Low Prices Cheer Consumers, but Oil, Gas Firms Plead for Help
US ENERGY SUPPLY
WITH continued low-priced oil imports a sure bet for the near future, domestic petroleum producers claim an ``alarming deterioration of a vital American industry'' and are pushing the Clinton administration to safeguard their future.
In the next few days, about 100 Capitol Hill lawmakers - virtually all from oil and gas states - will meet with President Clinton to propose ways to rejuvenate the domestic-energy sector through tax incentives and deregulation. ``We're going to be looking pretty seriously at that,'' assistant to the president for legislative affairs Patrick Griffin said yesterday.
The meeting follows a letter the group sent Mr. Clinton this month warning of dangers from ``the collapse of oil prices that began last October [that] has driven US prices below the cost of much of our domestic production.''
Some 10,500 Americans working in oil and natural gas have lost jobs since October ``because of extraordinarily low prices,'' these legislators say. ``If these prices persist for much longer, many of the [450,000 marginal oil wells that are unprofitable to produce at current prices] will be plugged and abandoned, which means their reserves will be lost permanently.''
Averaging 6.8 million barrels per day (b.p.d.) in 1993, domestic-oil production fell to its lowest level in 35 years. Lawmakers warn in their letter that ``it is almost certain'' the 1994 oil and gas output will sink lower, that production levels will be lower, and that some 50,000 wells will be abandoned this year if oil prices remain around $14 a barrel. Marginal wells make up 14 percent of US production and ``are an integral part of the domestic-oil business and our states' economies,'' they say.
American Petroleum Institute President Charles DiBona supports the package of Sen. David Boren (D) of Oklahoma, including a tax credit for production from existing marginal wells and new wells drilled after June 1. Credits are to be phased out as world oil and gas prices rise.
``There is nothing wrong with importing cheap foreign oil,'' counters industry expert Philip Verleger Jr., a visiting fellow at the Institute for International Economics. ``Why should we promote US production? Is it going to create a lot of new jobs or technology that we can export?''
Mr. DiBona, whose Washington lobby represents energy firms, says encouraging US production won't bring jobs back. ``I doubt it would resurrect them, but short of action [to pump from existing wells and to develop new wells], there will be future job losses.''
The industry, which had some 900,000 workers in the early 1980s, has had 450,000 layoffs in the past decade.
DiBona's focus is to ``remove the restraints on production'' by reducing the ``high level of taxes'' and cutting through regulations imposed on the energy industry.
Domestic oil producers also are troubled by the administration's efforts to make foreign suppliers more competitive by ensuring the free flow of cheap oil from Saudi Arabia, the world's top energy exporter.
Clearly, Mr. Verleger says, Washington has enabled Saudi Arabia's pivotal decision this week to maintain its production quota of 8 million b.p.d. and forego an oil-price hike. At a Geneva meeting of the Organization of Petroleum Exporting Countries that ended Sunday, Saudi Arabia rebuffed other members' efforts to cut production and hike the price of crude oil, which is near a five-year low.
In recent months, the Treasury Department and the Export-Import Bank have provided generous financing arrangements to the Saudis that have afforded that nation the opportunity to service defense and commercial needs and buy costly US imports without having to pay for them by increasing oil revenues in the short term.
``They substituted the US Treasury for higher oil prices,'' Verleger says. ``If, suddenly, the Saudis don't need so much cash to continue their consumption pattern, then they are not so concerned about the price of oil and their revenues.''
This suits the Saudi's strategic plan and dampens prospects for US producers. By keeping output steady, the kingdom can slow down the push for conservation or alternative sources of energy supplies ``and leaves itself a large market for the future,'' he says.