Lawmakers Grapple with How to Cut Oil Dependency

As the price of oil nears $100 a barrel, Congress' energy bill is still bogged down in conference, with House and Senate leaders unable to agree about car mileage standards, alternative fuels for utilities or ending tax breaks for oil companies.

Copyright © 2007 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

LINDA WERTHEIMER, host:

The San Francisco spill is minor compared with the disaster in the Black Sea. Two days ago, a tanker broke up in the waters between Russia and Ukraine. It was carrying 1.3 million gallons of oil and much of it went into the water. As many as 30,000 birds have already been killed. Officials are calling it an ecological catastrophe.

STEVE INSKEEP, host:

Both spills come at a time when the price of oil has been dancing below $100 per barrel. It's a moment when Democrats and Republicans alike talk of greater energy independence for the United States, which does not mean the House and Senate can agree on what to do about it.

NPR's David Welna reports.

DAVID WELNA: When congressional leaders talk about the unfinished energy bill, often it's in apologetic yet hopeful tones, as if this were some long overdue homework assignment.

Here's Speaker of the House Nancy Pelosi responding last week to a reporter who wanted to know when the House might vote on a final version of the energy bill.

Representative NANCY PELOSI (Democrat, California; Speaker of the House): I would like to do it before we leave. I'd like to do it because it's Thanksgiving, over and under and through the woods to grandmother's house we go.

WELNA: Pelosi added that the price of gas at the pump was, quote, "just staggering for America's families." Still, she admitted not knowing if it's possible to get to an energy bill before lawmakers leave at week's end for a Thanksgiving recess.

That prompted this from the number two House Republican, Roy Blunt.

Representative ROY BLUNT (Republican, Missouri): Hello, it's November, and these prices were 85 cents a gallon lower in January. Part of the reason they're higher is that every proposal the Democrats put on the table reduces energy, doesn't increase energy production in the country.

WELNA: Indeed, many other Republicans are also dismayed by the energy bill the House passed in early August. Instead of opening up new areas for oil drilling, as they'd demanded, the bill proposes vastly expanding renewable energy production with $15 billion in subsidies to be paid for by the big oil companies. It also requires that by the year 2020 at least 15 percent of electricity come from renewable energy such as wind or biofuels. No such requirement appears in the energy bill the Senate passed in June; no tax package was included either. And while the Senate did include tougher fuel efficiency standards for cars and small trucks, the House did not.

Senator RICHARD DURBIN (Democrat, Illinois): Oh, man, we've spent more time on this. There is hope for it.

WELNA: Dick Durbin, the Senate's number two Democrat, likens this energy legislation to an unsolved puzzle.

Sen. DURBIN: It is such a moving target because there are at least four or five important pieces and it's hard to reach a consensus on all of them. People agree on each piece, but when you put them together, it turns out that they end up canceling one another out. You just don't come up with 60 votes.

WELNA: Sixty, of course, is how many votes you need to prevent a Senate filibuster. Republican senators have not even allowed the appointment of a conference committee to work out the differences between the two chambers' bills.

Mitch McConnell is the Senate Republicans' leader.

Senator MITCH McCONNELL (Republican, Kentucky): I think a hundred dollar a barrel of oil is disturbing. I think this bill, however, will do absolutely nothing about that. It's mainly a tax increase, which will drive the cost of gasoline even higher.

WELNA: But that kind of rhetoric has not stopped Senate Majority Leader Harry Reid from keeping hopes high that this stalemate can be broken.

Senator HARRY REID (Democrat, Nevada): We're very aware of how important that energy bill is and we're committed to doing something about it. With a little bit of luck, we could complete it prior to the Christmas recess.

WELNA: South Dakota Republican Senator John Thune says he too hopes for an energy bill by Christmas.

Senator JOHN THUNE (Republican, South Dakota): If in fact we can get that done, it's important for this industry, and I believe for our country's interest that we get a renewable fuel standard, an expanded renewable fuel standard put in law.

WELNA: Thune wants to move that renewable fuel standard, which boosts production of ethanol made from corn onto to a farm bill moving through the Senate.

Meanwhile, Democratic presidential frontrunner Hillary Clinton is pushing her own proposal in this Iowa TV ad.

(Soundbite of ad)

Senator HILLARY CLINTON (Democrat, New York): I will create a strategic energy fund that will put $50 billion to work with wind and solar and biofuels that help us move away from our dependence on foreign oil. And where would I get the money? I would take the tax subsidies away from the oil companies.

WELNA: Still, Cambridge Energy Associates chairman Daniel Yergin doubts there's anything lawmakers can propose that could quickly bring down oil prices.

Dr. DANIEL YERGIN (Cambridge Energy Associates): The energy business is basically a long-term industry, so what goes into law now takes effect over several years, not overnight.

WELNA: But that won't necessarily keep an energy bill, or the lack of one, from being a hot issue in next year's campaigns.

David Welna, NPR News, the Capitol.

INSKEEP: There have been oil shocks before, notably in 1973. You can explore what's changed and what hasn't between then and now at npr.org.

Copyright © 2007 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Oil Approaches $100 a Barrel. What Now?

