Fair use for educational/research purposes only

The New War Over Oil Outrage at the gas pump is spilling over into presidential politics. Whats behind the shortage. By Adam Bryant NEWSWEEK October 2 issue  Herk and Clover McClellan fulfilled a longtime dream last March when they opened Herks Bees and Clovers Honey, a produce market near their home just north of San Diego. They plowed their entire savings$50,000into the store, and it quickly started turning a profit.

BUT THEN GAS PRICES SHOT UP, and the cost of frequent trips to Los Angeles for farming supplies soared. Then their monthly electric bill jumped from $135 to $800. The one-two energy punch knocked them out, and they were forced to close their business last week. Were goingto lose it all, says Herk McClellan. Its not right.

Nothing seems right with the nations energy picture these days. For several years low energy prices were the lubricant that helped keep the nations economic engine humming. But suddenly the oil warning light on the dashboard is flashing, and its just the latest in a troubling series of events that has made energy prices more volatile than theyve been for years. Oil hit $37 a barrel last week, a 10-year high that spooked the stock market. Natural-gas prices are also soaring. In California, New York and many other states, deregulation of the electrical industry is off to a shaky start, with electricity bills jumping higher than a Romanian gymnast. Meanwhile, the nations healthy economy is keeping demand high, straining capacity. The situation is not as dire as previous shortages: the inflation-adjusted price of gas is still nearly $1 a gallon below the heights it reached in the 1981 oil crisis. Still, many experts think the picture will get worse. The Energy Department says the cost of heating oil could jump by a third or more this winter, and a particularly cold season may force some people to choose between heating and eating. If its a colder-than-normal winter, says Bruce Lanni, an energy analyst at CIBC World Markets, Katie bar the door. September 22, 2000 In response to the high price of oil, the Clinton Administration announced it would release a significant amount of oil from the strategic oil reserve. NBCs Mike Jensen reports.

Newsweek On Air Energy, Politics and Economics The outrage at the pump spilled over into the battle for the presidency last week. Vice President Al Gore labeled oil prices a national crisis and urged President Clinton to tap the nations 570 million-barrel Strategic Petroleum Reserve to help moderate prices this winter. On Friday the administration complied, authorizing the release of 30 million barrels from the reserves, a supply created in the 1970s after the Arab oil embargo. The impact on market prices is questionablethe United States uses about 19 million barrels of oil a day. But the issue gave Gore the chance to portray himself as fighting for the middle class and to attack his opponentsboth former oil executivesall at once. I am going to stand up to Big Oil, Gore said last week, and demand fairer gasoline prices for families and an end to unfair profiteering. Gores position, however, marked a reversal of his own earlier recommendations on oil policy, and Bush shot back that Gore was pandering and called the move a mistake. The reserves, he said, are meant for a national emergency. September 22, 2000

How did we get into this energy mess? Unfortunately, $11-a-barrel oil last year was an aberration. It fell to that level in part because demand dropped a few years ago when the Asian economies collapsed. But oil-producing nations kept supply levels high, in part because such countries as Saudi Arabia and Venezuela were battling for market share. Throw in a couple of unusually warm winters, and youve got a lesson from the first day of Econ 101: too much supply plus soft demand equaled low prices. But then as oil producers started cutting back production and economies around the world strengthened, the tight supply pushed up prices. That created a domino effect. Because there wasnt much money to be made in oil, many drilling companies cut back their exploration for both oil and natural gas. So supplies of natural gas dwindled as the U.S. economy steamed ahead. Was Clinton correct to release some of the nation's strategic oil reserves? Yes, the situation has become critical. No, doing so will not contribute to a long-term solution.

