Everything is different but nothing has changed. The process of energy planning still refuses to fit into the neat world of econometric models and other sophisticated forecasting techniques. Predicting the price and supply of energy over the near term is a high-risk activity with success more dependent on luck than talent.
Left to history are the turbulent 1970s with oil price (increase) shocks, supply shortages and a strong OPEC in charge. We are now past the chaos of the early 1980s, a period of oil price (decrease) shocks, supply gluts and a shaky OPEC.
What may come next is far from clear.
If you can, answer these true or false:
1. World economic recovery will help prevent a new oil price war, and the same old OPEC will be back to business as usual.
2. The $29 (OPEC benchmark) per barrel formed a bottom, allowing OPEC to regroup and capture a new momentum.
3. The growing ability of North Sea oil to compete in Nigeria's traditional markets will move Nigeria closer to the oil cartel.
4. OPEC "discounting" will resume, leading the Saudis to run oil prices down to levels at which only they can be profitable.
5. This major Saudi intervention or the mere threat of its occurrence will lead to the formation of a super OPEC, which will include the existing members plus those producers now outside the cartel, including Great Britain and Mexico.
6. Continued uncertainty makes it inevitable that producers and consumers will finally agree to a system of "indexing"--a long-term pricing formula based on inflation and other variables--thus forming a legitimate cartel similar to coffee and sugar.
7. Iraq will win the war with Iran.
8. Iran will be the victor leaving Iraq with a "Khomeni-type" fundamentalist government.
9. The outcome of the war will effect the supply and price of oil.
10. Mideast stability is more threatened than ever because of continued problems in Lebanon and North Africa.
11. The United States can stop worrying about a new Mideast disruption leading to renewed supply shortages.
12. Conflicts in Central America will not affect the political and economic future of Mexico and Mexican oil.
13. In the end the marketplace will assert a free price based on real supply and demand and the cartel will follow its ancestors into the past.
14. Energy is no longer a national issue.
Who is so gifted as to be able to answer all of these questions with confidence? In time, they will answer themselves, but in the meantime U.S. policy-makers would be wise to keep the following three principles in mind.
First: Be prepared for future shocks. We live in the real world where political trouble affects the flow of oil. To ignore this fact is as foolish as neglecting to buy fire insurance on your home. Being prepared does not mean new federal legislation, but it does require a certain amount of contingency thinking by the public and private sectors.
Second: Continue to get the U.S. government completely out of all energy price regulations. If we have learned anything in the last 15 years, it is that the heavy hand of government performing unnatural acts with energy prices has given us negative production and conservation results.
Third: Support stronger measures to step up U.S.-produced oil, coal, gas and nuclear power, thus reducing dependence on imported oil to a more acceptable level.
Abrupt swings in oil supply, demand and price have further clouded an issue that never was in clear national focus. The debates surrounding government regulation, nuclear power and synthetic-renewable fuels have become more confused as special interests seize on those selected transient conditions that momentarily support their particular position. Stearing a steady course in the face of on-again/off-again crisis conditions is not easy for a political system that is better at "reacting" than it is at "acting."
But those who use today's oil glut to predict a worry-free future are as wrong as those who in 1973-75 urged legislation creating bureaucratic systems as a permanent response to the "energy crisis."
We cannot escape a fundamental truth-- the United States still uses much more energy than it produces. Even under the best of circumstances we still have an energy job to do.