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Stocks News

U.S. Senate ready for round 2 on drilling regulation

WASHINGTON (Reuters) - Lingering concern among voters about BP's BP.L massive oil spill in the Gulf of Mexico means that efforts to tighten regulations on offshore drilling will continue in the U.S. Congress even with the well plugged and the oil dissipated.

But getting major legislation passed will be an uphill struggle. With Republicans eyeing gains in the November 2 congressional elections, Democrats will face fierce campaign-year opposition on all major initiatives.

Democrats who control Congress have made clear that when members return in mid-September from a long recess, an oil spill response bill will be high on their agenda.

Their determination to pass a bill is partly an election-year response to constituent demands. One poll found that safer drilling practices are more important to voters even than the war in Afghanistan.

The question is whether Democrats can cut a deal in an election year with Republican opponents of tighter drilling regulations, who are banking on other polls showing voters also want to press ahead with deep-water drilling.

The outcome will affect the profitability of companies like rig-maker Transocean RIG.N and oil major Exxon Mobil Corp, XOM.N and the productivity of a domestic oil industry facing dwindling on-shore reserves.

Regardless of when legislation passes and the offshore drilling moratorium is lifted, the oil industry is “still looking at a prolonged period of regulatory uncertainty, said Robert Johnston, director of global energy and natural resources at the political risk consulting firm Eurasia Group.

“It’s going to take Congress well into 2011 to sort through all the various aspects of this.”

Congress is weighing proposals to remove limits on how much in economic damages oil companies would be liable for in the event of oil spills. It is also mulling proposals to tighten safety rules on deepwater oil wells.

Most lawmakers spend the August recess back home at town hall meetings and other events to gauge voter sentiment while campaigning for re-election.

Some 69 percent of Americans said they wanted stricter regulations on oil drilling, according to a poll for the Pew Research Center for the People and the Press conducted July 29-August 1, two weeks after BP said it stopped the massive oil well leak.

Pew’s data showed energy concerns overall registered as a solid mid-tier issue, with 62 percent calling it very important. Energy ranked higher in voters’ minds than immigration and the war in Afghanistan.

Solid interest in oil drilling safety and energy should help Senate Majority Leader Harry Reid build support for the oil spill/alternative energy bill he plans to return to in September after setting it aside before the break.

In the four weeks before the Senate breaks again for the election, energy will vie with other big-ticket items such as military funding, tax policy and an arms treaty with Russia. So Reid’s energy bill, which also aims to boost electric cars and natural gas-powered trucks, could again get nosed out until after the elections, especially if compromise is elusive.

Republicans might resist compromise since polling also underpins their arguments that now is not the time to jeopardize oil industry jobs with legislation that they say will chase Gulf of Mexico drilling projects abroad.

Opponents of tighter regulations say that polls also show voter interest in keeping U.S. energy prices low and increasing domestic production, which they say underscores the need for deep-water drilling like in the Gulf of Mexico.

Karlyn Bowman, a public opinion analyst at the conservative-leaning American Enterprise Institute, said that the successful capping of the BP well “probably will take some of the steam out of” oil spill legislation.

But with voters holding deep-seated worries about the economy and showing signs of lashing out against incumbents, Bowman said Democrats will “use whatever arrows they have in their quiver” to maintain their hold on Congress.

One of those “arrows” likely will be juxtaposing former Republican President George W. Bush’s close ties to the oil industry with recent events: the BP spill, Republican opposition to lifting the liability cap and Republican Representative Joe Barton’s apology to BP during a congressional probe of the Gulf disaster.

New Jersey Senator Robert Menendez, the Democrat leading the oil liability fight while also heading his party’s nationwide Senate campaign efforts, last week previewed how the energy debate will be framed in the run-up to the November 2 elections.

If a broad energy bill sputters in the Senate, Menendez said: “We’ll have a stand-alone vote on unlimited liability on spills. I’d like to have a vote on that and see where they (Republicans) stand.”

“Are you on the taxpayers’ side or are you on the big oil companies side?” Menendez added.

Democrats have other reasons to keep stirring the energy debate: With the Pew poll reporting 70 percent of Democrats list the environment as a very important concern, pursuing legislation can help motivate the party’s dispirited base.

The bill also presents a chance for Gulf Coast lawmakers, in the run-up to elections, to deliver new aid to their states. Democratic Senator Mary Landrieu of Louisiana has warned that without new money to help communities deal with the BP spill, she will oppose any energy bill that hits the Senate floor.

East Coast lawmakers who oppose opening their shores to oil drilling, also will keep pressing for an energy bill. Menendez and Maryland’s Ben Cardin are among them.

Some Senate Republicans, led by Alaskan Lisa Murkowski, believe a compromise spill bill is possible, because they also want to reform drilling practices following the largest environmental accident in U.S. history.

Murkowski spokesman Robert Dillon said there was broad Senate support for Obama’s reorganization of the Interior Department’s oversight of offshore drilling. Senators from both parties are lining up behind new aid to the Gulf Coast.

Also, “raising the liability cap” has bipartisan support, Dillon said. Key Democrats, however, were sticking to their assertion that BP must pay for all economic losses, not just some, so the scope of corporate liability has become a sticking point. Senators have been meeting to try to cut a deal.

Additional reporting by Timothy Gardner and Tom Doggett; Editing by David Gregorio

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