President Carter yesterday ordered an immediate end to price controls on heavy crude oil, saying the action would "significantly increase production of American crude oil reserves" and add to the nation's security.
The administration estimated that the action would boost production of heavy crude oil by 200,000 barrels a day by 1985 and 500,000 barrels a day by 1990. Current production is about 250,000 barrels a day.
Carter's decontrol order also will increase the revenues of oil companies by hundreds of millions of dollars annually, according to administration officials. The president said he will ask Congress to exempt the profits from this decontrol action from his proposed "windfall profits" tax, currently before Congress.
A White House fact sheet explained that this exemption was necessary because "the anticipated new production would not be economical if the windfall profits tax applied," as the cost of producing this heavyweight oil is so high.
Yesterday's action fulfilled a pledge Carter made in July as part of his new energy program. He earlier had ordered that price controls on regular crude oil, by far the bulk of U.S. production, be phased out by 1981.
Meanwhile, administration officials confirmed that Carter intends to nominate John C. Sawhill as deputy secretary of energy. Sawhill was the top energy official in the Nixon and Ford administrations.
Sawhill, 42, has been president of New York University since 1975. He first entered government in 1973, leaving a $100,000-a-year job as vice president of the Commercial Credit Co. to join the Nixon administration as an energy adviser. Nixon named Sawhill his federal energy administrator in April 1974. But one year and one president later, his differences with President Ford's fuel-pricing policies led to his forced resignation.
Carter said, in remarks to reporters in the Oval Office yesterday, that with his signing of the decontrol order, "I have taken all of the major steps on which I can act alone to accelerate domestic production. It is now up to Congress to act on the other proposals which I made to cut our import dependence."
He followed this with another appeal for passage of his windfall profits tax, which he called "the most important" of his proposals. Carter complained, however, that the Senate Finance Committee is considering some broad exemptions to the proposed tax that the president said will not increase production but are "loopholes big enough to sail an oil tanker through." The White House cited as examples a proposed exemption for newly discovered crude oil and for independent producers.
Administration officials said yesterday that, because production costs for heavy oil are high, it is the combination of price decontrol and the exemption from the windfall profits tax that will boost output of heavy crude oil during the next decade. The end of price controls initially may do little more than offset anticipated declines in production, they said.
Carter's pumping of the windfall profits tax yesterday likely will be repeated frequently in the coming week, as he rides down the Mississippi River aboard the paddle-wheeled Delta Queen. He plans daily stops to campaign for his energy program and perhaps for himself as well. Two of the daily stops will be in Iowa, the state whose presidential caucuses will provide the first contest of the 1980 campaign.
Yesterday's decontrol order affects a highly viscous, tar-like grade of oil found mostly in California but also in Texas, Louisiana, Oklahoma, Mississippi and Wyoming.
Because of the heaviness of the oil, costly methods, most often heating, must be used at every stage of production and refining to keep the oil sufficiently fluid for processing.
White House officials said that the reason Carter has delayed one month in signing the executive order decontrolling heavy crude was that it took a long time for the administration's experts to agree on what oil would be eligible.
The asministration finally decided that heavy oil would be defined as that which has an average specific gravity of 16 degrees or less. Production of such oil is at 250,000 barrels a day, and there are 10 billion barrels of heavy oil in U.S. Land, administration officials estimated. Major oil companies that deal substantially in heavy crude oil, according to an administration official, include Getty, Chevron and Atlantic Richfield.The state of California and the city of Long Beach, Calif., also benefit from heavy crude oil revenues, because they own the mineral rights to much of the land where the reserves are.
Most of the heavy oil had been selling at $6 a barrel. Now the heavy crude will be allowed to sell at the market price, about $18 a barrel in most areas, though administration officials estimate it will wind up selling for slightly less than that, about $15 a barrel.
In September, DOE will conduct hearings into whether the definition of heavy crude oil subject to decontrol should be expanded to include oil slightly lighter than the 16-degree average specific gravity.
If Carter had not acted to immediately decontrol heavy crude oil, the price controls would have lasted through 1981, at which time all oil price controls will have expired.
Carter's decontrol action won quick praise from the American Petroleum Institute. A spokesman for the institute, which represents the oil industry, said the institute agrees with Carter's assessment that decontrol of heavy oil will increase production. The API spokesman used the same reasoning for a pitch for the decontrol "immediately" of all domestic crude oil prices.