The Energy Shortage Worsens

INCREDIBLE as it seems in the resource-rich U.S., this summer's discomfiting electric-power cutbacks are likely to be only a prelude to many more pervasive difficulties. Part of the industrial U.S. is running short of the main sources of energy--coal, fuel oil and natural gas. Some forms of rationing have already been imposed, and more may be necessary if winter brings severe weather, strikes in crucial spots, pipeline breaks or new trouble in the Middle East. Though few, if any residential consumers may be asked to curtail their use of fuel or power, there is a possibility of factory closings.

The pinch is already affecting commerce and industry across wide segments of the East and Midwest. Last week the Tennessee Valley Authority disclosed that its normal 60-day stockpile of coal is down to a ten-to twelve-day supply overall, and to four days' worth at some of its thermal power plants. When the town of Braintree, Mass., sought bids recently for oil to run its generating plant for another year, none were submitted. Though there is plenty of natural gas available in the Southwest, the fuel has become so scarce on the East Coast that the Elizabethtown (N.J.) Gas Co. is turning away all new commercial and industrial customers. East Ohio Gas Co., which serves Cleveland and adjacent industrial centers, has turned down orders from steel, chemical and rubber companies for 27 billion cu. ft. of gas. The company has also warned that a severe cold spell will cause a repetition of last winter's shortage, when local factories had to close temporarily to provide enough gas to heat homes, schools and hospitals.

The Acute Phase. The fossil-fuel shortage, warns Chairman John N. Nassakis of the Federal Power Commission, is "the most acute phase of our developing energy crisis." The problem is complicated in some areas by inadequate generating facilities and a lack of pipelines and power grids to carry gas and electricity to industrial centers. "Never before in peacetime have we faced such serious and widespread shortages of energy," says John Emerson, an economist and power expert for Chase Manhattan Bank. Many analysts believe the problems will be temporary, but some maintain that the energy gap may limit economic growth for years to come.

At the very least, the shortages mean that consumers will be forced to pay more for electricity and heat. In its first "inflation alert," the President's Council of Economic Advisers noted that prices of industrial fuel oil rose at an annual rate of 48% during the first half of 1970. Bituminous coal prices climbed at an annual rate of 56%. As a result, the TVA recently posted a 23% increase in its electric rates.

Incongruously, there is abundant fuel underground. The U.S. has at least 800 billion tons of coal still unmined, enough to last 1,600 years at present consumption rates. Proved reserves of natural gas have dwindled to an eleven-year supply, but the Potential Gas Committee, a study group sponsored by the industry, calculates that the total amount of gas in the U.S., including Alaska, is 1,227 trillion cu. ft., enough to maintain production well into the next century. That, of course, does not take into account the myriad problems of piping the gas to market, from satisfying environmentalist concern to patrolling the pipelines--often by air--for possible leaks. Similarly, although proved oil reserves in the continental U.S. are down to an eight-year supply, oil is still abundant elsewhere.

The shortages are the result of managerial misjudgments, inept government regulation, antipollution pressures and supply difficulties in the Middle East. The main causes:

COAL. The industry began retrenching in the mid-1960s when utility companies, anticipating a much faster shift into nu clear power than has occurred, declined to sign long-term contracts for coal. Facing a diminished prospect for sales, mine operators did not develop their reserves. There is still little evidence that coalmen are scrambling to catch up. Testifying before a Senate subcommittee two weeks ago, TVA Power Manager James E. Watson reported that the companies "frankly say that they won't open a mine unless you guarantee them the kind of return they would get if they were selling gasoline." Inefficient use of freight cars has caused a snarl. About 10% of all U.S. coal is exported, and shippers often store outbound tonnage in rail cars at the ports. Reason: the demurrage charge of $5 a day per car (a figure set by the Government) is less than the cost of building storage facilities.

NATURAL GAS: Demand recently has soared because natural gas is the least pollutive of all fossil fuels. But exploration for new gas fields has declined sharply, partly because investors do not consider the rate of return worth the high risk.

