As I write this column, the two major news stories are that:
- The Treasury $700-billion-plus bailout of the financial industry is in jeopardy — at least the blank-check, right-now, no-accountability version Treasury Secretary Paulson and Fed Chairman Bernanke appear wedded to.
- Harry Reid and Nancy Pelosi have apparently bowed to reality and will not try to renew the ban on offshore drilling for oil and natural gas that has annually been enacted into law for over a quarter-century.
Assume for the moment that the bailout passes and that the ultimate taxpayer loss runs into the hundreds of billions (in theory, it should be less than the amount Paulson and Bernanke want; but never underestimate the government’s ability to make a bad thing worse). Where is that money going to come from?
How about item 2 above?
One of the untold stories of the offshore drilling ban is how much the country has lost in tax revenues over a period of decades because of it.
Congressman John Peterson (R-PA) seems to be virtually alone in making this huge point. The numbers are stunning. In a PDF available at Peterson’s home page (at “Charts and Other Useful Information”), he tells us that “the United States is the only industrialized nation in the world which prohibits offshore exploration and production of domestic energy.”
The government collects royalties on oil and natural gas when it is extracted. Peterson’s office has obtained information from the Minerals Management Service and the Energy Information Agency showing that the average royalty rate based on market prices of the resources when extracted is 15.17%.
Earlier this summer, Peterson’s office prepared this summary (in HTML format here) of how much royalty money is just sitting there offshore:
Even if you adjust Peterson’s calculations to reflect current prices of roughly $100 a barrel for oil and $8/mcf for natural gas, the royalties locked up still amount to over $1.8 trillion (about $500 billion from natural gas and $1.3 trillion from oil).
But that’s only the beginning.