October 15, 2013
JUST RAISE THE PRICE OF GAS AND MARKETS DO THE REST:
Why OPEC No Longer Calls the Shots : The oil embargo 40 years ago spurred an energy revolution. World production is 50% higher today than in 1973. (DANIEL YERGIN, 10/14/13, WSJ)
Posted by Orrin Judd at October 15, 2013 2:44 PMThe push to find alternatives to oil boosted nuclear power and coal as secure domestic sources of electric power. The 1973 crisis spawned the modern wind and solar industries, too. By 1975, 5,000 people were flooding into Washington, D.C., for a conference on solar energy, which had been until then only "a subject for eco-freaks," as one writer noted at the time.That same year, Congress passed the first Corporate Average Fuel Economy standards, which required auto makers to double fuel efficiency--from 13.5 miles per gallon to 27 miles per gallon--ultimately saving about two millions barrels of oil per day. (The standards were raised in 2012 to 54.5 miles per gallon by 2025). France launched a "war on energy waste," and Japan, short of resources and fearing that its economic miracle was at risk, began a drive for energy efficiency. Despite enormous growth in the U.S. economy since 1973, oil consumption today is up less than 7%.The crisis also set the stage for the emergence of new importers that have growing weight in the global oil market. In 1973, most oil was consumed in the developed economies of North America, Western Europe and Japan--two thirds as late as 2000. But now oil consumption is flat or falling in those economies, and virtually all growth in demand is in developing economies, now better known as "emerging markets." They represent half of world oil consumption today, and their share will continue to increase. Exporting countries will increasingly reorient themselves to those markets. Last month, China overtook the U.S. as the world's largest net importer of oil.A lasting lesson of the crisis years is the power of markets and their ability to adjust to disruptions, if government allows them to. The iconic images of the 1970s--gas lines and angry motorists--are trotted out whenever some new disruption happens. Yet those gas lines weren't the result of markets. They were the largely self-inflicted result of government interference in markets with price controls and supply allocation. Today, the oil market is much more transparent owing to the development of futures markets.