Our other energy crisis.

Our other energy crisis.

Our other energy crisis.

Making government work better.
May 11 2004 2:47 PM

Got Gas?

Oil isn't the only fossil fuel that's in crisis.

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Longer term, the gas picture is more complex. On the positive side, the higher prices may act as a kind of corrective to the supply imbalance, both by depressing American demand (many big industrial gas users are simply shutting down and moving to Europe, where gas is cheaper) and by encouraging companies to import LNG as fast as is politically possible. Higher gas prices—and the corresponding higher electricity prices—will also tend to make alternative energy sources look attractive: The high gas prices of 2000 helped touch off a boom in wind farms in the United States.

The downsides, however, are significant. U.S. electricity demand shows no signs of slowing, and that is likely to suck up any new gas supplies as quickly as they appear, keeping the gas market relatively tight. Tight markets are prone to volatility: There is no slack, no spare gas in the system to cover, say, an unexpected cold snap. Prices can whipsaw violently, which not only hurts consumers and businesses, but makes energy companies leery of investing in gas and LNG infrastructure, because they never know where the price will wind up—and thus, how quickly their investment will pay off. This reluctance, in turn, only further retards the expansion of gas supplies, which adds even more upward pressure to prices.


But the biggest loser may be the emerging vision of a gas economy. If markets remain tight, we'll be so busy trying to supply our power plants that we won't have much gas left over for any new applications—for, say, making synthetic gasoline, or hydrogen for fuel cell cars, or microgrids, or any of the other elements that might make up a new energy economy. To be sure, markets have a way of correcting themselves. High prices will eventually bring on new supply, especially in the form of imports, and this new supply will eventually help fuel the transition to a cleaner energy system. But it won't happen as quickly as it might have, and this delay could prove costly. For every year we remain with the existing energy economy—generating our power with coal, or running our cars on oil—will not only increase the damage to the environment, but also make it harder and more expensive to change to something better.

Paul Roberts is a journalist specializing in resource economics. His latest book, The End of Food, was published in June.