The Oil Crisis 20 Years Later : The World’s Petroleum Tiger has Been Tamed--for Now.

Two decades ago, in the disconcerting early weeks of the 1973 Arab oil embargo, U.S. reliance on petroleum became a menacing new problem in the public mind.

The predictions began:

Crude oil prices would be sky-high by the 1990s--$60, $80, $100 a barrel--as rich foreign oil producers tightened their grip on a fast-dwindling resource. Gasoline lines would be the common symbol of a nation starved for energy. Crash programs to build more nuclear and alternative power plants, and to drill for more domestic oil, would struggle to catch up with booming demand.

But 1993 doesn’t look at all like that.

In fact, for the past seven years, crude oil has puttered along at a fraction of those prophesied prices. And with more estimated reserves today than when the embargo began, the world’s oil tiger has become tame--almost a dependable commodity. If anything, oil has reared back to bite those it was expected to best serve.

Indeed, crude oil prices that are among the lowest in the industry’s history have wrought massive, painful change in the petroleum business. And they have returned the nations of a much-weakened Organization of Petroleum Exporting Countries to oil revenues at the level of 20 years ago.

As for the alternative energy sources that once counted on $80-a-barrel oil to make themselves competitive, many have been battered--and in some cases beaten--by an unexpectedly low-cost rival.

Meanwhile, Americans are driving more, with little fear of gas lines--in part because their cars are more efficient, a response to the oil scare of the 1970s.

Other traditional oil consumers have also comfortably readjusted to prices that fell to $10 a barrel in 1986 and still linger well below $20 today. The groundswell of public demand for energy independence that erupted in the mid-1970s, when Americans discovered that 38% of their oil came from foreign wells, has faded to a whimper--even though half the nation’s oil now is imported.

“Low oil prices tend to make society forget its fears and objections and campaigns,” notes analyst Trilby Lundberg.

Beyond motorists--who pay no more in inflation-adjusted terms for gas than they did 20 years ago--the beneficiaries of cheap oil permeate the landscape:

* Fuel is second only to labor, for example, as a share of airlines’ operating costs. To pull a wide-bodied jet up to the fuel pump these days costs more than $10,000--but that’s less than it cost (adjusted for inflation) a decade ago.

“Low jet fuel prices are one of the few blessings the airline industry has experienced in the last couple of years,” says Chris Chiames, a spokesman for the Air Transport Assn.

Another blessing is a legacy of the oil shocks: improved airplane design, which has made planes 50% more energy-efficient than they were in 1973, according to Chiames.

* To truckers, low-cost diesel fuel “is the profit margin,” says Dave Titus of the California Trucking Assn. Titus estimates that in the deregulated trucking industry, margins are running at about 1%.

“In a competitive market,” he says, “survival basically comes down to good maintenance and fuel cost, especially if you’re an over-the-road hauler.”

* Lower prices for asphalt since the 1986 fall in crude prices have given that petroleum-based material an edge in the paving market against cement. Low bunker fuel prices have beefed up marine shipping profits. And cheap oil has slowed the penetration of coal into industrial energy production.

* Even suppliers of petrolatum--used in cosmetics, pharmaceuticals and the original Vaseline petroleum jelly--are doing all right in a slow economy. “We’re very happy with our performance in the last couple of years,” says Newton Brightwell, a vice president of New York-based Witco Corp., one of the largest U.S. petrolatum suppliers.

* U.S. plastics makers--which derive half their products from crude oil and half from natural gas--have had a more complex time of it.

Certainly, low feedstock costs have helped the industry make market inroads--as in the plastic grocery bags that are fast replacing paper in thousands of supermarkets around the country. And low gasoline prices can encourage home buying, also a boon to plastics manufacturers.

“People have more money to spend because they’re not sending it to the oil companies,” says John Johnson, senior consultant at Probe Economics Inc., a plastics-industry research firm.

Even better off are European and Japanese manufacturers, which use crude oil as their sole feedstock--and thus have had a cost advantage since 1986.

Times have been much tougher in the U.S. oil industry itself.

A listless economy, energy conservation, the continuing glut of oil on the world market and sparse U.S. drilling prospects--the legacy of a century of exploration and more recent environmental restrictions--have cost half a million oil patch jobs in the past decade and cut the number of working U.S. rigs to Depression-era lows.

In these conditions, “it’s hard to think of a sector of the industry that has been helped by low crude prices,” says Edward H. Murphy of the American Petroleum Institute.

Major oil companies have coped by selling off marginal oil wells, getting rid of thousands of employees and moving the hunt for new oil overseas. Industrywide, earnings of the 300 largest publicly traded U.S. petroleum companies plunged 37% in 1992. Chevron even put its historic San Francisco headquarters on the block.

In the convulsive transformation, even the most efficient operations are being squeezed and squeezed again as U.S. companies learn to live with low-priced crude.

