New energy tax bills threaten major damage to Texas economy, economist says

The Obama administration’s tax measures included in the proposed 2010 US budget would drastically reduce exploration and production activity in Texas, according to Karr Ingham, speaking for the Texas Alliance of Energy Producers.

Eldon Ball
Editor-in-Chief

HOUSTON--The Obama administration’s tax measures included in the proposed 2010 US budget would drastically reduce exploration and production activity in Texas, according to Karr Ingham, speaking for the Texas Alliance of Energy Producers.

Ingham, an economist with Ingham Economic Reporting, spoke today at the Texas Alliance meeting in Houston.

The pending energy tax bills – including the current version of cap-and-trade legislation – will lower the state’s working rig count, decrease crude oil and natural gas supplies, cause tens of thousands of Texans working in the industry to lose their jobs, and dramatically cut into state tax receipts, Ingham said.

The Texas Alliance of Energy Producers estimates that the state’s exploration and production sector would contribute about $20 billion less per year to the Texas gross state product in the early years of the current version of cap-and-trade legislation, with annual losses steadily increasing over time. Twenty billion dollars in lost upstream oil and gas activity would translate to a statewide $60 billion per year loss in Texas economic activity. The Alliance’s estimate excludes losses in the state’s downstream oil and gas sector, including refining, processing, and petrochemicals, which would amount to tens of billions of dollars more.

Texas Alliance of Energy Producers is the nation’s largest state association of independent oil and gas producers, with offices in Austin, Houston, and Wichita Falls.

An index of Texas oil and gas activity indicates continuing decline in drilling and spending, Ingham noted.

The Texas PetroIndex continued to fall through mid-year 2009 because of unusually low natural gas prices, volatility in crude oil markets, and threats of more punitive legislation from Washington, he said.

Texas PetroIndex is a composite based on a group of upstream economic indicators. In June the index dropped to 229.2, the lowest level since it hit 228.8 in May 2007 and the eighth consecutive monthly decline since the indicator of the Texas oil and gas industry’s health peaked in September and October 2008 at 285.4. Among leading indicators at mid-year 2009:

• Natural gas prices in Texas during June averaged $3.20/Mcf, 71.0% less than the same month of 2008. In sharp contrast to oil price trends during the past four months, the June 2009 average gas price was over 10% less than in February

• The Baker Hughes count of active drilling rigs in Texas averaged 329 in June, down from the weekly peak of 958 rigs at the end of August 2008. (Activity reached a low point of 320 rigs in the second week of June before rebounding to 340 rigs by mid-July.)

• Texas crude oil prices in June averaged $66.21 per barrel (/bbl), recovering from a low ebb of $35.87/bbl in February to a little more than half the monthly average of $131.08/bbl in June 2008.

• The number of Texans employed in the state’s oil and gas industry at mid-year 2009 declined to 206,200 in June, according to the Texas Workforce Commission, compared to over 240,000 at year-end 2008 – a loss of 34,000 jobs.

“Producers – and consumers, for that matter -- can endure cycles that are driven by naturally occurring economic and market factors,” Ingham added. “More economically troublesome are the punitive and dangerous energy policy proposals currently making their way through the US Congress. For example, the repeal of certain long-standing tax provisions which would result in dramatically reduced E&P activity in Texas, and the cap-and-trade legislation currently under consideration in Congress that would artificially inflate the cost of traditional energy sources, so otherwise uncompetitive renewable sources of energy can compete.”

07/21/2009

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