The Chemical World This Week
FUEL CONSERVATION KEY TO GARTER ENERGY PLAN President Carter officially unveiled his energy program last week. Its aim is to push consumers toward voluntary conservation measures and use of alternate energy sources by making them pay a realistic, replacement price for oil and natural gas. Carter expects the program, if effectively implemented, to hold U.S. oil consumption to about 17 million bbl per day by 1985, a saving of about 4.6 million bbl per day over what the U.S. would otherwise require. The average taxpayer would be hardest hit by increased oil taxes and natural gas prices and a possible 5 cent-a-gal gasoline tax that would be implemented for every per cent that yet-to-be-determined consumption targets are exceeded. Under the program a wellhead equalization tax would be imposed on old oil gradually raising the price to the current world price level, about $12 per bbl. The tax is designed to prevent oil producers from realizing the windfall profits that might result from straight deregulation. However, newly discovered oil prices would be permitted to rise over a three-year period to current world price. Price increases on both old and new oil thereafter would be limited to an inflation factor. Shale oil and tertiary or stripper oil would command current world prices. Natural gas prices would rise to about $1.75 per 1000 cu ft by January 1978. In addition, industries and utilities that use natural gas would be taxed an amount equal to the difference between their average cost of natural gas and a price target keyed to current prices of distillate oil. The industrial tax on oil would be a flat 90 cents a bbl in 1979 rising to $3.00 per bbl by 1985. (The chemical industry is very concerned over whether these taxes will be applied to feedstocks.) Burning of oil and natural gas in new boilers would be prohibited and facilities with coal-burning capability would have to switch to that fuel. The energy program also provides for a major expansion of the federal coal R&D program, including work on fluidized-bed combustion systems, coal cleaning systems, solvent-refined coal processes, and low-Btu gasification. And it may mean a new lease on life for federal loan guarantees for commercial synthetic fuel demon4
C&EN April 25, 1977
Here's how Carter wants to conserve fuel Voluntary conservation efforts are the keystone of President Carter's program to reduce U.S. energy demand and reliance on imported oil. But some of his proposals mandate fuel efficiency measures. Key elements of the program include: • Consumer tax on gas-guzzling autos and rebate to manufacturers on fuel-efficient cars. • Standby gasoline tax that would increase by at least 5 cents per gal per year if consumption continues to increase. • Removal of excise tax on intercity buses. • Excise tax on aviation fuel boosted to 11 cents a gal. • Home-owner tax credit for investment in insulation and/or solar heating equipment. • Mandatory efficiency standards for new buildings. • Mandatory efficiency standards for such appliances as air conditioners, furnaces, water heaters, and refrigerators. • New taxes on natural gas and crude oil. • Industry tax credit for investment in energy-saving equipment, including that used in cogeneration of electricity and process steam. • Tax penalty for industrial users of oil and natural gas, with an aim to encourage conversion to coal.
stration plants which have had trouble getting Congressional approval. In his program Carter also underscores the need for more light-water nuclear reactors and more uranium enrichment capacity. But that capacity will be switched from current gaseous diffusion technology to centrifuge technology. And Carter has decided to halt indefinitely work on the Clinch River, Tenn., breeder reactor. On Capitol Hill, reaction to Carter's energy message predictably divides along party lines, but even Democrats have reservations. Sen. Birch Bayh (D.-Ind.), for example, says the Administration approach is "headed in the right direction," but adds that he is "concerned about the impact of certain tax proposals and certain price increases on the cost of living." Republicans, on the other hand, largely view the Carter proposals as shortsighted and inflationary. Republican national chairman Bill Brock says the Administration plan "will result in inflation, reduced economic growth, and loss of jobs." The plan, Brock says, "has no sense of vision for the future." Oil-state Congressmen find little to cheer about in the Carter proposals and criticize the plan for not providing greater incentives for more oil and gas production. Overall, legislators from both sides of the aisle predict that there will be modifications and
compromises in the Administration plan when it finally emerges from Congress. Environmentalists and public interest groups are favorably disposed to Carter conservation plans, but they, too, have misgivings. A coalition of three Ralph Nader groups says the plan is "big improvement over prior Administration energy policies" since "it emphasizes government control of energy policy rather than industry control." But the plan doesn't go far enough, the group says, because it does not end subsidies for nuclear power, doesn't attack horizontal integration of the major oil companies, and establishes an excessive incentive price for "new" natural gas. •
Industry reaction cool to energy proposals Reaction to President Carter's proposed energy plan was swift in coming from industry and business leaders throughout the country. Many seem to think that the proposals are a challenge to their traditional methods of doing business. Others have adopted a wait-and-see attitude. Very few have shouted huzzahs and waved banners over the proposal. Several chemical and oil company officials say that probably the most immediate impact on the chemical
