Killing the Messenger: The Carter Administration and the Facts About Oil and Gas
BARTLETT, BRUCE
Killing theMessenger: TheCarter Administration and the Facts About Oil and Gas by Bruce Bartlett Last September Secretary of the Interior Cecil Andrus announced that he was replacing Vincent...
...But when deregulation forces in the Congress, a few months later, proposed the same thing, the administration opposed it...
...ERDA has done at least one test well at this depth without conclusive results, but recently Chevron has been reported to have drilled a well in Louisiana that hit a huge geopressurized methane deposit...
...McKelvey...
...The Two Assumptions McKelvey’s data called into question the first major assumption needed to justify the administration’s position-that America has no potential resources...
...By contrast, discussions about oil and gas resources imply that prices and technology can and will change...
...While encouraging new production, this proposal will protect the consumer against sudden, sharp increases in the average price of natural gas...
...Because of the enormously high drilling costs, you simply cannot begin exploring the geopressurized regions unless there is a higher rate of return than is attainable at the controlled price...
...In the case of natural gas, for example, he said: “By far the greatest potential sources of natural gas are the geopressurized zones underlying the Gulf Coast region, both on and offshore...
...Knudsen, a chemical engineer, was appointed head of the study...
...now produces this much oil approximately every 20 months and has done so for years...
...But this runs counter to the views of almost everyone who has ever worked with McKelvey...
...Indeed, by all accounts he is one of the finest geologists in the United States, the recipient of virtually every award that can be achieved in his profession...
...The U.S...
...In 1914 the U.S...
...McKelvey was born in 1916, received his Ph.D...
...To this charge the Carter administration responds that McKelvey was removed from office because he was a poor administrator, not because his data contradicted its energy policy...
...These circumstances are now leading congressmen and members of the scientific community to ask why McKelvey was fired and, more importantly, what effect his firing is going to have on the objectivity of scientific research in government...
...The case of Knudsen has been pretty much forgotten, but the case of McKelvey continues to draw interest on Capitol Hill and in the scientific community, due to his unquestionably high qualifications...
...Thus, Professor Edward Mitchell of the University of Michigan has said: “The fact that oilmen hold only ten or 15 years’ supply of oil under the ground should be of as much concern to us as the fact that shoe stores keep only 30 days’ supply of shoes on the shelf...
...in geology from the University of Wisconsin, and has been with the U.S...
...Geological Survey had ever before been removed from office for political or any other reasons...
...But it is another thing to fire, for example, the head of the Bureau of Labor Statistics because he produces unfavorable unemployment statistics...
...Although the directorship is a political appointment, it has never been treated as such by previous administrations...
...They contend not that the Carter administration does not have the right to have its own people in the government, but that McKelvey was a technical advisor, not a policy-maker...
...The Carter administration was fighting deregulation on the grounds that there was little new natural gas left to be discovered...
...This is an almost incomprehensibly large number...
...Politicize a federal organization On the day McKelvey was dismissed, The New York Times reported, “Administrators of the survey supporting Dr...
...For example, when one talks of “reserves” of oil and gas it means those quantities of the mineral fuels that have already been identified and are considered, on the basis of existing geological and engineering knowledge, to be recoverable under current economic conditions, with existing technology...
...The term “resources” includes reserves but also includes deposits already identified but not yet recoverable under current economic or technological conditions...
...President Carter hade this point himself prior to the election in a letter to the governors of Texas, Oklahoma, and Louisiana: “The decontrol of producers’ prices for new natural gas would provide an incentive for new exploration and would help our nation’s oil and gas operators attract needed capital...
...The contention is that they produced scientific data, objectively derived, that contradicted the administration’s position...
...This was an unusual announcement for several reasons: No director of the U.S...
...It has been thought of as more a technical than a policy position...
...Thus MOPPS I11 was born, and it showed still less natural gas available at even higher prices...
...McKelvey has always held the view that there is a great deal of oil, natural gas, and coal left to be discovered in the United States...
...If this were true, then it would make sense to argue that an increase in prices would only increase profits to producers and accomplish nothing else...
...In keeping with the tradition of maintaining the non-political nature of the directorship, McKelvey was appointed on the recommendation of the National Academy of Sciences...
...Mc Kelve y ’s firing followed closely a similar forced resignationthat of Dr...
...The importance of this statement is that it came at a time when Congress was in the middle of a debate over deregulation of new natural gas...
...McKelvey’s dismissal came on the heels of a speech in which he seriously questioned the view that America is dangerously close to exhausting its oil and gas resources...
...If they were in fact removed from office for this reason, then it signals a kill-the-messenger mentality in the Carter administration that ought to be strenuously opposed...
...Leo Ryan’s subcommittee on Environment, Energy, and Natural Resources is expected to hold hearings later this year...
...Thus, as prices change and technology changes, oil and gas deposits are continually moving from the resource category to the reserve category...
...Knudsen testified under oath that when his MOPPS report was released, after he had been removed from the project and moved to another job within ERDA, he was told that the real reason for his transfer was that the results of his study conflicted with conventional wisdom and concurred with industry estimates...
...Although they differ in their estimates of how much supply responds to higher prices, all three studies confirm that such a response exists...
...in technical jobs he needs people who will tell him the truth...
...Finally, on June 3, after the press had picked up reports of the studies, all three MOPPS studies were released to the public...
...Deregulation of new gas would encourage sales in the interstate market and help lessen the prospect of shortages in the nonproducing states, which rely on interstate supplies...
