It's been quite a year for energy. Oil prices started the year in a slump that bottomed out just a shade above $50 per barrel for West Texas Intermediate crude (WTI), and then began a relentless march that matched the inflation-adjusted record price of the early 1980s and brought them within an eyelash of $100 per barrel. In light of all this drama, it seems surprising that the average price for the year will end up only about $6 per barrel higher than last year's average of $66.25. Along the way, though, high energy prices have seeped into the national consciousness, stimulating important new legislation and the beginnings of a major shift in long-established patterns of consumption. At the same time, energy has become even more inseparable from its consequences for the global climate. If 2008 proves half as volatile as 2007, we are in for some ride.
When 2006 ended, it appeared that oil prices had settled into a range that was just high enough to promote the development of biofuels and other alternatives, but not high enough to cause serious concern about the economy. That comfortable picture didn't last very long, however, as oil became intertwined with the problems of the dollar and the sub-prime credit crisis. WTI headed steadily higher, inflating at over 4% per month since January, despite the unraveling of one of the biggest geopolitical risks built into the market price, the prospect of armed conflict with Iran over its nuclear program. Only the post-Labor Day collapse of refining margins buffered consumers from the full impact of these increases, with US average retail gasoline prices ending 2007 only about half as much higher than they started, compared to crude oil prices. Nevertheless, $3.00 gasoline seems here to stay.
High prices were only half the energy story in 2007, however. If we had just been facing expensive fuel, I'm not sure the Congress would have been able to pass the recent Energy Bill, with its large increases in mandated fuel economy and biofuels production. Climate change came into its own as a mainstream issue for the American public this year, and it was a major factor in the Congressional debate over the energy bill. As I noted last week, "green" is now big, and that's because the scientific concerns about global warming are being matched by images of shrinking icecaps, encroaching sea levels, and drought-abetted fires.
When postings resume after New Year's Day, I'll look at the year ahead, as I did last year. It strikes me that the refurbishing of the ball that will drop in Times Square at midnight tonight with energy-efficient LED lights is a perfect reflection of the cusp at which we stand. Like many of the steps we took this year, it may be largely symbolic--considering how much energy can be saved in a device that only runs for a minute each year--but it could also be a harbinger of more serious measures to come. Happy New Year!