With public sentiment shifting in favor of repealing the ban on drilling in the federal Outer Continental Shelf (OCS) to deal with record gasoline prices and the highest sustained natural gas prices ever, the issue took center stage in Washington, DC, and on the campaign trail last week.

President Bush last Wednesday called on the Democratic leaders of Congress to remove the 27-year-old congressional ban on oil and natural gas drilling in most of the OCS, open a small portion of the Arctic National Wildlife Refuge to drilling, offer incentives for oil shale production and expedite the permitting process for new refining capacity.

“I know the Democratic leaders have opposed some of these policies in the past. Now that their opposition has helped drive gas prices to record levels, I ask them to reconsider their positions,” he said during a Rose Garden briefing with reporters. “[If] congressional leaders leave for their Fourth of July recess without taking action, they will need to explain why $4 a gallon gasoline is not enough incentive for them to act.”

The president’s proposals came on the heels of an announcement by Sen. John McCain of Arizona, the presumptive Republican nominee for president, that he supports lifting the congressional moratorium, which has prohibited drilling activity off the East and West Coasts, as well as in parts of the eastern Gulf of Mexico.

“As for offshore drilling, it’s safe enough these days that not even hurricanes Katrina and Rita could cause significant spillage from the battered rigs off the coasts of New Orleans and Houston. Yet for reasons that become less convincing with every rise in the price of foreign oil, the federal government discourages offshore production,” McCain said in a speech last Tuesday in Houston.

He said that “with gasoline running at more than four bucks a gallon, many do not have the luxury of waiting on the far-off plans of futurists and politicians. We have proven oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production, and I believe it is time for the federal government to lift these restrictions and to put our own reserves to use.”

Referring to comments by some energy experts that oil may eventually hit $200/bbl and U.S. consumers could pay up to $7 for a gallon for gas, McCain said, “Somehow the United States, in so many ways the most self-reliant of nations, has allowed and at times even encouraged this state of affairs. This was a troubling situation 35 years ago. It was an alarming situation 20 years ago. It is a dangerous situation today.”

The growing Republican support to overturn the drilling moratorium appears to reflect voter sentiment. A Rasmussen Reports survey released last Tuesday found that 67% of surveyed voters believe that drilling should be allowed off the coasts of California, Florida and other states. Only 18% disagreed and 15% were undecided, according to the survey’s results. Conservative and moderate voters strongly supported lifting the ban, while liberals were more evenly divided (46% of surveyed liberals favored drilling, 37% opposed it).

A Reuters/Zogby poll last Wednesday found that nearly 60% of Americans surveyed said they would favor government efforts to boost domestic drilling and refinery construction to cool record prices. A Gallup survey earlier this month revealed similar results, with 57% of Americans surveyed supporting offshore development in U.S. coastal areas that are now off-limits to production.

In other major developments, Florida Gov. Charlie Crist dropped his long-standing support for the federal government’s ban on offshore drilling and endorsed McCain’s proposal to let the states decide on whether to allow drilling activity off their shores, the Associated Press reported. Crist is considered a possible running mate for McCain.

Sen. John Warner (R-VA) introduced legislation, co-sponsored by Sen. Jim Webb (D-VA), that would allow Virginia to develop domestic natural gas resources beyond 50 miles from its shores and share in leasing revenues. And Sen. Mary Landrieu (D-LA) last Wednesday signaled her intention to reintroduce her legislation to allow coastal states to opt into offshore production and share in the revenues.

But Bush’s proposals were not welcomed by Capitol Hill Democratic leaders. “Americans are suffering under the Bush-Cheney-McCain policies that were written by Big Oil — $4 a gallon gasoline, $134 per barrel oil, increased reliance on foreign sources of energy and hydrocarbons that contribute to climate change,” said House Speaker Nancy Pelosi (D-CA). She questioned why Congress should give away more public resources to producers that she claims are sitting on millions of acres of federal lands they’ve already leased.

