For the sake of my blood pressure and mental health, I did not watch the entire State of the Union Address this year. I did, however, take a look at President Biden’s statements on climate change and energy. Unsurprisingly, Biden’s commentary on those topics was not overly insightful or nuanced.
Biden opined on how climate change is causing more extreme weather events (it’s not), he slammed oil companies for daring to make profits when oil prices skyrocketed last year, and then he went off script and admitted that we still need oil for the next few decades, at least.
Such bi-polar statements and behavior are not all that unusual for Biden, and not just when it comes to oil. He publicly chastises oil companies for not drilling enough, or producing enough to keep gasoline prices lower, even as he blocks new lease sales and slow walks or denies permits to drill, both of which throttle new production. Biden’s actions, of course, are among the key reasons for the increase in prices at the pump. Even when oil companies try to produce more, Biden punishes them by imposing new regulations from production to transportation, as well as government encouragement of environmental, social, and governance (ESG) investment schemes and fossil fuel divestment by major banks.
The oil industry is in a state of feast or famine, and it has always been this way. When I sat down in my first introductory petroleum engineering class, the professor said to us, “Be prepared to be laid off every couple of years.” Sure enough, around the time oil prices took a nosedive in April 2020, with West Texas Intermediate futures prices hitting -$37 per barrel and Brent crude plummeting to $9.12, thousands of employees were laid off in the Gulf of Mexico (GOM) and Texas oilfields alone.
I didn’t hear anyone on the left advocate for reducing the tax load on the oil industry while this happened.
Biden is not alone in calling for additional windfall taxes on oil companies; international groups are also opining that the record-breaking profits of Shell and BP, in particular, justify imposing new taxes on them.
Offshore Energies UK (OEUK), the United Kingdom’s offshore energy industry and supply chain association, told RigZone that these companies are already paying record windfall taxes in the UK. BP, a UK company, already pays 75 percent in total windfall tax on profits made in UK waters, the “highest of any industry,” reports OEUK. The energy industry group says these taxes can’t go higher without risk of oil companies abandoning operations in UK waters altogether, which would, obviously reduce government tax revenue substantially.
Oil companies like Shell or BP are not like a local business, or even like other international chains like Wal-Mart. These companies are not simple: they have multiple international subsidiaries, profits made in countries around the world with their own tax and trade agreements, not to mention international subsidiaries that are invested in renewables like offshore wind. To think that a windfall tax in the United States or UK would benefit gasoline prices is naïve at best.
Add these complexities to the fact that, as Biden said, oil and gas are necessary for several more decades (and beyond), it seems unlikely that our doddering president’s “old man yells at cloud” routine will motivate an international movement that forces oil companies to give the government more of their money. By contrast, it may suppress investment into new production at a time when increased production is needed.
Concerning the profits Big Oil companies make, they will be, as they always have been, returned to investors/owners in the form of higher stock prices and dividends—which is what every publicly traded company is formed to do: maximize return on investment to the owners over the long term or reinvest money into multiple divisions of the companies, including their green energy initiatives. They may also go towards paying for the increasing fines and regulatory requirements of the Biden administration.
Maybe, if my friends offshore are lucky, operators will spend a little more for the higher-tier food service on the drill ships and platforms, too. As long as they’re spending money, buy those roughnecks steak twice a week!
From CNSNews - READ ORIGINAL
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