Kilgore to Baghdad

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: Robert Bryce <rbryce () swbell net>
Reply-To: rbryce () swbell net
Date: Fri, 24 Jan 2003 09:08:16 -0800
To: dave () farber net
Subject: Kilgore to Baghdad

Hi Dave,
I wrote this oped for the Dallas Morning News. Given some of the recent
energy-focused comments on IP, I thought it might be of interest.
best
rb


http://www.dallasnews.com/opinion/viewpoints/stories/011903dnedibryce.9963.h
tml


Robert Bryce: Texas history repeats itself in new oil fields

01/19/2003

By ROBERT BRYCE

The Texas governor, an oil man, was frustrated. A worldwide recession had
begun a few months earlier, and it was being made worse by doubts about the
world's oil supply. The governor had threatened, and he had cajoled. But the
rogue oil producers, who controlled a huge share of the world's known oil
reserves, wouldn't cooperate.

So, the governor took the law into his own hands. He declared the producers
to be "in a state of insurrection." Their actions, he said, "openly,
flagrantly and rebelliously violate the laws." With that, the governor sent
thousands of armed soldiers to overwhelm the rogues and take control of the
oil fields.

The scenario sounds familiar, doesn't it?

Indeed, President Bush's desire to rush U.S. troops into the deserts and oil
fields of Iraq is eerily similar to the decision made seven decades ago by
one of his predecessors in Austin – Texas Gov. Ross Sterling.

On Aug. 16, 1931, Mr. Sterling signed a proclamation ordering National Guard
troops and the Texas Rangers into four East Texas counties that sat atop the
Kilgore Field. Discovered in 1930, the field was, at the time, the biggest
oil deposit ever discovered. Within months of its discovery, it was
producing more than 1 million barrels per day – half of all the oil consumed
in America at the time.

The problem in 1931 – and the problem today – is that oil production is
difficult to control. The entire history of the oil business has been marked
by swings between too much production, which leads to low prices, and too
little production, which leads to high prices. And while cynics might
believe the oil industry always wants high prices, that isn't necessarily
true. The best price for the oil industry is a stable, mid-level price, one
that assures oil consumers, oil producers and oil refiners that they won't
be hit with a shortage or a surplus.

That was the predicament faced by Mr. Sterling, who was the first president
of Humble Oil & Refining, a company now known as ExxonMobil. But Mr.
Sterling's problem in 1931 was far different from the one facing Mr. Bush
today. Mr. Sterling was dealing with a world in which there was too much
oil. Mr. Bush faces a world where there is too little oil – or at least too
little of it in places where voracious American consumers can be assured of
its availability.

In early 1930, before the Kilgore Field was discovered, oil was selling for
$1.30 per barrel. By August 1931, it was selling for as little as 3 cents.
The problem was "hot oil" – the name given to petroleum that was either
produced illegally or stolen and then sold at a low price. Although the
Texas Railroad Commission had, on paper, the authority to regulate the oil
industry and prevent the waste of oil, it couldn't stem the flow of hot oil.
And the courts hadn't allowed the agency to exercise the power needed to
actually restrict production.

By putting troops in the field, Mr. Sterling forced the producers to comply
with his wishes. And while there were several subsequent years of wrangling
in the courts, the Texas Legislature and Congress over how to control
production, Mr. Sterling's show of force worked. By 1934, the price of oil
was stable and back over $1 per barrel.

Of course, Mr. Bush, who spent several years searching for oil riches in
West Texas, faces far stickier problems than those faced by Mr. Sterling.
But the issue is the same: control of the oil fields. The rogues of the
Kilgore Field have been replaced by Saddam Hussein, who sits atop 100
billion barrels of oil. And he continues to be a threat to his neighbors,
who are responsible for exporting nearly half of the oil now hitting the
world market.

Just as Mr. Sterling worried that further instability in the price of oil
could worsen the recession of 1931, Mr. Bush has reason to worry that higher
oil prices brought about by a belligerent Saddam Hussein might further
weaken an economy that is increasingly dependent on Middle East oil. Between
1995 and 2001, U.S. imports of Middle East oil rose from 1.5 million barrels
to more than 2.7 million barrels per day. Nearly 30 percent of the crude oil
now imported by the United States comes from Saddam Hussein's neighborhood.

Tommy Merritt, a Republican member of the Texas House of Representatives who
grew up in Kilgore and has spent his entire life working in and around the
oil industry, says no one should be surprised that America is planning to
impose its will. Residents of Iraq and the Middle East "have to understand
we are going to regulate production in that region just like the National
Guard did in Kilgore."

While history may be repeating itself, it must be noted that Mr. Sterling's
success in Kilgore has had long-term – and unintended – consequences. By
making the Railroad Commission viable, he unwittingly gave the world's
biggest oil-producing countries a lesson in how to control oil supplies and,
therefore, prices. And that lesson continues to haunt every SUV-driving
American. In 1959, the production rationing system created by the Railroad
Commission was copied by a fledgling entity known as OPEC, the Organization
of Petroleum Exporting Countries.

Iraq and, of course, our dear friends and allies, the Saudis, were charter
members.

Robert Bryce of Austin is the author of Pipe Dreams: Greed, Ego and the
Death of Enron.


Robert Bryce
www.robertbryce.com



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