To Conserve Gas, President Calls for Less Driving

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September 27, 2005

To Conserve Gas, President Calls for Less Driving
By DAVID LEONHARDT, JAD MOUAWAD and DAVID E. SANGER

With fears mounting that high energy costs will crimp economic growth, President Bush called on Americans yesterday to conserve gasoline by driving less. He also issued a directive for all federal agencies to cut their own energy use and to encourage employees to use public transportation.

"We can all pitch in," Mr. Bush said. "People just need to recognize that the storms have caused disruption," he added, and that if Americans are able to avoid going "on a trip that's not essential, that would be helpful."

Mr. Bush promised to dip further into the government's petroleum reserve, if necessary, and to continue relaxing environmental and transportation rules in an effort to get more gasoline flowing.

On Capitol Hill, senior Republicans called for new legislation that they said would lower energy costs by increasing supply and expanding oil refining capacity over the long run.

Even though Hurricane Rita caused much less damage to the oil industry than feared, the two recent hurricanes have disrupted production in the Gulf of Mexico enough to ensure that Americans are facing a winter of sharply higher energy costs. The price of natural gas, which most families use to heat their homes, has climbed even more than the price of gasoline recently.
Households are on pace to spend an average of $4,500 on energy this year, up about $500 from last year and $900 more than in 2003, according to Global Insight, a research firm.

Mr. Bush's comments, while similar to remarks he made shortly after the disruption from Hurricane Katrina pushed gasoline prices sharply higher, were particularly notable because the administration has long emphasized new production over conservation. It has also opted not to impose higher mileage standards on automakers.

In 2001, Vice President Dick Cheney said, "Conservation may be a sign of personal virtue, but it cannot be the basis of a sound energy policy." Also that year, Ari Fleischer, then Mr. Bush's press secretary, responded to a question about reducing American energy consumption by saying "that's a big no."

"The president believes that it's an American way of life," Mr. Fleischer said.

Mr. Bush, speaking yesterday after he was briefed at the Energy Department, did not use the dour tone or cardigan-wearing imagery that proved politically deadly for Jimmy Carter during the oil crisis of the 1970's. Nor did Mr. Bush propose new policies to encourage conservation. But he was more explicit than in the past that Americans should cut back.

Oil companies spent much of yesterday assessing the damage from Hurricane Rita, which seemed to spare many oil and gas facilities. Still, the gulf's entire oil output and about four-fifths of its natural gas production remained shut yesterday, less than a month after Katrina left the industry stretched thin.

The Gulf of Mexico produces about 7 percent of the oil consumed in the United States and provides 16 percent of the nation's natural gas.

About half of the 16 refineries that were forced to shut by Hurricane Rita have said they plan to restart production soon. But delays in refining pushed the average price of gasoline up again for the first time since Labor Day, to $2.80 a gallon for regular gasoline, according to AAA.

Crude oil prices also rose yesterday on the New York Mercantile Exchange, closing up 2.5 percent, to $65.82 a barrel. Natural gas futures rose 12 cents, to $12.44 a thousand cubic feet.

"We've been in a chronic situation here where supplies have not really caught up with demand," said Dave Costello, an analyst at the Energy Information Administration.

In response to higher energy costs, households are likely to spend less on restaurant meals, clothing and other items. That would slow economic growth in coming months, but economists predicted that other forces - like a continuing housing boom and rising corporate investments in factories and equipment - would keep the economy growing.

"I don't think we're talking about a recession or a near recession," said Joshua Shapiro, the chief United States economist at MFR, a research company in New York. "I think we're talking about growth that is slower than people expected."

Households are now spending about $550 billion a year on energy, up by about $150 billion since the start of last year, according to Global Insight. Over the course of an entire year, the increase would be equal to almost 2 percent of overall consumer spending.

Energy costs are likely to be a particular burden on low- and middle-income households, whose income growth has barely matched inflation over the last few years. Wealthier households have done better, government data show, and have helped keep economic growth healthy with spending on second homes, new vehicles and the like.

Although more forecasters, including Federal Reserve officials, remain optimistic, some say that the spike in energy costs could lead to something of a tipping point for consumers. Families have already begun saving less money in response to higher energy costs, and they might eventually decide to rethink other parts of their budget.

"The best leading indicator of consumer spending is real average hourly earnings," which have been hurt by higher energy costs, said Joseph H. Ellis, a former Goldman Sachs partner and the author of a forthcoming book on the business cycle. "I think we're heading into a very difficult 2006."

In Washington, two House committees are expected to consider proposals this week that have been blocked in the past by environmental objections. Beyond making it easier to build new refineries, one proposal would allow states to opt out of Congressional bans on coastal oil drilling, and another would allow drilling for oil and gas in the Arctic National Wildlife Refuge, which has been controversial for years.

"Families who are paying more than $3 for a gallon of gasoline cannot afford to watch Congress block more clean U.S. energy production while they suffer," said Representative Richard Pombo, Republican of California and chairman of the Resources Committee.

The oil and gas industry supported the moves. John B. Walker, chairman of the Independent Petroleum Association of American, said areas now off limits offshore and in Alaska "could supply our nation with more than 100 years of natural gas - and save U.S. consumers upward of $500 billion."

Environmental groups said drilling advocates were trying to take advantage of anxiety from the storms and rising gasoline prices to push proposals that did not survive in the recently passed energy bill.

"It is kind of sad," said Kevin Curtis, legislative director at the National Environmental Trust. "There is nothing here that helps the consumer at the gas pump short term."

While attention has been focused on gasoline prices, the spike in natural gas prices has the potential to pose a bigger economic threat.

Households that use natural gas will pay an average $1,130 to heat their homes this winter, an increase of almost $400, according to federal government estimates. The price of natural gas in futures markets has more than doubled since 2000 and is six times what it was throughout the 1990's.