Myths And Facts About Oil And Gasoline
Both mainstream and conservative media outlets have responded to the recent spike in gasoline prices by circulating talking points rooted in politics rather than facts. As a whole, these claims reflect the misconception, perpetuated by the news media, that changes in U.S. energy policy are a major driver of oil and gasoline prices.
What would “drill baby drill” mean for gasoline prices?
Would the Keystone XL pipeline affect gasoline prices?
Is monetary policy to blame for the recent price spike?
How do U.S. fuel taxes compare to other nations?
Could we shift to a single national gasoline blend?
Why did oil and gasoline prices fall sharply in late 2008?
If we end tax breaks for oil companies, would gasoline prices change?
Do oil companies receive the same tax breaks as other companies?
How does current U.S. oil production compare to previous years?
How much oil is coming from federal lands relative to previous years?
How have U.S. petroleum imports changed in recent years?
Is the U.S. sitting on over a trillion barrels of oil?
What would “energy independence” mean for gasoline prices?
FACT: Drilling Is Not A Solution To Gas Price Spikes
MYTH: Media Present U.S. Oil Production As A Solution To High Gas Prices.
- In recent months, all of the broadcast and cable news networks except NBC mentioned expanded domestic drilling as a factor that has or would lower gasoline prices. [Media Matters, 3/20/12]
- Fox News incessantly promotes drilling as a solution to gas price spikes. For instance, Fox contributor Dick Morris said that “the United States now has the capacity so to increase the global supply of oil that we can, in the future, completely control gas and oil prices” and that “the United States can affect this price and the answer is 'drill, baby drill.'” [Fox News, The O'Reilly Factor, 3/16/12, via Nexis]
Experts: Changes In U.S. Production Are Small Factor Given Scale Of Global Oil Market. At least 20 economists and energy experts from across the ideological spectrum have explained that increasing U.S. oil production will not prevent gas price spikes because oil is priced on a global market, which is influenced by much larger factors like growing demand from Asia and geopolitical conflicts. [Media Matters, 3/22/12]
Survey Of Economists Confirms That U.S. Policy Doesn't Dictate Gasoline Prices. In a survey of economists by the Chicago Booth School of Business, not one disagreed with the statement that “Changes in U.S. gasoline prices over the past 10 years have predominantly been due to market factors rather than U.S. federal economic or energy policies.” [Chicago Booth School of Business, 3/19/11]
Statistical Analysis Shows No Correlation Between Gasoline Prices And U.S. Oil Production. An Associated Press analysis of 36 years of data “shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump,” underscoring the fact that any impact on price from changes in U.S. oil production is swamped by the more dominant factors influencing the oil market. [Associated Press, 3/21/12]
FACT: Keystone XL Would Have Little To No Impact On Gas Prices
MYTH: Media Tie Keystone XL Pipeline To Gasoline Prices.
- Fox News has repeatedly claimed Keystone XL would lower gasoline prices. For instance, Fox News anchor Bill Hemmer said: “So long as gasoline is getting higher, that's all the Republicans have to say is 'Keystone.'” [Media Matters, 2/23/12]
- All the broadcast and cable news networks have tied Keystone XL to gas prices in the last few months. [Media Matters, 3/20/12]
- Several major print outlets and NPR have uncritically reported the claim that the Keystone XL pipeline would lower gas prices. [New York Times, 2/1/12] [New York Times, 2/18/12] [Associated Press, 2/20/12] [Houston Chronicle, 3/26/12] [Christian Science Monitor, 2/24/12] [National Public Radio, 4/9/12]
Economists And Energy Analysts Say KXL Would Have An Imperceptible Effect On Gasoline Prices. Energy experts Severin Borenstein, Andrew Leach, Michael Levi, and Chris Lafakis have each stated that the pipeline would have little if any impact on gasoline prices. Borenstein, for instance, said the pipeline would “bring additional oil to the world market, starting around 2020. The effect on oil prices then will be miniscule, the effect in the next couple years nonexistent.” Even Ray Perryman, the economist hired by TransCanada to assess the economic benefits of the pipeline, said the effect would be “modest” and likely “swamped by the day-to-day factors that impact market prices.” [Media Matters, 2/23/12]
FactCheck.org: “There's Nothing To Prevent More Canadian Oil From Coming Into The U.S. Right Now.” In a post criticizing a political ad which claimed that President Obama “blocked the Keystone pipeline, so we will all pay more at the pump,” FactCheck.org noted:
[T]here's nothing to prevent more Canadian oil from coming into the U.S. right now, should Canada be able and willing to send it. Existing cross-border pipelines already have much more capacity than they are using. Those pipelines have the capacity to bring in more than 1 million barrels per day of additional Canadian oil, according to a study produced for the U.S. State Department by EnSys Energy & Systems Inc. of Lexington, Mass., in December 2010. And the study predicts that surplus capacity will persist at least until the year 2020, even if the Keystone is never built (see table 3-4). The 700,000 barrels that McConnell refers to is the additional surplus capacity that the Keystone's northern leg would provide. [FactCheck.org, 3/30/12]
Some Analysts Say The Pipeline Could Actually Increase Gas Prices In Some Parts Of The Country. Because the Southern portion of the Keystone XL pipeline would relieve the current glut of oil in the Midwest, some energy analysts believe it would raise gasoline prices there. [Media Matters, 2/23/12]
FACT: Experts Reject Claim That Monetary Policy Is To Blame For Gas Price Spike
MYTH: Conservative Media Claim Federal Reserve Is Causing Dollar To Fall, And Therefore Gasoline Prices To Rise.
