With energy woes, different solutions Domestic Production Not a Cure-all, Some Say By Peter Behr and Eric Pianin

Washington Post Staff Writers

Monday, April 9, 2001; Page A03

The United States is headed for another summer of energy woes, experts agree, from rolling blackouts in California to the threat of electricity price spikes in New York City and higher gasoline prices in the Midwest. Those problems are likely to worsen in the next several years unlessthe energy industry spends billions of dollars on creating a stronger network of pipelines, refineries and power grids to produce and distribute energy. But some leading energy analysts are questioning the more dramatic assertions by President Bush and Energy Secretary Spencer Abraham that the country is in the worst energy crisis since the oil shocks of the 1970s, and that it must accelerate domestic oil and gas production to reduce a dependency on foreign suppliers. Most of the country's energy problems are cyclical -- the expected fallout from rock-bottom energy prices in the late 1990s that slowed or halted investments in energy production and distribution networks, energy analysts say. In trying to drive up domestic production, they say, the administration has overstated the ability of the United States to inoculate itself against swings in world energy prices. "There's plenty of crude oil around," said Philip K. Verleger Jr., a California-based economist and oil analyst. "What we have is an infrastructure problem -- not enough pipelines, transmission lines, generating capacity, refining capacity or ships to move [energy] products." Guy Caruso, who directed a global energy assessment for the Center for Strategic and International Studies, said the energy infrastructure problems will have to be addressed over the long term. "I'm always a bit uncomfortable with the word 'crisis,' " Caruso said. "It tends to conjure up an urgency and immediacy." Indeed, some experts say the energy industry already is adjusting. They note that as oil prices have increased over the past two years from less than $10 a barrel to approximately $25 a barrel, so have oil and gas exploration and plans for new pipelines and power plants. "We hadn't done any drilling in three years, and the reason for that was the price of oil was $12" a barrel, said David Wyss, chief economist of Standard and Poor's. Guided by Vice President Cheney, an administration task force is about a month away from issuing an energy plan that will call for an increase in domestic energy production. That could include a resumption in construction of nuclear-fired power plants and drilling on pristine government lands. "We need to build 65 new power plants a year in this country for the next 20 years," Cheney said yesterday on NBC's "Meet the Press." "My own view is that some of those ought to be nuclear, and that's the environmentally sound way to go." But as the commission draws up its blueprint, there has been little public debate on the country's energy priorities and the basic question underlying the administration's effort: Just what kind of energy problems does the nation face? Industry executives stand solidly with Bush and Cheney in blaming President Bill Clinton for neglecting the nation's energy requirements and contending that an all-out catch-up effort is essential. "The United States is operating at or near its maximum in most energy production areas," said Red Cavaney, president of the American Petroleum Institute, the oil industry's chief lobbying arm in Washington. "We need everything." But congressional Democrats and environmental groups contend Bush is exaggerating the energy challenges to advance a pro-industry agenda and reduce environmental safeguards. They also accuse the administration of bypassing energy conservation initiatives that could significantly lessen the country's energy needs. "There's no question there are some major challenges we need to step up and meet as a nation to ensure we have an adequate supply," said Sen. Jeff Bingaman (N.M.), the senior Democrat on the Senate Energy and Natural Resources Committee. "But I don't see it as a national crisis right now." Taking a page from President Richard M. Nixon's "Project Independence" in the early 1970s, Bush contends more domestic oil and gas production is vital to reduce U.S. dependence on foreign oil, particularly from the Middle East. U.S. production of crude oil fell from an average of 7.1 million barrels a day in 1992 to 5.8 million barrels daily last year. Imports of crude oil went the other way, growing from 6 million barrels a day in 1992 to 8.9 million barrels a day last year. That constitutes a growing hazard to the United States, according to administration officials. They say it underscores the need to drill in the Arctic National Wildlife Refuge in Alaska and on other federal lands to find additional domestic energy. Abraham said recently that the "predicted" estimate of oil reserves in the Alaskan refuge and nearby areas was 10 billion barrels. "Now, that's a huge amount," Abraham said. "It would substitute for almost 20 years of imports from Saudi Arabia or 74 years of imports from Kuwait." Adding to U.S. oil production is an insurance policy against pressure from foreign oil producers, said Lawrence B. Lindsey, the president's chief economic adviser. "The more the better," he said. Yet, the unpredictable ups and downs of world oil prices would play an important role in how much oil would be generated by drilling in the Alaskan refuge. The 10 billion-barrel figure is based on a U.S. Geological Survey estimate, which concluded there was a 50-50 chance of finding that much oil there. If world oil prices remain around $25 a barrel, as much as 80 percent of that oil would be recovered, the agency predicted. But if prices fall to $17, only half of the 10 billion barrels would be produced, it said, because there would be less incentive for U.S. companies to extract more oil. The United States imports 56 percent of the oil it uses. But even with a big boost in domestic production, it would still be dependent on foreign oil for around 60 percent of its petroleum needs in 2010 because demand is forecast to increase faster than production, according to the federal Energy Information Administration. Howard Gruenspecht, a former Clinton administration energy official, said this shows that -- even with increased domestic production -- the United States could not insulate itself entirely from a spike in world oil prices. The strongest argument in favor of the Bush administration's call to boost production concerns natural gas, Caruso said. It is the fuel of choice for new electric power plants, and growing demand could lead to more gas shortages and higher gas prices. To increase supplies, the Bush administration wants to permit more drilling for gas on federal lands, where several hundred million acres are off-limits or under tight restrictions. "Clearly, if we can find a way to produce more domestic energy, with bipartisan agreement, all of that moves us in the right direction," Caruso said. But he added: "Even if we do all the right things, we still have vulnerabilities in the world market. And if something went wrong, we would still be subject to potential energy shocks." © 2001 The Washington Post Company

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