Cure for Industry Hiccups: Congressional Action

While OPEC (Organization of the Petroleum Exporting Countries) and Saudi Arabia hope to have delivered a fatal blow to the American oil and gas industry in the form of unflagging production levels despite the current glut of oil on the market, the reality is more akin to a hiccup.

Industry has survived price plunges in the past and will come through again.

That said, it certainly wouldn’t hurt for Congress to offer an assist to an industry that supports 2 million jobs and adds $283 billion to the US economy. After all, if OPEC’s little game does cause operators to lay down too many rigs, we can wave goodbye to the jobs, the revenue that has helped bolster the US economy, and the still fragile economic recovery.

Reaction to OPEC’s gamble has been swift: Halliburton has announced layoffs; ConocoPhillips is cutting investment spending by 20 percent next year.

The specific target of OPEC’s move, American shale oil producers, are also responding with talks of budgets being cut by 30 percent next year.

Congress can do something about this. No, it can’t force OPEC to reduce its production levels, but it can put an end to the 40-year ban on crude oil exports, and it can enact subsidies that would help industry weather this storm.

The 1975 ban on crude oil exports was designed to protect America from price shocks during the Arab oil embargo by keeping oil at home. There’s clearly no shortage of oil anymore, and there won’t be (thanks to new technologies allowing operators to access unconventional reserves).

Congress can help incentivize investment in US exploration and production by lifting the ban and opening up international markets to US producers. Even marginal projected revenue is more likely to keep more companies investing in US production than the alternative, which is for Congress to do what it has been excelling in doing: nothing. If estimates from the International Energy Agency (IEA) and the consulting firm IHS are correct, shale oil from the Bakken formation will remain profitable until the price of oil hits $42 a barrel and 80 percent of American shale oil is profitably produced for $50 to $69 per barrel.

Congress can also help US oil and gas producers by offering the types of subsidies available to alternative energy companies—many of which could not operate at all without the lavish gifts Congress chooses to dole out. Congress turned over a whopping $7.3 billion in tax subsidies to alternative energy companies in 2013. Imagine the investments in infrastructure, new technologies, and other advancements the oil and gas industry could make with similar subsidies!

Congress has incentive to support alternative energy, yes. But it also has incentive to support an industry that is delivering energy independence while creating millions of jobs and billions in revenues by providing the energy that is required right now, not in the distant future.

Of course, we can always hope that this standoff with OPEC is short-lived and without severe ramifications for our industry and our nation. It’s true that some OPEC member nations are already suffering mightily: Venezuela needs $120 a barrel and Iran needs $136 a barrel to balance its budgets, and Kuwait, Qatar and the United Arab Emirates need about $70 a barrel. Surely the pressure from these nations is mounting.

But we can’t count on OPEC blinking soon. Additional pressure from the US in the form of crude oil exports from a strong industry could be what brings OPEC to its senses.

OPEC’s goal in its recent decisions to maintain production levels despite declining demand and a glut on the market is clear: it wants to kill America’s shale energy revolution so it can maintain its stranglehold on US and world oil markets. Congress has the power to give US energy producers the support they have earned and send OPEC a clear message: America and its energy producers won’t be brought down.