Hot Debate Over Basics

While efforts to develop a U.S. energy policy have been stymied by endless wrangling within Congress and between the legislators and the White House, the nation's energy situation has deteriorated. Domestic production of oil has declined steadily during the past year, and a relaxation of public conservation measures and the nation's quickening economic pace have caused U.S. oil imports to return to pre-Arab embargo levels. Indeed, the U.S. has become more dependent than ever on

Arab oil; it now draws 26% of its petroleum imports from Arab supplies (v. 16% in late 1974) and is more vulnerable to a new shutoff. More alarming is a looming shortage of natural gas, the nation's No. 2 energy source (it provides the fuel for an estimated 60% of U.S. industry and heats 55% of all American homes). That scarcity could become so severe next winter that natural gas would replace oil as the country's No. 1 energy worry. President Ford warned last week that the low gas supplies "will mean substantially less jobs" and "could interfere with economic recovery."

So far, Congress has seemed capable of achieving consensus only on minor energy measures. Last week, in an unusual display of unanimity, the Senate voted 91 to 0 to build up a three-month national reserve of oil by storehousing supplies in salt domes, idle tankers and even abandoned mines--a sound precaution but hardly a basic solution. By an impressive margin of 391 to 20, the House decided to allow commercial oil drilling in the Elk Hills, Buena Vista and Teapot Dome reserves, which have been husbanded for emergency military use. But two of the fields are small and already partially depleted.

Diametrically Opposed. Congress is now getting around to the basics. This week the House and Senate are expected to begin debates on bills that deal with prices of the nation's two most vital fuels. Unfortunately, the debates probably will throw into sharp contrast the diametrically opposed approaches of the White House and the Democrats who control Congress. The Ford Administration favors relatively swift abolition of fuel-price controls in the belief that high prices will force conservation and stimulate domestic production. Last Saturday, Ford announced that he will send to Congress this week a price-decontrol plan for domestic oil. The Democrats, fearful of the inflationary impact of decontrol of oil and gas, advocate price adjustments within the framework of continued federal price regulation.

The House bill is a massive attempt by Democrats to throw the full weight of the U.S. Government against the price-setting power of OPEC and thus roll back the price of petroleum. It would reduce the price of "new" domestic crude (oil in excess of what was produced in 1972) from its present $13 per bbl. to $7.50. Producers in especially high-cost drilling areas, like offshore, would be allowed to charge $8.50 per bbl. The price of "old" domestic crude, which is now frozen at $5.25 per bbl., would be allowed to rise to $7.50 also--but only over a five-year period. The House bill would please consumers, since it would hold down energy prices, but oilmen argue that the measure would stifle the incentive to develop new wells.

Because of the looming natural-gas crisis, the Senate debate may attract even more attention and acrimony than the House discussions on oil. The Senate bill seeks to stimulate natural gas production through selected changes in Government controls. Since 1960, the Federal Power Commission has regulated the price of gas flowing across state lines. As demand surged in the early 1970s, partly as a result of environmental legislation favoring clean-burning gas, the FPC held the price at an artificially low level. Even now, it is fixed at only 510 per thousand cu. ft., equivalent to a mere $3 per bbl. for oil.

The consequences were a classic example of regulation gone awry. Owing to the low price, demand increased but producers preferred to sell gas to consumers in their own states, where federal controls did not apply and gas could be sold at three or four times the interstate rate. Critics accused some firms of leaving their reserves untapped in anticipation of price rises. Within the FPC, a heated debate broke out over whether gas companies understated reserves in order to create a crisis atmosphere.

To encourage exploration, the Democrat-sponsored bill would allow independent producers to charge as much as $2 per thousand cu. ft. for "new" gas. Gas from newly developed wells brought in by major oil companies would be sold at a fixed price of up to 750 per thousand cu. ft. Both the White House and the Senate Democrats would hold the price of "old" gas from wells already in production at roughly its present level to soften the economic impact of the higher new gas prices. The White House, however, has called for decontrol of all new gas, allowing the price to rise to whatever the market will bear. Senate Commerce Committee experts predict that that approach would raise the fuel bill of the average U.S. family by $2,888 over the next six years; their own plan, they say, would hold the pocketbook impact to $1,814.

Any action will come much too late to avert a possible natural gas crisis this winter. According to the FPC, the big pipeline companies are expected to deliver nearly 20% less gas this winter than last. Parts of the Midwest are bracing for serious shortfalls. But the shortage will hit hardest in the Northeast, which is already suffering most from the rising cost of imported oil. Many East Coast utilities have stopped accepting neV gas customers and are sending warnings to industrial users to expect drastic curtailments of supplies. Many large gas users are converting to fuel oil at a vastly higher cost. In New Jersey, John Kean, president of the Elizabethtown Gas Co., warns of "the gas industry's Pearl Harbor this winter."

Painful End. For the past seven years, the consumption of natural gas has outrun new discoveries at an alarming rate. Barring a dramatic reversal of present trends, the U.S. will exhaust its present proven reserves of 234 trillion cu. ft. in eleven years. There is no guarantee that new wells would bring in abundant new supplies. U.S. potential (as opposed to proven) gas resources are currently estimated at 322 trillion to 655 trillion cu. ft., roughly a 15-to 30-year supply, but that figure is little more than a guess. In any event, lead times for bringing in new wells are so long that no upsurge in exploration can produce results quickly enough to hold off serious shortages in the next few years.

The hope is that higher prices for new gas would trigger enough new drilling to arrest the decline in proven reserves by the 1980s, when other forms of gas, notably illogically named synthetic natural gas (which is manufactured from coal) and imported liquefied natural gas could supplement the real stuff, though at a very high cost. For the U.S., the cold reality is that the era of plentiful low-cost natural gas is ending quite as painfully as did the bygone age of cheap, abundant oil.

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