Sorry Mr. President, you  can’t say we’re producing oil at a record pace and then in the next sentence change your mind and say we’re producing more oil “than at any time in the last eight years.” Both statements can not be true, they are absolutely mutually exclusive. From Obama’s remarks earlier today, with my emphasis in bold.

And again, I just want everybody to be clear — because sometimes, when you listen to the news and you listen to some of these other politicians, they seem a little bit confused about what I’m saying.  We are going to continue producing oil and gas at a record pace.  That’s got to be part of what we do.  We need energy to grow.  That’s why we’re producing more oil right now, here in America, than at any time in the last eight years — any time in the last eight years.  We’re opening up more land for oil exploration.  We’ve got more oil rigs operating.  There are more pipelines out there that are being approved.  I’ll be visiting one of those rigs and one of those pipelines this week.

I brought you some facts back on March 1, which the president did not obviously read. The president is the one who is warping history, and heaven forbid he actually speak the truth. He’s the one who is confused. Don’t let him get away with these half-truths … forward this via email and social media to your friends.

As it turns out, US oil production since 1985 has been on the decline. As a matter of fact, we are drilling – here in the United States – about 37 percent less crude oil than in 1985. In fairness, production actually did hit a 30 year low in 2008 where field production was about 1.81 billion barrels and it’s climbed to just under 2 billion barrels in 2010. 2010 is the last full year available at the EIA website for that statistic.

Read my previous post which – unlike the president’s statements – actually bring oil production facts to the table.

And don’t forget, he’s totally misleading the robots about oil scarcity too.

… head over to Hot Air and read Jazz Shaw’s post on the false-hoods Obama keeps regurgitating at campaign events. Shaw and John Merline over at Investors Business Daily squash the “we only have 2 percent of the world’s oil reserves” myth.

I’ve often heard about the United States exporting a bunch of the oil that we drill out of the ground. I’ve also heard that our production is way up, and the greedy oil companies are simply exporting that production. I’ve heard the oil that would come from Canada via the proposed Keystone pipeline would be simply refined and shipped out.

Well, the federal government’s own statistics do not prove that to be the case. As it turns out, US oil production since 1985 has been on the decline. As a matter of fact, we are drilling – here in the United States – about 37 percent less crude oil than in 1985. In fairness, production actually did hit a 30 year low in 2008 where field production was about 1.81 billion barrels and it’s climbed to just under 2 billion barrels in 2010. 2010 is the last full year available at the EIA website for that statistic.

How about exports? US crude oil exports were at their lowest in 2002 (3.3 million) but have climbed up to about 15 million barrels in 2010. I’m talking millions here, not billions. Simple math tells us we are exporting 2.8 percent of our total oil (imports plus US production). Not much … compared to 1985.

In 1985 when field production in the United States was 3.27 billion barrels and we imported 1.17 billion barrels, we exported more than 16 percent of the total oil we had. As a percentage of what we have, we exported a lot less oil than we did 25 years prior.

How about Refineries?

We’ve heard comments that we need new refineries, but what is actually happening with them? EIA data shows we had 254 operating refineries in 1982, and we’re down to 137 in 2011. During the past 30 years or so, about 7 percent to 15 percent of the refineries were off line. 6 percent to 7 percent have been off line for the past three years. This is normal, since you can’t expect 100 percent of a manufacturing operation like that to be up 100 percent of the time.

So yes, we’re not just not building refineries, they are also being consolidated and/or shut down. I say consolidated because even though we have fewer refineries, crude oil distillation capacity has remained flat for almost 30 years. That’s right … our ability to distill the crude oil into a usable product has basically remained flat.

What say you concerning these numbers from EIA?

Cushing has a glut of oil.  This oil comes predominately from North Dakota and Canada.  In the case of Canadian oil, it comes through another pipeline.  Cushing also has refineries, but not enough to refine all of the oil it has sitting in storage.  In fact, it has so much oil that the price of oil sitting there is about $15 a barrel lower than the price of oil sold on the international markets.

This is oil in need of a refinery. 

Meanwhile, we have refineries in Texas that have to use the higher priced oil from the Arab states to produce our gasoline because the oil in Oklahoma can’t get to those Texas refineries.  Think about that for a moment…we have oil in this country that can’t be refined into gasoline because we don’t have enough refineries, and, we have not let the oil we have get to the few refineries we have.

Yesterday, TransCanada Corp., the company that sought to build the Keystone pipeline announce that it would build only that piece of it’s proposed pipeline from Cushing, Oklahoma to Port Arthur, Texas.  At least that way, cheaper oil would get to refineries.  As this portion of the pipeline doesn’t cross international boundaries, the President’s approval is not necessary.