As the price of oil nears $100 a barrel, expect to pay more at the pumps as well as to fly, to mail packages and to heat homes. Justin Sullivan/Getty Images hide caption

Graphic: Historical Prices of Crude Oil and Gas (in the U.S.)
itoggle caption Justin Sullivan/Getty Images
Graphic: Historical Prices of Crude Oil and Gas i i

The average price for a barrel of crude for all of 1980 was more than $93. It's taken more than a quarter century, but oil prices are once again approaching that level. hide caption

itoggle caption
Graphic: Historical Prices of Crude Oil and Gas

The average price for a barrel of crude for all of 1980 was more than $93. It's taken more than a quarter century, but oil prices are once again approaching that level.

Oil prices are nearing $100 a barrel these days. Prices have more than quadrupled since 2002 and seem to be heading in only one direction: up. The higher oil prices affect everyone from a factory worker in China to a farmer in Iowa. The global oil industry is vast and, at times, confusing. Here are some questions — and answers — raised by the recent spike in oil prices.

Why have oil prices risen so steeply? Is there a single reason?

There are many reasons, analysts say, ranging from a weak dollar to tensions between the U.S. and Iran. At the heart of the problem, though, is the fact that global demand is currently outstripping global supply. Countries such as China and India are thirsty for oil to fuel their economic growth, yet the world's oil-producing regions are producing less oil. In Nigeria, tensions in the Niger Delta region have curtailed production by nearly a million barrels a day. Fears of war between the U.S. and Iran, one of the world's biggest oil producers, have driven up prices further. And some of the world's major oil fields — the Cantarell Field in Mexico, for instance — are yielding disappointing amounts of crude oil this year, for geological, not geopolitical reasons.

Can't some oil-rich nations simply start producing more oil and bring prices down?

Not necessarily. Most of the world's oil producers are already working at full capacity, pumping every barrel of oil they can. Only one country in the world, Saudi Arabia, has excess production capacity — and no one but the Saudis knows exactly how much excess capacity.

What about tapping into new oil reserves?

That's always a possibility, but it's not clear where the most promising reserves lie — and some regions, such as the Arctic National Wildlife Refuge, are environmentally sensitive. In any event, it takes many years before a newly discovered oil field can begin producing crude.

What is the immediate impact of higher oil prices for consumers?

Expect to pay more at the pumps, of course. But the pain doesn't end there. Airlines are already adding fuel surcharges to the price of tickets. Delivery companies such as Federal Express and U.P.S. are also charging more. Heating oil will cost more this winter (especially a problem in the Northeast.) Food costs also rise in tandem with oil prices, since farmers spend more on fuel for their tractors and other equipment, and transport costs also rise. Even the price of plastic goods might increase, since plastic is a petrochemical product. Economists worry about a "ripple effect": As people spend more on gasoline, heating oil and other staples, they have less money available to spend on other items. Consumer spending accounts for two-thirds of all economic activity.

So might higher oil prices tip the economy into recession?

It's possible — that's what happened in 1973 — but most economists say it's unlikely this time. One reason is that the U.S. economy has shifted from a largely manufacturing to a service economy, and therefore our energy needs (as a percentage of GDP) are lower. Also, cars and airplanes are, overall, significantly more efficient today than they were 35 years ago. True, other economic liabilities — the fallout from subprime mortgages, a weak dollar — don't help matters, but high oil prices alone aren't likely to cause a recession, economists say.

With oil so expensive, somebody must be making a lot of money.

Yes. The oil companies are doing very well, but not equally well. Companies that specialize in withdrawing crude oil from the ground are making the most money. Those that also refine the oil into gasoline (and other products) are earning slightly less money, since the cost of refining has increased recently, as companies shut down portions of refineries for maintenance and repairs in anticipation of winter demand.

Exxon-Mobil, the world's largest publicly traded oil company, recently reported a profit of $9.4 billion. Impressive, but not quite as impressive as the $10.5 billion it reported a year earlier — more money than any publicly traded company has made in U.S. history.

Which countries are benefiting from higher oil prices?

The traditional big-oil producers, such as Saudi Arabia, Kuwait and other Persian Gulf nations, but also relative newcomers to the oil game, such as Kazakhstan and other nations that border the oil-rich Caspian Sea. Iran, Russia and Venezuela are also big winners. Higher oil prices might embolden leaders of those nations to play a more assertive role on the world stage and, in the case of Iran, deflect international pressure to dismantle its nuclear program.

And the countries that suffer?

Any nation that is a net importer of oil, such as the U.S. and most European nations. The European pain, however, is blunted by the strong Euro and Europe's fuel-efficient transport systems. China is another loser. It's appetite for oil is seemingly insatiable, and it's already paying more for that addiction. India is potentially even more vulnerable: It uses less oil than China but imports 70 percent of it, compared with 50 percent for China.

How high can oil prices get?

Technically, there's no limit. The market determines the price. A few analysts foresee oil prices climbing to $120 or even $150 per barrel in coming months. Eventually, though, the law of supply and demand will kick in and prices will fall, especially if consumers begin to cut back on the gasoline they consume (something that hasn't happened yet). Some analysts call the current price spike an "oil bubble," one that will pop sooner rather than later. Also, oil prices are cyclical. They tend to go up in the autumn as people stockpile supplies for the winter and then fall again in the spring.

Might anything good come from expensive oil?

Some environmentalists certainly think so. With oil so expensive, developing alternative energy becomes a much more attractive proposition. In fact, some proponents of cleaner energy sources are openly rooting for oil prices to keep going up, up, up.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.