As members of Congress prepare to leave town for the Fourth of July recess, high oil and gas prices are one of the most pressing issues causing concern among constituents. During today's Reporters Roundtable, E&E Daily reporters Ben Geman and Alex Kaplun discuss the impact of high oil and gas prices on the presidential campaigns and upcoming congressional races. They also discuss the steps Congress is taking to address rising prices.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today for a reporters roundtable are E&E Daily reporters Ben Geman and Alex Kaplun. Ben, Alex, thanks for coming on the show again.
Alex Kaplun: Sure.
Ben Geman: Sure.
Monica Trauzzi: Ben, the Energy Information Administration just released its latest Energy Outlook report. What are the highlights of that report?
Ben Geman: Well, the highlights are that oil markets are going to remain tight over the long term, is what EIA basically said. I mean they issue these reports every year that look at kind of big trends out to 2030. And what was interesting today is that what they did was sort of increase their long-term forecast for the price of a barrel of oil. I mean, of course, over those years they forecasted it will move up and down, but I think that what many analysts are finding is that even at these very high prices that we're seeing today, a lot of people believe that the supply/response has not been at all what they thought it could have been and has been somewhat disappointing. I mean, that has to do with a lot of reasons such as the fact that a lot of reserves are off limits in some major producing countries. It's very expensive right now to get things like drilling rigs and there's a scarcity of supply of that infrastructure. So, bottom line is it's a fairly difficult environment. And I think that's one of the reasons why we're seeing so much action on this issue, or at least discussion of this issue, on Capitol Hill.
Monica Trauzzi: OK. That takes me to my next question. What action do you think Congress can or will take, moving through the summer, to address high oil prices?
Ben Geman: Well, there's not a huge amount that lawmakers can do to just sort of snap their fingers and drop oil prices. And beyond that, I think, what we're seeing is a lot of kind of political and partisan fighting right now and I think that tends to be what you see coming close to an election. Last year, for example, there ultimately was an agreement on a fairly broad energy bill that addressed some conservation issues and auto efficiency standards. I don't see that kind of process unfolding right now. It's degenerated into a lot of sort of political back-and-forth about who's to blame for four dollar a gallon gasoline. I think there's a couple small steps that lawmakers could come to agreement on, such as something they already did, which is halting shipments to the Strategic Petroleum Reserve. But right now everybody is sort of retreating to their corners in a lot of ways and even if they weren't, to be honest, there's very little they could do to really sort of quickly bring down prices. These tend to be long-term solutions.
Monica Trauzzi: Alex, you cover the politics of these issues very closely. How pervasive are high oil and gas prices going to be as we move into the '08 elections do you think?
Alex Kaplun: You know, I think it's maybe a little hard to tell. We've kind of seen this dance before where there's this period in June and July when oil prices kind of tend to peak every year, where politicians get really excited about it. And then when it gets closer to the election they should kind of fade a little bit, partially because prices drop and partially because other things overtake it. I think what's different this time around, besides sort of the record highs, and I suspect even if prices drop a little bit they'll still remain at sort of historically high levels, is that it's now part of an economic discussion. I mean it's one thing for gas to be $3.50 or $4.00 a gallon, you know, when everyone has plenty of money and the economy is doing well. It's another thing when people have all of these other financial issues. So I think, if nothing else, you'll definitely see it in that context where when people talk about the economy, which will definitely be an major issue, oil prices and gas prices are definitely going to be one of the things that's sort of at the top.
Monica Trauzzi: So, does this debate ride a fine line between pro-environment and pro energy and economy? Do the enviros stand to lose here?
Ben Geman: Well, I think environmentalists are trying extraordinarily hard, as are Democrats, to show that there is not this collision between on the one hand doing things that are environmentally protective and on the other hand doing things that will lower gasoline prices. I think you saw this play out a great deal in the Senate debate on global warming in which that was the Republican message. You know, we believe these steps to combat global warming and reduce emissions will lead to higher gasoline prices. I mean I think what you're seeing very strongly from the environmental community is an effort to say, look, the steps that are environmentally protective, insofar as they will help reduce emissions, are, in fact, the very steps that will help lead to job creation and help the economy, such as manufacturing of renewable energy infrastructure and that sort of thing. So, yes, you're seeing that debate a great deal and I think you're seeing Republicans trying to say what the Democrats and the enviros want to do will increase gas prices.
