NOIA: Something for Nothing?

Although I rarely read Marcus Aurelius when I was younger, I was instilled with a similar sentiment from a very early age.

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"Nothing can come out of nothing."
-Marcus Aurelius, Meditations

Although I rarely read Marcus Aurelius when I was younger, I was instilled with a similar sentiment from a very early age. I have always been told that no matter the situation, you simply cannot get something for nothing. Unfortunately, it seems that many in California and Florida believed that this ancient dictum no longer applies.

In these states, eager-to-please politicians have promised voters unlimited supplies of energy at low prices, while strenuously opposing any energy production off their coasts. This, in spite of the fact that both states expect unprecedented economic and population growth over the next two decades.

Thanks to its larger population, larger economy, and some spectacular regulatory bungling, California has been the first to feel the impact of these shortsighted energy schemes. Also important is the fact that California stands at the epicenter of the so-called "New Economy" - the technology-driven, Internet-supported world of e-commerce which (until recently) promised infinite growth and stratospheric returns.

Unfortunately, as so many have learned with the twin decline of the New Economy and California's power grid, Marcus Aurelius was absolutely right. Nothing comes from nothing, and those promising that something will, are simply putting off the day when this realization is forced upon them.

California's leaders have followed a policy that increases energy consumption, while discouraging energy production. The Internet-driven economy in California that has been such a boon to so many, demands a great deal of cheap and reliable energy. But, Californians have been unwilling to invest in energy production at either the upstream or the downstream level, and are now paying a terrible price, enduring rolling blackouts that show no sign of easing in the immediate future.

NIMBY

But, if it is easy to point out flaws in California's energy policy, it is wise to consider that California is a microcosm of the nation as a whole. California is the home to a substantial portion of our nation's population and to an economy that is the eighth largest in the world, it would be a grave mistake to discount the happenings there as provincial blunderings.

The same kind of misguided NIMBY (not in my back yard) mentality and shortsightedness that has caused millions of Californians to endure crippling energy shortages in recent months is widespread in this nation.

Also prevalent is the unwillingness to make the connection between technology-based economic achievement and the energy sources that drive the hi-tech dynamo. Nowhere is this more evident than in the state of Florida, which will soon test what strains its energy infrastructure can handle, as its population grows by a third in the coming decades.

Americans are turning their backs on the energy choices that we will soon be forced to face - just as California was this winter. What does electricity in California, the Internet, and hydrocarbons from the seabed have in common? A lot, but many are unwilling to face the connection.

Demand for gas

Natural gas currently supplies about 25% of the nation's domestic energy requirements. Last year, the total amount of natural gas consumed in the United States was approximately 22 trillion cubic feet (Tcf). Natural gas demand is skyrocketing, particularly as a clean fuel for electric power generation.

Recent studies by the Energy Information Administration, the Gas Research Institute, and the National Petroleum Council (NPC) indicate that annual demand will grow to as much as 32 TCF in the next decade and a half.

Proven gas reserves in the United States have dropped due to increased demand and the very low drilling levels the 1997-98 period. Last summer, instead of being injected at a normal seasonal rate into local storage sites in the northern states for winter use, natural gas was firing electric power plants in the sweltering Gulf coast and Southwest to run air conditioners. Storage levels dropped well below average, and hot spells in California worsened the problem. Heating oil prices rose higher, but natural gas prices exploded, especially in California where energy policies designed to please everybody, failed miserably.

Power needs

New studies indicate that since 1997, US annual electricity demand has accelerated from 1.5% to 3.0%. Much of this demand increase is related to a strong US economy, but it is extremely revealing to realize that the largest single driver behind this resurgent electricity demand has been Internet and computer-related demand.

The Internet backbone consumed a staggering 8% of total US power consumption in 1998. If computer peripherals are added, this number swells to almost 13% of total 1998 US power consumption. This is an incredible growth rate given that the Internet accounted for almost no power consumption a decade ago. In 2001, it is probably safe to assume that combined Internet and computer-related electric demand own accounts for well over 15% of total electricity demand.

In July 2000, Washington, D.C.-based Cyveillance issued a white paper stating that the Internet then consisted of 2.1 billion unique publicly available pages. At the then-current growth rate of 7.3 million new pages per day, the Internet should be doubling in size sometime this year.

Looking ahead, as it becomes less and less acceptable for a business not to have a website, there will be only more traffic, more routers, more servers, and more electricity consumption. By one estimate, Internet traffic is anticipated to increase to approximately 30 times today's existing loads in the next four years.

Fossil fuels

While playing an enormous part in the surging energy demand, the Internet is still only one factor. Last year, then-Assistant Secretary of Fossil Fuels at the Department of Energy, Robert Gee, said: "This country is going to use more energy in the coming years, especially if it wants to keep the current economic expansion growing. Twenty-eight percent more, to be exact, between 1997 and 2020.

"The dominant fuels supplying that energy will still be fossil fuels. In fact, fossil fuels - as a percentage of our total energy demand - will grow from about 85% in 1997, to nearly 90% in 2020. This takes into account a large expansion in the use of renewable energy resources. In addition, the demand for electricity will grow even faster than overall energy demand ... as much as 37% between 1997 and 2020."

The irony in all this is that as the NPC report points out, we have a domestic natural gas resource base adequate to meet increasing demand for many decades, but that resource has to be drilled in order to prove the reserves. This just isn't happening rapidly enough, and one of the main reasons is that access to the resource base is blocked. The Gulf of Mexico and the Rocky Mountain region hold great potential for adding natural gas supplies but many areas are off-limits to drilling.

There is an electric train coming down the track, and our policy makers need to understand it before there's a wreck. The energy industry is gearing up as fast as it can to increase the available supply and develop the sorely needed infrastructure to deliver the nation's power.

But in the meantime, gas demand is actually growing more rapidly than predicted, and without expanded access to our natural resource base, we are going to face immense obstacles in meeting this demand.

In the short-to-medium term, industry must continue to step up exploration and production, while our policymakers must re-evaluate our present lands access policies. While worthy of investment in the long-term, green power is not a solution in terms of electricity availability and reliability for the US economy any time in the near future.

Seabed resources in the eastern Gulf of Mexico and Atlantic hold the best potential for meeting our future needs, but we must anticipate the future and plan for it. Electricity, the Internet, and natural gas from the seabed are interrelated and we must make absolutely certain that the public understands how.

The citizens and leaders of Florida will have to engage in some serious soul searching to determine their own energy fate. Will Florida become the next California? Or will Florida realize that nothing comes from nothing and engage in a serious effort to meet the energy supply challenges that will inevitably follow its growing economy and population.

Even in light of recent stock market flutters, the United States is still the undisputed world leader in the Internet and computer-related technology, and will remain the world leader in terms of the overall economy well into the foreseeable future.

But, as world leaders, we must prepare for the future and ensure that our citizens continue to enjoy the dynamic economy and high standard of living that are directly based on a reliable and abundant, supply of energy. Short supplies of electricity have slowed the growth of the Internet industry, and if energy markets remain as tight as they have been, short supplies of energy will impact every sector of our economy and the millions of jobs that are tied to it.

Our policymakers must give issues surrounding access to our energy supply the highest priority - now.

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Paul Kelly Senior Vice President Rowan Companies, Inc.
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