Where did energy crisis go?

Posted: Monday, October 01, 2001

WASHINGTON -- Gasoline prices have dropped a nickel or more a gallon. The price of natural gas, once sky-high, is now so low producers are canceling orders for drilling rigs. And crude oil prices have taken a nosedive.

Amid the nation's economic woes, the energy crisis has faded, with abundant supplies, declining demand and prices that suddenly are lower than anyone had predicted just a few months ago.

The price drops are good news for consumers and, barring any unforeseen developments, analysts predict a winter of lower heating costs and plenty of fuel.

With the war on terrorism now taking center stage in Congress and elsewhere, what once had been a rush to push through major energy legislation has slowed to a crawl. While the House has passed an energy bill focusing heavily on production and tax breaks for industry, leaders in the Senate no longer are certain a bill will be possible this year.

And there is growing consensus among energy analysts, government officials and economists that the Sept. 11 terror attacks will have no impact on the flow of energy supplies. By pushing the United States -- and possibly the world -- closer to recession, the attack, in fact, exacerbated the downward spiral of energy prices, analysts say.

Meeting in Vienna, Austria, the ministers from the Organization of the Petroleum Exporting Countries on Thursday reiterated their commitment to current production levels, fearful that any cuts would bring on worldwide recession.

In fact, energy experts say, OPEC countries actually are exceeding their official production levels by about 1.7 million barrels and that the cheating is likely to increase if prices tumble further as some producers try to make up lost revenue.

''The markets basically are saying that there's too much oil around,'' said Van Levy, an energy analyst for CIBC World Market in Houston.

Last week the price of a barrel of crude oil plummeted by nearly $4 to below $22 a barrel, the biggest one-day decline since the Gulf War a decade ago. Prices on the New York exchange edged back up slightly, closing at $22.73 on Thursday with contracts for November delivery about the same.

Across the board, energy has become cheaper:

n Gasoline prices dropped about 5 cents on average nationwide over the past two weeks to an average of $1.48 a gallon because of weak demand and plenty of supply, the Energy Department said.

n Natural gas prices on the wholesale market have dropped below $2 per thousand cubic feet -- bringing prices back to where they were two years ago before the steep run-up that peaked at about $10 in some markets last winter.

Utilities used less natural gas than had been expected this summer for power production, adding to amounts in storage. And the economic slowdown has dramatically cut industrial demand.

With prospects for a near-term economic recovery dwindling, demand for natural gas is not expected to rebound until sometime next spring at the earliest, predicted Adam Sieminski, energy strategist for Deutsche Bank Alex.Brown.

n Heating oil prices have declined as well and could soften even more as winter approaches and refineries churn out more of the product instead of jet fuel. Demand for jet fuel has decline significantly because of the big hit on business that airlines have taken since the Sept. 11 suicide hijackings.

The turnaround in energy prices reflects a change in supply and demand, energy experts say. There is an energy glut -- a mirror image of just a year ago when supplies where tight, prices were rising and people were worried about whether they could heat their homes in the coming winter.

So what often had been described as an energy crisis since President Bush unveiled his energy blueprint last spring seems far less of one today. California went through its summer without a power blackout -- the last one was in May. Predictions of $3-a-gallon gasoline never materialized and another winter of high heating costs now seems unlikely.

The ramifications have been felt on Capitol Hill, where Republicans have argued that the recent terrorist attacks make it that much more urgent that energy legislation promoting increased domestic production be sent to the president.

The fact that the United States still gets more than half of its oil from abroad -- including unfriendly nations such as Iraq -- ''is a major national security problem,'' argued Sen. James Inhofe, R-Okla.

The same energy problems cited in the president's energy report last spring remain today, Energy Secretary Spencer Abraham says, calling on Congress to ''move forward with energy security legislation.''

But Democrats, although not ruling out some measures aimed at protecting energy facilities from terrorists, are opposed to rushing through broader legislation.

''I will not agree to attempts to force through a one-sided energy bill, or to short-circuit Senate consideration of these important issues,'' Sen. Jeff Bingaman, D-N.M., said in response to Inhofe's call for the Senate to pass the House-approved legislation.



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