Washington Straight Talk; Rogers C. B. Morton

Roger C.D. Morgan, Secretary of the Interior and Chief Energy Spokesman for the Ford Administration. Tonight, on Washington Strait Talk, Interior Secretary Morgan is interviewed by syndicated colonist Joseph Kraft. Good evening, Secretary Morgan. Welcome to Washington Strait Talk. I'd like to talk a little bit about the energy program in general and what you can see coming down the line. But first, let me say that this is a program that's part of a series that we've been doing with people, interviews with people that we call the accountable. So we hope to be getting from you some sense. Maybe I ought to begin with this question. Where are things out with the energy program between the President and the Congress? What's the state of play right now? Well, of course the bill, the omnibus bill, the bill that outlines his entire program has just been laid before the Congress.

In fact, I don't think it's even been printed yet. It was sent up on the earlier this week. So it is before the Congress and there has been a general agreement, I think, by the speaker in the House and the President of the Senate as to where the various aspects of this bill are going to be assigned in terms of the committees. Of course, the issue in the Congress is not the program itself. It's the preliminary part of the program which deals with the President's authority to impose a tariff at this particular point in time. And the Congress has not yet really addressed itself to the program. You sound very calm about this. I've been seeing headlines all the time about knockdown, dragout fight going to the mat. Are you confident that there's going to be a program and that a compromise is going to be worked out? Well, I don't think there has to be a, I don't know what there is yet to compromise. If you're speaking of the tariff portion of it or that portion which was designed to sort of implement the program by getting people's attention

and getting the Congress moving, the President has been very successful. In fact, in my recent visits during this week to the Hill, everybody is talking about energy and everybody is talking about various aspects of it. So in that sense, the President's mission has been accomplished. I think it's too early to tell you as to whether the Congress is going to take this away from him. But I hope that this doesn't really become the issue. The issue really is, is what are we, as the American people, what are we going to do to solve our energy problems and to make sure that we have those solutions projected into the next century? Let me try and nail this one down a little bit. Sure. It looks for the moment as though the President and the Congress are on collision course that is the House Democrats are moving to deny him the authority to set up these taxes. That's going to be before the Senate this week, I guess.

What happens if there is a standoff or don't you think they will? Well, if there is a standoff, for example, if the President loses this, then the ball is very definitely in the Congress's court. They really have, they incur in that action a tremendous obligation to move forward with a constructive program. The only constructive program that is available at this time is the President's program. He has outlined it from soup to nuts. The conservation side, the demand side, things that we can do to insulate better, things that we can do for the people in the lower income groups, the whole spectrum. Now, if they decide not to give him this tariff, then they are putting themselves, I think, on the spot. I think it's too early to tell you that whether the President couldn't sustain a veto or not in this particular issue. And I don't think this is really the gut issue, and this is not all that. But is he going for a veto? Is he going for that kind of a showdown? I don't have that time.

Well, I'm listening to you, I don't. I'm sort of always kind of careful to try to pre-empt the President. I think the President should look at the vote and then make his decision, and this will have to be this vote will come up in the Senate, I think, in a very few days. And then I think a judgment can be made. I'm in hopes that he will go for a veto, because I think the Congress should stay on the hook, and I think this tariff keeps the Congress on the hook. The people need something here, and I don't want to do nothing attitude in the Congress to prevail. Let's look at the program from soup to nuts, as you put it, and see what the possible areas of Accord are. First of all, why do we need it in a hurry? Why does it have to be done like that? Why shouldn't the country be first addressing itself to the number one problem, which is recovery of the economy? Well, I think that first it has. And I think the tax rebate of the 1974 taxes, we already have in motion a program that addresses itself to the economy.

And I think that if you will look at the increase of energy supply, domestic supply, increase in coal, increase in gas, increase in oil, you will see this has tremendous potential, as far as jobs are concerned. And I think we've got to get on with those programs. The transfer transition from say large cars to small cars, a new ethic, the better insulation of homes. In all of that, there's a great job opportunity and a great economic opportunity. I think the worst thing we could do is just stop. One of the reasons why we need to address ourselves to it now, Mr. Kraft, is because if we don't, I think all of our friends in the world are going to leave us in many, many respect. Because this, this is a case of where we are the big users of world market. Are our friends in the world much more concerned about the state of the American economy?

Don't they want to plug into a prosperity? And aren't they much more worried about 8% unemployment than about whether to serve or something. Well, I think they probably are worried about both, but they certainly are not ready for us to continue to use one sixth of the world's world market all supply. In competition to them, they want to see us conserve. And they conserve so that the two of us together can put some real pressure on the OPEC nations, which will have a tendency to lower the price. And I think this is a very noble goal. And the other aspect is that I think has not yet had a sufficient attention, is the national security aspect. We must not let our economy or our society be managed by decisions over which we have no control. And that's the situation we're pointing to now. Well, why don't we take a look at some of these aspects? Because I tend to think that the problem between the administration and the Congress is really one practical one of implementation. Could well be.

