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An increasingly vocal campaign is arguing for a go-slow approach in allowing U.S. exports of...

An increasingly vocal campaign is arguing for a go-slow approach in allowing U.S. exports of liquefied natural gas. Industrial firms such as DOW, HUN and AA fear that exporting LNG could hurt the U.S. by driving up gas prices. But an XOM exec asks, "Why should the U.S. government discriminate between a... project to liquefy natural gas and a chemical plant to solidify it into plastic pellets? Both create investment, both create thousands of jobs."
Comments (16)
  • User883
    , contributor
    Comments (12) | Send Message
     
    This is about whether the government should pick winners and losers among industries . . . . ultimately, not a good idea to have the government decree that one group of companies (gas producers) must subsidize another group of companies (chemical and metals producers). Let the markets work, and the chips fall where they may!
    25 Mar 2013, 07:27 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3079) | Send Message
     
    Exactly. The side with the most effective lobbying will win this battle.
    25 Mar 2013, 07:44 PM Reply Like
  • Drew Robertson
    , contributor
    Comments (312) | Send Message
     
    Correct. Let's also yank the tax subsidies that oil and gas companies receive now. Long DVN COP
    25 Mar 2013, 08:09 PM Reply Like
  • BruceInKY
    , contributor
    Comments (403) | Send Message
     
    Right on Drew, and let's have the universities divest of oil and gas stocks in response to ignorant student pressure so I can pick up some bargains! Oh, and let's repeal the state and federal taxes on oil and gas so my bills go down. Forward!
    25 Mar 2013, 11:21 PM Reply Like
  • charliezap
    , contributor
    Comments (1162) | Send Message
     
    I clicked on 'Like' accidentally. Would like to retract.

     

    Not sure if you are being sarcastic or serious. If you are serious, please list the tax subsidies for oil companies for me. Or do you mean the investment tax credits that other large manufacturing companies, like GE, get?

     

    For the record, I think all or tax credits for corporations should be abolished and impact should be offset by lowering the corporate tax rate.

     

    I also think it would be good for America if corporations got a tax deduction for dividends paid. This would eliminate the double taxation of dividends problem. It would also level the playing field as between debt and equity -- there would be less incentive to lever up the capital structure, making companies more financially stable. To offset the reduction in corporate taxes from a deduction for dividends, dividend income to individuals would be taxed at ordinary income rates, the same as the wage and salary earnings of workers.

     

    Oh, yes. For heaven's sake, its finally time to tax the incentive fees paid to hedge funds and private equity funds at ordinary income rates, just like commissioned salespersons.
    26 Mar 2013, 12:58 PM Reply Like
  • Drew Robertson
    , contributor
    Comments (312) | Send Message
     
    INTANGIBLE DRILLING COSTS

     

    When Exxon Mobil wants to drill a well to look for oil, it can under present law "expense," or quickly deduct, the costs for labor, drilling and rig time. These are known in the tax code as "intangible drilling costs."

     

    Oil companies say these costs are the equivalent of their research and development costs, like the effort and resources Apple Inc engineers expend to create their next big gadget.

     

    Critics say this tax break, dating to the beginning of the code, is unjustifiable. As a general rule, though there are other exceptions, expenses incurred by a business for the intent of producing future income must be written off over time, not right away.

     

    The code now allows independent oil companies -- mid-sized competitors such as Marathon Petroleum Corp and Occidental Petroleum Corp -- to recover 100 percent of intangible drilling costs in the first year.

     

    The largest oil companies -- including the "Big Five" players Exxon, Chevron, BP Plc, ConocoPhillips and Royal Dutch Shell Plc -- can recover 70 percent of these costs in the first year.

     

    DUAL CAPACITY RULES

     

    The United States taxes companies on profits earned both inside the United States and abroad in a system known as worldwide taxation. To prevent companies from being taxed twice on the same income, they can claim a tax credit for taxes paid to a foreign country. The credit reduces their U.S. taxes.

     

    Oil companies are known as "dual capacity" taxpayers because they pay taxes to foreign countries and they also get an economic benefit from those countries. Energy companies are often subject to higher corporate tax rates than other corporations doing business in a given country.

     

    Obama and other critics say this higher rate amounts to a royalty or economic benefit for access to the country, not an income tax to be credited against U.S. taxes.

     

    The industry says there is no evidence that companies are using royalties as foreign tax credits.

     

    PERCENTAGE DEPLETION

     

    The percentage depletion provision does not apply to the Big 5 oil producers, but independent firms can claim it.

     

    The provision lets companies take a tax deduction of 15 percent a year for the depletion of oil and gas resources in the ground, instead of deducting the decline in the value over time.

     

    The Obama administration wants to repeal this, citing its Pittsburgh G20 pledge to phase out subsidies for fossil fuels.

     

    The administration argues that the provision causes market distortion, skewing investments toward oil and gas that might go elsewhere under neutral tax rules.

     

    The industry says the deduction is a vital part of the economics of their cost recovery, and says the rules only allow the smallest producers to benefit because of quantity limits.

