I found this story puzzling ...



From MarketWatch: S&P says energy spending has fallen to 1971 pace

[A] Standard & Poor's report said Wednesday it expects Americans to spend the same portion of their household income on energy as they did the year the Ed Sullivan Show went off the air.



S&P Chief Economist David Wyss said the ratings agency expects an average U.S. household to spend 6.7% of its income on energy this year - the same portion spent on average in 1971, before the creation of the Organization of the Petroleum Exporting Countries oil cartel. In the early 1980s, in contrast, energy costs accounted for 7.9% of U.S. household income.

Click on image for larger graph in new window.

However, back in 1981, energy was a much larger part of the US economy, representing 14 percent of the gross domestic product, Wyss says. Because energy was so crucial back then, the Federal Reserve pushed interest rates sharply higher to curtail inflation.



Today, energy represents 7 percent of GDP.

These numbers don't make sense to me, so instead I looked at U.S. energy consumption as a percent of GDP. The EIA provides this percentage from 1970 through 2005 (most recent estimate).The EIA estimate shows that energy consumption as a percent of GDP was 8.4% in 2005, slightly higher than the 8.0% in 1971. However, in case no one noticed, energy prices have increased since 2005.In 2005, petroleum prices were in the $50 per barrel range, now spot prices are over $140 per barrel. In 2005, the average well head price for natural gas prices spiked to over $7.00 per million Btu because of the hurricanes in the gulf, and then declined slightly in 2006. However wellhead prices have spiked again to over $10.00 per MMBtu Even coal prices, after years of comparatively minor price changes, have risen significantly in 2008 Using the EIA price data, and making a few assumptions (no increase in energy consumption in 2008, and an energy mix of 40% petroleum, 23% coal, 23% natural gas, and 14% nuclear and renewables), we can estimate that energy consumption as a percent of U.S. GDP will set a record in 2008 of over 14%.This estimate could be too high. Prices might fall, and the energy mix in 2008 might change, but clearly energy as percent of GDP will be close to the record high this year.This graph shows the EIA estimates of energy consumption as a percent of GDP (blue), and my estimates for 2006 through 2008 (red).In 2006, Wyss was quoted in The Christian Science Monitor: Oil spike: a surmountable challenge? In 2006, Wyss apparently was using the most recent data (energy consumption was 7.0% and 6.9% in 2000 and 2001 respectively - the data available in 2006). However, as this graph shows, energy consumption was probably already approaching 10% of GDP in 2006.