Multi-million-dollar graft to rig the crisis

Barry Rubin

The true story behind the current 'energy crisis' is a scandal which might dwarf the Watergate affair.

Much of the shortage has been manipulated by energy companies which hope to gain hundreds of millions of dollars from higher prices and government subsidies. But environmentalists, energy experts, trade magazines and some US government officials have provided evidence exposing many aspects of the current crisis.

Joe Stork, who gave a definitive account in two recent issues of MERIP Reports, and Morris Adelman, of MIT, have shown that known oil reserves have increased rather than decreased in recent years. As the actual production cost of crude oil is only about 5 per cent of its value, profit margins have been huge. Demands from Arab states for increasing royalty payments have hardly dented profits as they are passed along to the consumer. In fact, retail prices have gone up faster than have costs — allowing the profits of oil companies to rise at phenomenal rates. Official oil company figures show that over the past year Exxon's profits are up 80 per cent. Other companies have had comparably impressive results: Mobil, up 64 per cent; Gulf Oil up 91 per cent; Standard Oil of Indiana, up 37 per cent; Shell, up 23 per cent; Getty, up 71 per cent; Cities Service, up 61 per cent. Shortages and price increases cannot, therefore, be attributed either to shortages of oil itself or to the growing cost of production.

There is another important factor involved in the crisis. Oil companies have diversified so much that there are now only 'energy companies.' Within the US, these monopolies now own 30 per cent of coal reserves, 40 per cent of uranium and 72 per cent of natural gas. An increase in the utilisation of these fuels would be just as beneficial to the companies as is oil consumption. Here, too, one finds manipulation of figures on reserves, declining production and other manoeuvres to gain price increases. The Federal Trade Commission's Bureau of Competition has found that some companies had natural gas reserves "as much as ten times greater" than those reported to the Federal Power Commission and James Halversion, FTC competition division chief, told senate hearings that FPC's figures were al most 10 per cent under even those reported. As the FPC regulates natural gas prices, although it co-operates with the companies, attempts to lobby for Increases to consumers in cost are quite important.

After an investigation of the gas situation, Washington Post reporter Mortin Mintz wrote: "On the basis of a claimed shortage of reserves of natural gas, consumers over the next decade are being asked to accept price increases that, by some estimates, could run to hundreds of billions of dollars." In addition to using the alleged lack of supply to gain such increases, the Nixon administration has also attempted to justify raising prices by computing competition on a national level. Actually, all gas marketing is based on regional pricing.

Sometimes the attempts to cover up gas supplies reached ludicrous proportions. Dr Wilson, chief of the FPC's division of economics, told a recent senate hearing that at least thirteen major producers had paid tens of millions of collars to lease tens of thousands of acres off Louisiana and Texas shores but let them lie fallow and reported "zero available reserves." Only weeks later, at least five of these companies informed the FPC that they had just signed contracts to sell the gas from these very lands, gas which they had reported did not exist. The situation in coal has been similar. The United Mine Workers journal reported in July that production has steadily decreased. In 1930, 40.7 per cent of federal coal lands were under production: by 1940 it was 30 per cent; by 1950 it was 24.4 per cent and the fall in production has since accelerated. The business newspaper, Journal of Commerce, reports that, despite energy company talk of a coming crisis, coal production for the first ten months of 1973 was seven million tons less than in 1972. Yet acres and acres of coal holdings, with thousands of millions of tons of coal reserves, are held by oil companies — rented from the federal government for $1 a year per acre. • Essentially what the energy companies want to do now is to switch to other kinds of fuels — coal and natural gas — which they control and to gain government subsidies for profitably developing other sources of energY nuclear energy, the conversion of coal to gas, and geothermal power. This would ease

dependence on oil, which is heavily concen

trated in the politically sensitive Middle East. At the same time, though, higher prices would allow a continued role for oil. Profitable drilling can be done in a number of areas around the country but here, too, consumers

will subsidise research and exploration. They will also be forced to cushion profits to traditional levels found in the Middle East, where wages and payments to local governments have historically been low.

As for coal, Carl Bagge, president of America's National Coal Association, said that the industry would need "co-operation from the government in a number of areas to boost production as quickly as possible." It als° needs, he continued, an end to "labour troubles" and greater productivity from miners. In another area, Bagge called for the easing of safety requirements, "relief from non-essential environmental restrictions," and "assurance that the Cost of Living Council

will pass through legitimate costs arising from this extraordinary effort" to increase production.

During ordinary times, consumers and environmentalists might protest in large

numbers, but how can they protest in the midst of this dangerous 'crisis' in which not only our comfort but our very economy is involved?

While miners and consumers are being asked to make sacrifices, "securities analysts are beginning to 'dig' coal as an exciting waY to play the energy crisis," according t° Business Week, Spencer, Trask and Co has reported to investors that "in view of the high

incremental profits from additional coal production, together with income tax factors, something like forty to fifty cents out of eaeh,, incremental sales dollar in coal mining woulu become net profit after tax." A 50 per cent depletion allowance on "up to half their income" helps guarantee this. The energy crisis also endangers curbs on strip mining, with the National Coal Associa tion lobbying for easing of existing restrictions. In 1960 less than a third of total soft coal came from strip mines; in 1972 it Was more than half. The reason is simple. Strip mining is cheaper than deep mining, even though government studies show that minable underground reserves are eight to ten times as great as strippable reserves.

