Energy Crisis: Oiling the Profit, Making Machinery

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Energy Crisis: Oiling the Profit, Making Machinery

by the Union for Radical Political Economics (URPE) & N.Y. SESPA

‘Science for the People’ Vol. 7, No. 1, January 1975, p. 8 – 16

IMMEDIATE CAUSES

Is There A Shortage of Oil and Products?

When the energy crisis hit with full force last fall and winter it took the form of an absolute shortage of oil and oil products. Gas became very scarce. There were rumors about not enough heating oil to last the winter. And hundreds of factories cut back on production and laid workers off. A lot of people felt at the time that there wasn’t any real shortage at all — that the whole thing was made up by the oil companies. So it’s important to ask, was there a real shortage? And the answer seems to be yes, …. and no. Yes, there was a real shortage of oil products at the consumer level. But no, there is no immediate shortage of oil reserves and other sources of energy. 

A case study was done for the National Science Foundation looking only at proven reserves — that is, reserves which are presently known to exist and which can be recovered by methods that are economically and technically feasible — and assuming no change in technology, no imports, and steady growth in the economy, this study found that natural gas will last us until anywhere from 1989 to 2000. Petroleum will last until 1988 to 2011, and coal will last far, far beyond 2050. (“Future Energy Demand and Its Effect on the Environment”, NSF, September, 1972) And this is the most pessimistic view! 

The most optimisitc view is based on calculations of “potential reserves” — that is, proven reserves plus those that would be available with new technology. The figures here are: 

Kind of fuel Years of supply left
if used at present rates 
petroleum  58 years
natural gas 52 years
coal  3,094 years
shale oil 32 years
nuclear fuel 100 years

In any case, whether you take the optimistic or the pessimistic point of view, the case is clear. The raw materials that are the souces of energy are there. We possess them. So there is no absolute shortage of energy. 

But there was a shortage of oil products. In fact, there still is shortage —  it’s just not being experienced as a shortage because higher prices have cut large numbers of people out of the market. The fact that the shortage of oil products was real is clear from the following figures. Well drilling for gas and oil, in the U.S. during the first quarter of 1973, was just barely over the 1969 level. Secondly, extraction of these products in the first period of 1973 was less than the 1971 level of extraction. And in October and November of 1972, east coast refining operations were running at only 82% of capacity on the average. By December of that year it had only risen to 89.7%. Full usage is considered to be 94% of capacity. (Staff Economic Study, Federal Reserve Bulletin, December, 1973). It’s clear then that domestic production of oil products was not keeping up with rising demand. In fact, in some phases of operations it was even declining. Why was this happening? 

What does the Oil Industry Say is behind the Energy Crisis? 

From the first few weeks when the energy crisis began to make itself felt, the oil industry started a tremendous advertising campaign to put out its “line” on the crisis. The industry’s position was that it had been warning the American public for months that this was coming on, but we refused to listen. The industry named several factors as key reasons for the crisis. First they talked about rising demand and “consumer greediness”. Then there were decreased oil depletion allowances, laws freezing the level of prices, a whole series of environmental protection laws forbidding off-shore drilling, and a concerted campaign to hold back the Alaska pipeline. And they also talked a lot about their rate of profit. Let’s take a look at some of these reasons. 

First of all, consumer greediness. This is slightly ironic, at best. For years, the oil industry has been urging people to buy more and more gas and oil products, working with the auto industry to encourage larger and more wasteful cars, and luring people into gas stations with gimmicks like contests and free glasses. Now all of a sudden we’re demanding too much! 

This “explanation” hardly even deserves a reply. You don’t have to go far to find documented evidence against it. The Federal Reserve Bulletin of December, 1973 states “data do not support the view that there has been a significant acceleration in recent years in the final (non-industrial) use of energy. The BTU (energy measurement) energy end-product measure has grown at a fairly steady 4.0% annual rate over the past two decades.” But then where have these large increases in demand come from? The Bulletin gives the answer — industrial production. A decline in the growth of the supply of natural gas has also added to the demand for petroleum as an alternate energy source. 

