Journalism
Oil, the Created Crisis: Oil Firms Sell Abroad, U.S. Pays (Part 1)
Over the last decade, the five largest, multi-national American oil companies have invested billions of dollars in facilities for producing, refining and marketing petroleum products in foreign countries.
The American consumer now is feeling the effect of those huge investments. This summer, it is called the gasoline shortage. It will be followed this winter by a fuel oil shortage, which in turn will be followed next summer by another gasoline shortage.
A two-month investigation by The Inquirer into the so-called energy crisis of 1973 – a probe that reached from the offices of the U.S. Securities and Exchange Commission in Washington to the oil fields of Texas and Oklahoma – established that:
– American oil companies some years ago made deliberate, long-term policy decisions to sharply expand operations in foreign countries to meet the spiraling demand for oil products in Europe and Asia. That expansion came at the expense of the United States.
– The Nixon Administration made one blunder after another in dealing with oil policy matters, beginning with the president's failure to lift oil import restrictions after taking office in 1969 and climaxing with soothing assurances last winter that there were no oil supply problems.
– At the same time American oil companies with worldwide operations are telling their customers in the United States to cut back on their consumption of oil products, the companies are urging their customers in Europe and Asia to buy more oil products.
– The American taxpayer is subsidizing the sale of petroleum products across Europe and Asia through a variety of tax allowances and benefits granted to American oil companies. The cost to the American taxpayer can be measured in billions of dollars over the last 10 years.
– Contrary to the claims of the oil industry and the Nixon Administration, the current gasoline shortage was not caused by an energy-guzzling American public or the unreasonable demands of environmentalists. It was created through default and administrative bungling by the oil companies and the Federal government.
Late last spring, the oil industry launched a massive advertising campaign designed to make the American consumer feel responsible for the nation's gasoline shortage.
A Standard Oil Co. (Indiana) advertisement, published in Business Week magazine on May 19, 1973, summed up the industry's position:
"America has a tremendous appetite. Not just for food, but for the natural resources that produce energy – gas and petroleum.
"And we're running short of them, because the country is growing so fast, and using up its currently available resources even faster."
President Nixon, in an energy message delivered to Congress April 18, put it this way:
"Today, with six percent of the world's population, we consume about a third of all the energy used in the world. Our energy demands have grown so rapidly that they now outstrip our available supplies."
The United States is indeed the world's largest single user of crude oil. And the demand for crude oil has indeed soared over the last 20 years. But that growth in demand has occurred in Europe and Asia – not the United States.
And American oil companies, foreseeing that growth, began concentrating their exploration and oil-drilling efforts and their refineries and sales operations overseas to capture a share of the emerging markets.
The story is told in statistics, gathered by Inquirer reporters from dozens of different sources in Washington and New York and Austin and Houston and Tulsa, from state and Federal agencies, financial institutions, Congressional committees, industry trade organizations, academic studies and the oil companies themselves.
The important statistics are those from the five largest American oil companies. Ranked in terms of sales, they are Exxon Corp., Mobil Oil Corp., Texaco, Inc., Gulf Oil Corp. and Standard Oil Co. of Calif.
Their sales in 1972 totaled $50.2 billion. Their net income after taxes was $3.7 billion. These five companies – along with two foreign-owned companies – control the world oil market.
Sales Double Abroad
ITEM: For every barrel (42 gallons) of oil products sold in the United States during 1972 by the five companies, the same companies sold nearly two barrels in other countries.
Ten years ago, the sales of the five companies were about evenly divided between the United States and other countries. And 10 years before that, the bulk of their sales was made in the United States.
ITEM: Product sales of the five companies increased 46 percent in the Western Hemisphere, where the United States is the major market, from 1963 to 1972. During the same period, sales increased 119 percent in the Eastern Hemisphere – most notably in Western Europe and Japan.
ITEM: The number of barrels of crude oil processed by the five companies at refineries in the Western Hemisphere increased 32 percent from 1963 to 1972. In the Eastern Hemisphere, the increase was 137 percent.
ITEM: The percentage of crude oil refined by the five companies has steadily declined in the United States and has steadily risen in foreign countries. In 1972, the companies refined 31 percent of their oil in the United States, compared with 40 percent in 1963. The volume refined in other countries increased from 60 percent in 1963 to 69 percent last year.
ITEM: The demand for crude oil has increased 110 percent in the United States over the last 20 years. In Japan, the demand has increased 2,567 percent. In West Germany, 1,597 percent. In Italy, 1,079 percent. Throughout the non-Communist countries of the Eastern Hemisphere, the demand for crude oil rose 674 percent from 1953 to 1972, compared with a 132 percent increase in the Western Hemisphere.
