VII. Oil and the World Economy

In speaking to foreign oil company officials about the use of Arab oil for political purposes, I found surprising unanimity in the view that up until then, the Arab-Israeli conflict had not been a major factor in the maneuverings by the oil exporting states. The view was expressed that the demands for greater control and higher prices for crude oil were dictated by economic rather than political considerations. I was told of the growing feeling among many oil producers that their oil was worth more in the ground than it is by selling it during a period of inflation.

When Saudi Arabia talked of production cutbacks, this was dictated more by economics than politics. One notable exception to this "oil bank" in the ground thinking is Iran, which is producing as much oil as it can-some 6 million barrels a day. The Shah has stated that Iran wants maximum oil revenues now in order to modernize and develop its society.

There is no doubt that the other Middle East oil nations could do more to assist their own peoples. Unfortunately, the bulk of their excess oil revenues is not used in this way. In the midst of the last run on the dollar, the Senate Subcommittee on International Trade, which I chair, sought answers from top government officials as to which nations and corporations benefited from the attack on the dollar. While no definitive analysis was forthcoming, the movement of Arab oil money during this crisis was acknowledged, as well as Arab purchases of gold. However, European bankers estimated that between one-fifth and one-third of the dollars exchanged for German marks came from oil money. The potential for serious damage to the international monetary system by shifts of these funds is enormous.

The United States in 1972 had a $4 billion deficit in its balance of payments resulting from energy imports. We will spend about $7.5 billion for oil imports this year alone. This figure could reach $17 billion by 1980 if current trends continue. This year alone, Saudi Arabia will receive $6 billion in oil revenues. Saudi Arabia, Kuwait and the Persian Gulf Sheikdoms over the next 12 years will collect the staggering total of $227 billion-and this is a low figure based on an estimate before recent price hikes.

By 1985 it is forecast that Arab reserves of gold and foreign exchanges will rise to over $100 billion. How and where this money is spent poses a challenge to all industrialized nations and to the economic health of the entire world community.

There are no doubt limits as to how much money can be spent in places like Kuwait, Abu Dabhi and Qatar. The law of diminishing returns undoubtedly applies to Cadillacs also. The idea has been advanced that some of these billions could be used to improve the plight of millions of impoverished Moslems. Such proposals have not exactly been met with wild enthusiasm by the Arab oil exporters. It is more likely that much of this money will be spent in replacing the $3 billion worth of sophisticated Soviet arms destroyed in the latest conflict. Some of these funds will also probably be invested in Europe and the United States-raising the prospect of entire American industries being bought up.

VIII. Conclusions

If we are to escape from a dangerous dependence on foreign-source oil, there are three broad goals which must be pursued simultaneously. -We must lower our demand curve of effective conservation

measures.

-We must cooperate with other industrialized nations on common energy problems.

-We must increase domestic energy production by the application of new technology and the acceleration of proven methods.

A. Conservation

With regard to the first objective, a recent Treasury Department study outlined eight emergency conservation measures that would save two million barrels of oil a day. This figure represents 12 percent of present U.S. consumption, and is, incidentally, about twice as much as we now import from Arab countries.

These are the measures outlined:

1. Reducing speed limits to 50 miles per hour for passenger cars— 150,000 barrels a day would be saved;

2. Increasing load factors on commercial aircraft from 50 percent to 70 percent by consolidating and reducing flights-80,000 barrels a day saved:

3. Setting home thermostats two degrees lower than average50,000 barrels a day saved;

4. Conservation measures in industry-50,000 barrels a day saved; 5. Limiting hot water laundering of clothes-300,000 barrels a day saved:

6. Mandatory car tune-ups every six months-200,000 barrels a day saved:

7. Conservation measures in commercial buildings-200,000 barrels a day saved;

8. Increasing car pools for job commuting—from 1.3 average to 2.3 average per car-200,000 barrels a day saved.

If by measures such as these we can keep the nation's growth rate of energy consumption to around 3 percent instead of the current 412 percent annual increase, we can begin to escape from the energy crunch. Realistically, we cannot do away with all oil imports by 1985-but we should be able to limit these imports to around 10 percent of our total requirements or about 5 million barrels a day.

