Nearly Half of U.S. Oil Production Depends on Government Handouts

With oil prices at about $50 per barrel, about 45% of U.S. oil production “depends on government handouts to make it profitable,” Oil Change International charges, based on a new study by SEI and EarthTrack.

“That means taxpayers are footing the bill for some of the most wealthy and powerful companies to survive and prosper—and trash the planet and our democracy in the process,” Oil Change reports.

The researchers reached that conclusion by studying 800 new oil wells in the U.S. that haven’t yet gone into production, then assessing how a collection of 12 production subsidies would affect their attractiveness to investors.

“Where exploration, extraction, processing, and transport are profitable, the analysis expects that companies would put money in, and pump oil out,” Oil Change states. “It turns out that about half of U.S. oil isn’t a good investment—until state and federal governments sweeten the deal with corporate giveaways. Then, about 20 billion barrels of crude are pushed from uneconomic to economic, and become ripe for development.”

Subsidies can lower the cost of business in a number of different ways: by releasing companies from paying government royalties, paying for abandoned well cleanup out of public funds, or offering fossils special tax breaks. “Subsidies themselves are not necessarily a bad public policy tool,” Oil Change stresses. But with oil and gas handouts now standing at US$17 billion per year, “the U.S. government has been propping up the oil industry with public money for more than 100 years. And producing more oil isn’t a public good any more. In fact, it’s a recipe for climate disaster.”