Oil Patch Asks for Help
Just how bad are things down on the Oil Patch? They are grave enough for some industry leaders to abandon the free market and turn to the U.S. government for help, possibly by imposing a minimum price for crude oil to buffer the industry against disaster. Big Oil is by no means united on this issue, but it was extraordinary for the American Petroleum Institute just to urge the government to study forms of possible relief. The Reagan Administration, and the nation, should take notice.
The action prompted the Oil & Gas Journal to comment: “For most oilmen, it takes a difficult compromise of principle to ask for government help. Most know that help now probably means a government role in the oil industry forever.”
The API board did not endorse any specific proposals at its recent convention. But, speaking for himself, API Chairman George M. Keller, the chairman of Chevron, urged the adoption of a minimum price for oil through an import fee, an import quota or tax incentives to encourage domestic drilling. At current prices, U.S. production will fall by 2.7 million barrels a day within five years, API President Charles J. DiBona said. At that point the nation would be importing more than half its required petroleum.
Keller and his allies have received little encouragement from the Reagan Administration, which consistently has opposed import fees or higher gasoline taxes. Budget director James C. Miller told API members that “you’ve got to be kidding” if they thought the Administration was going to risk economic expansion by raising energy prices. And, on Wednesday, Energy Secretary John Herrington said that there is a lot the Administration can do for the industry, but not by giving up on the free market. Herrington suggested continued efforts to repeal the windfall-profits tax, further deregulation of natural gas and the relaxation of other controls.
One of President Reagan’s first acts in office was to remove the remaining federal price controls on oil. The industry boomed, prices soared and the drill rigs worked overtime. But drilling peaked soon thereafter, and has plummeted with the decline in world oil prices. Only 26% of the nation’s oil rigs were at work last year, compared with nearly 98% in 1981. Domestic production fell 2.3% this year, and is expected to decline an additional 3% in 1987.
The President insisted that the free market would take care of the nation’s energy needs. The market has worked its will, and the industry is in shambles. The country again is risking its energy security by importing more oil from abroad. One can chuckle at OPEC’s problems and revel in cheap imported oil, but the long-term political, social and economic costs of imports have been graphically and chillingly demonstrated by the Harvard Business School energy project.
Some Americans may gloat at the prospect of the oilmen coming back to Washington, hard hats and Stetsons in hand, asking for help. Certainly Washington should resist pure handouts or bail-outs for an industry that still is highly profitable and has expended considerable energy and money on mergers and takeovers. But the mere idea of oilmen contemplating a request for government intervention should cause the Administration and Congress to listen closely to the tale of woe from America’s Oil Patch.
