7. OIL

In the third quarter of 2018, US diesel and gasoline prices both ranked the lowest among IEA countries. The US federal tax rate for diesel was 18%, which was higher than New Zealand (14%) and Mexico9 (16%); the US federal tax rate for gasoline was also 18%, higher than Mexico (14%). However, states and sometimes even local governments levy taxes on motor fuel. These vary on a state-by-state basis, but can often represent a significant portion of the taxes that consumers pay at the retail level. Although the US light fuel oil price ranked sixth-lowest in the IEA comparison, its tax rate (5%) was by far the lowest among all IEA countries.

Institutions

The Department of Energy (DOE) acts as the National Emergency Strategy Organization (NESO), with responsibility for initiating and co-ordinating the US response in the event of an oil supply disruption. The DOE’s Office of Petroleum Reserves has management responsibility for the US SPR, provides information on the status of SPR stocks, interfaces with SPR-connected refineries and develops potential SPR response options to address crises. The responsibility for an SPR release during oil supply emergencies is held by the SPR office under the authority of the Assistant Secretary for Fossil Energy. The DOE’s Office of Fossil Energy also leads federal government efforts on research and development (R&D) related to oil production.

The Federal Energy Regulatory Commission (FERC) is an independent commission with regulatory powers in electricity, hydropower, natural gas and oil markets. It regulates interstate gas and electricity markets such as pipelines and transmission services, and is nominally part of the DOE but operates independently, with appointed commissioners and professional staff.

The Bureau of Ocean Energy Management (BOEM) is part of the Department of the Interior and is responsible for developing programmes related to offshore oil, gas and other marine minerals, including the Outer Continental Shelf (OCS). It oversees OCS leasing policy as well as the planning of its lease sales. BOEM also carries out technical work such as economic analysis and studies based on geographic information system data and mapping (BOEM, 2018a).

The Bureau of Safety and Environmental Enforcement is also under the Department of the Interior and responsible for enforcing safety and environmental regulations for offshore oil and gas production. Its functions consist of all field operations, including permitting, inspections, offshore regulatory programmes and oil spill response (BSEE, 2018).

Oil exploration policies

Given an abundance of domestic shale oil production, US policy is no longer guided by a strong focus on reducing oil dependency, though it still recognises an “all of the above” energy policy doctrine. In 2017, the administration put forward the pursuit of “American energy dominance” as its guiding strategy, based on three elements:

9 Taxes on gasoline and diesel in Mexico are higher in proportion to their end-consumers prices. Since January 2019, the main taxes for gasoline and diesel prices are: 1) special tax on production and services (approximately 25%) and 2) value-added tax (16%). Each tax is independent from the other.

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7. OIL

producing more energy to lower input costs to the economy

removing regulations on the energy sector to increase production opportunities

pursuing energy trading opportunities with other countries.

The shared objective of “all of the above” and “American energy dominance” strategies is to maximise energy production opportunities and expand the role of the United States in the global energy system. Despite declining import dependency, however, the United States will continue to be a major oil consumer, as the US economy remains the second-largest energy consumer in the world, behind China. Also, in the event of a global supply disruption, the global nature of the oil market means that US consumers could still see their retail fuel prices impacted by global price movements.

Oil exploration

The level of import dependency can be affected by the opening of new domestic drilling areas. The administration’s support for US energy dominance is well reflected in recent energy policy changes. In April 2017, the president issued an executive order, implementing an America-First Offshore Energy Strategy, which flagged energy innovation as well as more exploration and production in the United States, including the Arctic OCS.

In January 2018, the US Interior Department submitted a draft plan, the 2019-24 Outer Continental Shelf Oil and Gas Leasing Program, to open 25 out of 26 regions of the OCS for drilling, leaving out only the North Aleutian Basin in Alaska (BOEM, 2018b). The proposed plan includes 47 potential lease sales in four regions: 19 sales off the coast of Alaska, 7 in the Pacific Region, 12 in the Gulf of Mexico and 9 in the Atlantic Region. The draft schedule starts with 1 lease sale in the Beaufort Sea in Alaska in 2019, and then between 6 and 8 lease sales per year for the following five years in the four regions, except for 2023 when a peak of 20 lease sales is planned.

The BOEM that manages offshore leasing estimated in 2016 that total undiscovered, technically recoverable resources in the US OCS consist of 89.97 billion barrels of oil (BOEM, 2017). Almost two-thirds of the country’s oil reserves that companies can drill for lie in seas already open to drilling. The proposed plan aims to open 90% of the total federal OCS acreage for drilling, a significantly higher level compared with before.

To evaluate the possible regional impacts of this new lease plan, the BOEM is now preparing an environmental analysis following the process prescribed by the National Environmental Policy Act. The administration granted Florida an exclusion from the draft plan, and 12 other states have asked for the removal of leases in their regions due to fears that oil and gas drilling may affect their tourism industries.

R&D has been the driver for continuous innovation for both unconventional and conventional exploration and production. Research-based innovation is considered vital for the longevity of the oil and gas industry and a prerequisite for maintaining and growing output. One key technology area is carbon capture, utilisation and storage (CCUS) for enhanced oil recovery (EOR) and to reduce CO2 emissions. In February 2018, Congress passed a bill that extends and expands an existing tax credit regime (45Q), which encourages carbon dioxide (CO2) injection for improving oil recovery

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