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Carter's plan to decontrol domestic crude-oil prices is a good first step to help the nation shake free of foreign oil dependence and the uncertainties that come with it. But there are misconceptions as to why the move is the right one.
It is doubtful, for instance, that rising prices will bring about enough conservation to cut oil imports sharply.
Gasoline prices have more than doubled since 1973, a far steeper climb than that of inflation, and yet consumption continues to surge. Gasoline prices would have to climb much, much higher to make a significant difference; moderately higher prices will help a little bit, but nowhere near enough to make that alone the reason to decontrol.
A bigger benefit of decontrol will come from increased domestic production. When prices are free to climb to the world level, domestic output is likely to rise as companies pump more oil out of existing wells that are now uneconomical to keep on stream. The battle between Carter and the oil industry over his windfall profits tax concerns whether decontrol will also lead to increased exploration and drilling of new wells that will raise production. The President has repeatedly hit the industry with the charge that oilmen will just pocket the profits from decontrol. Even under existing price controls, however, the industry has spent far more than ever before in its history in the stepped-up search for oil, not only overseas in countries outside OPEC, but also in the U.S.
Oilmen now hope that a big new play will develop in some fairly promising areas of Oklahoma, Texas and, most important, the so-called Overthrust Belt in the foothills of the Rockies. Says Joseph Reid, president of The Superior Oil Co.: "The price for new gas and oil is such that people can afford to take more risks and drill deeper than when prices were cheaper. We are drilling in places where we previously would not have drilled. What was uneconomical is now economical."
One question is whether there is much domestic oil left to be discovered. Oilmen say there is, but the odds are against them. With fully 507,034 operating oil wells dotting the landscape, the U.S. is the most explored region on earth. Last year companies and wildcatters drilled 48,573 new wells around the country, but discoveries were disappointing.
Decontrol could lead some oil companies to drill merely for the sake of appearances. Opinion among Exxon's top management was divided on whether to invest what eventually became $460 million last year in a so-far futile search for oil in the Baltimore Canyon area of the Atlantic. Though preliminary seismic studies were not encouraging, the company went ahead anyway. The decision was made partly on the grounds that it could not be seen as declining to explore in an area so close to the petroleum-hungry Northeast.
Carter's windfall profits tax would permit oil companies to keep fully 50% of the decontrol bonanza to spend on the search, and that seems plenty. The other half would go into an Energy Security Trust Fund. As he proposed to Congress last week, about 75% to 80% of the fund's money would be spent on financing the development of alternative sources of energy like solar power, the