Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

256. Telegram From the Department of State to All Diplomatic Posts¹

Washington, January 24, 1980, 0936Z.

20298. Subject: Recent U.S. Energy Developments. Reftel: State 309970.²

1. (Unclassified entire text)

2. This cable is the second in a series of reports on U.S. energy developments. (Reftel) It is a report of activities as of January 18.

3. Report on IEA Ministerial.³

At the International Energy Agency (IEA) Ministerial meeting on December 10, the major oil consuming nations took a significant step toward stabilizing the world oil market by agreeing to control the level of their oil imports. They set national oil import ceilings for 1980 and agreed to establish a mechanism whereby the performance of each country would be regularly monitored and the ceilings would be adjusted quarterly if necessary to take account of changes in the world oil supply situation. This was an extension and reinforcement of target setting process at the Tokyo Summit Meeting in June, 1979. (At Tokyo, only the U.S., Japan, and Canada set national targets for 1980; the EC nations simply reaffirmed the EC group target established earlier at Strasbourg.⁴ The seven countries did set targets for 1985, but with varying degrees of commitment and specificity.)

—The 1980 ceilings of IEA nations total 24.5 million barrels per day (MMB/D), including 1.4 MMB/D for bunkers. France, though not an IEA member, was closely involved in this process through the EC. Due to expected reductions in economic growth, and the demand restraint and fuel switching effects of higher oil prices, there is a good chance that the IEA nations will collectively import less than the sum of the ceilings. The U.S. ceiling for 1980 is 8.5 MMB/D plus .4 MMB/D for the territories.

—The IEA Ministerial also set national oil import goals for 1985. The sum of these goals is 26.2 MMB/D. When bunkers are excluded the collective goal becomes 24.6 MMB/D. This replaces the collective target of 26 MMB/D (excluding bunkers) set in 1977. The U.S. goal for 1985 is 8.5 MMB/D for the 50 states, plus 0.4 MMB/D for territories.

—The Ministers also directed the IEA to develop an improved information system on stock movements and a system of consultation on stock policies, and to consider additional measures leading to a more coordinated approach to spot market activities.

4. US Energy Performance

—During the last several years the United States has instituted a number of programs and policies aimed at reducing our dependence on imported oil and our overall consumption of energy. The full effect of these measures will take years to develop; however, results are already beginning to manifest themselves, in some cases dramatically, in reducing our oil import and energy use. In the past we promised to meet the energy challenge—we are meeting it as the preliminary data, primarily for 1979, indicate.

—For example, on a 50-state basis in 1977, net imports averaged 8.6 million barrels per day (MMB/D) of oil. By 1978 we reduced that level by nearly 600,000 B/D to about 8.0 MMB/D while 1979 levels are expected to be 7.8 MMB/D.

—U.S. petroleum product consumption in 1979 was well over 2 percent below 1978. Preliminary data indicates that total energy consumption was also less than in 1978. This occurred while U.S. GNP grew at 2.3 percent in real terms in 1979. This represents a significant change from the pre-1979 relationship between energy use and growth rates.

—Our very positive contributions to reducing demand pressures on the world oil market have not been limited simply to decreasing our oil imports, but include the overall performance in improving energy efficiency in the major sectors of our economy.

—In the transportation sector gasoline demand during 1979 was about 5 percent below that of 1978. Savings were due to a number of factors including higher prices, fuel efficiency standards and voluntary conservation. Our mandatory automobile fuel efficiency standards will ensure continued progress in this area. The savings were greatest in the second half of the year when shortages were not a constraint on consumption.

—We are also particularly pleased with the conservation performance of the U.S. industrial sector. Industry used about the same amount of energy in 1978 as in 1973, in spite of economic growth and industrial output increases during this period.

—In the residential/commercial sector our oil consumption between 1973 and 1979 has dropped by more than 200,000 B/D as a result of higher fuel prices and government incentives for retrofitting existing structures.

—Coal production in 1978 despite the prolonged strike was nearly 62 million tons above the 1973 level. In 1979 our coal consumption increased by more than 10 percent over last year as a result of government policy requiring greater coal utilization for generating electricity and in direct industrial use.

—In 1978, our domestic production of crude oil was 8.7 MMB/D largely due to our Alaskan North Slope fields reversing a long-term decline in our oil production (when natural gas liquids (NGL) and processing gains are included, total U.S. production was over 10.5 MMB/D). Overall there has been an increase in exploratory and production work in the United States. As a measure of exploratory effort, the number of seismic crews operating in the United States has increased by 57 percent between 1973 and 1979. For production, the number of rotary rigs in operation in 1979 was almost double that of 1973.

