Oil Companies May Suffer Under New US Congress

[Houston1stWordOnTheMoon]

Big oil companies a target in new Congress

WASHINGTON (Reuters) - Big oil companies will be a top target of Democratic lawmakers when they officially take over the House of Representatives early next year.

Democrats picked up enough seats in Tuesday's U.S. election to win majority control of the House and have promised to roll back billions of dollars in tax breaks and other financial incentives extended to the oil industry in energy legislation Congress passed last year.

Democratic Rep. Nancy Pelosi (news, bio, voting record), who is poised to be the next Speaker of the House when the new Congress convenes in January, says oil companies have unfairly earned record profits by gouging consumers at the gasoline pump.

Pelosi says taking away the financial relief given to Big Oil in last year's Republican-written energy law will be among the six major tasks Democrats plan to tackle in the first 100 hours after she slams the gavel to convene the new House.

She says Democrats will also go after oil companies by enacting tough laws to stop gasoline price gouging, and some Democrats want to impose a windfall profits tax on Big Oil.

"We're going to move on the agenda that we laid out," Rep. Rahm Emanuel (news, bio, voting record), who heads the House Democrats' campaign committee, said on Wednesday.

He said Democrats will "redirect" the billions in breaks for oil companies to programs that will move the United States "toward energy independence."

Environmental groups welcomed the election results.

"The American people's vision of an energy future that is very different from current policies is the winner, and Big Oil is the big loser," said Gene Karpinski, president of the League of Conservation Voters.

The energy bill had about $2.8 billion in tax breaks and financial incentives for the oil and gas industry.

The legislation allowed companies to speed up writing off exploration and drilling expenses, and immediately deduct half the cost of large oil refinery expansions.

Legislation to repeal those tax breaks and other government financial incentives would also have to clear the Senate and then be signed by President George W. Bush.

Bush could veto any legislation that House Democrats propose, raising the possibility of energy policy deadlock over the next two years.

"You've still got a Republican president so what can you get done?" said Robert Ebel, an energy expert at the Center for Strategic and International Studies. "It's probably going to be two years where nothing is going to happen" on energy issues.

TAX BREAK ROLLBACK?

Repealing the financial relief affects domestic oil giants such as Exxon Mobil Corp. (NYSE:XOM - news), Chevron Corp. (NYSE:CVX - news) and ConocoPhillips (NYSE:COP - news), and large U.S. operations of foreign firms such as BP Plc (BP.L) and Royal Dutch Shell (RDSa.L).

Mark Kibbe, a tax policy analyst with the American Petroleum Institute, said the tax breaks make it more affordable for companies to search for oil and gas in the United States, instead of looking in other countries where production costs are generally much cheaper.....................

more here http://news.yahoo.com/s/nm/20061108/bs_nm/...ction_energy_dc

What are the implications for Houston?

[Captain Impossible]

Someone should remind anyone concerned about price gouging and oil companies that lower gas prices yield more pollution and sprawl. Just something to think about.

[bachanon]

if oil/gas profits are negatively affected (and they will be) by successful legislation that roles back tax breaks or "punishes" the oil industry, who do you think will pay for it? us. they (the oil/gas companies) will pass the costs on to the taxpayer. we get boinked either way.

[RedScare]

My Exxon stock suggests otherwise. The tax breaks in question total $2.8 billion for the entire industry over a period of several years. Exxon alone will post a profit of $40 billion THIS, after posting $36 billion in profits last year, and $32 billion the year before that. While any corporation (or individual, for that matter) seeks to minimize its tax liability, to suggest that eliminating these tax incentives during a time of record profits will somehow hurt the industry is laughable in the face of these numbers.

There are far bigger factors at play here than those tax incentives.

[bachanon]

i stand corrected (as usual).

[Mark F. Barnes]

You know, "Reuters" must have some Scandinavian translation close to "Rumors". They love to release reports like this to try and get a reaction in the numbers.

And this "Mark Kibbe" I can only say:

What makes domestic exploration more lucrative and profitable is the cost/bbl. Nothing more nothing less. Anything above $40/bbl is good and above $50/bbl is great. The margins over the past year at the rack price on crude has been so good, that the big three have been shuffling money and deferring sales payments to the next tax year for sometime. The oil industry has seen a good past 6 years and is due a natural downturn as it always does. The talk everyday in the industry is, when is it ever gonna end. The hit taken at the fall of Enron only fueled the fire of the rebound. It was easily cover-able with the conflict in Iraq. The people would not buy another BS energy crisis like they did in the in the mid 70's. Which was nothing more than a house of cards that OPEC blew over by flooding the market with cheaper crude. It's a shell game that will go on until the end of time. Does anyone actually think Kenneth Lay and Jeff Skilling invented the game? Don't be so naive to think so. They just played it poorly and their cards came falling down around them.

