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Energy crisis? What energy crisis? by Susan Page and Dina Temple-Raston USA Today, July 31, 2001

Slow economy, mild weather diminish the sense of urgency

WASHINGTON -- About this time, as the dog days of summer approach, gasoline was supposed to be nudging $3 a gallon. Californians expected to be sweating in the dark amid ever-worsening power outages. The nation was facing the most serious energy shortage in three decades, the White House warned in the spring.

Instead, average gasoline prices have fallen to less than $1.40 a gallon since those dire predictions. Natural gas prices have dropped by two-thirds. California, which hasn't had a blackout since May 8, has so much excess energy that the state is selling some back on the market at a loss. And Americans seem more concerned about dips in the stock market than OPEC's announcement last week of a cut in oil production.

What happened to the energy crisis?

Credit a slowing global economy and unseasonably mild weather for curbing the appetite for energy around the world. That gave refiners and producers enough breathing room to catch up and surpass demand.

Conservation efforts in California helped, too. Now, where there were no inventories just six months ago, there are surpluses.

The energy crisis of 2001 seems to have evaporated like summer rain falling on overheated asphalt. The House of Representatives is scheduled to begin debate Wednesday on a major energy package, but much of the political urgency to overhaul the nation's antiquated energy infrastructure has evaporated, too.

President Bush's energy plan called for opening the Arctic National Wildlife Refuge (ANWR) and other protected federal lands to drilling, encouraging construction of up to 1,900 electricity power plants over the next 20 years, reviving the nuclear power industry and increasing refinery and pipeline capacity.

But the plan had more resonance when gas prices were spiking and Californians were bedeviled by outages.

As the energy situation has stabilized, prospects for action on the administration's more controversial proposals have dimmed.

''With blackouts in California and gas prices so high, it was easy to build a sense of drama, and that's what they did,'' says Bill O'Grady, an energy analyst at the A.G. Edwards investment house in St. Louis. ''Now it is to their peril.''

''There was never an energy crisis, and the Bush people were hyping it up to get their supply and production initiatives through,'' says Bill Richardson, Energy secretary for President Clinton. ''However, my concern is, now that prices are falling, the Congress and the country will not address long-term energy needs.''

White House officials deny exaggerating the problem last spring. They complain with some frustration that the administration has gotten the worst of both worlds. When its plan was unveiled, critics faulted it for proposing only long-term solutions that didn't address short-term problems. When the immediate crisis eased, they say, opponents argued that the need for dramatic steps was over.

''Well, I think anytime there's not an immediate problem that's apparent to people, it's tough to convince people to think long term,'' Bush acknowledged to reporters at a picture-taking session two weeks ago.

Polls show the public's sense of urgency has declined with gas prices. In April, 35% of those surveyed in an NBC-Wall Street Journal Poll said there was an energy crisis in the country. By June, that number had dropped to 25%.

Even so, 60% said there was an energy problem, if not a crisis. That's the number that provides hope for passage of an energy bill this year.

Even analysts who disagree with the administration's prescription see the need to revamp the nation's energy strategy a quarter-century after the last full-fledged crisis led to lowered thermostats and long lines at gas stations.

The next energy crisis hasn't gone away, experts say. It's only been postponed.

Civil war and cold weather

''Even though prices have come back down, that doesn't mean a year from now or two years from now or three years from now we won't have exactly the same problem we had six months ago,'' says Amy Jaffe, an energy specialist at Rice University in Houston who directed a Council on Foreign Relations study this year. ''If there was a revolution in Indonesia or a workers strike in Nigeria that took all their oil out of the market, the price impact of that would register instantly. If we have a very cold winter starting in November, pressure will be right back on.''

It's not just cold weather or civil unrest that could send prices skyward. Should the global economy pick up later in the year, as some forecasters predict, demand for energy would pick up. That would put pressure on prices.

What's more, members of the Organization of Petroleum Exporting Countries have announced they are trimming production by 1 million barrels a day in a bid to drive up prices.

''If you get a big run-up in fuel prices, that clearly could affect the American economy,'' Vice President Cheney said the day the OPEC announcement was made. ''That'll adversely affect the global economy.''

Though the administration no longer harbors its early hopes of getting an energy package through Congress this summer, there are signs of activity:

• The House is expected to vote by Thursday on a massive energy package that would raise fuel economy standards for sport-utility vehicles, offer billions of dollars in tax credits for investments in ''clean coal'' technology and open more federal lands to oil and gas exploration. One of the biggest battles during the debate is likely to be a provision that would open ANWR to development.

• The Senate Energy and Natural Resources Committee begins marking up a separate bill Wednesday that would encourage increased oil and gas drilling in the continental United States, offer incentives to expand refinery capacity and promote energy efficiency and conservation.

