United States Oil May Need an Endangered Listing

(MoneyWatch)  The Obama administration is signaling, from more than one direction, that it is not particularly sympathetic to the country's oil and gas industry.

The President's draft budget, first shown this week, proposes getting rid of $31.5 billion in tax breaks for the industry by lengthening amortization periods and getting rid of depletion allowances for small companies. It would also impose a new excise tax for production in the Gulf of Mexico, in the process removing some royalty waivers the industry previously enjoyed, and force use of leased land.

In the Dallas Morning News, the vice chairman of the Independent Petroleum Association of America, Bruce Vincent, is calling the proposals "a dagger in the heart of the oil and gas industry."

He should be watching his other major organs, too. Beyond the budget, there's more trouble for the oil in the Department of the Interior. Ken Salazar, the agency's secretary, is withdrawing the Bush administration's lease sale in Western states, where the majority of the country's oil shale reserves are.

At the moment, few companies are terribly concerned about the oil shale -- prices would have to rise significantly before the expensive process of straining oil from stone would seem interesting again. But in the longer term, it seemed entirely likely that prices would rise and the land would be developed.

The DOE hasn't settled on new terms for a sale yet -- Salazar couldn't, or wouldn't answer any questions about terms during a conference call reported by the Wall Street Journal. But it looks like at least some think the shale will never be developed, with one environmentalist from the National Resource Defense Council calling the move "an important step forward in protecting America's western lands from oil shale development." And along with the oil shale auctions, it looks like drilling on the Outer Continental Shelf will also be pushed back.

The one potential bright spot for the industry is in Alaska, where Sarah Palin is fighting to open ANWR to drilling. But it seems unlikely, with the public's attention directed elsewhere, that she will gain much attention for her "drill, baby, drill" calls. Senator Lisa Murkowski has just proposed a different idea: Directional drilling, which will protect the land but bring up less oil. Such compromises will likely define what survives of the domestic oil and gas industry.