Home

Search

Browse

About IPO

Staff

Links

The long dry summer

ILLINOIS GAS PRICES are higher than anywhere else in the continental United States, the American Automobile Association announced May 31. Now for the bad news. Supplies are going down.

The summer outlook is bleak: Gov. James R. Thompson announced June 1 that Illinois would be blessed with 11 percent less gasoline than in June 1978. However, Illinois largely avoided the spot shortages that California experienced in May, in spite of a 5 percent (22 million gallon) drop in May gasoline supplies here. The governor took part of the credit for the reduction of gas usage in May, maintaining that his mid-month call for strict police enforcement of the 55 mile per hour speed limit was largely a success. Gov. Thompson also credited an absence of panic buying, and voluntary conservation by consumers, not mentioning the fact that the California shortfall in May was nearly 15 percent.

Illinois is in a favored status under the federal Department of Energy's complex mandatory allocation system, which discriminates against states with growing populations and favors states with low growth of gasoline use. California is hurt by the gas allocation formula, as well as by the state's lack of adequate refinery capacity. But it is absurd to imply that panic buying or "topping off the tank" is the cause of California's gas shortages and long lines at the pumps. Who would wait in line for two hours in order to top off the tank?

The governor did Illinois a service, however, by pushing for the enforcement of the 55 mile per hour speed limit (which saves lives as well as fuel) and by calling for voluntary reduction of gasoline usage. "I'm still asking that we voluntarily limit our speed to 50 miles per hour," he said May 25. Also, he directed that the state's vehicle fleet be reduced 10 percent through use of car pools, with more than 1,000 of the state's 10,000 vehicles to be put up for auction. State vehicles consume only about 14 million gallons of gas a year, but every drop helps.

The June shortage is projected at 50 million gallons, and Gov. Thompson says the supply shortfall in July and August "doesn't look any better." Thompson has done the right thing by warning us early that there will be summer shortages, relying on estimates provided by prime suppliers. Thompson took issue with comments on May31 by President Jimmy Carter that more fuel would be supplied in June and July than during May. "The shortfall in fuel is there and the figures don't justify optimism," the governor said. His statements were supported by Amoco and Texaco, two of the largest U.S. oil marketers, both of whom announced plans to deliver to average customers only 70 percent of the gasoline this June that was delivered in June of 1978. Both companies blamed predicted marketing cutbacks on world crude oil shortages and unwise federal fuel allocation rules, which they say worsens the shortage.

In the case of Texaco, for example, that company will allegedly only fall short of last year's June supplies by 16 percent, but because of the federal allocation system, it will deliver to most typical stations about 30 percent less gasoline. The difference lies in the federal "set-asides" program, aimed at assuring gasoline for priority uses, such as farming, military activity and emergency needs recognized by state governments.

State governments are allotted 5 percent of fuel supplies delivered in each state by major oil companies. Before June, state allotments under the federal Emergency Fuel Set-Aside Program were adjusted at just 3 percent. Oil companies warn that the 2 percent increase granted states may force further reduction in other sales. The companies claim that adequate internal procedures would ensure equitable distribution without federal controls.

However, the federal allocation authority was granted in the first place because major oil companies were thought to be using the 1973 Arab oil embargo as an excuse to halt sales to small, unbranded gas dealers and to withdraw from less profitable areas of the country.

The federal allocation system was good for Illinois in May. The state avoided noticeable shortages largely because of its emergency fuel supplies, which were used more than ever before, Over 95 percent of set-aside was distributed on orders from the Illinois Institute of Natural Resources. The state distributed about 12 million of its 12.6 million gallons, mostly released over the Memorial Day weekend.

The state may not be so lucky the rest of this summer, or the rest of the year. Exxon Corporation, for example, says a continuing shortage in world oil looms. The company predicts that by year's end the world shortage will be one million to 1.5 million barrels a day, nearly the same as it was at the beginning of June. They should know.

At the same time, the chairman of the board of Standard Oil of Indiana cautioned June 3 that gasoline prices would have to reach about $1.50 a gallon before U.S. oil firms make a concerted effort to develop coal and shale resources and draw oil from old wells. Such a price increase, according to a study by the Massachusetts Institute of Technology, would bring about a 5.5 percent drop in demand. If you think that's good news, consider this: a major recession of, say, 20 percent would bring about a 12 percent dip in energy consumption. Cheer up.

July 1979 / Illinois Issues / 02