new refinery has been built in the united states since 1976. the consequence of lagging modernization is reflected in a significant widening of the price spread between the higher priced light sweet crudes such as brent and the heavier crudes such as maya. to be sure, refining capacity continues to expand, albeit gradually, and exploration and development activities are ongoing, even in developed industrial countries. conversion of the vast athabasca oil sands reserves in alberta to productive capacity, while slow, has made this unconventional source of oil highly competitive at current market prices. however, despite improved technology and high prices, proved reserves in the developed countries are being depleted because additions to these reserves have not kept pace with production. * * * the production, demand, and price outlook for oil beyond the current market turbulence will doubtless continue to reflect longer - term concerns. much will depend on the response of demand to price over the longer run. if history is any guide, should higher prices persist, energy use over time will continue to decline relative to gdp. in the wake of sharply higher prices, the oil intensity of the u. s. economy, as i pointed out earlier, has been reduced by about half since the early 1970s. much of that displacement was achieved by 1985. progress in reducing oil intensity has continued since then, but at a lessened pace. for example, after the initial surge in the fuel efficiencies of our light motor vehicles during the 1980s, reflecting the earlier run - up in oil prices, improvements have since slowed to a trickle. the more - modest rate of decline in the energy intensity of the u. s. economy after 1985 should not be surprising, given the generally lower level of real oil prices that have prevailed since then. with real energy prices again on the rise, more - rapid decreases in the intensity of energy use in the years 3 / 4 ahead seem virtually inevitable. long - term demand elasticities over the past three decades have proved noticeably higher than those evident in the short term. indeed, gasoline consumption has declined markedly in the united states in recent weeks, presumably partly as a consequence of higher prices. * * * altering the magnitude and manner of energy consumption will significantly affect the path of the global economy over the long term. for years, long - term prospects for oil and natural gas prices appeared benign. when choosing capital projects, businesses in the past could mostly look through short - run fluctuations in oil and natural gas prices, with an anticipation that moderate prices would preva

##il over the longer haul. the recent shift in expectations, however, has been substantial enough and persistent enough to direct business - investment decisions in favor of energy - cost reduction. over the past decade, energy consumed, measured in british thermal units, per real dollar of gross nonfinancial, non - energy corporate product in the united states has declined substantially, and this trend may be expected to accelerate in coming years. in japan, as well, energy use has declined as a fraction of gdp, but these savings were largely achieved in previous decades, and energy intensity has been flat more recently. we can expect similar increases in oil efficiency in the rapidly growing economies of east asia as they respond to the same set of market incentives. but at present, china consumes roughly twice as much oil per dollar of gdp as the united states, and if, as projected, its share of world gdp continues to increase, the average improvements in world oil - intensity will be less pronounced than the improvements in individual countries, viewed separately, would suggest. * * * we cannot judge with certainty how technological possibilities will play out in the future, but we can say with some assurance that developments in energy markets will remain central in determining the longer - run health of our nations'economies. the experience of the past fifty years - - and indeed much longer than that - - affirms that market forces play a key role in conserving scarce energy resources, directing those resources to their most highly valued uses. however, the availability of adequate productive capacity will also be driven by nonmarket influences and by other policy considerations. to be sure, energy issues present policymakers with difficult tradeoffs to consider. the concentration of oil reserves in politically volatile areas of the world is an ongoing concern. but that concern and others, one hopes, will be addressed in a manner that, to the greatest extent possible, does not distort or stifle the meaningful functioning of our markets. barring political impediments to the operation of markets, the same price signals that are so critical for balancing energy supply and demand in the short run also signal profit opportunities for long - term supply expansion. moreover, they stimulate the research and development that will unlock new approaches to energy production and use that we can now only barely envision. improving technology and ongoing shifts in the structure of economic activity are reducing the energy intensity of industrial countries, and presumably recent oil price increases will accelerate the pace of displacement of energy - intensive production facilities.