Today: Views of an Embattled Oilman

William K. Tell Jr., a member of the Class of 1956, is vice president and assistant to the chairman of the board of Texaco. Hisoffice is in Washington, D.C.

There is an intense debate in Congress today that the energy crisis is a contrived hoax, motivated by a quest for unabashed profit-taking, and leading us down a road marked with environmental and economic disaster.

We have all seen numerous news accounts alleging that the major oil companies conspired to create the energy shortage. We have heard accusations that there are millions of barrels of oil hidden away in capped-off wells, and even in tankers sequestered off our coasts, waiting only for the next price increase. Concrete factual substantiation for these charges, however, has never been produced. There is so much rhetorical shrapnel in the air that many of us may be in danger of losing sight of one fact - the energy crisis is here and it is not contrived.

The fact that our energy demand has been growing at the rate of four to five per cent a year for the past 20 years and at an even greater rate outside the United States is not contrived. The fact that domestic exploration for oil and gas peaked in 1956, and that domestic production has been decreasing since 1970 is not contrived. And, most important today, the fact that we were dependent upon foreign sources for seven million barrels a day of petroleum imports before the Arab embargo is not contrived.

The United States and the other industrialized nations are crossing the threshold into an era where energy and many other critical mineral and raw materials will be more difficult and costly to obtain. And when they are available, we will be facing soaring world prices. No matter how much documentation, litigation, and legislation there is, we still face severe energy shortages in the years ahead. How did a problem of this scope and magnitude suddenly spring upon the consciousness of a people accustomed to a veritable cornucopia of energy, as well as all other material goods?

Certainly, the Arab embargo brought home to most of the public what many people, almost as voices in the wilderness, had been trying for months and even years to convey. This action unveiled a situation which had been progressively worsening since about 1967; our energy demands were outstripping our domestic capability to supply them. The veil which had successfully concealed this widening gap was the rapid expansion of imported crude oil and products into the United States. Many had argued these imports would always be available and would always be cheap. Now they are neither. Most imported crude is at least twice the current price of previously discovered domestic oil, and its reliability is under permanent question.

Even before the October embargo, we were projecting shortages for this winter in distillate heating oil and expecting them next summer for gasoline as we realized refinery capacity in the world was insufficient to cover the shortfall between our domestic refining capabilities and our demand for petroleum products. This, obviously, was not a situation which developed overnight, nor will it be cured overnight.

The roots of our current difficulties extend back to our energy policy which has been at least an implicit part of our national actions for 40 years. While many critics have contended that our troubles lay in the absence of an energy policy, for four decadewe have lived under the guiding principle that American con- sumers shall be furnished their total demands for energy at the lowest reasonable cost.

While we were laboring to assure current customers of low prices for all they could use - whether wisely or not - little consideration was given to the customer of the future. Suddenly tomorrow became today, and two decades of unrealistically low prices for natural gas didn't seem nearly as important as the inability of potential customers to buy natural gas at any price Twenty years of controlled wellhead prices resulting from the Supreme Court's Phillips decision have done more to create energy shortages than any other single factor. Not only has the demand for this product exploded during the 19605. but simultaneously drilling rates plummeted, so that we have produced twice as much as we have added in new reserves over the past five years. The artifically low prices have undercut coal. weakening that industry and driving it out of many markets it could have better served. When natural gas production finale peaked, the resulting shortages cascaded into shortages propane and distillate and residual fuel oil as these potential subtitutes were incapable of immediate expansion of the magnitude needed to fill the high demand we had stimulated for natural gas.

The energy joyride is over. We must dampen the tremendous growth in energy consumption. In the century since coal replaced wood as our major fuel, global energy consumption has risen 18-fold - almost four times faster than world population.

Both energy production and energy efficiency are tied to price. However, I am just as opposed to the American consumer paying a dollar for a gallon of gasoline as I am to seeing us in a world market where oil is posted at $12 a barrel. Unless we develop our own energy resources, we can expect both.

Just a year ago, energy costs in the United States accounted for only four per cent of our total gross national product, compared with from eight to 12 per cent for most Western European nations. Even at current prices, petroleum products are less expensive than any other liquid commodity, including bottled water.

Fortunately, the United States has vast untapped energy resources. Our coal and oil shale reserves are equivalent to ten times the known total petroleum reserves, and could serve our needs for hundreds of years.

And we have significant undeveloped deposits of oil and natural gas reserves on the outer continental shelf. To date, however, only about two per cent of the outer continental shelf has been leased in the 20-odd years since the federal leasing program was established.

We have the technology to convert coal into gas, crude oil, petrochemicals, and even gasoline, and must now bring this technology into the marketplace. The time has come to take oil shale research out of the laboratory and press these new-foundtechniques into production, thus creating another alternative tooil imports.

For the necessary action I have been outlining, massive capitalinvestment will be required. Therefore, it is essential thatpetroleum prices be established in a free market, and at adequatelevels, in order to provide the means for much needed expansion.Sufficient capital resources can only be generated through adequate revenues.

The oil industry is not making exorbitant profits. Let me quotefrom an advertisement which my company recently ran in majornewspapers throughout the country.

Yes, Texaco earned more than a billion dollars in 1973 (specifically 1.3 billion dollars) - up 45.4% from 1972. And this is important news for the energy consumers because in 1973, including our share in affiliated companies, we invested 1.6 billion dollars in developing worldwide energy supplies....

Our earnings in 1973 only averaged about 1.7 cents a gallon. Yet there is a clamor today to roll back petroleum prices an remove existing tax incentives. What this talk ignores is the direrelationship between the capital available to energy company for investment and the energy available to the public for use.