Oil Executives Explore President's Energy-Tax Proposals

IT was an ironic sight - Saudi Oil Minister Hisham Nazer and Texas oilman George Mitchell greeting each other cordially at an energy conference Feb. 9 and 10.

Mr. Nazer is responsible for ensuring that 25 percent of world oil reserves find a lucrative export market. He is averse to actions by importing nations that would depress demand and prices.

Mr. Mitchell is a leading independent oil producer and prominent advocate of an oil-import tax. Under such a tax, companies like Mitchell's would reap a windfall at the expense of foreign producers (and United States consumers).

Taking the podium, Nazer denounced such "petro-phobic" measures to 500 executives gathered by Cambridge Energy Research Associates (CERA). "I thought the world had suffered enough from the perils of protectionism," he said. Said Mitchell: "Nazer doesn't understand the devastation of the domestic industry."

How much understanding one oilman shows another depends on who would bear the burden of a Clinton administration energy tax. Mitchell, for instance, dismisses the consequences of an import fee of $5 per barrel. US gasoline demand would drop "only 2 percent," he says.

But foreign oil producers are not prepared to cope with any reduction. Also, US actions could have wider repercussions. Several European executives at the conference said a US energy tax could embolden the European Community to pass one. The EC nearly adopted a carbon tax, but objections by the Organization of Petroleum Exporting Countries (OPEC) helped defeat it.

It is not clear whether President Clinton will propose an oil-import tax, an increased gasoline tax, a carbon tax (affecting oil, natural gas, and coal), a tax affecting all energy sources, or a tax on consumption in general.

"We're rooting for an import tax," says Steven Reilly, corporate-planning manager for Saskatchewan Oil and Gas Corporation. The partly province-owned company sells much of its production to the US, but under the free-trade agreement would escape a tax on imports.

Ron Graber, manager of competitive and market analysis for General Electric Nuclear Energy, says a carbon tax would be a boon to his industry. "If there's one thing that will revive the nuclear industry faster than anything else, it's quantifying externalities," he says, referring to the cost of carbon-dioxide emissions not borne by those who generate emissions.

Mitchell says if Mr. Clinton's goal is to raise revenue, then a tax affecting all energy sources is the way to go.

"Higher taxes of any kind ought to be the last resort," argues C. J. Silas, chairman of Phillips Petroleum Company. He says Clinton should cut spending first. But if there is to be a tax, Mr. Silas recommends a general-consumption tax fairly shared by all industries and not burdening US exports with added costs. He estimates that a 5 percent to 10 percent tax would raise $100 billion to $150 billion per year. As for getting the tax through Congress, "I think it's doable," Silas says.

Gerard Waller, a consultant for OMV Austrian National Oil Company, notes that "every European oil company thinks the price of gasoline in the US is ridiculous. Europeans were laughing when 5 cents was added to the gas tax."

European gasoline taxes are much higher than here and are still going up. Joseph Stanislaw, CERA's managing partner, says Finland raised its tax 50 cents per gallon last month; Germany is considering a $1.20 increase.