The oil industry also talked a lot about “bad government policies” by which they meant the reduction in the oil depletion allowance made in 1969, and the freeze put on oil prices as part of the general wage-price controls beginning on August 15, 1971. They also blamed a whole series of environmental protection laws that had prevented them from extensive use of off-shore drilling, as well as the success of the ecology movement in delaying developments like the Alaskan pipeline, etc. 

But what the industry has been talking about most is their rate of profit. As Exxon put it in one of their ads: “Are our profits high? Yes. High enough? No!” The ad went on to explain that if the industry is to attract the funds that are critical to maintaining the necessary level of investment that will allow the industry to continue to meet the demand for energy, they must be able to earn what they call “a fair return on investment” — and they have not been able to do this. The oil companies claim that they have been in a profit slump since 1968, and that in order to overcome the current shortage they must make multibillion dollar investments. This money can only come from one of two sources: profits (which have been declining) or outside sources. But in order to attract outside investment they must have a rate of profit that is sufficiently high to attract outside investors. (More on this later). 

What’s the Real Reason for the Energy Crisis?

The immediate causes of the U.S. energy crisis were a reduction in domestic production, a reduction in refinery capacity, and a cutback in imports. But what’s behind all this is the deterioration in the profit structure of the industry. 

Figures on the rate of profit in the oil industry are often very confusing and do not give a clear picture of what’s actually going on. Part of the problem is that all available figures come from the oil industry itself. As far as we can tell from the figures available, the rate of profit in the oil industry was at best just at or slightly below the average among the Fortune 500 (the largest 500 corporations in the U.S.). There is also substantial evidence that the rate of profit was actually below the average rate of return for manufacturing as a whole (something that the oil industry itself claims is the case). 

Forbes, a high-class business magazine, presents the following picture: between 1960–1968 the rate of return on net worth (total assets minus total liabilities = owner’s equity) increased from 9.0% to a high of 13.1%. During this same period, the average rate of return on net worth for all industry in the U.S. increased from 9.1% to 10.4%. However, beginning with 1969 a reversal of the trend set in. Due to oversupply from the Middle East and Africa resulting in price cutting in the European market, the rate of return in the oil industry declined until it had reached a low of 8.9% in 1972. But the average rate of return for all industry was about 12.5% in 1972. The picture, then is one of a decline in the rate of return for the oil industry not just internally but also in relation to other industries. 

Another interpretation of the deterioration of the position of the oil industry has to do with the structure of long-term debt to invested capital. 

The Financial Crisis of the Oil Industry

Chase Manhattan Bank’s Financial Analysis of a Group of Petroleum Companies 1972, (30 companies including all the large international firms), reported that interest charges had increased 98% during the period 1968–1972. In particular the key ratio of Long-term Debt (bonds) to Invested Capital (Shareholder’s equity which includes capital stock and retaine.d earnings plus long-term debt) has been rising rapidly. For Exxon this ratio has gone from 9.2% to 17.6% during the 1963–1972 period. Standard Oil of California registered an increase from 12.5% to 16.5% from 1968 to 1972, Mobil went from 15.5% to 17.5%, and Royal Dutch/Shell from 13.9% to 23.3%. Although some firms showed stability in this ratio and a few registered declines, the long-run trend has been upward. 