- A Wall Street Journal editorial claimed that U.S. monetary policy is a “suspect” in the oil price surge, stating: “Oil is traded in dollars, and its price therefore rises when the value of the dollar falls, all else being equal. The Federal Reserve throughout Mr. Obama's term has pursued the easiest monetary policy in modern times, expressly to revive the housing market.” [Wall Street Journal, 2/24/12]
- On ABC's This Week, George Will said that “part of the problem” for gas prices is that “as long as we're promiscuously printing dollars and the value of the dollar is going down, the price of oil and the price of gasoline is going to go up. So blame the Federal Reserve while you're at it.” [ABC, This Week, 2/24/12]
- In a Forbes.com column, Charles Kadlec wrote that “the price of oil and gasoline are up because the Federal Reserve has driven the value of the dollar down.” [Forbes.com, 3/19/12]
- Bill Kristol said on Fox News that “monetary policy and the loose dollar” has “led to oil prices going up, in my opinion, as much as anything else.” [Fox News, Special Report, 3/7/12, via Nexis]
James Galbraith: “Dollar Has Not Been Falling” In Recent Months. Economics professor James K. Galbraith said the problem with blaming the gas price spike on the falling dollar is that “dollar has not been falling (against the euro, say) in recent months. Overall the dollar-euro exchange rate is about where it was when Obama took office.” [Email to Media Matters, 3/29/12]
Economist Edwin Truman: Monetary Policy Is “Not At All” Why Gas Prices Spiked. Edwin Truman of the Peterson Institute for International Economics said that when the dollar falls, the dollar price of gasoline tends to go up, but “that's not happening.” Truman said that the dollar has not been falling and the prices of other commodities have not been similarly increasing, so monetary policy is “not at all” why gas prices have risen in recent months. [Phone conversation, 3/29/12]
Harvard's Jeffrey Frankel: Explanation For Price Increase Is “Specific To The Petroleum Sector.” Harvard professor Jeffrey Frankel said the “recent increase in the global prices of oil and refined products (gasoline) has not been accompanied by similar increases in the prices of other fuels, or minerals and agricultural products.” Frankel added that the explanation for the price increase must “be specific to the petroleum sector: most obviously the risk of disruption to the supply of oil from the Persian Gulf, due to possible conflict with Iran.” [Email to Media Matters, 3/29/12]
FACT: Americans Pay Much Lower Gas Taxes Than Other Wealthy Nations
MYTH: Conservative Media Suggest U.S. Gasoline Taxes Are High.
- After Fox News reporter Doug McKelway read a statement from ExxonMobil “verbatim” that claimed Exxon earned 7 cents per gallon while 40 to 60 cents went to state and federal governments, guest anchor Heather Nauert stated “The government's the one making money off of it, not the companies.” [Fox News, America's Newsroom, 5/12/11]
- Fox Business host Gerri Willis said, “Every time you fill up, you have to fork over 18.4 cents a gallon in federal gas taxes, and that costs you at least $100 a year. The feds collect nearly $37 billion this way each and every year.” [Fox Business Network, The Willis Report, 3/1/12, via Nexis]
- Fox News host Bill O'Reilly stated: “The higher a gallon of gas is, the more tax revenue goes to Washington. Always remember that. Especially in California and New York, huge gas taxes.” [Fox News, The O'Reilly Factor, 2/20/12, via Nexis]
The Economist: U.S. Gas Taxes Are “Rock Bottom” Compared To The Rest Of The “Rich World.” The Economist noted in 2011 that “Petrol prices in America are substantially below levels elsewhere in the rich world, and this is almost entirely due to the rock bottom level of petrol tax rates.” The post also stated that “The low cost of petrol encourages greater dependence,” which “in turn, reduces the ability of American households to substitute away from driving when oil prices rise.”
[The Economist, 2/23/11]
Value Of The Federal Gas Tax Has Been Eroded By Inflation. The federal gas tax of 18.4 cents per gallon has not been raised since 1993. Both Ronald Reagan and George H.W. Bush raised the tax, but it is now worth less than it was when they did so. [Forbes.com, 2/29/12]
CRS: “The Current Tax Does Not Appear To Be Functioning As An Effective Tax.” A September 2009 Congressional Research Service report stated that “American drivers, compared to those in other industrialized nations in Europe, pay relatively low federal, state, and local gasoline and diesel excise taxes.” It further stated:
The current federal tax on gasoline is a fixed 18.4 cents per gallon. In addition, states and localities generally add their own taxes on gasoline. The current tax does not appear to be functioning as an effective tax, by the definition set out above; it is not raising adequate revenues, reducing consumption, or providing consistent incentives.