Vote to see results

Was Clinton correct to release some of the nation's strategic oil reserves? * 25685 responses Yes, the situation has become critical. 29% No, doing so will not contribute to a long-term solution. 71%

Meanwhile many states have deregulated their electricity industriesa move originally intended to increase competition. But its been a disaster so far in many states. Deregulation uncoupled full-service firms into two kinds of companiessuppliers that generate power, and middlemen who transmit it to customers. As demand for power has surged, power plants have raised prices sharply, and many middlemen, freed from regulatory price caps, have passed them along to customers. And because of the uncertainty leading up to deregulation, many power companies held off from building new plants. Now that prices are up, many of them want to add capacity, but theyre running into resistance from communities that dont want a power plant in their midst. At the same time demand for electricity has been growing sharply. It used to rise in tandem with the economy, but in recent years, economic growth of 1 percent has translated into a 4 to 6 percent growth in demand for electrical power, thanks in large part to all the computer-centric companies that keep big servers humming 24/7.

Businesses are already struggling to cope with their surging energy costs. To cover the added burden, a number of companies are adding fuel surcharges. Many airlines, for example, tacked on a $20 special charge to round-trip tickets. FedEx put in place a 3 percent surcharge in the spring, and has since raised it to 4 percent, but says thats still not covering its added fuel costs. Saving energy is the new management mantra. To help cut its fuel bills, UPS is using the Global Positioning System to analyze the most efficient delivery routes for its 149,000 trucks. Managers at Boeing are turning off lights, computer monitors and heavy industrial equipment when theyre not being used. In San Diego, where deregulation sparked a sharp rise in electricity prices, Sea World has raised thermostats in many of its buildings from 72 to 78 degrees (the aquatic stars arent affected). Qualcomm Stadiumwhere the NFLs Chargers and baseballs Padres playnow turns on lights closer to game time. Feeling the pinch at the pump... again The average price of unleaded regular in the U.S. has jumped 30 cents a gallon to $1.5783 in the last year. Premium has jumped more than 40 cents a gallon. This chart compares U.S. premium with European premium prices. Date Bel. France Ger. Italy Neth. U.K. U.S. 9/11/00 3.58 3.66 3.42 3.64 3.96 4.29 1.74 9/13/99 3.35 3.55 3.45 3.64 3.68 4.30 1.43 9/14/98 3.56 3.57 3.41 3.69 3.69 4.03 1.19 9/15/97 3.76 3.62 3.53 3.77 3.84 3.81 1.42 9/16/96 4.01 4.01 4.05 4.16 4.36 3.26 1.38 Note: U.S. dollars per gallon (premium leaded for Belgium, France, Italy, and U.K.; premium unleaded for Germany, Netherlands, and U.S.) Source: U.S. Department of Energy

Perhaps nowhere are the stresses of limited power and surging demand more evident than in Silicon Valley. To avoid rolling brownouts, large, power-hungry companies like Sun Microsystems, Cisco Systems, Yahoo, Hewlett-Packard and Intel have agreed to voluntarily reduce power consumption when the regional electricity system is taxed to capacity. Sun Microsystems has resorted occasionally to power-saving measures that include dimming lights, turning off water coolers and allowing temperatures inside its 100 buildings around the state to drift up by two degrees. At Cisco Systems headquarters, workers made do in dimmed cubicles during last weeks heat wave. We have a serious crisis, says K. C. Mares, the companys energy director. We just barely made it through this summer. Next year is going to be even worse. Bay Area power demand increased 12 percent last year, and will continue at the same rate for the foreseeable future.