...Killing theMessenger: TheCarter Administration and the Facts About Oil and Gas by Bruce Bartlett Last September Secretary of the Interior Cecil Andrus announced that he was replacing Vincent McKelvey as director of the U.S...
...The limited investigations that have been made of this region led to estimates of as much as 60,000 to 80,000 trillion cubic feet of gas dissolved in water at a ratio believed to average 25 cubic feet per barrel of water...
...Emphasis added...
...But McKelvey’s estimates of potential reserves totally contradict this position...
...Early in 1977 ERDA set up a task force called the Market Oriented Program Planning Study (MOPPS) to determine what the availability of oil and natural gas would be under various price assumptions...
...So it is with McKelvey, and it’s a shame that just because they don’t find his information pleasant, liberals haven’t jumped to his defense...
...Keep in mind that Carter was talking about deregulating the price of only newly discovered natural gas, not gas that has already been discovered and is under production...
...Following the completion of MOPPS I Knudsen was transferred, the estimates thrown out, and a new study commissioned to find estimates closer to the views of the Carter administration...
...There have, in fact, been only nine directors in the 99-year history of the Survey...
...Twice the gas at twice the price Throughout all this revision of the MOPPS data, the studies were kept highly confidential...
...Several members of Congress recently asked the House Government Operations Committee to undertake an investigation of the McKelvey matter, and Rep...
...When scientists like McKelvey talk about the availability of energy they do so with qualifications that are frequently lost in the discussion...
...you could just as easiIy choose to stick with a lower price and less gas...
...and the same is true in the price of natural gas...
...This is the way it has always been, and it’s why it is not surprising that the United States has never had more than a dozen years’ worth of oil reserves at any time...
...If the resources exist, then incentives can be provided for their discovery and production...
...You don’t have to agfee with the idea of deregulation to admit that more gas would be available at a higher price...
...The second major assumption-the non-influence of price on supply-was contradicted in a study done for the Energy Research and Development Administration by Dr...
...Geological Survey estimated total future domestic production of petroleum at only six billion barrels...
...The reason is that at somewhere around $2.50 per mcf it becomes profitable to drill into geopressurized methane deposits, which are known to lie at depths of 15,000 feet or more...
...A change in price will affect the use of certain technologies, and a technological breakthrough may change the price necessary to make certain resources recoverable...
...To hold more would be unprofitable for the businessman and uneconomical for society .” Vast Resources In this light we can now consider what McKelvey said in a Boston speech on July 13, 1977...
...As White House press secretary Jody Powell said during a press conference on June 3, 1977, President Carter believes “that even if we increased the price of oil to provide an additional $20 per barrel, there would be very little, if any increase in our production...
...The implication is that scientists and technicians who produce data that contradicts administration positions will be replaced by people more compliant...
...Christian Knudsen...
...Even the bottom of the range represents about ten times the energy value of all oil, natural gas, and coal reserves in the United States combined...
...Christian Knudsen from his job at the Energy Research and Development Administration after he completed a report showing that large quantities of natural gas and petroleum would become available if prices were decontrolled...
...There is no evidence at all-and none is implied-that McKelvey or Knudsen personally opposed any of the administration’s policies...
...Thus when it’s said that proven reserves of natural gas in the United States amount to 216 trillion cubic feet (tcf) and that this is sufficient to last the country for only ten years, several assumptions are involved: It’s assumed that the price will not go up, that costs will not go up, that demand will stay at roughly 21 tcf per year, that technology will not change, and that no new reserves will be discovered-in other words, a static situation in which nothing changes...
...McKelvey talked about the vast fuel resources that are potentially available in the United States...
...The MOPPS I1 study came out with supply estimates considerably lower than those of MOPPS I. But while these were more in line with the thinking of the administration, they were still too high...
...Even the most pessimistic estimate, MOPPS 111, showed that twice the present reserves of natural gas would become available at roughly twice the controlled price: 465 tcf at $3.00 per mcf...
...He became chief geologist in 1971 and was appointed director the same year by President Nixon...
...The study’s first set of projections, hereafter referred to as MOPPS I, showed that at a price of $2.50 to $3.00 per thousand cubic feet (mcf), as compared to the federally controlled price of $1.45 per mcf, the nation would be engulfed in natural gas...
...This view has frequently brought him into conflict with environmentalists and others who hold a much more pessimistic view of the nation’s ability to meet future energy demands unless growth is radically reduced...
...Geological Survey...
...Schlesinger’s statement is consistent with the administration’s position that there is no natural gas left to be discovered and that price therefore has no influence on supply...
...One may also speak of “potential” resources, which are not yet identified but, on the basis of good evidence, are considered to be recoverable some time in the future...
...Bruce eBartlett is a special assistant to Rep...
...Jack Kemp of New York...
...In policy positions a president needs people who will support him...
...Geological Survey since 1941...
...This is not to say that an incoming administration should not have the right to appoint to politically sensitive jobs people who are compatible with its views...
...charged that this was an attempt to politicize a federal organization that is basically scientific in nature.’’ This is really the most serious issue involved in the entire McKelvey matter, for it conjures up memories of Lysenkoism in the Soviet Uriion...
...McKelvey’s standing as a geologist has never been higher...
...The logic of Carter’s new position is not entirely clear, but when asked by Senator Herman Talmadge to comment on press reports of large potential natural gas resources, Energy Secretary James Schlesinger replied, “I haven’t read those carefully because they seem to be based on smoking pot...
Vol. 10 • April 1978 • No. 2
