Little help seen in cutting gas cost

May 04, 2006|By WILLIAM NEIKIRK | WILLIAM NEIKIRK,CHICAGO TRIBUNE

WASHINGTON -- As Congress moved yesterday to approve legislation responding to high gasoline prices, energy experts said there is not much lawmakers can do in the short run to bring down the stratospheric prices at the pump.

Analysts said a measure approved by the House yesterday to strengthen penalties on gasoline price gouging would do little, if anything, to affect gas prices. It is not clear how much price gouging is going on, they said, even as oil companies are making record profits.

There was also general disdain among energy experts for a Senate Republican proposal, now apparently dropped, to give many Americans a $100 rebate to help them pay for gasoline prices this year. Even a White House economist and the House Republican leader have been sharply critical of the idea.

"This is more show than substance," said Mark Zandi, chief economist at Moody's Economy.com.

Although oil prices fell by more than $2 a barrel yesterday to $72.28 and gasoline supplies rose, the White House and Republican congressional leaders scrambled to show they are responding to a problem that could hurt them on Election Day as Democrats attacked.

The nation's political leaders have been reluctant to enact stronger conservation measures, such as setting a specific goal for reducing gasoline consumption and adopting steps to carry it out. But such sacrifice may be the only real way to address the problem, said energy analyst Andy Weissman of FTI Consulting in Washington.

Most experts agree that, geopolitical events aside, the only way for Americans to reduce gas prices in the short run is to cut consumption significantly. And history suggests consumers are unlikely to do that until pump prices reach $4 a gallon or more.

The measures most likely to force down consumption - a gasoline tax, strict fuel efficiency standards or a dramatic infusion of money into developing alternative fuels - are politically difficult steps to take. And other than a gas tax, they would take a while to have any effect.

The U.S. economy is at a crossroads on the oil and gasoline question, Weissman said, with an energy crisis looming in the next decade that could deeply affect the nation's standard of living. He predicted prices for energy could easily double in that time.

He called for the naming of an energy chief who could set consumption targets for gasoline and see that they are carried out.

Zandi said, "There is nothing they can do to lower gasoline prices in the next few months." Raising the gasoline tax would force more conservation, he said, even though such a move would be highly unpopular. He called for passage of a gasoline tax that would keep the price at $3 a gallon on an inflation-adjusted basis.

This in essence would be adopting a floor price for gasoline. But George Beranek, an analyst with PFC Energy in Washington, said such a tax would be highly regressive on low-income Americans who have to drive.

What happens on the geopolitical front with events in Iran and Nigeria, two major oil producers, could have far more impact on oil and gasoline prices than anything Congress does at the moment, experts said.

If the U.S.-Iran dispute over nuclear technology were to ease and political unrest threatening Nigerian oil fields abate, the price of oil could fall by $10 a barrel, said Kevin Lindemer, an energy consultant at Global Insight, an economic consulting firm in Boston. Zandi said the oil price might drop even more.

This so-called "risk premium" on the price of a barrel of crude oil has been added in financial markets because of uncertain political developments. World oil supplies are so thin that a disruption anywhere can drive up prices sharply, Zandi said. Demand has gone up sharply largely because China and other Asian countries have grown dramatically. Zandi said if growth in China and elsewhere slows over the next year, that could cause oil prices to come down as well.

Analysts were more positive about a House proposal to streamline approval of new oil refineries in the U.S. Some of that refining capacity is still disabled from last summer's hurricanes.

But building new refineries would take years. Lindemer doubted that the House bill would speed refinery construction, saying that industry consolidation and poor financial returns have been key in reducing capacity.

William Neikirk writes for the Chicago Tribune.

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