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PETROLEUM PRODUCT SHORTAGES
HEARINGS
BEFORE THE
COMMITTEE ON
BANKING, HOUSING AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-THIRD
FIRST
CONGRESS
SESSION
ON
T H E I M P A C T OF P E T R O L E U M P R O D U C T SHORTAGES ON T H E
N A T I O N A L ECONOMY
M A Y 7, 8, 9, 10, A N D 11, 1973
P r i n t e d f o r t h e use of the C o m m i t t e e on B a n k i n g , H o u s i n g
and Urban Affairs
U.S. GOVERNMENT PRINTING OFFICE
96-183 0
WASHINGTON : 1973
COMMITTEE ON BANKING, HOUSING A N D U R B A N
AFFAIRS
JOHN SPARKMAN, Alabama, Chairman
JOHN TOWER, Texas
W I L L I A M PROXMIRE, Wisconsin
HARRISON A. WILLIAMS, JR., New Jersey WALLACE F. BENNETT, Utah
EDWARD W. BROOKE, Massachusetts
THOMAS J. McINTYRE, New Hampshire
BOB PACKWOOD, Oregon
ALAN CRANSTON, California
B I L L BROCK, Tennessee
ADLAI E. STEVENSON I I I , Illinois
ROBERT TAFT, JR., Ohio
J. BENNETT JOHNSTON, JR., Louisiana
LOWELL P. WEICKER, JR., Connecticut
W I L L I A M D. HATHAWAY, Maine
JOSEPH R. BIDEN, JR., Delaware
DUDLEY L. O'NEAL, Jr., Staff Director and General Counsel
M I C H A E L E . B U R N S , Minority
Counsel
T. J. ODEN, Assistant Counsel
(II)
CONTENTS
L I S T OF
WITNESSES
MONDAY,
MAY
7
Page
Weldon V . Barton, assistant legislative director, N a t i o n a l Farmers U n i o n .
Paul Ignatius, president, A i r Transport Association
E d w a r d V . K i l e y , vice president, research and technical services, American
T r u c k i n g Association, I n c
James R . Smith, president, American Waterways Operators, I n c
B e r n a r d Goldstein, president, A l t e r Co., Davenport, I o w a
Fred D u n i k o s k i , vice president, transportation, N a t i o n a l Association of
M o t o r Bus Owners
Carl V . L y o n , general solicitor, Association of American Railroads
James E. T e r r y , Emergency Diesel Fuel Task Force, American T r a n s i t
Association
TUESDAY, M A Y
6, 10
6, 20
6, 66
6, 92
6, 92
109
119
130
8
F r e d C. Allvine, associate professor of m a r k e t i n g ; accompanied b y
Fred A . Tarpley, Jr., professor of economics, College of I n d u s t r i a l
Management, Georgia I n s t i t u t e of Technology
144
R o y R . Mason, president. Romaco, Inc., Alabama; accompanied b y
Lewis G. Odom, counsel
166
Frederick L i c h t m a n , president, Society of Independent Gasoline Marketers
of America, and R . J. Peterson, Independent Gasoline Marketers
Council
166, 176
H e r b e r t A. Sostek, Independent Fuel T e r m i n a l Operators Association,
accompanied b y Nicholas Cirillo, vice president, Cerillo Brothers
T e r m i n a l Corp., N e w Y o r k
190
Gregg P o t v i n , accompanied b y W i l l i a m R . Deutsch, N a t i o n a l Oil Jobbers
Council
190
J. R . Parrish, N a t i o n a l Self-Service Gasoline Association and U Gas U m ,
Inc
190,212
W. D . Baker, N a t i o n a l Self-Service Gasoline Association
220
WEDNESDAY,
MAY
9
L . G . R a w l , senior vice president, E x x o n Co., U.S. A
R o b e r t V . Sellers, chairman of the board, Cities Service Co
227,
A n n o n M . Card, senior vice president, Texaco, accompanied b y James
P i p k i n , executive vice president
227,
G. J. Morrison, vice president, marketing, Phillips Petroleum Co
Thomas M . Hennessy, president, G e t t y Oil Co., Eastern Operations, Inc__
F r a n k N . I k a r d , president, American Petroleum I n s t i t u t e
•
THURSDAY, M A Y
260
279
279
294
10
W i l l i a m E. Simon, D e p u t y Secretary of the Treasury, Chairman, President's Oil Policy Committee
D a r r e l l M . T r e n t , A c t i n g Director, Office of Emergency Preparedness, accompanied b y D a v i d R . Oliver, Office of Oil and Gas, Department of
the I n t e r i o r , and W i l l i a m A. Johnson, Senior Energy Adviser, Treasury
Department
316,
Jerry S. Cohen and Charles L . Binsted, N a t i o n a l Congress of Petroleum
Retailers, accompanied b y J o h n Hemmerick, executive director
*
E d w i n Jason D r y e r , Independent Refiners Association of America, accompanied b y J. H . Pittinger, A P C O Oil Corp., Fred S. Victor, N a t i o n a l
Cooperative Refinery Association, a n d O. L . Garretson, Plateau, Inc__
(Hi)
227
249
316
351
371
381
IV
FRIDAY, M A Y
11
Stephen A. Wakefield, Assistant Secretary of the I n t e r i o r for Energy and
Minerals, accompanied b y D u k e Ligon, Director, Office of O i l and Gas___
J o h n T . D u n l o p , Director, Cost of L i v i n g Council, accompanied b y
Charles R . Owen
A l a n S. W a r d , Director, Bureau of Competition, Federal T r a d e Commission, accompanied b y R o b e r t E. Liedquist, Assistant D i r e c t o r , Bureau
of Competition, Michael L . Glassman, Chief, D i v i s i o n of Economic
Evidence, Bureau of Economics, W a r r e n Greenberg, economist, Bureau
of Economics, and H e n r y M . Banta, counsel, B u r e a u of C o m p e t i t i o n ,
Federal T r a d e Commission
ADDITIONAL STATEMENTS AND
413
433
DATA
American Petroleum I n s t i t u t e , letter t o Senator M c l n t y r e containing
i n f o r m a t i o n o n U.S. refining capacity 1962 and 1972
American Public Power Association, m e m o r a n d u m f r o m Alex R a d i n ,
general manager
" A m e r i c a n T r u c k i n g a n d the Energy Crisis," r e p r i n t of paper s u b m i t t e d
f o r the record
Cities Service O i l Co.:
L e t t e r t o W i l l i a m Simon, D e p u t y Secretary of the Treasury
N o t i f i c a t i o n of branded d i s t r i b u t o r agreement t e r m i n a t i o n
Easton, M a r y l a n d , U t i l i t i e s Commission, letter and a d d i t i o n a l i n f o r m a t i o n
f r o m W i l l i a m H . Corkran, Jr., general manager
" E n e r g y i n the T r a n s p o r t a t i o n Sector," paper b y W i l l i a m E . Mooz
E x x o n C o r p . , statement f o r the record
Federal Trade Commission, letter t o Senator Proxmire f r o m M i c h a e l L .
Glassman, Chief, D i v i s i o n of Economic Evidence
H i g h l a n d Petroleum Inc., brief review of price increases a n d p r o d u c t
cutbacks experienced i n recent months
House C o m m i t t e e on Ways a n d Means, j o i n t statement of Congressmen
M i l l s a n d Schneebeli regarding the effective dates of proposals dealing
w i t h t a x shelters
Independent F u e l T e r m i n a l Operations Association, list of members
Independent Refiners Association of A m e r i c a — I m m e d i a t e recommendations on new i m p o r t p r o g r a m
I n t e r i o r D e p a r t m e n t , Office of O i l and gas, statement of Gene P. M o r r e l l ,
Director
Justice D e p a r t m e n t , letter t o Treasury f r o m Bruce B . Wilson, A c t i n g
Assistant A t t o r n e y General A n t i t r u s t D i v i s i o n
League of Nebraska Municipalities, resolution of the U t i l i t i e s Section
N a t i o n a l Farmers U n i o n , 1973 convention resolution on fuel shortage
N o r t h r o p O i l Co., letter regarding reductions of a l l o t m e n t
" N o t e s a n d Opinions," article b y M a r v i n R e i d
Office of Emergency Preparedness, offer of A c t i n g D i r e c t o r D a r r e l l M .
T r e n t t o w a r d governors of the 50 States
P a c k w o o d , Bob. U.S. Senator f r o m the State of Oregon, prepared statementPetroleum I n d u s t r y Research Foundation, Inc., r e p r i n t of s t u d y made a t
the request of t h e Independent O i l Men's Association of N e w E n g l a n d
Stevenson, A d l a i E., I l l , U.S. Senator f r o m the State of I l l i n o i s , prepared
statement
Texas Farmers U n i o n , resolutions adopted b y b o a r d of directors
T i a r a O i l Co., statement of K e n n e t h A. Gaskin, president
T o t a l U.S. stocks:
D i s t i l l a t e fuel oil
Kerosine-type j e t fuel
M o t o r gasoline
T o w e r , J o h n , U.S. Senator f r o m the State of Texas, prepared statement_
Treasury D e p a r t m e n t , W i l l i a m E . Simon, D e p u t y Secretary:
Answers t o questions of Senator Tower
Letters t o :
Senator M c l n t y r e
Senator R o t h
U.S. airline i n d u s t r y , forecast of t u r b i n e fuel demand
W a t e r w a y Operations Conference, letter f r o m James T . Glenn, general
counsel
W h i t e House:
Executive Order 11712
L e t t e r received f r o m Senator M c l n t y r e
Presidential message o n energy
Page
395
308
500
81
259
208
503
494
245
449
224
330
204
387
310
350
502
14
208
218
357
315
506
4
106
489
301
302
300
3
329
339
339
29
493
455
144
464
V
CHARTS
P a g e
A n n u a l energy consumed b y all transport modes i n the U n i t e d States
A p p r o x i m a t e average energy intensiveness of various freight modes
Average weekly prices for m a j o r a n d p r i v a t e b r a n d gasoline i n selected
cities
D i s t i l l a t e fuel o i l stocks, t o t a l U n i t e d States
301,
Energy use b y sector
M o t o r gasoline stocks, t o t a l U n i t e d States
300,
Percent of refinery y i e l d t h r o u g h o u t the free w o r l d
Transport energy use a n d m o d a l shares (1970)
T u r b i n e fuel forecast
499
498
159
370
496
369
239
495
63
TABLES
American Petroleum I n s t i t u t e , s u m m a r y of survey of u t i l i z a t i o n of operable refinery capacity i n the U n i t e d States d u r i n g week ended M a r c h
30, 1973
C a r r y i n g capacities and fuel use for t y p i c a l present and proposed vehicle
combinations
Federal energy R . & D . f u n d i n g
Fee schedule
F i r s t quarter net profits for m a j o r o i l companies (1973)
Gasoline—94 octane regular
Gasoline supply and demand, P A D I - I V , 1973
Increase i n product costs f r o m January 1 to M a y 1, 1973
International import summary
N e w E n g l a n d gasoline sales, 1969
:
N e w refineries or expansions scheduled i n the U n i t e d States b y P A D —
m i l l i o n barrels day of crude distillation
No. 2 fuel o i l demand—supply projections, 1973-74
P A D I gasoline supplies
—
P A D I - I V — g a s o l i n e supply and demand 1972-75
Percentage savings t r u c k t r i p s and diesel fuel consumed
Petroleum refining capacity a n d actual crude runs
Tons transported b y l e n g t h of haul b y all modes of transportation, 1967__
Tons transported b y size of shipment b y all modes of transportation, 1967 __
U Gas U m Inc., p r o f i t a n d loss statement for fiscal year 1973
U.S. airline i n d u s t r y t u r b i n e fuel forecast
U.S. o i l imports, c u r r e n t — B y source of origin
U.S. revenues i n millions of dollars as a result of new o i l i m p o r t program
1971 U.S. consumption of petroleum fuel a n d power
299
90
476
458
220
199
508
218
475
507
313
205
506
510
91
312
89
88
218
35
475
475
87
PETROLEUM PRODUCT SHORTAGES
MONDAY, MAY
7, 1973
U.S. SENATE,
COMMITTEE ON BANKING, HOUSING,
AND URBAN AFFAIRS,
Washington,
D.C.
The committee met at 10:05 a.m., pursuant t o call, i n room 5302,
New Senate Office B u i l d i n g , Senator Thomas J . M c l n t y r e presiding.
Senator MOINTYRE. The committee w i l l come to order.
The Senate Banking, Housing and U r b a n A f f a i r s Committee begins a series of hearings today on the impact o f petroleum product
shortages on the national economy.
D u r i n g this committee's consideration o f the extension o f the
Economic Stabilization A c t , i t became increasingly apparent t h a t
serious supply problems were developing t h a t would cause a significant adverse impact on many sections o f the N a t i o n and on the
economy i n general.
Because gasoline shortages w i t h a r i p p l i n g effect were expected
this summer, causing a t i g h t supply situation w i t h other o i l products
such as home heating oil, diesel oil, and j e t fuel, I offered an
amendment d u r i n g this committee's consideration o f the extension
of the Economic Stabilization A c t t h a t was included i n the b i l l
signed by the President on A p r i l 30.
This legislation provides the President w i t h authority to act duri n g period of petroleum product shortages t o (1) establish an allocation procedure among the various sections o f the country which
clearly sets standards and criteria f o r priorities o f use; and ( 2 )
implement a p r o g r a m that w i l l assure t h a t sufficient supplies o f
petroleum products are made available to a l l segments of the petroleum industry i n a manner designed to prevent anticompetitive effects
f r o m developing w i t h i n the petroleum industry itself.
I fear t h a t i f the President does not take steps immediately t o
implement the authority granted to h i m i n the Economic Stabilizat i o n A c t this country w i l l experience a severe curtailment o f necessary petroleum supplies this year and a substantial segment o f the
petroleum industry comprised exclusively o f small businessmen w i l l
be destroyed.
Because o f the urgency o f this matter, I have w r i t t e n t o the
President this m o r n i n g u r g i n g that just such action be taken. I find
i t impossible t o understand w h y there should be any hesitancy t o
move quickly t o implement a rational allocation procedure a t the
present time.
The law does not—and I repeat—does not require (1) a detailed
r a t i o n i n g system such as was i n effect d u r i n g W o r l d W a r I I , nor
(1)
2
does i t ; (2) require an abridgement of existing contractual rights
between suppliers and their customers; nor does iit: (3) establish a
precedent f o r the nationalization of Federal operation o f the petroleum industry. What, i t does, however, is give the President clear
a u t h o r i t y to take steps to assure that all sections of the N a t i o n
are supplied w i t h these essential products on a p r i o r i t y of use basis
and also makes i t clear that the Federal Government has the authori t y t o exercise its responsibility to maintain a meaningful level of
competition w i t h i n the o i l industry, so v i t a l to the consumer.
The independent producing, refining, and m a r k e t i n g segment of
this i m p o r t a n t industry is comprised almost exclusively o f small
businessmen. T h e i r role is essential, both to competition w i t h i n the
industry and to the consumers of petroleum products. I n m y j u d g ment, clear and positive steps must be taken to assure this independent segment of the petroleum industry a f a i r o p p o r t u n i t y to
continue to exist and compete.
T i m e is of the essence, and, i f actions are not taken s w i f t l y irreparable damage w i l l occur.
The seriousness of this situation cannot be underestimated. The
petroleum industry has f o r years been the recipient of a seemingly
unending series o f special-interest treatment and legislation, always
supported on the basis that the industry must be given special.treatment because o f its importance to the well being of our country.
W h a t other single industry has been granted the same preferential
treatment ?
None that I know of.
Congress has given the oil industry tax benefits covering d r i l l i n g
costs, foreign taxes paid, depletion allowances, and numerous other
benefits—'including, f o r the last 14 years, a mandatory o i l i m p o r t
quota system whose stated purpose was t o make certain that what
is happening today would not happen.
These hearings represent, i n my opinion, repudiation of the argument t h a t what is good f o r the o i l industry is good f o r the American
people. B i l l i o n s o f dollars of lost tax revenues and a continuing
series of special preferential actions have only brought us to the
crisis we face today—an i n a b i l i t y to meet our own crude o i l demands
domestically; an i n a b i l i t y to domestically refine our own petroleum
needs; and an ever g r o w i n g reliance on foreign rather than domestic sources to meet our needs.
The failures are apparent.
W h a t we need is a thorough examination o f our past actions and
the development of a new way to look at this problem. Energy w i l l
undoubtedly be one of the country's most serious problems f o r the
next several decades. The President's recent energy message was a
recognition o f this fact.
W h i l e offering a p a r t i a l new approach i n some areas to our energy
needs, the p a r t of the President's message dealing w i t h o i l s t i l l clung
to the old wornout approaches. W h i l e he d i d recognize the total
failure of the quota system, something t h a t a number of us have
been saying f o r years, the President, i n his message, again took the
same old approach of offering the petroleum industry more incentives, more t a x credits, more subsidies, and less regulation, i n r e t u r n
f o r s u p p l y i n g this N a t i o n w i t h fuel.
3
I t h i n k the time has came when we should take a different l o o k :
less subsidies, less tax favoritism, and more regulation.
I n order to assure the public health, safety, and convenience,
and prevent u n f a i r competition and eventual monopolization; State
and Federal governments have f o u n d i t necessary to regulate a number o f industries.
The energy problems that we are now faced w i t h m i g h t well
require similar action f o r the petroleum industry. I n my opinion,
what happens this year and the manner i n which these petroleum
product shortages are handled w i l l be the decisive factor as to the
proper course to f o l l o w .
This committee's responsibility, as is the responsibility of every
other congressional committee, is to assure t h a t the intent expressed
i n legislation is implemented by the executive branch.
The intent of the allocation section of the Economic Stabilization
A c t , i n my opinion, is clear. The language of the section and the
legislative history provides that the authority contained i n this allocation provision only becomes operational when petroleum shortages
occur.
The purpose of these hearings is to determine whether the circumstances have developed w a r r a n t i n g action by the President. The
committee has invited a varieiy of witnesses, .all of whom I am sure
w i l l take v a r y i n g positions concerning whether the President should
implement and exercise the authority granted to h i m to allocate
petroleum products. W e w i l l be f a i r , we w i l l be open. A l l sides w i l l
have their say.
B u t as I see i t , the shortage is so severe, the impact on the small
businessman and consumer so harsh, and the intent of Congress so
clear, that the burden of proof is on these who w o u l d not have the
Federal Government act to meet this crisis.
Before we hear testimony f r o m the gentlemen here today, let me
say t h a t Senator Tower and Senator Stevenson had planned to be
present and have statements which we w i l l insert i n the record at
this point.
[The statements f o l l o w : ]
S T A T E M E N T OF J O H N
TOWER,
U.S.
SENATOR F R O M
THE
S T A T E OF
TEXAS
Today we commence five days of public hearings f o r the purpose of focusing
attention on a problem of m a j o r concern to a l l Americans—the c r i t i c a l shortage
of domestic fuels. I n recent weeks and months the press and media have
given increasing coverage to w h a t has come to be called " t h e energy crisis."
T h i s crisis—and a few question t h a t the situation has reached crisis proportions—is no longer merely a hypothetical possibility. I t is real. I t is today.
It manifests itself i n a most poignant manner—through the c r i t i c a l shortage
of gasoline and related products.
T h i s committee w i l l benefit d u r i n g the week f r o m testimony to be presented
by v a r i e d segments of our society touched to various extents by the f u e l
shortage: the transporter, the producer, the large volume user, the jobber, the
major, the consumer, and the Federal government. The size of the witness
list underscores the seriousness and scope of the problem which confronts
us. H o p e f u l l y , the statements w i l l provide us w i t h the requisite i n f o r m a t i o n to
go f o r w a r d i n encouraging a d m i n i s t r a t i v e and indeed legislative relief, should
the proper avenue be made clear.
The direct effects of the shortage i n petroleum products are indeed being
felt by the small businessmen as w e l l as by the larger companies. A week or
so ago, the gasoline jobbers i n my state met i n Dallas to seek answers to the
c r i t i c a l problems confronting them at the moment.
M a n y are faced w i t h the prospect of closing their businesses i n the immediate f u t u r e absent some relief. Not only w o u l d the urban consumer be incon-
4
venienced by the closing of such a large number of gasoline stations, b u t of
p a r t i c u l a r concern to me, the f a r m e r , who often relies on the jobber to provide
h i m w i t h the gasoline f o r the operation of his f a r m vehicles, w o u l d be unable
to secure the requisite fuel, thus f o r c i n g a shut-down of his a g r i c u l t u r a l
operations. The end-result of such an eventuality is p a i n f u l l y obvious.
Likewise the m a j o r companies are faced w i t h acute problems, engendered by
shortage, and indeed aggravated by the complex and o f t times u n w o r k a b l e
p r i c i n g strictures which have been b u i l t i n t o our economy i n recent months.
Testimony f r o m the Cost of L i v i n g Council, the Treasury, a n d other official
sources t h i s week should add clarification t o this special problem and hopefully
provide some guidance and relief.
M r . Chairman, T am gravely concerned about the effect the f u e l shortages
w i l l have upon the general health of our economy. W e must face the increasing
likelihood t h a t the n a t i o n w i l l simply not be able to meet i t s f u e l needs. I n
such a case serious consideration must be given to the allocation question:
Who w i l l get the supplies t h a t are available?
W h a t of the f a r m e r , the airlines, the city police and fire departments, the
municipal public t r a n s p o r t a t i o n systems? W h a t of the average citizen, the
consumer, who utilizes his automobile each day f o r t r a n s p o r t a t i o n to w o r k ,
or f o r pleasure?
The ramifications of the energy crisis are clear. They are being f e l t now by
each of us. Thus answers must be found to many questions, such a s :
H o w d i d the shortages develop?
W h a t can be done to prevent f u t u r e and more serious shortages?
W h a t w o u l d be the effect of phasing out the quota system?
W h a t effect would the shortage have on the economy ?
W h a t can be done today to correct the current imbalance between supply
and demand?
I do not pretend to have the answers. The questions, though brief, are complex and defy easy answer. I a m pleased t h a t the Congress, t h i s committee,
and the general public are awakening to the f a c t t h a t the n a t i o n faces increasingly more f r i g h t e n i n g energy problems i n the years ahead. I t is unf o r t u n a t e t h a t so p a i n f u l an occurrence as t h i s severe f u e l shortage must evolve
i n order f o r the " a w a k e n i n g " to transpire.
I h a i l these hearings as representing an i m p o r t a n t step i n the awakening
process. I t r u s t my optimism is not mislaid.
S T A T E M E N T OF A D L A I E .
STEVENSON I I I , U . S .
ILLINOIS
SENATOR F R O M
THE
STATE
OF
M r . Chairman, I welcome these hearings. They w i l l give the B a n k i n g
Committee, and i n t u r n the Senate and the n a t i o n as a whole, a chance to
study today's petroleum shortage. A n d f r o m these hearings we may be able
to propose some solutions.
I had a chance d u r i n g the recent Easter recess to meet w i t h independent
petroleum refiners, marketers, and retailers i n I l l i n o i s , a n d I can assure you
t h a t f o r them the "energy crisis" is a l l too real. M a n y of these independents
are being forced out of ousiness by the cut-off of t h e i r supplies by m a j o r o i l
companies.
The Penn-Guin O i l Company, a branded independent d i s t r i b u t i n g Citgo
Products i n Chicago, has been a f a m i l y business f o r more t h a n 60 years and
has been associated w i t h Cities Service since 1930. I t has been t o l d by Cities
Service t h a t its contract w i l l be t e r m i n a t e d as of M a y 31. T h e owner of PennG u i n believes t h i s w i l l effectively put his company out of business.
The Cropsey Independent O i l Company of Cropsey, I l l i n o i s , has been a f a m i l y
business f o r 18 years. Now i t s independent supplier, H i c k s O i l and Hicksgas of
Roberts, I l l i n o i s , w h i c h also receives its product f r o m Cities Service, has been
cut off—and i n t i m e this independent may be forced out of business.
The Concord O i l Company operates 12 independent gas stations i n the
Chicago area. Concord's suppliers have been T r i a n g l e Refining, Conoco, a n d
Clark. T r i a n g l e closed i t s Chicago t e r m i n a l on A p r i l 15, and Conoco has p u t
Concord on allocation. Concord may soon have to close a l l 12 of i t s stations.
These are but a few examples There are many other independent companies
i n I l l i n o i s w h i c h are i n s i m i l a r straits, and the number of stations runs i n t o
the thousands.
5
Yet the m a j o r o i l companies, who are c u t t i n g off the* independents, seem to
have their shortage tanks f u l l i n the Chicago area. A n d many of the m a j o r s
are reporting record first quarter sales and profits.
T h i s t h r e a t to the independents cannot be ignored. The biggest loser i f the
independents are forced out of business w i l l be the consumer. The independents
"keep the majors honest" i n their p r i c i n g practices. They provide the p r i m a r y
source of competition i n an industry t h a t sorely needs competition.
The N i x o n A d m i n i s t r a t i o n has ignored the threat. T w o weeks ago an admini s t r a t i o n spokesman was reported to have said there is no present or prospect i v e gasoline shortage of any m a j o r proportion, and t h a t " j u s t a f e w independents" and " a few m a r g i n a l gas stations" may be forced out of business.
Gasoline would be available, i t was said, down the road at the next station.
The " n e x t station," of course, w i l l be owned by a m a j o r o i l company, and the
cost w i l l be many cents more per gallon w i t h the e x t r a profits going to the
big companies.
The A d m i n i s t r a t i o n , through the Justice Department, should be conducting
a m a j o r investigation of the practices of the m a j o r o i l companies. M y talks
w i t h the independents and the evidence they presented to me strongly suggest
the need to determine whether the m a j o r o i l companies are v i o l a t i n g the
a n t i t r u s t laws. The actions of the majors are c u r t a i l i n g competition. Gasoline
is not being made available to the independents, and yet the majors are
opening up t h e i r own discount stations. Independent refiners are not selling
to independent marketers because the majors can promise the refiners a cont i n u i n g source of crude o i l i f the refiners i n t u r n give the majors first call <m
their refined products. Many refineries are not being operated to their f u l l
capacity, and i t is uncertain whether this is solely the result of an overall
shortage of crude oil or whether certain m a j o r refineries are deliberately being
operated at less t h a n m a x i m u m capacity.
Despite such evidence, I see l i t t l e to suggest t h a t any investigation is contemplated by the Justice Department. W i t h the i m m i n e n t prospect of price
increases t h a t may raise the cost of gasoline to 50 cents a gallon at the
pump, there can be few higher p r i o r i t i e s i n the a n t i t r u s t field.
Such an investigation m i g h t take some time, however, and action is needed
now to preserve competition i n the oil industry. Last week Congress passed—
and the President signed—the Economic Stabilization A c t Amendments of
1973. Section 2 of t h a t A c t gives the President the a u t h o r i t y to systematically
allocate supplies of petroleum products " i n order to meet the essential needs
of various sections of the Nation and to prevent anticompetitive effects resulting f r o m shortages" of petroleum products.
I might note t h a t the A d m i n i s t r a t i o n opposed t h a t section of the Economic
Stabilization Act. I t d i d n ' t w a n t the a u t h o r i t y . A n d yet j u s t three days a f t e r
the b i l l was enacted the A c t i n g Director of the Office of Emergency Preparedness, D a r r e l l T r e n t — w h o w i l l be t e s t i f y i n g later i n these hearings—was saying
t h a t indeed there may be shortages of gasoline this summer i n certain parts
of the country, and the A d m i n i s t r a t i o n m i g h t have to allocate supplies among
various sectors of the nation. B u t there seems to be no w o r d about saving
the independents now. M r . T r e n t seems to i m p l y t h a t later this summer—
a f t e r most of the independents are out of business—the A d m i n i s t r a t i o n m i g h t
have to allocate some of Standard of New Jersey's gasoline to Standard of
Indiana, and maybe vice versa to even things out.
T i m e and again, the President and his advisers have acted to favor big o i l
and h a r m small o i l and the consumer. A Presidential task force on the oil
i m p o r t quota system recommended i n 1970 t h a t the quota system be scrapped.
Senator Kennedy and I , along w i t h over 30 of our colleagues, urged a temporary
suspension of the quotas i n Senate J o i n t Resolution 23 introduced i n J a n u a r y
of this year—and I recommended a similar action i n letters to the President
and the Secretary of the I n t e r i o r last year. B u t u n t i l a few weeks ago the
President f a i l e d to heed any of these recommendatkms and took only the
most incremental steps i n regard to the quota system. H e now says he realizes
that the mandatory program was " o f v i r t u a l l y no benefit any longer."
I n his energy message, the President gave us a new "license fee" system.
B u t i t is d o u b t f u l t h a t this change w i l l benefit the independents at all, and i n
other sections of his energy message M r . Nixoin proposes other actions t h a t
promise more of the same—millions of dollars i n t a x breaks to the m a j o r oil
companies and billions more i n costs t o the consumers of energy.
Section 2 of the Stabilization Act Amendments gives the President the
specific a u t h o r i t y to help independents and consumers. Today, the m a j o r oil
6
companies c o n t r o l abotat 95 percent o f t h e r e f i n i n g o f o i l used i n the c o u n t r y .
They eonibrol 68 percent o f t h e r e t a i l gasoline outlets. I f t h e m a j o r s a r e
alowed by t h e A d m i n i s t r a t i o n t o use t h e present f u e l shortage f o r t h e i r o w n
purposes a n d allocate p e t r o l e u m products according t o t h e i r o w n f o r m u l a s a n d
p r i o r i t i e s , they w i l l surely push t h a t 68 percent m u c h h i g h e r a n d c o u l d end
u p monopolizing every phase o f the o i l p r o d u c t i o n a n d d i s t r i b u t i o n system.
These hearings, then, t a k e o n c e r t a i n aspects o f a n " o v e r s i g h t " h e a r i n g .
T h e problem was already grave w h e n less t h a n t w o m o n t h s ago t h i s C o m m i t tee reported the Economic S t a b i l i z a t i o n A c t to the floor w i t h the Section 2 alloc a t i o n provision. L a s t week t h a t A c t . w i t h the p r o v i s i o n irotact, was enacted
i n t o l a w . J u s t before the b i l l was passed i n the Senate I urged t h e President
to use the a l l o c a t i o n section t o save the independents, a n d on F r i d a y I j o i n e d
Senator H a r t a n d 33 other Senators i n sending a l e t t e r t o t h e President t o
the same effect. L a t e r t h i s week, A d m i n i s t r a t i o n spokesmen are scheduled
to t e s t i f y i n these hearings, b u t as o f today there i s no h i n t t h a t the A d m i n i s t r a t i o n w i l l use the a u t h o r i t y given i t t o preserve c o m p e t i t i o n i n t h e o i l
i n d u s t r y . Should t h e A d m i n i s t r a t i o n f a i l t o act q u i c k l y , t h i s C o m m i t t e e a n d
t h e Congress as a whole should act by passing m a n d a t o r y legislation. Senator
H u m p h r e y has offered the vehicle f o r us t o use i f necessary—S. J . Res. 98,
w h i c h i s before t h i s Committee i n these hearings a n d o f w h i c h I a m a cosponsor.
T h e o i l companies are f o n d o f t e l l i n g us t h a t " t h e N a t i o n t h a t r u n s on o i l
can't a f f o r d t o r u n short." I w o u l d only add t h a t t h e N a t i o n t h a t r u n s s h o r t
of independent o i l companies may n o t be able t o a f f o r d t h e gasoline i t needs.
A c t i o n m u s t be t a k e n n o w t o preserve the independents and protect t h e consumer.
Senator MCINTYRE. T h i s m o r n i n g we w i l l proceed i n our testimony
w i t h a series of t w o panels. T h e first p a n e l — I a m happy t o welcome
these gentlemen t o the table here—Mr. Weldon Barton, assistant
legislative director, N a t i o n a l Farmers U n i o n , M r . P a u l Ignatius,
president, A i r Transport Association, M r . E d K i l e y , vice president,
research and (technical services, American T r u c k i n g Association, Inc.,
and M r . James E . S m i t h , president o f the American Waterways
Operators, Inc.
I w a n t t o welcome you a l l here this morning. W e are anxious t o
hear w h a t you have t o say, y o u r findings out i n the country. W e
need y o u r testimony very badly i n the overall picture. I t h i n k i t has
been arranged t h a t each o f you w i l l testify i n d i v i d u a l l y f o r somet h i n g i n the v i c i n i t y o f 10 minutes and a t the conclusion o f t h a t , we
w i l l have a few simple questions to p u t t o y o u : M a i n l y we w a n t t o
get y o u r story and the story of other people who w i l l be t e s t i f y i n g
a f t e r you.
M r . BARTON.
STATEMENT OF WELDON V. BARTON, ASSISTANT LEGISLATIVE
DIRECTOR, NATIONAL FARMERS UNION; PAUL IGNATIUS,
PRESIDENT, AIR TRANSPORT ASSOCIATION; EDWARD V. KILEY,
VICE PRESIDENT, RESEARCH AND TECHNICAL SERVICES,
AMERICAN TRUCKING ASSOCIATION, INC., JAMES R. SMITH,
PRESIDENT,
AMERICAN
WATERWAYS
OPERATORS, INC.,
ACCOMPANIED BY BERNARD GOLDSTEIN, PRESIDENT, ALTER
CO., DAVENPORT, IOWA
M r . BARTON. M r . Chairman, I have f o u r pages here w h i c h I w o u l d
l i k e t o read; i f I skip a few sentences as I go along, I w o u l d request
t h a t i t a l l be p r i n t e d i n the record.
7
Senator MCINTYRE. Y o u r statement w i l l be included i n its entirety
i n the record (see p. 10).
Y o u may proceed as you feel you desire.
Now, M r . Barton, proceed.
M r . BARTON. T h a n k you veiy much.
I a m W e l d o n V . Barton, assistant legislative director o f National
Farmers Union. M y organization represents some 250,000 f a r m families i n the Midwest and other a g r i c u l t u r a l areas of the U n i t e d States.
Farmers are major consumers of diesel, gasoline, and other fuels
f o r production, d r y i n g o f crops, and related uses. Farmers have
already suffered detrimental effects o f fuel shortages; i n the Midwest
and C o r n B e l t they were unable to get adequate fuel to d r y crops
last winter.
Pressures on f u e l suppliers are increased this crop year. Some 50
m i l l i o n acres of additional cropland has been opened t o production
i n 1973 as compared to previous years f o r the purpose of increasing
g r a i n and meat supplies. Furthermore, land preparation was hampered last f a l l by unfavorable weather, and flooding t h i s s p r i n g continues to delay p l o w i n g and seeding o f crops. More fuel, therefore,
w i l l be required w i t h i n a short timespan f o r preparation and planti n g and i f large crops materialize more fuel w i l l be required f o r
harvest, including d r y i n g and transport this f a l l .
A s soon as I accepted your i n v i t a t i o n f r o m Senator M c I n t y r e to
testify today, I requested i n f o r m a t i o n on the fuel situation f r o m
Farmers U n i o n Central Exchange, Inc.
Central Exchange, a cooperative w i t h home offices i n St. Paul,
Minn., supplies fuel oils and other production items to local cooperatives i n a 10-State area.
Essentially this 10-State area comprises the upper Midwest and
the States i n the Pacific Northwest. Some 350,000 f a r m families
patronize the local cooperatives affiliated w i t h Central Exchange—
there are 1,100 local cooperatives affiliated w i t h Central Exchange,
and these farmers are directly affected by any change i n supply and
distribution o f Central Exchange as the supplier of these cooperatives.
O n December 15, 1972, Farmers U n i o n Central Exchange found i t
necessary to place a l l local cooperatives i n the 10-State region on an
allocation system f o r fuel oils. The allocation has r u n f r o m as low
as 80 percent of previous purchases to a h i g h of 108 percent dependi n g upon the product and seasonal demand, depending upon the
product and the available supplies.
L e t me say as f a r as gasoline is concerned, f o r the month of M a y ,
the local cooperatives are on an allocation system of 90 percent. T h a t
is, they are allowed 90 percent of the amount of gasoline that they
got i n M a y o f last year, and t h a t allocation has been projected also
to a p p l y to June.
M r . Robert A . Ovens, manager of petroleum m a r k e t i n g at Central
Exchange, i n f o r m e d me i n a letter of A p r i l 30, 1973, t h a t the allocat i o n system must be continued " f o r an indefinite period."
L e t me say, M r . Chairman, as f a r as I know all o f the other agricultural cooperatives are, by now, on s i m i l a r /types of allocation
systems. T h i s w o u l d include M i d l a n d , Agwiay, F a r m l a n d Industries
8
and other cooperatives t h a t supply gasoline and other fuel products
to farmers.
The co-ops combined have 11 refineries t h a t have about 2 percent
of the t o t a l refinery capacity i n the Nation. So, they are h i g h l y
dependent f o r fuels upon outside sources. The vast m a j o r i t y o f the
gasoline and other products must come f r o m the m a j o r o i l companies
and f r o m independents, outside of the cooperatives.
Bob Ovens' l e t t e r o f A p r i l 30 enumerated some o f the causes of
fuel shortages a t Central Exchange as follows:
1. The extremely heavy demand on fuel oils d u r i n g the w i n t e r months f o r
example: No. 2 burner o i l sales increased 28.66 percent f o r the months of
October, November, December, 1972, over the same three months of 1971; a l l
burner and diesel fuels combined increased 25.21 percent comparing the same
three months periods, 1972 versus 1971.
T h i s increase was considerably above both our projections, t h a t is Central
Exchange's projections—and the industry's on a nationwide basis d r a i n i n g
f u t u r e supplies.
Towards the end of November we determined t h a t the decision to allocate,
although reprehensible, could not be delayed any longer.
2. Suppliers t h a t C E N E X relied on to supplement refinery volumes placed
s t r i c t controls on contractual arrangements. As contracts expired C E N E X
was notified t h a t either renewals would be on lesser volumes or contracts w o u l d
not be renewed.
T h i s of course reduced the available gallons f o r d i s t r i b u t i o n to the p a t r o n
consumer.
I m i g h t add t h a t despite C E N E X Supply and D i s t r i b u t i o n Department's
efforts to secure a d d i t i o n a l supplies f r o m many various sources, beginning as
f a r back as February 1972 and on a continuing basis up u n t i l now, these
efforts have been fruitless.
3. N a t i o n a l Cooperative Refinery Association^ Refinery at McPherson, Kansas—and this is a refinery operated by Central Exchange i n cooperation w i t h
several other cooperatives—has been experiencing problems f o r some t i m e
i n securing necessary crude o i l on a consistent continuing basis to r u n at
or near capacity. T h i s refinery r a n below capacity most of the w i n t e r and
spring months.
D u r i n g March, the McPherson refinery which has <a capacity o f
52,000 barrels per day, ran at 42,000-43,000 barrels a day, about 83
percent o f capacity or 17 percent below capacity.
Our Laurel, Montana Refinery has been more f o r t u n a t e due to a v a i l a b i l i t y
of crude oil f r o m both domestic fields and Canada. However, this could change
also due to unsettled i m p o r t conditions and i n t e r n a l problems Canada is f a c i n g
as regards petroleum products.
M r . Ovens t o l d me yesterday on the telephone t h a t Canada is gett i n g extremely nervous about e x p o r t i n g oil. T h e L a u r e l Refinery of
Central Exchange gets about 45 percent of its crude f r o m Canada.
I f t h i s source is cut off, they w i l l be i n very tough shape at t h a t
refinery. T h i s is the end of the Ovens letter.
L e t me say, before I leave Bob Ovens' letter and discussion of
Central Exchange, they tell me t h a t t h i s 'allocation system of Central
Exchange is w o r k i n g very well. I t has been i n effect f o r some 4y 2
months, and i t could be something t h a t you m i g h t want to look at
more closely as experience f o r a possible nationwide allocation
system.
Farmers are deeply concerned t h a t they w i l l face fuel shortages at
harvest t h i s f a l l , i f not before. Farmers U n i o n takes the position t h a t
9
fuels f o r f a r m use must receive a h i g h p r i o r i t y among alternative
uses i n the event o f more pressing shortages. O u r membership, meeti n g i n a n n u a l convention i n Omaha, Nebr., M a r c h 12-14, 1973, called
f o r increased o i l i m p o r t a t i o n . T h e y passed t h i s resolution on p r i o r i t y
o f usage:
A specific quota of crude oil imported i n t o the U n i t e d States must be
allocated by federal l a w to a g r i c u l t u r a l cooperatives and independent oil
refineries.
W h i l e F a r m e r s U n i o n ' s most direct concern is t h a t fuels are available to farmers at reasonable prices, we f u l l y recognize t h a t t h e fuels
problem is one t h a t must be faced by a l l consumers i n a concerted
fashion. F a r m e r s U n i o n is an active member of the energy policy
task force o f t h e Consumer Federation o f America, and we strongly
adhere t o the f o l l o w i n g — a m o n g other—recommendations of the
task force f o r c o m i n g to g r i p s w i t h t h e Nation's energy problem.
I am r u n n i n g beyond m y time. I t h i n k I w i l l s k i p over those
specifics at t h i s time, except t h a t I w a n t t o emphasize t h a t the proposal to develop t h e wellhead prices f o r b o t h flowing gas a n d new
gas should be rejected by Congress. A v a i l a b l e data suggests t h a t
under controlled prices, there has not been o n l y the o p p o r t u n i t y b u t
the actual realization of satisfactory returns f o r those i n the gasp r o d u c i n g business. T h e same monopolistic features o f the gas indust r y w h i c h gave rise t o the passage o f the N a t u r a l Gas A c t i n 1938
s t i l l obtain and, i n periods o f shortage, there is even greater reason
to r e t a i n control over the rates at w h i c h t h i s energy is sold.
T h e President's message on energy, w h i l e i t called u p o n consumers
to pay more f o r energy and to make sacrifices i n u t i l i z a t i o n , included
v i r t u a l l y no measures t o loosen the m a j o r o i l companies, p r i v a t e cont r o l over fuels a n d t o force more responsibility by t h e majors to
consumers t o consumers and to independent and cooperative refiners
and marketers. A c c o r d i n g l y , t h e Congress we t h i n k must move i n to
fill t h i s leadership vacuum. Congress must insist t h a t a m u l t i b i l l i o n d o l l a r Government-funded research and development p r o g r a m on
new f u e l sources is launched w i t h o u t f u r t h e r delay, a n d t h a t the
research and development effort emphasize non-fossil fuels.
A l s o , Congress must move w i t h o u t delay to force the m a j o r o i l
companies t o make crude o i l available to independent a n d cooperat i v e refiners and marketers t h r o u g h o u t the m i d d l e area o f the U n i t e d
States. A c c o r d i n g t o t h e best i n f o r m a t i o n available, there is c u r r e n t l y
enough excess capacity i n independent and c ^operative refineries to
prevent the occurrence of f u e l shortages this r o a r , and the independent markets must not be forced out i f price competition is to he maintained i n the petroleum i n d u s t r y . Regardless of whether there is a
coordinated conspiracy among the majors to force o u t independents,
this, i n fact is occurring. Consumers can o n l y suffer increasingly
tenuous supplies a n d h i g h e r prices i f the movement t o w a r d increased
concentration i n the petroleum i n d u s t r y is allowed to continue
unabated.
M r . C h a i r m a n , t h a t concludes m y statement. I w i l l be pleased to
respond t o any questions t h a t y o u may have.
[ T h e f u l l statement o f M r . B a r t o n f o l l o w s : ]
10
A
I
National
Farmers Union
1 J
Mr.
Chairman,
Statement o f Weldon V. B a r t o n
Assistant Legislative Director
N a t i o n a l Farmers Union
Members
of
the
Committeej
I am W e l d o n V . B a r t o n , A s s i s t a n t L e g i s l a t i v e
N a t i o n a l Farmers Union.
My o r g a n i z a t i o n r e p r e s e n t s
f a r m f a m i l i e s i n t h e Midwest and o t h e r a g r i c u l t u r a l
United States.
Director
of
some 2 5 0 , 0 0 0
areas of the
Farmers are major consumers o f d i e s e l , g a s o l i n e , and o t h e r
f u e l s f o r p r o d u c t i o n , d r y i n g o f c r o p s , and r e l a t e d u s e s .
Farmers
have already s u f f e r e d d e t r i m e n t a l e f f e c t s of f u e l shortages;
in
t h e Midwest and Corn B e l t , t h e y were u n a b l e t o g e t adequate
fuel
to dry crops l a s t w i n t e r .
P r e s s u r e s on f u e l s u p p l i e s a r e i n c r e a s e d t h i s c r o p y e a r .
Some 5 0 m i l l i o n a c r e s o f a d d i t i o n a l c r o p l a n d h a s b e e n o p e n e d t o
p r o d u c t i o n i n 1973 as compared t o p r e v i o u s y e a r s , f o r t h e p u r p o s e
o f i n c r e a s i n g g r a i n and meat s u p p l i e s .
Furthermore, land prep a r a t i o n was hampered l a s t f a l l b y u n f a v o r a b l e w e a t h e r , and
f l o o d i n g t h i s s p r i n g c o n t i n u e s t o d e l a y p l o w i n g and s e e d i n g o f
crops.
More f u e l , t h e r e f o r e , w i l l be r e q u i r e d w i t h i n a s h o r t
t i m e span f o r p r e p a r a t i o n and p l a n t i n g , and i f l a r g e c r o p s
m a t e r i a l i z e more f u e l w i l l be r e q u i r e d f o r h a r v e s t
(including
d r y i n g ) and t r a n s p o r t t h i s
fall.
As soon as I a c c e p t e d t h e i n v i t a t i o n f r o m S e n a t o r M c l n t y r e
t o t e s t i f y t o d a y , I r e q u e s t e d i n f o r m a t i o n on t h e f u e l
situation
from Farmers Union C e n t r a l Exchange, I n c .
C e n t r a l Exchange, a
c o o p e r a t i v e w i t h home o f f i c e s i n S t . P a u l , M i n n e s o t a ,
supplies
f u e l o i l s and o t h e r p r o d u c t i o n i t e m s t o l o c a l c o o p e r a t i v e s i n a
10-state area.
Some 3 5 0 , 0 0 0 f a r m f a m i l i e s p a t r o n i z e t h e l o c a l
c o o p e r a t i v e s a f f i l i a t e d w i t h C e n t r a l E x c h a n g e , and t h e s e f a r m e r s
a r e d i r e c t l y a f f e c t e d b y any change i n s u p p l y and d i s t r i b u t i o n
o f C e n t r a l Exchange as t h e s u p p l i e r o f t h e s e c o o p e r a t i v e s .
On D e c e m b e r 1 5 , 1 9 7 2 , F a r m e r s U n i o n C e n t r a l E x c h a n g e
found i t necessary t o place a l l l o c a l cooperatives i n the 10s t a t e r e g i o n on an a l l o c a t i o n system f o r f u e l o i l s .
The a l l o c a t i o n h a s r u n f r o m a s l o w a s 80% o f p r e v i o u s p u r c h a s e s t o a h i g h
o f 108% d e p e n d i n g u p o n t h e p r o d u c t a n d s e a s o n a l d e m a n d .
Mr.
R o b e r t A . Ovens, Manager o f P e t r o l e u m M a r k e t i n g a t C e n t r a l E x c h a n g e , i n f o r m e d me i n a l e t t e r o f A p r i l 3 0 , 1 9 7 3 , t h a t t h e
a l l o c a t i o n system must be c o n t i n u e d " f o r an i n d e f i n i t e
period",
11
*
fuel
1.
O v e n s 1 l e t t e r o f A p r i l 3 0 e n u m e r a t e d some o f
s h o r t a g e s a t C e n t r a l Exchange as f o l l o w s :
"The e x t r e m e l y
heavy
demand on
fuel
oils
the
during
causes
the
of
winter
months, f o r example:
No. 2 burner o i l sales increased
28.66% f o r t h e months o f O c t o b e r , November, December
1 9 7 2 , o v e r t h e same t h r e e m o n t h s o f 1 9 7 1 ; a l l b u r n e r
and d i e s e l f u e l s combined i n c r e a s e d 25.21% comparing
t h e same t h r e e m o n t h p e r i o d s , 1 9 7 2 v e r s u s 1 9 7 1 .
" T h i s i n c r e a s e was c o n s i d e r a b l y above b o t h o u r p r o j e c t i o n s
and t h e i n d u s t r y ' s on a n a t i o n w i d e b a s i s d r a i n i n g
future
supplies.
" T o w a r d s t h e e n d o f N o v e m b e r we d e t e r m i n e d t h a t t h e
d e c i s i o n t o a l l o c a t e , althoiflgh r e p r e h e n s i b l e , c o u l d
be d e l a y e d any l o n g e r .
2.
"Suppliers
that
CENEX r e l i e d
on t o
supplement
not
refinery
volumes p l a c e d s t r i c t c o n t r o l s on c o n t r a c t u r a l
arrangements.
A s c o n t r a c t s e x p i r e d CENEX w a s n o t i f i e d
that
e i t h e r r e n e w a l s w o u l d be on l e s s e r volumes o r c o n t r a c t s
would n o t be renewed.
"This of course reduced the a v a i l a b l e
t r i b u t i o n t o the p a t r o n consumer.
gallons
for
dis-
" I m i g h t a d d t h a t d e s p i t e CENEX S u p p l y a n d D i s t r i b u t i o n
Department's e f f o r t s to secure a d d i t i o n a l supplies from
many v a r i o u s s o u r c e s , b e g i n n i n g as f a r b a c k a s F e b r u a r y
1972 and on a c o n t i n u i n g b a s i s up u n t i l now, t h e s e e f f o r t s
have been f r u i t l e s s .
3.
"National Cooperative Refinery Association's Refinery at
M c P h e r s o n , K a n s a s h a s b e e n e x p e r i e n c i n g p r o b l e m s f o r some
t i m e i n s e c u r i n g n e c e s s a r y c r u d e o i l on a c o n s i s t e n t ,
c o n t i n u i n g b a s i s t o run a t or near c a p a c i t y .
This ref i n e r y r a n b e l o w c a p a c i t y most o f t h e w i n t e r and s p r i n g
months.
"Our L a u r e l , Montana R e f i n e r y h a s b e e n more f o r t u n a t e due
to a v a i l a b i l i t y of crude o i l from both domestic f i e l d s
and Canada.
However, t h i s c o u l d change a l s o due t o
u n s e t t l e d i m p o r t c o n d i t i o n s and i n t e r n a l p r o b l e m s Canada
i s f a c i n g as r e g a r d s p e t r o l e u m p r o d u c t s . "
12
Farmers are deeply concerned t h a t they w i l l face f u e l *
shortages at harvest t h i s f a l l ,
i f not before.
Farmers Union
t a k e s t h e p o s i t i o n t h a t f u e l s f o r f a r m use must r e c e i v e a h i g h
p r i o r i t y among a l t e r n a t i v e u s e s i n t h e e v e n t o f m o r e p r e s s i n g
shortages.
Our membership, m e e t i n g i n A n n u a l C o n v e n t i o n i n
Omaha, N e b r a s k a , M a r c h 1 2 - 1 4 , 1 9 7 3 , c a l l e d f o r i n c r e a s e d
oil
importation.
Concerning p r i o r i t y of usage, the Convention
resolved:
"A s p e c i f i c q u o t a o f c r u d e o i l i m p o r t e d i n t o t h e
agricultural
U n i t e d S t a t e s must be a l l o c a t e d by f e d e r a l l a w t o
c o o p e r a t i v e s and i n d e p e n d e n t o i l
refineries".
While Farmers U n i o n ' s most d i r e c t concern i s t h a t
fuels
a r e a v a i l a b l e t o f a r m e r s a t r e a s o n a b l e p r i c e s , we f u l l y
recognize
t h a t t h e f u e l s p r o b l e m i s one t h a t must be f a c e d by a l l
consumers
in a concerted fashion.
F a r m e r s U n i o n i s a n a c t i v e member o f
t h e E n e r g y P o l i c y Task F o r c e o f Consumer F e d e r a t i o n o f A m e r i c a ,
a n d we s t r o n g l y a d h e r e t o t h e f o l l o w i n g ( a m o n g o t h e r )
recommendat i o n s of the Task Force f o r coming t o g r i p s w i t h the N a t i o n ' s
energy problem:
1.
V a s t l y increased government expenditures f o r energy
r e s e a r c h and d e v e l o p m e n t p r o g r a m s a r e e s s e n t i a l ,
t o g e t h e r w i t h an o v e r a l l g o v e r n m e n t a l assignment o f
p r i o r i t i e s and a l l o c a t i o n o f such f u n d s ;
2.
A more v i g o r o u s e f f o r t must be u n d e r t a k e n i n e n f o r c i n g
a n t i t r u s t p r i n c i p l e s w i t h r e s p e c t t o ownership and
c o n t r o l over basic a l t e r n a t i v e energy s u p p l i e s ;
3.
T i g h t e r c o n t r o l s are r e q u i r e d over the development
and e x p l o i t a t i o n o f p u b l i c l y owned f u e l r e s e r v e s —
f o r example, m o d i f i c a t i o n o f p r o c e d u r e s and t e r m s by
w h i c h p r i v a t e companies a r e p e r m i t t e d t o f i n d and
market petroleum deposits from p u b l i c lands, both
o n s h o r e and o f f s h o r e , must be a d o p t e d , and s a t i s f a c t o r y
p r o c e d u r e s f o r h a n d l i n g g e o t h e r m a l energy and p u b l i c
lands are e s s e n t i a l ;
4.
Congress should take the i n i t i a t i v e toward the format i o n o f a government-owned c o r p o r a t i o n t o engage i n
f i n d i n g and d e v e l o p i n g p e t r o l e u m d e p o s i t s and o t h e r
f u e l s on p u b l i c l y h e l d l a n d s ;
5.
The p r o p o s a l t o d e c o n t r o l t h e w e l l h e a d p r i c e s
for
b o t h f l o w i n g g a s a n d new g a s s h o u l d b e r e j e c t e d b y
controlled
Congress.
A v a i l a b l e data suggests t h a t under
p r i c e s , t h e r e has been not o n l y the o p p o r t u n i t y ,
but
the actual r e a l i z a t i o n of satisfactory returns
for
13
those i n the gas-producing business.
T h e same m o n o p o l i s t i c f e a t u r e s o f t h e gas i n d u s t r y which gave r i s e
t o t h e p a s s a g e o f t h e N a t u r a l Gas A c t i n 1938 s t i l l
o b t a i n and, i n p e r i o d s o f s h o r t a g e , t h e r e i s even
greater reason to r e t a i n c o n t r o l over the rates at
which t h i s energy i s sold.
The P r e s i d e n t ' s message on e n e r g y , w h i l e i t c a l l e d upon
c o n s u m e r s t o p a y m o r e f o r e n e r g y I n d t o make s a c r i f i c e s
in
u t i l i z a t i o n , i n c l u d e d v i r t u a l l y no m e a s u r e s t o l o o s e n t h e m a j o r
o i l c o m p a n i e s ' p r i v a t e c o n t r o l o v e r f u e l s and t o f o r c e more
r e s p o n s i b i l i t y by t h e m a j o r s t o consumers and t o i n d e p e n d e n t and
c o o p e r a t i v e r e f i n e r s and m a r k e t e r s .
A c c o r d i n g l y , the Congress
m u s t move i n t o f i l l t h i s l e a d e r s h i p v a c u u m .
I n a d d i t i o n t o r e t e n t i o n o f c o n t r o l s o f n a t u r a l gas p r i c e s
at the wellhead, establishment of a TVA-type government-owned
c o r p o r a t i o n t o s e r v e as a " y a r d s t i c k " i n p r o d u c t i o n and m a r k e t i n g
o f f u e l s , and o t h e r s t e p s n o t e d above, Congress s h o u l d :
1.
Insist that a multi-billion dollar
government-funded
r e s e a r c h a n d d e v e l o p m e n t p r o g r a m o n new f u e l s o u r c e s
i s l a u n c h e d w i t h o u t f u r t h e r d e l a y , and t h a t t h e r e s e a r c h
and d e v e l o p m e n t e f f o r t emphasize n o n - f o s s i l f u e l s .
At
F a r m e r s U n i o n ' s March 1973 C o n v e n t i o n , o u r m e m b e r s h i p
adopted the f o l l o w i n g r e s o l u t i o n :
"We s u p p o r t r e s e a r c h
t o d e t e r m i n e new and a d e q u a t e s o u r c e s o f p o w e r w h i c h
could replace f o s s i l
fuels".
2.
F o r c e t h e m a j o r o i l c o m p a n i e s t o make c r u d e o i l
availa b l e t o i n d e p e n d e n t and c o o p e r a t i v e r e f i n e r s and m a r k e t e r s
throughout the middle area of the United States.
According to the best information available, there is
currently
enough e x c e s s c a p a c i t y i n i n d e p e n d e n t and c o o p e r a t i v e
r e f i n e r i e s to prevent the occurance of f u e l shortages
t h i s y e a r , and t h e i n d e p e n d e n t m a r k e t e r s must n o t be
f o r c e d o u t i f p r i c e c o m p e t i t i o n i s t o be m a i n t a i n e d i n
the petroleum industry.
Regardless of whether there
i s a c o o r d i n a t e d c o n s p i r a c y among t h e m a j o r s t o f o r c e
out independents, t h i s , in fact, is occurring.
Consumers
can o n l y s u f f e r i n c r e a s i n g l y t e n u o u s s u p p l i e s and h i g h e r
p r i c e s i f t h e movement t o w a r d i n c r e a s e d c o n c e n t r a t i o n i n
the petroleum industry i s allowed to continue unabated.
14
Attachment
F a r m e r s U n i o n 1973 C o n v e n t i o n
on F u e l S h o r t a g e
Resolution
"To r e l i e v e t h e f u e l s h o r t a g e c r i s i s and t o c o n s e r v e
o u r o i l r e s o u r c e s , we u r g e a n i n c r e a s e i n o i l
admitted
i n t o the United States under o i l import quota.
A specific
quota o f crude o i l imported i n t o the U n i t e d S t a t e s must be
a l l o c a t e d b y f e d e r a l l a w t o a g r i c u l t u r a l c o o p e r a t i v e s and
independent o i l
refineries.
tions
"We s u p p o r t l i b e r a l i z a t i o n o f o i l
by s t a t e r e g u l a t o r y agencies.
State
"We u r g e i n c r e a s e s
of Alaska.
in
oil
"We s u p p o r t r e s e a r c h t o
s o u r c e s o f power w h i c h c o u l d
supplies
production
from
regula-
sources
in
d e t e r m i n e new a n d a d e q u a t e
replace fossil
fuels."
the
15
Senator MCINTYRE. Just one quick question: Where do you people
get most of y o u r crude o i l ?
M r . BARTON. A s I mentioned t o you, Central Exchange operates
t w o refineries, one at Laurel, Mont, and the other at McPherson,
Kans. A s I indicated, approximately 45 percent of the crude f o r t h a t
Laurel, M o n t , refinery, comes f r o m Canada. Some, a smaller amount
of the o i l f o r the McPherson refinery also comes f r o m Canada. I am
not sure about the percentage.
F o r the remainder o f the crude oil, there is no direct i m p o r t a t i o n ;
the cooperative refineries are dependent upon the independents or
major o i l companies t o supply crude o i l to them.
O f course, as I mentioned before, Central Exchange does not refine
a l l o f the gasoline t h a t Central Exchange makes available to the
local cooperatives. I t refines about 85 percent.
I n other words, about 15 percent of the gasoline must be purchased f r o m the major o i l companies by Central Exchange and then
made available t o the local cooperatives. T h i s figure is higher f o r
some o f the other a g r i c u l t u r a l cooperatives.
There is a particular difficulty at t h i s point o f t r a d i n g tickets and
getting crude f r o m the majors. A s you know, is t h a t these refineries
i n the Midwest w i l l t o the majors—take o i l f r o m the majors t h a t is
i n 'that v i c i n i t y i n exchange f o r i m p o r t tickets, and then the majors
w i l l i m p o r t replacement oil.
A p p a r e n t l y , the majors are contending t h a t now w i t h the new fee
systems t h a t i t is less profitable f o r them t o i m p o r t a n d replace o i l
t h a t they w o u l d t u r n over t o refineries i n the Midwest and they are
therefore t i g h t e n i n g down very strongly on t r a d i n g of tickets.
Senator MCINTYRE. T h a n k you.
M r . P a u l B . I g n a t i u s of the A i r Transport Association of America.
M r . IGNATIUS. T h a n k you, M r . Chairman. I, too, have a prepared
statement which we have furnished t o -the committee. I propose to
read almost a l l o f i t and by paraphrasing certain sections, I t h i n k I
can give m y statement i n the t i m e t h a t you allotted.
Senator MCINTYRE. Y o u r entire statement w i l l be included i n the
record. Y o u may proceed t o testify i n any way you see fit, bearing
i n m i n d any time constraints t h a t we have.
M r . IGNATIUS. T h a n k you, M r . Chairman.
L e t me say a t the outset t h a t I believe the recently-enacted amendment t o the Economic Stabilization A c t which recommends the
establishments of a priorities and allocations p r o g r a m is a n import a n t achievement. I a m m i n d f u l , of course, t h a t this much needed
amendment was enacted at the instigation of t h i s committee.
Hoj»efully, i t w i l l not be necessary t o p u t into effect a priorities
and allocations program f o r fuel. B u t certainly i t is wise and prudent t o have made provisions f o r such a program should circumstances require t h i s t y p e o f control. I was pleased to learn t h a t
development o f such a p l a n already has begun, and I hope t h a t this
contingency p l a n n i n g is pursued on a p r i o r i t y basis.
I a m certain t h a t these hearings w h i c h are being held by the
Senate Committee on Banking, Housing and U r b a n A f f airs w i l l cont r i b u t e much useful i n f o r m a t i o n that w i l l help t o insure t h a t the
16
priorities and allocations contingency p l a n is equitable a n d effective.
T h i s hearing comes a t a most opportune time. W e are g r a t e f u l
t h a t the committee has moved p r o m p t l y t o assure t h a t v i t a l functions, i n c l u d i n g transportation w i l l have adequate f u e l supplies i n
the event t h a t c r i t i c a l supply problems develop.
L e t me t u r n now specifically t o a i r transportation and how the
f u e l situation looks to us i n the a i r l i n e industry.
F i r s t , a w o r d on the scope o f the air transportation. T h e commercial airlines are the predominant common-carrier o f people i n intercity service. A b o u t 75 percent o f the passenger miles of domestic
intercity travel aboard common carriers—planes, buses and trains—
are by air.
I n overseas travel, airlines account f o r more t h a n 90 percent.
More t h a n 200 m i l l i o n passengers w i l l be carried by the scheduled
airlines o f the U n i t e d States i n 1973 and t h a t service w i l l grow
significantly i n the years immediately ahead.
I n t h e i r landings a n d takeoffs there a t more t h a n 525 airports
serving citizens i n thousands o f cities large and small, the airlines
are p r o v i d i n g scheduled passenger, f r e i g h t , and m a i l service t h r o u g h
some 13,800 flights a day, operating around the clock. W e estimate
t h a t i n 1973 the scheduled airlines w i l l carry about 1.4 b i l l i o n letters
and more t h a n 200 m i l l i o n packages.
T o get these tasks done, the airlines employ about 300,000 men and
women a n d count heavily on the w o r k of scores o f thousands of
other employees whose jobs are dependent on scheduled a i r l i n e
operations.
I present these capsule statistics t o indicate t h a t a i r transportation
is a v i t a l and pervasive system, essential t o the f u n c t i o n i n g and wellbeing o f the U.S. economy t h r o u g h the safe, r a p i d , and reliable
movement i n a dynamic society o f people and goods.
L e t me t u r n n o w t o w h a t our fuel needs are. Obviously substantial
quantities o f petroleum fuel are necessary to operate this national
air transport system. Transportation as a whole i n the U n i t e d States
consumes about 25 percent o f available energy and roughly 53 percent of the t o t a l domestic use o f petroleum. T h i s comes to 2.9 b i l l i o n
barrels of petroleum products whose use is broken down by transport a t i o n modes f o r c i v i l i a n purposes as f o l l o w s :
F i r s t , o n highway, the automobile takes 55 percent o f the transportation fuel, other h i g h w a y uses amount t o 29 percent, f o r a t o t a l
of 84 percent highway.
T h e airlines take 9 percent, waterborne transportation 4 percent
and the railroads about 3 percent.
T h e scheduled airlines consumed 242 b i l l i o n barrels o r 10.2 b i l l i o n
gallons i n 1971, the last year f o r w h i c h f u l l year precise data is currently available. T h i s fuel cost the airlines $1.2 b i l l i o n , the highest
element of cost except f o r labor i n the airline operations.
Since t h e commercial airline fleet has converted almost entirely to
jet-powered a i r c r a f t the fuel we use is j e t fuel, a middle distillate
a k i n t o kerosene.
I t is i m p o r t a n t to note t h a t the airlines and indeed almost a l l o f
the transportation industry is dependent on petroleum—there is no
17
alternative energy source. T h i s p o i n t needs t o be kept i n m i n d as
longer range plans f o r dealing w i t h the energy problem are considered, and new action programs are implemented. A greater use of
coal energy, f o r example, on the p a r t o f the electric u t i l i t y industry
could free up great quantities o f petroleum energy f o r use by transportation.
Those are our needs.
L e t me t u r n now t o availability of fuel. The airlines have not as
yet encountered any widespread fuel supply problems which we have
not been able -to handle by p r o m p t management action, b u t we have
had some serious w a r n i n g signals and we must anticipate more
trouble ahead.
I n the early p a r t o f this year, several airlines were faced w i t h local
shortages, p a r t i c u l a r l y i n the eastern p a r t o f the U n i t e d States.
These problems were met p r i n c i p a l l y by f e r r y i n g fuel f r o m one location t o another, at an additional cost t o the airlines and some inconvenience t o our passengers. W e were determined t o maintain service
f o r our passengers and shippers and we were able t o avoid h a v i n g
to cancel flights.
O u r best i n f o r m a t i o n is that we can expect similar problems
throughout the summer and later. W e are t o l d by Government and
o i l industry officials t h a t our supply situation w i l l be t i g h t , b u t that
we should expect local o r spot shortages rather t h a n any general
runout. I see no reason f o r believing t h a t the problem w i l l not continue f o r a period o f t i m e and can only hope t h a t t h a t w i l l not
become worse.
«
Accordingly, i t is most important, as I have said, t h a t responsible
Government officials develop contingency plans f o r dealing w i t h the
fuel problems should the need arise. W e must have assurance that
our v i t a l needs w i l l be met u n t i l the longer r u n solutions to the
energy problems have taken effect.
Thus, our immediate outlook is f o r spot o r occasional shortages.
F o r example, a refinery shutdown resulting f r o m equipment malfunction could cause a tempory problem of some magnitude. The
Government and the airlines must be prepared t o meet these problems p r o m p t l y .
I suggest t h a t several steps w o u l d be h e l p f u l , i n c l u d i n g the
following:
(1) A n early w a r n i n g system, f u e l advisories, i f you w i l l , t h a t w i l l
let us know when and where trouble can be expected. T h i s may give
us time t o take remedial action i n something less t h a n a crisis atmosphere.
(2) Release o f in-bond aviation fuel f o r domestic consumption to
meet spot shortages. Such fuel is located at 27 airports and is normally available f o r use i n international flights. The A i r Transport.
Association has asked the responsible Government officials i f this
fuel could be released f r o m bond t o meet spot domestic needs hopef u l l y on a basis of predelegated authority, so t h a t decision time can
be reduced t o a minimum. W e are pleased t h a t our suggestion is
being reviewed.
(3) W o r l d w i d e availability of distillate fuels, i n c l u d i n g jet fuels,
is we are told, somewhat more favorable t h a n the availability of
18
gasoline. W e understand t h a t there may even foe some surplus o f
distillate fuels as a result o f European refinery production. I f so,
we hope t h a t under t h e new policies affecting imports o f petroleum,
the o i l companies w i l l be able t o take advantage o f the situation to
assure t h a t our needs are going t o be met.
W h i l e I have, of course, concentrated o n f u e l f o r a i r c r a f t operations, i t is i m p o r t a n t to note t h a t the air transport i n d u s t r y also
requires large quantities of gasoline f o r ground vehicles t h a t service
f l i g h t operations and these needs must also be taken i n t o account i n
the contingency plans the Government is developing.
L e t me now t u r n briefly, M r . Chairman, t o conservation measures.
F o r a l o n g t i m e the airlines have practiced f u e l conservation
measures, not only to save f u e l b u t also t o reduce costs. F o r example,
they make w i d e use o f simulators f o r t h e t r a i n i n g o f aircrews t h a t
w o u l d otherwise require actual flights. The f u e l savings resulting
f r o m t h i s practice amounted t o 30 m i l l i o n gallons i n 1971.
F u e l sayings resulting f r o m operational practices are also being
achieved. I am pleased t o report t h a t the A i r T r a n s p o r t Association's operations committee, consisting of top executives f r o m the
operations side o f the industry, are s t u d y i n g ways to increase present
fuel-saving measures and to i d e n t i f y new fuel-saving opportunities.
These measures include s h u t t i n g off one o r more engines d u r i n g
t a x i i n g operations, reduction of i d l i n g t i m e on the ground and reduct i o n o f cruise speed w i t h consequent f u e l savings. O f course, measures
o f t h i s k i n d must always be evaluated i n terms o f "Safety and other
operational requirements.
»
T h e C A B , recognizing the need t o conserve fuel, has recently
authorized discussions t h a t w o u l d p e r m i t the continuance o f capacity
reductions on certain transcontinental flights. The C A B chairman
has called 'attention t o the possibility o f additional f u e l savings t h a t
w o u l d result f r o m capacity reductions on routes other t h a n the
toramscoinitinentail routes i n question. The airlines have not as yeft
had t i m e t o respond t o these suggestions f r o m t h e C A B . Some airlines view capacity reductions o f this t y p e w i t h concern because they
feel such reductions could affect t h e overall operational and competit i v e f r a m e w o r k o f o u r a i r transportation system.
T h i s is a challenging problem f o r w h i c h there are no easy answers,
b u t I am certain t h a t a l l views w i l l foe given consideration i n any
actions the C A B may consider t a k i n g as related to fuel conservation.
I should also note t h a t the C A B has asked the airlines to propose
plans f o r meeting any f u e l shortages t h a t may develop a t any o f the
22 m a j o r a i r p o r t hub city airports throughout the U n i t e d States.
L e t me t u r n now t o fuel costs. I have already indicated t h a t f u e l
costs represent the largest category o f costs except f o r labor i n airline operations. Accordingly, we are hopeful t h a t j e t f u e l costs w i l l
not rise significantly.
T o give you some sense of the order of magnitude here, a 1 cent-a
gallon increase i n o u r f u e l w o u l d cost the industry as a whole $100
m i l l i o n a year.
One cent is $100 m i l l i o n . T o p u t $100 m i l l i o n i n context, t h e entire
i n d u s t r y i n 1972 made a p r o f i t o f only $225 m i l l i o n . So, we are t a l k i n g about a very sizable cost category here t h a t w o u l d be very sensit i v e t o cost increases.
19
Some recently concluded fuel contracts reported by several airlines
give us some basis f o r concern and apprehension.
Some o f these cost increases undoubtedly reflect the higher costs
t h a t the o i l companies must pay f o r crude. W e are hopeful, however,
t h a t the o i l companies w i l l make every reasonable effort not only to
assure a v a i l a b i l i t y of jet fuel b u t also to h o l d the line on price. I n
this connection, I was pleased t o see i n a recent news article t h a t one
of the major o i l companies had reduced the price of one of its products, heavy fuel oil. W h i l e i t may be unrealistic to expect t h a t the
price o f jet fuel w i l l be reduced, we nevertheless hope t h a t i t w i l l not
increase significantly. A s a regulated industry, i t is not possible f o r
the airlines to obtain immediate relief f o r cost increases. Moreover,
a significant cost increase ultimately reflected i n higher a i r fares
would have a widespread effect on i n d i v i d u a l passengers and shippers and overall l i v i n g cost, i n view o f the pervasive nature of our
national a i r transportation system.
H a v i n g said this, I w a n t also t o point out t h a t the petroleum
industry has always recognized the v i t a l role of the airlines and has
done much t h r o u g h research and development, as well as t h r o u g h
supply and distribution, t o help the airlines to do the job. W e have
had our differences, t o be sure, b u t these have been resolved w i t h rare
exception, i n an equitable manner.
I , f o r one, hope this relationship w i l l continue.
L e t me conclude, M r . Chairman, by expressing once again m y
appreciation f o r the interest t h i s committee is showing i n the fuel
problem and by quickly summarizing my remarks.
1. W e expect spot fuel shortages i n the coming months and greater
difficulties as time goes by u n t i l long r u n steps t o remedy the situat i o n have had t i m e t o take effect. Accordingly, we believe the Government should develop contingency plans to assure that transportation and other v i t a l needs w i l l be met. I n addition, arrangements
should be made to deal p r o m p t l y w i t h spot shortages, i n c l u d i n g consideration of the several suggestions I have made today.
Secondly, transportation f o r the foreseeable f u t u r e must depend
upon petroleum as its energy source. I f industries t h a t have available alternative energy sources can use less petroleum, the transportation sector w i l l be benefited.
T h i r d l y , transportation, like all segments o f the economy must
seek and practice opportunities to conserve scarce fuel. The airlines
are already doing t h i s and hope t o extend the fuel savings they are
already making.
F o u r t h , the energy problem confronts all o f us—the Congress, the
executive agencies, industry and the American public. A l l o f us must
do our p a r t to insure t h a t our needs are met w i t h the least possible
dislocation t o economic activity, environmental objectives, and our
balance of payments needs. The scheduled airline industry is prepared to iassist the effort u n t i l such t i m e as our energy problems are
surmounted.
T h i s completes m y statement, M r . Chairman.
L i k e the former witness, I w i l l be pleased t o answer questions later
on.
[ T h e statement o f M r . Ignatius f o l l o w s : ]
20
Statement o f P a u l R. I g n a t i u s
P r e s i d e n t , A i r T r a n s p o r t A s s o c i a t i o n o f America
b e f o r e t h e Senate Committee on B a n k i n g , Housing
and Urban A f f a i r s
May 7 , 1973
My name i s Paul R. I g n a t i u s .
I am P r e s i d e n t o f t h e A i r
Transport
A s s o c i a t i o n , which represents v i r t u a l l y a l l of the scheduled,
a i r l i n e s of the United
certificated
States.
I a p p r e c i a t e t h i s o p p o r t u n i t y t o appear b e f o r e you t o p r e s e n t our
p r e l i m i n a r y v i e w s on t h e f u e l p r o b l e m , how i t a f f e c t s t h e a i r l i n e s , and what
a d d i t i o n a l s t e p s t h e a i r l i n e s and t h e government m i g h t t a k e t o meet
challenge.
this
I n p r e p a r i n g t h i s t e s t i m o n y , I have been guided by the l e t t e r
from
t h e Committee d a t e d A p r i l 25, 1973 w h i c h o u t l i n e d t h e q u e s t i o n s t h e Committee
intended to pursue i n t h i s
hearing.
Before p r o c e e d i n g f u r t h e r ,
I want t o say t h a t I b e l i e v e t h a t
the
r e c e n t l y enacted amendment t o t h e Economic S t a b i l i z a t i o n A c t w h i c h a u t h o r i z e s
tr
t h e e s t a b l i s h m e n t o f a p r i o r i t i e s and a l l o c a t i o n s program i s an i m p o r t a n t
achievement.
I am m i n d f u l , o f c o u r s e , t h a t t h i s much needed amendment was
enacted a t t h e i n s t i g a t i o n o f t h i s
Committee.
H o p e f u l l y , i t w i l l n o t be n e c e s s a r y t o p u t i n t o e f f e c t a p r i o r i t i e s
a l l o c a t i o n s program f o r f u e l .
But c e r t a i n l y I t
and
i s w i s e and p r u d e n t t o have made
p r o v i s i o n s f o r such a program s h o u l d c i r c u m s t a n c e s r e q u i r e t h i s t y p e o f
control.
I was p l e a s e d t o l e a r n t h a t development o f such a p l a n a l r e a d y has
begun, and I hope t h a t t h i s c o n t i n g e n c y p l a n n i n g i s pursued on a p r i o r i t y
I am c e r t a i n t h a t t h e s e h e a r i n g s w h i c h a r e b e i n g h e l d by t h e Senate
Committee
on B a n k i n g , Housing and Urban A f f a i r s w i l l c o n t r i b u t e much
basis.
21
u s e f u l i n f o r m a t i o n t h a t w i l l h e l p t o i n s u r e t h a t t h e p r i o r i t i e s and a l l o c a t i o n s
c o n t i n g e n c y p l a n i s e q u i t a b l e and e f f e c t i v e .
T h i s h e a r i n g comes a t a most o p p o r t u n e t i m e .
We a r e
t h a t t h e Committee has moved p r o m p t l y t o assure t h a t v i t a l
grateful
functions,
i n c l u d i n g t r a n s p o r t a t i o n , w i l l have adequate f u e l s u p p l i e s i n t h e event
that
c r i t i c a l s u p p l y problems d e v e l o p .
L e t me t u r n now s p e c i f i c a l l y t o a i r t r a n s p o r t a t i o n and how t h e
f u e l s i t u a t i o n l o o k s t o us i n t h e a i r l i n e
industry.
SCOPE OF AIR TRANSPORTATION
The commercial a i r l i n e s a r e t h e predominant common-carrier
people i n i n t e r c i t y s e r v i c e .
of
About 75 per c e n t o f t h e passenger m i l e s o f
domestic i n t e r c i t y t r a v e l aboard common c a r r i e r s — p l a n e s , buses and t r a i n s —
by a i r .
I n overseas t r a v e l , a i r l i n e s account f o r more t h a n 90 per
More t h a n 200 m i l l i o n passengers w i l l be c a r r i e d by t h e
are
cent.
scheduled
a i r l i n e s o f t h e U n i t e d S t a t e s i n 1973, and t h a t s e r v i c e w i l l grow
significantly
i n t h e y e a r s i m m e d i a t e l y ahead.
I n t h e i r l a n d i n g s and t a k e o f f s a t more t h a n 525 a i r p o r t s
serving
c i t i z e n s i n thousands o f c i t i e s , l a r g e and s m a l l , t h e a i r l i n e s a r e p r o v i d i n g
scheduled p a s s e n g e r , f r e i g h t , and m a i l s e r v i c e t h r o u g h some 1 3 , 8 0 0
a d a y , o p e r a t i n g around t h e c l o c k .
flights
We e s t i m a t e t h a t i n 1973 t h e scheduled
a i r l i n e s w i l l c a r r y about 1 . 4 b i l l i o n l e t t e r s and more t h a n 200 m i l l i o n packages.
To get t h e s e t a s k s done, t h e a i r l i n e s employ about 300,000 men and women
and count h e a v i l y on t h e work o f s c o r e s o f thousands o f o t h e r employees whose
j o b s a r e dependent on scheduled a i r l i n e
operations.
22
I present these capsule s t a t i s t i c s to i n d i c a t e t h a t a i r
transportation
i s a v i t a l and p e r v a s i v e system, e s s e n t i a l t o t h e f u n c t i o n i n g and w e l l b e i n g
o f t h e U n i t e d S t a t e s economy t h r o u g h t h e s a f e , r a p i d and r e l i a b l e movement
i n a dynamic s o c i e t y o f p e o p l e and goods.
FUEL NEEDS
S u b s t a n t i a l q u a n t i t i e s of petroleum f u e l are necessary t o
t h i s n a t i o n a l a i r t r a n s p o r t system.
operate
T r a n s p o r t a t i o n as a whole i n t h e U n i t e d
S t a t e s consumes about 25 per c e n t o f a v a i l a b l e e n e r g y , and r o u g h l y 53 p e r
c e n t o f t h e t o t a l domestic use o f p e t r o l e u m .
T h i s comes t o 2 . 9
b a r r e l s o f p e t r o l e u m p r o d u c t s , whose use i s b r o k e n down by
billion
transportation
modes f o r c i v i l i a n purposes as f o l l o w s :
Highway
Automobile
Other
55%
29%
T o t a l Highway
84%
Airlines
Water
Railroad
9%
4%
3%
The scheduled a i r l i n e s consumed 242 m i l l i o n b a r r e l s
gallons)
(10.2
billion
i n 1971, t h e l a s t y e a r f o r w h i c h f u l l year p r e c i s e d a t a i s
available.
This f u e l cost the a i r l i n e s $1.2 b i l l i o n ,
c o s t except f o r l a b o r i n t h e a i r l i n e
currently
t h e h i g h e s t element o f
operations.
Since t h e commercial a i r l i n e f l e e t has c o n v e r t e d a l m o s t e n t i r e l y
j e t powered a i r c r a f t the f u e l we use i s j e t f u e l , a m i d d l e d i s t i l l a t e
to kerosene.
to
akin
23
It
i s i m p o r t a n t t o n o t e t h a t t h e a i r l i n e s and indeed a l m o s t a l l
of
t h e t r a n s p o r t a t i o n i n d u s t r y i s dependent on p e t r o l e u m — t h e r e i s no a l t e r n a t i v e energy s o u r c e .
T h i s p o i n t needs t o be k e p t i n mind as l o n g e r range
p l a n s f o r d e a l i n g w i t h t h e energy p r o b l e m a r e c o n s i d e r e d , and new a c t i o n
programs a r e implemented.
A g r e a t e r use o f c o a l e n e r g y , f o r example, on
t h e p a r t o f t h e e l e c t r i c u t i l i t y i n d u s t r y c o u l d f r e e up g r e a t
o f p e t r o l e u m energy f o r use by
quantities
transportation.
FUEL AVAILABILITY
The a i r l i n e s have n o t as y e t e n c o u n t e r e d any w i d e s p r e a d f u e l s u p p l y
problems w h i c h we have n o t been a b l e t o h a n d l e by prompt management a c t i o n ,
b u t we have had some s e r i o u s w a r n i n g s i g n a l s and we must a n t i c i p a t e more
t r o u b l e ahead.
I n t h e e a r l y p a r t o f trhis y e a r , s e v e r a l a i r l i n e s were f a c e d w i t h
shortages, p a r t i c u l a r l y i n the eastern p a r t of the United States.
local
These problems
were met p r i n c i p a l l y by f e r r y i n g f u e l f r o m one l o c a t i o n t o a n o t h e r , a t an a d d i t i o n a l c o s t t o t h e a i r l i n e s and some i n c o n v e n i e n c e t o our p a s s e n g e r s .
We were
d e t e r m i n e d t o m a i n t a i n s e r v i c e f o r our passengers and s h i p p e r s , and we were
able to avoid having t o cancel
flights.
Our b e s t i n f o r m a t i o n i s t h a t we can expect s i m i l a r problems
t h e summer and l a t e r .
We a r e t o l d by government and o i l i n d u s t r y
throughout
officials
t h a t our s u p p l y s i t u a t i o n w i l l be t i g h t , b u t t h a t we s h o u l d e x p e c t l o c a l o r
s p o t s h o r t a g e s r a t h e r t h a n any g e n e r a l r u n - o u t .
I see no r e a s o n f o r
believing
t h a t t h e p r o b l e m w i l l n o t c o n t i n u e f o r a p e r i o d o f t i m e and can o n l y hope t h a t
i t w i l l n o t become w o r s e .
24
Accordingly, i t
i s most i m p o r t a n t , as I have s a i d , t h a t
responsible
government o f f i c i a l s d e v e l o p c o n t i n g e n c y p l a n s f o r d e a l i n g w i t h t h e
p r o b l e m s h o u l d t h e need a r i s e .
fuel
We must have assurance t h a t o u r v i t a l needs
w i l l be met u n t i l t h e l o n g e r - r u n s o l u t i o n s t o t h e energy p r o b l e m have t a k e n
effect.
Thus, our immediate o u t l o o k i s f o r s p o t o r o c c a s i o n a l s h o r t a g e s .
example, a r e f i n e r y shut-down r e s u l t i n g f r o m equipment m a l f u n c t i o n
cause a temporary p r o b l e m o f some m a g n i t u d e .
For
could
The government and t h e
airlines
must be p r e p a r e d t o meet t h e s e problems p r p m p t l y .
I
suggest t h a t s e v e r a l s t e p s w o u l d be h e l p f u l ,
(1)
i n c l u d i n g the
An e a r l y w a r n i n g system — f u e l a d v i s o r i e s ,
if
you w i l l —
w i l l l e t us know when and where t r o u b l e can be e x p e c t e d .
that
T h i s may g i v e us
t i m e t o t a k e r e m e d i a l a c t i o n i n something l e s s t h a n a c r i s i s
(2)
following:
atmosphere.
Release o f i n - b o n d a v i a t i o n f u e l f o r domestic c o n s u m p t i o n t o meet
spot shortages.
