An Oil Import Fee Could Pay for Infrastructure

One of the rare opportunities for bipartisanship is rebuilding America’s infrastructure.

Both the President and Democrats in Congress express support. Of course, the President walking out of the bipartisan meeting recently means nothing in the world of President Trump.

The “hitch in the government get along” is how to pay for a 2 trillion infrastructure bill.

One way to pay for rebuilding our crumbling infrastructure, that might be possible with this President, would be an oil import fee.

It’s been battered around for years but very hard to pass; mainly because of fear of resulting higher gasoline prices. But at this time of reasonable prices, it might not be such a heavy lift. Besides an economic analysis done earlier this year declared the U.S. oil and gas sector has grown to the point that the economic benefits exceed the cost of the effects of high gasoline prices. (WSJ)

The pros are:

  • The horizontal shale industry is struggling. They are totally responsible for advancing us from 9 million barrels per day to over 12 million barrels per day and with a high enough price could bring energy independence to America. (For sure if you include Canada and Mexico).
  • But they’ve done it on Wall Street’s money and investors are tired of negative returns and are pulling back sharply. The top 40 horizontal drillers have a debt to investors of over 200 billion and climbing. At even $65 per barrel, it might halt the slide. And if we don’t do something like this, the horizontal drilling boom is on its last legs, at least at current product prices. These wells all have very steep decline rates, so drilling has to continue at an ever-expanding rate just to keep the production even.
  • The petrochemical complex is the largest industry in the U.S. now. Generating more revenue would help the U.S. economy, although refiners might argue with that. In reality they just pass it on. They just make more money with low oil prices because they can jack up the price. They are price makers while the exploration and production industry companies, for the most part, are price takers.
  • An oil import fee that would allow the horizontal shale boom to continue would have the effect of weaning us off Middle Eastern oil (we are almost there now). Our global competitors would be disadvantaged by us keeping our money at home and our policy in the Middle East would be stronger when we aren’t dependent on them.
  • An oil import fee would generate enough revenue to go a long way in fixing our infrastructure; assuming it politically possible to keep all the money going towards infrastructure (big assumption).

The politics are as good as they are ever going to get. We have a Republican President that has no problem raising tariffs. He is strong enough with Republicans to have a positive effect, especially with the 2020 elections coming up. Democrats would favor taxing fossil fuels in any way; mainly because of it disincentives the use of fossil fuels by making them cost more.

The cons are:

  • Free marketers hate the idea. When government interferes with the market place there will always be unforeseen and unintended consequences.
  • It would be very hard to pass. Along with philosophical and price concerns, there is a strong tendency, especially by Democrats, to want to not be seen doing anything to help fossil fuels. They’d have to get to the place of realizing that causing them to cost more leads to alternatives advancing quicker.
  • Another challenge is how to treat Canada and Mexico. Together they account for just under 50% of imported oil.
  • The biggest lift would be getting the oil and gas industry behind the idea. API has always fought it. The IPAA has supported it once, and then it had no chance of passing. The Domestic Energy Producers Alliance, Chaired by Harold Hamm, might get behind the idea. With the election of Trump, Hamm is arguably the most influential man in the oil and gas industry (at least with Republicans). He is a close friend and advisor to the President and has supported an oil import fee in the past.
  • The industry typically doesn’t trust Government and would be concerned about how it would be done without actually hurting the industry. That’s likely a valid concern.

On the other hand, it might even help if the industry opposes it – just not too much.

Mike Cantrell

OEPA President

Michael (Mike) Cantrell was born and raised in Oklahoma, where his family has strong ties to the oilfield. Mike is a founding member of OEPA and has served as OEPA’s president for two years.