Source:  J. Thomas Ranken, U.S. Petroleum Dependence and Energy Alternatives:  An Evaluation, University of Washington MBA Thesis, 1981.

Twice in the last decade, the American public was convinced that a real “energy crisis” faced the nation.  In February of 1974, the Gallup Poll reported that 46 percent of those polled thought that energy was the nation’s most important problem.[1]  By October 1974, however, the sense of urgency had subsided and another Gallup Poll ranked the energy crisis as only fifth among the public’s perception of the nation’s most important problems (mentioned by less than 1 percent of those polled).[2]

In 1979, the perception of crisis reappeared to the public.  Almost 55 percent of those with cars said they had spent time in gas lines.[3]  By August, 47 percent felt the energy situation was “very serious.”  Almost 84 percent of those with an opinion believed that the situation was “very serious” or “fairly serious”—an increase of nine points over the previous June.[4]

In polls that were conducted before the 1979 gas lines reappeared, the perception of a “very serious” energy situation was strong.  In 1977 and 1978 Gallup Polls, “very serious” responses of around 40 percent of those polled were common.[5]  Nevertheless, public perception of the cause of the “energy crisis” and how to deal with it varied widely.

The oil companies were mentioned twice as often as any other potential cause (42 percent of the time) in a June 1979 Gallup Poll.[6]  The U.S. government was named by 23 percent, OPEC and/or the Arabs were mentioned by 13 percent, and the American people themselves were mentioned by 11 percent.  By September, of those with an opinion, only 24 percent thought the gasoline shortage was real, while the majority believed it was contrived by oil companies (76 percent).[7]  In November, a New York Times/CBS News Poll found over half of the respondents thought the “energy crisis” was fabricated and only 37 percent thought that the energy shortage was real.[8]  In September of 1979, opinion polls showed that 45 percent of Americans were unaware that the United States imported any oil at all.[9]

The literature dealing with American energy utilization also reflects an intense debate over the causes and nature of the energy problem.  The following review of several articles and reports is indicative of the nature of the argumentation.

In 1977, the Central Intelligence Agency issued a report[10] that warned of sharp price increases that would probably occur in 1983 and no later than 1985.  The assessment was even more pessimistic than other official and private forecasts.  Its conclusions were based largely upon two findings: 1) the Soviet Union would become a net oil importer in the near future and 2) the limited supply capabilities of OPEC and other oil-producing nations would soon be overwhelmed.  These two factors, combined with the rising demand for energy in general and petroleum in particular, led the CIA to predict a radical upward shift in prices.

The Central Intelligence Agency’s analysis was dismissed by critics as politically motivated.[11]  Along with President Carter’s “moral equivalent of war” initiative, the CIA report soon spurred several reports.  Among the most influential were an extensive article by then-Congressman David A. Stockman and a short analysis by environmental science Professor S. Fred Singer.

Just a few weeks before the ouster of the Shah of Iran and a few months before the second oil shock, Stockman’s article appeared in The Public Interest.  Stockman called the need for a national energy policy “reminiscent of Chicken Little’s defective logic.”  The 1973-74 price hikes, he said, were likely to have occurred due to economic pressures even if the embargo and OPEC had not existed.  The CIA report, according to Stockman, had become almost ludicrous barely one year after its publication.”  OPEC had become the “supplier of last resort,” said Stockman, because at almost eighteen dollars per barrel (converted to April 1981 prices), “new energy in massive quantities can be generated virtually anywhere on the planet.”  Stockman wrote that “…the global economic conditions for another major unilateral price action by OPEC are not likely to re-emerge for more than a decade–if ever.”

He concluded: “Achieving the lowest-cost economic solution to energy supply on both theoretical and practical grounds thus necessitate increasing U.S. import dependence in the years ahead.[12]

Later, during the same month that the Shah was deposed, an article by s. Fred Singer of the Energy Policy Studies Center at the University of Virginia appeared in The New Republic.[13]  Singer declared “OPEC has raised oil prices almost fifteen percent, oil production has almost stopped in Iran, Shell Oil has announced a rationing scheme for unleaded gasoline–and yet the sky is not falling, and won’t fall.”

The 1973-74 price hike, said Singer, was depressing demand for energy and encouraging conservation.  By the time that the full impacts of the 1973-74 price hikes are absorbed in 1983, “the world production of oil should be causing one of the greatest oil gluts that we have ever seen.”

Singer suggested that the oil situation was not nearly as bad as some analysts claimed.  Even, he said, if Saudi Arabia reduced production to zero–one of the worst possible scenarios–the result would be a price hike of only about 50 percent.  The world will adjust to changes in supply through the price mechanism, according to Singer, and, as a consequence, “there cannot be an oil shortage, in 1983 or 1988 or ever.”  The oil crisis “is largely a media event,” he said, and price decreases “will continue for several more years in the face of inexorable market forces of world supply and world demand.”

Several weeks after the appearance of Professor Singer’s article, the market collapsed again and prices nearly tripled for a barrel of oil.  During the midst of the price hikes, the CIA issued another report that re-established their predictions of two years prior.  The World Oil Market in the Years Ahead[14] foresaw that price increases would continue to occur in spurts at least through the mid-1980s.  Economic growth, according to the report, would be a primary victim of the hikes.  The report noted that “Weak demand, partly caused by the latest oil price spurt may stabilize the oil market in the next two years or so, thereby causing real oil prices to level off or even to decline, as they did during 1976-1978.  Thus, weak demand may temporarily create the illusion of ample oil supplies, masking once again the longer term energy problem.  But softness in the oil market is unlikely to last long; a recovery of economic growth would quickly tighten the market and again push up oil prices unless major improvements in conservation have been achieved.”