What does this mean? First, from the oil industry point-of-view, reliance on self-generated profits for expansion was no longer possible. Profits, though remaining high during this period did not keep pace with rising equipment costs – a new 200,000 barrel per day refinery costs about 800 million dollars, four times its 1960 price. Increasingly these companies found themselves competing in the finance capital markets along with other industries. High and rising interest rates on long-term debt require fixed payments reducing profits and are a potential source of disturbance to the corporation when the obligation is due. Second, since the oil companies must compete for finance capital, they face the possibility of not obtaining the desired amount at an acceptable rate of interest making their expansion plans subject to the market rather than under their own control. Since it is expansion that is one of the main goals of the corporation, the oil monopoly began to feel threatened. It is from this position that we hear the chief executives of these firms plead that business is not profitable enough to ensure ‘needed’ investment funds. This ‘crisis of control’ over their own ‘corporate destiny’ is now being resolved in favor of the oil monopoly by enormous increases in the price of crude oil and refined products in the United States. The companies, with the help of the Nixon administration and their bought friends in Congress are forcing consumers to finance their independence from banks and other major lenders. We are told that this is necessary as oil is a risky business — yet, advances in exploration techniques mean that there are considerably lower costs in finding new oil than before on a major scale. The present crisis revolves around the financial structure of the oil companies and is not a true crisis of petroleum supply. 

Why Has the Rate of Profit in the Oil Industry Fallen?

There are four basic reasons. 

  1. The majority of existing oil fields in the U.S. have reached the point where it is very costly to extract the oil with the existing technology.
  2. The competition afforded by independent oil producers and distributors had made significant inroads into the profits of the giant companies, and had resulted in many gasoline price wars in the late ’60’s.
  3. The ecology movement had hampered the oil industry in its attempt to secure off-shore drilling rights and the passage of the Alaskan pipeline. More significantly, it posed a serious long-term threat to the oil industry and its freedom of movement in developing new techniques and new sources of energy.
  4. Finally, the rising trend of nationalization throughout the world, as reflected in the organization of oil producing nations into OPEC (Organization of Petroleum Exporting Countries), posed a serious threat to the U.S. oil industry. OPEC was formed in 1960 but did not really begin to make itself the spokesperson for the Arab countries until the late ’60’s when the defeat of the United States in Vietnam was certain combined with victories of national liberation struggles in this country and around the world changed the balance of power and made possible a number of moves on the part of Third World countries that had not been possible before. OPEC began to demand greater control over their own natural resources and they were successful. In 1970, when Occidental Oil Co. entered Libya on a new profit sharing basis more favorable to the Arab nations, a new era in the Middle East began. All new agreements would reflect the new ownership shares, and the holdings of all U.S. oil companies were threatened. It was this change in the political balance of power, and with it the increase in economic and political risk that helped precipitate the energy crisis.

The complete ENERGY PACKET is available for $2.50 from: 

URPE (Union for Radical Political Economics) 

PEAC (Political Education and Action Collective) 

P.O. Box 331 

Cathedral Station, N.Y., NY 10025 

STRUCTURAL CAUSES 

The United States, with 6% of the world’s population, accounts for 30% of the world’s energy consumption. Those corporations involved directly in the production of various forms of energy in the U.S. (oil companies, utilities, etc.) involve a large and growing fraction of the goods and services produced. Decisions made by these energy industries and by the government in order to maximize corporate profits have as their consequences substantial social costs (hidden costs borne by our whole society) which constitute an indirect subsidy of these industries. In the case of energy usage, examples are:  

  • The switch from steel to aluminum cans
  • The conversion to an automobile-based lifestyle
  • The promotion of electric heating for homes.

In the development of new power sources, the necessity of a rapid return on investment has led to choices which don’t make sense for our society as a whole, such as: 

  • The emphasis on nuclear fission with its crash program to develop a fast breeder reactor. 
  • The lack of investment in major research and development programs for solar or fusion reactors. 
  • The deliberate suppression of the development of coal gasification. 
  • The attempts to raise profits by building larger and larger power plants. 

These obscure decisions and hidden subsidies have so. limited and shaped the options of consumers that responsibility for the current energy-wasteful orientation of our economy may be laid squarely at the doorstep of the energy companies and their partners, the so-called regulatory agencies. In the current energy crisis, attempts to blame the public for their wasteful ways have served as a smokescreen, distracting attention from the virtual stranglehold the energy industry has gained on our entire economy. The tendency to base technological decisions on profit-oriented criteria, without an accounting of the true social costs involved, is an inevitable characteristic of corporate capitalism, a system which cannot meet people’s needs, but can serve only an elite ruling class. 

