• Email
  • Print

The Real Energy Problem

In response to:

The Great World Crisis I from the January 23, 1975 issue

To the Editors:

I found Professor Barraclough’s article “The Great World Crisis—I” [NYR, January 23] to be in general alarming in useful ways, and in places surprisingly perceptive. Still, I feel it necessary to show that on two points, he—or the material he reviews—is dead wrong.

Specifically, this is when he alleges that “the age of fossil fuels is drawing to a close” and strongly implies that oil has been immorally underpriced for a generation. (He does say, “The abundance of cheap energy…was detrimental to technological improvement and innovation,” so the low prices were at least wrong in a practical sense.) The opposite, on both counts, is the truth.

First, the world is going to continue relying on fossil fuels for the great bulk of its energy, for another generation anyway—not necessarily at detriment to the world’s consumers. One reason is that there is no alternative to these three fuels (oil, gas, and coal) into which any of the forces able to invest on a massive scale will, in fact, pour their capital. Energy companies, and even state energy authorities or trusts, will not shift their investment funds out of oil, gas, and coal into nuclear energy, and certainly not into solar energy, wind, tides, or even oil shales and sands, for years to come. (They may talk a good game, as Arco did with the tar sands project in Canada, but will usually draw back in the end.) More important, the world’s inventory of cheap “proved” fossil fuel reserves is increasing in every respect.

Everyone knows this is the case with coal. It is also obvious with natural gas: since 1961, the world’s “proved” reserves of this fuel have more than tripled, even going by the inordinately, almost perversely, underplayed statistics of the American Gas Association and the American Petroleum Institute. (In 1961 they stood at a minimum of 720 trillion cubic feet, and now are at least 2.5 quadrillion cubic feet, enough to last the world fifty years at current rates of consumption.) Furthermore the biggest increases in gas reserves in the past fifteen years have been announced in the world’s industrialized areas—Australia, North America, the USSR and Western Europe. And the inventory of known oil reserves is increasing inexorably too.

Oil companies, from Exxon on down, steadfastly insist to the public that this is not so, that though additions to reserves exceeded production until the 1970s, the opposite is the case now. This claim is simply false. To dramatize the point, one need only cite a recent Aramco memorandum to files released by a Senate subcommittee. In this memo Aramco’s chairman, Frank Jungers, relates that he had informed Saudi Arabia’s oil minister Sheikh Zaki Yamani that Aramco was revising its reserves estimates upward from 90 to 245 billion barrels and furthermore that Aramco was discovering more oil every year than it produced. Yamani was incredulous and replied, “We would probably do this again in 1973, but not in 1974”—whereupon Jungers replied, “We just incidentally found a little oil” in an offshore well—“another billion barrels or so.” (Aramco produces about 3 billion barrels a year.)

Of course it is unfair to speak of Aramco’s tightfistedness with its reserves data without talking also of big recent discoveries in Borneo, the Amazon Basin, Siberia, Brazil, Greece, the People’s Republic of China, the North Sea (seven major oilfields discovered in 1973, containing the equivalent of half the world’s consumption for the year, or ten billion barrels, to say nothing of new pools or extensions to old ones), or Mexico (one-quarter the year’s consumption, at least, in new finds).

With regard to price, many observers indeed do claim that Persian Gulf oil, discovered and exploited for a generation at 13 to 27 cents a barrel, was criminally underpriced at $1.80. Again, as an example, the Senate investigators—the Church Foreign Relations subcommittee—have proved that in 1947 the price of Arabian Light oil, selling then for $1.02, would have dropped, perhaps to $.60, had Exxon, a new partner to the venture, not threatened to sue the majority stockholders for “breach of fiduciary responsibility” if Aramco did not raise the sales price of its crude to “competitive” world market levels. Under severe, almost extortionary pressure, the partners gave in in 1947 and the price rose to $1.43 a barrel, then $2.20.

Had the market price of the benchmark Arabian Light been $.60 or $1.00 in 1970-71, commentators would have said OPEC was getting its own back at $1.80. Nor is inflation at issue here because OPEC revenues have been steadily rising over the past decade and in many countries such as Iran operating costs have actually been declining, thus increasing the government’s margin. In other words, the current world market price is three or four times what it could be to the comfort of all parties—and not only have the companies, in Prof. Barraclough’s words, “not suffered” from the hikes, they have nurtured them, for one or even two generations (with US government tolerance or even connivance, as Prof. Barraclough indicates). Preservation of the high price could not have occurred without deliberate protective action on the part of the companies. The price must now drop, and even if this results in slightly increased consumption of oil products, this by itself should hardly pose any risk to the interests of the world’s consumers, considering the planet’s huge inventory of fossil fuels.

Perhaps the debate over energy policy will indeed lead to the conclusion that we must move away from heavy consumption of oil and gas, must abandon the car or the gas heater and return to the electric train of the coal grate—or design homes for solar heating. Even then, such moves must be made deliberately, carefully and with the consumer and his representatives holding the whip hand over the forces concerned with pricing and the dissemination of industry data every step of the way.

Please do not exclude these two crucial points from debate and contemplation of energy policy—or even from discourses against the profligacy and wantonness of mid-century Western man.

Christopher T. Rand

Kensington, California

Geoffrey Barraclough replies:

Mr. Rand’s letter is welcome and informative, but I am not sure whether it proves I am “dead wrong.” No one suggests that the world will not “continue relying on fossil fuels…for another generation anyway”; the question is what will happen after that. We all know about the discoveries in the North Sea, Mexico, Brazil, etc. The danger, as I see it, is that they may lull us into a false sense of security. Furthermore, as to price, while he and I appear to agree that it is excessively high, owing to the operations of the major oil companies, it is also true that, under the current “free market” system (not so free, in fact), profitable exploitation of the new discoveries depends upon the maintenance of high prices, without which the cost of extraction would be prohibitive. I therefore draw little comfort from his remarks, which seem, on the contrary, to reinforce my belief (perhaps, if I understand his penultimate paragraph correctly, his belief?) that a long-term solution of the energy problem will only be feasible if public control is substituted for private control and the public interest takes priority over private interests. The problem is not insoluble; the question is whether a solution is attainable within the existing economic framework.

  • Email
  • Print