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Politics and Economics

Bush prepared to tap oil reserve

WASHINGTON — President Bush said Monday that the government is prepared to again tap into the Strategic Petroleum Reserve to alleviate any new pain at the pump caused by Hurricane Rita’s assault on the center of the nation’s energy industry.

…”A lot of our production comes from the Gulf and when you have a Hurricane Katrina followed by a Hurricane Rita, it’s natural, unfortunately, that it’s going to affect supplies,” Bush said after a briefing at the Energy Department. (Watch Bush’s comments — 3:39)

“It’s important for our people to know that we understand the situation and we’re willing to use the Strategic Petroleum Reserve to mitigate any shortfall in crude oil that could affect our consumers.”

Bush also expressed concern that the storm could cause disruptions in getting gasoline to market. As a result, he urged people in the area to curtail any nonessential travel and asked federal employees to carpool as much as possible.

“The storms have shown how fragile the balance is between supply and demand in America,” he said.
(26 September 2005)

Bush urges conservation as retail gas prices rise

Vikas Bajaj
President Bush called on the Americans today to conserve gasoline and avoid non-essential driving as the average national prices for retail gasoline climbed higher for the first time since they peaked over the Labor Day weekend.

The president’s remarks appeared to reflect concerns that gasoline supplies may remain tight and prices will rise further, even as the energy industry and analysts were breathing a sigh of relief over the limited scope of damage at Texas refineries from Hurricane Rita.

“We can all pitch in by being better conservers,” Mr. Bush said after being briefed on the hurricanes’ impact on the energy industry at the Energy Department. “People just need to recognize that these storms have caused disruptions.” In addition to urging consumers to cut back to ease the pain of the current supply shortages, he said federal employees should use carpool and public transport and not take non-essential trips.

…The president also said the nation needed to relax regulations on the construction of new oil refineries. A new refinery has not been built in the United States in almost 30 years, although companies have expanded capacity at existing plants and are running them closer to 100 percent capacity.

Mr. Bush reiterated that the federal government was ready to release more crude oil from the Strategic Petroleum Reserve.
(26 September 2005)
Comment by Matthew Yglesias. Recommended by Dave Roberts at Gristmill.

Oil rise sparks concern at IMF

Chris Giles and Andrew Balls, Financial Times
Finance ministers and central bank governors of the world’s leading industrial countries have warned of economic disruption from high oil prices and and vulnerabilities in financial markets.

The mood at the International Monetary Fund and World Bank annual meetings was downbeat, with senior politicians and officials airing their fears that global economic expansion may have peaked and that more challenging times lie ahead.

Jean-Claude Trichet, president of the European Central Bank, said that high oil prices were having a “very significant impact” on growth and inflation.

The communiqué of the international monetary and financial committee – the ministerial board that oversees the IMF – said: “Global growth is expected to continue, although downside risks to the outlook have increased, especially high and volatile oil prices, recently exacerbated by the effects of Hurricane Katrina, increasing protectionist sentiment and the possibility of tighter financial market conditions.”
(25 September 2005)

Oiloholics need an intervention
Politicians fuel post-Katrina consumption by suspending gas taxes

Cynthia Tucker, Universal Press Syndicate via WorkingForChange
As Gulf Coast refineries sputtered and choked in the aftermath of Hurricane Katrina — causing gas prices to soar — Georgia Gov. Sonny Perdue hustled to the microphone to say he was suspending gasoline taxes in the state. Not to be outdone, Georgia legislators rushed to Atlanta for a special session to endorse Perdue’s move. They burned a lot of $3 gas to get here, but who among them could pass up the chance to brag that they, too, cared deeply about the price per gallon?

And so it went around the country, as state politicians moved to suspend gasoline taxes, guaranteeing that the price at the pump would stay relatively low. (All states levy a flat tax on sales at the pump; several, including Georgia, collect an additional sales tax.) Even members of Congress found the idea impossible to resist. Two weeks ago, three Republicans introduced a bill to impose a moratorium on the 18.4 cents-per-gallon federal gas tax.

What a spectacular failure of leadership.

The last thing this country needs is to keep gas prices low — thereby encouraging American consumers to keep up our greedy consumption of fossil fuels. Our addiction to petroleum has kept us hostage to the Middle East. We pay them billions in petrodollars, and some of that cash inevitably ends up in the hands of people who want to kill us.
(26 September 2005)

Oil bubble set to burst?

Chris Isidore, CNN/Money
Some analysts say prices could now retreat after industry dodges severe damage from Rita.
NEW YORK (CNN/Money) – Could the recent spike in oil prices have created a bubble that’s about to burst?

With Hurricane Rita causing less damage than originally feared to the oil industry and oil prices treading water Monday, some industry analysts said we may be about to watch a steady, and significant, drop in energy prices.

“Price declines could be slow this week, maybe with a bubble burst at some point in the future,” said analyst Peter Beutel, president of Cameron Hanover. “It does appear we’ve turned the corner here in this market. I don’t think we’ll see prices at these levels again anytime in the next five years.”

