This island city, and economic backwater for nearly 70 years since Houston eclipsed its port with a 50-mile-long ship channel, has laid plans to become the first onshore unloading facility for mammoth oil supertankers in the continental United States.

The prospect of the privately owned oil terminal -- which probably would kill plans for a more expensive, stateowned deepwater port 26 miles out into the Gulf of Mexico from Freeport -- has galvanized Galveston into a classic confrontation of quality of life versus industrial development.

It has also opened a town-gown chasm between the local business establishment, which backs the oil superport, and many administrators, faculty and staff at the University of Texas medical branch here, who oppose it.

The medical school, Galveston's largest employer with 6,500 jobs, sits on an 80-acre campus about 7,500 feet from the proposed superport on Pelican Island, a large sand bar in the bay that separates Galveston Island from the mainland.

Many school administrators and faculty members live far closer to the site where the light-loaded, 250,000-ton-capacity Very Large Crude Carriers (VLCCs) would be berthed. For example, school president Dr. William Levin's $250,000 residence is right on the water, 1,500 feet from where the supertankers would dock.

Dr. Mason Guest, a professor at the medical school and a neighbor of Levin, says that any explosion on one of the huge tankers and the resulting fire storm across Galveston's densely populated East End could kill or injure 20,000 persons. Guest, a member of Stop the Terminal on Pelican (STOP), points out that during the past six months two smaller tankers have exploded after being hit by lightning at ports on the upper Texas coast.

Harris L. Kempner Jr., president of the United States National Bank here and the chief political strategist for Joint Organization for a Better Seaport (JOBS), the pro-superport group, calls Guest and his fellow STOP activists "the Apocalypse Now crowd."

"They're anti-business, anti-growth," Kempner says. "They say, "You can't rule out all the risks, so let's not do anything." Kempner says the oil terminal itself, an automated facility, will have about 70 jobs. But he says that the greatest benefit to Galveston will occur from deepening the Galveston Channel 32 miles into the Gulf to between 56 and 58 feet, which will promote other shipping traffic at the port and create 400 or more ancillary jobs.

Jobs are important in this economically depressed city, Kempner points out.

About 20 percent of the population is at or below the federal poverty line. Many downtown stores have closed in the last few years, and the city lost 10.5 percent of its population between 1960 and 1975, according to census data.

Property taxes here are among the highest in Texas, largely because half the city's property is not taxable. The bulk of this untaxed property is the state-owned campus of the University of Texas medical branch and the city-owned port, the Galveston Wharves. Kempner says the oil terminal will add about 5 percent to the assessed value of Galveston County property. Opponents say it will add about 2 percent to the city's revenues.

The project, which backers say would cost more than $350 million, would be paid for by revenue bonds issued by the Galveston Wharves. The bonds would be backed by eight-to-ten-year "take or pay" contracts between major companies and the Pelican Terminal Corp., a joint venture of Northville Industries of New York, a petroleum storage company, and Chicago Bridge & Iron Co., a designer and builder of oil storage tanks.

The proposed state-owned offshore superport off Freeport, 25 miles south of here, by comparison, has an estimated cost of $800 million and would require 30-year "take or pay" contracts with oil companies. To be economically feasible, the facility off Freeport would require an estimated minimum flow of 1.4 million barrels of crude oil a day, compared with 750,000 barrels at the proposed Galveston oil terminal.

Apparently because of uncertainties in part over whether the larger supply of oil can be guaranteed without interruption for the longer period, major oil companies have dropped out, at least temporarily, of the Freeport offshore superport.

The Galveston oil terminal, by contrast, is moving full steam ahead. A two-volume environmental impact statement is out, a notice about the project has been published in the Federal Register, and opponents have until Nov. 5 to lodge objections. "We anticipate that all our permits will be issued before the end of the year," says William Bauer, a vice president of Pelican Terminal Corp. He says he expects the terminal could be in operation sometime in 1982.

There has been one hitch. The Environmental Protection Agency this week requested that the deadline for its first comment be moved up 30 days to Nov. 5 because, the agency said, it did not receive its copy of the final environmental impact statement until last Friday.

In an attempt to halt the terminal STOP activists are circulating petitions to force an election on two proposed city ordinances. One would forbid vessels larger than 80,000 deadweight tons carrying crude oil or other fuels or combustible chemicals from coming within 1,000 yards of an occupied home. The other would tax holders of city leaseholds at the port and elswhere for the market value of the property.

Dr. Murphy Scurry, an associate professor at the medical branch, says two-thirds of the signatures needed to call the election on the two proposed ordinances have been collected. He says he hopes they by early November, enough signatures will have been collected to present to the Galveston city council.