An earlier report issued by the Office of Emergency Preparedness said that by employing even more stringent measures the country could reduce its energy demand by the equivalent of 7.3 million barrels of oil a day by 1980. This would save an estimated $10.7 billion in outlays for imported oil, thus benefiting its balance of payments problems as well.

Energy conservation is an idea that can be sold to the American people because it is not only patriotic-it saves money. With the cost of fuel and electricity already climbing, the incentives to conserve are certainly here. But this will take more than TV commercials sponsored by the major oil companies. The federal government must show the way by example, and an undue burden must not be put on the indi

vidual consumer. Our industries account for a third of the energy consumed and they must also do their share.

Already a number of legislative proposals have been made which have my own support and point the way. S. 2176, introduced by Senator Jackson, calls for a national fuels and energy conservation policy and the establishment of an Office of Energy Conservation. The bill calls for new building standards and codes, disclosure of the efficiency of electrical appliances, conservation by public utilities and a study of motor vehicles.

This is a needed start to conserve energy. I am confident that with the proper leadership, the American public, industry and labor will all cooperate to this end.

B. International Cooperation

The success of the OPEC nations in forcing Western oil companies to meet their demands with regard to price, ownership, control and participation in down stream activities is largely due to the inequality of the two sides. It is not in the interest of the United States or any other nation to leave such important decisions up to the oil companies alone. This is more of a problem for the United States, since both the major French and British oil companies have substantial governmental participation. Today, the major oil companies are little more than tax collectors for the oil exporting nations, with limited bargaining power and even less disposition to stand up to OPEC.

The United States must seek to convince Europe and Japan of the dire need for much closer cooperation and coordination in all aspects of energy policy-monetary, investment, negotiation and research and development.

French reluctance over an emergency sharing program, or Japanese efforts to outbid the others for Persian Gulf oil at best contributes to political blackmail and higher oil prices. At worst, such an attitude can create international economic chaos, and an Arab stranglehold on the West-as the Soviet Union looks on.

If the Western nations and Japan were to present a unified front in dealing with the Arab states, we would be surprised at their sudden reasonableness. After all, the United States and Europe still hold important cards-and do export essential manufactured goods, food stuffs, and technology to the Arab states.

While Soviet machinations in the Middle East could undercut a firm Western position to some extent, it is inconceivable that the Arab oil producing nations, most of whom are still conservative and traditional, would not resist a closer Soviet embrace. If the oil consuming nations begin with the premise that they are ready for hard bargaining, but will not be blackmailed, and if they can first agree among themselves on strategy and goals, temporary agreement, at least, could be worked

out.

The United States, with its vast economic power and relative energy independence must take the lead here. Surely the sad experience of Western disarray during the latest Middle East conflict should provide the impetus for a high level, concerted effort.

What we need is some very plain talk by the leaders of this country both to our European allies and to the Arab oil countries who are wag

ing economic warfare against us. Our NATO partners should be made aware of the responsibilities they have to the United States and to the protection of NATO's southern flank. It is reasonable to ask how long the U.S. can be expected to shoulder the lion's share of the defense burden of Western Europe if at the first sign of Arab pressure, the Europeans fall over themselves to submit to blackmail.

The Arab oil producers should be reminded that economic boycotts are two-edged weapons and that the U.S. is prepared to take the actions necessary to protect itself. They should also be informed that the American people do not like being intimidated, and that the U.S. will take the conservation steps necessary to ride out the present situation, while planning for greater future self-sufficiency.

This kind of message will be understood-and respected.

C. Alternative Sources of Energy

In examining alternative sources it is prudent to first look at areas where the requisite technology already exists.

It is also necessary to take a look at our resource base. Our nation's supplies of fossil fuels are still far from exhausted, and in this regard, we are much more fortunate than Europe or Japan. In fact, U.S. coal and oil shale deposits are larger than the world's total oil reserves. For example:

The U.S. has an estimated 385 billion barrels of oil that are not yet part of proven reserves or presently recoverable. The amount is almost equal to all the oil discovered in the country up to 1971.

