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The oil industry’s plan to lower gas prices

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By Steve Hargreaves @CNNMoney March 23, 2012: 5:20 AM ET

NEW YORK (CNNMoney) — The oil industry recently laid out a set of proposals it believes will instantly lower gasoline prices.

The proposals call for more domestic oil production, fewer environmental regulations on refineries and fuel, and for not raising taxes on the industry. They’re basically what the Republican presidential candidates are calling for.

But analysts say those ideas will do little to lower gas prices in the short term. Here’s why:

More drilling: The industry has long held that this is key to lowering prices, and “unlocking America’s energy potential” is a theme all the Republican candidates are touting.

The industry has studies saying that if it was allowed to drill off both the East and West coasts, on all federal land that isn’t a national park and in Alaska’s national wildlife refuge it could produce another 10 million barrels of oil a day by 2030 — double the nation’s current oil output.

Eighteen years is a long time to wait for gas prices to come down. But the industry says that if Obama merely announced such a plan oil prices would drop overnight in anticipation of this new production.

“Markets are driven by expectations,” Jack Gerard, president of the American Petroleum Institute, said on a recent conference call.

Saudi Arabia can’t save us from high oil prices

Gerard noted that oil prices fell $16 in the two days after George W. Bush lifted a moratorium on drilling off the coasts in 2008, a moratorium that was effectively reinstated after BP’s (BP) Gulf of Mexico disaster.

But oil traders are skeptical.

“Just because a policy is announced doesn’t mean it can be easily or quickly attained, and the markets will discount that,” said Addison Armstrong, director of market research at the brokerage Tradition Energy.

Those against more drilling note that U.S. oil production has increased by about 15% since Obama took office, and prices have only gone up.

Obama himself likes to take credit for this production increase, although actual federal acreage available for drilling is down slightly from the Bush administration.

The extra production comes mostly from private land and is spurred by higher prices, new technology and the expanded use of hydraulic fracturing.

Known as fracking for short, the process is highly controversial as many fear it is contaminating the ground water. Yet Obama has allowed it to continue mostly unfettered — and has taken flack from his left flank as a result.

In the medium term it’s hard to say what impact increased production from the United Sates would have on oil prices.

Ten million barrels a day is a lot of oil, though critics say the industry would never be able to generate that much and note the potential high environmental costs of drilling everywhere.

Plus OPEC might simply cut that amount of production to keep prices high.

Either way, it’s unlikely more drilling now would lower gas prices anytime soon.

Fewer regulations: Cutting regulations is another mantra of the American Right, and more regulations are indeed looming for the oil and gas industry.

It’s thought that Obama’s Environmental Protection Agency will propose new standards designed to cut air pollution and global warming on both refineries and fuels.

The oil industry says the new fuel standards alone could add anywhere from six to nine cents to a gallon of gas.

Yet not implementing those regulations wouldn’t lower the price of gas now — analysts aren’t expecting them to be put in place until after the election.

Plus, it’s uncertain they will really cost that much.

“Historically, the cost impacts [of additional regulations] have been estimated to be higher than they really are,” said Joseph Stanislaw, founder of J.A. Stanislaw Group, an energy and investment advisory firm.

Less taxes: As any good lobby group would, API has used every chance it gets to rally against proposals from the Obama administration that would eliminate up to $4 billion a year in tax breaks for the oil industry.

“No economist in the world will tell you gas prices can be reduced by increasing taxes,” said API’s Gerard.

Speculators are driving up gas prices – Opinion

Eliminating the tax breaks has been opposed by nearly every Republican politician as well.

But while eliminating those tax breaks might be bad for oil company shareholders, it’s hard to see how they would have much of a bearing on raising or lowering gas prices.

What is driving prices: Fundamentally, what politicians on both sides of the isle are missing is the fact that gas prices are not being driven by domestic policies.

They are being driven by oil prices, which are in turn rising mostly on fears over a confrontation with Iran.

“There’s a lot of oil out there right now, but people are scared,” said Stanislaw. “This is largely outside of the control of the United States.”  To top of page

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API: Oil & Gas industry pays the government nearly $90 million dollars a day

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WASHINGTON, March 2 (UPI) — U.S. President Barack Obama has it backward when he says the government is backing a billion-dollar oil subsidy, the American Petroleum Institute said.

Obama told an audience in New Hampshire that the oil industry was the recipient of $4 billion in subsidies backed by U.S. taxpayer dollars.

“Every time you go to the gas tank or fill up your gas tank, they’re making money. Every time,” the president said. “Now, does anyone really think that Congress should give them another $4 billion this year?”

But Jack Gerard, president and chief executive officer at trade group API, said the president had it wrong.

“The president has it backwards, our industry pays the government nearly $90 million dollars a day — the biggest contributor of government revenue than any other industry in the United States,” said Gerard.

