U.S. Can Take Firm Steps to Keep OPEC Off Balance

OPEC is down but not out. As the price of oil continues to fall to below $20 a barrel, conservation will gradually weaken and consumption of oil will start to increase--unless we do something about it.

Oil is at a bargain price now--less than it was in 1974. After allowing for inflation, the present price of $20 is only about one-third the $36 price peak of 1980. As the oil market tightens by the end of this decade, prices will begin a slow climb.

Further, the world’s reserves are concentrated in the Middle East. After the year 2000, most world oil will be flowing from there. The present ruling regimes may not survive, but their successors will be pumping oil and collecting revenues.

America’s long-term energy policy must be twofold:

First, we should move to delay and soften the economic effects of future price increases. We should recall that in the past decade well over $1 trillion was transferred from consumers to oil producers--the largest transfer of resources in human history.

Second, we should assure that oil revenues are not used against the interests of the United States and its allies. During the past decade or so, billions of oil dollars have gone to purchase Soviet arms for Syria and Lybia, and to the support of worldwide terrorism.

OPEC, the Organization of Petroleum Exporting Countries, lost its control by overreaching. In 1979-80, panic buying drove up oil prices to $36 and more. Saudi Arabia, the organization’s biggest oil producer, did nothing to discourage these price increases. On the contrary, to keep the prices from collapsing and to raise them even higher, the Saudis reduced their own production from more than 10 million barrels per day to as few as 2 million barrels.

But the continued high prices persuaded consumers throughout the world to adopt drastic conservation measures and to switch to cheaper energy sources whenever economically possible. Many projects begun in order to reduce our dependency on oil--natural-gas pipelines, hydroelectric projects and nuclear-power plants, to name but a few--will remain. Once their up-front capital costs are spent, they become “sunk costs.” So these projects will continue to operate even if oil prices should dip below $10 a barrel. The Saudis have now finally switched their tactics. After losing tens of billions of dollars in revenues in trying to defend the high prices, they have gone to a price war to force other producers--both inside and outside OPEC--to cut production and make oil scarce, thereby pushing up the prices. Our policy, and that of other consumer nations, should be to blunt this tactic. We should keep in mind that every dollar of price increase transfers $10 billion a year to OPEC and to the likes of Libyan leader Moammar Kadafi and other such worthies.

Beginning with natural gas, our best oil competitor, here are some of the things that should make up our government’s energy policy:

--Repeal the Industrial Fuel Use Act, a piece of legislation that inhibits the use of plentiful natural gas. Natural-gas prices are falling, and we have a surplus. But electric utilities, for instance, cannot use natural gas in new boilers. Gas, however, is one of the cleanest fuels available, and it can play an important role in overcoming such problems as acid rain while science continues to seek more effective, longer-range methods of dealing with this environmental problem.

--Complete the decontrol and the deregulation of natural gas. The price of “old gas” (gas that was discovered and developed some time ago) should be completely decontrolled in order to make for a free market. Even more important, the transportation of gas should be decontrolled so that gas pipelines can be put to use more efficiently and the resulting savings can then be transferred to consumers.

--Free up the use of coal by repealing a 1977 amendment to the Clean Air Act that imposes strict requirements on how emissions, particularly from low-sulfur coal, are controlled. Rather than overregulate, Congress should simply set the total amount of sulfur that can be emitted into the atmosphere but leave it to the industries involved to decide on how to achieve this goal at the least cost.

--Coal can also become a much more widely used fuel if we are successful in lowering transportation costs--something that would make it much cheaper to the eventual consumer and would lower the cost of electricity as well. Slurry pipelines can play an important role, and should be encouraged as alternatives to current rail transportation.

--We now have, or soon will have, about 20% of our electric power produced by atomic fission. At this stage it is important to improve the efficiency of operation of existing nuclear plants and to extend their lifetime so as to bring down the cost of nuclear power.

--With respect to renewable energy sources, every encouragement should be given to private efforts to lower the cost of solar energy. In many applications solar energy now provides a competitive form of electricity.

--The exporting of Alaskan oil would put pressure on OPEC to further lower its prices and to keep them lower until later in this decade. Right now the exporting of this oil is prohibited for spurious reasons of national security.

--Sensible leasing of offshore oil is necessary in order to have oil available in the future. Contrary to the opinion of some people, it is possible to develop oil without damaging the environment. We should know what’s out there so that the nation can better plan its long-term energy strategy.

--One of the most effective ways of encouraging oil conservation is by imposing a stiff gasoline tax. Actually, such a tax would be nothing more than a user fee for those traveling on highways, bridges and tunnels. At present the states do not cover their highway-repair expenses by gasoline taxes and other user fees, and must dip into the general tax revenues and issue bonds in order to overcome a deficit of $47 billion a year. Gasoline user fees would be a fair way of paying for the necessary costs. As a side benefit, they would also cut the importing of oil.

--The United States has accumulated a strategic stockpile of oil of about 500 million barrels--more than 100 days’ worth of imports at the current rate. An aggressive government policy of selling some of the oil at certain times could act to keep oil prices lower and make the job of manipulating the price more difficult for OPEC.