Energy Debate Heats Up: The High Gas Prices of Last Summer Fueled the Energy Debate That Continues Today

By Brown, Matthew | State Legislatures, February 2006 | Go to article overview

Energy Debate Heats Up: The High Gas Prices of Last Summer Fueled the Energy Debate That Continues Today


Brown, Matthew, State Legislatures


Wisconsin Senator Robert Cowles drives the 280-mile round trip between the State Capitol in Madison and his home in northern Wisconsin in a hybrid-electric Toyota Prius.

"I get between 50 and 60 miles per gallon in the car. I'll never drive a non-hybrid," he says. "We all have to think hard about suppressing demand for energy."

With gas prices that climbed above $3 per gallon this summer, Senator Cowles is not alone in his outlook. Energy prices are in the news and are a high priority on legislative agendas.

The recent sticker shock brought on by spiking energy prices--especially after the one-two punch of hurricanes Katrina and Rita--fueled legislators across the country, like Senator Cowles, to begin searching for answers to high energy costs, consider future price trends and take action.

What legislators are finding is a picture very different from the one just four or five years ago. Across the board energy prices are increasing, whether for natural gas, gasoline, heating oil, propane, coal or electricity. The two significant hurricanes made a tight situation worse for a while, although the worst of the effects on energy prices are fading. But many experts now suggest that the era of consistently cheap energy prices could be over, at least for now.

The Energy Information Administration (EIA), an independent division of the U.S. Department of Energy, tracks energy prices and supplies. Its figures agree with what Senator Cowles and other legislators are discovering: Prices have gone up, and they will stay that way in the near term.

Guy Caruso, EIA administrator, expects home heating prices to jump by more than 30 percent this winter. For homes that use natural gas, annual heating bills could jump by close to 50 percent.

Caruso also expects electricity prices to rise in some parts of the country--to some extent driven by higher natural gas prices and in a few regions by higher oil prices. One example: Xcel Energy, which operates in Colorado and nine other states, just received permission to increase its Colorado electric rates by 20 percent, entirely because it now has to pay more for the natural gas it uses to power its generators.

The EIA also tracks oil and gasoline prices. "The story is similar here," Caruso says. "Prices are higher than they have been, in part because of the after-effects of the hurricanes, but the uncertainty in overall supplies is keeping them high. Crude oil prices have been at levels not seen in years and appear to be stuck at higher levels for a while."

WHY SO HIGH?

John Felmy is an economist with the American Petroleum Institute in Washington, D.C., which lobbies on behalf of the oil industry and also collects statistics. Felmy and his staff spend a lot of their time analyzing oil industry trends.

Felmy points out a few fundamental relationships in the oil business, the most important being that between crude oil prices and what people actually pay for their diesel, gasoline or oil. "When crude prices go up, prices at the pump go up," he says. "There are other factors, of course, but the price of crude is the biggest factor in what we pay at the pump." The figures that he shows to back up his points are compelling.

When the hurricanes hit the Gulf Coast last year, refineries shut down and pipelines failed. Because the fuel was unavailable (a situation called shut-in capacity) supplies tightened in the weeks following the hurricanes.

Natural gas prices have increased also and not only because of the hurricanes--although the hurricanes shut in quantities of natural gas as well.

"We're using more and more natural gas," says Caruso. "It was cheap for a while, but because it also tends to burn cleanly, it's ideal for generating electricity. That's one reason we're using so much more of it."

The fact is that even though we produce more natural gas in this country now than ever before, U. …

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