Big Oil's Pinch at the Pump

Supplies short, prices up and companies have trouble getting the lead out

Bad winter weather usually brings bleak news about the nation's energy supplies, and now it is beginning to seem as if mild temperatures and sunny skies do the same. That, at least, is one way to look at the hooded pumps and OUT OF GAS signs sporadically popping up at service stations around the country.

For the first time since the autumn of 1973, gasoline is once again in short supply--not in the dead of winter, but a week before winter officially begins.

The most acute shortages are of unleaded high-octane gas, but regular unleaded is also scarce. In the past two years, consumption of the unleaded grades has grown dramatically, as federal antipollution laws have forced U.S. automakers to shift to production of cars unsuited for leaded fuels. Lead hampers the functioning of so-called catalytic converters, which remove pollutants like nitrous oxide from auto exhausts. Surging demand for unleaded fuel has driven Shell Oil Co., the nation's largest gasoline retailer, and Amoco Oil Co., the leading producer of unleaded gas, to begin limiting deliveries to dealers. Mobil and other companies are also hard pressed to meet demand.

Shell insists that its shortages are temporary and have been unexpectedly aggravated by the breakdown of a refinery at Norco, La., for 13 days in November. The plant shut just as another Shell complex, at Wood River, Ill., was temporarily closed for routine maintenance. The double trouble cut Shell's output by 10% to 15%.

The Department of Energy, which has to approve all company rationing and allocation plans, maintains that motorists will not have to worry about severe or long-term shortages--unless they panic and start trying to keep their gas tanks full at all times. Warns a top DOE official: "If people get a crisis mentality, we could get a problem that really isn't there." Adds Frank Ikard, president of the American Petroleum Institute: "The thing that I fear most is that the public will think the Shell announcement is the prelude to general rationing. If they do, we could talk ourselves into a panic and wind up with long lines of cars in front of gas stations."

So far, no such trend is developing, and after six days of providing retailers with only 75% of what they had received during the same period of 1977, Shell was able to ease off a bit last week and increase deliveries to 85% of last year's level. At the same time, however, the company announced that it was seeking permission from the DOE to continue curtailing deliveries until the month's end.

The pinch comes amid spreading confusion about recent price rises for a number of petroleum products, and this is raising questions anew about whether Big Oil is somehow ripping off the public by secretly manipulating markets and supplies. Despite unseasonably warm weather in much of the nation late into the autumn, which kept thermostats down, the price of home heating oil has climbed more than 10% since September. The rises in oil and gasoline prices were the main reasons that the wholesale price index rose in November at an annual compound rate of 10%. Alfred Kahn, the Carter Administration's chief inflation fighter, said last week that the Council on Wage and Price Stability (COWPS) is investigating both the increase in the cost of heating oil and the gasoline shortages.

Oil companies are unavoidably helping to drive up prices by rushing to buy whatever spare crude is available on the world market in advance of OPEC's semiannual meeting next week in Abu Dhabi. The oil cartel is expected to decide on a 5% to 10% price increase for 1979, perhaps to be phased in during the year. The rush to beat the increase is also pushing up demand for the supertankers needed to haul the crude. Since Labor Day, charter rates for the leviathans have leaped by 150%, adding yet more overhead costs. At the same time, the severe cutbacks in production as a result of the anti-Shah strikes in Iran, the world's second largest oil exporter, are putting still more pressure on supplies.

Big Oil's legions of critics will no doubt find much of this to be disturbingly familiar. During the winter of 1973-74, production cut backs and the rapid run-up in OPEC prices almost overnight bloated the value of oil company inventories and sent profits surging even as production itself was slumping and the U.S. economy was lurching into recession. This time, however, much of the blame lies directly with the consuming public. In spite of successive appeals by the Carter Administration to take the energy crisis seriously and conserve fuel, motorists have gone along blithely as if burning up gasoline on the nation's highways were the right and privilege of every American. In spite of the fuel-saving national speed limit of 55 m.p.h., gasoline consumption has climbed steadily.