Last year, the Senate passed a Bill to control strip mining and its subsequent damage to the environment but the proposal was held LIP in the House of Representatives. Representative Morris Udall of Arizona, chairman of the sub-committee on environment and a supporter of the Bill, says the energy situation is creating a 'panic' which will probably prevent the Bill's passage. The energy crisis is, in fact, winning the Lompanies a number of long-sought victories In their .struggle against environmental protection. On November 19, the Environmental

Oil Administration decided to ease fuel oil restrictions in the face of the energy Shortage. This means an increase of at least 10 Per cent in the amount of sulphur dioxide in the air. Although a surcharge will be put on dirtier fuel, in New York the area of the city With unhealthy levels of pollution will increase from 50 to 80 per cent. This measure Will increase and aggravate heart and respiratory diseases, leading indirectly to deaths, °Particularly among older people. . Another case of environmental rape is the final passage by Congress — under the threat Of the oil shortage — of the Alaska pipeline proposal. Even the New York Times opposed It, editorialising: "The Bill tears a gaping hole In the National Environmental Policy Act by harring court review of the environmental Impact statement filed by the interior departInent to justify the pipeline. A project that cannot withstand orderly judicial examination Is suspect from the start. "The environmental risks are real. Constantly improving pipeline technology can gUard against damage to the fragile Alaskan Permafrost but can provide no guarantee of ,8 a fety. More ominous. . . there are certain to ne huge and harmful oil spills." The 789-mile pipeline is to be built by a „c9nsortium of seven oil companies at a cost of t1.500 million from the North Slope fields at Prudhoe Bay to the port of Valdez, from Which it will be shipped to the west coast of the continental US. By 1977, when it opens, the line will be carrying 600,000 sbarrels of oil a day and by 1980 should reach its maximum capacity of two million barrels a day. i„1n addition, the energy companies are "terested in low-cost leasing of governmentOwned land or offshore areas for obtaining tasources. In view of the energy crisis, the overnment is tripling its amount of offshore

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Aeases. Geologists believe that large untapped `lePosits of oil and gas lie off Long Island, l IIl-thern Florida, Maine and elsewhere. Oilaring shale in Colorado, Utah and Wyoming guld supply the country's energy needs at Present levels for 100 years. About 72 per cent rthese shale deposits are located on public ta.nd. Given the emergency, all this exploita,1c3n would be done under eased environmen'4l regulations. President Nixon has ordered the leasing of se„ //le 147 tracts totalling 817,000 acres in the Stern Gulf of Mexico. Leases on some 55 eellilion acres of land containing geothermal in,ergY potential will be given in the Mono ttice region east of Yosemite national park, 4 e Imperial Valley east of San Diego and ear the northern California geysers.

To subsidise these operations, the energy companies are seeking government aid. Nixon is pressing for $10,000 million in expenditures on research and development by 1980 and Senator Henry Jackson, chairman of the Senate Interior Committee, has said that at least twice as much will be needed. The National Petroleum Council, a corporate grouping, says that even $20,000 million in federal aid will not be enough. There are at least three other goals of energy companies which are being puihed ahead because of the energy crisis.

The first, already gained, is the ending of import restrictions on oil produced in the Middle East. These restrictions were first gained by the companies in the late 1950s to protect their domestic production but the profits gained from lower cost Middle Eastern oil proved irresistible.

Secondly, the large companies have been fighting a battle for ten years against smaller 'independents' which have tried to erode their monopoly of oil, from the ground to the filling station or heating oil service. A production cutback, coupled with federal subsidies to the largest companies, can choke out the competition.

Finally, companies continue to desire the construction of large 'super-ports' for their tankers. Environmentalists and local residents have opposed such plans but they are now being reconsidered in North Carolina, South Carolina, Georgia, Lousiana and Texas. An already projected port off western Puerto Rico is being pushed ahead.

To pressure the government on .all these aims, energy companies maintain 232 full-time lobbyists in Washington. They have also been generous with campaign contributions. Gulf and Ashland Oil have already admitted giving $100,000 each in illegal contributions to Nixon's 1972 campaign and Gulf gave Jackson an additional $10,000.

Energy company executives are telling the truth when they say that the Arab oil boycott only accelerated already existing trends. The boycott can, however, be used to argue that the emergency has intensified. The action of the Arab countries has also changed the thinking of the companies in favour of a settlement in the Middle East but this would probably have happened even without the boycott as a result ot the war itself and the continuing instability in the region.

Ralph Nader and a number of environmentalists have pointed out that in addition to the ecological damage and economic theft caused by the companies, they are also misdirecting the US in a long-term energy strategy. These people favour cleaner, safer and more economical methods of energy generation, such as geothermal energy and solar power. A report by Nader has pointed out that even Atomic Energy Commission studies have shown that the development of nuclear power plants is extremely dangerous both because of their particularly damaging form of pollution but also because of the potential for an accident that might take tens of thousands of lives.

Some manufacturing interests are also disturbed by the energy companies' activities, which they see as threatening the entire economy. They are demanding that the Nixon administration take immediate action to guarantee the continued supply of power to fulfil their needs. But behind Nixon's petty measures, such as cutting down the speed limit on highways and closing petrol stations on Sundays, lies the fact that the administration is so weak and unpopular that the taking of strong action, such as rationing, could easily destroy it.

It seems likely, though, that by this spring the energy companies, having gained most of their ends, will ease up. However, the new high prices and ecological damage caused by the 'energy crisis,' will remain.

(Reprinted from Nation Review)