The MacNeil/Lehrer Report; Opec

ROBERT MacNEIL: Good evening. The major oil-exporting nations today voted further increases in the price of oil, increases the United States immediately called untimely and unjustified. The decision is clearly an unwelcome complication for the Carter administration as it struggles to come up with new solutions to the interconnected problems of mounting inflation and costlier energy. Mr. Carter was due to announce his new plans in a speech to the nation on Thursday; that`s now been put off until next week.

Meeting in Geneva, the nations of the Organization of Petroleum Exporting Countries -- OPEC -- voted to raise prices by 9.05 percent on April 1st, an increase not previously due until October 1st. That would raise gasoline prices about two cents a gallon in the United States. They also voted to permit individual nations to add an additional market premium, or surcharge. A number of nations indicated they intended to add an immediate premium of $1.20 a barrel. If they do, that would raise average prices to $15.74 a barrel, eighteen percent above the price today.

Tonight, what does this mean for American consumers, and how is Mr. Carter likely to respond? Jim?

JIM LEHRER: Robin, it`s often difficult to separate OPEC pricing decisions from politics, and this one is no different. Going in, many expected the Arab OPEC members to use the occasion as a way to show their anger over the Israeli-Egyptian peace treaty. But yesterday`s decision has. thus far been billed as a victory for the moderates, led by Saudi Arabia. The more militant Arab states -- Algeria and Libya, for instance -- had wanted the price hike to be much more than was finally voted.

But for Americans, officials and otherwise, it`s still one that will be felt immediately, with some observers predicting even more ominous effects on down the line. The State Department has called the increase unjustified; so has Senator Dale Bumpers, Democrat of Arkansas, a member of the Senate Energy Committee and one of the key energy legislators in the Congress.

First, Senator, do you see a connection between this price increase and the peace treaty?

Sen. DALE BUMPERS: Well, there has to be a connection, Jim. I don`t think anybody would deny that. I think there`s a part of it that -- I would agree with Senator Jackson that there was a little bit of greed involved in it-- but my guess is, the fact that they took the increase that was due to go into effect on October 1 and moved it up to April 1 has to indicate that there was a punitive intent.

LEHRER: Was it justified in any way, from your perspective?

BUMPERS: No, it was not justified. And let me say as sort of an exculpation of the Saudis right now, the Saudi Arabians, I think, honestly wanted to be more moderate; but you know they have credibility problems with their own neighbors, the Arab Emirates in particular, and I think that they did the very best they could to hold the line. But as: I say, they have this credibility problem with their own people, and I think. that they will be moderate so far as the surcharge is concerned.. You have to separate the surcharge from the actual increase; the in crease that Robin was just talking about goes to $14.54 a barrel this year, but that includes a $1.20,surcharge. And everybody doesn`t charge that, haven`t been charging it. It is permissible now, but my guess is that the Saudi Arabians probably will not charge that $1.20.

LEHRER: Robin mentioned also the immediate effect here in the United States that increase of two cents a gallon...

BUMPERS: I think that`s an error, incidentally.

LEHRER: Is that right?

BUMPERS: Yes. I think it`s going to be more like 3.6 to four cent . a gallon. And the reason I say that, I`m not sure how Robin arrived at that figure, but I think the $1.20 surcharge might not have been included in that; and secondly, I think the fact that a good portion of the oil that`s produced in this country, which will immediately meet the OPEC price --- there`s about 2.4 million barrels a day produced in. this country that is effectively decontrolled that will meet that price -- and when you add that in, I think it`s closer to four cents.

LEHRER: Four cents. Well, I know where the two cents came from. It was just taking; the 9A5-percent increase.

BUMPERS: It`s going to be substantially more than that.

LEHRER: Well, look, how serious is that in terms of this country as whole and how it affects our overall energy problems?

BUMPERS: Well, number one, of course it`s extremely serious because the President`s battle against inflation just takes another slide backward; it`s a devastating thing so far as the economy`s concerned. Everything in this country depends on energy, and I can`t overemphasize and overdramatize the impact it`s going to have on this country. And secondly, when you add the $1:20 surcharge, that does not include the spot market that`s been developing. Some spot sales have gone as high: as twenty-three: dollars a barrel.

LEHRER: Particularly with the Iranian oil...

BUMPERS: Exactly; during the Iranian oil, but I think that`s going to continue. I think they`ve found out they can get by with it, and I. think they`re going to sell more Iraq and Libya have been especially active in the spot market business.

LEHRER: Well, Senator, you`re clearly one of those -- I said earlier there are some observers who see ominous days ahead as a result of this -- you`re clearly one of those who see those. What, in the worst case situation, is in store for us as a result of this?

