Sweet energy deals - Legal Heist

[Jon8503]

Legal heist. The land at the bottom of the Gulf of Mexico belongs to the public. So when energy companies extract oil and gas, they pay a share of the proceeds, or royalty, to the government.

At least that's how the system is supposed to work.

This week came the disclosure, first in The New York Times, that energy companies won't have to pay a nickel for an estimated $66 billion worth of oil and gas to be taken from government-owned sites in the Gulf over the next five years. That's right: Certain companies, currently enjoying record profits, will earn at least $7 billion more by not having to pay the usual royalty of 12% to 16% for pumping oil and gas from public property.Thanks to a generous investment in Washington's pliant politicians, this heist is perfectly legal.

A decade ago, when oil prices were relatively low and exploration was slack, the industry got royalty relief written into law. With bipartisan support, Congress voted to waive royalties for a time as an incentive to spur potentially costly deep-water drilling in the Gulf. It seemed to many like a good idea.


Some of the leases issued under the program supposedly have caps requiring royalties when oil prices are high, as they are today. But the Clinton administration was so eager to offer incentives to the industry that, in 1998 and 1999, leases were issued with all royalties waived. Now, several oil companies are claiming that the royalty caps on other leases are not valid and that they're entitled to an open-ended raid on this public resource. The cost to the Treasury could be $35 billion or more, almost enough to pay for the federal government's law enforcement activities this year.


From 1989 to 1996, the oil and gas industry showered nearly $75 million in campaign contributions on candidates for the White House and Congress. That sounds like a lot of money, but $35 billion, or even $7 billion, is a whopping return on its investment. Now, embarrassed politicians are scrambling to undo the deal. Congress can't do much about the giveaways in contracts already signed, so the public is stuck giving away its wealth while the Treasury runs dry.

With oil selling for nearly $60 a barrel - and as much as $70 in recent months - there's ample incentive for companies to invest in exploration. Of course, until Congress radically changes its ways, investing in politics may pay more.

Coddled fuel.

Speaking of dubious energy policies, consider the current fuss over ethanol. President Bush touted the corn-derived fuel in his State of the Union address as a partial answer to the nation's oil addiction. General Motors Corp. and Ford are jumping on the station wagon as well, promising to build more cars that can burn it and support more stations that sell it. Like the generous oil and gas leases, the preferential treatment ethanol receives illustrates an immutable truth: When politicians talk of the need for a broad energy strategy for the good of everyone, they deliver narrow policies that benefit special interests. In this case, the winners are corn farmers and ethanol producers such as the Archer Daniels Midland Co. To be sure, ethanol does have merits. It burns cleanly and is made in the USA. But by some estimates, more petroleum products go into producing ethanol than it replaces. And it becomes attractive to consumers only with gargantuan subsidies and other generous policies. Each gallon a wholesaler sells generates a 51-cent tax credit, which costs the federal government about $2 billion annually. On top of that, Washington offers a credit of up to $30,000 to each station that installs equipment to sell an 85% ethanol blend, known as E85. Numerous states have added subsidies of their own.

But wait. There's more. Cars capable of running on E85 receive favorable treatment under federal mileage standards, regardless of what kind of fuel goes into them. That has prompted Detroit to make 5 million of these cars. By doing so, automakers can offer the sport-utility vehicles buyers want. Those buyers, in turn, tank up with - gasoline. Despite all this generosity, E85 still costs considerably more than gas does when its poor mileage is factored in. Meanwhile, only an estimated 500 stations, principally in small towns in the Midwest, offer it.

This coddling of ethanol is hardly the answer to the nation's dependence on oil. The best answer, however, is not the one that either politicians or consumers want to hear. Any country that is serious about cutting down on petroleum would invest in research for the long run but also greatly increase fuel taxes in the short term.

The higher-tax approach would allow the market to decide which alternative fuels are best and how they match up against conservation. But this approach is hardly likely to win votes in key Midwestern states. So be prepared to hear more paeans to ethanol.

http://news.yahoo.com/s/usatoday/20060217/cm_usatoday/sweetenergydeals;_ylt=Ah7MhDp92zD6m5Gf3cJ3I.is0NUE;_ylu=X3oDMTA3YWFzYnA2BHNlYwM3NDI-

[Greyhound]

1. K&R, Should be on the front page. just another "gift" to the

corporate masters that own us. After all what use could we possibly have for $70 Billion? We'd just waste it anyway.