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Why America is Running Out of Gas
Inflated oil prices and natural gas shortages are wiping out jobs and savings, thanks to three decades of bungled energy policy. Get ready for more bungling
By DONALD L. BARLETT AND JAMES B. STEELE
If all goes according to plan, the U.S. Senate in the next few weeks will follow the House and approve the latest in a long line of national energy policies. This one incorporates a favorite initiative of President George W. Bush's—the hydrogen-powered car. In his State of the Union address in January, the President proposed "$1.2 billion in research funding so that America can lead the world in developing clean, hydrogen-powered automobiles." As the President explained, his goal was "to promote energy independence ... in ways that generations before us could not have imagined."
Democrats joined euphoric Republicans in signing on to the proposal. "The supply of hydrogen is inexhaustible," Senator Byron Dorgan, North Dakota Democrat, told his colleagues. "Hydrogen is in water. You can take the energy from the wind and use the electricity in the process of electrolysis, separate the hydrogen from the oxygen and store the hydrogen and use it in vehicles. The fact is, hydrogen is ubiquitous. It is everywhere."
Was this a rare instance of the two parties working together in Washington for the good of the country? Far from it. They've been doing this energy dance off and on for 30 years.
At the time of the first energy crisis, in 1974, President Richard M. Nixon put forth Project Independence to end American reliance on foreign oil through a series of energy programs, among them "hydrogen-fueled vehicles" that could be developed "to enable a shift away from oil." Takeoff date for the new technology: 1990. Members of Congress were enthusiastic about the hydrogen car then too. "Hydrogen offers us great potential as a fuel for the future," said Representative Charles Vanik, Ohio Democrat. Representative Robert Wilson, a California Republican, was equally excited: "We can now look forward to running our automobiles on water."
But hydrogen power went nowhere then, just as it went nowhere when it was trumpeted nearly a century ago. It will probably go nowhere today, for many reasons, most notably a chronic case of short attention span among American politicians when it comes to energy policy. With great fanfare, lawmakers and Presidents—both Democrats and Republicans—announce sweep- ing plans to end or ease American dependence on foreign oil and find other stable sources of energy. When the headlines and television sound bites fade away, however, they scrap the programs, which then are often reintroduced to an unsuspecting public as new in later years by another generation of lawmakers and Presidents. But changing anything as deep-seated as America's habits of energy use calls for consistency and follow through, so the failure of Washington to stick with hardly any of its plans has wound up making the U.S. more dependent than ever on foreign sources.
Now Congress is about to enact yet another doomed energy policy that promises more of the same. Take hydrogen. Ideally, the gas would be extracted from water using fusion technology. But that won't be available for decades. In the interim, a substitute energy source would be used—natural gas. Yes, the same natural gas already in short supply.
Then there's coal. The Senate bill would authorize spending $200 million a year to study and develop "clean coal" technologies. But that's a substantial comedown from the billions spent in the 1970s and 1980s to encourage development of an industry that would turn coal into oil and synthetic gas, enabling the U.S. to dramatically curb imports. It never came about.
The Senate bill also contains an assortment of goodies. It would hand out $3.5 billion to revive America's moribund nuclear power industry—even though the last order for a plant that actually went online was placed in 1973. It would parcel out nearly $10 billion in tax breaks and subsidies to oil and gas companies that will not erase falling production but instead enrich oilmen and investors. At the same time, the President's proposed budget slashes spending on wind research by 5.5%, zero-energy buildings by 50% and biomass by 19%. To add to the insult, the Administration took the money to print its 170-page 2001 National Energy Policy out of the budget for renewable fuels.
This comes at a time when Americans are heading into their first big energy squeeze since the 1970s: a shortage of natural gas, the invisible resource used to heat homes, fuel kitchen appliances, generate electricity and manufacture many of the chemicals we use. The shortage has triggered a sharp rise in prices that is likely to exact a heavy toll on low- and middle-income Americans, especially those living on fixed incomes. Home heating bills last winter more than doubled in some areas, and they are expected to go up at least another 20% this winter. Electric bills also will spike because generating plants are increasingly gas-fueled. And in places like Louisiana, where the petrochemical industry makes up a big part of the local economy, the shortage is causing a loss of jobs, with at least 2,000 layoffs so far. The entire industry may be forced to move offshore over the next few years if there is no relief.
