The U.S. seems to be following a few simple principles in its approach to energy policy. Prime among them is that natural gas is good. Another is that technology has an important role to play in energy matters. A third might be that market fundamentals apply to these subjects. None of those principles will receive any argument here.
But principles can be dangerous. Being important, principles can divert attention from developments that ought not be ignored. Developments like that glow through the numbers in Oil & Gas journal's Forecast and Review beginning on p. 53.
OIL'S DOMINATION
One of them is petroleum's enduring domination of the energy market. Oil's market share is declining but remains the biggest by far. OGJ projects it at 40.2% this year, compared with 40.3% last year and 40.8% in 1992. The natural gas share of total energy use will hold the No. 2 position at 24.5%, unchanged from the past 2 years.
It is popular in some political circles to regret consumption of energy in general and of petroleum in particular. Pressures grow to reduce consumption in absolute terms. This flows from another principle that ignores too much: Using less is good. The principle ignores an important question: Relative to what?
Relative to economic growth, the proper conservation benchmark, the U.S. has reduced energy consumption impressively. In 1970, the country used 23,400 BTU/$ of gross domestic product. Last year it used 16,400 BTU/$. This year it will use 16,200 BTU/$. The country thus is reducing energy use without sacrificing economic growth. It is improving energy efficiency, which is more important than using less energy or less oil in absolute terms. Government efforts to cut energy use absolutely always sacrifice growth.
Similarly, government efforts to divert consumption from one share of the energy market to another create unjustifiable costs. The only way government can trim petroleum's 40.2% market share, for example, is by taxing away oil's economic advantages. Again, that means costs and foregone economic growth.
Since oil is destined to remain important to U.S. energy supply, and since oil needed but not produced domestically must be imported, U.S. production should attract some official notice. This year domestic production of crude and condensate will drop by 160,000 b/d to an average of 6.7 million b/d. That decline roughly equals the annual average production of Brunei. Last year, the production decrease was 330,000 b/d close to Ecuador's output. At this year's forecast production average, the loss since the recent peak in 1985 will amount to 2.27 million b/d slightly more than Norway's 1993 production average and just less than Venezuela's.
SOMETHING TO DO
If there were nothing that the U.S. government could do about declines this large, then doing nothing would be a logical course of action. But there is something that the U.S. can do, something more than promoting technological joint ventures with the industry and cheerleading for favored fuels. Those tactics may have merit; they simply won't add significantly to oil production and energy supply. What the U.S. should do is make frontier prospects on federal land accessible for exploration. Refusing to do so says that loss of a Norway's worth of production in a decade, with attendant loss of tax and royalty revenues, is acceptable to the U.S. government.
That, of course, is an energy policy. It can be explained on the basis of principles possessing a certain allure. As a way to ensure economic energy supply, however, it is a policy destined to fail.
