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Despite Lower Prices, Energy to Be Priority in New Congress

Even with natural gas futures price at $6.78/Mcf and crude oil futures trading at about $63/bbl -- less than half of their summer peak -- energy is expected to remain a priority issue when the 111th Congress convenes in January, Capitol Hill aides and legislative experts say.

"I think energy will remain one of the top three issues when Congress returns," said Bill Wicker, a spokesman for Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee. Capitol Hill isn't likely to back away from energy issues simply because the prices for oil and gas have fallen dramatically in recent weeks, he noted.

Noting that there are "giddy Democrats" and "nervous Republicans" on the hill now, Wicker said he expects Senate Democrats to "vastly improve their margins" in the elections, but he thinks they will fall short of the veto-proof 60 majority. How this will impact the ongoing standoff between Democrats and Republicans over energy issues remains to be seen.

A critical issue facing the new Congress early in its term will be the Outer Continental Shelf (OCS). Wicker noted that the current continuing resolution to fund the federal government, which let the long-term ban on OCS drilling lapse, will expire in March 2009 (see NGI, Oct. 6). Depending on the outcome of Tuesday's elections, "it's a possibility" that the drilling ban would be reinstated or lawmakers could restrict leasing and drilling to 50-100 miles or more offshore. Producers oppose such restrictions, saying the more favorable oil and gas reserves are those closest to shore.

Presidential candidates Sens. Barack Obama (D-IL) and John McCain (R-AZ) have both signaled their support for expanded offshore drilling, "but then the question becomes where offshore," Wicker said.

With the OCS such a hot topic, he thinks Congress may get around to allocating funds to conduct an inventory of OCS oil and gas reserves, which was authorized under the Energy Policy Act of 2005.

Wicker said he also expects the new Congress to take up reform of the management of the Interior Department's Minerals Management Service (MMS), which oversees offshore oil and gas leasing and the collection of billions of royalties, during its two-year term. "They're out of control over there," he said. In mid-September the department's inspector general released the results of a two-year investigation of MMS that revealed drug usage, sex with oil industry contacts and between one-time employees of the agency's royalty-in-kind program, as well as rigging of contracts and other financial misconduct at high levels (see NGI, Sept. 15).

The revelations, which caused an uproar on Capitol Hill, further tarnished the image of an embattled agency. MMS has been under fire for several years for its failure to include price thresholds in deepwater leases issued in 1998-1999-- an omission that is expected to cost the federal government billions of dollars in royalties (see NGI, June 9).

Although the issue "might not be so urgent right now" in light of the lower oil and gas prices, Wicker said he also anticipates that the new Congress will take up royalty reform and possibly repeal of the Deepwater Royalty Relief Act of 1995. The law, which provides an exemption from paying royalties, was designed to encourage producers to explore for energy in the high-cost, high-risk deepwater areas of the Gulf of Mexico at a time when energy prices were significantly lower than they are now.

Another priority energy issue will be passage of a renewable portfolio standard (RPS). He noted that the last time the Senate voted on the RPS issue it garnered 59 votes, just one shy of the required 60 for consideration. If the Democrats gain a greater majority in both the House and Senate, the odds of this clearing Congress could improve greatly.

Other energy issues to likely be debated would be clean coal, energy efficiency, oil shale research and development and electric transmission infrastructure and siting, according to Wicker.

Martin Edwards, legislative vice president of the Interstate Natural Gas Association of America, said he will be looking at "what Congress wants to accomplish with respect to electricity infrastructure, CO2 [carbon dioxide] infrastructure and biofuels infrastructure, and whether they want to use the Natural Gas Act [NGA] as a model for approving and siting" the facilities.

This, according to Edwards, would involve preempting the states and giving the Federal Energy Regulatory Commission exclusive authority to review, approve and site the facilities in the same manner as its does natural gas pipelines. The NGA gives FERC authority over gas pipelines, but the states -- rather than the Commission -- site power transmission facilities, which critics contend is an unwieldy process.

Congress is expected to return for a lame-duck session the week of Nov. 17, but no energy issues are on tap, Wicker said. A second economic stimulus package, which would spur year-end spending and possibly create jobs, and a major lands bill will be on the agenda, he noted.

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