Energy Crisis Threatens Growth

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Energy Crisis Threatens Growth; World Economies Feel Effects of Higher Prices

September 22, 2000 The Cincinnati Enquirer James Flanigan Los Angeles Times

The most serious energy crisis since the 1970s threatens to slow world economies and promises years of renewed concern over an old problem: the price and availability of energy.

President Clinton last week cited the threat of global recession as he urged oil producing nations to increase production.

Economic growth is slowing in South Korea and India because of higher prices for oil. The economies of European countries, already disrupted by protests over high gasoline prices, are especially vulnerable.

The U.S. economy, with inflation remaining low, doesn't seem to be suffering the effects of high energy prices. So far, the nation's greater productivity and its reduced reliance on oil and gas compared to the 1970s have offset the energy turmoil.

But behind the aggregate statistics, small businesses are being hurt by prices for gasoline, diesel fuel, natural gas and and heating oil that have doubled so far this year.

And the true effect of the higher prices may not be realized yet. Competition has generally prevented business from raising prices to offset their higher energy costs. But their incomes are being cut, just as every consumer of gasoline, diesel fuel and natural gas has less to save or spend on other goods because of the drain of higher energy prices.

There is no shortage of oil or of natural gas, experts insist. And in fact, increased supplies of imported oil arriving in the next two months are expected to ease concerns over heating oil availability for the winter.

But if there isn't a shortage, there is little oil or gas to spare, either. Commodities that were in surplus a year ago suddenly are in tight supply and subject to interruptions.

Indeed, the world's industrial system has so little cushion that the slightest hiccup can cause an extreme reaction.

That's why natural gas prices surged 3 percent on Friday, to $5.34 per thousand cubic feet - more than double the average gas price a year ago - because storms in the Gulf of Mexico could threaten gas production there.

The buffer of surplus oil production in the world has been cut in half in the last year as prosperity in Asia, Europe and the United States has increased demand for fuel. Cambridge Energy Research Associates estimates that the oil surplus "cushion" is now equivalent to the annual output of Iraq.

Thus Saddam Hussein, once again directing threats at Kuwait and Saudi Arabia, has leverage over the world's economies.

In the United States the Internet-driven economy's need for super- consistent power supplies is adding to pressures on electricity systems.

Internet systems like those used by most of the nation's major industries and institutions cannot be effective without a much more reliable flow of power than the power grid has traditionally supplied.

Despite its seeming suddenness, the new energy problem has been taking shape for years.

Relatively low prices for oil and gas in recent years caused a worldwide downturn in investment for new sources of fuel, said Joseph Stanislaw, president of Cambridge Research.

With little or no new supplies being developed since 1998, and demand rising as Asia's economies recovered from recession, today's tight supply situation was inevitable, Mr. Stanislaw said.

Although it is hard to picture at times like this, oil remains prone to oversupply, say some analysts.

"Even a mild recession today would cause prices to go down to about $22 a barrel," says Albert M. Anton, partner and head of research at Carl H. Pforzheimer & Co., a New York investment company specializing in oil and gas issues. "And prices would certainly come down if President Clinton released oil from the Strategic Petroleum Reserve."

Mr. Clinton can release oil from the reserve to alleviate temporary oil price pressures. He is considering such a move, but is waiting to gauge the effect of increased OPEC output. "We need to watch the situation closely," Mr. Clinton said Friday.

Even so, a release from the reserve would be only a stopgap move in what has become a new era for oil, some analysts say.

The long U.S. economic boom of the '90s gradually ratcheted up demand for energy, but sluggishness in Europe and stagnation in Japan limited the world's appetite. And Asia's short but intense economic crisis in 1997-98 helped to create a mini-glut of crude oil.

Today, the picture has changed. Much of Asia is rebounding strongly, and Western Europe is enjoying its strongest economic growth in years.

Along with the remarkable continuation of the U.S. boom, the industrialized world is robust. And a new economic player, China, increased oil purchases dramatically to fuel its rapidly growing economy.

That's why, unless they induce a global recession, high energy prices are unlikely to be temporary. New oil and gas production cannot be brought in quickly.

Although investments now are increasing to develop oil and gas in the deep waters of the Gulf of Mexico and offshore Angola and other West African countries, it will take two to three years to bring supplies to market from such sources, analysts estimate.

http://www.tbwt.com/news/2000/09/18/CINC/0000-2464-KEYWORD.Missing.asp



-- Martin Thompson (mthom1927@aol.com), September 23, 2000


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