The U.S. gets its energy from five main sources: petroleum (46 percent); natural gas (32 percent); coal (17 percent); hydropower (4 percent) and nuclear (1 percent). Big Oil dominates each sector. The top 25 oil corporations have 84 percent holdings in oil, 72 percent in gas, 50 percent in coal, 80 percent in atomic and 60 percent in electric. To understand the “energy crisis,” one must understand Big Oil.
Both oil industry and government rhetoric have provided several rationales for the crisis. Their most forceful arguments contain the following three elements: depletion of oil reserves; limited refinery capacity, and the damaging impact of the Arab embargo. Each element lacks cogency.
The only comprehensive statistics available on the depletion of oil reserves come from the industry itself--hardly disinterested observers. There is every reason to believe that their data is grossly underestimated.
Consider the Middle East. The Arabian-American Oil Company (Aramco) is the world’s largest petroleum production company. It produces about 90 percent of Saudi Arabia’s oil. Aramco is also 75 percent owned by Exxon, Texaco, Standard of California and Mobil. Until the late 1960s, Aramco claimed its reserves to be about 74 billion barrels. At that time Saudi Arabia (25 percent owner in Aramco) hired an independent Texas-based consulting firm to check the 74 billion barrel figure. The firm’s one-year study located 130 billion barrels--75 percent higher than Aramco’s estimate.
Consider domestic natural gas. As stated previously, Big Oil owns 72 percent of the natural gas industry. When Sen. William Proxmire’s committee recently investigated the natural gas industry, it found that at least one company had even underestimated its holdings by 1000 percent. The oil industry’s statistics must, therefore, be held in extreme doubt. Furthermore, even the oil industry’s own American Petroleum Institute (API), released statistics indicating the available oil supplies in this country had risen 9 percent from January 1973 to January 1974.
The earth is simply not running out of oil at this time. Even at the present rate of consumption, it would be at least 150 years before such exhaustion would occur.
Much has been made of the limited domestic refining capacity--14 million barrels per day compared to a demand of 17 million. This claim must be balanced by two facts. First, the figures do not include oil company-owned refineries in the Caribbean--a refining capacity of nearly 3 million barrels per day. Standard of California can process 500,000 barrels there; Exxon--460,000 barrels; Shell--360,000. It is through these refineries that the “invisible” 700,000 barrels of Libyan oil passed last December. Second, because of the more profitable Eastern hemispheric market, U.S. oil companies have deliberately cut back refining development in the Western hemisphere in preference to the Eastern hemisphere.
Most significant, however, is the fact that there has not been full utilization of the refining capacity that we do have. From 1972 through the second quarter of 1973, the crucial year and a half prior to the “energy crisis” outbreak, existing refining operations in the U.S. were reduced from 92 percent of maximum productivity to 89 percent.
Finally, the impact of the Arab embargo on the U.S. was minimal. American Petroleum Institute has released statistics showing that U.S. petroleum sources are 65 percent domestic, 25 percent Western hemispheric (other than U.S.), and 10 percent other foreign, including only 3 percent from the principle Arab countries, Saudi Arabia, Algeria, Kuwait, and Libya. Even Aramco sends only 4.5 percent of its oil to the U.S.
If oil industry and government arguments are unconvincing, then what did cause the shortage? There is little doubt that it was deliberately contrived by Big Oil. Three factors must be considered. First, in September 1972 Senate hearings discovered that stocks of heating fuel were the lowest since World War II. As a result, the government relaxed its quotas on oil imports. Despite this opportunity to increase crude oil imports, the oil companies imported only one-third of the anticipated crude oil needs.
Second, in early 1972 there was a production slow-down in some of the largest oil fields in Louisiana and Texas. The Texas Railroad Commission, which supervises oil shipments in Texas, reported that oil production was reduced there even though demand increased by 7 percent.
Third, as stated before, from January 1972 through June 1973, existing refinery operations in the U.S. were reduced from 92 percent of full utilization to 89 percent.
Thus, the major oil corporations held down both foreign imports and domestic production and at the same time reduced domestic refinery operations to below the needs of the country. The results were deliberate, predictable, and unavoidable--a national fuel shortage.
A theory of contrivance is supported not only by this type of mounting evidence, but also by the direct testimony of former oil executives. In the January issue of Harpers magazine, former Mideast oil official Christopher T. Rand gave much helpful insight. More recently the Wells News Service has reported that Maurice B. Holdgraf, former Shell Oil vice president and 30-year chief of their U.S. marketing division, has condemned “big oil’s policies, accusing them and the Nixon Administration of not leveling with the American people’ over how prices are being ‘extensively manipulated’” (Between The Lines, 1 March 1974).
In contriving the fuel shortage, Big Oil has accomplished two of its major goals: increased profits and solidification of industry control.
