US Thirst for Oil Harder to Slake

Domestic production is declining, and the nation is increasing reliance on foreign sources. ENERGY: OIL CONSUMPTION

PRODUCTION of oil in the United States is declining so rapidly that energy experts now say the US is potentially more susceptible to the disruption of its energy supplies than it was during the oil embargo of the 1970s. Former Energy Secretary James Schlesinger says that ``increased US imports have counted for more than half the growth of OPEC exports. ... As opposed to battling over shares of a shrinking market, OPEC is now in the happy position of allocating growing shares in an expanding market. The Gulf remains a worrisome and questionable source.''

Given present trends, he cautions, by the mid-1990s the US will be 65 percent dependent on foreign imports, and the Strategic Petroleum Reserve - ``our chief surviving element of protection against a cutoff'' - will shrink in real terms from 100 days of imports to 60 days of imports.

There are several factors contributing to the decline of US supplies. Most prominent are the environmental regulations that prohibit drilling where there is a risk of ecological damage, both on- and offshore. These have been enforced even more rigorously since the Exxon Valdez disaster in Alaska.

Domestic production spots

Current production levels from the country's largest oil field, Alaska's Prudhoe Bay area, which supplies 25 percent of US consumption, have reportedly peaked and are now in decline. And, according to many, only when the price of oil reaches a cost-effective $25 a barrel will US firms begin drilling for oil again.

Alaska's Arctic National Wildlife Refuge (ANWR) is ``the best prospect in all of North America in terms of onshore drilling,'' says Joseph Lastelic, spokesman for the American Petroleum Institute (API). He notes that Congress has imposed moratoriums on leasing and drilling in California and Florida. The Gulf of Mexico is also an option.

Legislation to open the Arctic refuge to drilling will not be considered until later this year, says Richard Bechtel of the National Wildlife Federation. ANWR is the only part of the Arctic coast that has not been developed for oil, he says. ``The best estimate is that there is only a 19 percent chance that there's oil there. But it means a lot of potential income,'' he says.

Environmentalists say the US must find alternate methods to reduce dependence on foreign oil. ``If OPEC embargoes us in 1993 or 1994, we will probably start drilling in prohibited areas again,'' says Peter Miller of the Environmental Defense Fund. ``Continued conservation and efficient energy consumption could more than satisfy our increased energy demand,'' he contends.

Conservation reaps important benefits, but not nearly enough to meet demand, counters API's Mr. Lastelic. ``The answer is more domestic production.''

There was a 6.8 percent drop in overall domestic production in 1989 over 1988, says Lastelic. And, according to the Oil and Gas Journal, ``the drop in US output of crude oil last year exceeded declines in Canada, noncommunist Europe, and Communist Europe by nearly one-fourth.''

Frustrated domestically, a number of major American oil firms are selling off their domestic inventory to finance prospecting operations abroad, particularly in the Suez and the Arab Gulf, says Mr. Schlesinger. The net effect of this, he says, is a ``weakened aggregate demand for increased drilling in the US.''

US producers paring down

Chevron Corporation has announced, for example, that it is paring down its domestic operations - through an ongoing program of property production sales. By midyear it expects to sell an estimated 50 million barrels of oil to Freeport-McMoran Resources Partners for roughly $150 million.

According to Chevron's spokesman, ``a critical factor in the company's outlook is that public policy in the US is expected to continue to prohibit access to acreage with promising exploration potential, making it difficult or impossible to develop domestic energy resources.''

As of April 23, according to an industry source, there were 932 active rotary oil rigs in operation, a number that has dramatically dropped from the 1981 average of 3,970.

A leading oil industry official attributes the current situation to the absence of an energy policy during the past two decades. He says it has left US consumers with the renewed prospect of gas lines, rationing, and odd-and-even days for purchases.

Because it is ``politically unacceptable'' to drill for oil - much less to open new nuclear plants or burn coal for other energy usage - Americans are left with few alternatives, he says. ``We certainly don't have enough electric cars and solar installations'' to combat the pressing need for energy imports.

Imports of crude oil and petroleum products currently represent 50 percent of US demand, compared with 36 percent of US demand during the Arab oil embargo of 1973, according to Lastelic. Oil imports for the first quarter of 1990, 8.4 million barrels per day (b.p.d.) were higher than the annual average 4.7 million b.p.d. in 1972. Imports reached 6.3 million b.p.d. in 1973 during the Arab oil embargo.

``We've been increasing our consumption at a respectable 2.5 to 3 percent, since the mid-1980s,'' says Mr. Schlesinger. The numbers are commensurate with the nation's increasing gross national product, he says. ``In 1989 we didn't grow that fast, but that reflects a slowdown in the economy. The transportation sector has been the principle driving force behind the oil demand - autos and jet aircraft,'' he says.

``Dependency will continue to grow, although the pace can still be affected by our policy decisions,'' Schlesinger says.

DOE releases policy draft

In March, the Department of Energy released a preliminary ``draft'' report on a national energy policy for the 1990s. The completed 18-month study conducted by Secretary of Energy James Watkins comes due Dec. 31. The DOE's initial report confirms that production is decreasing and imports are on the rise.

That equation, says James Eason, director of oil and gas development at Alaska's Department of Natural Resources, means that American consumers ``are more vulnerable than they were in 1973. The short supply of domestic production coupled with a strong [energy] appetite greatly increases the chance for the shock of disruption if foreign supplies are reduced.''

Despite Secretary Watkins's stated support for conservation, which he reads as the energy-consuming public's greatest concern, many environmentalists are skeptical. ``On the secretary's Energy Advisory Board, there is really only one person who works in the area of energy efficiency. There are plenty of military and nuclear people on the panel,'' says Mr. Miller.

Miller expects ``a lot of talk'' but no strong policy to emerge from the DOE's December report. He calls for tighter controls that mandate US automakers to produce fleets with an average of 35 to 45 miles a gallon. ``Transportation accounts for 67 percent of oil consumption in the US. Of transportation use, 97 percent is petroleum and the government has cut back on R&D for energy conservation.''

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