Energy in 2001: Crisis Again?

Publication Date: July 2001

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Energy

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Abstract:

For most of the 1990s energy was not a prominent issue, at least for the consuming public; supplies were ample and prices were perceived as reasonable. In 1999, however, cracks appeared in the smooth surface of the energy market, and by 2001 energy problems had reached crisis proportions. Gasoline prices were sharply higher, as were natural gas prices, and California's electricity shortages led to concerns that other localities might have similar problems. Now the crisis has abated somewhat, but many of the issues it raised remain.

This report deals with changes in the national energy picture since the early 1990s, when Congress last dealt at length with energy policy. It reviews the problem areas and discusses differing views on how to deal with the energy situation in the long run. A summary of some current legislative initiatives is also given.

In the case of petroleum, world proved reserves continued to grow faster than production, though not at the rate of the previous two decades. In the United States, however, proved reserves continued to decline as consumption increased, forcing a growing dependence on imported oil. Product prices declined steadily, then precipitously toward the end of the decade. In response, the OPEC cartel nations cut back production. The volatile oil market reacted sharply, with the price of crude more than doubling and product prices following suit.

Unlike oil, only a small proportion of natural gas is imported, almost all of it by pipeline from Canada. Prices remained low through the 1990s, and producers responded with reduced investments in supply. After 1986, the number of gas wells drilled per year fell sharply and remained low until tightening supply caused a sharp run-up in prices in 2000, which has resulted in increased drilling.

The sudden and unprecedented surge in gas prices surely was an important factor in the continuing crisis in California's electricity supply, but a large number of factors also contributed. Some of those other factors exist elsewhere. Among the most troubling is that electric industry restructuring may leave consumers more vulnerable to market volatility than formerly. Another potential problem is that, nationwide, the power transmission system appears stretched to capacity.

Approaches to dealing with energy problems vary. In one view, there is a need to stimulate and facilitate supply of more domestic energy resources, with due regard for environmental quality, and with a major focus on using energy efficiently. The assumption is that all these goals are compatible, and that if carried out there will be a return to the ample energy supplies and low prices of the prosperous 1990s.

Some critics of that view argue that it may not be possible to meet environmental goals without strenuous efforts that are not compatible with low energy prices. They propose much more vigorous measures to mitigate the environmental effects that abundant cheap energy may be expected to have. At the same time, they question whether economic growth can only be achieved through dramatically expanding domestic energy supply.