Washington (Platts)--22Jun2007

The US Senate passed a wide-ranging energy bill late Thursday that seeks
to slash American oil consumption and raise fuel economy standards for cars,
trucks and sport-utility vehicles for the first time in more than 20 years.

     The bill, which the Senate's Democratic leaders cobbled together from
several stand-alone measures that passed out of various committees earlier
this year, was approved by a vote of 65-27. But the actual margin of victory
was much closer, as a procedural motion to cut off debate on the bill, known
as cloture, squeaked by with only two votes to spare. 

     Many Republicans initially opposed the bill when floor debate began 11
days ago, saying it overemphasized conservation and gave short-shrift to
additional oil and natural gas drilling and other forms of energy production. 
But the tide began to turn Thursday morning, after Republicans managed to
block an amendment that would have stripped large US oil companies of nearly
$30 billion in tax breaks over the next 10 years.

     Another key breakthrough came Thursday afternoon, when lawmakers hammered
out a compromise amendment to replace the section of the bill addressing
Corporate Average Fuel Economy standards for motor vehicles.

     NEW FUEL ECONOMY STANDARDS TO CUT DEMAND BY 2.5 MILLION B/D BY 2025

     The CAFE issue had stalled the bill for days, as Republicans -- as well
as two Democrats from Michigan, home of the US auto industry -- argued that
the provision in the original bill would severely hurt US automakers. 

     But once lawmakers agreed on the CAFE compromise, they quickly adopted it
by voice vote with no debate, catching dozens of reporters in the Capitol
completely off-guard. 

     The original CAFE provision would have raised fuel-economy standards for
cars and trucks to 35 miles per gallon by 2020, a significant increase from
the fleet average of 25 mpg that has existed since the 1970s. But the original
provision would have also mandated an additional 4% increase every year
between 2021 and 2030, which the auto industry vigorously opposed. 

     The compromise language retains the 35 mpg threshold by 2020, but it
drops the 4% annual increase in years thereafter. 

     The CAFE provision of the bill alone will reduce US oil consumption by as
much as 2.5 million b/d by 2025, senators involved in the compromise said.
That could save US consumers nearly $100 million in gasoline costs, they said.

     "The bill will achieve serious savings for oil...and put money back in
the pockets of American consumers," said Senator Dianne Feinstein,
Democrat-California, who played a key role in crafting the compromise. 

     LARGE US OIL COMPANIES TO CONTINUE GETTING TAX BREAKS

     But Republicans won a significant, if partial, victory by blocking an
amendment that would have stripped large US oil companies of nearly $30
billion in tax breaks over the next 10 years. 

     Democrats wanted to re-direct the money towards boosting ethanol and
other non-petroleum biofuiels. But Republicans argued that the amendment would
raise gasoline prices and cost Americans jobs. "Are we never going to learn?"
said Senator Trent Lott, Republican-Mississippi, earlier in the debate. "When
you tax something, you get less." 

     Democrats came very close to marrying the tax package to the underlying
bill, as 10 Republicans voted to do so. But they came up just a few votes
short, in part because Senator Mary Landrieu, a Louisiana Democrat who has
close ties to energy companies that operate in the Gulf of Mexico, broke party
ranks to oppose the plan. 

     Still, top Democrats lambasted Republicans for derailing the tax
provision. "We have $3-a-gallon gas, and their response is to help out big
oil," said Senator Charles Schumer, Democrat-New York. 

     One Democratic senator, Kent Conrad of North Dakota, nearly scuttled the
entire bill in the 11th hour when he vowed that Democrats would reinstate the
tax package during a conference committee with the House of Representatives,
which is necessary before the Senate legislation can be sent to President Bush
for his signature. 

     "That created a considerable amount of angst on this side of the aisle,"
said Senator Mitch McConnell of Kentucky, the Republican leader. But Senate
Majority Leader Harry Reid, Democrat-Nevada, admonished Republicans to "cool
the jets" on the issue.

     The House intends to vote on a wide-ranging energy bill next month. The
two chambers will have to agree on identical language before sending a bill to
the White House for Bush's signature.

		--Brian Hansen, brian_hansen@platts.com