01 Jan 1998 Good News About Energy

In 1987, the environmentalist Worldwatch Institute predicted an oil shortage would cause a major energy crisis within five years.1

No crisis has occurred. Instead, the oil industry is producing a million more barrels a day than it can sell.2

According to the U.S. Department of Energy, gas prices paid by consumers have fallen to 97.4¢ per gallon, lower than last year’s average of $1.15 per gallon3 and approximately equal to 23¢ per gallon in 1970 dollars.4

Why are gas prices so low? For the classic free market reason: supply of gas exceeds demand. The end of the Cold War opened new territory for oil exploration. Technological advancement has made oil drilling possible in places that once were impossible. Technological advancement also reduced the cost of finding and developing a barrel of crude, dropping the cost of production from $21 a barrel in 1981 to less than $5 today.5 OPEC nations have been unable to force one another to limit supply. And the Asian economic crisis has reduced demand for oil in that region by 500,000 to 750,000 barrels a day.6

Oil companies are responding by cutting costs. One way is through mergers, such as Exxon’s acquisition of Mobil and British Petroleum’s acquisition of Amoco, which permit oil companies to operate more efficiently without stifling competition and raising consumer prices. (Exxon Mobil, for instance, though it will be the nation’s largest oil company, will still serve under a quarter of the U.S. market.)7

Some environmentalists, however, can’t stand this good news.

The New Republic magazine, a periodical so devoted to environmentalist Vice President Al Gore that it fired its immediate past editor for criticizing the ethics of the Clinton-Gore Administration, concedes that low gas prices are good for consumers and that the Exxon-Mobil merger won’t mean higher prices. But they still argue, in their December 21, 1998 issue, that the federal government should raise gasoline taxes by 17¢ per gallon. This although they concede that lower- and middle-income people “would, to be sure, bear the brunt of regressive taxes like the gas tax.”8

The Worldwatch Institute (which predicted in 1985 that U.S., British and Mexican oil reserves would be depleted within 15 years and that Middle Eastern producers would then have a monopoly on the world’s oil supply9) announced in a December 3, 1998 Worldwatch “Vital Signs Brief” publication that the Exxon-Mobil merger signals the beginning of the “geriatric era” for the oil industry, because, in part, “world production [of oil] will peak within the next 10-20 years.” (Oil crises, apparently, are always approximately 15 years away.)

Citing the percentage growth rates of the wind and solar power industries, Worldwatch says that the energy industries of the future are wind and solar, not oil and nuclear. But simple mathematics shows that even a small increase in a tiny industry can make for a big change when measured in percentages.

Worldwatch has been using the growth rate of the wind and solar energy industries as proof of their coming market dominance for years. In Worldwatch’s “State of the World 1985,” Worldwatch’s Christopher Flavin touted windmills, solar power, hydropower and alcohol fuels as the energy sources of the future, citing the 10% growth rate of these industries as proof.10 By 1998, Worldwatch’s Flavin and Seth Dunn were conceding that wind and solar power “fill relatively small niche markets today,” but, parroting the line from 1985, they once again argued that “double-digit growth rates will still turn them into major investment opportunities.”11

Consumers inclined to be pleased about low gas prices can take heart from the fact that environmentalist energy “experts” who call low prices bad news don’t have much of a record for accuracy.

In 1987, Worldwatch’s Flavin reported that the Chernobyl nuclear accident in the then-USSR “may mark the beginning of the end of nuclear power”12 and said that the future of nuclear power is only “hypothetical.”13 Ten years later, there were 437 nuclear power plants operating around the world, 105 of them in the U.S.14 (up from 68 in 1980).15 Today nearly everyone in the lower 48 states gets at least some of their electricity from nuclear power. From 1973 to 1996, 40% of the U.S. increase in demand for electricity was met by nuclear power,16 which is America’s second-largest power source (after coal) for electricity.

Worldwatch also claimed in a 1983 report that the nuclear power industry would decline because its costs are too high.17 Today, the relative costs of producing energy per unit of output are 1.83 cents for coal, 1.92 cents for nuclear energy and 3.30 cents for gas.18 The cost of generating nuclear power has been dropping. From 1989 to 1996, the cost to produce a kilowatt-hour fell from 2.95 cents to 1.91 cents.19

In 1989, Worldwatch founder Lester Brown had the following prediction: “If the world continues with business-as-usual policies in agricultural and family planning, a food emergency within a matter of years may be inevitable. Soaring grain prices and ensuing food riots could both destabilize national governments and threaten the integrity of the international monetary system”20 Like other Worldwatch predictions, it hasn’t come true.

In case all this environmentalist gloom and doom makes you want a drink, don’t make it water. In 1984, a Worldwatch study predicted that the 1990s would be characterized by a widespread water shortage rivaling the 1970s oil crisis in economic impact.

Oops.

Amy Ridenour is president of The National Center for Public Policy Research. Comments may be sent to [email protected].

Footnotes:

1 Josephine Marcotty, “Q&A: With Supplies Uncertain, Prices Iffy, Crises Will Return,” Minneapolis-St. Paul Star-Tribune, May 25, 1987, Metro, p. 1.
2 Philip J. Longman and Jack Egan, “Why Big Oil is Getting a Lot Bigger,” U.S. News and World Report, December 14, 1998, p. 26.
3 “Gas Up,” New Republic, December 12, 1998, p. 7.
4 Longman, et. al., p. 26.
5 Yergin, Daniel, “Can Big Oil Survive Cheap Oil?,” Wall Street Journal, December 8, 1998.
6 Longman, et. al., p. 26 and Yergin.
7 Yergin and “Gas Up,” p. 7.
8 “Gas Up,” p. 7.
9 Malcom W Browne, “New Energy Ideas Emerge as Oil Reserves Dwindle,” New York Times, December 31, 1985, p. 1.
10 “World’s in a Sorry State, Worldwatch’s Second Study Says,” Seattle Times, March 31, 1985, p. A8.
11 Christopher Flavin and Seth Dunn, “Merger Signals Beginning of Geriatric Era for Oil Industry,” Vital Signs Brief 98-6, Worldwatch Institute, December 3, 1998.
12 “Researcher Fears Chernobyl Spells Doom for Nuclear Power Industry,” Houston Chronicle, March 8, 1987, p. 18.
13 Marcotty, p. 1.
14 “Quick Facts-Nuclear Energy At A Glance,” Nuclear Energy Institute, Washington, D.C., published 1998.
15 “U.S. Nuclear Power Plant Performance,” Fact Sheet, Nuclear Energy Institute, Washington, D.C., published April 1998.
16 “Benefits of Nuclear Energy: Impact on Utility Fuel Use,” Fact Sheet, Nuclear Energy Institute, Washington, D.C., published February 1998.
17 Benjamin Shore, “N-Power’s Bright Promise Dims, Study Cites Cost, Not Safety Fears, As Cause,” San Diego Union-Tribune, December 11, 1983, p. A-1.
18 Maureen Keotz, Nuclear Energy Institute, presentation to The National Center for Public Policy Research, as reported in Scoop, Issue 193, published July 31, 1998 by The National center for Public Policy Research.
19 “Frequently Asked Questions About Nuclear Energy,” Nuclear Energy Institute, Washington, D.C., published 1998.
20 “Dossier on Environmental Scientist Lester Brown,” The National Center for Public Policy Research, August 26, 1993 (citing the Washington Post, September 26, 1989).