I am not saying the tax breaks are not going to effect a few numbers, if and when they are rolled back, I figure they will just let them die in the vine, but that's just me. Either way it will have no bearing on whether we drill here or abroad, none what so ever. Mark Kibbe should be reporting for the National Enquirer.

[TheNiche]

Someone should remind anyone concerned about price gouging and oil companies that lower gas prices yield more pollution and sprawl. Just something to think about.

And someone else should remind anyone concerned that price gouging doesn't exist in competitive markets, and that the term has been misused for political purposes to point to any retail gas station that is charging high prices. Any attempt to correct 'price gouging', for instance by implementing price ceilings, will result in supply shortfalls and gas lines just as were the case in the 1970's. Trust me, we'd rather pay higher gas prices than to have to stand in line to get it.

Implementing artificially-high price floors as a means to control pollution and sprawl (a moronic idea to begin with) would be politically infeasible because consumers of all stripes would go nuts over it, although some politicians may seek to bring about the same ends by different means. As the article suggests, this may involve some kind of a windfall profits tax, which would be passed through to consumers indirectly. However, even this is ineffective in the long run! It can only possibly hurt the U.S. economy and make us more dependent upon foreign energy because our windfall profits laws wouldn't apply to foreign energy companies from whom we import oil and gas. If foreign companies can supply our energy needs at a lower cost than our domestic firms, they will become extraordinarly profitable and expand output until the same market-rate equilibreum that existed before the windfall profits tax is reinstated. The net difference is that foreign firms are doing the production and domestic firms aren't; the price didn't change significantly in the long run.

Just something to think about.

[Captain Impossible]

I didn't say it was good. I simply made an observation.

[TheNiche]

I didn't say it was good. I simply made an observation.

As did I.

[Montrose1100]

When I read skeptical posts (such as this thread), I'm glad Niche & Red always concrete my objections.

[VicMan]

Keep in mind that the reason the Democrats were elected into office was because of the lack of satisfaction with the Iraq war.

The Democrats here probably will not be hyper-liberal; they know who (Ohio, Missouri) put them in office; if they tick off the middle class Americans, they will kiss their seats goodbye. The Democrats may try to push for some reform, but the said reform will not be too radical.

[houstonfella]

Oil companies NEVER suffer. NEVER.

Fill up your tank with water and see what happens.

[TheNiche]

Keep in mind that the reason the Democrats were elected into office was because of the lack of satisfaction with the Iraq war.

The Democrats here probably will not be hyper-liberal; they know who (Ohio, Missouri) put them in office; if they tick off the middle class Americans, they will kiss their seats goodbye. The Democrats may try to push for some reform, but the said reform will not be too radical.

We would hope so, but parties tend to be led by their extreme factions. That's the only reason I don't call myself a Libertarian.

[Guest Marty]

You know, "Reuters" must have some Scandinavian translation close to "Rumors". They love to release reports like this to try and get a reaction in the numbers.

And this "Mark Kibbe" I can only say:

What makes domestic exploration more lucrative and profitable is the cost/bbl. Nothing more nothing less. Anything above $40/bbl is good and above $50/bbl is great. The margins over the past year at the rack price on crude has been so good, that the big three have been shuffling money and deferring sales payments to the next tax year for sometime. The oil industry has seen a good past 6 years and is due a natural downturn as it always does. The talk everyday in the industry is, when is it ever gonna end. The hit taken at the fall of Enron only fueled the fire of the rebound. It was easily cover-able with the conflict in Iraq. The people would not buy another BS energy crisis like they did in the in the mid 70's. Which was nothing more than a house of cards that OPEC blew over by flooding the market with cheaper crude. It's a shell game that will go on until the end of time. Does anyone actually think Kenneth Lay and Jeff Skilling invented the game? Don't be so naive to think so. They just played it poorly and their cards came falling down around them.

I am not saying the tax breaks are not going to effect a few numbers, if and when they are rolled back, I figure they will just let them die in the vine, but that's just me. Either way it will have no bearing on whether we drill here or abroad, none what so ever. Mark Kibbe should be reporting for the National Enquirer.

My uncle has been in the oil business since he got out of Vietnam in 1971 he gave me the same answer.

[DJ V Lawrence]

Do you guys think alternative fuels like ethenol will take off because of the new Congress, or will it not be an agenda? Just curious. That in itself could be a major change in oil prices and the fuel industry.

And how would that effect Houston's energy business? Positive or negative?

