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The Kiplinger Letter FORECASTS FOR MANAGEMENT DECISIONMAKING 1729 H St. NW, Washington, DC 20006-3938 • KiplingerForecasts.com • Vol. 81, No. 22 Dear Client: Washington, May 28, 2004 High energy prices are here to stay. INSIDE THIS LETTER Global demand will continue to surge as China and other developing nations gulp oil Power Supply Blackout risks and natural gas to fuel expanding industries. The Economy Business borrowing U.S. energy needs are also on a sharp upswing. Security Fighting ID theft, hackers ENERGY Supplies are being pushed to the max. Retiree Benefits More trimming It'll take years to tap new reserves and to ease refining and delivery bottlenecks. Bush's Agenda June a big month Oil will remain a top terrorist target, HR Health care, perks,color bias so prices will include a stiff risk premium, especially since slim spare capacity makes oil World Business Canada, Mexico and gas markets supersensitive to disruptions politics Election swing states from attacks, accidents or routine maintenance. Consistently higher prices will bring some lasting changes: Stepped-up exploration and development of new oil sources. Energy companies hesitate to lay out the bucks needed until they're sure oil prices will stay high enough for long enough to make it worthwhile. Oil from Venezuelan and Canadian tar sands is particularly promising. Still, the investment won't yield results for years. . . at least two for new Gulf of Mexico wells, three to five for tar sands, longer for other sources. By 2012. . .6-12 million more barrels a day. More gasoline-refining capacity, though it won't be in the U.S. Environmental hurdles here will push most refinery investment abroad. . . to the Caribbean and South America. And it won't pay off for years. A renewed push for nuclear power from pebble bed reactors, which are safer and less vulnerable to terrorism. Long permit processes and community opposition mean no new plants until after 2010, though. And for alternative energy. . .wind, solar, biomass and so on. As a result, its share of U.S. energy use will double to 8% by 2010. Plus growing use of fuel cells. A Dow Chemical plant in Texas, for example, will rely on a hydrogen cell from GM for much of its power. On the user side, look for new interest in managing energy use. Combined heat and power systems from Turbosteam, Primary Energy and others are attracting more attention. They recover heat and steam from industrial processes to make electricity. Not just industrial giants can benefit: Oregon's Blue Heron Paper will save about $3 million a year. And electricity storage using flywheels and batteries will gain. Meanwhile, automakers face new pressures on fuel efficiency. Fortunately, Detroit isn't as far behind as it might have been, thanks to a decision to focus less on gas-guzzling SUVs and more on cars. About 50 new car models are being added to the Big Three's lineups. The Kiplinger Lefler IISSN 1528-7r30)IS published weekly for$84/one year,$154hwo years$222Ahree years Subscription inquirieS.800-544-8155 or sub serNces @kiplinpeaom by The Kiplinger Washington Editors 1729 H Sr.,NW.Washington DC 22006 9938. Editorial inlormatoc: Tel,202-8876462;Fax,202-778-8976, PeSoTlmis postage petal at Washington,DO. POSTMASTER.Send address changes to The Kiplinger Lefler,PO.Bin 3295,Harlan,IA 51593. Emarl,lefferaMgercom,or Web site,KplingerForecasts coin