VIEWPOINTS : Sliding Tariff on Oil Would Offer Long-Term Benefits to Nation : Unocal’s Fred Hartley Warns of Danger From Collapse of Prices

Fred L. Hartley, chairman and chief executive at Unocal, the nation’s 13th-largest oil company, is among the most outspoken oil industry leaders in warning of the dangers of low oil prices. But unlike some, he advocates a tariff on imported oil to prop up prices. The collapse of world oil prices may be a boon to consumers and other users of energy, but it has prompted most oil companies to lay off workers and sharply cut back on exploration, raising the prospect of renewed shortages of domestic oil. Hartley, 69, who has been Unocal’s chief executive since 1964, talked about oil prices in a recent interview in his office at the company’s downtown Los Angeles headquarters with Times Staff Writer Donald Woutat. Question: It looks as if high oil prices are bad for the economy and the consumer, and low oil prices are bad for the oil industry. Is there an optimum level for the best interests of both segments of the economy?

Answer: Well, I think you have to define what you mean by being good for the consumer. We predict that at today’s prices, probably by 1991, consumption will have grown by something approaching a million barrels a day because our conservation ethic, (which) we have cherished and have worked so hard to bring about will have been destroyed to a considerable degree.

Q: I keep hearing people say that conservation has been built into the system. You can’t buy a gas-guzzler today if you want to.

A: You can drive differently, though--the hot throttle can come back again. And the dollars for exploration and development will be totally inadequate to maintain U.S. reserves and production capability. If we have this combination of increase in consumption and population growth, reduced conservation ethic, shutting down of stripper wells and enhanced oil recovery and this sheer lack of exploring and developing new oil fields, I think that gives you a total (loss of about) 4 million to 5 million barrels a day. That means U.S. imports will climb from 30% of total U.S. demand to about 60% of U.S. demand. The additional (oil) is going to be coming from OPEC countries, and that will put OPEC back into the driver’s seat. So that means the public as the short-term beneficiary becomes the long-term pigeon.

Q: What should the Saudis do? What would you do if you wanted to try to re-establish some discipline in OPEC but you didn’t want to raise havoc with the rest of the world?

A: Well, I’m not a student of the Arab mind. I don’t know what they’re thinking. A friend I knew one time said he was taking a 2-by-4 to Washington, because he was working on a problem. I said, what are you doing that for? Well, he said, first I got to hit them on the head to get their attention. If you give the Saudis the benefit of the doubt, that’s the position they’re in right now. And, they certainly have gotten their comrades’ attention.

Q: Which brings us to the oil import tariff. You’re proposing a kind of sliding tariff that would diminish or increase according to prices?

A: That’s right. A judgment is required as to what level of support price should be established. I have suggested $27 a barrel. (But) I wouldn’t make a violent argument. Use $22. At today’s $13 a barrel, the differential is $9 and the import fee would be $9. If the prices then started to rise and they got to $20, the difference would be $2 and the import fee would be $2.

Q: What about support in Congress for a tariff?

A: When I spoke before the Senate Energy and Natural Resources Committee, as far as I can tell you, sir, there was not one man against it. In fact, the one fellow (Sen. Dale Bumpers) from Arkansas told me that I was kind of preaching to the choir and the problem was at 1600 Pennsylvania Ave., which, I think from what I’ve read, appears to be correct.

Q: Do you have any sense that the White House is rethinking this?

A: Unfortunately, we’re now in an election year, and there’s been kind of an aura of oil happiness generated. Since you can’t go to Europe for fear of terrorists, enjoy the terrorism of the Saudis in giving us these nice, low oil prices and stay home and drive your car and burn all the gasoline you want. This is the time to do it.

Q: You advocate some sort of import fee, but at the same time you advocate deregulating natural gas. Is there a philosophical inconsistency there?

A: No. I think you should make a strong point differentiating between controls which are a response to a foreign power. Right now, today, we do have import controls on Japanese cars. Why do you think we are really interested in that? The answer--World War II. Who was the arsenal of Democracy? It wasn’t the Japanese; they were building stuff to kill us with. It was Detroit, in concert with Pittsburgh. That industry is not going to be around to the same extent next time, if there is a next time. And in the same way, it is important that we have a strong oil industry. Wasn’t this (energy security) considered by President Carter to be the moral equivalent of war? We took him seriously.

We have been doing some research work in (alternative fuels) for many years. We want to be certain that if we sell it we will not be undercut by predatory pricing on the part of OPEC. Our concern is certainly being confirmed. No nation can turn off and on an alternative energy program. And we have been turning it on and off like a spigot.

Q: Your friend up at Chevron (Chairman George Keller) has a different view on this (tariff) question, and there’s no unanimity.

A: I don’t know what his view is.

Q: Well, he’s opposed to a tariff.

A: But he suggested on television (that) he expects to see oil prices run $20 a barrel by the end of this year. I guess maybe he has reason to know. After all, he’s been working with the Arabs for years; he says he knows a lot about them. Maybe he knows what their plan is.

Q: But there is not unanimity in the industry.

A: There’s more every day. Some other oil companies of quite large size are in favor of the tariff but say very little publicly. But perhaps you can guess who they are--there’s at least four companies as large as we are (that) are in favor of it.

Q: Why aren’t they out there speaking out publicly?

A: I don’t know. It takes all kinds to be businessmen.

Q: I’ve been reading for the last few years how the Saudis and OPEC don’t have any power any more, but I’ve certainly been struck by the Saudis’ ability to demonstrate power.

A: Power to the n th degree. And if Mr. Keller thinks we’re going to have $20 oil in December, I say to him, if $20 oil is good enough in December, why the hell isn’t it good enough for us in May? We can’t get into these unbelievable manpower firings that are going on, reductions in exploration effort all over the place. I think it’s approaching almost a national disgrace.

Q: Do you think, in the era of high prices, that the industry got at all fat and sloppy?

A: I don’t think from the point of view of the basic industry. If you’re talking about all of the financing gimmickry that got into our business, with the soft-shoe people extolling the virtues of oil partnerships, oil deals of all kinds, this soft money did cause a lot of wells to be drilled that were probably very foolish. But I don’t think that caused our company to behave that way.

Q: Would you earmark any of the tariff revenues for anything in particular?

A: What our government does when money goes into the U.S. Treasury has nothing to do with our industry. I frankly think that once the world observes the United States’ determination to defend itself from this predatory price war, I would predict (that) OPEC will join ranks very quickly and come back up on their prices. And it would not cause us to get exuberantly wealthy because of the applications of the current existing windfall profit tax.

Q: Although you’d like to get rid of that.

A: Well, the suggestion made to get rid of it (the windfall profit tax) means nothing. That’s a decision that would cause us to make more money than ever. If the Saudis went up to $50, we’d get it all. Can you imagine us keeping it? Of course not.