With tight U.S. energy markets keeping prices at historically high levels, “several storm clouds are on the horizon” for the industry unless the supply burden is eased, according to former U.S. Secretary of Energy Spencer Abraham. He noted that another spike in energy prices could bring a backlash from the general public, which in turn could spark U.S. government intervention.

Speaking at Interchange Energy Group’s LDC Forum in Chicago last week, Abraham said there are any number of things that could disturb the delicate supply/demand balance, which could send crude oil prices to $100/bbl and natural gas to $15/Mcf.

“There is very limited spare production capacity, very limited refinery capacity and very limited capacity to import liquefied natural gas,” he said.

Labeling the recent period as a “pretty promising one” for energy producers, Abraham said high energy prices have in turn led to strong profits and strong stock values across the energy sector. However, he noted that strong results attract scrutiny.

“From what I learned during my tenure, energy companies are often the target of politicians who have to find somebody to go after and it is easy to go after the energy companies and the energy sector if prices are going up, particularly if it affects gasoline or home electricity and heating bills. So far, although the prices have been high — I don’t think it is the case that Congress is likely to take actions that would be highly detrimental…to the energy sector.”

However, Abraham noted there are some “very worrisome factors in the world at play today that could cause a sort of government interference at a level that would make a huge impact” on the industry. “We are talking about severe increases in regulations. Potentially, special taxes on energy access or on commodities.”

Among things that could spark another price spike, Abraham cited oil supply disruptions as a result of unstable conditions in the Middle East and Venezuela, another major hurricane in the Gulf of Mexico or a terrorist plot specifically aimed at the U.S. energy infrastructure.

“In my view, one or more of these highly disruptive potential activities are likely to happen over the next five years,” he said. “Since we know that any one of them is enough to cause prices and markets to change overnight, the occurrence of one or more of these has the real possibility…of jolting the energy marketplace in a way that we have not had since the [Arab oil] embargo of 1973.”

Abraham said there is expected to be a 47% increase in overall energy demand worldwide between now and 2030. Electricity demand over the next 20 years is expected to increase by 100% worldwide. Between now and 2025, worldwide natural gas demand is expected to increase by approximately 67%. He noted that while energy demand appears “infinite,” the production supply side “has all sorts of impediments” that make it “very difficult” for supply to keep up with that unlimited demand.

In order for the U.S. to get out of this “dilemma,” Abraham said the country needs to move beyond the NIMBY (not in my back yard) sentiment and build new nuclear plants, oil refineries and liquefied natural gas receiving and regasification terminals. In addition, he noted that the offshore drilling moratoria need to be lifted in order for the U.S. to increase domestic production.

Abraham said the natural gas market faces “special challenges” including natural gas distribution. “While there is plenty of gas in the world…the problem of getting it moved around is not so simple.” He noted that of all the planned liquefied natural gas terminals, only the ones in the Gulf are likely to go through. “It is very hard to see terminals sited on the East and West Coasts, which further complicates the market,” he said.

“In many respects, energy is the most daunting long-term challenge to the economic sector — and I would argue to national security — facing America today,” Abraham said. “In the world of energy, policymakers tend unfortunately not to act until crisis is upon them. When there is a sudden increase in prices, they are constitutionally inclined to take actions that will probably cause more scarcity of product and higher prices. When there isn’t a crisis, the inclination is to not act at all.”

Due to a recent change in fundamental beliefs, some of the roadblocks that stood only a few years ago in front of the construction of new nuclear generation now appear to be gone, according to Abraham. However, some barriers remain.

“Just a few years ago, the greatest obstacles to building new nuclear generation were capital financing and fundamental political opposition,” he said. “Today, both of those things have changed. The cost of gas-fired generation has made nuclear more competitive, so now capital markets are interested.

“There is a growing recognition that nuclear power plants don’t emit greenhouse gases, so the environmental movement has been forced to choose between fighting global warming and fighting nuclear — and I think to a large extent is moving towards fighting global warming versus nuclear,” he added. “So the resistance has gone down.”

With those old hurdles much smaller now, Abraham said the two remaining challenges are nuclear waste and the expeditious approval of designs for third-generation reactors. He noted that despite the comprehensive plan to use Yucca Mountain in Nevada for waste, which was approved by President Bush and Congress, lawsuits have “totally snarled us all up.”

Originally, there was a standard that said 10,000 years from now there could not be more radiation emitted from Yucca Mountain from burying the waste 1,000 feet under the desert than one would get from flying back and forth across the country twice, he said. “In other words, an extraordinarily tough standard. Yet our scientists did $6 billion of research and came forward with a plan that would allow us to make that happen.”

In response, Abraham said the opponents went to the federal courts with National Academy of Sciences data that showed there is the potential for radiation to be emitted from nuclear waste 300,000 years in the future. “That is what we are dealing with,” he said.

As for the third generation reactors, Abraham said, “We need to get a standardized design for the newest generation that is a safer, more proliferation-resistant reactor, so that the companies can go forward and build those designs. That licensing process will hopefully move at a reasonable and appropriate pace.”

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.