Oil, Other Energy Problems Await Bush
W A S H I N G T O N, Jan.2 -- Three days before George W. Bush isinaugurated president, OPEC oil ministers will meet in Vienna andin all likelihood slash oil production, raising crude pricesworldwide.
It’s not what the new president will want to see.
A former oilman himself, Bush faces a multitude of energyproblems beyond resurging oil prices that could present hisadministration with its first crisis as much of the country copeswith a sweep of arctic-driven cold.
Among them: Fear of heating oil shortages in the Northeast,record high natural gas prices across the country, and soaringelectric bills and threat of blackouts in California.
Production Problems
Bush has tapped energy industry board rooms for some of his topadvisers, including his vice president and his secretary ofcommerce. For all of them, the answer to the country’s energyproblems is production.
“When we’re undersupplied [in the energy field] as a nation anddemand increases, prices will go up,” Bush told reportersrecently, vowing to find ways to boost supplies of natural gas, oiland coal for America’s energy-hungry society.
But those are long-term solutions.
“There is not much the president can do in the near term totake care of these prices, except put measures in place that have apsychological effect, that calm the market,” says Jay Saunders, anenergy analyst for Deutsche Banc Alex. Brown.
Campaign PromisesNevertheless, Bush’s first few months in the White House mayseverely test his campaign pledge to reshape the nation’s energypolicy.
The immediate issues include finding better ways to cajoleOPEC oil producers to hold prices down, boosting domestic energysupplies and grappling with a rapidly changing — some sayunreliable and dysfunctional — electricity supply system.
“There’s no magic wand that he can wave. It’s just not in the cards,” says Robert Ebel, director of energy programs at theCenter for Strategic and International Studies. “He’s going tohave to look down the road on how he can improve the situation andkeep it from happening again.”
To help the poor cope with this winter’s heating costs,President Clinton may release additional federal money forlow-income energy assistance before leaving office. Bush will haveto quickly decide how much and when to begin making available moreof those funds, which total about $1.4 billion for this fiscalyear.
The OPEC Dilemma
Another immediate issue is the Organization of the PetroleumExporting Countries meeting in Vienna, Austria, later this month. Worriedabout recent declines in oil prices — a drop of almost $10 a barrelfrom the high this year — OPEC ministers are expected to cutproduction by about 1.5 million barrels a day, Saudi Arabia’s oil minister said Sunday.
“It will certainly have a psychological effect,” says Ebel,although he and other energy experts believe the impact on overallprices likely will be modest and oil supplies should not bethreatened.
“The cut will be enough to bring [market] stability,” reiterated Saudi Oil Minister Ali Naimi, speaking after the six members of the GulfCooperation Council called for production cuts at the end of theirtwo-day summit in Bahrain.
In a summit communique read bySecretary-General Jamil Al-Hejailan Sunday, the group said itsenergy and oil ministers should “work on reducing productionduring the next OPEC meeting in order to preserve market stabilityand achieve targeted prices.”
But should OPEC, which wants to keep oil prices in the $25 to$30 a barrel range, follow with more cuts to production, the pricespiral could bring another summer of soaring gasoline prices.
Last summer Republicans criticized Clinton administrationefforts to deal with OPEC as “embarrassing tin-cup diplomacy.”The test will be whether Bush, who has promised “a strongdiplomatic effort” to rein in OPEC, will be any more successful.
Higher Gas Prices Ahead?Also of immediate concern is soaring prices for natural gas, afuel used across the country for heating and increasingly forgenerating electricity.
Wholesale natural gas prices have quadrupled over the last yearto $10 a thousand cubic feet. In California prices have spiked toseven times that amount on occasions, adding to that state’selectricity woes.
The industry says while prices will be high, enough gas will beavailable. “I know of no company that’s going to shut off [aresidential customer] in the middle of winter,” assures ChrisMcGill, director of gas supply and transportation at the AmericanGas Association, a trade group that represents natural gasutilities.
But if the winter is severe, some industrial customers may wellbe cut off, forcing them to shift to other fuels or perhaps shutdown, analysts say. That could cause problems with heating oilsupplies in the Northeast as industrial users tap fuel oil, saysRonald Gold, vice president of the Petroleum Industry ResearchFoundation.
Bush also will have to address early in his term whether to getmore involved in the growing electricity shortage problem inCalifornia. So far the Clinton administration and federalregulators have been reluctant to intervene and regulate wholesaleprices as California’s utilities — and the state’s Democraticgovernor — have wanted.
By all accounts, Bush is even less likely to push price controlsor dramatically intervene in California’s power problems. But amonghis administration’s early priorities likely will be crafting aproposal for Congress to improve reliability of the electricitysystem.
The Associated Press and Reuters contributed to this report.