I. MISUSE OF ENERGY
Aluminum Cans

In recent years there has been a vigorous marketing effort by the aluminum companies to promote aluminum in place of steel for canning. This campaign would not have succeeded if the price of an aluminum can had not been competitive with that of a steel can. Since part of this competitiveness was due to improvements in manufacturing aluminum cans, one might believe that the market was realigning the economy to take advantage of the new technology. But in fact, the competitive price of the aluminum can is due to other factors. In particular, electric utilities have established rate structures that charge large users such as aluminum companies about one-third as much per kilowatt-hour as residential users.1 Since aluminum is refined by an electrolytic process, electricity represents a substantial portion of the production costs. And this rate structure exists in spite of the fact that the growth of large industrial users has been the major strain on generating capacity.2 Thus, cheap power for industry has been subsidized by residential consumers, who have simultaneously been blamed for excessive consumption and brownouts. 

This is bad enough, but since the energy content of the fuel that must be burned to make an aluminum can is 2.07 kilowatt-hours, as opposed to 1.0 kilowatt-hours for a steel can, one can see that the overall energy efficiency of the economy has been lowered by this trend.3 Furthermore, aluminum does not rust, so if it is discharged into the environment it does not return to a natural form. Also, its non-magnetic character makes it harder to separate from other refuse for recycling. These two features are an added price society has to pay which is not accounted for in the marketplace. 

Transportation 

The trend in recent years has been towards energy intensive forms of transportation (planes, trucks and cars) and away from the energy efficient forms (trains and to a lesser extent, buses). This trend has been encouraged by vested interests and paid for by the public. 

As recently as 1972, $5 billion of the $8.8 billion federal transportation budget was spent on highways. Between 1944 and 1961 the federal transportation budget was devoted entirely to highways. These spending patterns were strongly encouraged by the automotive, rubber and petroleum industries.4 After all, it is much more effective to tell people to see the U.S.A. in their Chevrolets if there is an interstate network of highways to do it on. But the consequences of massive road and highway development are much more pervasive and lasting than pleasure travel. It has encouraged a spreading out of the economy away from the urban centers into the suburban landscape. It has led to a whole way of life which includes shopping centers, drive-in fried chicken, drive-in movies, drive-in banking, and commuting to work. In this new life style the auto is no longer an option, but a necessity. The public has become a captive market for cars and gasoline. It is hard to imagine that the corporate managers of the auto and oil industries did not forsee this to some extent and in fact count on it. 

There is even evidence that the auto industry has moved to disable mass transit. A report recently presented to the Senate Anti-trust Subcommittee claimed that General Motors was responsible for the changeover of many urban mass transit systems from electrified trolleys to diesel buses. That in itself is a lowering of energy efficiency, but the report goes on to say that no improvements in bus design were made after the mass transit systems had been captured. As a result these systems decayed and in many cases collapsed, so that GM could sell more cars. The report asserted that a similar process has occurred in the railroad industry where some companies have suffered losses since changing from electric to diesel trains.5

In this example we see that the market, rather than leading to the most efficient allocation of resources to meet the needs of society, is actually used as a tool of corporate managers to maximize profit. And in so doing, they have led us to patterns of consumption that use energy very inefficiently. 

