The wind of change blowing out of Washington after last week’s mid-term elections almost certainly means big changes in the way big oil is treated in its home country.
Higher taxes are one possibility, along with tougher environmental laws, and a clear government preference for biofuels, wind power and every other type of alternative energy source.
Less obvious but potentially more damaging is the sound of doors shutting, because big oil has had the welcome mat withdrawn.
The only good news from the lurch to the left in US politics is that the right wing, pro-oil president, has not been replaced yet. For the next two years, a veto will remain with President Bush who, given his roots in the oil patch, is unlikely to agree to the most excessive of the anti-oil laws the Democrats are planning.
But the next two years will be a warm-up act for what is likely to follow from 2008, with wholesale change on the agenda.
Just how tough it will be for big oil remains to be seen. Just as is it remains to be seen whether tougher laws at home mean extra spending overseas – which might be good news for secondary investment destinations such as Australia and the wider Asia-Pacific region.
The Slug willingly admits that he is uncertain which way the cookie will crumble, simply noting that change is afoot and we had all better get ready for it.
To understand how significant the changes could be, it’s worth having a squiz at some of the policies the Democrats took to the US mid-term elections, and while they won control of the House of Representatives and Senate on their anti-Iraq War stance, they also appealed with their anti-big oil policies.
For starters, the Democrats want to “free America from dependence on foreign oil” and create an environment for alternative energy sources.
Another slogan of the winning side was to “end tax giveaways to big oil” and to bring in tough laws to end price gouging at the petrol pump.
Most of the threats made by the Democrats are hollow, even The Slug can see that.
The silliest part of their proposed legislative change is to end tax incentives for oil exploration – AND free America from dependence on foreign oil.
When The Slug went to school, this was known as a mutually exclusive proposition, taking away with one hand, and hoping someone will deliver a prize in the other. Tax incentives, after all, are to encourage exploration, which will do more than anything else to end dependence on foreign oil.
Debating the ins-and-outs of what might happen in the US is a time-wasting exercise. More fruitful is a realisation that a game-changing event occurred last week, the welcome mat has gone, and the knock-on repercussions are yet to be felt.
Of particular interest to people outside the US is the effect of a windfall tax on oil profits, one of the Democrat favourites, and Bush non-favourite – hence a stalemate for at least two years.
But if a new oil tax is introduced, US oil companies will have little choice but to rein in their exploration spending to foot higher tax bills.
Whether they pull back on domestic exploration, or on foreign spending, is a great unknown. All that can be said is that higher taxes equal less investment.
A wise investor, or petroleum professional will, however, be noting that change is on the way.
Note: The views of Slugcatcher are not those of APPEA.
