At the very same time that the shale revolution is saving the economy hundreds of millions of dollars per day, directly creating tens of thousands of jobs, decreasing the need for foreign oil, and spurring growth in manufacturing that will lead to billions of dollars of new investment and still more jobs, the president is bashing the oil-and-gas sector. Not only that, but in Obama’s new budget, he continues to insist that “clean energy” will drive America’s future competitiveness.
Obama is ignoring the essentiality of domestic oil and gas production, and he’s doing so at a time when gasoline prices are spiking because of the specter of a military strike against Iran — some analysts are predicting a national average gasoline price of $4 or more by April. And while his budget extols the benefits of “energy independence,” Obama wants to eliminate a relatively minor set of tax preferences for the oil-and-gas sector that are helping the U.S. attain record production levels.
To be clear, all energy sources should be forced to compete, fair field, no favor. Let’s eliminate all energy subsidies. But contrary to the president’s narrative, if that were to occur, it’s the wind and solar industries, not the oil-and-gas sector, that would immediately go into cardiac arrest.
The nut of Obama’s energy policy can be found in a single paragraph of his budget:
As we continue to pursue clean energy technologies that will support future economic growth, we should not devote scarce resources to subsidizing the use of fossil fuels produced by some of the largest, most profitable companies in the world. That is why the Budget eliminates inefficient fossil fuel subsidies that impede investment in clean energy sources and undermine efforts to address the threat of climate change.
To begin, consider the “largest, most profitable” line, which betrays the Obama administration’s antipathy toward the hydrocarbon sector. Apple, the company nearly everyone loves — iPads, iPhones, the secular saint Steve Jobs — has a market capitalization of $475 billion and a profit margin of 25.8 percent. Meanwhile, BP, the biggest producer of domestic oil and the company nearly everyone loves to hate — oil spills, British people, Tony Hayward — has a market capitalization of $147 billion and a profit margin of just 6.8 percent. Apple is three times as large and nearly four times as profitable as BP.
Apple has virtually no manufacturing jobs in the U.S. Instead, it imports nearly everything from China. Meanwhile, last year, the domestic oil industry exported — yes, exported — about 1 billion barrels of crude oil and refined products worth some $100 billion. Those exports are creating jobs and helping America’s balance of trade.
As for the claim that fossil-fuel subsidies are what “impede investment in clean energy sources,” the hard reality is that over the past few years, the oil-and-gas sector has out-innovated the solar and wind sectors. For instance, in 2006, the average domestic natural-gas well had initial production rates of 400,000 cubic feet per day. Today, the average well drilled in the Barnett Shale in Texas has initial production rates of 1.4 million cubic feet per day.
No similar improvement has been seen in the “clean energy” sectors, and thus the tsunami of low-cost natural gas has made wind and solar even less attractive. Travis Miller, a utility analyst at Morningstar Inc., recently told Bloomberg News that “wind on its own without incentives is far from economic unless gas is north of $6.50.” The latest spot price for gas: about $2.50.