Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at intelligent and rational individuals, whose comments are very welcome.

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"Observe that the 'haves' are those who have freedom, and that it is freedom that the 'have-nots' have not." Ayn Rand

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For "a human being, the question 'to be or not to be,' is the question 'to think or not to think.'" Ayn Rand
Showing posts with label Big Oil. Show all posts
Showing posts with label Big Oil. Show all posts

05 April 2013

Oil and Gas Industry Tax Breaks: Lies by Democrats

For decades, I have been hearing about the massive tax breaks and subsidies that the government gives the oil and gas industry.  Obama has recently been repeating this wild-eyed claim.  On 2 November 2011, in a reply to a comment claiming the oil and gas industry was subsidized by $2 billion a year to my post North Dakota Oil, Truckers, Railroads, Jobs, I said:
There are frequent claims that the government is subsidizing the oil industry, but rarely does anyone actually attempt to describe what the subsidy is and how it is given to the oil industry. The oil industry gets four tax breaks, the domestic manufacturing break of $1.7 billion, the oil depletion break of $1 billion, the foreign tax credit of $0.85 billion, and the intangible drilling costs break of $0.78 billion. The first three tax breaks are given to every manufacturing company whether in the oil and gas industry or not. The oil depletion allowance is the equivalent of the depreciation of capital equipment, which is reasonable. The intangible drilling cost write-off allows drilling costs to be written off in the first year rather than over the entire time of the investment. This is probably most important to the very many small drilling companies and it is the only tax break really unique to the oil and gas industry.
Merrill Matthews recently had an Opinion piece in the Wall Street Journal entitled About Those Tax Breaks for Big Oil... which notes how a bill submitted to the House of Representatives by the socialist Chris Van Hollen of Maryland is forced to insert special language aimed at the oil and gas industry to exclude that targeted industry from the same tax breaks or options held by and used by many other industries. Van Hollen's bill is the Stop the Sequester Job Loss Now Act and would increase tax rates on higher income individuals (soak the rich) and increase taxes on the oil and gas industry which has been doing yeoman work in keeping the economy from complete collapse.

In the best tradition of the Democrat Socialist Party the bill pretending to end job loss will actually increase job loss by depriving small business owners and investors of the money and incentive they need to hire people and by hobble the oil and gas industry which is one of the few job bright spots in our economy.  In Democrat Socialist logic, it is OK to blow away both feet as long as the bill that will do this has a title implying that it will put great shoes on both feet.  Upon passage of the bill and with its exercise, the people eventually have no feet and no great shoes.  The Democrat Socialists will then claim that is because of some fictional deregulation.

Matthews points out that the oil and gas industry reputed to be unfairly taxed (to Democrats this always means under-taxed) includes the two companies at the top of the company list of the biggest taxpayers, as well as the sixth biggest taxpayer.  Exxon Mobil paid $31 billion of U.S. income taxes in 2012.  Chevron paid $20 billion and ConocoPhillips paid $8 billion of U.S. income taxes in 2012.  These  three oil and gas companies paid more U.S. income taxes than did the remaining 7 companies in the top 10 list.  They did so using the same tax rules used by other industries.

So how does Van Hollen target the oil and gas industry?  His act
  • limits the Section 199 deduction which sought to encourage domestic production activities in the American Job Creation Act of 2004.  This gave domestic manufacturers a 9% tax deduction from net income, except for the oil and gas industry, which only receives a 6% tax deduction because the Democrats have a vendetta against oil and gas.  So, the oil and gas industry gets less of a tax break than other U.S. manufacturers on this!
  • denies the industry the use of the accounting method for inventory known as last-in, first-out or Lifo, which is widely used by all extraction industries.  It will remain an available choice for all industries except the oil and gas industry.
  • denies only integrated oil and gas companies the deduction for many of the taxes they pay to foreign countries.  To avoid double taxation, all companies are allowed a credit for the taxes they pay to foreign countries.  Now, however, the integrated oil and gas companies would not be allowed to deduct the royalty payments they make to foreign countries, though other companies will continue to deduct royalties.
In other words, it is very clear that the van Hollen act discriminates against and targets the oil and gas industry.  This is just a case of a bloodsucking parasite looking for a host with plenty of blood to suck, just as is its soak the productive rich campaign.  Willie Horton is ogling other people's money in the bank and he will steal their money if he thinks he can get away with it.

