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OILAND
THE
FUTURE:ECONOMICCONSEQUENCES
OF
THE
ENERGYREVOLUTION
Neil
H.
Jacoby*
I
nanyexaminationoftheworldeconomyanditsprospects,
the
"energy
revolution"mustoccupyaprominentplace.Energyistheprimemoverofindustrializednations.
It
isessentialtotheeconomicprogress
of
thedevelopingcountries.Crudeoil
now
suppliesabouthalf
ofthe
world'senergy;anditwillcontinuetobeadominantsourcefortheremainder
of
thiscentury.Theenergyrevolutionexplodedearly
in
1974,aftertheOrganization
of
PetroleumExportingCountries(OPEC)cartelized90percent
ofthe
world'sexportedcrudeoil,quadrupledtheprice,anditsArabmembers
put
atemporaryembargoonshipmentstotheUnitedStates.Theseshockingactionsproducedradicalstructuralchanges
in
theworld
economy-changes
destinedtocontinuefarintothefuture.When
oil
movedfromabout
$3
toabout
$12
abarrelintheUnitedStates,naturalgaspricesintheuncontrolledintrastatemarketrosefromabout$0.45toabout$1.75
per
MCF;steamcoalshotupfromabout$7toabout$28
per
ton;andprices
of
nuclearfuelmountedproportionately.Drasticallyhigherenergypricescausedamarkedfall
in
consumptionofenergy
in
the
OECDnations,whosegovernmentsaugmentedthedeclinebyadoptingconservationmeasures.Higherpricestriggeredaquestfornewsources
of
energy.They
generated
thegoalofenergyindependenceby
the
UnitedStates.Someofthedeeperandlonger-termconsequences
of
theenergyrevolutionwithinthenextdecadeare:
(1)
slowereconomicgrowth
of
theUnitedStatesandOECDeconomies,andfastereconomicgrowth
of
theOPECeconomies;
(2)
dampenedgrowth
of
energyconsumption,includingoil,intheindustrializednations;(3)therenaissance
of
coaland
the
accelerate<,ldevelopmentofnuclearenergy;(4)ashift
of
privateUnitedStatesenergyinvestmentfromforeigntodomesticlocations.Letusexaminethesechanges.Andletusconsidertheprobablefuture
*Dr.NeilH.JacobyisProfessor
of
BusinessEconomicsandPolicyin
theGraduate
School
of
Management
at
theUniversity
of
California.
Los
Angeles.Hehas
served
on
the
PresidentialCouncil
of
EconomicAdvisors.wasPresident
ofthe
AmericanEconomicAssociation.andUnitedStatesRepresentativein
the
UnitedNationsEconomicandSocialCouncil.
45
 
46THEJOURNALOFENERGY
AND
DEVELOPMENTsupplyandpriceofOPECoil,andtheroleofthemultinationaloilcompanies.
I
IlltematiollalChanges
ill
CapitalFormatiollalldEcollomicGrowthRates
Oneobviouseconomicconsequenceoftheenergyrevolutionwillbeamassiveshiftofcapitalfromthemajoroil-importingnationstotheOPECcountries.Whenthepriceofcrude
oil
quadrupled,paymentsduetotheOPECcountriesfromtherest
of
theworldexpandedbysome$65billionsayear.Evenafterdeductingexpandedpaymentsfortheimportsusedtocarryouttheirambitiousdevelopmentplans,
the
OPECmemberswillhave$40to$50billionsayearofsurplusfundstoinvestabroad.Capitalinvestment
in
theOPECnations
will
risegreatlyincomingyears,andthiswillacceleratetheireconomicgrowth.IfHoraceGreeleywerealivetoday,hewouldsurelysay,
"Go
MiddleEast,youngman.'"
By
thesametoken,capitalformation,productivitygains,andeconomicgrowthoftheOECDcountries
will
bedampened.Theywillsavelessbecausetheymustpaymoreforhigh-pricedenergy,andthiswilldepresstheirgrowthrates.
In
thecase
of
theUnitedStates,whichhasmadeenergyindependenceanationalgoal,capitalformationinthe
domestic
energyindustriesmustmountrapidly,ifthegoalofenergyindependenceisto
be
achieved.Energymustabsorbalargerpartofavailablesavings,leavinglesstofinancecapitalformation
in
othersectorsoftheeconomy.Energypriceswillrisefurtherwhenpricecontrolsondomesticallyproducedoiland
gas
areremoved,asthey
must
be
toprovideadequateincentivestoawidenedsearchfordomesticreserves.Moreoftherealresourcesoftheeconomywillbechanneledintotheprovisionofenergy,
l e a v i n ~
lessforotherpurposes.TheprobableshortageofdomesticcapitalmakesitdesirablethattheUnitedStatesimportcapitalfromothercountries,includingtheOPECmembers.Duringthepost-WorldWar
II
era,theUnitedStateshasbeenaprodigious
exporter
ofcapital.DirectinvestmentabroadbyAmericanfirmshasreachedacumulativetotalofmorethan$100billions.Now,aninflowingtide
of
investmentbyforeigners
in
theUnitedStatesappearslikely.Themorerapidinflationofproductioncosts
in
mostforeigncountrieshasmadetheUnitedStatesarelativelyattractivelocationformanufacturingoperations.(Volkswagenfindsitcanmakeitscelebrated
"beetle"
atlowercost
in
New
Jerseythan
in
Wolfsburg,Germany.)TheclimateforforeigninvestmentbyAmericanmultinationalcompanieshasdeteriorated.AndchangesinUnitedStatestaxlaws,whichformerlyfavoredforeign
IThesetopicsaretreated
in
theauthor'srecentbook.
Multi"ational
Oil:
A
Studyi"
II/dustrialDYI/amics
(Ncw
York:
TheMacmillanCompany.1974).
 