…But before you start cheering Beutel’s prediction, understand that part of his forecast is based on the belief that oil is high enough now to spark a global recession, which will significantly cut demand. He also believes that recent oil price records have spurred plans to increase global oil production, which he sees feeding the decline in oil prices.

Beutel sees oil prices falling all the way to the $25 to $35 a barrel range in late 2006 or 2007. Most other analysts aren’t willing to follow that forecast, although some agree there could be a pullback in prices, even without a recession, if consumers start to have some breaks go their way.

“I think if the rest of the hurricane season doesn’t cause disruptions, and global supplies stay as they are, we should see prices pulling back into in the low to mid-$50’s, without a recession,” said Sheraz Mian, oil analyst for Zacks Investment Research. “We could be in the high $40’s if it’s a warm winter.”
Some see no bubble

But some analysts don’t see any significant fall in the price of oil in the foreseeable future.
(26 September 2005)

Storms cast spotlight on energy’s new reality

Jad Mouawad, NY Times
The vast energy complex spread along the hurricane-battered Gulf Coast apparently escaped serious damage in the latest storm. But for an industry still reeling from the impact of Hurricane Katrina, the recovery will be long and arduous, leaving global energy markets at the mercy of other natural disasters – or unforeseen twists in unpredictable oil-producing countries like Nigeria and Iran.

Once again, Hurricane Rita illustrated the energy market’s new reality: with little production or refining capacity to spare, any disruption can have a big impact on tight and increasingly edgy markets. Until investments are made in new supplies, or demand slows down enough to ease the capacity squeeze, analysts warn that markets will remain volatile.

In the short run, much will depend on how quickly oil companies can restart their refineries and bring gasoline, natural gas and other products back to consumers. Energy prices, which had already soared in recent months because of fears that supplies were lagging demand, peaked last month after Hurricane Katrina cut production in the Gulf of Mexico and crimped many refiners.

By now, with the summer driving season at an end, refineries should have started building stockpiles of heating oil for the winter. Instead, most of them have been struggling to churn out more gasoline to make up for the lost refining capacity. Ahead of the peak winter demand, this leaves markets for heating oil and natural gas on shaky foundations and could mean higher prices in coming months.
(26 September 2005)

Foes of a proposed gas terminal vow to fight it

Lori Tobias, Portland Oregonian
Opponents armed with security and safety concerns are expected to turn out in force this week when federal regulators hold their first public forum on a proposed liquid natural gas terminal in Oregon.

Northern Star Natural Gas wants to build a pipeline and storage terminal called Bradwood on 450 acres about 38 miles from the mouth of the Columbia River. The firm, headquartered in Portland, is the furthest along among five companies in seeking a federal permit to bring a terminal to the state.

…Ships would deliver natural gas, super-cooled to liquid form, about every three days. The terminal would have the capacity to hold 7 billion cubic feet of liquid natural gas — enough to fill two tanks roughly 12 stories tall.

After vaporizers heat the liquid back to gas, the terminal could send up to 1 billion cubic feet of gas daily through its proposed pipeline. A third tank may be added in the future. The pipeline would connect to the main supply line that runs along the Interstate 5 corridor.

But grass-roots critics have lined up against the proposals. Local groups have sponsored guest speakers to discuss the hazards of liquid natural gas, passed out bumper stickers, and distributed lawn signs and posters.
(25 September 2005)

Protest stalls energy giant in rural Ireland
Farmers’ jailing over gas project fuels sharp debate

Kevin Sullivan, Washington Post
ROSSPORT, Ireland — Five farmers from these wind-swept coastal boglands have been locked up in a Dublin prison for nearly three months for blocking construction of a $1.1 billion natural gas pipeline and refinery by the Shell oil group, a standoff that has forced suspension of the largest energy project in Irish history.

The imprisonment of the group known here as the Rossport Five, which includes a 65-year-old former schoolteacher, has sparked protest marches across Ireland and an emotional debate about the pace and balance of economic development in a once-poor country that has become one of Europe’s greatest success stories.

“The government and Shell should be ashamed of themselves,” said Aggie Philbin, whose husband, Brendan, was one of the men jailed on June 29 for refusing a court order to allow Shell to lay pipeline across their farmland in rural County Mayo in northwestern Ireland. “These are innocent men standing up for the rights of their families.”

The jailed men and their supporters accuse Shell and the government of ignoring safety concerns and bullying this village of 150 people in a rush to complete a coveted project.

…The men’s imprisonment has deeply divided a society that has passions both for economic development and underdogs. While many people see the Rossport farmers as simply standing in the way of progress, many others side with them. Their plight has also touched a nerve in a place where land rights are considered sacrosanct and people have staged bloody rebellions to protect them.
(25 September 2005)

High oil, high dollar and Dutch disease

Heather Scoffield, Globe and Mail (Canada)
Gerry Price can hardly contain his disdain for Bank of Canada Governor David Dodge and the central bank’s mission to raise interest rates over the next while.