BUMPERS: Well, the worst-case situation is for us to do nothing except just continue to try to meet OPEC prices. And I can tell you, you talk about the ominous results, one ominous result is that the national institutions of this country cannot continue to support imports of the magnitude we`re importing right now and pay-those- kinds, of prices.

Number two, I think that it almost prohibits the President`s anticipated proposal to decontrol, because the minute- you decontrol -- if yon decontrolled all the oil in this country right now -- it obviously goes to this new OPEC price, which is just...

LEHRER: This is domestic.

BUMPERS: I`m talking about domestically produced oil. If you decontrol that, it immediately goes to $14.54. And then finally, on the other side of the coin, you know, this could sink the Western world and the industrial capacity of the Western world if it continues. We, have one option immediately,, and that is to conserve; and we need dramatic conservation measures from the President, we need to tell the American. people what they are, they`ve got to make sense. And they need to be given to the American people in a way that they can relate to. It isn`t a question of supply. The American people and the people who are watching this show ought to understand that we don`t have that big a supply problem. I think that the OPEC nations and the world supply will be adequate. The problem is our inability to meet these kinds of price increases. And frankly, the Saudis, I know -- as I say, they want to be moderate because they have substantial investments in this country. And either of two things happen: the inflation that`s going to result from this. is going to jeopardize their own investments in this country; it`s going to :dilute their investments. Number two, if we embark on radical conservation measures to try to cope with this, that in turn could slow our economy down, it could have an adverse effect on the economy, and those countries-that have substantial investments in this country lose that way so it occurs to me that it`s really counterproductive from the point of all those OPEC nations who have big investments, in thin country also. Everybody- loses.

LEHRER: Obviously they haven`t gotten: that message.

BUMPERS: Well, I hope, the King and some of them are watching tonight.

LEHRER: Oh, well, maybe they are.

BUMPERS: (Laughing.).:

LEHRER :Thank you,, Senator. Robin?

MacNEIL: Let`s turn now to an oil industry expert and an expert on OPEC pricing. Wanda Jablonsky is the founder of Petroleum Intelligence Weekly, an international publication circulated among government officials an top executives in this country.. First of all on the point of punitive intent or political. action. motivated by the Israeli-Egyptian: peace treaty,. do, your sew any of that; as: a motive, or market. considerations after Iran?

WANDA JABLONSKY: No, I don`t see- any punitive action, because if they wanted to be punitive they could have made it much further. Actually, all that OPEC did was recognize the existing market. It`s been a $1.20 surcharge that everybody`s been giving. Even while the Saudis are so very moderate, we must remember that they`re the ones who started the $1.20 surcharge on January 19th, when they agreed to supply one million barrels a day over their allowable. They`ve charged a 1.20 surcharge, the fourth quarter price for that. Then Kuwait picked it up and applied it to all of its crude, and the others have picked it up.

MacNEIL: Now, divorcing politics from them, would you describe, from the point of view of market considerations, this increase as justified?

JABLONSKY: In terms of the market, yes, people are going out and looking for the oil and willing to pay that; there is a ti ht market. So buyers are willing to pay that, they`re willing to pay 1.20 to get additional Kuwait crude, they`re willing to pay three, four dollars more to the Libyans or the Nigerians or the Algerians, who have a very light quality, low-sulfur crude closer to the market, therefore there`s less transportation, so there`s always a premium for these light North African crudes. And they`ve been paying it. And I`m not even talking spot cargoes. There are ones the Senator referred to, the twenty-three, twenty-five dollars; that was at the height of the hysteria when Iran was completely shut down, people panicking about where to get the extra crude to keep their pipeline flowing. But that`s dropped down, to below twenty dollars now. I`m not talking spot, I`m talking about contract oil.

MacNEIL: Now, do you believe, as the Senator says, that the United States does not face a supply problem in terms of the amount that these countries are going to continue producing?

JABLONSKY: You mean an OPEC supply problem?

MacNEIL: OPEC supply problem.

JABLONSKY: I can`t say -- I can`t be very strong on that one. We are short on oil, worldwide. We`re still about two million barrels a day short.

MacNEIL: As a result of Iran not having reached normal production.

JABLONSKY: Yeah; Iran`s up to two and a half -- sometimes we read two, sometimes two and a half -- of which part is used domestically. So on a two and a half, let`s say, export of a million eight, as against a previous export of five million, that is a big gap.

MacNEIL: Is the motive of the producing countries to hold back because of the anticipation of even higher increases in the future, or to fulfill the market demand at the moment and produce all they can?

