INSIGHT: US Congress at loggerheads on energy policy

05 May 2011 15:52  [Source: ICIS news]

By Joe Kamalick

US Congress in stalemate over energy policyWASHINGTON (ICIS)--Republicans and Democrats in Congress are advancing energy policy legislation in opposite directions, producing a lot of heat and smoke and setting the stage for a 2012 election debate but unlikely to generate any near-term energy growth.

In the House of Representatives, the Republican majority is expected to pass three energy bills this week or next designed to reverse what Republicans call Obama administration energy restrictions and open much more of US offshore areas to oil and gas drilling.

On the other end of the energy policy political spectrum, the Democrat-majority Senate is soon to consider legislation that would strip US oil and natural gas producers of tax credits, with the objective of using the resulting revenue to pay for renewable energy initiatives or reduce the national debt.

US energy policy, or in the current situation the lack of a comprehensive energy policy, is crucial to US petrochemical producers and downstream chemical makers, because they rely on natural gas and natgas liquids for as much as 65% of their feedstocks, and natural gas provides about half of the sector’s power-generating fuel.

In the House, the Natural Resources Committee was poised to approve within days three separate bills, HR-1229, HR-1230 and HR-1231, which together would force the Obama administration to accelerate Gulf of Mexico drilling permits on existing offshore leases, order new lease sales in the Gulf and off the US Atlantic coast, and set new offshore oil and natural gas production mandates for 2012-2017.

According to Natural Resources Committee Chairman Doc Hastings (Republican-Washington), HR-1229 would “end the de facto Obama administration moratorium in the Gulf of Mexico by requiring the Secretary of the Interior to act on a permit to drill within 30 days of receiving an application”.

Hastings, other Republican House members and the US energy sector have complained that President Barack Obama and his Interior Department shut down Gulf drilling in the wake of the April 2010 BP oil rig disaster for far too long.

Even after Obama lifted the formal drilling moratorium, Hastings and others charge that the administration has maintained a “permitorium”, informally extending the drilling ban by slow-walking approval processing for energy company drilling applications.

By requiring the Interior Department to act on a drilling permit within 30 days, Hastings said that HR-1229 would “make certain that the Obama administration cannot impose a drilling moratorium through deliberate inaction”.

HR-1230 would require the Interior Department to conduct oil and natural gas lease sales in the Gulf and in an area off the Virginia coast that earlier had been approved and then withdrawn shortly after Obama took office as president.

“This bill will reverse the Obama administration’s actions and proceed now with the scheduled lease sales in a prompt, timely and safe manner,” Hastings said.

He noted that if the Interior Department had not recently said it would move forward with a new offshore lease sale by the end of this year, “the administration was on course to make 2011 the first year since 1958 that the federal government would not have held an offshore lease sale”.

“However, squeezing in one conveniently timed offshore lease before the end of the year is not enough to undo the Obama administration’s long track record of blocking and delaying American energy production,” Hastings charged.

In an effort to further undo what he called the administration’s go-slow energy tactics, Hastings said HR-1231 would require the Interior Department to schedule new lease sales for the administration’s previously issued draft plan for 2012-2017 offshore development.

“Currently, the Obama administration’s 2012-2017 includes no new leasing or drilling, only possible future lease sales in the Gulf,” Hastings said. 

Under HR-1231, the Interior Department would be required to issue enough offshore leases and drilling permits in the 2012-2017 period to ensure new production of 3m bbls/day of oil and 10bn cubic feet/day (bcfd) of gas by the end of that plan period.

“President Obama has imposed a drill-nowhere policy that has cost jobs, forfeited revenue and denied access to American energy that would lessen our dependence on foreign sources,” Hastings said.

In sharp contrast, Senate Democrat leaders are working on legislation that would repeal tax credits that oil and natural gas producers enjoy, calling them subsidies.

Senate Finance Committee Chairman Max Baucus (Democrat-Montana) was expected to introduce a bill before the end of this week to accomplish that.

Senate Majority Leader Harry Reid (Democrat-Nevada), said that “it is long past time to end wasteful subsidies to big oil companies that are raking in record profits”, referring to the targeted tax credits that he also termed “corporate welfare”.

“Instead of giving handouts to big corporations, we should be investing in clean energy development and construction here at home to create jobs, diversify our economy, break our dangerous dependence on oil and make our nation safer,” Reid said.

Democrats also have complained that with US retail gasoline prices at near-record highs and energy industry firms reporting record profits, oil and gas producers don’t deserve and shouldn’t have tax credits.

President Barack Obama recently sent a letter to congressional leaders expressing the same goals, urging the legislators to strip energy companies of tax breaks.

American Petroleum Institute (API) president Jack Gerard challenged both the subsidies charge and the high fuel costs.

“The Obama administration and some in Congress say that more taxes on the energy industry are necessary in light of rising gasoline prices,” he said. 

“But raising taxes won’t reduce gasoline prices, and raising taxes can’t be justified by false claims about tax breaks,” Gerard said, noting that the tax credits that energy firms get are those that are available to all manufacturers.

“Raising taxes on the energy sector would raise our costs, trim investments in new oil and gas development and drive investment and jobs elsewhere,” he said. “Over time, higher taxes would produce less income for the government by reducing domestic production.”

The conflicting House-Senate energy goals are likely to continue to generate charges and counter-charges, but neither chamber is expected to prevail.

Despite White House backing for eliminating energy sector tax credits, the Senate has twice declined to do so in the last two years, with some Democrats joining minority Republicans in that chamber to kill the measures.

The House, with its solid Republican majority, is virtually certain to pass the Hastings-sponsored troika of offshore energy bills, but those measures face a tougher challenge in the majority Democrat Senate.

Neither Republicans nor Democrats expect their energy measures to pass Congress. Instead, they are using legislation to stake-out policies and campaign points that they hope will help their cause in the 2012 elections.

Democrats want to paint Republicans as in cahoots with Big Oil, providing tax give-aways to the energy sector while Americans pay for it in high gasoline prices. Republicans want to position Obama and other Democrats as driving energy costs higher by blocking domestic drilling at every turn.

That political posturing - and the resulting energy policy stalemate - could carry on through the rest of this year, even though the November 2012 elections are 18 months away.

But all that could change in a hurry if fuel costs should spike further.

If retail gasoline prices, now at $4/gal, should climb further to $5/gal - as some analysts think possible when the peak US summer driving season hits in July - the political balance could change overnight.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
+1 713 525 2653

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index