Today's energy shortages far less ominous than in frantic 70s

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Today's energy shortages far less ominous than in frantic '70s

Posted at 10:49 p.m. PDT Thursday, May 17, 2001

KEN MORITSUGU

WASHINGTON -- As President Bush unveiled his energy plan Thursday, nearly 200 new power plants were under construction across the United States and 1,000 drilling rigs were burrowing for new sources of natural gas.

Today's high energy prices and shortages are driving massive energy-industry investments that over time -- with or without government intervention -- will bring supplies up and prices down.

To call the current situation a crisis is an exaggeration, with the exception of the severe electricity shortage in California that all but guarantees temporary blackouts this summer and possibly next. It pales in comparison with the 1970s crises that forced motorists to line up for limited gasoline supplies and drove the U.S. economy into recession.

``There's an electricity crisis in California,'' said Paul Krugman, a Princeton University economist. ``Nothing else out there justifies talking about a crisis. Energy demand surged in the late 1990s and the capacity for delivering and refining the stuff didn't keep up, basically because producers were caught by surprise. So we have high prices by recent standards, but all that will solve itself.''

That does not mean there are not serious energy issues facing the nation, including bottlenecks in making gasoline from crude oil, and delivering electricity over heavily burdened transmission lines and natural gas through nearly full pipelines.

But even today's high gasoline prices, when adjusted for inflation, are 30 percent lower than their historic peak in 1980.Consumers enjoyed a period of extremely low energy prices for most of the 1990s. Such depressed prices won't return anytime soon. Instead, homeowners and drivers are likely to be saddled with higher prices for gasoline, heating oil and natural gas for months and maybe a few years.

While higher energy costs always pose a threat to the overall economy, it's a much more distant one today than in the 1970s. Then, oil prices soared 200 percent in a year, and the impact rippled through gasoline and electricity markets. By comparison, energy costs rose 35 percent last year and are projected to rise an additional 9 percent this year, according to DRI-WEFA, a Lexington, Mass., economic-forecasting firm.

`We're better off today, because we have a much more diversified energy supply,'' said Jim Osten, chief energy economist at DRI-WEFA. The country is much less dependent on oil, particularly for electricity generation, where the use of coal, nuclear and more recently natural gas has expanded. Also, conservation has helped contain -- though it hasn't stopped -- the growth in energy use.

The one risk is California.

`In the end, disaster probably will be avoided, but it's going to be nasty,'' Krugman said. Outside California, the outlook is much less bleak. Power companies have built or significantly expanded 123 power plants in the past 14 months, according to Resource Data International, a Boulder, Colo.-based energy-information and -consulting firm. An additional 197 are under construction, up from 121 this time a year ago.

That pace of construction is enough to meet the upper end of the Bush administration's estimate that the country will need 1,300 to 1,900 new power plants over the next 20 years. `We are on the right road and we are building up front a lot of what is needed over the 20-year period,'' said Judah Rose, managing director of wholesale power at ICF Consulting, a Fairfax, Va.-based energy-consulting firm.

Richmond, Va.-based Dominion sees no power shortages in its markets in North Carolina, Ohio, Pennsylvania, Virginia and West Virginia, said Thomas Capps, the company's president.

Likewise, the natural-gas market is adjusting to recent supply shortages that drove up prices last winter when the weather turned unusually cold. As of last week, there were 994 rigs drilling for gas in the United States, up from up from 634 a year ago and 365 two years ago, according to a weekly survey by Baker Hughes Inc., a Houston- based maker of drilling equipment.

`As the price rises, there's economic incentive to drill more,'' said Gary Flaharty, director of investor relations for Baker Hughes. ``Eventually you'll drill to the point where there is enough gas on the market and the price will come down.''

Still, future gas supply will have to keep up with new demand from the construction boom in power plants, the vast majority of which are powered by natural gas. To meet that expected demand, most analysts support construction of a proposed pipeline to bring in new supplies of natural gas from Alaska.

Bush also has proposed opening previously restricted federal lands in the Rockies to exploration for natural gas. While environmental concerns surround these areas, economists say there is enough of a projected need for natural gas that they should not be written off without review.

`We need a coherent set of policies for deciding on when and how access to federal lands will be opened up to gas and oil exploration and development,'' said Paul Joskow, director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology. ``This inevitably involves a careful assessment of the environmental consequences of exploration and development in particular areas and research and development on ways to minimize environmental damage.''

Ultimately, the problem may not be finding natural gas or generating electricity, but getting those products to where they are needed. New pipelines and electric transmission lines need to be built to keep up with the nation's growing appetite for power. In many cases, local opposition has blocked construction. Also, uncertainty surrounding what the rules will be for electricity deregulation has reduced the incentives to build transmission lines while increasing the risks.

`I think the power plants will get built, but moving the power around and moving the gas to them is going to be problematic,'' Dominion's Capps said.

Seth Borenstein contributed to this report. Contact Ken Moritsugu at kmoritsugu@krwashington.com.

-- Swissrose (cellier3@mindspring.com), May 17, 2001


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