JABLONSKY: Well, let`s look at what they`ve done. Saudi Arabia raised it a million over their national allowable of eight and a half; they`re allowing nine and a half. For a while they allowed...

MacNEIL: Million barrels a day.

JABLONSKY: Yes, sorry. And earlier they allowed ten and a half, but they finally cut it back to nine and a half and then charged a premium for that one million over the eight and a half million. But still they`re up to nine and a half over and above what they`d normally be. And between Kuwait, Nigeria and Iraq, there`s another million or so been added -- added over and above what we would normally expect from them. So that adds up to about -- actually, the Saudis are about one and a half above what they would have been otherwise...

MacNEIL: But you still fear...

JABLONSKY: So they`re all supplying more oil than normal for them.

MacNEIL: But you still think we could face shortage.

JABLONSKY: Well, what I`m afraid of is, as the Iranians start to come back in -- and the Iranians put tremendous pressure behind the scenes in OPEC; our man was on the phone to us today -- that the Iranians were demanding not only a very steep price increase, far steeper than has been announced, but demanding that every country cut back to their pre-Iranian level so that they can get this high price; and that didn`t happen. But I don`t know whether the cuts will be made. They are meeting on production cutbacks.

MacNEIL: That is a possible danger...

JABLONSKY: A very serious danger, to me, is that the Saudi Arabs will cut back at the end of this quarter, back to their eight and a half allowable, which is a million-barrel-a-day slash. And I could see why they might feel pressured into that, with the Iranians staring at them, saying, You`re taking an extra million out of our market, it`s over your allowable; that means our oil can`t come in at the price we need and the Ayatollah`s upset and what kind of good Islamic nation are you? You`re keeper of -the holy places, and what. So that if I were in the King`s position there I would be very greatly torn between wanting to give the extra oil to the West to keep them happy, and looking like somebody greedy who`s taking away the Ayatollah`s oil. And we`re both Islamic, eh?

MacNEIL: Okay; we`ll come back. Thank you. Jim?

LEHRER: OPEC blamed its decision to grant the surcharge authority to its members on the major oil companies, saying the companies were taking advantage of the short-term shortages to make a financial killing.

Well, to respond to this and other issues raised by the OPEC action generally, a representative of one of the major oil companies. He`s Hill Bonin, vice president and executive director of Gulf Oil`s Washington office. Gulf`s International Affairs Office is under his direction here, too.

Mr. Bonin, first, do you buy OPEC`s reasons for granting the surcharge authority?

HILL BONIN: Oh, that`s ridiculous, Jim. This game goes on all the time, whether it`s foreign or domestic, of finger-pointing. We seem to have enough fingers pointed in our direction all the time, but this matter of us having windfall profits or greater profiteering out of this oil production is ridiculous. We have long-term sales contracts on the volumes that we require, and we haven`t collected any margin increases at all on this oil.

LEHRER: All right, on the overall action of OPEC today, I saw stories today quoting major oil company spokesmen as saying that this action will play real havoc with the world oil market. Do you agree with that?

BONIN: Sure, Jim; it`s a very high-priced oil, it`s a substantial movement upward of prices, where you have credit relationships with purchasers, the import requirements in foreign countries for foreign exchange. But in addition to that you`ve got this matter of being able to price above what is now a floor price. We used to think of a price being set as a cap; but this is not a cap, this is a floor. And there will be permissible sales above that floor and each of those movements will have to be negotiated separately at higher prices.

LEHRER: What will be the end result? What will be the havoc that will result from that?

BONIN: It`s the marketplace havoc that is involved; it`s the exporting country, the companies like ourselves that are moving that oil to importing countries and particular customers involved in those countries. So that there is a whole series of negotiations that are involved, from the time you produce at the well till the time you refine it in a refinery somewhere else.

LEHRER: Back closer to home, do you agree with Senator Bumpers that what we`re really talking about here by the time all of this is said and done is a four-cent-per-gallon increase at the American gasoline station pump?

BONIN: I agree with the Senator`s analysis, his methodology of getting there. I have not equated, and we have not had time to calculate the number that he comes up with, which is the four cents. The two cents which is the base increase of moving the October 1 price back to April 1 and getting up to the $14.55 a barrel, that`ll equate to about two cents at the pump, but I think the Senator is correct that that`s a minimum number and there`s something probably higher than that.

LEHRER: What other immediate effects could there be, from your point of view, from the oil companies` point of view, in addition to the price of gasoline?

BONIN: The immediate effect, of course, I think, is a political reaction and a public reaction to a very substantial increase in the oil bill. It`s a troublesome thin,. We`re sorry this happened. It also comes at a period of time where inflation versus energy pricing are running head-on. They`re 180 degrees apart, and the administration and the Congress has yet to address this problem.