04 July 2008

Big Oil U

Merrill Goozner and Eryn Gable of the Center for Science in the Public Interest published a report entitled "Big Oil U" in January 2008. The June 2008 issue of Academic Sourcebook reproduced the executive summary, with the subtitle "Corporations large and small are attempting to influence academia. These attempts are not isolated, and they are increasing. This is a threat to academic freedom."

The summary claims that "As the scientific consensus surrounding climate change has solidified, the oil, gas, coal, and electricity industries have reluctantly recognized the inevitability of political action to reduce greenhouse gas emissions. Most energy companies are distancing themselves from campaigns to discredit global warming science." The summary then bemoans the fact that some energy companies are funding research programs at universities and attaching conditions that have the potential to compromise the integrity of the research. Nowhere does this summary discuss the possibility that government funding ever does anything of a similar nature.

The study complains that nine such university-energy business programs have some of the major limitations on academic freedom due to:
  • Company representatives on governing boards
  • Industry sponsors have intellectual property first rights
  • Industry sponsors play a role in deciding which projects are funded
  • Industry review of research prior to publication
  • Industry may delay publication
There are almost always some industry executives on university governing boards. Universities want them there as potential donors, for their executive advice on running a large organization, and because they have some insight into what skills students need to prepare themselves for jobs in industry, which whether academics like it or not, is where most of the product of a university winds up. However, this article takes the consistent viewpoint that universities are to be run for the sake of the faculty and their research interests, not for the sake of providing an education to students. There is no mention in this summary of any aspect of concern for the university function of educating students. This is very consistent with the way universities are largely run, not to mention public schools. Universities have two concerns: one for the research and publications of the faculty and one for the indoctrination of students with socialist and radical environmentalist propaganda. Universities more and more are disinterested in providing students with skills and knowledge which will enable them to be productive in industry. They would much rather that students took government, non-profit, and academic jobs.

In most of the cases discussed in which industry played a role in deciding which projects were funded, the role was less than that usually played by a government agency. Only at Georgia Tech did the industry partners make the decision by themselves.

The industry review of the research may play a very good role, since the scientists and engineers of the major oil companies know a great deal about energy. If they abuse their role, then the university can simply turn to government to fund the programs instead. The complaint that publication may be delayed can be handled the same way. There are cases when government funded research is also reviewed before publication and when publication may be delayed as well.

Apparently, the fact that the university generally has intellectual property first rights is less of a threat to academic freedom than a company having such a right. This entire article assumes that universities and industry are and ought to be at loggerheads. It totally fails to recognize that our wealthy society can only afford to pour money into these universities in amounts that consistently grow at rates even higher than the economy as a whole because of the incredible productivity of industry. It states that with more industry involvement "there is less space to perform research that is critical of industry or that challenges the conventional wisdom." Wow! Industry research funding for universities is swamped by government research funding for universities. Does this uncritical susceptibility of university researchers mean that they are much discouraged from criticizing government because of that funding. If so, and many of us recognize that this is very much so, then universities have a far more serious conflict of interest on their hands than that of accepting money from industry. Surely it is also the function of university elites to warn the great masses of dumb Americans of government excesses, mistakes, failed policies, impossible goals, frauds, inefficiencies and other problems which we know them to systematically ignore. Is it not the case that much of this tendency to ignore the limitations of governments is due to university dependence upon government funding? Of course it is!

As for discouraging a university from challenging conventional wisdom, I thought that they were in the business of creating the conventional wisdom and implanting it in their students with religious zeal. Long ago, they gave up on the ideal of teaching students to think critically for themselves and to close observe reality. Now they teach the tenets of tired and false socialism and anthropogenic global warming. Socialism has had nothing but obvious collosal failures and global warming never lived up to its billing even when there was a bit of warming and now there has been none for 10 years! No, the universities are one of the primary sources of myths in America today.

