It is in the nature of great empires, history tells us, to proclaim their own immortality, then proceed to decline and ruin.
But the world's greatest industrial empire - the American oil industry - intends to accomplish the opposite. It periodically predicts its own demise, while it quietly arranges for permanent hegemony over America's energy business.
The United States might run out of oil someday. But there will always be an Exxon.
And a Mobil and a Gulf and a Texaco and so on down the list of "majors" and "lesser majors" who comprise the awesome corporate mass of American oil companies. Here is what the future looks like:
If the early promises of nuclear power are ever fulfilled, uranium will be mined and milled, perhaps enriched and reprocessed, by oil companies.
If America shifts from oil to coal as its principal source of energy, the importance of the oil companies will multiply - not shrink - because of their vast holdings in coal. In the not-so-distant future, when new technology converts coal to gas or liquid fuel or even a gasoline substitute, oil companies will make it and market it, from the ground to the gas station.
Oil shale, tar sands, geothermal power - oil companies have established future's in these sources, too.
And, yes, even in solar energy. Exxon and Mobil and Gulf cannot acquire the sun, but they have invested in the hardware and technology which someday may make sunshine a saleable commodity, either through home heating units or large-scale power-generating plants.
This future is already emerging, sanctioned and encouraged, to some extent, by the federal government. Despite the occasional outbursts of anti-oil rhetoric in Congress, the government acts more like a partner than an adversary. It leases its coal and oil shale to the all-energy companies, provides legal clearance for their mergers and acquisitions, even pays for most of the research which will usher in the future fuels.
As a chapter in U.S. industrial history, it is a bit breathtaking. Here are corporate managers who are planning, not five years or eight years in advance, but for a full generation beyond. They are hedging against that time they keep warning us about - when oil ang gas are gone. They are staking out strong positions for their companies, perhaps dominance, in the energy age beyond petroleum.
"The big problem is only the next 15 years," a Mobil vice president said confidently. "If we can get through the next 15 years and we aren't dopes about coal and nuclear, we should get back to an era where energy is no problem."
Whether one shares that robust optimism depends largely on how you feel about oil companies. If they are dynamic and creative components, trustworthy stewards, then their transformation into all-energy corporations is logical, even encouraging. If you see the oil industry as a web of partners, which stifled competition and warped America's priorities, then the future looks downright scary.
People have been warning us for years that this was going to happen, that someday oil would own it all if the government did not intervene. But the case for making oil give up its acquisitions in other fuels - known as horizontal divestiture - has never been able to generate much power in Congress. Jimmy Carter, as candidate, expressed a lot of sympathy for the idea. As President, he has backed away from it.
The fear, of course, is that once oil companies have established leverage in alternative fuels they will be able to manipulate freely supply and price and profit. But this case rests on future facts which cannot be proven in the present. And, besides, the idea of divesting all those companies of all that wealth scares politicans, too.
So here is where things are now: oil companies have a majority position of very close to it in both coal and uranium. They are leaders in the technology that will open up the future alternatives, particularly the synthetics from coal. Their hedges cover virtually every other possibility, from sunshine to garbage-burning.
Some 24 oil and gas companies now control at least 77 billion tons of U.S. coal reserves. That represents approximately 44 per cent of all the coal leased or owned by private companies of any kind. If one leaves aside the coking coal which is reserved for steel-making, then oil's share of all the leased reserves is about 50 per cent.
Like other energy issues which depend upon corporate reporting for the vital statistics, it is impossible to determine the precise share of oil-owned coal. These estimates were derived from corporate annual reports, industry surveys and confidential filings with the Federal Trade Commission.
Most previous surveys have put the oil industry's coal reserves at 40 billion to 50 billion tons. Oil's share is understated further by comparing it to the total U.S. reserve figure of 437 billion tons. It is more relevant to compare what oil controls to the coal reserves controlled by all coal producers in the marketplace. According to an estimate by Exxon, that coal is roughly 174 billion tons. This is the coal which will be mined in the coming generation and oil controls almost half of it. For some reason, the Carter energy plan reports that oil owns only 5 per cent of U.S. reserves - which is lower than the oil industry's own estimate of 12 per cent.