The All Electric Home

Until very recently, there was a vigorous marketing effort to encourage the use of electric heat in homes. The pitch was that electric heat is clean, convenient, and less expensive to install and maintain than other forms of heating. The real rationale, which was explicitly stated in a 1967 Consolidated Edison report, was that since peak power usage occurs during the summer, something must be done to increase off-season usage and thereby increase profits with a minimum of capital investment.6 While this policy increases the efficiency with which the utilities’ capital is used, a look at the overall heating efficiency gives a different picture. Fuel burned in the average furnace provides home heating at between 70% and 80% efficiency. The combined efficiency of generation and transmission of electricity is about 31%. Even though this electricity is utilised at close to 100% when it reaches the home, twice as much fuel must be burned to produce the electricity required to give the same amount of heat. It might be argued that electric heating allows the environmental impact of power generation to be removed from urban centers, but this does not eliminate the greater impact implied by the decreased energy efficiency, and in the case of Consolidated Edison of New York, with many generating plants within city limits, this argument is clearly false. Electric heating is good for the utilities but bad for those who breathe. Fortunately, the utilities have discontinued their promotional efforts in this direction, but it required a crisis to force this change. 

II. PRODUCTION OF ENERGY 
Fission Power 

In the area of energy production there are further examples of how the current system of cost accounting and profit reckoning ignores costs that must be borne by the society as a whole. This again results in technological choices which maximize profits for vested interests but which are manifestly socially undesirable. 

The most glaring example of this is the enormous commitment of the U.S. to the development and use of nuclear fission energy. Of the $999 million 1974 federal budget for energy R&D (research and development), $530 million is for nuclear fission.7 If these figures were the outgrowth of a rational energy policy, they would indicate that nuclear fission is the most desirable way to meet future U.S. energy needs. In fact, the long list of health and safety issues surrounding nuclear technology clearly indicate that this conclusion is in direct opposition to the facts. 

During the operation of a nuclear reactor, highly radioactive wastes are produced in its fuel rods. Eventually the accumulation of these wastes would stop the reactor from operating, so the fuel rods must be periodically removed and transported to a reprocessing plant, where the wastes are separated from the remaining usable fuel. Accidents during transportation of these fuel rods could expose the public to high levels of radioactivity and could leave areas uninhabitable for thousands of years. Furthermore, the wastes extracted from the fuel rods during reprocessing must be disposed of in such a way that their escape into the environment is prevented for the thousands of years during which they remain “hot”. The problem of wastes is particularly serious because many reactor-produced radioactive substances are biologically active, unlike the most abundant naturally occurring radioisotopes. Even if dispersed, these biologically active wastes can be concentrated by various organisms along the food chain until they appear in large concentrations in our food. Once ingested, they become part of our tissue, leading to long term internal exposure. 

Although a nuclear explosion is extremely unlikely during a major accident in a conventional fission power plant, the high temperatures and pressures and the exotic chemistry of the fuel elements and cooling systems makes the possibility of a chemical explosion a significant risk. Aside from the danger of bodily injury to nearby personnel, this creates another avenue for radioactive pollutants to escape into the environment. The effect of the release of radioactive pollutants, either through accidents or through the small amounts released in normal reactor operation, is cumulative. The decay of the pollutants is so slow that each new release increases the background radiation count. 

Commercial power reactors have not lived up to design specifications. A recent survey conducted by the Knight newspapers8 showed that, of the 38 nuclear power plants which had received operating licenses, 9 were shut down because of accidents, AEC orders or safety-related problems. At least 6 more were running below capacity for similar reasons. Only 5 plants were actually operating at full capacity. Solutions to the various problems of fission power, if they exist at all, will be expensive, leading to sharply increasing costs for power. 

The above considerations make it hard to see how large scale commercial fission power technology can be introduced without serious harm to the public. We are pursuing a policy that has a social cost far in excess of the social benefits. 