The industry, with 40,190,000 commercial, industrial and residential customers, blames the Federal Power Commission for holding down the price of natural gas to protect consumers.

In regulating the price of gas transported across state lines, the FPC provides producers with a return calculated at 12% a year on their investment. Wall Street analysts estimate the usual return at 8%, well below the normal 12% profit for oil. FUEL OH: The U.S. is greatly dependent on Venezuelan imports for its heavy heating oil for industrial and commercial use. Domestic supplies are small partly because proven fields yield oil that contains too much sulfur and partly because U.S. companies have found it more profitable to concentrate on higher-priced oils. Utility companies are switching to low-sulfur heating oil to comply with antipollution laws, thus putting an additional strain on available supplies. The main squeeze, however, comes from a global shortage of oil tankers, which has made it more expensive to ship the oil to the U.S. Producers have been forced to send Middle East crude to Europe around the Cape of Good Hope ever since a bulldozer--by accident or design--severed the Trans-Arabian pipeline last spring. The Syrian government has so far refused to allow repairs.

Critics also accuse the U.S. oil industry of contributing to the energy scarcity by controversial--and perhaps monopolistic--practices. Oil companies in recent years have moved aggressively to acquire producers of competitive fuels. Only two of the ten largest U.S. coal companies remain independently owned; the other eight are owned either by oil firms, other mineral companies or large customers such as U.S. Steel. Two U.S. companies have 6 billion or more tons of coal reserves; one is owned by Humble Oil, the other by Continental Oil. The top 20 producers of natural gas are oil companies. In the Gulf of Mexico off Louisiana, where oil companies own 70% of the offshore leases, 517 producing gas wells have been shut off. Some consumer groups complain that the action is part of a concerted effort to pressure the FPC into raising gas prices.

The FPC, which is holding hearings this month on gas prices, no longer dismisses the argument that low prices have depressed natural-gas output. Two weeks ago, Chairman Nassikas called for "a regulatory framework that recognizes the law of supply and demand." On the other hand, utility commissioners from eight Eastern states have appealed to Interior Secretary Walter Hickel to force oilmen to develop their offshore Louisiana gas wells instead of letting them lie dormant.

Partly because soaring tanker rates have lifted the price of imported Middle East crude oil to as much as $4.50 per bbl., demand for domestic oil is increasing. Last week the Texas Railroad Commission, which regulates the oil output in the state, raised production ceilings for the second time in ten days, to virtually 100% of capacity.

What Can Be Done? Texas wells produce little industrial oil, however, and there is nothing that Washington could have done to prevent the shortage of heavy heating oil. For the next few months, the energy shortage seems bound to worsen, barring a return of tranquillity to the Middle East, repair of the Syrian pipeline break and a consequent freeing of tanker tonnage. Nuclear-power plants have been delayed by costs, safety concerns and opposition from environmental groups, and cannot be expected to fill much of the energy gap before the early 1980s. In the meantime, if the nation wants to ease the great shortage, it will have to make difficult choices.

Raising the output of electric power from coal, oil and gas will involve either more pollution or substantially higher costs--and perhaps both. To obtain more natural gas, the Government will probably allow producers a higher rate of return. If the construction of power plants and transmission lines is to be hastened, a multitude of local governments will have to sacrifice some of their authority. Oil in quantity from the rich Alaskan finds will not reach the market for years, even if the Government allows a prompt start on construction of the trans-Alaskan pipeline, which conservationists oppose. Some oilmen believe that a vast untapped pool of oil lies beneath the Atlantic shelf, but offshore drilling has lately been curtailed by concern over oil spills.

Above all, there is a plain need for a coherent national energy policy, balancing the interests of producers and consumers, ecologists and economic expansionists. In resolving those conflicts, the nation may also have to decide whether its energy resources ought to be dominated by a handful of companies.

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