Brave new world meets same old rhetoric

Politico
By Elana Schor
October 2, 2014

The U.S. energy supply has entered a strange new era that would have seemed unfathomable just a few years ago — one where gasoline prices keep falling even as a jittery world faces turmoil in the Middle East and beyond.

But when it comes to political talking points, Democrats and Republicans keep singing the same old tunes.

Drill more, open up the coasts and cut red tape, the GOP says, reciting from the well-worn script it used back when gasoline prices were topping $4 a gallon and the media were trumpeting predictions of $6 gas. Get tough on Big Oil, Democrats counter as they usually do, suggesting that the real solution is to yank industry tax breaks and crack down on Wall Street speculators.

Whether it’s a lack of imagination, a pre-election cautiousness or a sense that their energy message is resonating with voters, the parties show no signs of giving up slogans that have served them for decades.

But reality is outpacing the rhetoric, even as the U.S. launches airstrikes against the Islamic State of Iraq and the Levant, pro-democracy protests shake Hong Kong and the Ebola virus moves beyond West Africa. Instead, the nation’s average gasoline price dropped to $3.33 a gallon this week, according to AAA, with monthly prices 44 cents cheaper than in 2012 and 35 cents down since tensions in Iraq first flared in late June.

Oil has also fallen dramatically on the world markets, reaching $93 a barrel after prices topped $110 in May. The global benchmark oil price technically entered a bear market this week, The Wall Street Journal noted, dropping 20 percent from its recent peak with few signs of a rebound as Saudi Arabia cut its crude prices.

The reasons for the slide include a four-decade high in U.S. oil production that promises to keep climbing, low demand thanks to fuel efficiency gains, a strong dollar and signs that the Organization of Petroleum Exporting Countries does not plan to cut production.

Michael Levi, director of the Council on Foreign Relations’ energy security program, was not surprised to see political messages unchanged despite the current swoon in oil. A years-long shift from scarcity to abundance in U.S. fuel supply has not “fundamentally changed the positions of most political players,” he observed.

“Some policymakers develop their energy policy proposals by looking at the world and thinking about what makes the most sense,” said Levi, whose book “The Power Surge” explores longer-term energy trends. “Others have a series of hobbyhorses they use to send much broader messages about the role of industry in America, the role of government, the role of environmental concerns.”

Still, the parties aren’t entirely blind to the ways the world has changed. Republicans credit domestic production for the fact that prices at the pump are falling amid global tumult. Their prescription is the same as it was when costs were soaring: more rigs to bring more relief.

But Democrats and greens are resisting that chorus with notable confidence this time around, even as they tout the lower demand for fuel under President Barack Obama.

“Any excuse to drill in sensitive areas is the bottom line with Republicans,” the House Natural Resources Committee’s top Democrat, Peter DeFazio of Oregon, said in an interview.

“I don’t have a problem with lower oil or gas prices, that’s for sure,” DeFazio added. But he said opening more public land to the industry when private land offers “a heck of a lot more development to be done” would not address the root causes of the current price slump.

What’s clear is that gasoline is about as cheap today as it was during the first weeks of the Arab Spring in 2011. And that price appears poised to fall further even as Obama hits at ISIL strongholds, including the modular oil refineries said to earn the terrorist group as much as $2 million a day.

The newly stable reality for drivers began emerging this summer at the height of tension in Ukraine, including July’s downing of Malaysia Airlines Flight MH17 near the Russian border. The price has only gone down since then, though some drop is typically expected as refiners shift their blending to a cheaper, winter-grade fuel mix.

“It’s proof that the best way to lower prices and protect ourselves from volatile price swings is to promote new production here at home,” the GOP chairman of Natural Resources, Washington Rep. Doc Hastings, said through a spokesman.

House Energy and Commerce Chairman Fred Upton (R-Mich.) was more measured, lauding the estimated 8.5 million barrels of crude flowing daily out of U.S. wells “as a key to greater energy security and lower prices.”

“By allowing the development of more of our own oil resources,” Upton added through a spokeswoman, “we could see gas prices go down even further.”

But environmentalists shrugged off that prediction, noting that no amount of domestic oil can give the U.S. the global market power of OPEC or match Saudi Arabia’s ability to ramp production up or down to sway the world oil price. “You can’t drill your way, in the oil economy, to pure energy independence,” Oil Change International Executive Director Stephen Kretzmann said in an interview.

And market watchers say America’s crush of crude is not the only thing staving off pricey gasoline.

“It’s not the ‘drill, baby, drill’ kind of solution,” Oil Price Information Service founder Tom Kloza said. “The fact that we’re not using nearly as much as we were in 2007 has helped considerably.”

A major reason for lower demand is the rise in automobile fuel efficiency under rules set by the Obama administration.

“Without the shale boom, we wouldn’t have gas prices falling,” said energy economist Philip Verleger, a former adviser to the Ford and Carter administrations. “Without conservation, we wouldn’t have gas prices falling.”

And just because average prices are dipping compared with early 2011 or late 2012 doesn’t mean voters would consider gasoline to be cheap today. AAA spokesman Michael Green noted an April survey by his group that found half of Americans describing $3.30 gasoline — about its current level — as too expensive.

The nonprofit Securing America’s Future Energy reminded policymakers last week that Americans continue to spend a hefty amount on gasoline: more than $2,600 for the average household last year, a similar bill to 2011 and 2012 and more than double the average gasoline bill in 2002.

High gasoline bills aside, both Green and Kloza said the country is more insulated against future price shocks. The latter analyst even christened oil-slick America “Insulation Nation.”

But neither was prepared to predict cheaper gasoline if domestic drilling increased. “If you make more gasoline, that won’t necessarily result in lower gas prices than what we currently see because refineries already export significant quantities of product,” Green said.

U.S. exports of petroleum products, including gasoline, averaged 3.6 million barrels a day last year, according to the Energy Information Administration. That’s about double their level in 2008, when gasoline prices hit an all-time peak of $4.11 a gallon, prompting calls of “drill, baby, drill” from Sarah Palin and GOP lawmakers occupying the House floor.