One of the questions that I think has had a great deal of disagreement is the target. The million barrel of day reduction. Where does that number come from? And why do we have to start? Well, it's about 6% of our use of oil. It's a fact a little less. It's a doable number. I happen to have written down here the areas where we can get that million barrels. We can get, say, 200,000 of those barrels from the development of elk hills of petroleum reserve number one. Get that oil in the marketplace. That gives us 200,000 barrels. But that's not conservation, is it? That's on the supply side. We can conserve 100,000 barrels a day by conversion to coal in areas and boilers that we can. We can, through the conservation across the board, as far as the individuals are concerned, can get about somewhere in neighborhood about 800,000 barrels a day or 900,000 even. If everybody does it together, this is in driving and heating homes.

This is in the decision that each person in managing his own fuel requirements can make. And this totals a little over a million barrels a day. So it's a doable figure. Let's look at one of the features. You mentioned the conversion to coal. What's the administration's program for converting to coal? We have, you know, well, we're, we've got a hopefully, hopefully, a very progressive program that will increase the conversion over the years. We're going to make coal available on the public lands to a greater extent if necessary. We're going to encourage the development of coal burning utilities as opposed to oil burning utilities or gas burning utilities. We're going to try to move natural gas out by putting a 37.5 cent excise tax on natural gas. This will tend to move it out from under industrial boilers and coal will go into industrial boilers. The, an additional.

That's actually, it's an economic voluntary. Yes, it uses the market. But also we can do this in the citing and permitting in the development of power plants and sitting down with the utilities industry and working out a coal conversion program with them. We did this back in the allocation days when the embargo was put on. We converted 22 oil burning facilities to coal burning utilities. If the Democrats of the Congress came up with a program that made this mandatory, that said certain industries just had to convert their boilers to coal burners. How would the administration feel about that? Well, I don't know whether you could do that on an equitable basis. I think wherever we can get the job done and get it done effectively with the same end result, I think it's better to sit down and work it out with the industry rather than try to impose blanket laws. This isn't a blanket law. Well, it would be a blanket law for the utilities or it would be a, you would somehow have to gather in tremendous authority in the federal government to manage the affairs of an individual business or an individual person. And I think this can be accomplished without concentrating that much power in Washington.

How about the saving of private use, which you mentioned as one of the earth? The president's program calls for attacks on all petroleum products, which would raise the price. Not of all petroleum products. It might not because we control the flow through of that cost. We have that authority now. We could put it all on gasoline and make it then a gasoline. Is that a possibility to you? Well, I think we would put the heavy end of it on those products where the biggest saving opportunity actually existed. For example, you wouldn't want to put it on jet fuel because if you did that, you would immediately raise all the airline fare. So you would keep it off jet fuel. You'd put most of it on gasoline, some on heating oil. Am I, I have the sense that I'm in the presence of a slight adjustment of position. At least as I understood the president's program at the beginning. It was at least the starts right now with the tax on imported. Oh, it goes on crude oil. But remember, we already have the authority in our allocation system of how that additional price on crude oil is shows up in the end products on the other side of the refineries, on the product side of the refineries.

We're doing that now. We're controlling the margin in the refineries. Well, I guess you've lost me. I understood that there was a distinction and an important distinction between a gasoline tax, which at one point was considered. You're right. And the present system. There is. The present system will include a management of that across the board. Some of it will go on heating oil. Perhaps a small fraction will go on petrol chemicals. This would encourage the development of petrol chemicals from other sources, such as coal. And we could keep it. I wasn't at focus only on the gasoline tax. Aren't you really just saving the automobile industry there? No, if you put it on, well, the automobile industry is in right rough shape. But I think you shouldn't put all of the burden on the automobile driver. I think that industry should share this burden.

Industry uses about 40% of the energy in different forms. And there's a real opportunity, a financial opportunity for business to conserve energy on a unit output basis, on a total BTU basis. And if they have to pay a little more for energy, it's going to be good business for them to save it. And that's where a big part of the opportunity for the million barrels, and then the two million barrels in 77 actually exists. Let's look at another connected feature of the program, because I, more and more, have the sense that the difference between the administration and the Democrats is that the administration wants to operate a market system, and the Democrats believe in government intervention. Well, I think we don't, the Democrats or the Congress, either partisanly or nonpartisanly, have not come up with the program. We really haven't seen anything. We've seen a lot of criticism of the president's program. Some are talking rationing, and they go all the way up to the threshold, and then they get scared of it, because they see that tremendous inequities and the difficulties that would be imposed on the nation for a long term rationing plan. But I haven't seen a Democratic proposal, or a congressional proposal.