Such f u e l i s l o c a t e d a t 27 a i r p o r t s and i s n o r m a l l y
f o r use i n i n t e r n a t i o n a l f l i g h t s .
r e s p o n s i b l e government o f f i c i a l s i f
available
The A i r T r a n s p o r t A s s o c i a t i o n has asked t h e
t h i s f u e l c o u l d be r e l e a s e d f r o m bond t o
meet s p o t d o m e s t i c needs, h o p e f u l l y on a b a s i s o f p r e - d e l e g a t e d a u t h o r i t y ,
t h a t d e c i s i o n t i m e can be reduced t o a minimum.
so
We a r e p l e a s e d t h a t o u r s u g g e s -
t i o n i s being reviewed.
(3)
The w o r l d - w i d e a v a i l a b i l i t y o f d i s t i l l a t e f u e l s ,
including j e t
i s , we a r e t o l d , somewhat more f a v o r a b l e t h a n t h e a v a i l a b i l i t y o f
fuels,
gasoline.
We u n d e r s t a n d t h a t t h e r e may even be some s u r p l u s o f d i s t i l l a t e f u e l s as a
r e s u l t o f European r e f i n e r y p r o d u c t i o n .
If
s o , we hope t h a t under t h e new
p o l i c i e s a f f e c t i n g imports of petroleum,
t h e o i l companies w i l l be a b l e
t a k e advantage o f t h e s i t u a t i o n t o a s s u r e t h a t o u r needs w i l l be m e t .
to
25
W h i l e I h a v e , o f c o u r s e , c o n c e n t r a t e d on f u e l f o r a i r c r a f t
it
operations,
i s important to note t h a t the a i r transport i n d u s t r y also requires
q u a n t i t i e s o f g a s o l i n e f o r ground v e h i c l e s t h a t s e r v i c e f l i g h t
operations.
These needs must a l s o be t a k e n i n t o account i n t h e c o n t i n g e n c y p l a n s
government i s
large
the
developing.
CONSERVATION MEASURES
For a l o n g t i m e t h e a i r l i n e s have p r a c t i c e d f u e l c o n s e r v a t i o n measures,
n o t o n l y t o save f u e l , b u t a l s o t o reduce c o s t s .
For example, t h e y make w i d e
use o f s i m u l a t o r s f o r t h e t r a i n i n g o f a i r crews t h a t would o t h e r w i s e r e q u i r e
actual f l i g h t s .
The f u e l s a v i n g s r e s u l t i n g f r o m t h i s p r a c t i c e amounted t o
30 m i l l i o n g a l l o n s i n 1971.
Fuel savings r e s u l t i n g from o p e r a t i o n a l p r a c t i c e s are also being
achieved.
I am p l e a s e d t o r e p o r t t h a t t h e A i r T r a n s p o r t
Association's
O p e r a t i o n s Committee, c o n s i s t i n g o f t o p e x e c u t i v e s f r o m t h e o p e r a t i o n s
side
o f t h e i n d u s t r y , a r e s t u d y i n g ways t o i n c r e a s e p r e s e n t f u e l - s a v i n g measures
and t o i d e n t i f y new f u e l - s a v i n g o p p o r t u n i t i e s .
These measures i n c l u d e
shutting
o f f one o r more e n g i n e s d u r i n g t a x i i n g o p e r a t i o n s , r e d u c t i o n o f i d l i n g t i m e on
t h e g r o u n d , and r e d u c t i o n o f c r u i s e speed w i t h consequent f u e l s a v i n g s .
c o u r s e , measures o f t h i s k i n d must always be e v a l u a t e d i n terms o f
and o t h e r o p e r a t i o n a l
Of
safety
requirements.
The C i v i l A e r o n a u t i c s B o a r d , r e c o g n i z i n g t h e n e e d t o conserve
fuel,
has r e c e n t l y a u t h o r i z e d d i s c u s s i o n s t h a t would p e r m i t t h e c o n t i n u a n c e o f
c a p a c i t y r e d u c t i o n s on c e r t a i n t r a n s c o n t i n e n t a l f l i g h t s .
The CAB c h a i r m a n
has c a l l e d a t t e n t i o n t o t h e p o s s i b i l i t y o f a d d i t i o n a l f u e l s a v i n g s
would r e s u l t f r o m c a p a c i t y r e d u c t i o n s on r o u t e s o t h e r t h a n t h e
t a l routes i n question.
that
transcontinen-
The a i r l i n e s have n o t as y e t had t i m e t o respond
26
t o these s u g g e s t i o n s f r o m t h e CAB.
Some a i r l i n e s v i e w c a p a c i t y
reductions
o f t h i s t y p e w i t h c o n c e r n because t h e y f e e l such r e d u c t i o n s c o u l d a f f e c t
t h e o v e r a l l o p e r a t i o n a l and c o m p e t i t i v e framework o f our a i r
system.
transportation
T h i s i s a c h a l l e n g i n g p r o b l e m f o r w h i c h t h e r e a r e no easy a n s w e r s ,
b u t I am c e r t a i n t h a t a l l v i e w s w i l l be g i v e n c a r e f u l c o n s i d e r a t i o n i n any
a c t i o n s t h e C i v i l A e r o n a u t i c s Board may c o n s i d e r t a k i n g as r e l a t e d t o
fuel
conservation.
I
s h o u l d a l s o n o t e t h a t t h e C i v i l A e r o n a u t i c s Board has asked t h e
a i r l i n e s t o propose p l a n s f o r m e e t i n g any f u e l s h o r t a g e s t h a t may d e v e l o p
a t any o f t h e 22 m a j o r a i r p o r t hub c i t y a i r p o r t s t h r o u g h o u t t h e U n i t e d S t a t e s .
FUEL COSTS
I have a l r e a d y i n d i c a t e d t h a t f u e l c o s t s r e p r e s e n t t h e l a r g e s t
category
o f c o s t s except f o r l a b o r i n a i r l i n e o p e r a t i o n s .
A c c o r d i n g l y , we a r e h o p e f u l
t h a t j e t f u e l costs w i l l not r i s e s i g n i f i c a n t l y .
Some r e c e n t l y
concluded
f u e l c o n t r a c t s r e p o r t e d by s e v e r a l a i r l i n e s g i v e us some b a s i s f o r
concern
and a p p r e h e n s i o n .
Some o f t h e s e c o s t i n c r e a s e s u n d o u b t e d l y r e f l e c t
t h e o i l companies must pay f o r c r u d e .
the higher costs
that
We a r e h o p e f u l , however, t h a t t h e
oil
companies w i l l make e v e r y r e a s o n a b l e e f f o r t n o t o n l y t o a s s u r e a v a i l a b i l i t y
jet
f u e l b u t a l s o t o h o l d t h e l i n e on p r i c e .
I n t h i s connection,
of
I was p l e a s e d
t o see i n a r e c e n t news a r t i c l e t h a t one o f t h e m a j o r o i l companies had reduced
t h e p r i c e o f one o f i t s p r o d u c t s , heavy f u e l o i l .
W h i l e i t may be u n r e a l i s t i c
t o e x p e c t t h a t t h e p r i c e o f j e t f u e l w i l l be r e d u c e d , we n e v e r t h e l e s s hope
t h a t i t w i l l not increase s i g n i f i c a n t l y .
As a r e g u l a t e d i n d u s t r y , i t
p o s s i b l e f o r t h e a i r l i n e s t o o b t a i n immediate r e l i e f
is
f o r cost increases.
not
More-
27
over, a s i g n i f i c a n t cost increase u l t i m a t e l y r e f l e c t e d i n higher a i r
fares
would have a w i d e s p r e a d e f f e c t on i n d i v i d u a l passengers and s h i p p e r s and
o v e r a l l l i v i n g c o s t s , i n view of the pervasive nature of our n a t i o n a l
transportation
air
system.
Having s a i d t h i s , I want a l s o t o p o i n t o u t t h a t t h e p e t r o l e u m i n d u s t r y
has always r e c o g n i z e d t h e v i t a l r o l e o f t h e a i r l i n e s and has done much t h r o u g h
r e s e a r c h and development, as w e l l as t h r o u g h s u p p l y and d i s t r i b u t i o n ,
t h e a i r l i n e s t o do t h e j o b .
We have had our d i f f e r e n c e s ,
to help
t o be s u r e , b u t
t h e s e have been r e s o l v e d , w i t h r a r e e x c e p t i o n , i n an e q u i t a b l e manner.
l o o k f o r w a r d t o a c o n t i n u a t i o n o f t h i s r e l a t i o n s h i p , and t o w o r k i n g
I
together,
w i t h a s s i s t a n c e f r o m t h e government, as n e c e s s a r y , t o a s s u r e adequate f u e l
s u p p l i e s a t f a i r and r e a s o n a b l e
prices.
CONCLUSION
L e t me c o n c l u d e , M r . Chairman, by e x p r e s s i n g once a g a i n my a p p r e c i a t i o n
f o r the i n t e r s t
t h i s Committee i s showing i n t h e f u e l p r o b l e m and by q u i c k l y
summarizing my r e m a r k s .
F i r s t , we expect s p o t f u e l s h o r t a g e s i n t h e coming months and g r e a t e r
d i f f i c u l t i e s as t i m e goes by u n t i l l o n g r u n s t e p s t o remedy t h e
have had t i m e t o t a k e e f f e c t .
situation
A c c o r d i n g l y , we b e l i e v e t h e government s h o u l d
develop c o n t i n g e n c y p l a n s t o assure t h a t t r a n s p o r t a t i o n and o t h e r v i t a l needs
w i l l be met.
I n a d d i t i o n , arrangements s h o u l d be made t o d e a l p r o m p t l y w i t h
s p o t s h o r t a g e s , i n c l u d i n g c o n s i d e r a t i o n o f t h e s e v e r a l s u g g e s t i o n s I have made
today.
S e c o n d l y , t r a n s p o r t a t i o n f o r t h e f o r e s e e a b l e f u t u r e must depend upon
p e t r o l e u m as i t s energy s o u r c e .
If
i n d u s t r i e s t h a t have a v a i l a b l e
alternative
energy sources can use l e s s p e t r o l e u m , t h e t r a n s p o r t a t i o n s e c t o r w i l l be
96-183 O - 73 - 3
28
benefitted.
Thirdly, transportation,
l i k e a l l segments o f t h e economy must seek
and p r a c t i c e o p p o r t u n i t i e s t o conserve s c a r c e f u e l .
The a i r l i n e s a r e a l r e a d y
d o i n g t h i s and hope t o e x t e n d t h e f u e l s a v i n g s t h e y a r e a l r e a d y m a k i n g .
F o u r t h , f u e l i s a m a j o r element i n our c o s t s t r u c t u r e and we a r e a n x i o u s
to avoid s i g n i f i c a n t cost
Finally,
increases.
t h e energy p r o b l e m c o n f r o n t s a l l o f us — t h e Congress,
E x e c u t i v e a g e n c i e s , i n d u s t r y , and t h e American p u b l i c .
A l l o f us must do
o u r p a r t t o i n s u r e t h a t o u r needs a r e met w i t h t h e l e a s t p o s s i b l e
t o economic a c t i v i t y ,
needs.
the
dislocation
e n v i r o n m e n t a l o b j e c t i v e s , and our b a l a n c e o f payments
The scheduled a i r l i n e i n d u s t r y i s p r e p a r e d t o a s s i s t t h e e f f o r t
such t i m e as our energy problems a r e surmounted.
I w i l l now be p l e a s e d t o address any q u e s t i o n s t h a t you may w i s h t o
d i r e c t t o my a t t e n t i o n .
until
29
UNITED STATES A I R L I N E
INDUSTRY
FORECAST OF TURBINE FUEL DEMAND
1972
-
Prepared
Fuels
Transport
By
The
Committee
of
Air
1981
the
Association
May
1972
of
America
30
TABLE OF CONTENTS
PAGE NO.
FOREWORD
5
SUMMARY
7
PARTICIPATING AIRLINES
8
EXPLANATIONS
9
TABLES
TABLES I
ANNUAL VOLUME BY PAD DISTRICT
WITH ANNUAL TOTAL U . S . VOLUME
FOR 1971-1976 and 1981
10-13
TABLE I I
ANNUAL VOLUME BY U . S . AIRPORTS I N
PAD DISTRICTS FOR 1971-1976
14-33
TABLE I I I
ANNUAL VOLUME BY INDIVIDUAL
STATES FOR 1971-1976
34-37
U . S . DEMAND FOR YEARS 1 9 7 1 - 1 9 8 1
38
PAD
39
CHARTS
CHART
I
CHART
II
CHART I I I
MAP
DEMAND FOR YEARS 1971-1976
U . S . DEMAND FORECAST CURRENT
VS. PRIOR YEARS
40
PETROLEUM ADMINISTRATION FOR
DEFENSE (PAD) DISTRICTS
41
31
FOREWORD
The A i r T r a n s p o r t A s s o c i a t i o n o f America member a i r l i n e s
have made a major e f f o r t t o assemble h e r e i n a c o n s o l i d a t e d r e c o r d o f t u r b i n e f u e l used i n 1971 and f o r e c a s t
f o r consumption through 1981.
This record represents
scheduled commercial a i r c r a f t o p e r a t i o n s i n t h e U n i t e d
S t a t e s by domestic and f o r e i g n a i r l i n e s .
Although 100%
coverage was not p o s s i b l e , t h e d a t a t h a t f o l l o w s a d e q u a t e l y
r e p r e s e n t s p r o j e c t e d r e q u i r e m e n t s by major a i r p o r t s , P e t r o leum A d m i n i s t r a t i o n (PAD) D i s t r i c t s and fey t h e i n d i v i d u a l
f i f t y states.
T h i s p u b l i c a t i o n i s t h e f i f t h i n a s e r i e s o f annual
forecasts.
I t i s prepared for the information of s u p p l i e r s ,
t r a n s p o r t e r s , s e r v i c e companies and o t h e r agencies concerned w i t h p l a n n i n g f o r a i r l i n e t u r b i n e f u e l r e q u i r e m e n t s .
Because of t h e l a r g e volume of f u e l used, maximum e f f i c i e n c y
and economy i n t r a n s p o r t a t i o n and s e r v i c i n g i s r e q u i r e d .
F u e l equipment m a n u f a c t u r e r s and s e r v i c i n g companies i n
p a r t i c u l a r may f i n d t h i s p u b l i c a t i o n u s e f u l f o r p l a n n i n g
t h e p r o d u c t i o n o f equipment and s e r v i c e programs.
Bonded f u e l i s i d e n t i f i e d s e p a r a t e l y and bondable f u e l i s
a l s o shown t o r e f l e c t t h a t p o r t i o n o f t h e t o t a l demand e l i g i b l e f o r w i t h d r a w a l under U. S. Customs bonded c o n t r o l f o r use
in international operations.
This information w i l l a s s i s t
s u p p l i e r s i n i d e n t i f y i n g those a i r p o r t s where a v a i l a b i l i t y o f
bonded f u e l i s e s s e n t i a l .
32
SUMMARY
T h i s f o r e c a s t p r o j e c t s t u r b i n e f u e l consumption a t a l l
a i r p o r t s i n t h e U n i t e d S t a t e s h a v i n g an annual volume
of 5 0 0 , 0 0 0 g a l l o n s or more, as p r o j e c t e d by t h e c e r t i f i cated a i r c a r r i e r s p a r t i c i p a t i n g .
The a c t u a l o r p r o j e c t e d f u e l consumption o f n o n - p a r t i c i p a t i n g a i r c a r r i e r s or o t h e r users of a v i a t i o n f u e l i s
not i n c l u d e d i n t h i s f o r e c a s t .
The t o p a i r p o r t s i n terms o f t o t a l t u r b i n e f u e l r e p o r t e d
t o be consumed i n 1971 a r e l i s t e d below i n descending
order.
Data expressed i s i n thousand g a l l o n s :
#
JFK
LAX
ORD
SFO
MIA
HNL
ATL
DAL
LGA
BOS
SEA
DEN
PHL
EWR
(Kennedy-New York)
(Los Angeles)
(Chicago O'Hare)
(San F r a n c i s c o )
(Miami I n t e r n a t i o n a l )
(Honolulu) *
(Atlanta)
( D a l l a s Love F i e l d )
(La Guardia-New York)
(Boston Logan)
(Seattle)
(Denver)
(Philadelphia)
(Newark)
STL
(St.
IAH
DTW
MSP
DCA
PIT
CLE
(Houston I n t e r n a t i o n a l )
(Detroit)
( M i n n e a p o l i s - S t . Paul)
(Washington, D . C . - N a t i o n a l )
(Pittsburg)
(Cleveland)
Louis)
Domestic
Bonded
Total
396 ,575
758 ,238
729 ,102
489 ,832
321 ,753
186 , 3 9 1
330 ,405
303 ,876
262 ,325
197 ,888
195 , 5 0 0
226 ,505
139 ,473
147 ,543
165 ,409
142 , 9 9 1
145 ,794
143 , 1 6 0
139 ,282
104 ,155
109 ,362
551 ,018
131 ,267
94 ,217
104 ,662
109 ,515
208 ,855
7 ,216
18 ,776
9 ,203
71 , 7 5 2
68 ,254
947,583
889,505
823,319
594,494
431,268
395,246
337,621
• 322,652
271,528
269,640
263,754
226,505
172,393
165,910
165,409
155,201
154,272
151,919
139,282
113,073
109,362
-
32 , 9 2 0
18 ,367
-
12 ,210
8 ,478
8 ,759
-
8 ,918
-
These p r o j e c t i o n s made i n t h e f i r s t q u a r t e r 1972 show t h e
c u r r e n t consumption downtrend as compared t o p r e v i o u s y e a r s 1
estimates.
Also, these i n d i v i d u a l a i r p o r t f o r e c a s t s a r e n o t
r e a d i l y a v a i l a b l e elsewhere and by b e i n g updated a n n u a l l y
t h i s r e p o r t o f f e r s e s s e n t i a l d a t a f o r longrange p l a n n i n g t o
f u r t h e r assure d e l i v e r y of adequate volume a t minimum c o s t .
33
PARTICIPATING CARRIERS
L i s t e d below a r e t h e ATA A i r C a r r i e r s and o t h e r coopera t i n g A i r C a r r i e r s who have s u p p l i e d t h e f o r e c a s t s used
to prepare t h i s consolidated r e p o r t .
A i r Canada
A i r France
A i r West
Allegheny A i r l i n e s , I n c .
Alaska A i r l i n e s , I n c .
Aloha A i r l i n e s , I n c .
American A i r l i n e s , I n c .
B r i t i s h Overseas Airways Corp.
Braniff International
Canadian P a c i f i c A i r l i n e s L t d .
Continental Air Lines, Inc.
Delta Air Lines, Inc.
Eastern A i r l i n e s , I n c .
El Al I s r a e l A i r l i n e s Ltd.
Flying Tiger Line, Inc.
Frontier Airlines, Inc.
Hawaiian A i r l i n e s
Japan A i r Lines Co. L t d .
KLM - Royal Dutch A i r l i n e s
L u f t h a n s a - German A i r l i n e s
National Airlines, Inc.
Northeast A i r l i n e s , Inc.
North Central A i r l i n e s
Northwest A i r l i n e s , I n c .
Ozark A i r L i n e s , I n c .
P a c i f i c Western A i r l i n e s
Pan American World A i r w a y s , I n c .
P a c i f i c Southwest A i r l i n e s
Piedmont A i r l i n e s , I n c .
Qantas Airways L t d .
Reeve A l e u t i a n A i r w a y s , I n c .
Sabena B e l g i a n World A i r L i n e s
Scandinavian A i r l i n e System
Southern Airways, I n c .
Texas I n t e r n a t i o n a l A i r l i n e s » I n o .
Trans World A i r l i n e s , I n c .
United Air Lines, Ino.
Wein C o n s o l i d a t e d A i r l i n e s
Western A i r L i n e s , I n c .
34
EXPLANATIONS
Data
Source
-
A i r Transport A s s o c i a t i o n Fuel Committee
q u e s t i o n n a i r e completed by t h e D o m e s t i c /
I n t e r n a t i o n a l and F o r e i g n / I n t e r n a t i o n a l
A i r l i n e s c o l l e c t e d and t a b u l a t e d f o r t h e
Committee by A e r o n a u t i c a l Radio,
Inc.
Methodology
-
Long r a n g e s c h e d u l e p l a n s d e t e r m i n e t h e
f l e e t s i z e s a n d t h e i r make u p .
The p l a n ned u t i l i z a t i o n o f a i r c r a f t t o meet t h e s e
schedules, together w i t h i n d i v i d u a l
airc r a f t type consumption r a t e s , produce the
projections which are consolidated i n the
a t t a c h e d t a b l e s and c h a r t s .
DEFINITIONS
Domestic
Turbine Fuel - Turbine Fuel produced i n r e f i n e r i e s
located w i t h i n the borders of the f i f t y
states.
Bonded T u r b i n e
Bondable
Fuel Fuel produced outside the f i f t y
states
and h e l d " i n b o n d " .
I t i s used o n l y on i n t e r n a t i o n a l f l i g h t s i n accordance w i t h U.S. Treasu r y Department R e g u l a t i o n s and i s n o t s u b j e c t
t o r e s t r i c t i o n s o f the U.S. O i l Import Program.
T u r b i n e F u e l - The t o t a l amount o f f u e l u s e d on
i n t e r n a t i o n a l f l i g h t s , a l l o f w h i c h i s now
p u r c h a s e d o r when a v a i l a b l e c o u l d be p u r c h a s e d
from " i n bond"
supplies.
PAD D i s t r i c t s
- Petroleum A d m i n i s t r a t i o n f o r Defense d i s t r i c t s ,
as d e f i n e d b y t h e U n i t e d S t a t e s D e p a r t m e n t o f
I n t e r i o r , Bureau of Mines.
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
{Data is axprassad in thousand 9*Hons)
1971 ACTUAL CONSUMPTION
1972 FORECAST
1973 FORECAST
PAD DISTRICT
DOMESTIC
BONDABLE
BONDED
DOMESTIC
BONDABLE
BONDED
OOMeSTIC
BONDABLE
TOTAL PAO
DISTRICT I
2,676,854
899,341
864,329
2,862,143
1,000,444
960,622
2 * 986,887
1,017,544
TOTAL PAD
DISTRICT
II
1,887,138
126,090
111,454
2,064,956
143,914
115,979
2,174,144
121,406
TOTAL PAD
DISTRICT
II
716,093
57,702
49,443
744,347
62,848
54,422
770,950
64,830
TOTAL PAD
DISTRICT
IV
299,095
10,773
321,690
11,037
2,600
340,583
11,940
2,071,136
654,168
621,087
2,256,448
696,658
671,944
2,377,679
633,917
U.S.
7,650,316
1,748,074
1,646,313
8,249,584
1,914,901
1,805,567
8,650,243
1,849,637
TOTAL PAD
DISTRICT V
TOTAL
FOR
Tl IE
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Data is i x p r n s t d in thousand gallons)
1974 FORECAST
1975 FORECAST
1976 FORECAST
1981 FORECAST
PAD DISTRICT
DOMESTIC
BONDABLE
TOTAL PAD
DISTRICT I
3#130* 976
1*070*999
3*300*749
1*139*486
3*455*737
1*212*346
4*201*440
1*606*996
TOTAL PAD
DISTRICT
II
2*261,997
126*912
2*405*100
142*010
2*533*343
133*250
3*266*010
179*963
TOTAL PAD
DISTRICT
II
604*924
71*263
870* 395
72*414
941*970
78*583
1*196*542
100*624
TOTAL PAD
DISTRICT
IV
355*448
12*070
372*233
12*532
384*519
13*051
462*339
14*162
2*486*130
676*263
2*624*373
729*331
2*769*914
819*460
3*374*726
715*808
U.S.
9*041*475
1*957,527
9*572*850
2*095*773
10*085*483
2*256*710
12*501*057
2*617*553
TOTAL PAD
DISTRICT V
TOTAL
FOR
Tl IE
DOMESTIC
BONDABLE
DOMESTIC
BONDABLE
DOMESTIC
BONDABLE
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Data is axprassad in thousand gallons)
1971 ACTUAL CONSUMPTION
1972 FORECAST
1973 FORECAST
PAD DISTRICT
DOMESTIC
TOTAL
TOTAL
BONDED
DOMESTIC
BONDABLE
BONDED
DOMESTIC
BONDABLE
U.S.
7*6 50*316
1*748*074
1*6 4 6 * 3 1 3
8 * 2 4 9 * 584
1*914*901
1*805* 567
8*650*243
1*849*637
FOR E 11»N FLAG
9*851
442*570
424* 749
12*069
515*032
495*032
15*543
526*385
FOR
Tl IE
BONDABLE
00
•<r
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Data is expressed in thousand gallons)
1974 FORECAST
1975 FORECAST
1976 FORECAST
1981 FORECAST
PAD D I S T R I C T
DOMESTIC
TOTAL
TOTAL
FOR
TH :
BONDABLE
U.S.
9,041,475
1,957,527
F O R E I G I 1 FLAG
20*966
561,307
« DOMESTIC
9,572*850
BONDABLE
DOMESTIC
2*095,773
10,085,483
638,338
BONDABLE
2 , 2 56* 710
738,112
DOMESTIC
12,501*057
BONDABLE
2,617,553
607,191
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Date is expressed in thousand gallons)
PAD DISTRICT I
1971 CONSUMPTION
S
T
AIRPORT
ALLENTOWN
AUGUSTA
AL 3ANY
ATLANTA
WILKES-BARRE
BALTIMORE
HARTFORD
BINGHAMPTON
BOSTON
BUFFALO
COLUMBIA
CHARLESTON
CHARLOTTE
CHARLESTON
COLUMBUS
OAYTONA BCH
OC NATL ARPT
CORNING
ERIE
NEW BERN
NEWARK
FAYETTE V I L L E
FT LAUOERDLE
GREENSBORO
SPTNBG/GRNVL
OULLES I N T E R
WILMINGTON
WINSTON-SALM
1972 FORECAST
1973 FORECAST
CODE
DOMESTIC
E
PA
GA
NY
GA
PA
MO
CT
NY
MA
NY
SC
SC
NC
WV
GA
FL
OC
NY
PA
NC
NJ
NC
FL
NC
s.c
VA
NC
NC
ABE
AGS
ALB
ATL
A VP
BAL
BOL
BGM
BOS
BUF
CAE
CHS
CLT
CRW
CSG
OAB
OCA
ELM
ERI
EWN
EWR
FAY
FLL
GSO
GSP
I AO
ILM
INT
1*149
2,942
10,429
333» 450
652
51,853
27*601
688
197,888
28,449
6,155
6,789
3b, 781
3,573
3,631
1,374
139,282
I ,206
504
598
147,543
1,838
39,691
8,546
1,137
92,061
4,360
4,876
BONDABLE
BONDED
DOMESTIC
BONDABLE
BONDED
DOMESTIC
4,208
2 , 9t>5
7,216
7,216
16,443
579
16,443
579
72,152
3,720
71,752
3,320
1,000
20,600
18,367
2,692
2,692
34,122
29,059
1 1,000
340,900
736
77,278
29,708
20
208,351
.37,066
6,246
7,416
39,452
3, 869
3,895
1,444
145,877
244
1,341
600
160,257
2,000
40,915
9,258
1,042
105,633
4,400
5,000
!
12,000
!2,M2
17,993
670
17,993
670
87,266
4,282
82,266
3,403
2,800
22,725
19,385
2,255
2,255
47,292
46,792
.
1,293
3 , 160
11,400
356,502
736
80,515
30,870
20
218,988
37,328
6,617
8,177
43,119
4 , 119
4,230
1,546
154,174
2,440
1,542
1,625
166,345
2,250
42,122
9,702
1*048
111,630
4,500
5,125
BONDABLE
14*000
18,607
670
76,829
4*426
4,244
23,915
2*300
48,980
AIR TRANSPORT ASSOCIATION OF AMERICA
T A B L E
|,
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
PAD DISTRICT I
(Data is expressed in thousand gallons)
1974 FORECAST
S
T
AIRPORT
1975 FORECAST
CODE
DOMESTIC
E
BONDABLE
DOMESTIC
1976 FORECAST
BONDABLE
DOMESTIC
ALLENTOWN
PA
ABE
4 , 7 8 0
4 , 8 3 0
AUGUSTA
GA
AGS
3,419
3 , 7 6 9
4 , 0 4 6
ALBANY
NY
AL-B
11,920
1 1 , 9 2 0
1 2 , 4 2 0
BONDABLE
4 , 9 3 0
ATLANTA
GA
ATI
1 4 , 5 0 0
4 0 2 , 9 2 4
15,000
4 2 6 , 3 5 3
WILKES-BARRE
PA
AVP
736
BALTIMORE
HARTFQRO
TTO B A L
8 4 , 2 6 0
1 9 , 2 2 0
9 2 , 1 2 0
1 9 , 8 3 8
9 5 , 4 9 1
2 0 , 5 5 5
CT
B3L
3 1 , 7 6 0
770
3 5 , 2 7 1
970
3 8 , 8 8 0
1 , 0 2 0
3 LUGHA'IPTQN
NY
BGN
20
375,763
1 6 , 0 0 0
786
786
20
20
BOSTON
MA
7 8 , 6 3 9
2 4 3 , 1 9 2
9 5 , 9 8 7
2 5 4 , 5 1 4
1 0 2 , 6 8 3
NY
SC
ADS
BUF
CAE
2 3 0 , 5 5 9
BUFFALO
COLUMBIA
38,944
4 , 4 7 1
3 9 , 5 4 4
4 , 6 7 1
4 1 , 0 9 6
4 , 8 2 0
6 , 9 4 9
7 , 4 9 9
7 , 8 8 0
CHARLESTON
sc
CHS
8,887
9 , 6 4 3
1 0 , 3 1 9
CHARLOTTE
NC
CLT
4 4 , 9 8 9
4 7 , 9 1 4
5 1 , 7 0 8
CHARLESTON
WV
CRW
4 , 1 2 9
4,
139
4,
144
C2LUMBUS
GA
CSG
4 , 6 2 1
5,
102
5,
574
1 , 6 5 0
OAYTONA
BCH
DC
ARPT
1,753
FL
DAB
1,548
oc
OCA
159,336
C3RNING
NY
ELFL
2,440
2 , 4 4 0
2 , 4 4 0
ERIE
NEW
BERN
PA
NC
ERI
EWN
1,542
1 , 6 1 9
1 , 6 1 9
1,625
1,625
NATL
NEWARK
NJ
EWR
173,411
FAYETTEVILLE
FT
LAU3ERDLE
NC
FAY
2 , 5 0 0
FL
FLL
4 4 , 1 1 0
GREENSBORO
NC
GSO
10,088
SPTN3G/GRNVL
SC
GSP
1,164
DULLES
VA
IAD
113,075
INTER
WILMINGTON
WINSTON-SALM
NC
NC
ILM
INT
4 , 7 5 0
5r25Q
4 , 6 4 4
2 7 , 2 5 0
1 6 5 , 4 3 0
1 8 5 , 6 2 8
4 , 6 4 4
4 6 , 1 2 1
2 , 4 0 0
2 9 , 2 9 0
4 8 , 7 1 7
2 , 5 0 0
1 0 , 9 1 5
1 , 2 6 6
1 , 2 6 5
1 1 9 , 8 5 4
1 9 4 , 0 7 4
2 , 5 0 0
1 0 , 6 1 0
5 1 , 1 6 3
4 , 6 4 4
1,625
2 8 , 4 6 0
2 , 5 0 0
2 , 4 0 0
1 7 2 , 3 5 7
5 3 , 7 9 3
1 2 5 , 3 5 3
4 , 7 5 0
4 , 7 5 0
?f 259
5 , 2 5 0
6 2 , 1 6 9
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Date is expressed in thousand gallons)
PAD DISTRICT I
s
1971 CONSUMPTION
T
AIRPORT
KINSTQN
JACKSONVILLE
J F K 1 N T L APT
NY L A G U A R D I A
LYNCH3URG
MACON
ORLANDQ/MCO
M I DDL ETON
MIAMI
MELBOURNE
NORFOLK
ORLANDO
PALM B E A C H
PANAMA C I T Y
PHIL/CAMDEN
PITTSBURGH
PENSACOLA
PROVIDENCE
PORTLAND
DURHAM
RICHMOND
ROANOKE
ROCHESTER
SAVANNAH
SARASOTA
SYRACUSE
TALLAHASSEE
TAMPA
1972 FORECAST
1973 FORECAST
CODE
DOMESTIC
E
NC
FL
NY
NY
VA
GA
FL
PA
FL
FL
VA
FL
FL
FL
PA
PA
FL
RI
ME
NC
VA
VA
NY
GA
FL
NY
FL
FL
ISO
JAX
JFK
L GA
LYH
MCN
MCO
MDT
MIA
MLB
ORF
ORL
PB I
PFN
PHL
PIT
PNS
PVD
PWM
RDU
RIC
ROA
ROC
SAV
SRQ
SYR
TLH
TP A
976
31,938
395,575
262,325
661
1,076
23,794
1,233
321,753
2,330
20,289
4 , 843
8,995
668
139,473
104,155
7,674
1,735
523
13,729
4,324
10,028
13,948
3,235
2,705
18,207
804
89,269
BONDABLE
BONDED
568,870
16,503
551,018
9,203
109,515
109,515
32,920
9,318
32,920
8,918
3,691
3,327
DOMESTIC
1,000
39,094
462,787
209,529
675
1*097
21,638
1,545
351,379
2,200
26,208
6,693
9 , 100
737
152,616
124,739
8, 500
4,204
540
14,142
5,500
10,040
17,234
3,296
2,700
19,541
908
100,389
BONDABLE
BONDED
626,677
15,800
606,677
11,000
115,333
115,333
31,941
8, 800
30,241
8,000
4,610
4,610
DOMESTIC
1, 125
40,727
481,124
216,678
700
1, 153
22,509
1,560
362,179
2,500
27,318
6,900
9,465
618
160,462
129,597
9,700
4,580
555
14,413
5,800
10,300
17,862
3,478
'3/200
21,050
919
105,229
BONDABLE
644,326
16,500
116,726
J 2,25U
8,936
4,635
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
PAD DISTRICT I
AIRPORT
(Data is axprassad in thousand fallons)
\
1974 FORECAST
CODE
E
KINSTON
JACKSONVILLE
JFK I N T L APT
NY L A G U A R D I A
LTNLHdUKb
MACON
3RLAN03/MC0
M I DOLE TON
MIAMI
NC
FL
NY
NY
VA
GA
FL
PA
FL
MELBOURNE
FL
NORFOLK
ORLANDO
PALM BEACH
PANAMA C I T Y
PHIL/CAMDEN
PITTSBURGH
PENSACOLA
PROVIDENCE
PORTLAND
DURHAM
RICHMOND
ROANOKE
ROCHESTER
SAVANNAH
VA
FL
FL
FL
PA
PA
FL
Rl
ME
NC
VA
VA
NY
SARASOTA
GA
PL
SYRACUSE
TALLAHASSEE
TAMPA
NY
FL
FL
ISO
J AX
JFK
LGA
LYH
MCN
MCO
MOT
MIA
ML 3
ORF
ORL
PBI
PFN
PHL
PIT
PNS
PVO
PWM
ROU
RIC
ROA
ROC
SAV
SftQ
SYR
TLH
TP A
DOMESTIC
1,250
42*469
508,152
227*206
750
1*239
24*046
1*571
377,850
2*550
2 8* 378
7*300
9*911
903
169*185
135*371
10*700
4*700
575
14*767
5*950
10*300
18*411
3*749
3*400
21*543
1*031
110*601
1975 FORECAST
BONDABLE
680*267
17*000
DOMESTIC
1*250
44*575
528*010
237*528
BONDABLE
719*162
17*500
750
121*257
35*188
9* 150
5*080
1*353
25*728
1*585
394*002
2*750
28*968
7*500
10*465
1*006
181*196
144*010
11*200
4*830
590
15*131
6*150
10*300
19*297
4*137
21*893
1*044
119*044
126*652
35*929
9*150
1976 FORECAST
DOMESTIC
1 250
46 543
548 330
249 089
750
1 455
27 157
1 600
411 467
2 800
30 478
7 900
11 0 6 1
1 106
188 727
151 622
12 0 0 0
4 870
610
BONDABLE
764*494
18*200
132*139
37*772
10*450
15 537
6
10
19
4
4
23
1
5*330
125
250
300
997
463
000
060
058
663
5*610
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Date is expressed in thousand |alions)
PAD DISTRICT I
1971 CONSUMPTION
AIRPORT
JTICA
EGLIN
AFB
OTHER
IN,PAD
TOTAL
IN
\
DOMESTIC
NY
FL
PAD
1972 FORECAST
1973 FORECAST
CODE
JCA
VPS
BONDABLE
BONDED
DOMESTIC
BONDABLE
BONDED
DOMESTIC
1,571
4,269
2,080
4,730
2,392
5,200
I
4,173
6,181
6,271
I
2,676,854
899,341
864,329
2,862,143
1,000,444
960,622
2,986,887
BONDABLE
1,017,544
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
PAO DISTRICT I
(Data is expressed in thousand gallons)
s
1974 FORECAST
T
AIRPORT
DOMESTIC
JTICA
EGLIN
AFB
OTHER
IN
TOTAL
IN
UCA
VPS
NY
FL
PAD
PAO
1975 FORECAST
1976 FORECAST
CODE
BONDABLE
6 , A3 i
I
3,130,976
BONDABLE
3,300,749
BONDABLE
6,525
6,430
1,070,999
DOMESTIC
2,392
6 , 897
2,392
6,270
2,392
5,700
I
DOMESTIC
1,139,466
3,455,737
1,212,346
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
<D)
PAD DISTRICT II
s
1971 CONSUMPTION
T
AIRPORT
WATERLOO A / P
BISMARCK
NASHVILLE
AKRON/CANTON
CHATTANOOGA
CEDAR R A P I D S
C L E V E L AND
COLUMBUS
CINCINNATI
DAYTON
DULUTH
DES M O I N E S
D E T R O I T , MET
EVANSVILLE
FARGO
SIOUX FALLS
FORT WAYNE
GRAND FORKS
G R E E N BAY
GRAND R A P I D S
WICHITA
INDIANAPOLIS
JOPLIN
LEXINGTON
LINCOLN
SAGINAW
M I D CONT I N T
MIDWAY A I R P T
MEMPHIS
1972 FORECAST
1973 FORECAST
CODE
DOMESTIC
E
IA
ND
TN
OH
TN
IA
OH
OH
KY
OH
MN
IA
MI
IN
ND
SD
IN
ND
WI
MI
KS
IN
MO
KY
NB
Ml
MO
IL
TN
ALO
BIS
BNA
CAK
CHA
CID
CLE
CMH
CVG
DAY
DLH
DSM
DTW
EVV
FAR
FSD
FWA
GFK
GRB
GRR
ICT
IND
JLN
LEX
LNK
MBS
MC I
MOW
MEM
879
1 ,435
21,878
1,597
2,098
721
109,362
29,122
59,298
23,775
973
8,093
145,794
2,169
5,125
2,525
1,420
1 ,627
b,785
1,083
15,335
37,559
1,129
1,789
1,518
1,271
8,985
24,474
62,123
BONDABLE
BONDED
3,185
8,485
8,478
DOMESTIC
879
1,435
23,402
2,155
2,002
1,341
134,826
29,462
63,639
25,832
900
8, 753
171,466
2,195
7 , 162
2,509
1, 105
1,618
7,048
1,067
16,646
41,638
1, 129
2,180
1,670
1,294
14,000
23,456
65,295
BONDABLE
BONDED
3,535
13,294
13,294
DOMESTIC
879
1,507
23,676
2,225
2,137
1,371
141,523
31,154
67,154
27,218
945
8,543
184,368
2,308
7,877
2,580
1,134
1,622
7,048
1,117
18,001
45,480
1, 129
2,335
1,746
1,334
124,521
24,386
69,949
BONDABLE
700
1,580
14,750
— — .
2,000
900
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(D
PAD DISTRICT I I
s
T
AIRPORT
WATERLOO A / P
BISMARCK
NASHVILLE
AKRON/CANTON
CHATTANOOGA
CEDAR R A P I O S
CLEVELAND
COLUMBUS
CINCINNATI
OAYTON
OULUTH
DES M O I N E S
DETROIT*
MET
EVANSVILL E
FARGO
SIOUX FALLS
F O R T WAYNE
GRAND F O R K S
G R E E N BAY
GRAND R A P I D S
WICHITA
INDIANAPOLIS
JOPLIN
LEXINGTON
LINCOLN
SAGINAW
M I D CONT I N T
MIDWAY A I R P T
MFMPHFS
* t a " •«l»'assod
1974 FORECAST
CODE
E
LA
ND
TN
OH
TN
IA
OH
OH
KY
OH
MN
IA
MI
IN
ND
SD
IN
NO
WI
MI
KS
IN
MO
ALD
BIS
BNA
CAK
CHA
CIO
CLE
CMH
CVG
DAY
DLH
DSM
DTW
EVV
FAR
FSO
FWA
GFK
G^B
GRR
ICT
INO
JLN
KY L E X
N? LNK
MI MBS
MO M C I
I L MOW
JUL HFH
DOMESTIC
879
1*597
2 5,918
2*325
2*311
1*371
14 7 * 9 7 6
32*597
70,614
2 8,433
990
8,523
194,418
2*498
8,664
2,580
1,181
1,642
7,100
1,252
18,953
47,185
1*129
2*474
1,791
1*334
129*057
25*421
74*732
thousand gallons)
1975 FORECAST
BONDABLE
700
1,658
17*583
500
2*150
900
DOMESTIC
879
1*709
31,362
2*625
2*555
1*371
161*773
34*798
75,213
30*385
1*000
8,503
205*027
2*741
9*529
2*611
1*321
1*648
7*200
1*117
20* 113
49* 578
1*129
2*702
1*846
1*334
136*926
27*682
80*047
1976 FORECAST
BONDABLE
700
1*738
24*166
700
2*300
900
DOMESTIC
879
1*845
32*134
2*625
2*740
i * i t i
170*287
36* 836
81*484
31* 824
1*200
8*973
215*960
2*945
10*480
2*644
1*374
1*654
7*300
1*217
21*312
52*164
1*129
2*860
1*914
1*534
143*181
29*066
86*648
BONDABLE
700
1*823
11*200
700
2*400
900
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Date is ixprimd in thousand gallons)
PAD DISTRICT II
\
AIRPORT
1971 CONSUMPTION
CODE
DOMESTIC
E
KANSAS C I T Y
MO MKC
WI MKE
MILWAUKEE
IA ML I
DAVENPORT
NO
MOT
1 1 NOT
MADISDN
WI MSN
MN MSP
ST PAUL
OK OKC
OKLAHOMA CTY
NB OMA
OMAHA
I L ORD
OHARE F I E L D
PEORIA A / P
IL P I A
KY PUK
PADUCAH
RAPID C I T Y
SO RAP
I N SBN
SOUTH 3ENO
KY SOF
LOUISVILLE
SAIINA
KS SLN
ST L O U I S
MO STL
SIOUX C I T Y
IA SUX
OH TOL
TOLEDO
TN T R I
TRI-CITIES
OK TUL
TULSA
TRANERSE C I T Y MI TVC
TN TYS
KNOXVILLE
YNGS/WRN/SHN
OH YNG
A
89,562
4 5 , 3 89
1,975
572
3,570
143,160
16,123
19.819
729,102
2,558
811
2,134
1 , 142
27,883
582
165,409
3,500
2,449
1.543
31,899
761
11,674
556
OTHER
IN
PAO
I
5,023
TOTAL
IN
PAO
I
1,887,138
BONDABLE
1972 FORECAST
BONDED
1,900
8,863
8,759
100,957
94,217
2,700
DOMESTIC
92,784
48,845
1,975
540
4,230
156,317
17,881
19,279
800,908
2,558
811
2,215
1,719
30,792
585
171,081
3 , 512
2,623
1 » 700
28,123
798
13,770
575
BONDABLE
1973 FORECAST
BONDED
1 1 1 , 4 5 4 Jj
2,064,956
BONDABLE
1,900
12,284
12,284
107,201
87,401
5,700
3,000
5,231
126,090
DOMESTIC
51,053
1,975
541
4,507
167,697
19,084
19,959
823,601
2,558
811
2,306
1,769
34,672
614
180,945
3,512
2,710
l.QOO
28,480
798
13,504
575
2,306
95,370
3,200
600
5,306
143,914
115,979
2,174,144
121,406
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
PAD DISTRICT II
AIRPORT
(Data It ixprtind in thousand gallons)
s
T
1974 FORECAST
CODE
E
MILWAUKEE
DAVENPORT
MINOT
MADISON
WI
IA
NO
WI
5T PAUL
m
OKLAHOMA CTY
OMAHA
OHARE F I E L D
PEORIA A / P
PADUCAH
RAPID CITY
SOUTH BEND
LOUISVILLE
SALINA
ST L O U I S
SIOUX C I T Y
TOLEDO
TRI-CITIES
TULSA
TRANERSE C I T Y
KNOXVILLE
YNGS/WRN/SHN
OK
NB
IL
IL
KY
SO
IN
KY
KS
MO
IA
OH
TN
OK
MI
TN
OH
MKE
ML I
MOT
MSN
HSP
OKC
OMA
ORD
PIA
PUK
RAP
SBN
SDF
SLN
STL
SUX
TOL
TRI
TUL
TVC
TYS
YNG
DOMESTIC
54*798
1*975
543
4*952
177*731
19*905
20*279
844*148
2*558
811
2*358
1*769
36*595
A51
189*385
3*512
2*860
2*100
29*316
800
13*923
575
OTHER
IN
PAO
I
5*508
TOTAL
IN
PAD
I
2*261*997
1975 FORECAST
BONDABLE
2*284
97*137
3*400
600
DOMESTIC
58*593
1*975
552
5*360
192*333
21*057
24*578
888*682
2*558
811
2*432
1*969
39,292
697
199*034
3*512
3,010
2*150
29*922
800
14*500
765
1976 FORECAST
BONDABLE
2,309
104*997
3*600
600
2*405,100
62*768
1*975
565
5*836
206*758
21*856
25*071
932,766
2,558
811
2*550
1,969
42*171
750
205,142
3*512
3,310
2*205
32,228
800
15,488
765
BONDABLE
2,309
106*918
3*900
1*800
600
5,909
5*794
126*912
DOMESTIC
142,010
2,533,343
133,250
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Data is axprassad in thousand gallons)
PAD DISTRICT III
1971 CONSUMPTION
S
T
A
AIRPORT
1972 FORECAST
1973 FORECAST
CODE
DOMESTIC
E
BONDABLE
BONDED
DOMESTIC
BONDABLE
BONDED
DOMESTIC
AL3UQUERQUE
NM
ABO
3 2 , 7 7 9
3 4 , 2 0 4
AMARILLO
TX
AMA
5 , 1 6 1
4 , 8 3 5
AUSTIN
TX
AUS
2 , 2 6 6
1 , 7 6 5
1 , 9 0 8
BIRMINGHAM
AL
BHM
1 5 , 3 1 8
1 5 , 7 3 2
1 6 , 5 3 2
BEAUMONT
TX
BPT
705
900
900
BATON
ROUGE
LA
BTR
1 , 6 1 0
1 , 6 4 1
1 , 7 3 3
CORPS
CHRSTI
TX
CRP
1 , 6 8 8
TX
DAL
3 0 3 , 8 7 6
DALLAS
LV
F1
3 6 , 2 2 4
4 , 8 4 8
660
1 , 5 4 0
1 9 , 6 8 1
1 8 , 7 7 6
3 1 8 , 8 7 7
1 9 , 5 1 8
1 8 , 6 9 2
3 2 5 , 8 7 4
2 3 . 6 5 5
839
EL
PASO
ALEXANDRIA
TX
ELP
2 6 , 2 0 2
2 3 , 7 1 7
LA
ESF
309
819
FARMINGTON
NM
FMN
1 , 0 3 8
1 , 0 4 0
1 , 0 9 2
FORT
AR
FSM
2 , 0 0 5
1 , 9 6 0
2 , 0 3 6
MS
SMITH
I
GSW
2 , 0 AO
2 , 0 0 0
2 , 0 0 0
HOB
550
550
600
HARLINGEN
TX
HRL
600
600
650
HUNTS V IL L E
AL
HSV
5 , 3 2 9
6 , 0 6 0
6 , 8 0 0
FT
WORTH
LEA
CTY
A/P
TX
HOUSTON
I AH
I ,
, 0 9 6
1 4 2 , 9 9 1
1 2 , 2 1 0
1 2 , 2 1 0
206
1 5 0 , 9 7 7
1 7 , 4 4 5
1 7 , 4 4 5
1 5 5 , 9 5 3
JACKSON
MS
JAN
8 , 0 1 0
8 , 2 2 7
8 , 9 1 6
LUBBOCK
TX
LBB
2 , 6 8 4
2,
2 , 9 4 7
LA
LCH
570
580
580
AR
LIT
5 , 6 5 0
5 , 5 0 3
6 , 1 9 8
LAKE
CHARLES
LITTLE
ROCK
1 9 , 7 5 8
1 , 3 2 7
GPT
TX
NM
GULFPORT
BONDABLE
854
1 8 , 3 9 9
MIDLAND
TX
MAF
8 , 2 8 9
7 , 3 6 5
7 , 8 3 1
EDINBURG
TX
MFE
2 , 0 1 7
2 , 3 5 0
2 , 7 0 0
MONTGOMERY
AL
MGM
4 , 1 5 6
4 , 2 7 4
4 , 9 6 3
MONROE
LA
ML U
823
880
MOBILE
AL
MOB
1 , 3 8 8
NEW
ORLEANS
LA
MS Y
9 0 , 3 8 7
16,537
1 6 , 5 3 7
9 6 , 5 0 8
1 6 , 6 8 5
1 6 , 6 8 5
1 0 0 , 3 6 2
1 7 , 4 1 0
SAN
ANTONIO
TX
SAT
3 3 , 5 6 4
9 , 2 7 4
1 , 9 2 0
3 3 , 8 1 3
9 , 2 0 0
1 , 6 0 0
3 8 , 0 6 7
9 , 2 6 3
1,
954
1 , 4 7 5
420
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
PAD DISTRICT I I I
AIRPORT
ALSUSUPROU?
A* A 3 I L L O
AUSTIN
BIRMINGHAM
BEAUMONT
yA I UN KUUUk
C0*PS CHRSTI
DALLAS L V FD
EL PASO
ALEXANDRIA
FARMINSTON
FORT S M I T H
GULFPORT
FT W0RT.H
LEA CTY A / P
HARLIN6EN
HUNTSVILL E
HOUSTON
JACKSON
LUBBOCK
LAKE CHARLES
L I T T L E ROCK
MIDLAND
EDINBURG
MONTGOMERY
MONROE
MOBILE
MEW ORLEANS
SAN A N T O N I O
IData « sxprcsaad in thousand aallons)
\
\
1974 FORECAST
ASQ
A1A
AUS
BHM
BPT
BIK
CRP
DAL
ELP
ESF
FMN
FSM
GPT
GSW
HOB
TX
HRL
AL HSV
TX I AH
MS JAN
TX LBS
LA LCH
AR L I T
TX MAF
TX MFE
AL MGM
LA MLU
AL MOB
LA MS Y
T * SAT
MM
TX
TX
AL
TX
LA
TX
TX
TX
LA
MM
AR
MS
TX
NM
1975 FORECAST
1976 FORECAST
CODE
DOMESTIC
ft,763
4 , 884
2,287
18,041
800
1,868
710
334,433
24,772
920
1,158
2,157
1,460
2,000
600
650
7,425
165,887
9,672
3,321
500
6,774
8,724
2,700
5,421
1,042
1,536
106,710
36,609
BONDABLE
3
19,862
1,400
21,923
18,878
9,220
DOMESTIC
40,668
5 , 185
2,299
19,023
850
2,062
750
363,636
28,587
1,023
1,239
2,307
1,606
2,000
625
730
9,448
179,401
10,671
3,425
500
7,184
8,961
3,000
5,943
1,146
1,700
114,250
37*770
BONDABLE
20,662
1,400
20,370
20,356
DOMESTIC
42,540
6 , 104
2, 501
20,364
900
2,225
750
399,807
31,729
1,074
1,340
2,490
1,767
2,000
650
730
9,993
189,254
11,526
4,572
560
6,325
r
,926
3*500
6,541
1*254
1,773
120*745
41.442
BONDABLE
21,324
1,400
24,214
21*387
10f25ft
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Date is axpressad in thousand gallons)
PAD DISTRICT III
1971 CONSUMPTION
S
T
A
T
E
AIRPORT
SHREVPPORT
W I C H I T A FLLS
LA
TX
OTHER
IN
PAO
TOTAL
IN
PAO
1972 FORECAST
1973 FORECAST
CODE
DOMESTIC
SHV
SPS
BONDABLE
BONDED
DOMESTIC
BONDABLE
BONDED
DOMESTIC
ID,093
soa
10,044
457
10,173
459
III
1,689
1,649
1,694
III
716,093
57,702
49,443
744,347
62,846
54,422
770,950
BONDABLE
64,630
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
PAD DISTRICT III
(Data is axprassad in thousand gallons)
S
AIRPORT
T
A CODE
T
E
1974 FORECAST
DOMESTIC
10,909
414
5HREVEP0RT
WICHITA FLLS
LA
TX
3THER
III
1,777
III
804,924
TOTAL
IN
IN
PAO
PAO
SHV
SPS
1975 FORECAST
BONDABLE
DOMESTIC
1976 FORECAST
BONDABLE
12,020
414
870,395
BONDABLE
12,931
534
1,970
71,283
DOMESTIC
2,103
72,414
941,970
78,583
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Date is expressed in thousand gallons)
PAD DISTRICT IV
1971 CONSUMPTION
S
T
A
CODE
T
E
AIRPORT
BILLINGS
30ISE
COLORADO SPG
CASPER
DENVER
GRAND JCT
GREAT F A L L S
HELENA
IDAHO F A L L S
SALT LAKE CY
NT
ID
CO
WY
CO
CO
fIT
IT
ID
UT
81L
BO I
COS
CPR
DEN
GJT
GTF
HLN
IDA
SLC
DOMESTIC
12,957
5,042
3,456
2,741
22b,505
579
3,930
538
500
43,837
OTHER
IN
PAD
IV
2,010
TOTAL
IN
PAD
IV
299,095
BONDABLE
7,829
1,619
1,325
1972 FORECAST
BONDED
DOMESTIC
14,279
5,226
3,407
2,785
245,566
603
4,050
590
522
42,419
BONDABLE
1973 FORECAST
BONDED
321,690
BONDABLE
1 5 , 5 6 8
5 , 5 5 5
2 , 8 9 2
3 , 0 1 1
8 , 0 3 5
2 , 6 0 0
2 6 0 , 5 4 6
8 , 6 6 9
634
1 , 6 5 1
4 , 4 1 5
1 , 3 5 1
4 4 , 3 4 3
1 , 7 9 9
6 4 9
570
2,243
10,773
DOMESTIC
1 , 4 7 2
2 , 4 0 0
1 1 , 0 3 7
2 , 6 0 0
3 4 0 , 5 8 3
1 1 , 9 4 0
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
{
PAD DISTRICT I V
AIRPORT
3ILLINGS
30ISE
C 3 L 0 R A D 0 SPG
CASPER
)ENVER
GRAND J C T
GREAT
FAILS
HELENA
I 0 A H 0 FALLS
S A L T L A K E CY
\
-
1974 FORECAST
T CODE
E
t.Honi>
1975 FORECAST
1976 FORECAST
a
*1T
10
CO
WY
CO
CO
MT
1T
10
UT
31L
BO I
COS
CPR
DEN
GJT
GTF
HLN
IDA
SLC
DOMESTIC
16,956
5*913
4,072
3,049
271,265
671
4,492
712
585
45,167
OTHER
IN
PAD
IV
2,533
TOTAL
IN
PAD
I\
355,445
°mtm "
BONDABLE
5,799
1,799
1,472
DOMESTIC
18,578
6,482
4,091
3,183
281,922
716
4,706
752
614
48,462
BONDABLE
9,141
1,565
1,526
2,697
12,070
372,233
DOMESTIC
20,355
7,056
4,379
3,325
259,434
770
4,935
559
644
4 9 , 536
BONDABLE
9,536
1,933
1,552
2,590
12,532
354,519
13,051
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Data is i x p r M M d in thousand fallons)
PAD DISTRICT V
AIRPORT
ANCHORAGE
ANNETTE
ISLD
\
1971 CONSUMPTION
\
AK
AK
DOMESTIC
ANC
ANN
2 1 , 6 6 2
BONDABLE
9 4 , 2 3 1
BETHEL
AK
BET
500
CA
BUR
3 , 2 2 9
WA
EPH
821
821
FAIRBANKS
AK
FAI
3 , 8 1 8
9 , 3 0 7
FRESNO
CA
FAT
714
WA
GEG
1 3 , 0 3 4
HONOLULU
HA
HA
HNL
I TO
1 8 6 , 3 9 1
HILO
JUNEAU
AK
JNU
LAS
VEGAS
INTL
ARPT
2 3 , 1 1 8
BONDABLE
1 0 5 , 5 3 7
1973 FORECAST
BONDED
1 0 5 , 5 3 5
977
EPHRATA
LA
9 4 , 2 2 9
DOMESTIC
870
BURBANK
SPOKANE
1972 FORECAST
BONDED
9 , 3 0 7
1 1 , 4 0 0
1 1 , 4 0 0
2 0 0 , 9 1 7
4 , 9 5 6
2 1 2 , 8 1 8
2 1 2 , 8 1 8
2 2 2 , 7 7 9
2 0 , 1 4 5
2 2 , 0 7 2
1 9 , 9 3 0
2 , 9 8 5
3 , 1 0 0
3 * 3 3 8
NV
LAS
8 4 , 2 8 3
188
CA
LAX
7 5 8 , 2 3 8
1 4 6 , 9 5 9
WA
1 3 1 , 2 6 7
9 4 , 8 9 9
191
8 1 4 , 2 2 9
1 5 7 , 4 1 2
1 4 7 , 2 5 6
1 0 0 , 3 0 9
208
1 7 3 , 0 2 5
FLWH
9 , 0 3 0
1 2 , 0 6 9
KOOIAK
AK
NHB
618
OAK
519
8 , 4 9 6
574
CA
9 , 4 8 6
9 * 9 3 5
KAHULUI
HA
OGG
2 , 0 0 0
2 , 3 0 0
2 * 4 0 0
NOME
ONTARIO
AK
OME
600
700
CA
ONT
1 , 9 3 0
1 , 7 8 5
LAKE
15*543
750
2 , 0 0 8
POX
6 5 , 9 0 3
475
7 0 , 5 7 7
484
PHOENIX
AZ
PHX
7 1 , 9 3 2
762
8 4 , 2 0 3
777
KENNEWICK
WA
PSC
1 , 3 9 3
RENO
NV
RNO
7 , 2 2 1
CA
SAN
9 3 , 3 7 5
PORTLAND
SAN
DIEGO
OR
1 0 , 2 5 5
1 0 1 , 2 1 5
7 2 , 7 0 6
52 8
9 4 , 1 8 3
846
1 , 6 7 3
1 , 5 3 3
677
1 9 4 , 7 5 7
8 4 2 , 6 1 6
OAKLAND
MOSES
1 1 * 9 0 0
16*232
1 5 , 0 0 8
2 0 8 , 8 5 5
1 1 3 * 2 4 1
1 , 0 1 6
993
2 1 5 , 6 9 1
2 4 , 4 2 5
1 , 0 6 0
2 , 5 9 4
509
4 , 6 2 4
BONDABLE
575
550
2,
DOMESTIC
1 0 , 4 0 3
1 0 7 , 2 7 7
690
752
SEATTLE/TCNA
WA
SEA
1 9 5 , 5 0 0
7 1 , 9 3 0
6 8 , 2 5 4
2 1 4 , 8 4 7
8 4 , 4 0 3
8 0 , 9 6 0
2 3 0 * 7 4 0
3 3 , 6 5 2
SAN
FRANCSCO
CA
SFO
108,614
1 0 4 , 6 6 2
5 3 2 , 7 1 7
1 1 8 , 4 4 6
1 0 9 , 4 7 5
5 5 5 * 6 9 7
1 0 0 , 5 0 8
SAN
JOSE
CA
SJC
4 8 9 , 8 3 2
8 , 8 0 9
SACRAMENTO
CA
SFLF
4 , 0 3 9
5 , 2 8 7
5 , 3 7 7
TUCSON
AZ
TUS
9 , 3 7 2
1 0 , 4 6 1
1 2 , 1 2 8
1 0 , 3 3 1
1 0 , 8 6 8
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
PAD DISTRICT V
(Data is axprassad in thousand yallons)
1974 FORECAST
S
T
AIRPORT
DOMESTIC
E
BONDABLE
ANCHORAGE
AK
ANC
2 5 , 0 8 0
ANNETTE
AK
ANN
1,110
ISLO
1975 FORECAST
1978 FORECAST
CODE
T
1 2 2 , 8 7 2
DOMESTIC
2 6 , 1 5 3
1,
BONDABLE
1 3 7 , 3 0 7
125
DOMESTIC
BETHEL
AK
BET
600
625
650
CA
BUR
2 , 6 6 4
2 , 7 3 4
2 , 8 0 9
EPHRATA
WA
EPH
AK
F*A I
5 , 3 5 0
5 , 6 5 0
FRESNO
CA
FAT
1,039
1 , 1 3 2
SPOKANE
WA
GEG
1 7 , 5 5 4
2 0 , 0 7 3
H^L
2 3 7 , 9 7 2
HONOLULU
HA
HILO
HA
I TO
JUNEAU
AK
JNU
LAS
LA
VEGAS
INTL
MOSES
ARPT
LAKE
2 0 8 , 3 5 0
2 4 5 , 7 0 6
2 3 , 6 4 3
3 0 , 2 9 6
3 , 4 2 «
3 , 5 8 4
NV
LAS
1 0 4 , 4 3 5
CA
LAX
87
WA
MWH
5 , 4 7 5
1 3 , 1 0 0
6 , 0 7 0
1,
1 3 , 8 0 0
145
2 1 , 4 9 8
2 2 6 , 9 4 8
2 5 9 , 2 9 3
2 6 2 , 1 9 4
3 0 , 5 6 4
3 , 7 5 2
208
1 0 9 , 6 9 5
215
1 1 6 , 9 0 2
1 8 7 , 5 7 3
9 2 4 , 1 5 8
1 9 7 , 4 0 8
9 7 2 , 7 8 0
222
*
2 0 7 , 8 3 9
2 0 , 9 8 8
AK
NHB
638
658
694
OAKLAND
CA
OAK
9 , 9 6 5
1 3 , 9 5 4
1 4 , 8 4 9
KAHULUI
HA
OGG
2 , 5 0 0
2 , 6 3 0
K00IAK
1 6 1 , 6 7 1
1 , 2 9 0
BUR3ANK
W A I'-J B A N K S
BONDABLE
2 7 , 5 3 7
2 , 7 5 0
NOME
AK
OME
800
875
1 , 0 0 0
ONTARIO
CA
ONT
2 , 0 2 8
2 , 0 8 3
2 * 1 4 2
PORTLANO
OR
POX
7 5 , 3 4 4
528
8 2 , 5 7 8
547
8 7 , 1 3 0
567
PHOENIX
A2
PHX
9 7 , 8 1 9
846
1 0 3 , 2 9 3
877
1 0 7 , 3 0 5
9 0 9
PSC
1,813
KCNNCWICK
RENO
SAN
0 1 EGO
SEATTLC/TCMA
WA
1 , 9 5 3
2 , 0 9 3
NV
RNO
1 0 , 5 0 3
CA
SAN
1 1 2 , 3 5 8
752
1 2 2 , 5 9 9
7 7 9
1 3 0 , 3 1 0
807
WA
2 4 4 , 8 3 5
3 4 , 0 5 2
2 6 0 , 5 4 5
3 5 , 6 8 9
2 7 4 , 5 0 5
3 7 , 3 3 1
5 7 4 , 4 2 5
1 0 4 , 0 8 2
6 1 3 , 0 9 5
1 1 1 , 4 6 1
6 5 2 , 5 3 8
1 2 8 , 1 4 0
1 1 , 3 6 9
1 1 , 5 3 6
SAN
FRANCSCO
CA
SEA
SFO
SAN
JOSE
CA
SJC
1 1 , 2 4 7
6 , 3 0 8
6 , 4 1 4
1 3 , 7 9 7
1 4 , 0 7 3
SACRAMENTO
CA
SMF
5 , 4 6 2
TUCSON
A
7
TIIS
1 2 , 8 2 7
1 1 , 2 6 8
1 1 , 3 0 5
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Date is expressed in thousand gallons)
PAD DISTRICT V
1972 FORECAST
1971 CONSUMPTION
T
AIRPORT
A
T
E
DOMESTIC
BONDABLE
BONDED
OTHER
IN
PAD
V
4,795
4,513
4,500
TOTAL
IN
PAD
V
2,071,136
654,168
621,087
1973 FORECAST
CODE
DOMESTIC
5, 112
2,256,448
BONDABLE
BONDED
DOMESTIC
BONDABLE
4,500
4,500
5,543
4,500
696,658
671,944
2,377,679
633,917
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
PAD DISTRICT V
(Data is axpr»*M<l in thovsaiMl flattens)
\
AIRPORT
1974 FORECAST
CODE
DOMESTIC
1975 FORECAST
BONDABLE
DOMESTIC
1976 FORECAST
BONDABLE
DOMESTIC
BONDABLE
OTHER
IN
PAD
V
6,026
4,500
6,467
5,000
6,960
6,000
TOTAL
IN
PAO
V
2,468,130
676,263
2,624,373
729,331
2,769,914
619,460
-
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE I I I
(Data is expressed in thousand fallens)
1971 ACTUAL CONSUMPTION
STATE
DOMESTIC
AK
AL
AR
AZ
CA
CO
CT
DC
DE
FL
GA
HA
IA
ID
IL
IN
KS
KY
LA
flA
MD
nt
MI
MN
MO
MS
MT
3i
26
8
81
1, 370
230
28
139
537
341
208
16
6
756
42
16
90
104
197
81
665
423
157
574
438
796
106
282
35
317
416
736
155
074
817
338
231
043
542
943
883
BONDABLE
108,051
762
256,250
7,829
579
1,000
1972 FORECAST
BONDED
DOMESTIC
108*049
235*929
579
115* 898
7,216
215,691
115* 534
7,216
208*855
100,957
94*217
16,537
72*152
16*443
16,537
71,752
16,443
8*485
8*863
4*600
8,478
8,759
981
149
144
265
9
18
873
183
924
428
236
1*619
1I
34* 447
27*741
7*968
94*961
1,480*685
249* 816
30*637
145*877
40
590*736
352*179
2 2 5 , 519
17*447
6*353
827*605
46*705
17* 544
97*734
110*722
208* 407
77*278
1*005
175*800
157*254
279*825
9*767
19*720
BONDABLE
1973 FORECAST
BONDED
121*437
121*435
777
276*548
8*035
670
2*800
256*731
2*600
670
122*198
12*000
212*818
122*198
12*000
212*818
107*201
87*401
16*685
87*266
17*993
16*685
82*266
17*993
13*294
12*284
7*600
13*294
12*284
3*000
1*651
DOMESTIC
i
36*624
30*051
8*716
106*638
1*539*722
264*324
31*799
154*174
40
613*331
368*551
245*359
17*267
6*784
851*228
50*739
18*944
105*285
114*841
219*046
80*515
1*62$
188*812
168*679
307*434
10*599
21*491
BONDABLE
129*641
846
274,285
8*669
670
4*244
123*861
14*000
194*757
95*370
17*410
76*829
18*607
14*750
2*306
5*200
1*799
en
CO
A I R TRANSPORT ASSOCIATION OF A M E R I C A
1972 U. S. A I R L I N E I N D U S T R Y T U R B I N E FUEL FORECAST
TABLE I I I
(Data m expressed in thousand gallons)
STATE
1974 FORECAST
DOMESTIC
AK
37*972
AL
AR
32*732
9*439
AZ
FL
GA
HA
111*006
1*597*22ft
2 7 6 * 27ft
32*669
159*336
40
642*445
366*641
264*590
IA
10
IL
17*247
7*207
672*610
IN
52*661
19*953
110*657
122*149
CA
CQ
CT
DC
OE
KS
KY
'
LA
MA
Mrt
230*616
64*260
ME
Ml
MM
1*050
199*064
176*762
MO
320*422
11*517
23*076
MS
,.
-ill-,
1975 FORECAST
BONDABLE
DOMESTIC
139*672
39*721
1976 FORECAST
BONDABLE
DOMESTIC
155*407
126*737
14*500
208*350
117*466
1*700*107
287*014
36*230
165*430
40
675*588
417*318
278*902
877
309*648
9*141
970
4*644
181*471
121*806
1*797*279
294*893
39* 809
172*357
40
708*465
441*927
292*932
17*697
8*541
965*073
58*500
22*465
127*689
139*059
909
336*786
9*536
1*020
4*644
95*967
19*836
254* 584
95*491
1*095
102*663
20*555
220*
206*
350*
13*
27*
134*382
15*000
226*948
500
17*227
7*856
919*605
55*657
18*878
78*639
19*220
21*183
118*381
131*233
243*254
92*120
17*583
2*284
5*550
1*070
209*739
193*375
337*958
24*166
2*309
5*900
1*799
12*702
25*004
1*665
97*137
BONDABLE
39*046
11*301
36*455
9*975
646
292*407
6*799
770
4*644
42*160
104*997
700
20*356
982
000
336
755
150
140*249
16*000
262*194
106*916
700
21*367
11*200
2*309
6*300
1*933
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Data is axprassad in thousand gallonsl
1971 ACTUAL CONSUMPTION
1972 FORECAST
1973 FORECAST
STATE
DOMESTIC
N8
NC
NH
NJ
N*
NV
NY
OH
OK
OR
PA
RI
SC
SO
TN
TX
UT
VA
VT
WA
WI
WV
WY
TOTAL 3THER
TOTAL
U.S.
21,751
72,120
175
147,543
34,367
91,504
734,755
166,901
46,024
66,541
247,617
1,735
14,393
4,906
99,326
533,671
40,901
127,763
119
220,183
55,796
3,671
3,088
8,870
7,650,316
BONDABLE
BONDED
20,600
18,367
188
589,093
3,185
563,541
475
42,238
41,838
32,906
41,165
1,325
34,122
29,059
72,751
68,254
1,748,074
1,646,313
DOMESTIC
21,374
76,317
160
160,257
35,794
105,154
761,402
195,513
46,005
71,280
285,764
4,204
15,039
4,940
1 0 6 , 179
552,855
42,489
148,701
125
243,902
60,158
3,995
3 , 312
10,673
8,249,584
BONDABLE
BONDED
22,725
19,385
191
646,759
3,535
621,077
464
40,741
38,241
46,163
1,351
47,292
37,737
46,792
64,403
60,960
1,914,901
1,805,567
DOMESTIC
22,152
62,364
165
166,345
37,916
110,712
792,144
205,445
47,565
73,476
295,769
4,560
16,217
5,104
111,176
569,302
44,419
156,404
126
264,673
62,643
4,250
3,565
11,671
8,650,243
BONDABLE
23,915
206
665,252
1,580
52 8
41,186
2,200
4 7,42 C
1,47?
4 8,98 C
33,652
1,849,637
AIR TRANSPORT ASSOCIATION OF AMERICA
1972 U. S. AIRLINE INDUSTRY TURBINE FUEL FORECAST
TABLE III
(Data is expressed in thousand gallons)
1974 FORECAST
1975 FORECAST
STATE
DOMESTIC
NB
NC
NH
NJ
Nfl
NV
NY
OH
OK
OR
PA
RI
SC
SO
TN
TX
UT
VA
VT
MA
WI
WV
WY
TOTAL OTHER
TOTAL
U.S.
22,545
55,824
190
173,411
40,521
114,93d
632,678
214,606
49,222
76,181
313,764
4,700
17,410
5,156
116,994
569,066
45,249
159,125
130
285,715
66,899
4,265
3,636
12»577
9,041,475
BONDABLE
27,250
208
701,738
1,656
526
44,336
2,200
52,405
1,472
51,163
34,052
1,957,52711
DOMESTIC
26,931
89,635
200
165,626
42* 532
121,064
664,694
233,396
50,960
63,462
334,605
4,630
16,617
5,264
130,624
637,973
48,550
166,710
135
263,136
71,202
4,275
3,609
13,578
9,572,850
1976 FORECAST
BONDABLE
28,460
215
741,333
1,738
547
45,079
2,200
52,056
1,526
53,793
35,669
2,395,773
DOMESTIC
27,534
94,140
205
194,074
44,530
128,436
406,694
245,667
54,069
86,101
349,663
4,670
19,675
5,416
139,225
694,?$4
49,930
173,628
140
298* 701
75* 953
4,280
4,005
14,697
10,065,463
BONDABLE
222
787,514
1,823
1,600
56/
46,222
2,200
57,196
1,562
62,169
37,331
2*256,710
Consolidated U.S. Domestic/international
& Foreign International
TURBINE FUEL
(actual)
(forecast)
Consolidated U.S. Domestic/International
& Foreign International
TURBINE FUEL
DEMAND FORECAST—U.S.A.
PAD I
PAD II
PAD III
PAD IV
PAD V
Consolidated U.S. Domestic/International
& Foreign International
TURBINE FUEL
FORECAST T R E N D -
B i l l i o n s Of G a l l o n s
CURRENT
VS.
U.S.A.
PRIOR Y E A R S
66
Senator MCINTYRE. T h a n k you.
I now call o n M r . E d K i l e y , vice president o f the Research a n d
Technical Services o f tihe American T r u c k i n g Associations.
STATEMENT OF EDWARD V. KILEY, VICE PRESIDENT, RESEARCH
AND TECHNICAL SERVICES, AMERICAN TRUCKING ASSOCIATIONS
M r . KILEY. T h a n k you, M r . Chairman.
M y name is E d w a r d V . K i l e y . I a m vice president o f tlhe A m e r i c a n
T r u c k i n g Associations a n d the Research and Technical Services,
which is a national federation representing a l l types o f motor carriers, private and f o r hire.
W e have submitted f o r t h e record a more complete statement wihicih
I w o u l d l i k e now t o summarize briefly i n consideration o f tihe committee's time (see p. 69).
T h e seriousness of t h e energy crisis or f u e l shortage as i t affects
o u r industry began t o become apparent t o w a r d the end o f last year.
O u r carriers t r a d i t i o n a l l y operate on yearly contracts w i t h f u e l suppliers a n d i n anticipation o f increased traffic f o r t h i s year and we
were generally seeking supplies as much as 20 percent above the
previous year's need. Suddenly a n d surprisingly, we were being t o l d ,
first i n one region and then i n a l l , t h a t new contracts could n o t be
entered into on the old basis. Some would not be renewed at a l l —
others o n only a m o n t h l y basis w i t h no assurance of galionage.
I n other cases new contracts could be considered b u t at 20 percent
or more below t h e previous year's volume, t h i s meant 40 percent less
t h a n w h a t we* t h o u g h t we needed f o r the coming year.
W e f o u n d the situation was p r e v a i l i n g t h r o u g h o u t t h e entire
transportation industry. A c t i n g then i n unison, the transportation
industries, under t h e coordinating efforts o f the Transportation
Association o f America, met this past January w i t h B r i g . Gen.
George A . Lincoln, the then Director o f Emergency Preparedness.
H e understood the problem b u t explained t h a t under the l a w existi n g at tihat t i m e no a u t h o r i t y existed f o r the determination o f any
p r i o r i t y needs except i n cases o f actual national defense needs.
W e discussed the causes of the problem. These, we believe, have
now become common knowledge. H e asked f o r recommendations as
to solutions, which he said he w o u l d relay t o the W h i t e House.
T h e day f o l l o w i n g tihe meeting the transport industries submitted
to General L i n c o l n tihe f o l l o w i n g specific suggestions:
1. T a k e necessary g o v e r n m e n t a c t i o n t o p e r m i t tihe use of 3 percent s u l f u r
content f u e l s by electric u t i l i t i e s a n d o t h e r consumer i n d u s t r i e s . T o f r e e
lvetroleum f o r t r a n s p o r t a t i o n .
2. E s t a b l i s h a p r i o r i t y system of a l l o c a t i o n s w h i c h w i l l i n s u r e t h a t f u e l s i n
s h o r t supply w i l l be a v a i l a b l e f o r t h e n a t i o n ' s m o s t c r i t i c a l needs.
67
3. Survey a v a i l a b i l i t y of government supplies of c r i t i c a l l y short fuels and,
where possible, make them available immediately f o r p r i o r i t y use.
Recommendation No. 2 was obviously the most c r i t i c a l and we are
pleased t o see t h a t Congress has taken action i n t h i s direction by
insertion i n t h e Economic Stabilization A c t o f 1973, a n amendment
g i v i n g the President a u t h o r i t y t o allocate petroleum products.
W e indicated i n our letter to Senator Jackson i n support of S. 1570,
Emergency Fuels and Energy Allocation A c t of 1973, t h a t provisions
i n his b i l l m i g h t provide a more direct approach. W e t h i n k this now is
a moot question. W e believe the amendment i n the act is a sound one,
and we were pleased to hear this m o r n i n g that you are petitioning the
President to act.
The t r u c k i n g industry is aware t h a t there are potential p i t f a l l s i n
the authority t o set priorities and (to allocate fuels and energy among
the various consumers. However, i t is our view t h a t i n l i g h t o f the
shortages and dislocations already experienced by our industry and
forecasts o f increased f u e l shortages f o r t h i s summer and winter, the
lack o f authority i n t h i s area would pose an even greater danger to
the entire U.S. economy t o transportation i n general and to the
t r u c k i n g industry specifically.
The situation today continues t o be completely f r u s t r a t i n g and
uncertain. Reports f r o m our carriers indicate t h a t many new contracts, where they can be negotiated, contain 30-day cancellation
clauses and price escalation provisions. M a n y carriers unable t o
secure contracts, are being supplied on a month-to-month basis; and
some are h a v i n g t o buy fuel on a spot market basis or pick i t up on
the road.
No matter where carriers are obtaining fuel, the price is increasing
sharply, anywhere f r o m 20 t o 50 percent. Needless t o say, however,
our m a i n concern is assurance o f necessary gallonage and the uncert a i n t y as t o diesel f u e l ami-lability f o r the coming f a l l and winter.
Keeping i n m i n d t h a t our regulated carriers have a public requirement t o p e r f o r m the service and unless we can get the fuel we can
not meet this requirement. Despite the easing of the fuel situation
f o l l o w i n g the end o f w i n t e r the problem continues i n a l l areas o f
the country f o r our industry and f o r a l l carriers. Understandably,
the degree o f seriousness differs because o f the m a r k e t i n g structure
of petroleum products. W e are not experts i n petroleum production
or m a r k e t i n g b u t I can assure you t h a t the present situation is educating us i n a h u r r y .
O u r carriers are seriously concerned about the months ahead, part i c u l a r l y i n the f a l l o f the year when the demand f o r t r u c k service
reaches i t s peak.
68
W e see ahead a very definite threat ifco necessary transportation
services unless adequate f u e l supplies can be assured i n the months
ahead. I n our industry, we are d o i n g a l l we can t o maximize our f u e l
usage .today. O u r carriers are r e p o r t i n g tightened intercity and local
p i c k u p and delivery schedules, d i e b u r n i n g i n some instances of less
t h a n ideal fuel, adjustments o f f u e l pumps t o m i n i m u m specifications, reduction i n engine w a r m u p t i m e a n d many others.
K e e p i n g i n m i n d tihe diesel f u e l use o f today's t r u c k is more refined
and more sophisticated t h a n years ago because o f the requirements
f o r a i r p o l l u t i o n control.
W e cannot just b u r n anything. Because of the difference i n the
engine today, there i s a n undesirable tradeoff i n terms of increased
maintenance expense and decreased engine life.
I n conclusion, M r . Chairman, we w o u l d l i k e t o comment briefly
on the allegations o r assertions by some t h a t we could conserve f u e l
i n transportation by some s h i f t i n g of traffic f r o m t r u c k t o r a i l —
either directly o r by greater use o f piggyback.
T o a great extent, as indicated i n our prepared statement such
shifts, although possible i n a few cases, h o l d no promise o f any
meaningful saving. I n fact, i n the case o f piggyback there could
actually be a greater use o f f u e l because o f piggyback t r u c k t e r m i n a l
service not now necessary t h r o u g h direct t r u c k services.
A l l forms o f transportation are needed t o p e r f o r m the Nation's
necessary transport services. They a l l need the f u e l to c a r r y on this
service. T h e total requirements f o r f r e i g h t transport service are not
great i n terms o f the t o t a l end use o f petroleum f o r a l l energy
requirements—'but t h i s requirement i n transportation, i f cut back,
could have disastrous effects o n the economy.
W e hope the committee a n d the Congress w i l l n o t be misled b y
meaningless comparisons o f transport efficiencies, comparisons w h i c h
can o n l y confuse and possibly stand i n the way of rational solutions
t o the overall problem. W e sincerely hope t h a t there w i l l be an active
response t o your request t h a t action be taken t o establish these
priorities.
W e cannot overestimate the extent to w h i c h the situation exists i n
our industry today. W e w a n t o f course f o r y o u t o know t h a t we
pledge our industry's cooperation i n the support o f a l l r a t i o n a l
measures to insure t h a t transportation has the f u e l i t needs. T h a n k
you.
I f I could, I w o u l d l i k e t o submit also f o r the record a publication
that we have released recently called " A m e r i c a n T r u c k i n g and the
Energy Crisis." I w o u l d l i k e t o have t h a t made p a r t of the record.
[ M r . K i i e y ' s complete statement and the publication referred t o
follow:]
69
S T A T E M E N T OF
EDWARD V.
KILEY
VICE PRESIDENT
A M E R I C A N T R U C K I N G ASSOCIATIONS,
INC.
BEFORE
C O M M I T T E E ON B A N K I N G , HOUSING AND U R B A N A F F A I R S
U N I T E D STATES SENATE
M A Y 7, 1973
70
M r . C h a i r man, and m e m b e r s of the C o m m i t t e e , m y name is
Edward V. Kiley.
I a m V i c e P r e s i d e n t , R e s e a r c h and Technical Services
of the A m e r i c a n Trucking Associations.
The organization is a federation
with affiliated associations in e v e r y state and the D i s t r i c t of Columbia,
plus 13 conferences.
In the aggregate* we represent e v e r y type and class
of t r u c k operation in the country, both f o r - h i r e and p r i v a t e .
We appreciate this opportunity to appear before your C o m m i t t e e and
discuss the Nation's fuel c r i s i s as it affects transportation in general and
the trucking industry in p a r t i c u l a r .
The situation in our industry, and in a l l of transportation, has been
serious for s e v e r a l months and we a r e seriously concerned about the future,
p a r t i c u l a r l y this summer and w i n t e r .
T o w a r d the end of last year we began to receive calls f r o m many of
our c a r r i e r s who were having difficulty in obtaining the diesel fuel necessary
for t h e i r operations.
The situation became c r i t i c a l f i r s t in the m i d - w e s t ,
then spread to the south and southwest, then to the northeast and f i n a l l y to
the west coast - - s o that it has now become nationwide.
Our c a r r i e r s receive their fuel supply p r i m a r i l y through contractual
arrangements with suppliers on a y e a r l y basis.
expired this past January or F e b r u a r y .
Many of these contracts
Our c a r r i e r s , in anticipation of
increased service demands for the coming y e a r , w e r e indicating fuel needs
in the general a r e a of 20% above last y e a r .
This need is r e f l e c t i v e of an
expanding economy with increased consumer purchasing.
industries anticipate such increases.
A l l transportation
71
In response to this indication of increased needs our c a r r i e r s w e r e
told, and a r e being told today, that not only w i l l these additional r e q u i r e ments not be met but that there w i l l be difficulty in providing as much as
was contracted for in the previous year - - i n some cases as much as 20%
less.
This would mean as much as 40% below actual requirements to c a r r y
on transportation s e r v i c e .
In some areas our c a r r i e r s were told not only that no assurance
can be made as to available fuel supplies but that because of the uncertainty
of the situation no new contracts w i l l be negotiated for the future.
In these
instances it became a hand-to-mouth operation on a catch-as-catch-can basis.
L a s t December a m a j o r motor c a r r i e r routinely requested bids for
its 1973 diesel fuel needs f r o m 12 m a j o r oil companies.
A l l , including its
current supplier, refused to bid.
In the m i d - w e s t a motor c a r r i e r was informed in late January that
it had used its allotment of diesel fuel on a contract that runs through this
September and could receive no more fuel until June 1.
Many s m a l l c a r r i e r s in the northeast, most without supply contract
protection, w e r e told in e a r l y January that no more fuel was available at
any price.
A l l of these motor c a r r i e r s were abruptly initiated to the energy
c r i s i s , or m o r e specifically the fuel oil shortage.
