The average annual price paid by oil refineries in the U.S. for crude oil from all sources recently rose to about $100 a barrel and is projected by many analysts to continue rising, perhaps as high as $200 a barrel in another two years. The chart below shows crude oil prices in the U.S. since the early ‘70s. At the time of the nation’s last major “energy crisis” in the early ‘80s, crude oil rose to a whopping $35 a barrel before falling to under $20 a barrel for much of the last decade. However, more recently, this price has risen from an annual average of $29 a barrel in 2003 to $37 in 2004 and to $50 in 2005 before reaching $60 in 2006 and $68 in 2007. The chart shows how an average of $100 a barrel in the current year, should this happen, compares with previous years. As crude oil prices rise, these ripple though the entire energy sector and can increasingly hamstring growth in the economy.

The second chart then shows total annual energy expenditures by all segments and sectors of the Montana economy, including households, industry, business, and government, for all types of energy usage dating back to the early ‘70s in relation to the size of the state’s economy, as measured by total personal income. In 1981 at the time of the last energy crisis and $35 a barrel crude oil, personal income totaled $8.1 billion in Montana and the state’s total energy bill for the year was $1.6 billion. More recently in 2005, income totaled $27.3 billion and energy expenditures totaled $4.1 billion. And at $100 a barrel in 2006, the state’s energy bill could rise to about $6.8 billion while income reaches almost $33 billion.

The chart below then looks at energy expenditures in the state, past and projected, as a share of total personal income. In 1981 when crude oil rose to an average of $35 a barrel, energy expenditures as a share of total personal income rose to an all time high almost 20% in Montana. And under the scenario currently unfolding with rapidly rising energy prices, this could rise to slightly higher than 20% in the current year.

Economies – all economies particularly advanced modern economies – run on two things: money, and the cheaper it is to borrow and use ordinarily the greater economic activity, and energy, and the more costly it is the more expensive it is to do business and the less room it leaves for other types of expenditures and uses of available income by consumers.

These are not "uncharted waters" we are currently heading into with these very high energy prices, but they are rare and unfamiliar ones for those of us in the U.S.. While the last energy crisis was relatively short-lived, there are fewer indications that any such thing should be expected as the current energy crisis continues to unfold. After the last one subsided, the increased attention given to alternative energy potentials at that time quickly dissipated. And in the process, the nation virtually lost more than 25 years of lead time for the necessary research, development, and investment necessary to position it for the coming new energy era. The hallmark of this new era will be technology and innovation, combined with creative financing and infrastructure provision. Not continuing as we are, attempting to find and consume every last drop of the precious crude, millions of years in the making and a few hundred in consuming.

- Larry Swanson, Director, O’Connor Center for the Rocky Mountain West