Monica Trauzzi: There are also pushing offshore drilling.
Ben Geman: Exactly, exactly.
Monica Trauzzi: Which the enviros oppose.
Alex Kaplun: I think the thing to kind of watch here though is Republicans for some weeks have been harping on these polls that show a very strong majority support more domestic drilling, support offshore drilling, etc. And they say, you know, this shows how Democrats are out of touch with what the voters want. I mean it's not clear that's hurting the Democrats or environmentalists yet. You look at most sort of polls, you know, the generic Democrat is still doing far, far better than the generic Republican. It is possible that if this keeps going, gas prices remain high, that Republicans are successful in painting the Democrats as obstructionists, as not willing to do or unable to do an energy policy, then it could start being an impact. I don't think we're seeing it yet. I mean there's a lot of discussion on the issue, but I don't get the sense that Democrats fear that there's going to be some kind of retribution at the polls come November if they don't take any major action on an energy policy in sort of the next sort of three or four months.
Monica Trauzzi: But this is a challenge issue. I mean it's getting a lot of attention, even in the mainstream media at this point.
Alex Kaplun: Yeah, it is, but again, there's so many issues that are in play in the election that this is certainly the most important one that's being discussed right now, I think in large part because of John McCain getting out there and talking about it a lot, in large part because the gas prices are so high. But there hasn't been any kind of translation of voters saying, OK, you know, if the Democratic leadership doesn't take action on this right now we're not going to vote for Democrats in the fall. I mean that may still happen. We're still a long way away from the election, but it hasn't happened yet.
Ben Geman: One thing I would add to that is that I think it is very clear that Republicans right now to see a moment to sort of really strike on this issue. I mean we've seen this sort of relentless campaign on their part to say now is the time for more offshore production and people who don't want to do it are those who are standing in the way of things that would eventually address energy prices, energy security. Even though they see themselves gaining some traction, I do not see the votes right now in Congress for lifting current restrictions on offshore production, certainly not in any broad way and probably not even in any sort of small way. I mean, yes, there's been a shift on the issue, but to the extent that we're going to sort of see Congress go ahead and, in fact, lift these bans, I don't see it.
Monica Trauzzi: OK. Let's talk about speculation because there was a lot of attention on how speculation could be impacting the price of oil. Talk about what happened in the House this week in terms of speculation and what we might see in the summer months, in July, what the House might do to act on that.
Ben Geman: Right. There's been a lot of increased attention over the past weeks and months in what are very complex oil futures markets and the extent to which the federal regulators, chiefly the Commodity Futures Trading Commission, are or are not adequately looking at this issue. This is potentially an area of some bipartisan agreement, although Republicans are very quick to say, well, any efforts to address speculation in the futures market should be linked to efforts to expand domestic oil production. Now, there was going to be some efforts to bring something to the floor fairly quickly in the House, but the Democrats sort of pulled it back at the last moment. And, to be honest, I think what we're seeing here is the fact that not enough people really know how to get at this issue, how far to go. I mean these are really, really complex things and you certainly have some lawmakers who have been focusing on it for a long time. But this issue is, in some ways, a little bit newer on the radar screen for people. And so there's this huge array of steps being considered on altering regulation of oil futures markets, such as changing margin requirements, such as bringing new restrictions to trading of U.S. oil contracts on overseas exchanges, principally in London. You have some lawmakers talking about trying to sort of push institutional investors, you know, big banks, hedge funds, pension funds, out of the market almost entirely.
Monica Trauzzi: Lots of different ideas.
Ben Geman: Right, there's not a consensus on how to deal with this, so I think that they're sort of looking for what to do. And that's sort of unfolding as part of this debate over whether or not this influx of speculative capital into the markets, how much this is affecting prices at all. You'll have Democrats and some Republicans, such as Olympia Snowe, saying this is really boosting pressure on oil prices. You have other people saying, look, like Energy Secretary Bodman, it's really supply and demand fundamentals. I mean that's the issue, tight supply, big demand. That's why prices are high. So, that debate is really ongoing.
Monica Trauzzi: I want to switch gears to presidential politics for a moment, because we did touch on that earlier. We're seeing this real battle develop between the presidential candidates when it comes to energy. Obama is trying to link McCain to Bush policies. McCain is trying to say that Obama is not strong enough on energy issues. Do you think that this is going to be the number one or a top-tier issue moving forward once we get to Election Day?