And, as expected,

Friends of the Earth called the White House statement in support of TransCanada’s decision ‘an alarming about-face.’

Think about the brilliance of the President’s actions.  He appeased the “greenies” to get votes, but annoyed the unions when he killed the complete pipeline.  He appeased the unions to get votes, but annoyed the “‘greenies” when he “welcomed” a portion of the pipeline.

And, why didn’t this administration come up with this solution earlier?

Once again, it takes government to make the problem, and private industry to solve it.

The President said,

the measures ‘make good sense’ and will help reduce U.S. consumption of imported oil in the long term.

Pardon my sarcasm, but would these be the same “measures” that he has blocked over the past year?  Well, yes, they are.

It seems that we are now in campaign mode, and people are not exactly happy with the price of gas, so, here is what the President is proposing.

First, the administration will extend all leases in the Gulf by one year.  Since the BP oil spill there has been a “temporary moratorium” on drilling and most drilling in the Gulf has been prohibited.  So, any company that held a lease (most leases have a ten year term) has lost one year of the lease term, and thus, one year of drilling.

 And,

[l]ease sales in the western and central Gulf of Mexico that were postponed last year will be held by the middle of next year…

It is anyone’s guess why the sales can’t take place now, as opposed to a year from now, but, at least, it is progress.

On the Alaska front, where we have enormous oil deposits,

[t]o further expedite drilling off the Alaskan coast, where such plans by Shell Oil Co. have been delayed by an air pollution permit, Obama said he would create an interagency task force to coordinate the necessary approvals. He also will hold annual lease sales in the vast National Petroleum Reserve on Alaska’s North Slope.

As a former government employee, I am always suspicious of any “interagency task force” coordinating anything, but, we’ll see.  Notice, though, the use of the word “coordinating”, not “expediting”.

The President does acknowledge, however, that his measures,

won’t help to immediately bring down gasoline prices…

No surprise there, but, what is a surprise is that the House has recently passed three bills addressing these issues, and the President vowed to veto them all, assuming , of course, that Harry Reid (D.Nv.) allowed anyone of them to reach the Senate floor.

What a difference an election “year” makes. 

I’ve been trying to find the time during the last couple of weeks to write about this subject, since I knew the federal government was not handing out cash to “big oil” in the form of corporate welfare. It’s just not the case, and if someone can find a federal program that actually takes money from individual taxpayers and writes a check to big oil to “subsidize” their business, please feel free to link to it in the comments section.

Let me be clear. Politicians and government bureaucrats who use phrases such as corporate welfare and energy subsidies do not think the money belongs to you, it belongs to them and they will decide how it should be handed out. Think about it. They told us they could not afford to give those of you who have a Health Savings Account a “tax break” on over-the-counter medication.

Tax break? That clearly pushes their agenda … the money does not belong to you … it belongs to the government first.

Hat tip to Jazz Shaw over at Hot Air and the American Petroleum Institute for doing the heavy lifting and getting me to finally write about this subject.

When President Obama pressures Congress and others to end oil company “taxpayer” subsides, he’s really suggesting limiting what those companies can write off as an expense. It’s as simple as that. This concept would be akin to telling a pharmaceutical company the expense write off they have for the research and development of a cure for cancer is a “taxpayer-paid” subsidy that should be taken away if your profits are deemed “unreasonable.”

Do you see how wrong that is? What would happen if a pharmaceutical company was not allowed to write off a portion – or all – their research and development efforts? What would happen to the cost of medications and cures?

Here is the PDF from the American Petroleum Institute. I’m guessing they won’t mind if I reproduce their entire two page white paper right here. My emphasis in bold.

Why Oil & Gas Tax Treatments Are Not Unique or “Subsidies”

Contrary to what some in politics and the media have said, the oil and natural gas industry currently enjoys no unique tax credits or deductions. Since its inception, the US tax code has allowed corporate tax payers the ability to recover costs and to be taxed only on net income. These cost recovery mechanisms, also known in policy circles as “tax expenditures”, should in no way be confused with “subsidies”, i.e., direct government spending.

Intangible Drilling Costs (IDCs)

• The IDC deduction is a mechanism that allows for the accelerated deduction of drilling costs, such as labor costs, associated with exploration activities (approx 60-80% of the cost of the well).
• Exploration and production companies can claim a deduction equal to 100% of these costs in the year spent. Integrated companies – “Big Oil” – can only deduct 70% with the remainder recovered over 5 years.
• This is a deduction, not a credit or government spending outlay and is no different than the policy behind and treatment of R&D costs vis-à-vis the R&D deduction available for other industries.

