Nearly seven in 10 Americans say high gas prices are causing financial hardship for their families — but Sen. Max Baucus (D-MT) says he doesn’t see the high price of fuel as an issue “at all.” And several Senate Democrats readily admit the oil-and-gas-industry-related legislation they recently proposed — and which the Senate tonight rejected — wouldn’t have mitigated high prices in the first place:
Meanwhile, Senate Republicans have introduced “The Offshore Production & Safety Act Of 2011” (S.953), which would mandate lease sales in the Gulf of Mexico and off the Virginia coast, limit the review period for pending offshore permit applications and extend leases in the Gulf for a year. The Senate is scheduled to vote on S. 953 tomorrow. The bill parallels the package of energy legislation the House recently passed — a package also aimed to increase domestic energy production.
So, does the Republican plan actually address gas prices?
On the one hand, the common caveat is true: Increased exploration does not immediately result in increased output. Exploration affects the overall supply of crude oil only gradually. Exploratory leases presently cover a five-, eight- or 10-year term — and the average time from initial exploration to final production is somewhere in the range of three to eight years, says National Ocean Industries Association President Randall Luthi.
But on the other hand, a commitment to exploration sends a signal to international markets — a signal even OPEC can’t ignore.
“We are sitting on potential reserves here that are absolutely huge and the world knows that,” House Natural Resources Chairman Doc Hastings said recently. “If you want to beat a cartel, you increase the supply of whatever that cartel is controlling. If we send a signal that we’re going to increase the potential supply of crude oil in this world, I think the market will respond accordingly.”
In fact, Hastings said, history bears him out. In June and July of 2008, high gas prices coincided with both a presidential and a congressional moratorium on drilling on the Outer Continental Shelf. Prices reached their peak of an average of $4.054 a gallon nationwide the week of July 14. That same week, President Bush lifted his administrative moratorium and urged Congress to lift its companion moratorium, which Congress did shortly thereafter. Gas prices soon dropped.
“I think there’s no question about that; it was about the signal to the market,” Hastings explained.
Luthi’s perspective has been shaped by similar observations.
“As we’ve seen, the price of oil is not strictly tied to a supply-and-demand question,” he said. “It often is a perceived supply and demand. For example, anytime we had any kind of questions about the Middle East market — whether or not they would continue to put oil on the market — you saw the price of crude oil go up whether or not there was an actual disruption.”
Consequently, Luthi said, the House energy package could do exactly what Hastings hopes it will.
“The message [it] send[s] … is the United States is going to be putting its effort behind finding more oil and gas in the future, which I think does have a very calming effect on world oil markets,” he said.