Beth Wilson, a stay-at-home mom in Hobart, Ind., 35 miles southeast of Chicago, is still seething over last winter's bills from Northern Indiana Public Service Co., known as NIPSCO. In March 2002, Wilson paid the utility 33(cent) a heating unit for the family's two-bedroom home. By March of this year, the price had shot up to 86(cent), an increase of 161%. If the price of new cars had risen at the same pace, a midrange Ford Taurus would sell for $54,000 today. Says Wilson: "I never turn my heat up past 68. I didn't want to turn my ceiling fan on." (NIPSCO also furnishes her electricity.) "How can other people on fixed incomes pay if I can't?"
For consumers, the second part of this one-two punch is exaggerated oil prices. While the world is swimming in crude oil, it already trades at an inflated price of $30 a bbl., a level essentially dictated by Saudi Arabia with the approval of the U.S. government. This translates into swollen prices for gasoline, home heating oil and other petroleum products. What's worse is that because of Congress's three decades of fumbled energy legislation, Americans have become more vulnerable than ever to an interruption in foreign supply that would truly send prices into orbit and cripple the U.S. economy. More than 53% of America's daily consumption of oil and petroleum products comes from foreign sources, compared with 35% in 1973.
Why are Congress and the White House responsible? As part of a long-standing ritual involving Democrats and Republicans, lawmakers and Presidents have devised energy plans that add up to no plan at all—not deliberately but by default. In pursuit of different agendas, competing interests tend to cancel one another out over time, leaving the nation with no coherent direction on energy. Lawmakers launch programs to develop alternative-energy supplies but later quietly cut or eliminate the funding so there are no realistic alternative sources. They enact legislation offering incentives to stimulate crude-oil production in the U.S., when the politicians know—or should know—that the programs will not do so in any significant way. They encourage utilities, businesses and industries to shift to natural gas, then fail to ensure sufficient supplies of the fuel. The lawmakers refuse to make the tough choices on energy supplies and consumption, while they cater to the demands of campaign contributors and special interests. Worst of all, when politicians craft a conservation program that actually works, they abandon it. As a result, after three decades and dozens of energy bills, Congress has helped position Americans so they may be closer to an energy crisis than at any time since the oil shocks of the 1970s. And this time, the U.S. is finally beginning to run out of domestic oil and easily recoverable natural gas. Here is how it happened:
NATURAL GAS: THE CONGRESSIONAL FLIP-FLOP. A quarter-century ago, Congress enacted the Powerplant and Industrial Fuel Use Act, which banned after 1990 the burning of natural gas by power plants to generate electricity. The reasoning: because that fuel was in short supply and was most widely used to heat homes—it goes to half of all residences—it should be preserved for that purpose. Pete Domenici, the Republican Senator from New Mexico, told his colleagues that year, "Almost since we found natural gas we have been busy finding ways to abuse it, waste it, literally throw it away on uses that we are now finding are absolutely the wrong thing to do, and basic among those that are wasteful are ... the use of natural gas to generate electricity."
As the years slipped by, Congress reversed course. Prodded by the Reagan Administration, lawmakers repealed the ban in 1987 and opened the door to construction of natural gas-guzzling power plants. Three years later, they amended the environmental rules to discourage the burning of coal—America's most plentiful fuel—to produce electricity. Predictably, the generation of electricity with natural gas, which had fallen 17% from 1979 to 1987, has shot up 151% since then, reaching a record 686 billion kW-h last year. Nearly a fifth of all U.S. electricity is now generated with natural gas, and 88% of all new generating plants built in the past decade use the fuel. Meanwhile, U.S. production of natural gas has remained stagnant at 19 trillion cu. ft. a year, about the same as a decade ago. But the U.S. consumed 22 trillion cu. ft., up 8% during that time. Because natural gas moves more efficiently by pipeline than tanker (for which it needs to be liquefied), the difference comes mostly from Canada. Now the Canadians are running low, and exports to the U.S. are expected to be flat, or possibly even decline.
During these same years, Congress prohibited drilling for natural gas offshore for environmental reasons. Earlier, in the 1970s, it had studied and then rejected building a natural-gas pipeline from the Arctic, where there are substantial gas reserves, south through Canada to serve the U.S. The worry was that Canada would hold the U.S. economic hostage; in fact, Canada has become the largest
This time around, the energy bill calls for taxpayer subsidies to build a needlessly longer and far more costly pipeline that follows a roundabout path. Called the Southern Route, it starts at the North Slope and heads south along the Alaskan highway before turning east into Canada. A far more direct path, called the Northern Route, would have cut across the north coast of Alaska and hooked up in Canada with the recently announced Mackenzie Valley pipeline. Both lines ultimately would feed into trunk lines in Alberta and serve the U.S. market.
