Oil and Water

June 1992By Comments

Ten years ago I guess you could call yourself a Texan if you hadn’t been to the Offshore Technology Conference in Houston, but an easy conversance with the OTC and its ways certainly bolstered your credentials. Back then the OTC was, like riding a horse or drinking a beer in a honky-tonk, one of the defining experiences of the old Texas. The conference is still the largest gathering of oil patch folks in the world, but this year’s OTC, with just 35,000 people attending, was a mere shadow of the 1982 conference, which had 108,000 attendees and 2,500 company exhibitors. That was the last year that Texas seemed in control of both its own destiny and that of the world. The price of oil was supposed to rise forever, and no one knew how to find oil and pump oil and transport oil and refine oil and, for that matter, consume oil like Texans did.

The excesses of the Texas character dominated the 1982 conference. The proper way for any self-respecting oil executive to arrive was by helicopter, landing at one of the several helipads marked out on the Astrodome parking lot. During the day, models with large breasts and tiny skirts stood smiling by heavy pieces of industrial equipment in the exhibition hall. Some booths featured chorus lines or voluptuous shoeshine girls. By late afternoon the parties started. Every hotel in town, particularly the Shamrock, became a collection of hospitality suites. By the giant Shamrock pool, there were luaus and barbecues and open bars. In the middle of the revelry, floodlights came on, the covers were torn off a large mass that had been floating in the pool, and suddenly, with a roar of engines, a speedboat was pulling winsome and acrobatic water-skiers around and around. But that was the last debauch. The price of oil collapsed, and the next year, 1983, attendance fell by almost half, to 58,000. By 1987 it had fallen by more than half again, to just under 26,000.

As attendance at the OTC waned, the excesses disappeared and the tone of the conference became serious in the extreme. It remains so today. The Shamrock has been razed; hospitality suites are almost extinct; and despite a determined and exhaustive investigation, this reporter could find no evidence of shoeshine girls, chorus lines, models, or water-skiers. Instead, businessmen in coats and ties and—far fewer—businesswomen in conservative dresses were there to buy, sell, and learn. American companies still dominated the exhibits, and most of the American companies were Texan. But this year about a third of the exhibitors—423 out of just over 1,200—were foreign. One hundred were British. The exhibitors with the most pizzazz were … Norwegian. They created an ersatz Norwegian village and, rakes that they were, sponsored a free breakfast buffet. Most of the American companies were there, not to trade with each other but to find foreign customers. As domestic production has declined and drilling has practically stopped, American companies have turned to international trade to replace their lost revenues. The president of a technical company headquartered in Houston told me that in five years, foreign trade had increased from 20 percent of his revenues to 80 percent. He was a sophisticated and worldly man, but even a ham-fisted Cajun from deep in the swamps of Louisiana told me a similar story about his small equipment-manufacturing company. The foreign companies were there to convince customers that their products and technology have become, in many cases, better than ours. The galling thing was that often they were right. The British in particular have developed the leading technology in certain aspects of offshore drilling and recovery.

Our dominance of the oil and gas industry is not over, but it is definitely threatened, and all the momentum is against us. The experience of helplessly losing ground has left American oilmen angry and exasperated. The president of Chevron Production USA said he would rather deal with any foreign government than our own. Although it is true that American oil and gas cost more to find and develop than reserves in other parts of the world, the morass of regulatory agencies at the federal, state, and even county levels and the virtual certainty of protracted lawsuits add considerably to the already high costs or prevent drilling entirely. The United States is now the only country in the world that has moratoriums on drilling off its coasts. We are restricting our drilling in the name of the environment. Yet Britain, Norway, and Australia—all of them countries that encourage drilling—are as concerned about the environment as we are; they require strict controls and exact harsh penalties for accidents or malfeasance. The difference is that in the U.S. we seem to think we have won a victory when we stop a project, no matter how safe or necessary it may be. Everywhere else, the people and the government think they have won a victory when a project is completed, producing both energy and jobs.

A panel the second day of the conference debated whether exploration and development should be allowed on public lands. Michael Matz, a director for the Sierra Club in Washington, D.C., said, “Why not turn our expertise to foreign markets where they would be eager to have it?” The remark was almost stupefying in its ignorance and condescension, since even a short walk around the conference would have revealed to him that that is exactly what oil companies have been forced to do. But the notion behind the comment—Why not let everyone else put rigs in their back yards so we don’t have to risk getting our back yard dirty?—seems to be the prevailing mood of the country. At best it reflects an elite snobbery, that all the rest should sacrifice for us. But at worst, as a national energy policy, which Congress and a succession of presidents have by default allowed it to become, the notion is a disaster that threatens our economy, our schools, our social services, and our environment. 

Today we import almost 8 million barrels a day, more than we did before the 1973 oil embargo. Importing oil means exporting wealth and jobs. In the past ten years the U.S. oil industry has lost 350,000 jobs, more by far than the automobile or steel industry—or any other major industry. During the same time, we have spent about $500 billion on imported oil. That is $500 billion that we blithely sent to other countries, countries that are unafraid to manage and develop their energy reserves. We could have spent that $500 billion here, on factories, improved roads and bridges, research, medicine, higher wages, or any of the other fine things that money can buy. In 1986 imported oil caused just 20 percent of our trade deficit. In 1991 it caused  more than 60 percent, and everything we are doing now only ensures that both the deficit and the percentage of it caused by buying foreign energy will continue to grow. We can’t afford it.

Nor should we allow our energy industry to continue to deteriorate. As it contracts, we lose jobs in energy that we must then pay others to do for us. Just as bad, as the industry declines, our ability to find and develop what resources we do have left disappears. Once gone, the oil industry cannot be instantly recreated.

A few simple reforms would help save us from ourselves:
• We should allow, even encourage, drilling offshore, including in the Arctic National Wildlife Refuge. The coastal plain is less than 8 percent of the refuge but contains more than nine billion barrels of oil, fully one third of our known reserves. Other countries have proved that drilling can be compatible with the environment. If we do not do the same, we are committing economic suicide.
• We should encourage conservation by doubling or tripling the tax on gasoline. State and federal taxes average a little more than 30 cents a gallon. In Canada they are more than 80 cents a gallon, and in European countries the taxes range between $2 and $3, or even more. Because our gas is too cheap, we use too much of it, almost twice as much per capita as the Germans or the Japanese. That increases both the trade deficit and the various environmental problems, such as air pollution, that come from running gasoline engines. The additional tax money could go into research on enhanced recovery techniques to get more oil from our existing wells and development of alternative fuels like natural gas and coal, of which we have plenty. The extra taxes could also buy oil for strategic reserves in case of war or some other emergency. And if the new taxes were high enough, there would be enough money left over to make a noticeable dent in the national debt.
• We should revise our method of regulation and legal challenges. In Britain a proposed development is examined in a series of open hearings that can last a year or more. The magistrate in charge may say no to the project, but if he or she approves, that is the final word. Here, defeating one challenge in court can lead to another challenge and then another. We should have a process that is both timely and that produces a no that means no or a yes that means yes.
• Finally, to help those and other necessary policies succeed, the oil industry should stop yielding the public relations battle to the environmentalists. Industry disasters are front-page news; successes are unheralded. That’s why the public has little faith in oil companies. At the OTC, with the dancing girls and the water-skiers gone, what remained were good people, good products, and good ideas. That’s something the public should be told about.

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