Along with the profligate public, an other villain is the Government itself. Unleaded gasolines are in short supply largely because of the crazy quilt of federal regulations, many of them grossly in conflict with each other. Stringent environ mental rules severely limiting the amount of industrial hydrocarbons that can be emitted into the atmosphere in most ar eas of the country effectively block the oil companies from building the new refineries needed for production of unleaded gas. In addition, oilmen claim that complex pricing controls, enforced by the Department of Energy, often prevent the companies from selling unleaded gas at any price higher than the break-even point. Meanwhile, since 1975, federal clean-air standards have forced automakers to use catalytic converters, and as the new cars are cycled into the fleet, consumption of unleaded gas is rocketing. Unleaded fuel now has more than one-third of the market (see chart) and is expected to reach a full 55% by 1980.

Lead-free gasoline may be good for the atmosphere, but it is not good for much else. About 10% more crude is needed to produce a gallon of unleaded than leaded gas, and that extra margin increases the nation's oil import bill, which once again has begun to grow after showing some brief signs of improving. This year, oil and natural gas imports will swell to $45 billion, up from $42 billion last year. Cornpared with conventional gasoline, unleaded fuel is more expensive to make, costs more at the pump, and gives a lackluster performance under the hood.

But unleaded gas is what federal regulations require, and the Department of Energy wants to stimulate production. To do so, it has drafted a proposal for decontrol of all gasoline prices, and last week the Administration announced that the President would send a decontrol bill to Congress in mid-January. Decontrol would immediately add up to 4-c- per gal. at the pump, on top of perhaps a 1 1/2-c- increase as a result of the expected OPEC price rise. In addition, decontrol of domestic crude oil to bring prices up to world levels, which Carter pledged in Bonn last summer to accomplish by the end of 1980, would add an extra 5-c- or 6-c- per gal. to gasoline costs, lifting fuel prices far beyond the President's own anti-inflation limits. These specify that companies keep their price increases 1/2% or more below their average increases of the past two years. Kahn concedes that in the long run the Government will have to let the price of energy go up, but, he says, "the tension between the inflation problem and the energy problem is tearing us apart."

Gasoline decontrol makes sense, but the Environmental Protection Agency wants to bury the idea. EPA officials point out that although gas stations can be fined up to $10,000 for putting leaded gas into cars suited for only unleaded grades, the drivers themselves are subject to no such penalties. More and more motorists are pulling into self-service stations to tank up with the cheaper and peppier leaded fuel, even though doing so ruins their catalytic converters and makes the cars bigger polluters than ever. The EPA fears that decontrolling prices will merely widen the gap between the cost of leaded and unleaded gas and encourage more drivers to skirt the law that requires unleaded in new cars. Says one DOE official about the panoply of contradictory regulations: "There is no doubt that we have really screwed things up."

Clearly something has to give. It is folly for the U.S. to rely increasingly on an inflation-fueling, energy-wasting gasoline that federal price controls and environmental regulations are discouraging the oil industry from producing. If the nation wants to continue its growing use of unleaded gas, Washington must permit the companies a reasonable profit from making and selling it. Air pollution regulations for industry must also be relaxed enough to allow oil companies to build the additional refineries that are needed to do the job. If Congress and the Administration feel that doing that is asking too much, auto emission standards themselves will have to be eased substantially. Indeed, the only other choice would seem to be chronic and enervating gasoline shortages for years to come.

Gasoline shortages are far from the only problem facing the DOE. For months Michigan Democrat John Dingell's House Subcommittee on Energy and Power has been investigating charges that some small to middle-sized oil companies have been fraudulently inflating profits by hundreds of millions of dollars by cheating on crude oil price controls. The key charge: the companies took "old oil," which is price controlled, and passed it off as "new oil," which is not controlled and thus sells for about $6.50 more per bbl. A report by the House subcommittee to be released this week alleges not only that the oilfield racketeers have been overcharging consumers by "nearly $2 million a day," but that the companies even set up a "multimillion dollar slush fund . . . to take care of DOE."

A parallel probe is also under way by the Justice Department and a federal grand jury in Houston, and indictments are expected early next month. Among the companies under investigation are Uni Oil, Inc., Coral Petroleum Inc. and Armada Petroleum Corp., all of Houston, as well as Denver's Summit Gas Co., whose owner, Marvin Davis, a major independent wildcatter, tried unsuccessfully to buy the Oakland A's baseball team for $12.5 million last year.

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