Elections and the policy that comes thereafter matter, as demonstrated by the antics of Democrats in Baton Rouge and Washington that until recently suffocated Louisiana’s fossil fuel industry and thereby contributed to a problem that may cost state approaching $1 billion.
Recently, a report from New Orleans’ The Data Center highlighted how the state’s oil and gas industry has done not much more than tread water going back to the swoon in oil prices in 2014. It’s skeptical that the industry will grow disproportionately compared to other sectors in the future and argues to move towards greater diversification of the state’s economy, based upon the industry’s recent underperformance.
But it was all by design, partly out of the animus of Democrats when in power had against fossil fuels, and partly because of their desire to grow government and redistribute wealth at the expense of economic growth. When prices began their protracted fall, Democrat Barack Obama was president, whose administration backed by toadies in Congress acted hostilely towards the fossil fuel industry, as opposed to their favored renewable energy.
There is some irony in all of this. First, the price plunge actually was a self-induced sign of success with the expansion of oil production that, secondly, Obama policies had little to do with as typically, given the lead times involved, policy in this area takes years to come to fruition. So, Louisiana was hit by a double-whammy: policies prior to Obama lead the charge to greater production, but then the greater production chopped prices at the same time Obama policies started to come into effect that suppressed industry recovery.
Obama was followed by Republican Pres. Donald Trump, who didn’t begin to see the fruition of his much different and helpful policies to the industry until he was ousted by Democrat Pres. Joe Biden, who did an about-face to Obama policies. Trump may be back in charge now, but the return to his policies won’t be felt in earnest for at least another couple of years.
But whatever help Louisiana’s oil and gas industry might have received from the first Trump term, and whatever degradation it suffered from the Democrats in office, was, respectively, dampened and compounded, by having eight years of Democrat Gov. John Bel Edwards in office not long after the price slide commenced. The negative impact of Edwards manifested not just in policy that specifically gave the industry short shrift, but in his general overall economic policies that stifled the entire Louisiana economy in favor of growing government.
Thus, properly understood, the state’s fossil fuel industries certainly took a hit from the 2014 slide in pricing – although in the long run that actually is a rollercoaster ride – which disrupts industry expansion as the lower are prices the less incentive there is to engage in exploration and recovery. Yet there have been plenty of peaks since then which should have stimulated industry growth. Where the report misses the mark is policy hostile to the industry, at both the state and national levels, kicking in for most of the period took an industry knocked down and then put a foot on its throat only recently released by, first, Republican Gov. Jeff Landry taking office and then Trump’s return to his, the effects of which likely won’t significantly affect the industry for another year or two.
And this has had negative fiscal consequences, besides lackluster industry growth, to Louisiana about to be felt in one specific way. Some years ago, the state instituted policy to deal with orphaned oil and gas wells – those that essentially had been abandoned without properly sealing them that invites leakage. The plan was for companies to pay up front into a fund at least the partial cost to plug a well, so this would act as a form of insurance when proper closure didn’t occur across the universe of wells.
A problem developed in part because the initial payments were too low, but mainly because of alleged malfeasance to which Edwards was indifferent through one of his cronies, Richard Ieyoub a former attorney general. Essentially, a sweetheart deal resulted in too much taxpayer money going towards too little work being done, the end result being the number of abandoned wells skyrocketed with an estimated cost to taxpayers to close these up approaching $1 billion.
Inefficient, and perhaps illegal, activities contributed to this growing potential liability. But, more importantly, the attitude towards the industry reflected in policy reduced its revenue possibilities that not only included operating lesser productive wells abandoned in the face of regulatory and pricing pressures but also forgoing the paying for the proper sealing of them. A less-hostile attitude at both the state and national level probably would have seen fewer abandonments and of those still abandoned more of them adequately closed off.
Prices matter, but policy has more to do with industry health. And that’s why the industry has seen relatively less expansion and thereby forgone tax revenues to the state as well as greater costs to the state to deal with the consequences of that policy.
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