International gas
Tim Congdon
The New York Daily News is not one of the world's great newspapers. But its front page on Monday last week displayed a surprising degree of sub-editor's wit. Beneath a fourinch headline 'Seek New Gas Supply Here' was a photograph of President Carter clasping the hands of Emperor Hirohito; and beneath the photograph, captioned 'World shakers?', was a box advertising a new series on modem Japan, 'Our Enemy Has Become Our Rival'.
The front page was interesting not just as a derisive comment on the Tokyo economic summit. It also indicated how international diplomacy is now seen as a meeting of leaders rather than countries. Almost implicit in the photograph was the notion that President Carter was the US and Emperor Hirohito was Japan. Nations have been personalised to such an extent that heads of state are able to speak of a whole people's intentions in the same way that an individual speaks of his own. The underlying assumption is that politicians can commit their countries to a course of action in almost any sphere and ensure that it is carried out.
It was inevitable, therefore, that the seven leaders in Tokyo would `do something' about the world energy crisis. They have issued a communiqué, agreed to certain measures and promised to meet again. By giving the heads of govenment something to talk about now, and something to talk about at the next economic summit, the communiqué has performed two functions which, by the standards of international conferences, are quite useful. But, beyond that, it can be argued that nothing has been gained.
The central proposals in the leaders' communiqué are that the European Community restrict oil imports between 1980 and 1985 to the 1978 level and that Canada, Japan and the US maintain their imports in 1980 at levels no higher than in 1979. Little is said about how these goals are to be achieved, but the communiqué states that they are to be 'monitored'. There may also be occasional reviews by 'a high-level group of representatives of our countries and of the EEC Commission, within the Organisation of Economic Cooperation and Development.'
It would be easy, and probably correct, to condemn these phrases as lacking genuine purpose. But should the energy problem be tackled by specifying oil consumption ceilings for the seven major industrial countries? As these countries account for over three quarters of free world oil usage, the market impact would be substantial if the targets were respected and subject to meaningful enforcement procedures. Even though the targets will in practice be neither respected nor enforced, isn't there a strong justification for adopting them?
In fact, the proposals are at best unhelpful and at worst damaging. We may see this by considering three possible cases. In the first, world oil production in coming years is beneath the 1978 level. The targets are then redundant because consumption must fall beneath them. That follows from the laws of arithmetic. The issue of how, rather than how much, consumption . would be cut would have to be faced more seriously than at Tokyo. In the second, production exactly matches the 1978 level. There is then clearly no point in having the consumption target, as that much oil would be used anyway. In the third, production exceeds the 1978 level. If the consumption targets are met, oil stockpiles will rise steadily and the price will be forced down, to the benefit of the smaller OECD and Third World countries, who would still be able to buy as much oil as they want. This blessing would be conferred because they have political leaders who were not important enough to be invited to the Tokyo economic summit.
It follows that, whatever oil production happens to be in the next few years, the consumption targets are either irrelevant or disadvantageous to the countries bound by them. A cartel of consumers will always be outwitted by a cartel of producers. Any attempt by big oil importers to rig the market in their favour is as pointless as trying to make long people short or short people tall. There is no way that a given supply of oil can meet increased demand at an unchanged price — unless consumers are prevented from purchases by various bureaucratic devices, such as quotas and rationing.
The illusion that more bureaucracy is an alternative to higher prices has been attractive to politicians for many centuries, and it clearly forms part of the thinking behind the communiqué. Thus, oil companies will be required `to moderate spot market transactions' (in which prices have recently exceeded $30 a barrel) and `to present documents indicating the purchase price as certified by the producer country.' Furthermore, 'we will seek to achieve better information of the profit situation of oil companies.'
It is not immediately obvious who 'we' mean in this context since President Carter and Mrs Thatcher have better ways to occupy their time than to pore over the annual accounts of Exxon and British Petroleum. The answer presumably is more civil servants, both domestic and international. And, sure enough, a little later on the communiqué says that 'an International Energy Technology Group linked to the OECD, IEA and other appropriate organisations will be created.'
Apart from collecting information and amassing statistics, the International Energy Technology Group 'will report on the need and potential for international collaboration.' It remains to be seen just what these words, examples of bureaucratic pap not far from Orwellian Newspeak, really mean. But the motivation of the targets and the supporting bureaucracy is to keep the oil price down, irrespective of the state of energy demand. It is possible that IETG officials will have to develop controls over particular segments of the oil market and police 'unwarranted' or 'excessive' prices.
The reference to the spot market was ominous. This market, situated in Rotterdam, is of great value to the oil companies and their customers if they find themselves with either an unexpected surplus or shortage. Any mismatch between supply and demand in long-term contractual business can be removed. In consequence, the market is residual in nature and great price volatility is characteristic. But no one is cheated if a very high (or very low) price is agreed since both parties to a bargain enter it voluntarily.
The Tokyo summit's hostility to the Rotterdam spot market arose from a dislike of high prices and high profits, two of the motive forces behind the capitalist system which the seven leaders were supposed to be defending. In practice, however many 'high-level groups of representatives' and 'International Energy Technology Groups' are established, buyers, and sellers will get together to clear the market. They may have to meet in more clandestine and dis creet circumstances than before — and they may even, perhaps, break one or two regulations. But they will meet and they will deal. If the phrases in the communiqué are translated into action (which, fortunately, is improbable), the Tokyo summit may prove to be another illustration of politicians' infinite capacity to convert free markets into black markets and to force honest, averagely selfish businessmen into becom ing crooks and thieves.
The sub-editor on the New York Daily News was right. The Tokyo summit was a new and abundant source of international gas. It was an event which the seven heads of state, with their attendant top civil servants, communiqué-drafters and speechwriters, must have enjoyed. But whether it has done anything to raise world energy production is rather doubtful.
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