Foreign Tax Credit – Dual Capacity Rules

• The dual capacity regulations are not and never have been considered a tax expenditure or “subsidy” by the government.
• They represent additional rules placed on oil and gas companies to prove that the credit used to offset payments to foreign countries are indeed income tax payments and nothing else.
• Repeal of the rules generates revenue solely because it would impose double taxation on US based companies.

Domestic Manufacturer’s Deduction – Section 199

• A deduction (not a credit) equal to 9% of income earned from manufacturing, producing, growing or extracting in the United States, is available to every single taxpayer who qualifies in the U.S.
• The oil and gas industry, and only the oil and gas industry, is limited to a 6% deduction.

Percentage Depletion

• The percentage depletion deduction is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well.
• This depletion method is not available to companies that produce oil as well as refine and market it – “Big Oil”.
• This is available to all extractive industries (gold, iron, clay, etc) in the US and is in no way unique to the oil and gas industry.

LIFO Repeal

• Taxpayers that hold an inventory are required by law to track inventory costs – it is simply an accounting method and nothing else.
• Repealing LIFO deems a sale of inventory to occur and generating a significant tax gain. Therefore there is an assumed tax bill without any corresponding cash gain being generated.

Expensing of Tertiary Injectants

• Tertiary injectants refers to items injected into older reservoirs to help continue production.
• The cost of the injectants are expensed similar to materials and supplies because they are generally used up in the production process.
• Without this provision, it is unclear how such operating costs would be recovered. This could easily increase the costs of operating these older fields.

Geological and Geophysical Costs

• G&G costs are the expenses associated with exploring for oil and gas.
• Currently, independent producers are allowed to recover domestic G&G costs over two years, and the proposal would increase that period to seven.
• “Big Oil” is not impacted, as the largest integrated oil companies already recover the costs over 7 years.

EOR and Marginal Well Credits

• These tax credits are designed to support continued domestic oil production when oil prices are so low that it may otherwise be un-economical. The credit phase out when the price of oil is above a certain amount
• These credits have not been applicable for taxpayers in the oil and gas industry for years, and in order to be even the least bit useful, the price of a barrel of oil must be at $42 (EOR credit) or $27 (marginal well).

As you read through the above, you’ll find that in a few instances “big oil” is actually penalized already for being “big oil.” They are not treated equally when it comes to other industries. How is that in any way fair? How does that keep the cost of energy as low as possible?

How does Obama’s desire to eliminate “subsidies” for “big oil” keep the cost of energy low? Oh yeah, never mind … he’s totally cool with energy prices “necessarily” skyrocketing.

If you prefer to be serious about the situation, let’s put some effort forward to simplify the tax code.

What say you? Comments welcome below.

Note: I’ve realized our team here at RVO has used the term “subsidy” in the past when it comes to other subjects including ethanol, and personally I’ll commit to using the word more carefully in the future. That said, at some point a business expense really does become a taxpayer-funded subsidy, who can tell me when that is?

But, here is what you may not know.

There is a proposal to build what is known as the Keystone XL Pipeline.  It would allow Canada to supply an additional 1.1 million barrels of oil per day to the United States.  Most of this oil would be transported to Texas, but, there would be connections to other refineries in the United States.

In 2008, the matter was referred to our State Department. 

Despite a thorough environmental review by the State Department last year and an Energy Department study in February of this year–which found that the project should move forward–the Obama administration this month announced another round of environmental studies.  [emphasis supplied]

Sometimes I wonder if anyone in this administration is paying attention to reality, as opposed to ideology.

Bloomberg news reported this one on New Year’s eve, or while you were partying (H/T Instapundit).

Oil surged to its highest year-end price since 2007 as the dollar weakened and gasoline and heating oil futures climbed.

Crude capped its second consecutive year of gains as the dollar dropped against the euro, boosting commodities’ appeal as an alternative investment. Oil settled above $91 a barrel after testing technical support near $89. Gasoline and heating oil advanced before the January contracts expired today.

“A weaker dollar and stronger product prices are all bolstering crude,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.

Meanwhile, last week, former Shell Oil President John Hofmeister predicts gas lines this decade and $4 a gallon gas this year and $5 a gallon by 2012. He makes a compelling case, no?

http://www.youtube.com/watch?v=5l2_h3WUOnI

Somehow I do not think squiggly light bulbs and electric cars are gunna make up the difference. I am one of those people who think all sources should be developed, but as Hofmeister says, in the short term we need to drill baby drill. Now, who is gunna convince a President who used the gulf spill crisis to shut down drilling … everywhere?

UPDATE: You will notice I have changed the post title because I can’t remember what year this is. Since Dec 31, 2007 would be a three year record, not a two year record as originally posted, I have corrected the title because this is 2011. My bad and I stand corrected.

The plan was to break America’s addiction to foreign oil, and since the namesake of the plan was an oilman himself, the plan was news … even without all of the TV commercials.