LEHRER: Do you see the potential for devastation down the line, as Senator Bumpers does?

BONIN: No. No, not at all. I think there is going to be a continuance of tight supply. We have all of the opportunities to avail ourselves of correction projects in this country, but we have yet to under take those programs in the immediate run?

LEHRER: Is there a possibility of a shortage

BONIN: Yes, Jim, I think there is a very tight crude supply situation and an even worse refining capacity shortage in this country, and I would think that this will make for spot shortages and a very tight marketplace.

LEHRER: All right, thank you. Robin?

MacNEIL: Yes; Ms. Jablonsky, what`s your opinion on the Arab claim of profits to the American oil companies?

JABLONSKY: Well, I agree with the gentleman from Gulf; it`s utter nonsense on the profiteering by the American companies. They`re referring to these spot cargo trades, and so forth, most of which were independent cargo traders. Major companies have pipelines, commitments, contracts and so forth; they don`t take the oil and sell it off on the spot market.

MacNEIL: And what`s your reaction on the idea that this will play havoc in the oil market?

JABLONSKY: I`m sorry, I don`t quite understand the word "havoc."

MacNEIL: That this will disrupt and make for what I assume to be a -- did you mean, Senator and Mr. Bonin, that this would disrupt and disorganize the market?

BONIN: There`ll be confusion in the marketplace because of the ability to price above what is a set price.

JABLONSKY: Oh, yes. I didn`t understand the question. Yes, because everyone is free to charge whatever extra premiums they want to. Actually, you know, this is not as new as it sounds; it`s perhaps dramatized today for us. But very often OPEC basically sets the Arab light base price, and they don`t object too strongly if some of their members raise their prices more. In fact, for years the Algerians and North Africans have been adding premiums onto that, they renegotiate their prices quarterly; Venezuela keeps raising prices two or three times a year if the market suits it, because the market is the U. S. East Coast, and then drops it if the market goes. So there`s been variety going up and down in OPEC special prices. But the base is what they agree on. It`s a cartel to put in a floor, but it never has a desire to put in a ceiling. And if somebody charges more for Nigerian oil than for Arab light, the Arabs don`t complain.

MacNEIL: Coming back to how this is going to affect the American consumer, Mr. Bonin, apart from the price increase in gasoline at the service station, are we going to find some kinds of products shorter than others, like home heating oil or diesel fuel or whatever other distillates there are from petroleum, because of the nature of supplies reaching us and the prices for those supplies?

BONIN:I think you have to separate the crude supply issue from the refining capacity issue which produces product. Up to this point there has not been a crude supply shortage to the refining capacity in this country, and yet we`re seeing a very, very tight gasoline supply and fuel -- home heating oil supply situation, and that`s because of refining capacity limitation. Eventually you can get to where the crude supply will also affect the supply of products...

MacNEIL: But at the moment the reason we`re feeling possible shortages in certain areas in this country is not because we`re short of crude oil coming into the country or from our own wells but because you can`t get enough through the refineries in certain categories, is that it?

BONIN: Exactly; that is it, yes.

MacNEIL: I see. Senator, do you agree that that is our problem?

BUMPERS: No, I don`t, Robin, for what I think is a very good reason. We had a Professor Allvine from Georgia Tech before our committee yesterday, he is a marketing research expert. He showed me statistics that show that six of the major oil companies in this country, two of them had the lowest refinery runs in February they`ve had in over two years, and four of the other top oil companies had refinery runs that were almost the lowest they`d had in two years. So apparently the re fineries, for reasons which perhaps Mr. Bonin could best explain, have not been running at full capacity. And I was checking on the very point that`s being made here to find out if it was true. And he pointed out very dramatically and then showed me the statistics, that refinery runs are down dramatically.

MacNEIL: How do you explain that, Mr. Bonin?

BONIN: Well, the refining capacity, what it used to be is not what it is today. You have government regulation that has required the unleaded gasoline production and the requirements for meeting the clean air standards and other things have reduced, essentially, refining capacity. So what you were able to run four years ago is a lesser quantity today. You`re getting lesser product out of a barrel of crude oil today than we were four years ago.

MacNEIL: But do you agree that the output of the refineries was lower in February than normal?

BONIN: I don`t have those numbers, but I can assure you that my corporation has been running all-out, both on the gasoline make and home heating oil make, and there has not been any slowdown by the industry, as best I know.

BUMPERS: Robin, in Mr. Bonin`s defense, Gulf is not one of the corporations listed that I saw yesterday.

