Tightening the Noose
The Nation Hasn't shown much energy in curbing its fuel fix
Not long ago, with gasoline at $1.70 per gallon and oil at $28 a barrel, President Bush's spokesman Ari Fleischer could volley a "big no" back to a questioner who asked whether Americans needed to make any lifestyle changes to help solve the nation's energy problem. The goal of policymakers, he said, should be "to protect the American way of life." And he added, "We have a bounty of resources in this country."
That cocksure attitude seems no longer appropriate after four years of global political and economic upheaval and two catastrophic hurricanes. Analysts see little chance that U.S. consumers will be paying much less than the current average of $2.80 per gallon at the pump in the coming weeks as the price of crude creeps upward from $65 a barrel. While perhaps not the forecast "storm of the century," the receding waters of Hurricane Rita--and the aftereffects of Katrina--still left 15 percent of U.S. refining capacity sidelined for at least two more weeks. And it could take months to restore devastated natural gas production in the Gulf of Mexico to prior levels. That assures consumers will face record-high heating bills this winter.
Conserver in chief? The about-face goes all the way to the top. President Bush last week appeared at the Energy Department to noodge drivers to use less gas. "We can all pitch in . . . by being better conservers of energy," Bush said. Forgo the unnecessary trip, he advised.
But fewer country road jaunts won't get Americans out of an energy mess years in the making. Not only is much of the world's oil in unfriendly hands, but the United States hasn't built a new refinery since 1976. Global demand, meanwhile, has ratcheted upward, both because of Asia's growth and because American drivers have until recently drifted toward bigger cars and trucks that consume more gas.
As soon as Bush took office, he detailed Vice President Dick Cheney with the task of crafting a national energy plan. Congress enacted a dramatically stripped-down and larded-up version only weeks before the hurricanes hit. "Energy is the most special-interest-driven field that the federal government wrestles with," says Philip Clapp, president of the National Environmental Trust. "The U.S. has been absolutely paralyzed on energy policy because of the power of coal, oil, auto, and utility industries on the Republican side and [unions] on the Democratic side."
Congress was back at the drawing board last week, working on a new energy bill to expand domestic oil and gas drilling and to encourage new refinery construction, mainly through the most dramatic rollback of the Clean Air Act since its 1970 enactment. But even if the legislation passes, it could take years before it reduces the tightness of the nation's energy supply. And that effect is likely to be modest, since most of the world's oil and natural gas is still outside the United States.
Refining historically has been the low-profit end of the business. As a result, the nation's current refining capacity of 16.9 million barrels per day, up from the mid-1990s, is still down 9 percent from the 1981 peak, with 175 refineries closed since then. Although the industry now rakes in cash--one estimate has its profits up 255 percent over 2004--refiners have realized only 5 cents on the dollar since 1990, half the profitability of oil exploration. Small, so-called teakettle operations have shut down, and giant companies have fled the industry.
Then there's the " NIMBY"--not in my backyard--problem. No one, it seems, except residents of Louisiana and Texas, wants a refinery as a neighbor. The industry also maintains that part of the reason for its low profit margins (thereby crimping investment in new capacity) is that it had to spend $47 billion in the past 10 years on new clean-fuel requirements and expects to spend an additional $20 billion. "It's just running in place," says John Felmy of the American Petroleum Institute. Unable to find any U.S. partners to build a new refinery here, the Saudis instead are partnering with Exxon Mobil on a $3.5 billion refinery in south China. If U.S. demand remains strong, Exxon Mobil may end up shipping refined gasoline from China to the United States--at higher prices, of course, to U.S. consumers. "I don't think we like to make hard choices," says Frank Verrastro, director of the energy program at the Center for Strategic and International Studies.
Of course, the hardest choice of all would be to reduce U.S. demand for gasoline, which, until the hurricanes, had been reliably charting in at 2.5 percent above last year, despite historically high prices. But the automakers haven't gotten the message. Ford Motor Co. has been hoping a new Explorer SUV--its cash cow for over a decade--will help reverse the company's sliding fortunes when it debuts this fall. The big hauler averages less than 20 miles per gallon. General Motors also has an entire line of large SUV s coming next year--also averaging less than 20 mpg--while its first full hybrid is still two years away. But consumers are choosing hybrids over heavyweight vehicles. Detroit belatedly has come around: Ford has announced plans to increase the number of hybrids it sells to 250,000 by 2010--up from 24,000 today--and CEO Bill Ford is pushing for a national energy summit.
Misers. Detroit's posture stands in stark contrast to that of the Japanese automakers. Nissan is going to begin selling a small car called the Versa in the United States next summer for about $12,000, with an average of about 38 mpg. Honda will soon sell a sub-Civic-size car here too, derived from gas misers sold in Japan and Europe. "Whether it's going to be lasting, it's too soon to say," says Nissan CEO Carlos Ghosn. "But the consumer psychology will be lasting, and people will stay interested in more-fuel-efficient cars."
Consumers are going to hear more about efficiency. This week, the Department of Energy will launch a public-service ad campaign. The message: "Energy efficiency is the cheapest, quickest, cleanest way to extend our nation's energy supplies and to tackle high prices," says Kateri Callahan, president of the Alliance to Save Energy, the government's partner in the program.
But Clapp of the National Environmental Trust points out that if Washington had acted aggressively in 2001 to raise fuel economy standards to 40 mpg over the next decade--an ambitious goal but possible with hybrid technology--the nation already would have saved 1.5 million barrels of oil a day, the equivalent of the total amount produced in the Gulf of Mexico and lost during the hurricanes.
Clapp offers the 2001 comments of Vice President Cheney that conservation "may be a sign of personal virtue, but it is not a sufficient basis, all by itself, for a sound, comprehensive energy policy" as a way to understand the nation's present plight. The Bush administration, Clapp says, is still "approaching it as a personal virtue and not as a national policy. 'Be virtuous; help us through this crisis.' And once it's through, let's party on."
Harsh criticism, perhaps, and surely the nation did not improve its energy security markedly under prior administrations after the 1970s oil crises. "There's a lot of rhetoric on the Hill about reducing our dependence on unstable parts of the world," says Verrastro of CSIS. But in 2004, with strikes in Nigeria, sabotage in Iraq, and political unrest in Venezuela, the largest sustained oil-supply disruption was due to Hurricane Ivan. This year, no one doubts the biggest culprits will be Katrina and Rita. "The problem is right here in our own backyard," says Verrastro.
With Richard J. Newman
This story appears in the October 10, 2005 print edition of U.S. News & World Report.