US energy, chemical sectors slam Obama’s 2011 budget

01 February 2010 22:56  [Source: ICIS news]

WASHINGTON (ICIS news)--US chemical and energy sector officials on Monday were critical of President Barack Obama’s proposed 2011 budget, charging that it would hinder domestic energy production despite the president’s promise to boost output.

Earlier on Monday the president delivered to Congress his proposed $3,800bn (€2,736bn) federal budget for fiscal year (FY) 2011. 

According to the US Department of Energy (DOE), the budget adds some $40bn in tax increases or reduced tax benefits for oil and gas industries, in part to fund increased spending on alternative and renewable energy research and production.

However, the nation’s energy and refining industries, petrochemical producers and downstream chemical makers attacked the president’s budget as contrary to the country’s energy production and independence.

Various energy and chemical sector officials estimate the budget’s additional tax burden on producers could be as high as $80bn.

“We are disappointed that the administration has again chosen to single out the American oil, gas and refining community for additional taxes under the guise of levelling the playing field with other corporations,” said Charles Drevna, president of the National Petrochemical & Refiners Association (NPRA).

“In fact, it accomplishes the opposite and puts our members at a precarious disadvantage with foreign fuel producers,” Drevna said.

Drevna noted that in the president’s state of the union speech before Congress last week, Obama said he wanted to increase US domestic energy production, including oil and gas production in outer continental shelf (OCS) regions long closed to development.

“The additional taxes on our businesses run counter to those stated objectives,” Drevna said, “and will do nothing to stimulate increased investment.”

The US petrochemical industry and downstream chemical and resin producers are heavily dependent on natural gas as a feedstock and energy fuel.

Jack Gerard, president of the American Petroleum Institute (API), also charged that new federal taxes on domestic oil and gas exploration and development is doubly inappropriate at a time when the country is recovering from the recession and one in ten Americans is unemployed.

“New taxes would mean fewer American jobs and less revenue at a time when we desperately need both,” Gerard said.

He and others noted that while tax increases on oil and gas production would appear to boost federal revenues in the near term, they quickly would reduce tax receipts by cutting the amount of taxable energy produced.

Barry Russell, president of the Independent Petroleum Association of America (IPAA), said that the budget’s “punitive taxes would reduce investment in new US production by 20% to 40% ... and could drive down US oil production by 20% and natural gas production by 12%, potentially killing thousands of jobs”.

IPAA member firms account for 90% of the oil and gas wells developed in the US.

Bill Allmond, vice president of government relations at the Society of Chemical Manufacturers and Affiliates (SOCMA), noted favourably the budget’s call for tax credits for small businesses that hire more workers.

However, he noted that “for manufacturers to hire more people, there must first be work for those employees to do”, and that the budget lacks export incentives and regulatory reforms that could boost export volumes by specialty chemical producers.

The API said the Obama budget increases taxes on domestic energy producers in part by eliminating up to $12bn in dual taxation and foreign income deferrals previously available to oil and gas companies among other manufacturing industries.

The budget also takes away nearly $8bn in the energy sector’s previous tax deductions for intangible drilling costs and more than $17bn in the selective repeal of manufacturing tax credits for oil and natural gas companies, even though such credits are maintained for all other manufacturing industries.

Among other tax increases or tax credit cuts are accounting changes that disadvantage oil and gas producers and what the API regards as disproportionate increases against energy firms environmental cleanup costs.

The IPAA’s Russell noted that many of the energy industry tax increases or targeted credit cuts were in Obama’s FY2010 budget proposal but that subsequently “were soundly repudiated by Congress”.

Although the US president proposes an annual budget for the federal government’s operations, it is Congress that has final say in what spending will be made.

Congressional debate on the White House budget proposal is expected to continue through much of this year, right up to the 1 October 2010 start date for the government’s 2011 fiscal year.

($1 = €0.72)

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By: Joe Kamalick
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