The problem with asking governments for the wrong thing is that sometimes you get it. For a year, the Independent Petroleum Association of America has been asking the U.S. Department of Commerce for a new finding that oil imports threaten national security. Last week, it got what it asked for. It also got new calls for decreased energy use and increased use of fuels other than oil, along with a few less offensive proposals of minor consequence.
That's not what IPAA had in mind. The finding about imports and national security was supposed to be a means to an end. The dream of some IPAA members is an oil import fee, which will never happen. But IPAA will settle for tax relief able to ease the sting of oil and gas price slumps, which makes more sense. It might even happen someday.
THE RIGHT REASON
But tax relief must happen for the right reason, and a supposed link between security and oil imports isn't it. In the modern, highly visible, interconnected, instantly responsive oil market, imports into the U.S. are an inescapable and mostly unthreatening fact of business life. Interruption of imports from one source can and will be replaced by imports from another-even from increases in U.S. production if prices jump sufficiently. The adjustment might take time, but not much. It might disrupt economic activity, but not much. Economies are always adjusting to something. Their doing so seldom threatens anybody's security.
If imports really threatened national security, the Clinton administration, like the Reagan and Bush administrations, would be irresponsible for having the Commerce Department on record as having said so and not following up with drastic remedies. Maybe officials just think the threat exists in some rhetorical sense with little meaning for policy, in which case they ought to stay quiet about it. Most likely, they are just saying what they think producers want to hear because they know that the issue is of no concern to anyone else.
So they say, yes, oil imports threaten national security and make independent producers happy. Then they say let's use less oil and make environmentalists happy. It's great politics: oil producers and environmentalists happy at the same time. But nothing changes.
Independent producers should press their tax relief agenda in a context that matters to Americans in politically significant numbers: medium and long term fiscal policy. It's not a difficult case to make. Producers shut in unprofitable wells when prices are low, a usually permanent step that means no future production and thus no future government royalty and tax receipts. The government, then, can protect its long term revenue interests with short term relaxation of production levies during price slumps. It's good business to preserve revenue sources. That's all the reason the government should need.
U.S. oil and gas producers gain nothing from the Commerce Department's hollow finding that oil imports threaten national security. To the extent the finding advances a trendy but misguided effort to replace oil with more-costly alternatives, production interests ultimately suffer.
FISCAL WORRIES
Imports and national security do not add up to tax relief for oil and gas producers. Americans, for very good reasons, do not feel threatened by imported oil, which means politicians can say and do-or not do-anything they want to about it. Instead of trying to incite unfounded worry about oil imports-which are not going to go away producers should be asking how Americans feel about losing important sources of federal revenues. That might get some attention.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