In addition, because the existing federal tax is relatively small, compared to the price of gasoline, and is a declining portion of consumer income, as incomes rise, it is likely not having as large an effect in reducing consumption as it might have had when it was instituted. Reducing gasoline consumption is a goal consistent with achieving less dependence on imported crude oil, and reducing greenhouse gas emissions. [Congressional Research Service, 9/11/09]
High Gasoline Prices Don't Mean More Revenues For The U.S. Government. Contrary to O'Reilly's claim, the U.S. government “doesn't take in any more money when gas prices go up because the tax is tied to every gallon sold, not every dollar spent,” as the Los Angeles Times has noted. [Los Angeles Times, 3/16/12]
Costs Of Spills, Global Warming And Foreign Interventions Are Not Included In Gas Prices. Ezra Klein wrote at the Washington Post:
One other way to think about the cost of oil is to recognize what is and isn't in the price of oil. So mega-spills like the Deepwater spill or the spills that happen in other countries are not in the price. Global warming -- which is to say, carbon -- is not in the price. The cost of our military alliance with some petro-states, and military attention to other petro-states, is not in the price. The cost of the pollution is not in the price. All these costs will be paid, but they're not built into what we pay at the pump. Instead, we'll pay them through taxes, or medical bills, or global temperature changes. [Washington Post, 5/4/10]
FACT: Changing Away From Gasoline Blends Would Come With Costs
MYTH: Conservative Media Present Single National Gas Blend As Simple Solution To Price Problem.
- Fox's Eric Bolling has repeatedly said that if the government required one national blend, the price of gasoline would be “one buck lower.” [Fox News, Fox & Friends, 2/23/12] [Fox News, Fox & Friends, 2/21/12] [Fox News, America's Newsroom, 2/21/12] [Fox News, America Live, 2/23/12] [Fox News, The Five, 2/23/12] [Fox News, Fox & Friends, 3/1/12] [Fox News, Your World With Neil Cavuto, 3/1/12]
- Weekly Standard's Steven Hayward wrote that the variety of gasoline blends is "the product of EPA bureaucrats and the Clean Air Act, stubbornly maintained even though boutique fuels now deliver only marginal reductions in air pollution from cars, if any at all. And it's a regulation President Obama could clear away if he wanted to. It wouldn't deliver a large reduction in gasoline pump prices, but even 10 to 15 cents a gallon--a plausible figure for California's market--would help." [Weekly Standard, 4/2/12]
- Fox News anchor Martha MacCallum stated, “some people want to see them do away with those blends altogether and feel that that make a big difference in terms of gas prices.” [Fox News, America's Newsroom, 2/27/12]
Gasoline Blends Are Part Of Clean Air Act Amendments Passed Under George H. W. Bush. The increase in the number of gasoline blends dates back to the Clean Air Act Amendments signed by President Bush in 1990. As detailed in a 2006 report from the Department of Energy and the Environmental Protection Agency, the states with the most pollution were required to use reformulated gasoline (RFG) in order to “reduce ozone-forming emissions and control harmful air toxics.” Other states were allowed to opt-in to the RFG program or select their own “boutique” fuels as a way to meet air quality targets. [EPA, December 2006]
Bush Task Force: Boutique Fuels Provide “Significant Reduction In Targeted Emissions At Very Low Cost.” The Task Force convened by the Bush administration to study boutique fuels concluded:
It is clear that state fuel programs have provided significant, cost-effective air quality improvements. Any actions to modify the slate of existing boutique fuels or limit a state's ability to adopt fuel specifications should be done in a manner that at least maintains these air quality gains and avoids unnecessarily restricting state authority.
A critical issue for the states is that any change in the boutique fuel slate or applicable authorities must be done in a manner that air quality benefits resulting from boutique fuel programs will, at a minimum, at least be maintained. Benefits from these programs have served an important role in the states' efforts at meeting national air quality standards, and these benefits are expected to be as important to future attainment strategies. Further, while the task force received some general input from industry stakeholders with some suggesting a potential connection between boutique fuels and supply and price concerns, this input was not supported by any documentation in this process. [Task Force, June 2006]
Reformulated Gasoline Reduces Smog, Which Contributes To Heart Problems, Asthma Attacks, And Premature Deaths. Reformulated gasoline is designed to reduce nitrogen oxide and volatile organic compound emissions, which form ozone and smog when they come in contact with both heat and sunlight. According to the American Lung Association, ozone causes “increased risk of premature death,” “asthma attacks,” and “increased susceptibility” to heart- and lung-related problems. [American Lung Association, 2011]
CRS: Requiring One Fuel May Raise Pump Prices In Some Areas, Or Cause More Pollution In Others. A 2006 Congressional Research Service report stated:
Why Not Simply Require One Fuel Across the Country? The existing system has evolved in response to various federal air quality standards, and resulting state standards, local refiner decisions and consumer choices. Further, many of the state formulations were designed to mitigate moderate air quality problems without requiring more stringent and, presumably, more expensive measures. An attempt to group states under one regional or national standard, referred to as “harmonization,” might lead to higher pump prices for areas with less severe ozone problems, or higher emissions in areas with more severe problems. Further, refiners may have made considerable investments in tooling facilities to meet specific local requirements.
Harmonizing Standards Would Be a Complex Process. Competing goals will make harmonizing standards a complex process. Gasoline distribution would likely be more uniform under regional or national standards. But refining costs and consumer price could increase under new standards. Further, air quality could be improved or diminished depending on how standards are combined. Any changes in the U.S. gasoline system will need to take all of these factors into account. [Congressional Research Service, 5/10/06]
CRS: Changing Standards Would Impose Public Costs And May Require Changes To Clean Air Act. From a March 1 Congressional Research Service report:
Relaxing these standards long-term may require states that use special blends as part of their plan to meet NAAQS [National Ambient Air Quality Standards] to come up with alternative--potentially more commercially costly--means to meet air quality targets. Or, NAAQS requirements themselves could be relaxed, but this would result in greater smog and impose public costs. Either of these actions may require an amendment to the Clean Air Act. [Congressional Research Service, 3/1/12]
FACT: Gas Prices Plummeted In Late 2008 Due To Massive Recession, Not Bush Policy
MYTH: Conservative Media Claim Prices Dropped In Late 2008 Because Bush Lifted Offshore Drilling Moratorium.