The country has 1.8 trillion potential barrels of crude shale oil in oil shale deposits in the Western states.

The U.S. has 1,178 trillion cubic feet of ultimately discoverable natural gas in its overall energy resource base-a little less than double all the natural gas discovered until 1971.

The U.S. Geological Survey estimates the Nation's total coal resources at 3.2 trillion tons, with 150 billion tons presently recoverable, enough for almost 200 years.

The U.S. has 1.6 million tons of mineable uranium, 700,000 tons mineable at costs low enough to assure cumulative requirements through 1985.

The caveat here is that a good part of the above potential sources are not readily available now.

Although the nuclear age is almost thirty years old, the most we can expect from nuclear power by 1985 is about 10 percent of our Nation's total energy consumption.

The present generation of reactors depends upon nuclear fission to generate heat to produce steam. Almost all of the 30 reactors now in operation and the 59 under construction are Light Water Reactors. Four basic problems are associated with their use-radioactivity, thermal pollution, plant safety and radioactive wastes.

Already, the feasibility of locating new nuclear plants underground has been proven in Sweden, and the United States should begin thinking along these lines if the development of nuclear power plants is to continue in an orderly, safe manner.

Even if these serious environmental problems can be overcome by new technology, it still takes more than eight years to build a nuclear power plant-and some $800 million. The real promise of nuclear

energy lies beyond the next decade and is in the development of the breeder reactor which produces its own fuel, and ultimately, in nuclear fusion.

Our supplies of natural gas are rapidly being depleted, with only a dozen years of proven reserves on hand. This source can only be counted on for about 15 percent of our total consumption in 1985.

Oil from shale will become more important in the next few years. and there are huge reserves in the western United States, notably in Colorado, Utah and Wyoming. But aside from serious waste disposal and water restriction problems, cost is still a factor along with the development of new methods of mining and extraction.

The development of solar energy to produce electricity is technically feasible today, but the cost is such, and the state of the art so primitive, it is still decades away.

The key then to a realistic energy research and development policy leading to the needed level of self-sufficiency is coal.

In the space age such an old-fashioned solution will surprise many Americans. But greatly increased coal production, along with gasification and liquefaction of coal must be the main element in any effective program. The advantages are obvious. Gas is cleaner, more adaptable, easily transported-and environmentally the most acceptable.

First, more coal should be used to generate electricity. This can happen almost immediately, and while this raises the sulphur problem, there are already in existence foreign processes to remove sulphur from stack gas. For the future there is great hope in the magneto-hydrodynamic (MHD) process of power generation whereby energy from coal is converted directly into electrical energy.

The investment needed to go forward with plans to have coal meet close to half of our energy needs by 1985 would be substantial-some $15 billion by one estimate. But I would rather see this nation make such an investment instead of spending at least this much to buy Middle East oil. In fact, the recent hefty price hikes for crude oil are already making "uneconomical" processes look economical as the price of crude oil from the Persian Gulf approaches $6 a barrel and will undoubtedly go higher.

The Congress has already developed a fair degree of competence in planning energy research projects. The staffs of the Senate Interior Committee and the Joint Atomic Energy Committee have a great deal of "in-house" expertise. Because of this, the Congress has been active legislatively in the energy field.

One notable example is the major research and development bill introduced by Senator Jackson, S. 1283, which I have cosponsored. It seeks to commit this nation to a goal of energy self-sufficiency by 1983 and to back up the ten year commitment with $20 billion. This bill calls for the creation of five quasi-public development corporations to demonstrate energy technologies for shale oil, coal gasification, advanced power cycle development and coal liquefaction.

As mentioned earlier, I have been chairing hearings with Senator Jackson on the Administration's proposal to create a Department of Energy and Natural Resources. It becomes apparent that before we can reorganize and create new bureaucracies we have to have a national energy policy. Only then we can decide how much we are willing