Energy problems in focus

March 26, 2001
There's nothing like shortage to focus the official mind on energy.

There's nothing like shortage to focus the official mind on energy. While Californians struggle with intermittent power outages, sensible observations about energy are finding voice in Washington, DC.

First, President George W. Bush wisely ditched a campaign fancy about regulating carbon dioxide as an air pollutant (OGJ, Oct. 16, 2000, p. 33). As a side route to implementation of the Kyoto Protocol on climate change, the move would have contradicted efforts to bolster energy supply and undermined Bush's tax-cut agenda. It also would have equated a gas essential to life with harmful air pollutants, which is absurd.

Energy acuity

Extending the winning streak, the president and his secretary of energy, Spencer Abraham, spoke on energy last week with welcome acuity.

After a Mar. 19 meeting with his task force developing a national energy policy, Bush put into reasonable perspective the latest quota reduction by the Organization of Petroleum Exporting Countries. OPEC, he said, was mainly responding to expectations for reduced demand when it reduced its production cap by 1 million b/d.

His reading of OPEC's move differs subtly but importantly from the standard response, which is that OPEC simply cut production to raise the price of oil. Bush apparently accepts the view that OPEC more likely acted to defend its members against another ruinous price crash than to hike prices in defiance of economic forces and consumer interests.

That perspective makes room for credit to OPEC for acting preemptively instead of aggravating market swings to everyone's detriment with reactive production change, as it did in the late 1990s. It also leaves room for disagreement with OPEC about where markets are headed. The president thus called "comforting" the Saudi oil minister's reassertion of a $28/bbl ceiling on the price band against which OPEC is managing production, however irregularly.

This sounds like producer-consumer "dialog," forever dismissed as wishful thinking. It at least represents overdue refinement in US relationships with OPEC, as publicly expressed.

In the same exchange with reporters, Bush carried the analysis a useful step further by pointing out that elevated prices of oil products don't relate solely to intrigues of the crude oil market.

"...If we have a price spike in refined products, it's not going to be because of the price of crude oil being at $25-26/bbl," he said. "It's going to be because we don't have enough capacity, refining capacity. We're not generating enough product."

Too frequently, market analysis and policy-making overlook that simple insight.

On the same day Bush spoke, Abraham warned a US Chamber of Commerce energy meeting about a growing "energy crisis" not likely to stop with the California power fiasco. Pointing to rising energy demand, regulations crimping supply, and problems with energy infrastructure, he declared, "Unless these challenges are addressed, America's energy supply will be continually at risk. Our citizens will encounter blackouts and other lifestyle-altering disruptions. And our economy will be hobbled by rising energy prices."

Americans, of course, don't want to hear that. But they need to hear it. And it's an energy secretary's job to tell them.

Abraham went on to cite projections for growing demand and to detail some of the regulatory constraints on supply. He debunked a list of energy myths, among them that the industry deliberately limits supply to drive up energy prices and that government subsidies and tax breaks represent the best ways to meet supply challenges.

Very usefully, Abraham pointed out that renewable sources of energy, however promising and popular, can't come close to meeting US needs during the next 20 years. He argued for oil and gas leasing of the Arctic National Wildlife Refuge coastal plain, pointing out that the area of interest covers a tiny part of the whole area. And he flatly rejected price controls as a response to the current crisis.

What's ahead?

For now, these are just words. But they're the right words, muffled for too long. They at least get the Bush team past alarms it raised earlier by refusing to review egregious diesel-sulfur regulations and by letting the CO2 mongrel slip its leash.

Who knows? As bills come due for past US recklessness on energy supply, even a politically split Congress might see merit in leasing ANWR.