Rising Oil Prices Predicted as U.S. Congress Debates Energy Policy

WASHINGTON–Gas prices in the U.S. could rise to an average of $3.30 per gallon in 2012, the top official at the U.S. Energy Information Administration told a congressional committee Thursday.

The prediction from EIA Administrator Richard Newell came as the Republican majority of the House Subcommittee on Energy and Power called a hearing to build the case for increased U.S. oil production.

John Hofmeister, CEO of Citizens for Affordable Energy and an advocate for increased oil production in the U.S., told the committee oil prices could rise even higher, to $5 per gallon in 2012.

“The decline in the Gulf of Mexico will be sharper and deeper than anyone is predicting,” Hofmeister said, criticizing the fact that the Obama administration has slowed the review process for new drilling projects in the Gulf. “We have made a horrible error as a country.”

Increases in oil prices would add momentum to the already contentious debate over energy policy among U.S. lawmakers. While many Democrats are pushing for investments and incentives in renewable energy, Republicans and oil state Democrats say supporting oil and gas production at home should be the priority.

“This administration has been focused on green energy projects,” said Ed Whitfield (R., Ky.), the subcommittee chairman. “But I think most of us agree that this a long, long, long term solution to our problem.”

Also at the Thursday hearing, Deutsche Bank AG chief energy economist Adam Sieminski said more production in North Dakota and the Gulf of Mexico would benefit U.S. consumers.

“The good news for consumers around the world is that non-OPEC supplies are growing very strongly,” Sieminski said, referring to production by Canada, the former Soviet Union, China, and elsewhere. “If we could do more … in the Gulf of Mexico and so on, I think that would really help.”

Democrats said policies that could reduce consumption in the U.S., such as emissions standards for automobiles, would be more effective in combating rising oil prices.

“We’re not going to affect the cost very much no matter where we drill in the United States,” said Rep. Jay Inslee (D., Wash.).

by Ryan Tracy Copyright (c) 2011 Dow Jones & Company, Inc.