Whatever the precise number, the last decade produced a hungry acquisition campaign by oil companies. Six of the top 10 holders of U.S. coal reserves are now oil companies; 14 of the top 20. An American Petroleum Institute study estimates that 25 companies have invested "in excess of $6.5 billion" in coal.
Their future position is most dramatic in the West where the coal seams his close to the surface and coal development will be crucial to national energy production. According to 10-year production plans reported by the Federal Energy Administration, oil and gas companies will control 50 per cent of it.
In some vital areas, their control is much higher. The hottest coalfield anywhere is the federally owned acreage in Campbell County, Wyoming, where more than a dozen huge strip mines are planned for the next decade. In Campbell County, 99 per cent of the planned coal production is owned by oil and gas.
Down the road aways, petroleum companies have established a pre-eminent position on the technology to convert coal into synthetic fuels - a low-grade gas, a liquid industrial oil, even perhaps a synthetic gasoline. Conoco, Gulf, Exxon, and Shell are leaders. From 1964 to 1974, seven petroleum companies were granted 49 of the 52 patents covering synthetic gas and oil from coal.
In uranium production, a realm where fewer firms compete and corporate girth is more important, the oil companies have a potential leverage which is probably greater.
Oil and gas companies - mainly Kerr-McGee, Gulf, Continental, Getty and Exxon - control 51 per cent of the U.S. uranium reserves. Oil companies control 62 per cent of the uranium milling capacity, the process which converts ore to a fuel concentrate.
Several majors, including Exxon, Atlantic Richfield, Gulf and Shell, are seeking entry into other refining processes which will be important elements in the future of nuclear power - uranium enrichment which is now monopolized by the U.S. government and the processing of spent fuel from nuclear reactors.
These building-block stages of the future all-energy company are dominated by the familiar corporate names, but the idea has not been lost on others. Two of the new oil companies in the API's Top 30 list are the Union Pacific and Santa Fe railroads. Santa Fe has oil, gas and coal. Union Pacific has oil, gas, coal and uranium.
Another sideways entry is Utah International, a major mining company, which also has a petroleum subisdiary, plus major holdings in coal, the seventh-largest uranium reserves, the third-largest uranium milling capacity. Now Utah International has merged with General Electric, one of the principal manufacturers of nuclear reactors. Thus, one corporation has the skeleton for the ultimate all-energy production - from the mines to the power plants.
It does not require much imagination are headed - toward the vertical to see where the major oil compa-integration of production, refining, marketing in coal and uranium, not very different from their vertical control of petroleum which has often been criticized as anti-competitive. Mines will replace wells. Milling plants will replace refineries. But, if things work out, maybe they can use some of the same pipelines and gas stations.
In the long run, almost anything is possible in the future of energy. America could decide to run its cars on corn. And it could feed oil to the cattle. Or maybe Americans will skip cattle altogether and just east steaks made from oil.
Don't laugh. The technology already exists. Methanol, distilled from corn or any other feed grains, will run an automobile (the state of Nebraska which grows a lot of grain is pushing that idea). British Petroleum has an experimental feedlot where it is raising cows on hydrocarbon feed derived from oil.Oil steaks are said to taste a lot better than they sound.
Some of these ideas may never become economically feasible (or palatable), but the point they illustrate is that the oil majors have their eye on a future much more broadly defined than the current back-and-forth over oil prices and government regulation and all that.
"Most people are looking for us to run out of oil," said Wally Seward, a planning expert with the American Petroleum Institute. "I don't expect that at all. Using oil for heat and steam power is outmoded. The future is petrochemicals and animal feed stocks and other higher uses."
They used to burn whale oil in the lamps of America but, when the whales were depleted as a mass source of energy, sperm oil became a highly prized lubricant - also very expensive. Something like that will probably happen to petroleum in the next 40 years, only the refined uses will be much more exotic.
Some of the majors are also dabbling in "exotic" fields outside energy. Mobil, the most serious about nonenergy diversification, bought Montogomery Ward and Container Corporation of America.
Gulf was dickering on a merger with Rockwell International the aerospace giant, but the deal soured, according to one source, when it became clear that Gulf wanted to absorb it as Gulf's Rockwell, not Gulf-Rockwell.
