Comprehensive energy legislation appears dead this year, said a Republican press aide for the Senate Energy and Natural Resources Committee late Monday. This would be a major setback for Capitol Hill Republicans and President Bush, who has pressed for national energy legislation since he took office.

“It looks like we’re not taking up the energy bill this year,” said Marnie Funk whose boss is Sen. Pete Domenici (R-NM), the chief Republican architect of the energy measure (HR 6). The bill will be carried over to 2004, she noted.

Rising costs for natural gas, heating oil and gasoline, and rural America’s “displeasure” over losing favorable ethanol tax credits “will create [a] perfect storm for getting the bill passed in January,” Funk told NGI. Many Capitol Hill watchers, however, don’t believe Congress will be able to approve hot-button energy legislation during an election year.

This would mark the second consecutive year that Congress has come close to passing a broad energy bill, but failed in the final stretch. Lawmakers have been trying to craft energy legislation in one form or another since 1998.

This year’s bill, which passed the House handily last Tuesday, came under heavy attack from Senate Democrats and Republicans for a controversial proposal that would offer liability protection for makers of the gasoline additive MTBE from lawsuits involving MTBE-contaminated groundwater, for its huge pork-barrel spending, notably for ethanol, and its proposed rollbacks of federal clean air and water regulations.

Last Friday, 32 Democrats were joined by six Republicans and an independent in blocking the energy measure from coming to the Senate floor for an up-and-down vote (see NGI’s Daily Gas Price Index, Nov. 24). This was a major defeat for Republican-led proponents, who needed 60 votes to force a vote on the bill, but fell short by two. Senate Majority Leader Bill Frist (R-TN) vowed at the time that he would bring the measure to the floor again before the Senate adjourned if he could find the two additional votes. By late Monday, it became clear that the opponents of the bill were not interested in switching their votes, however.

“I’m going to work it hard” to convince two opponents of the bill to switch their votes, said Frist Sunday on CNN’s Late Edition. But “if [we] can’t get it done by Tuesday, we won’t see it [the bill] until January of next year.” Senate Democrats, he charged, “successfully used a filibuster once again to deny what the majority of people in the United States want.”

Senate Minority Leader Tom Daschle (D-SD), who intended to vote for the energy bill because of the favorable ethanol provisions, said Monday he doubted Frist had the votes. “I think if Sen. Frist thought he had two additional votes it [the bill] would come back very quickly” to the Senate floor for another vote, he told reporters on Capitol Hill. “I warned our Republican friends that they were going to load up the bill to a point [where it could] not pass.”

President Bush on Friday blamed a “minority of senators” for holding up the energy measure. “For the sake of our national security and economic security, the Senate has got to pass this bill,” he said.

The White House reportedly had stepped up pressure on House Republican leaders to drop the contentious MTBE product liability waiver, which prompted Senate Democrats and New England Republicans whose states were affected by MTBE-contaminated groundwater to band together to block the energy bill. House Majority Leader Tom DeLay of Texas, where major MTBE producers are located, inserted the protection during the House-Senate conference on the bill, and had not shown any sign of backing down Monday, according to a published report in The Houston Chronicle.

Daschle was pressured on NBC’s “Meet the Press” Sunday to justify his support for the bill. While he conceded the measure offered “huge handouts” to special interests, Daschle said the “positives outweighed the negatives.” It is “very important for my state” because it would provide $5 billion of additional investment in corn-based ethanol, he noted. “I voted my conscience on the bill.”

Energy analyst Christine Tezak of Charles Schwab Capital Markets, who has been steadfast in her belief that an energy bill would clear Congress this year, admitted for the first time Monday that the prospect for the bill was dim. “Rhetoric from Senate Republicans has gone negative on the subject of energy legislation, as it appears that they still lack the votes for cloture on an energy bill in the Senate…The mood on Capitol Hill soured measurably over the weekend,” she said.

“It seemed quite clear on Friday that the Republican leadership hoped to persuade two more senators to vote for cloture by addressing their concerns in the omnibus budget package. Apparently, either House leadership [was] not warm to this idea, or no one [was] willing to be ‘bought’ in such a high-profile manner,” Tezak said.

“A relatively quick fix would appear to be some sort of compromise on the MTBE liability language that has become the primary driver of the filibuster efforts in the Senate,” but House leaders appeared to be reluctant to provide some “hoped-for flexibility” on this critical issue, she noted.

“Therefore, absent some last-minute compromise on MTBE issues or a change of heart from a couple of senators, we think the energy bill is doomed to a slow death on the Senate floor” if it is carried over into 2004. “No one in Washington really thinks the bill has any chance for passage if it lingers into 2004.”

Raymond James & Associates’ analysts were highly critical of the energy measure, saying it included “all pork and no beef,” and had little to offer the oil and natural gas industries.

“This is a relatively meaningless piece of legislation for most [exploration and production] and oilfield service companies,” said analysts Wayne Andrews and J. Marshall Adkins in a “Stat of the Week.” The proposed extended and enhanced Section 29 tax credits “will add up to less than 2% of recent E&P capital spending. Is anyone really going to change their drilling plans based upon a couple of percentage points change in costs? We don’t think so.”

While the bill would offer incentives of around $560 million a year in the upcoming decade to E&P companies, the analysts noted these were “tiny” compared to the industry upstream spending of nearly $50 billion in 2002. “As a result, we don’t think that these incentives will result in meaningfully higher oil and gas production,” they said.

“We should also note that a full three-fourths of all of the proposed $23.5 billion in direct tax benefits [had] absolutely nothing to do with oil and gas production. One could even argue that the tax incentives for nuclear power plants, renewable fuels (primarily ethanol), clean coal and conservation-related measures could…have a negative impact on demand for oil and gas. That being said, increasing drilling access to non-park federal lands and the Outer Continental Shelf (including Atlantic and Pacific coastal waters), as well as streamlining the BLM permitting process could offset some of these negative issues.”

Some of the bill’s provisions — such as loan guarantees of up to $18 billion for a 3,500-mile natural gas pipeline from Alaska’s North Slope, and the ethanol mandates — “are pure pork barrel politics,” the analysts said. They criticized the energy measure for mandating an Alaska route for the pipeline, rather than the “far more economical” Canadian route. “Clearly, this part of the bill reflects more the political influence of Alaska’s congressional delegation.”

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