Oct. 2000 Vol. 221 No. 10  Editorial

Thomas R. Wright, Jr.,  Editorial Director

Singing a different tune

While campaigning in New Orleans, La., Democratic presidential candidate Al Gore abandoned his typical anti-oil position in favor of one that would actually help portions of the industry. And surprise, surprise, he even proposed tax incentives that would encourage offshore drilling. Trouble is, he was only referring to the portions of the Gulf of Mexico where drilling is, and has been, underway for many years.

What Gore said he wanted to do, as part of his long-range economic plan, was to extend tax incentives for deep gas exploration in the Gulf. He said the expanded exploration that would result would reduce our "over-dependence on foreign oil." "That’s good for our environment and our economy, and American families," he added.

What we want to know is whether candidate Gore will repeat these little pearls of wisdom as he campaigns in places such as Florida and California, where potential offshore resources have been placed off limits by administrations run by both parties. We doubt it, and we’ll bet the farm he won’t propose opening up those areas either. But it is nice to see that some of what industry has been telling Washington, D.C., all of these years has at least been heard. Finally, and despite the fact he was only campaigning, we’re still astonished that Gore would change his tune about developing U.S. hydrocarbon resources.

CATO sees it differently. The CATO Institute, a conservative public policy research foundation, is not quite as gentle in its analysis of Gore’s proposed energy policy. Jerry Taylor, director of natural resource studies, said " . . . Gore’s new energy plan appears to be nothing more than an elaborate repackaging of long-standing programs that have demonstrably failed to have any impact on the energy economy."

Taylor says that "over the past 20 years, federal and state governments have spent more than $40 billion to subsidize renewable energy and conservation. Despite a wide array of subsidies, preferences and mandatory purchase requirements, environmentally friendly, renewable energy still constitutes only 2% of the electricity market and none of the transportation fuels market. Renewable energy is still three times more expensive than fossil fuels, and a slight increase in federal subsidies and a few more rigorous governmental mandates – which is all Gore is really proposing – will not come close to closing that gap. The federal government’s own Energy Information Administration projects that, even with maximum government support, renewable energy will not significantly increase its market share for decades, at the very least."

Taylor says that, while there have been gains in energy efficiency over the past 20 years, they have only served to increase energy consumption. He explains this, saying, "efficiency decreases the cost of consuming energy at the margin, and decreasing marginal costs nearly always translate into increased consumption." Taylor also says that if Gore were intellectually honest, he would acknowledge that the only way to reduce energy consumption is to increase marginal energy prices. "Anything else is political hocus-pocus," says Taylor.

Taylor is especially candid about consumers’ true support for "green energy." Noting how 50-mpg cars are growing cobwebs on car lots while SUVs sell like crazy, and that "green" electricity portfolios in California and elsewhere have yet to achieve more than 1% of market share, Taylor says consumers will chose the conventional energy service every time over "green" energy services. "People might indeed support green energy, but they believe that other people should consume it, not them."

No peeking. Almost every oil industry professional has attended meetings or conferences where presentations were made using laptop computers and those newfangled projectors. Most ultimately work out fine, but far too many are preceded by uncomfortable delays while somebody figures out all the technical settings. And then, there are many of us who still try to meld the old with the new. That seemed to be what happened to a communication firm executive during a presentation in Singapore.

According to the Far Eastern Economic Review, the speaker was getting along just fine until he came to a point where he wanted to show the audience only a portion of a slide (note the old terminology). So, how did he do it? Simple – he applied the old overhead-projector-presentation tactic of using a piece of paper to cover up the part of the image he didn’t want seen. In other words, he placed a piece of paper over half of the laptop’s screen, then continued with his talk.

Obviously, there was no change in the image on the big screen, and when the audience caught on to what was supposed to be happening, it erupted into laughter. Do you suppose that this guy also uses correction fluid on his computer screen?

Gas price outlook. In its latest look at the U.S. natural gas business, Raymond James & Associates, Inc., sees gas prices sustainable at more than $4.00 per Mcf for years to come. J. Marshall Adkins, the firm’s energy team director, says, despite gas storage levels that are higher than originally anticipated (2.65 Tcf now vs. 2.3 Tcf earlier), it is clear that the U.S. is headed for a natural gas crisis this winter.

According to the report, the slightly increased storage will not prevent the possibility of a severe natural gas shortfall. "No longer are we talking about the ramifications of a colder-than-normal winter. With our projections, it does not matter how warm the winter turns out to be. We should still end the withdrawal season, at best, with less than 1 Tcf in storage. On the other hand, if this winter is normal or even slightly warmer than normal, we think storage will end the withdrawal season at previously untested low levels of gas."

If the above does transpire, Adkins, et al., say gas prices will likely "explode," and that marginal gas consumers will be shut down, while the supply / demand equation would be forced to self-correct through reduced consumption. Consequently, Raymond James & Associates is raising its 2001 natural gas projection by $0.25 to $4.00, while at the same time saying the forecast is probably too conservative.