Why the meandering route? In 2001 the Alaska state legislature enacted a law blocking the cheaper northern pipeline. Lawmakers wanted a pork-barrel project to keep construction and supplier jobs in the state. State representative Jim Whitaker, a Fairbanks Republican who sponsored the measure, summed up the state's attitude: "The legislature has a responsibility to ensure that Alaska gas goes to market in a manner that is in the maximum best interest of the people of the state of Alaska." Congress has agreed. In the years that it will take North Slope gas to reach the lower 48 states, natural-gas prices will keep moving up. In the short run, high temperatures this summer could produce spikes in prices and regional brownouts. In June natural gas sold for an average of $5.83 per 1 million btus, up 169% from the same week in 1998. Higher prices already are taking their toll on energy-dependent industries, like those that produce ammonia, the key ingredient in fertilizer. In June 1998 the Louisiana Ammonia Producers trade association had nine corporate members with 3,500 employees. Today it has one, CF Industries. "We've lost 2,000 employees," says Jim Harris, a spokesman for the producers, who accounted for 40% of America's ammonia output. "It's been devastating. The high natural-gas costs have been the overwhelming reason plants have closed. It's completely depressed the whole area."
Other businesses have sounded the alarm, among them a consortium of nearly two dozen companies, including pharmaceutical makers (Abbott Laboratories), brewers (Coors), chemical companies (Dow) and makers of building materials (Owens Corning). They have urged President Bush "to declare war on high natural-gas prices." Heading a list of recommendations: "Maximize use of other energy sources for power generation."
At the same time that Louisiana factories are laying off workers because of gas prices, the U.S. is shipping gas to Mexico to generate electricity there. While the volume is still comparatively small, exports nonetheless have swelled 674% over the past seven years, to 263 billion cu. ft. last year. El Paso Energy, for one, pipes gas directly to the new Samalayuca II power plant, about 25 miles south of Ciudad Juarez. It serves 1 million people and some 300 factories south of the border. The potentially chronic natural-gas shortage and its impact on the economy and employment have even Alan Greenspan worried. Talking about the many industries dependent on natural gas, the Federal Reserve chairman told the Senate Energy Committee last week that "we do see the obvious loss of jobs ... because it has made us largely uncompetitive in a number of industries in which gas is a critical input." He also saw little hope that prices would fall. "We are not apt to return to earlier periods of relative abundance and low prices anytime soon," he said.
Inflated oil prices and natural gas shortages are wiping out jobs and savings, thanks to three decades of bungled energy policy. Get ready for more bungling
By DONALD L. BARLETT AND JAMES B. STEELE
If all goes according to plan, the U.S. Senate in the next few weeks will follow the House and approve the latest in a long line of national energy policies. This one incorporates a favorite initiative of President George W. Bush's—the hydrogen-powered car. In his State of the Union address in January, the President proposed "$1.2 billion in research funding so that America can lead the world in developing clean, hydrogen-powered automobiles." As the President explained, his goal was "to promote energy independence ... in ways that generations before us could not have imagined."
Democrats joined euphoric Republicans in signing on to the proposal. "The supply of hydrogen is inexhaustible," Senator Byron Dorgan, North Dakota Democrat, told his colleagues. "Hydrogen is in water. You can take the energy from the wind and use the electricity in the process of electrolysis, separate the hydrogen from the oxygen and store the hydrogen and use it in vehicles. The fact is, hydrogen is ubiquitous. It is everywhere."
Was this a rare instance of the two parties working together in Washington for the good of the country? Far from it. They've been doing this energy dance off and on for 30 years.
At the time of the first energy crisis, in 1974, President Richard M. Nixon put forth Project Independence to end American reliance on foreign oil through a series of energy programs, among them "hydrogen-fueled vehicles" that could be developed "to enable a shift away from oil." Takeoff date for the new technology: 1990. Members of Congress were enthusiastic about the hydrogen car then too. "Hydrogen offers us great potential as a fuel for the future," said Representative Charles Vanik, Ohio Democrat. Representative Robert Wilson, a California Republican, was equally excited: "We can now look forward to running our automobiles on water."
But hydrogen power went nowhere then, just as it went nowhere when it was trumpeted nearly a century ago. It will probably go nowhere today, for many reasons, most notably a chronic case of short attention span among American politicians when it comes to energy policy. With great fanfare, lawmakers and Presidents—both Democrats and Republicans—announce sweep- ing plans to end or ease American dependence on foreign oil and find other stable sources of energy. When the headlines and television sound bites fade away, however, they scrap the programs, which then are often reintroduced to an unsuspecting public as new in later years by another generation of lawmakers and Presidents. But changing anything as deep-seated as America's habits of energy use calls for consistency and follow through, so the failure of Washington to stick with hardly any of its plans has wound up making the U.S. more dependent than ever on foreign sources.
