Focus needed on energy supplies, flexibility and environment, CERA says

WASHINGTON, D.C., March 19, 2001 — Flexibility, access to development and the integration of energy and environment in a coordinated, realistic way are the key cornerstones for building a sound energy supply and delivery foundation for the future, Cambridge Energy Research Associates (CERA) Chairman Daniel Yergin told the National Energy Summit at the U.S. Chamber of Commerce this morning.

"We need as a nation to focus on energy, which has been taken for granted since the Gulf crisis a decade ago. Supply can no longer be taken for granted. A sound energy supply and delivery system is fundamental to economic growth. The interconnection between energy and GDP is a two-way street," Yergin said. "An energy system that is overstretched and subject to big price swings is not good for our economic health."

Energy prices, shortages and supply problems over the last few years have put infrastructure adequacy and inadequacy front and center, driving home the need to integrate environmental considerations, but with a coherent, rational, understandable process that incorporates best practices.

Allowing access to development in a way that balances environmental and economic objectives is a highly significant issue that needs rational, open dialogue. Yergin said there must be case-by-case assessment, a diversity of solutions, flexibility and sound portfolio strategy.

"We've learned from the energy cycles over several decades that the one thing you need is diversity, whether in terms of contracting for gas and power, mixing new supply with conservation, aligning short and longer terms, encouraging renewables, or in fuel choice. We need to promote and balance all resources and options," Yergin said.

A U.S. energy policy must also be developed with a continental perspective, since many of the pressing issues for gas and power are not limited to the United States. Dialogue with Canada and Mexico is very important, Yergin said.

Natural gas, which accounts for 25 percent of total energy supply, is the real swing fuel for the economy today, according to Yergin. Its role in electric power is growing, with over 90% of projected new capacity fueled by natural gas. Supplies are tightening, however, and by the end of 2000 were 6% lower than 1997 levels. As a result, attention is being focused on developing the following frontiers:

— Deepwater Gulf of Mexico

— Liquefied natural gas (LNG)

— Arctic gas, including Alaska North slope gas

— Offshore Atlantic Canada

"These frontier projects can be economic," Yergin said. "But for that to happen requires a spirit of cooperation. With these projects we have the potential to bring what consumers need, which is reasonable prices, reliable, environmentally friendly energy supplies both from the frontiers and traditional resources."

"We need a streamlined approval process. We also need better alignment and coordination between power development and gas supply development. But what is really needed," Yergin said, "is the recognition that major new natural gas development is not opposed to, but rather essential to meet overall environmental objectives - and that such development is urgent in order to keep the new economy humming and the old economy working."

Citing CERA's new study, Beyond California's Power Crisis, Yergin also warned, "California's electric power crisis this summer could further damage our already bruised national economy. The gamble is bigger than many of the participants recognize."

Cambridge Energy Research Associates (CERA) is a leading advisor to major international companies, financial institutions and organizations, delivering strategic knowledge and independent analysis on energy markets, geopolitics, industry trends and strategy. CERA is headquartered in Cambridge, Mass., and has offices in Bangkok, Beijing, Calgary, Houston, Mexico City, Moscow, Oakland, Oslo, Paris, Sao Paolo, Seoul and Washington, D.C.

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