—Domestic gas production appears more promising as a result of pricing policies instituted by the U.S. Government; also the rate of decline in reserves has been slowed down.

—Nuclear power continues to play an important role in our energy production providing an average of 12 percent of total domestic electricity generation in 1979 compared with only 4.5 percent in 1973. In pursuing nuclear power development we will continue to emphasize safety in the operation of our nuclear plants.

—The commercialization and use of renewable energy and synthetic fuels has been greatly enhanced by the initiatives proposed by the President which are nearing final Congressional consideration. We believe that these sources of energy will play an increasingly important role in our energy future.

—At Tokyo the Summit countries agreed “on the importance of keeping domestic oil prices at world market prices or raising them to this level as soon as possible.” This is exactly what the US is doing. Over one third of US oil production is now free of price controls and this proportion will increase monthly until September 30, 1981, when all domestically produced oil will be free of price controls.

—Even with price controls on part of US oil production, the difference between the price of imported oil and the composite or average refiner acquisition cost of crude oil has been much smaller than commonly realized. In 1978 this difference amounted to an average of $2.11 per barrel. The gap widened somewhat in 1979 as world prices rose faster than domestic crude oil prices. In September 1979 (the last month for which reliable figures are available) the composite price was 80 percent of the price of imported oil. The percentage gap between import prices and the average acquisition cost of crude oil to refineries will narrow because each month a large percentage of domestic production will be freed of price controls. By September 30, 1981 the gap will be eliminated.

—With the exception of gasoline and propane, the retail prices of major petroleum products have been decontrolled. In the case of gasoline, retailers are permitted to pass through fully all increases in product costs. Refiners are permitted to pass through to gasoline retailers 110 percent of the increased cost of crude oil used to produce gasoline. Therefore, the ex tax prices of gasoline and other petroleum products are almost the same in the US and Europe.

—Changes in prices can have as much or more influence on consumer behavior than absolute levels. The percentage rise in the real price of gasoline and home heating oil in the US since 1973 has been greater than in major European countries.

5. Energy Legislation

The following developments have taken place in the energy legislation reported in reftel:

A. Windfall profits tax

On December 17, the Senate completed action on its version of the windfall profits tax legislation. On December 19, a House/Senate conference committee began deliberations over resolving the differing provisions in the separate versions passed by each body. In a major decision, the conferees agreed on a tax level of 228 billion dollars over ten years and are now considering alternative tax regimes consistent with this revenue target. The administration hopes that action on this bill will be completed by the end of January.

B. Energy mobilization board

This measure is now before a joint House/Senate conference committee to resolve the differing versions.

C. Energy security corporation

This measure is also subject to conference committee consideration.

D. Conservation

The Senate has already passed legislation providing $14 billion over five years for solar and energy conservation. In the House there are two bills under consideration, both of which provide for creation of an energy bank to provide subsidized loans for residential and commercial conservation. The bills differ, however, in two major respects:

—The Banking Committee bill provides for two separate banks, one for solar and one for conservation, whereas the Interstate and Foreign Commerce bill provides only for one bank;

—Only the Banking Committee version expands existing requirements that utilities provide energy audits for their customers.

To accelerate consideration of this legislation the House leadership has agreed to let the House conferees consider solar and energy conservation measures even though House action is not completed. The conference is expected to begin discussion of these provisions about February 1.

E. Gasoline rationing

The administration is preparing a standby gasoline rationing plan under authority provided in the Emergency Energy Conservation Act of November 5, 1979.⁵ The plan would give the President authority to impose an approved rationing plan at his discretion, if this is required by a severe energy supply interruption or to comply with the obligation of the U.S. under the International Energy Program (i.e., the IEA oil sharing program). The administration’s final plan will be submitted to Congress; unless the plan is disapproved by joint resolution within 30 days, the plan is approved.

6. Mexican gas

The USG has also been working to enhance energy trade and cooperation with Mexico. The first contract negotiated under the framework of the September 1979 U.S./Mexican agreement to facilitate the import of Mexican natural gas⁶ received final regulatory approval on December 28, 1979. This cleared the way for imports of 300 million cubic feet per day of Mexican gas. This amount, about one half of one percent of total U.S. consumption and 8 percent of U.S. natural gas imports, is the equivalent of 50,000 barrels per day of crude oil imports. The price is $3.625 per MMBTU with quarterly escalator based on a mix of world crude prices.

