Inside the Big Oil Game

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18,900 employees, nearly half are employed only to propose, write and enforce regulations. In Houston, the DOE keeps 40 full-time auditors in residence at Shell headquarters, and other companies also have their own in-house bureaucrats hovering in the halls. Much of the DOE'S staff has a self-interest in seeing the regulations proliferate: without them, Government workers would be out of jobs. So would small armies of lawyers in Washington, New York and Houston. Says a rich Houston lawyer: "Government regulations have been a real source of new business. The sums of money involved in DOE regulations are astronomical."

Many of the regulations benefit OPEC.

The worst offender is the so-called entitlements program. It was set up under Gerald Ford in 1974 to equalize the burdens of surging import prices between refineries that depend on expensive foreign oil and those with supplies of low-cost domestic petroleum. The complex program works this way: for every barrel of domestic crude that a refinery processes, the company must make a payment into an entitlement pool. The payment raises the price of each barrel of domestic oil halfway up to the cost of more expensive OPEC crude. At the same time, any refinery that imports costlier OPEC crude gets to withdraw an equal amount from the pool. For example, a refinery that buys domestic oil for, say, $9.45 a bbl. would pay about $2.50 to the fund; a refinery that imports foreign oil for $14.55 would then collect that $2.50. Observes Oil Economist Arnold Safer: "The entitlements program, in effect, gives any company that imports OPEC oil $2.50 for absolutely nothing. The system creates a perverse incentive, just the opposite of what is really needed."

What is needed, of course, is an energy policy to lead the U.S. from its dependence on petroleum, especially imports. Energy Secretary James Schlesinger is probably too pessimistic when he warns that a severe global supply squeeze could come as early as the mid-1980s, but the nation will be in increasing jeopardy anyway. The threat is not that some day soon there will be much too little oil, but that consumers will have to pay ever more extortionate prices to get it. Says Guido Brunner, the Common Market's energy commissioner: "We have to realize that the age of cheap energy has come to an end, not because of diminishing supplies but because of OPEC's production policies."

The cartel's share of the world market has dropped slightly, from 65% in 1973 to 58% now, as a result of increased output from Alaska, Mexico and the North Sea. But it would be foolhardy to expect that OPEC will any time soon lose its ability to control prices. Saudi Arabia alone has more than 25% of all proven world reserves; its daily output of 8.5 million bbl. is indispensable to Western Europe and Japan, and provides more than one-fifth of all U.S. crude imports.

Only two years ago, oilmen were confident that the Saudis would steadily boost production, to as much as 20 million bbl. a day by the early 1980s. A Senate report three weeks ago concluded that the West will be lucky if the Saudis achieve much more than half that level over the next eight years. They have been shaken by the experience of Iran, where the social strains of rapid industrial development brought on revolution. The royal family is split between moderates eager to expand