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Global Politics Likely Will Trigger Congressional Action on Energy

By The Abraham Energy Report, March 2011

Despite predictions late last year that energy policy would be a back-burner issue for the 112th Congress, the perfect storm of global politics, Middle East unrest and growing U.S. demand may force lawmakers to move energy legislation this year, albeit more targeted than 2010’s sweeping carbon trading or renewable energy standards measures.

At a Washington energy forum sponsored by The Abraham Group and Bloomberg Government, energy industry officials predicted that GOP leaders would have little choice but to act if gas prices climbed above $4 and $5 a gallon during this summer’s peak driving season.

U.S. Rep. Fred Upton, the Michigan Republican who chairs the House Energy and Commerce Committee, told the forum that “with the unrest in the Middle East, we are seeing increasing prices which are really threatening our economy in the months and years ahead.”

Congress needs to take action to avert a crisis. “I think the emphasis will be on supply—what can we do to increase the supply to have a downward pressure on prices,” Upton noted. The pressure would likely take the form of legislation to encourage the extraction of additional oil resources in the United States, both in the Gulf of Mexico and Alaska.

In its short-term energy outlook released in February, the Energy Information Administration (EIA) forecast that the average WTI price of crude oil would be $93 in 2011. As of March 4, the price was resting at more than $102. The EIA also projected that regular-grade gasoline retail prices would rise from an average of $2.78 per gallon in 2010 to $3.15 per gallon in 2011. According to AAA, the average price of unleaded gasoline in the United States this week is $3.47 per gallon.

“The price of oil passing $100 per barrel represents a serious challenge to the U.S. economy,” said Spencer Abraham, Chairman and CEO of The Abraham Group and former U.S. Secretary of Energy. “We need to continue to look for adequate and affordable energy supplies within the United States to lessen our dependence on foreign oil, offset growing demand from American consumers and to continue to stimulate the economy.”

A recent Heritage Foundation analysis projected that an increase $10-per-barrel increase in the price of imported crude oil in the first quarter of 2011 and by $20 in the second quarter would reduce the United States’ gross domestic product (GDP) by $20 billion, trim employment by nearly 100,000 jobs, and boost gasoline prices 18 cents per gallon in 2011 alone.

“Major energy and environmental laws are passed on a bipartisan basis, and many of them happen as a result of a crisis,” said Thomas R. Kuhn, President of the Edison Electric Institute, at the forum. “I think we may be in the middle of a new crisis here.”

It was a sentiment echoed by the other speakers at the forum, which included Dave McCurdy, President and CEO of the American Gas Association, Denise Bode, CEO of the American Wind Energy Association, Daniel J. Weiss, Senior Fellow and Director of Climate Strategy at the Center for American Progress, and Bob Simon, Democratic Staff Director for the Senate Energy and Natural Resources Committee.

Simon suggested that even with the threat of substantial increases in gasoline prices, comprehensive energy measures, including a clean energy standard highlighted by President Obama in his State of the Union address, aren’t likely to get any traction in this Congress. “This is going to be a challenging Congress to operate in because there are going to be lots of other crosswinds of other policy areas that threaten to knock us off course,” Simon said at the forum.

Simon predicted that “discrete” efforts would likely come on legislation that has had bipartisan support in the past. Along with an effort to increase U.S. oil production, those measures include improving energy efficiency standards for appliances and equipment and establishing a federal financing program to stimulate technology deployment. Sen. Jeff Bingaman (D-N.M.), the committee chairman, and the committee's ranking member, Lisa Murkowski (R-Alaska), have introduced an energy efficiency bill that follows the measure that nearly passed the Senate last year.

“The energy system in the United States is much more complex, much more interconnected … than most anyone in the American public realizes,” Simon said. “It is a difficult enterprise to turn around in any one piece of legislation. The realistic thing to hope for is we can have a good, long-term comprehensive policy vision and then we can take that vision and look for ways of implementing it in whatever environment we find ourselves in. There are some environments that lend themselves to large pieces of legislation. If you can get things done, then you do it that way. At other times, you can get things done in a more discrete fashion, then you do it that way.”

Simon said the Senate might also act on legislation addressing access to and availability of rare-earth elements. Despite immense domestic resources, the United States imports most of these rare earths from China. Sen. Mark Udall (D-Colo.) has sponsored legislation that would address the issue.

Upton also supports increasing imports of Canadian crude oil from oilsands, and urged the approval of a U.S. permit for construction of TransCanada’s 1,661-mile Keystone XL pipeline, which would transport about 500,000 barrels of oilsands crude per day from northern Alberta to Gulf Coast refineries.

The Abraham Energy Report, which provides analysis and viewpoints on important energy and geopolitical issues and current events, is sent several times a year to clients and friends of The Abraham Group.