U.S. lawmakers are sniping over domestic energy policies as gasoline prices in most U.S. markets move closer to $4 per gallon. Republican critics of the White House say Obama is blocking domestic energy production, which means higher oil prices.

Analysts, however, said tensions in the Middle East are likely contributors to escalating prices.

The White House states that U.S. dependence on foreign oil has gone down every year since Obama came into office in 2009. The president has said there “are no short-term silver bullets when it comes to gas prices.”

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API: White House decision on Keystone XL puts politics above jobs

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Sabrina Fang | 202.682.8114 | fangs@api.org

WASHINGTON, November 10, 2011 – The American Petroleum Institute blasted the White House for delaying the approval of the Keystone XL pipeline, putting an indefinite hold on the creation of 20,000 new jobs next year:

“This decision is deeply disappointing and troubling.  Whether it will help the president retain his job is unclear, but it will cost thousands of shovel-ready opportunities for American workers,” said API President and CEO Jack Gerard. “There is no real issue about the environment that requires further investigation, as the president’s own State Department has recently concluded after extensive project reviews that go back more than three years.  This is about politics and keeping a radical constituency opposed to any and all oil and gas development in the president’s camp in November 2012.

“Besides creating thousands of jobs almost immediately for Americans, this project would also have helped strengthen our energy partnership with Canada and helped reduce America’s reliance on oil from less stable sources,” he said.

A recent poll found that nearly 80 percent of Americans favor more oil from Canada, already our number one supplier of foreign oil, according to API.

The Keystone XL pipeline has the support of organized labor, business, mayors and veterans groups from across the country as well as many members of Congress from both sides of the aisle.

API represents more than 480 oil and natural gas companies, leaders of a technology-driven industry that supplies most of America’s energy, supports 9.2 million U.S. jobs and 7.7 percent of the U.S. economy, delivers more than $86 million a day in revenue to our government, and, since 2000, has invested more than $2 trillion in U.S. capital projects to advance all forms of energy, including alternatives.

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Don’t hold your breath on faster permitting

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It’s become a familiar refrain in the oil patch: the federal government could kick-start the country’s job machine by resuming offshore drilling permits to a pre-Macondo level.

A letter from American Petroleum Institute President Jack Gerard written last week implores President Obama to remember the Wood Mackenzie study API sponsored that says the oil and gas industry can create one million jobs in the next seven years and 1.4 million additional jobs by 2030.

And another a letter this week from a number of other industry groups points to another industry study that says 230,000 new or retained jobs, more than $44 billion in U.S. GDP and nearly $12 billion in tax and royalty revenues could be generated in 2012 if permitting returned to the same levels as before the Deepwater Horizon Accident.

Many in the industry (and many readers of this blog) assume the slowdown is part of a concerted effort of the White House to punish the oil and gas business. The arguments range from the administration punishing the largely Red State industry for failing to support it to kowtowing to unions and environmental groups.

Not all industry execs aren’t subscribing to the grudge-against-the-oil-industry answer on the permitting, however.

Chevron CEO John Watson also said earlier this week that he felt the Bureau of Ocean Energy Management, Regulation and Enforcement was “working very hard to process the permit applications they have,” but that the agency needs more staff to step up the pace, especially in light of new regulations imposed since the Gulf spill.

“Whether they have the resources to do it is another matter,” Watson said. “Whether there’s political overtones elsewhere, that’s for others to judge.”

But as far as the hope of getting back to pre-spill permitting levels, the industry shouldn’t hold its  breath.

“There are many more hoops and a lot more verification the government is requiring of itself and of us,” said Gary Luquette, president of Chevron North America Exploration and Production Co., said in an interview with the Chronicle earlier this week. ”This is a much more intensive process now, so we won’t go back to the time lines of the past.”

The biggest reason for the slower pace is that waivers on a number of environmental impact studies that allowed companies to skip them pre-Macondo have been reinstated.

The pace today is certainly better than it was right when the drilling moratorium was lifted, Luquette  said, and even better than it was just last month.

“There’s a need for continuous improvement and they seem to be committed to that,” he said.

BOEMRE chief Michael Bromwich said there’s no doubt the pace of permitting is way off from before Macondo.

“But that’s largely irrelevant because it misses the sea change that’s occurred over the last 15 months, with the more rigorous requirements,” Bromwich said during the same hearings where Watson spoke.

Bromwich also repeated his refrain that there’s no deliberate attempt to stifle the industry.

“There’s absolutely no evidence that anyone in the agency up through and including me has made any effort to slow things down,” Bromwich said. ” I do appreciate [Watson] saying that there is no deliberate slowdown. It’s actually fully consistent with what we’ve been hearing behind closed doors from top company executives for months. And it’s nice that one of the ceos has come out and said so publicly. I don’t think it would hurt the others to say the same thing because I think they realize there’s no agenda to slow things down.”

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