NCPA - National Center for Policy Analysis

Obama's Energy Budget: Misplaced Subsidies, Overlooked Benefits

February 29, 2012

In his budget for fiscal year 2013, President Obama advocated as a vital goal that the United States reduce its dependence on foreign sources of oil.  However, in a seemingly contradictory move, the president also sought an end to tax benefits given to the oil and gas industries while advocating massive government spending in renewables, says Robert Bryce, a senior fellow with the Manhattan Institute.

The president's misplaced priorities demonstrate two areas of faulty reasoning among Democrats in the current dialogue over domestic energy production.  First, they are too quick to write off oil and gas businesses as the "largest, most profitable companies in the world" while ignoring their economic benefits.

  • Domestic oil production, in decline for decades, is on the upswing, perhaps hitting 8 million barrels per day by 2016 according to some analysts, thereby reducing reliance on foreign oil.
  • Last year, natural-gas production reached a record level of about 23 trillion cubic feet, eclipsing the previous record of 21.7 trillion cubic feet back in 1973.
  • The shale production revolution in gas has driven down prices: between 2003 and 2008 -- the years immediately before the revolution -- natural-gas prices averaged about $7 per thousand cubic feet, but have since declined to a current spot rate of $2.60.
  • Rounding the price reduction down to $4, American consumers now save $264 million daily through cheaper gas.
  • Oil and gas have also contributed viable job growth -- over the past five years, some 158,000 new oil and gas jobs have been created.

Second, Democrats choose to ignore the inconvenient truth regarding renewable sources in the current economy: they produce expensive energy and few long-term jobs.

  • Travis Miller, an analyst at Morningstar Inc., stated that wind energy is independently viable only if natural gas costs more than $6.50 -- a figure far greater than the current rate of $2.60.
  • The Obama administration decries the $2.82 billion split among 14,000 oil and gas companies in 2010 through subsidies and support, but ignores the $2.6 billion in tax-free grants split among just four wind-producing companies between 2009 and 2011.
  • In one of these wind ventures, the job growth came at a cost of $9 million per job.

Source: Robert Bryce, "Obama's Energy Budget: Misplaced Subsidies, Overlooked Benefits," Manhattan Institute, February 2012.

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