F u e l allocations based
upon past purchase history, often as low as 75% of that figure; refusal to
renew supply contracts; and a maddening scramble to obtain alternate
sources of fuel when p r i m a r y sources fall short of needs - - a l l of these
are symptoms of the fuel shortage as it affects the trucking industry.
72
C a r r i e r s w e r e r e s o r t i n g to ail possible sources of fuel.
In many
cases diesel was available only at higher prices - - i n some cases at p r i c e s
equal or exceeding that paid for gasoline.
This is a unique situation as
diesel fuel has always been m a r k e t e d at a price below gasoline - - one of
the s e v e r a l factors making it a m o r e efficient fuel for l a r g e r t r u c k s .
I t became increasingly obvious that unless a solution w e r e found and
fuel became available there would be f i r s t , a severe slowdown, and eventually
a curtailment and ultimate breakdown of essential and r e q u i r e d transportation
services.
F e e l i n g that some action at some authoritative l e v e l of Government
was necessary to prevent the c r i s i s f r o m worsening, the various t r a n s portation modes met in Washington, D. C. e a r l y in January to discuss the
general situation and determine courses of action.
I t was the consensus
that there was a c r i t i c a l p r o b l e m facing a l l f o r m s of transportation - - freight
and passenger.
It was further decided that the seriousness of the situation
should be brought to the i m m e d i a t e attention of the appropriate Government
agency - - a t that t i m e the Office of E m e r g e n c y Preparedness.
Under the auspices of the Transportation Association of A m e r i c a
and through the cooperative effort of the National Defense T r a n s p o r t a t i o n
Association a meeting was arranged with B r i g . General George A . L i n c o l n ,
the then D i r e c t o r of the Office of E m e r g e n c y P r e p a r e d n e s s .
was held in General Lincoln's office
on January 18.
The meeting
Each f o r m of t r a n s -
portation, r a i l , motor c a r r i e r , a i r , water c a r r i e r s , i n t e r c i t y bus t r a n s portation and local t r a n s i t , was represented.
73
We submitted to General Lincoln a short s u m m a r y statement of the
problem with a detailed r e v i e w of how it affected each f o r m of t r a n s p o r t .
We believe we had a highly informative meeting with General
Lincoln although the results were understandably inconclusive.
The most
immediate action, the lifting of the import quotas on crude oil was discussed
but the feeling of those present was that this would have no immediate effect
on the situation in transportation, although in the long run it might be
another story.
A l l of the factors that a l l agreed led to the current situation were d i s cussed in considerable detail.
In s u m m a r y these w e r e :
1. Increased consumption of petroleum for industrial and
c o m m e r c i a l purposes (including electric power generation)
because of environmental considerations.
2. Unusually l a r g e demand for oil for home heating purposes
due to e x t r e m e l y cold weather in certain parts of the country.
3. Increased consumption of gasoline due to anti-pollution
devices on newer model automobiles.
4. Existence of i m p o r t quotas which curtailed availability
of foreign sources of petroleum.
Underlying the basic shortage of petroleum is the marketing
structure under which the p r i o r i t i e s are determined by price of the final
product and where the greatest m a r g i n of r e t u r n may be.
P r e s e n t l y this
is in the area of gasoline - - which General Lincoln indicated was aggravated
under the existing price ceiling which froze the price of gasoline at higher
levels relative to the price situation for distillate fuels.
It was the consensus that a l l possible steps should be taken to
augment the supply of crude petroleum but in the meantime some type of
74
p r i o r i t i e s should be set for the end use of p e t r o l e u m products.
I n the
absence of such p r i o r i t i e s it was obvious that necessary transportation
services were not going to be p e r f o r m e d .
General Lincoln asked that the transportation modes, in unison,
present h i m with a set of recommendations to alleviate the i m m e d i a t e
situation.
In line with this request the following recommendations w e r e
submitted on behalf of a l l the transportation industries:
1. T a k e necessary government action to p e r m i t the use
of 3% sulfur content fuels by e l e c t r i c utilities and other
consumer industries. We understand that this action
would make available millions of b a r r e l s per year of
distillate fuel.
2. Establish a p r i o r i t y system of allocations which w i l l
ensure that fuels in short supply w i l l be available for
the nation's most c r i t i c a l needs.
3. Survey availability of government supplies of c r i t i c a l l y
short fuels and, where possible, make them available
i m m e d i a t e l y for p r i o r i t y use.
We went on to recommend that a l l agencies of the F e d e r a l G o v e r n m e n t , dealing with energy resources and consumer industries, be coordinated
in the development of a national fuel energy policy.
General Lincoln r e t i r e d at the end of January as D i r e c t o r of O E P .
T h e Acting D i r e c t o r , D a r r e l l T r e n t , in testimony before the Senate I n t e r i o r
and Insular A f f a i r s Committee on F e b r u a r y 1, indicated that s e v e r a l f e d e r a l
agencies w e r e formulating a fuel shortage contingency plan which would
include the following steps:
1. Voluntary conservation of fuel by a l l sectors of the economy;
75
2. V o l u n t a r y reconversion of e l e c t r i c a l power plants f r o m
petroleum to coal;
3. A system of p r i o r i t i e s and allocations mandating which finished
petroleum product the r e f i n e r s would emphasize and how the
product would be allocated among the various sectors of the
economy. Under this plan the S e c r e t a r y of T r a n s p o r t a t i o n and
his Office of E m e r g e n c y Transportation, in conjunction with
the r e g u l a t o r y agencies, would be authorized to distribute the
transportation sector's allocation.
4. Mandatory rationing of a l l petroleum products.
The Economic Stabilization Act Amendment of 1973, which extends
and amends the act passed in 1970, contains language which would grant
authority to the President for the "establishment of p r i o r i t i e s of use and
for systematic allocation of supplies of petroleum products, including
crude oil in order to meet the essential needs of various sections of the
Nation and to prevent anti-competitive effects resulting f r o m shortages of
such products. "
On A p r i l 13, Senator Jackson introduced legislation, S. 1570, titled
the " E m e r g e n c y Fuels and Energy Allocation Act of 1 9 7 3 . "
T h i s b i l l would
authorize the President to "allocate energy and fuels when he determines
and declares that e x t r a o r d i n a r y shortages or dislocations in the
distribution of energy and fuels exist or are imminent and that the public
health, safety or welfare is thereby jeopardized. " This authority, according
to Senator Jackson, could be exercised either on a national or regional basis.
The fuel allocation authority contained in the Economic Stabilization
Act of 1973 is a step in the right direction, but it is the opinion of the trucking
industry that S. 1570, " E m e r g e n c y Fuels and Energy Allocation Act of 1973, "
is preferable both in t e r m s of its detailed definition of the P r e s i d e n t i a l authority
96-183 O - 73 - 6
76
to be granted and in t e r m s of the opportunity to r e c e i v e testimony on this
delicate and important subject.
The trucking industry is aware that there are potential pitfalls in
the authority to set p r i o r i t i e s and to allocate fuels and energy among the
various competing consumers.
H o w e v e r , it is our view that in light of the
shortages and dislocations a l r e a d y experienced by our industry and f o r e casts of increased fuel shortages for this s u m m e r and w i n t e r , the lack of
authority in this a r e a poses an even g r e a t e r danger to the entire United
States economy, to transportation in general and to the trucking industry
specifically.
The situation today can be c h a r a c t e r i z e d as f r u s t r a t i n g and uncertain.
Reports reaching A T A indicate that some c a r r i e r s are receiving new contracts,
usually containing 30-day cancellation clauses and price escalation clauses;
some c a r r i e r s unable to secure contracts a r e being supplied on a m o n t h - t o month basis; and some are having to buy fuel on a spot m a r k e t basis or on
the road.
No m a t t e r where c a r r i e r s are obtaining fuel, the price is increasing
sharply, anywhere f r o m 20-50%.
Needless to say, however, the m a i n concern
is assurance of gallonage and uncertainty as to diesel fuel availability next
winter.
F r o m listening to administration witnesses before the Senate I n t e r i o r
and Insular A f f a i r s Committee M a y 1 and f r o m the dialogue between a d m i n i s t r a t i o n and industry participants at the U. S. Chamber of C o m m e r c e
conference on the President's energy message, fuel availability this winter
77
apparently depends on the import of diesel fuel and heating oil.
The
message conveyed was that with the impending gasoline shortage this
summer the r e f i n e r i e s w i l l have to concentrate on gasoline w e l l into the
n o r m a l winter distillate fuel inventory building period.
T h e r e f o r e , the
imports w i l l be heavily depended upon to build this inventory.
Focusing d i r e c t l y on the trucking industry's use of petroleum, the
A T A Research Department estimates that for 1973 we w i l l consume 8. 2 billion
gallons of diesel fuel - - private and f o r - h i r e trucking, intercity and local.
This amounts to some 17% of the total number 2 fuel oil consumed nationwide.
In t e r m s of gasoline, (excluding pick-ups and panels) we project a
use of some 10. 9 m i l l i o n gallons this y e a r , or some 11% of the total gasoline
demand.
However, in t e r m s of total domestic consumption of petroleum for
a l l purposes, truck use of diesel fuel is c u r r e n t l y about 3. 3% of total usage.
When this usage is combined with that of other forms of transportation we
find that the total is not v e r y great in t e r m s of total petroleum usage for
a l l purposes - - however, this difference, although not great, when compared
with the total is e x t r e m e l y c r i t i c a l in t e r m s of the Nation's necessary t r a n s portation services.
This need must be recognized in the formulation of
government policies on p r i o r i t y recognition.
Just like e v e r y other industry, the trucking industry is constantly
practicing conservation measures and looking for new operating efficiencies.
Events such as the recent fuel shortages and fuel dislocations necessitate, of
course, renewed efforts to conserve operational inputs, especially diesel
fuel and gasoline.
78
Since late December reports reaching A T A t e l l of tightened i n t e r c i t y
and local pickup and d e l i v e r y schedules, the burning in some instances of
less than ideal fuel, adjustments to fuel pumps to m i n i m u m specifications,
reduction in engine w a r m - u p t i m e and many others.
I t should be pointed
out that these measures do save some fuel but do involve some unpalatible
trade offs in t e r m s of increased maintenance expenses and decreased s e r v i c e .
In conclusion, M r . C h a i r m a n , we would like to comment on an
idea that has surfaced regarding possible savings in diesel fuel by t r a n s f e r r i n g some freight f r o m t r u c k to r a i l piggyback.
basis for any such conclusions.
T h e r e is no factual
T o the c o n t r a r y , there is sound reason
to conclude that any such shift, should it occur, could worsen the situation.
F i r s t of a l l , the only a r e a that could be affected is in the consumption
of diesel fuel in the i n t e r c i t y movement of t r u c k t r a f f i c .
As indicated, diesel
powered trucks are consuming approximately 3. 3% of the total domestic
production of petroleum fuel and power.
The remaining consumption of
p e t r o l e u m power in transportation is for gasoline for passenger cars and
gasoline powered t r u c k s , r a i l r o a d s , water c a r r i e r s , buses and a i r t r a n s portation.
The question of fuel saving through t r a n s f e r of t r a f f i c to r a i l , t h e r e f o r e , revolves e n t i r e l y around the 3. 3% use of diesel by the heavy duty t r u c k
operations.
The actual amount that might be involved, however, is much
s m a l l e r than 3 . 3 % for the following reasons:
1. A significant portion of the 3. 3% consumption is by trucks
that in no way operate competitively with any other f o r m of
transportation. These are heavy duty construction vehicles,
dump t r u c k s , heavy hauling operations, etc. In s u m m a r y ,
completely non-competitive, non-transfer able operations.
79
2. An equally significant portion of the 3. 3% consumption is by
trucks that a r e engaged in freight transportation of special
commodities or in short haul operations that are not t r a n s ferable to r a i l under any reasonable circumstances.
3. The remaining portion of the 3. 3% which would contain any
t r a n s f e r a b l e t r a f f i c s t i l l contains large portions of t r u c k t r a f f i c
that actually presents a fuel saving through the highway move
as this t r a f f i c goes d i r e c t l y f r o m origin to destination with no
significant movement through heavily congested urban a r e a s .
It i s , t h e r e f o r e , a truck movement of the most efficient type
f r o m a fuel use standpoint.
I f this t r a f f i c moved by piggyback it would, of necessity, involve
origin and destination movements in the congested urban areas (to and f r o m
r a i l assembly and breakup points).
This is the most inefficient type of truck
movement f r o m a fuel standpoint.
Equally inapplicable to the fuel situation as it applies to t r a n s portation, and also contributing nothing to the solution, is the reference
being made by some as to r a i l vs. truck efficiency by saying that a "ton
of freight shipped by t r u c k takes n e a r l y six times the energy shipped by
rail. "
The actual
r a t i o may or may not be six to one - - but whatever it
is it is completely i r r e l e v a n t in the fuel situation.
The idea that large
amounts of intercity freight traffic could be shifted f r o m trucks to r a i l s
overlooks the basic economic facts about intercity truck and r a i l service.
Although there a r e , of course, areas of t r u c k - r a i l competition, the facts
are that for the amount of t r a f f i c that could in any way effect fuel use the
two kinds of service are distinctly different and are not r e a d i l y substitutable
one for the other.
80
Both the r a i l r o a d s and the trucking industry- need an adequate supply
of fuel to p e r f o r m their services - - and both services in t h e i r e n t i r e t y are
needed by our economy.
T o talk of savings by shifting t r a f f i c only confuses
the issue and diverts us f r o m the r e a l solutions we need.
In s u m m a r y , the present use of fuel in heavy duty t r u c k operations
is s m a l l in t e r m s of total petroleum fuel and power consumption.
However,
the transportation service performed through utilization of this r e l a t i v e l y
s m a l l percentage of total needs is enormous.
The service is so g r e a t ,
^
and so v i t a l , that even a minor reduction in necessary diesel fuel w i l l
have serious effects on the Nation's freight transportation s e r v i c e s .
We a r e , t h e r e f o r e , v i t a l l y concerned about the fuel shortages which
affect the United States economy as a whole, transportation in general and
trucking specifically and, as an industry, support a l l r a t i o n a l suggestions
for solving this problem.
81
1 m< fiatn
Trncking
and
82
Foreword
In this period of great concern for our ecology, many well-meaning suggestions
have been advanced as to how national resources devoted to transportation can be
better utilized. Among these has been the suggestion that intercity freight be shifted
from trucks to railroads. This study has been prepared in an effort to put this proposal
into proper perspective, and to point out some of the pitfalls involved in attempting its
implementation.
The report was prepared by Richard A. Staley, assistant to the director of this
department, with the advice and counsel of John L. Reith, assistant director of the
department, and E.V. Kiley, vice president, research and technical services.
Allan C. Flott
Director
April, 1973
83
AMERICAN TRUCKING, iD THE ENERGY CRISIS
The present shortages of petroleum fuels,
and forecasts of a National shortage of energy
for the next several years, have brought many
suggestions for energy conservation. A number
of these suggestions have been directed at the
transportation industry in general, and the trucking industry in particular.
One suggestion that has received a good
deal of attention has been that freight be shifted
from trucks to rails in order to conserve energy.
It is this suggestion to which this report is directed.
The idea that trucks are a major contributor
to the energy crisis, and that shifting freight
from trucks to rails could conserve appreciable
amounts of energy, is based upon misunderstandings about truck operations and of the
role trucks play in America's transportation system today. In the first place trucks, particularly intercity trucks —which are the ones at
which most of the suggestions for savings in
fuel are directed —are not a major contributor
to the energy crisis.
Secondly, opportunities for saving fuel
through the shifting of freight from trucks to
rail are limited and would, for the the most part,
entail a serious downgrading of transportation
service. The reduction in the quality of transportation service that would be required to save
fuel could increase consumption in other areas
of the economy.
From the
sumed by our
largest single
27 quadrillion
cent. (l)
standpoint of total energy conNation, petroleum fuels were the
source in 1968 accounting for
British Thermal Units or 40 per-
More than half of the petroleum fuels (53.7
percent) in that year were used to produce transportation of people and goods.. The basic source
of petroleum fuels, crude oil, yields several different fuel types. The more important, from
the standpoint of transportation, are gasoline
and diesel fuel. Almost all gasoline is used in
transportation, primarily in highway, transportation, whereas diesel fuel—which is a distillate
similar to home heating oil — is used for many
purposes.
(1) U.S. D e p a r t m e n t o f I n t e r i o r , B u r e a u o f M i n e s .
In 1971 domestic consumption of petroleum
for fuel and power amounted to 207,005.4 million
gallons. Trucks, of all kinds, used 27,390.2 million gallons, or 13.2% of the total. Included in the
13.2% is truck use of diesel fuel, which amounted
to 6,859.0 millions of gallons or 3.3% of total
domestic consumption of petroleum for all purposes. (See Table I).
Since diesel fuel is the principal source of
energy used by intercity trucks, and since diesel
fuel used in local trucks would probably offset
the amount of gasoline used in intercity trucks,
the balance of this discussion will be confined
to diesel fuel consumption and to intercity
freight movements.
Based upon the assumptions outlined above,
it appears that approximately 3.3 percent of
total petroleum fuels are consumed by intercity
trucks. These are the only trucks from which
freight could be diverted to rails.
The idea that large amounts of intercity
freight traffic could be shifted from trucks to
rails overlooks several basic facts about intercity truck and rail service. The first, and most
important, fact is that for the most part the
two kinds of service are distinctly different
and are not readily substitutable one for the
other.
Reference to the freight commodity statistics for railroads shows that they are primarily
long haul carriers of bulk commodities, while
motor carriers handle smaller shipments and
manufactured commodities primarily. In 1969,
the latest year for which comparable data have
been published, rails originated 126 million tons
of metallic ores, 383 million tons of coal and
171 million tons of nonmetallic minerals (stone,
sand and gravel, fertilizers, etc.). The three
commodities accounted for nearly $2 billion
in rail revenues for 1969.
Motor carriers, in the small shipments area
which they dominate, handled 94 million tons
of less truckload traffic in 1969, receiving more
than $4V4 billion for this service. The negligible competition between modes in these areas
is clear from the contrasting figures for these
commodities. Rails handled only 800 thousand
tons of small shipments to go with a revenue of
84
$35 million, compared to the $4V4 billion by motor carriers. For the three bulk commodities cited,
motor carriers handled only 9 million tons with
revenues of $32 million compared to the $2 billion
for railroads.
The freight commodity statistics reveal
that both modes carry substantial amounts of
manufactured commodities. In regard to these
commodities, a recent study by Alexander Lyle
Morton, Competition in the Intercity Freight
Market, U.S. Department of Transportation,
Office of Systems Analysis and Information,
provides a great deal of information on competition between the modes.
Mr. Morton analyzed a 1967 freight bill study
compiled by the Middle Atlantic Conference
from participating motor carriers. He compared
the traffic of these motor carriers with the
manufactures and miscellaneous traffic of the
railroads as determined from the 1965 Way Bill
Sample of the Interstate Commerce Commission. Based on the characteristics of this traffic
by commodity classification, Mr. Morton then
analyzed the total manufactures and miscellaneous shipments in the 1967 Census of Transportation. The major finding of his study is that
only 40% of this traffic is truly competitive
as between railroads and motor carriers. And
this level is attainable only if it is assumed that
shipment size can be readily altered without
additional cost to the shipper and consignee
for some portion of the less-than-truck-load
traffic. The percentage of competitive traffic
falls to only 25% if shipment size is not readily
alterable. Mr. Morton summarized this finding
in the following language:
" _ T h e Census of Transportation divides all shipments of manufactures among 85 shipper classes. All shipments within
each class are classified into one of thirteen mileage blocks
and into one of thirty weight-mileage blocks. Using the
criterion that any block of traffic in which both rails and
motor carriers show significant participation is 'competitive', it is found that roughly forty percent of the 1.4 billion tons of manufactures produced in 1967 can be considered competitive between motor carrier and rail. This
fraction is raised to sixty percent if shipment sizes are
thought to be readily alterable or are determined by the
mode that shipper and consignee agree upon. On the
other hand, the fraction of competitive tonnage is on the
order of only twenty-five percent if shipment sizes are
thought to be determined quite independently of the mode
chosen and are not readily alterable without additional
costs to the shipper and consignee.
" — Using the more stringent criterion of competitiveness that
shipment weights are relatively fixed and independent of
the choice of mode, about 340 million tons of manufactures
are judged to be competitive. Only seven shipper classes
among the 85 account for nearly half of this total. They
are: grain mill products and sugar, miscellaneous food preparations, pulp and paper, concrete, gypsum and plaster,
steel works and rolling mill products, motor vehicles and
parts, and hydraulic cement, cut stone, and stone products."
The basis for Mr. Morton's conclusions can
be readily seen in two of the appendix tables
showing the distribution of manufactured commodities in the Census of Transportation, in
terms of length of haul and size of shipment.
Table II showing the distribution by size of
shipment found in the 1967 Census of Trans-
portation, for example, indicates that private
and for-hire motor carriers handle more than
85% of all tons transported in shipments
under 30,000 pounds in weight. From these
data and his own study, Mr. Morton concluded
that rails were not competitive for traffic
weighing less than 10,000 pounds.
85
Mr. Morton also concluded that shipments
of more than 60,000 pounds, or 30 tons, were
relatively immune from motor carrier competition because of the size of shipment. Thus,
the area of competition between railroads and
motor carriers is limited to shipments weighing
between 10,000 and 60,000 pounds. According
to the 1967 Census of Transportation, there
were approximately 407 million tons of traffic
in these weight categories, of which 72 million
tons moved by rail and 335 million tons moved
by private and for-hire motor carriers. This represents approximately 25% of the total manufactures and miscellaneious commodities
studied in the Census of Transportation.
It may be argued that some larger portion
of intercity truck traffic may be shifted to rail
piggyback service which will result in energy
savings.
There is no factual basis for any such conclusion. To the contrary, there is sound reason to
conclude that any such shift, should it occur, could
worsen the situation.
First of all, the only area that could be affected
is in thecomsumption of diesel fuel in the intercity
movement of truck traffic. As Table I shows,
diesel powered trucks are consuming approximately 3.3% of the total domestic production of
petroleum fuel and power. The remaining consumption of petroleum power in transportation is
for gasoline for passenger cars and gasoline powered trucks, railroads, water carriers, buses and
air transportation.
The question of fuel saving through transfer
of traffic to rail piggyback, therefore, revolves
entirely around the 3.3% use of diesel by the
heavy duty truck operations. The actual amount
that might be involved, however, is much smaller
than 3.3% for the following reasons:
1.
A significant portion of the 3.3% consumption is by trucks
that in no way operate competitively with any other form of
transportation. These are heavy duty construction vehicles,
dump trucks, heavy hauling operations, etc. In summary,
competely non-competitive, non-transferable operations.
2.
An equally significant portion of the 3.3% consumption is by
trucks that are engaged in freight transportation of special
commodities or in short haul operations that are not transferable to rail under any reasonable circumstances.
3.
The remaining portion of the 3.3% which would contain any
transferable traffic still contains large portions of truck traffic
that actually presents a fuel saving through the highway move
as this traffic goes directly from origin to destination with no
significant movement through heavily congested urban areas.
It is, therefore, a truck movement of the most efficient type
from a fuel use standpoint.
If this traffic moved by piggyback it would, of
necessity, involve origin and destination movements in the congested urban areas (to and from
rail assembly and breakup points). This is the
most inefficient type of truck movement from a
fuel standpoint.
In summary, the present use of fuel in heavy
duty truck operations is extremely small in terms
of total petroleum fuel and power consumption.
However, the transportation service performed
through utilization of this relatively small percentage of total needs is enormous. The service is so
great, and so vital, that even a small reduction in
necessary diesel fuel could have serious effects
on the nation's freight transportation services.
The portions of this small amount that could conceivably be affected by any transfer of intercity
traffic from highway to piggyback would be insignificant in terms of the energy problem.
86
IMMEDIATE ENERGY SAVINGS POSSIBLE
A more practical and feasible method of
increasing energy efficiency in transportation
is currently and immediately available if the
trucking industry would be permitted to utilize
more modern equipment. Present Federal and
State size and weight restrictions have inhibited
the use of vehicles which could save as much as
31 percent in fuel consumed to provide a given
volume of transportation service.
Modem vehicle combinations, operating under
tested and approved gross and axle limits, can
transport more freight per load. Put another way,
fewer vehicles are needed to handle a given freight
volume. More modem vehicle dimensions discussed below have already been endorsed by the
American Association of State Highway Officials
and by the Federal Highway Administration. Such
equipment is now being operated off of the Interstate Highway System in more than a half
dozen states. In the case of the recommended
twin trailer combinations (a tractor drawing
two short trailers at an overall length of 65
feet), these are now operating in 29 states.
The mechanics of fuel conservation through
the use of more modern equipment may be seen
in Table IV. Freight handled by the motor carrier
industry may be divided into two basic types.
Heavy or dense freight produces a maximum
legal load without physically filling a vehicle,
while light and bulky freight will fill a vehicle
long before optimum weight is achieved. The
"break even" (load and volume) point is now
about 18 to 20 pounds per cubic foot. Freight
lighter than this will fill a standard 40-feet
semitrailer without yielding maximum legal
weights.
However, the use of twin trailers
permits additional cubic capacity sufficient
to overcome this. The normal 65-foot long twin
trailer combination may be loaded to full physical and weight limits at a freight density of
12 to 13 pounds per cubic foot —which is
the average density of general freight (mixed
freight) as presently tendered to the motor
carriers.
Adoption of more nlodem weight standards,
developed by Federal and State highway officials,
which include gross weight control that develops
gross weights according to numbers of axles and
axle spacing will provide more efficient motor
carriage of both dense and light commodities.
The increased efficiency, measured in terms
of fuel saved, has been computed and shown
in Table IV in terms of fuel and equipment required to transport one million tons of freight
one mile. To carry one million tons of dense
freight in a current standard semitrailer combination (40 foot trailer) requires 42,544 trips,
and will consume 10,125 gallons of diesel fuel
per mile. If the freight is light and bulky, the
requirement increases to 64,041 trips and 13,128
gallons of diesel.
If, however, the light and bulky freight is
carried on current-type 65-foot long twin trailers,
the requirement drops to 44,853 vehicle trips
and a consumption of 10,316 gallons. Thus,
substituting twin trailers for conventional
tractor semitrailers for the transportation of
light commodities will save 30 percent in terms
of vehicle trips and 21.4 percent in fuel.
Moving to the more modern limits described
above, the savings can be even greater. The proposed 65-foot twin trailer can handle one million
tons of freight in 35,518 vehicles using 9,057
gallons of diesel fuel. This represents a 44.5
percent savings in equipment and a 31 percent
reduction in fuel—when compared to transporting
this same freight in a present-weight tractor semitrailer combination.
Other comparisons show savings for
carrying dense freight which range up to 16.5
percent fewer trips and 10.6 percent less fuel
consumed. Even where present 65-foot long
twin trailers are in use, the proposed higher
size and weight limits (for the same unit) will
result in savings of up to 20.8 percent in number
of trips and 12.2 percent in reduced fuel consumption.
In summary, a modest updating of vehicle
size and weight laws could significantly reduce
the diesel fuel requirements of the trucking industry.
TABLE I
1971 U. S. Consumption of Petroleum Fuel and Power
(millions of gallons)
U.S. Total (D
Used in
Transportation (1)
Used by Motor
Vehicles (2)
Used by Motor
Vehicles
on Highways (2)
Used by Trucks
on Highways(5)
Percent of
Total Used
by Trucks (5)
Liquified gases
11,151.0
1,369.2
(3)
(3)
(3)
(3)
Jet f u e l s
15,149.4
15,149.4
-0-
-0-
-0-
-0-
Gasoline
9 2 , 5 8 4 . 8 (4)
9 2 , 5 8 4 . 8 (4)
9 3 , 5 3 3 . 5 (4)
9 0 , 0 4 9 . 2 (4)
20,531.2
22.0%
8 , 0 1 7 . 7 (3)
7 , 5 9 5 . 8 (3)
Distillate fuels
(including diesel)
Kerosene
Residual fuels
41,281.8
3,759.0
34,288.8
12,398.4
-04,704.0
6 , 8 5 9 . 0 (3)
16.6%
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Still gas
6,564.6
-0-
-0-
-0-
-0-
-0-
Petroleum coke
2,226.0
-0-
-0-
-0-
-0-
-0-
126,205.8
101,551.2
97,654.0
27,390.2
13.2%
207,005.4
(1)
1 9 7 1 preliminary, U.S. Bureau of Mines
(2)
1 9 7 1 Federal H i g h w a y A d m i n i s t r a t i o n , " M F " t a b l e s e r i e s
(3) M i n o r a m o u n t of l i q u i f i e d g a s e s used in m o t o r v e h i c l e s is i n c l u d e d w i t h d i s t i l l a t e f u e l s
(4) T h e h i g h e r t o t a l in c o l u m n 3 t h a n t h e r e p o r t e d U.S. t o t a l i n c o l u m n 1 m a y b e c a u s e d by d i f f e r e n t a c c o u n t i n g
m e t h o d s ( m e a s u r i n g c o n s u m p t i o n at d i f f e r e n t p o i n t s ) , o r by f u e l i n s t o r a g e o r i n t r a n s i t .
(5) E s t i m a t e s m a d e by ATA D e p a r t m e n t of R e s e a r c h , b a s e d o n d a t a p u b l i s h e d a s M F t a b l e s b y t h e
H i g h w a y A d m i n i s t r a t i o n , D e p a r t m e n t of T r a n s p o r t a t i o n .
Federal
00
Table II
Tons Transported By Size of Shipment By All Modes of Transportation — 1 9 6 7 ">
(In 1,000 Tons)
Shipments
Rail
% of
Total
For-Hire
Motor
Carriers
% of
Total
Private
Motor
Carriers
Total
Private
& ForHire
% of
Total
% of
Total
Other
Modes (2)
% of
Total
Total
All
Modes
(lbs.)
Under 50
25
2.4
404
39.4
133
13.0
537
52,4
464
45.2
1,026
50-99
41
3.2
806
63.6
240
18.9
1,046
82.5
181
14.3
1,268
(66)
(2.9)
(1,210)
(52.7)
(373)
(16.3)
(1,583)
(69.0)
(645)
(28.1)
(2,294)
100-199
84
2.9
2,051
71.4
570
19.8
2,621
91.2
169
5.9
2,874
200-499
211
2.7
5,770
74.7
1,487
19.2
7,257
93.9
260
3.4
7,723
(Under 100)
500-999
(Under 1,000)
263
2.9
(626)
(2.9)
6,713
(15,744)
74.0
1,856
20.5
(71.7)
(4,281)
(19.4)
(20,025)
(91.1)
64,663
87.8
1,083
1.5
73,730
85.4
1,165
1.0
120,764
(86.8)
(3,557)
(1.6)
(216,454)
7,984
10.7
45,199
61.4
19,464
26.4
10,000-29,999
16,372
13.6
57,966
48.0
45,261
37.4
(Under 30,000)
(24,982)
(11.5)
(118,909)
(54.9)
(69,006)
(31.9)
1,000-9,999
8,569
103,227
(187,915)
94.5
232
(1,309)
2.6
9,064
(6.0)
(21,960)
3 0 , 0 0 0 & Over
377,946
55.2
184,240
26.9
85,924
12.5
270,164
39.4
36,736
5.4
684,846
Totals
402,928
44.7
303,149
33.6
154,930
17.2
458,079
50.8
40,293
4.5
901,300
( 1 ) C e n s u s of T r a n s p o r t a t i o n ; C o m m o d i t y T r a n s p o r t a t i o n S u r v e y — S h i p p e r G r o u p
P r o d u c t s ) h a s b g p n o m i t t e d b e c u a s e i t is m o v e d in b u l k q u a n t i t i e s p r e d o m i n a n t l y .
9
(Petroleum
(2) Other modes include:
air, water, parcel post, railway express, f r e i g h t forwarders,
riers, etc. M o v e m e n t s by p i p e l i n e w e r e n o t i n c l u d e d i n t h e s u r v e y .
motor
and
express
Coal
car-
Source-. B u r e a u o f T h e Census; 1 9 6 7 C e n s u s o f T r a n s p o r t a t i o n , C o m m o d i t y T r a n s p o r t a t i o n S u r v e y — S h i p per G r o u p s .
TABLE III
Tons Transported By Length of Haul By All Modes of Transportation — 1 9 6 7 <1)
(in 1000 tons)
% of
Total
Total
Private
& For
Hire
% of
Total
Other
Modes (2)
% of
Total
Total
All
Modes
37.8
105,117
77.1
5,839
4.3
136,329
139,731
Rail
% of
Total
For Hire
Motor
Carriers
25,373
18.6
53,529
39.3
51,588
50-99
38,367
27.5
55,775
39.9
41,452
29.7
97,227
69.6
4,137
2.9
100-199
64,811
37.1
66,566
38.1
39,203
22.5
105,769
60.6
4,029
2.3
174,609
200-299
61,649
48.5
44,008
34.6
16,204
12.7
60,212
47.3
5,325
4.2
127,186
300-399
40,372
49.4
29,510
7,009
8.6
36,519
44.7
4.848
5.9
81,739
400-499
34,761
59.8
17,041
29.3
4,245
7.3
21,286
36.6
2,070
3.6
58,117
500-599
26,754
61.4
12,730
29.2
3,291
7.6
16,021
36.8
783
1.8
43,558
600-799
43,016
62.5
19,696
28.6
3,413
5.0
23,109
33.6
2,662
3.9
68,787
800-999
27,795
64.8
9,917
23.1
1,665
3.9
11.582
3,542
8.2
42,919
1,000-1,199
14,824
64.5
4,668
20.3
1,011
4.4
5,679
24.7
2,482
10.8
22,985
1,200-1,499
13,347
70.3
3,478
18.3
474
2.5
3,952
20.8
1,686
8.9
18,985
1,500-1,999
23,187
81.0
3,352
11.7
473
1.7
3,825
13.4
1,628
5.6
2,000 & over
16,970
72.3
2,465
10.5
284
1.2
2,749
11.7
3,743
16.0
23,462
431,226
44.6
322,735
33.4
170,312
17.6
493,047
51.0
42,774
4.4
967,047
Length of Haul
(miles)
Under 50
TOTALS
% of
Total
Private
Motor
Carriers
36.1
27.0
(1) C e n s u s of T r a n s p o r t a t i o n ; C o m m o d i t y T r a n s p o r t a t i o n S u r v e y — S h i p p e r G r o u p 9 ( P e t r o l e u m a n d C o a l P r o d u c t s )
has b e e n o m i t t e d b e c a u s e it is m o v e d in b u l k q u a n t i t i e s p r e d o m i n a n t l y .
(2) O t h e r modes include: a i r , w a t e r , p a r c e l p o s t , r a i l w a y express, f r e i g h t f o r w a r d e r s , m o t o r e x p r e s s c a r r i e r s , e t c .
M o v e m e n t s by p i p e l i n e w e r e n o t i n c l u d e d in t h e s u r v e y .
SOURCE: B u r e a u of t h e C e n s u s ; 1 9 6 7 C e n s u s of T r a n s p o r t a t i o n ; C o m m o d i t y T r a n s p o r t a t i o n S u r v e y — S h i p p e r
Groups.
28,640
Table II
CARRYING CAPACITIES AND FUEL USE FOR TYPICAL PRESENT AND PROPOSED VEHICLE COMBINATIONS
Present Federal Limits
55-Foot Tractor
Semitrailer (40
ft. semitrailer)
Light &
Dense
Bulky
Freight
Freight
65-Foot
Twin Trailer
Proposed Modernized Limits *
55- Foot
55-Foot
Tractor SemiTractor Semitrailer (40 ft.
trailer (45 ft.
65-Foot
semitrailer)
semitrailer)
Twin Trailer
Gross Combination Weight (lbs.)
73,280
57,500
73,280
75,500
78,000
85,000
Number of Loads Required to Carry
1 million tons of freight
42,544
64,041
44,853
40,626
39,231
35,518
Fuel Consumption Rate —Gallons
of Diesel Fuel per mile
0.238
0.205
0.230
0.243
0.246
0.255
10,125
gallons
13,128
gallons
10,316
gallons
9,872
gallons
9,561
gallons
9,057
gallons
DIESEL FUEL REQUIRED TO CARRY
ONE MILLION TONS ONE MILE
*
CO
Based on "Table B" page 137, Maximum Desirable Dimensions and Weights of Vehicles Operated on
the Federal Aid Systems, U.S. Government Printing Office, Washington, 1964.
Notes —Gross weights based on typical present and proposed vehicle configurations used in intercity service.
Number of trucks (or loads) required to move one million tons of freight computed by dividing maximum payload (in tons) into 1,000,000.
Fuel Consumption rate obtained from Cummins Engine Company's vehicle simulator computer based
on a typical intercity trip (473 miles) at average road speeds (52 mph + ,-) utilizing comparable
current equipment.
O
91
Table V
PERCENTAGE SAVINGS
TRUCK TRIPS AND DIESEL FUEL CONSUMED
Number of
Truck Trips
Diesel Fuel
Consumed
30.0% savings
21.4% savings
44.5% savings
31.8% savings
4.5% savings
2.5% savings
7.8% savings
5.6% savings
Substitute Proposed 65-Foot
Twin Trailer for Present
55-Foot Tractor Semitrailer
16.5% savings
10.6% savings
Substitute Proposed 65-Foot
t w i n Trailer for Present
65-Foot Twin Trailer
20.8% savings
12.2. savings
Present Federal Limits
Light & Bulky Freight
Substitute 65-Foot Twin Trailer
for 55-Foot Tractor Semitrailer
Proposed Modernized Limits
Light & Bulky Freight
Substitute Proposed 65 Foot
Twin Trailer For Present
55-Foot Tractor Semitrailer
Dense Freight
Substitute Proposed 55-Foot
Tractor Semitrailer For
Present 55-Foot Tractor
Semitrailer
Substitute Proposed 55-Foot
Tractor Semitrailer — With
45-Foot Trailer — For Present
55-Foot Tractor Semitrailer
NOTES —See
Table
IV
for
96-183 O - 73 - 7
sources and
coverage.
92
Senator MCINTYRE. W h e n you speak o f the t r u c k i n g industry i n
its entirety, w h a t percentage o f your f u e l is diesel ?
M r . KILEY. I n the case o f the intercity t r u c k i n g practically a l l i s
diesel today.
I w o u l d say 95 percent is diesel today. There is a small amount, a
very l i m i t e d amount o f gasoline used i n i n t e r c i t y t r u c k i n g , b u t i t has
practically
Senator MCINTYRE. A l l the trucks I have seen r u n n i n g around, 95
percent.
M r . KILEY. I n t e r c i t y , the large combinations t h a t y o u w i l l see on
the highway. I am n o t t a l k i n g about pickup and delivery trucks t h a t
you w i l l see—straight trucks, m a k i n g local pickup a n d delivery service. Hake U n i t e d Parcel Service w h i c h is the largest motor carrier,
they have local trucks which are van trucks. They are gasoline powered. T h e y also operate, however, intercity t r u c k trailers. These are
diesel powered.
W h e n I am speaking o f intercity trucks, I am t a l k i n g now o f 95
percent diesel power.
Senator MCINTYRE. W e w i l l hear f r o m the last member o f this
p a r t i c u l a r panel, M r . James R. S m i t h .
STATEMENT OF JAMES R. SMITH, PRESIDENT, AMERICAN WATERWAYS OPERATORS, INC., ACCOMPANIED BY BERNARD GOLDSTEIN, PRESIDENT, ALTER CO., DAVENPORT, IOWA
M r . SMITH. M r . Chairman, first o f all, may I congratulate the committee and you, as Chairman, f o r c a l l i n g t h i s hearing t o get the i n p u t
f r o m the i n d u s t r y t h a t is m o v i n g the commodities o f America's commerce. There is no question i n m y m i n d b u t there is a very c r i t i c a l
f u e l situation i n the U n i t e d States.
I w o u l d l i k e t o address myself t o the water carrier side o f this
problem. I d i d not know when t h i s hearing was called t h e exact
f o r m a t you intended t o use, M r . Chairman. So I have asked t o come
w i t h me today a m a n who is directly involved i n the problem. H e
w i l l be available t o answer questions a f t e r I finish m y statement.
M a y I present M r . B e r n a r d Goldstein o f the A l t e r Co. o f Davenport,
Iowa.
Senator MCINTYRE. W h y don'T you b r i n g h i m up ?
M r . SMITH. W i t h y o u r permission, I w o u l d l i k e t o do that.
I represent the American Waterways Operators, Inc., the national
association o f the barge and t o w i n g industry i n t h e U n i t e d States. I
am g o i n g t o paraphrase m y remarks, M r . Chairman, but I w o u l d
l i k e to have m y statement p u t i n as i f the whole t h i n g had been read.
Senator MCINTYRE. I t w i l l be.
93
M r . SMITH. T h e t w o o r ithree key points I would l i k e to make are
as f o l l o w s :
A s a n i m p o r t a n t segment o f this Nation's transportation system,
we are deeply concerned over the present and g r o w i n g shortages o f
the f u e l necessary t o propel this industry.
T o determine the breadth o f the problem on our inland and coastal
waters and t o t r y t o get a handle o n the expected impact, A W O has
created an ad hoc committee consisting o f both members and nonmembers.
W h a t I am presenting today is a distillation o f our committee's
"first c u t " at the problem.
I n order t o appreciate the importance o f sufficient f u e l to keep the
nation's waterborne traffic moving, let me mention t h a t i n 1972 the
barge and t o w i n g industry moved about 600 m i l l i o n tons of cargo
over some 26,000 miles o f inland waterways f o r a total o f 210 b i l l i o n
ton-miles; roughly 16 percent o f the Nation's t o t a l transportation of
commodities.
The water transportation industry is singularly well-equipped f o r
the movement o f b u l k commodities because i t provides the most efficient method o f using fuel f o r the movement o f heavy, b u l k commodities more ton-miles per gallon by water than any other method.
O f the varied commodities m o v i n g over the waterways, I would
like t o call attention t o 2 o r 3 t h a t are extremely crucial.
P o i n t No. 1. Something not well known is t h a t nearly 58 percent
o f a l l the products m o v i n g by water consist of energy f o r ultimate
use by others. Coal, lignite, crude and refined petroleum products
such as gasoline, diesel fuel, and heating o i l are the m a j o r components of this 58 percent.
There is small wonder then t h a t the t o w i n g industry is so concerned over the diesel fuel needed to move this energy f o r others.
A n i n i t i a l staff study o f the breadth o f the problem, accomplished
p r i m a r i l y by telephone contracts w i t h members i n various parts of
the Nation, indicates an ever-increasing difficulty i n securing sufficient quantities o f f u e l ; present and impending r a t i o n i n g by f u e l
suppliers, increased prices i n most areas; extensive searching and
very costly retransportation, sometimes f r o m very distant points, i n
order t o secure f u e l t o keep the towboats m o v i n g ; occasional tieups
of equipment f o r lack of fuel.
T h u s f a r i n 1973, the impact o f the diesel fuel shortage has been
spotty, however, on a geographical basis except i n Mid-Continent
America, p r i m a r i l y on the Mississippi River system f r o m about
Memphis upstream and p a r t i c u l a r l y i n the Midwest f r o m St. Louis
upstream, which is very heavily dependent on barge traffic f o r the
importation o f f u e l o i l and b u l k commodities and f o r the export of
the g r a i n f r o m the products of the f a r m .
94
Some tows t r a v e l i n g n o r t h f r o m the G u l f Coast have been stranded
i n the St. L o u i s area because they were unable t o purchase f u e l there
either t o continue upstream o r make a r e t u r n t r i p home. I n t h a t area
f u e l suppliers serving t h e t o w i n g industry are finding i t increasingly
difficult t o secure sufficient fuel f o r t h e i r customers.
W e find t h i s trend c o n t i n u i n g t o increase i n other parts o f t h e
U n i t e d States. B u t the fact t h a t the industry i n the midcontinent
area o f t h e U n i t e d States has not substantially curtailed operations
yet because o f the fuel shortage is because r i g h t now they are opera t i n g at t h e less t h a n 50 percent o f t h e i r capacity because o f the
prolonged floods on the Mississippi River and its t r i b u t a r y streams.
I f there is a diesel f u e l shortage now, w a i t u n t i l June. Because o f
the floods and slowly-receding waters a n d the almost t o t a l l y saturated situation i n the midcontinent farmlands, the farmers are not
yet i n t h e fields. Because o f t h e highwater, the outdoor construction
industry i s nearly motionless. W h e n the floods recede, when the
farmlands d r y o u t and the farmers' tractors are r u n n i n g 24 hours a
day, and when the construction industry, i n c l u d i n g the h i g h w a y construction i n d u s t r y , begins t o repair and reconstruct a f t e r the most
disastrous flood i n t h i s Nation's history, and when the barge i n d u s t r y
is expected t o make up on delayed shipments—play catch football so
t o speak—the fuel problems o f today w i l l be magnified many times
over a n d I t h i n k what we are t a l k i n g about today w i l l pale i n t o
insignificance.
T h e serious consequences t o the Nation's economy i f water-borne
commerce is curtailed cannot be overemphasized. I said 58 percent
of the t o t a l tonnage t h a t our industry hauls is transportation o f
energy f o r use by others.
O f t h i s t o t a l tonnage lapproximately 20 percent is coal to be used
as a boiler fuel f o r the electric u t i l i t y industry. T h e t o w i n g indust r y ' s i n a b i l i t y t o move sufficient coal would, of course, increase demands f o r distilled petroleum products b y those utilities equipped
t o b u r n o i l and able to find i t .
Since petroleum and coal are m a j o r commodities, the r i p p l e effect
w i l l c u r t a i l highway and r a i l traffic and electric power and a host o f
consumer production facilities.
There w i l l be other effects upon the Nation's economy; f o r example, the effect o f curtailment o f the movement o f waterborne agricult u r a l products and chemicals. I needn't r e m i n d t h i s committee o f
the balance-of-payments problems w h i c h t h i s N a t i o n faces.
95
A g r i c u l t u r e Secretary B u t z said recently t h a t a g r i c u l t u r a l products are one o f the most notable commodities i n w o r l d trade w h i c h
the U n i t e d States can sell o n a competitive basis.
A b o u t 80 percent o f the wheat, corn, soybeans, and other b u l k
grains a r r i v i n g a t the P o r t o f New Orleans f o r export a r r i v e by
water—about 20 m i l l i o n tons. T o t a l agricultural products m o v i n g on
the water ways i n 1971 was more t h a n 30 m i l l i o n tons. I f there is
insufficient movement o f these cargoes, America's farmers are going
to suffer and the Nation's international trade posture w i l l continue
to suffer.
Curtailment, as just a sidelight, o f water transportation service
w i l l also slow d o w n the much needed movement o f fertilizer f o r
1973 crops.
Other representatives o f the f a r m industry w i l l doubtless emphasize these points. W h a t I wish t o do is to h i g h l i g h t the significant
role which waterway transportation plays i n t h i s movement of
agricultural commodities.
Waterborne commerce basically consists o f the b u l k raw materials
o f industry. Chemicals are i n t h a t category. T h e effect of a reduction
i n the movement o f raw chemical materials is too complex f o r easy
analysis. B u t industrial p r o d u c t i v i t y a n d economic stability i n both
basic and finished product m a n u f a c t u r i n g would be f e l t throughout
the Nation's economy.
M r . Chairman, I have attempted i n very general terms to indicate
the present status a n d the expected status and impact of the critical
shortages o f fuel to move the products carried o n the nation's waterways. I t would be an understatement f o r me t o say t h a t the barge
and t o w i n g industry expects a difficult situation i n the months ahead.
I t is going t o be real tough. The companies are going t o do their
level best not t o go broke, not to have tieups.
H o w they w i l l accomplish that, I do not t h i n k anybody yet knows.
M y purpose has been to dramatize the need f o r this Nation to recognize the unique role w h i c h water transportation plays i n transporti n g o f energy f o r use by others, i n t r a n s p o r t i n g agricultural products
f r o m the farms o f t h i s N a t i o n and the heavy raw materials of
industry.
T h e only t h i n g we i n the waterways industry can hope f o r i n the
solution o f an admittedly very difficult problem is t h a t the fuel to
propel t h e waterborn transportation industry w i l l be treated f a i r l y
and equitably along w i t h the other methods o f transportation.
T h a t is a l l o f m y prepared statement, M r . Chairman.
[ T h e f u l l statement o f M r . S m i t h f o l l o w s : ]
96
Statement of
James R . S m i t h , P r e s i d e n t , The American Waterways O p e r a t o r s ,
Inc.
Before the
Senate Committee on Banking, Housing, and Urban A f f a i r s
On t h e F u e l Shortage
May 7 ,
1973
*
Mr. Chairman and members of t h e Committee:
My name i s James R . Smith.
Waterways O p e r a t o r s ,
Inc.
I am p r e s i d e n t o f The American
On b e h a l f o f AWO may I express our
a p p r e c i a t i o n f o r t h i s o p p o r t u n i t y t o present the f o l l o w i n g
testi-
mony :
The American Waterways O p e r a t o r s ,
a s s o c i a t i o n o f o p e r a t o r s o f towboats,
Inc.
is a national
tugboats and barges
trade
providing
t r a n s p o r t a t i o n s e r v i c e s , s h i p b e r t h i n g and harbor work on the
n a v i g a b l e w a t e r s of t h e U n i t e d S t a t e s .
Members o p e r a t e v e s s e l s on
t h e i n l a n d waterways and over c o a s t a l and seagoing r o u t e s on a l l
waterways o f the n a t i o n .
I n a d d i t i o n t o such c a r r i e r s ,
AWO's mem-
bers i n c l u d e s h i p y a r d s , w a t e r t e r m i n a l s , p o r t a u t h o r i t i e s ,
and
marine s e r v i c e companies.
As an important segment of t h i s N a t i o n ' s t r a n s p o r t a t i o n system,
t h e w a t e r t r a n s p o r t a t i o n i n d u s t r y i s deeply concerned over
and growing shortages o f t h e d i e s e l f u e l needed t o p r o p e l
industry.
present
this
To determine t h e b r e a d t h o f t h e d i e s e l f u e l problem on
t h e i n l a n d and c o a s t a l waterways and t o determine t h e impact o f
97
present and expected f u e l s h o r t a g e s , AWO has c r e a t e d an ad hoc comm i t t e e c o n s i s t i n g of both members and nonmembers.
My testimony
today i s a d i s t i l l a t i o n of t h i s committee's " f i r s t c u t " a t
the
problem.
I n o r d e r t o a p p r e c i a t e the importance of s u f f i c i e n t f u e l
keep t h e N a t i o n ' s waterborne commerce moving, l e t me b r i e f l y
c a t e t h e s i z e and makeup of t h i s i n d u s t r y .
to
indi-
I n 1972 t h e barge and
towing i n d u s t r y moved n e a r l y 600 m i l l i o n tons of cargo over some
2 6 , 0 0 0 m i l e s of i n l a n d waterways f o r a grand t o t a l o f more than
210 b i l l i o n t o n - m i l e s .
T h i s r e p r e s e n t s about 16 percent of t h e
N a t i o n ' s t o t a l t r a n s p o r t a t i o n of commodities.
This industry
util-
i z e s 4 , 2 3 0 towboats and tugs and 1 9 , 6 2 4 barges of a l l k i n d s t o move
b u l k commodities e s s e n t i a l t o t h e N a t i o n ' s economy.
Additionally,
t h e r e i s a t w o - y e a r backlog, of orders i n shipyards which b u i l d
barge and towing v e s s e l s .
There a r e a t l e a s t 40 high-powered tow-
boats under c o n s t r u c t i o n and scheduled f o r o p e r a t i o n t h i s
p l u s u n t o l d numbers of
year
barges.
As you know, the water t r a n s p o r t a t i o n i n d u s t r y i s
singularly
w e l l equipped f o r t h e movement o f bulk commodities and p r o v i d e s t h e
most e f f i c i e n t use o f f u e l of any of the modes of
transportation.
The i n d u s t r y ' s modern equipment t r a n s p o r t s more t o n - m i l e s per g a l l o n
of f u e l consumed t h a n any o t h e r mode.
These commodities
include
chemicals, a g r i c u l t u r a l p r o d u c t s , raw m a t e r i a l s of i n d u s t r y ,
petroleum,
and a host of
coal,
others.
When we speak o f the v a r i e d commodities moving over the w a t e r ways i t
i s i m p o r t a n t t o note t h a t n e a r l y 58 percent of a l l
the
98
products moving by w a t e r c o n s i s t s of some form o f energy f o r use by
others.
Coal, l i g n i t e ,
crude and r e f i n e d p e t r o l e u m products such
as g a s o l i n e , d i e s e l f u e l ,
and h e a t i n g o i l a r e t h e p r i n c i p a l com-
ponents of t h i s 58 p e r c e n t .
Small wonder then t h a t t h e
towing
i n d u s t r y i s so concerned over d i e s e l f u e l needed t o move t h i s
for
energy
others.
An i n i t i a l s t a f f study of t h e b r e a d t h of t h e problem,
accom-
p l i s h e d p r i m a r i l y by t e l e p h o n e c o n t a c t s w i t h members i n v a r i o u s
parts of the United States,
i n d i c a t e s an ever i n c r e a s i n g
difficulty
i n s e c u r i n g s u f f i c i e n t q u a n t i t i e s of f u e l ; p r e s e n t and impending
r a t i o n i n g by f u e l s u p p l i e r s ;
i n c r e a s e d p r i c e s i n most a r e a s ;
exten-
s i v e s e a r c h i n g and c o s t l y r e t r a n s p o r t a t i o n of e s s e n t i a l f u e l
from
d i s t a n t p o i n t s ? as w e l l as o c c a s i o n a l t i e u p s of equipment f o r
of f u e l .
Thus f a r
lack
i n 1973 t h e impact o f d i e s e l f u e l s h o r t a g e s has
been s p o t t y on a g e o g r a p h i c a l basis except i n m i d - c o n t i n e n t
America,
p r i m a r i l y on t h e M i s s i s s i p p i R i v e r System from about Memphis u p s t r e a m .
The s i t u a t i o n i s most s e r i o u s i n t h e Midwest from S t . L o u i s
an a r e a h e a v i l y dependent on barge t r a f f i c f o r
north,
i m p o r t a t i o n of
o i l and b u l k commodities f o r m a n u f a c t u r i n g and f o r t h e e x p o r t
grain.
fuel
of
Some tows t r a v e l i n g n o r t h from t h e G u l f Coast have been
s t r a n d e d i n t h e S t . L o u i s a r e a because t h e y were unable t o purchase
f u e l t h e r e e i t h e r t o c o n t i n u e upstream o r make a r e t u r n t r i p .
t h a t a r e a f u e l s u p p l i e r s s e r v i c i n g t h e towing i n d u s t r y a r e
it
increasingly d i f f i c u l t
t o secure s u f f i c i e n t f u e l f o r
In
finding
their
customers.
The f a c t ,
however, t h a t t h e i n d u s t r y i n t h a t a r e a has not
s t a n t i a l l y c u r t a i l e d o p e r a t i o n s because of f u e l i s because t h e
sub-
99
i n d u s t r y i s now o p e r a t i n g a t l e s s than 50 percent c a p a c i t y because
o f the prolonged f l o o d s on t h e M i s s i s s i p p i and i t s t r i b u t a r y
streams.
I f t h e r e i s a d i e s e l f u e l c r i s i s now, w a i t u n t i l June.
Because of the f l o o d s and s l o w l y r e c e d i n g w a t e r s ,
farmers a r e not y e t i n t h e f i e l d s .
Because of h i g h water the o u t -
door c o n s t r u c t i o n i n d u s t r y i s n e a r l y m o t i o n l e s s .
r e c e d e ; when t h e f a r m e r s *
the construction industry,
industry,
mid-continent
When the f l o o d s
t r a c t o r s a r e r u n n i n g 24 hours a day; when
i n c l u d i n g the highway c o n s t r u c t i o n
begins t o r e p a i r and r e c o n s t r u c t a f t e r t h e most d e v a s t a t i n g
flood i n the Nation's h i s t o r y ,
and when t h e barge i n d u s t r y w i l l be
expected t o c a t c h up on t h e movement of d e l a y e d shipments,
problems of today w i l l be m a g n i f i e d many times
fuel
over.
The s e r i o u s consequences t o the N a t i o n ' s economy i f
waterborne
commerce i s c u r t a i l e d by l a c k of f u e l cannot be overemphasized.
I have i n d i c a t e d ,
58 percent of the t o t a l tonnage our i n d u s t r y moves
i s energy f o r o t h e r s .
Of t h i s t o t a l tonnage a p p r o x i m a t e l y 20 percent
i s c o a l to be used as b o i l e r f u e l f o r the e l e c t r i c u t i l i t y
industry.
C u r t a i l m e n t s of c o a l movements w i l l cause s e r i o u s r e p e r c u s s i o n s
the e l e c t r i c
i n d u s t r y and w i l l
i n c r e a s e demands f o r d i s t i l l e d
leum products by those u t i l i t i e s equipped t o burn o i l and a b l e
find
As
in
petroto
it.
Since p e t r o l e u m and c o a l a r e major i n l a n d waterborne commodi-
ties,
if
they cannot move, t h e " r i p p l e e f f e c t " w i l l c u r t a i l
and r a i l t r a f f i c ,
highway
e l e c t r i c power and a host of consumer p r o d u c t i o n
industries.
There are a few a d d i t i o n a l e f f e c t s upon the N a t i o n ' s economy
that
I should l i k e t o c a l l t o the Committee's a t t e n t i o n .
These a r e
100
t h e e f f e c t s o f c u r t a i l m e n t of t h e movement o f waterborne
t u r a l products and c h e m i c a l s .
agricul-
I need not remind t h i s Committee o f
t h e balance o f payments problems which t h i s N a t i o n f a c e s .
Agri-
c u l t u r e S e c r e t a r y Butz has r e c e n t l y s a i d t h a t a g r i c u l t u r a l
produce
i s one o f t h e most n o t a b l e commodities o f w o r l d t r a d e which t h e
U n i t e d S t a t e s can s e l l on a c o m p e t i t i v e b a s i s .
A p p r o x i m a t e l y 80
p e r c e n t of the wheat, c o r n , soybeans and o t h e r b u l k g r a i n s
arriving
a t t h e P o r t of New O r l e a n s f o r e x p o r t a r r i v e t h e r e by w a t e r .
Last
y e a r t h e t h r o u g h - p u t o f b u l k g r a i n s a t t h e P o r t of New O r l e a n s
approximated 20 m i l l i o n t o n s .
T o t a l a g r i c u l t u r a l product moving on
t h e i n l a n d waterways approaches 30 m i l l i o n tons a n n u a l l y .
insufficient
If
there
f u e l t o move these c a r g o e s , t h e N a t i o n ' s f a r m e r s and
the N a t i o n ' s i n t e r n a t i o n a l trade posture w i l l
suffer.
Curtailment of water t r a n s p o r t a t i o n service w i l l
t h e much-needed movement o f f e r t i l i z e r
t h e i r 1973 c r o p s .
a l s o slow down
t o midwestern f a r m e r s
for
Although I am s u r e t h a t r e p r e s e n t a t i v e s o f
o r g a n i z a t i o n s and s h i p p e r s w i l l emphasize t h i s p o i n t ,
farm
I wish t o
h i g h l i g h t t h e s i g n i f i c a n t r o l e which waterborne t r a n s p o r t a t i o n
i n t h e movement of a g r i c u l t u r a l
A significant
category.
commodities.
p o r t i o n o f w a t e r b o r n e commerce c o n s i s t s o f
b u l k raw m a t e r i a l s of i n d u s t r y .
I n d u s t r i a l chemicals a r e i n
the
that
The e f f e c t of a r e d u c t i o n i n t h e movement o f raw c h e m i c a l
m a t e r i a l s i s t o o complex f o r easy a n a l y s i s .
jobs,
plays
Suffice i t
i n d u s t r i a l p r o d u c t i v i t y and economic s t a b i l i t y
and f i n i s h e d product m a n u f a c t u r i n g would be f e l t
N a t i o n ' s economy.
t o say,
that
i n both b a s i c
throughout
the
is
101
Since 1952 r e c o r d s kept by my o f f i c e i n d i c a t e t h a t
nearly
9 , 0 0 0 major p r o d u c t i o n i n d u s t r i e s have l o c a t e d on t h e N a t i o n ' s
n a v i g a b l e w a t e r , p r i m a r i l y t o t a k e advantage of l o w - c o s t
transportation
(average cost t h r e e m i l l s per
Mr. Chairman,
barge
ton-mile).
I have attempted t o address i n g e n e r a l terms
the present s t a t u s and t h e expected s t a t u s and impact of
critical
shortages of f u e l t o move those e s s e n t i a l commodities c a r r i e d on
our N a t i o n ' s waterways.
It
i s an understatement f o r me t o say
t h a t the barge and towing i n d u s t r y expects a v e r y d i f f i c u l t
situa-
t i o n i n t h e months ahead.
the
My purpose has been t o d r a m a t i z e
need f o r t h i s N a t i o n t o r e c o g n i z e the unique r o l e which w a t e r
t r a n s p o r t a t i o n p l a y s i n t h e t r a n s p o r t i n g o f energy t o be used by
others,
a g r i c u l t u r a l products and the heavy raw m a t e r i a l s o f
i n d u s t r y so t h a t i n the s o l u t i o n of an a d m i t t e d l y v e r y
difficult
problem t h e f u e l t o p r o p e l the waterborne t r a n s p o r t a t i o n
i s t r e a t e d f a i r l y and e q u i t a b l y .
industry
102
M r . SMITH. M r . Chairman, may I present M r . Bernard Goldstein.
H e may have a w o r d o r t w o w h i c h he w o u l d l i k e t o offer v o l u n t a r i l y ,
o r i f y o u wish, we can w a i t and he can answer any questions w h i c h
y o u care t o propound.
Senator MCINTYRE. I w o u l d be happy to hear f r o m you, M r . Goldstein, i f you w a n t t o a d d something t o what M r . S m i t h has said.
M r . GOLDSTEIN. I thought, i n order to b r i n g i t i n t o perspective, we
could say o u r problems d o not exist later on t h i s summer b u t they
exist r i g h t now. W e operate six towboats on the Mississippi R i v e r
anjd we have been g e t t i n g o u r fuel at Davenport, I o w a ; St. Louis,
M o . ; and Cairo, 111.
W e need about 450,000 gallons a month. Standard O i l at Davenport, I o w a , announced t h a t they w i l l no longer sell f u e l o i l t o towboats.
O u r dealer at St. Louis says he can only give us 190,000 gallons
a month.
O u r dealer a t Cairo, 111. has shut us off almost entirely. W e have
a situation r i g h t now where we are getting less t h a n 50 percent o f
t h e fuel we w i l l need.
A s soon as the locks open up again on the Mississippi River, we
are g o i n g t o have t o operate i n order t o get t h a t -grain m o v i n g t o
the g u l f . W i t h o u t fuel o i l , we cannot do i t , and the g r a i n bins i n
I o w a are already filled. I f we cannot move the g r a i n d o w n t o New
Orleans f o r export, they are going t o r o t i n the fields t h i s f a l l and
our balance o f payments is going to r o t r i g h t w i t h them.
Senator MCINTYRE. IS y o u r dealer just allocating to y o u w h a t he
is allocating across the board t o other customers o r is he deciding
t h a t tugboats are not i m p o r t a n t ?
M r . GOLDSTEIN. The one i n St. Louis got the cut 50 percent f r o m
his suppliers, Shell and C l a r k . Standard O i l a t Davenport j u s t
announced no more fuel o i l f o r towboats.
T h e y have got t o take care o f somebody else. T h e same t h i n g is
true f o r the M o b i l O i l dealer d o w n at Cairo, 111. H e has been cut
back 75 percent a t Cairo, 111. So they are not getting i t and they
cannot deliver i t to us.
W e are not a b i g company. W e are a small company. W e do n o t
have influence w i t h the b i g o i l companies. Therefore, we have t o do
w h a t we can. W e do not k n o w where to t u r n .
Senator MCINTYRE. HOW small are you ?
M r . GOLDSTEIN. W e represent about 5 percent of the barge g r a i n
t h a t moves to New Orleans. There is more than $3 b i l l i o n w o r t h o f
g r a i n m o v i n g t o New Orleans f r o m I o w a , Minnesota, Wisconsin,
I l l i n o i s , and Missouri, and we move about 5 percent of that.
I t h i n k we are representative. B u t we p i c k up f r o m a l l the g r a i n
terminals along the Mississippi River i n eastern I o w a and western
Illinois.
Some are b i g companies, some are small companies, some are
coops. W e come back then w i t h fertilizer, F l o r i d a fertilizer f o r the
I o w a fertilizer people and we also come back up w i t h coal f o r the
powerplants i n o u r area i n I o w a and western Wisconsin.
Senator MCINTYRE. W h y is i t i m p o r t a n t t h a t we move t h a t g r a i n ?
M r . GOLDSTEIN. I f we do not move the g r a i n w h a t are we g o i n g t o
103
do w i t h it? W e may as w e l i t e l l the farmer to forget about p l a n t i n g
i t i f we cannot move i t t o the customers.
Senator MCINTYRE. DO you have a n y t h i n g else you want t o add?
M r . GOLDSTEIN. One more t h i n g . W e w i l l move more ton-miles per
gallon o f fuel o i l t h a n any other method o f transportation because of
the efficiency o f water transportation.
Senator MCINTYRE. I want t o explain t o you, the reason f o r the
panel, o f course, is i n the interest o f time, and we ihave given you
an ample opportunity t o state the case f o r your particular industry,
which is p a r t o f the record, which is what we are really p u m p i n g
f o r here t h i s morning.
B u t I w o u l d l i k e t o ask generalized questions o f the f o u r o f you.
One is, what difficulty o r w h o do you go to o r who w o u l d you get i n
touch With f o r representative government i n this problem, as you
see i t today, as existing i n your industry ?
A r e you h a v i n g any difficulty f i n d i n g out who i n industry i s the
man t o see? W e w i l l start w i t h the airlines here, M r . Ignatius.
M r . IGNATIUS. I t h i n k one of the problems as many people have
noted, M r . Chairman, is there are a l o t o f people i n the executive
branch of the government who are concerned one way o r the other
w i t h the energy problem.
There seems to have been some changes made recently to c l a r i f y i t
and desirably so. I n our case, i n connection, f o r example, w i t h the
release o f in-bond fuel f o r domestic use, I directed m y letter to M r .
Charles Simon o f the Treasury Department, who seems t o be the
one most directly concerned w i t h this. I would say finally t h a t I
t h i n k i t would be very h e l p f u l to a l l of us i f f u r t h e r clarifications of
executive department responsibility could be made and we could be
i n f o r m e d of i t .
Senator MCINTYRE. W h e n you are i n a t i g h t situation, which I
t h i n k a l l o f us are one way or the other and we have said t h a t we
are i n and expect t o continue t o be, i t helps an a w f u l l o t i f you can
go t o a single p o i n t t o get the problem understood and resolved.
So, I t h i n k any f u r t h e r clarification o r fixing o f responsibility,
more i m p o r t a n t l y i n f o r m i n g people where they ought t o go, would
be helpful.
M r . Barton, before you answer t h a t question, w o u l d you agree
generally w i t h w h a t M r . S m i t h had t o say about agriculture and
t h e movement o f grains, and when the flood waters recede there are
going to be problems d o w n there—you just heard h i m say you t h i n k
you have problems today, w a i t u n t i l June. Do you agree w i t h him?
M r . BARTON. Yes; I agree generally w i t h him. I d i d not emphasize as much as he d i d the transportation aspect o f the problem—the
problems of transporting fertilizer, seed, etc. This is a real problem,
and one t h a t is being postponed to a large extent, as he pointed out,
by the floods t h a t have kept farmers out o f the fields. They are
getting into the fields now, and this w i l l be a g r o w i n g problem.
A g a i n , I d i d not emphasize the problem o f m o v i n g g r a i n and
agricultural products off the f a r m a t harvest time. W e have had
tremendous problems generally, not just w i t h barges but w i t h railroads, adequate cars on railroads and so on, to move grain d u r i n g
the past year.
104
W e made the b i g g r a i n sale t o the Soviet U n i o n last year o f some
420 m i l l i o n bushels o f wheat. A great deal o f t h a t is s t i l l t o be
moved. W e are placing greater reliance t o balance our payments on
agricultural exports. W e have net a g r i c u l t u r a l exports now o f several billions o f dollars and we are increasingly p l a n t i n g f o r export.
Furthermore, i f we are going to meet the food needs i n t h i s country
t h i s year—and t o do t h i s the A g r i c u l t u r e Department has opened u p
some 50 m i l l i o n additional acres o f l a n d to production this year t o
increase production o f livestock and feed grains going i n t o livestock
—the fuel needs of farmers w i l l be increased substantially. I f this
additional 50 m i l l i o n acres is planted, i t w o u l d be about a 16-percent
increase i n land open t o field production. W e have had about 300
m i l l i o n acres o f cropland. T h i s w o u l d increase i t t o about 350 m i l l i o n
acres.
N o w , on the specific question t h a t you asked, I t h i n k farmers tend
t o go t h r o u g h the Department of A g r i c u l t u r e a n d to approach other
departments and agencies o f the Government o n f u e l problems
t h r o u g h the A g r i c u l t u r e Department. T h i s is not the case, o f course,
w i t h Central Exchange and the larger cooperatives.
I n t h a t regard, I would simply add, consistent w i t h w h a t M r .
I g n a t i u s has said, I t h i n k there w o u l d be some real benefit i n clarif y i n g where you go and just who is h a n d l i n g w h a t i n the Government.
Senator MCINTYRE. M r . K i l e y , are members o f y o u r association
experiencing any difficulty i n finding just who i n the Federal Government t o see about f u e l supplies ?
M r . KILEY. YOU have p u t your finger on the whole p r o b l e m : W e
do not know where t o go. W h e n we first went i n t o this situation
last year, we went t o the only agency we knew. They s i m p l y sympathized but they have no authority.
Today we are being asked to keep the Cost of L i v i n g Council informed about t h e prices. T h i s is not our problem. There is no place
to go t o see t o i t t h a t we get the fuel we need. T h i s is -the very
problem of the authorities i n our laws today.
T h i s is the question we are g e t t i n g f r o m our carriers every d a y :
W h a t are we going t o do? W e cannot force the petroleum i n d u s t r y
to supply us, they are unregulated industry, but we have regulated
carriers, The Interstate Commerce Commission is the one t h a t w o u l d
make us p e r f o r m the service that we have to perform.
I suppose t h a t they are the ones to whom we would complain when
we cannot get the fuel t o carry out the necessary service. B u t where
do they go?
No, sir, this is the No. 1 problem, as we see i t . There is a problem,
there is not going t o be enough fuel f o r transportation service b u t
where do you go t o get action on it? I t h i n k this is the problem t h a t
we are faced w i t h .
Senator MCINTYRE. M r . S m i t h ?
M r . SMITH. M r . Chairman, when you p u t t h a t question a l i t t l e
while ago, I started t h i n k i n g about where to go f o r information. Just
to list a few, the Office o f Emergency Preparedness which is now
being broken u p ; there are several agencies o f the Department o f
Transportation involved i n energy and f u e l ; there are a number o f
105
different agencies o f the Department o f the I n t e r i o r t h a t are involved; the Treasury is involved; Federal Power Commission i s
involved. C A B is involved relating to the airline i n d u s t r y ; O M B is
involved; the Domestic Council is involved; Secretary B u t z and his
new N a t u r a l Resources Council, as counselor t o the President, i s
involved. I f you should ask me where to go t o get answers, I w o u l d
have to confess t h a t I t h i n k the administration and the W h i t e House
has a problem o f getting a handle on where citizens go t o get
answers and who makes decisions.
I t is a very fragmented situation i n this Nation o f ours today. I
t h i n k the problem is serious enough t h a t t h a t fragmentation ought
to be resolved.
Senator MCINTYRE. M r . K i l e y , some time ago St. Johnsbury Trucki n g outfit up i n New E n g l a n d , w h i c h does a lot of m o v i n g of f r e i g h t
and stuff around the New E n g l a n d area where I come f r o m , indicated they were on the spot as t o where upcoming supplies of diesel
o i l or fuel or whatever they wanted were coming f r o m .
I understand f r o m the staff t h a t has been i n touch w i t h them t h a t
they are l i v i n g on sort of a month-to-month basis. B u t i f we projected into the f u t u r e something of what M r . S m i t h is t a l k i n g about,
what are you people i n t r u c k i n g going to do ? H o w are you going to
operate i f you cannot get 40 percent o f the fuel t h a t you normally
have?
M r . KILEY. There is going to have to be a curtailment o f service.
F o r example, I suppose we would have to petition the I C C t h a t the
regulated carrier be temporarily relieved of the requirement not give
f o r regular service. I n other words, not schedule d a i l y service t o
some areas, because we cannot, send out a half-loaded truck. W e m i g h t
ask f o r the r i g h t to discontinue serving some points every day, serve
them once or twice a week.
I t m i g h t even come down to the horrible situation of embargoing
certain types o f traffic. W e have not faced t h a t yet but we could.
B u t we w i l l have to go t o the I C C because our carriers who are
under regulation have certificates which say you must serve these
points, you must carry these commodities.
B u t t h a t is a very real problem. F o r example, pickup and delivery
service would have to be consolidated. I t would make an a w f u l l o t
of people unhappy, but this is what we would have to do i f we do
not get enough fuel.
I f you cut back 40 percent of the fuel, you are going to cut back
40 percent o f the service. I t is as simple as that.
Senator MCINTYRE. I t h i n k , when you go back to your office, t h a t
you had better get your plans going.
M r . KILEY. W e move the great m a j o r i t y , practically all o f the
petroleum i n transportation i n the short h a u l — I am t a l k i n g now
about gasoline—for example moves by highway t a n k truck.
Y o u would t h i n k that they could get i t i f nobody else can. B u t
they cannot get i t i n some areas. I n many parts o f the country our
tank t r u c k carriers, because they cannot get adequate supplies o f
diesel, are unable to make gasoline deliveries.
Senator MCINTYRE. M r . Barton, you inferred that your exchange
had two refineries and t h a t something like 55 or 6 0 — i do not know,
106
you d i d not give me a figure on how much domestic crude you were
depending upon. One o f y o u r plants is 45 o r 55 percent Canadian.
W h e n y o u go t o y o u r domestic producer today, he is beginning, y o u
indicated, to show a lack of interest i n you because of the fact t h a t
the fees are no longer as valuable as the tickets were a year o r t w o
ago, the tickets t h a t y o u r people could give h i m .
M r . BARTON. Yes, I indicated t h a t i t is increasingly difficult f o r
Central Exchange, f o r example, to trade tickets, so t o speak, w i t h a
m a j o r o i l company t h a t is i m p o r t i n g oil, so t h a t the m a j o r — l e t us
say i t is G u l f O i l C o . — w i l l supply o i l t h a t is available i n the m i d western area t o Central Exchange and, i n t u r n G u l f w i l l i m p o r t a
comparable amount o f o i l f r o m the M i d d l e East o r wherever they
are g e t t i n g the oil. T h e idea, as I understand i t , is the majors are
saying w i t h the fee system t h a t has been introduced under the new
regulations, i t is less profitable f o r them t o i m p o r t o i l and replace
t h e i r domestic o i l t h a t o r d i n a r i l y would be made available t h r o u g h
the tickets t o our people i n the Midwest.
The general problem is t h a t the Midwestern and Central p a r t o f
the U n i t e d States is on the end of the d i s t r i b u t i o n system. W h e n
supplies tighten, i t is increasingly difficult t o get ample o i l i n this
area o f the country.
[ T h e f o l l o w i n g material was inserted:]
RESOLUTIONS
ADOPTED B Y . T E X A S F A R M E R S U N I O N
WACO, TEX., APRIL 2 8 , 1 9 7 3
B O A R D OF
DIRECTORS,
F U E L SHORTAGE
Whereas, considerable controversy is n o w e x i s t i n g i n the n a t i o n , w i t h housewives concerned w i t h the " h i g h " price of some f a r m commodities a t the r e t a i l
level;
Whereas, r e t a i l f o d prices reflect m a n y cost f a c t o r s t h r o u g h o u t the f o o d
processing chain, i n c l u d i n g the rise a n d f a l l of f a r m c o m m o d i t y supplies a t
the f a r m g a t e ;
Whereas, the h e a l t h a n d well-being of our n a t i o n depends upon a steady,
dependable supply of f a r m goods;
Whereas, the supply of f a r m commodities is being threatened by reputed
shortages of diesel, gasoline, a n d other f a r m fuels necessary f o r p l a n t i n g ,
c u l t i v a t i o n , a n d h a r v e s t i n g of the nation's c r o p s ;
Whereas, a serious f u e l shortage could b r i n g " e x o r b i t a n t l y " h i g h e r prices a t
t h e r e t a i l food store level, therefore be i t
Resolved by the full Board of Texas Farmers
Union, T h a t Congress should
set aside gasoline, diesel, a n d other f u e l usage p r i o r i t i e s w i t h a g r i c u l t u r e as
h a v i n g top p r i o r i t y ; Be i t f u r t h e r
Resolved, Congress should use i t s a u t h o r i t y a n d pursuasive powers to see
t h a t a ceiling is placed on f a r m fuel prices a t a level n o t to exceed prices on
the date t h a t ceilings were imposed on beef prices.
I N D E P E N D E N T F U E L DISTRIBUTORS
Whereas, the n a t i o n is faced w i t h a n i m p e n d i n g energy c r i s i s ;
Whereas, t h i s alleged crisis is being used as j u s t i f i c a t i o n t o r a t i o n a n d
sometimes refuse to deliver fuels to independent wholesalers a n d jobbers supplying agricultural areas;
Whereas, t h e loss of these f a r m f u e l r e t a i l outlets w i l l seriously i m p a i r
tihe adequate d i s t r i b u t i o n of f a r m fuels needed to produce the food a n d fiber
necessary f o r the nation. T h e r e f o r e be i t
Resolved by the Texas Farmers
Union Board of Directors,
T h a t Congress i s
u r g e d t o i n i t i a t e a n i n q u i r y i n t o the practice by m a j o r o i l companies o f
107
d i s c r i m i n a t i o n o f independents a n d jobbers i n f u e l deliveries a n d s c h e d u l i n g ;
Be i t f u r t h e r
Resolved, T h a t the Texas R a i l r o a d Commission investigate t h i s m a t t e r w i t h
the purpose o f g u a r a n t e e i n g equal t r e a t m e n t f o r f u e l d i s t r i b u t o r s i n r u r a l
a r e a s ; Be i t f u r t h e r
Resolved, T h a t t h e B o a r d recognize a n d endorse the efforts o f t h e associat i o n o f jobbers i n t h e i r efforts t o g a i n f a i r t r e a t m e n t i n f u e l deliveries a n d
cooperate w i t h t h e m i n t h e i r efforts t o supply a g r i c u l t u r a l producers needed
f a r m fuels.
Senator MCINTYRE. O f the f o u r members o f the panel who are
here, who deal w i t h obtaining the contracts, you indicated, M r .
Ignatius, t h a t i n the contract field you were not h a v i n g any trouble
although there were certain signs on the horizon t h a t you d i d not
like too much as you explained t o us about t h a t cost o f 1 cent f o r an
increase i n jet fuel. B u t you are not experiencing any difficulty i n
procuring contracts f o r the delivery o f jet fuel on time, is t h a t r i g h t ?
M r . IGNATIUS. NO, t h a t is not what I meant to convey.
W e have had some problems. They consist o f t w o l a n d s :
F i r s t , last January we had problems getting delivery under existi n g contracts—this is, what the contracts called for. T h a t tended t o
be localized and we surmounted i t by p r o m p t action.
W e are experiencing difficulties i n the negotiation of new contracts
to replace existing contracts as they expire.
F o r example, one o f the contractual methods t h a t the airlines
employ is a requirements contract w i t h the supplier t o meet our
needs. W e have had some problems i n negotiating requirements contracts of this k i n d .
Secondly, we are encountering cost increases t h a t give some bases
f o r believing t h a t we w i l l be h a v i n g some significant increases i n the
cost o f our jet fuel.
So, we have got both w a r n i n g signals and actual experience i n
renewal o f o l d contracts that give us pause, both w i t h respect t o
sufficiency o f the fuel we need, availability o f the fuel we need, as
well as the price, what i t is going to cost us.
Senator MCINTYRE. Gentlemen, I do not want to be g u i l t y of leadi n g you i n any respect b u t I am going to ask one more question.
I am g o i n g t o t r y t o ,phrase i t this way. I n your opinion, should
not the President begin immediately t o use the authority under the
Economic Stabilization A c t to set up these plans f o r fuel allocation ?
W h a t is y o u r feeling on that?
M r . Smith, do you understand the question ?
M r . SMITH. Y e s , s i r .
I suspect that some of the members of the American Waterways
Operators would say the President should. T h e question has never
been put to the organization and I am i n no position to enunciate the
policy of A M O .
I t has never gone to our board. I would suggest, however, that
when and i f i t becomes unmistakeably clear t h a t the free market
system w i l l not operate t o keep our industry mobile and i n operation
t h a t our B o a r d w i l l address that problem very specifically and may
come up w i t h a policy declaration which would agree w i t h some of
the others here today.
I am not w i l l i n g , nor able to say that I t h i n k we should—at this
moment. I f we find a pattern i n t h i s — i t is t h a t there is no pattern.
9 6 - 1 8 3 O - 73 - 8
108
There are spot shortages. There are many. They are c r i t i c a l i n some
areas of the Nation.
I n the other areas they are not so bad. There is contract problems.
B u t t h a t , too, is very spotty. V e r y f r a n k l y , I have not detected the
k i n d o f a pattern t h a t w o u l d make me say, even personally, t h a t
this is the moment t h a t the President should act.
M r . GOLDSTEIN. I w o u l d like to answer on behalf o f our company.
I believe the President should act immediately—this afternoon.
M r . KILEY. Immediately. H e should act immediately.
M r . BARTON. W e w o u l d certainly agree w i t h t h a t , M r . Chairman.
T h e President should have already acted, among other reasons,
because we are losing the independent outlets. Congressmen Les
A s p i n , I believe just d u g u p i n f o r m a t i o n yesterday t h a t several
hundred gas outlets, independent retailers, have already been cut off.
M r . IGNATIUS. M r . Chairman, I believe t h a t the administration
should act immediately, and I understand has begun t o develop a
contingency plan f o r the allocation o f fuels and the establishment
of <a priorities system. I t h i n k t h a t is necessary today.
Secondly, based on the i n f o r m a t i o n I have, I do not believe t h a t
i t w o u l d be necessary a t this point i n t i m e to p u t an overall p r i o r i t y
and allocation system into effect, b u t I believe plans f o r d o i n g i t
should be prepared as a matter of urgency.
M r . IGNATIUS. The administration spokesmen have said t h a t they
expect the imbalance between supply and demand over the coming
summer t o be on the order o f 3 or 4 percent and on a more optimistic
projection possibly to come out even.
I f t h i s is true, w h a t we have, then, w i l l be d i s t r i b u t i o n problems
and spot shortages. A n d I t h i n k i t is extremely i m p o r t a n t t h a t the
administration look at each o f the transportation modes as w e l l as
other industries o r service o f a v i t a l type t h a t require petroleum
products and make plans at once t o relieve spot shortages as they
develop.
One specific remedy i n our case is the release o f in-bond f u e l f o r
domestic purposes. T h a t would remedy an immediate problem. I t i s
l i k e b o r r o w i n g a cup o f sugar f r o m the neighbor u n t i l you can go
t o the market.
I n time, we may have a problem t h a t requires more t h a n p r o m p t
relief o f spot shortages, and i n t h a t connection i t seems t o me we
have got to have an overall allocations and priorities plan, and t h a t
p l a n I am t o l d is under development and I believe should proceed
as a matter o f urgency.
Senator MCINTYRE. Gentlemen, unless there is some one here who
feels he has something else to add at this time, I want t o t h a n k a l l
of you f o r coming here t h i s m o r n i n g and g i v i n g us the benefit o f
y o u r feelings and experiences t h a t you are h a v i n g w i t h this g r o w i n g
situation w i t h the fuel industry and the fuel supply i n the country.
T h a n k you.
W e w i l l now move to our second panel. W e call as our next panel
M r . F r e d Dunikoski, vice president o f Transportation, Greyhound
Corp., National Association o f M o t o r Bus Owners, M r . C a r l V .
L y o n , general solicitor o f the Association o f American Railroads
and M r . James E . T e r r y , Emergency Diesel Fuel Task Force o f the
American T r a n s i t Association.
