US likely to increase energy use as economic recovery continues
''We all know that our energy problem is sleeping, but that it will wake some time in the future,'' remarked US Environmental Protection Agency chief William Ruckelshaus in a recent speech.
That ''some time'' may not be that far off. If this dormant issue is not beginning to rouse itself, it is at least turning restlessly in its sleep for the first time since Ronald Reagan pronounced the energy crisis over in 1980.
Overall energy consumption in the United States has been shrinking for some time. Oil demand has been declining steadily for five years. Natural gas consumption has dropped for four years. Electricity demand has slipped back and forth between zero and moderate growth.
In the last 12 months, however, this pattern has been broken. Based on the increased demand it has seen during the last year, the Independent Petroleum Association of America (IPAA) forecasts that this year's energy consumption will rise by 3.5 percent. Oil consumption, the industry economists estimate, will surge by 3.2 percent, natural gas by 3.5 percent, coal by 5.1 percent, and oil imports by 15 percent. Meanwhile, electricity demand has jumped to 7.5 percent, a pre-energy crisis level, reports the Edison Electric Institute (EEI).
''The world economy is finally reviving. As long as the price is stable, demand will rise. We're optimistic that this is a real turnaround,'' says Tom Barney, an economist with Marathon Oil Company.
Joe Stanislaw, director of the International Oil Watch at Cambridge Energy Research Associates, agrees that the picture looks quite different from a year ago. He foresees a 2 percent increase in world oil demand in 1984. But he characterizes this rebound as ''weak and uncertain, not significant.''
These increases are due in part to a return to normal weather after the unusually mild years of 1982 and 1983. More important, about two-thirds of the current increase is due to the strong economic recovery, particularly in the US.
Energy in general, and oil in particular, is not as important to the US economy today as it was a decade ago. The IPAA, for instance, calculates that the economy is 27 percent more energy-efficient than it was before the Arab oil embargo. Today, oil consumption is running 13 percent below what it was in 1973. In the 1960s and '70s, a 1 percent increase in economic activity was accompanied by a 1 percent increase in oil demand. Today, it takes only a 0.6 percent rise in oil consumption to fuel a 1 percent increase in economic growth, Mr. Stanislaw explains.
Averaging about 2 percent annual growth over the last decade, electricity demand has held up more strongly than that of other types of energy. Today, a 1 percent increase in gross national product (GNP) - the total value of goods and services produced in the economy - results in a 1 percent increase in electricity demand, reports Bruce Humphrey, the EEI's director of energy modeling and economic research. However, even this is a remarkable change by historical standards. In the 1950s, electricity demand was growing 180 percent faster than GNP. In the 1960s, it grew 90 percent faster. And, in the 1970s, it was growing 40 percent faster.
Despite continued growth, oil now plays a much smaller role in US electricity generation than it did a decade ago. In 1973, 20 percent of all electricity was generated in oil-fired boilers. Today, the percentage is only 7.6.
Barring a major disruption, energy economists do not foresee significant oil price increases. The reason for this is the current 12 million barrel per day (b.p.d.) world surplus of production capacity over demand, the so-called oil glut. Thus, although US gasoline demand is running 2 percent higher than last year, prices at the pumps remain soft, Marathon's Barney reports. In fact, the Iran-Iraq war puts a downward pressure on oil prices because of the two countries' need to sell oil to finance their war efforts, Stanislaw estimates.
Although US oil use is down, imports have remained at significant levels: 28 percent of the total last year. With increases in consumption projected for this year, imports will jump to 32 percent, within a few points of where it was a decade ago. A much smaller amount of US imports come directly from Arab members of the Organization of Petroleum Exporting Countries (OPEC). But this is a moot point, argues Barney: ''Since decontrol of oil, a crisis will be a matter of price rather than shortages like we have experienced in the past.''
Even with a complete cutoff of oil from the Persian Gulf, ''it is hard to imagine conditions which could lead to the kind of price jumps we've seen in the past,'' the oil economist says. In the 1970s, oil supply and demand were balanced on a razor's edge. ''Then, if the Shah (of Iran) sneezed, the price (of a barrel of oil) would go up $10. Today, the sinking of a tanker is only worth 10 cents per barrel,'' he observes.
Stanislaw says a complete cutoff of the Persian Gulf must last at least three months before it would have a major effect on world prices. Such a cutoff would create a 3 million b.p.d. shortfall. But oil-producing countries outside of the Gulf can increase their production and the consumer nations have enough oil stockpiled to last 300 days. If the situation dragged on, it could drive up prices. Assuming the oilfields have not been destroyed, once the situation was resolved prices would drop just as rapidly. The consensus in the oil industry seems to be that any disruption in the Gulf would not last long before the US and Western Europeans intervened militarily.
If expansion of the war in the Middle East does not shock the sleeping energy crisis awake, the world has about five years of strong economic growth before oil supplies start to tighten again, industry economists generally agree. After this, excess capacity will again be concentrated in a few OPEC members and major price increases will be likely.
Exactly when this point will come depends in large part on the strength of continuing energy conservation efforts. Stanislaw foresees substantial moderation in the ratio of oil demand to economic growth. As the economic recovery speeds the purchase of newer, more fuel-efficient cars and industrial machinery, he estimates growth in demand for oil will drop to 0.5 percent, 0.4 percent, perhaps even 0.3 percent for every 1 percent increase in the GNP. But the degree of the staying power of energy conservation remains a matter of debate.
''The next few years will be very important in working out these long-term trends,'' observes the EEI's Humphrey.