As the chief executive officer of a Winnipeg manufacturer, he has pushed his company to extremes to deal with the appreciating Canadian dollar and rising energy prices.

His heating and ventilation products company, EH Price Ltd., has shut down production lines and moved them to a plant south of the border. He has negotiated a wage roll-back for Canadian employees. He’s cut costs, he’s increased productivity, he’s developed new, leading-edge products that can justify the relatively high wages of his Winnipeg work force.

“I’m still high on our Winnipeg plant, and I’m going to make sure it’s viable. But that’s only because it’s my home,” Mr. Price said in an interview. “It’s not because of economics.”

He bristles when he hears Mr. Dodge and politicians say that manufacturing is adjusting well to the strong Canadian dollar and higher energy prices.

All around him, he sees manufacturers laying off workers, losing money, and outsourcing production to other countries as the Canadian dollar climbs in tandem with oil and gas.

The country as a whole may be booming for now, because of the plentiful revenue from energy exports, Mr. Price says. But when the boom goes bust, and the manufacturing sector has crumbled while no one was paying attention, “then, we will be ruined.”


What Mr. Price is describing is almost a textbook case of so-called Dutch disease: a small, open country hits on sudden wealth because of oil or gas or some other commodity, but the wealth does not benefit the entire country, and actually punishes the manufacturing sector because it drives up the country’s exchange rate, making it harder to export.

The result is deindustrialization. A country awash in riches finds itself suddenly poor.
(26 September 2005)
Related story on energy prices and Canada in Macleans: Bring on the $100 oil.

Legislators attack gas gougers
Bills would impose penalties, initiate FTC investigations

George Raine, SF Chronicle
Gasoline prices that climbed like a rocket and have been falling like a feather in the aftermath of Hurricane Katrina have the attention of public officials.

Separate bills sponsored by California’s two Democratic senators, Dianne Feinstein and Barbara Boxer, would respectively impose fines and criminal penalties for price gougers, and set a trigger for Federal Trade Commission investigations as prices spike.

For its part, the FTC said Wednesday that it had begun an investigation of oil company management of refinery capacities
(24 September 2005)

Energy policies left in ruins

Editorial, Portland Oregonian
Hurricane winds give a mighty push to public opinion on fuel efficiency, hybrid cars and taxes on oil companies
When Rita is done pounding the nation’s largest concentration of refineries, disrupting nearly a quarter of the United States’ oil-refining capacity, gas prices are expected to zoom up another dime to 20 cents or more per gallon. Home heating prices, especially natural gas, will jump some more, too.

That will set off yet another storm surge, a wave of public disgust at fuel prices — and, more importantly, a distinct shift in the way Americans think about their use of oil, their available choices in automobiles and their government’s energy policies.

This wave was building even as Rita was taking aim at Gulf Coast refineries. Polls taken in the middle of last week found that Americans were angry about rising pump prices and ready to demand major new energy policies. One survey conducted for the nonprofit Civil Society Institute found:

Nearly nine out of 10 Americans think “big oil companies are gouging consumers at the gas pumps.” About eight out of 10 would support a tax on the “windfall profits” of oil companies if the revenues were spent on research in alternative energy.

Seventy-three percent of Americans think that recent gas price hikes now make it “much more” or “somewhat more” important that the federal government raise fuel efficiency standards for vehicles. About 80 percent of Americans now believe U.S. automakers should follow the path of Toyota, which has announced that all its new cars will use fuel-saving hybrid technology.

Eighty-one percent of Americans think the federal government is not doing enough about high energy prices and U.S. dependence on Mideast oil.

All this represents a major shift in public opinion. It’s taken a perfect storm — twin hurricanes, a Mideast war, $66-a-barrel oil, a steadily warming Earth — but Americans are finally persuaded that the country is on the wrong path on energy.
(25 September 2005)

Operation Offset

Dave Roberts, Gristmill
You may have heard, President Bush is trying to bolster his sagging poll numbers by throwing money at the Gulf Coast — or rather, throwing money at politically connected contributors in the Gulf Coast while cutting wages for the poor saps who work there.

$200 billion. How are we going to pay for that? Well, Think Progress points out that you could get most of it from rolling back the 2001 and 2003 tax cuts for the rich.

Ha ha ha ha ha!

No, seriously, we have to “cut unnecessary spending.” And the House Republicans are ready, with their “Operation Offset,” a list of cuts (PDF) they say could squeeze $500 billion in 10 years out of the federal budget.

Unsurprisingly, the cuts impose pain almost exclusively on programs meant to help the environment and the less fortunate. Here are a few of the cuts:

…Note that, as Brad Plumer points out, almost every federal program to encourage clean energy is cut, while the energy bill’s recent billions in subsidies to oil and gas companies remain untouched.
(26 September 2005)