Like a hospital patient who has just been moved out of the intensive care unit and his name taken off the critical list, the United States still has some serious energy-related illnesses but now looks to be out of immediate danger.
Seven years after the oil price shock of 1973, which ushered in a perennial energy "crisis," the nation finally has in place an imperfect but nevertheless workable set of politicies in place to deal with energy pricing and availability. The policies will not "solve" all U.S. energy problems by any means, but they are making them manageable. Already the policies have made the United States less vulnerable to disruptions of world oil supplies while encouraging both more energy production and less energy use at home.
Consider the following: In 1980 the United States used energy more than 7 percent more efficiently than it did in 1970. Each dollar's worth of goods and services produced by the American economy last year required, on average, that much less energy than it did 10 years earlier.
About 60,000 oil and gas wells were drilled in the United States last year, far surpassing the record of 57,700 set in 1956. While it will be sometime before figures are available, natural gas industry experts say that for the first time since 1967 probably as much gas was found as was consumed from domestic wells. Additions to oil reserves from new discoveries did not come close to matching the amount pumped, but production nevertheless rose slightly compared to 1979.
Oil imports, the marginal supply of energy for America, fell an incredible 20 percent in 1980 to only 6.2 million barrels a day. Coal production climbed to more than 825 million tons in 1980, a record. Even so, substantially more coal could have been produced had there been demand for it.
More than 100 million barrels of crude oil are now in the Strategic Petroleum Reserve, with more being added at minimum rate of 100,000 barrels a day. While not enough to cover a large interruption in imports for very long, the reserve could greatly ease the economic impact of any oil shortage.
All this progress has been achieved at a high political and economic cost. As the OPEC cartel has acted to raise oil prices and limit supplies, huge windfalls have been created for the owners of energy resources, but the nation as a whole has become poorer because it has to pay the oil bill. Moreover, the value of many kinds of investments -- big gas guzzling cars, production machinery that gulps energy, uninsulated houses, and so forth -- have all become worthless.
The struggle over which groups must absorb the losses resulting from the leap in prices all but paralyzed Congress as it sought to deal with energy issues. Fortunately, the worst of those battles are over.
President Carter, as Congress chose to let him have the power to do, finally decided in April 1979, to begin the process of decontrolling domestic crude oil prices. Unless President Reagan chooses to speed up the process -- his advisers are divided on whether he should -- controls will end Sept. 31. Gasoline and propane prices are still controlled, too, but they also will expire at the end of September if Reagan does not lift them sooner. a
Decontrol, and the latest OPEC price increases, likely will combine to push gasoline prices up by 20 cents a gallon or more during 1981, leaving them close to $1.50 by year's end, according to the projections of some energy analysts. Home heating oil prices should go up by a similar amount.
Crude oil and petroleum product price controls, of course, dealt with the question of winners and losers, by shifting part of the OPEC-created windfall from various elements of the oil industry, particularly crude oil producers, to oil users. But in the process, to equalize the cost of crude oil to refiners with different sources of supply, a system was created that had the perverse effect of directly subsidizing oil imports. Quirks in that scheme gave such enormous profits to some very small refiners that new refineries were built just to take advantage of it.
This so-called entitlements system -- which the government is now using to cut the cost of oil going into the strategic petroleum reserve to only $7 a barrel -- will vanish along with controls. The small refiners will lose their subsidy and the government will be paying more than $37 a barrel for its oil.
To go along with decontrol, Carter proposed and Congress ultimately approved an excise tax on crude oil which gave the government part of the windfall created when OPEC jacked up its prices. The tax will yield upwards of $15 billion for the federal government in 1981. Some of the true losers in decontrol, such as some of the previously favored small refiners, are still fighting politically to hold onto their status.
Some segments of the oil industry continue to rail at the tax, saying it means less oil and gas will be found in coming years because the industry is being denied those funds. While the argument is correct, so much money is already flowing into exploration and production activities that inflation in the cost of searching for oil and gas is running at more than 25 percent a year, oil experts say.
Moreover, the tax was a necessary part of the political compromise that led to ending controls, which were having a far more serious impact on the industry, and at the same time deluding energy consumers about the true cost of what they were buying.
With controls being phased out, and with the doubling of world crude oil prices in 1979 as a result of the Iranian revolution and the enormous drop in that country's oil exports, Americans have responded exactly as economists have long argued they would: They are using less energy, especially oil.
The entire debate about a national energy policy has been clouded from the start by assertions by some of the actors in the drama that energy was somehow special, that people would buy just as much whatever the price. Certainly 1980's experience disproved that.
Total U.S. energy consumption in the first nine months of last year fell 4 1/2 percent compared to 1979 even though the 1980 recession knocked only 0.5 percent off economic activity in the same period.
