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Energy and the Politicians

Are the nation’s energy policies a potent “issue” in this year’s presidential campaign and in other electoral struggles? More specifically, are the calls for some form of reorganization of the oil industry—voiced by no fewer than eight presidential candidates, including George Wallace—going to form an important or a merely ornamental part of each Democratic candidate’s vote-getting equipment? Is, indeed, the democratic process this year going to affect the energy policies of the United States in any way?

It is, after all, only three years since the embargo by oil-producing countries propelled such issues to the forefront of political debate. It is only two years since “Project Independence” proclaimed the government’s official policy to be one of freedom from foreign sources of oil. And during the last three years public indignation has swelled against the oil companies. Opinion polls have attested to the mood of cynicism and hostility; extensive self-serving campaigns by such companies as Mobil and Exxon have confirmed it. Belabored with accusations of profiteering, of complicity with the oil-producing countries, and indeed of either manufacturing or falsely compounding the “crisis,” the oil companies have recently been shaken once again by disclosures of their bribe-giving both at home and abroad.

The current status of Project Independence can be adduced from the news that this March, for the first time, imports of crude oil exceeded domestic production. Public indignation about energy matters—and the pronouncements of the candidates about them—varies in intensity. Even so, during the last few months the long campaign to break up the oil companies gained momentum and is now being seriously debated in the Congress. Legislation assailing the industry is proceeding in both the Senate and the House, where there are investigations of virtually every sector of the energy industry—including the production and distribution of coal and natural gas, control over uranium and coal, the institutions that finance the industry.

Not since the great battle to break up the public utility holding companies in the 1930s has there been such a confrontation. It is true that the oil industry has come under attack before. In the 1930s Senators Borah and Gillett argued for breaking up the industry, and their campaign gathered strength from the reports of the Temporary National Economic Committee set up by President Roosevelt. These reports showed that the major companies owned vast amounts of oil reserves and that indeed six companies controlled nearly half of basic refining capacity; also that the major companies had worked together to force the independents out of business by denying them access to the pipelines owned by the majors. The campaign by the two senators culminated in a case launched by the government before World War II to break up the industry.

During the early 1950s the Federal Trade Commission issued its famous report exposing the ways in which the international oil cartel conspired to control the rates of production of oil, first in Mesopotamia and then generally throughout the Middle East; also how world markets were divided up among the participants in the secret cartel. Subsequently the government sought to break up the cartel and attacked the structure of the industry in California. Both efforts were suffocated by consent decrees between government and the industry.

Now, once again, the attacks on the oil industry are moving toward some sort of resolution, which may indeed end up with the dull, anticlimactic thud familiar from twenty years ago. But in the meantime, of course, the oil industry has experienced explosive change. The nationalist movements in the Middle East—starting with Mussadegh’s takeover of the oil industry in Iran in the early 1950s and leading to the creation of OPEC in the early 1960s—threatened the inexpensive and stable supply of oil from that region and spurred the industry in its efforts to find other, stable sources of supply in different parts of the world. The search led to exploration in the Arctic, Southeast Asia, Africa, and in the North Sea. Perhaps most important, it caused the oil companies to take a fresh look at other fuel sources in the North American continent—coal and oil shale—and to take a growing interest in the nuclear power business.

Beginning in the middle 1960s the major oil companies expanded into the coal industry, through mergers or by leasing reserves. They stepped up research into the use of oil shale. They acquired uranium reserves, and in certain instances became involved in the actual fabrication and reprocessing of nuclear fuel, and the construction of power plants.

As much as anything else the industry’s plan for reorganization—scattered and even indistinct as it appeared at the time—led to the political and popular reaction now so visible. By the time of the OPEC embargo in 1973 the major oil companies were more than usually vulnerable to public attack. Even cursory investigation could show their dominance of the “vertical” process of fuel supply—from oil well to gas station—but also their rising power “horizontally,” as they gained increasing control of coal, nuclear power, and the like.

And indeed some of the recent investigations were more than cursory. Senator Frank Church’s Subcommittee on Multinational Corporations finally published a report in January 1975 which constituted the most thoroughgoing examination of the international cartel since the FTC report of 1952. The report fueled public suspicions that much of the energy crisis was a fake, that the oil companies had prospered before and after the embargo, and had indeed colluded with OPEC countries in apportioning production among the various members and in the distribution of the crude. While the Church subcommittee was engaged in its investigation Senator Henry Jackson also thundered his indignation at oil company executives for their gigantic profits. The consequent clamor stemming from these senatorial inquisitions threw the oil companies on the defensive, as did simple public outrage over increased gas prices.

The push to develop virgin coal in the West antagonized wealthy ranchers, environmentalists, and the Appalachian coal interests—including the United Mine Workers—all of whom for different reasons feared that the coal industry would be removed from Appalachia and re-established in a gigantic coal reservation on the eastern slopes of the Rockies. Moves to develop oil shale led to strong opposition both on environmental grounds and, within the Interior Department and in Congress, for economic reasons: the simple expense and the prospect of a giveaway to the energy companies.

