Legacy of a Fading Crisis

The U.S. was heading into a troublesome energy shortage before Arab nations clamped an embargo on oil exports last October--and it could still have one now that tankers are again unloading Arab petroleum at American refineries. Indeed, unless Americans continue the conservation habits they learned during the embargo crisis and push hard to develop alternate sources of energy, nagging scarcities could persist far into the future.

That is the majority view of Government and private energy experts. So far, it seems to be making only a moderate impression on a public thankful that the energy crisis is over, as it indeed is. At the height of the crisis in late winter, soaring oil prices, abrupt layoffs in some fuel-short industries, and mile-long lines of cars outside gasoline stations shocked Americans into a new conservation ethic. People sharply curtailed driving and turned down lights and thermostats in homes and factories.

Now, with Arab oil flowing again, there are many signs that Americans are resuming their old profligate use of energy. Weekend traffic is again jamming highways from New Jersey to California, and people are gradually forgoing mass transit and commuting to work by car. The nationwide 55-m.p.h. speed limit is being more and more ignored. While many householders continue to douse lights in empty rooms, outdoor signs in Las Vegas, Manhattan and other places are again blazing wastefully. New Jersey and Virginia have dropped state gasoline-rationing plans, and President Nixon has told motorists that there is no longer any need for them to cancel driving vacations this summer.

Uncertain Imports. Yet the factors that were producing a squeeze before the embargo still remain. The U.S. normally burns about 17 million bbl. of oil per day but produces only 11 million bbl., leaving the nation uncomfortably dependent on uncertain and costly imports. U.S. refineries do not have enough capacity to supply unconstrained demand even if the country had crude oil in unlimited quantities. Production of natural gas, the second most important fuel behind oil, is running 5% behind demand. If Americans do not continue conservation measures, spot gasoline shortages could still crop up this summer and electric power would have to be curtailed, causing brownouts and restricted use of air conditioning.

The importance of continued conservation is underscored by two sets of estimates from the Federal Energy Office. If demand is unconstrained, FEO figures, petroleum supply this quarter will fall 6% short of potential use. The shortfall would be 3% in the third quarter and 4% in the fourth. Gasoline shortages would range between 2% and 5% for the rest of this year, and residual oil used to power electric generators would fall a dangerous 13% below demand in the months immediately ahead. On the other hand, FEO analysts reckon, with effective conservation the gap between supply and demand for all petroleum products would be only 3% in the current quarter and a mere 1 % in the third and fourth. No gasoline shortage at all would exist in the second half of 1974, and scarcities of residual oil would amount to no more than 5%.

Despite the tendency of Americans to return now to energy normality, the outlook for conservation is by no means all bleak: the crisis did leave a legacy of changes in attitudes and practices. A wide range of businesses are now operating profitably using from 15% to 40% less energy than before, often by such simple measures as turning off lights and heat in unused rooms. They have every economic incentive to continue saving. Builders are putting up more houses with insulation that keeps in heat and saves fuel. Most significant is the auto industry's sharp swing toward smaller, gas-thrifty cars. Detroit will spend $1 billion this year to convert big-car plants to production of cornpacts and subcompacts. By year's end, more than half of the industry's capacity will be committed to small cars.

Long range, the outlook for avoiding shortages is mildly encouraging but highly iffy. By the late 1970s, the opening of the Alaska pipeline and a start on production from new offshore wells should boost supplies of domestically produced petroleum by about 3 million bbl. per day. That would still leave the nation a long way from self-sufficiency. But the U.S. could come close to that goal by 1985, a Ford Foundation study asserts, by halving its annual growth in energy demand to 1.2% through conservation and more efficient use of energy. Such an effort would include installing advanced, energy-conserving lighting, water and heating systems, and shipping more short-haul freight by rail instead of truck or plane.

Even then, production would have to be increased on a large scale, and that would require a major drive by the Government, the oil companies and other energy firms. All are off to a slow start. During the crisis, President Nixon announced Project Independence to give the U.S. the capacity for self-sufficiency by 1980-a highly questionable deadline. But Operation Independence is little more than a slogan at present. The FEO does not expect to work out the program's precise aims and the means of achieving them before November.

Oil production in the U.S. right now is actually going down, despite the huge price increases that the Government has permitted in order to encourage expansion. For example, averaf e output in the four weeks ended April 5 totaled 9.07 million bbl. daily, a 2.6% decline from production in the same period last year. Oilmen say that they are hampered by shortages of steel pipe, drilling rigs and the like, but that given time they will boost production sharply. Refinery capacity increased 6.2% last year, and now stands at 14.2 million bbl. daily. That is about 3 million bbl. less of refined products than the U.S. consumes each day. To make up the shortfall, high-priced gasoline, heating oil and other refined products must be imported.

Whatever the extent of future short ages, some other aftereffects of the fading energy crisis will trouble the coun try for years. One is a permanently higher level of prices. Persian Gulf crude is now selling in the U.S. for up to $11 per bbl., triple its landed price a year ago. About 40% of the oil produced domestically is exempt from price controls and is selling at close to $10 per bbl., more than double last year's price. As worldwide production gradually ex pands, most experts calculate that prices for crude will drop perhaps $4 per bbl. over the next two years. That would provide welcome relief but still leave costs high by all historic standards.

The high prices are hurting businesses large and small. The two major U.S. international air carriers, Pan American and TWA, this month asked for Government subsidies to help pay skyrocketing bills for jet fuel. In Roxbury, Mass., the Pilgrim Laundry, New England's largest home laundry, sees its very existence threatened. Complains Manager Jack Parnell: "Our fuel costs are up $1,300 a week. If we don't get some relief, we will probably have to go out of business."

Public Anger. Another lasting ef fect of the crisis has been a deep change in the position of the oil industry, which probably will never again be able to op erate under its accustomed light tax load or with its old freedom from regulation. The industry posted enormous profit increases throughout the crisis; the first major firm to report its first-quarter earnings, Sun Oil, had a profits gain of 85% over the same period last year.

These profits have drawn public anger and made the industry a prime target for reform-minded Congressmen. The House Ways and Means Committee is now working on a bill that would in crease oil-company taxes by $16 billion over the next six years. Among other things, the bill would phase out the con troversial 22% depletion allowance and impose heavier taxes on the companies' foreign earnings. Another bill sponsored by Democratic Senator Adlai Stevenson III of Illinois would give the Federal Power Commission the au thority to regulate oil companies in much the same way that it now super vises public utilities. How many of these and other proposed restrictive measures become law will depend largely on how high prices remain and how effectively oilmen and the Administration act to prevent future shortages.

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