In the bare-dirt hills outside Bakersfield, Texaco Inc. is eking out every barrel of oil it can from its Kern River tract, the company’s largest producing field in the United States. The giant Kern River field--an “elephant” in oil world lingo--was discovered in 1899.

Long ago, the easy oil was brought up. Now what remains of the syrupy, low-value crude must be heated with massive injections of 450-degree Fahrenheit steam before it can be recovered.

The field’s 4,500 producing wells are measured by a computerized system weekly. Each well’s production, valued at current crude oil prices, is compared to the costs of running the well. If a well isn’t making money, Texaco shuts it down and tweaks the steam system until it does.

“It’s almost an oil factory,” says Doug K. Carriger, Texaco’s producing-division manager for Bakersfield.

But despite such efficiency, low crude prices have brought a new round of cost-cutting measures to the Kern River field. Of 480 jobs, 146 will be eliminated by February as the company farms out the field’s well-servicing work to private contractors.

“If it’s not coming in the front door,” Texaco CEO Alfred C. DeCrane says of oil economics in the 1990s, “you’ve got to continue to look for ways to keep it from flowing out the back door--with cost controls, improved operating procedures, technological advantages.”

By applying such tactics, most big companies are rallying. (This year’s third-quarter profits at six big U.S. oil companies rose a combined $137 million.) But many small refiners still bob in and out of production, or slip into bankruptcy, as prices take a brief turn for better or worse. Gasoline marketers are also struggling--abandoning marginal markets and selling, trading or closing service stations.

Los Angeles, the world’s largest gasoline retail market, now has about half the service stations it did in 1974. Of the 1,500 that Unocal operated in California in 1991, almost 300 have been shut down. Exxon plans to pull out of Los Angeles completely.

Even recent growth in automobile use is not helping the stations. Though driving increased as much as 2.5% in the first six months of 1993, according to the American Petroleum Institute, gasoline consumption grew by a barely perceptible 1% because of the increased efficiency of newer cars.

“What you have is a pie that isn’t growing,” says David L. Morehead, a vice president of the Petroleum Marketers Assn. of America. “These marketers would cut each others’ hearts out to get increased market share.”

Mary Jane Wilson, president of WZI Inc., a small Bakersfield oil field services firm, isn’t banking on a revival of the U.S. oil industry. She’s looking for other work.

Wilson has steered her 35-employee company from a 90% reliance on oil field engineering contracts to a 90% dependence on non-oil jobs.

“For us it’s been a dramatic change,” she says. Yet the engineering tasks have not been as large a leap. Her specialty, multiphase fluid flow, is not only central to the petroleum business, it is the process by which air and ground water pollution spreads--or how nutrients pass through the walls of the human vein.

“The whole world is multiphase fluid flow,” Wilson says hopefully.

Entrepreneurs in alternative energy have also faced their days of reckoning in the California sun. Some of these technologies have been outmatched by their low-cost oil competitor. Others have matured or sought niches and kept in the running.

“That the alternative energies are still here is a testament to their resiliency,” says V. John White, who heads the Coalition for Energy Efficiency and Renewable Technologies in Sacramento.

One clear survivor is wind energy, which has become so practical that in California alone it now produces twice the residential electrical demand of San Francisco--2% of the state’s needs. Utilities in states from Oregon to Maine are looking into wind power.

But in the Southern California desert, at an energy and transportation crossroads along Santa Fe Street outside Daggett, there sits an oversized showcase of alternative energy schemes, some of them the worse for the wear.

The Cool Water Coal Gasification plant is gaunt and quiet, a near-forgotten triumph of the national effort to promote domestic energy sources. A project of the U.S. Synthetic Fuels Corp., a now-defunct federal agency, it used Texaco technology and was run by Southern California Edison. The plant turned trainloads of Utah coal into a clean, methane-like gas from 1984 to 1989.

“It was very successful technically, and environmentally,” recalls Ted H. Heath, Edison’s project manager for the giant, mothballed plant. But the Cool Water process would only be commercial in a market with $35 to $40 crude oil.

New technologies still wait to be tested along Santa Fe Street--not least Edison’s Solar II scheme, which stores the sun’s heat in molten salt and will begin operation in 1996.

Just down the road, the world’s first large-scale solar plants are trying to hang on.

The two vast fields of mirrors, which capture the sun’s heat to run steam turbines, are the earliest generations of a technology developed by the ambitious Luz International Ltd., which built nine such plants before filing Chapter 7 bankruptcy in 1991.

These first two Luz plants supply electricity to Edison under 30-year contracts that assumed oil prices would be higher. Unless Edison agrees to restructure the pacts, the plants could be driven out of business, damaging 150 large and small investors, according to Eric Wills, president of the Luz subsidiary that continues to operate the plants.

“These are the pioneers of solar power, and they’re going to be burned,” Wills says.

Don Fellows, who manages Edison’s 400 contracts with what he describes as “healthy, competitive” alternative energy suppliers, is sympathetic. But Edison, he says, is accountable for the price it pays for electricity.