109
STATEMENT OF FRED DUNIKOSKI, VICE PRESIDENT, TRANSPORTATION, NATIONAL ASSOCIATION OF MOTOR BUS OWNERS,
CARL V. LYON, GENERAL SOLICITOR, ASSOCIATION OF AMERICAN RAILROADS, AND JAMES E. TERRY, EMERGENCY DIESEL
FUEL TASK FORCE OF THE AMERICAN TRANSIT ASSOCIATION
Senator MCINTYRE. I am glad to welcome you a l l here this m o r n i n g
and we w i l l proceed i n the fashion t h a t we already have, t r y i n g t o
h o l d your statement i n the v i c i n i t y o f 10 minutes.
Then at the conclusion of the three witnesses, we w i l l have a few
questions f o r you. W e are mainly concerned i n t r y i n g t o b u i l d a
record as you people are experiencing i t today w i t h this problem.
W e call on M r . F r e d Dunikoski o f Greyhound, representing both
Greyhound and the National Association o f M o t o r Bus Owners, t o
start off the proceedings.
M r . DUNIKOSKI. I f I may be permitted, a t m y l e f t I have M r .
A r t h u r Mitchell, who is vice president of purchasing f o r the Greyhound Corp. H e is not to give testimony unless i t is a question that
is asked o f me t h a t I do not have the technical i n f o r m a t i o n and he
is merely here to assist the committee should they want some additional answers I am not able to provide.
Senator MCINTYRE. W e are glad to welcome h i m here.
M r . MITCHELL. T h a n k y o u .
M r . DUNIKOSKI. I do have a statement which I would like t o
introduce into the record i n its entirety. I n addition to that, I w o u l d
l i k e t o summarize i n some areas or expand some o f the comments I
make.
Also, i f there is a n y t h i n g t h a t I do not have available i n answer to
the committee's questions, I would be most happy to provide to the
committee at a later date this information.
Sir, I am Frederick Dunikoski. I am vice president of transportat i o n f o r Greyhound Lines, Inc., the worlds largest intercity bus
company.
I very much appreciate this o p p o r t u n i t y t o appear before the
committee on behalf o f both Greyhound and the National Association
o f M o t o r Bus Owners t o discuss the bus industry's concern about the
energy crisis.
F i r s t of all, let me t r y to position the intercity bus industry i n this
country. F o r hundreds o f thousands o f Americans, the bus is the
only means o f transportation, public transportation available.
Most smaller and r u r a l communities do not have either commercial
airports or passenger t r a i n stations. B u t Greyhound and approximately 1,000 other intercity bus companies serve almost every village
and hamlet i n this country.
D u r i n g 1972, the bus industry carried 387 m i l l i o n passengers over
267,000 miles o f routes. The industry operated 1.8 b i l l i o n bus miles,
transporting passengers a total o f 25.6 b i l l i o n passenger miles. I
recite these statistics to give an impression of the importance of the
bus industry to the transportation of Americans.
B u t transportation is essential not only f o r the movement of people,
but also f o r the transportation o f packages—small packages—
throughout the Nation.
110
F o r example* the bus industry each day transports v i t a l blood
plasma, drugs and medications to hospitals and doctors i n locations
where no other f o r m of public transportation is available t o handle
this service.
Small business i n many of these communities rely on us t o t a l l y and
completely f o r f u r n i s h i n g them w i t h service, parts, replacement parts
and inventories—by bus, t h a t they could not get t h r o u g h any other
f o r m of transportation.
I n addition to that, i n relation to the importance of conserving
energy, I w o u l d like to make a few remarks about the efficiency of
intercity buses i n the utilization of energy as compared to other
forms of transportation before I provide you w i t h more specific
detail regarding Greyhound's experiencing i n obtaining f u e l supplies.
A publication " E n e r g y Intensiveness of Passenger and F r e i g h t
Transport Modes: 1950-1970" published A p r i l 1973, by E r i c H i r s t ,
a study sponsored by the National Science Foundation, buses were
f o u n d to be the most energy-efficient mode f o r intercity passenger
travel. Energy requirements f o r the f o u r most common traffic modes
were f o u n d to be as f o l l o w s :
Buses obtain 85 passenger miles per gallon of fuel, w h i l e railroads get 48
passenger miles, automobiles 40, and j e t a i r c r a f t only 16.
The report also indicates that pollutant emissions f r o m intercity
buses, on an average per-passenger-mile basis, are about 45 percent
less than emissions f r o m diesel-powered intercity passenger trains.
I cite these figures so that the committee can recognize the i m p o r t ance of an adequate supply of fuel f o r the i n t e r c i t y bus i n d u s t r y i n
terms of keeping the v i t a l American public transportation system
w o r k i n g at peak efficiency.
I have read much about the present energy crisis, b u t I do not
feel qualified to discuss the causes o r solutions to this serious national problem.
I can only relate the experience of Greyhound and other bus companies i n terms of our a b i l i t y to obtain the needed supply of diesel
fuel to keep our buses r o l l i n g as expected by the American public.
A g a i n , to f u r n i s h some perspective, let me i n f o r m you t h a t Greyhound used nearly 80 m i l l i o n gallons of diesel fuel i n 1972. W e
purchase fuel i n more than 100 locations f r o m over 10 suppliers,
mostly national companies. Let me also say t h a t this only represents
Greyhound's transportation activities and does not include any of the
requirements of other parts of the diversified Greyhound Corp.
B e g i n n i n g early this year, there have been shortages and resulting
r a t i o n i n g by our suppliers that have already had an effect on Greyhound's operations and represent a serious potential threat to the
Nation's transportation system.
I n January of this year I repeat, we were rationed i n the supply
of fuel. E a r l y i n January, two of our suppliers, American O i l and
Ill
Texaco, a r b i t r a r i l y began to ration our fuel supplies. I n the case of
American, we were allotted 80 percent and Texaco allowed us 75
percent. W e know o f other bus companies who had contracts w i t h
o i l companies t h a t expired d u r i n g the year and t h e i r suppliers refused to renew contracts and other suppliers would not even submit
bids.
I n one case I am personally f a m i l i a r w i t h , a carrier whose contract expired this year, none o f the major companies would come
f o r t h w i t h a bid. They were required to go to a local refinery, and
their fuel costs were increased over 50 percent i n t h e i r new contract
as opposed to the contract that expired.
I relate this to you because this is what is prevailing today i n the
bus industry.
W h i l e T do not specifically relate t o costs here today i n m y statement, I do want to point out that the costs are increasing tremendously and the people who are going to suffer w i l l be the people who
are- using our bus, and i n many instances these are people who do
not have automobiles or cannot drive, either because of their age or
because of their health or some other reason.
These are the people who are going to suffer w i t h these increased
costs, whereas I have not made costs a p r i m a r y issue i n my statement.
A s I point out to you, in January they started r a t i o n i n g our supply. A l l this was happening while there was no r a t i o n i n g whatever
of gasoline f o r pleasure purposes. A l t h o u g h esentially public carrier
transportation was having difficulty i n obtaining needed fuel, you
could easily find a gas station that would fill your car without
restriction.
Senator MCINTYRE. Were gas stations closing around you?
M r . DUNIKOSKI. I n some areas; most o f them independents, sir.
Actually, gasoline sales were being encouraged w i t h giveaways, a t
the same time
Senator MCINTYRE. W h a t do you mean by giveaways?
M r . DUNIKOSKI. Giveaways o f items when you were purchasing
gas—glasses, t r a d i n g stamps and other forms o f g i f t s to encourage
sales of gasoline.
Senator MCINTYRE. W h o was doing this ?
M r . DUNIKOSKI. M a n y major suppliers. They are doing i t today.
R i g h t today you can go down to many of your major suppliers, they
are encouraging the sales o f gasoline through giveaways, through
use o f t r a d i n g stamps as an incentive t o purchase gasoline—even
today, when everybody at the panel preceding me and I assume
people f o l l o w i n g me w i l l recite difficulties i n obtaining fuel. A s a
result of this rationing, we experienced shortages at Chicago, Washington, D.C., and New Y o r k .
112
Fortunately, we were able to obtain the ne-cessary f u e l f r o m other
sources, but we are well aware t h a t the day may be approaching when
there w i l l be no other sources t o t u r n to when our regular contractual
supplier reduces our allotment.
More recently, we have been notified by some suppliers t h a t we
w i l l be placed on an allotment based on a percentage of fuel each
month corresponding t o one-twelfth of our average annual use i n
1971.
N o t only does this reduce the t o t a l amount of diesel f u e l t h a t w i l l
be made available to Greyhound but i t does not take into account the
fact that our fuel needs are significantly greater i n the summer
months than d u r i n g much of the rest of the year. W e have no capaci t y to store large quantities of fuel d u r i n g the w i n t e r months to have
i t available d u r i n g the summer.
W h a t is at issue here is the fact that the o i l companies are t a k i n g
the responsibility of determining whether public carrier service w i l l
be available to cities and towns throughout the U n i t e d States. Today
bus companies have a responsibility to provide service as regulated
by the I C C and various State commissions. T h r o u g h these agencies
the public is assured of dependable, low-cost transportation.
The o i l campanics, through their r a t i o n i n g of fuel, adopted an
attitude that they, not Government regulatory agencies, w i l l determine whether and where service w i l l be provided. They have, i n fact,
established themselves as the regulatory body t h a t determines who
gets the fuel and how much they w i l l supply. There is no question
t h a t i f the fuel companies reduce or terminate the bus industry's
fuel supply, a reduction or termination of bus service w i l l follow.
This is a very real and positive threat that we believe requires
immediate action. The intercity bus industry believes t h a t Government and not the o i l companies should continue t o determine w h a t
the level of public carrier service should be or whether there should
be any at all.
W e strongly support legislation—and we strongly support the
position taken by you i n your letter to the P r e s e n t today—to enable the Government to set the priorities f o r the available supply of
f u e l rather than leaving such essential public decisions to the o i l
companies.
W e believe f i r m l y that the energy crisis has a potential f o r causing
great disruption of the American way of l i f e and we urgently hope
this committee and the Congress w i l l accept the responsibility o f
determining the most essential priorities i n p r o v i d i n g public transp o r t a t i o n t h r o u g h the judicious alocation o f the available fuel supply.
I appreciate the o p p o r t u n i t y to make this presentation, and I h o l d
myself available f o r any questions.
[ F u l l statement of M r . D u n i k o s k i f o l l o w s : ]
113
TESTIMONY OF
F R E D E R I C K DUNIKOSKI
V I C E P R E S I D E N T , G R E Y H O U N D LINES,
INC.
I a m F r e d e r i c k Dunikoski, Vice President of Transportation
for Greyhound L i n e s , Inc. , the world's largest intercity bus company.
I
v e r y much appreciate this opportunity to appear before the Committee on
behalf of both Greyhound and the National Association of Motor Bus Owners
to discuss the bus industry's concern about the energy c r i s i s .
F i r s t of a l l , l e t me try to position the intercity bus industry
in this country.
F o r hundreds of thousands of A m e r i c a n s , the bus is the
only means of public transportation available.
Most s m a l l e r and r u r a l communities do not have either
c o m m e r c i a l airports or passenger t r a i n stations.
But Greyhound and
approximately 1 , 0 0 0 other intercity bus companies serve almost every
village and hamlet in this country.
During 1972, the bus industry c a r r i e d 387 m i l l i o n passengers
over 267, 000 m i l e s of routes.
»
The industry operated 1. 8 billion bus m i l e s ,
transporting passengers a total of 25. 6 billion passenger m i l e s .
I recite
these statistics to give you an impression of the importance of the bus
industry to the transportation of A m e r i c a n s .
Bus transportation is essential not only for the movement
of people, but also for the transportation of packages throughout the nation.
114
F o r example, the bus industry each day transports v i t a l blood plasma,
drugs, and medications to hospitals and doctors in locations where no
other f o r m of public transportation is available to handle this s e r v i c e .
In relation to the importance of conserving energy,
I would l i k e to make a few r e m a r k s about the efficiency of i n t e r c i t y buses
in the utilization of energy as compared to other forms of transportation
before I provide you with m o r e specific detail regarding Greyhound's
experiences in obtaining fuel supplies.
In "Energy Intensiveness of Passenger and F r e i g h t T r a n s p o r t
Modes: 1950-1970", published A p r i l 1973, by E r i c H i r s t , a study sponsored
by the National Science Foundation, buses w e r e found to be the most
e n e r g y - e f f i c i e n t mode for i n t e r c i t y passenger t r a v e l .
Energy requirements
for the four most common t r a f f i c modes were found to be as follows:
Buses obtain 85 passenger m i l e s per gallon of fuel, while
r a i l r o a d s get 48 passenger m i l e s , automobiles 40, and
j e t a i r c r a f t only 16.
The report also indicates that pollutant emissions f r o m
intercity buses, on an average p e r - p a s s e n g e r - m i l e basis, a r e about 45
percent less than emissions f r o m d i e s e l - p o w e r e d intercity passenger t r a i n s .
115
I c i t e t h e s e f i g u r e s so t h a t the C o m m i t t e e c a n r e c o g n i / . c
the i m p o r t a n c e o f a n a d e q u a t e s u p p l y o f f u e l f o r the i n t e r c i t y b u s i n d u s t r y
i n t e r m s o f k e e p i n g the v i t a l A m e r i c a n p u b l i c t r a n s p o r t a t i o n s y s t e m
w o r k i n g at peak e f f i c i e n c y .
I h a v e r e a d m u c h a b o u t the p r e s e n t e n e r g y c r i s i s ,
I do n o t f e e l q u a l i f i e d t o d i s c u s s the c a u s e s o r s o l u t i o n s to t h i s
but
serious
national problem.
I c a n o n l y r e l a t e the e x p e r i e n c e o f G r e y h o u n d a n d o t h e r
b u s c o m p a n i e s i n t e r m s o f o u r a b i l i t y to o b t a i n the n e e d e d s u p p l y o f d i e s e l
f u e l to k e e p o u r b u s e s r o l l i n g as e x p e c t e d b y the A m e r i c a n p u b l i c .
Again,
to f u r n i s h s o m e p e r s p e c t i v e , l e t m e i n f o r m y o u
t h a t G r e y h o u n d u s e d n e a r l y 80 m i l l i o n g a l l o n s o f d i e s e l f u e l i n 1972.
p u r c h a s e f u e l i n m o r e t h a n 100 l o c a t i o n s f r o m o v e r 10 s u p p l i e r s ,
national companies.
L e t m e also say that this only r e p r e s e n t s
t r a n s p o r t a t i o n a c t i v i t i e s and does n o t i n c l u d e any of the
We
mostly
Greyhound's
requirements
of o t h e r p a r t s of the d i v e r s i f i e d G r e y h o u n d C o r p o r a t i o n .
Beginning e a r l y this year,
there have been shortages and
r e s u l t i n g r a t i o n i n g by o u r s u p p l i e r s that have a l r e a d y had an e f f e c t on
G r e y h o u n d ' s o p e r a t i o n s a n d r e p r e s e n t a s e r i o u s p o t e n t i a l t h r e a t to the
nation's transportation
system.
116
E a r l y in January, two of our suppliers, A m e r i c a n O i l
and Texaco, a r b i t r a r i l y began to ration our fuel supplies.
In the case
of A m e r i c a n , we were alloted 80 p e r - c e n t and Texaco allowed us
75 p e r - c e n t .
We know of other bus companies who had contracts with
oil companies that expired during the year and their suppliers refused
to renew contracts and other suppliers would not even submit bids.
A l l this was happening, of course, while there was no
rationing whatever of gasoline for pleasure purposes.
Although essential
public c a r r i e r transportation was having difficulty in obtaining needed
fuel, you could easily find a gas station that would f i l l your automobile
without r e s t r i c t i o n .
As a result of this rationing, we experienced shortages
at Chicago, Washington, D. C. and New Y o r k .
Fortunately, we were able
to obtain the necessary fuel f r o m other sources, but we a r e well aware
that the day may be approaching when there w i l l be no other sources to
turn to when our regular contractual supplier reduces our allotment.
M o r e recently, we have been notified by some suppliers
that we w i l l be placed on an allotment based on a percentage of fuel each
month corresponding to one-twelfth of our average annual use in 1971 .
117
Not only does this reduce the total amount of diesel
fuel that w i l l be made available to Greyhound, but it does not take into
account the fact that our fuel needs a r e significantly greater in the
summer months than during much of the rest of the y e a r .
We have
i.
no capacity to store l a r g e quantities of fuel during the winter months
to have it available during the s u m m e r .
What is at issue here is the fact that the oil companies
a r e taking the responsibility of determining whether public c a r r i e r
service w i l l be available to cities and towns throughout the United States.
Today, bus companies have a responsibility to provide service as
regulated by the Interstate C o m m e r c e Commission and various state
commissions.
Through these agencies, the public is assured of
dependable, low-cost transportation.
The oil companies, through their rationing of fuel, have
adopted an attitude that they, not government regulatory agencies, w i l l
determine whether and where service w i l l be provided.
They have, in
fact, established themselves as the regulatory body that determines who
gets the fuel and how much they w i l l supply.
There is no question that
if the fuel companies reduce or terminate the bus industry's fuel supply,
a reduction or t e r m i n a t i o n of bus service w i l l follow.
118
This is a v e r y r e a l and positive threat that we believe
requires i m m e d i a t e action.
The intercity bus industry believes that
government and not the oil companies should continue to determine
what the l e v e l of public c a r r i e r service should be or whether there
should be any at a l l .
We strongly support legislation to enable the
government to set the p r i o r i t i e s for the available fuel supply r a t h e r
than leaving such essential public decisions to the oil companies.
We believe f i r m l y that the energy c r i s i s has a potential
for causing great disruption of the A m e r i c a n way of life and we urgently
hope this Committee and the Congress w i l l accept the responsibility of
d e t e r m i n i n g the most essential p r i o r i t i e s in providing public transportation
through the judicious allocation of the available fuel supply.
119
Senator MCINTYRE. T h a n k you very much.
We call as our next witness as a member of this panel M r . C a r l V .
L v o n , general solicitor of the Association of American Railroads.
Bear i n mind, M r . L y o n , any place you can help us i n paraphrasing
those parts of your statement that lend themselves to i t , we w o u l d
appreciate it. O n the other hand, I want you to feel perfectly free
to testify i n any manner that suits you and you feel presents your
case the best.
STATEMENT OF CARL V. LYON, GENERAL SOLICITOR OF THE
ASSOCIATION OF AMERICAN RAILROADS
M r . LYON. I am going to t r y to be very brief. I would request t h a t
you include my complete statement i n the record, and I w i l l go f o r t h
f r o m that point (see p. 121).
M y name is C a r l V . Lyon. I am general solicitor of the Association
of American Railroads.
W e represent the railroads which operate 99 percent of the trackage, 98 percent of the workers and 99 percent of the revenues of all
class 1 railroads i n this country and t h a t is practically all of them.
Railroads are no different than the other witnesses you have heard
today, M r . Chairman. W e are all i n trouble as to fuel. Each week
presents a new challenge, a new problem, f o r one of our members o f
where to find the oil, the diesel fuel supply, to meet his transportation
needs.
W e have been l i v i n g off our storage supplies, although storage
supplies are now substantially depleted. W e have gone to Canada to
purchase oil and transported it i n tank oars all the way across the
Nation i n some cases.
Railroads have purchased entire ship cargoes and shared them
among railroads to make oil available i n places where railroads'
storage supplies have runout.
W e have r u n i n t o situations where major suppliers on whom we
rely principally have t o l d us that our new contracts would be at 25
percent lower ievels than previous years and they have been u n w i l l i n g to enter into a n y t h i n g but very short term contracts f o r renewals.
This is i n the face of business this year at levels 10 percent higher
than last year. Where we are supplied by small jobbers, we have
l>een unable i n some cases to be supplied at all and i n many cases a
very sporadic supply.
Now, railroads consume only about 2.5 percent of the total consumption o f petroleum fuel i n this country. So, i f one is to look f o r
a way to save oil, there is no solution i n t r y i n g to save i t i n the railroad business because you could take i t a l l and you would s t i l l have
a major energy and fuel oil problem. The impact of such action
would be much greater than 2.5 percent, however, because of the
dependency of the Nation and the Nation's economy upon r a i l transportation f o r basic kinds of transportation i n basic commodities.
120
F o r example, we move large amounts of coal to electric generating
facilities. I am sure you have heard about the v i t a l transportation
of g r a i n and the other agricultural commodities t h a t we transport.
There have been three hearings before the Senate and House
already this year about the massive demands made on r a i l transportat i o n this year w i t h respect to utilization o f our car supply. A n y loss
of o i l or i n a b i l i t y t o obtain oil w i l l tie up the entire system and i t
can not be tolerated.
W e haul lumber, paper, chemicals, ores—all these things are basic
commodities such as would have an adverse effect p y r a m i d i n g i n t o
other things and resulting i n unemployment and idle factories.
I have been attending many meetings on this subject, and I am
convinced t h a t the supply is not going to meet demand i n the short
rnn, that demand is increasing—will continue t o increase.
I want to congratulate this committee and the Senate i n insisting
on adding the power to allocate and set petroleum priorities i n the
Economic Stabilization A c t extension. I t h i n k i t is very i m p o r t a n t
that such power was added.
Last w i n t e r I t h i n k i t was somewhat foolish f o r public transportat i o n and heating people to be going w i t h o u t fuel when I and m y
three 90ns could go down to the gasoline station and purchase a l l the
gasoline we wanted but this was precisely the case.
I n answer to the question you posed to the previous panel, the
President should assure himself now—today—that needs f o r public
transportation, f o r heat, f o r farms, and essential uses w i l l be met.
I am not sure that the total use of his power is necessary at this
time but I do believe he has to make the decision now f o r adequate
production of distillate so that when this winter comes, there w i l l
be ample supplies of the kinds o f fuel t h a t are necessary, because you
can not switch back and w o r t h at w i l l between gasoline and distillate
f r o m which heating oils and diesel fuels come.
Railroads can not use a n y t h i n g but diesel fuels. F o r this reason, I
t h i n k they should get some preference i n these priorities.
M a n y utilities and industries can convert and actually have substantial standby facilities f o r r e t u r n i n g to coal.
T h i s means t h a t some coal must be used. I t h i n k that this n a t i o n
has to start reevaluating and rebalancing some of its national interests and consider what its speed i n a t t a i n i n g some of its environmental goals is doing to some of its other goals.
I t h i n k some of these decisions are going to have t o be reevaluated
and o u r goals set i n a new l i g h t . This would mean slowing down i n
reaching some of these goals, no matter how great the goals are, and
we certainly agree they are great ones.
M r . Chairman, we appreciate the o p p o r t u n i t y to appear here and
we w i l l respond to any questions that we can.
(The f u l l statement of M r . Lyons f o l l o w s : )
121
May 7,
1973
STATEMENT OF CARL V. LYON
GENERAL SOLICITOR
ASSOCIATION OF AMERICAN RAILROADS
BEFORE THE SENATE COMMITTEE ON
BANKING fit CURRENCY
ON THE IMPACT ON THE NATION'S ECONOMY
OF PREDICTED SHORTAGES OF PETROLEUM PRODUCTS
My name i s C a r l V . L y o n .
A s s o c i a t i o n of American
I am G e n e r a l S o l i c i t o r
of
the
Railroads.
The r a i l r o a d s w h i c h a r e members o f t h e AAR o p e r a t e 99 p e r c e n t
of the trackage,
employ 98 p e r c e n t o f t h e w o r k e r s and p r o d u c e 9 8 . 9 p e r c e n t
o f t h e revenues o f a l l Class I r a i l r o a d s
i n the Nation.
My p u r p o s e h e r e i s t o emphasize t o t h i s Committee what i s
happening
i n t h e r a i l r o a d i n d u s t r y t o d a y and more p a r t i c u l a r l y what c o u l d happen
if
the short term aspects o f the f u e l problem are not solved or c o r r e c t e d .
a l s o w i s h t o emphasize t h a t t h e i m p a c t on r a i l r o a d s
e s s e n t i a l t r a n s p o r t a t i o n s e r v i c e s would r e s u l t
and o t h e r p u b l i c
i n an even g r e a t e r
on t h e N a t i o n ' s economy and w e l f a r e t h a n on t h e t r a n s p o r t a t i o n
alone.
Additionally,
impact
services
t h e e x p e r i e n c e o f t h i s p r e s e n t and i m m e d i a t e p a s t
s i t u a t i o n f o r c i b l y p o i n t s up t h e v e r y s e r i o u s i m p l i c a t i o n s o f t h e
t e r m energy
and
long-
problem.
W h i l e r a i l r o a d s consume a r e l a t i v e l y
fuel supplies,
small proportion of
t h e s e r v i c e p r o v i d e d w i t h t h a t s m a l l amount o f f u e l
total
is
a b s o l u t e l y e s s e n t i a l t o l a r g e p a r t s o f t h e N a t i o n ' s economy and t h e
f a i l u r e to provide a f u l l a l l o c a t i o n of f u e l o i l
an i m p a c t o f
to railroads w i l l
f a r g r e a t e r magnitude than the r e l a t i v e l y
f u e l r a i l r o a d s u s e w o u l d seem t o
have
s m a l l amounts
of
indicate.
R a i l r o a d s have been s e r i o u s l y a f f e c t e d by t h e p r e s e n t
fuel
/
shortage.
oil
Beginning early
i n December,
t o r a i l r o a d s were s h a r p l y c u r t a i l e d .
1972, d e l i v e r i e s
Some o f t h e
of diesel
principal
fuel
I
122
s u p p l i e r s have l i m i t e d t h e i r d e l i v e r i e s t o t h e r a i l r o a d s by c u t t i n g back
25 p e r c e n t f r o m t h e i r commitments.
Others have l i m i t e d t h e i r
t o t h e q u a n t i t i e s s u p p l i e d f o r t h e same p e r i o d l a s t y e a r .
deliveries
It
s h o u l d be
p o i n t e d o u t t h a t t h e f u e l a l l o t m e n t s based on l a s t y e a r ' s t r a f f i c
be i n s u f f i c i e n t
t o c a r r y t h e p r e s e n t volume o f t r a f f i c w h i c h i s
would
running
a t t h i s t i m e 8 . 4 p e r c e n t ahead o f t h e c o r r e s p o n d i n g p e r i o d a y e a r ago.
Some o t h e r s u p p l i e r s have d i s c o n t i n u e d a l l d e l i v e r i e s a t c e r t a i n p o i n t s .
Initially
t h e g r e a t e s t impact was f e l t
i n the mid-section of the country,
g e n e r a l l y between Chicago, t h e M i s s i s s i p p i R i v e r and t h e Rocky M o u n t a i n s .
Some c u r t a i l m e n t s were e x p e r i e n c e d i n t h e East i n New England and i n t h e
C e n t r a l South.
The problem i s c o n t i n u i n g and i s p a r t i c u l a r l y a c u t e i n t h e m i d d l e
s e c t i o n o f t h e c o u n t r y where t h e r a i l r o a d s a r e e x p e r i e n c i n g an e x t r e m e l y
heavy t r a f f i c i n g r a i n .
their
As t i m e goes b y , t h e r a i l r o a d s a r e expending
l i m i t e d s u p p l i e s and replacement f u e l i s not e q u a l i n g t h e r a t e o f
consumption.
D u r i n g t h e w i n t e r months some o f t h e roads found
necessary t o reduce horsepower and speed i n o r d e r t o s t r e t c h
remaining supplies.
it
their
T h i s c r e a t e d some t e r m i n a l c o n g e s t i o n and i n t e r -
f e r e d w i t h t h e normal f l o w o f empty c a r s t o l o a d i n g p o i n t s .
I n o r d e r t o meet t h i s p r o b l e m , t h e r a i l r o a d s have exhausted
e v e r y p o s s i b l e avenue t o h e l p t h e m s e l v e s , t o o b t a i n f u e l f r o m new s o u r c e s ,
and t o r e l o c a t e such r e s e r v e s as e x i s t e d e i t h e r w i t h t h e i r own t a n k c a r s
o r by l e a s i n g whatever t a n k c a r s a r e a v a i l a b l e .
I t has been p o s s i b l e
secure some f u e l from Canada and, o f c o u r s e , necessary t o move t h e
great distances.
We have been w o r k i n g c l o s e l y w i t h t h e O f f i c e o f
Emergency Preparedness, t h e I n t e r s t a t e Commerce Commission and t h e
oil
to
123
Department o f T r a n s p o r t a t i o n i n an e f f o r t t o make a d d i t i o n a l
supplies
o f d i e s e l o i l a v a i l a b l e t o t h e i n d u s t r y i n t h e most c r i t i c a l
areas.
The r a i l r o a d s are a s i g n i f i c a n t
energy.
f a c t o r i n the d i s t r i b u t i o n of
There i s s t i l l an i m p o r t a n t movement o f c o a l t o u t i l i t i e s
and
i n d u s t r i a l p l a n t s and a l a r g e movement o f l i q u e f i e d p e t r o l e u m gas f o r
h e a t i n g and i n d u s t r i a l purposes.
r a i l r o a d capacity w i l l
F u e l shortages s u f f i c i e n t
t o reduce
i n t e r f e r e s e r i o u s l y w i t h t h e d i s t r i b u t i o n by
r a i l r o a d s o f f u e l s and w i l l f u r t h e r compound t h e p r e s e n t energy
A l o n g w i t h t h e heavy movement o f g r a i n f o r e x p o r t ,
demand f o r c a r s f o r a n i m a l and p o u l t r y feed g r a i n s ,
and b a s i c commodities g e n e r a l l y .
It
shortage.
t h e r e i s a heavy
fertilizer,
lumber,
i s important t h a t the capacity of
t h e r a i l r o a d s t o meet t h e s e demands n o t be f u r t h e r
reduced.
Subcommittees o f t h e Senate A g r i c u l t u r e Committee, t h e Senate
Commerce Committee, and t h e House Committee on I n t e r s t a t e and F o r e i g n
Commerce have a l l h e l d h e a r i n g s d u r i n g t h e p a s t s e v e r a l weeks concerned
w i t h t h e c r i t i c a l problem o f f r e i g h t c a r supply and u t i l i z a t i o n w i t h
p a r t i c u l a r emphasis on t h e e x t r e m e l y heavy g r a i n movements.
Repeated
r e f e r e n c e s were made by t h e numerous w i t n e s s e s t h a t any f a i l u r e t o move
t h e crops a l r e a d y backed up f o r movement w o u l d r e s u l t i n d i s a s t e r t o a
number o f farmers and g r a i n e l e v a t o r o p e r a t o r s a l i k e .
This
situation
s t a r t e d t o b u i l d up as a r e s u l t o f a number o f f a c t o r s i n c l u d i n g
l a t e n e s s o f t h e g r a i n c r o p , t h e r e l e a s e o f Commodity C r e d i t
the
Corporation
g r a i n f r o m s t o r a g e , and an unprecedented amount o f e x p o r t g r a i n moving
t o p o r t s f o r t r a n s s h i p m e n t t o Russia.
I t was made q u i t e c l e a r
during
t h e course o f t h e s e h e a r i n g s t h a t t h i s tremendous demand upon r a i l r o a d
t r a n s p o r t a t i o n service w i l l continue during a large part of the rest
1-183 O - 73 - 9
of
124
t h e y e a r and perhaps l o n g e r .
It
i s c l e a r beyond any doubt t h a t a s i g n i -
f i c a n t r e d u c t i o n i n r a i l r o a d s e r v i c e ( w h i c h must have a v e r y adverse
e f f e c t on c a r u t i l i z a t i o n and c a r s u p p l y ) even f o r a b r i e f p e r i o d o f
t i m e w i l l have an immense and perhaps t r a g i c e f f e c t n o t o n l y on
f a r m e r s and e l e v a t o r o p e r a t o r s b u t a l s o on lumber p r o d u c e r s ,
and c o n s t r u c t i o n i n d u s t r i e s ,
factors,
building
foods and k i n d r e d p r o d u c t s , e t c .
These
i f p e r m i t t e d t o o c c u r , can o n l y r e s u l t i n w o r s e n i n g p r i c e
problems i n t h e g e n e r a l m a r k e t .
We can c o n c e i v e o f no way t h a t any
s i g n i f i c a n t r e d u c t i o n s i n s e r v i c e can be made as a r e s u l t o f l a c k o f
f u e l o r any o t h e r reason w i t h o u t h a v i n g a most c r i t i c a l adverse impact
upon a l a r g e segment o f t h e N a t i o n ' s economy.
It
i s very d i f f i c u l t
respect t o t h i s matter.
to a r r i v e at s p e c i f i c conclusions
with
We have n e v e r t h e l e s s a r r i v e d a t some t e n t a t i v e
ones w h i c h I s h o u l d l i k e t o d i s c u s s a t t h i s
point.
The r e c e n t energy p o l i c y statement o f t h e P r e s i d e n t seems
g e n e r a l l y t o come t o g r i p s w i t h t h e l o n g range energy p r o b l e m s .
However,
we have a problem now - - t h i s y e a r and t h e n e x t two o r t h r e e y e a r s
and t h e P r e s i d e n t ' s s t a t e m e n t leaves t h a t m a t t e r w i t h o u t
solutions.
--
significant
On A p r i l 26, 1973, t h e O f f i c e o f Emergency Preparedness
r e l e a s e d a survey o f F u e l and Energy Problems f o r S p r i n g and Summer 1973.
I t s r e p o r t had been p r e p a r e d by t h e J o i n t Board on F u e l Supply and F u e l
T r a n s p o r t c o n s i s t i n g o f r e p r e s e n t a t i v e s f r o m numerous g o v e r n m e n t a l a g e n c i e s .
I n t h e summary statement i t
i s said
that:
" r e p o r t s have been r e c e i v e d f r o m numbers o f
users t h a t they are having great d i f f i c u l t y
Diesel f u e l supplies
obtaining diesel fuel.
a r e r e p o r t e d l y b e i n g a l l o c a t e d i n almost a l l
p a r t s o f t h e c o u n t r y and t o a l l c l a s s e s o f
volume u s e r s . "
125
T h i s i s c e r t a i n l y an a c c u r a t e comment w i t h r e s p e c t t o
conditions i n the r a i l r o a d industry.
prevailing
I n s h o r t we a r e e x p e r i e n c i n g
the
p r o b l e m today and every i n d i c a t i o n p o i n t s toward a w o r s e n i n g n e x t f a l l and
winter.
R a i l r o a d s had extreme d i f f i c u l t y d u r i n g t h e p a s t w i n t e r
o b t a i n i n g adequate f u e l t o r u n t h e i r d i e s e l l o c o m o t i v e s and l a s t
was a v e r y m i l d one.
difficulty
in
winter
Now t h a t w i n t e r i s o v e r r a i l r o a d s c o n t i n u e t o have
i n o b t a i n i n g adequate s u p p l i e s .
No one can p r e d i c t
w i n t e r ' s weather b u t h e a t i n g o i l s come from t h e same s u p p l y o f
next
distillate
w h i c h p r o v i d e s d i e s e l f u e l f o r r a i l r o a d l o c o m o t i v e s and r a i l r o a d s
a r e u n a b l e even w i t h l o n g , w e l l e s t a b l i s h e d , c o n t i n u i n g d e a l e r
today
relation-
s h i p s t o o b t a i n commitments f o r d e l i v e r i e s f o r t h e f u t u r e beyond a few
months i n advance.
A c c o r d i n g t o t h e OEP Survey " o v e r a l l , demand f o r
d i s t i l l a t e f o r 1973 i s e s t i m a t e d t o be 5 . 8 p e r c e n t g r e a t e r t h a n 1972."
The f a c t o r t h a t saved t h e r a i l r o a d s t h i s p a s t w i n t e r was t h e i r
f u e l s u p p l i e s , now l a r g e l y d e p l e t e d .
With r a i l r o a d t r a f f i c
r u n n i n g almost 10 p e r c e n t h i g h e r t h a n 1972 l e v e l s i t
reserve
presently
is virtually
im-
p o s s i b l e t o b u i l d up d i e s e l f u e l s u p p l i e s l o o k i n g toward w i n t e r demand.
We a r e , t h e r e f o r e , v i t a l l y concerned about our i n a b i l i t y t o o b t a i n today
a n y t h i n g more t h a n b a r e need c u r r e n t s u p p l y w i t h no commitment f o r
The OEP r e p o r t emphasizes v o l u n t a r y c o n s e r v a t i o n .
have f u l l y e x p l o r e d t h i s approach and a r e a l r e a d y engaged i n
tomorrow.
Railroads
conservation
p r a c t i c e s t h a t w i l l not a d v e r s e l y a f f e c t c a r u t i l i z a t i o n and c a r
service.
There i s no panacea t h e r e except t o have a s e r i o u s adverse e f f e c t upon t h e
N a t i o n ' s economy g e n e r a l l y by f a i l u r e t o p r o v i d e
service.
126
We are g r a t i f i e d t o note the passage by Congress, a t the
i n s i s t e n c e o f t h e Senate i n i t s v e r s i o n o f the A c t t o Extend and Amend
t h e Economic S t a b i l i z a t i o n Act o f 1970, g r a n t i n g t h e P r e s i d e n t
the
power t o e s t a b l i s h p r i o r i t i e s o f use and f o r s y s t e m a t i c a l l o c a t i o n o f
s u p p l i e s o f petroleum i n c l u d i n g crude o i l .
I n our judgement i t may
become necessary f o r t h e P r e s i d e n t t o e x e r c i s e h i s a u t h o r i t y t o e s t a b l i s h
such p r i o r i t i e s and a l l o c a t i o n s o f s u p p l i e s i f
the v o l u n t a r y
methods and o p e r a t i o n o f the market p l a c e f a i l s t o p r o v i d e
conservation
constructive
and s e n s i b l e programs o f d i s t r i b u t i o n i n t h e p u b l i c i n t e r e s t .
Should
such p r i o r i t i e s and a l l o c a t i o n s become necessary we are convinced t h a t
they must f a v o r p u b l i c
transportation.
Railroads, for example, should be given p r i o r i t y i n f u e l
supply d i s t r i b u t i o n or a l l o c a t i o n for the f o l l o w i n g reasons:
1.
The d i s t r i b u t i o n o f f u e l f o r u t i l i t i e s and i n d u s t r y - a s
w e l l as home h e a t i n g i s dependent on near normal o p e r a t i o n o f t h e
railroads.
R a i l r o a d s are t h e p r i n c i p a l c a r r i e r s o f c o a l used i n t h e
p r o d u c t i o n o f e l e c t r i c i t y and a s u b s t a n t i a l f a c t o r i n t h e d i s t r i b u t i o n
o f LPG used f o r home h e a t i n g and commercial purposes.
Any c u r t a i l m e n t
o f t h i s t r a n s p o r t a t i o n w i l l s e r i o u s l y compound t h e f u e l s h o r t a g e .
2.
The f u n c t i o n i n g o f many o t h e r p a r t s o f t h e n a t i o n a l economy
depends on adequate p r o v i s i o n o f r a i l s e r v i c e .
R a i l r o a d s p r o v i d e over
60 p e r c e n t o f the t r a n s p o r t a t i o n f o r g r a i n , c o t t o n , lumber, p a p e r ,
c h e m i c a l s , new a u t o m o b i l e s , household a p p l i a n c e s and canned and f r o z e n
foods.
Any s i g n i f i c a n t
i n t e r r u p t i o n i n t h i s f l o w would cause
industrial
shut-downs and a r a p i d i n c r e a s e i n unemployment.
3.
Volume o f e s s e n t i a l t r a f f i c moved under b o t h paragraphs 1
127
and 2 a r e such t h a t s u b s t i t u t i o n o f any o t h e r t r a n s p o r t a t i o n s e r v i c e
virtually
is
impossible.
4.
A l l o c a t i o n o f t h e a d d i t i o n a l amount o f d i e s e l f u e l
required
by t h e r a i l r o a d s would have r e l a t i v e l y s m a l l impact s i n c e i t would r e p r e s e n t l e s s t h a n one p e r c e n t o f t h e t o t a l d i s t i l l a t e s u p p l y o r t h e
e q u i v a l e n t o f two t e n t h s o f one p e r c e n t o f t h e o u t p u t f r o m U. S.
5.
R a i l r o a d s can o n l y use d i e s e l f u e l , and t h e y s h o u l d have
p r e f e r e n c e o v e r t h o s e d i s t i l l a t e u s e r s w h i c h can t u r n t o o t h e r
Many p u b l i c u t i l i t i e s and i n d u s t r i e s ,
v a r i e t y o f d i s t i l l a t e s and r e s i d u a l
6.
refineries.
fuels.
f o r example, can use c o a l o r a
oil.
Where, as h e r e the e s t a b l i s h m e n t o f p r i o r i t i e s becomes
n e c e s s a r y , t h e maximum b e n e f i t t o t h e n a t i o n ' s economy and g e n e r a l
w e l f a r e can be a c h i e v e d w i t h t h e l e a s t amount o f Governmental d i r e c t i o n
and g r e a t e s t b e n e f i c i a l impact by g r a n t i n g p r i o r i t y t o r a i l r o a d s whose
e f f i c i e n c y i n terms o f f u e l consumption i s f a r s u p e r i o r t o t h a t o f o t h e r
t r a n s p o r t a t i o n modes except i n t h e l i m i t e d areas where w a t e r
is
transportation
available.
A l t h o u g h r a i l r o a d d i e s e l engines b u m about 4 b i l l i o n
gallons
o f f u e l o i l a n n u a l l y , t h i s volume r e p r e s e n t s o n l y 2 . 5 p e r c e n t o f t h e annual
n a t i o n a l consumption o f p e t r o l e u m f u e l s . — W h i l e t h e impact on t h e
N a t i o n ' s economy o f a f a i l u r e t o p r o v i d e t h a t 2 . 5 p e r c e n t would pyramid
i n t o o t h e r i n d u s t r y and be c a t a s t r o p h i c i t
i s c l e a r t h a t such use i n
r e l a t i o n t o t o t a l consumption i s so modest t h a t any a t t e m p t t o conserve
by c u t t i n g back markedly i n r a i l r o a d use would be n o n p r o d u c t i v e and
shortsighted.
* / Exhaust Emissions from D i e s e l Locomotives, S u b - C o u n c i l R e p o r t ,
N a t i o n a l I n d u s t r i a l P o l l u t i o n C o n t r o l C o u n c i l , A p r i l 1973, p . 9.
128
T h e r e i s one o t h e r s h o r t t e r m a p p r o a c h t h a t c a n n o t be o v e r l o o k e d
i n d e f i n i t e l y due t o t h e g r a v i t y o f t h e i m p a c t o f t h e e n e r g y s h o r t a g e .
i n v o l v e s t h e r e t u r n t o u s e o f c o a l f o r some p u r p o s e s , p r i m a r i l y
p r o d u c t i o n o f e n e r g y by u t i l i t i e s .
of environmental considerations
t o improving t h e environment
I r e c o g n i z e t h e tremendous
for
committed
B u t t h e impact on o u r
N a t i o n ' s economy o f t h e d e v e l o p i n g e n e r g y c r i s i s
r e c o n s i d e r a t i o n and r e b a l a n c i n g o f o u r v a r i o u s
i s so s e r i o u s t h a t a
i n t e r e s t s and t h e speed
w i t h w h i c h we a t t e m p t t o a c h i e v e o u r e n v i r o n m e n t a l g o a l s must be
in this
considered
light.
The P r e s i d e n t ' s r e c e n t message c o n c e r n i n g e n e r g y
a d d r e s s e s t h i s p r o b l e m commenting t h a t o u r c o n c e r n f o r t h e
w e l f a r e " or n a t i o n a l i n t e r e s t
should take i n t o account
o f n a t i o n a l s e c u r i t y and economic p r o s p e r i t y ,
It
the
importance
t o o u r N a t i o n and r a i l r o a d s a r e
i n numerous w a y s .
It
also calls
resources
"general
considerations
as w e l l as o u r
environment.
f o r c a r r y i n g out the p r o v i s i o n s o f the Clean A i r Act i n a
j u d i c i o u s manner w i t h o u t m o v i n g i n a p r e c i p i t o u s way t o w a r d m e e t i n g
secondary standards o f t h a t A c t ,
t h e n we s h o u l d be a b l e t o use c o a l
of
up t o 155 m i l l i o n t o n s p e r y e a r w h i c h w o u l d o t h e r w i s e be u n u s a b l e .
There are v a s t c o a l reserves a v a i l a b l e i n t h e U n i t e d
I n o r d e r f o r them t o be u s e d , h o w e v e r ,
t h e r e must be a commitment
t h e y w i l l be p e r m i t t e d t o be used o v e r r e a s o n a b l y
long periods of
b e f o r e the long-term c a p i t a l investment required f o r
reconsideration of u t i l i t y
c a n be e x p e c t e d .
States.
time
i t s p r o d u c t i o n and
steam p l a n t s t o c o a l f i r i n g
i s f e a s i b l e and
Likewise a s i g n i f i c a n t upturn i n production of coal
t h e k i n d n e c e s s a r y t o make an i m p a c t on t h e e n e r g y p r o b l e m w o u l d
a d d i t i o n a l c a p i t a l investment
that
f o r f r e i g h t c a r s and l o c o m o t i v e s
to
of
require
129
transport
t h e c o a l t o m a r k e t w h i c h a l s o w o u l d n o t be j u s t i f i e d
some r e a s o n a b l e
I
long-term
without
commitment t o a p r o g r a m .
b e l i e v e a reasonable balancing of n a t i o n a l
interests
a prompt r e t u r n t o use o f c o a l i n c e r t a i n c i r c u m s t a n c e s .
t h i s d e c i s i o n now b e c a u s e t h e p a s s a g e o f t i m e w i l l
g r e a t e r and t h e p o s s i b i l i t y
requires
We s h o u l d make
o n l y make t h e need
o f o v e r c o m i n g t h e p r o b l e m more
difficult.
A l o n g w i t h s u c h u s e must be a g r e a t e r commitment t o e l i m i n a t i o n o f
environmental e f f e c t s of
such use.
The p r o b l e m i s h e r e ;
way b u t s a t i s f a c t o r y
it
i s now.
Long-term s o l u t i o n s
s h o r t - t e r m and p r o m p t a n s w e r s a r e l a c k i n g .
must b e f o u n d and p l a c e d i n
adverse
effect.
are on t h e
They
130
Senator MCINTYRE. T h a n k you, M r . Lyons.
W e w i l l call on M r . James E . T e r r y , general counsel to the Clevel a n d T r a n s i t System and a member of the American T r a n s i t Association diesel fuel task force.
STATEMENT OF JAMES E. TERRY, GENERAL COUNSEL, CLEVELAND
TRANSIT SYSTEM
M r . TERRY. M r . Chairman, thank you.
F i r s t of all, I would like to indicate that M r . James J . Slowey
of the New Y o r k Transit Association is the chairman of our emergency task force and I am the legal adviser.
M r . Slowey was unable to be here and I am sort o f p i n c h - h i t t i n g
f o r him. I hope you w i l l bear w i t h me w i t h my restrictions i n t h a t
regard.
I would like to al90 incorporate our prepared statement i n the
record, i f you please, M r . Chairman and I w o u l d like to digress as to
a few points t o indicate some of our experience i n the t r a n s i t i n d u s t r y
w i t h which I am personally f a m i l i a r — w h a t occurred i n the city o f
Cleveland last F r i d a y when we attempted to get a contract f o r diesel
fuel and our bids were open.
A t the outset, sir, I wish to indicate t h a t our task force represents
the members o f the American Transit Association, c a r r y i n g both the
r a i l and bus methods of transportation, over 85 percent of the individuals who use public transportation throughout the country.
I want to digress a minute to indicate t h a t our statistical department has indicated to me that t h a t represents some 6.5 b i l l i o n rides
annually or approximately 10 m i l l i o n rides daily.
Those are rides as distinguished f r o m riders, because i t w o u l d include transfer individuals.
W e are appreciative of the w o r k that has been done by your committee through Senator H a r r i s o n AVilliams and past considerations
that have been given to the transit industry.
The industry has adopted the fact that the Nation's cities are
being strangled by the t w i n ills o f congestion and pollution and i t is
indeed true t h a t we find another malady, essentially the energy crisis
adding t o our problems.
The energy crisis is spreading and affects the transit industry i n an
increasingly severe manner. I n the past months almost all of the
transit systems i n the Midwest, i n c l u d i n g the region f r o m I n d i a n a
and I l l i n o i s through Colorado report serious fuel problems. I wish
to point out a few of them.
The transit systems i n the Southeast, i n c l u d i n g F l o r i d a , N o r t h and
South Carolina as well as New E n g l a n d have also received: (1) curtailment notices, (2) refusals to b i d by any supplier of diesel fuels
or, (3) drastic increases i n prices.
I m i g h t add, as d i d M r . Lyons who previously testified, that some
suppliers have gone to Canada to seek supplies of diesel fuel as was
the instance i n the Minneapolis-St. P a u l T r a n s i t A u t h o r i t y .
Senator MCINTYRE. Those transit companies managing somehow t o
get around this crisis—they are s t i l l i n business, are they not?
M r . TERRY. Y e s , s i r .
131
However, i f you want me to indicate—1 just was going to get to
that—the experience that some of the properties have been involved
in.
W e were i n A t l a n t a this last, week and the Metropolitan A t l a n t a
T r a n s i t A u t h o r i t y , after negotiating w i t h the G u l f O i l Co. f o r a
period of some 6 months, finally were able to secure a contract at an
increase of, as I recall, approximately 3 to 4 cents-per-gallon of diesel
fuel.
They had not indicated to them i n the past t h a t they were going to
get a contract. A s a matter o f fact, they allowed t h e i r contract t o
expire. They gave them an extension on a 30-day basis.
The Metropolitan A t l a n t a Transit A u t h o r i t y is expanding r a p i d l y .
Y o u may be f a m i l i a r w i t h the fact t h a t they had a reduction i n their
fare. T h e i r ridership increased. They hope to expand their bus fleet
—almost double, and i t is a situation i n which they were very sincerely apprehensive as to what their requirements w o u l d be i n the
future.
They received no consolation f r o m the G u l f O i l Co. at that time.
I do not wish t o single out the G u l f O i l Co. but just to indicate t h a t
this was the one which was i n w i v e d w i t h A t l a n t a .
I m i g h t add, sir, w i t h regard to our i n d i v i d u a l situation i n Cleveland, we were t o l d by our supplier, the early p a r t o f this year that
they would be able t o include our contract requirements. They d i d
not give us any assurances that they would b i d i n the future.
Therefore, our contract expires i n August of this year and we went
out f o r bids. W e had one bidder, which was our contract supplier
and i t was at a 37-percent increase i n price.
W e went out f o r 5.5 m i l l i o n gallons. W h i c h was our estimated annual requirements. They made a f i r m b i d o f 5 m i l l i o n gallons, and
also, I w i l l not read i t but they attached a 2-page legal disclaimer
which i n effect said, w i t h o u t going into the lawyer's language, that
we have a contract but we do not have a contract i f we do not want
to deliver the diesel fuel to you.
Essentially, i t was a 30-day contract cancellation clause. They
have additional provisions i n there. I f there were variables i n v o l v i n g
certain delays i n the fuel, whether they had control over i t or not,
they would not be responsible and various other items which made i t
virtually—made us v i r t u a l l y at their mercy i n so f a r as the obtaining
of diesel fuel was concerned.
O u r board has not acted on this as yet but this is the type of b i d
which we are receiving.
Senator MCINTYRE. I n Cleveland, t o absorb that 37-percent i n crease cost, do you go to the State or do you have a city O . K . on
increasing your rates ?
M r . TERRY. NO, sir, we do not. I n Cleveland, we are unique i n the
transit industry. We are s t i l l operating out of the fare box. W e are
not proud o f t h a t factor, but our organization was set up i n 1942
by a charter mandate of the Citizens of the C i t y of Cleveland which
mandated t h a t our fares must be sufficient to cover the operation and
maintenance, which includes our debt service, bonding expense, and
our l abor costs.
132
I m i g h t add since T have been w i t h them i n the past 4 years, the
fare has never covered our operation and maintenance.
W e have operated at a deficit. O u r deficit is advancing now, very
small compared to a number of others, but i t is advancing to about
$5 m i l l i o n as distinguished f r o m a $30-million aamual revenue.
So, we are i n a situation now whereby any a d d i t i o n a l increased
cost we have to pass t h a t on to the rider by way o f increased fares
which is self-defeating, sir.
Senator MCINTYRE. YOU have to increase your fare.
M r . TERRY. Yes. W e are mandated t o do so by our enabling legislation.
These increased expenses, as I previously alluded to, can only lead
to an unavoidable service cutback and fare increases t h a t experience
has shown t o be self-defeating and counter-productive to the public's
best interest.
I m i g h t add also there was a study i n the c i t y of Cleveland w i t h
regard t o the use of automobiles and the use of buses as distinguished
f r o m diesel fuel and gasoline.
I n this study, which was done by our research department, I j u s t
want, to p o i n t out this. I t was indicated that a n expressway lane
moves approximately 1,500 vehicles per-hour d u r i n g the peak hours
of traffic.
Assuming -that only 50 percent of these people w o u l d arrive i n the
downtown area d u r i n g the m o r n i n g rush hours, i t w o u l d take an
additional 26 lanes of expressway to accommodate them.
T h i s indicates Cleveland experience only. These additional 26 lanes
could not be b u i l t because, i n fact, we do not have the land a n d the
area t o b u i l d them. A n internal combustion engine w h i c h burns gasoline releases approximately 8 times more p o l l u t i o n than a diesel
engine. I t is then f o r these reasons t h a t the industry has requested
that there be some establishment as you are suggesting, sir, o f allocations and priorities to the various industries relative to any diesel
fuel shortages which may result.
I m i g h t add, sir, t h a t the task force d i d pass a resolution last week,
I w i l l not recite the whereas clauses because- they are p a r t of the record, b u t i t basically resolved that the American T r a n s i t Association
be recorded as u r g i n g the President, the Congress o f the U n i t e d
States and the petroleum industry i n the U n i t e d States to take appropriate action to assure mass transportation systems an adequate
f u l l supply available at a reasonable cost, and f u r t h e r that the same
individuals and associations be urged to alleviate the fuel crises by
assuring adequate supplies of reasonably-priced fuel to the transit
industry on a p r i o r i t y basis f o r the purpose of m a i n t a i n i n g and increasing the operating capabilities of pubic transportation facilities.
I m i g h t add, M r . Chairman, that I appreciate the o p p o r t u n i t y to
appear here and I only wish that some of our experts i n the field
m i g h t be here.
B u t I w i l l attempt i n whatever way I can to answer whatever
questions you may have, sir.
T h a n k you.
[ T h e f u l l statement of M r . T e r r y f o l l o w s : ]
133
Statement of the American T r a n s i t Association before the Senate Banking,
C u r r e n c y and Urban A f f a i r s C o m m i t t e e r e g a r d i n g t h e Economic S t a b i l i z a t i o n
A c t Amendments of 1 9 7 3 .
P r e s e n t e d by James E. T e r r y , G e n e r a l C o u n s e l t o
t h e C l e v e l a n d ( O h i o ) T r a n s i t s y s t e m and member o f t h e A m e r i c a n T r a n s i t
A s s o c i a t i o n D i e s e l F u e l •'Task F o r c e , M a y 7 , 1 9 7 3 .
Mr.
Chairman,
Transit
Diesel
I appear
I am J a m e s
General
S y s t e m and a member o f
Fuel
today
Members o f
E. T e r r y ,
Task
the American T r a n s i t
of
the American T r a n s i t
the American T r a n s i t
Association,
and bus modes o f u r b a n t r a n s p o r t a t i o n ,
Mr.
Chairman,
the
transportation
transit
once again appear
Affairs
It
Senator
Harrison
have been
Through your
over
the
for
Banking,
both
rail
85% o f
those
country.
the opportunity
C u r r e n c y and
A.
and t h e a b l e work o f
Williams,
Jr.
public
to
Urban
that would,
upgraded
We a p p r e c i a t e
New
the ways
throughout
Jersey's
and
the
country
provided.
Committee
elements
t h a t many o f
transportation
t h e U r b a n Mass T r a n s p o r t a t i o n
and
to a l l o w
if
signed
public
past considerations,
work w i t h you
to solve
the
by S e n a t o r
into
the nation's
and e x t e n d e d
Assistance
Act
passed.
March an amendment o f f e r e d
Senate
carry
is grateful
the Senate
Association.
committee
1 9 7 0 was g e n e r a t e d
last
Association
Committee.
means o f u p g r a d i n g
Just
Cleveland
representing
throughout
industry
before
has been t h r o u g h y o u r
of
to the
Force.
in behalf
who u s e p u b l i c
Counsel
law,
cities
mass
provide
the
passed
the
necessary
to get moving again
through
transportation.
and l o o k
nation's
Williams
forward
to c o n t i n u i n g
mass t r a n s i t
woes.
to
134
I n t h e p a s t we h a v e d o c u m e n t e d
being
This
is
strangled
indeed
true,
energy c r i s i s ,
T h a t we a r e a l l
nation's
In
the
but
rapidly
is
becoming
fuel
Transit
today
is
that
a third
that
supply
spreading,
and i t s
all
the n a t i o n ' s
of congestion
dwindling
unholy
of
of
cities
are
and
pollution.
malady,
namely
the
twosome.
the great
concern over
the
fuel.
effects
on t h e
transit
industry
severe.
transit
Indiana
that
indicative
increasingly
from
and
systems
Illinois
in
the mid-west
through
Colorado
including
report
serious
problems.
systems
Carolina
(1)
ills
now we f i n d
p a s t months a l m o s t
the region
twin
has been added to
here
The e n e r g y c r i s i s
are
by t h e
the f a c t
in the Southeast
as w e l l
curtailment
diesel
fuels,
The d w i n d l i n g
or
diesel
a s New E n g l a n d
notices,
(3)
fuel
drastic
increase
That property
in
somewhat
have also
refusals
supply
has f o r c e d
has f o r c e d
to seek
in
South
by a n y s u p p l i e r
of
prices.
some t r a n s i t
another
supplies
and N o r t h and
received:
to bid
increases
properties
property,
namely
from Canada,
and a t
a
cost.
now i s w o r k i n g
Mississippi
An i s o l a t e d
Paul,
(2)
Florida
drastic
to borrow from o t h e r s ;
Minneapolis-St.
including
on a scheme t o b a r g e f u e l
f r o m New O r l e a n s ,
a colorful
solution
up
the
perhaps,
but
impractical.
example?
Hardly.
Fuel
suppliers
transit
throughout
industry
the country
contracts,
or
are
balking
bidding
at
bidding
at drastic
price
on
increases-
135
u p t o 53% f o r
diesel
The system r e p o r t i n g
these
Bay T r a n s p o r t a t i o n
The i n c r e a s e w i l l
fuel
a n d 67% f o r
increases
Authority
add $ 4 7 8 , 0 0 0
is
gasoline.
the Boston-based
Massachusetts
(MBTA).
to MBTA1s o p e r a t i n g
costs over
a
one-year
period.
The W a s h i n g t o n
several
over
Metropolitan
other
systems,
previous
The M e t r o p o l i t a n
negotiated
The t r a n s i t
Area T r a n s p o r t a t i o n
Authority,
reports
of more t h a n
an i n c r e a s e
along
with
30%
bids.
Atlanta
Regional
a one y e a r
property
o n l y one b i d d e r
Transportation
contract
in Syracuse,
out of
calling
for
Authority
a 20%
New Y o r k r e p o r t s
16 s o l i c i t a t i o n s
just
increase.
that
when i t
has
it
received
advertised
for
bids.
A single
bidder
responded,
b u t a t a 31% i n c r e a s e
over
last
year's
prices.
T h e same o i l
tising
companies
their
that are
desire
spending m i l l i o n s
to serve
preservation
o f mass t r a n s i t
crisis,
are,
at
serving
transit
To a n i n d u s t r y
further
Increased
self
and f a r e
the
the n a t i o n ' s
off
when i t
comes
a t a $513 m i l l i o n
deficit
last
costs are
can only
defeating,
backing
to
adver-
energy
to
systems.
operating
i nterests.
and a d v o c a t e
as a s o l u t i o n
same t i m e
that operated
expenses
cutbacks
the
the public
of d o l l a r s
lead
increases
year,
unacceptable.
to the unavoidable
that
experience
and c o u n t e r p r o d u c t i v e
cycle
of
service
has shown t o
to the p u b l i c ' s
be
best
136
Emissions
from automobiles
pollution
in
the nation's
h a v e t o be t a k e n
to l i m i t
Clean Air
if
Protection
are a practical
air
the
solution
industry
economical
and d r a s t i c
the
measures
number of a u t o m o b i l e s
Standards
- are
- -
t o be
air
will
entering
s e t up b y t h e
67
Environ-
met.
and e m i t v i r t u a l l y
no c a r b o n
monoxide
to the n a t i o n ' s
p r o b l e m of
afford
to o f f e r
a marketable,
that
transit
service,
more and more
people
continue
to r i d e
automobiles,
emitting
reducing
more and more
and u s i n g more and more o f o u r f u e l
No m o r e t h a n o n e h a l f
of
i s u s e d by b u s e s ,
the petroleum
shortages,
1% o f
while
industry
than continue
the
total
an e f f i c i e n t ,
cars.
due to
fuel
to cut
amount of o i l
commuters and o t h e r
s a f e and e c o n o m i c a l
carbon
transportation
not the place
to consume such a l a r g e
we s h o u l d o f f e r
in
t o make r e d u c t i o n s
is certainly
is,
supplies.
energy used
55% i s u s e d b y
is forced
mass t r a n s i t
automobiles,
users
can't
and c o m p l e t e
monoxide,
Rather
fuel
80% o f
pollution.
transit
will
the
Agency -
B u s e s , w h i c h r u n on d i e s e l
If
cities,
of our c i t i e s
mental
If
cause approximately
back.
in
our
marginal
alternative
- -
highway
mass
t r a n s p o r t a t i on.
A 25% d i v e r s i o n
could
reduce
barrels
Mr.
traffic
from passenger
p e t r o l e u m demands
cars
to mass
by a l m o s t o n e - h a l f
transit
million
daily.
Chairman,
authority
by t h e
of auto
the American T r a n s i t
to a l l o c a t e
Economic
Association
petroleum
Stabilization
products
fully
granted
A c t Amendments
of
supports
to
the
1973.
the
President
137
The c o n c e p t
of d e f i n i n g
supplies
of
of
priorities
petroleum
for
products
the
is
systematic
allocation
s o u n d a n d we a p p l a u d
the Congress
in enacting
the enabling
The A m e r i c a n T r a n s i t
Association
h a s s e t up a n e m e r g e n c y
Task
Force
industry
we c a n
to a c t as a watchdog
obtains
request
It
transit
crisis
the f a c t
basic
as p a r t
is
industry
in
uncontroverted
of fuel
therefore
of
of fuel
in e f f o r t s
recorded
fuel
the
Diesel
Fuel
transit
supply,
at a
price
on t h e m a t t e r
that
I
are
these
procedures.
resolved,
adequate
action
fuel
resolved,
goals,
fuel
system
and c l e a n
the American
Transit
Industry
in
the
available
the President,
at
the Congress,
an
in
transit
systems,
necessary
environment,
Association
of
United
reasonable
and
is a most
the
the. C o n g r e s s
the
increases
by n u m e r o u s
transportation
service
and
and s i g n i f i c a n t
felt
the
and
including
of our c i t i e s
of our e n v i r o n m e n t ,
the
States
to a s s u r e mass t r a n s p o r t a t i o n
supply,
that
public
the P r e s i d e n t ,
and the P e t r o l e u m
concern,
t h a t mass t r a n s p o r t a t i o n
now b e i n g
that
increasing
and c o s t of f u e l ,
supply
shortages
mass
with
the economies
to conserve
as u r g i n g
appropriate
Further
that
the record of
our most v i t a l
and as t h e n a t i o n ' s
States
of
the
the q u a l i t y
the t h r e a t
the price
Be i t
the diesel
recognizes
concerning
functioning
improvement
ally
legislation.
to i n s u r e
passed a r e s o l u t i o n
t o many o f
efficient
Whereas,
efforts
follows:
the
apparent
is
May 2 n d ,
be i n c l u d e d
r e a d s as
Whereas,
share of
the
afford.
The Task F o r c e ,
Whereas,
its
of
be
United
to
systems
take
an
cost
and t h e
Petroleum
138
Industry
be u r g e d
to a l l e v i a t e
adequate
supplies
of
industry
on a p r i o r i t y
and i n c r e a s i n g
the f u e l
reasonably
basis
the operating
for
priced
crisis
fuel
the purpose
capabilities
of
to
by
insuring
the
of
transit
maintaining
public
transportation
facili ties.
Mr.
Chairman,
l e t me c l o s e
a major concern
will
Thank you,
- we m u s t h a v e t h i s
have adequate
Mr.
Chairman.
by s t r e s s i n g
fuel
supplies
at
the word p r i o r i t y
priority
- which
assurance
a reasonable
cost.
that
is
we
139
Senator MCINTYRE. M r . D u n i k o s k i — I am not sure, M r . L y o n t h a t
this question is apropos t o you, b u t you may want to take a crack at
i t — a n d I w i l l ask you, Sir* T e r r y , what the rationale o f a m a j o r o i l
company refusing to supply, say, Greyhound o r Cleveland T r a n s i t
System—holding you down to 80 percent or back a t 60 percent or 70
percent; i n the meantime out- i n t h e i r stations out on the dotted horizon a l l over the place thev are g i v i n g away t r a d i n g stamps—is t h a t
it?
M r . DUNIKOSKI. Glasses, a l l types of things.
Senator MCINTYRE. W h o are they protecting?
M r . TERRY. I w i l l o n l y indicate t o you w h a t was t o l d to me, a n d t h i s
is hearsay here today, w h i c h a lawyer sort of has t o give you admonitions on, b u t i t makes some sense. Essentially, I a m not f a m i l i a r
w i t h the technicalities o f i t but i t has to do w i t h the distillate m i x
of fuels.
Y o u r diesel fuel is made f r o m crude o i l and, as I understand i t , is
one o f the first mixes t h a t come off the stack iand then you go f u r t h e r
on into refinements of kerosene, gasoline, and other petroleum products. The production costs of diesel f u e l are much less than the production costs of the items w h i c h come off at the fair end of the stack.
So, the rationale essentially is this. They felt i f there were some
controls on, a t o t a l product control o f 1.5 over the entire industry,
they could very well make more money off the gasoline t h a n f r o m
the diesel fuel.
Therefore, they w o u l d w i t h h o l d the diesel fuel, refining the gasoline and an increase i n gasoline prices w o u l d not be as great i n reflecti n g t h e i r p r o f i t m a r g i n because there w o u l d be greater costs involved
i n t h a t as distinguished f r o m p u l l i n g off diesel fuel a t one end o f
the pipe.
I do not know how v a l i d that is, sir. I a m not t o t a l l y f a m i l i a r w i t h
the technicalities o f i t but w i t h the rudimentary knowledge t h a t I
have and the way i n which they explained i t to me, t h a t appeared to
be sensible.
I am not prepared t o impeach it. T h a t is what they t o l d us.
M r . DUNIKOSKI. M y observation is this, sir, they have contracts
to provide diesel fuel t o the m a j o r transportation companies a t a
specific price level and a specific number of gallons.
B v reducing that, they can take and convert, as M r . Teirry has
pointed out, t h a t crude to gasoline at a higher increase i n prices than
they get f r o m .the contractual customers they have.
I t r i e d to touch on earlier i n my testimony t h a t they are not even
s u p p l y i n g the people who they aire under contract to supply fuel to.
Here they are t a k i n g the same crude, converting i t to gasoline and
m a k i n g available -to nonicontiiact purchasers, w h a t we feel are nonessential uses.
I t h i n k i t is just a case o f economics. They are t r y i n g to get the
most profit o u t o f the same crude.
M r . LYON. O n l y t o underscore, the reason I am here is t o make
certain you understand that we are very much i n the same boat and
we are just as v i t a l l y concerned about this.
The same t h i n g exactly has happened t o us. W e are h a v i n g trouble
getting o u r contracts renewed. They are d r a w i n g the r u g out f r o m
underneath us. Most meetings I have attended indicate t h a t i t i s a
96-183 O - 73 - 10
140
matter of p r i c i n g and other functions o f the market. They are able
to get higher ponces and a higher m a r k u p on the gasoline t h a n the
distillates.
T h a t is what underlay my recommendation t h a t t h e President now
must make the allocations to be sure that come w i n t e r there has been
enough advance production o f distillate, because i f he has not. we
w i l l be i n trouble i f distillate runs out because gasoline cannot be
substitued f o r o i l t o heat or r u n diesel engines w i t h . H e has got t o
make that decision pretty soon.
M r . DUNIKOSKI. I just want to point out whereas many o f the
people who testified here today indicated t h a t this was a problem
p r i m a r i l y last January, T want you to understand and the committee
to understand, t h a t i t is a problem r i g h t now today i n the bus
industry.
W e are experiencing shortages today at certain locations.
Senator MCINTYRE. W h a t are you doing? A r e you t a k i n g some of
your buses off? H o w do you get along on 80 percent when you had
100 percent last year ?
M r . DUNIKOSKI. T h i s is the problem. L e t me cite you an example.
Recently i n South Carolina, because o f certain m i l i t a r y movements,
we utilized more buses a t a particular location where we had f u e l
deliveries. W e were r u n n i n g out. We went to the fuel supplier and
we could not get a f i r m commitment t h a t we would get the fuel.
W e went helter-skelter out there to some independent supplier a t
considerably higher rates and we are not sure t h a t the independent
supplier was not getting i t f r o m a major supplier.
W e cannot prove o r disprove which way or how he was getting
it. These are the problems today.
They are real, r i g h t today. A s other people have testified today,
every day we spend hours and hours just t r y i n g to keep our buses i n
operation w i t h this fuel shortage. A s M r . L y o n pointed out, I strongl y urge that the committee take whatever action is necessary to get
the President to move now, sir.
W e feel i t is essential t h a t action be taken now, not next f a l l o r
winter. The problem is w i t h us today.
Senator MCINTYRE. Essentially, the same reason t h a t you are stati n g here f o r this action of the majors, the producing companies, the
one t h a t gasoline is a more profitable item w i t h and, therefore, No. 2,
fuel o i l which first interested me, because that was the heating oil i n
New England, that is the reason i t was given a lower p r i o r i t y .
Ivet me ask you this, gentlemen, do most of these contracts you have
been signing w i t h the suppliers, you know, d a t i n g back almost f r o m
the beginning of the first time you saw a contract w i t h the supplier,
do they have these cancellation clauses? Haven't they always protected themselves w i t h these cancellation clauses?
M r . DUNIKOSKI. I cannot speak as f a r as i n the past. I can t e l l you
today. F o r example, we negotiated a contract i n 1972, a 5-year contract f o r a certain number o f gallons annually a t a certain figure.
They have inserted, as M r . T e r r y indicated o r i g i n a l l y , every type o f
contractual language t h a t . No. 1. requires renegotiation of the prices
annually, and i f you do not agr
'
''
they have the r i g h t t o cancel
r i g h t s i n there—or at least they have indicated i n (their contracts t h a t
141
i f they determine t h a t they want to reduce youir t o t a l supply b y "a?"
percent, w h i c h they d i d 20 percent less or 25 percent less, t h a t they
have the r i g h t to do this, so i n answer to your question, I can t e l l
you, sir, t h a t a l l the contracts t h a t we have been involved i n negotiati n g recently, they have every type of protection that affords them—
i t is strictly a one-sided contract, but i t is like having a k n i f e at
your j u g u l a r vein. Y o u do not really have any choice.
Senator MCINTYRE. One of the questions that we have i n m i n d w i l l
very likely be answered on the last day of our testimony, on M a y 11,
when we w i l l be asking D r . D u n l o p , who is the Director of the Cost
of L i v i n g Council, whether the oil industry is meeting the mandatory
price standards imposed bv the Cost of L i v i n g Council back i n M a r c h
of 1973.
So, hopefully, we w i l l be able to find t h a t out f r o m him. I suspect
t h a t they have somehow or other met the limitations placed on them.
M r . LYON. I w o u l d like t o make one brief comment about that.
There apparently are different ways o f h a n d l i n g fuel t h r o u g h d i f ferent. kinds of m a r k e t i n g procedures between the parties that somehow or other make the price controls under the voluntary guidelines
less effective. I am not exactly sure how this works. T h a t m i g h t be
one avenue to explore w i t h the Cost o f L i v i n g Council Chairman,
D r . Dunlop.
Senator MCINTYRE. I w i l l just say f o r the record, I t h i n k , M r .
L v o n , you are probably r i g h t . IT is m y understanding that the 23
largest o i l companies i n the U n i t e d States were placed under mandat o r y controls, which would allow only a 1 percent increase i n price i n
1973 w i t h o u t the approval of the Cost of L i v i n g Council.
A second provision o f the mandatory price control regulations
provides that crude and petroleum prices could increase to a maxim u m o f i y 2 percent i f such increases could be justified because of
increased costs.
W h i l e we have no documented evidence, there is a seirious question,
so f a r as this committee is concerned, as to whether the industry has
not already exceeded the mandatory p r i c i n g guidelines. B u t we w i l l
get the answer to that f o r our record.
M r . TERRY. W h i l e M r . Dunikoski was indicating the restrictive
provisions i n the contract, I just put my thumb on one clause which
I would like t o read t o you which indicates how they can control
the supply. This is one clause which they placed i n our contract on
Friday.
I f , f o r any such cause, t h e supply o f diesel f u e l a v a i l a b l e t o c o n t r a c t o r f o r
deliveries i n the Cleveland area i s cut off, o r so c u r t a i l e d as t o p r e v e n t cont r a c t o r f r o m f u r n i s i h i n g t h r o u g h i t s r e g u l a r methods o f d i s t r i b u t i o n , t h e f u l l
q u a n t i t i e s o f diesel f u e l r e q u i r e d o f i t s customers i n s a i d area, c o n t r a c t o r
s h a l l h a v e t h e r i g h t t o allocate the a v a i l a b l e q u a n t i t i e s o f such f u e l among
such o f i t s r e g u l a r customers i n such manner as c o n t r a c t o r s h a l l deem f o r
i t s best i n t e r e s t , a n d i n such event the t r a n s i t system o f the C i t y o f Clevel a n d s h a l l have n o c l a i m f o r any f a i l u r e o r p a r t i a l f a i l u r e o r delay o n tihe
p a r t o f t h e c o n t r a c t o r i n m a k i n g deliveries o f tihe f u l l q u a n t i t i e s o f f u e l
ordered by the t r a n s i t system.
Senator MCINTYRE. I do not blame them f o r p u t t i n g that sort of a
clause i n the contract today. F o r 8, 9,10, or 15 years, they must have
been dealing w i t h some sort of escape clause i n thedir contracts, probably not as critical o r as difficult as you are enjcountering today.
142
Today they are faced w i t h the fact t h a t we do not have the r e f i n i n g
capacity or the production i n t h i s country t o meet the r i s i n g demand.
I suspect t h a t y o u r answer i n general, as I take the three o f y o u
here and again I a m leading you a l i t t l e b i t , i t is t h a t the President
should begin to use the authority contained i n the Economic Stabilization A c t t o set f o r t h plans t h a t w i l l go t o t h e f u e l allocation
problem.
M r . DUNIKOSKI. I w o u l d like to restate—I strongly urge t h a t he
take action now. I feel i t is mandatory t h a t he take action now a n d
not w a i t u n t i l later. The situation is critical.
Senator MCINTYRE. A n y t h i n g .further t h a t any o f y o u w o u l d l i k e
to add t o your testimony at this time ?
M r . TERRY. N o t h i n g f u r t h e r , other t h a n the fact t h a t our B o a r d
o f the American T r a n s i t Association has not met t o consider t h i s
problem. However, they d i d authorize the appointment by the president of the association of our task force, and i t is the feeling f u r t h e r
o f the chairman of the emergency task force t h a t they w i l l concur i n
our resolution w h i c h addresses itself t o an affirmative response t o
the question that you have just raised.
Senator MCINTYRE. I n the event a n y t h i n g transpires among y o u r
associations before the closing time o f our testimony, we usually set
a d o s i n g time o f probably 2 weeks after we a d j o u r n or recess at the
call o f the Chair, next F r i d a y — i f you want t o b r i n g something i n t o
the record here, we w o u l d be glad to receive i t .
M r . DUNIKOSKI. I w o u l d l i k e to make t h i s comment t o a question
y o u asked of the panel t h a t was up here earlier, as t o f r o m w h o m we
seek relief. I w o u l d like to state, as f a r as the bus i n d u s t r y i s concerned, we have had the same decree of problems. There are so many
agencies involved, "there really is no planned g r o u p t h a t we can
approach.
Quite f r a n k l y , i n view of a l l the confusion, I t h i n k we have to look
now t o the Department o f Transportation, so again i f there were
one p a r t i c u l a r agency, we w o u l d certainly support t h a t position.
Senator MCINTYRE. T h a n k you a l l f o r coming here today to t e s t i f y
t o the problems you have encountered. W e w i l l proceed d u r i n g the
next 4 days to hear the ramifications o f every aspect. I am h o p e f u l
we w i l l be m o v i n g i n the direction that a t least, the one you three
gentlemen feel we should be.
W e w i l l recess u n t i l 10 o'clock t o m o r r o w morning.
[ A t 12:10 p.m. the committee recessed t o reconvene a t 10 a.m.
Tuesday, M a y 8,1973.]
PETROLEUM PRODUCT SHORTAGES
TUESDAY, M A Y
8 , 1973
U.S. SENATE,
COMMITTEE ON BANKING, HOUSING,
AND URBAN AFFAIRS,
Washington,
D.C.
The committee was convened at 10 a.m., i n room 5302, New Senate
Office B u i l d i n g , Senator John Sparkman, chairman of the committee,
presiding.
Present: Senators Sparkman, M c I n t y r e , and Johnston.
Senator MCINTYRE. The committee w i l l come to order.
W e w i l l continue our hearings this m o r n i n g on the subject of the
I m p a c t o f Petroleum Product Shortages on the National Economy.
L e t me insert i n the record at this point a letter I sent t o the W h i t e
House, M a y 7.
[ T h e letter f o l l o w s : ]
U . S . SENATE,
C O M M I T T E E ON B A N K I N G , H O U S I N G AND U R B A N A F F A I R S ,
Washington,
D.C., May 7, 1978.
T H E PRESIDENT,
T H E W H I T E HOUSE,
Washington,
D.C.
DEAR MR. PRESIDENT : I a m w r i t i n g y o u o n a m a t t e r o f e x t r e m e urgency t h a t
concerns n o t only a s i g n i f i c a n t p o r t i o n o f t h i s c o u n t r y ' s o i l i n d u s t r y b u t also
w i l l have a p r o f o u n d i m p a c t on the c i t i z e n r y a n d n a t i o n a l economy i f a c t i o n
is n o t t a k e n i m m e d i a t e l y . T h e m a t t e r t h a t I a m r e f e r r i n g t o i s t h e gasoline
shortage t h a t i s b e g i n n i n g t o e x h i b i t a c r i p p l i n g i m p a c t o n a n u m b e r o f sections o f the c o u n t r y ; a v a r i e t y o f i n d u s t r i e s , i n c l u d i n g t h e independent m a r k e t i n g a n d r e f i n i n g segments o f the o i l i n d u s t r y ; a n d t h e consumer.
A s y o u m a y recall, i n a l e t t e r I sent t o y o u t h i s w i n t e r d u r i n g the p e r i o d
thart several sections o f t h e c o u n t r y w e r e experiencing h o m e h e a t i n g 041
shortages, I w a r n e d t h a t evidence was beginning t o develop i n d i c a t i n g t h a t
because o f the a p p a r e n t i n a b i l i t y o f t h e r e f i n i n g segment o f t h e o i l i n d u s t r y t o
p r o v i d e sufficient supplies o f v a r i o u s p e t r o l e u m p r o d u c t s t h a t a gasoline shortage was l i k e l y t o occur e i t h e r i n t h e l a t e s p r i n g o r t h e e a r l y s u m m e r o f t h i s
year.
I n a n t i c i p a t i o n o f such shortages developing w i t h r e g a r d t o a n u m b e r o f
essential p e t r o l e u m products, I offered a n amendment p r o v i d i n g y o u w i t h
t h e a u t h o r i t y t o allocate p e t r o l e u m p r o d u c t s d u r i n g such shortage periods. A s
y o u w e l l k n o w , t h i s amendment was adopted by both Houses o f Congress a n d i s
contained i n t h e extension o f the Economic S t a b i l i z a t i o n A c t w h i c h y o u signed
i n t o l a w A p r i l 30, 1973.
I n m y opinion, i t i s a m a t t e r o f u t m o s t urgency t h a t y o u i m m e d i a t e l y t a k e
steps t o i m p l e m e n t t h e a u t h o r i t y g r a n t e d t o y o u t o ( 1 ) establish a n a l l o c a t i o n
procedure a m o n g the v a r i o u s sections o f the c o u n t r y w h i c h c l e a r l y sets standards a n d c r i t e r i a f o r p r i o r i t i e s o f u s e : a n d ( 2 ) i m p l e m e n t a p r o g r a m t h a t
w i l l assure t h a t sufficient supplies o f p e t r o l e u m p r o d u c t s a r e made avaUable
to a l l segments o f the p e t r o l e u m i n d u s t r y i n a m a n n e r designed t o prevent
a n t i c o m p e t i t i v e effects f r o m developing w i t h i n t h e p e t r o l e u m i n d u s t r y i t s e l f .
I t i s a p p a r e n t t h a t i f such a c t i o n i s n o t t a k e n i m m e d i a t e l y t h a t t h i s
c o u n t r y w i l l experience a severe c u r t a i l m e n t o f necessary p e t r o l e u m supplies
(143)
144
a n d t h a t a s u b s t a n t i a l segment o f the p e t r o l e u m i n d u s t r y comprised exclusively
o f s m a l l businessmen w i l l be destroyed.
Sincerely,
THOMAS J . MCINTYRE.
U . S . SENATOR.
Senator MCINTYRE. W e call as our first witness this m o r n i n g M r .
F r e d C. Allvine., associate professor o f marketing, Georgia I n s t i t u t e
of Technology.
W e are glad t o welcome you here this morning, professor. I am
interested i n what you have to say about this problem t h a t is conf r o n t i n g the Nation at the time. W e have a copy o f your statement.
STATEMENT OF FRED C. ALLVINE, ASSOCIATE PROFESSOR OF
MARKETING AND FRED A. TARPLEY, JR., PROFESSOR OF ECONOMICS COLLEGE OF INDUSTRIAL MANAGEMENT, GEORGIA
INSTITUTE OF TECHNOLOGY
M r . ALLVINE. The statement w i l l require about 12 minutes to read.
I f I just proceed r i g h t on thorough i t
Senator MCINTYRE. A n y place you can summarize or skip a paragraph, we w i l l appreciate i t , because we are operating w i t h about 70
minutes today. I want you to feel i n the end you have had an opport u n i t y t o testify, but we w i l l appreciate a n y t h i n g you can do t o
shorten i t .
M r . ALLVINE. W i t h me is Professor Tarpley, also f r o m Georgia
I n s t i t u t e o f Technology. W e hope the complete statement w i l l be
p r i n t e d i n the irecord.
S e n a t o r MCINTYRE. O h , y e s .
M r . ALLVINE. The f u t u r e o f independent private brand m a r k e t i n g
sector o f the gasoline industry is i n severe jeopardy. A l r e a d y the
gasoline shortage has destroyed several competitors and our analysis
indicates the situation is g r o w i n g worse. I f conditions continue as
they aire, the casualties by the end o f this summer are going t o be
great. Unless there is some relief f r o m the competitive squeeze t a k i n g
place, i t is very likely that irreparable damage may be done t o the
independent marketing segment of the gasoline industry.
The c r i t i c a l situation c o n f r o n t i n g independent discount gasoline
marketers is inimical t o the public interest. Such marketers have been
the p r i m a r y source o f price competition and have been the leading
source o f innovation i n gasoline marketing. Independent private
brand marketers have f o r the last several years sold gasoline f o r 3
to 5 cents per-gallon less t h a n the prevailing price o f m a j o r brand
gasoline.
Accounting f o r approximately one-eighth o f the gasoline sold
t h r o u g h stations, they directly saved the public an estimated $375
m i l l i o n d u r i n g 1972 and well over a h a l f a b i l l i o n dollars when the
responses of major brand marketers were considered.
The largest independent private brand companies operate fewer
than a thousand stations. M a n y of the larger p r i v a t e branders operate
only a couple hundred stations and there are hundreds o f independents each operating less than a dozen stations. The smallness i n size
of the independents would be i n contrast t o the eight largest m a j o r
brands i n c l u d i n g Exxon, Texaco, M o b i l , G u l f , Shell, Socal, A m e r -
145
ioan, and Arco, each having more tihan 20,000 stations i n the U n i t e d
States.
The large numbers o f independent private brand organizations,
each pursuing their o w n best economic interest, i s what has made
the discount marketer such an important competitive force i n the
gasoline industry.
