The country is confronting economic and energy challenges that are similar to those faced three decades ago during the Iranian revolution and hostage-taking situation, said the head of the American Petroleum Institute (API).

“We’re at [the] same spot again. We’re going to have a new president and new Congress. We’re going to have a lot of new economic conditions that we’re going to be facing,” API President Red Cavaney told reporters during a Platts energy symposium in Washington, DC, Tuesday.

“I think the lessons that we should learn are don’t act precipitously. And make sure you understand what the drivers are in the economic recovery and…that those drivers are permitted and allowed to do what’s necessary. That’s particularly true of the entire energy industry with its capital intensity [and] its long lead times,” said Cavaney, who next month will leave API after 30 years to join ConocoPhillips.

A dozen different programs and activities were tried during the 1970s and early 1980s to “give us ‘energy independence,’ to get the economy back on track. [But] I think it’s fair to say that every single one of [those] ‘silver bullets’ that were developed at the time proved to be inadequate,” he said.

“What did happen…is the oil [and gas] industry was brought down to its knees, resulting in significant increases of imported oil as hundreds of thousands of wells were shut in here domestically [and] upwards of a third of the U.S. oil and gas workforce lost their jobs. We [were] living with that legacy for about two decades afterward.”

The industry needs to “[make] sure that we get economic and energy policy prescriptions that are going to end up propelling us forward and not backward,” Cavaney said.

He gave both the U.S. and foreign governments high marks for their actions to restore order to the financial and credit markets. “Governments not just in the U.S. but throughout the globe didn’t wait to overanalyze or see if there were already self-correcting mechanisms in place, but jumped in and took action. While there’s been precipitous losses in equity and bond markets and the like, the one thing that we now see is that at least yesterday [Monday] and early this morning the markets look like they’re responding in a more positive direction.”

The stock market Monday broke an eight-day losing streak as it rallied by more than 900 points. On Tuesday the Dow Jones Industrial Average shot up by nearly 400 points in early trading, but it turned to negative territory later in the day, despite the Bush administration’s announcement of plans to inject $250 billion into nine major banks. The Dow fell 76.62 points to close at 9,310.

Producers that “are heavy on cash…are in a very good position right now,” and have more options than those that are short on cash and heavy on debt, Cavaney said.

As for drilling on the Outer Continental Shelf (OCS), he noted that producers aren’t about to increase their offshore spending until they are certain the next president and Congress will not restore an OCS drilling ban that recently expired. They want to be sure that the removal of the ban “was not just a temporary apparition,” but rather a longer-term policy.

Producers will look for a “positive proactive signal from the new administration” before making new plans in the OCS, Cavaney said. He said he expects Congress to take up the OCS issue when it returns in January.

Cavaney said any new OCS legislation next year should require that royalties be shared with states that allow drilling off their shores, and it should not prohibit drilling within the first 50 miles from coast lines.

He also was against the windfall profits tax on the oil and gas industry, saying the tax in the past “had [the] reverse effect” of its stated objectives, such as reducing dependence on foreign oil. “The idea that we need to put more taxes on oil and gas…is a fallacy.”

While producers support the development of alternative energy fuels, “we think there is an incubation period that’s necessary” for alternative fuels to prove that they can have “staying power” without being subsidized by the federal government, he noted. Producers especially object to the fact that they are being stripped of funds to aid in renewable fuel development. “Let’s not end up crippling” oil and gas, he said.

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