MILLS: Cruz Victory Signals Possible Change in Energy Tax Policies

An Insiders ENERGY REPORT By Alex Mills AUSTIN Texas (Texas Insider Report)  Texas Senator Ted Cruz won the Iowa Republican presidential caucus even though Iowas popular governor publicly criticized Cruzs energy and tax policies which include his opposition to ethanol subsidies and mandated use requirements. The elevation of the issue by Governor Terry Branstad made national news and became one of the key issues that separated Cruz from former poll leader Donald Trump who supports ethanol subsidies.    Even though Cruz endured heavy criticism from Iowa farmers who grow corn used to make ethanol Cruz garnered 27.7 of GOP caucus-goers compared to 24.3 for Trump. Ethanol has enjoyed a federal tax credit and a Congressional mandate specifying that refiners must blend 10 percent ethanol into gasoline. The federal tax credits cost the federal government an estimated $6 billion each year. The federal tax credits coupled with the federal mandate regarding usage made ethanol a win-win situation for corn growers. Opposition to ethanol began to mount around 2011 when studies revealed that burning ethanol had some serious air emission issues. Support from environmental groups began to erode. Also the energy content of ethanol became questionable when some alleged that it took more energy to make a gallon of ethanol than the gallon generated. Auto manufacturers also began to publicly wonder about the negative impact on engines if more than 10 percent ethanol was blended into gasoline. Cruzs positions on energy issues are not limited to ethanol. In 2013 Cruz sponsored legislation the American Energy Renaissance Act - that would have completely eliminated the renewable fuel standard which Congress enacted in 2007 and contained provisions designed to increase U.S. energy production. Some of the provisions include:

• Clearly state that hydraulic fracturing should continue to be regulated by the states and not the federal government.
• Improve and streamline the permitting process for expansion and building of refineries.
• Approve construction of the Keystone XL Pipeline.
• Exclude greenhouse gases from regulation by EPA and other federal agencies.
• Stop certain EPA regulations that will adversely impact coal and electric power plants.
• Expand energy development on federal lands by providing states the option of leasing permitting and regulating energy resources on federal lands within their borders.
• Expand energy development in National Petroleum Reserve in Alaska and on Indian Lands and open up the Coastal Plain of Alaska (ANWR) for development.
• Expand the offshore areas of the Outer Continental Shelf available for development.
• Streamline the permitting process for additional offshore exploration.
• Expand LNG exports by facilitating permits.
• Prevent excessively broad environmental review of coal export terminals.
• Direct all additional revenues generated by exploration and drilling on federal lands (excluding the share allocated to the states) exclusively to national debt reduction trust fundDebt Freedom Fund"

Cruz also made news with his Simple Flat Tax that would lower the current seven rates of personal income tax into a single rate of 10 and the corporate income tax would be eliminated and replaced with a flat tax of 16 percent. His tax plan would eliminate Obamacare the Death Tax the Alternative Minimum Tax and the tax on profits earned abroad. It would allow for full and immediate expensing of business equipment for industries such as energy farming and manufacturing. As the Texas Presidential primary approaches on March 1 energy and tax issues will become a focal point among the candidates. Oversupply of Oil & Gas Creates Decline in Industry In 2015 The oversupply of crude oil and natural gas dropped commodity prices in January to levels not seen in 15 years. As prices declined in Texas so did the rig count drilling permits well completions and employment. And the pain is not over according to Petroleum Economist Karr Ingham who presented his summary of oil and gas activity in 2015 in Houston on Jan. 26. Texas wells yielded an estimated 1.27 billion barrels of crude oil in 2015" Ingham said and that will be a record." As 2016 begins Ingham sees a global market glutted with supply--crude production at unexpectedly elevated levels large volumes of crude in storage and the imminent return of Iranian oil to the marketplace. At this point" he said it seems quite safe to assume the Texas Petro Index will remain in decline for at least the first half of 2016 and perhaps most of the year." The first sign of recovery will be significant production decline in Texas and the U.S.

The pace of production decline in Texas and the U.S. should accelerate in 2016 and when that begins to occur we should start watching for crude oil in storage in the U.S. to decline on a real and sustained basis not just seasonally" Ingham (right) said.

The Texas Petro Index which declined 38 in 2015 shows that virtually every economic indicator for the oil and gas industry in Texas in 2015 is down.

• The statewide working rig count averaged 430 51.3 less than in 2014 when on-average 882 rigs were drilling.
• The Texas Railroad Commission issued 10549 drilling permits 59.1 fewer than in 2014 when 21792 permits were granted.
• Producers recovered an estimated 1.267 billion barrels of crude oil an 11.5 year-over-year increase and the eighth consecutive year in which statewide production increased.
• With crude oil wellhead prices declining 49.3  to average $45.35/bbl the estimated value of Texas-produced crude oil declined 43.1 to about $57.5 billion.
• With natural gas prices declining 20.5 to average $3.45/Mcf the estimated value of Texas-produced natural gas decreased 39.5 to an estimated $22.4 billion.
• About 263105 Texans on average were employed in the oil and gas production drilling and service sectors about 60000 (10.9) fewer in 2014.

The crisis has been building momentum for 18 months and Ingham said there is little indication that demand will turn around soon. On the crude oil side the economy of the U.S. and European countries has languished since the recession of 2008. Economic growth has slowed in China and India. Natural gas demand has increased recently with the arrival of in cold weather in the Midwest and Northeast. Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely those of the author.