Monday, Mar. 04, 1974

Facing the Shortage Alone

While gasoline lines are growing longer and local rationing plans are proliferating in the U.S., fears of a disastrous scarcity of oil are fading rapidly in most of the rest of the world. To many Americans, that contrast must suggest the suspicion that the energy crisis is something that is occurring only in America. Unhappily, it is more than a suspicion: the U.S. does in fact seem now to be bearing almost the entire burden of the world oil-supply shortage.

Some figures from the Federal Energy Office sketch the situation. In January, Energy Czar William E. Simon told the recent 13-nation Washington energy conference, world oil production ran at 46.2 million bbl. per day, or 1.6 million bbl. below September, the last month before the Arab production cutbacks. FEO figures also indicate that January oil imports to the U.S. fell 1.14 million bbl. per day below September. The obvious conclusion, though Simon himself did not draw it, is that the U.S. is suffering around three-fourths of the world petroleum shortfall. Supplies available to be imported by other oil-consuming countries have dropped by a scarcely noticeable 400,000 bbl. per day--though, to be sure, that leaves no margin to take care of any increase in demand. So far this month, oil shipments to the U.S. have continued to fall steadily.

Visitors from Europe these days are astonished by the length of U.S. gasoline lines. European nations like The Netherlands and Sweden, which briefly adopted gasoline rationing, have now abandoned it, and some are dropping other fuel-conservation measures as well. West German officials, for example, decided last week to discontinue a 62-m.p.h. speed limit on the autobahns.

In Japan, which has almost no oil of its own, the fuel crisis is waning also as imports increase. The Tokyo government, which had decreed a 15% reduction in fuel supplies to industry, last week ordered the cutback eased to 10% starting March 1.

Nimble Shifts. Certainly the U.S. might be expected to bear a disproportionate share of the shortages caused by Arab oil-production cutbacks: the Arab oil states, which once supplied a pivotal 11% of the petroleum burned in America, have placed the U.S. under a total export embargo. Yet The Netherlands is under a similar embargo, and oil companies have switched shipments around nimbly enough to keep that country well supplied. For example, Saudi Arabian oil that usually goes to Dutch refineries has been redirected to Le Havre in France, and non-Arab Iranian oil that normally was shipped to France has been shunted to Rotterdam. Recently Rotterdam was so jammed with tankers that some had to be sent to Antwerp in Belgium to unload. The oil companies, which are mostly headquartered in America, apparently have not been similarly diverting non-Arab oil to the U.S.; critics suspect that they actually have been routing some shipments away from the U.S.

Alan Greenspan, a member of TIME'S Board of Economists and no foe of the oil companies, believes that the key reason has been price. At the end of December, he notes, the Organization of Petroleum Exporting Countries decreed a 130% hike in crude prices, sharply increasing the potential value of oil in the holds of tankers at sea. If the oil was unloaded in the U.S., it could be sold only at Government-controlled prices; if it was diverted to Europe or Japan, it could be sold for much more. "There is considerable evidence that there were fairly large diversions" away from the U.S. to take advantage of the higher prices elsewhere, says Greenspan.

Washington's crude-oil allocation program has aggravated the trouble. Under it, all refineries are supposed to get enough crude to operate at 76% of capacity. Companies that have more must sell the "excess" at controlled prices to competitors who are short. The intent of the program was to equalize the amount of fuel available to refineries, protect smaller companies with no crude resources of their own and ensure steady production around the country. When the program took effect on Feb. 1, many small-and medium-sized refiners with inadequate crude supplies stopped trying to buy oil abroad at auction prices ranging up to $20 per bbl., secure--they thought--in the knowledge that they could buy it at home for about $7 or $8. But major oil companies, or so FEO officials believe, reduced imports because they were reluctant to sell so cheaply. Gulf Oil has brought suit against the FEO, charging that by requiring it to sell its crude at relatively low prices, the Government is in effect confiscating its property.

A Way Out. FEO officials privately concede that the crude-oil allocation plan, which was ordered by Congress, has been an "unmitigated disaster." Simon last week called on Congress to suspend the program for 90 days to allow time to amend the system. Such a move would temporarily enable the majors to keep all the oil they import for themselves and should persuade them to step up imports. One possible change in any new allocation plan: only small refineries turning out no more than 30,000 bbl. per day would be permitted to buy from companies in the U.S. That limitation would probably satisfy the majors, whose main complaint is that they must now sell to large rivals. It would further ensure a continuing flow of oil into the U.S. by forcing big independents to buy their crude abroad.

Oil company chiefs will not concede that they have diverted unusually large amounts of petroleum from the U.S. to Europe or Japan. But a spokesman for Phillips Petroleum last week asserted that several large companies are indeed holding back imports because of the U.S. crude allocation. Most oilmen explain the low level of U.S. imports by making two arguments: they must scrupulously observe the Arab embargo because they operate in the Arab countries only with the sufferance of the host governments, and they cannot scant Europe and Japan by shifting non-Arab oil to the U.S. because that would open the oil companies to political attack abroad. Warren Davis, a Gulf economist, says: "We are foreigners in the countries in which we operate, and we have no business trying to influence their governments."

Such comments suggest that oil executives are more afraid of the politicians of Europe, Japan and the Arab world than of those in the U.S.

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