The Carter administration is weighing a proposal that could reduce sharply the advantage major oil companies enjoy by importing lower-cost Saudi oil, but could benefit independent refiners.
The complex proposal, now being circulated within the administration, would "average" the price refiners pay for imported oil. It is framed as a plan to "restrain the oil spot market and reduce inflation in oil prices."
Senior administration officials say the proposal, drafted by a staff member of the Council on Wage and Price Stability, has yet to win the approval of any senior White House or Enery Department official.
"It would wipe out the advantage of Saudi crude oil to the Aramco partners, and end up in an income transfer between the other oil companies," said one DOE official. The Arabian American Oil Co. (Aramco) is owned jointly by Exxon, Mobil, Texaco, Standard Oil Co. of California and the Saudi government.
The COWPS-drafted proposal would even out some of the differences in price refiners pay for foreign oil in much the same way the DOE's current entitlements program is intended to equalize the price refiners pay for domestic and foreign oil.
When initially put into effect, however, the entitlements program was based on a stable single-tier price structure for foreign oil. Since then, the price of imported oil has broken into three tiers.
Saudi Arabia, the world's leading oil exporter, has been selling its premium oil at $18 a barrel since July 1, while other members have been selling their oil for contract prices ranging from $22 to $25 a barrel and on the so-called "spot" market for up to $40 a barrel.
Because of the range in prices that refiners pay for foreign oil and the difficulty that some small and independent refiners have competing for imports, a few oil companies --notably Union Oil Co. of California and Ashland Oil -- have asked for special exemptions from DOE's pricing and allocation regulation.
The COWPS-drafted proposal would ease these problems of access and price while reducing "the extraordinary competitive advantage these [Aramco] companies enjoy." Further, the plan supposedly would reduce the upward pressure on spot-market prices by guaranteeing small and independent refiners access to crude oil now claimed by their competitors. A copy of the seven-page proposal was obtained by The Washington Post.
International oil analysts such as J. Walter Levy and State Department and DOE officials long have argued that the oil-importing industrial nations must move to control spot prices to stem increases in oil prices. Since January, world oil prices have risen 70 precent.
Reaction to the Cowps-drafted plan, circulated by Terrance O'Rouke, has not been favorable within DOE, the Office and Management and Budget and White House energy councils.
"It would end up bringing more regulation and expanding the entitlements program that the president is trying to kill," said one DOE official. Elsewhere, another energy policy-maker said, "It's not totally dead, but my guess is that [Energy Secretary Charles] Duncan will have to oppose it."
The DOE's entitlements program is designed to equalize the cost refiners pay for domestic and foreign oil. The price of domestic oil ranges from $6.54 a barrel for old oil -- from wells largely in production before 1973 -- to more than $32 for unregulated production.
Under the entitlements program, up to$360 million a month is exchanged between refiners to average the price they pay for oil. However, these so-called entitlements payments, now amounting to nearly $4 a barrel, do not take into account the wide range in foreign oil prices.
Under the Carter administration's plan to decontrol oil prices, the entitlements program was to be phased out. But the amount of money exchanged has increased rather than dropped because of gyrations in foreign oil prices.