Profits have not only risen, they’ve risen phenomenally. Almost all of the majors had increases of at least 50 percent in 1973, with some considerably more than that. Most companies argued that their 1972 profits had fallen and compared to 1971 the 1973 profit increases were not nearly so great. However, the first quarter 1974 figures show that Big Oil earnings are truly considerable compared to any standard. The 1974 increases over the first quarter of 1973 are: Gulf--76 percent; Standard Oil (Indiana)--81 percent; Skelly--97 percent; Texaco--123 percent; Continental--130 percent and Occidental--817 percent. Exxon’s 1973 earnings were so great that they overtook General Motors for first place in total earnings in the country--more than $4.4 billion.
Furthermore, it is revealing to note that the shortage ended only after the pump price had risen 40 cents, prices that will not go down, only up.
The solidification of industry control has occurred by the near elimination of Big Oil’s major competition--the independents. Independents have historically competed by buying up cheap surplus crude and refined oil and undercutting the majors pump price by several cents. At the onset of the “crisis” majors began telling the independents that they needed the surplus for their own operations. Gradually independents have been going out of business--1,600 last year alone, when there normally would have been an increase. In addition 1,750 had to close at least temporarily.
That Big Oil has deliberately tried to eliminate the independents is clear from the Federal Trade Commission’s huge anti-trust suit filed against the eight largest oil companies. The FTC alleged that the eight have “maintained and reinforced a noncompetitive market structure in refining of crude oil into petroleum products.” Furthermore, the FTC accused them of “accommodating the needs and goals of each other in production, supply, and transportation of crude oil to the exclusion or detriment of in dependent refiners.”
The accomplishment of these goals demonstrated in the oil industry what is characteristic in general about the way America organizes its natural resources.
First, free enterprise in the oil industry is a myth. The independent oil companies were not given the opportunity to openly compete in a free market and to be accepted or rejected by the American people. Instead they are being eliminated from the economic scene by a handful of corporation executives who found the independent’s competitive presence to be counterproductive to corporate profits.
Second, the oil industry, like most American industries, is unaccountable to the American people. The government is ostensibly the most direct agent of accountability. Yet, the government has almost no control of or knowledge about the oil industry. If history tells us anything, the FTC anti-trust suit will not significantly change the power or control of Big Oil. As stated before, the government has no way of knowing the amount of oil reserves, except from what the industry tells it. It is neither atypical nor coincidental that oil executives and management contributed almost $5 million to Nixon’s 1972 campaign.
Third, Big Oil’s policies are anti-social; they run counter to the needs of the American people and indeed, those of the world. Decisions about what energy resources to utilize and how best to use them are not made by the people, but by a small handful of oil executives whose essentially sole criterion is maximum profit returns. John Winger, energy division chief for Chase Manhattan (a major stockholder in Exxon), has made it clear that a desire for profits, not a lack of energy, has motivated the majors’ recent oil policies. In the July 10, 1972, issue of Oil and Gas Journal, at a time when oil people were not so guarded about their proclamations, Winger said: “The key problem is a shortage of capital to produce energy, not the lack of energy resources.” The argument is, of course, that Big Oil needs more money so it can produce more energy. John E. Swearingen, chairman of Standard Oil (Indiana), recently said the same thing. “It is misleading to talk of record earnings without at the same time talking about the record programs to find and produce more oil and gas that such earnings make possible.”
Their apologies are both ambiguous and irrelevant--precisely because they ignore the major issue. We do not need more money to accelerate exploitation of our rapidly dwindling oil and gas reserves. If that occurs we will truly have a fuel crisis within two centuries. Neither do we need more money to produce fuels that inevitably pollute the environment.
What we do need is to produce non-polluting, non-depleting sources of energy in a way that is responsive to people’s needs. There are several such sources available: nuclear fusion (rather than the dangerous, wasteful process of nuclear fission); coal gasification; geothermal power; solar power; tidal and wind power; garbage. Such sources do not have the immediate profit potential of oil, natural gas, and coal. Neither are they in the control of Big Oil.
Peter Barnes, West Coast editor of New Republic magazine, has suggested another kind of TVA operation for energy as a way of organizing these other resources (Ramparts, May 1974). He argues that “… despite the fact that at least half, and probably two-thirds, of all domestic energy reserves are located under public lands, the obvious alternative to oil company exploitation--the development of public resources in the public interest, on a not-for-profit basis--was either unthinkable or unmentionable for nearly a generation.” Bills encouraging such developments have been presented in Congress by senators such as Stevenson, Hart, McGovern, Kennedy, Mondale, and Abourezk. Watch the development of these proceedings. Big Oil lobbies will be fighting them fiercely.
Joe Roos was on the editorial staff of the Post American when this article appeared.
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