There is further admission that the commitment to truth is weak among university faculty members in this summary. Sheldon Krimsky of Tufts University observes that "It's when they ask, 'Can you write the research in a certain way?' that it takes away the autonomy of the researchers, and many researchers are perfectly willing to trade that away so that they can get funding." He is talking about the role of corporations in biomedical research, but if they are so susceptible to dishonesty in that mode of funding, surely they are equally or more dishonest when dealing with government agency funding sources.

The summary says there is an inherent conflict between the interests of universities and the interests of corporations. The summary states "University research is supposed to work toward the common good. Corporate research is primarily aimed at maximizing profits." Wow, what a self-serving assessment. If corporation research is aimed at maximizing profits it does so by producing better product, or cheaper product, or whole new kinds of products that people buy freely in their pursuit of their own happiness. This we know in a capitalist society with free markets to be phenomenally effective in serving the common good. Universities supposedly exist primarily to educate students, which, if it is done well, serves each student well and then has great benefit for the common good. More and more, in order to have good faculty who will put up with educating students, many of whom are not so interested in being educated as in partying, universities hold them by making research a priority, which also has been contrived to give the university itself great prestige, even if the students are poorly educated. So, if we are to put the role of universities in a pejorative way, we can summarize their purpose as get government funding, publish or perish, never offend the government, and always ally oneself with government to expand its role and power. This comes much closer to a truthful assessment of their purpose than it should.

Now there is a very funny twist in this summary. It proceeds to note that carbon-dependent industries have only funded modest programs with modest goals in universities. One is tempted to ask how such modest funding is supposed to pose such a great threat to the universities. Indeed, university research in total dwarfs the entire R&D budget of the oil and gas industries. Given the widespread animosity of the universities to industry in general and to the oil industry in particular, it is clear that it is the oil industry that is most in danger, not the universities. Indeed, it is precisely because government funding of so many university researchers has bribed most of them into participating in the global warming alarmist scandal that the oil companies have been trying to fight their image as evil-doers by funding these university energy programs, which the summary notes is done to protect themselves.

The summary also bemoans how little the oil companies are investing into research of alternative energy compared to what they spend on exploration and the exploitation of new oil reserves. There is a reason for this. The alternative fuels do not offer sufficient return for these large companies to make a profit and to continue in business. Furthermore, finding new oil and developing it is becoming rapidly more expensive, even as the non-national oil companies, such as those funding the university programs complained about, are at or almost at their peak in production. They are almost certainly all on a downward production path. Alternative energy cannot solve the problem. Spending too much R&D on alternative energy will only make matters worse for the oil companies, since any possible return on investment is much too far into the future.

The universities want to take the toy from the little boy next door and then refuse to share it. This makes them look rather childish. Meanwhile, these university purists claim the oil companies are the wolf to their Little Red Riding Hood's grandma, even as the naked grandma climbs merrily into bed with the government wolf.

08 April 2008

Inefficient Nationalized Oil Companies

This last week Congress once again called the big American oil companies before committee to ask them why they were making profits when Americans were paying so much at the gas pump for gasoline. The oil companies ran weak ads on TV defending themselves and blaming the cost of oil on OPEC, high demand in developing countries, and the political uncertainties in many oil-producing nations. They did not complain about the government adding to the cost of oil with ethanol mandates and high gasoline taxes. They also did not point out that Congress will not allow them to drill for oil in much of the United States and its territorial waters. They did not point out that oil production is falling in some countries due to the inefficient operation of their nationalized oil companies.

Of the top ten companies in the world in terms of petroleum reserves in 2006, nine are state-owned national oil companies. The largest by far is Saudi Aramco and the 2nd, 3rd, and 4th largest are NIOC (Iran), INOC (Iraq), and KPC (Kuwait). These all have reserves of over 100,000 million barrels of oil. Fifth place is PDV (Venezuela), 6th is Adnoc (United Arab Emirates), 7th is Libya NOC, 8th is NNPC (Nigeria), 9th is Lukoil, and tenth is Qatar Petroleum. Of these, only Lukoil is private and it is controlled by ex-KGB thugs. Exxon-Mobil, the largest US oil company in terms of reserves, is number 14! BP is 17, Chevron is 19, ConocoPhillips is 23, and Shell is 25 in 2006. Because the international oil companies have so few reserves, they have a greatly diminished ability to determine the cost of oil and that ability is diminishing with time.

