OPINION/COMMENTARY

America Is Not Facing an Unavoidable Energy Shortage

The year 2004 will be remembered as a year of high prices for gasoline and natural gas, and Americans are understandably worried about the cost of energy for 2005 and beyond. But the federal Energy Information Administration (EIA) recently released a preliminary version of its Annual Energy Outlook 2005, and it paints a surprisingly optimistic picture for the decades ahead. With regard to petroleum, EIA acknowledges that global demand will remain strong, especially with China's growing need for motor fuels unlikely to subside. Nonetheless, the report does not predict runaway prices. Demand may be increasing, but EIA believes that the global supply can expand to meet it. Under one set of assumptions, EIA projects that the inflation-adjusted price "rises slowly to $30.31 per barrel in 2025." Under another set of assumptions, the price reaches $35 per barrel by 2025 -- still less than the current price and in line with the average over the last few years. If true, then the inflation-adjusted price at the pumps should stay below $2.00 per gallon for a long time. The story is similar for natural gas. EIA expects to see enough new supplies coming online in the years ahead to meet demand, which is "projected to grow from 22 trillion cubic feet in 2003 to almost 31 trillion cubic feet in 2025." The agency predicts additional natural gas production from the Rocky Mountain region, Alaska, and the Gulf of Mexico, as well as more supplies from overseas shipped in the form of liquefied natural gas (LNG). Indeed, EIA sees homeowners paying less for natural gas in 2025 than they are paying today. EIA also projects an increase in construction of electric power plants to meet demand, which it sees expanding by 1.8 percent each year through 2025. Most of these new plants will use natural gas, with many of the rest being coal-fired. EIA estimates that we'll be paying an inflation-adjusted 7.3 cents per kilowatt hour on our electric bills in 2025, compared to 7.4 cents today....