7. International energy R and D cooperation

The U.S. continues to pursue an active program of international cooperation in the development and commercialization of new or improved energy technologies. The primary focus for our efforts is in the International Energy Agency (IEA). We also conduct some bilateral, and occasionally multilateral activities, though in most cases these are complementary to or associated with our IEA efforts. The first meeting of the International Energy Technology Group (IETG) was held in Paris November 5 and DOE Under Secretary John Deutch was elected chairman. The IETG, growing out of a U.S. initiative at the Tokyo Summit, will examine the need for international cooperation in the commercialization of new technologies likely to be available in the mid-1980’s. The Group’s report, to be issued in late March, will be considered at the Venice Summit.

Significant steps in bilateral cooperation, primarily with Japan, were taken during November and December. The most important of these was Japanese agreement to participate in phase one of the SRC II (Solvent Refined Coal II) liquefaction project as a quarter partner (the same as Germany). The cost of the SRC II demonstration facility, to be built near Morgantown, West Virginia, is now estimated at $1.3 billion. The first meeting of the U.S.–Japan Fusion Coordinating Committee was held November 8–9 in La Jolla, California, to review the progress of joint research at the Doublet III Tokamak. The Japanese are contributing $50 million to upgrade the Doublet III facility.

A U.S.-Japanese high energy physics implementing agreement was signed November 11 followed by a meeting which laid out an experimental program at various U.S. accelerator facilities. Japanese financial participation will be some $5–7 million. High energy physics cooperation is also being undertaken between the U.S. and the PRC. Over 40 PRC scientists are now working in this field at U.S. accelerator centers and universities. This is part of DOE’s agreement to collaborate with the PRC in its effort to build the world’s fourth largest atomic particle accelerator outside Beijing and to begin contributing to research into the fundamental properties of matter by 1985. The PRC also explored the possibility of collaboration with DOE in the field of magnetic fusion.

Other significant recent bilateral activities include the visits of a DOE alcohol team to Brazil to discuss possible areas of cooperation, and a DOE coal team to Poland to review on-going cooperative activities in coal liquefaction.

8. Nuclear affairs

The 23rd IAEA General Conference met in New Delhi December 3–10 and provided an opportunity for numerous consultations on nuclear matters, particularly as the International Nuclear Fuel Cycle Evaluation (INFCE) is scheduled to be completed this February. The conference, in an unprecedented 46–29 vote (with 9 abstentions), rejected the credentials of South Africa. The U.S. strongly opposed this action as introducing political issues into the IAEA. This action does not affect South Africa’s membership in the IAEA or the agreements under which the IAEA applied non-proliferation safeguards with respect to certain nuclear activities in South Africa.

The President has approved an amendment to the U.S.–IAEA Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy. The agreement incorporates new non-proliferation controls required by the Non-Proliferation Act of 1978. This agreement is the primary vehicle for U.S. peaceful nuclear cooperation with countries that do not have bilateral agreements for cooperation with the U.S. The amendment will soon be submitted to Congress, where it must lie for 60 days of continuous session before it may enter into force.

A U.S.–IAEA–Indonesia supply agreement was signed on December 7 in New Delhi. Under this agreement, the U.S. will supply 18.3 kgs. of low enriched uranium for Indonesia’s Triga Mark II research reactor.

Vance

1. Source: National Archives, RG 59, Central Foreign Policy Files, D800041–0694. Unclassified; Priority. Drafted by A. Hegburg (DOE/IA) and Alan P. Larson (EB/ORF/FSE), cleared in EUR/RPE, DOE/IA, AF/EPS, NEA/ECON, ARA/ECP, EA/RA, and OES, and approved by Rosen.
2. In telegram 309970 to all diplomatic and consular posts, December 1, 1979, the Department sent its “first of continuing, periodic reports on US energy developments.” The reports were “intended to keep US Missions apprised of the latest developments, accomplishments, strategies and plans in the energy area.” The Department hoped that they would “serve as a valuable information source to Ambassadors and senior Mission officials in informing host country officials of US progress in coping with energy problems.” Telegram 309970 focused on “recent Congressional action on several of the President’s energy initiatives,” including: 1) a windfall profits tax, 2) an energy mobilization board, 3) an energy security corporation, 4) solar energy, 5) energy conservation legislation, 6) gasoline rationing, 7) assistance to low-income families, and 8) oil import quotas. (Ibid., D790555–0193)
3. See Document 251.
4. See footnote 4, Document 221.
5. The President signed the Emergency Energy Conservation Act, P.L. 96–102, also known as the gas rationing bill, on November 5.
6. See footnote 4, Document 236.