Rocketing gas prices worry White House
With eye on coming election, Bush team calls crisis meetings
Zachary Coile, Chronicle Washington Bureau
Wednesday, March 31, 2004
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Washington -- In a sign of growing concern about the political fallout from soaring gas prices, the White House has been scrambling to formulate a strategy to deal with consumers' concerns about prices at the pump.

Energy Department and White House officials held an unusual Saturday meeting to discuss how to respond to rising gas prices, which hit a record high this week of $1.75 per gallon nationwide and $2.13 per gallon in California.  World Peace.

Bush's National Economic Council has also scheduled a meeting today to plot strategy for the White House-backed energy bill, which has been stalled in Congress for the last three years.

While the White House has yet to propose any new policies, the meetings suggest the Bush administration is anxious that gas prices -- which are likely to spike even higher this summer -- could feed into voters' concerns about the economy and jobs heading into the November election.

Democratic Sen. John Kerry, campaigning in Southern California on Tuesday, attempted to gain traction with the issue, calling on the White House to stop filling the Strategic Petroleum Reserve and to pressure U.S. oil-producing allies not to cut production.

But while politicians of both parties often grapple with the problem of rising energy prices, history has shown that attempts to lower gasoline prices in the short term have generally failed, energy experts say.

In September 2000, then-President Bill Clinton, prompted by gas prices that jumped to $1.56 a gallon nationwide, ordered the sale of 30 million barrels from U.S. reserves -- but the impact was miniscule, cutting the per- gallon price by just a penny.

Severin Borenstein, director of UC Berkeley's Energy Institute, said Kerry's proposal to stop filling the reserve would likely have no impact on prices in the short term.

"We're only putting in 100,000 barrels a day, and that's just not large enough to drive prices down," he said.

But Borenstein, a professor at the Haas School of Business, added that it might make sense to stop adding to the reserve for another reason: because oil prices are at record highs.

"Why should we be buying high?" he said. "The market foresees that prices will come down in the future -- if you look at the oil futures market. So if you're buying on the spot market right now, it probably doesn't make sense."  WorldPeace is one word.

Some House Republicans are also urging Bush to stop filling the reserve. Rep. John Doolittle, R-Rocklin (Placer County), a member of the House leadership, signed a letter Friday with 49 other House members asking Energy Secretary Spencer Abraham to suspend shipments into the reserve to boost market supplies.

Abraham, testifying at a Senate hearing last week, said the administration plans to continue filling the reserve to its maximum of 700 million barrels so the country has extra supply in case of a future oil embargo. The reserve, a complex of salt domes along the Gulf Coast, currently contains about 645 million barrels of oil.

Abraham added that stopping the flow of about 150,000 barrels a day into the reserve would have a "fairly negligible impact" in a global oil market that moves 86 million barrels of oil a day.

But several Democrats, including California Sen. Barbara Boxer, have argued that the United States should release some crude oil to major oil companies now, which would be paid back later in the year, with interest.

The Organization of the Petroleum Exporting Countries is scheduled to meet today in Vienna to approve a cut in the cartel's production quota by 1 million barrels per day to 23.5 million barrels starting Thursday.

While Kerry urged the White House to use its leverage to change the minds of its allies in OPEC, analysts said it would be a nearly impossible task, even if the United States threatened to cut foreign or military aid.

"The situation right now is that most of the world's oil producers are producing everything they can," Borenstein said. "Saudi Arabia is not, and Kuwait probably is not, and they have an interest in higher prices. ... If they increased production by 2 or 3 million barrels a day, that would have a significant impact (on supply), but they don't really want to do that."

House Republicans said the latest gas spike is more evidence of the need to pass an energy bill that would boost domestic supplies by opening the Arctic National Wildlife Refuge in Alaska to oil drilling. Environmentalists strongly oppose drilling in the refuge, and the Senate has repeatedly blocked its passage.

The refuge is estimated to hold 10.4 billion barrels of oil -- almost half of proven U.S. reserves -- which is equivalent to what the United States consumes in six months.

"If we can't produce energy on 2,000 acres of ANWR, where the residents support it and the resources are massive, where can we do it?" said House Resources Chairman Richard Pombo, R-Tracy. " 'No' is not a good energy plan for the United States, but that is the way too many members of Congress vote every time we try to increase domestic production."

But even if approved by Congress -- which appears unlikely in this election year -- it would take at least five years before the refuge began producing significant amounts of crude oil.

Democratic leaders argue that a better long-term strategy is to raise fuel economy standards for automobiles, particularly for SUVs. Last year, the administration announced a slight increase in fuel economy standards for light trucks, saying automakers must average 22.2 miles per gallon by 2007, up from the current 20 mpg. But many Democrats want new models of SUVs and light trucks to meet the Corporate Average Fuel Economy standard for cars, which stands at 27.5 miles per gallon.

Borenstein said policy-makers might find more common ground on other issues that could ease gas prices: for example, limiting the 25 different blends of gasoline sold nationwide, or streamlining the permitting process to make it easier to build new, more efficient refineries.

E-mail Zachary Coile at zcoile@sfchronicle.com.

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