Breeder Reactors 

This situation is even worse in the case of “breeder” reactors. The importance of this device may be judged from the $530 million 1974 research and development budget for fission energy, of which $357 million is for a single item, the liquid metal fast breeder reactor. What is it? Only about 1% of naturally occurring uranium is usable as fuel in existing power reactors because its major componant, the isotope uranium 238, is not fissionable. However, inside a reactor, this isotope can be changed by neutron bombardment into a new fissionable material, plutonium, thereby producing new fuel. A reactor which produces more fuel than it uses up, by virtue of this process, is called a breeder reactor. In order to breed plutonium economically, one needs a reactor with a very high intensity of neutrons, and hence one that operates at high temperatures. This very high temperature, together with the fact that neutron bombardment itself causes damage to materials, makes the possibility of accidents with a breeder reactor even higher than with ordinary power reactors. Indeed, it has recently been announced that two Russian prototype liquid metal fast breeder reactors have suffered major delays, one due to a “serious mishap”.9 Breeder reactors will contain enough highly fissionable uranium 235 and plutonium to manufacture hundreds of atomic bombs. In the event of a major accident with the melt-down of some or all of the fuel rods, a critical mass of fissionable material could accumulate. Thus, a real nuclear explosion becomes a possibility with breeders. 

A further problem with breeders is that plutonium, the fuel produced, is one of the most toxic materials known. Less than one-millionth of a gram injected into animals has produced cancer.10 Yet a safer breeding method, not involving plutonium, but rather turning naturally occurring thorium into fissionable uranium 233, has received almost no R and D support. The reason? Preliminary design calculations show that it would take much longer to double the amount of fissionable material, and hence be less profitable. 

Even the argument given for developing the breeder is suspect. It is claimed that without breeding, known supplies of cheap uranium fuel (less than $10 per pound of uranium oxide) will be exhausted in twenty years. But even at $50 per pound for uranium oxide, the cost of electricity is increased by less than ¼ of a per cent kilowatt-hour. At that price there are ample fuel reserves already known for at least 50 years, by which time other, safer sources of energy could exist, if sufficient R and D funding were made available. 

Why are we becoming so dependent on fission power? Fission technology was developed by the government at public expense, primarily for military purposes during and shortly after World War II. It was believed that only a relatively small additional investment would make nuclear fission technology available for civilian use. Even this extra investment was largely paid for by the taxpayer, partly through military expenditures, such as the development of power plants for nuclear submarines, and partly because of the need for the Atomic Energy Commission to maintain and legitimize its own growth and budget allocations. Operating expenses are also subsidized by taxpayers, since the AEC sells the utilities enriched fuel at a fraction of the cost of producing it. With the nuclear fission option, the taxpayer has made the utilities an offer they simply couldn’t refuse. 

The Non-development of Other Energy Options

In contrast to the large R and D funding for nuclear fission, other energy options have been starved for funds. In the 1974 R and D budget, nuclear fusion is earmarked for an apparently large $101 million and solar energy for $13.8 million. But both figures represent major increases over the 1973 budget and part of the fusion budget is actually for R and D on military applications of high powered lasers.11 Both fusion and solar energy have essentially unlimited sources of fuel. Both are inherently much safer than fission — the problem with fusion is getting it to work, not keeping it under control. Thus in the event of an accident, a fusion reactor would simply shut down — uncontrolled explosions could not occur. Furthermore, fusion produces only a few radioactive byproducts, neutrons and tritium, which should be relatively easy to control. Solar energy is completely free of chemical and radioactive pollutants. Thus, both of these alternatives are preferable to fission since they do not impose unreasonable burdens on our society as a whole. 

Why haven’t these options been pursued more vigorously? First, because of the existence of the AEC, a large fission power industry and a more certain technology, the time scale for large-scale fission power, including breeders, was judged to be shorter, i.e., corporate profits would appear much sooner. Second, both fusion and solar power would involve extremely high initial capital oulays but would have low maintenance costs. This means that capital investment would have to be amortized over periods considered to be too long by private enterprise. Third, development of “clean” fusion or solar power would render obsolete “dirty” but profitable fossil and nuclear plants in which major capital investments have already been made. Fourth and last, fusion and solar power use fuels (water and the sun) which are readily available and can’t be put under corporate control. This poses a serious threat to those corporations (notably the oil companies) which control the reserves and facilities for processing both fossil fuels and uranium. Thus, in spite of the major risks and consequent social costs inherent in fission power, the short term profits possible are so large that research in fusion and solar power has, relatively, been almost completely ignored, in spite of their much greater long term potential. 

