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High Oil Prices Become Part of US Presidential Election - 2004-10-13


Oil prices have risen to record highs in recent days and have gone up more than $20 a barrel since just last year. The spike in energy prices has many economists worried and many consumers upset by the higher prices they must pay for heating oil and gasoline. High oil prices have become part of the political debate ahead of Wednesday's third and final presidential election debate here in the United States. However, the reasons for the price increases range from natural disasters to human conflicts around the globe.

One of the most immediate causes for the recent increase in oil prices was Hurricane Ivan, which shutdown almost all oil production from offshore platforms in the Gulf of Mexico last month. Houston-based Apache Corporation, which operates more than 300 platforms in the Gulf, has restored most production, but spokesman Tony Lentini says there is still a lot of work to do.

"Right now, we have roughly 30 percent of our Gulf oil still down and about roughly 12 percent of our natural gas from the Gulf of Mexico is still dow," he said. "That is due to platform damage, in one case it is a pipeline that needs to be repaired and we are going through doing inspections. It will take us about two months to get everything up and running again."

Other Gulf operators report similar effects from the hurricane. This has helped boost near-term prices since about one fourth of the oil and gas used in the United States comes from the Gulf.

But James Burkhard of Cambridge Energy Research Associates says very little of the current oil price rise can be blamed on Mother Nature. "Some of the production facilities that were damaged by Hurricane Ivan may not come back on stream until early next year, but we are talking about several hundred thousand barrels of oil per day in a global market that consumes 82 million barrels per day. So, although it is significant, it is a relatively low share of global oil production."

Mr. Burkhard says the steep rise in demand, especially from emerging Asian giants like China and India, has overtaken the capacity that some large producers once had to produce more oil when needed.

"Over the past decade we typically had about thee-to-five million barrels a day of spare production capacity," he said. "Today, that cushion of spare production capacity is just about 1.15 million barrels per day, very thin."

An even more serious problem for the oil industry, says Mr. Burkhard, is the political unrest and uncertainty that plagues some of the top-producing regions at a time of rising demand.

"What matters most is the exceptional demand strength and also the potential for supply disruptions in the very large exporting countries of Nigeria, Saudi Arabia, Iraq and, possibly, Russia," he said. "We have not seen any disruptions in Saudi Arabia, but given what has happened in the past year, the market is very concerned about what could happen in Saudi Arabia."

Mr. Burkhard says there is great potential for a surge in production growth in several nations like Russia, Azerbaijan and Angola over the next few years. These nations are not members of the Organization of Petroleum Exporting Countries, the cartel known as OPEC, and could thereby reduce that organization's power to influence prices.

In the meantime, political groups here in the United States continue to argue over whether more investment should be put into oil and gas exploration or into development of renewable energy, such as biomass, wind power and solar energy. Rayola Doujher, Senior Policy Analyst for the American Petroleum Institute, says energy policy needs to include all the alternatives.

"We need all the fuel we can get and we also need conservation and we need the renewables. We need everything. We need to encourage domestic supply and also to encourage smarter use of the energy that we use today," she said.

Ms. Doujher says the failure of Congress to pass the comprehensive energy bill last year was a setback for efforts to reduce demand for foreign oil. More than 60 percent of the oil used in the United States is imported. Critics said the bill provided too many breaks for big oil companies and not enough for alternative energy research. But Ms. Doujher says it would be better to have an energy plan, as laid out in the bill, than to be without such a plan at this critical time.

"It would help promote domestic production and it also promotes renewable fuels, for example," she said. It would help our refineries in terms of simplifying fuel specifications, which would help us get gasoline to market at a better, more reliable price to consumers than some of the volatility we have seen in recent years.

"It would set us on a better long-term path than the one we are on now, but would it make an immediate difference in our immediate future? No. We only have so much control over the worldwide supply and demand for fuel and we can do our part here at home, but the rest of the world is out there competing in the marketplace with us for the same fuel."

The debate over what to do about high oil prices will likely intensify in the weeks and months ahead, as experts see no sign of a significant price pullback in the immediate future.

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