Reasons for Increase
The reasons for the sharp increase in demand overseas fall into three general areas: The devastation of Europe and Japan during World War II, the relaxation in Europe of national policies designed to protect the coal industry and the booming economies of Western Europe and Japan.
Anticipating the growth, American oil companies moved to meet the demand and – especially in the last 10 years – began promoting sales with the same zeal that made the United States the world's largest consumer of crude oil.
Now, in fact, at the same time American oil companies are offering consumers advice on how to cut down on the use of gasoline and home heating oil, and are urging American industries to reduce their use of crude oil, they are pushing the sale of those same products in Europe and Asia.
A subsidiary of Standard Oil Co. (Indiana) – the nation's sixth largest oil company in terms of sales – placed a full-page advertisement in The Financial Times of London on May 15 that was aimed at industrial oil buyers in the United Kingdom.
The caption over a sketch of a worried businessman biting his nails read: "The exciting life and times of the industrial oil buyer."
The advertisement pointed out that the United States was emerging as a major importer of crude oil, thus reducing the availability of world oil supplies. The advertisement continued:
"Where does this leave the industrial oil buyer? It leaves him having to think very carefully about the price he pays for his oil and the reliability of his supplies. If he is sensible, he will start looking carefully at alternative sources.
"The following are just a few of the reasons why he should start looking at Amoco. Our parent company is Standard Oil Co. (Indiana), which has an enviable supply of established crude resources.
"In this country (Great Britain) we are building one of the world's most modern refineries at Milford Haven. . .Our representatives are trained to make your operations as secure and economic as possible."
A Different Tone
Six days after that advertisement appeared in The Financial Times of London, a two-page, Standard Oil Co. (Indiana) advertisement – with a somewhat different tone – appeared in the Washington (D.C.) Evening Star and Daily News.
That advertisement carried the caption: "Does Amoco really have to allocate gasoline?" It said:
"Recently, Amoco started allocating gasoline and other petroleum products. . . . We think the American public has the right to know the facts behind this decision.
"Primarily, the situation is this: Demand has outstripped our country's crude oil supply . . . What's more, domestic crude supplies are short. And growing shorter. And foreign crude availability isn't up to the level this country needs right now.
"Does Amoco really have to allocate gasoline? Yes, and all of us may have to get by with a little less for a while, so there'll be enough to go around."
Oil company officials see no contradiction between their policies of pushing the sale of oil products in Europe and Asia at the same time that they are telling Americans they must cut back on gasoline and fuel oil consumption.
When asked why Texaco was not urging consumers in other countries to conserve their use of gasoline and oil, a senior vice president of the company said: "The same shortages do not exist elsewhere."
How is it, then, that American oil companies are able to supply their European and Asian markets, but are unable to meet commitments in the United States?
Two Answers
There are two answers to the question and both explain generally why the United States will have recurring shortages of gasoline and fuel over the next two or three years.
First, American oil companies have focused their exploration efforts overseas, drilling for oil and gas in such places as Mauritania, Mozambique, Papua, Equatorial Guinea, the Gulf of Thermaikos, the East China Sea and the Gulf of Thailand.
Second, American oil companies have concentrated on building refineries throughout Europe and Asia, rather than in the United States.
As a consequence of these two decisions – considerably aggravated by foggy government policies and ill-timed administrative actions – the production of crude oil in the United States has leveled off and there is a shortage of refinery capacity.
Because these same American oil companies searched for oil overseas, and built their refineries overseas, they now have sufficient oil to meet the demands of their overseas markets.
To understand what has happened, it may be best to begin with the production of crude oil. A single company, in this case Mobil Oil Corp., provides a typical example.
In 1963, Mobil's net production of crude oil and natural gas liquids in the United States and other countries in the Western Hemisphere was 409,000 barrels a day. By 1972, the company was producing 625,000 barrels a day – an increase of 53 percent.
But during the same period, Mobil's production in the Eastern Hemisphere went from 452,000 to 1,286,000 barrels a day – an increase of 185 percent.
Similar for Others
The statistics are similar for other multi-national American companies. Although there certainly are exceptions, oil produced in the Eastern Hemisphere generally is earmarked for sale in Europe and Asia – and not in the United States.
This policy was explained by M.A. Wright, now chairman and chief executive officer of Exxon Co., U.S.A., during an appearance before the U.S. Senate Antitrust and Monopoly Subcommittee on May 22, 1969.