In Louisiana and other energy-producing and consuming states, alarms are sounding, because the proposed budget could well be the end of economic vitality as we know it. Louisiana has long been called “The Energy State,” with the oil and gas industry providing state and local governments billions of dollars and creating thousands upon thousands of jobs.
But, in an attempt to chart a totally new energy course for the nation, the FY 2010 federal budget, called “A New Era of Responsibility Renewing America’s Promise,” is simply a plan to destroy the nation’s domestic oil and gas industry. While calling on the country to reduce its dependence on foreign oil to assure national security, the Obama Administration proposes to eliminate the tools that have been given to our domestic industry to seek and find oil and gas here at home.
The new budget proposes at least $31.5 billion in taxes and fees from the oil and gas companies over the next decade to pay for its “transition to a clean economy.” No longer will intangible drilling costs be expensed—that means there will be no more available capital investment for high-risk drilling. No longer will wells be depreciated. No longer will credit be given for wells that produce only small amounts of oil and gas or for enhanced oil recovery projects. Gone is the manufacturing tax deduction. What the industry will get is a new 13 percent excise tax on production in the Gulf of Mexico!
Proponents of the plan point to industry profits in recent years; however, they totally ignore current realities. Just take a look at Louisiana’s current budget and budget proposals for next year to see those realities. When oil topped $100 a barrel, the state of Louisiana amassed hundreds of millions of dollars in surpluses. When the price dropped, what happened? Budgets got slashed.
The oil and gas industry responded similarly—when the price for oil and gas dropped, it stopped investing. What was thought to be a great boon to the economy of north Louisiana and the state as a whole, when Haynesville Shale leasing was at its peak last year, has now slowed to a trickle.
This downturn in oil exploration and production has occurred despite the fact that the industry currently receives the federal incentives and more favorable tax treatment. What will be the effect of eliminating those incentives plus adding even more tax burdens on the industry under the new federal taxing plan?
For Louisiana, investment in oil and gas would likely drop by $6 billion a year, the State General Fund would drop by another $2.3 billion a year, and unemployment would probably exceed 10 percent.
At the other end of the “double whammy” are Louisiana’s individuals, businesses, and industries. These are the folks that consume the oil and gas and electricity. The proposed budget hits them too, with what’s called “cap and trade” with an estimated national impact of $150 billion in increased energy costs.
So, where are we going and how will we pay for it? We’re headed toward what the U.S. Department of Energy calls “a low-carbon economy” paid for by taxes on our oil and gas consumers and producers. Though “a low-carbon economy” may be a long-term administration goal, it will be a short-term reality in Louisiana. The combined effect of the taxes on Louisiana’s producers and consumers will assure that there will be much less production and consumption of hydrocarbons in Louisiana.
Ginger Sawyer, Vice President and Director of LABI’s Energy Council, contributed to this column.