Domestic production eyed as gas prices head toward record-breaking height

President Obama's re-elect team defended White House energy policy on Sunday as gas prices shoot toward the $4 mark and beyond, a level that could devastate voters' pocketbooks as well as Obama's chances for a second term.

Nationally, gas prices are $3.53 a gallon, up 25 cents since Jan. 1, and likely headed to $4.25 a gallon by late April. Republicans have demanded more oil production at home, as well as building the Keystone XL pipeline across the middle of the U.S. to allow oil from Canada to reach Texas refineries.

Obama rejected the plan, but one of his spokesmen, Robert Gibbs, said the president is looking to increase domestic energy production.

"Just on Friday, the Department of Interior issued permits that will expand our exploration in the Arctic. The president has increased our fuel efficiency and energy efficiency standards so we do use less energy, which will help drive down the price," Gibbs said. "Our domestic oil production is at an eight-year high, and our use of foreign oil is at a 16-year low. So we're making progress."

But John Hofmeister, former CEO of Shell Oil and founder of Citizens for Affordable Energy, told Fox News that oil production today is only 7 million barrels per day when it used to be 10 million per day.

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    Hofmeister warned that the global economy is in "the crosshairs" of a precarious situation in which China is growing its demand for oil each year by millions of barrels per day and turmoil in the Middle East is creating "some of the most unpredictable, volatile, geopolitical situations" in the world.

    Global oil demand, meanwhile, is expected to increase by another 1.5 percent to 89.25 million barrels a day in 2012, according to the Energy Information Administration.

    "The failure of the United States of America, the world's largest consumer, to adopt government policies to enable domestic production to increase and meet these conditions has been nil, nada, nothing, and that is unfortunate for American consumers," Hofmeister told Fox News.

    "We know where the oil is but the government has to allow the companies to get the oil," he said, charging the Obama administration with being "anti-drilling," as demonstrated by the moratorium in the Gulf of Mexico following the BP spill in 2010.

    The average price of gas this month so far is $3.49 a gallon -- up 21 cents since the beginning of the year -- and $1.60 more per gallon than when Obama took office in January 2009.

    For every 25-cent jump in gasoline prices over a year, $35 billion -- or about one-third of the recently passed payroll tax cut -- is removed from other uses in the economy, and much of it is sent abroad. Americans spent 8.4 percent of their household income on gasoline last year when gas averaged $3.51 a gallon -- that's double the percentage a decade ago.

    While the economy grew at a 1.7 percent rate in 2011 -- modest following a recession -- the annual increase in gas prices -- compounded by a switch to lighter formula gases sold in the spring and summer -- could easily top the July 2008 record of $4.11 per gallon.

    As the administration praises the direction of employment and consumption numbers, the president's economic recovery plans could be severely hampered by a rise in gas prices, warn analysts and politicians.

    "One out of every six Americans is unemployed, working part-time, looking for full-time work or so discouraged they're -- they've dropped out of the workforce altogether, and gas is now $3.53 a gallon, going to $4," said former George W. Bush senior adviser Karl Rove, a Fox News contributor.

    "If I were in the White House, I wouldn't be picking out my second term office just yet," Rove said.

    "You can't guarantee anything. But you guarantee under the Obama plan, there's going to be less American production, higher prices. We already have highest price on average in history," said Republican presidential candidate Newt Gingrich, noting that the administration has been aggressive in filing environmental rules and lawsuits that prevent oil production. Gingrich said without domestic production, U.S. oil dependency remains tied to the Middle East.

    While the U.S. dependence on foreign sources of oil persists, domestically produced oil from Texas is currently priced at $103 billion per barrel, up 19 percent from a year ago, but still cheaper than the $119 per barrel of North Sea oil, a proxy for Mideast oil. That's up 11 percent this year.

    Hofmeister, who supports increasing biofuel and natural gas production from 3 million to 4 million gallons daily and the development of more fuel-efficient cars, particularly using the know-how of an internal combustion engine, said it's "almost too late" to get the U.S. back on path toward reasonable prices.

    And while Gibbs, who appeared on ABC's "This Week," acknowledged that "there are no magic bullets," he said the president is focused on an "all-of-the-above energy policy."

    "We're going to have to do all of these things:  We're going to have to look for more energy here at home. We're going to have to conserve energy. We're going to have to make the energy we use more efficient. All of those things will help us get ahead of this problem," he said.