Seeker Blog

These subsidies are a serious block to demand destruction — that is the subsidies result in higher oil demand at any global price level. One effect of the subsidies is the priced OECD consumers pay is higher than it should be. So it is good news to see that Peru and Nigeria will be eliminating their subsidies.

Also in the Platts report: a case study of what tax policies like “windfall profits taxes” do to a nations oil production.

…news today out of Argentina, where a new report shows that Argentina’s exports of crude oil and refined products have plunged by nearly 60% over the past 10 years because of declining production, limited refining capacity, high taxes and rising domestic demand. According to the Energy Secretariat, crude oil exports in 2007 fell 35% to a 15-year low of 56,888 b/d, or 9% of production, from 87,534 b/d, or 13% of production, in 2006. That was down from a high of 333,100 b/d, or 40% of production, in 1997.

But it’s a government planner’s dream otherwise: a tax structure that discourages production and exports, because the tax is tied to international reference prices, and it has pushed the tax rate to more than 70%. The tax system, along with domestic price controls, are deterring investment to find new reserves to offset dwindling capacity at maturing fields. Oil production fell to an average 617,000 b/d in the first five months of 2008, the lowest since 1993 and down from a record 847,000 b/d in 1998, according to industry data. As far as prices, Argentina’s pump prices are around 60% below those in international markets, and its import bill is surging.

The domestic price controls on crude are under study. Oil-producing provinces want the crude cap to be lifted to $50-$52/b from $42-$47/b. That would still be about half world prices.

Any wonder their industry is falling apart?

Argentina has similar policies that are destroying their agriculture — demonstrating that populist politics has real consequences. But if you are depressed at the cost of foreign holidays priced in Euros, Argentina is a bargain for foreign visitors — an unintended consequence of bad economic policies.