As of July 1981, that prediction has been substantiated.

During late 1980 and early 1981, however, newspapers and magazines have been filled with optimistic news about energy.  For 1980, the Energy Information Administration announced that coal production set a new high record and total energy consumption is down to the lowest level since 1975.[15]

In contrast to the CIA’s analyses, several authors have argued that a fundamental shift has occurred in the structure of the oil market.  S. Fred Singer, for example, in a more recent, widely-read Newsweek feature, argued that oil embargoes are no longer to be feared.  Passive solar houses, home insulation, more careful uses of heating and air conditioning, and small cars have solved the energy problem, he asserted.  He argues that gas mileage might jump as high as sixty miles per gallon in the future “if the urban minicar takes hold.”  As a result of these factors, North America is predicted by Singer to “become essentially self-sufficient in oil.[16]

William H. Brown and Herman Kahn of the Hudson Institute predicted in 1980 that “…it is likely that in the not too distant future we will be witnessing major oil gluts, tumbling OPEC prices, and sharply reduced OPEC shipments.[17]

Why does the optimism exist?  Two basic reasons are offered: reduced demand and more secure supplies that are coming to exist in the United States and around the world.

This research effort, however, concludes that the probability that these factors will combine to end the “energy crisis”–especially with regard to the use of petroleum–is small.  This paper is an explanation of the dimensions of energy supply and demand in America.  The paper is a review of energy consumption with respect to the use of petroleum and the usage of other alternative sources that are often suggested as being replacements for oil.

Chapter Two is an evaluation of the demand for energy.  The evaluation will begin with the world’s overall increasing rate of energy utilization–a demand of which the United States makes up a very significant portion.  The chapter will then turn to the specifics of U.S. energy demand: how much the U.S. uses, where energy comes from, the importance and the uses of petroleum.  The evaluation will conclude that the utilization of petroleum energy is critical to the American economy and that use of oil has been steadily increasing over the course of the last seventy years.

Chapter Three will focus on the supply of energy available ·for domestic demand.  It will begin with a survey of domestic energy resources, then turn to the most important source: petroleum.  The review leads to a conclusion that American oil resources are inadequate to supply petroleum demand and that, consequently, foreign imports must make up the difference between the American ability to supply and U.S. demand.  The history of growth of imported petroleum and the ability of the world market to supply the needs of the United States and other nations are examined.

Chapters Four through Seven consist of an examination of energy options.  In Chapter Four, the focus will be on the implications of a “do-nothing” policy.  Chapter Five is an analysis of this nation’s ability to increase its petroleum supply.  Alternate energy sources–coal, nuclear power, solar power, geothermal power, and natural gas will be examined in Chapter Six.  Finally, Chapter Seven the reduction of energy demand–conservation–will be explored.

In each of these chapters, six major sources will be used to evaluate each of these energy options.  These six sources will include studies by the Harvard Business School’s Energy Project, the Federal Energy Administration’s Project Independence, Resources for the Future, the National Research Council of the National Academy of Sciences, A Study Group sponsored by the Ford Foundation and administered by Resources for the Future, and the Ford Foundation.

In the final chapter, some conclusions will be made about the “energy crisisas a result of this explanation.  Some of the suggestions for a better energy future for the United States will be analyzed briefly.

In short, the goal of this paper is a determination of whether the energy situation in the United States is truly a “crisis” or if it is, as Singer puts it, “largely a media event.”  In the end, the conclusion will be in direction opposition to the views of the “optimists.”  The harmful effects of the “energy crisis” may lay dormant for years, but the causes are no less real: the U.S. is faced with a very real threat to its way of life.

[1] The Gallup Opinion Index 104 (February 1974): 2.
[2] The Gallup Opinion Index 112 (October 1974): 15.
[3] The Gallup Opinion Index 167 (June 1979): 28.
[4] The Gallup Opinion Index 170 (September 1979): 16.
[5] Ibid.
[6] The Gallup Opinion Index 167 (June 1979): 26.
[7] The Gallup Opinion Index 170 (September 1979): 17.
[8] Anthony J. Parisi, “Poll Shows Doubt Over Energy Shortage,” New York Times, 6 November 1979, p. D6.
[9] Robert Stobaugh and Daniel Yergin, “Energy:  An Emergency Telescoped,” Foreign Affairs, 58 (1980: 563-95).
[10] U.S. Central Intelligence Agency, The International Energy Situation:  Outlook to 1985 (April 1977), pp. 1-2.
[11] Stobaugh and Yergin, “Energy,” p. 584.
[12] David A. Stockman, “The Wrong War: The Case Against a National Energy Policy,” The Public Interest 53 (Fall 1978): 5, 19-20, 32, 21, 20, 8.
[13] S. Fred Singer, “OPEC’s Price Reduction,” The New Republic, 6 January 1979, pp. 11-12.
[14] U.S. C.I.A., The World Oil Market in the Years Ahead (August 1979), pp. 13, vi.
[15] U.S. Sets Coal-Production Record in ’80; Energy Consumption Falls,” Seattle Times, 12 May 1981, p. A3.
[16] Singer, “Hope for the Energy Shortage, Newsweek, 12 May 1981, pp. 32-33.
[17] William H. Brown and Herman Kahn, “Why OPEC is Vulnerable,” Fortune, 14 July 1980, p. 67.

© J. Thomas Ranken, 1981, 2013.

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