Special Report: Energy to be main focus for incoming president, Congress
US economic problems dominated the 2008 presidential campaign as the two major nominees prepared to meet in their second debate last week. But energy still was a major issue.
“Our economy is still hurting. Working families are worried about the price of groceries, the price of [gasoline], keeping their jobs and paying their mortgage. Further action is needed. We need to restore confidence in our economy and in our government,” Sen. John S. McCain (R-Ariz.) said at an Oct. 6 rally in Albuquerque.
Sen. Barack H. Obama (D-Ill.) said on Oct. 3 at a similar event in Abington, Pa.,“This financial crisis is a direct result of the greed and irresponsibility that has dominated Washington and Wall Street for years.” His proposed responses included investing $15 billion annually in wind, solar and other energy sources to generate 5 million new jobs and reduce US dependence on foreign oil.
US presidential campaigns react quickly as issues change. When 2008 began, many political pundits believed the wars in Iraq and Afghanistan would be dominant. Then crude oil and gasoline prices soared, and voters complained to members of the 110th Congress. By late summer, as Democrats and Republicans held their national conventions, federal lawmakers in both parties were talking about increasing access to domestic oil and gas supplies as well as developing alternatives. Then the financial crisis hit.
This year’s election issues were changing quickly from mid-September to early October as OGJ interviewed Washington-based oil and gas industry association executives for this article. Yet they agree that energy would be one of the foremost, if not the biggest, question confronting the new president and Congress in 2009. Changing public attitudes toward leasing more of the US Outer Continental Shelf was the primary reason, they said.
Public education
“This was a case where sufficient public education made a difference. Before Republicans picked up on it, we were hearing it in spades from polling and focus groups,” said American Petroleum Institute Pres. Red Cavaney. The debate changed as more federal lawmakers recognized that most US voters wanted to see more access to domestic oil and gas resources and leasing bans were allowed to expire, he continued. “But we’ve heard from a number of people on Capitol Hill that moratoriums will be brought back after Mar. 6. It would take overt action, either by Congress or the new president, to make them dead,” he said.
The industry’s next OCS challenge will be to convince federal lawmakers that increased access to offshore resources should be genuine and not cosmetic, Cavaney said. For starters, the most easily recoverable crude is within 50 miles of the coast, which the House’s bill would have placed off-limits. Coastal states not only deserve a share of the revenues but also could use offshore energy production as a way to attract new industry. “It will be necessary for lawmakers to grasp that pushing production deeper will require rigs that are produced overseas instead of domestically,” API’s president said.
“As they say in sports, and it can be transferred to politics, it’s all about momentum. The oil and gas industry will end the year in a better position than where it began.”
Red Cavaney, president, American Petroleum Institute
“On the access side, certainly offshore, that genie won’t get put back into the bottle. There’s a broader concern not only with gasoline prices, but also national security and reliance on unstable foreign sources,” observed Daniel T. Naatz, vice-president, federal resources and political affairs, at Independent Petroleum Association of America. Producers become frustrated when some members of Congress talk about increasing access, then act to restrict it, he said.
“There have been positive developments. Lawmakers and the public recognize we need more energy, and it makes no sense to close areas off. It’s going to take time to move on to the next step, but we’re ready to work on it with the next Congress and administration,” added IPAA Pres. Barry Russell.
Tom Fry, president of the National Ocean Industries Association, said that a former member of Congress had suggested that the Sept. 16 US House vote on opening more of the OCS to oil and gas leasing would have been inconceivable 2 years earlier. The bill wasn’t what leasing proponents wanted, but at least the issue was being discussed, the NOIA official said.
Officials responded
“I’d always thought it would take a crisis to bring energy issues to the forefront. The problem was no one knew what the crisis would be. Prices drove the issue this time. People called their elected officials and said, ‘Do something about this.’ There were enough calls that the officials responded,” Fry said.
“On the access side, certainly offshore, that genie won’t get put back into the bottle. There’s a broader concern not only with gasoline prices, but also national security and reliance on unstable foreign sources.”
Daniel T. Naatz, vice-president, federal resources and political affairs, Independent Petroleum Association of America
Officials at the Interstate Natural Gas Association of America found it ironic that US House Speaker Nancy Pelosi (D-Calif.) and other congressional leaders embraced gas as an intermediate step to petroleum alternatives after crude oil and gasoline prices climbed. “The challenge is to translate this into a resource base and infrastructure to deliver these supplies. It’s incumbent on us to convince Congress that gas is not produced and delivered magically,” INGAA Pres. Donald F. Santa said.
“I think there’s a perception among some members of Congress that we don’t need to do anything about gas, and that it will always be there,” added Martin E. Edwards, INGAA vice-president, legislative affairs. He said that the compromise proposed by a group of US senators this summer did little initially except increase taxes, and even appeared to close more areas than it opened. Legislation developed by a bipartisan House working group, which eventually grew to more than 170 cosponsors, was a little better, he indicated.
Congress and the next president also can expect to be confronted with energy infrastructure questions, according to Santa. Gas could provide an example for other sources, he said. “Approaches that are attractive in the abstract could raise problems in the concrete. The question could become whether we have the political will to site the necessary infrastructure, whether transmission lines from wind turbines or oil pipelines from new supplies. If we don’t, we could be left with less-than-optimal solutions,” he said.
