* Aid to Gulf states hurt by BP could enhance chances

(Repeats to include proper date in dateline)

By Richard Cowan

WASHINGTON (Reuters) - Lingering concern among voters
about BP's 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 Nov. 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 and oil major Exxon Mobil Corp,
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 reelection.

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-Aug. 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 Nov. 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)