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Unintended Consequences of Eliminating Oil and Gas

As anyone who reads my blog is aware, I represent only mineral, royalty and surface owners and never represent oil companies. My passion has always been helping owners make the best use of their land and mineral assets and get the best compensation for leases, easements and surface use agreements. However, the current political discussions regarding the oil and gas industry seem to omit some important facts that we may all want to keep in mind.

Clearly, the oil and gas industry has been the subject of many public discussions. Regardless of your view, the suggestions that we eliminate fracking, transition away in the short term from oil and gas and remove what have been called “subsidies” to the oil and gas industry, involve a number of potential unintended consequences that we all should be aware of:

  • All the plastics in our life are derived from oil and gas. Without petroleum, there will be no cell phones, computers, appliances, cars and many other items that we use in our daily life. (Maybe that’s a good thing!)

 

  • Airplanes must have aviation fuel to operate. Maybe someday we will have electric airplanes, but it is probably not going to be in any of our lifetimes. I suspect that the batteries that would be required would be so heavy that the plane would never get off the ground.

 

  • I have heard folks say that since we can produce synthetic motor oil, we should be able to produce synthetic fuels. However, synthetic motor oils have a base of distilled crude oil. They are not completely man-made.

 

  • All businesses are allowed to depreciate their capital expenditures, i.e., their purchases of equipment that they use to make whatever product they are manufacturing. The theory is that the depreciation deducted from taxable income is saved and used later to buy new equipment when the current equipment ends its useful life. An oil company’s biggest asset is their reservoir of oil and gas. They are allowed a depletion allowance by the federal tax code, which is, in effect, a depreciation allowance for their reservoir. It is this allowance that is being called a “subsidy”, but that’s really not an accurate description. If we are going to do away with the depletion allowance, then would it be fair to do away with depreciation for all businesses? Be aware that diminished manufacturing and diminished energy production will result.

 

  • The energy industry pays literally trillions of dollars in property taxes to local governments. In Texas, the oil and gas industry has built most of the local schools. Without these taxes, we will need to find another source of revenue to build schools and to fund educational operating costs. I suspect the alternative will be either income taxes or substantially higher property taxes for individuals.

Clean energy certainly a goal to work towards. However, in the short term, before some form of clean energy is capable of creating plastics and powering airplanes, be aware of the sometimes unintended consequences that may result by eliminating or diminishing the oil and gas industry in the United States.