Independent private brand marketers have g r o w n by employing
the discount method o f selling gasoline on a high-volume and lowprice basis. These discount marketers operate w i t h margins o f 5-7
cents-per-gallon i n comparison t o the major brand companies that
require 10-12 cents or more to sell t h e i r gasoline. A s a result of their
efficiencies, the independent marketing specialists have, u n t i l recently,
been able to sell gasoline at substantial savings to the public.
The increasing relative efficiency of the independents' method o f
marketing was exerting tremendous economic pressure on the costly
major brand method o f marketing. T h i s major brand method o f
marketing has been to sell relatively high-priced gasoline, on a brandadvertised basis t h r o u g h a very large number of stations, located on
expensive properties w i t h elaborate facilities, using credit cards,
stamps, premiums and games. A s a result o f the independents, the
majors' overbuilt a n d costly style of marketing was starting to crumble. The consumer savings t h a t would have resulted f r o m the gasoline
marketing revolution t h a t was i n the makings couild easily have been
between $1 b i l l i o n and $2 b i l l i o n a year.
The independent discount gasoline marketers, however, are no
longer able to exert the much needed pressure on the dominant operators t o r e f o r m their costly methods o f marketing. Several o f those
independent marketers that were forcing change up to 9 months ago
have either been forced out of business, or else are now f i g h t i n g f o r
survival and are t r y i n g to keep their doors open. The dramatic
change of circumstances f o r independent price marketers f r o m being
at the leading edge o f change a few months ago t o t h e i r current
problem o f survival is a result o f the r a p i d l y surfaced petroleum
supply problems.
Senator MCINTYRE. Professor, I appreciate your t r y i n g to go r i g h t
along. I t h i n k you are going a l i t t l e fast, even f o r yourself. Y o u
must be out of breath.
Y o u say t h a t several of those independent marketers were f o r c i n g
changes up to 9 months ago have either been forced out of business,
or else are now fighting f o r survival and t r y i n g to keep their doors
open. D o you know the names of these firms?
M r . ALI.VINE. W i t h my interest i n independents, I am i n contact
w i t h marketers on a nationwide basis. I also receive eight industry
trade journals which I religiously read. Between the calls and the conversations and speeches that I have been m a k i n g across the country, I
have been i n close contact w i t h independents and their p l i g h t has
been very well known to me.
Senator MCINTYRE. This is nationwide ?
M r . ALLVINE. I t is a nationwide phenomenon, sir.
Senator MCINTYRE. V e r y well. Proceed at a l i t t l e slower pace, i f
you w i l l .
M r . ALLVINE. The c r i p p l i n g problem o f the independent discount
gasoline marketers is securing competitive supplies o f gasoline t o
146
sell to t h e i r customers. Some refineries have taken advantage of the
g r o w i n g shortage of crude oil and refined products. Crude o i l and
refined products have been diverted f r o m independent refineries a n d
discount marketers to direct operations of certain of the integrated o i l companies. A s this has happened independents have been
compelled to increase t h e i r prices, reduce hours of operation a n d to
lay off employees i n order to continue t o operate. Those t h a t were h i t
earlier and harder by cutbacks i n supply have gone out of business.
The public consequence of -using the supply shortage to d i v e r t
products f r o m independents has been to destroy the p r i m a r y source
o f price competition i n the marketplace. A s supplies have been fixed,
reduced, and cut off to the independents, the m a j o r o i l companies are
no longer p a r t i c u l a r l y concerned about price competition. The sudden
stability of gasoline prices i n the marketplace as supplies have been
diverted f r o m independents can be observed f r o m figures 1 - 6 t h a t
are attached a t the back of this statement.
The price charts f o r six major markets show that airound the middle
o f August, 1972, that price competition suddenly halted i n a miraculous sense i n these market areas.
W i t h supplies reduced and regulated to the discount marketers,
the major oal companies were no longer concerned about the g r o w t h
of price marketers. Control over supply and its diversion f r o m the
discount marketers has proven t o be a very effective technique f o r
regulating and destroying price marketing.
W i t h gasoline supply delicately balanced to demand, and the discount marketers unable to grow and expand on the basis o f t h e i r
relative efficiency, i t has been possible f o r the m a j o r b r a n d marketers
to significantly increase their prices. F o r the 37-week period f r o m
A u g u s t 13, 1972, through A p r i l 22, 1973, i n comparison t o the previous 37 weeks, the major brand prices increased by 3.5 cents per gall o n i n Los Angeles—the world's largest gasoline market—2.4 cents i n
Portland, 3.9 cents i n Seattle, 2.4 cents i n Phoenix, 2.8 cents i n Boise
and 2.7 cents throughout most o f Nevada.
A s the figures show, since supply has been sharply reduced and
prices increased to the discount marketers the past 2 to 3 months, the
independents have been forced to increa.se their prices to nearer the
major-brand price level. D u r i n g the last 3 months the independent
price has increased i n Los Angeles, Portland, Boise, and throughout
Nevada f r o m 3-6 cents per gallon.
These were on top of earlier price increases o f around 2 cents per
gallon by the independents. W i t h o u t supply .there is no w a y f o r the
independent discount marketers to act as an effective deterrant to
m a j o r brand price increases. Furthermore, as supply is reduced t o the
independent, i t becomes necessary f o r h i m to increase his price to
tTy to stay alive.
Price increases on the order of those observed i n the six western
U.S. market areas have been f a i r l y common throughout the country.
So f a r this year the wholesale price o f gasoline t o m a j o r brand dealers—the dealer tank wagon price—has increased around 2.1 cents per
gallon the basis of a 100-market survey as shown i n the chart below.
Such increases i n the cost of gasoline to dealers really translates
into retail prices of around 3 cents per gallon to the public throughout the country.
147
This general stabilization o f prices occurred i n mid-August 1972,
the same time as the price increases observed i n the six western
markets. A n account o f the nationwide price, increase i n mid-August
1972 f r o m the O i l D a i l y is attached to this statement.
Now, i n this article an independent marketer was quoted as saying
t h a t " w o r d finally has filtered to the 'wilder' marketers t h a t gasoline
m i g h t no longer be available f o r volume-selling based on price cutting."
A s the supply situation has g r o w n tighter, the threats o r prognosis
have come true and price marketers are being squeezed, weakened,
and destroyed.
I n contrast to the desperation situation of the independents, several
of the major o i l companies reported t h a t first-quarter earnings had
increased f r o m 30 t o 50 percent w i t h profits at record levels.
The serious predicament o f independents was recently underscored
by K e i t h Fanshier, president of the O i l D a i l y , one of the leading
industry trade papers. Fanshier, who frequently takes positions favorable to the giants o f the industry, points out i n an article, " T h e
Small Businessman N o w , " the desperate situation o f the independent
marketers. Excerpts f r o m his article are as follows: I w i l l just read
the last one.
I t w i l l make f o r a better t o t a l i n d u s t r y i n the end, to have a vigorous,
healthy, s u r v i v i n g small business w i n g of the industry . . . . When the shortage
is a t last overcome, the good businessman must s t i l l be i n business—not have
been a tragic casualty. The industry as a whole must keep this v i t a l lesson
uppermost i n mind.
Fanshier is g i v i n g some very i m p o r t a n t advice, but i t is doubtful
that those the message is intended to reach w i l l listen and respond.
The question is sometimes asked or implied " W h y d i d the independent marketers a l l o w themselves to get into such a serious supply
situation?"
Stated another way, " W h y didn't the independents have the foresight to integrate backwards into refining?"
The supply problem of independent marketers is to a considerable
degree the long-run consequence o f vertical integration and monopoly
power i n the crude oil market. Over much o f the past 25 years, crude
o i l prices have been administered at artificially h i g h levels. W i t h
high-priced and noncompetitive feedstocks and the prospects f o r
low wholesale prices f r o m integrated competitors, l i m i t e d economic
incentive has existed f o r m a k i n g investment i n independent refining.
I n contrast, integrated refineries, owning large quantities of crude
oil, have been i n a favored position to expand t h e i r own refining as a
way to utilize their h i g h l y profitable crude oil. I t f o l l o w i n g that
independent discount marketers have been forced to become more
directly and indirectly independent upon the major o i l companies
f o r supply.
Vertical integration also led to integrated oil companies subsidizi n g their marketing operations. U n t i l recently, marketing investment,
like refining, was used to cash i n crude oil profits. The subsidizing of
marketing w i t h crude oil profit and cash flow led to the tremendous
and costly overinvestment i n marketing t h a t exists today. Even
executives o f E x x o n and other huge integrated o i l companies point
148
out t h a t there are t w o to three times more retail stations t h a n are
needed to efficiently serve the public interest.
The oostlv overinvestment i n marketing w o u l d not be anywhere
near the problem t h a t i t is, had i t not been f o r integration and subsidization o f marketing w i t h crude o i l profits and cash flow benefits.
I f m a r k e t i n g was not tied to crude oil, the investment i n m a r k e t i n g
w o u l d be much less and gasoline would be sold t o the public on a
more efficient basis at a lower price.
I t is ironic t h a t the independent discount gasoline marketers are
h a v i n g such difficulties today, f o r the major integrated o i l companies
are now attempting, after 25 years of heavy subsidization, to p u t
marketing and refining on a profitable basis. W i t h the m a j o r o i l
companies reducing their marketing subsidies, the independents, who
have existed w i t h o u t subsidies, should be enjoying a new prosperity
and a deeper market penetration because of their much greater efficiency.
Integrated oil companies are. now desirous of m a k i n g refining and
marketing profitable since the crude o i l profit haven t h a t they have
enjoyed since W o r l d W a r I I is eroding. I n t e r n a t i o n a l l y , f o r e i g n
governments are increasing crude oil prices and m o v i n g to take over
the oil fields now i n their respective countries.
I n the U n i t e d States, most of the readily available and low-cost
o i l has already been discovered and t h a t which remains t o be discovered is quite costly.
Thus, the financial strategy of the integrated companies must be
to put refining and marketing on a profitable basis and t o capture
more of their earnings f r o m their activities. However, standing i n the
way o f this strategy are the independent discount gasoline marketers
and the independent refineries t h a t have operated w i t h o u t subsidies.
Therefore, i f the integrated companies are to breathe significant
profits back into their costly and inefficient marketing system and into
their refining activities, the independents must be eliminated as an
effective marketing force. The way t o stop the independent discount
marketers is to reduce or cut off their supplies of finished products.
S i m i l a r l y , the way to damage independent refiners is t o cut off their
supplies of crude oil. This can be done by refusing to sell or by raisi n g prices t o uncompetitive levels. B o t h are occurring and the independent marketer and the independent refiner is i n p e r i l of extinction.
I n conclusion, the performance of the petroleum industry could
be greatly improved i f the s t r u g g l i n g independent sector of the industry were saved. This w i l l occur only i f Congress acts decisively
against the predatory acts of some o f the integrated o i l companies
i n c u t t i n g off supplies of refined products and crude o i l to their
t r a d i t i o n a l independent customers.
F o r the duration of the supply crisis, the integrated oil companies
should be prohibited f r o m selling a larger percentage of their refined
products and crude oil t h r o u g h controlled refining and m a r k e t i n g
operations than they d i d d u r i n g the base period of the first h a l f of
1972. p r i o r to the occurrence of the severe product shortages. The
remaining refined products and crude oil would then be equitably
distributed and priced to t r a d i t i o n a l independent customers based
upon normal supply relations d u r i n g the base period. T o the extent
149
that independent customers have already been p u t out o f business
and cannot be restored, the balance o f available product w o u l d be
proportionately distributed to the s u r v i v i n g independent companies.
Over the long run, the competitive performance o f the petroleum
industry w o u l d be greatly improved by the physical o r functional
divorcement o f crude oil production f r o m other industry activities.
Crude ocl has been the source o f monopolistic power. I t has been
used to weaken and destroy downstream competitors, including those
integrated competitors who are relatively poor i n crude oil.
Physical divorcement would mean that crude oil activities would
be spun off and r u n by new and independent companies. Functional
divorcement would require integrated o i l companies to adopt separate operating and accounting procedures and would require their
crude oil activities and their refining and marketing activities t o
stand on their own respective financial feet.
B o t h physical and functional divorcement would—to v a r y i n g
degrees—result i n improved public performance o f the petroleum
industry. One t h i n g that would happen is t h a t the excessive investment i n marketing and the high cost of selling would cease. A f t e r a
period of adjustment there would be perhaps h a l f the number of stations, and the cost o f selling gasoline could easily result i n prices
generally 2 cents-per-gallon less t h a n present levels. This would
mean a saving of about $1% b i l l i o n a year.
I n summary, the imperiled condition o f discount marketers and
refineries i n the short r u n can be remedied by the proper legislation
or by governmental decree. F o r the duration o f the supply crisis
independent marketers and refineries should obtain their f a i r share
of product based upon historical relationships w i t h their suppliers
and the product should be available at competitive prices f o r the
different classes of customers.
The long-run solution to the problem o f u n f a i r competition w i t h
independents f r o m integrated oil companies can be solved by divorcement of crude oil. W h i l e the performance of the petroleum industry
would improve most w i t h physical divorcement of crude oil f r o m the
remainder of the industry activity, the less severe functional divorcement—accounting, operational and financial—would do some good
and would not be h a r d to implement. A t the very least the Government should seek functional divorcement t o decrease the likelihood
o f the continuation o f high-iadministered crude o i l prices i n the
U n i t e d States t h a t squeeze downstream competitors and t h a t distort
the normal competitive processes i n the pertoleum industry.
Senator MCINTYRE. A t this time I yield to the distinguished chairman of the committee. Senator Spairkman, w i t h the admonition that,
the 10-minute rule is i n effect.
The CHAIRMAN. Thank you, Senator M c l n t y r e .
Let me say first I am very pleased that, you set these hearings. I
t h i n k they are badly needed.
I have enjoyed very much the statement that has been given to us.
I was looking a t some o f these charts. I am not sure I can read
them. They seem interesting anyhow, showing the variation i n
price.
W h e n you speak of divorcement f r o m crude oil, just- what do you
mean by t h a t ?
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M r . ALLVINE. W h a t we are suggesting is a possibility o f two approaches to divorcement. One is to sever crude o i l operations f r o m
the integrated oil companies entirely, make them independent companies, different stock ownership, acting i n their own best interest
relative t o the remainder of the company which w o u l d be distribution,
refining and marketing.
The CHAIRMAN. W o u l d this be t h r o u g h the entire industry ?
M r . ALLVINE. T h a t w o u l d be t h r o u g h the entire industry.
The CHAIRMAN. B o t h independent and the others?
M r . ALLVINE. There would be independent crude-oil exploration
and production companies and then there would be d i s t r i b u t i o n ,
refining and marketing companies.
W h a t we would find i f tihis were done, Senator, is that crude o i l
w o u l d tend to reach a f a i r e r and competitive price based upon market
conditions and factors and not beset by the administration practices
o f the major o i l interests i n this countiry where supply is veny l i m ited and the normal workings of the marketplace due to a variety of
conditions are not allowed to take place.
The CHAIRMAN. B u t do the independents have refineries, as such,
o r do they rely upon purchasing f r o m the major oil companies?
M r . ALLVINE. I believe that I understand y o u r question. I f y o u
look at the petroleum industry, let us say somewhere i n the v i c i n i t y
of 90 percent of the refiner} 7 industry is owned or otherwise controlled
by the integrated companies that operate f r o m crude, pipeline, refining, pipelines, distribution, and marketing. These companies, i t is
estimated, are approximately three-fourths sufficient i n their own
crude oil.
Nationwide, then, perhaps somewhere i n the neighborhood o f 65
to 70 percent o f the crude o i l that is produced i n t h i s country is
owned by the integrated oil companies.
The remainder o f the crude oil is supposedly produced by independent companies, but a f u r t h e r factor is the integrated o i l companies control the vast m a j o r i t y o f the gathering lines and the feeder
lines.
So, their control over crude oil is much greater than the t w o - t h i r d s
that they directly own or they otherwise control.
The CHAIRMAN. W h a t action would you propose be taken by the
Government or what f o r m of legislation is needed f r o m the Congress?
M r . ALLVINE. I am proposing that the (government seriously look
at the problems of this industry, how they have gotten into them and
recognize t h a t crude oil has been the t a i l wagging the dog, and that,
i f one were to look at over the past 20 to 25 years where the profits
of the industry have been centered, they have been i n crude o i l
activities.
Crude oil prices have been admiinstered at artificially h i g h levels.
T h i s is the problem that needs t o be squarely dealt w i t h i f we are
going to have an industry that is more responsive t o the normal processes of the market place and thereby the needs o f the consumers.
The CHAIRMAN. T h a n k you. I have no f u r t h e r questions at this
time.
Senator MCINTYRE. Senator Johnston ?
Senator JOHNSTON. The marketing practice o f the majors was set
up at a time when gasoline was very p l e n t i f u l , was i t not, and set u p
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w i t h a view t o marketing all the product they could and hasn't t h a t
changed now w i t h the shortages, and can't we expect the marketing
practices brought on by what hopefully is a free-market economy,
can't we expect t h a t to come back into line ?
M r . ALLVINE. Could you define a l i t t l e b i t more clearly your
question?
S e n a t o r JOHNSTON. Yes.
The marketing practices of the majors, t h a t is, to get the expensive
corners and t o sell at a l i t t l e higher price and to advertise broadly,
that practice was created and begun and nurtured d u r i n g a period
when there was an excess i n effect of gasoline, is that right?
M r . ALLVINE. T h a t is one interpretation, yes. I do not t h i n k i t was
a consequence of the surplus i n gasoline. The marketing excesses that
are experienced have been made possible because of h i g h profits that
were tucked away i n the crude-oil activities. M a r k e t i n g became a
vehicle to get r i d o f the h i g h l y profitable crude oil. The marketing
investments that were made would not have been made had i t not
been without the connection of marketing to crude oil. There was no
economic justification f o r the level o f this investment. I t d i d not
stand on its own two feet. I would suggest, Senator, i f you could
get into the records of integrated o i l companies f o r their returns f r o m
marketing f o r the year 1971 and u n t i l August o f 1972, I would not
be surprised i f you f o u n d a negative rate o f return on some of these
companies or very marginal relative to their crude o i l activities.
I t was not because o f excess refining capacity t h a t they overbuilt
marketing, i t was because of the profits t h a t were tied back and hidden i n the crude oil activities that forced theim to use marketing to
cash i n on their crude o i l profits.
Senator JOHNSTON. I don't quite understand how they w o u l d cash
i n on the crude o i l profits.
W h y couldn't they sell t h a t on the market ?
M r . ALLVINE. Senator, conditions are changing very dramatically.
I f you ask that question now, they can sell every barrel o f crude a i l
they want w i t h o u t t y i n g i t t o refining and marketing. I n fact, we
see some companies that are small enough, that do not have the tremendous investment i n marketing, t r y i n g to get out o f marketing.
Getty has been getting out o f marketing on the west coast. Signal
O i l & Gas has been getting out o f marketing. SkeJly i n the West
has been t r y i n g t o get out o f marketing. I know personally f r o m
conversations w i t h some o f the smaller integrated o i l companies
when they can sell every drop of crude today. Y o u are absolutely right,
i f they can get out of marketing. B u t the fact is that many are locked
i n w i t h heavy investment made i n the past which they cannot suddenly
get r i d of i t and spin off to someone else.
Senator JOHNSTON. We had a b i l l that we considered i n I n t e r i o r
yesterday t h a t deals w i t h almost the precise situation you described
there, i n addition to other things, but i t would require t h a t the base
period—the base period I t h i n k ends i n June 1973, I believe, but i n
any event, you have a base period of a year and i t would require the
majors t o sell t o the independents the same percentage t h a t they
d i d d u r i n g the base period.
A s I understand i t , that suggestion on your p a r t would be only
an i n t e r i m solution to deal w i t h the present prices, that f o r a long-
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term situation you t h i n k you ought t o divorce marketing f r o m the
majors, is t h a t correct ?
M r . ALLVINE. Yes; i f we look at the cost structure of the i n d u s t r y
and do a l i t t l e mathematics as I was doing w h i l e you were t a l k i n g .
Crude o i l costs about 8, 8y 2 cents a gallon. The cost o f m a r k e t i n g
gasoline is about 13 cents a gallon f o r the majors. Now, we w o u l d
not have t o have tremendous increase o f prices to the public i f we
could allow crude oil, let us say, to go to $5 a barrel and be sure t h a t
i t was used f o r exploration and not f o r the d r i v i n g out of the independent refiners and marketing. I n part, the increase i n the price of
crude o i l could be offset i n terms o f the retail price f o r gasoline.
Crude o i l cost 8 cents versus 12 to 13 cents i n marketing cost. I t h i n k
we could reduce those marketing costs by 2 or 3 cents i f we had more
sanity i n terms of the structure of the industry.
Crude o i l could move f r o m its present level, $3.80 a barrel t o $5.
There w o u l d be incentive to explore i n the ground, to d i g the holes
to find the oil, to help us w i t h our national security problem.
I f crude oil prices are increased and subsidization continued, what
we are really doing is bleeding off incentives to explore i n terms of
subsidizing refining and marketing.
I t h i n k we can develop a better solution t o our problems i f we
let the marketplace cut back on some of the excess and costs i n terms
o f moving products f r o m the refineries on out to the public.
L e t crude o i l prices increase and be used f o r a legitimate purpose.
I f you let crude o i l prices increase w i t h o u t downstream subscription,
then you can afford to d i g deeper i n the ground to find i t .
I n the process o f doing this the problem is to see that they do not
use some o f those crude profits to continue to subsidize the refining
and marketing and to increasing their wholesale prices to the independents and to squeeze them.
I f crude profits were used f o r their purpose o f exploration and
production rather than t o subsidize refining and marketing, there
wouldn't be any real problem. I t h i n k you can only p r o h i b i t downstream subsidization by divorcement. W e would not have our severe
energy problems today had there not been vertical integration.
Senator JOHNSTON. One final question: W h a t do t r a d i n g stamps
cost percentagewise—what is the m a x i m u m r e t u r n you can get on the
t r a d i n g stamps? Should the Government take steps t o eliminate
them? F i r s t o f all, what do they cost percentagewise?
M r . ALLVINE. A b o u t 3 percent on the studies that I have done; 2^2
to 3 percent, depending on what volume you buy.
Senator JOHNSTON. I f you keep them all and cash them in, what
do you get i n value ?
M r . ALLVINE. I would say that you get more i n terms of economic
value by collecting t r a d i n g stamps than cash costs o f stamps.In m y
mind, you do get good value received.
Senator JOHNSTON. I n other words, i f you make a $100 purchase,
you get
M r . ALLVINE. W h a t I am suggesting, Senator, i f you pay $3 f o r
t r a d i n g stamps, i n terms o f redemption value you w i l l redeem those
stamps f o r say 20 percent more. I t h i n k there is value i n stamps.
I t leads to the second aspect of your question. I wouldn't advocate a
law eliminating t r a d i n g stamps, because this would interfere w i t h the
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normal workings of the marketplace. I f we deny certain business options, then I t h i n k we are destroying the marketplace and we m i g h t as
well go to total regulation and nationalization of the industry. I have
not become so soured on the prospects f o r this industry that I am yet at
t h a t particular point. I t h i n k t r a d i n g stamps w i l l take care of themselves i f you let the marketplace operate as i t should. A s I study
the situation around the country, companies are g i v i n g up t r a d i n g
stamps f r o m the h i g h levels that they had i n the later sixties. I believe
that i f something is not of value to consumers, competitive processes
w i l l drive out the bad.
Senator JOHNSTON. T h a n k you.
Senator MCINTYRE. I n the first paragraph of your conclusion, you
use the term "predatory acts." M y understanding is this w o r d is associated w i t h anti-competitive activity i n violation of the Federal antitrust laws. A r e you i n f e r r i n g i n fact t h a t the industry is freely
engaged i n antitrust activity designed to drive out the independents?
M r . TARPLEY. I would say that there is not a conclusive case. W e do
see f r o m the data that around August 15 prices going up i n six major
markets. Previously, there had been a great deal of price variation and
a great deal of price instability.
Also i n the article which was appended to our testimony, i t was indicated that price protection was reduced or w i t h d r a w n i n several
instances simultaneously or delayed f o r a short period of time. These
are activities which are occurring about the same time. Y o u can have
k i n d of a double theory, i f you wish. B u t i t does seem that i t is beyond
coincidence that these occurred at the same time and that prices were
or d i d go up i n so many markets at about the same time. The rumor
was that on the first anniversary of the price freeze we m i g h t have
imposition of a new freeze on gasoline prices. Prices went up, pricesupport protection was w i t h d r a w n , and price stability came to markets which had been characterized by something other than stability.
Senator MCINTYRE. A t the close of your statement, Professor, I
t h i n k I would like to ask what is your assessment of the extent and
impact of the present gasoline shortage on the economy of the Nation—what is your assessment ?
M r . ALLVINE. I t h i n k that the shortage situation, Senator, i f i t is
allowed to continue its present course w i l l cost the public i n excess
of $1 b i l l i o n a year by first destroying the independents and the savings that they have passed on, and second, by p e r m i t t i n g the major
o i l companies to increase prices w i t h o u t the competitive pressures
and realization t h a t i f they get prices too h i g h t h a t the independents
t h r o u g h their efficiency w i l l take an increasing share of the marketplace.
So I w o u l d look at cost as a consequence to the public of the supply
shortage and how i t has worked against the independents. The cost on
an annual basis to the public could be $1 b i l l i o n to $2 b i l l i o n a year.
Senator MCINTYRE. I n order to establish your expertise i n this subject, can you briefly t e l l the committee what your association w i t h the
oil problems have been and also then f o r the record elaborate briefly
on what credentials you can present here this m o r n i n g to give us
this expert testimony ?
M r . ALLVINE. Since mid-vear 1968. the gasoline and petroleum industry has been my major area of research. I have studied i n depth
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* over this period of t i m e the nature of marketing, f r o m both the m a j o r
and the independent side. I n the process I have looked at competition
and how i t has developed and how i t has been forwarded i n the marketplace. I prepared a book w i t h a co-author, James Patterson, f r o m
I n d i a n a University which was published last year called "Competition L t d . : The M a r k e t i n g of Gasoline." Over the past 3 years I have
given statements before 8 to 10 hearings such as this one. T h i s year I
have given several talks to jobber and independent marketing associations. I guess I would say, Senator, t h a t I have really been l i v i n g
and studying the gasoline marketing industry f r o m an academic and
quasi-pragmatic point of view f o r the past 5 yeeurs.
Senator MCINTYRE. Y o u r services i n this matter have f r o m time to
time been compensated f o r by independent organizations, is t h a t
correct?
M r . ALLVINE. Yes, Senator, they have been. I w o u l d say i n response
to your question, I have never had anyone t r y to change m y position
or statement. W h a t I do is my work. The statement t h a t I gave today
was read by no one p r i o r to my appearing i n this room.
Senator MCINTYRE. Professor T a r p l e y , would you also f u r n i s h f o r
the record your credentials f o r your expert testimony here today ?
[ T h e complete statement and additional i n f o r m a t i o n follows.]
S T A T E M E N T OF F R E D C . A L L V I N E , A S S O C I A T E PROFESSOR OF M A R K E T I N G A N D F R E D
A . T A R P L E Y , J R . , COLLEGE OF I N D U S T R I A L M A N A G E M E N T , G E O R G I A I N S T I T U T E OF
TECHNOLOGY
M y name is F r e d C. A l l v i n e a n d I a m a n associate professor of m a r k e t i n g
i n t h e College of I n d u s t r i a l Management a t Georgia I n s t i t u t e o f Technology,
a n d w i t h me is F r e d A . T a r p l e y , J r . , professor of economics, a t Georgia Tech.
F o r t h e p a s t several years m y research has focused o n the gasoline i n d u s t r y ,
a n d M r . T a r p l e y a n d I are w o r k i n g together on studies o f gasoline m a r k e t i n g .
T h a n k y o u f o r t h e i n v i t a t i o n t o appear before t h i s d i s t i n g u i s h e d c o m m i t t e e t o
discuss t h e serious effects o f supply shortages on c o m p e t i t i o n i n t h e gasoline
industry.
T h e f u t u r e o f t h e independent p r i v a t e b r a n d m a r k e t i n g sector o f t h e
gasoline i n d u s t r y is i n severe jeopaTdy. A l r e a d y t h e gasoUne s h o r t a g e has
destroyed several c o m p e t i t o r s a n d o u r a n a l y s i s indicates t h e s i t u a t i o n i s
g r o w i n g worse. I f c o n d i t i o n s continue as t h e y are, t h e casualties by the e n d
of t h i s s u m m e r are going to be great. Unless there i s some r e l i e f f r o m t h e
c o m p e t i t i v e squeeze t a k i n g place, i t is v e r y l i k e l y t h a t i r r e p a r a b l e d a m a g e
m a y be done to the independent m a r k e t i n g segment o f t h e gasoline i n d u s t r y .
T h e c r i t i c a l s i t u a t i o n c o n f r o n t i n g independent d i s c o u n t gasoline m a r k e t e r s
is i n i m i c a l t o t h e p u b l i c interest. Such m a r k e t e r s h a v e been t h e p r i m a r y
source of p r i c e c o m p e t i t i o n a n d h a v e been t h e l e a d i n g source o f i n n o v a t i o n i n
gasoline m a r k e t i n g . Independent p r i v a t e b r a n d m a r k e t e r s h a v e f o r t h e l a s t
several years s o l d gasoline f o r 3-5 cents p e r g a l l o n less t h a n t h e p r e v a i l i n g
p r i c e of m a j o r b r a n d gasoline. A c c o u n t i n g f o r a r o u n d y 8 t h o f t h e gasoline
sold t h r o u g h stations, they d i r e c t l y saved t h e p u b l i c a n e s t i m a t e d 375 m i l l i o n
d o l l a r s d u r i n g 1972 a n d w e l l over a h a l f a b i l l i o n d o l l a r s w h e n t h e responses
o f m a j o r b r a n d m a r k e t e r s a r e considered.
T h e l a r g e s t independent p r i v a t e b r a n d companies operate f e w e r t h a n a
t h o u s a n d stations. M a n y of t h e l a r g e r p r i v a t e b r a n d e r s o p e r a t e o n l y a couple
h u n d r e d s t a t i o n s a n d there a r e h u n d r e d s o f independents each o p e r a t i n g less
t h a n a dozen stations. T h e smallness i n size o f t h e independents w o u l d be
i n c o n t r a s t t o t h e eight largest m a j o r b r a n d s i n c l u d i n g E x x o n , Texaco, M o b i l ,
G u l f , Shell, Socal, A m e r i c a n a n d A r c o , each h a v i n g more t h a n 20,000 stations. T h e l a r g e n u m b e r s of independent p r i v a t e b r a n d o r g a n i z a t i o n s , each
p u r s u i n g t h e i r o w n best economic i n t e r e s t , is w h a t has m a d e t h e discount
m a r k e t e r such a n i m p o r t a n t c o m p e t i t i v e force i n t h e gasoline i n d u s t r y .
I n d e p e n d e n t p r i v a t e b r a n d m a r k e t e r s h a v e g r o w n by e m p l o y i n g t h e discount
m e t h o d o f s e l l i n g gasoline o n a high-volume, low-cost a n d l o w - p r i c e basis.
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These discount marketers operate w i t h margins of 5-7 cents per gallon i n
comparison to the m a j o r brand companies t h a t require 10-12 cents o r more to
sell t h e i r gasoline. As a result of t h e i r efficiencies, the independent m a r k e t i n g
specialists have, u n t i l recenlty, been able t o sell gasoline a t substantial
savings t o the pubic.
The increasing relative efficiency of the independents' method of m a r k e t i n g
was exerting tremendous economic pressure on the costly m a j o r b r a n d method
of marketing. This m a j o r brand method o f m a r k e t i n g has been to sell
relatively h i g h priced gasoline, on a brand advertised basis, t h r o u g h very
large numbers of stilt ions., located on expensive properties w i t h elaborate
facilities, using credit cards, stamps, premiums a n d games. As a result of
the independents, the majors 1 overbuilt and costly style o f m a r k e t i n g was
s t a r t i n g t o crumble. The consumer savings t h a t could have resulted f r o m
the gasoline m a r k e t i n g revolution t h a t was i n the makings could easily have
been between one and t w o b i l l i o n dollars a year.
The independent discount gasoline marketers, however, are no longer able
to exert the much needed pressure on the d o m i n a n t operators to r e f o r m
t h e i r costly methods of marketing. Several o f those independent marketers
t h a t were f o r c i n g change up to nine months ago have either been forced out
of business, or else are now fighting f o r s u r v i v a l a n d are t r y i n g to keep
their doors open. The d r a m a t i c change of circumstances f o r independent
price marketers f r o m being a t the leading edge of change a f e w months ago
to their current problem of s u r v i v a l is a result o f the r a p i d l y surfaced
petroleum supply problems.
The c r i p p l i n g problem o f the independent discount gasoline marketers is
securing competitive supplies of gasoline to sell to t h e i r customers. Some
refineries have taken advantage o f the g r o w i n g shortage of crude o i l and
refined products. Crude oil and refined products have been diverted f r o m
independent refineries and discount marketers to direct operations of certain
of the integrated o i l companies. As this has happened independents have
been compelled to increase t h e i r prices, reduce hours o f operation and t o
lay off employees i n order to continue to operate Those t h a t were h i t earlier
and harder by cutbacks i n supply have gone o u t of business.
The public consequence o f using the supply shortage to d i v e r t products
f r o m independents has been to destroy the p r i m a r y source of price competition
i n ithe marketplace. As supplies have been fixed, reduced and cutoff to the
independents, the m a j o r oil companies are no longer p a r t i c u l a r l y concerned
about price competition. The sudden stability of gasoline prices i n the marketplace as supplies have been diverted f r o m independents can be observed f r o m
Figures 1-6 t h a t are attached at the back of this statement. The price charts
f o r six m a j o r markets (where data was available) show t h a t around the
middle o f August, 1972 (week "33/72") t h a t price competition suddenly halted.
W i t h supplies reduced and regulated to the discount marketers, the m a j o r o i l
companies were no longer concerned about the g r o w t h of price marketers.
Control over supply and its diversion f r o m the discount marketers has
proven to be a very effective technique f o r regulating and destroying price
marketing.
W i t h gasoline supply delicately balanced to demand, and the discount
marketers unable to grow and expand on the basis of t h e i r relative efficiency,
i t has been possible f o r the major brand marketers t o significantly increase
their prices. F o r the 37 week period f r o m August 13, 1972 through A p r i l 22,
1973, i n comparison to the previous 37 weeks, the m a j o r brand prices increased
by 3.5c per gallon i n Los Angeles, 2.4c i n Portland, 3.9c i n Seattle, 2.4c i n
Phoenix, 2.8c i n Boise, and 2.7c throughout most of Nevada. As the Figures
show, since supply has been sharply reduced a n d prices increased to the discount marketers the past t w o to three months, the independents have been
forced to increased t h e i r prices to nearer the m a j o r brand price level. D u r i n g
the last three months the independent price has increased i n Los Angeles,
Portland, Boise a n d Nevada f r o m 3-6 cents per gallon. These were on top of
earlier price increases of around t w o cents per gallon by the independents.
W i t h o u t supply there is no way f o r the independent discount marketers to
act as an effective deterent to m a j o r brand price increases. Furthermore, as
supply is reduced to the independent i t becomes necessary f o r h i m to increase
his price to t r y to stay alive.
Price increases on t h e order of those observed i n the 6 western U.S.
market areas have been f a i r l y common throughout the country. So f a r this
96-183 O - 73 - 11
156
year itihe wholesale price o f gasoline t o m a j o r b r a n d dealers (the dealer t a n k
wagon price) has increased around 2.1 cents per gallon on the basis of a
100 m a r k e t survey as shown below (source: The Oil Daily, A p r i l 26, 1973, p. 2 ) .
Such increases i n the cost of gasoline to dealers translates i n t o r e t a i l prices
of around 3 cents per gallon to the public. T h i s general s t a b i l i z a t i o n o f prices
occurred i n m i d August 1972, the same time as the price increases observed i n
the 6 western markets. A n account of t h e nationwide price increase i n m i d
A u g u s t 1972 f r o m The Oil Daily is attached to t h i s statement. I n t h i s a r t i c l e
an independent marketer was quoted as saying t h a t " w o r d finally has filtered
to t h e ' w i l d e r ' marketers t h a t gasoline m i g h t no longer be available f o r volume
selling based o n price-cutting." As the supply s i t u a t i o n has g r o w n t i g h t e r , the
threats o r prognosis have come true, and price marketers are being squeezed,
weakened a n d destroyed.
T h e serious predicament o f independents was recently underscored by K e i t h
Fanshier, President o f The Oil Daily, one of the leading i n d u s t r y t r a d e papers.
Fanshier, who frequently takes positions favorable t o t h e giants of the
i n d u s t r y , points out i n an article, " T h e S m a l l Businessman . . . N o w " , ( T h e
Oil Daily, A p r i l 30, 1973) the desperate s i t u a t i o n o f t h e independent m a r keters. Excerpts f r o m his article are as f o l l o w s :
. . . [ n many a case today, the small operator throughout the i n d u s t r y has
f a l l e n upon d i r e a n d desperate straits, i n which the problems have h i t dose
t o t h e h e a r t o f h i s substance and his operating survival.
The whole i n d u s t r y is i n this supply problem together, a n d needs to the
greatest degree legally possible to pool its resources a n d cooperate i n wiays
never before thought possible.
. . . i t i s essential t h a t the small businessman . . . come t h r o u g h t h i s
experience w i t h o u t being f a t a l l y injured.
I t w i l l make f o r a better t o t a l i n d u s t r y i n the end, to have a vigorous
healthy, s u r v i v i n g small business w i n g of t h e i n d u s t r y . . . W h e n the shortage
is at last overcome, the good businessman must s t i l l be i n business—not have
been a tragic casualty. The industry as a whole must keep t h i s v i t a l lesson
uppermost i n mind.
Fanshier is g i v i n g some very i m p o r t a n t advice, b u t i t is d o u b t f u l t h a t those
the message is intended f o r w i l l listen and respond.
L O N G - R U N PROBLEM
The question i s sometimes asked or i m p l i e d " W h y d i d t h e independent
marketers a l l o w themselves to get i n t o such a serious supply s i t u a t i o n ? "
157
Stated another way " W h y d i d n ' t the independents have t h e foresight to integrate backwards i n t o refining?" The supply problem of independent marketers
is to a considerable degree the long-run consequence of v e r t i c a l i n t e g r a t i o n
and monopoly power i n the crude o i l market. Over much of the past twentyfive years, crude o i l prices have been administered a t a r t i f i c i a l l y h i g h levels.
W i t h high-priced and non-competitive feedstocks a n d the prospects f o r l o w
wholesale prices f r o m integrated competitors, l i m i t e d economic incentive has
existed f o r m a k i n g investment i n independent refining. I n contrast, integrated refineries, owning large quantities of crude oil, have been i n a flavored
position to expand t h e i r o w n refining as a way t o u t i l i z e t h e i r highly profitable
crude oil. I t follows t h a t independent discount marketers have been forced to
become more d i r e c t l y and indirectly dependent upon t h e m a j o r o i l companies f o r supply.
Vertical i n t e g r a t i o n also led to integrated o i l companies subsidizing marketing operations. U n t i l recently, m a r k e t i n g investment, l i k e refining, was
used t o cash i n crude o i l profits. The subsidizing o f m a r k e t i n g w i t h crude o i l
profit and cash flow led to the tremendous a n d costly over-investment i n
m a r k e t i n g t h a t exists today. Even executives of E x x o n and other huge integrated o i l companies point out t h a t there are t w o to three times more r e t a i l
stations t h a n are needed to efficiently serve the public interest. The costly
over-investment i n m a r k e t i n g would not be anywhere near the problem t h a t
i t is, had i t not been f o r integration and subsidization of m a r k e t i n g w i t h
crude o i l profits and cash flow benefits. I f m a r k e t i n g was not t i e d to crude
oil, the investment i n m a r k e t i n g would be much less a n d gasoline w o u l d be
sold to the public on a more efficient basis a t a lower price.
I t is ironic t h a t the independent discount gasoline marketers are having
such difficulties today, f o r the m a j o r integrated oil companies are now attempting', a f t e r twenty-five years of heavy subsidization, to p u t marketing
and refining on a profitable basis. W i t h the m a j o r o i l companies reducing
their m a r k e t i n g subsidies, the independents, who have existed w i t h o u t subsidies, should be enjoying a new prosperity and a deeper market penetration
because o f t h e i r much greater efficiency.
Integrated oil eomjmnies now desire to make refining and marketing
profitable since the crude oil profit haven t h a t they have enjoyed since W o r l d
W a r I I is eroding. I n t e r n a t i o n a l l y , foreign governments are increasing crude
oil prices and moving to take over the o i l fields i n t h e i r respective countries.
I n the United States, most of the readily available a n d l o w cost o i l has already
been discovered and t h a t which remains to be discovered is quite costly.
The enormously expensive bonus bidding system of leasing properties f o r o i l
exploration has also greatly increased the cost o f exploration i n the U.S.
Thus, the financial strategy o f the integrated companies must be to p u t
refining and m a r k e t i n g on a profitable basis and t o capture more of their
earnings f r o m these activities. However, standing i n the w a y of this strategy
are the independent discount gasoline marketers and the independent refineries
t h a t have operated w i t h o u t subsidies. Therefore, i f the integrated companies
are to breathe significant profits back into t h e i r costly and inefficient marketi n g system a n d into t h e i r refining activities, t h e independent must be eliminated as an effective m a r k e t i n g force. The way to stop the independent
discount marketers is to reduce or cut off their supplies o f finished products.
S i m i l a r l y , the way t o damage independent refiners is to cut off their supplies
of crude oil. T h i s can be done by refusing to sell or by raising prices to
uncompetitive levels. B o t h are occurring, and the independent marketer and
the independnet refiner is i n p e r i l of extinction.
CONCLUSION
The performance of the petroleum industry could be greatly improved i f
the s t r u g g l i n g independent sector o f the i n d u s t r y were saved. T h i s w i l l occur
158
only i f Congress acts decisively against the predatory acts of some of the
integrated o i l companies i n c u t t i n g off supplies of refined products and crude
o i l to t h e i r t r a d i t i o n a l independent customers.
F o r the d u r a t i o n of the supply crisis, the integrated o i l companies should
be p r o h i b i t e d f r o m selling a larger percentage of t h e i r refined products a n d
crude o i l through controlled refining and m a r k e t i n g operations t h a n t h e y d i d
d u r i n g the base period of t h e first h a l f o f 1972, p r i o r t o the occurrence o f
the severe product shortages. The remaining refined products a n d crude o i l
w o u l d t h e n be equitably d i s t r i b u t e d and priced to t r a d i t i o n a l independent
customers based upon n o r m a l supply relations d u r i n g the base period. To the
extent t h a t independent customers have already been p u t out of business and
cannot be restored, t h e balance o f available product w o u l d be proportionately
d i s t r i b u t e d to the s u r v i v i n g independent companies.
Over the long run, the competitive performance o f t h e petroleum i n d u s t r y
w o u l d be greatly improved by the physical or f u n c t i o n a l divorcement of crude
o i l production f r o m other i n d u s t r y activities Crude o i l has been the source
of monopolistic power. I t has been used to weaken a n d destroy downstream
competitors, i n c l u d i n g those integrated competitors who are relatively poor i n
crude oil.
Physical divorcement would mean t h a t crude o i l activities w o u l d be spun
off and r u n by new and independent companies. F u n c t i o n a l divorcement w o u l d
require integrated o i l companies to adopt separate operating and accounting
procedures and w o u l d require t h e i r crude o i l activities and t h e i r refining and
m a r k e t i n g activities to stand on t h e i r own respective financial feet.
B o t h physical and f u n c t i o n a l divorcement w o u l d to v a r y i n g degrees result i n
improved public performance of the petroleum industry. One t h i n g t h a t w o u l d
happen is t h a t the excessive investment i n m a r k e t i n g and the h i g h cost o f
selling w o u l d cease. A f t e r a period o f adjustment there w o u l d be perhaps h a l f
the number of stations, and the cost o f selling gasoline could easily result i n
prices generally
per gallon less t h a n present levels. T h i s w o u l d mean a
saving o f about a b i l l i o n and a h a l f dollars a year.
I n summary, the imperiled condition of discount marketers a n d refineries
i n the short-run can be remedied by the proper legislation or by governmental
decree. F o r the d u r a t i o n of the supply crisis independent marketers a n d refineries should obtain t h e i r f a i r share of product based upon h i s t o r i c a l relationships w i t h t h e i r suppliers a n d the product should be available a t competitive
prices f o r the different classes of customers. The long-run solution to the
problem of u n f a i r competition w i t h independents f r o m integrated o i l companies can be solved by divorcement of crude oil. W h i l e the performance o f the
petroleum i n d u s t r y would improve most w i t h physical divorcement of crude
oil f r o m the remainder o f the i n d u s t r y a c t i v i t y , t h e less severe f u n c t i o n a l
divorcement—accounting, operational and financial—would do some good a n d
w o u l d n ' t be h a r d to implement. A t t h e very least the government should seek
f u n c t i o n a l divorcement t o decrease the likelihood o f the c o n t i n u a t i o n of h i g h
administered crude o i l prices t h a t squeeze downstream competitors a n d t h a t
d i s t o r t the n o r m a l competitive processes i n the petroleum i n d u s t r y .
Figure
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165
M A R K E T I N G R U M O R S F L Y O N P R I C I N G CONTROLS
HOUSTON.—A r u m o r t h a t Phase I I I o f the p r i c e c o n t r o l p r o g r a m w i l l be
announced Tuesday, Aug. 15, swept t h e m a r k e t i n g segment o f t h e p e t r o l e u m
i n d u s t r y a t weekend.
I t f o u n d dealer t a n k w a g o n a n d r a c k prices f o r gasoline a l r e a d y on the upt u r n because o f w i d e n i n g fears of a supply crisis.
D i s t i l l a t e prices also a r e c l a w i n g a t ceilings some m a r k e t e r s describe as too
l o w to p e r m i t r e s t o r a t i o n of depleted stock t o t h e level needed t h i s w i n t e r .
One v e r s i o n of the unconfirmed Phase I I I r u m o r was t h a t President N i x o n
w i l l m a k e a n A u g 15 speech emphasizing p e t r o l e u m p r o d u c t s prices, especially
those f o r gasoline.
I t was conceded t h a t 1) t h e r u m o r m a y h a v e a r i s e n f r o m t h e f a c t A u g 13
was t h e first a n n i v e r s a r y o f t h e base p e r i o d f o r gasoline p r i c e controls, t h u s a
l i k e l y t i m e f o r f u r t h e r announcements, a n d 2) i t m i g h t help r a t h e r t h a n h i n d e r
the latest w a v e of reductions a n d e l i m i n a t i o n s o f t e m p o r a r y c o m p e t i t i v e a l l o w ances.
A southeastern m a r k e t e r was among those m o v i n g wholesale dock, or rack,
prices to levels considered ceilings. T h i s m a r k e t e r l i f t e d r e g u l a r a n d p r e m i u m
gasolines a t a l l i t s F l o r i d a t e r m i n a l s a n d a t M o b i l e a n d M o n t g o m e r y , A l a , t o
13 cents a n d 15 cents a gallon, respectively, f r o m 12.5 a n d 14.5 cents. Prices
a t B i r m i n g h a m a n d A n n i s t o n , A l a , w e n t u p one q u a r t e r cent t o 12.75 a n d 14.75
cents.
T C A a d j u s t m e n t s by m a j o r suppliers appeared t o be t a k i n g t w o p r i n c i p a l
p a t t e r n s ; t o t a l w i t h d r a w a l s as by M o b i l , Kyso, Texaco a n d P h i l l i p s ; a n d p a r t i a l
reductions, generally t o 1.4 cents a gallon, w i t h 2.1 cents m a x i m u m s i n a f e w
states.
Moves t o w a r d f u l l n o r m a l t a n k w a g o n prices appeared t o be g a i n i n g ground,
however. H u m b l e , f o r example, i n moves A u g 8 a n d 9, e l i m i n a t e d T C A ' s i n
Texas, L o u i s i a n a , N e w Mexico, Nevada a n d A r i z o n a a n d imposed l i m i t s s a i d
" g e n e r a l l y " not t o exceed 1.4 cents i n o t h e r areas except I n d i a n a , w h e r e t h e
m a x i m u m was 2.1 cents. T h e n i t issued a n order effective A u g 10 w i t h d r a w i n g
allowances i n C a l i f o r n i a , Oregon, W a s h i n g t o n a n d western I d a h o .
Kyso's t o t a l w i t h d r a w a l , d a t e d A u g 11, affected i t s e n t i r e m a r k e t i n g t e r r i t o r y — G e o r g i a , A l a b a m a , K e n t u c k y , Mississippi a n d F l o r i d a .
A T h u r s d a y r e p o r t Amoco h a d j o i n e d t h e " f u l l n o r m a l " g r o u p was denied
by a spokesman, w h o said i t evidently based o n expansion o f the company's
a d j u s t m e n t to cover i t s f u l l m a r k e t i n g t e r r i t o r y . T h i s w a s accomplished by
t r i m m i n g T C A ' s t o 1.4 cents i n i t s B a l t i m o r e a n d A t l a n t a regions, serving the
eastern U.S., a n d w i t h d r a w i n g t h e m completely i n Ohio. W e s t Coast supports
also were e l i m i n a t e d .
Independent m a r k e t e r s began f a l l i n g i n t o step w i t h t h e m a j o r s a t a n early
hour. D i a m o n d Shamrock was among the first, going back t o f u l l m a x i m u m
prices u n d e r i t s ceilings as of A u g 8. D e r b y a n d Checker f o l l o w e d soon a f t e r .
S t r o n g independent movements t o w a r d " n o r m a l " prices were r e p o r t e d i n
I n d i a n a , P e n n s y l v a n i a a n d F l o r i d a . P r i v a t e branders a n d u n b r a n d e r s f o u n d
f o u r o f 12 ma j o r s s e r v i n g F l o r i d a back a t f u l l n o r m a l a n d t h e r e m a i n i n g e i g h t
l i m i t i n g s u p p o r t t o 1.4 cents.
Some r e s t o r a t i o n s were reported i n M i c h i g a n .
A n independent m a r k e t e r said w o r d finally has filtered t o the " w i l d e r "
m a r k e t e r s t h a t gasoline m i g h t no longer be r e a d i l y a v a i l a b l e f o r volume s e l l i n g
based o n price-cutting.
" H o w e v e r , t h e self-serves undoubtedly s t i l l w i l l be something o f a problem,"
he added.
I n the state of Ohio, Sohio has l i f t e d r e t a i l prices f o r r e g u l a r a n d p r e m i u m
gasoline t o " f u l l n o r m a l " levels of 37.9 a n d 41.9 cents a g a l l o n a n d has w i t h d r a w n supports i n t h e t r i - c o u n t y ( D e t r o i t ) area of M i c h i g a n . I n t h e outstate
southern M i c h i g a n area, n e w suggested r e t a i l prices a r e 35.9 a n d 39.9 cents i n
D e t r o i t a n d 36.9 cents outside.
F i e l d r e p o r t s i n d i c a t e Sohio's B o r o n service s t a t i o n s i n w e s t e r n Pennsylvania
w e r e a t 37.9 a n d 41.9 cents a t weekend.
C i t g o e l i m i n a t e d a l l t e m p o r a r y c o m p e t i t i v e allowances i n I l l i n o i s , W i s c o n s i n
a n d I n d i a n a a t t h e opening of business F r i d a y . I t h a d c u t t h e m e a r l i e r i n t h e
week t o 1.4 cents a g a l l o n i n I l l i n o i s a n d W i s c o n s i n a n d t o 2.1 cents i n I n d i a n a .
Senator MCINTYRE. T h a n k you very much, Professors A l l v i n e and
Tarpley.
166
W e call as our next witness a panel of Roy Mason, president of
Bomaco, Inc., accompanied by Lewis G. Odom, counsel, f r o m A l a bama; F r e d L i c h t m a n , president, Society of Independent Gasoline
Marketers of America, and R. el. Peterson, Independent Gasoline
Markets Council.
I am g l a d t o welcome you gentlemen here t h i s morning. I f y o u
w i l l come up to the witness table and take y o u r positions. I f y o u
have anybody accompanying you, please introduce h i m as soon as
you have a chance.
I believe we have statements f r o m a l l of t h e witnesses. I do not
want to impinge on y o u r opportunity to testify and state your case
here, b u t we do have a t i m e problem. I am going to call you i n order,
M r . Mason, M r . L i c h t m a n and M r . Peterson. A n y t h i n g you can do
t o condense your statements, I w o u l d appreciate t h a t and I am sure
the committee would.
I n any event, your statements w i l l be included i n the record i n
t h e i r entirety.
STATEMENTS OF ROY MASON, PRESIDENT, ROMACO, INC.,
ALABAMA; ACCOMPANIED BY LEWIS G. ODOM, COUNSEL, FRED
LICHTMAN, PRESIDENT, SOCIETY OF INDEPENDENT GASOLINE
MARKETS OF AMERICA; AND R. J. PETERSON, INDEPENDENT
GASOLINE MARKETS COUNCIL
M r . MASON. I am Roy Mason, president of Romaco, Inc., M o n t gomery, A l a . W i t h me is my counsel and friend, Lewis Odom who
is also f r o m Montgomery.
I appreciate the o p p o r t u n i t y you are g i v i n g me to participate i n
this hearing looking i n t o the crisis i n the o i l industry.
I a m an independent marketer. I began m y business almost 20
years ago i n Mobile, Ala., where I operated one service station. I
grew slowly, but steadily u n t i l today I now own, operate or supply
over 150 independent service stations i n Alabama and the surroundi n g States t o which I distribute 100,000 barrels per m o n t h o r 4.2
m i l l i o n gallons of gasoline.
I operated i n m y business as a sole proprietorship u n t i l several
years ago when I incorporated as Romaco, Inc.
Customarily we picked up our supply a t the pipeline terminals i n
Montgomery and B i r m i n g h a m . O u r p r i m a r y source of supply f o r
the last 7 years has been C r o w n Central Petroleum Co. However,
over the years we have had a number o f opportunities t o leave
C r o w n Central and go w i t h other suppliers.
However, I recognized m y good relationship w i t h C r o w n Central
and we continued w i t h them u n t i l they were forced t o terminate us
as o f the 15th of A p r i l .
Senator MCINTYRE. T h a t is this year?
M r . MASON. Y e s , s i r .
P r i o r t o t h a t time, there was a series of reductions by C r o w n
Central u n t i l we were finally zeroed last month.
W h e n i t became apparent t h a t the independent marketers were i n
jeopardy, we began to look f o r alternative sources o f supply. T h i s
167
was about a year ago. Such additional sources t h a t we were able to
obtain have cut us off and we are now v i r t u a l l y out of gasoline.
I t would take f a r too much o f this committee's t i m e f o r me to
catalog every effort I have made over the past year and specifically
w i t h i n the last 90 days to obtain gasoline i n order t o save m y business and all those who depend on us, particularly the consumers who
were able to buy gasoline at a lower price.
Suffice to say, however, t h a t I have talked t o every major o i l
company t h a t I could approach, every independent and many crude
o i l producers. I have visited w i t h my elected representatives. I have
done everything I know to do and t o no avail.
I realize t h a t I am not unlike other independents b u t I t h i n k i t is
i m p o r t a n t t h a t you know some of the specifics about m y experience
t o understand better what confronts them and what i t w i l l take to
help us all.
The simple fact is t h a t unless a marketer either has a contractual
standing w i t h a major o i l company o r a supply of domestic crude
oil, there is no way he can get gasoline unless he can buy i t on the
black market f r o m m a j o r o i l jobbers.
I have i n m y hand a ticket, an i m p o r t license enabling me to
i m p o r t over 300,000 barrels of finished product. I t is worthless t o me.
Senator MCINTYRE. Where is it?
M r . MASON. H e r e .
Senator MCINTYRE. W e have talked about those tickets f o r the last
5 years. I have never seen one.
M r . MASON. T h i s is a copy.
Senator MCINTYRE. T h a n k you.
M r . MASON. I n the first place, I do not know one t h i n g about the
i m p o r t market and I must rely on others to t e l l me. I am t o l d t h a t
gasoline landed i n east coast ports is 21 t o 22 cents a gallon. A f t e r
adding the tax o f 12 t o 13 cents plus freight, there is no way we
can effectively market this gasoline.
Now, unless we can obtain crude oil which w i l l give us something
to exchange f o r gasoline, there is l i t t l e t h a t we can do. Therefore, I
went about the business o f t r y i n g t o buy some crude oil. I located
one source which could make available t o me 10,000 barrels a day at
a premium price. T h a t crude o i l is currently being sold, although not
under contract, t o a m a j o r o i l company.
I n a n effort to w o r k out an exchange of this crude o i l to gasoline,
we quickly learned t h a t no one was w i l l i n g t o make an exchange
i n v o l v i n g crude o i l t h a t would ultimately be taken away f r o m this
major o i l company.
T o p u t i t b l u n t l y , at the present t i m e the m a j o r oil companies are
v i r t u a l l y i n control of this industry. W i t h l i t t l e exception they cont r o l production, refining and marketing. Unless the independent
marketer who does not have a contract w i t h a m a j o r o i l company,
can get his hands on some crude oil which is not l i k e l y going t o a
major o i l company or, unless the Government can obtain some gaso-.
line and distribute i t t o the independents, then the consumer is no
longer t o have the option o f b u y i n g his gasoline f r o m an independent
marketer.
168
H e is going t o get a f u l l service station, w i t h a l l tihe t r i m m i n g s
and expenses whether he wants i t o r not. I m i g h t add t h a t many o f
these t r i m m i n g s are being offered by enterprising independents w i t h out the additional charges.
I have suggested t w o ways i n w h i c h we may be helped. L e t me
discuss the first one—crude oil.
A t the present t i m e the U n i t e d States is receiving o r is entitled t o
receive approximately 54,000 barrels o f crude o i l as a r o y a l t y on
outer continental shelf production. T h i s would produce 40 m i l l i o n
gallons of gasoline per month.
W e call t h i s royalty oil. A t the moment t h e Secretary o f the
I n t e r i o r is authorized t o allocate t h i s royalty o i l t o small business
refiners. Unless the small independent markets have some contractual
relationship w i t h a refiner, t h i s is o f no help to the marketer. I k n o w
of no reason w h y this o i l should be reserved to help t h e refiner and
not the marketer. The regulations provide t h a t the small refiner may
exchange this crude o i l f o r other o i l t o be used i n his refinery.
There is no reason w h y marketers should not be made eligible to
purchase royalty o i l so long as they are going t o exchange i t f o r
finished products t o be sold by them.
Consequently, I suggest t h a t the Secretary of the I n t e r i o r take
immediate action t o enable small business marketers t o purchase
r o y a l t y o i l upon a showing o f agreement t o exchange the o i l f o r
gasoline.
There is another source o f crude o i l t h a t could be used to provide
gasoline for the independent marketers, that is, foreign crude.
I t happens t h a t most of the independent refiners upon w h o m a
great m a j o r i t y o f the independent marketers rely f o r t h e i r supply
are unable because of the makeup of their refinery t o process foreign
crude oil. Most crude o i l has a h i g h content o f sulphur and is commonly k n o w n as sour crude. Most domestic crude has a l o w content
o f sulphur and is k n o w n as sweet crude oil.
Independent refiners use domestic or sweet crude w h i l e the refiners
who can use the sour crude are owned by the major o i l companies.
Therefore, licenses t o i m p o r t foreign crude are meaningless to the
independent refinery unless they can exchange this crude o i l f o r
sweet crude which they can process i n t h e i r refineries.
I n the past, such exchanges were made routinely and the independent refiners were able to get by w i t h the exchanged crude o i l w h i c h
they could refine now i n t h e i r plants.
However, at t h i s t i m e the major o i l companies refuse t o exchange
and consequently, -the independents are operating at f a r below t h e i r
capacity.
Some leverage can be brought by the Government—and should be
— t o encourage the majors to exchange w i t h the independents so t h a t
some 316,000 barrels a day o f unused refining capacity can be p u t i n
operation, and the gasoline made available to the independent marketer and the consuming public.
I also have another page here b u t i n the interest of time, I w i l l
stop here and allow t h i s to be p u t i n the record.
Senator MCINTYRE. I w i l l yield t o the Chairman, Senator Sparkman.
169
The CHAIRMAN. T h a n k you, Senator M c I n t y r e . I k n o w something
about the story t h a t M r . Mason has been relating because i t has been
r u n n i n g now f o r some time.
Y o u said y o u were zeroed i n A p r i l , r i g h t ?
M r . MASON. Y e s .
The CHAIRMAN. Does that mean cut off completely ?
M r . MASON. C u t o f f c o m p l e t e l y .
The CHAIRMAN. W h a t happened t o your stations?
M r . MASON. I a m closing them at the rate o f about 50 a week. W e
closed 58 service stations yesterday p r i o r t o leaving Montgomery,
Alabama t o come t o Washington.
The CHAIRMAN. I happen to know, Senator M c I n t y r e , t h a t he has
made a tremendous effort throughout the country t o get a supply of
gasoline. I n fact, I have talked w i t h a number o f the major companies myself. H e has been unable to get supplies. W h y is t h a t some
practical method cannot be worked out whereby t h i s crude o i l t h a t
you are licensed t o buy—by the way, the ticket t h a t you had, is t h a t
f o r foreign crude or domestic crude?
M r . MASON. T h a t is not f o r crude oil. They w i l l not issue to me a
license f o r crude o i l because I am not a refiner. T h a t is a ticket to
i m p o r t finished product.
The CHAIRMAN. TO i m p o r t the finished product?
M r . MASON. Gasoline.
T h e CHAIRMAN. I m p o r t i t f r o m where?
M r . MASON. E v e n i f i t were crude oil, I could not do anything
w i t h it. I could not get the processor t o refine the 10,000 barrels a
day I could buy.
The CHAIRMAN. AS a matter o f fact, they d i d have a system, d i d
they not, of issuing tickets f o r crude o i l ?
M r . MASON. NO, sir. I do not t h i n k they have a system f o r issuing
crude o i l tickets to a marketer. I t h i n k that is reserved f o r a refiner.
The CHAIRMAN. Sometime back I talked w i t h M r . Simon on this
subject.
M r . MASON. Yes, sir, but t h a t was i n reference t o t h i s
T h e CHAIRMAN. I was t h i n k i n g he t o l d me t h a t the proclamation
t h a t he was d r a f t i n g f o r the President t o sign and p r o v i d e — I
thought i t was tickets f o r foreign crude which you i n t u r n could
take f o r domestic crude.
M r . MASON. T h a t d i d not materialize as f a r as we were concerned.
As f a r as I am concerned, at any rate, i t d i d not materialize.
M r . ODOM. Senator, what he may have had reference t o was a
license f o r refiners t o i m p o r t crude, but the difficulty is, as M r .
Mason has pointed out i n his statement, the independent refiners
who have the excess capacity i n their refining facilities are unable
to use foreign crude because o f its h i g h s u l f u r content. So, consequently, the only way they can use t h a t foreign crude is t o exchange
i t w i t h someone who has domestic crude o i l t h a t they can p u t into
their plant.
Now, the major o i l companies pretty well control the domestic
crude oil. So, unless they w i l l exchange t h a t domestic crude o i l f o r
the foreign crude oil, these tickets even f o r crude o i l are just worthless.
170
T h e CHAIRMAN. I t h i n k t h a t is i n l i n e w i t h w h a t I understood i t
t o be. I may say, Senator M c I n t y r e , as you know, M r . Odom was
f o r 7 years the staff director o f this committee.
Senator MCINTYRE. I never recognized h i m w i t h his glasses on.
T h e CHAIRMAN. W h e n you reach a certain stage, y o u take on an
appearance o f anonymity.
M r . ODOM. I t is m y long hair, Senator.
T h e CHAIRMAN. YOU know, too, t h a t he was staff director o f the
S m a l l Business Committee.
Senator MCINTYRE. I worked w i t h h i m and h a d a h i g h regard f o r
M r . Odom.
I expect h i m t o be back as a Congressman some day.
T h e CHAIRMAN. H e was m y administrative assistant f o r several
years.
Senator MCINTYRE. A n d t h a t is enough t o recommend h i m there.
T h e CHAIRMAN. DO you have any practical suggestions as to how
we could do something to help this situation.
M r . MASON. TO help me, some emergency situation is g o i n g t o
have t o be developed w i t h i n the next few days. I a m out o f business.
The CHAIRMAN. I know. B u t what, and how?
M r . MASON. I f I could be made available this crude o i l t h a t the
Government owns, this royalty crude t h a t they are receiving f r o m
the m a j o r o i l companies f o r h a v i n g d r i l l e d i n the shelf out there—
as I understand i t now, the major o i l companies are g i v i n g the Government money and they are refining this oil and using i t themselves. B u t t h i s is 54,000 barrels a day w h i c h on a 66 percent r e t u r n
on crude oil-gasoline after i t is refined could produce 40 m i l l i o n
gallons a month f o r d i s t r i b u t i o n t o independents.
T h e CHAIRMAN. YOU are t a l k i n g about o i l d r i l l i n g on the Continental Shelf?
M r . MASON. Y e s .
The CHAIRMAN. Done by the Government or under contract w i t h
the companies f r o m the Government?
M r . MASON. B y major o i l companies under contracts w i t h the
Federal Government.
T h e CHAIRMAN. A n d the Federal Government has the r i g h t t o let
them pay t h a t i n cash o r i n royalty oil, is t h a t r i g h t ?
M r . MASON. Y e s , s i r .
T h e CHAIRMAN. Y o u r suggestion is t h a t the Government take i t
i n royalty o i l and make i t available t o whom ?
M r . MASON. TO m e .
T h e CHAIRMAN. IS
M r . MASON. I w i l l
t h a t gasoline or is t h a t crude o i l ?
take the crude o i l and get i t refined. I have a
refinery t h a t w i l l take the crude o i l and refine i t a n d give me back
the gasoline.
The CHAIRMAN. W h a t is t o prevent the Government f r o m d o i n g
it? W h o does that, the Department o f the I n t e r i o r ?
M r . MASON. T h e Department o f the I n t e r i o r .
T h e CHAIRMAN. IS there any reason w h y they should not be able
to do t h a t on a reasonable basis?
M r . MASON. NO, sir, I see no reason at all.
T h e CHAIRMAN. M r . Chairman, t h a t m i g h t be a suggestion.
171
Senator MCINTYRE. V e r y definitely.
M r . Simon w i l l be here Thursday and we w i l l ask h i m i n detail
as t o w h y he cannot do that. A r e you unique, are you just one t h a t
i t zeroed ?
M r . MASON. NO, I am not unique. There are others t h a t have been
cut completely out.
Senator MCINTYRE. A r e there any others i n Alabama ?
The CHAIRMAN. I t h i n k he had Alabama wrapped up.
M r . MASON. There are some i n Alabama, some o f the people who
were supplied along w i t h me by C r o w n Central when they had t o
zero everybody out.
The CHAIRMAN. B y the way, what happened t o C r o w n Central,
were they zeroed, too ?
M r . MASON. O n crude o i l they were. The m a j o r o i l companies cut
them off on the back side, cut the crude o i l off. C r o w n Central is an
independent refiner. They do not o w n much crude oil. They had
depended f o r years on b u y i n g t h e i r crude o i l f r o m m a j o r o i l producers.
The CHAIRMAN. W h a t are they doing now?
M r . MASON. They are doing the best they can, Senator, just k i n d
of c r i p p l i n g along. Really and t r u l y , I do not lmow what they are
doing. I t h i n k they are doing just the best they can.
Senator MCINTYRE. Senator Johnston.
Senator JOHNSTON. YOU mean Crown Central, a refiner, when we
are i n as much need and have as b i g a shortage as we do having
refining capacity, they cannot get crude?
M r . MASON. NO, sir, t h a t is r i g h t .
M r . ODOM. T h e reason f o r t h a t is they can only refine domestic
crude oil, the sweet crude.
Senator JOHNSTON. Can't they convert?
M r . ODOM. I n the past when they got these tickets f o r crude oil,
they could exchange i t w i t h the majors, and the majors would i m p o r t
the foreign crude and refine i t i n t h e i r refineries, where they could
use i t and the domestic crude would go to the independent refineries,
such as C r o w n Central. B u t the majors w i l l not exchange i t any
more. They say we can use all the domestic crude o i l we have got
and we do not have any to exchange w i t h you. So, we can i m p o r t
the crude oil, but the refiners are not geared u p t o use i t .
Senator JOHNSTON. I t is economically nonfeasible f o r h i m to convert t o sour crude?
M r . MASON. W e are t a l k i n g about a year or 2 years to do this, and
the reason—I m i g h t interject is this, the reason t h a t the majors are
a l i t t l e b i t u n w i l l i n g t o exchange those tickets and take foreign
crude and relieve the sour crude is the fact t h a t there is a difference
i n the price.
The domestic price is lower than the foreign price.
Senator JOHNSTON. D i d I understand you to say t h a t unless you
have a contract or a supply o f domestic crude, t h a t there is no way
f o r you to get the gasoline ?
M r . MASON. There is not any way whatsoever t o get gasoline a t
this time.
96-183 O - 73 - 12
172
Senator JOHNSTON. Does t h a t apply t o a l l the other independents
as well ?
M r . MASON. I am not sure I understand all t h e ramifications of a l l
the other independents, b u t I w i l l speak f o r a good m a j o r i t y o f the
independents i n the areas where I operate. They are i n the same
shape; yes, sir.
Senator JOHNSTON. A l l those w h o have contracts, those contracts
w i l l expire I a m sure f a i r l y soon.
M r . MASON. They usually r u n on a yearly basis. One o f the b i g
things is everybody I have talked t o majors and independents alike,
and everything t h a t has a supply o f gasoline has the same story,
they say we w i l l not take on any new customers.
Senator JOHNSTON. Those t h a t they have already got, those who
are on a yearly contract and those contracts are g o i n g to expire i n
December, w i l l they renew those contracts w i t h those individuals?
M r . MASON. I have no knowledge o f whether they w i l l o r not.
Senator JOHNSTON. YOU say there is no way to sell i m p o r t e d gas
because y o u w o u l d have t o pay 21 cents f o r i t at the p o r t o f embarkation, is t h a t r i g h t ?
M r . MASON. Y e s .
Senator JOHNSTON. Y o u can get refined products, you can i m p o r t
it?
M r . MASON. I have not been able to get any.
I have got a ticket t o i m p o r t i t , b u t I have not been able t o f i n d
any t h a t was f o r sale f o r me.
Senator JOHNSTON. Y o u cannot find any refined product t o buy ?
M r . MASON. NO, sir. N o t imported product. There is some gasoline
being sold, imported gasoline being sold i n the New Y o r k H a r b o r f o r
24 and 25 cents. T h i s was reported t o me. I d i d n o t see the sales slip,
but this was reported to me.
Senator JOHNSTON. W h o is r e p o r t i n g that?
M r . MASON. I do n o t know. T h i s i n f o r m a t i o n came t o me f r o m a
broker whom I contacted at Houston, Tex.
Senator JOHNSTON. HOW much w o u l d i t cost you t o buy gasoline
f r o m a refiner?
M r . MASON. A b o u t 14.5 cents.
Senator JOHNSTON. AS opposed t o 21 t o 24 cents i f you bought i t
f r o m a broker i n New Y o r k ?
M r . MASON. Y e s , s i r .
I t h i n k you w o u l d liken this t o a hurricane, h i t t i n g the G u l f
coast and a r u n being made on the available grocers i n the area. The
grocer could charge any price he w o u l d want because o f the f r a n t i c
situation t h a t he would be i n at t h a t time.
I w o u l d liken this situation t o t h a t as an analogy o f how t h i s
looks.
Senator JOHNSTON. T h a n k you very much.
Senator MCINTYRE. I had never realized—is i t true t h a t most o f
the independent refiners are not as sophisticated as the t y p e I saw
out i n Bellingham, Wash, several weeks ago, Arco's p l a n t out there?
They were h a n d l i n g s u l f u r content o f 5 percent at the time.
M r . ODOM. I do not pretend t o be an expert on i t . Some of these
gentlemen t h a t f o l l o w M r . Mason may be. M y i n f o r m a t i o n f r o m dis-
173
cussing t h i s w i t h one o f the m a j o r independent refiners' is t h a t most
of the independents are simply not geared up to handle crude o i l
w i t h a h i g h content o f sulfur. T h a t is just a general statement, b u t
I t h i n k i t is a f a i r and accurate statement.
Senator MCINTYRE. I would just l i k e t o give the committee a l i t t l e
idea of the type o f contract clause t h a t is currently being issued—
this happens t o be an example, i t is n o t meant t o i n any way downgrade Texaco—and I w i l l just read the first line o f t h i s clause and I
w i l l insert the balance i n the record. T h i s is the type o f contract
being signed today :
I n t h e event seller's c a p a c i t y to p e r f o r m as to a l l o r some of i t s customers,
i n c l u d i n g buyer, as to a l l o r any of the products covered by t h i s agreement,
becomes i m p r a c t i c a b l e i n seller's sole j u d g m e n t f o r a n y reason whatsoever,
seller s h a l l be relieved of i t s o b l i g a t i o n to p e r f o r m here-under a n d s h a l l n o t
be l i a b l e f o r damage or o t h e r w i s e obligated t o buyer by reason o f any delay
or non-delivery i n w h o l e or i n p a r t .
The rest we w i l l p u t i n the record.
[The information follows:]
I n t h e event Seller's capacity to p e r f o r m as to a l l o r some of i t s customers,
i n c l u d i n g B u y e r , as to a l l o r any of the products covered by t h i s agreement,
becomes i m p r a c t i c a b l e , i n S e l l e r s sole j u d g m e n t , f o r any reason whatsoever,
Seller s h a l l n o t be relieved of i t s o b l i g a t i o n t o p e r f o r m hereunder a n d s h a l l n o t
be l i a b l e f o r damages or o t h e r w i s e obligated t o B u y e r by reason of any delay
or non-delivery i n w h o l e or i n p a r t . Seller s h a l l seasonably n o t i f y B u y e r i n w r i t i n g o f i t s l a c k of capacity to p e r f o r m by m a i l addressed t o B u y e r . I n such n o t i fication Seller s h a l l advise B u y e r the quantities, i f a n y , Seller w i l l be able t o
supply B u y e r i n the foreseeable f u t u r e . B u y e r s h a l l be obligated t o purchase
such reduced q u a n t i t i e s w h e r e Seller has advised B u y e r t h a t such reduced
q u a n t i t i e s are a v a i l a b l e unless B u y e r w i t h i n a reasonable t i m e notifies Seller
t h a t i t desires t o t e r m i n a t e t h i s agreement i n w h i c h event such agreement s h a l l
thereupon t e r m i n a t e . N o t h i n g h e r e i n s h a l l be construed to e x t e n d t h e c o n t r a c t
I>eriod beyond the t e r m p r o v i d e d f o r i n t h i s agreement o r t o relieve e i t h e r p a r t y
of i t s o b l i g a t i o n to pay, when due, any amounts w h i c h have accrued hereunder
or p u r s u a n t hereto.
Senator JOHNSTON. I have one question.
H o w would you distribute this 40 m i l l i o n barrels of gasoline a
month i f we made i t available to the independents?
B y b i d o r what?
M r . MASON. B y history, the history, the way i t has been handled
i n the past, the history o f the market.
M r . ODOM. Senator, let me respond t o that.
I n other words, each marketer, w i l l have developed over a period
o f t i m e a history of how much he has been m a r k e t i n g and t h a t
would establish h i m w i t h i n the i n d u s t r y at some percentage. Then
he could make application f o r the royalty o i l upon a showing t h a t
he had an exchange agreement f o r gasoline based on the history. H e
would have to show just exactly how much gasoline he had marketed
over the past 3, 5, o r 7 years, whatever was decided upon by the
administrative agency.
H e w o u l d make application t o purchase the royalty oil.
Senator JOHNSTON. A t w h a t price?
M r . ODOM. I suppose i t would be the price set by the Secretary o f
the I n t e r i o r , which is established by the market. They have a daily
price. W e have i n f o r m a t i o n we could p u t i n the record that shows
the daily price t h a t the majors pay the Government f o r this royalty
174
oil. So, the Government then could take the r o y a l t y o i l i n k i n d and
then sell i t f o r the price they w o u l d otherwise get f o r i t .
Senator JOHNSTON. HOW d o they establish t h a t d a i l y price?
M r . ODOM. I do not know, sir. I j u s t do not know.
Senator JOHNSTON. T h a n k you.
Senator MCINTYRE. T h a t is a good question t o ask M r . Simon.
M r . Mason, one last question.
O n A p r i l 15 you were operating 150 independent stations i n the
State of Alabama ?
M r . MASON. NO, sir. I had d w i n d l e d away because we h a d been
p u t o n allocation over a period o f time. W e were cut off by C r o w n
Central i n Montgomery, A l a . because they had an exchange w i t h a
m a j o r o i l company who had cut them off. They were cut off and
they consequently had t o cut me off because i t was on an exchange
where they were t a k i n g crude i n one place and selling me gas i n
another place.
Senator MCINTYRE. HOW many outlets do you have operating
today?
M r . MASON. They are all r u n n i n g out o f gas but I w o u l d 9ay
about 45.
Senator MCINTYRE. None w i t h any gasoline?
M r . MASON. They have some gasoline i n t h e i r stores.
[ T h e complete statement of M r . Mason f o l l o w s : ]
STATEMENT
OF R O Y
MASON,
PRESIDENT,
ROMACO,
INC.,
MONTGOMERY,
ALA.
I a m R o y Mason, President o f Romaco, Inc., M o n t g o m e r y , A l a b a m a . W i t h m e
is m y counsel a n d f r i e n d L e w i s Odom, w h o i s also f r o m M o n t g o m e r y .
I appreciate the o p p o r t u n i t y y o u are g i v i n g m e to p a r t i c i p a t e i n t h i s h e a r i n g
l o o k i n g i n t o the crisis i n the o i l i n d u s t r y .
I a m a n independent m a r k e t e r . I l>egan m y business a l m o s t 20 years ago i n
Mobile, A l a b a m a , where I operated one service s t a t i o n . I g r e w s l o w l y , b u t
s t e a d i l y u n t i l today w h e n I n o w own. operate o r supply over 150 independent
s t a t i o n s i n A l a b a m a a n d the s u r r o u n d i n g states. I operated m y business as a
sole p r o p r i e t o r s h i p u n t i l several years ago w h e n I i n c o r p o r a t e d as Romaco,
I n c . C u s t o m a r i l y , w e p i c k e d u p o u r supply a t t h e p i p e l i n e t e r m i n a l s i n M o n t gomery a n d B i r m i n g h a m . O u r p r i m a r y source o f s u p p l y f o r the l a s t seven
years has been C r o w n C e n t r a l P e t r o l e u m Company. H o w e v e r , over the years
we have h a d a n u m b e r of o p p o r t u n i t i e s t o leave C r o w n C e n t r a l a n d t o go w i t h
o t h e r suppliers. H o w e v e r , I recognized m y r e l a t i o n s h i p w i t h C r o w n C e n t r a l a n d
we c o n t i n u e d w i t h t h e m u n t i l they were f o r c e d t o t e r m i n a t e u s t h e 15th o f
A p r i l . P r i o r t o t h a t time, t h e r e was a series o f reductions b y C r o w n C e n t r a l
u n t i l we were finally zeroed l a s t m o n t h .
W h e n i t became apparent t h a t independent m a r k e t e r s w e r e i n j e o p a r d y , w e
began t o look f o r a l t e r n a t i v e sources o f supply. T h i s was a b o u t a y e a r ago.
Such a d d i t i o n a l sources t h a t wTe were able t o o b t a i n h a v e c u t u s off a n d w e
a r e v i r t u a l l y o u t of gas.
I t w o u l d t a k e f a r too m u c h o f t h i s committee's t i m e f o r me t o catalogue
every e f f o r t I have made over t h e past y e a r a n d specifically w i t h i n t h e l a s t
n i n e t y d a y s t o o b t a i n gasoline i n o r d e r t o save m y business a n d a l l those
w h o depend upon us, p a r t i c u l a r l y t h e consumers w h o wTere able t o buy gasol i n e a t a l o w e r price.
Suffice i t t o say, v however, t h a t I t a l k e d t o every m a j o r o i l company t h a t I
could approach, every independent a n d m a n y c r u d e o i l producers. I h a v e
v i s i t e d w i t h m y elected representatives. I h a v e done e v e r y t h i n g I k n o w t o do,
t o no a v a i l . I realize t h a t I a m n o t u n l i k e o t h e r independents, b u t I t h i n k i t i s
i m p o r t a n t t h a t y o u k n o w some o f the s])ecifics about m y experience t o unders t a n d b e t t e r w h a t confronts t h e m a n d w h a t i t w i l l t a k e t o help a l l o f us.
T h e simple f a c t is, t h a t lnless a m a r k e t e r e i t h e r has a c o n t r a c t u a l s t a n d i n g
w i t h a m a j o r o i l company, o r a supply o f domestic c r u d e oil, t h e r e i s n o w a y
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he can get gasoline unless he can buy i t on the black market f r o m m a j o r o i l
jobbers.
I have i n my hand a ticket, an i m p o r t license, enabling me t o i m p o r t over
300,000 barrels of finished product. I t is worthless to me. I n the first place. I
do not k n o w a n y t h i n g about the i m p o r t market and I must rely upon w h a t
others t e l l me. I a m t o l d -that gasoline landed i n east coast ports is 21 to 22$
a gallon. A f t e r adding t h e t a x o f 12 to
plus freight, there is no way we
can market this gasoline. Unless we can obtain crude o i l which w i l l give us
something to exchange f o r gasoline, there is l i t t l e we can do. Therefore, I sought
abouit the business of t r y i n g to buy some crude oil. I located one source wlbich
could make available to me 10,000 barrels a day a t a p r e m i u m price. Crude o i l
is c u r r e n t l y being sold, although not under contract, t o a m a j o r o i l company.
I n a n effort to w o r k out an exchange of this crude o i l f o r gasoline, we quickly
learned t h a t no one was w i l l i n g to make an exchange i n v o l v i n g crude o i l t h a t
would u l t i m a t e l y be taken away f r o m this m a j o r company. To p u t i t bluntly,
at the present time, t h e m a j o r o i l companies are i n v i r t u a l control of this
industry. W i t h l i t t l e exception, they control production, refining and marketing.
Unless the independent marketer who does not have a contract w i t h a m a j o r
oil company can get his hands on some crude oil which is not already going to
a m a j o r o i l company, or unless the Government can obtain some gasoline and
distribute i t to the independents, then the consumer is no longer to have the
option of buying his gasoline f r o m an independent marketer. H e is going to
get a " f u l l service s t a t i o n " w i t h a l l the t r i m m i n g s and expenses whether he
wants i t or not. A n d I m i g h t add, t h a t many of these t r i m m i n g s are being
offered by enterprising independents w i t h o u t the additional expense.
I have suggested t w o wiays i n which we may be helped. L e t me discuss the
first one—crude oil.
A t the present time, the United States is receiving or is entitled to receive
approximately 54,000 b / d of crude oil as a royalty on outer continental shelf
production 40 m i l l i o n gallons of gas per month. We call this royalty oil.
A t the moment, the Secretary of the I n t e r i o r i s authorized to allocate t h i s
royalty o i l to small business refiners. Unless the small independent marketers
has some contractual relationship w i t h such refiner, t h i s is o f no help to the
marketer. I know of no reason why this oil should be reserved to help the
refiner and not the marketer. The regulations provide t h a t t h e s m a l l refiner
may exchange this crude oil f o r other crude o i l t o be used i n his refinery.
There is no reason why marketers should not be made eligible to purchase
royalty o i l so long as they are going to exchange i t f o r finished product to be
sold by them.
Consequently, I suggest t h a t the Secretary of t h e I n t e r i o r take immediate
action t o enable s m a l l business marketers to purchase r o y a l t y o i l upon a showi n g o f an agreement to exchange the o i l f o r gasoline.
There is another source of crude oil t h a t could be used to provide gasoline
f o r the independent marketer, t h a t is, foreign crude. I t happens t h a t most
of the independent refiners, upon whom a great m a j o r i t y of the independent
marketers rely f o r t l i e i r supply, are unable because o f the make-up of t h e i r
refinery to process foreign crude oil. Most foreign crude o i l has a high content
of sulphur and is commonly k n o w n as sour crude. Most domest crude oil has
a l o w content of s u l p h u r and is k n o w n as sweet crude oil. Independent refiners
use domestic or sweet crude w h i l e the refineries t h a t can use the sour crude
are owned by the majors. Therefore, licenses to i m p o r t f o r i g n crude o i l are
meaningless t o the independent refiners unless they can exchange this crude oil
f o r sweet crude which they can process i n their refineries. I n the past, such
exchanges were made routinely a n d the independent refiners were able to get
by exchange crude o i l which they could refine i n t h e i r own plants. However,
a t t h i s time, the m a j o r o i l comi)anies refuse to exchange and, consequently,
the independents are operating a t f a r below capacity. Some leverage can be
brought by the government—and ought to—to encourage the majors to exchange
w i t h the independents so t h a t the some 310,000 b / d of t h e i r unused refining
capacity can be p u t i n operation, and the gasoline made available to t h e independent marketer and the consuming public.