     

    DOMESTIC ACTIVITIES DEDUCTION

     

    Many big U.S. companies are entitled to a 9 percent tax deduction from their income from property manufactured, grown, extracted or produced in the United States.

     

    Oil companies can claim a 6 percent deduction for this.

     

    Critics say oil production is not manufacturing, and the oil industry does not need the deduction with oil prices so high.
    27 Mar 2013, 03:14 PM Reply Like
  • timbo-anti castro
    , contributor
    Comments (170) | Send Message
     
    Here again Drew, the answer to all of these adders is simple. Do away with the subsidies of any type across all business types and lessen the coprorate tax rate across the board. Also, get rid of all of these loopholes that are applicable to only certian types of businesses. Favorable or unfoavrable tax structures that are only applied to certian types of businesses distort the natural market forces. Uniform and simple tax codes are what attracts businesses to certain countries. I'm afraid this crap is far to ingrained to ever be reformed, but unfortunately, simplified, lower, equally applied tax codes are the only way that busineeses feel safe in making furhter investments. The oil companies have gotten in bed with Washington far too long ago and now the pay structure to Washington to do business has become as commonplace as protection money to the mob. The only way to a truly free market in energy is for the majors to reject the subsidies in order to be taxed on a uniform basis with all other businesses. Good luck on getting a corporation, or farmer for that matter, to exit from the susidies scam.
    28 Mar 2013, 10:24 AM Reply Like
  • Drew Robertson
    , contributor
    Comments (312) | Send Message
     
    D'accordo
    29 Mar 2013, 08:08 AM Reply Like
  • Mike Maher
    , contributor
    Comments (2480) | Send Message
     
    Why should the government discriminate between gas producers and chemical companies? Campaign contributions, thats why!
    25 Mar 2013, 09:34 PM Reply Like
  • RDSwindells
    , contributor
    Comments (18) | Send Message
     
    No, you answered a different question, "Why doe"s, not "why should". The answer to "why should" is , "it should not".
    25 Mar 2013, 10:26 PM Reply Like
  • jpmj4847
    , contributor
    Comments (495) | Send Message
     
    Yes , and I'm from MARS! LOL....jpmj4847
    25 Mar 2013, 10:52 PM Reply Like
  • crmorris
    , contributor
    Comment (1) | Send Message
     
    The answer to the XOM exec's question is that the difference is that in the one case both the gas jobs and the plastic pellet jobs are in this country. In the other case, the US becomes a raw material provider to an Asian economic juggernaut. Since the major gas exporter firms will be the oil majors, who knows where the proceeds of the gas sales will be reinvested. At the moment, probably in Africa.

     

    In the 19th century, the British had a religious belief in free trade, and consequently lost their steel industry to predatory Germans, who followed an industrial policy much like most of East Asia today.
    26 Mar 2013, 05:13 AM Reply Like
  • lgsmith.pe62
    , contributor
    Comments (4) | Send Message
     
    Lets not give that energy to other countries and then have the American People paying high prices for energy used here. At the present time we are told that there is a surplus of Natural Gas here in the USA but I do have to question the source. Shale Gas comes on strong for a year or so until the frac pressure is depleted, then it drops off drastically, I know this for a fact, I have a well located on property that has done just that, it is now just a small amount per month. I have to wonder if the projection of gas is not based on the first few months of production. Let the other industries pay for the gas here on a supply and demand basis.
    26 Mar 2013, 05:25 AM Reply Like
  • timbo-anti castro
    , contributor
    Comments (170) | Send Message
     
    LG and CR: Let the free market work. Global trade increases competition and provides for the best value. CR advocates protectionism citing the british steel industry. British steel went the way of most industries in welathy countries. Labor costs go up, you should be able to outsoruce and TRADE for the best value. If you have strong demand for your LNG in Asia or N. Europe, you should be able to trade for the exchange of value. If we had free trade in america, we would have cheaper energy costs.
    26 Mar 2013, 09:19 AM Reply Like
  • Drew Robertson
    , contributor
    Comments (312) | Send Message
     
    I guess the real question is why DOW et al can't pay world prices for gas. The cost of transportation to Midland MI has to be less than to Osaka or Munich.
    26 Mar 2013, 08:28 AM Reply Like
  • TreyT
    , contributor
    Comments (112) | Send Message
     
    Companies and those who know the market are well aware of the steep initial decline associated with shale gas drilling. However, there is still plenty of gas to go around. The wells do not continue that steep decline forever. It is typically the first 18-36 months a well is online, at which point depending on the formation, completion and nuances of that particular well, they typically settle into a more normal decline 3-8% year over year. 3-5% is pretty typical from traditional formations. Also don't forget technology seems to provide significant advances every 10 or 15 years allow us to extract more hydrocarbons from that old wellbore.

     

    EUR's in many fields have tripled their original estimates and overtime those numbers will continue to move upward.
    26 Mar 2013, 08:52 AM Reply Like
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