industry of the Carter program will be on the energy supply to operate petrochemical plants. Most petrochemical plants on the Gulf Coast rely on natural gas—methane—as the source of process heat and energy. Apparently, the cost of new supplies of natural gas to plant operators ranges between $2.00 and $2.50 per 1000 cu ft, or 1 million Btu, for intrastate gas. This cost is well above the top price of gas sold in the interstate markets. Hence, gas is available even if expensive. If the Carter Administration mandates a quick shift away from gas as a plant boiler fuel, much hardship will occur to chemical plant operators. Although operators of most large and many small plants have made plans and ordered equipment to use coal or oil in place of gas, getting the equipment on stream will stretch well into the early 1980's. Putting intrastate gas sales under federal price control of about $1.75 per million Btu, in effect, would cause a much more severe shortage of gas to be used as fuel in petrochemical plants. Gas producers eventually would end exploration and drilling programs because producers would be unable to cover their costs. In a telegram to President Carter last week referring to interstate gas, George H. Lawrence, president of the American Gas Association, said, "A ceiling price of $1.75 would not provide the additional economic incentive for expanded offshore drilling and could, in fact, be a disincentive, as those additional supplies would have to come from the deeper well depths and involve substantially higher costs." Whatever form price controls might take for gasoline, heating oils, and other fuels, they likely would have little immediate effect on chemical production, according to industry observers. The share of hydrocarbons in the fuels categories that also are used for raw materials for chemicals runs about 5% of the total consumption. In the longer term, the impact of reducing energy use will affect the chemical industry in other ways. If reduced energy use should lower economic activity in and out of the chemical industry, demand will decline for chemical products, particularly polymers in plastic items, fibers, and films. Another longer-term impact of raising costs of energy and hydrocarbons on the U.S. chemical industry will be a loss of its competitive position worldwide. This then could lead to lower exports of chemicals of all kinds and increased imports of chemicals.
In spite of oil industry uncertainty as to the effects of the Carter policy, most leaders want to see a plan developed. This will provide them with at least some tool to use in planning. Jerry McAfee, chairman of Gulf Oil, told the company's annual meeting in Houston last week, "It is important that a plan of action be adopted, now. This country simply cannot afford to get bogged down again in an endless, and fruitless, energy debate in which every group seeks to promote its special interests at the expense of the nation's future." Thornton F. Bradshaw, president of Atlantic Richfield, told the Hawaii Executive Conference last week, "The oil/gas era is in twilight. The exotics—solar, fusion, breeder reactor—will not reach full noon until sometime in the 21st century. The problem is building a bridge between the two. Failure would exact a terrible price." Bradshaw proposes that the President be granted price-setting authority under a criterion of "reasonableness" whereby the President would set a price that would provide the oil companies with the "incentive to produce sufficient amounts of oil and gas and other forms of energy to meet national goals which also must be set by the government." •
Earnings head for good second quarter Earnings in the U.S. basic chemical industry began to do better than many companies and industry observers expected toward the end of the first quarter and appear headed for a surprisingly good second quarter. Behind the strong pickup are several factors, including a solid increase in sales volume over last year, a notable rebound in the important synthetic fibers profits sector, and improved performance outside the U.S. The sales surge is coming mostly from increased physical volume. Prices are not showing much overall gain despite companies' efforts to lift tabs on many product lines. Of course, these positive notes on current earnings levels are coming after a depressed earnings performance in January and February due largely to the unusually severe U.S. winter. Because of this earlier drag, overall first-quarter earnings in chemicals still fell below the level of first-quarter 1976. The decline was about 15% after taxes on a sales gain of about 10%, to go by results from the largest chemical companies. To date, earnings reports have been issued by about 80% of the basic chemical pro-
Merszei: encouraged by the upswing
ducers listed among C&EN's 50 largest chemical makers in the U.S. A good current overview for the chemical industry comes from Dow Chemical, which turned in one of the better first-quarter performances with year-to-year increases of 7% in earnings and 12% in sales. Company president and chief executive officer Zoltan Merszei says, "All areas of the company experienced strong demand for their products in the latter part of the first quarter." Monthly sales records showed up in March in the U.S., Europe, and Canada. "We expect to see continued strong demand for our products in U.S. markets," Merszei says. "We are encouraged by the upswing in business that is getting under way in Europe," he adds. Among Dow's product groups, chemicals and metals were strong worldwide in the first quarter. Plastics and packaging also increased substantially except in Canada and Latin America. Bioproducts and consumer products made modest gains. The plastics rebound was especially true for low-density polyethylene and polystyrene foam. Merszei's optimism for the second quarter and beyond is based on the remarkable upswing taking place in U.S. personal income and in certain U.S. markets, including autos and housing. Housing turned in an especially strong month in March as the new-starts rate jumped to more than 2 million units per year, the highest level in nearly four years. Dow isn't the only company noting a continuation of the March earnings momentum into April and beyond. Similar comments have come in first-quarter summaries from Allied Chemical, Diamond Shamrock, Hercules, and Monsanto. • April 25, 1977 C&EN
5