[TheNiche]

Do you guys think alternative fuels like ethenol will take off because of the new Congress, or will it not be an agenda? Just curious. That in itself could be a major change in oil prices and the fuel industry.

And how would that effect Houston's energy business? Positive or negative?

That is possible. Short-run impact is negligible because energy consumption is highly price inelastic. Long-run impact (>5 years) as people adjust to higher prices at the pump is negative.

[Houston1stWordOnTheMoon]

Yet again i am impressed with the respones ;)

[Guest Marty]

Yet again i am impressed with the respones ;)

What do you expect this forum is top notch.

[UrbaNerd]

My Exxon stock suggests otherwise. The tax breaks in question total $2.8 billion for the entire industry over a period of several years. Exxon alone will post a profit of $40 billion THIS, after posting $36 billion in profits last year, and $32 billion the year before that. While any corporation (or individual, for that matter) seeks to minimize its tax liability, to suggest that eliminating these tax incentives during a time of record profits will somehow hurt the industry is laughable in the face of these numbers.

There are far bigger factors at play here than those tax incentives.

Just like this summer, and the ultra high oil prices; they will make ANY BS of an excuse to raise prices.

Sad, but, true.

[DJ V Lawrence]

Yet again i am impressed with the respones ;)

Beauty is in the eye of the thread-starter

[musicman]

LOL i am impressed with your flag mark!!

Edited November 10, 2006 by musicman

[TheNiche]

Just like this summer, and the ultra high oil prices; they will make ANY BS of an excuse to raise prices.

Sad, but, true.

Yeah, oil prices tend to increase during summer months because it is hotter and there is more demand for electricity, and also because people drive more. Higher levels of consumption lead to higher prices. If prices did not rise to counter the higher demand, we'd have shortages. Very simple.

If this surprises you, then how about going to nymex.com and looking up the forward price curve for heating oil? Its seasonal too. Should prove my point.

[UrbaNerd]

Yeah, oil prices tend to increase during summer months because it is hotter and there is more demand for electricity, and also because people drive more. Higher levels of consumption lead to higher prices. If prices did not rise to counter the higher demand, we'd have shortages. Very simple.

If this surprises you, then how about going to nymex.com and looking up the forward price curve for heating oil? Its seasonal too. Should prove my point.

No, I meant when they raised it because of "other reason"; not because of the summer travel.

Yes, oil prices DO rise during the Summer Months, but, a rise of a dollar in price is ludicrous.

[TheNiche]

No, I meant when they raised it because of "other reason"; not because of the summer travel.

Yes, oil prices DO rise during the Summer Months, but, a rise of a dollar in price is ludicrous.

Oil is very price inelastic. Even slight perturbations in supply/demand expectations can cause dramatic price shifts. This last summer, inventories were tight and meteorologists were wrong, exacerbating the problem.

[houstonfella]

Of course, it works like this. Gasoline went up to about three bucks a gal. Then Americans started buying Prius type vehicles. Gasoline comes back down to 1.98 a gal. The Expeditions and Hummers are starting to sell again. So the demand for gasoline will rise accordingly. Jeez, I need an oil well.

[TheNiche]

Of course, it works like this. Gasoline went up to about three bucks a gal. Then Americans started buying Prius type vehicles. Gasoline comes back down to 1.98 a gal. The Expeditions and Hummers are starting to sell again. So the demand for gasoline will rise accordingly. Jeez, I need an oil well.

That is a very slow process. Doesn't account for short-term price volatility.

[westguy]

This isn't exactlly the thread I was looking to post in, but the search function here doesn't work:

Gas prices could reach $4 per gallon

Still "fixing" the damage from Rita? I guess those are the perils of pumping the Gulf.

[TheNiche]

This isn't exactlly the thread I was looking to post in, but the search function here doesn't work:

Gas prices could reach $4 per gallon

Still "fixing" the damage from Rita? I guess those are the perils of pumping the Gulf.

Yeah, one of our problems is that we've got so much envioronmental red tape on domestic refining industries that where we used to be a net importer of oil and a net exporter of refined products, now we're just importing, importing, importing. We need some new refineries, and we need them yesterday.

...but that isn't really related very closely to hurricane damage. Most hurricane damage is related to natural gas, where our supply is almost entirely North American. With oil and distilled products, we have a global supply chain that quickly makes up for any localized price surges, pretty much anywhere on earth.

[CDeb]

Most hurricane damage is related to natural gas, where our supply is almost entirely North American.

Lots of refineries near Port Arthur and New Orleans, though. So there is great potential for disruptions in supply of refined products.

[MidtownCoog]

Forget the storms.

Two of BP's plants are down in capacity due to fires and explosions.

BP - Big Pow!