Well, I guess I've seen the beginnings of one, and I think you're going to be seeing them. Well, I'm some of these. We've decided to see one. And if there's a better one, I'm sure the president would accept it. Well, for example, a connected feature of your program has the automobile industry sending a letter to the president. And I have the letter. And you have the letter. And which I believe they pledge to make improvements. Well, they pledge to achieve, I think, quite a bit. And that's 20 miles per gallon by the 1979 models on air submission standards that are higher than they are today, taking the California standards and improving them. And then it's still making the technological achievement that's necessary to get to 20 miles per gallon average. Is that pledge with, wow, why wouldn't it be more appropriate given the history of the auto industry to lay it on them with a requirement? Well, we always have that option. They will have to make this progress over the next several years. We are going to monitor them every six months to see how they're doing and if they fail to do it.

But I feel very strongly that everybody is in this problem, every American, every American business. And if we can't work together and bring the country together in a unified effort to save energy and to get a new energy ethic established in this country, and we have to do it with a club, then I think this country is in much, much worse shape than it is. There has been a real effort on the part of industry, not only the automobile industry, but to come in with ideas and to pledge themselves and industry is making some real strikes. Let me call your attention to another feature of this intricate puzzle. And one that I think monitoring is involved in the responsibility of industry. And that is in the area of drilling oil and gas in this country. I've been hearing some reports and I think you have two, Mr. Secretary, of even federal lands where industries are drilling what I think are called halls for new, new well. That is decontrolled wells where they're capping them because they have the sense that they can get more money later.

What's the hoarding, in fact, what's the situation on that? Well, I have committed the resources of our department to find one. And if I find a case anywhere where hoarding is the reason for a shut-in capacity of gas on the public land that goes into the interstate market, I will take the lease away from them. And I haven't yet been able to do it. Now, there are a good many wells in the routine course of development. And also in the overhaul or calling reworked wells where they're shut down for a period of time while this repair work is going on. Now, there are some of them. We keep a record of everyone. There may be some shut-in wells on private lands over which we have no control, though we haven't yet found one of those. There may be a few shut-in wells on the interstate market which we have no control over. You say you've committed the resources of the department, what is that? That means about 125 inspectors or 129 inspectors that we have in the geological survey who are familiar with this technology that know all about it.

And we are picking out a gas company after a gas company producer after producer where we think that we've gotten these reports, getting on the ground, looking at the production, studying... When did this begin this process? Well, we've always done it within a more limited resource. We've had about 15 or 18 people that constantly do this. Now, we've brought some people in that had other responsibilities and put them on this to try and find this shut-in capacity. Since when? Well, I notified some of the companies that we've been doing this over the last 60 days building up to it. Was this under pressure from the Congress? Well, it was under my own conscience and my own feeling that there were some people upset about this. Not only members of Congress, but individual private citizens who were concerned. We didn't think we would find any. We haven't yet. But I have put it on and put the companies on notice that if we do, we're going to exercise our power.

I don't want to get into trivia on this, but I happen to read in the Washington Star the other day, a story about a transmission company. I think it's called Transco, which was running out of thought they were running out of natural gas from federal lands. And a couple of inspectors went down and discovered, I think it was a city service rig that had eight wells capped. Yeah, I know all about that. I know all about that. I didn't see it. Who is he, like that? They have been working on those wells since the middle of August of this year. The wells were corroding. In other words, they were the structures. On all of the wells? Well, in that particular platform, and they were all those eight wells are in one unit. So they shut them down and began to replace the pipe. They brought a derrick in and started it. And they worked on that and they finished the job in January.

This just passed January and they put the wells on the day after they finished the day. The day after they were able to move the derrick away, all the wells went back into production. And it was simply coincidence that that's the day our people got there. Nice. And that work had been going on for six months. We talked to the contractor. There was no way they could have done it. In fact, they'd been urged to do it faster, the repair contractor, to get the wells back in production. Because really, if you look at the capital invested and there are millions of dollars in each one of these wells, the holding one of these back would be a real serious economic blow. Really? Because I just got in the mail today, a statement from a prospectus of a company, I think it's called Rainbow Resources, where they advertise that of the 88 wells they have. I think it's 84 of them are capped. Well, they're not on prop. They're not on public length.