But the crux of the battle was over natural gas. Oil companies dominate the natural gas business, which supplies one-third of the country’s energy requirements. It is the one fuel over which the government maintains a modicum of control, through the Federal Power Commission. The industry has long wanted to destroy this supervision: primarily it wants to raise prices, now held down on interstate sales of natural gas. More subtly, it needs total control of the natural gas sector so that it can begin to introduce large quantities of very expensive synthetic gas made from coal: higher natural gas prices will make synthetic gas more competitive and indeed a more attractive investment.

The Federal Power Commission, repeatedly reminded of its duties by the Supreme Court, has been a major impediment both to higher natural gas prices and to the introduction of synthetic gas. Popular opposition to deregulation has been actively expressed by consumer organizations and by the labor movement, fortified by recent studies showing that in the event of deregulation the cost of natural gas would rise sharply.1

Opposition to nuclear power, now becoming more conspicuous, is based on several factors. From the standpoint of the utility companies who are being urged to adopt nuclear power plants, nuclear power has always seemed extremely expensive, often more so than either oil or coal. At one time it was hoped that nuclear power plants would operate at 75-80 percent of capacity. Actually they have functioned at only 55 percent of capacity. At the same time construction costs have shot up. In 1967 the Atomic Energy Commission predicted that nuclear power would come into use in the early 1970s, at $134 per kilowatt of capacity. The actual figure turned out to be $300. And now utilities are anticipating per kilowatt costs in the early 1980s in excess of $1000. Furthermore, during the recession when demand for electricity tapered off, economic arguments for the wholesale adoption of nuclear power tended to lose even more ground.

Another facet of the problem of nuclear power emerged last year when Westinghouse announced that it could meet only 18 percent of its commitments to supply uranium. The company pleaded to be excused from honoring contracts to about twenty utilities, for reasons of “commercial impracticability.” Westinghouse had contracts to supply about eighty million pounds of uranium, but had secured only fifteen million pounds. The question of uranium supplies remains another imponderable, both because they are limited and because the price a has risen from seven to eight dollars a pound a few years ago to over thirty dollars a pound today.

The argument over nuclear power is reflected in political activity around the country, much of it concerned with the dangers of nuclear radiation and pollution once the plants are built. More than twenty state legislatures are considering antinuclear measures which include, as in the case of Vermont, a prohibition against the construction of nuclear power plants without legislative review. Organizers in sixteen states are trying to obtain signatures to present clear choices and initiatives on the ballot for the 1976 election. In California the nuclear safeguards initiative will be voted on in June.

Proponents of nuclear power do not lack vigor; a fair example of their case can be found in the January issue of Scientific American, where the Nobel Prize-winning physicist Hans Bethe argues that the problems of safety, radiation, and development are manageable. Other prominent scientists and engineers argue the contrary case with equal passion. The very intensity of the debate is itself an argument for those who favor a “moratorium” on nuclear development.

Thus in every part of its operations the oil industry has excited public opposition and hostility. Evidently the most easily chosen target for such odium is the group of international oil companies often referred to as “the Seven Sisters”—Exxon, Mobil, Gulf, Standard Oil of California, Texaco, British Petroleum, and Royal Dutch Shell. It was at some of the heads of these corporations that Senator Henry Jackson shouted indignantly about “obscene profits” in 1974. The Senate Multinational Subcommittee chaired by Senator Frank Church devoted much of its time to the Seven Sisters’ dealings with the oil-producing countries before and during the embargo. Subsequently a target of the same subcommittee’s investigation of overseas bribes was Gulf Oil. Other oil companies—such as Phillips—admitted to bribes, but the two most detailed accounts of the process came from Gulf and Exxon.

By agreement with the Securities and Exchange Commission Gulf was able to appoint none other than John J. McCloy, long influential in the oil industry, to chair an investigation of its covert payments at home and abroad. Exxon conducted a somewhat more cursory investigation for the benefit of its stockholders.2 Neither report was entirely satisfactory, but the relevant point here is that two of the components of “big oil” found it necessary to give some sort of account of themselves—reports which scarcely redounded to their credit or to the improvement of their “image.”

  1. 1

    A study by the Getty Oil Co. states that deregulation would result in an immediate 300 percent increase in the price of new natural gas from the current 52 cents per thousand cubic feet to $2.25 per mcf. The General Accounting Office concludes in a report that the average residential consumer of natural gas will pay $94 more a year for gas by 1980 in the event of deregulation.

    The GAO study estimates the total cost of deregulation by 1985 at $75 billion and finds that even if the price of natural gas is deregulated, the increase of natural gas reserves would not be enormous; while the cost of the additional gas would be extraordinarily high. (See the GAO report to the House Committee on Government Operations, January 14, 1976.)

  2. 2

    The report on Gulf has been republished by Chelsea House as The Great Oil Spill: The Inside Report, Gulf Oil’s Bribery and Political Chicanery, John J. McCloy et al. (295 pp., $2.25). The Exxon Corporation has issued its Determination and Report of the Special Committee on Litigation, Edward G. Harness, chairman (January 23, 1976).

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