Congress to let offshore drilling ban expire

WASHINGTON (Reuters) - The offshore drilling ban that became a flash point in the U.S. presidential election looks set to expire next week after Democrats decided to drop the prohibition from a temporary spending bill that would keep the government running.

The end of the ban will not lead to a rush of new drilling any time soon, but it would be a big win for Republican Presidential nominee John McCain who has made opening most U.S. offshore areas to drilling a key part of his campaign. His Democratic rival, Barack Obama, supports limited offshore drilling as part of a bigger overhaul of U.S. energy policy.

The mammoth spending bill to keep the U.S. government operating through next March will include a $25 billion loan guarantee package for the auto industry but makes no mention of offshore oil drilling, pushing the politically hot topic to the next president and new Congress.

"The next election will decide what our drilling policy is going to be," said House Appropriations Committee Chairman Rep. David Obey.

Obey said the drilling ban would expire because Democrats could not reach an agreement with Republicans on how much offshore areas should be opened to energy exploration.

"The White House made it clear any new drilling provision was a nonstarter. The future resolution of offshore drilling will have to be addressed with a new President," said a spokesman for House Speaker Nancy Pelosi.

The spending measure that would allow the drilling ban to lapse carries a price tag of more than $600 billion and could come up for a vote on the House of Representatives floor on Wednesday.

"We think that lifting the ban on drilling is in the best interest of the American consumer as it gives them access to the billions of barrels of domestic oil and vast quantities of natural gas resources that had been off-limits to drilling," said Karen Matusic, spokeswoman for the American Petroleum Institute.

If Congress does nothing to limit development by placing arbitrary limits, it is a great step for our nation's energy security," she said.

The Interior Department's current five-year leasing plan calls for possible drilling off the Virginia coast, but only if the states agrees.

"It would take a substantial period for the administration to change this leasing plan or to develop new leasing plan," Jeff Bingaman, chairman of the Senate's energy committee.

"I think everybody has been working on assumption that on first of October something dramatically different occurs (with offshore drilling. That's not reality," he said.

Congress must pass the stop-gap spending bill by September 30, the end of the current budget year. It has not approved any of the 12 annual spending bills needed to keep the lights on in Washington.

Republicans, led by Presidential hopeful John McCain with his "drill here, drill now" campaign cry, have been pushing for an end to the 25-year-old ban as a way of relieving pressure on high gasoline prices.

House Democrats, saying the increased drilling would not be a quick fix for high gasoline prices, had moved to allow limited drilling 50 miles offshore in a bill that passed the chamber last week. But the bill was strongly opposed by Republicans and the White House as too limited in scope.

(Additional reporting by Russell Blinch and Ayesha Rascoe; Editing by Marguerita Choy)