Another energy option that has existed for some time is coal gasification. Coal reserves in the U.S. are sufficient for the next several hundred years. However, coal is much less convenient to use than other fossil fuels and usually contains more pollutants than other fossil fuels. Both of these problems can be dealt with if the coal is turned into a gas before being consumed. A fairly efficient process for doing this was developed in Germany in the 1930’s. The professed reason that it has not been used widely is that 1000 cubic feet of coal gas costs about $1.50, compared to about $.50 for natural gas. While this is probably true at the current state of the art, one must ask whether R and D in this area could have improved the situation. Not only has research in this area not been pursued, until recently it has been deliberately inhibited. Standard Oil of New Jersey (Exxon), together with I.G.Farben, the originator of the process, formed International Hydrogenation Patents, Inc., which was charged with discouraging interest in gasification, and if that proved impossible with acquiring the rights to new developments in the field to prevent their deployment.12 

Larger and Larger Power Plants

As a final example of the competition between private profit incentives and social desireability, we examine the tendency for the electric utilities to build larger and larger generating facilities. The rationality of this is to take advantage of “economies of scale”. In practice, this has not completely worked out. To quote a leading utility executive, ” … the operating efficiency of the new large units which are being constructed today has not come up to design expectations. Some of this arises from moving forward and extrapolating older, more established technologies, but a substantial portion arises from the fact that poorer quality equipment, deficient in many cases in both design and execution, is being delivered to our job sites.”13 

The utilities have difficulty maximizing their profits because the equipment manufacturers are maximizing theirs. The total effect is increased social costs to the public. A single large turbine may account for more than 10% of a utilities’ generating capacity. If it fails, a major brown-out or black-out becomes a serious possibility. Also, these larger plants lead to a much more concentrated environmental impact. This is especially serious because pollution control devices either do not work up to their design standards or do not exist. But since the electric power companies do not pay for environmental disruption or public inconvenience, they determine their investment policies purely in terms of “economies of scale”. 

III. WHAT CAN WE EXPECT IN THE FUTURE? 

Over the past few years, the oil companies have deliberately produced shortages of gasoline and heating oil by capping existing wells, by cutting down on domestic exploration, and by not constructing new refineries. The objectives of this artificially induced scarcity were: 

  1.  Increased immediate profits with existing equipment and investment levels.
  2.  Guarantees of subsidies for developing new technologies and plants, such as for oil shale and coal gasification.
  3.  Removal of environmental restrictions on their operations. 

This oil company strategy has been completely successful, with the aid of 100% backing from the Nixon administration. The public has been manipulated into accepting hardships and increased costs both by an appeal to their patriotism (“let’s all pull together for the good of the country”) and by accusing them of being profligate energy spenders, even though the “American way of life” has been, to a large extent, designed and imposed on the public by the corporate decision makers. By increasing prices to the public, the oil companies have reduced demand and alleviated the immediate problem of gas line-ups. Nevertheless, it is clear that over the longer term, energy problems will remain. 

For the next four or five years, shortages in petroleum products will persist and probably get worse, because of a 3 million barrel per day shortage of domestic refining capacity (the lead time for refinery construction is 3–5 years). Minor savings will occur as the public is coerced by rising costs into using smaller automobiles and into under-heating their homes, but these will be far outweighed by increased use of oil for electric power generation and petrochemical production. The utilities will exert strong pressures to be allowed to shift back to using coal rather ‘than oil or natural gas. If successful, this campaign will lead to substantial social costs through increased air pollution, the effects of strip mining, and the dangers of explosion and black lung disease in deep coal mining. 