- A CNN.com op-ed by Republican strategist Ford C. O'Connell said that after President Bush lifted the presidential offshore drilling moratorium, “high prices subsided by fall” because speculators “respond to news of new energy exploration.” [CNN.com, 3/21/12]
- On Fox News, syndicated columnist Jonah Goldberg rejected the claim that “Obama can't do anything about the price of gas,” adding, “when oil hit $145 a gallon on July 14, 2008, Bush announced that we were going to lift the offshore drilling moratorium through an executive order, and it proceeded to drop over the next few days and months almost 50 percent. It really plummeted after that.” [Fox News, Special Report, 3/15/12]
- Weekly Standard columnist Steve Hayes argued that the U.S. can lower gasoline prices, claiming, “If you look what President Bush did back in July 2008 when he lifted the moratorium in the east and west outer continental shelf you saw gas prices come down 12 percent over 45 days.” [Fox News, Special Report, 3/8/12]
Bush's Action Was Symbolic, Did Not Translate To Lower Prices. In July 2008, at a time of record high gasoline prices, President Bush lifted the executive offshore drilling moratorium first instituted by his father. Bush used the announcement to pressure the Democratic-controlled Congress to lift its own long-standing ban on offshore drilling. As Reuters reported at the time, the action was “a largely symbolic bid unlikely to have any short-term impact on high gasoline costs.” The article noted that, “The U.S. Energy Department's forecasting arm has said opening the Pacific, Atlantic and eastern Gulf of Mexico regions to drilling 'would not have a significant impact on domestic crude oil and natural gas production or prices before 2030.'” [Reuters, 7/14/08]
Energy Experts Say This Claim Is “Nonsense,” And “Not Correct.” Joseph M. Dukert, senior associate at the Center for Strategic and International Studies, and former president of the U.S. Association for Energy Economics said the claim that Bush's announcement caused the drop in prices is “nonsense” and “akin to the rooster's boast that his crowing brought the sun up.” Michael Canes, former Chief Economist of the American Petroleum Institute, also said the claim is “not correct in my view,” noting that “Coincidence is not causation, and in this instance I'd say that the two events - the lifting of the moratoria and the ensuing reduction in oil prices - are much more in the coincidence realm than one of causation.” Canes added:
Most oil market experts believe that the rapid and sustained reduction in oil prices that began in 2008 and extended beyond occurred because the world economy began to slow down and ultimately to experience a deep recession. This is one way to reduce oil prices, but not a very attractive one. [Media Matters, 3/8/11]
Wash. Post In Feb. 2009: “The Overwhelming Cause Of The Collapse In Oil Prices Has Been The Faltering World Economy.” A February 2009 Washington Post article reported that “The overwhelming cause of the collapse in oil prices has been the faltering world economy, which has fueled the drop in consumption. Oil use in China, which most forecasters a year ago assumed would be the engine for increasing global demand, has screeched to a halt.” [Washington Post, 2/20/09]
FACT: Cutting Oil Tax Breaks Would Have Imperceptible Effect On Prices
MYTH: Conservative Media Claim Eliminating Tax Subsidies For Oil Would Raise Gasoline Prices.
- Wall Street Journal columnist Pete Du Pont wrote that “Eliminating tax deductions for the oil and gas industries ... would increase the price of gasoline and home heating oil for everyone.” [Wall Street Journal, 3/29/12]
- Patricia Murphy, founder of Citizen Jane Politics and frequent CNN guest said that eliminating tax subsidies for oil companies is “the wrong way to go because they will just pass those prices on to consumers.” [CNN, CNN Newsroom, 3/2/12]
- Reporting on Obama's support for a bill that would cut certain tax breaks for the largest oil companies, Fox News White House correspondent Ed Henry stated: "Just weeks after vowing he'd never support a policy that raises gasoline prices in an election year, President Obama did just that today." [Fox News, Special Report, 3/29/12]
- AP and The Washington Post have uncritically repeated the misleading talking point that cutting tax subsidies for oil companies would lead to higher gas prices. [Associated Press, 3/17/12] [Washington Post, 3/1/12]
Energy Experts Reject Claim That Cutting Oil Subsidies Would Raise Gasoline Prices. Energy experts including Chris Lafakis, Severin Borenstein, Michael Canes, Tom Kloza, Gilbert Metcalf, and John Kingston said that repealing U.S. tax breaks for oil companies would have little or no effect on gasoline prices because the decisions on oil production are determined by other factors. [Media Matters, 3/6/12]
FactCheck.org: Analysts Expect “Little Or No Effect On Gasoline Prices.” FactCheck.org concluded that "nonpartisan congressional analysts and industry experts say higher taxes would have little or no effect on gasoline prices." [FactCheck.org, 5/27/11]
ProPublica: “Most Experts” Say The Tax Breaks “Don't Have Much Effect On Gasoline Prices.” ProPublica reported:
Most experts agree, however, that the tax incentives in question don't have much effect on gasoline prices, one way or the other.
