Back on a Dangerous Binge

Shortly before President Ford's nomination in Kansas City last week, his Democratic rival Jimmy Carter met with advisers in Plains, Ga., to discuss what U.S. energy policy should be. After four hours of talks, Carter emerged to report a consensus: the nation still lacks a "comprehensive, long-range, understandable energy policy." Though that is a charge that few Republicans could or would dispute, energy probably will not be much of an issue in the coming campaign. In the 33 months since the shock of the 1973 Arab oil embargo, public concern about that issue has slid from white-hot worry to detached interest to what now seems to be near total apathy. A recent Gallup poll indicates that only 2% of the voting population regards energy as the most pressing national problem, above such other matters as cost of living, drug abuse and moral decline. Indeed, energy is only briefly mentioned in the two parties' campaign platforms.

That is a sweeping change from the near panic of late 1973 and early 1974, when motorists were lining up at fuel-short gasoline stations, many American towns were extinguishing Christmas lights to conserve electricity, and a new Washington energy bureaucracy was drafting a program to encourage conservation and the development of domestic fuel sources so as to eliminate dependence on oil from the Organization of Petroleum Exporting Countries by 1985. Today, Project Independence is largely dead; federal energy analysts concede that there is no way for the U.S. to become totally independent of foreign oil.

Increased Dependence. In fact, the U.S. has become much more deeply hooked on imported crude, and the trend appears unlikely to be reversed. Imported oil presently supplies an astonishing 41% of U.S. needs, v. 29% before the embargo. And because Canada and Venezuela have been cutting down on oil exports, almost all of the recent increase in U.S. needs has been supplied by Arab countries; their shipments to the U.S. have doubled in the past year and now account for more than 12% of American consumption.

How did it happen? The cause of the renewed U.S. oil binge is the economic recovery combined with a reckless return of American extravagance when it comes to energy. Even before the vacation rush began this year, motorists were using about as much gasoline as they had been in 1972, before the recession and the quintupling of foreign oil prices that drove the cost of gas to 60-c- or 70-c- per gal. at the pump (see chart).

The use of electricity has surged too. Some utility men even fear that generating capacity may be strained as the economic pickup proceeds, bringing back the brownouts and occasional blackouts of the early 1970s.

In dollar terms, the renewed energy binge will be costly. The bill for oil imports will rise from last year's $27 billion to $35 billion this year. The U.S. economy will pay for this increase partly in a transfer of assets to OPEC countries and partly in a loss of some of its consumer spending power needed to continue the recovery (see following story).

These and other unhappy effects of the U.S. energy bind continue partly because of policy dithering in Washington. For all the continued lip service to Project Independence, domestic oil production is actually sagging. Although more wells are expected to be drilled this year than last (41,800, v. 39,097), production is expected to be off 3.3%, continuing a long, slow slide that began in 1971. The slide is expected to extend into 1978, when Alaskan oil will begin flowing.

U.S. energy policy at present is best characterized as "wait and hope." It emerged almost by default last year when the Democratic Congress, after two years of debate, decided against the so-called market approach--that is, a quick end to controls on domestic oil prices, which would allow them to run up to world levels, thereby reducing consumption and encouraging more oil exploration. Instead, Congress--and later the Ford Administration--adopted a "gradualist" approach. Embodied in the energy act passed last year, it essentially maintains oil price controls through 1978, allowing U.S. oil to rise from its controlled level of about $7.50 per bbl. (compared with the current world price of about $13) only in small annual jumps. Critics charge that this pace is too sedate to discourage consumption or spur production significantly, considering the enormous costs and risks involved. A current example: last week, in the first auction of East Coast offshore drilling rights, oil companies bid $1.14 billion for leases on 154 undersea tracts off New Jersey and New York from which oil will not begin flowing--if indeed much is found--until 1981.

Slow Alternatives. At the same time, development of alternative fuel sources seems to be moving very slowly. Nuclear plants now generate about 9% of the nation's electric power, up from 4.5% in 1973. But coal, despite a drive to convert oil-and gas-fired plants to it, still supplies well under 50% of the country's electricity needs. Other energy sources--solar power, shale oil--remain drawing-board daydreams. By contrast, the Japanese, who are much more dependent on foreign oil than the U.S. is, have sharply stepped up work on such alternatives as nuclear power (twelve plants in operation, eleven under construction, five more in the blueprint stage) and geothermal power (several pilot operations now under way).

No one in Washington any longer talks seriously of "breaking" the OPEC oil cartel. Indeed, all indications are that the recession-induced world oil glut is shrinking and that the industrial countries will be stepping up their orders from OPEC over the next two years. The U.S. has counted on its carefully nurtured relationship with Saudi Arabia --the pivotal OPEC country because it has the most oil--to keep price rises reasonable. At Saudi insistence, the OPEC members did not increase oil costs during their last price jamboree, in May. But OPEC may decide that the recovery is healthy enough in the industrial countries to permit a fat increase of 10% or even more in the fall.

Last week Indonesian Oil Minister Mohamed Sadli said the price of oil "must go up sooner or later according to the rate of world inflation." Saudi Oil Minister Ahmed Zaki Yamani has said he opposes a big price jump, but notes ominously that "some people want a fantastic increase." And with the industrial countries more dependent upon their oil than ever, those people may well have the muscle to get it.

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