Energy industry ahead of policy

THE BALTIMORE SUN

The new national energy policy proposed by President Bush yesterday gives producers plenty to celebrate - including the relaxing of environmental regulations, the opening of federal lands for oil drilling, the streamlining of the permit process for power plants and refineries, and measures to resurrect the nuclear power industry from a 25-year slumber.

But even before Bush announced his policy, the energy industry had already responded to regional shortages of electricity with the planning and construction of new power plants and had answered increased seasonal demand for gasoline with a boost in production.

Because the Bush plan does little to address short-term energy problems, California is still likely to suffer rolling blackouts this summer. But after a 10-year moratorium on power plant construction, plants with a combined capacity of 5,495 megawatts are being built in the state, enough to power 5.5 million homes. And plants with a capacity of 21,000 megawatts are on the drawing board there.

Gasoline prices, which spiked above $1.70 per gallon this week, are expected to moderate after Memorial Day as refineries boost production, according to projections by the Department of Energy.

Efforts by Bush to appease environmentalists with conservation measures and $6.3 billion in new tax credits for using renewable energy sources and buying energy-efficient electric- and gas-powered "hybrid" cars, did little to blunt criticism yesterday. In this area, too, the market is already responding. There is a months-long wait for the two such cars on the market - the Toyota Prius and the Honda Insight - and environmentalists derided such measures as window dressing.

"The president's policy will not produce affordable energy for America now or even 10 years from now," said Philip Clapp, president of the National Environmental Trust. "What it will do is seriously increase air pollution in our cities and turn over the last 5 percent of public land we've protected for future generations to the oil and coal industries."

Others said the policy strikes a balance between supply and demand.

"It has something for everyone," said John J. Reed, executive director of Navigant Consulting in Burlington, Mass., which advises utilities, energy companies and government agencies.

One key proposal is an executive order directing federal agencies to expedite permits for new power plants, so California-style blackouts don't spread across the country. But critics say that market forces - unleashed by bungled deregulation, not environmental regulations - have caused power shortages and surging electric bills.

Bush wants to create a national electric power system to replace the current balkanized system of federal, state and local control. He estimates that 1,300 new power plants are needed nationwide by 2020. According to the industry rule of thumb of 1,000 megawatts per plant, that translates to 1.3 million megawatts of new capacity, far more than the market will need, according to some experts.

Of 350,000 megawatts in capacity that energy companies have recently built or have on the drawing board nationwide, there is a market for only 185,000, said Chris Seiple, managing director of RDI Consulting in Boulder Colo., an energy consulting firm.

However, not everyone is confident that the industry will take care of supply.

"The market has responded with lots of plans, and in some cases construction. But realistically speaking, if you total up all the plans, ... it's sufficient to meet our needs for five years and that's it," Reed said. "Clearly, we need them to go beyond that."

Many of the new power plants are designed to burn natural gas, which now supplies 16 percent of U.S. electricity needs. It is a much cleaner fuel than coal, which supplies 52 percent of U.S. electricity needs.

During the run-up to the announcement of his plan, Bush repeatedly said that the reason for drilling in the Arctic National Wildlife Refuge was to increase natural gas supplies for these new plants. Yesterday, the Bush plan formally endorsed such drilling.

However, energy companies expect to extract oil, not natural gas, from ANWR. The easiest way to obtain more natural gas from Alaska is to tap large supplies from Prudhoe Bay and ship them to the lower 48 states along a new pipeline, the construction of which is not controversial, even among environmentalists.

Each day on Alaska's North Slope, oil companies pump 8 million cubic feet of natural gas, more than the daily national consumption of Japan, Canada or the United Kingdom. Much of the gas is simply reinjected into oil wells to increase pressure and force oil to the surface. The North Slope holds 35 trillion cubic feet of known natural gas reserves, two-thirds of it at Prudhoe Bay. Estimated reserves are 100 trillion cubic feet.

In "oil patch" regions of the United States, notably the Rocky Mountains, Texas and the Gulf Coast, oil and gas exploration is on the rise. Last year, the U.S. rig count rose to 918 from 625 in 1999, and is expected to increase sharply this year. U.S. crude oil production of approximately 6 million barrels a day (a little less than a third of the country's daily consumption) "will not fall for the first time in a decade, though it is not expected to be above last year's output level," according to Oil & Gas Journal.

Efforts to increase energy production won't bring down prices in the short term, because boosting supply requires massive new investment and it can take years before the new supplies reach consumers, said Thomas P. Lyon, associate professor of business economics and public policy at Indiana University's Kelley School of Business.

Any oil extracted from ANWR, for instance, would take at least 10 years to reach the market. Even then, there's no guarantee that it would be sold domestically to help reduce the nation's dependence on foreign oil. It could be exported to Pacific Rim countries where oil companies may be able to reap greater profits.

Perhaps the boldest proposal in the Bush plan calls for the Department of Energy to look into the reprocessing of spent nuclear fuel for the first time in 25 years. Such a process salvages the plutonium produced by reactors as they consume uranium and uses it to run reactors.

But the procedure is expensive and potentially dangerous. There is a threat of radioactive releases, and plutonium can be used to make bombs. The more that is produced, critics fear, the more likely that bomb-making material could fall into the hands of terrorists.

The Bush plan also encourages the expansion and upgrading of nuclear plants and the construction of new ones - none have been built in three decades - with a help of a tax break.

Nuclear plants emit no greenhouse gases, and even the most dangerous nuclear accident in the United States - the near meltdown of a reactor at Three Mile Island in Pennsylvania in March 1979 produced no evidence of any adverse health effects related to radiation. But the industry is plagued by fears over safety - a major radiation leak such as that at Chernobyl in Ukraine could devastate the surrounding area for many years.

"The most thorny issue remains that of waste disposal," Reed said. "The U.S. is the only nuclear nation that has chosen one path entirely for the past 25 years - storage. Now it's saying, like Japan, it may make sense to look at reprocessing as well as storage."

There is currently no approved repository for long-term storage of high-level nuclear waste. Yucca Mountain in Nevada is being developed for the purpose, and the Bush administration is supposed to decide whether to proceed with it at the end of the year. However, both of the state's senators - Republican John Ensign and Democrat Harry Reid - oppose the site.

Critics such as Clapp say no new nuclear plants are needed.

"In reality, we are opening three new power plants a day," he said.

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