Energy works its way back into Washington spotlight

When George W. Bush recently was asked by Tim Russert of NBC’s Meet the Press to name one of the toughest patches in his life, Bush hesitated only a moment before answering that it was the oil price crash in 1986. He told Russert what it was like, as an independent operator in Midland, to be in a business when its basic commodity fell through the floor with little relief in sight. Bush’s background, pre-Texas Rangers, hasn’t gone unnoticed by the industry. New IPAA President Barry Russell, pointed out that many of the industry’s political action committees have kicked it into gear for Bush. There’s "a sense in the industry that since George W. Bush comes from the industry that that is a huge positive," said Russell in an interview with World Oil.

Section 232 response viewed as insufficient. Russell was less enthusiastic about a recent Clinton response, via the Commerce Department, to industry’s so-called Section 232 petition seeking more forthright policies to enhance U.S. production following the serious market downturn in 1998 and 1999. He noted that, in the two-year period when prices tested 1986 lows, the U.S. lost 25% of its producing wells, 10% of production and about 65,000 jobs. Since prices have turned back up, with many operators struggling to get together crews, about 15,000 jobs had been replaced by mid-July. "So you can say the industry is starting to come back but it’s a real concern. . . . You lose a lot of the infrastructure with the type of downturn experienced in the late ’90s."

Lee Fuller, IPAA’s vice president for government affairs, said that the administration’s 232 report covered a lot of the same ground that is already part of Clinton policy, including some support for industry tax initiatives but with an emphasis on putting more money into solar and other renewables. "Like it or not, fossil fuels . . . are really going to be the focus of the energy needs of our country," said Russell. "I think our response on that is . . . we don’t think it went nearly far enough." Clinton’s administration wasn’t the first to come up short, in industry’s view, on actions tied to Section 232 requests that allow petitioners to seek import relief. The Reagan and Bush administrations also offered proposals that were viewed as pale substitutes for a full-fledged energy policy.

Fuller said IPAA has not commented directly on the President’s full-court press with Saudi Arabia and others in OPEC to lobby for lower oil prices, apparently contributing to Saudi Arabia’s surprise announcement in July to pump 500,000 additional bpd, independent of the cartel. "We haven’t addressed the specific actions of the administration, but we have asked that the country be more active in working with those nations . . . (particularly) on market transparency." He noted the Energy Department has made a higher priority of assessing more accurate numbers on individual OPEC members’ production capacities, potentially offsetting some perceptions in the marketplace that excess capacity is significantly greater than it is. "What we have said is, we believe it’s important for the United States to be engaged with producer nations . . . in talking about stable oil supplies worldwide."

Markets looking firm for near term. IPAA, like API and other industry associations, shies away from direct price forecasts. But Russell said producers were beginning to have confidence the current upturn might last a while, long enough to help rebuild from the late 1990s and almost a decade of lower-range prices since the mid-1980s. "Looking at excess capacity around the world . . . right now I think there’s a consensus that demand is fairly high in several parts of the industry . . . So that would lead you to believe prices are pretty firm." Rather than discouraging action on industry initiatives, the current upturn, with headlines everywhere about higher pump prices, may serve to further political activity," Russell said. "What it does do is really put energy in the spotlight. What people see more and more (is) that prices are unstable . . . (and that) is not good for producers or consumers."

Russell has been a veteran with IPAA as association counsel and a leader on environmental issues. He said the background would be valuable as issues of industry access, both onshore and offshore, continue to run up against more stringent restrictions. "A very high priority is to look at the royalty policy offshore, to make sure that that is an area where changes could be made to maximize oil and gas production." Onshore, he said a "patchwork of environmental changes" will be on the agenda, especially in the Rocky Mountains and with the Endangered Species Act.

Potential sea change at Ways and Means. The industry has enjoyed substantial support, through much of the 1990s and this year, with Rep. Bill Archer (Republican-Texas) heading the always-critical House Ways and Means Committee. That panel in earlier years often tilted heavily toward interests of lawmakers from the Northeast and Midwest. Archer will retire after this year, so if Democrats recapture the House in November’s elections, the pendulum could again swing leftward. The Wall Street Journal noted recently that Rep. Charles B. Rangel (Democrat-New York) is widely considered the likely replacement as chairman if Democrats gain the majority. Rangel sometimes has been as vocal against industry provisions, many of which find their way before the committee, as Archer has been favorable.

Spain as a new Saudi? In an item headlined "Spain Tries Electricity Shaken, Not Stirred," The New York Times reported in May that power plants fueled by residue from olive oil production are beginning to sprout up along the southern coast in Andalucia. It seems that pressing 2,600 tons of virgin olive oil leaves almost 10,000 tons of crushed olive skin and pulp. "Travel this corner of Spain, with its endless hills of olive groves, and you begin to realize why the country thinks of itself as a kind of Saudi Arabia of olive oil," said the Times. One plant in a town near Cordoba produces 12 MW of electricity, "roughly enough for four villages this size." Two more plants are planned by Endesa, the leading Spanish utility, and the company has projected as many as eight more for the region. Maybe the Saudis feared a new competitor in their resolve to knock prices back under $30.