Energy Prices to Surge

Friday, July 10, 2009 8:22 AM

By: Gene J. Koprows Article Font Size

The Obama administration's plan to eliminate tax breaks for oil and natural gas exploration will drive up costs for consumers, Robert Bryce, the managing editor of Energy Tribune, wrote.

Writing in The Wall Street Journal, Bryce said that President Barack Obama's 2010 budget calls for closing two tax breaks: The expensing of intangible drilling costs, such as wages, fuel and pipe, which enables energy companies to deduct the bulk of their expenses for drilling new wells; and the allowance for percentage depletion, which allows well owners to deduct a portion of the value of the production from their wells.

"Obama called the tax breaks for the oil and gas industry 'unjustifiable loopholes' that do 'little to incentivize production or reduce energy prices,'" Bryce, the author of Gusher of Lies: The Dangerous Delusions of Energy Independence, wrote. "That's flat not true. The deduction for intangible drilling costs encourages energy companies to plow huge amounts of capital into more drilling. And that drilling has resulted in unprecedented increases in natural gas production and potential."

Bryce wrote that a Department of Energy report, released in April, said the newly available shale resources total 649 trillion cubic feet of gas. "That's the energy equivalent of 118.3 billion barrels of oil, or slightly more than the proven oil reserves of Iraq," he wrote.

Eliminating tax breaks for drilling will make natural gas more expensive, Bryce wrote. This is confirmed by a major investment bank, Tudor, Pickering, Holt & Co., of Houston, which estimated that eliminating the intangible drilling cost provision could increase U.S. natural gas prices by 50 cents per thousand cubic feet.

"Why? Because without the tax break, fewer wells will be drilled and less gas will be produced," Bryce wrote. "The U.S. consumes about 23 trillion cubic feet of gas per year. Simple arithmetic shows that eliminating the drilling subsidies that cost taxpayers less than $2 billion per year could result in an increased cost to consumers of $11.5 billion per year in the form of higher natural gas prices."

President Obama is pushing for greater subsidies for ethanol, an alternative fuel that comes from corn. Obama has been pro-ethanol and anti-oil for years, Bryce wrote.

"But he and his allies on Capitol Hill should understand that removing drilling incentives will mean less drilling, which will mean less domestic production and more imports of both oil and natural gas," Bryce wrote. "That's hardly a recipe for energy independence."

According to a report on CNN Money, energy prices already are already to climb. For example, Duke Energy Corp. secured approval Wednesday to increase electricity prices this month at its Ohio utility.