Exxon has created a venture capital division which invests seed money in small and diverse entrepeneurs who have a bright idea about future technology, from machines that grade school tests to computer-guided typewriters. Exxon has spent modest millions on these ventures and hopes they will make money, but one Exxon executive explained: "In the overall picture they don't even show up on our balance sheet."
Exxon's balance sheet, remember, is $48 billion a year. It is always No. 1 - three times larger than IBM. But then all of the American oil industry is staggering in size. On the Fortune 500, four of the top eight are oil, 10 of the top 20, 17 of the top 50.
And oil is still where their hearts lie. "The oil industry is still largely conservative," said one industry authority. "If it were possible just to go on punching holes in the ground for oil, eight out of 10 executives would go punch holes all over the place."
In other words, the foresight that led oil companies into coal and uranium and other alternatives was spread very unevenly across the industry. Continental, a lesser mogul in domestic oil and natural gas, jumped in early and has become a major player in coal (No. 1 in reserves) and uranium (No. 4). But two of the eight majors do not yet have a position in uranium.
These complications begin to shape the industry's arguments for allowing the future to happen - for not making them sell off their alternative holdings or freezing them out of future acquisitions. Divestiture would hurt the wise ones most, especially the smaller companies that got into other fields first.
There are deeper questions: if the oil companies are blocked from buying into alternative fuels, what should they buy? Department stores or newspapers? The tax structure encourages a corporation to direct profits into new acquisitions rather than distribute them to stockholders and this makes conglomerate growth an inevitable feature of the U.S. business structure. So what should oil companies become, assuming they do not intend to shrink with the world supply of oil?
"Hedging your bets is basically the name of the game," said Jim Atkin, a lawyer who heads API's lobbying efforts on the divestiture issue. "If we drill Atlantic offshore and hit zilch, as we did down in Florida, why not hedge on some other fuel sources?
"Oil companies have tremendous cash flows and if the government comes along and says, 'Okay, you're in the oil business, you can't go into coal,' so what do you do with cash flow? You can go into the car industry or the airplane industry or whatever, or you can pass that cash flow out to your stockholders and that's awful painful because the stockholder pays a second tax on it."
Another, more important question for the nation is: if the oil companies cannot mine coal and uranium, who will? The petroleum giants have awesome corporate resources, the cash, flow which allows them to invest in long-term projects without running to the bank and, is some areas, the geological expertise which would be useful.
A Gulf task force on divestiture had this to say about uranium:
"New entrants can move into uranium production easily provided they have the required entrance fee - technological and management capability, plus financial 'staying power'"
The "entrance fee" talk is precisely what alarms the critics, the handful of senators and congressmen and energy groups which argue that oil companies will manipulate or retard the development of alternative fuels, based on their own profit strategy, not on national energy requirements.
It may already be to late, some fear. If major oil companies, with their huge capital resources and their multiple leverage in the marketplace, hold th major positions, other smaller fish may be reluctant to swim in that pond. If oil scares away smaller competitors, that increases oil's influence on prices and production.
"Exxon has to realize that coal and oil substitute for one another and they have to develop a total fuels marketing strategy," said David Schwartz, an antitrust consultant.
"If you accelerate coal production to the point where it begins to erode prices in other fuels you control, then you have to balance it off. They wouldn't necessarily say that $20 a ton is a damn good price for coal. They might look down the road and say it may hit $40 again, so let's wait. You don't have that option if you're an independent producer."
The antitrust laws are not much help. The classic tests of concentration - overwhelming market power held by a few companies - always give the oil industry a clean bill because so many different companies are involved. By that scale, oil is much more competitive than steel or cars or newspapers, for that matter.
Antitrust law does produce some puzzling results. When Kennecott Copper tried to acquire Peabody Coal, the nation's largest coal producer, the government made it back off. But there were no objections when Atlantic Richfield Oil swallowed up Anaconda Copper, one of Kennecott's main rivals. Presumably Exxon or Mobil or Gulf could buy Kennecott to even things up.
Beyond the antitrust arguments, there is a difference in the oil industry. According to critics like Sen. James Abourezk (D-S.D.), it produces "a community of interest" on crucial issues of supply and price - without the need for secret collusion. The difference is that partically all of the oil companies, large and small, are partners with each another.
