Energy crises of the past paved the way for politics of energy today

There’s a famous observation that if you remember the 60’s, you really weren’t there. But if you ever waited in a gas line in the US in the 70’s, you remember it. And not fondly.

All of the craziness of the two periods of gasoline lines — in 1973-1974 during the Arab oil embargo, and then again in 1979 during the Iranian revolution — are recalled in a new book,Panic at the Pump: The Energy Crisis and the Transformation of American Politics in the 1970s.

Author Meg Jacobs reviews the falling US production levels and rising consumption that set the stages for the first stirrings of the energy crisis in the early 1970’s. She recalls with tremendous accuracy — trust me, I was there — how the mere act of keeping your car filled with gasoline became a national obsession. (If it wasn’t for Watergate, it might have been the only obsession).

Even after gasoline lines went away and energy mostly dropped off the radar, Jacobs reviews how there was actually a lot going on in Washington, including the energy legislation under Gerald Ford that implemented a ban on crude exports, lifted only at the end of 2015. The war between the Carter administration and Congressional liberals over keeping prices under tight governmental control makes Jimmy Carter look like Ronald Reagan in his dedication to the free market. And then the gas lines popped up yet again when the Shah of Iran fell in 1979 and Iranian output plummeted.

It’s hard to read any book like this and not compare the politics of then to the politics of today. That period marked one of shortage and tremendous OPEC power; today, an oil glut that was the type of condition OPEC was established to deal with has left the organization powerless.

Then, it was the Democratic left, led by members of Congress like Toby Moffet, Henry “Scoop” Jackson and Howard Metzenbaum, who sought aggressive use of Presidential power – which the White House had – to keep prices down. The federal government regulated crude prices, and it regulated product prices.

Today, that same wing of the party seems almost uncomfortable with the lower prices the shale revolution has produced. Even before the decline in prices, Barack Obama chose Steven Chu as his first Secretary of Energy, a man who in September 2008 expressed his desire for the US “to figure out how to boost the price of gasoline to the levels in Europe.” The difference between that view and those of the 70’s from the same wing of the party is stark.

With the fracking revolution, the debate rages over the level of regulation that should come from Washington vs. from state capitals. What’s the role of the federal government in regulating fracking? Can methane emissions be dealt with on a state level or need it be federal? Can localities overrule state governments and essentially ban fracking?

It’s important then that Jacobs spells out just how much regulation of markets Washington had – and gained – as the first energy crisis hit. For example, during the first crisis:

• Fuel was allocated regionally. A surplus in one place couldn’t simply be shifted to an area with a shortage. “Incredibly interventionist, the newly enacted allocations, which (federal energy “czar” William) Simon was tasked with overseeing, controlled to what industries, dealers, and regions the oil companies sent their products,” Jacobs writes. Lines at gasoline stations were not nationwide; some areas had no issues at all, whereas the Northeast was particularly hard hit. Shifting around the supply wasn’t an easy option to deal with that fact.

• Independent refiners had traditionally bought imported crude. But domestic crude was regulated, and the independents wanted the federal government to require producers to sell that domestic crude to them. Never mind if the inherent economic value of the domestic crude and the imported crude were the same in the products they produced. The government mandated different prices.

• The Federal Energy Office would mandate how much gasoline, distillates and other products were to be produced by refiners. Yes…really.

And that’s what was going on in Washington. On the ground, a massive strike by truckers – who couldn’t get fuel, and when they did, had to pay more for the privilege – did tremendous damage to the economy and led to violence. Vast majorities of Americans told pollsters they thought the whole thing was a made-up contrivance by the oil companies to boost their profits. The Daytona 500 became the Daytona 450.

Gulf Oil, looking for places to park its cash given natural reluctance to invest in markets distorted by regulation, bought the Ringling Brothers circus. That was just one of a long list of energy company acquisitions outside the oil field that continued on into the 80’s, virtually all of which ended poorly. (Chevron didn’t unload Molycorp, a molybenum and rare earths company until 2008. Union Oil bought Molycorp in 1977, Chevron bought Union in 2005, and finally disposed of Molycorp after Union had been unsuccessful in earlier attempts to do so).

The worst parts of the crisis “ended” in March 1974, when the Arab oil embargo, imposed the prior autumn near the time of the Yom Kippur war, came to a close. Energy faded as an issue, except for a severe natural gas shortage in the winter of 1977 that Jacobs recaps.

But the oil issue revived in 1979, when gasoline lines popped up again in many parts of the country following the Iranian revolution. What is most significant about Jacobs’ review of those times is the push that Jimmy Carter made to deregulate prices – which began in his administration and was completed soon after Reagan’s inauguration – against significant opposition in his own party.

Carter also advocated switching oil-based electricity generation – taking up the bulk of the 2.5 million b/d of residual fuel the US was using then – for coal. And now the Democratic nominee for President in 2016 has said she wants to put a lot of coal miners out of work. (US consumption of residual fuel, hardly any of it for electricity generation anymore, is now less than 350,000 b/d).

Source: http://blogs.platts.com/

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