Petroleum use was off most of all. Gasoline consumption dropped more than 6 percent to 277 million gallons, or about 6.6 million barrels a day. But gasoline consumption fell in 1979, too, so that use in 1980 was 11.1 percent below that of 1978. The average price for all grades of gasoline jumped from 65.2 cents a gallon, including tax, in 1978 to about $1.23 last year.
The response of consumers to that near doubling of price will continue for years to come. For instance, the shift in Americans' preference to smaller, more fuel-efficient cars will mean less demand for gasoline in the future even with more cars on the road.
A major element of U.S. energy policy, mandatory automobile efficiency standards, has contributed, too. The average fleet efficiency of the 1980 models actually produced was a whopping 61 percent higher than that of the 1975 models, the last produced before the standards took effect.
More experts believe the United States will never again use as much gasoline as it did in 1978.
Consumption of other petroleum products, except jet fuel, also plummeted in 1980. Distillant fuel oil, which includes primarily diesel fuel and home heating oil, fell 12 percent to about 122 million gallons, or 2.9 million barrels a day. Use of residual fuel oil, a boiler fuel for utilities and heavy industry, dropped more than 10 percent to 2 1/2 barrels daily. Other oil products' consumption -- including everything from aviation gasoline to asphalt -- went down nearly 9 percent to about 3.7 million barrels a day.
Natural gas consumption was off more than 1 percent last year, with high-cost imports from Canada suffering much of the loss of the market. However, more gas is also available from U.S. wells than is being bought. The interruption in liquified natural gas shipments from Algeria because of demands for far higher prices has not been felt at all.
And coal consumption rose by an estimated 4 percent to claim nearly one-fifth of the U.S. energy market.
As oil use fell last year, stocks were built up to record levels both in this country and abroad.When Iraq invaded Iran's oil producing province in September, the world lost nearly 4 million barrels of daily oil production in the two countries, and most is still lost.
Yet oil in storage was so great and use down so much, that unlike in 1973 and 1979 there was no panic. OPEC lifted its prices about $3 a barrel last month, a far cry from the doubling that occurred when Iranian production all but ceased in early 1979.
Serious problems might still arise if the war continues for months to come. A number of Carter administration energy officials fear additional shortages and large price hikes could occur if the war doesn't end within another three months or so. Other analysts are not sure any shortage would occur in 1981 even if the war goes on.
With recessions under way or looming in a number of industrial countries, and with many Third World nations unable to pay the higher bill for oil, demand for OPEC oil this year could be as low as 24 million barrels a day, well below the 31.2 million the cartel's member countries produced in 1977. That could be produced without little or no contribution from Iraq and Iran.
But suppose there is an oil shortage. How would a President Reagan deal with it?
The gasoline rationing scheme now on the books is widely regarded as an administrative nightmare that would take many months to put in operation. Moreover, authority for rationing also expires Sept. 30. In addition, Reagan is firmly opposed to price controls and presumably the sort of allocation controls that would have to accompany rationing imposed to deal with a severe shortage.
Yet the possibility of a further oil-supply interruption is so great, Reagan will have to come up with some standby scheme. A number of energy economists believe a large tax on oil, with the proceeds somehow rebated to the public, is a possible answer. Such attacks would mean higher prices for all oil products but, in the opinions of the economists, would produce smaller economic distortions while reducing oil consumption. Import quotas are another possibility, but are generally regarded as less workable.
Meanwhile, Reagan has named a dentist and former governor of South Carolina, James B. Edwards, to head the Department of Energy. Reagan promised in his campaign to abolish DOE, and Edwards, a very conservative politician, has said he would like doing just that. But if the war between Iran and Iraq continues Reagan and Edwards may find they must push government deeply into the nation's energy scene once more.
If the Reagan administration avoids that difficult chore, it will still have to make a wide range of energy policy choices. Among them: whether to decontrol oil and gasoline prices right away; whether to try to speed up decontrol of natural gas prices; whether to fill the strategic petroleum reserve more quickly; whether to grant some relief to auto makers by slowing the ever tighter requirements of mileage standards; whether to allow gas consumers to underwrite construction of the huge and costly Alaskan natural-gas pipeline project; and so forth. On many of the questions, Congress of course must provide the final answer.
Even with the billions of dollars at stake in these decisions -- natural gas price decontrol could cost consumers up to $80 billion dollars alone -- this admittedly incomplete list is a far cry from the series of hard policy choices made during the four years of the Carter administration.
The public, the Congress and even the Energy Department have learned a lot during those years -- often with President Carter and other officials of his administration forcing Congress to decide issues it would have preferred to avoid.Now, almost no one any longer believes the nation's energy problems are simply the result of an oil company conspiracy.
The hard lessons from the recent past should make President Reagan's energy tasks easier than Jimmy Carter's were. But whatever Reagan's choices, consumers of all forms of energy can count on one thing: It will cost them more.