Exxon is partners with Mobil in 62 joint ventures. Gulf is partners with Shell in 19 deals. Shell is partners with Standard of California in 22 ventures. Phillips is partners with Continental 8 times. Continental is partners with Texaco 11 times.
And so on through hundreds of interlocking joint ventures. This is called "risk sharing" in the industry - a way of spread the play on oil drilling, oil and oil shall leases, pipelines and whatever else oil companies do. The practice has even spread to the new ventures in alternative fuels. Gulf and Shell are partners now in nuclear-fuel processing and solar energy, among other things. Ashland and Hunt Enterprises share ownership in Arch Minerals, the nation's seventh-largest coal producer.
"This type of joint venturing is unique," said Schwartz. "Everyone is joint-venturing with everyone else. It's one big happy family. What would happen if U.S. Steel and Bethlehem built a joint plant and said, 'You take so much and we'll take so much.' You'd call it collusion."
The advocates of divestiture believe that breaking up the oil companies, vertically or horizontally or both ways, would ensure price competition in the emerging era of scarcity, encouraged new ideas and new fuels like solar, rather than link them to the status quo of oil.
But the arguments for more competition in energy collide with embarrassing realities: the federal regulation of energy already controls oil prices and, under the Carter plan, it would direct buyers like public utilities to select a certain fuel - coal or nuclear. Carter's energy measures are designed to raise fuel prices, not lower them, in order to curb the appetites of consumers.
You cannot have it both ways, of course. There is another argument for divestiture which does not rest on economics. It suggests that what the oil companies are achieving by their diversification resembles a political-social cartel which will be more powerful than government attempts to regulate energy development.
"The oil industry maintains a formidable level of political activity," former Bureay of Mines Director John F. O'Leary testified at a Senate hearing two years ago. "It understandably uses its economic and political strength to advance its own interests, and these interests do not always coincide with those of the public at large. The acquisition wave extended this potential for massive political operations to the coal industry.
"Second, and closely related, the oil industry has an extremely long tradition of seeking the development, particularly at the raw materials end of the business, of institutions that essentially eliminate price competition."
O'Leary said the oil industry had "used its political strength to create, by statute, a result that other industries only could have approximated by collusive action."
O'Leary is now federal energy administrator - on the receiving end of that political power.
In the short run, the future is going to be very bumpy for American consumers. Maybe for oil companies too. Oil and gasoline prices are going to rise, so will coal prices and probably uranium prices.
In the past, when oil prices shot upward, the public got angry and the politicians turned that warth on the oil industry. Next time around, the oil companies may be blamed for more than the rising of gasoline.
The future use of coal is the clearest, most important test of how these all-energy corporations will behave. In recent years, critics have assailed the oil companies for sitting on the vast coal reserves they had acquired, holding back on production.An FTC survey of 24 petroleum companies with major coal reserves found only eight that had actually mined any coal.
Now the Carter administration's energy plan envisions a massive growth in coal production to offest oil - from 600 million tons a year to more than one billion by 1985. Can it be done? The oil companies now have a major hand in the outcome.
To add incentive, the Carter plan is "making a market" for coal, ordering public utilities and other industries to convert to coal. The plan anticipates rising coal prices - perhaps even as high as the Mideast crude oil level - which would take contract coal from $20 ton to nearly $45 a ton.
That sounds like plenty of incentive to mine coal, but some economists and social critics are extremely skeptical about the oil companies' intentions. They suggest several dark scenarios on how the oil industry may manipulate coal prices and production for maximum profit in conflict with the nation's energy goals.
Their scripts run like this: oil-owned coal will proceed with the development of the new strip mines in the West, but the actual production will be geared to rising prices, pushing upward the investment return on coal toward the higher return made on oil. Why sell your coal on long-term contracts for $25 or $30 a ton if there is a prospect it may hit $34 in a few years? An independent coal producer, they point out, does not have the same options.
What if coal prices do not increase sufficiently? Then, say the critics, the oil companies will continue to sit on their reserves, waiting for the more distant future whn coal synthetics - gas or liquefied coal or whatever - are fully feasible, the future when they can "refine" coal and distribute it more or less like their first love, petroleum.
But if climbing coal prices do stimulate full-throttle production, that might have the opposite effect of stalling the development of coal synthetics. "If you have coal prices pegged to oil prices," said former United Mine Workers research director Tom Woodruff, "It's better for the oil companies not to have synthetics enter the market and perhaps bring down the price oil."