“The impact would be extremely small,” said Stephen Brown, a professor of economics at the University of Nevada, Las Vegas. Brown co-wrote a study in 2009 arguing that if the subsidies were cut, the average person would spend, at most, just over $2 more each year on petroleum products.
From the beginning, the Treasury Department has said the President's proposal would raise prices at the pump by less than a cent per gallon at most. Brown's study, produced for the non-partisan think tank Resources for the Future, came up with similar results. Even the American Petroleum Institute, which opposes cutting the subsidies, said in a press release on Monday that eliminating them wouldn't affect gas prices. [ProPublica, 5/12/11]
FACT: Oil Companies Receive Several Industry-Specific Subsidies
MYTH: Conservative Media Claim Oil Companies Receive The Same Deductions As Everyone Else.
- Fox News correspondent Jim Angle said: “Though tax deductions for oil companies are the same every industry enjoys, the President likes to call them subsidies.” [Fox News, Special Report, 3/13/12, via Nexis]
- Fox's Elizabeth MacDonald said that oil companies “get the same tax breaks that manufacturing companies get, but the President is moving to yank those tax breaks for just oil and gas companies.” [Fox News, Happening Now, 3/16/12]
- Fox's Andrea Tantaros said oil companies “get the same tax credit that G.E. gets, that Apple gets. They are manufacturing tax credits. And these are the same tax credit that the president touted in his own State of the Union.” [Fox News, The Five, 3/29/12, via Nexis]
Reuters: “Experts Across The Political Spectrum” Say Drilling Deduction “Is A Clear Exception Made For Oil.” Reuters reported:
One major tax break for energy companies is a nearly century-old benefit letting them deduct “intangible drilling costs” (IDC) immediately rather than over time.
Most of the IDC is for the labor costs of drilling a well.
Legislation drafted by Democratic Senator Robert Menendez would limit this break, among others. Ending it completely would raise $14 billion over a decade, according to the White House.
Energy companies liken this benefit to the research and development tax break employed by companies like Apple Inc.
“All the labor (that) tech companies spend on research and development, everything that Apple spends designing the next new product, they recover,” said Brian Johnson, a tax expert at the American Petroleum Institute. “Cost recovery is cost recovery.”
Not exactly. Many tax experts across the political spectrum said the IDC is a clear exception made for oil. As a rule, expenses that produce income in the future are not immediately deductible. [Reuters, 3/26/12]
Even The Heritage Foundation Acknowledges That Oil Companies Receive Some “Special Tax Treatments.” The Heritage Foundation rejects calling “broad tax policies that apply to many industries” subsidies, but acknowledges that the oil industry receives “Special Tax Treatments,” such as the depletion allowance for oil and gas producers, and the Enhanced Oil Recovery and Marginal Well Production tax credits. [Heritage Foundation, 5/12/12]
CRS: “There Are A Number Of Tax Incentives” For Fossil Fuel Production. From the Congressional Research Service's April 2011 report on energy tax policy:
There are a number of tax incentives currently available for energy production using fossil fuels. They can be broadly categorized as either enhancing capital cost recovery or subsidizing extraction of high-cost fossil fuels. Between 2010 and 2014, the total cost of tax expenditures related to fossil fuels is estimated to be $12.2 billion.
Another CRS report identified several oil and gas industry specific tax deductions. Oil companies have been able to expense “intangible drilling costs” since 1913, deduct “tertiary injection expenses, including the the injectant cost,” and deduct “geological and geophysical costs.” Certain oil companies can use the percentage depletion allowance, which is designed to “provide an analog to depreciation for the oil industry,” by treating oil in the ground as capital equipment. [Congressional Research Service, 4/14/11] [Congressional Research Service, 3/3/11]
NY Times: “Oil Production Is Among The Most Heavily Subsidized Businesses.” The New York Times reported in July 2010 that “an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.” [The New York Times, 7/3/10]
CRS: Oil Companies Receive Manufacturing Subsidy Even Though It Has “Little Effect” On Employment. One tax subsidy that Obama has proposed eliminating for oil companies is the manufacturing tax deduction. While other industries receive this deduction, the Congressional Research Service explains why the provision, “enacted in 2004 as part of the American Jobs Creation Act,” is unique when applied to the oil industry:
Although the oil and natural gas industries are classified as manufacturing industries for data reporting and tax purposes, they differ from traditional factory manufacturing in a number of ways. For example, the production of petroleum products at a refinery is only indirectly related to the level of employment.
This implies that if wage costs go down due to the tax deduction, there is less chance that the result will be increased output due to higher employment. Even if employment did increase, it would have little effect on national employment levels due to the capital intensive nature of the industry. The Bureau of Labor Statistics reports that oil and natural gas extraction industries employed approximately 165,000 workers in 2009, of which fewer than 100,000 were classified as production workers.
The period since 2004, while difficult for American manufacturing as a whole, has been one of record profits for the oil industry. The generally high prices for oil prevailing since 2004 that have helped generate the record profits are seen as the critical factor in oil investment. Oil exploration tends to increase when prices are increasing, and expected to remain high, and decrease in times of falling prices that are likely to remain low. The variability, and level of, expected oil and natural gas prices is likely to be a more important factor in determining capital investment budgets, and hence exploration and production development budgets, than the repeal of a tax benefit that is capped by a relatively low wage bill. [Congressional Research Service, 3/3/11]
FACT: U.S. Oil Production Is At An Eight-Year High
MYTH: Conservative Media Claim Obama Has Quashed Oil Production.