Now Congress is about to enact yet another doomed energy policy that promises more of the same. Take hydrogen. Ideally, the gas would be extracted from water using fusion technology. But that won't be available for decades. In the interim, a substitute energy source would be used—natural gas. Yes, the same natural gas already in short supply.
Then there's coal. The Senate bill would authorize spending $200 million a year to study and develop "clean coal" technologies. But that's a substantial comedown from the billions spent in the 1970s and 1980s to encourage development of an industry that would turn coal into oil and synthetic gas, enabling the U.S. to dramatically curb imports. It never came about.
The Senate bill also contains an assortment of goodies. It would hand out $3.5 billion to revive America's moribund nuclear power industry—even though the last order for a plant that actually went online was placed in 1973. It would parcel out nearly $10 billion in tax breaks and subsidies to oil and gas companies that will not erase falling production but instead enrich oilmen and investors. At the same time, the President's proposed budget slashes spending on wind research by 5.5%, zero-energy buildings by 50% and biomass by 19%. To add to the insult, the Administration took the money to print its 170-page 2001 National Energy Policy out of the budget for renewable fuels.
This comes at a time when Americans are heading into their first big energy squeeze since the 1970s: a shortage of natural gas, the invisible resource used to heat homes, fuel kitchen appliances, generate electricity and manufacture many of the chemicals we use. The shortage has triggered a sharp rise in prices that is likely to exact a heavy toll on low- and middle-income Americans, especially those living on fixed incomes. Home heating bills last winter more than doubled in some areas, and they are expected to go up at least another 20% this winter. Electric bills also will spike because generating plants are increasingly gas-fueled. And in places like Louisiana, where the petrochemical industry makes up a big part of the local economy, the shortage is causing a loss of jobs, with at least 2,000 layoffs so far. The entire industry may be forced to move offshore over the next few years if there is no relief.
Beth Wilson, a stay-at-home mom in Hobart, Ind., 35 miles southeast of Chicago, is still seething over last winter's bills from Northern Indiana Public Service Co., known as NIPSCO. In March 2002, Wilson paid the utility 33(cent) a heating unit for the family's two-bedroom home. By March of this year, the price had shot up to 86(cent), an increase of 161%. If the price of new cars had risen at the same pace, a midrange Ford Taurus would sell for $54,000 today. Says Wilson: "I never turn my heat up past 68. I didn't want to turn my ceiling fan on." (NIPSCO also furnishes her electricity.) "How can other people on fixed incomes pay if I can't?"
For consumers, the second part of this one-two punch is exaggerated oil prices. While the world is swimming in crude oil, it already trades at an inflated price of $30 a bbl., a level essentially dictated by Saudi Arabia with the approval of the U.S. government. This translates into swollen prices for gasoline, home heating oil and other petroleum products. What's worse is that because of Congress's three decades of fumbled energy legislation, Americans have become more vulnerable than ever to an interruption in foreign supply that would truly send prices into orbit and cripple the U.S. economy. More than 53% of America's daily consumption of oil and petroleum products comes from foreign sources, compared with 35% in 1973.
Why are Congress and the White House responsible? As part of a long-standing ritual involving Democrats and Republicans, lawmakers and Presidents have devised energy plans that add up to no plan at all—not deliberately but by default. In pursuit of different agendas, competing interests tend to cancel one another out over time, leaving the nation with no coherent direction on energy. Lawmakers launch programs to develop alternative-energy supplies but later quietly cut or eliminate the funding so there are no realistic alternative sources. They enact legislation offering incentives to stimulate crude-oil production in the U.S., when the politicians know—or should know—that the programs will not do so in any significant way. They encourage utilities, businesses and industries to shift to natural gas, then fail to ensure sufficient supplies of the fuel. The lawmakers refuse to make the tough choices on energy supplies and consumption, while they cater to the demands of campaign contributors and special interests. Worst of all, when politicians craft a conservation program that actually works, they abandon it. As a result, after three decades and dozens of energy bills, Congress has helped position Americans so they may be closer to an energy crisis than at any time since the oil shocks of the 1970s. And this time, the U.S. is finally beginning to run out of domestic oil and easily recoverable natural gas. Here is how it happened:
NATURAL GAS: THE CONGRESSIONAL FLIP-FLOP. A quarter-century ago, Congress enacted the Powerplant and Industrial Fuel Use Act, which banned after 1990 the burning of natural gas by power plants to generate electricity. The reasoning: because that fuel was in short supply and was most widely used to heat homes—it goes to half of all residences—it should be preserved for that purpose. Pete Domenici, the Republican Senator from New Mexico, told his colleagues that year, "Almost since we found natural gas we have been busy finding ways to abuse it, waste it, literally throw it away on uses that we are now finding are absolutely the wrong thing to do, and basic among those that are wasteful are ... the use of natural gas to generate electricity."