Okay, but it's the suggestion there. The implication there is that it's better to have them capped and producing. Are you satisfied? This is... Well, I ought to say something about the background. Well, we've got a lot of wells that are not hooked up. Now, I don't know. Because a widespread public impression that the oil and gas industry is having a terrific ripoff with the help of you and other people in the Ford administration. Well, they're just that that just isn't so incase they were. It would go back to the Johnson administration and the Kennedy administration and the Rose Academy administration. I don't mean to stick it to this administration. But let me ask you this. Are those wells hooked up? Is there a system in which those wells can deliver? I'd have to look at this thing. We're looking at... We have no jurisdiction over wells that are not under the federal domain. That is wells that are in the interstate market or are in the on public lands. Now, we couldn't come into your backyard and tell you here in Washington that you had to open the valve of a gas well. If you had one there, it'd be a nice thing to have.

But we can do it if it's on public land where they have a lease with the federal government and we will do it. And we'll take the lease away from it. But are you satisfied that your program does not give private investors an incentive to haul back? There's a real incentive for private investors to put their money in my book in the wrong place as far as we're concerned because there are two markets. There's the interest state market. That's where gas is produced in a state and consumed in a state and does not move in interstate and foreign commerce over which there is no federal regulation. The price of that market is much higher. It's probably on the average nearly a dollar higher today than the interstate. So all of the new money that's going into the discovery of gas and the production of gas is going into that system as opposed to going into the interstate system, which is where gas is produced then shipped, for example, all the way to Washington from somewhere in the southwest. So there is a natural tendency for capital to go where the best return is. Now this is a problem that is inherent in the present system of regulating gas, regulating some of it and not regulating all of it.

Isn't a part of that problem that there's a big incentive for the big companies at least to put their money abroad? Yes, there's certainly one. What are you doing about that? Well, we're still existing. We're advocating the deregulation of new natural gas. And this will equalize the opportunity for a return on investment between the several markets, between the any thing that certainly will. A new natural gas that would go in the interstate market would be at the same price that new natural gas going into the interstate. But how about investments abroad? Isn't that still a terrific bonus for companies that are still on? Well, I talked to two of the biggest oil companies and gas companies in the last couple of days to find out where their capital commitments for 1975 were. In the case of one, it was nearly 85% in the United States, whereas three years ago it had been 85% abroad. And the other one was a little higher than that.

And so they're really today with the nationalization that's going on with all the present price here. The real demand is here in the United States. As I understand it, there's still a pretty big tax bonus in going abroad. We would like to change that. Yes, we put that before the Congress. We would like to eliminate the foreign depletion allowance and we would like to eliminate the tax incentives that here to four took capital abroad. But in spite of the fact they exist, let me assure you that the industry is coming back. And at a great speed, you bet. How about the offshore problem? I've heard from some Democrats in the Congress that they feel you've been moving in an arbitrary way. That they would like you first to find out, have the government find out what's there before moving to drill? There are a lot of people who feel that the government should be in the oil business. And that we should do the exploration.

I don't think they've thought about the magnitude of this operation. This would require literally billions of dollars of working capital by the government. I think there should be some changes in the way we're leasing in the amount of royalty. And we're studying that today to see if we can't improve our leasing system so that it more matches the times. We also have committed ourselves to consult with the coastal states to help them with their problems. And the President has increased the funding under the Coastal Zone Management Act and to give them some additional money to do the kind of planning that they want to do. But we have no alternative, Mr. Kraft, but to go into the frontier areas. We are losing oil today at the rate of 8% a year from our established fields. If we do nothing in 10 years, we'll only have 20% of the oil we have today. And we'll be at the mercy of the OPEC countries, really at the mercy. They will run our country.

So we have got to move into the frontier areas and they happen to exist on the out of continental shelf. But it doesn't make sense to you that before fiddling around in an area that we really don't know that much about, we find out what's there. I know a great deal more than that. It's not unknown. Geological work has been going on in the Atlantic for many years and in the Pacific and in the Arctic for many years. And remember that you usually, even in an exploratory phase, you will drill anywhere from 5 to 10 dry holes for everyone that you will drill. It turns out to be a producer. We pool our geological knowledge and we then don't indiscriminately lease. We get nominations from industry and from other interested people to see where the geology is best suited. And finally a decision is made and after the sale, we re-evalue the whole project. And if we don't think that people have gotten enough money for their lease, we don't sell it. We're getting to the end and there is one question I really need to ask you.

The inflationary impact of this program. A lot of people have said that while I haven't been critical of the program in general, they think the timing is bad because it's going to be coming on stream just at the moment the economy turns around. And some people have thought we ought to delay the beginning. I think it's a very serious thing to delay it. I just don't think that the free world can stay in this limbo of dependence on a very highly concentrated area of the world. It will have about a 2% at most impact on the index. Now to cure the problem, we're going to have to pay the price. This I think is the cheapest price we can pay. Thank you very much, Secretary Martin. Thank you, Joe. Washington Straight Talk. From Washington, the impact has brought you Secretary of the Interior, Rogers Morton, with syndicated columnist Joseph Kraft.

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