing with oil at $120/bbl it is significantly more than eighteen bucks? E.g. Canada? Norway? Alaskan citizens have a Permanent Fund. Where is the United States’ “sovereign wealth fund”? The Permanent Fund? We get nothing but more debt.