U.S. Urged to Bolster Domestic Energy Stores : Report Predicts Greater Dependence on Mideast Oil, Warns of ‘Serious Potential Risk’ to Security

The United States faces a dramatic increase in dependence on Middle Eastern oil by the mid-1990s, with a “serious potential risk” to national security, unless the government takes new initiatives to strengthen its domestic energy supplies, according to an Administration study released Tuesday.

“Growing import dependence places our national security at serious potential risk through possible disruption of supplies,” the study, conducted by 12 federal agencies, emphasizes. “It is imperative that the United States take full advantage of those energy sources that can economically displace imported oil,” the study concludes.

Backs Reagan Strategy

The report, which President Reagan ordered last September, makes no specific recommendations. But its analysis broadly supports a strategy the Administration has already enunciated, centering on the deregulation of the natural gas industry, regulatory changes designed to revive the dormant nuclear power industry, accelerated offshore and Arctic drilling and fiscal incentives to reverse the nation’s declining oil production.

At the same time, the 337-page report concludes that, while oil import fees are an effective means of spurring domestic production, their economic costs would far outweigh the benefits of increased oil output.

It predicts that an import fee of $10 a barrel, for example, would provide economic benefits of $82 billion by 1995 and add 120,000 jobs--mainly in oil-related industries--but cost other sectors of the economy $273 billion and 400,000 jobs.

Secretary of Energy John S. Herrington, whose department coordinated the study, said it spotlights a trend that “threatens the vitality” of the American economy.

Herrington told a news conference that the sudden collapse of world oil prices last year was a reminder that fluctuations in price as well as the availability of world oil supplies will pose problems for the economy and national security for the rest of the century.

Responding to questions, Herrington said the report will form the basis for a package of energy-security measures to be considered by the Administration’s Domestic Policy Council, with the goal of raising U.S. oil output by 1 million barrels a day.

At an “absolute minimum,” he said, these measures should include tax and fiscal incentives to encourage exploration, regulatory changes for the natural gas and nuclear industries and resolution of the current impasse with environmentalists over drilling off the California coast and in the Arctic National Wildlife Refuge.

These two areas are considered to hold the greatest potential additions to U.S. reserves.

The report notes that the 50% drop in world oil prices last year benefited U.S. consumers by holding inflation to a 25-year low and boosting economic growth. But it stresses that the oil industry suffered severely.

150,000 Jobs Lost

Exploratory drilling fell 40% in the United States last year to pre-World War II levels. The study says that 150,000 jobs have been lost, representing 30% of the total work force devoted to oil and gas exploration and oil service industries, while unemployment among exploration geologists has reached 26%.

As the nation turned to cheaper foreign oil, U.S. oil production fell by 800,000 barrels a day in 1986 to a current level of 8.4 million barrels, and imports rose by 1 million barrels a day, to 5.3 million. A further drop in U.S. production of 400,000 barrels is expected this year.

At present, the United States imports 38% of its oil, up from 27% only a year ago and significantly above the 33% the nation imported at the time of the Arab oil embargo in 1973-74. The study projects a rise in net imports to 50% between 1990 and 1995.

Unavoidable Linkage

A major point stressed by the report is the unavoidable linkage between U.S. energy security and that of its allies and trading partners, whose own dependence on imported oil--particularly from the Persian Gulf--is expected to grow at an equal or faster rate.

This volatile region now supplies 25% of world exports, but with two-thirds of the non-Communist world’s oil reserves and an equal share of excess production capacity, the Persian Gulf’s share of world oil markets is expected to rise to between 45% and 60% by 1995, the report predicts.

Scott Campbell, director of the Energy Department’s Office of Policy and Evaluation, said that while U.S. dependence on Persian Gulf oil is currently low, “the trend is not good.” He said the region’s share of U.S. imports is likely to reach 30% to 35% by the mid-1990s, partly as a result of declining output from Britain’s North Sea oil fields and a predicted fall in U.S. production from Alaska’s Prudhoe Bay fields.

Ignited by Revolution

“Revolutions, regional wars or aggression from outside powers could disrupt a large volume of oil supplies from the Persian Gulf, inflicting severe damage on the economies of the United States and allied nations,” the report says, noting that price increases ignited by the Iranian revolution in 1978-79 contributed to the worst recession since the 1930s.

However, the study also concludes that American vulnerability will not necessarily grow in proportion to rising oil imports. Moreover, a “politically inspired oil embargo” similar to that which Arab suppliers imposed in 1973 and 1974 is “not considered a significant threat at present,” although it “could become one as oil imports increase and excess production capacity declines.”

Decontrol of oil prices in the United States and similar moves by other countries are said to have made Western economies more resilient to price and supply shocks, while the United States’ large strategic petroleum reserve “will make it possible to respond far more effectively to any future disruptions than has been the case in the past.” The reserve now holds 515 billion barrels of crude oil. A barrel contains 42 gallons.

Outlines Steps

The study nevertheless outlines a number of steps it says the government could take to slow the growth of imports and further cushion the economy from future disruptions. It maintains that comprehensive changes in natural gas regulation, including a lifting of price controls, would reduce oil imports by 300,000 to 350,000 barrels a day by 1995 while saving consumers $25 to $45 a year in gas bills.

At the same time, the report says, regulatory changes are needed to bolster public confidence in nuclear power and to revive the dormant nuclear industry, which has not seen an order for a new power reactor since 1978. A little more than 100 nuclear plants now supply 17% of U.S. electricity.

The study also urges accelerated development of “clean coal” technologies to take fuller advantage of huge U.S. resources and enhanced oil recovery techniques that could extract an estimated 300 billion barrels of oil that is unobtainable by conventional methods.