Now I w o u l d l i k e to t u r n to another alternative available to the Government, t h a t is, the allocation of resources. Under the Economic Stabilization Act,
I understand t h a t the President is authorized to allocate petroleum products.
Therefore, I would hope t h a t the President would take immediate action to provide some k i n d of pooling through the Government sources so t h a t gasoline
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w o u l d be a v a i l a b l e t o t h e independent m a r k e t e r . T h e r e a r e a n u m b e r o f ways,
of course, t h a t t h i s c o u l d be accomplished. T h e S m a l l Business A d m i n i s t r a t i o n ,
or some Government agency, could establish a pool b y purchase a n d supply
eligible marketers t h r o u g h e x i s t i n g pipelines.
I n a d d i t i o n , we, a n d other marketers. I a m sure, i n o u r s i t u a t i o n , need some
assistance i n u t i l i z i n g i m p o r t licenses. Someone, w h e t h e r on the o i l a n d gas
b o a r d or, perhaps, the S m a l l Business A d m i n i s t r a t i o n , s h o u l d be assigned t h e
responsibility o f w o r k i n g w i t h s m a l l m a r k e t e r s such as m y s e l f i n a r r a n g i n g a
w a y , i f there i s one, by w h i c h we can u t i l i z e o u r i m p o r t licenses i n o r d e r t o
stay i n business a n d to continue t o offer a l o w e r price.
W e believe t h a t we h a v e g r e a t l y influenced the p u r c h a s i n g practices o f t h e
consuming public i n A l a b a m a a n d our s u r r o u n d i n g area, a n d w e t h i n k t h i s
has been good. W e have pushed t h e self-service stations w h i c h enable t h e automobile o w n e r to w a i t on h i m s e l f i f he w a n t s to. B y d o i n g so, a n d by i n t r o d u c i n g
as efficient a n operations as possible, we have been able t o sell gasoline t o t h e
consumer a t a considerable savings. O u r m a j o r o i l company competitors h a v e
f e l t t h i s competition, a n d they have moved t o meet i t by i n t r o d u c i n g selfservice f a c i l i t i e s o f t h e i r own. H ^ v e v e r , we can h a n d l e the c o m p e t i t i o n as we
come to i t a n d w e believe we w i l l be sufficiently i n n o v a t i v e a n d flexible i n o u r
decision m a k i n g to continue a prosperous business. H o w e v e r , we can n o t do so
i f our source o f supply i s suddenly t a k e n a w a y f r o m us. T h i s i s t h r o u g h n o
f a u l t o f ours. I t i s a f a i l u r e o f the d i s t r i b u t i o n system o f t h e i n d u s t r y i t s e l f
a n d one t h a t only Government can handle.
W e appreciate y o u r interest i n our behalf a n d we w i s h t o t h a n k y o u a g a i n
f o r the o p p o r t u n i t y o f appearing before you.
Senator MCINTYRE. W e w i l l move on now to M r . F r e d L i c h t m a n ,
president o f the Society o f Independent Gasoline Marketers o f
America.
STATEMENT OF FREDERICK LICHTMAN, PRESIDENT, SOCIETY OF
INDEPENDENT GASOLINE MARKETERS OF AMERICA
M r . LICHTMAN. I w i l l eliminate the introduction i n the interest of
time and just tell you that S I G M A is a trade association representing
210 private brand marketing companies which operate approximately
20,000 service stations i n the U n i t e d States. S I G M A member companies are small businesses but they employ thousands o f people, pay
substantial State and Federal taxes on their sales, and, p r i o r t o
recent outbacks i n available supply, marketed i n excess o f 18 b i l l i o n
gallons of gasoline per year.
I n recent weeks you have read i n the press and undoubtedly heard
f r o m your private brand gasoline marketer constituents t h a t individual companies i n several States are suddenly threatened w i t h
bankruptcy o r substantial economic loss because they have been
denied access t o their historic share of available supply by the private
brand segment of the industry.
Available data indicates the situation is g r o w i n g more serious w i t h
each passing day and statistics v a l i d today are obsolete tomorrow. I t
is a tangible fact that independent gasoline retailers have been forced
to close t h e i r stations or operate on substantially reduced schedules of
service to the consuming public. I f relief is not obtained soon, a substantial number o f private brand gasoline marketers w i l l be forced
out of business, thereby reducing the only competitive force i n gasoline marketing.
W e hope t h a t this committee, after development of the facts, as you
propose to do i n these hearings, w i l l lend its support to immediate
legislative and executive branch action to achieve, i n the short term,
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the result necessary to preserve the independent private brand segment of the industry. A way must be f o u n d immediately to f a i r l y
spread the burden of the present shortage between the integrated
major brand companies and the independent private brand segment.
The present situation where the majors take all they have or a l l
they need and cut off supplies to independents cannot be tolerated.
I t is not the public interest or i n the interest of the i n d i v i d u a l consumer.
T i m e does not p e r m i t consideration of all of the problems currently
threatening the private brand gasoline marketer, but we would like
to take this opportunity to present to you, i n abbreviated f o r m , our
views on what should and must be done.
(1) T o deal w i t h the immediate supply problem refineries should
be obligated to allocate to independent private brand marketers of
gasoline that percentage of their production t h a t was sold to the
independent private brand segment d u r i n g a most recent normal market period. I n this connection Senator Saxbe has introduced S. 1599.
S I G M A f u l l y supports the objectives of S. 1599 and w i l l have some
suggestions at the appropriate time on its improvement. S I G M A
strongly urges t h a t this b i l l be assigned f o r early hearings and action
by Congress.
(2) W h i l e there are some elements of encouragement i n the President's recently announced new energy program and modification of
the oil i m p o r t control program, those benefits, i f any, to the independent private brand segment w i l l be available only i n the longer
term. None of the o i l i m p o r t control program modifications recently
announced w i l l provide meaningful early assistance to the private
brand marketing segment unless there are f u r t h e r amendments.
I n this connection i t is essential that independent gasoline marketers be given the sole authority to i m p o r t finished petroleum products and the i m p o r t program should be modified accordingly. I n
order to insure t h a t independent marketers who do not have access
to imported products have access to supply, i t is also necessary that
the i m p o r t program be modified to provide f o r mandatory exchange
of i m p o r t licenses granted to midcontinent independent refiners.
(3) W h i l e we f u l l y support the administration's efforts to control
inflationary trends w i t h i n our escalating economy, we nevertheless
feel t h a t the Cost, of L i v i n g Council must permit the major oil company refiners, now operating under special price constraints, to reflect cost increases incurred i n the production of finished product.
The economic stabilization program must not be permitted to become
a disincentive f o r sales by major refineries to the independent marketi n g segment of the industry.
(4) W e indorse f u l l y and applaud the voluntary fuel conservation
prograirt outlined by Secretary of the I n t e r i o r M o r t o n i n his testimony before the Senate I n t e r i o r and Insular A f f a i r s Committee on
M a y 1. Unquestionably part of the solution of the gasoline supply
problem lies i n the easing of the total demand picture which can be
achieved t h r o u g h considerate and intelligent use of available resources. S I G M A members w i l l cooperate f u l l y i n the implementation
of these suggestions.
W h i l e the above suggestions relate to the short-term aspects of
the problem we face, there are some actions which we recommend and
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support w h i c h should be considered now and which w i l l provide protection to the independent segment of the petroleum industry i n f u ture years.
(1) W e strongly favor, f o r example, reasonable incentives f o r the
construction of needed new refinery capacity, b u t we believe t h a t the
p r o g r a m should not be structured so as to apply exclusively to the
major integrated oil companies.
Independent refiners to whom the independent m a r k e t i n g segment
has historically looked f o r a p o r t i o n of its product requirements,
should also have the chance to expand capacity. T o enable independent refiners to obtain long-term financing f o r refinery construct i o n and operation the i m p o r t allocation f o r new refineries should
be increased f r o m 75 to 100 percent and the t e r m of such i m p o r t s extended f r o m 5 to 10 years. T h i s is the only way p a r t i c i p a t i o n b y independent refiners w i l l become a reality, and i t is only i n the expansion of the independent refining segment of the industry that we
find reasonable assurance f o r the oontinued v i a b i l i t y o f the independent private brand gasoline marketer.
(2) W e believe the Federal Government should take a more affirmative position to assist the early acquisition and environmental clearance of new refinery f a c i l i t y sites. The already long leadtimes inherent i n refinery construction are becoming unbearable i n the face
o f the present supply-demand picture and w i t h o u t Federal leadership
a reduction of those delays does not appeal* likely.
(3) S I G M A strongly supports an early start of construction of a
pipeline f r o m the Alaskan N o r t h Slope supply sources. The necessary
decisions as to route and other implementing actions should be taken
w i t h a m i n i m u m of delay.
(4) W e support the recommendations i n the President's recent
energy message on the expansion of research and development activities i n the area of fossil fuels and agree t h a t public utilities should
be encouraged to utilize coal as an energy source. Federal f u n d i n g
support f o r research necessary to achieve increased fossil fuel utilizat i o n is w o r t h y of congressional support.
Y o u w i l l learn more i n the course of these hearings t h a n we presently know about the reasons f o r the present supply shortage, its
legitimacy and whether i t is being used as an anticompetitive device
by major petroleum interests to eliminate the independent private
brand retailer f r o m the marketplace.
O n the basis of what is happening to our members, the circumstances surrounding termination of historic supply relationships, the
continual expansion of secondary brand activity by m a j o r o i l companies—these and a host of other circumstances make us very suspicious
t h a t an unreasonable share of the economic burden of shortage is
borne by our segment of the industry. A s small businessmen, S I G M A
members are relatively defenseless i n the face of this threat and can
only look to the authority of Government to provide protection
f r o m competitive extinction. W e urge t h a t this committee f u l l y support early implementation of those measures suggested as potentially
responsive to our immediate problems, as well as those addressed to
the longer term to which we aspire to survive.
A g a i n I express m y appreciation f o r the o p p o r t u n i t y to express
the views of our members.
Senator MCINTYRE. W e w i l l call now on M r . R. J . Peterson.
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STATEMENT
OF R. J. PETERSON, INDEPENDENT
MARKETERS COTTNCIL
GASOLINE
M r . PETERSON. M r . Chairman and members of the committee. I am
chairman of the board of M a r t i n O i l Service, Inc., i n Chicago, 111.
I am also a f o u n d i n g member of the Independent Gasoline Marketers
Council.
M y brief statement here today is submitted on behalf of that
council.
I would like to interject here that my statement is also made on
the assumption that you gentlemen have been reading the newspapers,
as all of us have, and that you are indeed aware t h a t there is an
acute shortage of gasoline, particuliarlv as f a r as the independent
marketer is concerned.
W i l l i a m E . Simon, the chairman of the O i l Policy Committee, has
stated that this administration is reluctant to inject governmental
regulations and controls into private industry or to take any steps
t h a t would discourage private initiatives.
Other spokesmen f o r this administration h a w similarly affirmed
theiir f a i t h i n free enterprise. Indeed, Secretary Shulitz has long been
recognized as an advocate of the social benefits of competition and
the social perils of Government interference.
W i t h regard to the energy crisis, and national oil policy, the general view seems to prevail i n this administration that, i f the Government would just back off, the shortages and deficiencies w i l l gradually
disappear.
The new oil i m p o r t control system is a case i n point. The new system allows anyone to i m p o r t anything so long as he is w i l l i n g to pay
a fee, and i t allows certain participants, mainly refiners, to i m p o r t
l i m i t e d amounts w i t h o u t any fee. This system has been put forw a r d on the theory that it w i l l increase flexibility i n the short-term
and assure long-term freedom of action in the private sector. The
idea is not to impede the great American oil industry, but rather to
rely upon its responsiveness to the needs of the Nation.
I n a nutshell, the new policy says, let us push up the prices of crude
o i l and finished products so that increased output w i l l be stimulated.
Then, i n 4 to 7 years, when adequate supplies have been restored
competition w i l l protect the consumer.
Against these observations, let me raise a douibt. H o w can you
push prices up to stimulate a free enterprise reaction when the conditions of free enterprise are indeed lacking?
I t is all well and good f o r the policymakers to proclaim their devotion to free enterprise. I include myself among such devotees. B u t ,
the underlying, structural, economic conditions of free enterprise do
not. exifct i n the o i l industry and the reaction to freedom may be to
monopolize markets rather than to increase output. Control rather
than competition may be the consequence of the new policy.
The fundamental fact t h a t must be understood is the fact of vertical integration. I specifically refer to those instances i n which a single
business house enjoys the tax advantages of percentage depletion and
foreign tax credits and enjoys the economic power of raw materials
control t h r o u g h the ownership of crude reserves and gathering and
shipping pipelines.
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Vertical integration of that type distinguishes the o i l i n d u s t r y
f r o m a i l other major industries, i n degree i f not i n kind. Such vertical integration is the source of economic power i n the o i l industry.
I t is also the source of the private law t h a t now suddenly governs
the gasoline and fuel o i l markets. I t must be understood f o r what i t
is, i f governmental authority is to be exercised i n the public interest.
Because of vertical integration, whenever the Government seeks
to avoid i n t e r f e r i n g w i t h the o i l industry, i t is not thereby automatically preserving free enterprise and private initiative. Instead such
avoidance is more likely to allow the dictates of private interest to
prevail over the public good. Hence, private rulemaking rather t h a n
public l a w now governs the marketplace.
The forms of private rulemaking are obvious. Most of the f u l l y
integrated oil companies, w i t h refining facilities and adequate supplies of crude oil, have adopted internal programs of allocation. W i t h
regard t o both crude and finished oils, they refuse t o deal w i t h some,
they curtail their dealings w i t h others and they accommodate t h e i r
own as f u l l y as possible.
Such rulemaking and preferential dealings are, i n effect, p r i v a t e
laws. They have the collective impact of a statute on the marketplace.
Consequently, at the present time, gasoline is flowing at near 1972
levels t h r o u g h integrated distribution channels. T o the contrary,
gasoline is flowing t h r o u g h nonintegrated, independent m a r k e t i n g
channels at the rate of about one-quarter to one-half of the 1972
levels.
The independent gasoline marketer is bearing a disproportionate
share of the shortage. Hence the independent gasoline marketer does
not now exist as an effective competitor. Indeed, its continued existence may be measured i n months, unless the trends i n effect are
redirected.
We must realize t h a t there is no reason i n free enterprise theory
f o r a f u l l y integrated refiner to voluntarily share his products w i t h
an independent marketer who is also his competitor at retail. Hence,
the only power on earth that w i l l redirect the flow of gasoline into
independent marketing channels is the power of Government.
Past policies of the U n i t e d States have so strongly favored and encouraged the complete downstream integration of major companies i n
the oil industry, starting f r o m the fountainhead of crude o i l ownership and pipeline ownership, that, at a time when there are shortages
of supply and deficiencies of p r o d u c t i v i t y , w i t h h o l d i n g governmental
controls upon supply, distribution and price is, i n reality, the abandonment of the public interest i n favor of the private interest.
Instead of leaving the field i n the name of free enterprise, the
Government should rather enter the field i n the name of free enterprise.
The Government should say p l a i n l y and clearly f o r all to hear:
The independent, private-brand, price-discount marketers of gasoline
and the independent refiners who must purchase f o r cash most of
t h e i r feedstocks, constitute a national asset. Collectively, they are
the true competitors in the marketplace. W i t h o u t them, the consumi n g public would be at the mercy of monopolistic forces i n the o i l
industry.
181
Senator MCINTYRE. T h e consuming public, I am a p a r t of the consuming public. I always thought that Texaco competed w i t h A r c o
and t h a t Arco competed w i t h E x x o n .
W h y do we have t o have these i n d i v i d u a l p r i v a t e b r a n d s — I have
never gone near them. I always believed they were i n f e r i o r gasoline.
M r . PETERSON. D i d y o u believe that?
Senator MCINTYRE. I am asking you.
M r . PETERSON. I f you believed i t , you are subject t o the o n l y k i n d
o f competition t h a t they practice, and t h a t is the practice o f national
advertising, image advertising, credit card promotion, large expensive corner locations, a n d the belief t h a t because they are the biggest
t h a t they must be the best.
T h a t is not necessarily true.
Senator MCINTYRE. D o n ' t they compete w i t h one another?
M r . PETERSON. O n t h a t basis they do—on the basis of credit cards,
o n the basis o f location. B u t w i t h o u t the independent factor, the
m a j o r o i l company levels o f m a r k e t i n g w i l l f o l l o w the suggested
retail price generally speaking o f the market leader i n any given
area.
M r . ODOM. L e t me respond t o t h a t , because t h a t is a very legitimate
question. A s a consumer, i n m y t o w n o f Montgomery, Ala., the
m a r k e t i n g price there is very, very vigorous between the independent
marketers, the p r i v a t e b r a n d marketers and the m a j o r companies.
People d r i v i n g p i c k u p trucks and people d r i v i n g Cadillacs drive
up t o convenient stores and serve themselves gasoline f r o m the tanks
at t h e convenience store at a savings t o themselves.
B y t h e i r o w n experience they k n o w t h a t the gasoline they are
g e t t i n g either f r o m t h a t convenience store o r f r o m some other p r i v a t e
b r a n d marketer d o w n the street is o f the same grade and the same
quality as the gasoline they are b u y i n g f r o m a m a j o r o i l company.
The only t h i n g is they may not be g e t t i n g a l l the service or at least
they t h i n k they may n o t be g e t t i n g a l l the service t h a t they get f r o m
the m a j o r o i l company.
B u t they go i n t o t h a t place t o buy the gasoline. They k n o w t h a t
the product t h a t they are b u y i n g is just as good as t h a t convenience
store or at t h a t p r i v a t e b r a n d outlet as i t is at the m a j o r o i l company.
So they shop where they can get the best price. I t is competition f o r
price and w h a t the p r i v a t e b r a n d dealer has done is t o force the
m a j o r companies—in m y town, I have seen when the independents,
the privates go down, when they post a cent lower o r 2 cents lower,
t h a t is w h a t the majors have to do.
They have to come down, too. T h e y w i l l m a i n t a i n a gap, b u t t h a t
d o w n w a r d pressure f o r price has kept the major's p r i c e honest.
Senator MCINTYRE. W h a t are those things I^have heard about
gasoline wars?
M r . PETERSON. I suppose t h a t is price competition, Senator.
Senator MCINTYRE. W e had better get back to M r . Peterson.
T h e CHAIRMAN. L e t me i n t e r r u p t there and say I used t o buy a t
an independent station. I t was quite handy to me. One day I talked
to the area manager o f one of t h e m a j o r o i l companies. I asked h i m
about t h a t gasoline, w h a t his appraisal of i t was. H e said, " I t is good
182
gasoline." I n fact, he said, " I t is the same gasoline t h a t we sell, just
under another name, t h a t is all."
I have often t h o u g h t of t h a t , coming f r o m a representative o f one
o f the m a j o r o i l companies w i t h reference t o an independent o i l
station. I have always had a great deal o f respect f o r independents.
Senator M C I N T Y R E . I interrupted you, M r . Peterson. W i l l you now
proceed.
M r . PETERSON. T h a t is perfectly a l l r i g h t .
T o me i t seems the Government should a d m i t t h e obvious. The
structure o f the o i l i n d u s t r y generates monopolistic forces. B y almost
any standard, the market performance o f the o i l industry has been
an abject failure. T o prove the point, I urge y o u t o ask the r i g h t
questions:
Can i t be said t h a t t h e market performance o f t h i s great i n d u s t r y
should be praised because i t has achieved the present-day shortages?
I t i s not the fundamental task o f a great industry t o meet the
effective demands of its marketplace?
I f responsiveness t o demand has really characterized the i n d u s t r y ,
w o u l d we be here today ?
I s the competitive s p i r i t dead, o r should we a d m i t t h a t , i n t h e o i l
industry, i t has been under severe restraint f o r many years because
o f crude o i l production controls, o i l i m p o r t controls, t a x policies and
anti-trust inaction ?
H i s t o r i c a l l y , economic behavior i n .the o i l i n d u s t r y has been so
greatly influenced by governmental decrees, especially i n areas o f
production, imports, taxes and anti-trust, t h a t the Government i s
f o o l i n g itself i f i t t h i n k s t h a t other forms o f control i n the public
interest should be abandoned o r w i t h h e l d i n order t o restore o r
achieve t h e benefits o f private enterprise. A l l t h a t is really achieved
is a freer hand f o r monopolistic forces.
T h e problem o f today is the problem o f o u t p u t and competition.
Certainly f o r the past 15 years, the determination o f o u t p u t , i n
quantitative terms, has been made by a series o f administrative decisions. I t has not been determined by free market interactions. There
has been no free market i n crude o i l and no free market i n petroleum
products. G r o w t h i n demand has n o t spurred g r o w t h i n domestic
productive capacity, either o f crude o i l o r o f finished products.
A n y t i m e d u r i n g the past few years, i t has not been difficult t o
predict the r i s i n g demands f o r gasoline, No. 2 fuel oil, and residual
fuel oil. Yet, i t has not been possible f o r new money, new talent, o r
new initiatives t o be effectively responsive, p a r t i c u l a r l y when the
nexus o f crude o i l ownership and refinery ownership have made i t
v i r t u a l l y impossible f o r a newcomer t o enter the industry a t any
one functional levelifwithout some f o r m o f preference o r forbearance
by m a j o r oil.
Because o f these conditions, induced by past policies, new policies
are necessary. B u t , the new policies must be -positive a n d must, i n
fact, interfere w i t h the n a t u r a l motives and predictable behavior of
the crude, strong multinational, f u l l y integrated o i l company. The
rationale o f avoiding interference w i t h private initiatives is not
relevant t o the objectives o f increased o u t p u t and preserving com-
183
petition. Those social objectives w i l l not automatically f o l l o w f r o m
governmental abstinence.
Therefore, i n the name of free enterprise, the Government must
intervene—may I say t o you very candidly, I never thought the day
would come when I would say t h i s but because o f Government interference i n the /past, I t h i n k t h a t now i t is incumbent upon the
Government t o continue. I shall n o t read any more of m y statement
beyond that.
Senator MCINTYRE. W e w i l l include the balance of your statements i n the record.
[Complete statements of M r . L i c h t m a n and M r . Peterson f o l l o w : ]
STATEMENT
OF
FREDERICK
LICHTMAN,
PRESIDENT,
SOCIETY
G A S O L I N E M A R K E T E R S OF A M E R I C A
OF
INDEPENDENT
M r . Chairman and members of the committee, I a m Frederick Lichtman,
President of Tulsa O i l Corporation, Detroit, Michigan, appearing before you
today i n my capacity as President of the Society of Independent Gasoline
Marketers of America ( S I G M A ) and representing the 210 member companies
of t h a t association. On behalf o f the independent p r i v a t e b r a n d gasoline marketers we appreciate this opportunity to present our views i n t h i s f o r u m on the
current petroleum product shortage and i t s grave economic and anticompetitive
consequences to our members.
S I G M A is a national trade association representing 210 p r i v a t e brand
gasoline m a r k e t i n g companies w h i c h operate 20,000 service stations distributed
through most of the states of the Union. S I G M A member companies are, i n
the main, small businesses, b u t they employ thousands of people, pay substantial state and federal taxes on their sales and, p r i o r to recent cutbacks
i n available supply, marketed i n excess of 18,000,000,000 gallons of gasoline
per annum.
I n recent weeks you have read i n the press and undoubtedly heard f r o m
your private brand gasoline marketer constituents t h a t i n d i v i d u a l companies
i n several states are suddenly threatened w i t h bankruptcy o r substantial
economic loss because they have been denied access to their historic share
of available supply by the private brand segment of the i n d u s t r y . Available
data indicates the situation is g r o w i n g more serious w i t h each passing day
and statistics v a l i d today are obsolete tomorrow. I t is a tangible fact t h a t
independent gasoline retailers have been forced to close t h e i r stations or operate
on substantially reduced schedules of service to the consuming public. I f relief
is not obtained soon, a substantial number of p r i v a t e brand gasoline marketers
w i l l be forced out of business, thereby reducing the only competitive force
i n gasoline marketing.
We are encouraged to hope t h a t this committee, a f t e r development of the
facts, as you propose to do i n these hearings, Will lend i t s support to
immediate legislative and executive branch action to achieve, i n the short
term, the result necessary to preserve the independent p r i v a t e brand segment of the industry. A way must be found immediately to f a i r l y spread
the burden of the present shortage between the integrated m a j o r brand companies and the indejtendent p r i v a t e brand segment of the industry. The present
situation where t h e majors take a l l they have or a l l they need and cut off
supplies to independents cannot be tolerated. I t is not i n the public interest
or i n t h e interest of the i n d i v i d u a l consumer.
Time does not p e r m i t consideration of a l l of the problems c u r r e n t l y threatening the p r i v a t e brand gasoline marketer, but we would l i k e to take this
opportunity to present to you, i n abbreviated form, our views on w h a t should
and must be done.
(1) To deal w i t h the immediate supply problem refineries should be obligated t o allocate to independent private brand marketers of gasoline t h a t
percentage o f t h e i r production t h a t was sold to tihe independent private
brand segment d u r i n g a most recent normal market period. I n this connection
Senator Saxbe has introduced S. 1599, which has been referred to Commerce
Committee, but has not yet been assigned f o r hearings. S I G M A f u l l y supports
the objectives of S. 1599, w i l l have some suggestions f o r the Commerce Com-
184
mittee a t the appropriate t i m e on i t s improvement. S I G M A strongly urges
that this b i l l be assigned f o r early hearings and action by the Congress.
(2) W h i l e there are some elements of encouragement i n the President's
recently announced new energy program and modification o f t h e O i l I m p o r t
Control Program, those benefits, i f any, to the independent p r i v a t e b r a n d segment w i l l be available only i n the longer term. None o f t h e O i l I m p o r t Control
P r o g r a m modifications recently announced w i l l provide m e a n i n g f u l early
assistance to the p r i v a t e brand m a r k e t i n g segment unless there are f u r t h e r
amendments t o t h a t program. I n this connection lit is essential t h a t independent
gasoline marketers be given the sole a u t h o r i t y to i m p o r t finished petroleum
products and the i m p o r t program should be modified accordingly. I n order t o
insure t h a t independent marketers who do not have access to i m p o r t e d
products have access to supply, i t is also necessary t h a t the i m p o r t p r o g r a m be
modified to provide f o r mandatory exchange of i m p o r t licenses granted to midcontinent independent refiners.
(3) W h i l e we f u l l y support the A d m i n i s t r a t i o n ' s efforts to control inflat i o n a r y trends w i t h i n our escalating economy, we nevertheless feel t h a t the
Cost of L i v i n g Council must p e r m i t the m a j o r oil company refiners, now
operating under special price contraints, to reflect cost increases i n c u r r e d i n
the production o f finished product. The Economic Stabilization p r o g r a m must
not be p e r m i t t e d to become a disincentive f o r sales by ma.ior refineries to
the independent m a r k e t i n g segment of the industry.
(4) W e endorse f u l l y and applaud the v o l u n t a r y f u e l conservation p r o g r a m
outlined by Secretary of the I n t e r i o r M o r t o n i n his testimony before the
Senate I n t e r i o r and I n s u l a r A f f a i r s Committee on May 1st. Unquestionably
p a r t of the solution of the gasoline supply problem lies i n an easing of the
t o t a l demand picture which can be achieved through considerate a n d i n t e l l i g e n t
use of available resources. S I G M A members w i l l cooperate f u l l y i n the implementation of those suggestions.
W h i l e the above suggestions relate to the short-term aspects o f the problem
we face, there are some actions which we recommend a n d support w h i c h
should be considered now and which w i l l provide protection to the independent
segment of the petroleum i n d u s t r y i n f u t u r e years.
(1) W e strongly favor, f o r example, reasonable incentives f o r the construction of needed new refinery capacity, but we believe t h a t the p r o g r a m
should not be structured so as to apply exclusively to the m a j o r integrated
o i l companies. Independent refiners, to whom t h e Independent m a r k e t i n g segment has historically looked f o r a p o r t i o n of i t s product requirements, should
also have the chance to expand capacity. T o enable independent refiners to
obtain long-term financing f o r refinery construction a n d operation the i m p o r t
allocation f o r new refineries should be increased f r o m 75 t o 100 percent and
the t e r m of such imports extended f r o m five to ten years. T h i s is the only
way p a r t i c i p a t i o n by independent refiners w i l l become a r e a l i t y , a n d i t is only
i n the expansion of the independent refining segment of the i n d u s t r y t h a t we
find reasonable assurance f o r the continued v i a b i l i t y of the independent
p r i v a t e brand gasoline marketer.
(2) We believe the federal government should take a more affirmative position to assist the early acquisition and environmental clearance of new refinery
f a c i l i t y sates. The already long lead times inherent i n refinery construction
are becoming unbearable i n the face of the present supply-demand p i c t u r e and
w i t h o u t federal leadership a reduction of those delays does n o t appear
likely.
(3) S I G M A strongly supports a n early s t a r t o f construction of a pipeline
f r o m t h e Alaskan N o r t h Slope supply sources. The necessary decisions as t o
route and other implementing actions should be taken w i t h a m i n i m u m of
delay.
(4) We support the recommendations i n the President's recent energy message on the expansion of research and development activities i n the area
of fossil fuels and agree t h a t public u t i l i t i e s should be encouraged to u t i l i z e
coal as a n energy source. Federal f u n d i n g support f o r research necessary
to achieve increased fossil f u e l u t i l i z a t i o n is w o r t h y of Congressional support.
Y o u w i l l learn more i n the course of these hearings t h a n we presently
k n o w about the reasons f o r the present, supply shortage, its legitimacy and
whether i t is being used as an anticompetitive device by m a j o r petroleum
interests to eliminate the independent p r i v a t e b r a n d retailer f r o m the market-
185
place. On the basis of w h a t is happening to our members, the circumstances
surrounding t e r m i n a t i o n of historic supply relationships, the continual expansion o f secondary brand a c t i v i t y by m a j o r o i l companies—'these and a
host o f other circumstances make us very suspicious t h a t a n unreasonable
share of the economic burden of shortage is borne by our segment of the
industry. As small businessmen, S I G M A members are relatively defenseless
i n the face of this t h r e a t and can only look to the a u t h o r i t y o f government
to provide protection f r o m competitive extinction. We urge t h a t t h i s committee
f u l l y support early implementation o f those measures suggested as potentially
responsive to our immediate problems, as well as those addressed to the longer
term to which we aspire to survive.
Again, may I express my appreciation f o r the opportunity to express the
views of our members.
S T A T E M E N T OF R .
J.
PETERSON,
CHAIRMAN
INC.
OF T H E
BOARD, M A R T I N
OIL
SERVICE,
M r . Chairman a n d members of the committee, my name is R. J. Peterson.
I am Chairman o f the B o a r d of M a r t i n O i l Service, Inc., i n Chicago, Illinois.
I a m also a founding member of the Independent Gasoline Marketers Council.
My brief statement today is submitted on behalf of t h a t Council.
W i l l i a m E. Simon, t h e Chairman of the O i l Policy Committee, has stated
t h a t this A d m i n i s t r a t i o n is reluctant to inject governmental regulations and
controls into private industry or to take any steps t h a t w o u l d discourage
p r i v a t e initiatives.
Other spokesmen f o r this A d m i n i s t r a t i o n have s i m i l a r l y affirmed t h e i r f a i t h
i n free enterprise. Indeed, Secretary Shultz has long been recognized as a n
advocate of the social benefits of competition and the social perils of government interference.
W i t h regard to the energy crisis, and national o i l policy, the general view
seems to prevail i n t h i s A d m i n i s t r a t i o n t h a t , i f the government w o u l d j u s t back
off, the shortages and deficiencies w i l l gradually disappear.
The new oil i m p o r t control system is a case i n point. The new system
allows anyone to i m p o r t a n y t h i n g so long as he is w i l l i n g to pay a fee, and
i t allows certain participants, mainly refiners, to i m p o r t l i m i t e d amounts
w i t h o u t any fee. T h i s system has been put f o r w a r d on the theory t h a t i t w i l l
increase flexibility i n the short-term and assure long-term freedom of action
i n the p r i v a t e sector. The idea is not to impede the great American o i l industry,
but rather to rely upon i t s responsiveness to the needs of the nation.
I n a nutshell, the new policy says, let us push up the prices of crude o i l
and finished products so t h a t increased output w i l l be stimulated. Then, i n
f o u r t o seven years, when adequate supplies have been restored, competition
w i l l protect the consumer.
Against these observations, let me raise a doubt. H o w can you push prices
up to stimulate a free enterprise reaction when the conditions of free enterprise are lacking?
I t is a l l w e l l and good f o r the policymakers to proclaim t h e i r devotion to
free enterprise. I include myself among such devotees. B u t , the underlying,
structural, economic conditions of free enterprise do not exist i n the o i l
industry and the reaction to freedom may be t o monopolize markets rather
than to increase output. Control r a t h e r than competition may be the consequence of the new policy.
The fundamental fact t h a t must be understood is the f a c t of vertical
integration. I specifically refer to those instances i n which a single business
house enjoys the t a x advantages of percentage depletion and foreign t a x
credits, and enjoys the economic power of r a w materials control through
the ownership of crude reserves and gathering and shipping pipelines.
V e r t i c a l i n t e g r a t i o n of t h a t type distinguishes the oil i n d u s t r y f r o m a l l
other m a j o r industries, i n degree i f not i n kind. Such v e r t i c a l integration
is the source of economic power i n the oil industry. I t is also the source
of the p r i v a t e l a w t h a t now suddenly governs the gasoline and fuel o i l
markets. I t must be understood f o r w h a t i t is, i f governmental a u t h o r i t y
is to be exercised i n t h e public interest.
Because of vertical integration, whenever the government seeks to avoid
i n t e r f e r i n g w i t h the o i l industry, i t is not thereby automatically preserving
free enterprise and p r i v a t e i n i t i a t i v e . Instead, such avoidance is more l i k e l y
186
to a l l o w the dictates o f p r i v a t e interest t o p r e v a i l over t h e public good. Hence,
private rule-making r a t h e r t h a n public lawT now governs the marketplace.
The forms of p r i v a t e rule-making are obvious. Most of the f u l l y integrated
o i l companies, w i t h refining facilities and adequate supplies of crude oil, have
adopted i n t e r n a l programs of allocation. W i t h regard t o both crude a n d finished
oils, they refuse to deal w i t h some, they c u r t a i l t h e i r dealings w i t h others,
a n d they accommodate t h e i r o w n as f u l l y as possible. .
Such rule-making a n d p r e f e r e n t i a l dealings are, i n effect, p r i v a t e laws. They
have the collective impact of a statute on the marketplace. Consequently, a t
the present time, gasoline is flowing at near 1972 levels t h r o u g h integrated
d i s t r i b u t i o n channels. To the contrary, gasoline is flowing t h r o u g h non-integrated, independent m a r k e t i n g channels at the rate o f abouit % to % of the
1972 levels.
The independent gasoline marketer is bearing a disproportionate share of the
shortage. Hence, the independent gasoline marketer does n o t now exist as an
effective competitor. Indeed, i t s continued existence may be measured i n
months, unless the trends i n effect are redirected.
W e must realize t h a t there is no reason i n free enterprise theory f o r a
f u l l y integrated refiner to v o l u n t a r i l y share his products w i t h a n independent
m a r k e t e r who is also his competitor a t retail. Hence, the only power on e a r t h
t h a t w i l l redirect the flow of gasoline into independent m a r k e t i n g channels
is the power of government.
Past policies o f the U n i t e d States have so strongly favored and encouraged
the complete downstream i n t e g r a t i o n of m a j o r companies i n the o i l i n d u s t r y ,
s t a r t i n g f r o m the fountainhead of crude o i l ownership a n d pipeline ownership, t h a t , now, a t a t i m e when there are shortages of supply and deficiencies
of p r o d u c t i v i t y , w i t h h o l d i n g governmental controls upon supply, d i s t r i b u t i o n
and price is, i n reality, the abandonment of the public interest i n f a v o r of the
p r i v a t e interest.
I n s t e a d of leaving t h e field i n the name of free enterprise, the government
should enter the field i n the name of free enterprise.
The government should say p l a i n l y and clearly f o r a l l t o h e a r : The independent, private-brand, price-discount marketers of gasoline, and the independent refiners who must purchase f o r cash most of t h e i r feed-stocks,
constitute a n a t i o n a l asset. Collectively, they are the t r u e competitors i n the
marketplace. W i t h o u t them, the consuming public w o u l d be at the mercy of
monopolistic forces i n the o i l industry.
The government should a d m i t the obvious: The structure of the o i l i n d u s t r y
generates monopolistic forces. B y almost any standard, the m a r k e t performance of the o i l i n d u s t r y lias been an abject failure. To prove the point,
I urge you to ask the right questions:
Can i t be said t h a t the market performance of this great i n d u s t r y should
be praised because i t has achieved the present day shortages?
I s i t not the fundamental task of a great i n d u s t r y to meet the effective
demands of its marketplace?
I f responsiveness to demand has really characterized the i n d u s t r y , w o u l d
we be here today ?
I s t h e competitive s p i r i t dead, or should we a d m i t that, i n t h e o i l i n d u s t r y ,
i t has been under severe restraint f o r many years because of crude o i l production controls, o i l i m p o r t controls, t a x policies, a n d a n t i t r u s t inaction?
H i s t o r i c a l y , economic behavior i n the oil i n d u s t r y has been so greatly influenced by governmental decrees, especially i n areas of production, imports,
taxes, and a n t i t r u s t , t h a t the government is fooling i t s e l f i f i t t h i n k s t h a t
other forms of control i n the public interest should be abandoned or w i t h h e l d
i n order to restore or achieve the benefits of p r i v a t e enterprise. A l l t h a t
is really achieved is a freer hand f o r monopolistic forces.
The problem of today is the problem o f output and competition. C e r t a i n l y ,
f o r the past 15 years, the determination of output, i n q u a n i t a t i v e terms, has
been made by a series of a d m i n i s t r a t i v e decisions. I t has not been determined
by free m a r k e t interactions. There has been no free m a r k e t i n crude o i l a n d
no free m a r k e t i n petroleum products. G r o w t h i n demand has not spurred
g r o w t h i n domestic productive capacity, either of crude o i l o r o f
finished
products.
A n y t i m e d u r i n g the past few years, i t has not been difficult to predict the
r i s i n g demands f o r gasoline, No. 2 f u e l oil, and residual f u e l oil. Yet, i t has
not been possible f o r new money, new talent, or new i n i t i a t i v e s to be effec-
187
tively responsive. The restraining influences of vertical integration, p a r t i c u l a r l y
f r o m the nexus betwen crude ownership and refinery ownership, have made i t
v i r t u a l l y impossible f o r a newcomer to enter the industry at any one f u n c t i o n a l
level w i t h o u t some f o r m o f preference or forabearance by m a j o r oil.
Because of these conditions, induced by past policies, new policies a r e
necessary. B u t , the new policies must be positive and must, i n fact, interfere
w i t h the n a t u r a l motives and predictable behavior o f the crude-strong, m u l t i national, f u l l y integrated oil company. The rationale o f avoiding interference
w i t h p r i v a t e i n i t i a t i v e s is not relevant to the objectives o f increased output
and preserving competition. Those social objectives w i l l not automatically
f o l l o w f r o m governmental abstinence.
Therefore, i n the name o f free enterprise, the government must intervene.
( M a y I say to you, very candidly, I never thought the day would come when
I would say this.)
H a v i n g pointed to the p e r i l o f extinction facing the independent marketer
and the independent refiner, let me conclude by m a k i n g sure we know who
we are t a l k i n g about. I am not a lawyer, however, I w i l l t r y t o define my
terras.
The independent marketer i n the o i l i n d u s t r y i s one who buys petroleum
products f r o m a refiner, a t e r m i n a l operator, broker, o r jobber, f o r resale
at wholesale o r retail. H e does not own or control any refining capacity, nor
is he owned or controlled by anyone w i t h refining capacity.
The independent refiner is i n a n analogous position i n relation t o t h e
crude o i l producer. A refiner is generally regarded as independent i f he does
not own crude reserves and crude production sufficient t o sustain the b u l k
of his refining and marketing.
Thus, i n summary, the independent marketer i s t o be distinguished f r o m
the integrated marketer by v i r t u e o f refilling capacity, and the independent
refiner is t o be distinguished f r o m the integrated refiner by v i r t u e o f crude
ownership, including foreign crude.
The opposite of a n independent i s a n integrated company. A n integrated
gasoline marketer is one who is owned or controlled by, o r under common
control w i t h , one who has gasoline m a n u f a c t u r i n g facilities and substantial
crude production. A given marketer may become integrated o r become independent i f his ownership and control relationships change. F o r example, a
marketer may become integrated by changes i n stock ownership,
financial
indebtedness, a lease relationship, or an operating contract o r other arrangement w i t h a supplier w h i c h calls f o r a p a r t i c u l a r b r a n d name and provides
f o r price protection or some other f o r m of economic support.
Tn contrast, a n independent gasoline marketer is a person ( 1 ) who owns
his own service stations or leases them f r o m someone other t h a n his supplier,
and ( 2 ) who conducts h i s p r i n c i p a l m a r k e t i n g activities under a p r i v a t e
brand name not identified w i t h nor used by his supplier, and ( 3 ) who does
not have a contractual o r other relationship w i t h a supplier whereby t h e
marketer is granted price protection, temporary allowances, o r any other
economic benefits.
As a final word, I submit the f o l l o w i n g : I f we are t o increase output and
preserve competition, we must not a l l o w the p r i v a t e rules o f v e r t i c a l l y integrated o i l companies t o govern the marketplace and determine the f u t u r e
structure of the o i l i n d u s t r y . The voice of the independent must also be heard.
Senator M C I N T Y R E . I yield now to the Senator f r o m Alabama.
The CITATRMAX. I want to ask just one question both of M r . L i c h t man and M r . Peterson. "What do you t h i n k of the suggestion made a
few minutes ago about the use of royalty oil offshore ?
M r . L I O I I T M A X . This is one of the remedies t h a t S I G M A has considered. I t is not- going to solve the problem. I t w i l l help to alleviate
i t i n some areas. W e agree that i t is a good idea. T h a t the r o y a l t y
oil should be allocated by the government t o independent refiners
so that the final finished product can find its way to the independent
marketer.
B u t you are not t a l k i n g about much oil, Senator, when you t a l k
about the r o y a l t y o i l ; 40 m i l l i o n gallons o f finished product is not
going to solve the problem of this industry.
dg-ISH—73—
188
The C H A I R M A N . I t w i l l not solve i t but i t is better than nothing,
isn't it?
M r . L I C H T M A N . T h a t is r i g h t . I t is better t h a n nothing. I am not
knocking it.
T h e C H A I R M A N . W h a t is y o u thought, M r . Peterson, do you agree
w i t h what M r . L i c h t m a n has just said ?
M r . PETERSON. L e t me respond as I feel about i t rather t h a n agree
w i t h what he has said.
The C H A I R M A N . Briefly, because Senator M c I n t y r e is pushed f o r
time.
M r . PETERSON. I understand he is. M y response t o t h a t is I t h i n k
i t w i l l not i n the long t e r m be an effective way to do it. I have t r i e d
i t as an individual. I t has many problems. I believe there is a simple
way to do i t , and that is to recognize that historically the independent
had a percentage of the market and that the Government intervened
and required that not just historic sales be recognized
The C H A I R M A N . I n other words, you w o u l d recommend allocations?
M r . PETERSON. Allocations at the refinery level on a percentage
basis ?
The C H A I R M A N . Yes, sir. T h a n k you.
Senator M C I N T Y R E . Senator Johnston.
Senator JOHNSTON. I believe M r . L i c h t m a n said we ought to get
along w i t h the Alaskan pipeline. W h i c h route ?
M r . L I C H T M A N . H a d you been reading the statement along w i t h
me, Senator, you would see t h a t we skirted t h a t issue. W e are marketers; we are not environmentalists, we are not engineers or planners. W e are interested i n getting the product down here.
Senator JOHNSTON. Y O U are staying out of the whole environmental
question, and you do not have any recommendations t o relax the
environmental rules?
M r . PETERSON. T o the extent t h a t the environmental question impedes the progress o f the establishment o f the route, I t h i n k that
somewhere along the line there has got to be some compromise made.
I t h i n k , basically, we are all environmentalists, we all l i k e the trees
and the flora and the fauna.
Senator JOHNSTON. A r e you i n f a v o r of the emission control standards ?
^ M r . PETERSON. The emission control standards when the automotive industry and when the petroleum industry can meet them w i t h i n
a reasonable time, yes. The t h i n g t h a t bothers us now, while the auto
i n d u s t r y has been given a year's delay, the petroleum industry is
s t i l l required to sell unleaded products s t a r t i n g next J u l y 1974 and
that opens up a whole new can of worms.
The independent does not have now, and has no assurance t h a t
he w i l l ever have, access to the unleaded product w h i c h is required
under the E P A regulation.
Senator JOHNSTON. The point is you do not have any real position
on the relaxation o f the environmental rules? Whether they be i n
coal burning, emission controls, power p l a n t sighting or the Alaskan
pipeline, you do not have any position except that you do not w a n t
i t to impede the progress ?
M r . PETERSON. No, I do not t h i n k i t is f a i r to say we do not have
a position. B y the same token, being marketers and not being in-
189
volved i n the vast expenditures of money t h a t must be made, i t m a y
be somewhat presumptuous 011 our p a r t as marketers t o either t e l l
those w h o are m a k i n g the b i g investments o r those w h o are concerned w i t h the environmental aspects or those w h o govern where we
t h i n k t h a t line o u g h t t o be, how fast i t ought t o be b u i l t and i n w h a t
manner i t should be b u i l t . There is a l i m i t t o the influence t h a t we
t h i n k we m i g h t or should have.
So, on t h a t ground, I must beg the question.
Senator JOHNSTON. T h a n k you.
Senator M C I N T Y R E . T h a n k you.
M r . L I C H T M A N . Y O U say 20,000 service stations. C o u l d y o u give
the committee any idea o f how m a n y o f those stations t o y o u r
k n o w l e d g e — b a l l p a r k figures I am t a l k i n g about—are closed today ?
C o u l d y o u give us some understanding o f the significance o f t h i s
crisis y o u are up against?
M r / L I C H T M A N . I do not have the actual figure i n numbers but we
can submit i t because our office is d a i l y t a l l y i n g these things.
Senator MCINTYRE. Can y o u give me a b a l l p a r k figure?
M r . L I C I I T M A N . I w o u l d say at present t h a t 25 t o 30 percent m i g h t
be a f a i r figure.
Senator MCINTYRE. There are a number of quest ions that I am g o i n g
to submit to b o t h M r . Peterson and to you, M r . L i c h t m a n , and to M r .
Mason and M r . Odom. B u t we w i l l do i t f o r the record i n view o f
the time.
T h e i m p o r t a n t t h i n g is to give y o u a chance to state y o u r case and
how y o u feel about i t . W e w o u l d like to pursue a l o t of questions b u t
the day is m o v i n g a
o
ln
g fast, and we w i l l submit them.
M r . ODOM. Senator M c I n t y r e , can I t h r o w out one t h o u g h t f o r the
record w h i c h y o u m i g h t use wlie-n the Government witnesses are
here ?
One o f the alternative suggestions t h a t has been made involves
t r y i n g to make i t possible t o i m p o r t crude o i l so t h a t i t w i l l have
an effect and an i m p a c t upon the excess capacity o f the refineries
t h a t we have i n t h i s country today, t h a t is, refinery t h a t can o n l y
use domestic crude. I t has been suggested t o the Government t h a t
some k i n d o f incentive or some k i n d o f p r o g r a m be devised w h i c h
w o u l d encourage the m a j o r oil companies to exchange t h e i r domestic
crude w i t h the independent refiners f o r the independent refiners'
license to i m p o r t f o r e i g n crude, t h a t is to say to the majors i n actual
exchange so t h a t these independents can refine domestic crude, there
w i l l be some common incentive.
I w o u l d hope t h a t the committee w o u l d ask M r . S i m o n o r some
of those i n a u t h o r i t y w h a t t h e i r a t t i t u d e t o w a r d such a p r o g r a m
w o u l d be.
Senator MCINTYRE. M r . Odom, we are g o i n g to have M r . S i m o n
over here, and the day he is here, we w i l l have p l e n t y o f chance, we
w i l l have an h o u r o r so, I believe, t o inquire. I f y o u w a n t t o get
together w i t h the staff of this committee, so we understand t h o r o u g h l y
what y o u are d r i v i n g at, we w o u l d be h a p p y to p u t t h a t to him."
M r . ODOM. T h a n k y o u very much. Senator."
Senator MCINTYRE. T h a n k y o u very much f o r y o u r testimony.
W e n o w call as our next witnesses, a panel o f five i n d i v i d u a l s ,
H e r b e r t A . Sostek, representing the Independent F u e l T e r m i n a l
190
O p e r a t o r s Association, W i l l i a m I t . Deutsch, N a t i o n a l O i l Jobbers
C o u n c i l , also G r e g g P o t v i n , N a t i o n a l O i l Jobbers Council, D o u g
B a k e r , N a t i o n a l Self Service Gasoline Association, and J . R . P a r rish, N a t i o n a l Self Service Gasoline Association.
Gentlemen, i f y o u w i l l take y o u r seats a t the witness table. I am
h a p p y t o welcome y o u here today. I am g o i n g t o ask y o u t o summ a r i z e y o u r statements i n 5 to 7y 2 minutes. W e w i l l , o f course, accept
a l l y o u r statements i n t h e i r entirety. I f y o u can do t h a t , i t w i l l g i v e
us k chance t o ask a f e w questions before we recess u n t i l t o m o r r o w .
W e w i l l start off w i t h M r . Sostek.
"STATEMENTS
OF
^TERMINAL
NICHOLAS
TERMINAL
:BY
HERBERT
CIRILLO,
CORP.,
W I L L I A M
R.
NEW
HIGHLAND
NATIONAL
UM,
SELF
SOSTEK,
INDEPENDENT
ASSOCIATION,
VICE
GREGG
NATIONAL
OF
CIRILLO
POTVIN,
OIL
PETROLEUM,
INC.,
GASOLINE
AND
J.
BY
BROS.
ACCOMPANIED
JOBBERS
SELF SERVICE GASOLINE
SERVICE
FUEL
ACCOMPANIED
PRESIDENT
YORK;
DETJTCH,
W . D. B A K E R , N A T I O N A L
AND
A.
OPERATORS
COUNCIL;
ASSOCIATION,
R.
ASSOCIATION
PARRISH,
AND
U
GAS
INC.
M r . SOSTEK. T h a n k you, M r . C h a i r m a n and members of the committee.
M y name is H e r b e r t A . Sostek. I am the executive vice president
o f the Gibbs O i l Co. o f Revere, Mass., an independent deepwater
t e r m i n a l serving the New E n g l a n d area.
W i t h me is S i r . Nicholas C i r i l l o , vice president o f C i r i l l o Bros.
T e r m i n a l Corp., a n independent deepwater t e r m i n a l s e r v i n g t h e
N e w Y o r k and L o n g I s l a n d areas.
B e f o r e b e g i n n i n g m y f o r m a l statement, M r . C h a i r m a n , I should
l i k e to commend you, the members o f t h i s committee, and the Senators, Congressmen, and Governors f r o m New E n g l a n d a n d t h e
Northeast f o r y o u r persistent f i g h t on behalf o f independent m a r keters and consumers o f No. 2 f u e l o i l and gasoline. I t continues t o
be a difficult, h a r d effort, b u t we have made some progress. Substant i a l changes i n o i l i m p o r t policies have been made i n recent years a n d
recognition is being given t o the competitive and s u p p l y problems
o f independent marketers and deepwater t e r m i n a l operators along
t h e east coast.
W e are deeply g r a t e f u l f o r y o u r leadership, f o r the series o f factfinding hearings and inquiries i n t o the problems conducted b y t h i s
committee, and f o r the c o n t i n u i n g s u p p o r t o f t h e p u b l i c officials o f
t h e Northeastern States.
I am appearing today on behalf of the Independent F u e l T e r m i n a l
Operators Association whose 15 members operate o i l t e r m i n a l s a l o n g
the east coast f r o m M a i n e t o F l o r i d a .
A list o f members is included w i t h m y statement's attachment A .
O u r members o w n or control terminals capable of receiving oceang o i n g t a n k e r s ; none is affiliated w i t h a m a j o r o i l company. A l l are
qualified t o p a r t i c i p a t e i n the No. 2 f u e l o i l i m p o r t p r o g r a m establ i s h e d under section 2 ( a ) ( 1 ) o f Presidential P r o c l a m a t i o n 3279, as
191
amended, and section 30 of the O i l I m p o r t Regulation, under w h i c h
50,000 b / d of home heating o i l is presently being i m p o r t e d i n t o D i s t r i c t I — t h e east coast. T h e members of our association are independent marketers of No. 2 fuel oil, No. 6 f u e l oil, and gasoline a n d
other petroleum products.
O u r testimony before you i n 1971 contained a detailed analysis
of deepwater t e r m i n a l operations and the h i s t o r y of our p a r t o f the
o i l business, and the record compiled b y this committee at t h a t time,
"Cost and Adequacy of F u e l O i l , " is a most complete and persuasive
document.
W e should like, therefore, to l i m i t our testimony t h i s m o r n i n g t o
three specific topics:
1. T h e gasoline s u p p l y situation and its i m p a c t on independent,
marketers.
2. T h e No. 2 f u e l oil, home heating oil, supply situation and i t s
impact on independent marketers.
3. The new o i l i m p o r t program.
I.
GASOLINE
The urgency and impact of the gasoline shortage have been w e l l
k n o w n to those of us i n the independent gasoline business f o r a
number of months. W e are, therefore, pleased t h a t these hearings
are being held f o r they can p l a y an i m p o r t a n t role i n b r i n g i n g all
the facts to the attention of the public and the executive branch o f
the Federal Government.
M r . C h a i r m a n , y o u and other Members of Congress, have been
w a r n i n g f o r nearly 6 months about the threat of a gasoline shortage.
U n f o r t u n a t e l y , once again these warnings have n o t been heeded;
once again the Federal Government has chosen to listen to the assurances of others t h a t the supply problems w o u l d be localized a n d
temporary.
W e can state our position b r i e f l y ; I am sure i t w i l l be supported
by other witnesses. T h e gasoline shortage w i l l be worse t h a n anticipated : i t w i l l be widespread and l o n g lasting. A n d unless p r o m p t
action is taken by the Congress and the executive branch, a m a j o r
result o f t h a t shortage w i l l be the destruction of a large p o r t i o n o f
the independent gasoline business.
A s independents, our chief fear is that, unless Federal policies
a c h a n g e d , thousands of independent gasoline stations w i l l be
permanently closed, tens of thousands of persons w i l l lose t h e i r jobs
and hundreds of m i l l i o n s of dollars of investments w i l l be w i p e d
out. T h e short-term impact on our country w i l l be equally serious, f o r
i t w i l l moan greater concentration of economic power i n the hands
of fewer and fewer companies and potentiail destruction of t h e
compel .itive operators who have b r o u g h t good sendee and l o w e r
prices to consumers.
I n the interest of time, M r . Chairman, I w i l l skip over some o f
the background i n f o r m a t i o n w h i c h I set f o r t h here and go i n t o
some p o r t i o n of i t that I t h i n k is meaningful.
A s an example of w h y we have some of these problems, we have
developed a statistic w h i c h is very, v
e
r
y interesting. I n New E n g l a n d ,
sir. i n the years 1971 and 1972. the average g r o w t h i n consumption
192
d u r i n g the first 3 m o n t h s was a p p r o x i m a t e l y 4.5 percent on gasoline.
F o r the first 3 months o f t h i s year i t is r u n n i n g at 8.8 percent, n e a r l y
a 100-percent increase i n a t i m e o f shortage.
Some o f the other t h i n g s we were g o i n g t o say have been stated
b y other people. I shall t h e r e f o r e get t o o u r recommendations, w h i c h
we t h i n k w o u l d be h e l p f u l .
I w o u l d f i r s t l i k e t o go i n t o m y statement-, w h i c h needs some corr e c t i n g . Prices change r a t h e r d r a m a t i c a l l y i n our i n d u s t r y a n d t h e r e
have been changes since t h i s was prepared. W h e r e we have reference
t o f o r e i g n gasoline versus domestic gasoline, the domestic l a n d e d
p r i c e , Boston, assuming its a v a i l a b i l i t y — a n d I can assure y o u i t is
not. a v a i l a b l e — w o u l d be 181/. cents, m a k i n g t h e delivered cost t o a
s t a t i o n 3 0 % cents; the average independent posted p r i c e i n o u r area
o f 35.9 cents, g i v i n g a m a r g i n o f a p p r o x i m a t e l y 5.15 w h i c h is less
t h a n an acceptable m a r g i n f o r r e t u r n on investment. T h e f o r e i g n
p r i c e w o u l d stay the same except t h a t the posted p r i c e w o u l d go u p
t o 35.9 and t h a t w o u l d show a loss o f one t e n t h o f 1 cent. H o w e v e r ,
I am advised as o f last n i g h t — T have n o t been back t o m y office—
t h a t the latest q u o t a t i o n f o r f o r e i g n gasoline delivered t o t h e U n i t e d
States is b e g i n n i n g to approach 25 cents a g a l l o n w h i c h w o u l d have
a substantial i m p a c t on this.
O u r recommendations are as f o l l o w s :
F i r s t , a s t r o n g allocation and r a t i o n i n g statute s h o u l d be enacted
w h i c h w o u l d r e q u i r e — a n d I emphasize " r e q u i r e " — t h e F e d e r a l Gove r n m e n t i n times o f short s u p p l y o f any p r o d u c t , t o allocate deliveries and sales. Such allocations should be designed t o enualize the
i m p a c t o f s u p p l y gaps and shortages t h r o u g h o u t the U . S . gasoline
d i s t r i b u t i o n system. N o one segment, level or g r o u p o f companies
should be allowed to p r o f i t at the expense o f others.
A s an aside. I believe t h a t t h a t c o u l d very w e l l h e l p M r . M a s o n ,
the gentleman f r o m A l a b a m a , w h o just got t h r o u g h t e s t i f v i n g .
Second, a f o r u m s h o u l d be created and standards established b y
statute so t h a t i n d i v i d u a l companies c o u l d b r i n g f o r m a l c o m p l a i n t s
a n d secure r e m e d i a l action against all refiner-suppliers f o r u n f a i r
t r a d e and m a r k e t i n g practices. W e s u p p o r t proposals t o p r o v i d e
remedies and a f o r u m before the Federal T r a d e Commission and t o
establish standards based on h i s t o r i c a l s u p p l y and price relationships.
W h a t we are seeking is s i m i l a r t o w h a t was done i n t h e case o f
a
s
e p e r i o d and restoration o f
price c o n t r o l s — t h e establishment o f a b
s u p p l y a n d price relationships f o r gasoline, h e a t i n g o i l . a n d other
p r o d u c t s u n t i l t h e crisis is passed. T h e r e are those w h o feel the
G o v e r n m e n t s h o u l d not i n t e r v e n e ; o u r response is t h a t G o v e r n m e n t
p o l i c i e s — i n p a r t i c u l a r the o i l i m p o r t p r o g r a m p r o c l a i m e d i n 1959—
have so d i s t o r t e d the p e t r o l e u m m a r k e t t h a t the independent is at a
severe disadvantage.
T h e r e are some suggestions T have developed t h a t do not ar>pear
i n the statement w h i c h I t h i n k m a y be h e l p f u l , a n d I w o u l d l i k e t o
insert t h e m n o w because recommendations t o h e l p solve the crisis
are w h a t everyone is l o o k i n g f o r .
One o f t h e t h i n g s t h a t could conceivably h e l p w o u l d be t o remove
t h e freeze on the 23 m a j o r o i l companies, t o a l l o w t h e i r gasoline
p u m p prices to increase.
193
I recognize t h a t t h i s is i n f l a t i o n a r y . B u t , i n order f o r the independent t o exist, he is g o i n g t o have t o move his p u m p prices u p or
he w i l l be w i p e d out, I do n o t believe the m a j o r o i l companies should
c a p t u r e a l l o f t h i s increased price. I t is m y ^ suggestion t h a t some
p r o g r a m could be developed between t h e m a j o r o i l companies a n d
perhaps the F e d e r a l Government f o r j o i n t ventures t o s u p p o r t these
I I . & D . p r o g r a m s t h a t have been t a l k e d about—coal, gas a n d shale
and t h i n g s o f t h a t nature. I t could be audited b y the Government,
the G AO^ s i m i l a r t o the w a y Defense contracts are h a n d l e d on R . & D .
B u t I t h i n k t h e v e r y s u r v i v a l o f independents is involved. T h e y
must, be able t o post a h i g h e r price at t h e p u m p because they are
p a y i n g so m u c h more f o r gasoline.
I t h m k Government could give, assistance t o get crude t o the independent refiners w i t h the agreement t h a t the independents get first
option.
M o r e s u p p o r t f o r construction o f domestic refineries p a r t i c u l a r l y i n
those areas where t h e y do n o t exist.
Accelerated Government and i n d u s t r y effort f o r R . & D . p r o grams.
Some r e l a x a t i o n o f e n v i r o n m e n t a l laws t o prevent waste. F o r
example, cars w i t h emission c o n t r o l systems are c u r r e n t l y u s i n g
a p p r o x i m a t e l y 25 percent more gasoline t h a n cars w i t h o u t them.
No. 2 f u e l is b e i n g d i v e r t e d f r o m the home h e a t i n g m a r k e t a n d
blended w i t h N o . 6 o i l to get the s u l f u r emissions down.
M o r e arid expanded offshore e x p l o r a t i o n f o r crude o i l and n a t u r a l
gas w i t h , of course, e n v i r o n m e n t a l protection.
A concentrated education p r o g r a m .
A l l of these t h i n g s we believe w i l l go a l o n g w a y t o w a r d s h e l p i n g
alleviate the crisis.
AVe w o u l d l i k e to make one final comment on a m a t t e r of great
importance to us. T h e new more flexible a u t h o r i t y g i v e n t o the O i l
I m p o r t A p p e a l s B o a r d is great a n d i t can help. T h e i m p o r t licenses
f o r gasoline, w h i c h y o u saw a copy o f earlier t o d a y , w i l l have some
value to the independents w h o receive them, b u t based on the price
y o u have to p a y f o r the p r o d u c t , y o u can see t h a t is g o i n g t o be v e r y
difficult to make most effective use o f the awards.
T h e process, however, is subject to abuse and must be c a r e f u l l y
administered and regulated. W e f e a r t h a t m a j o r o i l companies a n d
others w h o are not qualified m a y subvert the system b y g o i n g to the
recipients of allocations and o f f e r i n g t o b u y r a t h e r t h a n exchange
those 0 1 A B licenses.
T h e y m i g h t give t h e m some n o m i n a l value and t h e n t u r n a r o u n d
a n d use i t to b r i n g the p r o d u c t in. T h i s , i n f a c t , is w h a t is h e l p i n g
to create this i n f l a t e d m a r k e t f o r i m p o r t e d gasoline.
M r . C h a i r m a n , o u r specific recommendations are n a t u r a l l y designed
to help our segment o f the i n d u s t r y , b u t I t h i n k t h i s committee should
recognize t h a t we are fighting f o r s u r v i v a l and o u r s u r v i v a l is of
great i m p o r t a n c e to the p u b l i c .
I t h i n k , i n the interest o f t i m e , I w i l l n o w t u r n t h i s over to M r .
C i r i l l o , w h o w i l l t a l k about the N o . 2 F u e l o i l p o r t i o n o f it.
M r . CTRTLLO. AS y o u w i l l recall, M r . C h a i r m a n , y o u and others
began warning about the danger of the N o . 2 f u e l ' o i l crisis more
t h a n a year ago.
194
The administration refused to act at that time, accepting the assurance of the major oil companies. U n f o r t u n a t e l y , those assurances were
wrong.
Despite the emergency decontrol program ordered i n January, i t
was the unseasonably w a r m weather, not the decontrol, t h a t saved
the millions of homeowners f r o m going cold.
W e cannot count on similar luck this year. Even more i m p o r t a n t ,
decisions must not, as was done last year^be delayed. W e view J u l y 1
as the final date on which efficient p l a n n i n g can take place.
I n considering the action which must be taken, the committee must
be aware t h a t independent marketers o f No. 2 f u e l o i l are i n the
same situation as independent marketers of gasoline.
The supply crisis f o r f u e l oil marketers is, o f course, not so apparent to the public as i n the case of gasoline, b u t i t is perhaps more
severe.
F o r example, east coast independent deepwater t e r m i n a l operators
are currently facing a massive supply gap. W e are simply unable
t o buy any significant quantities o f No. 2 fuel oil f r o m domestic
sources. W e are being cut back continuously by a l l our domestic refining suppliers.
O u r t o t a l demand f o r the coming year w i l l be nearly 280,000 barrels a day. O f this amount only 85,000 barrels has been provided
under firm commitments f r o m domestic refiners. I n other words,
we are f a c i n g a supply gap of more than 190,000 barrels a day.
A n analysis o f this gap can be f o u n d i n attachment B o f this
statement.
W h e n you consider that our independent deepwater terminals provide 25 percent o f the delivery capacity and d i s t r i b u t i o n system
along the east coast, you can realize the impact t h a t this shortage
w i l l have on the homeowners.
Domestic suppliers arc already t i g h t . The A P I statistics show
t h a t distillate stocks are higher t h a n a year ago but we do not
believe t h a t stocks can be b u i l t up to safe levels this summer because
o f the extraordinary demands f o r the production of gasoline.
The summer of 1973 w i l l be a repeat of the summer of 1972. Gasoline w i l l be produced at the expense of heating oil.
I n brief, we face the repeat o f a dreary cycle o f shortage begets
shortage.
Some supplies o f No. 2 fuel are available f r o m foreign sources
and some additional access t o those supplies has been provided under
the new oil i m p o r t program.
B u t foreign distillate
Senator M C I N T Y R E . DO we s t i l l have a Western Hemisphere restrict i o n on i t ?
M r . C I R I L L O . NO; thanks to your efforts t h a t was l i f t e d , but foreign
distillate is already selling a t prices t h a t are well above domestic
and continuing t o escalate, as more and more buyers—American
buyers, that is—enter into the foreign market.
Included among these buyers are most of the major oil companies
and large utilities. The majors and the utilities obviously view the
new i m p o r t licenses fee of 15 cents per barrel as no barrier, f o r they
are out into the market scouring i t f o r any and all heating o i l that
they can find and are offering astronomical prices f o r t h a t product.
195
As an example, tihe largest u t i l i t y i n Florida t o l d a House Committee 2 weeks ago that it was sending representatives to the A r a b
countries to buy fuel oil directly; they are seeking 33 m i l l i o n barrels per year. I t should be noted that this purchase, by one u t i l i t y
alone, is equivalent to one-third of the total New England annual
consumption of No. 2 fuel oil.
I n brief, unless the government and the Congress act and act soon,
what lies ahead f o r the Northeastern States is a short f a l l i n domestic
No. 2 fuel oil supplies, increasing reliance on h i g h priced foreign
oil, physical shortages i n many areas, and as i n the case of gasoline,
the eventual destruction of the independent fuel oil segment.
One of the members of our own association has already been removed f r o m the ranks of the independents. Less than a week after
the announcement of the new oil import program, the U n i o n O i l Co.
of Boston was bought out by a refiner, the Coastal States Gas Producing Co. of Corpus Christi, Tex.
As this committee is well aware, heating oil is a v i t a l fuel. I f
there is a physical shortage of gasoline, it w i l l mean some inconvenience to some drivers and loss of money to some businesses. However,
a physical shortage of heating oil poses a direct threat to the health
and safety of millions of families, particularly i n the Northeastern
States.
Senator JOHNSTON. I s No. 2 fuel oil the same as diesel oil?
M r .
CIRILLO.
Yes, it
is.
Given this background of potential shortage and destruction of
the independents
Senator M C I N T Y R E . Bemember my admonition now, where you can
say i t i n your own words, fine and dandy.
I hate to put you under such constraints but the staff thought the
day was 24 hours long.
M r . C I R I L L O . I w i l l just give you our recommendations f o r action.
First, the Federal G
o
v
e
n
rm
e
n
t must recognize and act by J u l y 1.
This should be a target date.
Second, the oil policy committee should act to increase, on J u l y 1,
the import allocations of Xo. 2 fuel oil f r o m 50,000 barrels a day to
a minimum of 150,000 barrels a day.
T h i r d , the O i l I m p o r t Appeals Board must act quickly on pendingNo. 2 oil applications.
Fourth, the O i l Policy Committee should take immediate steps to
discourage the use and importation of No. 2 fuel oil f r o m abroad
by utilities.
F i f t h , the Federal Government should continue its efforts to encourage the States to relax sulfur content standards and make them
more uniform.
Sixth, we recommend enactment by the Congress of allocation or
rationing legislation and enactment of legislation to provide relief
before the Federal Trade Commission.
We should remember that those who criticized the oil import program f o r so long, including the Chairman of this committee and
many of his colleagues did so because i t was not doing what i t was
intended to do.
The only t h i n g it succeeded i n doing—14 years ago—was that we
have fewer independents now than we have ever had; our ranks have
196
been decimated and all as a result of the mandatory oil i m p o r t program.
W e should l i k e to state first that the new o i l policy procedure
and administrative structure appears to be a more efficient and more
responsive one, and t h a t the gentlemen who are i n charge at this
t i m e certainly are doing a lot of listening, which is to us, extremely
important..
W e do not believe that massive changes i n the new p r o g r a m are
needed or are desirable. W e agree that stability is required. A business that is as closely regulated as oil must be able to plan and act
w i t h some assurance t h a t government regulations and policies w i l l
remain reasonably stable.
B u t , as we have indicated, when a crisis occurs—and the threat
to independent marketers is a crisis—certain changes must be made
to prevent serious consequences.
There are five problem areas i n this new program that we see. W e
are p a r t i c u l a r l y concerned about what happens i f , bv the time the
fees have escalated to their h i g h point h i 1975, enough additional
domestic refining capacity has not been built. W h a t do we do then ?
A n o t h e r concern is whether the fees are any deterrent at all to the
i m p o r t a t i o n by the major oil companies and utilities of finished
products.
W e do not t h i n k so. O u r discussion i n the preceding statement
leads to what we believe is the most grievous flaw i n the new system,
p a r t i c u l a r l y f r o m the point of view of independent petroleum marketers : The fact that major oil companies and utilities are permitted
to i m p o r t finished products.
W e have stated to the O i l Policy Committee on numerous occasions
and are stating here today that, given current l i m i t e d availability of
f o r e i g n supply, to allow the majors and utilities to i m p o r t at all,
even on a fee-paid basis, throws them i n direct competition w i t h the
smaller independent.
W e urge that this aspect of the program be reviewed and reversed.
W e agree that certain incentives should be made f o r construction
of new storage capacity. W e have covered the O i l I m p o r t Appeals
B o a r d before, so I w i l l go to section 30 i n which we are tremendously
interested.
We are pleased that the Western Hemisphere purchase l i m i t a t i o n
has been suspended by the chairman of the O i l Policy Committee.
T h i s action w i l l help us immeasurably. U n f o r t u n a t e l y , as we have
indicated, the allocation of 50,000 barrels a day is woefully inadequate. O u r supply gap is tremendous. I t is well over 190,000 barrels
at this point. Some allocations may be available f r o m the O i l I m p o r t
Appeals B o a r d b u t what is really needed and what w i l l be most
effective is a decision to increase the regular program to at least the
level of 150,000 barrels a day.
W e were i n f o r m e d when the new No. 2 fuel o i l program was being
p u t together that i t was going to be based on 1972 and 1973 i m p o r t
rates; and this was so done and accomplished on crude oil and residual fuel. Yet when i t came to section 30. f o r some unknown reason,
i t was cut back to the pre-crisis levels.
197
I n conclusion, M r . Chairman, I should like to take this opport u n i t y of t h a n k i n g you now and the members of the committee f o r
your continuing efforts on our behalf.
[The f u l l statement of M r . Sostek f o l l o w s : ]
S T A T E M E N T OF H E R B E R T A . S O S T E K O N B E I I A L F OF T H E I N D E P E N D E N T F U E L
N A L OPERATORS A S S O C I A T I O N
TERMI-
M r . Chairman, T l i a n k you very much f o r the privilege o f appearing before
you today. My name is H e r b e r t A. Sostek; I am Executive Vice President of
•the Gibbs O i l Co. of Revere, Massachusetts, a n independent deepwater
t e r m i n a l serving the New England area. I am also a member of the Independent
Fuel T e r m i n a l Operators Association. W i t h me is M r . Nicholas Cirillo, Vice
President of C i r i l l o Bros. T e r m i n a l Corp., an independent deepwater t e r m i n a l
serving the New York and Long Island areas.
Before beginning my f o r m a l statement, M r . Chairman, I should l i k e t o
commend you, the members of this Committee, and the Senators, Congressmen
and Governors f r o m New England and the Northeast f o r your persistent fight
on behalf of independent marketers and consumers of No. 2 f u e l o i l and
gasoline. I t continues to be a difficult, h a r d effort, but we have made some
progress. Substantial changes i n oil i m p o r t policies have been made i n recent
years and recognition is being given to the competitive and supply problems
of independent marketers and deepwater t e r m i n a l operators along the East
Coast. We are deeply g r a t e f u l f o r your leadership, f o r the series of fact-finding
hearings and inquiries into the problem conducted by this Committee, and f o r
the continuing support of the public officials of the Northeastern states.
I am appearing today on behalf of the Independent Fuel T e r m i n a l Operators
Association, whose 15 members operate oil terminals along the East Coast
f r o m Maine to F l o r i d a . A list of members is included w r ith my statement
(Attachment A ) . Our members own or control terminals capable of receiving
ocean-going t a n k e r s ; none is affiliated w i t h a m a j o r oil company. A l l are
qualified to participate i n the No. 2 fuel oil program established under Section
2 ( a ) (1) of Presidential Proclamation 3270, as amended, and Section 30 of the
Oil I m p o r t Regulation, under which 50,000 b / d of home heating Oil is presently
being imported into D i s t r i c t I (the East Coast). The members of our association are independent marketers of No. 2 fuel oil, No. 6 fuel oil, gasoline
and other petroleum products.
Our testimony before you i n 1971 contained a detailed analysis of deepwater
t e r m i n a l operations and the history of our p a r t of the o i l business, and the
record compiled by this Committee at t h a t time, "Cost and Adequacy of F u e l
Oil." is a most complete and persuasive document.
We should like, therefore, to l i m i t our testimony this morning to three
specific topics:
1) The gasoline supply situation and its impact on independent marketers.
2) The No. 2 fuel oil (home heating oil) supply situation and its impact
on independent marketers.
3) The new O i l I m p o r t Program.
1.
GASOLINE
The urgency and impact of the gasoline shortage have been well k n o w n to
those of us i n the independent gasoline business f o r a number of months. W e
are, therefore, pleased t h a t these hearings are being held, f o r they can play
an i m p o r t a n t role i n b r i n g i n g a l l the facts to the attention of the public
and the Executive Branch of the Federal Government.
Mr. Chairman, you and other members of Congress, have been w a r n i n g f o r
nearly six months about the threat of a gasoline shortage. Unfortunately once
again these warnings have not been heeded: once again the Federal Government, has chosen to listen to the assurance of others t h a t the supply problems
would be localized and temporary.
We can state our position b r i e f l y ; I am sure i t w i l l be supported by other
witnesses. The gasoline shortage w i l l be worse than anticipated: i t w i l l be
198
L and long-lasting; and unless prompt action is taken by Congress
ana rne Executive Branch, a m a j o r result of t h a t shortage w i l l be the
destruction of a large portion of the independent gasoline business.
As independents, our chief fear is that, unless Federal policies are changed,
thousands of independent gasoline stations w i l l be permanently closed, tens
of thousands of persons w i l l lose their jobs and hundred of m i l l i o n s of dollars
•of investments w i l l be wiped out. The short t e r m impact on us w i l l be disastrous and the long term impact on our country w i l l be equally serious,
f o r i t w i l l mean greater concentration of economic power i n the hands of
fewer and fewer companies and potential destruction of the competitive operators who have brought good service and lower prices to consumers.
W e are not sure why the gasoline crisis has h i t so suddenly, nor who is
responsible, but there are certain c o n t r i b u t i n g factors w h i c h can be readily
identified:
• Refiners and the Federal Government have been slow to acknowledge the
crisis.
• Gasoline demand is increasing s h a r p l y ; i n New E n g l a n d is i t 8.8% above
last y e a r ; i n 1071 and 1972 the g r o w t h rate was an average of 4.5%.
• Domestic refining capacity has not ben expanding; U.S. refineries have
not been operating at f u l l capacity.
• Accelerated distillate production over the past w i n t e r delayed the build-up
o f gasoline stocks to adequate levels.
• Federal price controls have discouraged production of some petroleum
products.
• Federal and state anti-polution controls have accelerated the consumption
of petroleum products such as No. 2 f u e l and gasoline. Coal has been phased
o u t of many regions as an i n d u s t r i a l and u t i l i t y f u e l because i t cannot
meet a i r quality emission levels leaving low sulphur No. 6 f u e l and No. 2 f u e l
as the only alternative fuels. Moreover exhaust control systems have led to
more gasoline consumption per miles d r i v e n i n newer model cars.
• The shortage of n a t u r a l gas—and the i n t e r r u p t i n g of i t s supply t o indust r i a l and u t i l i t y customers—has f u r t h e r exacerbated the No. 2 a n d No. 6 f u e l
supply situation because these t w o fuels are the only a l t e r n a t i v e fuels t o
take up the slack.
• F i n a l l y , both environmental and economic restraints have led to a f a r
slower g r o w t h i n nuclear electric generating capacity t h a n expected. T h i s has
forced oil—specifically No. 2 and No. 6 f u e l — t o c a r r y a larger share of energy
requirements than expected.
• I n short, o i l has become the " s w i n g " fuel and now is c a r r y i n g by f a r the
highest share of total energy g r o w t h each year nationwide. F a i l u r e to recognize these trends earlier has p u t an enormous s t r a i n on the oil i n d u s t r y ' s
a b i l i t y to meet its new role.
There seems to be general agreement on these p o i n t s ; but, u n t i l recently,
l i t t l e awareness of the grave impact of a l l these factors on independent
marketers of gasoline. These marketers are being cut-off by refiners—on a
massive, and I repeat, massive scale. I n nearly every region of the country
stations are closed, customers being rationed and successful and astute small
businessmen facing ruin. The refiners are not only c u t t i n g back on d i r e c t
sales to independents, I)ut are depriving independents of a l t e r n a t i v e sources
of supply by buying up most available domestic and foreign gasoline o u t p u t
and t a k i n g over the output of U.S. independent refineries t h r o u g h f o r m a l
a n d i n f o r m a l crude o i l processing arrangements. T h i s l a t t e r development—
processing arrangements—is w e l l k n o w n to the Chairman of the Committee,
who has been pressing the Department of Justice f o r a n investigation and
action.
The foreign market offers l i t t l e hope. Some gasoline is available, but not
nearly enough to meet the supply gaps facing independents; and w h a t is
available is very expensive, due to the h i g h demand f r o m many A m e r i c a n
buyers, including, as I have indicated, the m a j o r o i l companies.
T h e f o l l o w i n g chart w i l l i l l u s t r a t e the impact of the foreign gasoline* price
structure on an American independent m a r k e t e r :
199
GASOLINE—94 OCTANE REGULAR
[In cents per gallon
Domestic
Foreign
16.0
11.5
.25
.75
23.5
11.5
.25
.75
Delivered cost to independent station
Average independent posted price
28.5
34.9
36.0
34.9
Margin
16.4
-1.1
Landed price, Boston
Massachusetts and Federal taxes..
Terminal charges.
Average transportation to station
i This provides only a marginally acceptable return on investment.
Supplies are t i g h t everywhere, a n d unless something is done q u i c k l y , i n a
m a t t e r of a f e w months, the s t r u c t u r e of the U.S. gasoline m a r k e t c o u l d
w e l l be a l t e r e d — p e r m a n e n t l y a n d r a d i c a l l y . Some say t h a t n o t h i n g can be
done a n d the " f r e e m a r k e t forces" should be a l l o w e d to operate. B u t t h e
m a r k e t is n o t free. A n d c u r r e n t F e d e r a l Government policies i n c l u d i n g the
n e w O i l I m p o r t P r o g r a m t e n d to f a v o r t h e l a r g e r companies.
Thus, w h a t is m o s t needed is p r o m p t i n t e r v e n t i o n by t h e Government
to prevent e l i m i n a t i o n of the independents; i n a d d i t i o n there m u s t be some
change i n o i l i m p o r t policies.
T h e Government i n t e r v e n t i o n should have a simple, basic g o a l : to assure
t h a t the shortage is shared equitably. A c t i o n by Congress should, we believe,
be t a k e n on t w o f r o n t s :
F i r s t , a s t r o n g a l l o c a t i o n a n d r a t i o n i n g s t a t u t e should be enacted w h i c h
w o u l d r e q u i r e — a n d I emphasize r e q u i r e — t h e F e d e r a l Government, i n times
of short supply of any p r o d u c t , to allocate deliveries a n d sales. Such allocations should be designed to equalize the i m p a c t of supply gaps a n d shortages
t h r o u g h o u t the U.S. gasoline d i s t r i b u t i o n system. No one segment, level o r
group of companies should be a l l o w e d to p r o f i t a t the expense of others.
S e c o n d , a f o r u m should be created a n d standards established by s t a t u t e
so t h a t i n d i v i d u a l companies could b r i n g f o r m a l complaints a n d secure r e m e d i a l
action against a l l refiner-suppliers f o r u n f a i r t r a d e a n d m a r k e t i n g practices.
W e support proposals to p r o v i d e remedies a n d a f o r u m before the F e d e r a l
T r a d e Commission a n d to establish standards based on h i s t o r i c a l supply a n d
p r i c e relationships.
W e realize t h a t i t w i l l be d i f f i c u l t f o r the Federal Government to establish
a n d a d m i n i s t e r a n a l l o c a t i o n system, b u t i t c e r t a i n l y w o u l d be less complicated
t h a n the Phase I or Phase I I wage-price c o n t r o l mechanism. The crisis o f
s u r v i v a l f o r the independents is no less severe t h a n t h e crisis of i n f l a t i o n
f o r the consumer. I n short, a n a l l o c a t i o n system t o deal w i t h the petroleumsupply crisis can w o r k i f the Federal Government r e a l l y w a n t s i t to w o r k .
W h a t we are seeking is s i m i l a r t o w h a t was done i n the case o f p r i c e
c o n t r o l s — t h e establishment of a base p e r i o d a n d r e s t o r a t i o n of supply a n d
price r e l a t i o n s h i p s f o r gasoline, h e a t i n g oil, and o t h e r p r o d u c t s u n t i l t h e
crisis is passed. T h e r e are those w h o feel the Government should n o t i n t e r v e n e ; our response is t h a t Government p o l i c i e s — i n p a r t i c u l a r the O i l I m p o r t
P r o g r a m p r o c l a i m e d i n 1959—have so d i s t o r t e d the p e t r o l e u m m a r k e t t h a t t h e
independent is a t a severe disadvantage. Because F e d e r a l policies have cont r i b u t e d to the crisis, t h e Government bears a heavy r e s p o n s i b i l i t y to help.
T h e basic t r u t h , as I have i n d i c a t e d above, is t h a t w7e are n o t o p e r a t i n g i n a
free m a r k e t system w h e n i t comes to oil. There is no such t h i n g as a f r e e
m a r k e t , a n d the F e d e r a l Government should recognize this.
W e should l i k e t o m a k e a f u r t h e r comment w T ith reference to o i l i m p o r t
policies on gasoline. T h e new, m o r e flexible, a u t h o r i t y g i v e n to the O i l I m p o r t
Appeals B o a r d can help. T h e i m p o r t licenses f o r gasoline w i l l have some
value to independents w h o receive them. B u t the process is subject to abuse
200
a n d must be carefully administered and regulated. W e fear t h a t the m a j o r
o i l companies and others who are not qualified may subvert the system by
going to recipients of allocation and offering to buy, r a t h e r t h a n exchange,
O I A B licenses: they w o u l d buy them, f o r perhaps 25 cents—half t h e i r value,
accumulate a large volume of tickets f r o m a large number of independents
and use those tickets to i m p o r t gasoline into t h e i r o w n supply system.