Increasing fuel costs are making alternative fuel sources, such as shale oil and coal gasification, more attractive. However, because of the major efforts required in R and D and for the construction of plants, neither of these seems a serious prospect before 1980. Again there are serious social costs involved. For shale oil, one must dispose of the processed rock —  over 1.5 tons per barrel of oil produced. Coal gasification uses huge quantities of steam, leading to potential water shortages. 

Over the past five decades, the efficiency of producing and transmitting electricity has grown by a factor of six, from 5% to a current industry-wide average of about 31%. This improvement has been an important factor in allowing the utilities to meet ever-growing demands for electricity. Although further improvements in efficiency will occur as plants are modernized (the best current plants have efficiencies of 40% and through the eventual introduction of combined cycle systems using high temperature gas turbines, it is clear that they could not account for more than a 50% improvement by the end of the century. Important as these improvements may be, they cannot, by themselves, have a significant effect upon our power shortages. Substantial new plant construction will be required. 

It would appear that the supply of energy (and other essential resources) will only meet demand through continually increasing prices, at least until the end of the century. In the long run, there are only two feasible sources of large-scale power with minimal environmental effects — solar power and nuclear fusion. Although the technology exists today to use the sun for the partial heating of homes (at costs comparable with other methods, with today’s inflated fuel prices), large scale electricity generation using either the sun or fusion seems a long way off. The time scale for introducing either of these forms of “clean” energy could, in all probability, be reduced drastically by large scale R and D programs. That these programs have not been introduced reflects a conscious decision to develop those forms of energy which would lead to quick profits, with little consideration for their long term social costs. 

No doubt the corporate elite will try to adust to a situation of chronic energy shortages. Energy will be allocated preferentially to high profit areas in the industrial sector of the economy. Shortages will be experienced primarily by the working public. They will be expected to conserve and to pay skyrocketing prices. The high cost of energy will contribute, directly and indirectly, to continued inflation, which will affect mainly the lower and middle classes. Because of the shortages, the public will be blackmailed into greatly increased use of nuclear power and coal without their environmental problems having been solved. This blackmail will be possible because much of the added cost, being social, is less noticeable than increased prices. 

Although many of our economic ills will doubtless be blamed on the energy crisis, in reality, a much more fundamental process is occurring. Shortages, such as the current “food crisis”, are occurring in all sorts of goods. These shortages bear little relationship to limited resources, but rather reflect the unwillingness of capitalists to make productive investments when their rate of profit can be much higher in military production and by speculation in land, currencies, gold and commodities (thereby driving up prices). To accomodate the enormous burden of debt that is produced, investment follows those paths that promise the largest and fastest return, rather than incurring more debt in order to expand real production. This stagnation is an integral part of present day capitalism, a system which cannot meet people’s real needs, but can only serve to further concentrate wealth and power in the hands of an elite ruling class.

>> Back to Vol. 7, No. 1 <<

 

REFERENCES

  1. See, for example, Consolidated Edison (New York, N.Y.) rate schedule.
  2. Fabricant, Neil; Towards a Rational Power Policy — Energy, Politics and Pollution, George Braziller, p. 176.
  3. Makhijani, A.B., and Lichtenberg, A.J., Environment, June 1972, p. 10.
  4. O’Connor, James, The Fiscal Crisis of the State, St. Martin’s Press (1973), p. 105.
  5. New York Post, Feb. 25, 1974.
  6. Fabricant, Neil, op cit, p. 180.
  7. Science, Feb. 15, 1974, p. 635.
  8. Miami Herald, Jan. 7, 1974.
  9. New York Post, Feb. 15, 1974.
  10. Geesaman, D.P., Bulletin of the Atomic Scientists, Sept. 1974, p. 33.
  11. Science, Feb. 15, 1974, p. 635.
  12. Ridgeway, James, The Last Play, E.P. Dutton, New York, 1973.
  13. Tillinghast, John, Executive Vice President for Engineering and Construction, American Electric Power Service Corporation; paper given at the 1971 Winter meeting of the Power Engineering Society of the IEEE.