Pickens wanted to build up the capacity – by creating monstrous wind farms in strategic locations around the United States – to generate more than 20 percent of our electricity from wind power. He also wanted to improve transmission lines, reduce home and business energy costs through efficiency upgrades, and concentrate on natural gas as a transportation fuel.

It all sounds pretty good, but it turns out, wind power is not yet able to deliver, especially since natural gas (and oil) prices remain relatively low. From the Wall Street Journal.

Two years ago, natural gas prices were spiking and Mr. Pickens figured they’d stay high. He placed a $2 billion order for wind turbines with General Electric. Shortly afterward, he began selling the Pickens Plan. The United States, he claimed, is “the Saudi Arabia of wind,” and wind energy is an essential part of the cure for the curse of imported oil.

Voters and politicians embraced the folksy billionaire’s plan. Last year, Senate Majority Leader Harry Reid said he had joined “the Pickens church,” and Al Gore said he wished that more business leaders would emulate Mr. Pickens and be willing to “throw themselves into the fight for the future of our country.”

Alas, market forces ruined the Pickens Plan. Mr. Pickens should have shorted wind. Instead, he went long and now he’s stuck holding a slew of turbines he can’t use because low natural gas prices have made wind energy uneconomic in the U.S., despite federal subsidies that amount to $6.44 for every 1 million British thermal units (BTUs) produced by wind turbines. As the former corporate raider explained a few days ago, growth in the wind energy industry “just isn’t gonna happen” if natural gas prices remain depressed.

OK. So the natural gas prices are relatively low, and expected to stay low for the next decade due to increased production capabilities and extraction improvements by the industry. Even though the federal government and many states are throwing millions and millions of dollars at “clean” energy, natural gas companies keep doing their thing.

In the minds of many, those “dirty energy” efforts are destroying the ability for Al Gore and other carbon-trading junkies from making a few million dollars by ensuring you pay more for energy.

Now, to put this in perspective, I’m all for reducing our dependency on foreign sources of energy and I honestly think the market will work in our favor. The problem lies in the huge subsides that are paid out by the government to help finance grand plans that the industry and market are not ready for. This – quite honestly – is a get-rich scheme almost completely funded by the federal government.

Sure, Pickens spent $2 billion of his own fortune on wind turbines and he bet everyone would come running to wind especially with the million – more like billions – made available to investors. The market read the plan, looked at the federal grants, and simply said no thanks. Of course, a few people made a small fortune in the process.

So, what’s Pickens doing with his $2 billion in wind turbines that are probably sitting in a warehouse or on order?

He’s hoping to foist them on ratepayers in Canada, because that country has mandates that require consumers to buy more expensive renewable electricity.

Good luck with that.

As an interesting side, even though the wind energy proponents we’re supporting Pickens, they refused to mention he was also demanding we responsibly “drill baby drill” for crude oil everywhere we could here at home. That includes offshore drilling many environmentalists can not support.

Hat tip to Wind Concerns Ontario, with additional articles at Marketplace, Energy Collective, Sustainable Business, and the Daily Mail.

http://www.youtube.com/watch?v=OB5ku14Db-4

Personally, I’m not so concerned. Every President threatens and browbeats at some point. It’s just this was so clumsy and so public. The Chicago Way.

From today’s Wall Street Journal.

The U.S. is going to lend billions of dollars to Brazil’s state-owned oil company, Petrobras, to finance exploration of the huge offshore discovery in Brazil’s Tupi oil field in the Santos Basin near Rio de Janeiro. Brazil’s planning minister confirmed that White House National Security Adviser James Jones met this month with Brazilian officials to talk about the loan.

The U.S. Export-Import Bank tells us it has issued a “preliminary commitment” letter to Petrobras in the amount of $2 billion and has discussed with Brazil the possibility of increasing that amount. Ex-Im Bank says it has not decided whether the money will come in the form of a direct loan or loan guarantees. Either way, this corporate foreign aid may strike some readers as odd, given that the U.S. Treasury seems desperate for cash and Petrobras is one of the largest corporations in the Americas.

What it really comes down to is return on investment. Although the United States will need to fork out $2 billion in loans, they are almost guaranteed a return – a good one most likely – on their investment. In this case, the Obama administration is betting against alternative fuels for the near future.

We’ve got a lot of oil both offshore and inland that can be tapped to help reduce the cost of energy right here at home and reduce our dependence on oil from other countries, but liberal and eco-activists fight development at every turn.

Hat tip to Sister Toldjah and Gateway Pundit, who reminds us the Obama administration approved a nuclear energy program for the United Arab Emirates back in May while Congress and the administration drag their feet on expanding nuclear power production here in the United States.

Morrissey at Hot Air now on it too.