The Question of Governmental Oil Import Restrictions

Abstract

Annual Meeting of the American Institute of Mining, Metallurgical, and Petroleum Engineers, 14–18 February, New York City How is the Government's oil import control program doing? In July 1954 Mr. Eisenhower established the Cabinet Committee on Energy Supplies and Resources Policy. On July 29, 1957, the Administration imposed" voluntary", company oil import quotas on American oil importers to maintain "a healthy domestic (oil) production industry" and safeguard" national security." On March 10, 1959 the President by proclamation made the voluntary program mandatory. But study of the program in practice shows that it is not working out as expected and that there is some doubt that its aims and other related Administration purposes are being achieved. Take the Administration's anti-inflation policy. To be sure, the President apparently recognized in his March 10th proclamation that in restricting cheap imported oil in favor or more expensive domestic oil he was making the inflation right that much harder, for he called for Government surveillance or domestic oil prices to prevent them from getting out or hand. And indeed while domestic crude oil prices have not risen appreciably during 1959 neither have they fallen appreciably (although there has been some price weakness in the past few weeks). Domestic prices almost certainly would have gone into a decline if advantage had been taken or much lower-priced Middle Eastern and other foreign crude. Middle Eastern crude's approximate 10 percent price advantage in May, 1958, had widened, if temporarily, to better than 33 1–3 percent in May, 1959. If anything this price gap is not likely to shrink much and may even increase in the long run; U.S. drilling and development costs generally run a good bit higher than those in the rest or the world, and increasingly so. Why is this? Aside from higher labor costs, probably the main answer lies in the fact that the United States is the scene or the world's highest living standards with the first truly motorized society. So for 100 years this country has been combed for possible oil while its existing economical oil resources have been abundantly utilized and to a significant extent depleted. So to find oil in the U.S. today as compared to finding it abroad, it is generally necessary to drill to greater depths and with a greater proportion of dry holes or to probe the offshore continental shelf expensive operations which tend to advance the unit cost of domestic oil. Another reason for the cost spread is seen in the figures (1956) for average daily production per well -for the U.S. it is 13 barrels, for Venezuela 176, for Kuwait 5179, and for Saudi Arabia 8650 barrels.