Dear Wealth Daily reader:
On news that King Fahd of Saudi Arabia has died, the spot price of crude oil jumped over $1.50 breaking the recent price record.
Today the oil price touched $62.30.
In light of this recent news we thought it wise to take a look at the recent energy bill that just passed.
Though we here at Wealth Daily loathe taxes, we find the tax incentives in the energy bill more illuminating… and revealing commentary for the state of the energy markets.
On Friday the House passed the latest 1,724-page energy bill. The bill awaits only the President’s signature to become law.
But the 1,724-page-crock does nothing to address America’s reliance on foreign oil.
Currently foreign oil accounts for nearly 60% of total consumption in the United States. And the Department of Energy expects that percentage to rise to 68% by 2025
This legislation will do nothing to make US cars more fuel-efficient, which according to anyone with an IQ over 6, is the single biggest measure that could influence the amount of imported oil to the US.
The bill, however, does do some good. That is if you’re a major energy company.
The legislation includes a jaw-dropping $14.5 billion in tax breaks over the next 10 years. The tax breaks go mostly to the coal, oil, natural gas, nuclear and utilities. But do we really need tax incentives when oil is trading above $60 a barrel?
An estimated 58% of the tax breaks will go to coal, oil, gas, electric utilities and nuclear power whether they need it or not. Another 36% is aimed at energy efficiency, renewable sources and cleaner cars like the new gasoline-electric hybrids, once again whether they need it or not.
But there is no hint as to how to reduce the nation’s dependence on foreign oil.
Here are some more highlights from the bill:
The bill authorizes spending $10 million to promote riding bikes to work (What are we 1960s China???).
It authorizes spending $1.2 million to experiment with hydrogen- powered tourist boats in the Grand Canyon.
It instructs the U.S. Department of Energy to study the feasibility of using mustard seeds, as opposed to chicken fat, in the making of biodiesel fuel.
It instructs the federal government to install in public buildings escalators that stop moving when no one’s near.
It includes hundreds of millions of dollars in tax credits and subsidies for electric utilities to build the nation’s first nuclear power plants since the 1979 Three Mile Island accident.
It provides $2.6 billion in tax breaks for oil and gas drilling, as well as expansion of pipelines and refineries.
It hands coal companies $2.9 billion to invest in cleaner-burning technologies.
The bill orders the oil industry to almost double the amount of corn- distilled ethanol used in gasoline to 7.5 billion gallons by 2012.
What the US needs, and what was promised by Bush in 2001, is a national energy strategy that significantly lowers our nation’s dependence on foreign oil. This bill is not that strategy.
Let me just state for the record: Energy = Wealth. And the nation that comes up with the next generation energy source that’s cheap and abundant will create significant wealth for its citizens.
Furthermore, I came across a letter written to Speaker of the House J. Dennis Hastert from Rep. Henry A. Waxman of California, which outlines some questionable activities.
In the letter Mr. Waxman writes that after the energy legislation was closed to further amendment in the recently concluded conference, a $1.5 billion provision benefiting oil and gas companies, Halliburton, and Sugar Land, Texas, was mysteriously inserted in the text.
The text of the letter is below:
The Honorable J. Dennis Hastert
US House of Representatives
Washington, DC 20515-6501
Dear Mr. Speaker:
I am writing to draw to your attention a provision in the Energy Conference Report that raises serious procedural and substantive concerns. At its essence, this provision is a $1.5 billion giveaway to the oil industry, Halliburton, and Sugar Land, Texas. The provision was inserted into the energy legislation after the conference was closed, so members of the conference committee had no opportunity to consider or reject this measure. Before the final energy legislation is brought to the House floor, this provision should be deleted.
The provision at issue is a 30-page subtitle called "Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources." This subtitle, which was taken from the House-passed energy bill, was mysteriously inserted in the final energy legislation after the legislation was closed to further amendment. The conferees were told that they would have the opportunity to consider and vote on the provisions in the conference report. But the subtitle was not included in the base text circulated to conferees, and it was never offered as an amendment.
Instead, the new subtitle first appeared in the text of the energy legislation only after Chairman Barton had gaveled the conference over. Obviously, it would be a serious abuse to secretly slip such a costly and controversial provision into the energy legislation.
On the merits, the subtitle is an indefensible giveaway to one of the most profitable industries in America. The provision establishes a $1.5 billion fund, up to $550 million of which would be dedicated direct spending, which is not subject to the normal congressional appropriations process. Although the name of the subtitle refers to "ultra-deepwater and unconventional natural gas," it appears that the $1.5 billion fund created by the subtitle can in fact be used for many oil and gas projects. According to the language of the subtitle, oil and gas companies can apply for funds for a wide variety of activities, including activities involving "innovative exploration and production techniques" or "enhanced recovery techniques." While oil and gas companies could be required to contribute to the costs of their projects, the subtitle expressly provides that the Department has discretion to reduce or eliminate any such contribution.
The subtitle appears to steer the administration of 75% of the $1.5 billion fund to a private consortium located in the district of Majority Leader Tom DeLay. Ordinarily, a large fund like this would be administered directly by the government. The subtitle, however, directs the Department to "contract with a corporation that is constructed as a consortium." The leading contender for this contract appears to be the Research Partnership to Secure Energy for America (RPSEA) consortium, housed in the Texas Energy Center in Sugar Land, Texas. Halliburton is a member of RPSEA and sits on the board, as does Marathon Oil Company. The subtitle provides that the consortium can keep up to 10% of the funds – in this case, over $100 million – in administrative expenses.
The subtitle further provides that members of the consortium, such as Halliburton and Marathon Oil, can receive awards from the over $1 billion fund administered by the consortium.
In short, the subtitle provides that taxpayers will hire a private consortium controlled by the oil and gas industry to hand out over $1 billion to oil and gas companies. There is no conceivable rationale for this extraordinary largess. The oil and gas industry is reporting record income and profits. According to one analyst, the net income of the top oil companies will total $230 billion in 2005. If Congress has an extra $1.5 billion to give away, the money should be used to help families struggling to pay for soaring gasoline prices – not to further enrich oil and gas companies that are rolling in profits.
In recent years, Congress has been repeatedly embarrassed by the mysterious insertion of provisions in omnibus legislation. Last year, for example, we learned only after House action that the 3,000 page, $388 billion omnibus spending bill allowed members and staff of the Appropriations Committee to examine the tax returns of ordinary Americans. We should not allow this to happen again. The Energy Conference Report should not be brought to the House floor until this objectionable provision is deleted and there is ample opportunity for members to read the legislation and delete any other problematic provisions.
Thank you for your attention to this problem.
Henry A. Waxman
Ranking Minority Member
Take a guess how much cash Halliburton is sitting on.
Answer: $1.5 billion.
Try $25 billion!
– Luke Burgess