Obama Targets $30 Billion Oil and Gas Subsidies

Who would be an oil baron these days?

Profits are down, the oil price is bouncing depressingly around in the mid-forties, reserves are running dry, and the promised land of tar sands is not looking that promising after all.

And the global economy is going down the pan, so demand for your product is likely to be low for a while.

But hey there is still lucrative money to be made in the US because of tax incentives and loopholes in the law. But for how much longer?

Yesterday, proclaiming a “once in a generation” opportunity, President Obama proposed a 10-year budget that offers a serious change of direction on many issues to the one taken by his predecessor. Moreover hidden deep in Obama’s budget are proposals to repeal several oil industry tax incentives while imposing new taxes on Gulf of Mexico producers to close “loopholes” that have allowed companies to avoid royalty payments.

The overall budget eliminates a whopping $31.5 billion in “oil and gas company preferences” over a decade. The plan includes a “new excise tax on offshore oil and gas production in the Gulf of Mexico to close loopholes that have given oil companies excessive royalty relief.” The new tax would begin in 2011, which the document says is “after the economy has had time to recover,” and the budget assumes it would bring in nearly $5.3 billion over a decade.

Many of the proposals are likely to face serious resistance from the oil industry and its –in-the-pocket politicians from oil-producing states. It already has oil industry’s most powerful trade group squawking with anger.

“New taxes could mean fewer American jobs and less revenue at a time when we desperately need both,” American Petroleum Institute President Jack Gerard said in a statement. “More taxes also could reduce our nation’s energy security by discouraging new investment in domestic oil and natural gas production and refining capacity and pushing those investments — and American jobs — abroad.”

But what old Jack from the API does not realise is that for too long the industry has had things its way, with the Bush Administration handing tax and incentives like confetti at a wedding. Well those days are gone. If there is to be an alternative energy revolution, those days are gone for good.

Additional article quoted: Greenwire — OIL AND GAS: Obama seeks repeal of industry tax breaks, subsidies (02/26/2009).