Brazil smarter than US Democrats

Mary Anastasia O'Grady:

Petrobras CEO José Sergio Gabrielli was flush with bullish insights when he stopped by the Journal's New York office last week to talk about the Brazilian oil company.

One reason for Mr. Gabrielli's optimism is last year's discovery of the offshore Tupi field, which is said to contain between five billion and eight billion barrels of black gold. Another, equally important reason is that, according to Mr. Gabrielli, neither environmentalists nor Brazilian politicians have raised concerns about exploiting oil in the waters off the Brazilian coast.

That's quite a contrast with attitudes in the U.S., where offshore exploration and development has been all but shut down save in the Gulf of Mexico. One company official explains the difference by saying that Brazilians understand the importance of energy to their future, while Americans do not.

I have another theory. And mine fits the pattern of resource development – or lack thereof – all over the Western Hemisphere. It comes down to this: Where government has the property right, restrictions on development tend to be low. But when the private sector is the owner, environmental concerns blossom.

Exhibit A is Petrobras. Not only did Mr. Gabrielli say there is no appetite for stopping offshore projects in his country. He went further. "Brazil has one of the freest and most investor-oriented regulation in the world. Even freer than the United States of America," he said, referring to the climate for oil exploration.

That may be so, but it would be interesting to know why, given Brazil's prominent embrace of socialism. It could be that the country is changing. After all there is now private-sector competition in the oil industry. Yet it is also worth noting that the Brazilian government has a 58% controlling stake in Petrobras's voting shares and 32% of its total shares. This means that some of Petrobras profits go straight to the government's bottom line, giving the politicians more money to spend on bribing their constituents.

In the U.S., Congress doesn't have nearly such a vested interest in a successful oil industry. What good are corporate profits if they go to shareholders, pensioners and employees? Congress has even been denied the windfall profits tax. For American politicians there is a much greater incentive to respond to the concentrated power of the special interest group known as the "greens."

...

Congress is actually overlooking its own windfall from offshore production and production in ANWR. The government gets a royalty of one-eighth of all production from both areas. It can take it as an in kind payment or take one-eighth of the selling price which would be over $130 today. Multiply .125 times 130 and you get $16.25 for every barrel produced. If you multiply that times the estimated proven reserves of 115 million barrels you get $1,868,750,000.

In other words it would be worth almost two trillion dollars to produce the known reserves that the Democrats are keeping off limits. This figure does not include the money received from higher corporate taxes paid by domestic oil companies that we are now missing because we are buying foreign oil. It does not include the royalties from trillions of cubic feet of natural gas in these reserves. It does not include royalties and taxes on production from shale oil.

We are locking up enough money to pay off the national debt and make Social Security solvent because of Democrats' bad energy policies. These calculations also do not include the value of the reinvestment of the profits of the oil companies in new forms of energy. Of course, this much added production might reduce the price of oil, but the economy would also get a boost from that too.

The Democrats have yet to offer a persuasive argument for their anti energy policies. As greedy as these guys are for government revenue you would think they would go for it.