What if the experts scheduled an energy crisis, and nobody came? At first glance, that seems to have occurred in the summer of 2001. California was supposed to run short of electricity, along with several other parts of the country. Prices for regular unleaded gasoline were expected to break the $2-per-gallon barrier easily, as they did in the Upper Midwest last year. By mid-July, heavy air-conditioning demand was supposed to make natural gas spot prices much higher than in the $3-per-million-BTU range that they actually were. So what happened? Why haven't the calamities materialized as predicted? One thoughtful explanation can be found in a new report from the Petroleum Industry Research Foundation Inc. (Pirinc) in New York. The report's title-"It's All Connected: Natural Gas, Electricity, Heating Oil and Gasoline"-makes a basic point. The report itself makes several more that deserve to be considered. It suggests that natural gas supply problems contributed to high distillate fuel oil prices at the onset of last winter's heating season and high gasoline prices this past spring. "The linklages between natural gas and oil product prices were complex, including the impact on oil use by power generators and the impact on supplies of oxygenate for gasoline," PIRINC says. "Despite the fears, no crisis materialized with respect to either distillate or gasoline. Market forces encouraged the corrective actions that eased, first, distillate and lately, gasoline prices." The market forces required some assistance to work, it adds. "Very expensive help came from the economic slowdown in the U.S. and deteriorating growth prospects elsewhere," observes Pirinc. It points out that while the nation's gross domestic product growth averaged a strong 5% for all of last year, growth in 2000's final three months and 2001's first quarter slowed to an average annual rate of only 1%. "There are strong indications from industrial production and unemployment data that the slowdown is still with us," Pirinc maintains. It warns that this kind of market "help" can be expensive in terms of economic well-being, and, hopefully, only temporary. Policy measures also can provide assistance-or be a hindrance, according to the report. It notes that different product specifications in various parts of the country contributed to local supply problems (and create price spikes) in several areas early last summer. But it also cites the coming phasing out of methyl tertiary butylene ether (MTBE) in the next few years as an emerging concern because it probably will not be accompanied by any relaxation of the oxygenate requirement for reformulated gasoline. Policy also is important in the case of supply, according to the report. While it concedes that higher oil and gas prices stimulated a surge in domestic drilling, it adds that all the increased activity had a disproportionately modest impact on output (gas production increases of about 2.4% year-to-year in 2000 and about 3% so far in 2001, and year-to-date oil production that still is running below levels in the comparable months of 1999). Pirinc concedes that technological advances and access to deepwater Gulf of Mexico acreage led to a near doubling of gas production there, which more than offset declines elsewhere and led to a net gas production for the U.S. overall. But it also points out that the federal government had to make those deepwater Gulf tracts available through lease sales. The U.S. Minerals Management Service's proposed new five-year U.S. Outer Continental Shelf leasing program includes 20 lease sales in the western and central Gulf of Mexico and part of the eastern Gulf as well as Alaska's Beaufort Sea, Norton Basin, Cook Inlet/Shelikof Strait and the Chukchi Sea/Hope Basin. The proposal does not include any areas currently under moratoria or presidential withdrawal. The White House scaled back its planned lease sales in the eastern Gulf last month because of opposition in Florida. Pirinc says that ANWR and the eastern Gulf are the two areas that hold the nation's most energy potential. "Energy policy must take account of other strong national priorities, particularly including environmental continues," it continues. "But failure to make reasonable choices in these and other areas of energy policy means, at a minimum, markets will have to work harder to maintain supply-demand balances. 'Harder,' in this case, means greater price volatility, and greater risks of price spikes."