Energy crisis exaggerated, experts say; market forces expected to resolve problems

By The Associated Press Knight Ridder Newspapers

WASHINGTON - As President Bush unveiled his energy plan yesterday, 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 present situation a crisis is an exaggeration, analysts say, with the exception of the severe electricity shortage in California. It pales in comparison with the 1970s crises that spurred 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, analysts say, 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. And analysts aren't expecting such depressed prices to return 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, analysts say.

While higher energy costs always pose a threat to the overall economy, it's a much more distant one today than in the 1970s, analysts say. 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 9 percent more 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. Higher rates and taxes to rectify a botched electricity-deregulation process will cost state residents an estimated $90 billion to $100 billion. It's a one-time hit to the state economy, but with California alone accounting for 14 percent of the U.S. economy, any slowdown could reverberate through the region and the rest of the country.

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 information and consulting firm. An additional 197 are under construction, up from 121 this time a year ago.

And 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 634 a year ago and 365 two years ago.

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

Still, future gas supplies 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 demand, most analysts support construction of a 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 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."

Calif. governor blasts Bush energy plan

SACRAMENTO - California Gov. Gray Davis attacked President Bush's energy plan yesterday, accusing the administration of "turning a blind eye to the bleeding and hemorrhaging that exists in this state."

The Democrat said Bush's plan offers no short-term relief for California's rolling blackouts or soaring electricity bills.

"We are literally in a war with energy companies, many of which reside in Texas," Davis said. "Californians wants to know if he is going to be on their side."

Davis repeated his plea for the government to impose caps on wholesale energy prices that he says have driven the state's largest electric utility into bankruptcy and put two others on the brink of collapse.

Bush said his 163-page energy plan provides solutions that will help ease California's power woes.

http://seattletimes.nwsource.com/html/nationworld/134296638_crisis18.html

-- Martin Thompson (mthom1927@aol.com), May 18, 2001