Energy Crisis

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  • Topic: 1973 oil crisis, Peak oil, OPEC
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The Coming Energy Crisis?
• • All warning signs that existed prior to the energy crises of 1973 and 1979 exist today. Various energy security measures indicate that the potential for an energy shortage is high. As submitted to Oil & Gas Journal for publication February 3, 2003

James L. Williams, President, WTRG Economics E-mail: Phone: (479) 293-4081 I. Introduction Various measures of US energy security indicate that the US might be heading for an energy crisis. Many of the warning signs that existed before the energy crises of 1973 and 1979 exist today and they indicate that the current situation could be even worse. US dependence on petroleum imports has grown steadily for over a decade and has been at record levels for several years. Petroleum inventories are low and the ability of Strategic Petroleum Reserves (SPR) and commercial petroleum stocks to cope with an interruption in imports matches the historic lows preceding the 1973 and 1979 energy crises. The potential for an energy crisis has never been higher. Oil prices have recently exceeded $30 per barrel and they may continue to increase. The disruption of Venezuelan oil supplies has increased the US dependence on Middle Eastern oil and made the US more susceptible to supply interruption. With the crisis in Venezuela, the capacity of OPEC to meet any additional supply interruption is limited and a war with Iraq would put OPEC at its limit. Any energy crisis in the near future will hinder President Bush’s efforts to stimulate the economy through tax cuts and other fiscal measures. An energy crisis could cause a recession, inflation, and higher unemployment. In this article we will discuss various measures of energy security, import

A. F. Alhajji, PhD. Ohio Northern University E-mail: Phone: (419) 772-2080 dependency and vulnerability to assess the current US energy situation. II. What Constitutes an Energy Crisis? Energy crisis is a situation in which the nation suffers from a disruption of energy supplies (in our case, oil) accompanied by rapidly increasing energy prices that threaten economic and national security. The threat to economic security is represented by the possibility of declining economic growth, increasing inflation, rising unemployment, and losing billions of dollars in investment. The threat to national security is represented by the inability of the US government to exercise various foreign policy options, especially in regard to countries with substantial oil reserves. For example, the recent disruption of Venezuelan oil supplies may limit the US policy options toward Iraq. Looking at the two energy crises of 1973 and 1979, we find some common elements between the two. Both events: 1. started with political turmoil in some of the oil producing countries. 2. were associated with low oil stocks. 3. were associated with high import concentration from a small number of suppliers. 4. were associated with declining US petroleum production. 5. were associated with high dependency on oil imports.


6. 7. 8. 9.

were associated with low level of oil industry spending led to speculation caused an economic downturn limited US policy options in the Middle East

event of an interruption from one or more suppliers. 1. Domestic Production Capacity US oil production is currently at a record low and has been steadily declining since 1986 as shown in Figure (1). Although the US oil production reached its peak in the 1970s, the increased production in the second half of the 1970s came in large part from Alaska. Production from Prudhoe Bay came on line in significant volumes causing Alaskan production to increase from 464,000 barrels per day (b/d) in 1978 to 1.6 million in 1980 and peaked at 2 million b/d in 1988. Petroleum production in the lower 48 states dropped from 9.0 million b/d in 1973 to 7.5 million b/d in 1978. Only the development of oil in Alaska prevented an even higher dependency. By 1980 the production...
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