Rush Limbaugh is on a rant right now about the Big Energy Lie – President Obama’s assertion that:
“We can’t just drill our way out of this problem — while we consume 20% of the world’s oil, we only have 2% of the world’s oil reserves,” he said. [Source.]
Rush confused the issue with regard to the definition of reserves, suggesting that it has something to do with how much oil has been produced to date. It does not.
Reserves are the amount still in the ground that have been found by drilling efforts to date, and are expected to be produced with current technology, at current prices.
Reserves have been around 10 years of production ever since I can remember. That’s because energy companies measure their success by their ability to “replace production” – that is, if they produce a million barrels, they need to replace it with a million barrels of reserves. It’s like a current inventory.
Or like a checking account.
Imagine if you had $3,000 in your checking account. If you spend $1,000 per month, does that mean you will run out of money in 3 months?
Only if you stop working. And only if you have no other assets.
To extend the analogy, imagine if you had $200,000 in a brokerage account and another $300,000 in an IRA. Your Aunt Martha might leave you half her lottery winnings in her will.
Few would consider you “poor” because the numbers indicate you will burn up your current account in 3 months.
The energy equivalent to the brokerage account, the IRA and Aunt Martha’s will in my example is termed “resources”. Resources have yet to be discovered, are difficult to quantify and aren’t available right now, but there is a reasonable expectation that they will be available in the future. Strategic decisions about future supply should take resources, not reserves, into account.
Unfortunately, there’s lots of confusion on the subject of “reserves”, which are a specific term of art with particular meaning to accountants and engineers. Focusing on reserves will always lead one to the conclusion that — oh noes! — we are about to run out of supply.
That’s The Big Energy Lie.
One thing Rush gets right, though, is that the Administration is more than willing to confuse the issue to its political benefit.
Cross-posted at RedState.com.
Great article. Regarding Gingrich’s current campaign issue about getting pump prices back down to $2.50/gallon, do you know of any articles out there, or have you considered writing one, about what would happen to the price at the pump if the Obama Admin. reversed those of its edicts that have prevented oil production and exploration?
This is the one I wrote: http://wp.me/p1v1BM-t4
$2.50 strikes me as ambitious. I have not tried to quantify how much oil translates to how much of a price drop. There are too many variables.
In general, I tend to believe that more domestic production is a good thing for security, for jobs and the economy, and that a stronger economy will strengthen the dollar & bring the price of oil down.
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In 2010, ExxonMobil incurred a total of $9.8 billion in tax expenses and duties to the U.S. government, which includes an income tax expense of $1.6 billion.
Over the past five years, ExxonMobil incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than the company earned in the United States during the same period.
ExxonMobil’s income tax rate is significant. ExxonMobil’s worldwide effective income tax rate for 2010 was 45 percent.
For every dollar of net earnings in the U.S. between 2006 and 2010, ExxonMobil incurred $1.45 in taxes to federal, state and local governments. When one looks at the total taxes incurred on ExxonMobil’s 2010 activities, they amounted to over $93 billion – more than three times our earnings. Over 24 percent of ExxonMobil’s revenue went to taxes around the world.
On a dollar-for-dollar basis, our industry’s profits are generally in line with the average of all U.S. industry. In 2010, the U.S. oil and gas industry earned, on average, 5.7 cents per dollar of sales — below the average of 8.5 cents per dollar revenue for “All Manufacturers.” ExxonMobil earned nearly 8 cents per dollar of revenue in 2010.
Section 199 applies today to all U.S. domestic producers and manufacturers – from newspaper publishers, to corn farmers, to movie producers, and even coffee roasters. All can claim this deduction, which is intended to support job creation and retention in the United States.
By any reasonable definition it is not an oil and gas industry incentive. In fact, our industry is currently limited to only a 6 percent deduction, while all other U.S. manufacturers are allowed a 9 percent deduction.
Frankly, to then deny a select few companies within the oil and gas industry this standard deduction is tantamount to job discrimination. Why should an American refinery worker employed by a major U.S. oil and gas company in Billings, Montana be treated as inferior to an American movie producer in Hollywood, an American newspaper worker in New York, or an employee at a foreign-owned refinery in Lemont, Illinois?
Another tax measure that is misleadingly labeled a “subsidy” is the foreign tax credit provision, which upholds a basic tenet of tax fairness by preventing our overseas earnings from being double taxed.
This provision applies to all U.S. companies with overseas income, and has been in place since 1918. It is meant to protect U.S. competitiveness.
Again, U.S. oil and gas companies are already treated differently from other businesses under this provision, which includes unique and prescriptive rules on our industry requiring us to actually prove our foreign tax payments are indeed income taxes and not royalties.