- During a discussion of gasoline prices, frequent Fox News guest and Media Research Center founder Brent Bozell said: “Oil production in this country was 10 million barrels a day when [Obama] took office. It's down to 7 million barrels a day, and here the president is giving a speech today blaming Republicans for this.” [Fox News, Hannity, 2/23/12]
- A Washington Times editorial claimed “Obama has done much to impede the supply of petroleum products to consumers. Most particularly, he exploited the 2010 BP oil spill in the Gulf of Mexico as an excuse to clamp down on oil drilling in the Gulf and also along the Atlantic and Pacific coasts.” [Washington Times, 2/20/12]
- Appearing on Fox Business, Grover Norquist said “Obama shuts down pipelines and doesn't let people drill for oil.” [Fox Business, Lou Dobbs Tonight, 12/6/11, via Nexis]
Energy Information Administration: U.S. “Oil Production Has Increased Over The Past Few Years, Reversing A Decline That Began In 1986.” From the Energy Information Administration's 2012 Annual Energy Outlook:
Domestic crude oil production has increased over the past few years, reversing a decline that began in 1986. U.S. crude oil production increased from 5.1 million barrels per day in 2007 to 5.5 million barrels per day in 2010. [Energy Information Administration, 1/23/12]
EIA Data Show Oil Production At An Eight-Year High. EIA data shows that U.S. crude oil production was higher in 2011 than at any point since 2003. [Energy Information Administration, accessed 4/10/12]
Number Of Drilling Rigs Has Doubled Since 2009. The Washington Post reported:
This year, Republicans are saying Obama has not done enough to promote domestic drilling, but the U.S. drilling-rig count is twice as high now as it was in 2009. With the exception of a spike in 2008, the current rig count is higher than any year since the early 1980s, according to figures compiled by WTRG Economics. [The Washington Post, 3/12/12]
Administration Plans To Hold 15 Offshore Lease Sales. In November 2011, the Obama administration announced that it “will hold 12 lease sales in the Gulf of Mexico and 3 off Alaska's coast,” as Bloomberg reported. [Bloomberg, 11/8/11]
Obama Has Taken A Number Of Other Steps To Increase Production. Gary Gentile, a reporter for energy information provider Platts, listed several actions the Obama administration “has taken to expand domestic energy production,” including lease sales, drilling approvals, the settlement of a BP lawsuit, and the Mexico transboundary treaty, which makes certain offshore resources more accessible. [Platts, 2/24/12]
FACT: Oil Production On Federal Lands Is Up In Recent Years
MYTH: Conservative Media Claim Obama Has Reduced Oil Production On Federal Lands.
- On Fox News Wall Street Journal columnist Mary Anastasia O'Grady said “the president has not allowed drilling on federal land and not allowed the Keystone Pipeline, and has been generally hostile to oil and gas development which could be an engine of growth in this country.” [Fox News, Journal Editorial Report, 3/10/12, via Nexis]
- Fox News reporter Jim Angle said “the president is actually reducing the supply of energy from federal lands, not increasing it,” and “three-quarters of increased production has been on private land while the areas under the president's control are now producing less.” [Fox News, Special Report, 4/2/12, via Nexis]
- CNSNews.com claimed “oil production on federally owned lands has in fact declined by 17,000 barrels per day since [Obama] took office in 2009.”
So Far, Production On Federal Lands Is Slightly Higher During Obama Years Than Bush Years. The Columbia Journalism Review reported:
The data in the report, which go back to 2003, show that there was indeed a large decline in oil production on federal lands and waters in 2011. But that observation belies the fact that federal lands and waters were exceptionally productive during 2010, outstripping any year's productivity during the Bush administration. Indeed, the average productivity on federal land and waters during the four Bush years, 2003-2008, was 634 million barrels per year. During the three Obama years, 2009-2011, it was 676 million barrels. During the Bush years, federal lands produced roughly 33 percent of the national output on average. During the Obama years, they produced roughly 34 percent. [Columbia Journalism Review, 3/22/12]
CRS: “Oil Production On Federal Lands Is Up Slightly In 2011 When Compared To 2007.” A Congressional Research Service report stated: “On federal lands, there was also an increase in production from 2008-2009 and another increase in 2010 (258,000 b/d), then a decline in 2011. Overall, oil production on federal lands is up slightly in 2011 when compared to 2007.” The following chart displays the data provided in the CRS report:
[Data from Congressional Research Service, 3/20/12]
FACT: U.S. Is Now Less Dependent On Foreign Oil
MYTH: Conservative Media Claim U.S. Is Becoming More Dependent On Foreign Oil Under Obama.
