US energy policy to get an overhaul

Daily power alerts in California, rising natural gas prices that have punished consumers' pockets and forecasts for multiple blackouts this summer. I doubt whether any energy secretary has faced so many challenges.

In the middle of all this, the Organisation of Petroleum Exporting Countries has decided to reduce oil output by 1 million barrels a day. It is a reminder of the international nature of energy policy and America's need to increase domestic supply.

But there are some mistaken assumptions about the US approach to international energy policy that need to be corrected.

One is that our policy will inevitably be Euro-centric. Because of our political traditions, history and past practice, it is assumed that when it comes to energy, economic, and strategic matters, America will look primarily to Europe for support. A rival assumption is that the US will focus primarily on its interests in the Middle East.

This administration intends to place at least as much emphasis on our relations in the western hemisphere as we do with countries elsewhere.

We also intend to stress the enormous potential of greater regional energy co-operation. This is particularly important because many nations must be prepared to meet a sharp increase in energy demand in the coming years. In America, we must face this issue today.

During the next 20 years, US demand for oil is projected to increase by a third. Yet as consumption surges, US production continues to fall: we now produce 39 per cent less oil than we did in 1970. Over the same period, Americans will also consume 62 per cent more natural gas than today - but gas discoveries in the US have fallen for three consecutive years: 40 per cent of domestic gas resources are either closed to exploration or subject to significant restrictions on development.

The use of coal, the US's traditional source of affordable electricity, has received increasing criticism and there are no new coal-fired generators under construction. Nuclear power and hydroelectric power, meanwhile, have their own problems. No new nuclear permits have been granted since 1979 and costly as well as lengthy relicensing procedures will lead to a sharp fall in hydroelectric power.

President George W. Bush has committed himself to the task of developing a long-term national energy policy. To accomplish this, Mr Bush has created an energy task force to define a strategy that will allow environmentally responsible exploration and recovery of our domestic resources, enhance our commitment to conservation and energy efficiency and encourage investment in new technology. The task force will complete its work this spring.

There are four basic principles that should guide us as we build this energy policy. First, and most important, is to recognise the central role energy security plays in the life of nations. Energy security provides economic security, not only in its generation of hard currency but also because it powers the industries that lead to economic growth. Energy security is also critical to national security. An abundant energy supply makes a nation less dependent on foreign sources and discourages exploitation of other nations.

Second, it is vital to work harmoniously across national boundaries, both throughout our own hemisphere and globally, to ensure the free flow of energy, capital, and information. Third, respect for the marketplace is fundamental. Price controls are a mistake and they have failed time after time at the expense of the people they are supposed to help most.

Last, the importance of private investment to the development of a domestic energy industry cannot be underestimated. Private investment is the backbone of a successful domestic energy sector and that requires regulatory stability and transparency. Companies need clear rules, particularly in the energy sector, where exploration is such a risky venture.