International Politics

Capitol Hill defies Einstein. Sometimes things happen at the speed of light. Sometimes they happen bewilderingly slow. Sometimes, it’s a mixture of both. As we go into the latest session of Congress, it seems to be a case of the latter in terms of energy policy.

Congress is back from the Easter recess, and the obvious question is whither the energy bill in the Senate. These energy bills are curious amalgams. There have been dozens of "national energy plans" over the last decades, not one of which seems to have ever made a bit of difference. It is rather like when (as nostalgia buffs remember) President Gerald Ford unveiled his WIN (for Whip Inflation Now) program, and we all went around for 15 minutes wearing WIN buttons in our jacket lapels. Wall Street and the world paid not the slightest attention.

So it may be with the Bush / Cheney energy plan. A top-heavy document, it never really amounted to much, being far more descriptive than prescriptive. Andrew Lundquist, the White House staffer who put it all together, has suddenly retired into private practice.

And, of course, opening the Arctic National Wildlife Refuge (ANWR) to drilling is the big bugaboo. As anyone who has been there knows, ANWR’s coastal plain is a barren dump. It is a place, where a small oil field with modern technology – taking up the size of a football field and possibly making available billions of barrels of oil – would be warmly welcomed by the native, Inuit / Eskimo population.

ANWR’s coastal plain is so barren, one wonders why any self-respecting caribou or bear would bother to traverse it. (Photo courtesy of Arctic Power.)

It also might be welcomed by the caribou while pretty much inflicting zero harm on the environment. Indeed, a study released in April by the U.S. Geological Survey said that drilling in ANWR would have no impact at all upon the Porcupine caribou herd.

But Washington politicians and champagne-socialist, New York environmentalists seldom travel to Alaska. Thus, the ANWR issue remains the sticking point in any energy bill. Senate Majority Leader Tom Daschle (Democrat-South Dakota) is dead-set against any ANWR drilling – less, it is said in Washington, because of any real interest in the topic but because he harbors presidential ambitions and is loath to offend in any way the environmental groups or voters.

All of this could work out either way in the weeks and months ahead, and the November elections could toss the Senate back to Republican control. ANWR proponents also say privately, that they have a few aces up their sleeve – tactical batteries that they are, as yet, unwilling to unmask.

These factors are working out against a background of an unpredictable economy, in general, and the turmoil in the Middle East, in particular. Iraq’s bombastic oil embargo, while not boiling down to much in terms of practical politics or economics (both OPEC and non-OPEC sources have more than enough capacity to take up the slack), does give ANWR proponents a rhetorical boost. The economy, say the experts who study these tea leaves, is actually in better shape than it seems.

But oil prices are a threat. Veteran energy economist Irwin Stelzer of the Hudson Institute said recently, "Oil prices are a worry. Recent increases, partly in response to the war in the Middle East, and partly due to the onset of the spring driving season, will hurt the already-beleaguered airlines, and industries that rely on petroleum as a raw material. A trade war, increasingly possible as America’s trading partners retaliate for America’s tariffs on steel, would hurt the recovery. The Federal Reserve Board’s monetary policymakers might raise interest rates too much, too soon."

Then, too, there is the post-Enron era of more punctilious accounting. With Congress and regulators belatedly peering over their shoulders, no longer can the big energy companies inflate profits and diminish losses by some sharp practices on the balance sheet. All this has a dragging effect on share prices, rendering very jittery investors, both small and large.

But the Department of Energy’s Energy Information Administration seems sanguine. It has just predicted regular gasoline prices of $1.46/gal on average for the summer, well below the price of the last two summers.

Meanwhile, what to make of natural gas, ever-increasingly the fuel that powers America’s new power plants? Arlington, Virginia, firm Energy Ventures Analysis (EVA) in March put out a report saying that at the end of first-quarter 2002, some 263,000 MW of new, gas-fired capacity is under construction or active development in the U.S.

For U.S. or Canadian gas producers, that’s the good news. The bad news comes when EVA begins sucking its thumb and pondering – "Over the 1998-to-2007 timeframe," it writes, 348,000 MW of capacity has begun operation or is under development, which represents a 6% decrease over the prior quarter. However, EVA’s own plant-by-plant assessment indicates that further cancellations and/or delays will occur as the year advances. In the end, "only 291,000 MW of the industry-planned capacity will actually get built. The recent pullbacks are due to a number of factors, of which the loss of easy access to financial markets is just one. Other factors [include] the quickly-changing environment for adding capacity [and] the ongoing uncertainty that will continue to exist for the industry concerning how much capacity will be built, when and where."

It all makes being a U.S. natural gas producer more of a poker game than usual.

John McCaughey edits and publishes Energy Perspective, a Washington-based, fortnightly publication that features in-depth coverage of major energy topics. Mr. McCaughey has written and edited for Irish newspapers, an international news agency, the London-based Financial Times and the U.S.-based Energy Daily newsletter, and contributed to many other newspapers. He is a regular contributor to this column.