- Fox News commentator Gary B. Smith said that “when George Bush took office, we were reliant about 44% on foreign oil. Under his watch that dropped to about 32%. Under Obama's watch -- even though all of this increased drilling, you think 'my gosh, we're more energy independent' -- it's gone back up to 40%” [Fox News, Bulls & Bears, 3/24/12]
- In a June 2011 op-ed in the Las Vegas Review-Journal, J.C. Watts wrote: “We are becoming more dependent on foreign oil because of this administration's hostility to all offshore and domestic oil and gas exploration.” [Las Vegas Review-Journal, 6/26/11]
- Offshore Marine Service Association CEO Jim Adams said on Fox News that the Obama administration has “used their regulatory authority to shut down this industry ... in a manner that has cost us jobs, raised the price of fuel, and made us more dependent on foreign oil.” [Fox News, Your World with Neil Cavuto, 4/27/11, via Nexis]
EIA: “U.S. Dependence On Imported Oil Has Dramatically Declined Since Peaking In 2005.” From a 2011 article by the Energy Information Administration on foreign oil dependence:
U.S. dependence on imported oil has dramatically declined since peaking in 2005. This trend is the result of a variety of factors including a decline in consumption and shifts in supply patterns. The economic downturn after the financial crisis of 2008, improvements in efficiency, changes in consumer behavior and patterns of economic growth, all contributed to the decline in petroleum consumption. At the same time, increased use of domestic biofuels (ethanol and biodiesel), and strong gains in domestic production of crude oil and natural gas plant liquids expanded domestic supplies and reduced the need for imports.
The EIA provided the following chart showing the recent decrease in net imports of oil and refined petroleum products:
Bloomberg: U.S. Was Net Oil-Product Exporter For First Time Since 1949. On February 29, Bloomberg reported in an article titled “U.S. Was Net Oil-Product Exporter for First Time Since 1949”:
The U.S. exported more gasoline, diesel and other fuels than it imported in 2011 for the first time since 1949, the Energy Department said.
Shipments abroad of petroleum products exceeded imports by 439,000 barrels a day, the department said today in the Petroleum Supply Monthly report. In 2010, daily net imports averaged 269,000 barrels. U.S. refiners exported record amounts of gasoline, heating oil and diesel to meet higher global fuel demand while U.S. fuel consumption sank. [Bloomberg, 2/29/12]
FACT: Most U.S. Oil Resources Are Not Commercially Viable
MYTH: Conservative Media Claim U.S. Is Sitting On 1.4 Trillion Barrels Of Oil.
- Citing the Institute for Energy Research, Larry Kudlow claimed that “when you include oil shale, the U.S. has 1.4 trillion barrels of technically recoverable oil. That is enough to meet all U.S. oil needs for about the next 200 years, without any imports.” [National Review Online, 3/16/12]
- Fox News' Stuart Varney said “There's literally more than a trillion barrels of oil locked into the shale underneath some Western states. They know it's there, they want it, and they're going to go and get it no matter what the President says.” [Fox News, America's Newsroom, 3/28/12]
- Disputing Obama's statement that we have 2% of the world's proven oil reserves, Steve Doocy said “There are so many different spots on -- in the United States of America where we're not drilling so there's so much untapped oil. ... There are estimates in the United States of America we've got enough oil for a couple of hundred years. Perhaps 2 trillion barrels.” [Fox News, Fox & Friends, 3/28/12]
Inflated Estimates Of U.S. Oil Resources Include Oil That Can't Be Produced At A Profit. The Institute for Energy Research is the source for many conservative media outlets claiming the U.S. is sitting on “1.4 trillion barrels of technically recoverable oil.” But this figure includes what IER says are “over 982 billion barrels of oil shale estimated to be technically recoverable. Oil shale is a fine-grained sedimentary rock which is very rich in organic material called 'kerogen,' an oil precursor which can be converted to jet fuel, diesel fuel, kerosene, and other high value products.” IER suggested that the development of oil shale has not progressed because “most of these deposits are located on federal lands that have yet to be leased.” [Institute for Energy Research, December 2011]
CRS: Oil Shale Is “Sub-Economic.” A graphic from the Congressional Research Service shows that the U.S. Geological Survey estimates “undiscovered technically recoverable resources” at 135 billion barrels -- far less than the figures touted by conservative media. Undiscovered technically recoverable resources are the amount of oil “estimated to exist in unexplored areas” and “considered to be recoverable using existing production technologies.” CRS noted that “many of the high-quality, easy-to-find deposits have already been produced.”
CRS classified oil shale as a “Sub-Economic” resource, writing:
After coal, oil shale represents the most abundant fossil fuel in the United States. However, despite government programs in the 1970s and early 1980s to stimulate development of the resource, production of oil shale is not yet commercially viable. The need for massive capital investment and the cost of production itself have been the major barriers. A further economic factor lies in the fact that liquids produced from oil shale have a unique chemical composition and, unlike conventional crude oil, cannot be distilled to produce gasoline, but would be primarily a source of other liquid middle distillate fuels such as jet fuel or diesel oil, fuels for which there is significant national demand. In addition, production of liquids from oil shale requires large amounts of water, an important factor since most of the resource is located in water-scarce regions of western Colorado, Utah, and Wyoming. Other environmental problems include the difficulty in disposing of tailings if excavation is used as the extraction process, and the production of greenhouse gases. In light of these difficulties, efforts to aid in the development of oil shale are focused on pilot projects to test alternative technologies of production. [Congressional Research Service, 12/28/11]
Energy Expert: Oil Shale Has No Foreseeable “Commercially Viable Process.” Responding to claims “that the U.S. has hundreds of billions or even trillions of barrels of oil waiting to be produced,” energy expert Robert Rapier wrote at Consumer Energy Report:
[T]he Green River formation is the source of talk of those huge oil resources -- larger than those of Saudi Arabia -- and it is a very different prospect than the tight oil being produced in North Dakota and Texas. The oil shale in the Green River looks like rock. Unlike the hydrocarbons in the tight oil formations, the oil shale (kerogen) consists of very heavy hydrocarbons that are solid. In that way, oil shale more resembles coal than oil. Oil shale is essentially oil that Mother Nature did not finish cooking, and thus to convert it into oil, heat has to be added. The energy requirements -- plus the fact that oil shale production requires a lot of water in a very dry environment -- have kept oil shale commercialization out of reach for over 100 years.