Alex Kaplun: I don't think it will be the number one issue. I think it'll be a major issue, I just don't think it will be the top issue because there's actually a lot of similarities between the two candidates on a lot of issues. I mean their campaigns, I'm sure, will dispute that, but all things considered, Obama and McCain are relatively close to each other on the political spectrum when it comes to energy policy. And they're both kind of talking about the same thing. They're both very heavily focused on alternative energy, fuel efficiency, things like that. So, there's just not that much differentiation between them as on some other issues, where you're really going to see a huge bell on it. Again, I do think it's going to be a major issue because, as I mentioned earlier, it touches on so many things, especially for McCain who believes he has a lot of credibility on energy issues, on climate change issues. He can link into security, which is obviously going to be a big thing during the election, to the economy, to everything else. And that's where I think you're going to see energy mentioned again and again. I don't know that you're going to have sort of a really refined debate about the particulars of where we should drill, etc., etc., but I think you'll see it kind of mentioned and touched on in almost every other issue they campaign on.
Ben Geman: I generally agree with Alex, except for a couple of things. One is that I think that there are some areas of real distinction, such as whether or not to sort of relax these offshore oil and gas drilling moratoria. So, certainly at a time when prices are really high that that issue is kind of on the front burner. I mean that is a fairly stark distinction between them and I do think we'll see some continued focus on that. Another thing I guess, I think it might depend on how much the debate centers on sort of how to address global warming, as opposed to just kind of whether or not it's an issue. Because, yes, they both agree on mandatory limits on emissions, but from there, their plans are really kind of different. Obama is somewhat more aggressive, so if somehow the debate actually got real detailed in the presidential race, maybe that's unlikely, then you would maybe start to see a little more of that distinction coming out.
Monica Trauzzi: OK.
Alex Kaplun: I do want to say, real quick, you know, I agree with Ben's point on offshore drilling, and I think the thing to watch is going to be how their positions play in individual states. I think, kind of very broadly, they're going to be somewhat on the same page, but it's going to be interesting to see how, say, the offshore debate plays in Florida or New Jersey which is a state that McCain hopes to put in play or how sort of their ethanol positions, which are a little different, play in Iowa. So, I think you're going to have a lot of very interesting kind of regional battles in particular states in how they frame their message in those states.
Monica Trauzzi: All right, final question here. You mentioned climate change and it's really been remarkable to watch how there's been this dramatic shift from climate change to energy talks and a lot of people say that the two can be divorced and the discussions are happening sort of divorced of one another. Do you see climate change coming back into the discussion as we move towards the elections?
Alex Kaplun: You know, again, actually I don't see it being discussed to a great extent. I understand and agree with Ben's point, there are a difference between Obama and McCain on climate change. But I think sort of they have a top-level agreement of they both favor cap-and-trade legislation. And I think for the average voter that's about as far as they're going to get and as far as they're going to understand these sorts of issues of how you're going to allocate credits. I mean those are interesting topics, but they're mostly interesting ...
Monica Trauzzi: Not a worthwhile discussion.
Ben Geman: Yeah, for an inside-the-Beltway crowd. So I think from there it's just going to be hard to kind of…you know, since they're so close kind of the main issue, I think, is going to be hard for them to kind of nitpick at each other. I mean I also think it's a somewhat dicey political issue that neither campaign may want to discuss in great detail because it's really easy to make the argument of the way you want to do things are going to raise the price of gas, raise the price of energy when gas prices are four dollars a gallon. I mean I don't think either one of them wants to fight that fight. I mean it's also a difficult issue because generally polls say that voters want to see action on climate change, but the big kind of electoral states, Ohio, Pennsylvania, etc., you don't want to go in there and talk about too much of a climate change, that could cause problems. So unless something happens where there's just a big split from the two camps, I don't see it being a huge issue.
Monica Trauzzi: OK.
Ben Geman: I just want to add that I'm amazed that Alex thinks that this election is not going to turn on the debate over how to allocate energy credits. I think that's really kind of the linchpin issue.
Monica Trauzzi: I think everyone is talking about it around the dinner table. All right guys, we're going to end it right there. We're out of time. Thank you both for your reporting and your comments here. This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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