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Analyst Doubts 'Substantive' Energy Legislation Will Be Adopted in Wake of Katrina

While there will be "a lot of noise" on Capitol Hill in the wake of Hurricane Katrina, energy analyst Christine Tezak doubts there will be "substantive legislation" adopted to change the way domestic energy markets operate.

"Congress has sailed back into Washington ready to ride to the rescue of the Gulf Coast region, promising to root out gougers, spur refinery construction and mitigate the hit to the wallet that consumers nationwide are facing at the gasoline pump [and are soon to face with natural gas]. However, Congress takes time to move with legislation...If gasoline doesn't stay above $3/gallon at the pump for more than a couple of weeks...the pressure on Congress to craft specific energy-related support for the energy complex in upcoming legislation could ease," Tezak of the Stanford Washington Research Group said in an "Energy Policy Bulletin" last Wednesday.

She believes a number of provisions that didn't make it into the recently enacted energy bill could be revisited during the debate on how to provide assistance to Gulf Coast States and relieve the pressure on high energy costs.

A proposal by Sen. Mary Landrieu (D-LA) to give producing coastal states a greater share of the offshore royalty pie "is likely to be discussed again" in the aftermath of Katrina, Tezak said. "Such funds, although originally sought for such broad programs as coastal restoration, could also help the state offset rate shock that could materialize as electric utilities rebuild evacuated areas for populations that haven't yet returned," she noted. However, changes to the royalty program were not broadly supported by lawmakers during the recent energy bill debate, Tezak said.

"Opt-out provisions to the offshore drilling moratoria, advocated by states such as Virginia, but not incorporated into the final energy bill, will also likely be discussed at length in the coming weeks. In the end, again, the stabilization of prices could take the wind out of such efforts," she noted.

More than 100 businesses, industrial companies, and gas industry representatives called on Congress last week to remove the restrictions on oil and natural gas drilling in much of the federal Outer Continental Shelf (OCS) in the wake of Hurricane Katrina..

"Steps must be taken now to expand and diversify our sources and supplies of energy," the coalition, which included the American Gas Association, the American Chemistry Council, the Industrial Energy Consumers of America and numerous individual companies and other groups, told House Speaker Rep. Dennis Hastert and other members of Congress. They cited a 400% increase in natural gas prices over the last four years, "which is far higher than crude oil or gasoline, and the situation continues to worsen."

They said Congress should start by eliminating the drilling restrictions offshore Florida in the eastern Gulf of Mexico. "According to the Minerals Management Service, we have an estimated 406 Tcf of natural gas in our offshore areas that federal policies keep off limits to production that could supplement existing supply," the companies and energy groups said.

"The highest priority should be placed on Lease 181 in the Gulf of Mexico. Lease 181 has an abundant supply of energy resources with access to existing pipeline infrastructure that will speed delivery of natural gas to the market."

Opening up the coastal plain of the Arctic National Wildlife Refuge (ANWR) to oil and natural gas drilling may factor into the debate in the weeks ahead as well, according to Tezak. "Provisions to permit drilling in the ANWR [and open up the OCS] may be incorporated into a budget reconciliation if Congress finds the time or inclination to pass one -- an increasingly uncertain prospect." It was unclear last week whether the congressional budget process would be delayed in the wake of Katrina.

She said it was too early to know what kind of financial assistance -- enterprise zones or other tax incentives (accelerated depreciation) -- may be provided to the energy industry. "We certainly think that the emphasis of pending hearings on the Hurricane Katrina and its energy impact are going to concentrate on oil, natural gas and gasoline markets in the near term. But with news that oil prices are back to pre-Katrina levels and gasoline prices at the pump may not be far behind, the furor over the need to use federal funds and programs to actively stimulate the energy complex may recede," Tezak noted.

"Of course, all bets are off if there is another disruptive hurricane. The season isn't over yet."

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