The State of U.S. Fuels

President-elect Bill Clinton has called for a shift from growing U.S. dependence on foreign oil to greater reliance on domestic natural gas, renewable fuels and energy conservation. This adds new opportunities and challenges to companies producing a complex mix of fuels.

Natural Gas: Abundant domestic reserves and support from the 1992 energy law, environmentalists and Clinton appointees make natural gas producers optimistic for a change. Some cautionary voices, recalling shortages in the 1970s, say that natural gas hasn’t yet solved its price and supply volatility problems. But deregulation of gas transportation and more pipelines and storage have solved that problem, industry leaders say. Natural gas already dominates the residential energy market and is poised to greatly increase its share of electric-power generation, replacing less clean-burning coal and oil facilities. Many environmentalists have also turned to natural gas and away from other alternatives as their choice for a “bridge” transportation fuel.

Oil: Smaller U.S. oil and gas producers welcome more reliance on domestic sources because most of their wells are in the United States. But most large U.S.-based oil companies also produce natural gas and would gain from increased use by utilities to produce electricity. Many big companies want cleaner-burning, reformulated gasoline to be the “bridge” fuel to new transportation technologies. But to make these fuels will be expensive for refiners, which already face high costs to curb air pollution.

Coal: Coal-fired plants generate most of the nation’s electricity and, despite environmental liabilities, coal will remain a major energy source. But natural gas will likely gain a much larger share of the power-generation market. As the most carbon-concentrated fuel, coal would be hardest hit by a carbon tax, one of the conservation methods being discussed by Clinton’s team. Clean-air regulations will favor low-sulfur coal from western states over high-sulfur eastern coal, a prime cause of acid rain.

Nuclear: The nuclear power industry is gearing up for a return, but with little encouragement from the Clinton camp. Streamlined licensing under the 1992 energy law, and a new generation of standardized, cheaper reactors, underlie industry hopes that new nuclear power plants could be under construction by the end of the 1990s. Many utility executives remain skeptical of buying any new plants. But industry leaders say consortiums of investors will build the next nuclear plants and sell their electricity to utilities as independent producers. The big problem remains: disposal of high-level nuclear waste. Clinton’s position has not yet been made clear.

Alternative Fuels: Some renewable energy sources, including wind and geothermal, have become roughly competitive with fossil fuels in recent years. Others, including solar, still hope for more support from Clinton. Transportation fuels such as ethanol, methanol and propane have fewer proponents lately. Ethanol, an alcohol made primarily from corn, is criticized for using as much fossil-fuel energy to grow and to refine as the fuel produces. Methanol, made from coal or natural gas, burns a little cleaner in a car than reformulated gasoline and is more expensive. Propane, a byproduct of crude oil refining and natural gas processing, is best-positioned to use in vehicle fleets. Research and development of the most widely proposed long-range alternative, electricity made by hydrogen fuel cells, is likely to get new support from Clinton.