The Oil Play

Gas prices climb 20 to 25 percent in a few weeks and the ordinary, properly suspicious consumer smells a scam and asks, What the hell's going on? Federal and state officials express bewilderment and pledge full probes. The oil companies rush out new excuses every couple of days. They blame the price hikes on environmental restrictions, on the weather, on California's thinner fuel, on imperfect market mechanisms, on glitches at the refineries, on modern inventory techniques, on the obduracy of Saddam Hussein, on the annual spring "spike" in prices...

What the oil companies do not talk about is the price of crude oil, which has gone down $2 a barrel over the past month. Nor are they eager to indulge in unseemly public exultation about the consummation of one of their dearest, most zealously sought objectives, which the Clinton administration granted them at the end of April. As short news items buried in the back pages of the nation's press disclosed, Clinton has signed an executive order overturning the 25-year ban on the exportation of Alaskan crude oil. You would scarcely know it from the news stories, but this was a major event in national energy policy.

Start with the present surge in prices. There's no shortage of gas. The oil companies have decided to hike prices and are getting away with it. In ancient times, when the price of bread went up a farthing, there were riots in the streets. These days the citizens are more compliant, or perhaps just more blithe about kiting with their credit cards.

Aside from making a killing, the oil companies want to send states a signal that if they follow California's example in mandating thinner gasoline, they can expect price trouble.

Clinton's executive order throws an instructive light on the long-term play of Big Oil as it manipulates supplies and prices. President Eisenhower declared the Alaskan coast off-limits to oil drilling in 1958. Eight years later, in Lyndon Johnson's term, the oil companies made another appeal to their Texan friend in the White House and the North Slope was duly leased off for a total of approximately $1 billion. Exploration rights went to British Petroleum, Arco, and Exxon.

First to strike oil in 1968 was Arco, which brought in Exxon to help develop the reserves, which were the largest in North America--in excess of 10 billion barrels, one and a half times the size of Joiner's famous oil field in Texas. Acrimonious debate sprang up over how best to ship out the crude. From Livermore Labs came Edward Teller, with a bracing plan to excavate a deep sea port in Prudhoe Bay by dint of nuclear explosions, then pump the crude aboard nuclear-powered submarine tankers that would proceed under the North Pole to refineries in Greenland.

Boeing and Lockheed countered the Teller plan with a proposal: If the government issued appropriate sums of money to them, they would speedily produce giant aerial tankers to whisk the crude away. Thus, it soon became apparent that the only economically feasible exit route for the crude oil was a pipeline.

Here's where the battles became serious. Was this pipeline to be trans-Alaskan, running from Prudhoe Bay 800 miles south to Valdez, which meant the tankers would head south to Seattle (which the powerful U.S. Senator Henry "Scoop" Jackson desired), or on to California? Or was the pipeline to run through Canada, thus supposedly causing less environmental destruction since some existing natural gas pipeline could be used? In this case the oil would end up in Chicago, where it could feed the Midwest, the heaviest consumer of oil in the U.S.

The oil companies desired an Alaska pipeline to Valdez for two reasons. First, they wanted supplies tight in the Midwest to keep prices up. Second, they wanted to ship oil to Japan, where they get four to five times the U.S. price.

Ever fearful of war with Canada, the Nixon administration decided the Chicago plan was a no-no on grounds of national security and, presumably, resentment against Mayor Richard Daley for stealing the election for John Kennedy in 1960. (National security cannot have been entirely overwhelming because the Nixon crowd did allow natural gas to be routed from Prudhoe Bay, through presumably hostile Canadian terrain, to the Midwest.)

Meanwhile, the oil companies purchased $100 million worth of pipeline equipment from the Japanese and had it ready in Prudhoe Bay when an unexpected blow befell them. Environmental groups, using the newly passed National Environmental Policy Act, sued the Department of the Interior for failure to present an environmental impact statement, and for violations of the Mineral Leasing Act. The green groups won, promoting a storm of mutual recrimination and mistrust among the oil companies.

British Petroleum and Arco suspected that Exxon had secretly financed the green groups' suit, through grants to the Environmental Defense Fund from Rockefeller-controlled foundations. BP was having serious problems in the Middle East and Arco was nearly broke, having used up its cash reserves drilling in the new field. Exxon, they feared, would use its billions to drive them out of Alaska.

Fortunately for the quarreling oil giants, these recriminations rapidly dissolved in the face of a new threat--an investigation by the Federal Trade Commission charging them with monopolistic practices, since the three companies owned 80 percent of oil reserves in the public domain. The oil tycoons paid an emergency visit to Attorney General John Mitchell, who quashed the FTC investigation and soon thereafter welcomed a $6 million donation from the oil companies to the Committee to Reelect the President. A new environmental impact statement was prepared,and legislation moved through the Congress designed to shield it from any court challenges. The bill passed by an immense majority in the House, but in the Senate, which still contained a populist element, the oil companies had to yield up a major concession. The Alaskan crude oil could not be exported to any foreign country, but shipped only to U.S. ports, for refining on U.S. soil. Even with this stipulation, the bill could only clear the Senate by virtue of the tie-breaking vote of Vice President Spiro Agnew.

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