“How can we translate our aspirations into reality? Given today’s political environment, would the United States have been able to build a nationwide railroad network in the 19th century or to begin the interstate highway system in the 1950s?” Santa said.
Tax concerns
Industry association executives also expressed concern that Congress and the new administration would increase oil and gas taxes to relieve pressure on other businesses. That essentially happened when Congress passed a revised economic rescue package that US President George W. Bush signed on Oct. 3. Its additions included a 1-year extension of renewable and alternative energy tax credits partially funded by a frozen industrial credit for oil and gas businesses and revisions in foreign tax allowances.
“Lawmakers and the public recognize we need more energy, and it makes no sense to close areas off. It’s going to take time to move on to the next step, but we’re ready to work on it with the next Congress and administration.”
Barry Russell, president, Independent Petroleum Association of America
“We saw the disastrous consequences of a windfall profits tax in the 1980s when capital came off the table and moved overseas. Both presidential nominees want to make major tax reforms. Obama has supported bringing back a windfall profits tax. McCain hasn’t, but would like to do a major tax overhaul,” said Lee O. Fuller, IPAA vice-president, government relations.
Congress also remains ready to consider cap-and-trade proposals, he continued. “It could be approached more cautiously. A lot of voices from the global climate debate’s economic side weren’t engaged last time. The ultimate reduction target could be scaled back to 60% from 80%, and the pace could be slower so the general economy isn’t disrupted as badly,” he said. Back-door regulation through the Endangered Species Act and National Environmental Protection Act also is possible, he said.
“I think both campaigns realize the importance of energy. It’s something they’ll have to address. But there will be other issues, and it won’t be apparent how they’ll be approached until the new president is sworn in.”
Tom Fry, president, National Ocean Industries Association
All this will put more pressure on gas, Fuller said. “This past year, US production increased 9%, largely from onshore shale formations and the Gulf of Mexico. Now, we’re seeing orchestrated efforts to characterize hydraulic fracturing as a threat to New York City’s drinking water. In its 150 years, fracing has one of the best environmental records. But it could become more political in areas which do not have oil and gas production experience,” he explained. The US will need to be careful, if it opens more of the OCS for leasing, to not create litigation routes parallel to onshore public acreage, he added.
“Getting all the requisite permits from all the federal and state entities can consumer time and be cumbersome,” said Fry, who was a former director of both the US Minerals Management Service and Bureau of Land Management before joining NOIA. Lead agencies normally move more quickly, but many are short-handed and underfunded, he said.
Other changes
Fuller said the retirements of US Sen. Pete V. Domenici (R-NM), Rep. John E. Peterson (R-Pa.), and other federal lawmakers with extensive oil and gas experience also will have an impact on a Congress that already has developed energy bills through the majority leadership instead of committees. One of the few panels that produced a major energy bill this year, the House Natural Resources Committee, came out with the so-called “Use it or lose it” bill a year after it tried to place constraints on oil and gas development, the IPAA official said.
Several association executives apparently expect Democrats to increase their majorities in both the House and Senate. But they also noted that bipartisan energy initiatives materialized in both congressional bodies this summer. “The problem with the bill developed by what initially was a US Senate “Gang of 10” that eventually became a Gang of 20 was that it contained a little bit of everything and not enough of anything,” said Cavaney. He was more impressed with what Peterson and Rep. Neil Abercrombie (D-Ha.) accomplished with their House bipartisan energy working group.
Bigger Democratic majorities wouldn’t necessarily make onerous oil and gas legislation inevitable in a new Congress because new members conceivably could include more moderates, the two INGAA officials suggested. “They’ll need to deal more with supplies along with greenhouse gas issues,” said Santa.
“Given today’s political environment, would the US have been able to build a nationwide railroad network in the 19th century or to begin the interstate highway system in the 1950s?”
Donald F. Santa, president, Interstate Natural Gas Association of America
“I think solutions will need to be more bipartisan, with both parties supporting a package. John McCain has a history of reaching across the aisle on controversial issues. Barrack Obama’s approach is almost a more Socratic method that’s intellectually focused. He could be better at the long-term response than the short-term steps,” said Edwards.
Positions evolve
Both considered it significant that each major presidential nominee’s energy positions have changed since they began seeking the office. “Even Obama’s position with respect to OCS access has evolved from a few months ago, when he seemed to think it was not important, to where he believes it needs to be part of a comprehensive plan,” Santa said.
“It’s almost unreasonable to criticize a candidate for changing his position on such an important issue. You can argue that this is what rational people do as they learn more,” Edwards added.
Cavaney agreed. “From our industry’s perspective, if you look at the big patterns, both candidates are in a different place on oil and gas than when their candidacies began. That speaks well for them. They listen to their advisors and to voters. As they say in sports, and it can be transferred to politics, it’s all about momentum. Oil and gas will end the year in a better position than where it began,” he said.
“I think both campaigns realize the importance of energy. It’s something they’ll have to address. But there will be other issues, and it won’t be apparent how they’ll be approached until the new president is sworn in,” said Fry.
“Energy will be only one of about a half dozen monumental issues, including health care, the economy, and the wars in Iraq and Afghanistan, that the new president will have to face. If he can have some successes early on, he will climb to the top tier alongside Franklin Delano Roosevelt and Ronald Reagan as someone who accomplished a great deal against tremendous odds,” Cavaney maintained.
