We Must Not Rely On Enemies for Energy

By Rep. Max Sandlin
Roll Call

In the late 1970s, our nation felt the sting of foreign oil dependence. Gas lines were long, prices were high, the future of the domestic industry was uncertain - and the public cried out for change.

Members of Congress recognized that price instability and uncertainty of supply placed both our public and our government in a precarious position - our dependence on foreign oil had become a threat to our national security.

At the height of this 1970s crisis, the United States imported 46 percent of its oil supply. Today, it is estimated that the United States imports approximately 51 percent of all energy used in this country. The domestic oil and gas industry is in decay. There have been thousands of layoffs. The rig count is at an all-time low and continues to drop.

Again, our dependence on foreign energy has become a national security concern. Ridiculously, we are in many cases depending upon our enemies for a supply of petroleum.

Our country has been in this position before. The Islamic Revolution in Iran in 1979 should have taught us an important lesson about foreign oil dependence. Suddenly, a nation which was a major supplier of U.S. foreign oil was in the hands of extremists able to cut off the supply of our nation's oil. These extremists could flood the world market and drive down the price of American crude oil or at any time shut off their portion of the world's oil supply.

Our domestic industry was expected to compete with a foreign government that had low costs and unlimited supplies. The U.S. government offered no protection and no encouragement to our own producers. We were in a position of depending upon Iran for energy.

Our dependence on the whims of foreign governments continues today. Under the United Nations' "oil for food" program, Saddam Hussein is allowed to sell $10.4 billion of oil annually to purchase food and medicine for the Iraqi people - a noble gesture. However, with today's low oil prices, this alleged cap is no cap at all.

Even with its best efforts, Iraq could not produce this amount of oil prior to the Persian Gulf War. Saddam Hussein can effectively control the world's oil prices while food and medicine - which will never be delivered to the Iraqi people - pile up in warehouses.

What will he do next? There is already evidence that he is illegally exporting as many as 100,000 barrels of oil a day. Will he flood the world's oil market and drive down the price of oil so low that he permanently disables his enemies, such as the United States? Or, alternatively, should we help create and maintain a strong domestic oil and gas industry to protect the national interests of this country?

The United States has approximately 600,000 oil wells in operation today. Nearly 500,000 of those wells produce less than three barrels per day - making our oil the most cost-sensitive and price-sensitive in the world. (Compare this to Saudi Arabia where the average oil well produces more than 5,000 barrels of oil per day.)

The National Petroleum Council reported that marginal wells "produce 700 million barrels of oil equivalent per year. This is one-third of lower-48 onshore domestic productions and represents $10 billion of avoided imports each year. These wells contribute nearly 80,000 jobs and generate close to $14 billion per year in economic activity." Obviously, we have to maintain this production and this capability.

Congress can help in this regard by approving tax credits for existing marginal wells. Allowing a $3-per-barrel credit for the first three barrels of daily production and a 50-cent credit for the first 18 Mcf of natural gas, phased in and out incrementally as prices rise and fall, will ensure that the United States maintains this current production. We must maintain our production because once a well is shut in, its production and valuable resources are lost forever.

Further, we must continue to fill our Strategic Petroleum Reserve. Congress authorized the SPR in 1975 to protect our nation following the economic effects of the 1973-1974 oil embargo. I fully support the administration's initiative to partially refill the reserve. However, I believe we can go even further. Replenishing the reserve with even more royalty oil will cut down on the supply that has been flooding the market, and it is only logical for our country that the reserves be increased when prices are at an all-time low. We will save taxpayers millions of dollars while we increase our national security.

There are many other steps we can take. We can treat geological and geophysical costs as deductible rather than as capital expenditures. We can offer tax incentives to bring back into production inactive wells. We can eliminate the net-income limitation on percentage depletion. In summary, we should offer incentives to explore - not penalties to produce.

And, finally, we must do something to stabilize pricing and discourage excessive imports. We must develop a policy that protects our national security by recognizing and internalizing the true costs of imported oil, thereby stabilizing oil markets at levels where our domestic industry can at least compete with foreign governments in a realistic way.

Algeria, Iraq, Libya, Iran and Nigeria are all planning to increase production. Already, our economic security and national security is threatened by importing more than half the oil we use, and economists say that figure could rise to more than 70 percent by 2015. The resulting negative balance of payments saps long-term economic strength and places our nation in grave danger.

Our domestic industry has tried to do its part against increasing odds. It's time for us to do our part and preserve and defend this important and vital resource. Our national defense depends on it.

Rep. Max Sandlin (D-Texas) is a member of the Transportation and Infrastructure Committee.