“No one is sitting on their hands these days,” countered Rayola Dougher of the American Petroleum Institute on Fox News. “I think there’s a big misunderstanding about these leases,” she said, adding that oftentimes producers acquire leases without knowing whether there are any oil and gas resources beneath them. The federal government has estimated that more than 50% of the wells drilled between 1995 and 2005 were dry holes.

In response to the Republican proposals, House Democrats plan to take up a package of energy measures this week, including one bill that would force producers to either drill on their existing leases or face the prospect of paying high fees. The fees would escalate if the leases go unused over the course of several years, reaching as much as $50 an acre each year, Dow Jones Newswires reported.

Democrats last week in effect turned the tables on the industry by claiming that companies are not producing oil or natural gas on the nearly 68 million acres of federal land already under their control. Offshore, producers are producing on only about 20% of the acres they hold, while onshore, companies are producing on less than 30% of the acres they hold, House Democrats said. They estimated that these unused areas could produce an additional 4.8 million b/d of oil and 44.7 Bcf/d of natural gas.

The snowballing Republican support to remove the moratorium comes as the price of crude oil exceeds $135/bbl for July delivery, gasoline prices top $4/gallon and natural gas trades at just under $13/Mcf for July delivery.

“I’m not dictating to the states that they drill for oil. I’m saying the moratorium should be lifted so states can choose that option if they want to,” McCain said. The federal government, he added, might have to offer “additional incentives…in terms of tangible financial rewards,” such as a greater share of royalties, to those states that permit drilling off their shores.

McCain directly criticized his Democratic opponent, Sen. Barack Obama of Illinois, for supporting a windfall profit taxes on oil. “If the plan sounds familiar, it’s because that was President Jimmy Carter’s big idea, too, and a lot of good it did us,” McCain said. Such a tax would cripple domestic exploration, he said, adding “I’m all for recycling, but it’s better applied to paper and plastic than to the failed policies of the 1970s.”

Obama attacked the Republican senator and said McCain was flip-flopping from previous statements and was capitulating to Big Oil interests.

<>”John McCain’s support of the moratorium on offshore drilling during his first presidential campaign was certainly laudable, but his decision to completely change his position and tell a group of Houston oil executives exactly what they wanted to hear [Tuesday] was the same Washington politics that has prevented us from achieving energy independence for decades,” Obama said. “Much like his gas tax gimmick that would leave consumers with pennies in savings, opening our coastlines to offshore drilling would take at least a decade to produce any oil at all, and the effect on gasoline prices would be negligible at best since America only has 3% of the world’s oil.”

While in Houston, McCain also renewed his call for new nuclear reactor construction in the United States. “One nation today has plans to build almost 50 new reactors by 2020. Another country plans to build 26 major nuclear stations. A third nation plans to build enough nuclear plants to meet one quarter of all the electricity needs of its people — a population of more than a billion people. Those three countries are China, Russia and India. And if they have the vision to set and carry out great goals in energy policy, then why don’t we?”

Aside from Florida’s Crist, the governors of other coastal states were less supportive of Bush’s and McCain’s remarks on the OCS. California Gov. Arnold Schwarzenegger wasted no time last Wednesday expressing his continued opposition to lifting the moratorium on offshore oil/gas drilling along the coast of California and other coastal sates.

Calling the California coastline “an international treasure,” Schwarzenegger said that while he opposed removing the moratorium, he would welcome a “national discussion about how to lower the cost of gasoline,” saying soaring prices are “taking a toll on California families just as they are on families all across the country.”

In the past Schwarzenegger has joined other West Coast governors in opposing any resumption of offshore drilling, fending off any efforts in the federal government to weaken offshore oil/gas drilling bans, and forming a partnership two years ago with Govs. Christine Gregoire of Washington state and Theodore Kulongoski of Oregon to protect the Pacific Coast.

While campaigning with Obama last week, North Carolina Gov. Mike Easley said that he believed lifting the drilling ban in the near-term would do little to reduce current oil, gasoline and natural gas prices.

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