ANALYSIS: US Democrats' victory signals push to slash oil use

ANALYSIS: US Democrats' victory signals push to slash oil use

Washington (Platts)--8Nov2006

After a resounding win in Tuesday's elections, Democrats will control the
US House of Representatives for the first time since 1994, allowing them to
pursue legislation they say will allow the country to cut oil use and control
greenhouse gas emissions.

Whether or not that is possible, Democratic leaders in the House and the
Senate have made a rapid expansion of "homegrown" alternative fuels the
centerpiece of their anti-oil, "new direction" agenda. Rep. Nancy Pelosi of
California, who is expected to lead the House when the next Congress convenes
in January, has said Democrats will within hours of taking control move to
repeal billions of dollars in oil tax credits that can be used to develop
gasoline alternatives like ethanol, renewable energy and advanced vehicles.

Democrats had taken no fewer than 28 Republican House seats, leading to a
13-seat majority. The Senate majority remains undecided; if Democrats win two
races they are leading in Virginia and Montana they will control that chamber
as well. Still, with thin majorities any legislation would have to be
bipartisan to make up for any possible Democratic defections.

Pelosi has promised to bring an energy bill to the floor within weeks.
The Democrat's leading bill (H.R. 5965) would encourage greater use of
ethanol, biodiesel and fuel-efficient vehicles with a combination of financial
incentives, funding for research and development, and mandates. The Democrats
have tried to avoid an intra-party dispute over fuel economy standards by
proposing to spend $5 billion over 10 years to double the fuel efficiency of
today's vehicles.

Besides reducing oil demand, which has become a growing concern of
Americans, the focus on alternative fuels made from crops could help Democrats
make inroads in rural communities that have largely supported Republicans. The
Energy Policy Act, approved on a bipartisan basis last year, gave farm states
and the ethanol industry the renewable fuels mandate they had worked to enact
for years.

LEGISLATION TO BOOST GAS SUPPLIES POSSIBLE

On the environment, the party of Al Gore has long called for action to
stem global warming, but as the minority has been able to do little but
inveigh against President Bush for reneging on a pledge to cap carbon dioxide
emissions. The new House leaders may pursue a climate change bill, but action
is not guaranteed because their caucus is divided, much as it's split over
nuclear power.

Rep. John Dingell of Michigan, who is expected to lead the
House Energy and Commerce Committee, might best exemplify the division on
these issues, as he's not expressed support for CO2 limits he would have to
write and favors nuclear waste legislation, which could help the industry
build the first new reactors in decades.

Republicans have attempted almost annually to open the Arctic National
Wildlife Refuge in Alaska to drilling, and this year they have moved to give
oil companies more access to the Outer Continental Shelf. It would be unlikely
that a Democratically-controlled House would vote to increase oil production,
especially by opening ANWR to drilling.

And when gasoline prices were at near-record levels earlier this year,
Pelosi called the executives of the major oil companies "robber barons."

Legislation to increase supplies and lower the price of natural gas,
which has hit manufacturers hard in recent years, is possible. Democrats in
the Senate helped pass a bill to allow more oil and gas drilling in the
eastern Gulf of Mexico.

Dingell has said one of his priorities would be to increase gasoline
supplies by expanding oil refining capacity. He and his colleagues have called
for a federally run refinery "reserve" that would provide gasoline to the
market during emergencies and serve military needs the rest of the time.

They also want to ban gasoline price gouging suspected by many Americans
and expand federal oversight to ensure there are no fraudulent sales of
natural gas.

Democrats are also likely to continue a Republican investigation into
whether the Minerals Management Service is collecting oil and gas royalties
owed the government for drilling on federal lands.

A Democratic Congress and possible legislation to tighten federal royalty
collection could also prod companies and the MMS to renegotiate some US Gulf
deepwater leases that lack royalty relief price thresholds. Omission of those
thresholds is expected to cost the Treasury about $10 billion in lost
royalties, with about $1.6 billion already lost from past production. Both
chambers have considered provisions to block companies from bidding on new OCS
leases unless they amend their no-threshold contracts. But despite majority
support in both chambers, Republican leaders have kept that language out of
legislation because the Bush administration is opposed. Democrat leadership
could push for inclusion.

One energy research issue wanted by liberal groups, which form the base
of the Democratic Party, is a massive research effort akin to the Apollo
project that sent man to the Moon, to break the US "addiction" to oil and
slash greenhouse gas emissions. Bush and the Republicans have put billions of
dollars over the past six years toward clean coal R&D and development of
hydrogen fuel cells, but have rejected calls for such a concerted effort.

--Mike Schmidt, mike_schmidt@platts.com

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