April 01, 2005
Friday

Washington - Anyone who has visited a gas pump recently knows that oil prices are rising, but escalating costs are also fueling concerns that energy outlays might soon have a detrimental impact on other parts of the nation's economy as well.

Businesses are beginning to pass on increased transportation costs to customers, leading to a rise in price for everything from a pizza being delivered to the front door to limousine service. And some are viewing the increased costs as a threat to America's security, urging President Bush to take the steps necessary toward energy independence.

"We do not know today what form a crisis over oil will take, but we know that crisis is coming - one that could harm the United States," members of the Energy Future Coalition, a bipartisan group that includes two former defense secretaries, said in a letter to the president. "Action to prepare for that day will pay dividends for our national security, our international competitiveness and our future prosperity."

Escalating oil costs, arriving just before the summer travel season, has led to some public grumbling, with the cost of a gallon of regular gas hitting an average of $2.16 nationwide on Tuesday. The highest price was in Concord, Calif., where a gallon hit $2.89. The lowest was found in Newfoundland, N.J., where it was $1.77 a gallon.

Barrel prices were up slightly on Tuesday, hitting $54.23 on the New York Mercantile Exchange for light, sweet crude. The high water mark was $57.60, set on March 17.

The rising costs are creating concerns in a nation that has grown accustomed to cheap energy. The United States imports about 60 percent of its oil, mostly from Canada and Mexico, and consumes about 25 percent of all the oil being produced _ even though it holds only about 2 percent of the world's reserves.

To this point, the White House has had little to say about the situation, other than to tout the president's national energy policy and push Congress to approve drilling in Alaska's Arctic National Wildlife Refuge - a project that probably won't produce a drop of gas for 10 years. It doesn't appear the problem will be alleviated any time soon.

Speaking in Columbus, Ohio, earlier this month, Bush said every American understands the importance of energy.

"Every small business owner which dreams about expanding his or her own job base, worries about energy," he said. "Families worry about energy. And higher prices at the gas pump and rising home heating bills and the possibility of blackout are legitimate concerns for all Americans."

These uncertainties, Bush said, create "a drag on our economy. It is difficult for entrepreneurs to risk capital when they cannot predict the size of next month's energy bill. If small businesses have the choice between adding a new worker or keeping the machines running, they're not going to do much hiring."

Even so, the United States appears better situated to deal with this energy crunch than in previous times. Oil analyst A.F. Alhajji, professor of business at the College of Business Administration, Ohio Northern University, said oil prices should have a lesser impact on the overall economy than they did during the 1970s and 1980s, as a result of growth in the service and technology industry - two sectors that require less energy than the manufacturing sector, which has experienced a sharp decline over the past two decades.

Despite the recent hike, oil prices fall far short of the crunch experienced in 1981, when a barrel reached the inflation-adjusted high of $80.

Red Cavaney, president of the American Petroleum Institute, said strong economic growth, particularly in China and in the United States, is fueling a surge in global oil demand, which grew by 3.4 percent in 1994, the strongest spurt since 1978. The institute projects growth to increase by about 2.5 percent this year and next.

Those factors are contributing to higher costs in various economic sectors.

"Just as are consumers, America's industrial sectors are bearing a burden from higher energy prices," Cavaney said. "Higher diesel and natural gas prices are also squeezing the agriculture community ... Although diesel production is at record levels, increased crude prices and strong diesel demand have driven prices up.

"In addition, according to the American Farm Bureau Federation, higher natural gas prices have driven up nitrogen fertilizer prices by more than 20 percent over the past two years."

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