Oil Is Where the Growth Is, So Let's Drill
The economy is stumbling along at 2 percent annual GDP growth and employment growth continues to disappoint. One bright spot is energy, which is booming despite government obstacles. With more efficient regulation America could increase energy production, and next week Senator Ted Cruz (R-TX) will release a bill to do just that.
A soon-to-be-released report by my Manhattan Institute colleague Mark Mills shows that even though U.S. employment is still below prerecession levels, jobs in oil and gas industries have grown by 40 percent since 2007, the start of the recession. With oil and gas adding $300 billion to $400 billion every year to the economy, Mills suggests that the United States might still be in a recession if not for oil and gas.
About 1 million Americans work directly in oil and gas, and another 10 million work in jobs linked to the industry, producing steel for pipelines, supertankers, and railcars. This job creation is not the result of "Big Oil," the five largest oil and gas companies, but from 20,000 small and midsize companies. Each employs fewer than 15 people, on average.
In addition, foreign companies are expanding, or relocating to the United States, due to inexpensive energy. An Egyptian firm is investing in a billion-dollar fertilizer plant in Iowa, and a South Korean tire company wants to build an $800 million factory in Tennessee.
Oil production has risen by 60 percent since the end of the recession in 2009. This growth has been in spite of federal government help, rather than because if it. Imagine how much more growth could have occurred if applications for permits for oil and gas exploration, as well as refinery construction, were approved in a more speedy manner.
"With so many Americans still unemployed or underemployed in the wake of the Great Recession, it is unconscionable that our government is not doing everything it can to get out of the way of any part of the economy where there is growth," Mills told me.
He continued, "In the last few years, the oil and gas sector, dominated by small and mid-sized companies, tens of thousands of them, has achieved astounding and broad-based job creation, more than in any other single segment of the economy."
Senator Cruz is listening. He wants to remove some of these regulatory obstacles to oil and gas development. One major disadvantage for any kind of business development is a lengthy, cumbersome, and unpredictable approval process. This deters new entrants, such as the very people who are creating jobs in oil and gas.
Cruz's bill would streamline the approval process for a number of projects.
This has been accomplished in Canada. Canada's Responsible Resource Development Act, passed in 2012, places timelines on regulatory approvals, normally two years from filing of completed application with the regulator.
Enbridge's Northern Gateway, a dual pipeline from Alberta to a marine terminal in British Columbia, was one of the first such projects approved under the new law. Canadian federal regulators had until end of 2013 to decide on whether to allow the pipeline to proceed. The government gave the project a positive recommendation in December.
In order to be competitive, as well as to increase economic growth, the United States should pass similar legislation. Cruz's bill would require approval in four months for transnational oil and gas pipelines and electrical transmission lines. In contrast, the approval process for Keystone XL has taken nine years, and still counting. Surely the United States should be able to give a definitive yes or no within a shorter period.
If Cruz's proposed bill were to become law, the Federal government would have to speed up its approval process. Companies would get a decision, up or down, fast. Here are some timelines in the bill:
* Drilling permits: 20 days after an application.
* Shale drilling applications: 30 days (with a possible extension of another 30 days).
* Offers of open areas for oil and gas leasing: 18 months after designation.
* Issuance of leases for exploration or production: 60 days after payment by the company.
* New refineries: one year.
* Expansion of existing refineries: four months.
One potential bureaucratic response to such fixed timelines would be to disapprove all applications, unless applicants "volunteer" to request an extension. Sadly, that behavior already permeates some government agencies.
Senator Cruz's bill could be improved by making the application as deemed granted unless disapproved, and with extensions available only through an adversarial hearing before a federal court, perhaps the D.C. Circuit court.
The government agency would have the burden of demonstrating the need for the extension. The Court would grant the extension in only the rarest of circumstances. Such a procedure would get the federal agencies out of the habit of asking individuals to "volunteer" for an extension.
The Cruz bill would allow exports of oil, gas, and coal, except to countries that are subject to sanctions or trade restrictions. It would repeal current presidential authority to limit oil exports, as well as other laws that prevent oil exports from the Outer Continental Shelf or in pipelines over federal rights of way.
Senator Cruz told me in an email, "In a Providential blessing, we are witnessing the beginnings of an American energy renaissance, driven by the private sector. The Obama Administration's opposition to energy-- to coal, to new refineries, to the Keystone Pipeline--is political, not driven by science. Today, we are facing the lowest labor force participation since 1978--now is the time to reduce the barriers to new production and to open up federal lands, so we can allow millions of high-paying jobs to be created across America."
If Congress and the President are serious about getting America back to work, they should take a careful look at Senator Cruz's bill.