The Magazine

Permanent Energy Crisis

And the solution we keep ignoring.

Mar 17, 2003, Vol. 8, No. 26 • By WILLIAM TUCKER
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NO SUBJECT gets talked to death more than "diminishing our dependence on Middle Eastern oil." Yet as conflict with Iraq looms, what do we face but another Energy Crisis?

Between January and late February, the price of a barrel of oil rose from $32 to $40, highest since the first Gulf War. With war near, speculators are bidding up futures. An extremely cold winter in the United States and Europe hasn't helped. (Where is global warming when we need it?) World supplies are reeling from the meltdown of Venezuela, which provides 4 percent of global oil and 14 percent of our imports. A year ago Venezuela was producing 2.4 million barrels per day. By December it had fallen to 150,000. We've made up for the loss by increasing imports from--you guessed it--the Middle East.

Higher petroleum prices have spilled over into natural gas markets. Future contracts crept from $2 to $6 per million BTUs in 2002, then spiked at $10 in late February. Storage levels have declined 40 percent. In Texas, shortages have curtailed several electrical plants.

Over the last decade, natural gas has become everybody's favorite fuel--the supposed answer to all our energy and environmental problems. California, frantically building power stations after the 2000 debacle, now gets 45 percent of its electricity from natural gas. Nationwide, the figure is only 15 percent, but 91 percent of new plants are burning methane (the principal component of natural gas). The 14 percent of natural gas used to generate electricity now approaches the 22 percent used for home heating.

All this has brought hosannas from environmentalists. The Sierra Club has issued a "national energy plan" urging conversion to methane. It even supports a natural gas pipeline from Alaska to California. The Bush administration is also touting the project, but construction is ten years away.

Now suddenly we're back in a situation of scarcity. What happened? At bottom, shortsighted policies--driven by environmental extremism--have time and again pushed us down the path of least resistance, and lower energy supplies.

For decades, natural gas was considered too valuable to burn in electrical generators. Coal (50 percent of our electricity) and nuclear (20 percent) were deemed more appropriate. With environmentalists fighting both coal and nuclear, however, gas became the "clean" alternative. A glut from the 1980s deregulation made this seem feasible, but the outlook for the long run is not so bright: While environmentalists love burning gas, they sure don't like drilling for it.

"Most of the new wells we're punching are in the same places we've drilled for the past 100 years," says Rhone Resch, vice president of the Natural Gas Supply Association. "Our decline rate [the annual decrease in production from existing wells] used to be 25 percent. Now it's 50 percent. Basically, we keep sipping through the same straw."

Huge regions of promise--the coast of California, the eastern Gulf of Mexico, about 40 percent of the Rockies--have been closed by environmental restrictions. Even where permits are granted, environmentalists automatically oppose them. "These are public lands," says Peter Morton, of the Wilderness Society's Denver office. "You have to balance other uses and values. It comes with the territory."

"In recent years we've developed new technology for extracting methane from coal beds," says Resch. "It's very pure gas. We were extracting large amounts from coalfields in Wyoming. But environmentalists intervened, saying the original environmental impact statement didn't cover the new technology. We had to close down, putting a lot of people out of business."

"This is an industry of small operators," says Jeff Eschelman, of the Independent Petroleum Association of America. "Our members average 12 employees but drill 85 percent of new wells and produce 70 percent of the nation's natural gas. These people can't handle a lot of litigation."

Instead, increased consumption has been met by imports, mainly from Canada. But even where Canadian supplies are available, local environmental opposition makes delivery difficult. Since 1998 Columbia Gas Transmission has been trying to build a pipeline from Ontario to metropolitan New York. Opposition in Westchester County has blocked the project--even as the same people try to shut down that county's Indian Point Nuclear Station. This month electrical boilers in New York started switching back to oil because gas had become too expensive.

Meanwhile the transportation system is still hopelessly hitched to oil (accounting for half our consumption). The total mileage driven by American cars has tripled since 1970. Government-mandated fuel efficiencies have only made it cheaper to drive. Alternate technologies are still far over the horizon. A hybrid electric-gas auto developed by Toyota and Honda has shown promise. The vehicle gets 70 mpg and does not use additional electricity. (It recharges off the flywheel.) The car is selling in Europe and Japan and could make a big impact if it catches on here.

The hydrogen car, on the other hand, remains a will-o'-the-wisp. Environmentalists have pushed it for a decade and President Bush scored a publicity coup by embracing it in his State of the Union address. But there is no free hydrogen in the world. Supplies will come from either (1) the electrolysis of water, which requires electricity, or (2) stripping hydrogen from natural gas. Rather than being a source of energy, hydrogen is simply a carrier of other energies.

So essentially, we're back where we were in 1975. Coal, oil, and natural gas all have their limits. And the one obvious alternative that offers a way out--nuclear power--remains stuck in neutral.

The private energy companies that have taken over the nation's nuclear fleet over the last decade have performed a miraculous revitalization, adding the equivalent of 25 new 1,000-MW generators simply by making improvements on old plants. Security has also been vastly improved. Unlike 100-story buildings, nuclear containment structures are designed to withstand the full impact of jumbo jet airliners. Yet despite these advantages, no new plants have been commissioned.

"We're very encouraged by the approval of Yucca Mountain, and the Tennessee Valley Authority is planning to restart Browns Ferry 1, which was closed in the 1980s," says Marv Fertel, senior vice president of the Nuclear Energy Institute. "But as for new construction, we're still testing the regulatory environment."

Meanwhile, Democrats are still beating up on the oil industry. Noting that refineries are operating at 87 percent of capacity instead of their usual 92 percent, Senator Chuck Schumer of New York has accused the industry of deliberately holding back supplies. The refineries responded that operations are lower simply because there isn't enough oil around. Senator Joe Lieberman has argued for an immediate release from the Strategic Petroleum Reserve to ease prices for homeowners. Secretary of Energy Spencer Abraham said he would harbor the 600-million-barrel cache for a real emergency.

While the Democrats pander to their big-oil-hating base, the real impact is being felt by oil-dependent industries. In February Dow Chemical postponed a planned expansion because of rising gas prices. American Airlines, which will spend $200 million extra on fuel this quarter, may be headed for bankruptcy.

All this is bad news for the economy. As Stephen Brown, director of energy economics at the Dallas Federal Reserve Bank, warns: "Nine of the last ten recessions have been preceded by sharply higher energy prices." Maybe it's time we started taking energy seriously.

William Tucker is a columnist for the New York Post.