US takes hard look at 21st-century energy demands
The Reagan administration has laid out its solution to the growing threat of energy dependency. In a report titled ``Energy Security'' released yesterday, the Department of Energy would rely on tax incentives for domestic oil and gas producers and a faster fill rate for the Strategic Petroleum Reserve to head off another energy crisis.
The report is perhaps one of the most comprehensive looks at the energy marketplace ever made, according to sources in the government. Most energy experts agree that it will be the starting point for a renewed national debate on energy.
There is now a general agreement that the US is becoming more dependent on imported oil, especially oil from the Persian Gulf. At the same time, the domestic oil industry has been devastated by the crash in oil prices, thus increasing the country's dependence on foreign sources.
The report lists options, not recommendations, on what actions policymakers could take to decrease this dependence.
They are divided into three categories:
Tax and financial options.
Oil import fees and price floors.
Lease terms and royalties.
The tax and financial options appear to get the biggest nod from the report. Sen. Phil Gramm (R) of Texas says the study ``shows pretty clearly that tax incentives are a far more effective way to help US producers than trying to manipulate oil prices through ... an oil import fee.''
Such incentives considered in the report include a repeal of the windfall-profits tax, faster recovery of exploration costs, an exploration and development tax credit, and an increase in the percentage-depletion allowance by domestic producers.
The report seems to reject the oil-import fee option, saying it ``would seriously reduce the nation's economic growth, increase inflation, and reduce US competitiveness in both foreign and domestic markets.''
The report also states that a reduction in the minimum bid oil companies must place on federal leases from the current $150 per acre to $25 per acre could increase the number of leases awarded by up to 40 percent.
Another option that receives favorable treatment is a faster fill rate for the Strategic Petroleum Reserve (SPR). Calling it ``our first line of defense,'' the report states that in cases of future supply disruptions, oil from the reserve will be released ``early and in large volumes,'' thereafter letting market forces handle distribution.
With a current balance of 515 million barrels, the study suggests accelerating the fill rate until the goal of 750 million barrels is met.
The report also identifies the role of the nation's primary energy sources.
Energy efficiency. The US used less electricity in 1985 than it did in 1973, despite a significant increase in economic activity.
Energy efficiency gains have been impressive, but future improvements will be less dramatic.
The study calls for looking at ways to reduce the 97 percent dependence of the transportation sector on oil.
Natural gas. A ready substitute for oil, the efficient production and use of natural gas has been hampered by over-regulation. The study supports further efforts to deregulate the industry, possibly reducing oil imports by 350,000 barrels a day.
Electricity. The rate of increase in electricity use will follow the economy, so more will be needed by the 1990s. The report states that the current ``regulatory framework'' skews the industry toward oil and gas fuel sources, and should be changed to ``increase the industry's reliance on market forces.''
Coal. The US has the largest coal reserves in the world, but government and industry ``must work together to remove unnecessary barriers to coal use,'' according to the report.
Suggestions include ``balanced environmental programs,'' expansion of coal exports, and a removal of barriers to more economic development, production, and transportation.
Nuclear power. Although needed in the context of energy security, the report says nuclear power's ``future is uncertain.''
All projects started after 1973 have been canceled, and there have not been any new orders since 1978. ``Both safety and regulatory reform is needed,'' the report says, along with a way ``to permanently dispose of high-level waste.'' Renewable energy. The primary growth in renewables will occur in the mid-1990s and will come from technologies involving wind, small hydroelectric, solar, geothermal, ocean thermal, and biomass.
The report does not expect much growth in hydroelectric power.
``It is clear, based on these findings,'' Energy Secretary John S. Herrington says, ``that initiatives must be taken to strengthen the US oil and gas industry and to reduce our growing dependence on insecure imported oil. Even with continued conservation and efficiency and substantial contributions from other energy resources ... our economic and energy security is inextricably tied to the fates and fortunes of our domestic petroleum industry through this century.''
The American Petroleum Institute felt the study's ``thrust on national security seems to be in the right direction, although it may somewhat understate the problem as we see it.'' API's statement was based on news accounts, since it had not yet seen the actual report.
The report states that there are only three ways to reduce US dependence on Persian Gulf oil:
Increase oil production in more secure world regions like in the US, Canada, Mexico, Venezuela, Great Britain, and Norway.
Improve energy efficiency.
Increase production of substitute fuels like natural gas, coal, nuclear, and renewable energy.
``To this point, opponents of government action have only talked about the costs, and the supporters have only talked about the benefits. This report has brought the two sides together ... it frames the debate,'' according to Senator Gramm.