OIL AND GAS keep getting more expensive, and OPEC isn't the only reason. Several unrelated incidents recently illustrated the way things are going. Taken together, they constitute a warning. There are limits to the protection that price controls can provide.
Case One: The Federal Energy Administration announced its decision last week on the pricing of oil from Alaska. The FEA said that it ought to be priced like imported oil, which is now running around $14 a barrel.Does that constitute a rip-off and an outrage? Oil from a new well anywhere from California to the Atlantic is held by price controls to only $11.40 a barrel. But the Alaskan oil has to pay for that famous 800-mile pipeline. It was first estimated to cost $900 million, but by the time it goes into operation this summer the figure will be up around $8 billion. The long journey from the North Slope of Alaska down to California will cost about $6 a barrel. When the producers subtract that $6 from the selling price, they will be getting about $8 a barrel at the wellhead.
That's several dollars less than they can get for newly discovered oil from wells in Texas and Louisiana. The companies think that they are being pernalized for the transportation costs. The FEA has to worry about consumers' complaints over high prices. But it also wants to keep the companies exploring in Alaska. Do you fail to see a fair and effective solution? So does the FEA. Be thankful that you're not John O'Leary, the administrator, and proceed to:
Case Two: A company called Trunkline Gas has a contract to import a large volume of liquefied natural gas from Algeria. The Federal Power Commission has to approve the price. The FPC's ceiling for domestic gas in the interstate system is $1.45 a thousand feet. The price for the Algerian gas delivered to the Trunkline system is $3.37. (It has doubled since the project was first proposed several years ago.) Swallowing hard, the FPC approved it.
But that's not all. Which of Trunkline's customers now ought to pay for this very expensive Algerian gas - all of them, sharing the burden equally, or just the ones that are getting the additional supply? What's fair? In the past, the FPC has made all customers share equally. But this time the cost of the new supply is so staggeringly high that it winced and reversed itself. Passing the high price on only to the people using the new gas will help them see the virtue in conservation, the FPC bravely said. Be glad that you told President Carter you didn't want that seat on the FPC, and go on to:
Case Three: There's gas as well as oil on the North Slope of Alaska, and the administration is counting on that gas for its energy plan. The best way to get it down here would be through a gigantic pipeline curving into Canada and following the Mackenzie River south. The Canadian government set up a commission of inquiry, which this week urged a 10-year delay. Otherwise, the commission held, "its social impact would be devastating, and it would frustrate the goals of native claims." It's hard to think that the Canadian government will try to override that kind of advice.
If the gas pipeline isn't built along the Mackenzie, there might be other possibilities. One involves a line through Alaska, and liquefication of the gas for ocean shipment - a huge cost in both money and energy. The other is a line through Canada along the Alcan Highway; it would also touch native claims, although evidently less seriously. The final possibility is, of course, that rising costs will prohibit the construction of any of these lines.
All three of these incidents seem to point in the same direction. There is still a lot oil and gas available in the world. But, increasingly, it's available in places remote from American markets, and the costs of getting it here going to be awesome.