• The White House has begun a public-relations push to regain momentum behind the administration's energy plan. Bush is scheduled to talk today about the importance of passing the energy bill as he signs an executive order promoting the use of an inexpensive energy-saving device on appliances. Cheney is doing daily interviews with radio stations and other local media outlets in the districts of targeted members of Congress.

But the timetable is slower and the prospects for action more difficult than when an energy crisis seemed to loom. Some administration strategists are concerned that Congress so far has been more willing to approve broadly popular proposals to encourage conservation than more difficult votes to expand production. One reason House leaders decided to combine seven separate energy bills into one massive package was to tie the various proposals together.

''Americans love energy, but they don't like how we produce or distribute it,'' Energy Secretary Spencer Abraham says. ''This means any proposal for more energy production or infrastructure expansion is unlikely to be popular, which is the main reason we haven't had an energy plan in the last eight years.''

What's more, the Bush administration's experience with the politics of energy has left some scars: The report's emphasis on production led to charges that the White House was dismissing the importance of conservation, a damaging impression administration officials are trying to reverse. And the administration is now approaching a showdown with the General Accounting Office about disclosing consultations with industry leaders and others by the White House task force that drafted the plan.

Some administration officials see a silver lining in the changed energy landscape: The easing of an immediate crisis has taken off the pressure to enact short-term solutions. ''People are more likely to focus on long-term needs than they were a few months ago,'' White House spokesman Jim Wilkinson says. He says Bush now has ''a unique opportunity to demonstrate leadership'' by discussing what he thinks needs to be done.

'Sneaking up' on us

''As a nation, we're going to be consuming a lot more electricity 10 or 15 years from now than we are today, even if we use it more efficiently,'' says Daniel Yergin, chairman of Cambridge Energy Research Associates. The Energy Department estimates the nation's energy demand will increase more than 25% by 2020.

''These issues have a habit of sneaking up on the country, and then it becomes very partisan and very polemical and there's much finger-pointing,'' Yergin says. ''What better use of this period of calm than to address the longer-term issues?''

Among those issues:

• Bottlenecks and speed bumps.

  Some analysts compare the nation's energy infrastructure with an inadequate interstate highway system: The roads are overcrowded and marked by bottlenecks. When gasoline supplies were tightest at the beginning of this year's driving season, for instance, the problem wasn't OPEC's efforts to constrict the supply of oil. The problem was that the nation's refineries, operating at full tilt, couldn't produce fuel fast enough.

  The administration proposes incentives for the construction of more refineries in the United States, but some industry leaders say it makes more sense to locate refineries abroad despite the costs involved in importing refined petroleum products. As for the difficult process of moving natural gas, one solution would be to produce the liquefied version, which is easier to transport. But that would require the construction of new processing plants and assumes that natural gas prices stay low enough to make the processing costs financially viable.

• A 'Third World' grid.

  Electricity in the United States is distributed through regional grids that, by and large, don't talk to each other. For example, the two grids in California -- one for Southern California, the other for Northern California and the Northwest states -- have trouble transmitting to one another and lose electricity when they do. ''A Third World system,'' Senate Majority Leader Tom Daschle says of the nation's grids. He says he was appalled to learn that as much as 70% of electricity can be lost in the process.

  The transmission difficulties are both a regulatory and a regional issue.

  Many states don't want to sell their excess energy to neighboring states outside the grid for a simple reason: Reducing local supplies makes it harder to keep local rates down. One solution would be to federalize the nation's electricity grid so that states would have to share with one another and the systems could be seamless, but even advocates say the federal government is unlikely to take over local utilities.

• Too many blends?

  There are 17 customized blends of summer gasoline, which federal and local governments require selected cities in the United States to use to cut down on smog. That means a gasoline that can be sold in, say, Illinois, doesn't meet the specifications in Texas. Shortages in one state can't be met by excess supplies in another. That was one factor in price spikes this year.

  Some analysts suggest the number of ''boutique blends'' or ''microbrews'' could be reduced to, for example, a rural blend and an urban blend that could be used nationwide. That would help simplify and smooth out supplies. But the administration has been reluctant to infringe on states' authority.

• Global warming.

  Environmentalists howled and European allies protested when Bush rejected the Kyoto accord to reduce greenhouse gases, which trap heat in the Earth's atmosphere.

  But the White House has promised to pursue other ways to address the problem of global warming without damaging the economy in the United States, which is by far the world's biggest producer of greenhouse gases.

  Bush has expressed faith in the ability of American innovation to find technological solutions. But clean-burning hydrogen fuel cells are years away from financial viability.

  The ''clean coal'' technology the Bush administration is backing does limit smog and acid-rain pollutants but also produces enormous amounts of carbon dioxide.

  ''This will be where the biggest changes in energy policy will have to come,'' Mark Mazur, an Energy Department official in the Clinton administration, says of the task of dealing with global warming. ''We have about 10 years to figure this part of the equation out.''