ENERGYREVOLUTION'SCONSEQUENCES
47
investment,nowtip
the
scale
in
favor
of
domesticinvestment.Forall
these
reasons.aninflowingtide
of
foreigninvestmentin
the
UnitedStatesislikely.If
it
takesplace.
it
willhelptoclose
the
gap
incapitalsupply,strengthentheUnitedStatesbalanceofinternationalpayments,
and
hopefullyrestore
the
battered
UnitedStatesdollartoitspristinerole
of
monetaryleadershipintheworld.
DampelledGrowth
of
EnergyConsumptioll
Asecondlong-termconsequence
of
theenergyrevolutionwill
be
a
declineilltherate
of
growth
of
energyconsumption.
Worldenergyconsumptionroseatacompoundannualrate
of
about6percentafterWorldWarII.
In
the
futuremuch
higher
pricesandconservation
measures
willprobablyreduce
the
expansioninglobalenergyconsumptiontosomethinglike4percentayear.Thepost-World
War
II
expansion
in
theuse
of
crudeoilwasverymuchfaster
than
for
energy
in
general,
because
of
the
rapid
displacementof
coalbycrudeoilinWesternEuropeand
the
Communistcountries.Consumption
of
crudeoil
in
the
world
outside
the
UnitedStates
and
CanadavirtuallyexplodedafterWorld
War
II,
maintainingacompoundgrowth
rate
of
II
percentbetween1948
and
1972.Growthin
the
UnitedStates
and
Canadawasatamodest4.5percentrate.Onemayexpect
the
growth
of
oilconsumptionabroadtodeclineto
the
neighborhood
of
6to7percentayear,andin
the
UnitedStatestofalltoaround3percentayear.Suchadeclineassumes
thatthe
UnitedStatesCongresswillapprove
of
legislation
that
leadsto
the
goal
of
energyindependenceby1985.
It
alsoassumes
that
theprice
of
oilwillremainhighbyhistorical
standards,but
notnecessarily
as
high
as
itisnow.Slowergrowthof.oilconsumptionwill.
of
course,moderate
the
growth
in
demand
foroilproduction
and
refiningfacilities.Thelonghecticboom
in
refinery,pipeline,
tanker
andmarketingfacilities
ended
when
the
age
of
cheapenergypassedintohistory.
Changes
in
Patterns
of
EnergyConsumption
Athirdeconomicconsequence
of
theenergyrevolutionis
the
renaissance
of
coalandacceleration
of
nuclearenergy.
22
Becauseshaleoil.coalgasificationandliquefaction.geothermal.solar
andother
newenergysourceswillnotplayanimportantrole
in
UnitedStates
energy
supplybefore1985.they
are
notconsidered
herein.
of 00

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