I n brief, the O I A B can be a useful instrument i f i t is effectively and
efficiently r u n and there is continual checking on the end use of allocations
granted.
We should l i k e to offer f u r t h e r comments on the new O i l I m p o r t P r o g r a m
l a t e r i n our statement.
M r . Chairman, our specific recommendations are n a t u r a l l y designed to help
our segment of the industry. B u t I t h i n k this Committee should recognize we
are fighting f o r s u r v i v a l and t h a t our s u r v i v a l is of great importance to the
public. F o r i f we f a i l , i f the independent is squeezed out of the market, i t is
the consumer who w i l l be h u r t . The consumer—your constituents—have a
direct stake i n this fight.
W e are i n business to make a profit. B u t we have done t h a t by offering the
consumer a lower cost alternative product of equal quality. T h a t ' s w h y we
have g r o w n i n market share. P r i v a t e b r a n d retailers now account f o r over
.22% of t o t a l r e t a i l gasoline sales. I f you figure t h a t our average sales price
has been some 3(; per gallon under the m a j o r brand station t h a t adds up to
some $700 m i l l i o n annually i n consumer savings. I n short, we have h a d a
competitive impact f a r greater t h a n our size and financial strength m i g h t
indicate.
2. NO. 2 F U E L O I L
Under the leadership of the Chairman, t h i s Committee has over the past
f e w years made a complete, thorough record on the subject of No. 2 f u e l o i l
supply and the impact of shortages on independent marketers and consumers. Y o u r interest and your hearings first began i n 1968. Since t h a t date
you have warned of f u e l o i l shortages and asked f o r changes i n o i l i m p o r t
policies. U n f o r t u n a t e l y these warnings have not been heeded u n t i l i t was too
late.
Because of your deep knowledge and extensive consideration of the home
heating oil problem, we w i l l not comment on i t at great length today. H o w ever, we w o u l d l i k e to provide our assessment of c u r r e n t supply problems,
projections about next w i n t e r , and some recommendations f o r action.
Our projections about next w i n t e r can be simply stated: Demand w i l l be
higher, domestic supplies w i l l be tighter and the chances of physical shortages
greater t h a n last year. The prospects are g r i m , indeed; a n d the g r a v i t y
of the s i t u a t i o n must be faced now and actions taken w i t h i n the n e x t
several months.
As you w i l l recall, M r . Chairman, you and others began w a r n i n g about
the danger of a No. 2 f u e l oil crisis more t h a n a year ago. T h e A d m i n i s t r a t i o n
refused to act, accepting the assurances of the m a j o r o i l companies: unf o r t u n a t e l y , those assurances were wrong. Despite the emergency decontrol
program ordered i n January, i t was the unseasonably w a r m weather—not
decontrol—that saved millions of homeowners f r o m going cold.
We cannot count on s i m i l a r luck next year. Even more i m p o r t a n t , decisions must not. as was done last year, be delayed. W e v i e w J u l y 1 as the
final date on which efficient planning can take place.
I n considering the actions which must be taken, the Committee m u s t be
a w a r e t h a t independent marketers of No. 2 f u e l o i l are i n the same s i t u a t i o n
as independent marketers of gasoline. The supply crisis f o r f u e l o i l marketers
is, of course, not so apparent to the public as i n the case of gasoline, but
i t is perhaps more severe. F o r example. East Coast independent deepwater
t e r m i n a l operators are c u r r e n t l y f a c i n g a massive supply gap. W e are simply
unable to buy any significant supplies of No. 2 f u e l o i l f r o m domestic sources:
we are being cut back or cut out by almost every one of our domestic refinersuppliers. Our t o t a l demand f o r the coming year w i l l be 250-260,000 b / d . Of
t h i s amount, only 65,000 bbls has been provided under firm commitments
f r o m domestic refiners. I n other words, we are now facing a supply gap
of more than 190,000 b / d . A n analysis of this gap, prepared l a s t m o n t h
a t the request of the Office of O i l and Gas, is included as A t t a c h m e n t B of t h i s
statement.
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W h e n y o u consider t h a t our independent deepwater t e r m i n a l s p r o v i d e 25%
of the delivery capacity a n d d i s t r i b u t i o n system along the E a s t Coast, y o u
can realize Ihe i m p a c t t h a t t h i s shortage w i l l have o n the homeowner.
Domestic supplies a r e a l r e a d y very t i g h t . T h e A P I s t a t i s t i c shows t h a t
d i s t i l l a t e stocks are h i g h e r t h a n a year ago, b u t we do n o t believe t h a t
stocks can be b u i l t up t o safe levels t h i s summer because of t h e e x t r a o r d i n a r y
demands f o r p r o d u c t i o n of gasoline. T h e summer of 1973 w i l l be a repeat
of the summer of 1972—gasoline w i l l be produced a t the expense of h e a t i n g
oil. I n b r i e f , we face a repeat of the d r e a r y cycle of shortage.
Some supplies of No. 2 f u e l are a v a i l a b l e f r o m f o r e i g n sources, a n d some
a d d i t i o n a l access to those supplies has been p r o v i d e d under t h e n e w O i l I m p o r t
P r o g r a m . B u t f o r e i g n d i s t i l l a t e is a l r e a d y selling a t prices t h a t are w e l l above
domestic a n d c o n t i n u i n g t o escalate, as m o r e a n d more A m e r i c a n buyers enter
the f o r e i g n m a r k e t . I n c l u d e d among these buyers a r e m o s t of the m a j o r o i l
companies a n d the l a r g e u t i l i t i e s . T h e m a j o r s a n d the u t i l i t i e s obviously v i e w
the new i m p o r t license fee of 15 cents per b a r r e l as no b a r r i e r , f o r they a r e
scouring the m a r k e t f o r a l l the h e a t i n g o i l they can find. F o r example,
the largest u t i l i t y i n F l o r i d a t o l d a House C o m m i t t e e t w o wTeeks ago t h a t i t
was sending representatives to the A r a b countries to buy f u e l o i l d i r e c t l y ;
they are seeking 33 m i l l i o n bbls per year. I t should be noted t h a t t h i s
purchase, by one u t i l i t y alone, is equivalent to 1 / 3 of N e w E n g l a n d ' s t o t a l
a n n u a l consumption of No. 2 f u e l oil.
I n b r i e f , unless the Government a n d the Congress act a n d act soon, w h a t
lies ahead f o r the N o r t h e a s t e r n states is a s h o r t f a l l i n domestic No. 2 f u e l
o i l supplies, increasing reliance on h i g h p r i c e d f o r e i g n oil, p h y s i c a l shortages
i n many areas, a n d as i n t h e case of gasoline, the e v e n t u a l d e s t r u c t i o n of
the independent f u e l o i l m a r k e t e r . One of the members of o u r o w n Associat i o n has already been removed f r o m t h e r a n k s of the independents. Less t h a n
a week a f t e r the announcement of t h e n e w O i l I m p o r t P r o g r a m , the U n i o n
O i l Company of Boston was bought out by a refiner, the Coastal States Gas
P r o d u c i n g Company of Corpus C h r i s t i , Texas.
As t h i s Committee is w e l l aware, h e a t i n g o i l is a v i t a l fuel. I f there is a
p h y s i c a l shortage of gasoline w i l l mean some inconvenience to some d r i v e r s ;
a physical shortage of h e a t i n g o i l poses a d i r e c t t h r e a t to the h e a l t h a n d
safety of m i l l i o n s of f a m i l i e s , p a r t i c u l a r l y i n the N o r t h e a s t e r n states a n d N e w
E n g l a n d , where dependence on h e a t i n g o i l is the highest.
Given t h i s b a c k g r o u n d of p o t e n t i a l shortage a n d d e s t r u c t i o n of the independents, w e should l i k e t o offer six recommendations f o r a c t i o n :
F i r s t , the F e d e r a l Government must, u n l i k e l a s t year, recognize the danger
a n d act before mid-year, t h a t is by J u l y 1.
S e c o n d , the O i l P o l i c y Committee should act t o increase, on J u l y 1, t h e
No. 2 f u e l oil i m p o r t allocations f o r independent deepwater t e r m i n a l operators
f r o m t h e c u r r e n t level of 50,000 b / d to a m i n i m u m of 150,000 b / d . A s t h i s
Committee knows, we were deeply disappointed by t h e l a s t m i n u t e r e j e c t i o n
of recommendations to increase the level t o a t least 100,000 b / d . T h i s was a
severe blow, p a r t i c u l a r l y i n v i e w of the s t r o n g evidence of shortage w e
presented to the O i l P o l i c y Committee.
T h i r d , , the O i l I m p o r t Appeals B o a r d m u s t act q u i c k l y on pending applications f o r No. 2 f u e l o i l i m p o r t s w h i c h meet t h e c r i t e r i a established by t h e
B o a r d . H o w e v e r , we s h o u l d a d d t h a t , w 7 hile we welcome t h e o p p o r t u n i t y to
seek r e l i e f f r o m t h e B o a r d , w e do n o t believe i t offers a n effective, long-range
w a y of d o i n g business; i t is v e r y d i f f i c u l t to r u n a business on expectation
of a year-by-year a l l o c a t i o n .
F o u r t h , t h e O i l P o l i c y C o m m i t t e e should t a k e i m m e d i a t e steps t o discourage the use a n d i m p o r t a t i o n of No. 2 f u e l o i l f r o m a b r o a d by u t i l i t i e s .
Massive purchases of No. 2 f u e l o i l i n t h e w o r l d m a r k e t by these companies is
a sure p r e s c r i p t i o n f o r h i g h prices a n d shortage i n the home h e a t i n g sector
of the m a r k e t . N o t only t h a t , t h e use of No. 2 f u e l by u t i l i t i e s is e x t r e m e l y
w a s t e f u l . A home heated e l e c t r i c a l l y ( w h e n the electric p o w e r is generated
by b u r n i n g No. 2 f u e l i n gas t u r b i n e generators) consumes 2y 2 t i m e s as m u c h
No. 2 f u e l t o heat as a home d i r e c t l y w i t h a n o i l b u r n e r . T h i s n a t i o n can no
longer a f f o r d the l u x u r y of t h a t k i n d of waste of a c r i t i c a l l y short resource.
Given these f a c t s a n d t h e c u r r e n t energy crisis, w e s i m p l y cannot unders t a n d w h y c o n t i n u e d p r o m o t i o n of electric h e a t i n g is p e r m i t t e d .
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Fifth, the Federal Government should continue its efforts t o encourage the
states to relax s u l f u r content standards so t h a t the increasing amounts of
No. 6 f u e l o i l can be burned i n place of No. 2 f u e l o i l and so t h a t there can
be a substantial reduction i n the use of No. 2 f u e l o i l as a blend.
Sixth, as indicated i n above, we recommend enactment by t h e Congress
of allocation or r a t i o n i n g legislation and enactment of legislation to provide
relief before the Federal T r a d e Commission. I n brief, i t is essential t h a t
supply and price relationships w h i c h existed d u r i n g p r i o r years and m a i n t a i n e d
u n t i l the c u r r e n t supply crisis f o r No. 2 f u e l o i l has passed.
3. T H E O I L IMPORT PROGRAM
Before concluding, M r . Chairman, w e should l i k e to offer our comments and
reactions to t h e new O i l I m p o r t P r o g r a m which was announced by the
President on A p r i l 18. As you know, the new P r o g r a m is embodied i n extensive amendments to Presidential Proclamation 3279 and O i l I m p o r t Regulation I.
W e support the basic objectives of the Program. W e have long urged thatdomestic refining and storage capacity be increased and have supported efforts
to reduce long-term reliance on foreign sources of crude o i l a n d petroleum
products.
B u t we are concerned t h a t the economic theories on w h i c h t h e new p r o g r a m
is based simply do not apply to the petroleum market. W e fear t h a t , as i n the
case of the o r i g i n a l O i l I m p o r t P r o g r a m promulgated i n 1959, the objectives
w i l l not be achieved and, i n fact, the actual results w i l l be the opposite
of w h a t was intended.
W e should remember t h a t those who have criticized the O i l I m p o r t P r o g r a m
f o r so long, i n c l u d i n g the C h a i r m a n of this Committee and many of his colleagues, d i d so because i t was not doing w h a t is was intended to do. A f t e r
14 years of a program designed to encourage domestic production and export a t i o n a n d reduce reliance on foreign imports, we find domestic production
declining, domestic reserves at an all-time low, and reliance on f o r e i g n sources
increasing w i t h every year.
Our chief problem w i t h the new P r o g r a m is t h a t i t appears to be based
on the classic l a w s of supply and demand, and attempts to use a fee or
t a r i f f - t y p e mechanism to translate the forces of supply and demand i n t o
c e r t a i n results. U n f o r t u n a t e l y , as we have pointed out, the r e a l i t y is t h a t
the forces of supply and demand simply do not apply to a n integrated intern a t i o n a l o i l company w h i c h operates production, refining, and m a r k e t i n g facilities on both sides of the t a r i f f or fee b a r r i e r . These integrated companies
make business decisions on a much different basis f r o m others i n the petroleum
business, t h e i r costs are different and t h e i r i n t e r n a l price structures are
different. Therefore, the simple fact is t h a t the impact of fees on integrated
o i l companies and t h e i r corporate decisions is much different t h a n the impact
on a l l other o i l companies. We can attest to t h i s f a c t on the basis of many
years of experience as petroleum marketers both here and abroad.
I t is essential to understand the difference i n the economics of the
independent and the i n t e r n a t i o n a l m a j o r s i n the w o r l d market. Quite simply
our cost is determined by w h a t we pay f o r product and f r e i g h t to l a n d a
cargo of o i l a t our terminal. T h e i n t e r n a t i o n a l m a j o r has a f a r different set
of costs.
To begin w i t h , the i n t e r n a t i o n a l m a j o r s own or control most of the
world's crude o i l production outside of the Soviet Union. They also o w n
or control a substantial share of refining capacity around the globe. W h e n
t h i e r U.S. affiliate buys gasoline or No. 2 fuel f r o m a foreign affiliate, i t ' s
cost is more often t h a n not simply a n interaffiliate transfer price t h a t need
bear no special relationship to the arms-length market price we must pay.
The m a j o r is interested i n o p t i m i z i n g i t s profit f r o m a n integrated w o r l d wide operation. I don't blame them. I j u s t w a n t this Committee to understand the disproportionate power and leverage the m u l t i - n a t i o n a l integrated
m a j o r has vis-a-vis the independent U.S. marketer.
Even i n dealing w i t h a foreign p r i v a t e independent refiner the internat i o n a l m a j o r has a great advantage. The m a j o r can tie crude supply to product
off-take, i f an independent refiner has a surplus of any product, the m a j o r
can t a k e i t and dispose of i t i n a t h i r d m a r k e t t h r o u g h its own affiliates i n
order t o secure a product i n t i g h t supply. T h i s explains why, when we and
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a m a j o r a r e competing f o r a l i m i t e d v o l u m e of p r o d u c t p r o d u c e d by a n
independent f o r e i g n refiner, i t is the m a j o r who i n v a r i a b l y gets the product.
Thus, we f e a r t h a t t h e new O i l I m p o r t P r o g r a m m a y never achieve t h e
excellent objectives set f o r t h i n t h e President's E n e r g y Message a n d the
statements of the C h a i r m a n of t h e O i l Policy C o m m i t t e e i n s u p p o r t of
t h a t Message. E v e n worse, f r o m o u r p o i n t of v i e w , t h e s h o r t - t e r m implem e n t a t i o n procedures—the p h a s i n g u p of fees a n d p h a s i n g d o w n o f fee-free
i m p o r t s — w i l r e s u l t i n t h e d e s t r u c t i o n o f t h e independent segment of the
m a r k e t , m o r e c o n c e n t r a t i o n of p o w e r i n the i n t e g r a t e d companies a n d g r e a t
h a r m t o the A m e r i c a n consumer.
T o be more specific, we should l i k e t o present a l i s t of p r o b l e m areas
on w h i c h we hope t h i s C o m m i t t e e a n d the O i l Policy C o m m i t t e e can review*
a n d a c t upon.
W e should l i k e t o state first t h a t t h e n e w policy procedure a n d a d m i n i s t r a t i v e s t i n c t u r e appears to be a more efficient a n d m o r e responsive one,
a n d w e are most encouraged. D e p u t y Secretary Simon's decision t o appoint
r e g i o n a l committees of independent m a r k e t e r s was a c o n s t r u c t i v e one, a n d
the i m p r o v e d c o m m u n i c a t i o n a n d exchange of ideas t h a t w i l l r e s u l t f r o m
h i s a c t i o n can be h e i p f u l . T h e a t t i t u d e s a n d accessibility of M r . S i m o n ; his
deputy M r . W i l l i a m J o h n s o n : A s s i s t a n t Secretary of t h e I n t e r i o r Stephen
W a k e f i e l d : t h e D i r e c t o r of t h e Office of O i l a n d Gas, M r . D u k e L i g o n ; a n d
the President's C o n s u l t a n t on E n e r g y , M r . Charles D i B o n a h a v e been equally
encouraging. W e sense a r e a l change i n approach a n d a c o m m i t m e n t to m a k e
t h e new p r o g r a m w o r k . O u r suggestions are, therefore, offered i n a s p i r i t
of cooperation a n d t h e hope t h a t we can continue to w o r k w i t h the O i l Policy
Committee, the D e p a r t m e n t of I n t e r i o r a n d the W h i t e House Special Committee
on Energy in seeking effective solutions.
W e do n o t believe t h a t massive changes i n the new P r o g r a m a r e needed
n o r d e s i r a b l e ; w e agree t h a t s t a b i l i t y is required. A business t h a t is as
closely regulated as o i l m u s t be able to p l a n a n d act w i t h some assurance
t h a t Government r e g u l a t i o n s a n d policies w i l l r e m a i n reasonably stable. B u t ,
as we have indicated, w h e n a crisis occurs—and the t h r e a t to independent
m a r k e t e r s is a c r i s i s — c e r t a i n change's m u s t be made, to p r e v e n t serious consequences.
O u r five p r o b l e m areas are as f o l l o w s :
1. T h e i m p a c t of t h e F e e s
W e a r e p a r t i c u l a r l y concerned a b o u t w h a t happens i f , by the t i m e the
fees have escalated to t h e i r h i g h p o i n t i n 1975, enough a d d i t i o n a l domestic
r e f i n i n g capacity has n o t been b u i l t . "What then? Should the escalation be
delayed? Perhaps those w h o have t h e greatest d i f f i c u l t y i n finding p r o d u c t
f r o m domestic sources, such as independents, should receive a d d i t i o n a l allocations on a l o w e r fee or fee-free basis.
A n o t h e r concern is w h e t h e r t h e fees a r e any d e t e r r e n t a t a l l t o the i m p o r t a t i o n by the m a j o r o i l companies a n d u t i l i t i e s of finished products. F r a n k l y ,
w e do n o t t h i n k so. T h e m a j o r s ' costs are m u c h d i f f e r e n t ; they can i m p o r t
v a s t volumes of gasoline, h e a t i n g o i l a n d r e s i d u a l oil, pass the cost of t h e i r
fee t h r o u g h t h e i r systems a n d suffer no adverse effects. I n the case of u t i l i t i e s ,
they can s i m p l y pass the cost of fees on t o the consumers under t h e i r r a t e
ocalation clauses.
2. I m p o r t s of F i n i s h e d P r o d u c t s by M a j o r s
O u r discussion i n the preceding p a r a g r a p h leads to w h a t wTe believe the
most grievous flaw i n the new system, p a r t i c u l a r l y f r o m the p o i n t of viewT
of independent p e t r o l e u m m a r k e t e r s : the f a c t t h a t m a j o r o i l companies a n d
u t i l i t i e s a r e p e r m i t t e d t o i m p o r t finished products. W e have stated to t h e O i l
Policy C o m m i t t e e on numerous occasions a n d are s t a t i n g here t o d a y t h a t , g i v e n
c u r r e n t l i m i t e d a v a i l a b i l i t y of f o r e i g n supply, to a l l o w the m a j o r s a n d u t i l ities to i m p o r t a t a l l , even on a fee p a i d basis, t h r o w s t h e m i n d i r e c t competit i o n w i t h the s m a l l e r i n d e p e n d e n t ; i t is clear, based on o u r o w n experience,
w h o w i l l w i n t h i s competition.
W e urge t h a t t h i s aspect of the p r o g r a m be reviewed a n d reversed. A n absol u t e p r o h i b i t i o n o n i m p o r t a t i o n by m a j o r s a n d u t i l i t i e s w i l l n o t prevent a
h i g h level of i m p o r t s of products. I n f a c t a l l t h a t i s a v a i l a b l e can be i m p o r t e d
by independents. B u t such a p r o h i b i t i o n w i l l p r e v e n t t h e continued e x p o r t of
06-183—73
14
204
r e f i n i n g capacity ( w h i c h results w h e n those w i t h domestic r e f i n i n g capacity
t h a t can be expanded decide to i m p o r t p r o d u c t s ) ; such a p r o h i b i t i o n w i l l a l l o w
the independents to s u r v i v e a n d g r o w as a c o m p e t i t i v e f o r c e i n the m a r k e t p l a c e .
o. S t o r a g e C a p a c i t y
W e agree w i t h the O i l Policy C o m m i t t e e t h a t t h e license fee p r o g r a m can
p r o v i d e incentives f o r c o n s t r u c t i o n of a d d i t i o n a l domestic storage c a p a c i t y . W e
hope t h a t a n effective i n c e n t i v e system c a n be developed a n d w i l l be pleased
to w o r k w i t h t h e O i l Policy C o m m i t t e e i n any w a y possible.
T h e Oil Import Appeals Board
A s i n d i c a t e d above, we feel t h a t the O i l I m p o r t Appeals B o a r d can help, b u t
s h o u l d n o t be v i e w e d as the complete a n s w e r f o r independents. I n f a c t , i f t h e
m a j o r s a n d u t i l i t i e s are able t o corner t h e f o r e i g n m a r k e t i n gasoline a n d heati n g oil, the O i l I m p o r t Appeals B o a r d licenses w i l l be o f l i t t l e use. E v e n i f
some f o r e i g n supplies are available, t h e heavy demand m a y c o n t i n u e t o d r i v e
f o r e i g n prices beyond the reach of A m e r i c a n independents.
F u r t h e r , we a r e concerned t h a t t h e procedures of t h e B o a r d w i l l be s u b v e r t e d
by t h e m a j o r o i l companies, p a r t i c u l a r l y i n t h e case of gasoline. A s we h a v e
p o i n t e d out, t h e r e is a g r e a t i n c e n t i v e f o r the m a j o r s t o buy gasoline t i c k e t s
or w o r k o u t p h a n t o m exchanges to secure such tickets. T h i s m u s t n o t be a l l o w e d
t o happen. Procedures m u s t be established t o assure t h a t independents w h o
receive allocations a c t u a l l y i m p o r t t h e o i l f o r d i s t r i b u t i o n i n t h e i r o w n d i s t r i b u t i o n systems or exchange such t i c k e t s on a b a r r e l - f o r - b a r r e l basis t o receive
p r o d u c t f o r use i n t h e i r o w n systems. W e see t h i s as a p r o b l e m p r i n c i p a l l y of
enforcement a n d supervision, a n d we w i l l be g l a d to cooperate w i t h the Office of
O l i a n d Gas a n d the B o a r d i n developing effective s u r v e i l l a n c e procedures.
5. S e c t i o n 30
W e are pleased t h a t the W e s t e r n H e m i s p h e r e purchase l i m i t a t i o n has been
suspended by t h e C h a i r m a n of t h e O i l P o l i c y Committee. T h i s a c t i o n w i l l h e l p
i m m e a s u r a b l y i n a s s u r i n g t h e most effective use of t h e i m p o r t a l l o c a t i o n s
received u n d e r t h i s Section.
U n f o r t u n a t e l y , as w e have indicated, t h e a l l o c a t i o n level o f 50,000 b / d is
w o e f u l l y inadequate. O u r supply gap, t h e gap between o u r d e m a n d a n d domestic
supplies—is v e r y severe. W e w i l l need t o i m p o r t s u b s t a n t i a l a d d i t i o n a l a m o u n t s
of No. 2 f u e l o i i over the c o m i n g year. Some allocations m a y be a v a i l a b l e f r o m
the O i l I m p o r t Appeals B o a r d , b u t w h a t is r e a l l y needed a n d w h a t w i l l be
most effective is a decision to increase t h e r e g u l a r p r o g r a m t o a l e v e l of a t
least 150,000 b / d .
I n a d d i t i o n , c o n s i d e r a t i o n w i l l h a v e t o be given, w i t h i n t h e n e x t year, t o t h e
question of w h e t h e r , g i v e n t h e shortage of domestic p r o d u c t , t h e No. 2 F u e l
O i l P r o g r a m should be reduced i n accordance w i t h t h e schedule established by
Section 11 P r o c l a m a t i o n 3279, as amended.
I n conclusion, M r . C h a i r m a n , I s h o u l d l i k e t o t h a n k y o u a n d t h e members
of t h e C o m m i t t e e f o r y o u r c o n t i n u i n g efforts on b e h a l f of the m a r k e t e r s a n d
consumers of h e a t i n g o i l a n d gasoline. W e a r e g r a t e f u l f o r t h e o p p o r t u n i t y of
a p p e a r i n g before y o u t o d a y a n d w i l l be pleased t o respond t o a n y questions
t h a t y o u m a y have.
T h a n k you.
Attachment A
MEMBERS—INDEPENDENT
FUEL
T :RMINAL
Belcher O i l Co., M i a m i , F l a .
B u r n s B r o t h e r s P r e f e r r e d , Inc., B r o o k l y n , N.Y.
C i r i l l o B r o t h e r s T e r m i n a l , Inc., B r o n x ,
N.Y.
C o l o n i a l O i l I n d u s t r i e s , Inc., Savannah,
Ga.
D e e p w a t e r O i l T e r m i n a l , Quincy, Mass.
Gibbs O i l Co., Revere, Mass.
M e n n a n O i l Co., N e w Y o r k , N . Y .
N o r t h e a s t P e t r o l e u m Corp., Chelsea,
Mass.
OPERATORS
ASSOCIATION
N o r t h v i l l e I n d u s t r i e s , Corp., M e l v i l l e ,
N.Y.
Patchogue O i l T e r m i n a l Corp., B r o o k lyn, N.Y.
Ross T e r m i n a l Corp., Bayonne, N.J.
Seaboard Enterprises, Inc., Boston,
Mass.
C. H . Sprague & Son Co., Boston, Mass.
Webber T a n k s , Inc., B u c k s p o r t , M a i n e .
W y a t t , Inc., N e w H a v e n , Conn.
205
Attachment B
No. 2 Fuel Oil Demand—Supply
Projections
1
1973-74
Bnrreh
per day
T o t a l demand, independent deepwater t e r m i n a l operators, d i s t r i c t 1 2
M a y 1, 1972 t o A p r . 30 ; 1973
260, 000
T o t a l demand, independent deepwater t e r m i n a l operators, d i s t r i c t I
M a y 1, 1973 t o A p r . 30, 1974 (assuming a 7 percent increase i n
d e m a n d a n d t h a t independents m a i n t a i n — b u t do n o t increase—their
share of the east coast m a r k e t )
278, 000
Supplies available f r o m domestic refineries (based on c u r r e n t i n f o r m a t i o n f r o m suppliers; however, this p r o j e c t i o n m a y prove o p t i m i s t i c ) _ _
85, 000
S u p p l y gap, d i s t r i c t I , 1973-74
193, 000
1
Sec also projections on p. 16 of p e t i t i o n of Independent F u e l T e r m i n a l Operators Association to O i l
Policy C o m m i t t e e , June 5, 1972; a n d projections s u p p l i e d b y association to committee, N o v . 30, 1972, a n d
Mar. 15, 1973.
3
Includes a l l independents w h o q u a l i f y under section 30 of oil i m p o r t regulation.
Senator MCINTYRE. Thank you very much.
W e call as our next witness M r . W i l l i a m B . Deutsch of the National
O i l Jobbers Council.
M r . GREGG POTVIN. Senator, I w i l l be g i v i n g the statement f o r him.
M r . Deutsch is here as a resource witness.
Senator MCINTYRE. M r . Potvin.
M r .
POTVIN. Y e s ,
sir.
M r . Chairman, I shall, i f I may, take about 1 minute on the w r i t t e n
p a r t and then give you some specifics to back i t up.
A n increasing number of oil jobbers today f i n d themselves placed
i n a position t h a t suggests they w i l l not be able to survive economically f o r any prolonged period of time.
Some suppliers are meeting their contractual commitments. A
number are w i t h d r a w i n g f r o m States or even entire regions o f the
country. M a n y are also c u t t i n g off i n d i v i d u a l jobbers.
A s you know, an amendment t h a t is frequently referred to as the
Eagleton amendment or sometimes the M c I n t y r e amendment is now
law.
W e suggest t h a t you give M r . Simon, by w h o m we are impressed,
a chance to use those powers before enacting f u r t h e r legislation.
I would simply like to j o i n the independent terminal operators i n
saying f o r God's sake, do not let them repeat the f o l l y of last year,
w a i t i n g u n t i l the first snow falls before we w o r r y about fuel oil.
The gasoline shortage is all too apt to spawn a fuel shortage next
winter. W h i l e M r . Simon is up here, we are most hopeful t h a t you
w i l l lay to rest this question of whether there is a hemispheric restriction or not. I t is s t i l l i n the proclamation. H e reputedly has w r i t t e n
a memorandum, but i t is scarcely a subject that you w o u l d want
unresolved.
W e are not able t o q u a n t i f y the hardships being encountered by
oil jobbers throughout the Nation. W e do know t h a t they are extremely serious, t h a t they exist nationally i n the truest sense of the
w o r d and they are increasing r a p i d l y . Currently, we are i n the process of receiving returns to a questionnaire circulated several weeks
ago which should allow us to give you a rather precise profile of our
members' supply difficulties.
206
W e w o u l d ask permission, M r . Chairman, t h a t we be allowed t o
submit this as soon as the returns are received and tabulated—hopef u l l y — f o r inclusion i n y o u r record b u t at any rate f o r such use as
may appear appropriate i n your judgment.
W e w o u l d l i k e t o j o i n our voice i n saying t h a t the Cost of L i v i n g
Council s i m p l y must allow the price o f petroleum products t o increase t o an extent Which w i l l reestablish the relationship o f domest i c prices to w o r l d prices.
A t the present time, there have been discriminatory price increases
placed on jobbers w h i l e dealers' t a n k wagon price remained unchanged.
T h a t is just a polite w a y o f saying they have decreased our margins and we cannot survi ve.
N o w , as a very specific example, I w o u l d l i k e to give you some
examples of what has happened.
There are not many metropolitan gasoline jobbers l e f t . The capital
burdens are just too extreme. B u t we more or less own the markets
t h a t are small-town and r u r a l . They tend t o be jobber supplied. I f
they are not to be supplied by jobbers, majors w i l l take a terrible
financial bath i f they t r y t o go i n and do i t themselves.
A n example, a l i t t l e town, A l l e g o n i n Michigan, a jobber named
D o r a n Wedge was cut off cold. H e t r i e d to peddle his customers to
other sources o f supply. H e has not been able to place a single one
of them.
L e t me t e l l you who they include: T h e local ambulance service, the
hospital, the police department, the fire department, and v i r t u a l l y
every farmer f o r miles around—none o f them have gasoline today.
Senator M C I N T Y R E . Where is this?
M r . POTVIN. Allegon, M i c h . I t is a gentleman by the name o f
D o r a n Wedge.
A n o t h e r example is a jobber i n Y a k i m a , Wash., volume o f 16
m i l l i o n gallons a year was cut off by his supplier.
H e supplied v i r t u a l l y every hop grower, every apple grower i n
t h a t very f r u i t f u l valley. T h e y are not able to f i n d a new source o f
supply. T h i s is what is happening, M r . Chairman, and I do hope you
take particular pains t o look at the problems o f the farmer, because
next f a l l , next f a l l , when they have just a few short weeks to harvest
the f r u i t s of an entire year's* w o r k , i f t h a t f u e l is not there, I do not
know w h a t they w i l l do, and i f t h e i r goods are not on the shelves
and ready f o r consumption, I do not know what the rest o f us w i l l
do.
One of the things t h a t upsets us is t h a t a number of suppliers are
aggressively seeking new customers f o r themselves and d i v e r t i n g
t h a t product away f r o m t h e small businessman, the dealers, the
jobbers, the private branders.
I t is disquieting, Senator, to have y o u r supplier call you five times
i n 3 weeks and say " M a y we send our real estate men to see y o u r
station?" T h a t is the sort o f t h i n g t h a t is happening.
I n too many instances our m a j o r suppliers have placed pressure on
jobbers and said, do not go t o the meeting w i t h your Senator.
One m i d western Senator
Senator M C I N T Y R E . D O not go to what?
207
M r . POTVIN. D o not go to tell your representatives i n the Congress
what your problems are, stay away f r o m them. They have encouraged
them t o come i n and legislate against needed legislation.
These are not too subtle pressure tactics and I t h i n k i t is time t h a t
someone blew the whistle on them.
Another example, you market ably and well f o r the mutual profit
of yourself and your supplier f o r a number of years, and yet get i n
this case 6 weeks' notice that they are not going to supply you any
more.
Senator M C I N T Y R E . W h o gave you 6 weeks notice?
M r . POTVIN. I would like to submit f o r the record this particular
cutoff letter which is f r o m Citgo. but there have been hundreds arid
hundreds and hundreds o f them f r o m a great many o f the major
suppliers.
Senator M C I N T Y R E . I do not understand what you mean when you
say that some of these m a j o r s — I do not know the majors—but you
said they are looking f o r new customers.
M r . POTVIN. They are looking f o r new commercial accounts first.
Secondly, new properties where they w i l l market t h r o u g h their
own service stations.
Senator M C I N T Y R E . Let me see i f I understand.
Suppose I am b u y i n g f r o m Diamond Oil. I am getting m y gasoline
or whatever i t is f r o m Diamond O i l Co. Diamond calls up and says,
" I am sorry, we have been shut off. I cannot provide you any more."
I get a telephone call f r o m one of the major suppliers.
" C a n we enlist your account? Can we now serve you?" I s t h a t
what you are t a l k i n g about ?
M r . POTVIN. T h a t i s what I mean. Here is one f o r m i t takes.
Humble is opening A l e r t stations. Citgo is opening Research stations,
M o b i l is opening Sello stations. These use the same sort o f pattern
that the S I G M A marketers have used, low cost and low service and
investment. They are d i v e r t i n g that product f r o m the Nation's small
businessmen to their direct distribution.
We do not feel i t is r i g h t . A g a i n f a r too l i t t l e notice is being given.
I f there is a shortage, we concede there must be allocations, Senator,
but just as our suppliers must have that r i g h t , so must small business
marketers.
Here is what happens. I again have an exhibit t h a t happens to be
a Texaco example f o r the record. They w i l l phone on the 26th or
27th o f the month and they say you have been on allotment since
the first and by the way, you have 2 gallons left. W h a t about the
next customer t h a t you were going to serve t h a t now is not going to
get any ? T h i s lack of notice deprives the small business marketer of
m a k i n g some reasonable allocation between the needs of his customers. Suppliers should certainly be required t o give 30 t o 60 days'
notice about placing our guys on allocation so t h a t we, i n t u r n , can
act f a i r l y w i t h the consuming public.
W h a t does i t do t o the consumer? I tell you now t h a t lack o f
adequate notice means t h a t some consumers get very, very short
s h r i f t and really u n f a i r treatment because we have no choice. T h a t
is true of heating o i l as well as gasoline.
Senator M C I N T Y R E . The exhibits w i l l be accepted w i t h o u t objection.
208
[The information follows:]
C I T I E S SERVICE O I L
CO.,
H i n s d a l e , III., A p r i l 17, 1913.
Re B r a n d e d D i s t r i b u t o r Agreement T e r m i n a t i o n .
M r . HARVEY JOHNSON,
P E N N - G U I N O I L CO.
Chicago, III.
DEAR MR. JOHNSON : I n r e p l y to y o u r l e t t e r d a t e d A p r i l 3, 1973 a n d c o n f i r m i n g
m y conversation of A p r i l 16. 1973, y o u r B r a n d e d D i s t r i b u t o r A g r e e m e n t w i t h
o u r company dated by l e t t e r of F e b r u a r y 9, 1973 stands t e r m i n a t e d M a y 31,
1973.
Y o u s h o u l d consider t h i s o u r n o t i f i c a t i o n t h a t i n accordance w i t h t h e t e r m s
of t h e lease agreements m e n t i o n e d below, s a i d lease agreements s h a l l also
s t a n d t e r m i n a t e d M a y 31, 1973:
Lease Agreements
Lease t o T e n a n t dated September 28, 1972 a n d a l l r e l a t e d documents—No. 1 2 031-211, 7169 N. M i l w a u k e e , Niles, I l l i n o i s .
Lease Termination Provision
Paragraph Two.
Y o u a r e f u r t h e r advised t h a t f o l l o w i n g said t e r m i n a t i o n date, y o u r company
should:
a. Cease a n d discontinue any f u r t h e r use of o u r company's C I T G O b r a n d s
a n d t r a d e n a m e i n connection w i t h y o u r sale, storage a n d d e l i v e r y of
petroleum products;
b. D i s c o n t i n u e any f u r t h e r use of o u r company's i d e n t i f i c a t i o n , tradem a r k s a n d b r a n d names, a n d r e t u r n a l l signs, poles, or o t h e r i d e n t i f i c a t i o n
i t e m s f u r n i s h e d or leased to y o u by C I T G O i m m e d i a t e l y ;
c. R e t u r n a l l C I T G O C r e d i t C a r d i m p r i n t e r s , equipment a n d m a t e r i a l s
t o c u r company a n d n o t accept C I T G O C r e d i t Cards or invoices f r o m customers or dealers i n c i d e n t t o y o u r sale or resale of p e t r o l e u m p r o d u c t s
w i t h o u t the p r i o r w r i t t e n consent of C I T G O .
A r r a n g e m e n t s f o r t h e r e t u r n of C I T G O loaned equipment w i l l be c o o r d i n a t e d
t h r o u g h y o u r sales representative a n d field engineer.
I f t h e r e a r e any questions concerning t h e above, please advise.
V e r y t r u l y yours,
C. T .
PABIAN,
A r e a Sales
Manager.
N O R T H R U P O I L CO.
Chillicothe, III.
I received a c a l l today, 4-24-73, f r o m T o m N o r t h r u p a n d he said t h a t he was
i n t r o u b l e w i t h Texaco. H e s a i d t h a t t h e y i n f o r m e d h i m t h a t he h a d 5.500 gallons u n t i l t h e end of the m o n t h a n d he r e a l l y needs t h i s m u c h d a i l y . T h e y s a i d
he w a s on a l l o t m e n t a n d t h a t is a l l . H e sent a t e l e g r a m t o Texaco. I t h a d t o
go to N e w Y o r k f o r approval. H e asked f o r 100,000 gallons f o r f a r m sales. T h e y
t o l d h i m t h a t others h a d n o t been approved.
H e is a l l o c a t i n g h i s f a r m accounts t o 100 gallons p e r d e l i v e r y . T h e y t e l l h i m
they can get a l l they need f r o m S t a n d a r d Oil.
N o r t h r u p O i l has been i n business m a n y years s e r v i c i n g f a r m s , home h e a t i n g ,
a n d service stations. T h e y are n o w faced w i t h loss of t h e i r business.
M r . POTVIN. W e hope you w i l l look at pipelines and the question
of whether they are being used i n a monopolistic sort o f way. I k n o w
t h a t your very able staff knows a great deal about processing agreements, and I hope your committee w i l l get into t h a t area before you
complete your studies.
One p o i n t everyone has been d u c k i n g — I do not t h i n k you can
have a successful hearing unless i t is l a i d squarely on y o u r podium.
So, I am going to do i t . I t goes l i k e this. F i r s t , we have talked
about the diversion of products f r o m the small business column to
the direct marketing column by the large majors.
209
I t h i n k on t h a t question, a l l small business marketers really are
united. W e do not t h i n k i t is r i g h t . W i t h i n the independent ranks,
though and you are independent whether you are a branded jobber
or whether you use your own name on the sign even i f there are
some differences. A l o t o f people buy on contract, branded and
unbranded.
F o r many, many years they have p a i d really a tremendous premium. Just a year or a year and a h a l f ago there were many witnesses
i n before one o f your sister committees, p o i n t i n g this out, and t h a t
the premium charged f o r branded gas was so excessive, so unreal,
so artificial, that i t prevented the sort of price competition that Professor A l l v i n e so eloquently espoused a few minutes ago.
The private brander on contract also p a i d a premium, less so but
s t i l l a premium. Others because excess gasoline and a t much lower
prices k n o w i n g i t was excess.
Now, you just have a very difficult exercise i n ethics and business
m o r a l i t y t r y i n g to decide what are the relative rights o f the parties.
I f I buy excess gasoline at a much lower price k n o w i n g i t is excess,
what k i n d of a historic track record does t h a t give me a r i g h t to—
the same bundle o f rights t h a t a contract buyer t h a t was paying a
premium, y o u m i g h t liken i t to an insurance premium because one
of the things he was b u y i n g was continuity o f supply ?
When, f o r the first time, i t has become important, there are those
who say even though you paid f o r continuity—now you cannot have
it. So, I do t h i n k y o u have got to make those distinctions.
T h i s is a question t h a t you must deal w i t h and not gloss over.
T h a n k you very much.
Senator MCINTYRE. The b i g oil companies I take i t or the majors,
they are pretty well represented, and I am sure t h a t their arguments
on t h a t basis w i l l be heard. B u t I am delighted to have you mention
them. I said at the beginning we want f a i r and open hearings. L e t
me move on here quickly to M r . Deutseh.
M r . DEUTSCII. I b r i n g to you the facts of what is happening i n
I l l i n o i s and the U p p e r Midwest.
The gasoline situation is daily getting worse out there. Y o u r State
governments are beginning to scream now because, when they go out
asking f o r contracts f o r t h e i r gasoline allotments f o r the coming
year, they are quickly t o l d t h a t nobody w i l l b i d and no bids come in.
I noticed yesterday as I was coming down on the plane, the State
of Missouri was getting worried on how they were going t o fuel
their police cars—-unless they went into service stations w h i c h means
they would have to appropriate more money.
I n I l l i n o i s we are going t o lose about a h a l f - b i l l i o n gallons b y
June 1 o f the market. The jobber market is a l i t t l e over 2 b i l l i o n
gallons. T h a t means one-quarter o f the market is going to be gone
out of a 5-billion market.
T h i s was the figures f r o m last year. W h a t I have done is to put
together the companies t h a t have either already l e f t I l l i n o i s , that are
planning to leave, or the ones t h a t are going to be gone by June 1.
There are three segments i n there because some have announced,
like G u l f t h a t they w i l l not leave u n t i l the end o f the year.
210
A l r e a d y we have lost T r i a n g l e Refineries, C l a r k O i l , and sections
of Cities Service and Sun O i l . So we are a h a l f - b i l l i o n short i n
I l l i n o i s r i g h t now when the first of June hits.
F r o m there on, i t is going to be rough because r i g h t now they are
t r y i n g t o allot enough product to the farmers.
The only t h i n g t h a t has been saving them out there, l i k e the w a r m
weather saved the w i n t e r on the heating oil, the heavy rains t h a t we
have been h a v i n g out there have kept the farmers f r o m g e t t i n g i n t o
the fields.
Last week they got into the fields f o r 5 days before the weekend
of r a i n started i n again. R i g h t quickly we began t o get calls f r o m
farmers. The States have a hotline w h i c h the farmers call i n on.
They, i n t u r n , call us. I can tell you t h a t hotline was h o t o n F r i d a y
and Saturday.
I n fact, they kept i t open on Saturday. These farmers are h a v i n g
a h a r d time getting product to do t h e i r s p r i n g p l o w i n g , the p l a n t i n g
of crops.
I n fact, w i t h the lateness of the season, a l o t of them are overlooking the p l o w i n g and they are doing what is called c u t t i n g and
planting, because they do not have the time to do w h a t they should
do.
N o t only i n I l l i n o i s but the entire upper Midwest.
[ T h e complete statement of National O i l Jobbers Council f o l l o w s : ]
STATEMENT
OF "ROBERT
SCHRIMPF,
CHAIRMAN,
GASOLINE
COMMITTEE,
NATIONAL
O I L JOBBERS C O U N C I L
M r . Chairman. I would l i k e to commend you and your colleagues f o r h o l d i n g
t h i s much needed hearing. I am appearing here today on behalf of the 13,000
small businessmen f r o m the 48 continental states who sell approximately 25%
of the nation's automotive gasoline and 75% of its f u e l o i l requirements. As
you know, the extreme shortage of supply of gasoline, diesel f u e l and number 2
heating oil being currently encountered by small business d i s t r i b u t o r s constitutes an increasingly serious problem t h a t i n many instances is already at the
s u r v i v a l level.
A t the present time, an increasing number of oil jobbers find themselves
placed i n a position t h a t suggests they w i l l not be able to survive economically
f o r any prolonged period of time. A number of suppliers are w i t h d r a w i n g f r o m
states or even entire regions of the country. Many suppliers are also c u t t i n g
off i n d i v i d u a l jobbers. T h i s is being done on a basis quite independent f r o m
whether they have been efficient marketers or not, frequently the c r i t e r i o n
p r i m a r i l y relied upon appears to be the net r e t u r n rendered to the supplier. A
smaller jobber is p a r t i c u l a r l y vulnerable to this sort of treatment. Needless
to say, the small t o w n or f a r m customers t h a t he serves w i l l have no a l t e r n a t i v e
source of supply i f he is cut off. I n an aggregate sense, this may w e l l have a
most serious impact upon the nation's a g r i c u l t u r a l sector. M a n y branded jobbers are also being placed on severe allocations which makes i t impossible f o r
Ihem to serve the needs of t h e i r customers. Unbranded small business marketers
are also undergoing considerable difficulty i n obtaining an adequate source of
supply.
To survive, the nation's small business marketers of petroleum products
must have an adequate and continuing source of supply ot a price w h i c h
allows them to be f u l l y competitive. Denied either of these, i t is clear t h a t
thousands of them w i l l perish. The net result of t h i s w i l l be a fantastic added
increment of economic concentration.
Recently, Congress has enacted into l a w a provision f o r the allocation of
petroleum products to prevent undue hardship to any region of the country
and also to prevent anticompetitive effects r e s u l t i n g f r o m c u r r e n t shortages
of petroleum products. Since t h a t time, there has been an increasing p r o l i f e r a tion of new legislative proposals directed towards a solution of current petro-
211
leum d i s t r i b u t i v e problems. I t seems to us t h a t M r . W i l l i a m Simon, C h a i r m a n
of the O i l Policy Committee, has proven both his sincerity and his a b i l i t y . I t
seems to us t h a t i t would be shortsighted, i n the extreme, not to give M r . Simon
and his newly granted powers under the so-called Eagleton Amendment a f u l l
chance a t effecting workable solutions before any f u r t h e r legislation is considered. I t is our thought t h a t there is good reason to suppose t h a t negotiations
between M r . Simon and his very able staff and the nation's integrated refiners
may w e l l result i n a v o l u n t a r y solution which would best serve the public.
I n the i n t e r i m , there is, of course, a number of i n d i v i d u a l cases i n which
suppliers have used indefensible tactics.
I n advocating t h a t no f u r t h e r legislation be enacted u n t i l i t is determined
whether the so-called Eagleton Amendment holds the u l t i m a t e answer to present
difficulties, let me emphasize t h a t we do feel t h a t i t is of p r i m e importance
t h a t the Congress continue its investigations and m a i n t a i n its present intense
level of interest i n this problem. I t may w e l l be t h a t difficulties i n the near
f u t u r e w i l l dictate a speedy response on the p a r t of the Congress i f the public
interest is to be preserved and protected i n this v i t a l area.
The only exception constituting a present need f o r additional legislation
m i g h t be, M r . Chairman, t h a t as Senator Jackson's B i l l suggests i t does not
appear t h a t the present state of the l a w allows the use of the Eagleton Amendment powers on behalf of the public health, safety and w e l l being. I t may well
be t h a t this is an a d d i t i o n which is presently needed to f u r t h e r protect such
v i t a l needs such as hospitals, police departments, fire departments, etc.
W h i l e we are a l l currently absorbed i n the gasoline shortage, let i t not be
forgotten f o r one moment t h a t a l l of the products processed f r o m a barrel
of crude oil w i l l inextricably be interrelated. Let us, by a l l means, insure
t h a t we do not repeat the f o l l y of last w i n t e r and w a i t u n t i l the first snow
has f a l l e n before w o r r y i n g about an adequate supply of heating oil. As you
know, M r . Chairman, much of the genesis of our current shortage of gasoline
may be a t t r i b u t e d to the nation's refineries having to churn out f u e l o i l long
a f t e r the gasoline build-up customarily would have commenced. B y the same
token—a realistic appraisal indicates t h a t one must fear t h a t the need to
supply sufficient gasoline through the summer and early f a l l months may add
greatly to the supply difficulties f o r the heating sector of the i n d u s t r y next
winter.
M r . Chairman, one of the salient points i n v i e w i n g the oncoming heating
season is the d i r e necessity of converting much of the i n d u s t r y and the vast
m a j o r i t y of the nation's electrical u t i l i t i e s f r o m heating o i l to coal. There is,
i n being, technology which renders i t economically feasible w i t h o u t undue
h a r m to a i r quality to consume coal f o r i n d u s t r i a l and u t i l i t y purposes. Make
no mistake about i t — t h e alternative is the consumption of hundreds of millions
of barrels of desperately needed number 2 heating o i l to f u e l the so-called gas
turbine generators f o r electrical utilities. Sadly, this is a most inefficient use
of a scarce resource. T h a t p o r t i o n of the electrical energy so produced which
is consumed f o r space heating produces only a f r a c t i o n a l number of B T U s
which would be produced by applying the same amount of heating o i l directly
to residential heating consumption.
W e are hopeful, too, M r . Chairman, t h a t the A d m i n i s t r a t i o n w i l l see fit to
remove the Western Hemispheric restriction which has done so much to impede
the orderly procurement of heating oil supplies as w e l l as gasoline supplies i n
the wiorld market.
M r . Chairman, the N a t i o n a l O i l Jobbers Council represents both branded and
unbranded marketers. We are hopeful t h a t both may be accorded equitable
treatment by their suppliers. However, i t must be noted t h a t contract buyers—
both branded and unbranded—for decades now have been p a y i n g a much higher
price t h a n those who have bought excess gasoline i n the so-called "spot" market.
Spot buyers were b u y i n g excess gasoline at a most advantageous price w i t h
the f u l l knowledge t h a t should there be no excess, there would be no spot
market. I t seems to us t h a t you have a most difficult exercise i n ethics and
business m o r a l i t y to determine the degree to which i t is m o r a l l y defensible to
invade the subsisting contract of a small businessman who has p a i d a distinct
premium f o r its continuing existence i n order 10 supply those who currently find
that shortages have dried up previously existing supplies and thereby the spot
market. F u r t h e r , both the Congress and the A d m i n i s t r a t i o n are confronted w i t h
substantial constitutional questions as to the degree to which subsisting con-
212
tracts can be abrogated o r abridged w i t h o u t the declaration o f a n a t i o n a l
emergency.
I t is most difficult f o r us today t o q u a n t i f y the hardships being encountered
by oil jobbers throughout the nation. W e do k n o w t h a t they are extremely
serious, t h a t they exist n a t i o n a l l y i n the truest sense of the wtord and t h a t they
are increasing rapidly. Currently, we are i n the process o f receiving returns
to a questionnaire circulated several weeks ago which should a l l o w us t o give
you a r a t h e r precise profile of our members' supply difficulties. W e w o u l d ask
permission, M r . Chairman, t h a t we be allowed t o submit this as soon as the
returns are received and tabulated—hopefully, f o r inclusion i n y o u r record,
but a t any rate, f o r such use as may appear appropriate i n y o u r judgment.
A f u r t h e r point t h a t requires extensive study and action by the Congress is
the enlarging of the supply of crude by approving a pipeline route f r o m the
n o r t h e r n slope o f Alaska. Many feel t h a t the so-called alternate route t h r o u g h
the McKenzie Valley i n Canada is preferable to the western route. A t any rate,
however, i t i s clear t h a t undue delay is indefensible. W e also w i s h t o urge
upon y c u the g r a n t i n g of such incentives to the refining sector o f the i n d u s t r y
as may be necessary to achieve increased exploration, production and refining
capacity. T h i s includes such specifics as the encouragement of offshore d r i l l i n g
w i t h adequate environmental safeguards and the establishment o f superports.
I t is also imperative t h a t the Cost of L i v i n g Council a l l o w the price o f petroleum products t o increase t o a degree w h i c h w i l l reestablish the relationship
of domestic prices t o the w o r l d price. A t a m i n i m u m , i t is clear t h a t a t the
earliest possible time w o r l d prices must be allowed t o be averaged w i t h the
domestic prices. Otherwise, different sets o f consumers w i l l be confronted w i t h
substantially different prices f o r the same commodity.
Recently, a number o f suppliers have imposed d i s c r i m i n a t o r y price increases
upon jobbers w h i l e leaving t h e i r own r e t a i l prices unchanged. T o impose a
price increase a t the wholesale level w h i l e leaving the price t o retailers unchanged is actually an erosion o f the wholesalers' margin. Suppliers should n o t
be allowed to single out one class of customer f r o m a commodity classification
to increase t h e i r net realization of profit. I f they are going t o raise the price
of gasoline or any other commodity, they should certainly be required t o do i t
across the board.
M r . Chairman, wre would l i k e t o t h a n k you and your colleagues f o r t h i s
opportunity t o appear before you a t the t i m e when the s u r v i v a l o f so many
thousands o f small businessmen i n the petroleum i n d u s t r y i s i n the balance.
W e appreciate your interest, your concern and your courage i n p u r s u i n g these
difficult issues. W e shall be happy t o respond t o any questions w h i c h you may
have.
Senator MCTXTYRE. W e call on M r . D o u g Baker of the N a t i o n a l
Self-Service Gasoline Association. M r . Baker, we welcome y o u here,
and M r . J i m Parrish. D o both have statements y o u w i s h to make?
STATEMENT
O FJAMES
R. PARRISH,
MANAGER,
TJ G A S
PRESIDENT
UM,
A N D
GENERAL
INC.
M r . PARRISH. M y name i s J . R.—Jim—Parrish. I am president
and general manager o f U Gas U M , I n c . w i t h headquarters located
i n Denver, Colo. W e have eight self-serve gasoline stations located
i n the States o f Nebraska and W y o m i n g .
I am here on behalf o f myself and t h e N a t i o n a l Self Serve Gasol i n e Association w h i c h has approximately 200 members w h o o w n and
control approximately 9,000 self-service gas stations i n the U n i t e d
States. I am g o i n g t o deviate considerably f r o m m y statement i n the
interest of time and e x p l a i n t h a t one of the reasons I and some o f the
members o f our g r o u p t h o u g h t t h a t I should t e s t i f y is t h a t I a m
probably the littlest operator t h a t w i l l offer any testimony here as
f a r as the size o f business is concerned.
C e r t a i n l y , I am not i n the category w i t h M r . L i c h t m a n o r the
gentleman f r o m Alabama, although o u r ^problems are the same.
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I w o u l d l i k e to e x p l a i n t h a t i n m y o w n situation t w o o f m y stations
i n Eastern Nebraska w i l l p r o b a b l y be closed before I r e t u r n f r o m
these hearings f o r lack of product.
I have made a t t e m p t s t o secure supply f o r those stations. One o f
t h e m j u s t opened f o r business less t h a n 6 months ago, o n October 20.
I have a $91,000 mortgage indebtedness on i t , a n d because o f m y
testimony here, i f i t gets t o m y banker back i n Nebraska, I a m sure
he is g o i n g t o be c a l l i n g some loans on me. T h a t is a r i s k t h a t I h a d
to take.
A d d i t i o n a l l y , on the 20th o f this month, I w i l l probably lose m y
assured s u p p l y f o r t w o Western W y o m i n g stations. I have no idea
where I w i l l get a s u p p l y f o r those.
I f I close those, I w i l l be d o w n t o 50 percent i n operation. U n f o r tunately, w i t h the c h a i n of 8 stations, m y cash flow w i l l n o t allow me
to pay the mortgages on the rest of them.
M y w i f e t h o u g h t perhaps I was nuts t o spend $5, $6, $7, or $800
to come d o w n here k n o w i n g I was probably g o i n g broke.
I said, hell, I d i d n o t have any choice.
Senator MCTXTYRE. P u t i t on one o f Arco's credit cards.
M r . PARRISH. I m i g h t do that.
I t should be pointed out f o r the record, I d i d t h i s at l e n g t h i n m y
prepared testimony w h i c h has been submitted, t h a t thousands o f
both large and small operators l i k e myself have never purchased our
gasoline requirements on a contract. W e have, i n fact, as M r . P o t v i n
p o i n t e d out, bought on w h a t is referred t o i n the statement as " r a c k "
pricing.
B u t I w o u l d l i k e to p o i n t out, we were a darned i m p o r t a n t piece
of business t o those refiners f o r t h i s reason: T h e y were able, t h r o u g h
the purchase of people l i k e S I G M A and the gentlemen a t t h i s table,
to r u n t h e i r refineries at a greater degree o f capacity because o f
the product we purchased f r o m them.
T h e y w o u l d n o t have g i v e n i t to us i f they h a d been able to sell i t
t h r o u g h t h e i r o w n branded outlets. T h e o l d law o f the incremental
barrel on profits c e r t a i n l y applied there.
A d d i t i o n a l l y , we d i d buy at a somewhat less price t h a n some o f
the branded t y p e customers of t h e i r own. B u t , I used to be m a r k e t i n g
v
c
ie president o f an independent r e f i n i n g company and i n t h i s part i c u l a r company we made more money on the imbranded o r rack
buyers. F o r w h a t reasons ?
O u r rack -buyers h a d t o f u r n i s h t h e i r o w n transportation. T h e y
delivered p r o d u c t to t h e i r o w n stations whereas branded people have
a f r e i g h t allowance. Rack buyers get no price protection, there is no
advertising expense, no credit card expense. The supplier does not
help pay f o r t h e investment i n station facilities o f rack buyers n o r
spend huge a d v e r t i s i n g expenditures as is done f o r branded stations.
A d d t h a t a l l together and there is significant savings.
W e have i n f a c t p e r f o r m e d a very significant f u n c t i o n f o r the
people who today are c u t t i n g us off.
I do not t h i n k I need to elaborate any f u r t h e r on the importance
o f the independent or p r i v a t e brander to the refiner-supplier. I w o u l d
like to point out our importance t o the consumer.
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I opened one o f m y eight stations 2 years ago, a t an expense o f
about $75,000 i n Rawlins, Wyo., a t o w n o f about 7,000^ people. T h e
p r i n c i p a l p a y r o l l there comes f r o m the State penitentiary and the
U n i o n Pacific Railroad. W h e n I opened there was very l i t t l e independent competition, only a couple o f other independents. I opened
at the independent's p r e v a i l i n g retail price which at t h a t t i m e was
7 cents per gallon underneath a l l the major stations i n town. T h e
m a j o r stations really 'had the b u l k o f the business.
I was tickled t o death to give our customers a 7-cents-a-gallon less
b u y i n g price f o r at t h a t time, and f o r the first 12 months I was i n
business, I s t i l l made 11 cents a gallon. A s k any independent m a n i n
this room i f he could not get wealthy on an i l - c e n t m a r g i n . I was
s t i l l saving tihe consumer 7 cents a gallon.
T h i s shows the impact i n some areas t h a t we have h a d on the consumer's pocketbook.
I mentioned that i n a l l probability I w i l l be out of business very
soon.
I doubt t h a t any suggested corrective actions t h a t have been offered
o r t h a t we w i l l offer is i n t i m e f o r me. T h a t is too bad b u t t h a t i s
m y problem. Maybe I can help some other l i t t l e guy.
Senator M C I N T Y R E . I S i t not true f r o m the day you first started to
t h i n k about going into this self-serve business, y o u were dealing w i t h
the suppliers' excess and t h a t you were always on the outer r i m o f
the perimeter, you w o u l d be the first guy shut off i f there was somet h i n g to happen to the suppliers ?
I n other words, y o u were never a grade-A risk f o r me as an
investor?
M r . PARRISH. I have been i n the gasoline business since the day I
graduated f r o m college, some 20 years ago, and some o f i t was the
s u p p l y i n g end of the business. I have also been a trade association
executive f o r the branded independent oil jobbers. Perhaps I should
have been able to forecast a supply shortage b u t not even the m a j o r
o i l companies were able to forecast t h i s shortage a few months ago.
They were continuing and are today f o r t h a t matter c o n t i n u i n g to
b u i l d branded stations. I f e l t there was no risk. A s recently as last
November, I had people calling—knocking on m y door t o sell me
products.
N o w , I cannot understand i n this computer age t h a t we cannot
forecast—certainly t h a t tihe b i g b i l l i o n dollar companies cannot forecast a l i t t l e more accurately t h a n 6 months and k n o w t h a t we are i n
a supply problem. T h i s over-supply or excess situation has existed
f o r the 20 years I have been i n business and there was no reason to
suspect t h a t i t was ever going t o be any different.
I w o u l d i n v i t e the gentleman f r o m S I G M A as well as the other
private branders to back me up on that.
M y banker certainly d i d not t h i n k i t was a risk. A n d i f I h a d
thought i t was, I assure you m y name would not be personally on
those promissory notes. I wish they were not r i g h t now.
I w i l l w i n d this up shortly.
I have been so alarmed i n the last 60 davs about the fact t h a t I
would probably i n fact go b a n k r u p t t h a t I thought maybe one course
of action was to go back to all the refiners f r o m whom I t r i e d to buy
215
product and offer them fire-sale prices to lease or buy my complete
chain of stations. I have a file i n my brief case w i t h letters f r o m 13
different refining companies t u r n i n g me down. I f e l t i f I could possibly pay m y mortgages and get out whole, I would prefer doing
that, obviously. I d i d not get -a single offer. I d i d have one that took
the time to charter an airplane and go around and look at some of
them w i t h me 2 weeks ago.
I would like to make a point o f disagreement w i t h M r . P o t v i n i n
his statement.
The premium price t h a t the branded jobber d i d pay over what we
" R a c k " buyers have been historically p a y i n g over the years was not
just f o r continuity of supply. A s I pointed out before, u n t i l the last
few months, there was no reason t o even remotely suspect that we
would not have a continuing supply. B u t there were other reasons,
obvious reasons f o r the branded jobbers t o pay more. The brand
acceptance. You, yourself, Senator M c I n t y r e , indicated earlier you
thought we sold lesser quality products.
Senator M C I N T Y R E . Cut rate.
M r . PARRISII. Y O U bet, we are the bad guys i n the black hats.
Senator M C I N T Y R E . A S far as I was concerned, you were.
M r . PARRISII. Y O U are not unique.
Also, f o r the credit cards. A b i g bundle of business is brought t o
retail stations by the fact t h a t people carry credit cards. I take the
bank cards, B a n k America Card—Master Charge, and so on. A n d
certainly there must be some advantage to the tremendous millions
and millions o f dollars t h a t the majors have i n the past, and f o r
reasons I cannot understand, are continuing to spend on advertising.
The answer they give us when they cut us off is we have got a supply
shortage, but they are s t i l l advertising i n the media f o r new business.
O u r recommendations f o r corrective actions have a l l been mentioned here briefly, and M r . Baker has a couple of statements about
his business which apply to these hearings.
I appreciate my chance to come back here and t a l k to you f r o m a
l i t t l e operator's standpoint. A n y t h i n g t h a t can be done w i l l have to
be done a w f u l l y fast. I t can only be done on the executive level t o
be i n time to help me.
T h a n k you very much.
Senator M C I N T Y R E . Y o u r f u l l statement w i l l be put i n the record
i n its entirety.
[ T h e statement of M r . P a r r i s h f o l l o w s : ]
S T A T E M E N T OF J A M E S R. P A R R I S H , P R E S I D E N T A N D G E N E R A L M A N A G E R , U G A S
UM,
INC.
Appearing a t this hearing on behalf o f my company and the N a t i o n a l Self
Service Gasoline Association whose 200 members own and operate approximately 9,000 self service gasoline stations i n 40 States.
Definition of p r i v a t e brand m a r k e t e r :
1. Owns or controls by long t e r m lease—one or more gasoline stations.
2. Utilizes his own brand or trade m a r k — n o t the b r a n d o f a refiner-supplier.
3. Purchases gasoline a n d / o r diesel f u e l on the open market, either directly
f r o m a refiner or petroleum broker.
4. Product i s delivered t o stations by own transport trucks o r commercial
carrier.
2X6
5. A v e r a g e s t a t i o n i n v e s t m e n t w o u l d range f r o m a l o w of $10,000 f o r a s m a l l
t w o (2) p u m p self serve o u t l e t u p to $250,000 f o r some of t l i e l a r g e self serve
or f u l l service t y p e stations.
6. O u r company's average s t a t i o n cost is a p p r o x i m a t e l y $85,000.
1. HISTORY OF PRIVATE BRAND GASOLINE MARKETERS
T h e y h a v e g r o w n i n the l a s t 25 years f r o m a n i n f i n i t e s i m a l m a r k e t p o s i t i o n
t o a p o s i t i o n today where they sell as m u c h as 4 0 % o f the t o t a l i n some geographic markets.
They have performed two very important marketing functions:
A . I m p o r t a n c e t o t h e R e f i n i n g S e g m e n t of t h e I n d u s t r y
1. T h e o i l companies ( b o t h m a j o r s a n d independents) w e r e able t o operate
t h e i r refineries a t a greater percentage of capacity by s e l l i n g to p r i v a t e b r a n d e r s
w h e n they w e r e unable t o m a r k e t t h e i r e n t i r e p r o d u c t i o n t h r o u g h t h e i r o w n
b r a n d e d stations.
T h i s of course p r o v i d e d a g r e a t e r r e t u r n on stock holders investments.
2. Sales to p r i v a t e b r a n d e r s have been q u i t e p r o f i t a b l e f o r t h e refiners f o r
o t h e r reasons, i.e.
A . N o investment i n the p r i v a t e b r a n d e r s m a r k e t i n g outlets.
B . N o b r a n d a d v e r t i s i n g expense.
C. N o p r i c e w a r allowances or discounts.
D . No c r e d i t c a r d expense.
E. N o expensive lessee-dealer o p e r a t o r changes. H i s t o r i c a l l y , gasoline
dealers h a v e h a d one of the w o r s t m o r t a l i t y rates of a l l independent
businessmen i n the U n i t e d S t a t e s — u p w a r d s t o 3 0 % p e r year.
F . No d e l i v e r y expenses.
B. Importance to the Consumer
1. P r o v i d e d q u a l i t y p e t r o l e u m p r o d u c t s a t reduced p r i c e s — t h i s w a s made
possible b y :
A . O r i g i n a t i n g t h e p r a c t i c e of by-passing b u l k storage p l a n t s a n d m a k i n g
l a r g e t a n k car or t r a n s p o r t t r u c k deliveries d i r e c t l y f r o m t h e r e f i n e r y or
pipe l i n e t e r m i n a l s to the r e t a i l stations.
B. O r i g i n a t i n g t h e concept of m u l t i - p u m p stations w i t h l a r g e d r i v e s
w h i c h made f o r g r e a t e r s t a t i o n v o l u m e by speed of service.
C. O r i g i n a t e d the self service gasoline concept w h i c h enabled the p r i v a t e
b r a n d e r to l o w e r M s l a b o r expense a n d pass the savings on t o t h e customer. N o t only d i d the p r i v a t e b r a n d m a r k e t e r o r i g i n a t e t h e idea o f
self service, b u t f o u g h t t h e b a t t l e s w i t h the c i t y , c o u n t y a n d state regul a t o r y agencies i n a n e f f o r t t o get t h e self service concept legalized. T o d a y
t h e r e are only s i x states w h i c h p r o h i b i t self service gas stations. T h i s
w a s done w i t h no help f r o m the b r a n d e d refiners a n d m a n y t i m e s considerable opposition.
D . A n d probably most i m p o r t a n t o f a l l , t h e p r i v a t e b r a n d e r p r o v i d e d
a n aggressive degree of c o m p e t i t i o n i n t h e m a r k e t place w h i c h h a d here-tof o r e never existed.
2. CURRENT PROBLEMS
A . Gasoline a n d diesel supply s i t u a t i o n s f o r p r i v a t e b r a n d m a r k e t e r s i s
c r i t i c a l a n d g e t t i n g worse d a i l y .
1. D u r i n g t h e last 30 days, h u n d r e d s of p r i v a t e b r a n d s t a t i o n s have been
closed due to t h e u n a v a i l a b i l i t y of p r o d u c t .
2. I n c r e a s i n g numbers of o t h e r p r i v a t e b r a n d s t a t i o n s are f o r c e d t o reduce
s t a t i o n o p e r a t i n g h o u r s a n d i n some cases a r e o n l y open f o r business 2 o r 3
days per week.
3. M a n y p r i v a t e b r a n d e r s have h a d t h e i r supplies completely s h u t off by t h e i r
refiner-suppliers.
4. M o s t h a v e h a d t h e i r supplies d r a s t i c a l l y c u t or allocated.
5. T h i s is i n spite of the f a c t t h a t m a n y of these same refiners c o n t i n u e t o
a d v e r t i s e i n t h e t r a d e j o u r n a l s t h a t t h e y h a v e p r o d u c t f o r sale t o t h e p r i v a t e
b r a n d or independent m a r k e t e r . ( Y o u h a v e been f u r n i s h e d sample copies of
t h e i r recent a d v e r t i s e m e n t s ) . M a n y of these refiners c o n t i n u e t o c o n s t r u c t o r
purchase new branded stations, several h a v e d i s c o n t i n u e d use of t h e i r o w n
b r a n d i d e n t i f i c a t i o n a t some of t h e i r stations a n d have u t i l i z e d i n s t e a d som£
u n k n o w n b r a n d t r a d e m a r k such as B l u e Goose, J a c k Pot, Sello, A l e r t etc.—
217
t h e n c u t t h e r e t a i l p r i c e i n a n e f f o r t t o increase volume. S t i l l others are m a k i n g
s i g n i f i c a n t investments i n c a r w a s h i n g equipment so they can offer a f r e e wTash
w i t h gasoline purchases. I t ' s r e a l l y h a r d to comprehend.
B. T h e b u y i n g prices of the p r i v a t e branders a r e s k y - r o c k e t i n g w h i l e a t t h e
same t i m e t h e phase three r e t a i l prices of the top 23 m a j o r o i l companies have
us i n a vice t h a t is squeezing the economic l i f e f r o m us.
1. Y o u w i l l note f r o m the w r i t t e n m a t e r i a l t h a t I have f u r n i s h e d y o u t h a t
m y o w n company has h a d p r o d u c t cost increases f o r gasoline a n d diesel f u e l
r a n g i n g f r o m 21.5% to 59.2% d u r i n g t h e p e r i o d J a n u a r y 1, 1973 t o M a y 1,
1973. Couple t h i s w i t h t h e f a c t t h a t f o r l a s t year m y company's t o t a l gross
p r o f i t was only 21.1% of sales ( d o c u m e n t a r y v e r i f i c a t i o n of t h i s has also been
f u r n i s h e d to y o u g e n t l e m e n ) . Phase T h r e e is a r e a l disaster f o r u s ! ! M o s t
p r i v a t e b r a n d companies a r e experiencing a s i m i l a r squeeze.
C. H o w serious is t h i s o v e r a l l s i t u a t i o n t o m y company U Gas U M ? T w o
of o u r e i g h t stations w i l l be closed as soon as the present p r o d u c t is depleted
f r o m the storage tanks, p r o b a b l y before I r e t u r n f r o m these hearings. Exhaust i v e efforts have been made t o find a n o t h e r supplier b u t to no a v a i l . One of
these was j u s t opened f o r business o n October 20, 1972 a n d has a .$91,000
m o r t g a g e indebtedness against i t . T w o more of o u r stations i n western
W y o m i n g only have a n assured supply u n t i l the 20th of t h i s month. These
also a r e q u i t e h e a v i l y encumbered w i t h mortgages a n d efforts to o b t a i n a
back-up supply have been f u t i l e .
3. SUGGESTED SOLUTIONS : SUPPLY A N D PRICE
A . E i t h e r by a d m i n i s t r a t i v e a c t i o n ( p r e f e r a b l e due to the essence of t i m e )
or by l e g i s l a t i v e a c t i o n there should be i n s t i t u t e d a p l a n p a t t e r n e d a f t e r t h e
" s m a l l business set aside" p r o g r a m used f o r years by the f e d e r a l government
to see t h a t s m a l l independent refiners are g i v e n a chance t o o b t a i n a p o r t i o n
of the government's p e t r o l e u m purchases.
1. A l l refiners should be r e q u i r e d t o offer a specific percentage of t h e i r
refinery p r o d u c t i o n of gasoline a n d diesel f u e l f o r sale to p r i v a t e b r a n d
m a r k e t e r s based upon the percentage of purchases made by p r i v a t e branders
to the t o t a l gasoline a n d diesel sales made by a l l refiners i n the U n i t e d States
d u r i n g a base period such as t h e m o n t h of J u l y , 1972.
2. T h i s " s m a l l business set aside" or " p r i v a t e brander set aside" as I s h a l l
c a l l i t , should be sold a t the s a m e x>rice t h a t each i n d i v i d u a l refiner sells
to i t s branded jobber or wholesale accounts. B y so doing, the refiner w i l l i n
f a c t be m a k i n g a greater p r o f i t on the gallons sold to t h e p r i v a t e brander
since there w i l l be no a d v e r t i s i n g , c r e d i t card, p r i c e protection, delivery
expenses, or s i m i l a r expenses involved.
B. Phase T h r e e of the wage-juice controls should be abolished so t h a t
the p r i v a t e b r a n d e r a n d b r a n d e d independent jobber f o r t h a t m a t t e r , can
recover these a s t r o n o m i c a l p r o d u c t p r i c e increases by a d j u s t i n g the r e t a i l
p r i c e accordingly. T h i s cannot presently be done w h e n t h e 23 largest o i l
companies i n t h e U.S. ( w h o are o u r c o m p e t i t o r s ) a r e f o r b i d d e n to raise t h e i r
selling prices by more t h a n l 1 /^ percent.
C. F i n a l l y , controls or r e s t r i c t i o n s m u s t be i m p l e m e n t e d w h i c h w i l l prevent
t h e l a r g e refiner companies w i t h a l l economic advantages of v e r t i c a l i n t e g r a t i o n
a n d special t a x breaks f r o m c o n t i n u i n g on t h e i r push t o w a r d d i r e c t operated,
p r i v a t e b r a n d stations of t h e i r o w n w h i c h can p r i c e the p r i v a t e branders a n d
independents out of business.
4. CONCLUSION A N D S U M M A R Y
Gentlemen, s m a l l independent business men have been the backbone of t h i s
g r e a t c o u n t r y . Unless our corrective recommendations ( o r others v e r y closely
a k i n to t h e m ) a r e i m p l e m e n t e d i m m e d i a t e l y , v e r y f e w of t h e J i m P a r r i s h ' s
or U Gas U M ' s w i l l be a r o u n d w i t h i n the n e x t 60 days to p r o v i d e the comp e t i t i o n so v i t a l f o r the gasoline c o n s u m e r s ! !
Categorically, i t goes against m y g r a i n as wTell as those f o r w h o m I ' m
speaking t o ask f o r government i n t e r f e r e n c e or r e g u l a t i o n i n o u r business.
W e have no other choice! O u r f u t u r e existence is i n t h e government's hands.
I n closing I w i s h t o advise t h a t any a n d a l l of t h e people i n o u r association
are more t h a n w i l l i n g a n d w o u l d welcome the o p p o r t u n i t y t o assist i n w o r k i n g
out the mechanics of the recommended solutions I have o u t l i n e d above. Please
c a l l on us.
218
U
Gas Urn Inc. profit and
loss
s t a t e m e n t f o r fiscal y e a r A p r . 1 , 1912
M a r . 31, 1973
through
Percent
of sales
T o t a l sales
Cost
Cost
Cost
Cost
Cost
of
of
of
of
of
100
gasoline
motor oil
cigarettes
miscellaneous merchandise
diesel fuel
74.
.
1.
.
2.
T o t a l cost of p r o d u c t s sold
25
41
77
44
02
78. 89
Gross p r o f i t
O p e r a t i n g expenses
21. 10
16. 14
N e t p r o f i t before income taxes
4. 97
INCREASE IN PRODUCT COSTS FROM JAN. 1, 1973 TO MAY 1, 1973
[Costs per gallon are excluding freight and taxesl
Station location
Gasoline cost
Jan. 1,1973
Gasoline cost
May 1,1973
Percent of
increase
Sidney, Nebr„_.
North Platte, Nebr.
Kearney, Nebr
Hampton, Nebr
Cheyenne, Wyo.
Laramie, Wyo
Rawlins, Wyo
$0.13930
.14000
. 13899
.13855
.13750
. 12500
. 12500
$0.16926
.17250
.19701
.18805
.16750
.16650
.16650
21.5
23.2
41.7
35.4
21.8
33.2
33.2
Diesel cost
Jan. 1,1973
Diesel cost
May 1,1973
Percent of
increase
$0.10813
.10813
$0.13500
.17213
26.8
59.2
North Platte, Nebr.
Hampton, Nebr.
APRIL
DEAR
MR.
JIM
PAIIRISH,
U
GAS
U M
INC.,
A l l
of
our
Supplying
19,
1973.
Oil
Com-
panies have changed, or w i l l soon be c h a n g i n g t h e i r c r e d i t policy. P r e v i o u s l y ,
they gave us 1 % T e n D a y T e r m s . T h e i r n e w policy is N E T ; Receipt of I n voice. E f f e c t i v e M a y 1, 1973, we w i l l also change o u r t e r m s t o N E T ; Receipt
of Invoice.
Sincerely,
NORMAN
KELLER,
C l a y t o n P e t e r s e n O i l Co.
NOTES A N D
OPINIONS
B y M a r v i n Reid, M i d c o n t i n e n t E d i t o r
S U P P L I E R S , JOBBERS A N D DEALERS A R E P A S S I N G O N L A T E S T P R I C E
HIKES
Several companies have n o w r a i s e d j o b b e r prices w i t h o u t c o r r e s p o n d i n g
dealer t a n k w a g o n increases. Some e f f o r t , m e a n w h i l e , is being made by j o b b e r s
to pass h i k e s along to dealers w i t h t h e l a t t e r sometimes encouraged t o post
h i g h e r p u m p prices.
T h e line-up of those h a v i n g m a d e j o b b e r - p r i c e increases by l a s t week
included, according to field reports, such m a j o r s as M o b i l , A r c o , C o n t i n e n t a l ,
a n d Shell. T w o independent suppliers, A m e r i c a n P e t r o f i n a a n d D i a m o n d
Shamrock, w e r e r e p o r t e d l y a t t e m p t i n g increases of 0.55$ gal.
I n Corpus C h r i s t i , Tex., M o b i l j o b b e r T . A . H a r r e l l J r . increased tankwagom
prices t o h i s dealers by 1.7$ gal. H i s b u y i n g p r i c e h a d been increased
3.5^ e a r l i e r by M o b i l . H e encouraged h i s dealers to post 2$ h i g h e r prices, a t
35.9$ gal. A f t e r t w o weeks, h i s v o l u m e w a s off 10% w i t h some s t a t i o n s d o w n
219
as much as 35%. Normally, his A p r i l volume increases over March instead of
declining.
T w o volume losses, said IJarrell, l e f t h i m on the short end on profits despite
the price increases to his dealers.
l l a r r e l l could get some relief, however, f r o m considerable strength t h a t
now exists i n the Corpus C h r i s t i market. E x x o n has moved up to 33.9tf,
full-service, or
over where its stations were when Mobil increased its prices.
Also, Shell stations i n Corpus C h r i s t i last week were posting 34.90. up
f o l l o w i n g a 0.f>e increase i n jobber prices. Other majors were posting at 29.9<^,
long considered normal i n Texas, while independents were solid at 29.90Conoco lias increased its jobber price i n Texas
gal. to 14.G50. One jobber
affected by the increase reports re-rail strength i n his m a r k e t has offset the
hike, w i t h his actual m a r g i n now r u n n i n g about 3.50 gal. compared to around
30 gal. over the past t w o years.
COST OF L I V I N G
COUNCIL
RESTRICTIONS
SQUEEZE
SOME
There were reports t h a t other companies m i g h t wish to increase jobber
prices but are caught i n a squeeze by the Cost of L i v i n g Council's restrictions
on 23 companies.
One of these, according to field reports, is Phillips. Some jobbers say t h a t
w i t h this company moving up to 90% of its volume through jobbers, i t can't
raise jobber prices only as Mobil and others have done w i t h o u t exceeding
price increase restrictions.
There was a report, however, t h a t P h i l l i p s as well as others are moving to
get out f r o m under certain unbranded contracts as they expire. Some Phillips
jobbers who buy both branded and unbranded f r o m the company may find
they can get only branded product down the road. Some such unbranded
contracts are reported to be set as low as 12.750, compared to branded jobber
price of 13.G5C. By switching volume to a branded basis. P h i l l i p s can increase
its profits w i t h o u t m a k i n g an actual price increase, jobbers explain.
F i e l d sources reports, meanwhile, t h a t some suppliers and National O i l
Jobbers Council are p u t t i n g pressure on Cost of L i v i n g Council to relax
restrictions so tankwagon prices can be increased.
One report indicates t h a t CLC may not have been aware t h a t prices to
classes of customers, such as jobbers, m i g h t be increased as compared to
across-the-board action. A source says that some w i t h this agency now understand there is a problem. ''Whether they do a n y t h i n g about i t or not is another
matter,'' lie says.
There was some a n t i c i p a t i o n d u r i n g the week t h a t others m i g h t follow
Sun Oil's eastern dealer tankwagon increases, depending on what position
they are i n under CLC rules and any possible relaxing of those rules.
FIIiST-QUARTER
PROFITS
HIT
RECORD LEVELS J
OUTLOOK
KRIGIITKST
YET
Record-breaking first-quarter profit levels are being reported by the m a j o r i t y
of the nation's oil companies. Not only that, many anticipate continuation of
the booming operations throughout the rest of the year. I f this happens, 1973
w i l l probably be the biggest and best year i n petroleum's history.
A t l a n t i c Richfield. Shell, Sohio, Exxon, Marathon, Total, Ashland, Getty
and Sun a l l reported profit increases of 40% or better i n the first quarter. So
d i d American Pet.roUna, Signal and Occidental.
Interspaced w i t h the good news, however, were warnings t h a t the supply
situation could be very t i g h t this summer and next winter. Perhaps Sohio's
Charles Spahr phrased i t best w i t h the comment t h a t " a l l signs point to at
least; five to six difficult years w i t h g r o w i n g dependency on foreign supply
sources."
I t w i l l take years, he said, to find and develop new U.S. oil reserves and to
b u i l d the additional transportation and refining facilities t h a t are needed.
F i r m e r product prices and increased volumes were cited i n most reports
as the prime reasons f o r the spiraling profit levels. I n t e r n a t i o n a l companies
said overseas volumes and prices f o r oil and chemical products also contributed
materially to the splendid first-quarter showings.
Moist oil-company executives expressed hope t h a t the President's recent
energy message would help relieve the energy crunch t h a t is besetting the
U.S. Union Petroleum Corp. of Revere, Mass.. a family-owned corporation and
one of New England's biggest independent wholesaler-retailer of o i l products,
06-18.*?—73
15
220
has been purchased f o r cash by Coastal States Gas Corp., Houston. Tex.
Sellers are Paul D. Kaneb, 30-year-old president and his brother, Richard,
treasurer. Coastal States is a m a j o r producer and transporter of n a t u r a l
gas.
W h i l e principals wouldn't disclose volume, competitors p u t i t a t more
t h a n 250-million gal. a year. Sales are about $75-milllion a year.
Involved i n the sale are Union T a n k e r Corp. (barges), U n i o n W e s t e r n Trade
Corp. (western hemisphere oil purchases), Union O i l T r a d i n g and S h a p i n g
L t d . of Bermuda ( i n t e r n a t i o n a l oil t r a d i n g and shipping) ; Glendale M o r t o n
Petroleum Corp. ( r e t a i l f u e l o i l i n Greater Boston area, and i n New H a m p s h i r e )
and Glen Petroleum Corp. ( r e t a i l f u e l o i l i n southeastern Massachusetts).
The acquisition of U n i o n Petroleum by Coastal States Gas has a number
of other Boston-area independent wholesalers w o r r y i n g . " W e a l l bought f r o m
Coastal States," said one of them, " a n d they've cut a l l of us back."
