In Energy, More Opportunity Than Crisis

Back to the future. Dire warnings are sounding again about imported oil. The Department of Energy said last week that within the next 20 years the United States could be dependent on imports for two-thirds of its oil supply.

And William Webster, director of the Central Intelligence Agency, underscored that message, saying in congressional testimony that “dependence on Persian Gulf oil will rise dramatically.”

The implied threats were all too believable after December’s bitter cold snap, when heating oil and natural gas were suddenly in short supply in the Northeast.

But is the threat real? Are we in for a rerun of the 1970s, a long period of scarce energy and high prices? Should we prepare to line up at the gas pumps again and put on more warm clothing indoors?

No, not really. The first consoling fact to keep in mind is that the United States remains secure in energy, with enormous and diverse supplies of coal (enough for hundreds of years) and natural gas (60 years’ supply and possibly more). The nation will make a lot more use of its natural gas in the decade ahead, and possibly its coal also.

But beyond this fuel or that, the ultimate consolation in energy is that something else always happens--economics changes demand or technology changes supply.

Sure, domestic oil is slated for a long, slow decline--more than a third of U.S. production will vanish in the next two decades, the Energy Department’s forecast says. But that’s not necessarily a calamity. Either we will import the oil that we need, or something else will give us the equivalent energy.

The big use for oil, after all--accounting for one-quarter of all U.S. energy usage--is motor gasoline. And it’s a good bet that, for environmental reasons, cars are likely to be burning entirely different fuels at some point in the next 20 years. Perhaps we’ll see electric cars, powered by electricity produced from natural gas or coal.

That unpredictability is why gloomy forecasts of energy crises and attempts at energy policy so often turn out wide of the mark.

Recall Project Independence, proclaimed by President Richard Nixon in 1973 to encourage both conservation and production of oil to free us from dependence on imports. The policy wasn’t wrong--just irrelevant. Seventeen years later, we are importing as much as ever and will import more because the United States simply can’t produce all the oil that it uses.

But that doesn’t mean energy conservation failed. Not at all. More fuel-efficient cars, lowered thermostats and energy-saving machines--helped by microchip technology that wasn’t even developed when Project Independence was declared--have given the U.S. a much bigger bang for its energy buck than before 1973.

For another example, take the fiasco of natural gas in the 1970s. Use of natural gas to produce electricity was restricted until two years ago by a law passed in 1978 at the height of concerns about energy policy. The thinking back then was that natural gas--a versatile substance that can be used to make petrochemicals as well as heat homes or generate electricity--was too good, and too scarce, to use in electric power plants. So the Industrial Fuel Use Act of 1978 restricted its usage, and electric companies cut back. But they did so just as drillers, spurred by 1970s high prices, found vast new gas supplies.

The resulting oversupply bankrupted gas producers, disrupted pipeline companies and generally added to the economic suffering of the Southwest in the 1980s.

And after all that, the Fuel Use Act restrictions were repealed in 1987--nine years after they were passed--to relieve the oversupply and to give electric power companies an economic, clean-burning fuel.

Technology, in the form of increased understanding and concern for the environment, has changed the energy equation again. Natural gas emits no sulfur dioxide and only one-third the carbon dioxide of coal combustion. That’s why the Energy Department pegs it as the fastest-growing fuel of the 1990s--and proposed amendments to the Clean Air Act could increase its market even more.

New pipelines and expansions of old ones are planned to try to keep up with demand from the Northeast, and California will shortly need more gas. All of which spells rising prices and new wells drilled to increase production.

“The industry is still in the early stages of a boom,” says analyst David Braunstein of Lovett Underwood Neuhaus & Webb, a Houston-based brokerage house. But industry leader George Mitchell, of Mitchell Energy & Development, says he’ll keep his powder dry. Mitchell has been through booms--like that of the early ‘80s that made him a billionaire in Mitchell Energy stock--and busts--like that of the late ‘80s that reduced him to a half-billionaire.

He knows that too much of a boom in natural gas--tight supplies and rising prices--will only speed the day that technological breakthroughs make coal environmentally acceptable. The Energy Department says coal will replace gas as the growth fuel of the early 21st Century. Or something else will happen--renewable energy, or nuclear may be perfected by then.

The only confident prediction one can make is that change will continue--and probably dire warnings will too.