As the years slipped by, Congress reversed course. Prodded by the Reagan Administration, lawmakers repealed the ban in 1987 and opened the door to construction of natural gas-guzzling power plants. Three years later, they amended the environmental rules to discourage the burning of coal—America's most plentiful fuel—to produce electricity. Predictably, the generation of electricity with natural gas, which had fallen 17% from 1979 to 1987, has shot up 151% since then, reaching a record 686 billion kW-h last year. Nearly a fifth of all U.S. electricity is now generated with natural gas, and 88% of all new generating plants built in the past decade use the fuel. Meanwhile, U.S. production of natural gas has remained stagnant at 19 trillion cu. ft. a year, about the same as a decade ago. But the U.S. consumed 22 trillion cu. ft., up 8% during that time. Because natural gas moves more efficiently by pipeline than tanker (for which it needs to be liquefied), the difference comes mostly from Canada. Now the Canadians are running low, and exports to the U.S. are expected to be flat, or possibly even decline.
During these same years, Congress prohibited drilling for natural gas offshore for environmental reasons. Earlier, in the 1970s, it had studied and then rejected building a natural-gas pipeline from the Arctic, where there are substantial gas reserves, south through Canada to serve the U.S. The worry was that Canada would hold the U.S. economic hostage; in fact, Canada has become the largest
This time around, the energy bill calls for taxpayer subsidies to build a needlessly longer and far more costly pipeline that follows a roundabout path. Called the Southern Route, it starts at the North Slope and heads south along the Alaskan highway before turning east into Canada. A far more direct path, called the Northern Route, would have cut across the north coast of Alaska and hooked up in Canada with the recently announced Mackenzie Valley pipeline. Both lines ultimately would feed into trunk lines in Alberta and serve the U.S. market.
Why the meandering route? In 2001 the Alaska state legislature enacted a law blocking the cheaper northern pipeline. Lawmakers wanted a pork-barrel project to keep construction and supplier jobs in the state. State representative Jim Whitaker, a Fairbanks Republican who sponsored the measure, summed up the state's attitude: "The legislature has a responsibility to ensure that Alaska gas goes to market in a manner that is in the maximum best interest of the people of the state of Alaska." Congress has agreed. In the years that it will take North Slope gas to reach the lower 48 states, natural-gas prices will keep moving up. In the short run, high temperatures this summer could produce spikes in prices and regional brownouts. In June natural gas sold for an average of $5.83 per 1 million btus, up 169% from the same week in 1998. Higher prices already are taking their toll on energy-dependent industries, like those that produce ammonia, the key ingredient in fertilizer. In June 1998 the Louisiana Ammonia Producers trade association had nine corporate members with 3,500 employees. Today it has one, CF Industries. "We've lost 2,000 employees," says Jim Harris, a spokesman for the producers, who accounted for 40% of America's ammonia output. "It's been devastating. The high natural-gas costs have been the overwhelming reason plants have closed. It's completely depressed the whole area."
Other businesses have sounded the alarm, among them a consortium of nearly two dozen companies, including pharmaceutical makers (Abbott Laboratories), brewers (Coors), chemical companies (Dow) and makers of building materials (Owens Corning). They have urged President Bush "to declare war on high natural-gas prices." Heading a list of recommendations: "Maximize use of other energy sources for power generation."
At the same time that Louisiana factories are laying off workers because of gas prices, the U.S. is shipping gas to Mexico to generate electricity there. While the volume is still comparatively small, exports nonetheless have swelled 674% over the past seven years, to 263 billion cu. ft. last year. El Paso Energy, for one, pipes gas directly to the new Samalayuca II power plant, about 25 miles south of Ciudad Juarez. It serves 1 million people and some 300 factories south of the border. The potentially chronic natural-gas shortage and its impact on the economy and employment have even Alan Greenspan worried. Talking about the many industries dependent on natural gas, the Federal Reserve chairman told the Senate Energy Committee last week that "we do see the obvious loss of jobs ... because it has made us largely uncompetitive in a number of industries in which gas is a critical input." He also saw little hope that prices would fall. "We are not apt to return to earlier periods of relative abundance and low prices anytime soon," he said.
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