TIME: Almanac 1993/TIME Almanac 1993.iso/time/040389/04038900.018

Text File | 1992-09-23 | 5.7 KB | 112 lines

                                                                                BUSINESS, Page 40

Step on the Gas, Pay the Price


As the U.S. gulps more oil and discovers less, imports take off


    We're really living with a false sense of security," warns
George Mitchell, an independent Houston oilman. "We're heading
for deep trouble." What provokes Mitchell's dire prediction is
the shriveled condition of the U.S. oil-drilling industry, which
he believes has made the country seriously vulnerable to a
future energy emergency. "We're losing ground faster than we
might have predicted even a few months ago," he says. Adds John
Watson, another Houston oilman: "All the people have left, rigs
have been dismantled, the financial industry has turned its back
on oil and gas. It would take an all-out crusade to come back."

    Not everyone is quite so gloomy, but the current brisk
run-up in oil prices serves as a reminder that the U.S. energy
supply is increasingly under the influence of outside forces.
During March commodities traders bid the price of oil above the
$20-a-bbl. threshold for the first time in 17 months. Last week
the futures price of West Texas Intermediate, the benchmark U.S.
crude, reached $20.15 a bbl., up some 50% since last October.
The rally largely reflects an unexpectedly successful campaign
by members of the Organization of Petroleum Exporting Countries,
along with several non-OPEC countries, to curb their output and
reduce the world's oversupply. Since early January, OPEC
production has fallen about 3.5 million bbl. a day, to some 19
million.

    While the price of petroleum is still a long way from its
$35-a-bbl. peak in 1981, the U.S. is sliding back to a level of
dependence on foreign sources not seen since the oil-shock days
of the 1970s. January petroleum imports averaged 8.1 million
bbl. a day, up almost 21% from a year ago and surpassing
domestic production (8 million bbl.) for the first time in more
than a decade. The import surge has hampered efforts to shrink
the U.S. trade deficit, and rising prices have aggravated
inflationary pressure.

    As if the 1970s were only a bad dream, consumers have been
content to step on the gas. Sales of light trucks and
four-wheel-drive vehicles, which generally guzzle more fuel
than autos, have set U.S. sales records for four of the past
five years. Small wonder: the price of gasoline, adjusted for
inflation, is at its 1965 level. Among customers choosing a
recreational vehicle, says Bill Jocoy, a salesman at Northwoods
RV Supermarket in Lansing, Mich., mileage per gallon ranks only
fifth or sixth among their priorities, after color and floor
plan.

    The long stretch of low oil prices during the 1980s has
discouraged U.S. exploration and consumption. Only 740 drilling
rigs were operating in the U.S. last week, down from 943 a year
ago and a far cry from the 4,500 functioning rigs in late 1981.
Exxon's spending on domestic drilling dropped nearly two-thirds
from 1985 to 1987, to $333 million. Oil experts estimate that
prices will have to stabilize at no less than $25 a bbl. to
encourage a drilling resurgence in the U.S. Many American oil
companies have boosted their exploration overseas, where finding
oil typically costs $1.50 to $2 less per bbl. than in the U.S.

    What would happen if foreign producers cut off the U.S.
supply of crude, as OPEC did in the 1970s? In the short run, the
U.S. would not experience dire shortages. A Commerce Department
study found that in the event of war, the country's demand for
fuel could be met by domestic production and the Strategic
Petroleum Reserve. Created 13 years ago, the reserve is now up
to 515 million bbl., equivalent to about three months' total
consumption, stored in salt caverns along the Gulf Coast of
Texas and Louisiana.

    The Government study concluded, however, that if foreign
supplies were cut off oil prices would quickly skyrocket,
inevitably sending the economy into a tailspin. Because
production takes years to gear up, the U.S. petroleum industry
could not fully make up the slack of the lost imports. Says John
Boatwright, Exxon's chief domestic economist: "It's not a garden
hose you can turn on and off."

    Washington is showing renewed interest in measures that
would encourage oil companies to produce more and consumers to
use less. One proposal is to increase incentives to the oil
industry, which has moved its production overseas partly because
tax breaks for U.S. drilling have declined in recent years.
Another resurgent idea, which appeals to legislators primarily
as a means of cutting the budget deficit, is to increase the 9
cents federal gasoline tax by anywhere from 5 cents to 50 cents.

    Opening up more federal land to oil exploration would be
another way to bolster the energy industry. Earlier this month
the Senate Committee on Energy and Natural Resources approved
legislation to allow drilling in Alaska's Arctic National
Wildlife Refuge. Experts believe the field may hold enough oil
to supply U.S. needs for about 20 months. But the bill will face
fierce opposition from conservationists who argue that drilling
could destroy caribou, polar bears and other wildlife.
Opposition could be bolstered by last week's Alaskan oil spill.

    Even if the Arctic Refuge is developed, the U.S. will
remain in the position of a hungry consumer with a relatively
small larder. The Persian Gulf now holds two-thirds of the
world's proven oil reserves. The U.S. share is less than 3%,
while its annual consumption has reached nearly 30% of worldwide
usage. Those sobering figures are reason enough for the U.S. to
avoid gas-gulping habits that would bring on another painful
awakening.