These examples crudely illustrate the complaint of those who would like Congress or somebody to get oil firms out of the other fuels: a company with a broad spectrum of energy markets can develop a unified profit strategy which may conflict with what the country needs.
The all-energy companies, understandably, have a different scenario for the future. Roughly summarized, their promise is to go full tilt on developing everything - coal mining, coal synthetics, nuclear - if only the government and its regulators will get out of the way.
"Despite official projections," an API report warned, "future coal demand is very uncertain . . . Coal demand will also depend upon the future price of oil and nuclear energy, both of which may fluctuate greatly.
The federal government does not know what to think, judging from the reports it issues on future coal production. In the six Western states where oil-owned coal is strongest, the Interior Department's estimate of future tonnage is about half of the Federal Energy Administration's bullish projections. Interior says many lease-holders plan no production before 1990. FEA is much more optimistic. Since both federal agencies are basing their estimates on what the companies tell them, it is a bit difficult to get at the truth.
The critics, again, suggest that the bullish coal projections are really political statements, not economic forecasts, designed to stir up support for the coal slurry project which the oil companies are seeking and also to serve as a general warning against zealous environmental enforcement. The presumed message is: here is the abundance of coal that we can mine for America if the government will stay off your backs.
Whatever their intentions, both the oil and the coal industries oppose the mandatory conversion proposal in the Carter plan, even though it would dramatically increase the demand for coal. Their fear is that in the long run - it will lead to government control of coal - government price-setting for their market as tricky as the system for oil.
As a long-term prediction, that industry fear is sound. What the nation is liable to wind up with in energy is not the increased competition of lower prices which the divestiture advocates seek or the free hand which the companies want. What seems more likely is more regulation - the government and the oil industry dancing grimly together in the coalfields.
The future, whatever is looks like, belongs to the people who master the ideas - the know-how that converts laboratory technology into a marketable commodity, whether is is gasoline derived from coal or electric power generated from the sun.
The federal government is helping the oil companies to develop that know-how, particularly in the coal synthetics and nuclear fields. This is another way of ensuring that there will always be an Exxon, no matter what happens to the natural supplies of petroleum. The Engergy Research and Development Administration has contracts totaling $211,570,800 with a dozen or so oil companies and their subsidiaries (which is more than the companies are spending themselves.)
Gulf, Exxon, Shell, Mobil, Ashland, Continental are among the leading beneficiaries of this federal "R&D" money. The big money is on coal conversion covers solar and oil shale and other "exotics." ERDA also hires oil and gas companies to do research on oil and gas - active contracts totaling $51,118,200.
Government-financed research dwarfs the oil industry's, particularly in the alternative fuels. Overall, ERDA will spend about $3.6 billion on energy research this fiscal year compared with $443 million by 23 oil companies, according to an industry survey cited by API. Most of the industry's $443 million is for oil and gas research.In coal, the oil companies are spending $42.6 million; the federal government is spending $409 million. In solar, oil companies will spend $2.4 million; the government will spend $290 million.
In total, the 23 companies are spending only $113 million on fuel research outside oil and gas. By way of comparison, six oil majors will spend $70 million this year on TV and newspaper advertising to improve their public images.
Government research money, of course, encourages companies to do things they might not do with their own money.Government research money also tends to drive out private money. Why should any private corporation pick up the tab for developing marginal ideas if the government is willing to gamble the taxpayers' money?
But there is a special irony of history involved here. The federal government started its own research on coal synthetics 30 years ago with promising progress - but the coal program will killed by the Eisenhower administration. According to critics, it was the oil industry's political muscle that did in the synthetics program 25 years ago. Now oil has the contract.
One of those critics, FEA's O'Leary, delivered a harsh judgment on that political decision when he testified before Sen. Abourezk:
"My own view is that, if we had continued to spend at a critical level (on synthetics) we would not have had any sort of an energy crisis in the late 1960s or early 1970s. We would have had an orderly transit from our dependence upon natural liquid and fuels to synthetic fuels sometime in the 1960s. But the representatives of the oil industry . . . I think that if I had been the executive of an oil industry, I would have taken precisely the same position.