Such challenges are being felt in every sector of alternative energy.

In the days of high oil prices, the prospects for photovoltaic solar--the solar cells used in pocket calculators--seemed limitless.

Arco Solar Inc.--a research unit of Atlantic Richfield Co. that once offered to light up the Hollywood sign using solar power--built two giant fields of photovoltaic panels in the Southern California desert that fed electricity directly into the utility power grid, the transmission lines that connects power plants to homeowners’ light switches.

Now, without a dramatic drop in the cost of solar cells--and with the end of government subsidies--solar remains far from being able to compete directly with power generated by low-cost fossil fuels.

The Arco Solar fields have long since been dismantled. Though an estimated 10,000 U.S. homes and businesses now get their electricity from photovoltaic panels, most of these have been installed by homeowners or small local companies--at about $25,000 a pop.

Yet to John and Anna Syperda, photovoltaic’s time has just come.

The retired machinist and his wife moved in 1985 from Santa Ana to a mobile home on a 3-acre tract southwest of Barstow. Only then did they learn that hooking up to Edison’s nearby transmission lines would cost $30,000.

The Syperdas, both in their 70s, learned to live without the grid. For a couple of hours every night, they idled the engine of an old Chevette to light a 15-watt florescent bulb and a small black and white TV. They did without running water, since the pressure pump for their well is electric.

Then in 1989, they came to the attention of Edison researchers who were looking for new ways to use solar panels--particularly for isolated sites--and where there could be profit for a utility.

Edison decided to try off-grid photovoltaic beginning with the Syperdas. Utility researchers installed an 8- by 12-foot panel of solar cells, two dozen special batteries and a computer in a small shed behind the couple’s home.

The business concept being tested was that the utility would own and maintain the system, while the customer paid a monthly bill, like other residential users.

Four years later, the Syperdas are watching their big color TV late into the night. Nick W. Patapoff Jr., an Edison engineer, estimates that the system, now that the bugs are worked out, will provide the Syperdas and future users about a third the electricity used by a typical California house for about $150 a month.

But utility planners see much greater potential in the United States and developing nations for photovoltaic panels, fuel cells and other means of localizing electricity generation. Utilities can avoid building more transmission lines--as well as power plants--by building such on-site mini-power plants at shopping malls, factories and other large facilities.

“Instead of individual homeowners--the ones who can’t afford it--buying photovoltaic systems, the utilities will come in and do it, because it turns out to be cheaper,” Patapoff predicts. “What we learn here can be a jumping-off point for the utilities of the world.”

Defying Expectations

After prices shot up with the 1973 embargo, economists predicted soaring crude oil prices into the next century. Defying the predictions, oil prices plummeted beginning in 1981 and have remained relatively low ever since, except for a brief rise during the 1991 Gulf War.

Price per barrel (U.S. and foreign composite, annual average), 1987 dollars

1973: Arab oil embargo delivers the first “oil shock” to U.S. consumers.

1979: The second “shock”: Islamic Revolution takes Iran’s oil off the world market, creating fresh shortages.

1981: Market forces catch up with inflated prices, which begin to fall.

1985: Saudi Arabia, the world’s largest producer, reverses policy--boosting production and dropping prices even further.

1990: Iraq invades Kuwait and threatens the oil fields of Saudi Arabia, briefly driving prices up.

1993: Oil prices remain under $20 with little near-term prospect of change.

Paying at the Pump

In inflation-adjusted terms, the price of a gallon of gasoline in the United States is lower today than in the mid-1970s--and dramatically below the oil crisis-era peak in 1981.

Price per gallon (unleaded regular, including taxes, annual average) in 1987 dollars

One Word: Plastics

Petroleum products, particularly naphtha, are primary ingredients in plastics. So low oil prices--naphtha costs less now in real terms than it did 10 years ago--have helped control the price of plastic products, from carpeting to cabinets, grocery bags to insulation.

Spot price per gallon of naphtha (annual average) in 1987 dollars

The Plane Truth

While the airline industry has been losing billions of dollars over the last few years, one--perhaps the only--financial bright spot has been the relatively low cost of jet fuel, which also costs less than it did 10 years ago in inflation-adjusted terms.

Price per gallon of jet fuel (annual average) in 1987 dollars

Source: U.S. Department of Energy; Platt’s, the commodities division of Standard & Poor’s

Researched by ADAM S. BAUMAN / Los Angeles Times

The Power Elite

Low prices for coal, crude oil and, in recent years, natural gas have kept down the cost of generating electric power in the United States through these conventional sources. Alternative energy sources have a mixed track record in terms of being competitive.

Cost per kilowatt-hour (in 1993 dollars)

1980 1990 2000 (projected) Conventional* .06 .05 .05 Wind .30 .08 .04 Photovoltaic 2.00 .40 .20 Solar thermal .25 .11 .08 Biomass .08 .07 .05 Geothermal .08 .07 .06

* Hydroelectric, natural gas and coal

Source: Electric Power Research Institute