It is true that the international oil companies carry their weight better when it comes to the actual production of oil. Three of them are actually in the top ten in that respect. In 6th place is BP, in 7th is Exxon-Mobil, and in 9th is Shell. Production is dominated by Saudi Aramco, followed by NIOC (Iran), Pemex (Mexico), PDV (Venezuela), and Kuwait Petroleum Company. PetroChina is 8th and Sonotrach (Algeria) is 10th. Exxon-Mobil and BP each produce about 23% as much oil as Saudi Aramco does. NOIC (Iran) produces about 37% as much and Pemex (Mexico) produces 34% as much. PDV (Venezuela) produces 24% as much as Saudi Arabia. Iran and Venezuela are self-declared enemies of the United States and Saudi Arabia heads the OPEC cartel and Kuwait in position 5 is active in OPEC. Of the top 5 producing oil companies, only Mexico's Pemex is not in OPEC and is not in a country participating in terrorist activities, outside of some bloody drug traffic anyway.

These statistics are known to our grandstanding Congress. They were taken from a report prepared by the Congressional Research Service for Congress. The report is called The Role of National Oil Companies in the International Oil Market. It was written by Robert Pirog and dated 21 August 2007.

Many of these national oil companies are inefficient producers of oil. This goes with having government monopolies in general and the oil business is no exception. Articles appeared in the Economist about the increasing inefficiency of the once relatively efficient PDV, the number 4 producer, under Hugo Chavez in the last couple of years. Pemex, the number 3 producer, is similarly plagued with inefficiencies. NIOC (Iran), ONGC (India), Rosneft (Russia, 75.16%), and PetroChina are very inefficient oil producers. This inefficiency raises the cost of oil.

On Friday, 7 April, the Washington Times had an article on the problems with Pemex. Production at the Cantarell oil field, Mexico's largest, fell 18% last year. Overall, Pemex's production has fallen in 2005, 2006, and again in 2007. Since the price of oil went up 57% last year, company revenues are not decreasing despite the reduced production.

Pemex has virtually no control over the 110,000 union workers among its employees. A fertilizer plant closed in 2002 is still manned with union workers who cannot be fired or transferred. They show up each day and clean the plant a bit and then sit. Meanwhile, despite estimates that there are 30 billion barrels of oil and gas in the deep water areas of Mexican territory in the Gulf of Mexico, Pemex is doing nothing to expand its oil reserves. They do not have the money, the knowledge, and the technology to do so. They suffer also from high taxes, corruption, deteriorating equipment, lack of investment, and lack of competition. Pemex exported 1.67 million barrels of oil last year, but without new oil fields, exports are expected to fall to 290,000 barrels in 2016.

Pemex paid the government $62.5 billion in taxes last year. This is 60% of Pemex revenues! Pemex provided the Mexican government with 40% of federal spending. With continuing production decreases, it is unlikely that Pemex will be able to support so much of the weight of the government. Mexican legislators are themselves becoming a bit worried and have allowed Pemex to retain $18 billion for exploration this year. But, Pemex is limited in its ability to pursue market approaches to solving its problems since the Mexican constitution gives the state the exclusive right to process and distribute oil and natural gas. It appears unlikely that Pemex production will soon stop decreasing.

In general, the national oil companies have little incentive to expand production and they have even less to operate efficiently. They are commonly operated to employ as many people as possible and keep them beholdened to the governments. This is clearly the case in Iran, Venezuela, and Mexico. Taken together these 3 nationalized oil companies produce 94% as much oil as Saudi Arabia does. The other nationalized oil companies are not very efficient either.

There is little we can do about this as Americans, except to open new oil fields of our own in the Gulf, off the Pacific and Atlantic coasts, and in Alaska. We can also open the huge tracts of land in the west languishing in the hands of the Federal government for the development of oil sands and oil shales for oil production. We should build new clean and safe nuclear power plants and use our very plentiful coal for power stations with improved scrubbers to remove pollutants. We will still use foreign oil suppliers, but it is foolish not to increase our options and suppliers, so long as we rely on our most effective weapon, the free market. Unfortunately, our Congress will not allow the free market to do its wonders.