Even though some people are calling $37-a-barrel oil a crisis, many economists arent overly concerned. They point out that oil is still relatively cheap, adjusted for inflation, compared with previous oil shocks. And many experts predict that energy costs will fall back after an expensive winter. OPEC, after all, has no long-term interest in pushing countries to reduce their dependency on oil. The higher energy prices are also attracting many independent energy companies back into the business, and theyre quickly dusting off drilling equipment that they had mothballed when prices hit rock bottom. Certainly, car shoppers appear convinced that the jump in prices is temporary. Sales of SUVs are up nearly 10 percent this year, accounting for nearly one of every five new vehicles sold. Many auto executives believe that consumers wont worry about gas prices until they top $2 a gallon and stay there for several months. OPEC quota: Iraqi oil production is constrained by the United Nations' limits on its exports. The U.S. Energy Information Administration estimates production at 2,560,00 barrels/day United Arab Emirates OPEC quota: 2,289,400 barrels/day Old quota: 2,219,000 barrels/day Reserves: 97.8 billion barrels Minister: Obeid bin Saif Al-Nasiri Qatar OPEC quota: 678,800 barrels/day Old quota: 658,000 barrels/day Reserves: 3.7 billion barrels Minister: Abdullah bin Hamad Al-Attiya Kuwait OPEC quota: 2,101,000 barrels/day Old quota: 2,037,000 barrels/day Reserves: 96.5 billion barrels Minister: Sheikh Saud Naser Al-Sabah Saudi Arabia OPEC quota: 8,512,200 barrels/day Old quota: 8,253,000 barrels/day Reserves: 263.5 billion barrels Minister: Ali bin Ibrahim al-Naimi Iran OPEC quota: 3,843,800 barrels/day Old quota: 3,727,000 barrels/day Reserves: 89.7 billion barrels Minister: Bijan Namdar Zaganeh Indonesia OPEC quota: 1,358,600 barrels/day Old quota: 1,317,000 barrels/day Reserves: 5.0 billion barrels Minister: Susilo Bambang Yudhoyono Nigeria OPEC quota: 2,156,600 barrels/day Old quota: 2,091,000 barrels/day Reserves: 22.5 billion barrels Minister: Rilwanu Lukman Libya OPEC quota: 1,404,200 barrels/day Old quota: 1,361,000 barrels/day Reserves: 29.5 billion barrels Minister: Abdullah Salim al-Badri Algeria OPEC quota: 836,600 barrels/day Old quota: 811,000 barrels/day Reserves: 9.2 billion barrels Minister: Chakib Khelil Venezuela OPEC quota: 3,018,800 barrels/day Old quota: 2,926,000 barrels/day Reserves: 72.6 billion barrels Minister: Ali Rodriguez Russia 1999 Average Production: 6,074,000 barrels/day Norway 1999 Average Production: 3,018,000 barrels/day United Kingdom 1999 Average Production: 2,691,000 barrels/day China 1999 Average Production: 3,206,000 barrels/day Oman 1999 Average Production: 900,000 barrels/day Egypt 1999 Average Production: 852,000 barrels/day Brazil 1999 Average Production: 1,094,000 barrels/day Mexico 1999 Average Production: 2,906,000 barrels/day United States 1999 Average Production: 5,938,000 barrels/day (preliminary estimate) Canada 1999 Average Production: 1,905,000 barrels/day SOURCE: U.S. Energy Information Administration But Gore, by prodding the White House to release some crude from the strategic reserves, is betting that the cost of energy has become just the kind of kitchen table issue that plays with the electorate. Some may view his flip-flop on using the reserves as a clear political ploy, but polls show that people are more likely to blame big business than big government for problems like high oil prices. If oil prices move down through October, Gore will claim victory; if they go up, Bush will call dipping into the reserves a misguided political ploy (and probably remind voters that Treasury Secretary Lawrence Summers had concerns about such a move before last weeks decision by the White House to release some of the stored oil).

In the meantime many consumers are taking action to cut their own energy bills. If youre in the market for a wood stove, for example, take a number. Its like a shark feeding frenzy, says Roy LEsperance, owner of the Chimney Sweep Fireplace Shop in Shelburne, Vt. He recently sold 500 stoves in one week, and sales are running at twice the rate of last year. And some people appear to be trying to break the gas-guzzling habit. Memphis car dealer Kent Ritchey says hes been replacing some big, nearly new SUVs with smaller Toyotas. Sensing an effective new sales pitch, Ritchey started featuring gas mileage prominently in his Sunday-newspaper ads for the first time since the gulf war sent gas prices skyward in 1990. The payoffhes breaking sales records for his dealership. Gas mileage is vitally important again, says Ritchie.  And it will remain important as long as consumersand votersfeel like theyre over a barrel.

http://www.msnbc.com/news/464515.asp

-- Martin Thompson (mthom1927@aol.com), September 24, 2000

Answers

The answer for the last 7 1/2 years has been "use if you got it". Used all the good economy, used all the military, and, might as well, use up all the oil, too.

-- Ruth Angell (bar@bpsinet.com), September 24, 2000.