(Laughter.)

MacNEIL: I see. I`d just like each of you to give me a feeling of what the person who buys gasoline and heats his house and does other things with petroleum is going to feel as a result of this. Do you have an opinion on that, Ms. Jablonsky?

JABLONSKY: I`d rather leave it to the domestic experts; my field is more international.

MacNEIL: All right. You`ve said this is a disastrous and disturbing thing, Senator. How is the individual going to be aware of this, simply higher prices, or shortages as well?

BUMPERS: It could be a combination of both, but certainly the first thing he`s going to feel is the higher prices, Robin. And I might also add that I`ve seen polls in the last week that showed that sixty-seven percent of the people in this country don`t believe there`s a shortage; sixty-seven percent of the people of this country -- or roughly that amount -- think the oil companies are profiteering. And incidentally, it`s hard to dispute that when their fourth quarter profits for the top twenty-four oil companies were up forty-two percent. Sohio had 145 percent increase for the fourth quarter. And when they see figures like that, they`re extremely wary, and they`re going to feel a sense of betrayal, a sense of outrage that this is happening to them. Some of it is justified and some isn`t. I`m no great lover of the major oil companies, but I do try to give them their due; I try to be objective about this, and in discussing these things on the Senate floor I try to come up with what I think are sensible solutions, such as these strong conservation measures. I don`t see any alternative to it.

MacNEIL: Do you want to reply to that, Mr. Bonin, before we move on?

BONIN: Yes. I`d like to reply on the basis that the OPEC oil is still the cheapest energy source we have available to us at the moment. And the cap on these prices is going to be when we have made it economic to use coal, nuclear, oil shale, torsands or what have you; that is going to be the eventual ceiling price that we`re headed for. But we`re not making very good progress of developing alternate energy sources.

MacNEIL: Well, thank you. Jim?

LEHRER: Senator, you have said several times that the time has come for some stern conservation measures; the President apparently is reassessing everything that he was going to say on Thursday night, which he is now no longer going to say on Thursday night but will wait till next week. What should he do? What are stern conservation measures?

BUMPERS: Jim, at the expense of being a name-dropper, I do want to say I was with him this morning and when he said that he was going to postpone this Thursday`s speech until next week, I really don`t think that was related to the OPEC price increase; I think he made that decision before OPEC, announced this increase because I think he`s looking for more time. Getting to your question, I would suggest that the President re-evaluate the proposals he sent over here last week. I`m one of those people, you know, that has -- with all the awareness of the Byzantine administrative nightmare that gas rationing, coupon rationing would create -- I happen to be one of those people that think it`s a very viable method of dealing with this in a dramatic way.

LEHRER: And right away.

BUMPERS: Oh, immediately.

LEHRER: What about Sunday closings and the temperature and thermostat regulations that are also part of that legislation?

BUMPERS: Let me tell you what I think we`re going to do -- and I`m not saying this is the best thing, but I`m telling you what I think Congress is going to do -- the governors sent a delegation before our committee last week, and they said give us this responsibility and let us conserve on the basis of what our state can absorb with the least economic impact. I`m not sure the governors really want that responsibility, but I quite frankly think we may give it to them, and I think that`s going to delay a lot of time. But I think when we hand it back to the states and say you must conserve five, ten percent, or whatever figure we reach as a required figure, we`re going to say to them that within this framework you must do the following five things, and anything else you have to do to reach this ten percent conservation level, you decide. If you want to stay open on Sunday because you`re a tourist state, if you want to leave your lights on because you`re Las Vegas, whatever, you do that, as long as you reach this goal. As I say, I`m not at all persuaded that that`s the way we ought to go, because I think this is going to require national leadership from the President and from the Congress, and call on all the states and the people of this country to make a monumental effort.

LEHRER: What do you think about that, Mr. Bonin? What do you think should be done right now?

BONIN:I think the marketplace economics of this nation has served us well in the past. It has been stifled for quite some time. The energy companies that are capable of producing more, both in the way of oil and gas as well as alternate energy sources, have been hampered. I endorse the free enterprise system, unshackled; let this mechanism operate. And it will work.

LEHRER: And it will result in conservation?

BONIN: Well, there`ll be definitely a conservation program, which will be implemented by each household. There`ll also be the recognition that energy is not all that abundant and cheap any longer, which will cause conservation.

LEHRER: All right. We have to go. Robin?

MacNEIL: Yeah; thank you, Mr. Bonin and Senator. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: Thank you, Ms. Jablonsky. That`s all for tonight. We`ll be back tomorrow night. I`m Robert MacNeil. Good night.