It is not at all clear that even at $100 oil the shale in the Green River formation will be commercialized to produce oil. In order to commercially convert the oil shale into oil, a much less energy intensive method of producing it must be found (or, one would have to have extremely cheap energy and abundant water supplies to drive the process). My prediction is that despite having an oil shale resource that may contain the energy equivalent of 2 trillion barrels of oil, the reserve will continue to be zero for quite some time because there are too many technical hurdles to overcome to realize a commercially viable process. [Consumer Energy Report, 3/26/12]
Chevron Gave Up Oil Shale Lease. AP reported in February:
Chevron Corp. is giving up its experimental oil shale lease in northwest Colorado, saying it wants to free up its resources for other priorities.
Getting petroleum-like substances out of mined oil shale is tougher than pumping oil out of traditional wells. Companies haven't found an economical way to do it in the U.S. [Associated Press, 2/28/12]
FACT: Energy Independence Does Not Mean Low Prices
MYTH: Conservative Media Claim That Lower Imports Equal Lower Prices.
- Fox News Eric Bolling said: “We're dependent on foreign oil. If we were dependent on our own oil, it wouldn't matter what happens in Iran. Just like - we use a lot of natural gas here, right? It doesn't matter what's going on in Iran, natural gas prices aren't going up. If because everything we produce, we use right here in America.” [Fox Business Network, Cavuto, 3/1/12, via Nexis]
- Dick Morris said on Fox News that: “the United States now has the capacity to increase the global supply of oil that we can, in the future, completely control gas and oil prices.” [Fox News, The O'Reilly Factor, 3/21/12, via Nexis]
TIME: “The Oil The U.S. Uses May Be American, But That Doesn't Mean It Will Be Cheap.” In a cover story for TIME Magazine, Bryan Walsh reported that while “reducing oil imports is good for the U.S. economy,” it doesn't translate into low or stable oil and gasoline prices:
While unconventional sources promise to keep the supply of oil flowing, it won't flow as easily as it did for most of the 20th century. The new supplies are for the most part more expensive than traditional oil from places like the Middle East, sometimes significantly so. They are often dirtier, with higher risks of accidents. The decline of major conventional oil fields and the rise in demand mean the spare production capacity that once cushioned prices could be gone, ushering in an era of volatile market swings.
[C]ontrary to what the drill-here, drill-now crowd says, oil companies could punch holes in every state and barely make a dent in gasoline prices. Even a more energy independent U.S. can't control prices, not with a thirsty China competing on the globalized oil market. “Energy security is fine, but it doesn't have that much meaning in a globalized economy,” says Guy Caruso, a former head of the EIA. “More production adds fungibility to the world market, but we're still vulnerable to shocks in other countries.” The oil the U.S. uses may be American, but that doesn't mean it will be cheap. [TIME, 4/9/12]
Shell CEO: “We Will See Prices Going Up” As “It Gets More Expensive To Get Resources Out Of The Ground.” Shell CEO Peter Voser told CNBC that “In the very long term we will see prices going up because of high demand and as it gets more expensive to get the resources out of the ground.” [CNBC.com, 3/20/12]
EIA Chief Under Bush: “We're Still Vulnerable To Any Shocks To The System” Even If We Stop Importing Oil From the Middle East. From a Politico report:
Whether the oil is produced in the Gulf of Mexico, the Bakken formation in North Dakota or offshore of Brazil, the U.S. has to buy it at the same volatile global price. That price is susceptible to disasters that cut off production or confrontations with Iran in the Straits of Hormuz.
Guy Caruso, who was the EIA's chief for more than six years of the George W. Bush administration, called energy independence a “political slogan.”
“Say we wave a magic wand and say we import no oil from the Middle East ... does that mean we're secure? More 'independent'?” he asked. “The answer is no because we're still vulnerable to any shocks to the system.”
Another complication is that the U.S. is unlikely to have much impact on the global oil market, no matter how much it produces.
“The U.S. is a small producer without much flexibility in a much bigger and rapidly growing global market. There is no way that we can ramp up any sort of production enough, and fast enough, to materially swing the global market,” [former BP chief scientist Steve] Koonin said. “And moreover, the cartel, OPEC, has its hand on the tap and can restore the price.”
Koonin also noted that increased oil production in a time of high prices is a boon for the industry.
“When you hear the international oil companies advocating for energy independence, it's really about making money, which isn't a bad thing,” Koonin said. "If they produce a million more barrels a day, they're not going to change the global price much. And since they know the global price is going up, they'll just make more money.
“There's nothing wrong with that, but it doesn't solve the price problem or the greenhouse gas problem,” he said. [Politico, 2/23/12]
CFR: “Problem Can Be Addressed Only By Making The U.S. Economy More Resilient To Oil Price Swings.” In a report for the Council on Foreign Relations, energy expert Michael Levi wrote:
Since oil is traded on a global market, the effects of volatility are reflected in the price of every barrel of oil regardless of its origin. This problem can be addressed only by making the U.S. economy more resilient to oil price swings, which includes -- most significantly -- lowering total U.S. oil consumption. [Council on Foreign Relations, May 2009]