Oil and Gas Policymaking: U.S. vs. Russia

In Congress on April 1, oil and gas company executives were called to testify before the House Select Committee on Energy Independence and Global Warming. Of course, this was largely about politicians having the opportunity to posture against big, bad energy companies.

But the executives had a few good points to make.

The Washington Post reported: “But the oil executives turned some of the blame back on Congress, complaining that Congress and past administrations had barred oil companies from drilling in much of the Outer Continental Shelf. John Hofmeister, president of Shell Oil Co., noted that U.S. oil and gas production has been dropping steadily for two decades. ‘Why?’ he said, ‘Because government policies place domestic oil and gas resources off-limits.’ The oil executives also criticized a tax package passed by the House that would extend tax breaks for solar and wind projects and pay for that by eliminating a tax break for the five biggest international oil companies. ‘Raising taxes on oil and gas production to subsidize alternatives will likely lead to less energy production not more,’ said J. Stephen Simon, senior vice president at Exxon Mobil Corp.”

MarketWatch.com noted: “Stephen Simon, senior vice president of Exxon Mobil Corp., said raising taxes on oil and gas companies will discourage investment to increase supply. He said oil should be about $50 to $55 a barrel, but it's now $100 or more because of the weaker dollar, geopolitical risk and speculation. ‘We depend on high earnings over the up-cycle to sustain investment over the long term, including the down-cycles,’ Simon said in his prepared remarks. ‘Our worldwide profits have grown, but taxes have grown even more.’ He said Exxon Mobil's tax rate is about 44%, compared to 30% for other large U.S. corporations.”

Meanwhile, Russia apparently has a different oil and gas agenda. Reuters reported: “The Russian Finance Ministry unveiled on Monday a series of tax break proposals for oil and gas industries as part of its fiscal policy strategy for 2009-2011. The draft document, which will be reviewed by the government on April 3, includes proposals to cut the mineral extraction tax, change excise duties on high quality oil products and introduce tax breaks for exploration on the continental shelf.”

Raising costs or reducing costs for energy exploration and development? Seems like Russian policymakers have a better grasp of energy economics than do some in Congress.