Sun O i l has come up w i t h a newT w r i n k l e i n allocation systems. Instead of
using last year's gasoline figures, as most companies have been doing, Sun
is looking at each d i s t r i b u t o r , estimating w h a t he should or could be doing
now, then allocating h i m 90% of t h a t total.
The allocation system went i n t o effect last week triggered, a spokesman
said, by r a w m a t e r i a l shortages. I t ' l l apply " t h r o u g h o u t the company and i t s
subsidiaries through a l l channels, i n c l u d i n g dealers, d i s t r i b u t o r s and commercial customers."
E x x o n was about ready last week to open its s i x t h f u l l y self-service station
i n the Dallas-Fort W o r t h area and Sello Petroleum, M o b i l Oil's self-service
subsidiary, has opened a "grass-roots" u n i t i n Dallas.
E x x o n began i t s self-service b u i l d i n g program i n Dallas i n l a t e 1972. F i v e
of i t s six units were b u i l t f r o m the g r o u n d up. The company also has a
number of conventional units i n the t w o cities w i t h split islands offering selfservice.
FIRST-QUARTER NET PROFITS FOR MAJOR OIL COMPANIES (1973)
American Petrofina.
Signal..
Occidental
Atlantic Richfield.
Marathon
Shell
Ohio Standard
Total Petroleum
Exxon
Ashland
Getty
Crown Central
Amerada Hess
California Standard
Pennzoil.
Phillips
Indiana Standard
Gulf
Cities Service
Texaco
Tenneco..
Continental
Mobil
Skelly
Murphy
-
- —
Percent chanj?e
1972-73
Net profits
(millions)
+105
+98
+33
+52
+49.6
+49
+48.3
+45.5
+43.1
+41
+40.9
+40
+34.4
+25
+24
+23.9
+22
+21
+18.7
+17.4
+14.3
+14.4
+11.5
+10.1
+2.5
-1.6
-47.2
$4.7
16.2
8.9
50.3
24.1
80.2
17.5
3.1
508.0
15.9
33.0
49.0
.303
36.7
152.8
19.6
43.4
121.1
165.0
34.4
264.0
53.4
47.5
155.8
9.9
1.9
.889
S T A T E M E N T O F W . D. B A K E R , P R E S I D E N T , H I G H L A N D
PETROLEUM,
INC.
M r . B A K E R . M r . Chairman, I am W . D . Baker. I am president of
H i g h l a n d Petroleum, Inc., and also a, member o f the board of directors of the National Self-Serve Gasoline Association.
221
M y experience goes back to 1941 when I came out o f h i g h school,
w o r k i n g f o r a P h i l l i p s 66 d i s t r i b u t o r . I have been i n gasoline most
of my adult life.
I n 1964 I became engaged i n m a r k e t i n g t h r o u g h Self-Serve. M y
pumps were installed at a convenience f o o d store. I t was the second
o f t h i s t y p e i n the State of Colorado or i n the N a t i o n as f a r as I
know.
One t h i n g I w a n t t o p o i n t out t h a t makes me wonder considerably
about really w h a t is happening, is the f a c t t h a t quite a large number
of the m a j o r s are g o i n g to secondary brands.
These are locations t h a t i n some cases they have b u i l t f r o m the
g r o u n d u p and quite expensive on large pieces of real estate. Others
are stations t h a t are h a v i n g t h e i r m a j o r b r a n d shields removed and
p u t t i n g u p w i t h signs such, as some of these y o u may see around the
country, Swan, B l u e Goose, B u y R i g h t , W a y L o , A l e r t , and other
names o f t h a t nature.
I n some areas as a direct result o f the refiner's r e t a i l i n g sales
increasing, the nonrefiner supply is being reduced.
Senator M C I N T Y R E . D O you mean t h a t the majors h a v i n g , say, a
m a j o r b r a n d now has a secondary b r a n d called S w a n and i t is supp l i e d f r o m one of the majors?
M r .
BAKER.
Yes.
A great many of the majors are now p r a c t i c i n g t h i s t h r o u g h o u t
the U n i t e d States.
Senator M C I N T Y R E . W o u l d Swan be a self-serve station ?
M r . B A K E R . M i g h t be. C e r t a i n l y , I k n o w w i t h P h i l l i p s Petroleum
Co. t h i s is practiced w i d e l y t h r o u g h o u t t h e U n i t e d States and especially i n the western p a r t o f the country.
P r i m a r i l y , self serve i n t h e western p a r t o f the U n i t e d States—
they m a r k e t now generally at prices below the nonrefiner, p r i m a r i l y ,
because we cannot get supply to keep our stations open.
Senator M C I N T Y R E . W h o owns A l e r t ?
M r . B A K E R . Exxon.
Senator M C I N T Y R E . T h a t is the largest ?
M r . B A K E R . I believe so—in the w o r l d .
I w a n t to p o i n t o u t w h a t our m a r k e t i n g s u p p l y is a n d has been.
W e m a r k e t i n seven different States. W e have gone t o a 56 percent
reduction i n Oklahoma, 75 percent i n Colorado, to a 100 percent
cutoff i n I d a h o , 48 percent i n South D a k o t a , 50 percent i n Nebraska
and 75 percent i n Ohio, and K e n t u c k y . I got w o r d the other n i g h t
t h a t we probably do not have any i n O h i o and K e n t u c k y now. I n
some cases, the independent refiner t h a t has possibly one or t w o
refineries—in some cases more—is also p r a c t i c i n g the acquisition o f
n great number of stations at one time, and I feel at the expense of
the nonrefiner, a n d I a m speaking p a r t i c u l a r l y of a refiner i n the
Rocky M o u n t a i n area t h a t recently made notice t h r o u g h the news
media t h a t they purchased 45 stations very recently i n A r i z o n a .
T h a t refiner w h i c h I have been b u y i n g f r o m f o r nearly 2 years
has now reduced m y supply to less t h a n 25 percent o f w h a t I was
b u y i n g f r o m h i m . I am w o n d e r i n g where, really, d i d some o f m y
supply go to.
222
The prices have escalated astronomically. I n some cases our p r i c i n g
i n Oklahoma has gone up 51 percent. I n Colorado, i t went up 8 percent; i n Idaho, 19 percent; South Dakota, 48 percent.
I t h i n k there are t w o things i n addition to w h a t some of these
people have suggested as solutions, such as allocation. A l l o c a t i o n i n
m y opinion is the only way t h a t the independent nonrefiner t h a t is
very competitive i n the industry is going to be saved—by an immediate allocation program. Otherwise he is going to be down the d r a i n
as well as most of our stations and I have been a l i f e t i m e t r y i n g to
create a company that now has 40 stations.
W e are all i n the same boat. W e are going to be flushed down the
d r a i n w i t h no attention f r o m the Government t o help our p l i g h t .
Senator M C I N T Y R E . Y O U seem to intimate that some part of this
shortage is—what I call—contrived. D o you t h i n k h is so?
M r . B A K E R . I t h i n k i t is quite likely, to p u t i t m i l d l y .
Senator M C I N T Y R E . Probably ?
M r .
B A K E R .
Y e s ,
sir.
W h e n a refiner can buy 45 stations, c u t t i n g back his supply to
people such as me and many other nonrefiners, i n the immediate area
of his refinery—buy stations at 45—at a t i m e — I t h i n k this bears
investigation.
Senator M C I N T Y R E . D O YOU want to name names here so we w i l l
know what you are t a l k i n g about ?
W h o bought 45 o i l stations ?
M r . B A K E R . H u s k y O i l Co.
They are an independent refiner w i t h f o u r refineries i n the western
part of the country and one i n Canada.
W e have been b u y i n g f o r over close to 2 years f r o m another sizable
independent but recently, i n the last 2 or 3 years, i t was purchased
by a national meat packing company.
T h i s refiner—one of t h e i r own representatives t o l d me that they
were aggressively pursuing purchasing real estate and erecting brand
new stations—very expensive.
I said " W e l l , i t is nice to know. I hope m y product makes you a
p r o f i t . " Because t h a t is exactly what they are doing. Thev reduced
me to one-third of what we had been b u y i n g f r o m them f o r a long
period of time.
Senator M C I N T Y R E . None of you fellows who were i n this business
ever f e l t you were out on a l i m b to begin w i t h ?
M r .
B A K E R .
N O .
Senator M C I N T Y R E . One of the first things I learned f r o m this
t h i n g — I do not understand how t o t h i s day—is how these terminal
operators can compete w i t h the majors when i t is the majors t h a t
supply them w i t h the product t h a t they compete w i t h .
M r . P O T V T N . There have been some changes. Texaco i n Chicago,
they are c u t t i n g off a l o t of our people. They are b u y i n g up very
quietly 40 stations t h a t the Sun O i l Co. is abandoning since they
ha ve pulled out of that t e r r i t o r y .
Y o u see, i t was indeed a buyer's market a few years ago as w i t nessed by the fact t h a t they sold gas i n such a s t a r t l i n g number of
ways, r a n g i n g f r o m the branded all the way down t h r o u g h sheer
access to a broker.
223
Today i t is the seller's market. T h a t is the message. They can sell
every gallon they make a couple of times. So, what they are doing,
they are p u t t i n g i t where the computer tells them they make the
most money. There have been at least five companies to move out of
the State o f I l l i n o i s . Y o u cannot criticize Company No. 1. I t is a
free enterprise system. W h e n you get down to that bottom line, you
have got a h a l f b i l l i o n gallons w i t h d r a w n . A t this point, sir, there
is a public interest. Certainly, the legislation you have just passed,
that has some countervailing force. There must be something done
to see that the U p p e r Midwest, the Rocky M o u n t a i n pocket does get
the fuel t h a t they must have f o r their v i t a l needs.
Senator M C I N T Y R E . M r . Baker, are you all through?
M r . B A K E R . Just two points. A s f a r as remedies to give considerat i o n to, along w i t h the allocating program t h a t we would like to see
p u t into effect. The nonrefining marketer only should be allowed to
purchase the imported refined motor fuels. A t this time they are not
of much value as f a r as the i m p o r t tickets are concerned, but possibly conditions may change.
Secondly, a greater p o r t i o n of the crude f r o m the Government
leases be allocated t o the independent refiners as some of these other
people have suggested and t h a t is a l l I have to t e l l you.
[ T h e complete statement of M r . Baker f o l l o w s : ]
Statement
of
W.
D.
Baker,
President.
Highland
Petroleum,
Inc.
M r . Chairman, members of the committee, I am W. D. Baker, President
of H i g h l a n d Petroleum, Inc. and a member of the B o a r d of Directors of the
National Self-Service Gasoline Association.
I sincerely appreciate this opportunity to appear before this committee.
My experience i n the marketing of gasoline dates back to 1941 when I
worked for a Phillips 66 D i s t r i b u t o r i n S. W . Missouri,
I n 1064. a f t e r being out of the gasoline business f o r a f e w years, I became
a private brand marketer near Denver, Colorado. I made arrangements w i t h
a small grocery company to let me i n s t a l l three pumps i n f r o n t of their store.
The pumps were controlled by a home b u i l t control system t h a t gave a read-out
of each gasoline sale to the exact cent. T h i s was the second such i n s t a l l a t i o n
i n the Denver Area or i n the United States as f a r as I know. The name
we tagged on this installation was U FiU'em. The i n d u s t r y is now seeing
this type of an i n s t a l l a t i o n or variations of such throughout most of the
United States.
I n the last two or three years we have seen many refiners becoming engaged
in this type of marketing, using the remote control idea w i t h one cashier
to operate the station.
Many major oil companies are t a k i n g down their m a j o r brand shields
and p u t t i n g up secondary brands and removing their dealers or distributors
f r o m stations. A f t e r this, they are able to go to direct selling w 7 ith a salaried
cashier and sell at the same price as the non-refiner's station. T h i s places
the refiner at a much greater economic advantage t h a n the l i t t l e private
brander. Some of the trade names the m a j o r oil companies are coming up w i t h
a r e : Swan, Blue Goose, B u y Rite, W a y Lo, Red Dot, A l e r t etc.
I want to point out t h a t our cut back i n available gasoline supply has been
the f o l l o w i n g : 56% i n Oklahoma; 75% i n Colorado; 100% i n I d a h o ;
47.0% i n South D a k o t a : 50% i n Nebraska; 75% i n Ohio and Kentucky.
While the cost, has gone u p : 51% i n Oklahoma; 7.7% i n Colorado: 19%
in I d a h o ; 47.9% i n South D a k o t a ; 80% i n Nebraska; 8.8% i n Ohio and
Kentucky.
I t is interesting to note t h a t while H u s k y O i l Company w i t h f o u r refineries
i n the United States has drastically cut back gasoline t h a t they had been
m a k i n g available to non-refining marketers (75% i n our case) while j u s t
recently they announced to the news media t h a t they purchased 45 stations
f r o m a non-refiner i n Arizona.
224
Gentlemen I w o u l d l i k e to say t h a t generally speaking n o n - r e f i n i n g m a r k e t e r s
do not w i s h m o r e government i n t e r v e n t i o n , b u t i t is v e r y evident t h a t t h e r e is
no other choice i f the non-refiner is to continue to be a c o m p e t i t o r i n the m o t o r
f u e l m a r k e t place.
I w a n t to p o i n t out t h a t I have personally offered crude o i l t h a t we have
a v a i l a b l e to several refiners t h a t a r e n o t r u n n i n g a t f u l l c a p a c i t y i n hopes
of securing a processing agreement i n w h i c h i n t u r n w o u l d a l l o w t h e m to
sell us some p o r t i o n of the refined p r o d u c t secured f r o m t h i s p r o d u c t . W e
h a v e been advised f r o m t w o d i f f e r e n t independent refiners t h a t they w o u l d
be a f r a i d of r e t a l i a t i o n f r o m m a j o r refiners t h a t w T ould be v e r y d e t r i m e n t a l
t o t h e i r crude b u y i n g p r o g r a m a n d gasoline exchange agreements w i t h such
m a j o r refiners.
Gentlemen I w a n t to offer t h e f o l l o w i n g as possible solutions t o t h e
p r o b l e m t h a t non-refining m a r k e t e r s face today :
1. T h e non-refining m a r k e t e r only be a l l o w e d to purchase i m p o r t e d refined
m o t o r fuels.
2. A g r e a t e r p o r t i o n of crude f r o m government leases be a l l o c a t e d t o indep e n d a n t refiners.
3. A n i m m e d i a t e a l l o c a t i o n p r o g r a m be i n s t i t u t e d t o p r o v i d e t h e nonrefiners per year w i t h an a m o u n t equal t o 12% of t h e m o t o r f u e l the m a j o r
refiners m a n u f a c t u r e d i n J972.
Gentlemen I t h a n k y o u f o r the t i m e a l l o t e d to iny statement.
Highland Petroleum,
Inc.,
Englewood,
Hon. Thomas
Colo.
McIntyre,
Senate Banking Committee,
Senate Office Building,
Washington, B.C.
D e a r S e n a t o r M c I n t y r e , The f o l l o w i n g is a b r i e f r e v i e w showing, by
geographical region a n d supplier, the p r i c e increases a n d p r o d u c t cutbacks
experienced by H i g h l a n d P e t r o l e u m I n c . i n the recent months.
A l t h o u g h the figures s h o w n here affect only one company, t h i s t r e n d is by no
means l i m i t e d to the company, geographical areas or suppliers shown, b u t
reflect w h a t is happening n a t i o n w i d e to the independent m a r k e t e r . N o t e :
M a n y independent m a r k e t e r s h a v e suffered h i g h e r p r i c e increases a n d cutbacks
t h a n shown here.
I f a c t i o n is n o t t a k e n n o w on a l l o c a t i n g refined p r o d u c t s t o t h e p r i v a t e
b r a n d e d n o n - r e f i n e r s , most p r i v a t e b r a n d e r s w i l l suffer b a n k r u p t c y a n d t h e
consumer w i l l suffer g r e a t l y increased prices w i t h t h e loss of t h e c o m p e t i t i v e
p r i v a t e branders.
Sincerely,
Doug Baker,
south
Price
dakota supplier,
increase
4 t h q u a r t e r , 1972:
Regular
Premium
1st q u a r t e r , 1973:
Regular
Premium
T o t a l increase:
Regular
Premium _
Percent
9.1
9.7
36. 2
34.8
48.0
47.9
President.
okc
C u t b a c k by r e f i n e r i n a v a i l a b l e g a s o l i n e
(percent)
A p r i l 1, 1973, no p r o d u c t available.
225
m t . home, i d a h o s u p p l i e r , t r i m b l e
Price
increase
1072:
Regular
Premium
C u t b a c k by r e f i n e r i n a v a i l a b l e
gasoline
Percent
7. 5 M a y 4, 1973, no p r o d u c t available.
G. 4
1st m i a r t e r , 1973:
Regular
Premium
Toti'.l increase:
Regular
Premium
13.1
11. 4
21. 0
18.4
c i n c i n n a t i area supplier, t r i a n g l e
Price
oil
increase
1972:
Regular
Premium
1st q u a r t e r , 1973 :
Regular
Premium
T o i a l increase:
Regular
Premium
refiners
C u t b a c k by r e f i n e r i n a v a i l a b l e g a s o l i n e
Percent T
2 0 J a n u a r y 19<3
___ A p r i l 1973
I—
Percent
.19.3
50. 0
'
5 8 T o t a l cut f r o m December 1972 to
ii 8
A p r i l 1973
59. 9
8. <S
(J. 8
H u s k y O i l Co.,
D e n v e r , Colo., A p r i l 23, 1913.
H i g h l a n d Petroleum, Inc.
39?.:) S . K a l a m a t h S t r e e t
E a g l e wood, Colo.
Gentlemen: O u r forecasts f o r a n indefinite p e r i o d i n the f u t u r e i n d i c a t e a
steady d e t e r i o r a t i o n of our available supplies of gasoline. W e are, therefore,
required to reduce deliveries to y o u r account by 50% of budget p r o j e c t i o n f o r
the m o n t h of M a y , 1973.
l i a s e d on t h i s f o r m u l a , the m a x i m u m q u a n t i t y of gasoline t h a t we shall be
able to make a v a i l a b l e to y o u f o r the m o n t h of M a y , 1973, by o r i g i n p o i n t ,
is as f o l l o w s : t e r m i n a l , Denver. Gallons, 17,500.
Y o u r cooperation i n observing t h i s l i m i t a t i o n is requested. A n y f a i l u r e to
abide by these r e s t r i c t i o n s may result i n c u t t i n g off a l l supplies to y o u r
account.
Very t r u l y yours.
J o h n A. M e r c e r ,
M a n a g e r , P r i v a t e B r a n d Sales.
c i n c i n n a t i a r e a s u p p l i e r , c11a m p l a i n p e t r o l e u m co.
Price
increase
October 1972 t o M a r c h 1973:
Regular
Premium
C u t b a c k by r e f i n e r i n a v a i l a b l e g a s o l i n e
Percent
Percent
20.0
8. 0 Jii u n a r y 1973
8. 0 M a y 1, 1973, no p r o d u c t available.
denver area supplier. h u s k y
Price
increase
1972:
Regular
Premium
1st q u a r t e r , 1973:
Regular
Premium
T o t a l increase:
Regular
Premium
oil
C u t b a c k by r e f i n e r i n a v a i l a b l e g a s o l i n e
Percent
3. 0 M a r c h 1973
3. 6 A p r i l 1973
M a y 1973
4. 0
T o t a l cut f r o m
5. 0
1973 to A p r i l 1973
7. 7
9.1
Percent
48.5
12.5
37. 5
February
75. 8
226
oklahoma
Price
supplier,
increase
4 t h q u a r t e r , 1972:
Regular
Premium
1st q u a r t e r , 1973:
Regular
Premium
T o t a l increase:
Regular
Premium
nampa,
Pricc increase
^
19*2:
Regular
Premium
1st q u a r t e r , 1973:
Regular
Premium
T o t a l increase:
Regular
Premium
okc
C u t b a c k by r e f i n e r i n a v a i l a b l e g a s o l i n e
Percent
8 . 7 J a n u a r y 1972
9. 4
Percent
54.7
40. 0
37. 9
52. 2
50. 9
idaho,
supplier,
trimble
oil
C u t b a c k by r e f i n e r i n a v a i l a b l e g a s o l i n e
(percent)
Percent
4. 0 M a y 4, 1973, no p r o d u c t a v a i l a b l e .
3. 4
12.4
6. 6
16.9
14. 5
M r . S O S T E K . There are two things than can be done: No. 1, the
allocation amendment which the chairman got i n t o the Economic
Stabilization A c t should be mandatory. T h a t is No. 1.
No. 2, the K e n n e d y - H a r t b i l l pertaining to equitable allocation
should be passed as quickly as possible.
T h a t would step things up p r e t t y quickly.
Senator M C I N T Y R E . I have got to close this t h i n g down.
M r . P A R R I S H . I submitted w i t h my w r i t t e n statement a copy of
one of the trade papers which was published the first quarter of
1973, " P r o f i t s of the M a j o r Refining Companies/' and, when I see
i t — I am not sure I brought a round t r i p phu»e ticket—it is ** l i t t l e
tough when you pick out, f o r example, Exxon, the granddaddy of
them all, up 41.3 percent. I t is a difficult t h i n g to comprehend.
Senator M C I N T Y R E . Once in a while, I look at the financial sheet,
1 notice that Mobil or something had a bad year—$540 m i l l i o n were
their profits. Y o u t a l k to the M o b i l stockholders, they like that.
I would like to thank you gentlemen f o r coming here and t e l l i n g
what is going on as you see it. H o p e f u l l y these hearings w i l l culminate i n at least getting the impact of the seriousness of this situation.
I n A p r i l , getting i t home so there w i l l be some saving action, I hope,
we w i l l have to listen to what the majors say. They w i l l be i n tomorrow. Then hopefully, someone has intimated h e r e — I t h i n k i t was
you—that a l l of a sudden, hopefully, the Government people are
t a l k i n g a l i t t l e differently. I t always used to bother me when I asked
to see the man i n charge of oil, t h a t he was accompanied by t w o
fellows who came out o f Louisiana and Texas who grew up i n the
o i l field. I was also h o p i n g i t was somebody f r o m New E n g l a n d .
The other day i t was a man f r o m New E n g l a n d and he was no
more help than the one out of Louisiana or Texas.
W e w i l l recess u n t i l 10 a.m. tomorrow.
[ A t 12:40 p.m. the committee recessed u n t i l 10 a.m., Wednesday,
M a y 9,1973.]
PETROLEUM PRODUCT SHORTAGES
W E D N E S D A Y , MAY 9, 1973
U . S .
C O M M I T T E E
OX
B A N K I N G ,
H O U S I N G
AND
S E N A T E ,
U R B A X
AFFAIRS,
Washington,
D.C.
The committee was convened at 10 a.m., i n room 5302, New Senate
Office B u i l d i n g , Senator Thomas J. M c I n t y r e , presiding.
Present: Senators M c I n t y r e , Johnston, Tower, Bennett, and Brooke.
Senator M C I N T Y R E . The committee w i l l come to order.
Today we enter into our t h i r d day o f hearings on the subject of
the impact of petroleum product shortages on the national economy.
Unless there is some objection, gentlemen, I would l i k e very much to
call as a panel the f o l l o w i n g witnesses: M r . L . G. R a w l , senior vice
president, E x x o n Company, U.S.A., M r . Robert V . Sellers the chairman of the board o f Cities Service Co. (C-itgo), and M r . A n n o n M .
Card, senior vice president o f Texaco.
I f all o f you would come to the witness table at the same time,
this w i l l help us a great deal on our overall time element.
Now, we w i l l allow each of you to testify i n any manner t h a t you
wish. W e w i l l call on M r . Rawl, M r . Sellers, and M r . Card.
STATEMENT
CO.,
OF
U.S.A.;
CITIES
L.
G.
ROBERT
SERVICE
RAWL,
V.
CO.
PRESIDENT,
TEXACO;
PRESIDENT,
TEXACO
SENIOR
SELLERS,
(CITGO);
AND
VICE
PRESIDENT,
CHAIRMAN
ANNON
JAMES
M.
OF
CARD,
PIPKIN,
THE
EXXON
BOARD,
SENIOR
VICE
EXECUTIVE
VICE
M r . P I P K I N . M r . Chairman, may I address m y remarks t o you.
M y name is P i p k i n o f Texaco. M r . Card is here and is prepared t o
testify. I want i t understood t h a t he gives his testimony i n relation
to Texaco and please do not expect h i m to comment on answers given
by other companies about matters i n v o l v i n g their companies. I t is
certainly not an industry presentation—anything representing the
industry that M r . Card w i l l be t e s t i f y i n g to.
Senator M C I X T Y R E . We understand. I t is perfectly acceptable t o
us. I want to welcome you all here and t e l l you t h a t we do appreciate
your coming here. W e realize i t is a very difficult time f o r you, w i t h
conditions changing day by day. W e do need to get on the record
as you see this picture. So I am going to ask first M r . Rawl—we
have your statement. I t w i l l be p u t i n the record i n its entirety. Y o u
can read i t i n its entirety i f you wish, or you can paraphrase a paragraph o r so. W e would appreciate that.
(227)
228
I want' you t o have f u l l o p p o r t u n i t y t o present your testimony i n
your best possible l i g h t . Go r i g h t ahead, M r . Ra.wl.
M r . R A W L . T h a n k you, M r . Chairman. Obviously, I must be i n
the same position as the Texaco witness. I am sure you understand,
sir.
Senator M C I N T Y R E . Yes, sir
M r . R A W L . I am L . G. Rawl, senior vice president of E x x o n Co.,
U . S . A . W e are all aware t h a t the energy situation today i n the
U n i t e d States is very serious. Therefore, I w i l l not d w e l l on emphasizing the importance of the subject. Rather I intend to respond to
the six questions which you addressed i n announcing these hearings.
I have taken the liberty of placing some of the questions i n a different, sequence to facilitate presentation.
F i r s t , however, I would l i k e to discuss some background. T o
understand the supply situation f o r gasoline or any petroleum product i t is necessary to consider the overall U.S. energy situation and
its impact on all petroleum products.
T o t a l petroleum product demand i n the region east of the Rocky
Mountains, where E x x o n U.S.A.'s p r i n c i p a l operations exist, has
g r o w n f o r the last 18 months at an annualized rate o f about 7 percent, which equates to an increase of nearly 1 m i l l i o n barrels per day
each year. T h i s compares to a g r o w t h rate of about 5 percent each
year f r o m 1965 through 1971. The accelerated increase is the result of
a number of factors, i n c l u d i n g : (1) the installation of auto emission
control devices which have significantly reduced engine efficiency and
thereby increased gasoline consumption; (2) an increasing shortage
of natural gas; (3) air emission controls which have restricted the
use of coal, and (4) rlelavs in the startup of nuclear generating capacitv. T h " last three factors, plus restrictions on the use of regular
s u l f u r fuel o i l — i n other words, h i g h s u l f u r fuel oil—have caused a
substantial increase i n demand f o r low s u l f u r fuel o i l and distillate
fuels by industrial and u t i l i t y consumers.
Since 1969, domestic refining capacity serving the country east of
the Rockies has grown at only 350 M b b l / d each year, or less t h a n
h a l f the rate at which product demand has been g r o w i n g over the
same period. B u t even as recently as 1971. U.S. refineries had significant spare capacity, as much 500 M b b l / d per day.
W i t h i n the past- year, however, t o t a l demand caught u p w i t h and
passed total refining capacity. The result is a g r o w i n g d i s p a r i t y
between U.S. product requirements and the capacity of U.S. refineries to make product.
There are a number of reasons f o r the relatively slow pace of
refinery growth. Uncertainties over the f u t u r e structure of i m p o r t
controls coupled w i t h the variable manner i n which the p r e v a i l i n g
imports program was administered tended to i n h i b i t investment i n
refineries. Uncertainty about f u t u r e environmental regulations made
i t difficult to project f u t u r e product quality requirements and demands and f u t u r e refinery emissions standards. A s a result, some
investment decisions on new facilities were deferred. Sites f o r new
refineries became increasingly difficult t o obtain. One east coast State
has prohibited refinery construction by its coastal zone by l a w and
similar legislation is pending i n other States. Investment costs f o r
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r e f i n i n g facilities increased substantially because o f the a d d i t i o n a l
equipment required t o make products meeting extremely stringent
environmental standards and t o control refinery emissions to comply
w i t h established environmental regulations.
T o d a y t h i s g r o w i n g s h o r t f a l l i n r e f i n i n g capacity is aggravated
by the very t i g h t situation i n crude o i l supply. F o r over a year, U.S.
crude p r o d u c t i o n has been operating at f u l l capacity and domestic
p r o d u c t i o n rates have begun to decline.
I h a d a p a r a g r a p h i n here w i t h regard to N o r t h Slope and Calif o r n i a crude and obviously these crudes are seriously needed. Therefore y o u are f a m i l i a r w i t h the problems we have i n g e t t i n g t h e m to
the markets. Because of these developments there is today a significant and g r o w i n g gap btween domestic crude oil p r o d u c t i o n and the
volume o f crude required to fill U.S. refineries. T h i s gap can be
closed o n l y by i m p o r t i n g f o r e i g n crude.
T e n years ago the t o t a l free w o r l d h a d 30 percent spare crude o i l
p r o d u c i n g capacity. T o d a y w o r l d demand f o r o i l is more t h a n twice
w h a t i t was i n t h e early 1960's and spare p r o d u c i n g capacity i n the
free w o r l d has dropped to about 2 percent, or r o u g h l y 1 M b b l / d . A s
a result, o n l y l i m i t e d volumes of f o r e i g n crude are available.
Concurrent w i t h the disappearance of w o r l d w i d e spare p r o d u c i n g
capacity, f o r e i g n crude prices have risen r a p i d l y and c u r r e n t l y
f o r e i g n crude delivered i n this country is h i g h e r cost t h a n domestic
crude. I n a l l likelihood, f o r e i g n crude w i l l continue t o be at least as
expensive i n the U n i t e d States as domestic crude. A n d most outlooks
indicate that w o r l d w i d e crude supplies w i l l remain very t i g h t f o r the
foreseeable future. F u r t h e r com pi i eating: this prospect is the fact that
the l i m i t e d spare f o r e i g n supplies available are p r e d o m i n a n t l y relat i v e l y h i g h s u l f u r crudes.
T h e next p a r a g r a p h discusses the problems as to r u n n i n g h i g h s u l f u r crude i n t h e domestic refineries. I w i l l proceed to discuss quest i o n No. 1.
The causes behind the gasoline shortage—committee question 1.
A s I have explained, t h e N a t i o n is i n a situation where domestic
r e f i n i n g capacity is insufficient to meet product demand. T h i s situation w i l l be f u r t h e r aggravated i n the months ahead i f the r e f i n i n g
capacity t h a t does exist is not f u l l y used.
T o maximize t h e use of available r e f i n i n g capacity, i m p o r t s of
l o w - s u l f u r crude are needed t o compensate then f o r the s h o r t f a l l
crude U.S. production. B u t the great p a r t of the crude o i l t h a t is
available outside the U n i t e d States has a h i g h s u l f u r content.
F u r t h e r c o m p l i c a t i n g t h e s i t u a t i o n on the supply side is the fact
t h a t gasoline inventories east o f t h e Rockies are lower t h a n thev were
a year ago. T h i s is t h e case i n spite of the f a c t t h a t p r o d u c t i o n o f
gasoline, as well as distillates was h i g h e r this past w i n t e r t h a n i t was
i n the w i n t e r of 1971-72.
A s t h i s i n v e n t o r y s i t u a t i o n suggests, demand f o r m o t o r gasoline
is g r o w i n g r a p i d l y . I n t h e first quarter o f t h i s year, gasoline consumption east o f the Rockies was about 6 percent h i g h e r than i t was
i n the same p e r i o d a year ago. T w o factors t h a t are clearly cont r i b u t i n g to t h i s increase i n demand are the general u p t u r n i n the
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economy and the relatively h i g h consumption of new cars due to
the emissions control devices t h a t I mentioned earlier.
Furthermore, as I understand i t now, new car sales were up i n the
first quarter 20 percent or so. U n d e r these circumstances i t is clear
t h a t substantial imports of finished gasoline and heating o i l w i l l be
required t o meet U.S. demands. T h i s year, at least, there is some
capacity i n overseas refineries to manufacture products f o r shipment
to the U n i t e d States.
B u t i t needs t o be recognized t h a t the supplies which appear to be
available f r o m overseas refineries are less reliable t h a n domestic supplies. The logistical system required t o i m p o r t f o r e i g n products and
crudes is l o n g i n terms o f distance and complex i n terms of coordination.
T h e availability o f supplies is subject t o unexpected change. T h i s
can happen as a result not only of unforeseen increases i n foreign
demand b u t also unilateral actions on the p a r t o f foreign governments.
I n addition, petroleum products made abroad do not always meet
U.S. environmental specifications; f o r example, most offshore heating
o i l is higher i n s u l f u r content t h a n U.S. heating oil.
F u r t h e r m o r e the octane of available foreign gasoline on the average is lower t h a n the required f o r satisfactory performance i n U.S.
automobiles.
F o r example, foreign heating o i l probably averages out about a
h a l f percent s u l f u r w i t h the requirement i n the Northeast being a
m a x i m u m of two-tenths percent.
Foreign refineries are designed to produce relatively large fields o f
distillates and fuel o i l as compared to gasoline.
I t h i n k I can skip the next paragraph. I t talks about the balance
barrel, the problem when you secure supplies on a foreign circuit, you
also have t o make arrangements t o dispose of the rest of the barrel
which is a significant problem t o the system.
F i n a l l y , w i t h phase I I I price controls i n effect i n the U n i t e d States
the fact t h a t the prices of foreign products have increased and now
are generally higher t h a n U.S. prices w i l l be a complicating factor.
Now, I would like t o t u r n to committee question No. 5 w h i c h is
closely related to the first.
A n d i t concerns the impact of gasoline shortages on other petroleum products. There are t w o significant variables t h a t make i t extremely difficult to assess how the t o t a l production capacity of domestic refineries w i l l be distributed among i n d i v i d u a l products.
The first of these I have already discussed, this is the overall availa b i l i t y of foreign crude and products.
The second variable is the a b i l i t y of the U.S. refiner to change the
amount of any particular product made w i t h i n the t o t a l slate. F o r
example, gasoline yields generally can be varied up to 5 percent o f
the t o t a l crude processed.
As more gasoline is made, usually less distillates are made and vice
versa. T h i s flexibility varies f r o m one refinery t o another and f r o m
one company to another.
I n theory, this m a n u f a c t u r i n g flexibility is employed, i n conjunct i o n w i t h the management of inventories, to meet current demands
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while at the same time preparing to satisfy the requirements of
coming months.
B u t i n practice, a refiner may find himself obliged to use up so
much of his flexibility i n h a n d l i n g an immediate problem of unexpected h i g h demand i n one product t h a t he adversely affects his
ability to meet requirements f o r another product some months later.
These variables w i l l , i n good measure, determine the impact that
gasoline shortages w i l l have on other products this year and on home
heating o i l supplies next winter.
E x x o n U S A ' s domestic refining operations represent only 8 percent of the U.S. o i l industry. I cannot predict w i t h any real confidence what other companies w i l l be able to do about imports or how
conditions w i l l dictate they use their refining flexibility. A s a result,
there is really no way I can assess w i t h much accuracy the impact
of the gasoline situation on other products on an industrywide basis.
I can, however, outline m y own company's outlook.
O u r current assessments indicate -that E x x o n U S A ' s supplies of
gasoline, heating oil, and other distillates this year w i l l enable our
company t o provide volumes of these products to each group of customers equal to 1972 sales plus some -allowance f o r g r o w t h in 1978.
B u t i t should be understood t h a t this supply outlook f o r E x x o n
U S A depends entirely on the company continuing to be able to operate its refining facilities at as close t o capacity as possible—which i t
is currently doing—and h a v i n g here the access to imports which it
currently projects.
Obviously, unanticipated shutdowns of major refinery units, interruptions or reductions i n availability o f either domestic or foreign
crude, problems i n access to overseas products, or other unforeseen
operating difficulties could adversely affect our supply capability.
The generally t i g h t supply situation in the U.S. petroleum industry
is imposing abnormal demands on E x x o n U S A .
F o r example, some customers are requesting additional supplies to
offset supplies unavailable to them f r o m other t r a d i t i o n a l sources.
I n addition, many consumers are seeking replacement fuels f o r curtailed natural gas. U n d e r these circumstances of overall t i g h t supply,
we believe our p r i m a r y obligation is to serve our existing customers.
W e w i l l distribute the specific supplies we have available to each
group of customers i n basically the same proportion as we have i n
the recent past. Customers i n each group w i l l be treated f a i r l y . As we
now see our situation, i t is unlikely t h a t we w i l l have the capability
to supply potential new customers.
I would like now to address committee questions 4 and 6 which are
related. So I w i l l discuss them together.
"What steps can be taken to avoid such shortages i n the future and
the effect of the recently announced phaseout of the quota system.
The President's energy message provides an encouraging sign that
the need f o r governmental action has been recognized. Changes that
have been made i n the imports program should do much to encourage
the construction of new refinery capacity i n the U n i t e d States. O f
course, environmental considerations w i l l have an effect on the implementation of plans f o r additional capacity.
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These are not only emission types o f regulations, but certainly the
siting problem is s t i l l a very serious one.
The new p r o g r a m also permits access to the product imports
needed to supplement domestic supplies but, as I have suggested
earlier, this, i n itself, probably w i l l not be sufficient so long as foreign
products f a i l to meet the U.S. environmental a n d performance standards.
E n v i r o n m e n t a l actions d u r i n g the past 4 or 5 years have b a d a
great impact on the Nation's system of energy supply. U n f o r t u n a t e l y ,
this cause and effect has gone largely unrecognized.
U n t i l recently, the country's energy system has managed t o absorb
the additional increased demand t h a t has resulted, b u t i t can do so
no longer. Today all the flexibility we have enjoyed i n past years is
gone f r o m our fuels supply system and i f the U n i t e d States continues
f o r the next 4 years ns it has f o r tho past 4, the effect conM be
extremely serious. I n its concern f o r the condition of the environment, many i n the N a t i o n have overlooked the ways i n w h i c h environmental actions have affected energy s u p p l y ; now, the coin must be
turned and more attention must be given to p r o v i d i n g a better balance between the two.
I should emphasize t h a t my company clearly recognizes the need
f o r the N a t i o n to set goals f o r environmental improvement. A s i n d i viduals and as a company we are supportive of the view that protection o f the natural environment is desirable. W e endeavor to conduct all our operations accordingly. W e have made and w i l l continue
to make the investments required 'to meet environmental standards.
W e have modified our operating procedures and 'practices to t h a t end
and w i l l continue to do so.
B u t the p o i n t I wish t o make is t h a t i t seems t o us t h a t the time
has come when the country needs t o take a second look at its timetable f o r environmental improvement. W e do not suggest t h a t environmental goals be abandoned.
W h a t we do suggest is t h a t the energy supply situation is sufficiently severe t h a t consideration should be given to t a k i n g more time
to reach ultimate air quality goals. T h i s w o u l d n o t mean r e t u r n i n g
to the air-emission levels experienced i n the late sixties; i t w o u l d
simply mean t h a t the N a t i o n would not go quite so f a r quite so fast.
W e would suggest t h a t as the N a t i o n reexamines the need f o r a
more balanced look at enengy and the environment, certain specific
areas should be examined t o see i f temporary relaxations are not i n
fact warranted.
E x x o n U.S.A.'s recommendations concerning l o n g t e r m solutions
to the energy problems of the N a t i o n were reviewed recently by
Randall Meyer, president of E x x o n Co., U.S.A. i n testimony before
the Senate Committee on the I n t e r i o r and Insular Affairs. I have
filed a copy o f this testimony f o r the record.
N o w . I would like to t u r n to question 2 of the committee—the
effect gasoline shortages w i l l have on the Nation.
I t h i n k i t is self evident t h a t the effect of gasoline shortages w i l l
depend on their magnitude. M i n o r shortages, i f they occur, w i l l
obviously result i n inconvenience t o motorists. B u t , i t is generally
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recognized t h a t there is significant discretionary components i n
motor gasoline demand.
W e would expect that even some modest reduction i n discretionary
consumption could be sufficient to relieve minor shortages. Each
motorist can probably afford to drive fewer miles w i t h o u t materially
i m p a i r i n g the quality of his life.
B y the same token, each of us can make a contribution to the
reduction i n gasoline demand by using his automobile more efficiently
when we do drive. A number of o i l companies already are recommending conservation of gasoline t o the m o t o r i n g public. I n this
same vein, we f u l l y support the emphasis given energy conservation
and wise use of energy by the President i n his recent energy message
to the Congress.
H o w great the magnitude of gasoline shortages actually w i l l be
w i l l depend on at least f o u r factors.
F i r s t , the actual level of U.S. consumers' demand f o r gasoline i n
the months ahead. I n good measure, this w i l l depend on how the
d r i v i n g public of the U n i t e d States perceives the situation and, as
individuals, decide to adjust their d r i v i n g habits.
Second, the ways i n which the many i n d i v i d u a l o i l companies
manage their operations.
T h i r d , actions by the Federal Government on price controls and
by Federal, State and local governments concerning environmental
standards.
F o u r t h , potential actions by foreign governments and the actual
supply availability situation i n the foreign countries to which the
U n i t e d States must t u r n f o r increasing volumes of crude o i l and
petroleum products.
B u t , when we i n E x x o n U.S.A. take all these considerations into
account, we conclude t h a t such shortages as occur this summer probably w i l l be scattered, temporary and relatively minor. B u t , individuals and businesses which are directly affected may well feel that
they are encountering serious problems.
I f major shortages occur, major actions t o cope w i t h the situation
w i l l be required. Against this possibility, contingency plans should
be developed by Government. B u t such plans need to be carefully
thought out and implemented only i n the event o f major gasoline
supply problems. The effect on the economy of the dislocations that
could result f r o m an ill-considered government allocation program
could well be more severe than the effect o f the shortages themselves.
To complete my testimony, I would like to comment on committee
question Xo.
which relates to the impact of shortages and competii ion.
A s I said earlier, E x x o n U.S.A. has publicly stated its commitment
to provide the motor gasoline, heating o i l and other distillate fuels
we have available to each group of customer i n basically the same
proportions as we have i n the recent past.
A s I indicated, we believe our first obligation is t o serve our existi n g customers i n whatever group they f a l l . I n the broad context of
the question the committee had asked, we believe this is a responsible
approach.
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The petroleum i n d u s t r y is extremely competitive. There are many
participants, both w i t h i n the U.S. industry and, now w i t h i n the
foreign petroleum industry, who are involved i n s u p p l y i n g the U n i t e d
States w i t h petroleum products. Few other major industries i n the
w o r l d have as diverse or as large a number of competitors.
There are great numbers of h i g h l y active and h i g h l y competitive
companies i n each phase of the petroleum industry—producing, refining, transportation and marketing. One i m p o r t a n t factor w h i c h w i l l
tend t o ensure t h a t competition w i l l remain healthy w i t h i n the U.S.
o i l industry is t h a t many competitors w i l l take the view t h a t the
period of t i g h t supply w i l l not continue indefinitely. W i t h this i n
m i n d , they w i l l recognize t h a t the value of their business i n the long
r u n w i l l depend on retaining the goodwill of their customers. W e
w o u l d expect they w i l l conduct t h e i r business accordingly.
M r . Chairman, thank you f o r this o p p o r t u n i t y to present these
views.
Senator MCINTYRE. T h a n k you, M r . Rawl.
W e w i l l go r i g h t ahead to M r . Sellers.
[ T h e complete statement of M r . R a w l f o l l o w s : ]
Statement
of
L . G. R a w l ,
Senior Vice President, Exxon
sion of E x x o n Corp.)
Co., U . S . A .
(A
Divi-
introduction
M r . C h a i r m a n , I a m L . G. R a w l , Senior V i c e President of E x x o n Company,
U.S.A. W e are a l l a w a r e t h a t the energy s i t u a t i o n today i n the U n i t e d States
is v e r y serious. Therefore, I w i l l n o t d w e l l on e m p h a s i z i n g the i m p o r t a n c e
of t h e subject. R a t h e r I i n t e n d to respond to the s i x questions w h i c h y o u
addressed i n a n n o u n c i n g these hearings. I have t a k e n t h e l i b e r t y of p l a c i n g
some of the questions i n a d i f f e r e n t sequence to f a c i l i t a t e presentation.
F i r s t , however, I w o u l d l i k e t o discuss some background. T o u n d e r s t a n d t h e
supply s i t u a t i o n f o r gasoline or any p e t r o l e u m p r o d u c t i t is necessary t o
consider the o v e r a l l U.S. energy s i t u a t i o n a n d i t s i m p a c t on a l l p e t r o l e u m
products.
T o t a l p e t r o l e u m p r o d u c t demand i n ithe r e g i o n east o f t h e R o c k y Mountains, w h e r e E x x o n U S A ' s p r i n c i p a l operations exist, has g r o w n f o r t h e l a s t
18 m o n t h s a t a n annualized r a t e of a b o u t 7 % , w h i c h equates to a n increase
of n e a r l y a m i l l i o n b a r r e l s per day each year. T h i s compares t o a g r o w t h
r a t e of about 5 % each year f r o m 1965 t h r o u g h 1971. T h e accelerated increase
is the r e s u l t of a n u m b e r of factors, i n c l u d i n g (1) t h e i n s t a l l a t i o n of a u t o
emission c o n t r o l devices w h i c h have s i g n i f i c a n t l y reduced engine efficiency
a n d t h e r e b y increased gasoline consumption, (2) a n i n c r e a s i n g shortage of
n a t u r a l gas, (3) a i r emission controls w h i c h h a v e r e s t r i c t e d t h e use o f coal,
a n d (4) delays i n the s t a r t - u p of nuclear g e n e r a t i n g capacity. T h e l a s t t h r e e
f a c t o r s , p l u s r e s t r i c t i o n s on t h e use of r e g u l a r s u l f u r f u e l oil, h a v e caused
a s u b s t a n t i a l increase i n demand f o r l o w s u l f u r f u e l o i l a n d d i s t i l l a t e f u e l s
by i n d u s t r i a l a n d u t i l i t y consumers.
Since 19G9, domestic r e f i n i n g capacity s e r v i n g the c o u n t r y east, of t h e Rockies
has g r o w n a t only 350 M B / D each year, or less t h a n h a l f t h e r a t e a t w h i c h
p r o d u c t demand has been g r o w i n g over t h e same period. B u t even as recently
as 1971, U.S. refineries h a d s i g n i f i c a n t spare c a p a c i t y — a s m u c h as 500 M B / D
per day. W i t h i n the past year, however, t o t a l demand c a u g h t u p w i t h a n d
passed t o t a l r e f i n i n g capacity. T h e r e s u l t is a g r o w i n g d i s p a r i t y between U.S.
p r o d u c t r e q u i r e m e n t s a n d t h e c a p a c i t y o f U.S. refineries t o m a k e p r o d u c t .
T h e r e are a n u m b e r of reasons f o r t h e r e l a t i v e l y slow pace of r e f i n e r y
g r o w t h . U n c e r t a i n t i e s over t h e f u t u r e s t r u c t u r e o f i m p o r t c o n t r o l s coupled
w i t h the variable manner i n which the prevailing imports program was
a d m i n i s t e r e d tended to i n h i b i t i n v e s t m e n t i n refineries. U n c e r t a i n t y a b o u t
f u t u r e e n v i r o n m e n t a l r e g u l a t i o n s made i t d i f f i c u l t t o p r o j e c t f u t u r e p r o d u c t
q u a l i t y requirements a n d f u t u r e refinery emissions standards. A s a r e s u l t ,
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some investment decisions on new f a c i l i t i e s were deferred. Sites f o r n e w
refineries became increasingly d i f f i c u l t to o b t a i n . One E a s t Coast s t a t e has
p r o h i b i t e d refinery c o n s t r u c t i o n i n i t s coastal zone by l a w , a n d s i m i l a r legislat i o n is p e n d i n g i n other states. I n v e s t m e n t costs f o r r e f i n i n g f a c i l i t i e s increased
s u b s t a n t i a l l y because o f t h e a d d i t i o n a l equipment r e q u i r e d t o m a k e p r o d u c t s
meeting e x t r e m e l y s t r i n g e n t e n v i r o n m e n t a l standards a n d t o c o n t r o l refinery
emissions t o comply w i t h established e n v i r o n m e n t a l regulations.
T o d a y t h i s g r o w i n g s h o r t f a l l i n r e f i n i n g capacity i s a g g r a v a t e d by t h e
very t i g h t s i t u a t i o n i n crude o i l supply. F o r over a year, U.S. crude prod u c t i o n has been o p e r a t i n g a t f u l l capacity a n d domestic p r o d u c t i o n rates
have begun t o decline. A s t h i s is t a k i n g place, one o f t h e largest o i l fields
on t h e N o r t h A m e r i c a n c o n t i n e n t i s locked up o n A l a s k a ' s N o r t h Slope
w a i t i n g f o r the Congress a n d the courts to clear t h e w a y f o r c o n s t r u c t i o n
of 'the T r a n s - A l a s k a n Pipeline. W h a t i s a t stake, of course, is a t least 2
M M B / D of crude o i l supply. O i l development has also been constrained i n
offshore C a l i f o r n i a w h e r e m a j o r discoveries r e m a i n undeveloped i n t h e Santa
B a r b a r a Channel.
Because of these developments there is t o d a y a s i g n i f i c a n t a n d g r o w i n g
gap between domestic c r u d e o i l p r o d u c t i o n a n d the v o l u m e o f c r u d e r e q u i r e d
to fill U.S. refineries. T h i s gap can be closed o n l y by i m p o r t i n g f o r e i g n
crude.
T e n years ago t h e f r e e w o r l d h a d 3 0 % spare c r u d e o i l p r o d u c i n g capacity.
T o d a y w o r l d d e m a n d f o r o i l is more t h a n t w i c e w h a t i t was i n t h e e a r l y
1960's a n d spare p r o d u c i n g capacity i n the free w o r l d has dropped t o a b o u t
2%. A s a result, o n l y l i m i t e d volumes of f o r e i g n c r u d e a r e available.
C o n c u r r e n t w i t h the disappearance of w o r l d w i d e spare p r o d u c i n g capacity,
i n t h i s c o u n t r y is h i g h e r cost t h a n domestic crude. I n a l l l i k e l i h o o d , f o r e i g n
crude prices have r i s e n r a p i d l y a n d c u r r e n t l y f o r e i g n c r u d e delivered crude w i l l
continue to be a t least as expensive i n t h e U.S. as domestic crude. A n d most outlooks i n d i c a t e t h a t w o r l d w i d e c r u d e supplies w i l l r e m a i n v e r y t i g h t f o r the foreseeable f u t u r e . F u r t h e r c o m p l i c a t i n g t h i s prospect is the f a c t t h a t the l i m i t e d
spare f o r e i g n supplies a v a i l a b l e a r e p r e d o m i n a n t l y r e l a t i v e l y h i g h s u l f u r crudes.
M a n y people assume t h a t a l l crude o i l is the same a n d t h a t refineries
can produce any crude oil. B u t the f a c t is t h a t c r u d e o i l characteristics
v a r y w i d e l y a n d each refinery is designed t o process specific types o f crude
w i t h i n a c e r t a i n range. A l a r g e p o r t i o n o f U.S. r e f i n i n g capacity was b u i l t
to use domestic crudes, w h i c h are m a i n l y l o w s u l f u r . Therefore, these refineries have o n l y l i m i t e d capacity to process h i g h s u l f u r crudes. T h e m e t a l l u r g y
of much of t h e i r equipment is inadequate to w i t h s t a n d t h e corrosion caused
by h i g h s u l f u r crudes. I n a d d i t i o n , a low7 s u l f u r refinery c a n n o t produce
products f r o m h i g h s u l f u r crude t h a t meet U.S. e n v i r o n m e n t a l requirements.
F i n a l l y , i n many cases refineries are l i m i t e d i n t h e i r a b i l i t y to process h i g h
s u l f u r crude because they themselves w o u l d generate emissions i n excess of
a i r q u a l i t y standards.
W i t h t h i s background, I w o u l d l i k e to t u r n t o the Committee's questions.
The Causes Behind the Gasoline Shortage (Committee Question 1 )
As I have explained, the naition is i n a s i t u a t i o n w h e r e domestic r e f i n i n g
(capacity is insufficient ito meet p r o d u c t demand. T h i s s i t u a t i o n w i l l be
f u r t h e r a g g r a v a t e d i n t h e m o n t h s ahead i f the r e f i n i n g capacity t h a t does
exist is not f u l l y used. T o m a x i m i z e the use of a v a i l a b l e refinery capacity,
i m p o r t s of l o w s u l f u r c r u d e a r e needed t o compensate f o r t h e s h o r t f a l l i n U.S.
crude production. B u t t h e g r e a t p a r t of the c r u d e o i l t h a t is a v a i l a b l e outside
the U.S. has a h i g h s u l f u r content.
F u r t h e r c o m p l i c a t i n g t h e s i t u a t i o n on the supply side i s the f a c t t h a t
gasoline i n v e n t o r i e s east of the Rockies are lowTer t h a n t h e y were a year
ago. T h i s is t h e case i n spite of the f a c t t h a t p r o d u c t i o n o f gasoline (37
M M B ) — a s w e l l as d i s t i l l a t e s (53 M M B ) — w a s h i g h e r t h i s past w i n t e r t h a n
it; was i n the w i n t e r of 1971-72.
A s t h i s i n v e n t o r y s i t u a t i o n suggests, d e m a n d f o r m o t o r gasoline i s g r o w i n g
r a p i d l y . I n the first q u a r t e r of t h i s year, gasoline consumption east of the
Rockies was about 6 % h i g h e r t h a n i t was i n the same p e r i o d a year ago.
T w o f a c t o r s t h a t a r e c l e a r l y c o n t r i b u t i n g t o t h i s increase i n d e m a n d are
the general u p t u r n i n the economy a n d t h e r e l a t i v e l y h i g h consumption
of new cars due to t h e emissions c o n t r o l devices t h a t I mentioned earlier.
96-183 O - 73 - 16
236
U n d e r these circumstances, i t is clear t h a t s u b s t a n t i a l i m p o r t s o f finished
gasoline a n d h e a t i n g o i l w i l l be r e q u i r e d t o meet U.S. demands. T h i s year,
a t least, there is some capacity i n overseas refineries t o m a n u f a c t u r e p r o d u c t s
f o r s h i p m e n t t o the U.S.
B u t i t needs to be recognized t h a t the supplies w h i c h appear t o be a v a i l able f r o m overseas refineries a r e less r e l i a b l e t h a n domestic supplies. T h e
l o g i s t i c a l system r e q u i r e d t o i m p o r t f o r e i g n p r o d u c t s — a n d c r u d e s — i s l o n g
i n t e r m s of distance a n d complex i n t e r m s of c o o r d i n a t i o n . T h e a v a i l a b i l i t y o f
supplies is subject to unexpected change. T h i s c a n happen as a r e s u l t n o t
o n l y of unforeseen increases i n f o r e i g n d e m a n d b u t also u n i l a t e r a l actions
on t h e p a r t of f o r e i g n governments.
I n a d d i t i o n , petroleum products m a d e a b r o a d d o n o t a l w a y s meet U.S.
e n v i r o n m e n t a l specifications; f o r example, most o f f s h o r e h e a t i n g o i l i s h i g h e r
i n s u l f u r content t h a n U.S. h e a t i n g o i l . F u r t h e r m o r e , the octane o f a v a i l a b l e
f o r e i g n gasoline o n t h e average is l o w e r t h a n t h a t r e q u i r e d f o r s a t i s f a c t o r y
p e r f o r m a n c e i n U.S. automobiles.
F o r e i g n refineries a r e designed to produce r e l a t i v e l y l a r g e y i e l d s o f dist i l l a t e s a n d f u e l o i l as c o m p a r e d t o gasoline. ( W e s t e r n E u r o p e a n r e f i n e r y
gasoline y i e l d is 13.5% o f c r u d e r u n versus U.S. gasoline d e m a n d o f 40.6%
of p e t r o l e u m p r o d u c t s ) . 1 T h i s s i t u a t i o n poses c e r t a i n problems i n i t s e l f .
B e f o r e a f o r e i g n refiner w i l l process a d d i t i o n a l c r u d e o i l t o m a n u f a c t u r e
gasoline f o r shipment to t h e U.S., he w i l l r e q u i r e some assurance t h a t he
also w i l l have a m a r k e t f o r the h i g h e r s u l f u r d i s t i l l a t e s a n d h i g h s u l f u r
f u e l o i l t h a t he m u s t m a k e along w i t h t h a t gasoline. Since overseas requirements f o r these p r o d u c t s a r e satisfied o u t of t h e base level o f overseas
refinery p r o d u c t i o n , the U.S. w i l l need t o p r o v i d e a n o u t l e t f o r t h e m . B u t
e n v i r o n m e n t a l considerations m a y m a k e i t d i f f i c u l t i f n o t impossible t o m a r k e t
these t w o p r o d u c t s i n t h i s c o u n t r y a n d , i n t h i s w a y , l i m i t t h e i m p o r t a t i o n o f
f o r e i g n gasoline.
F i n a l l y , w i t h Phase I I I p r i c e c o n t r o l s i n effect i n the U.S., t h e f a c t
t h a t t h e prices of f o r e i g n p r o d u c t s h a v e increased a n d n o w are g e n e r a l l y h i g h e r
t h a n U.S. prices w i l l be a c o m p l i c a t i n g f a c t o r .
N o w I w o u l d l i k e t o t u r n to C o m m i t t e e Question 5 w h i c h is closely r e l a t e d
t o the first.
T h e I m p a c t of G a s o l i n e S h o r t a g e s o n O t h e r P e t r o l e u m P r o d u c t s
(Committee
Question 5 )
There are t w o significant variables t h a t make i t extremely difficult to
assess h o w the t o t a l p r o d u c t i o n capacity o f domestic refineries w i l l be dist r i b u t e d a m o n g i n d i v i d u a l products.
T h e first of these I have a l r e a d y discussed—this is the o v e r a l l a v a i l a b i l i t y
of forelign crude a n d products.
T h e second v a r i a b l e is ithe a b i l i t y o f t h e U.S. refiner t o change t h e
a m o u n t of any p a r t i c u l a r p r o d u c t made w i t h i n the t o t a l p r o d u c t slate. F o r
example, gasoline yields generally can be v a r i e d u p t o 5 % o f t h e t o t a l crude
processed. A s more gasoline is made, u s u a l l y less d i s t i l l a t e s a r e m a d e a n d
vice versa. T h e flexibility v a r i e s f r o m one refinery t o a n o t h e r a n d f r o m one
company to another. I n t h e o r y , t h i s m a n u f a c t u r i n g
flexibility
is employed,
i n c o n j u n c t i o n w i t h t h e management of inventories, t o meet c u r r e n t demands
w h i l e a t the same t i m e p r e p a r i n g t o s a t i s f y t h e r e q u i r e m e n t s o f c o m i n g
months. B u t i n p r a c t i c e a refiner m a y find h i m s e l f o b l i g e d t o use u p so
much of his
flexibility
i n h a n d l i n g a n i m m e d i a t e p r o b l e m of unexpectedly
h i g h d e m a n d i n one p r o d u c t t h a t he adversely affects h i s a b i l i t y t o meet
requirements f o r a n o t h e r p r o d u c t some m o n t h s l a t e r .
These v a r i a b l e s w i l l i n good measure d e t e r m i n e t h e i m p a c t t h a t gasoline
shortages w i l l have o n o t h e r p r o d u c t s t h i s year a n d o n home h e a t i n g o i l
supplies n e x t w i n t e r .
E x x o n U S A ' s domestic r e f i n i n g operations represent o n l y 8 % of t h e U.S.
o i l i n d u s t r y . I cannot p r e d i c t w i t h a n y r e a l confidence w h a t o t h e r companies w i l l be able t o do abouit i m p o r t s o r h o w c o n d i t i o n s w i l l d i c t a t e t h e y
use t h e i r r e f i n i n g flexibility. A s a r e s u l t , t h e r e is r e a l l y n o w a y I can assess
w i t h m u c h accuracy t h e i m p a c t o f t h e gasoline s i t u a t i o n on o t h e r p r o d u c t s
on a n i n d u s t r y - w i d e basis. I can, however, o u t l i n e m y o w n company's o u t look.
1
See attached typical yield information.
237
O u r c u r r e n t assessments i n d i c a t e t h a t E x x o n U S A ' s supplies of gasoline,
heaiting oil, a n d o t h e r d i s t i l l a t e s t h i s year w i l l enable o u r company t o p r o v i d e
volumes of these products t o each g r o u p of customers e q u a l to 1972 sales p l u s
some allowances f o r g r o w t h i n 1973. B u t i t should be understood t h a t t h i s
supply outlook f o r E x x o n USA depends e n t i r e l y on t h e company c o n t i n u i n g
to be able t o operate i t s r e f i n i n g f a c i l i t i e s a t as close t o capacity as possible—
w h i c h i t is c u r r e n t l y d o i n g — a n d h a v i n g t h e access to i m p o r t s w h i c h i t curr e n t l y projects. Obviously, u n a n t i c i p a t e d shutdowns of m a j o r refinery u n i t s ,
i n t e r r u p t i o n s o r reductions i n a v a i l a b i l i t y of e i t h e r domestic o r f o r e i g n crude,
problems i n access to overseas products, o r o t h e r unforeseen o p e r a t i n g difficulties could adversely affect o u r supply c a p a b i l i t y .
T h e generally t i g h t supply s i t u a t i o n i n the U.S. p e t r o l e u m i n d u s t r y is
imposing a b n o r m a l demands on E x x o n U S A . F o r example, some customers
are requesting a d d i t i o n a l supplies t o offset supplies u n a v a i l a b l e to t h e m
f r o m other t r a d i t i o n a l sources. I n a d d i t i o n , m a n y consumers are seeking
replacement f u e l s f o r c u r t a i l e d n a t u r a l gas. U n d e r these circumstances of
o v e r a l l t i g h t supply, w e believe o u r p r i m a r y o b l i g a t i o n is t o serve our
e x i s t i n g customers. W e w i l l d i s t r i b u t e the supplies we h a v e a v a i l a b l e t o each
group o f customers i n basically the same p r o p o r t i o n as we have i n the recent
past. Customers i n each group w i l l be t r e a t e d f a i r l y . A s w e n o w see o u r
s i t u a t i o n , i t is u n l i k e l y t h a t we w i l l have t h e c a p a b i l i t y t o supply p o t e n t i a l
new customers.
I w o u l d n o w l i k e to address Committee Questions 4 a n d 6.
W h a t Steps C a n B e T a k e n to Avoid, Such Shortages i n the F u t u r e ( C o m m i t t e e
Q u e s t i o n 4 ) a n d T h e E f f e c t of t h e R e c e n t l y A n n o u n c e d P h a s e O u t of t h e
Quota System (Committee Question 6 )
T h e President's E n e r g y Message provides a n encouraging s i g n t h a t t h e need
f o r g o v e r n m e n t a l a c t i o n has been recognized. Changes t h a t h a v e been made
i n the i m p o r t s p r o g r a m s h o u l d do m u c h to encourage t h e c o n s t r u c t i o n of new
refinery capacity i n the U.S. Of course, e n v i r o n m e n t a l considerations w i l l
have a n effect on the i m p l e m e n t a t i o n of plans f o r a d d i t i o n a l capacity.
T h e new p r o g r a m also p e r m i t s access to the p r o d u c t i m p o r t s needed t o
supplement domestic supplies, but, as I have suggested e a r l i e r , t h i s i n i t s e l f
probably w o n ' t be sufficient so long as f o r e i g n products f a i l t o meet U.S.
e n v i r o n m e n t a l a n d p e r f o r m a n c e standards.
E n v i r o n m e n t a l actions d u r i n g the past f o u r t o five years h a v e h a d a great
i m p a c t on the n a t i o n ' s system of energy supply. U n f o r t u n a t e l y , t h i s causeand-effect has gone l a r g e l y unrecognized. U n t i l recently, t h e c o u n t r y ' s energy
system has managed t o absorb t h e a d d i t i o n a l increased d e m a n d t h a t has
resulted, b u t i t can do so no longer. T o d a y a l l the flexibility we have enjoyed
i n past years is gone f r o m our fuels supply system a n d i f t h e U.S. continues
f o r the n e x t f o u r years as i t has f o r the past f o u r , the effect could be
extremely serious. I n i t s concern f o r the c o n d i t i o n o f t h e environment, m a n y
i n the n a t i o n h a v e overlooked t h e w a y s i n w h i c h e n v i r o n m e n t a l actions have
affected energy s u p p l y ; now, the coin must be t u r n e d a n d m o r e a t t e n t i o n
m u s t be g i v e n to p r o v i d i n g a better balance between t h e two. 2
I should emphasize t h a t m y company clearly recognizes t h e need f o r the
n a t i o n t o set goals f o r e n v i r o n m e n t a l improvement. A s i n d i v i d u a l s a n d as
a company we are s u p p o r t i v e of the v i e w t h a t p r o t e c t i o n o f t h e n a t u r a l
e n v i r o n m e n t is desirable. W e endeavor to conduct a l l o u r operations accordi n g l y . W e have made a n d w i l l continue t o make investments r e q u i r e d t o meet
e n v i r o n m e n t a l standards. W e have modified our o p e r a t i n g procedures a n d
practices to t h a t e n d a n d w i l l continue t o do so.
B u t the p o i n t I w i s h to m a k e is t h a t i t seems to us t h a t t h e t i m e has come
when t h e c o u n t r y needs to t a k e a second look a t i t s t i m e t a b l e f o r environm e n t a l i m p r o v e m e n t . W e do not suggest t h a t e n v i r o n m e n t a l goals be abandoned.
W h a t we do suggest is t h a t the energy supply s i t u a t i o n is sufficiently severe
t h a t c o n s i d e r a t i o n should be g i v e n to t a k i n g more t i m e t o reach u l t i m a t e a i r
q u a l i t y goals. T h i s w o u l d n o t mean r e t u r n i n g to t h e a i r emission levels
experienced i n the l a t e 1960's; i t w o u l d s i m p l y mean t h a t the n a t i o n w o u l d
n o t go q u i t e so f a r q u i t e so fast.
2
Address by M. A. Wright before the Commerce Associates ^Banquet, University of
Southern California, May 7, 1973 (copy attached).
238
W e w o u l d suggest t h a t as t h e n a t i o n reexamines t h e need f o r a m o r e
balanced look a t energy a n d t h e e n v i r o n m e n t , c e r t a i n specific areas s h o u l d
be e x a m i n e d t o see i f t e m p o r a r y r e l a x a t i o n s a r e n o t i n f a c t w a r r a n t e d .
These m i g h t i n c l u d e :
F i r s t , refinery SO* emissions c o u l d t e m p o r a r i l y be relaxed. T h i s w o u l d
enable a n u m b e r o f refineries to s u b s t i t u t e some h i g h s u l f u r c r u d e f o r l o w
s u l f u r crude. T h i s , i n t u r n , w o u l d free some l o w >sulfur c r u d e f o r use by
refineries t h a t have spare capacity a n d c a n process o n l y l o w s u l f u r c r u d e
due t o f a c i l i t y l i m i t a t i o n s . T h i s step w o u l d h e l p assure t h a t i n d u s t r y r e f i n i n g
capacity w o u l d be u t i l i z e d t o t h e m a x i m u m .
Second, heavy f u e l o i l s u l f u r specifications c o u l d be t e m p o r a r i l y r e l a x e d
somewhat. T h i s could r e s u l t i n t h e s u b s t i t u t i o n o f h i g h s u l f u r c r u d e f o r l o w
s u l f u r crude w h i c h is being processed i n some C a r i b b e a n refineries t o m a k e
0.3% S f u e l oil. I t could also p e r m i t processing some a d d i t i o n a l h i g h s u l f u r
c r u d e i n c u r r e n t l y s p a r e C a r r i b e a n capacity. These t w o steps w o u l d f a c i l i t a t e
the p r o d u c t i o n of a d d i t i o n a l l o w s u l f u r d i s t i l l a t e a n d heavy f u e l o i l , as w e l l as
f r e e i n g l o w s u l f u r crude, a t least some of w h i c h w o u l d l i k e l y come t o U.S.
refineries.
T h i r d , s t a n d a r d s f o r SOa emissions f r o m u t i l i t y p l a n t s c o u l d be t e m p o r a r i l y
r e l a x e d t o p e r m i t the use of coal i n place of f u e l o i l . A v a r i a t i o n on t h i s
proposal w o u l d be to a l l o w coal b u r n i n g except i n c e r t a i n m e t r o p o l i t a n
areas.
F o u r t h , h e a t i n g o i l s u l f u r specifications c o u l d be t e m p o r a r i l y r e l a x e d t o
a l l o w 0.5% S content E u r o p e a n p r o d u c t to be used. E u r o p e a n r e f i n i n g capacity
is n o t designed to produce h e a t i n g o i l w i t h s u l f u r c o n t e n t o f 0.2% as i s
c u r r e n t l y r e q u i r e d i n most areas of t h e N o r t h e a s t .
I n s o f a r as a u t o emissions a r e concerned, r e a l progress a l r e a d y has been
made. R e g u l a t i o n s r e q u i r i n g lead-free gasoline w i l l necessitate g r e a t e r cons u m p t i o n of crude o i l to m a n u f a c t u r e gasoline of q u a l i t y e q u i v a l e n t t o t h a t
of t h e leaded p r o d u c t . Because of this, i t is a p p r o p r i a t e t h a t t h e t i m i n g of
t h e i m p l e m e n t a t i o n r e g u l a t i o n s to r e q u i r e lead-free gasoline be reconsidered.
E x x o n ' s U S A ' s recommendations concerning l o n g - t e r m s o l u t i o n s t o t h e
energy problems of the n a t i o n w e r e r e v i e w e d recently by R a n d a l l M e y e r ,
P r e s i d e n t of E x x o n Company, U.S.A., i n t e s t i m o n y b e f o r e t h e Senate C o m m i t t e e
on t h e I n t e r i o r a n d I n s u l a r A f f a i r s . 3 A copy of t h a t t e s t i m o n y has been filed
f o r t h e record.
N o w , I w o u l d l i k e to t u r n t o C o m m i t t e e Question 2.
The
Effect t h e Gasoline Shortages Will H a v e o n t h e Nation
(Committee
Question 2 )
I t h i n k i t is self evident t h a t t h e effect of gasoline shortages w i l l depend
on t h e i r magnitude. M i n o r shortages, i f they occur, w i l l o b v i o u s l y r e s u l t i n
inconvenience to motorists. B u t , i t is generally recognized t h a t t h e r e i s a
s i g n i f i c a n t d i s c r e t i o n a r y component i n m o t o r gasoline demand. W e w o u l d expect
t h a t even some modest r e d u c t i o n i n d i s c r e t i o n a r y c o n s u m p t i o n c o u l d be suffic i e n t t o relieve m i n o r shortages. E a c h m o t o r i s t c a n p r o b a b l y a f f o r d t o d r i v e
fewer miles w i t h o u t materially i m p a i r i n g the quality of his life. B y the
same token, each of us can m a k e a c o n t r i b u t i o n t o r e d u c t i o n i n gasoline
d e m a n d by u s i n g h i s a u t o m o b i l e m o r e efficiently w h e n w e do d r i v e . A n u m b e r
of o i l companies a l r e a d y a r e recommending conservation o f gasoline t o t h e
m o t o r i n g public. I n t h i s same vein, w e f u l l y support t h e emphasis g i v e n energy
conservaiton a n d wise use o f energy by t h e P r e s i d e n t i n h i s recent energy
message t o t h e Congress.
H o w great the m a g n i t u d e of gasoline shortages a c t u a l l y w i l l be w i l l
depend o n a t least f o u r factors. F i r s t , the a c t u a l l e v e l o f U.S. consumers'
d e m a n d f o r gasoline i n t h e m o n t h s ahead. I n good measure, t h i s w i l l depend
on howT t h e d r i v i n g p u b l i c of t h e U.S. perceives t h e s i t u a t i o n and, as i n d i v i d u a l s , decide t o a d j u s t t h e i r d r i v i n g habits. Second, t h e w a y s i n w h i c h t h e
m a n y i n d i v i d u a l o i l companies manage t h e i r operations. T h i r d , actions by
t h e f e d e r a l g o v e r n m e n t on p r i c e controls a n d by f e d e r a l , s t a t e a n d l o c a l
governments concerning e n v i r o n m e n t a l standards. F o u r t h , p o t e n t i a l a c t i o n s by
3
Statement of RandfBl Meyer before the Senate Committee on I n t e r i o r and I n s u l a r
A f f a i r s , F e b r u a r y 22, 1973 (copy a t t a c h e d ) .
PERCENT OF REFINERY YIELD THROUGHOUT THE FREE WORLD
0.1
0.4
13.4
K S M 0.8
11.0
1.5
2.7
5.6
49.3
29.2
119.5
122.9
1218
2.0
6.9
40.0
33.4
146.2
120.6
28.3
12
16.2
315
1.0
1
03
199
116.0
ll.l
U.S.
NORTH AMERICA
SOUTH
CENTRAL AMERICA AMERICA
CARIBBEAN
4,422,428
1,051,049
1,409,191
WESTERN
EUROPE
MIOOLE
EAST
ASIATIC
AREA
FREE WORLD
4,714,333
880,531
2,269,224
15,004,724
THOUSAND BARRELS
AVIATION GASOLINE
| DISTILLATE FUEL
MOTOR GASOLINE
j g g j g f l KEROSINE
|
RESIDUAL FUEL
Bill
•
FIGURE I.
SOURCE:
U. S . Department o f t h e
Bureau o f Mines
LUBRICANTS
Totol Free World Crude Oil Input-Output, 1971
Interior,
| JET FUEL
•
OTHER PRODUCT
S&tv
f o r e i g n governments a n d t h e a c t u a l supply a v a i l a b i l i t y s i t u a t i o n i n t h e f o r e i g n
countries to w h i c h t h e U.S. m u s t t u r n f o r i n c r e a s i n g volumes o f c r u d e o i l
a n d p e t r o l e u m products.
B u t , w h e n we i n E x x o n U S A t a k e a l l these considerations i n t o account,
w e conclude t h a t such shortages as o c c u r t h i s s u m m e r p r o b a b l y w i l l be
scattered, ibemj>orary a n d r e l a t i v e l y m i n o r . B u t , i n d i v i d u a l s a n d businesses
w h i c h a r e d i r e c t l y affected m a y w e l l f e e l t h a t t h e y a r e e n c o u n t e r i n g serious
problems.
I f m a j o r shortages occur, m a j o r actions t o cope w i t h t h e s i t u a t i o n c o u l d
w e l l be required. A g a i n s t t h i s p o s s i b i l i t y , contingency plans should be developed by government. B u t such plans need t o be c a r e f u l l y t h o u g h t o u t a n d
i m p l e m e n t e d o n l y i n the event o f m a j o r gasoline supply problems. T h e effect
on t h e economy of t h e dislocations t h a t c o u l d r e s u l t f r o m a n ill-considered
g o v e r n m e n t a l l o c a t i o n p r o g r a m could w e l l be m o r e severe t h a n t h e effect o f t h e
shortages themselves.
T o complete m y t e s t i m o n y , I w o u l d l i k e t o comment on C o m m i t t e e Quest i o n 3.
T h e I m p a c t of S h o r t a g e s on C o m p e t i t i o n ( C o m m i t t e e Q u e s t i o n 3 )
A s I s a i d e a r l i e r , E x x o n U S A has p u b l i c l y s t a t e d iits c o m m i t m e n t t o p r o v i d e
t h e m o t o r gasoline, h e a t i n g o i l a n d o t h e r d i s t i l l a t e f u e l s we h a v e a v a i l a b l e
to each g r o u p of customer i n basically t h e same p r o p o r t i o n s as we h a v e i n
t h e recent past. A s I indicated, we l>elieve o u r first o b l i g a t i o n is t o serve
o u r e x i s t i n g customers i n w h a t e v e r g r o u p they f a l l . I n t h e b r o a d c o n t e x t o f t h e
question t h e C o m m i t t e e has asked, w e believe t h i s i s a responsible approach.
T h e p e t r o l e u m i n d u s t r y is e x t r e m e l y c o m p e t i t i v e . T h e r e a r e m a n y p a r t i c i p a n t s , b o t h w i t h i n the U.S. i n d u s t r y and, n o w w i t h i n t h e f o r e i g n p e t r o l e u m
i n d u s t r y , w h o a r e i n v o l v e d i n s u p p l y i n g t h e U.S. w i t h p e t r o l e u m products.
F e w other m a j o r i n d u s t r i e s i n the w o r l d have as d i v e r s e o r as l a r g e a
n u m b e r of competitors. T h e r e are great n u m b e r s o f h i g h l y a c t i v e a n d h i g h l y
c o m p e t i t i v e companies i n each phase of t h e petro-lum i n d u s t r y — p r o d u c i n g ,
refining, t r a n s p o r t a t i o n a n d m a r k e t i n g . One i m p o r t a n t f a c t o r w h i c h w i l l t e n d
to ensure t h a t c o m p e t i t i o n w i l l r e m a i n h e a l t h y w i t h i n t h e U.S. o i l i n d u s t r y
is t h a t m a n y competitors w i l l take the v i e w t h a t t h e p e r i o d of t i g h t supply
w i l l n o t continue i n d e f i n i t e l y . W i t h t h i s i n m i n d , t h e y w i l l recognize t h a t
t h e v a l u e of t h e i r business i n the l o n g r u n w i l l depend o n r e t a i n i n g t h e
good w i l l o f t h e i r customers. W e w o u l d expect they w i l l conduct t h e i r business
accordingly.
M r . C h a i r m a n , t h a n k y o u f o r t h i s o p p o r t u n i t y t o present o u r views.
A n A d d r e s s B y M . A . W r i g h t , C h a i r m a n A n d C h i e f E x e c u t i v e , E x x o n Co.,
U.S.A., a t t h e C o m m e r c e A s s o c i a t e s B a n q u e t , U n i v e r s i t y o f
Southern
C a l i f o r n i a , L o s A n g e l e s , C a l i f . , M a y 7, 1 9 7 3
I a m g r a t e f u l f o r t h e o p p o r t u n i t y to appear before t h i s d i s t i n g u i s h e d gathering. M y subject t h i s evening is energy, a n d I h a v e these objectives i n
mind:
F i r s t , 1 w a n t to t r y t o convince y o u t h a t t h e energy s i t u a t i o n i n t h e
U n i t e d States i s v e r y serious—even m o r e serious t h a n m a n y o f y o u m a y
believe.
Second, I w a n t to impress upon y o u t h e t r e m e n d o u s — b u t l a r g e l y unrecognized—•impact t h a t e n v i r o n m e n t a l l a w s a n d r e g u l a t i o n s have h a d on energy
supply i n t h e l a s t f e w years.
T h i r d , I feel y o u should k n o w t h a t i f t h e n a t i o n i s t o a v o i d some r e a l l y
serious shortages o f gasoline i n the s u m m e r t i m e a n d d i s t i l l a t e f u e l s such
as h e a t i n g o i l i n t h e w i n t e r , there m u s t be a reevaluaition of t h e t i m e t a b l e
f o r a c h i e v i n g c e r t a i n e n v i r o n m e n t a l goals.
These a r e t h e h a r d , u n v a r n i s h e d f a c t s as we see t h e m i n E x x o n U S A .
T h e y represent o u r v i e w of the g r a v i t y of t h e s i t u a t i o n a n d o f t h e need
f o r i m m e d i a t e , f o r t h r i g h t action.
F o r a p p r o x i m a t e l y t h e last f o u r years, m y associates a n d I i n E x x o n U S A
have been p r e d i c t i n g the p o s s i b i l i t y t h a t the n a t i o n c o u l d encounter serious
energy problems. W e have done t h i s i n t e s t i m o n y before committees o f
Congress, i n meetings w i t h f e d e r a l d e p a r t m e n t s , a n d i n p u b l i c speeches. W e
cannot c l a i m t o have p r e d i c t e d the w i n t e r of 1 9 7 2 - 7 3 as t h e e x a c t date energy
sliortages w o u l d surface, b u t w e d i d define t h e e m e r g i n g s i t u a t i o n as one
241
t h a t — i f not corrected—would soon cause problems. A l t h o u g h we said t h a t
t i m e was r u n n i n g out, we ourselves d i d n o t f u l l y realize how f a s t the
situation was changing. Nor d i d we, u n t i l quite recently, f u l l y comprehend the
impact the environmental movement was having on national energy supply.
Suddenly, t i m e has r u n o u t on America. The abundance of energy we have
enjoyed f o r so long has l e f t us.
Before discussing w h a t we believe must be done to avoid the immediate
prospect of energy shortages, p a r t i c u l a r l y of gasoline a n d d i s t i l l a t e fuels,
permit me t o take a few moments to review how and w h y t h i s situation
has developed.
Our basic energy problem today is t h a t the nation's need f o r energy is
o u t r u n n i n g the development o f domestic energy supplies. Consumption of
energy doubled between 195 and 1970, and is expected to nearly double again
by 1985. F o r a t least the next decade, energy consumption is expected to
grow at about t h e same rate as the Gross N a t i o n a l Product, or slightly
more than f o u r percent per year.
Several of the fuels which h a d been counted on to help meet rising
demand are, f o r a variety of reasons, not available i n sufficient quantity.
For example, n a t u r a l gas, a clean-burning f u e l much i n demand i n view of
today's s t r i c t environmental regulations, is i n short supply and i t is not
anticipated t h a t f u t u r e supply w i l l be able to meet potential demand. Since
the m i d 1950's, gas prices have been held to unrealistically low levels
under regulation by the Federal Power Commission. T h i s has had the
double-edged effect of a r t i f i c i a l l y s t i m u l a t i n g demand and discouraging investments i n e x p l o r a t i o n f o r new resources.
However, the p r i n c i p a l factor which has led to the energy problems we
face today and w i l l face f o r the next few years is the tremendous impact
ot environmental l a w s and regulations on energy supply. D u r i n g the past
four to five years, a national desire f o r a cleaner n a t u r a l environment has
crystallized and has become a goal. A n d i n t y p i c a l American fashion, once
this goal was recognized we have insisted on v i r t u a l l y instant results. Numerous
federal, state, and municipal laws and regulations were placed on the books
practically overnight. These actions have had a measurable effect and i n many
respects the U.S. is on the way t o w a r d the environmental quality i t wants.
B u t at the same time the environmental movement has had significant negative effects on domestic f u e l supply and has i n fact overstressed the a b i l i t y of
our energy system to respond. Let me give you some examples showing how
this has happened.
Coal is not p l a y i n g the role i t had been expected to play i n the energy
market. Much of the nation's current production is high i n s u l f u r content
and therefore cannot meet the environmental standards set by the U.S.
Environmental Protection Agency under the provisions of the Clean A i r A c t
of 1970. P r i o r to the Clean A i r Act, i t had been expected t h a t use of coal
w o u l d grow a t about 4.4 percent i>er year at least through 1973. Instead,
coal consumption has grown at only 1.3 percent per year d u r i n g this period.
Since demand f o r energy was not reduced, some other f u e l had t o do the job
t h a t coal had been expected to do. The result has been a large and unexpected
increase i n demand f o r petroleum.
Nuclear power has also suffered f r o m environmental restrictions. Persistent delays have been experienced i n finding suitable sites f o r nuclear
plants and i n obtaining the numerous permits needed f o r construction and
operation. One public u t i l i t y company reports t h a t not one construction or
operating p e r m i t was issued i n the U.S. between early 1971 and mid-1972.
The Federal Power Commission has pointed out t h a t o f 56 nuclear plants
scheduled to begin operation i n the period f r o m 1972 to 1975, 50 are behind
schedule. As Prasident N i x o n noted i n his recent energy message to Congress : " I t is discouraging to know t h a t nuclear f a c i l i t i e s capable of generating 27,000 megawatts of electric power which were expected to be operational by 1972 were not completed. To replace t h a t generating capacity we
would have to use the equivalent of one-third of the n a t u r a l gas the country
used f o r generating electricity i n 1972 " The delayed e n t r y of nuclear power
into the energy m a r k e t has, therefore, increased the demand f o r petroleum.
S i m i l a r l y , the drive t o clean up the i n t e r n a l combustion engine has increased
the need f o r oil. Emission regulations f o r automobiles are already having
an effect on gasoline consumption. On a national scale, the effect of E P A
emission standards alone is expected to increase demand f o r gasoline by
242
about 12 percent by 1976. I w a n t to emphasize t h a t t h i s increase w i l l be
over and above t h e n o r m a l g r o w t h i n gasoline demand and w i l l require
an a d d i t i o n a l 900,000 barrels per day of petroleum.
Yet w h i l e environmental constraints on coal a n d nuclear power increase
the demand f o r petroleum, at the same t i m e the environmental movement
has h a d a severe effect on efforts to develop new sources of domestic o i l a n d
gas. As you know, one of the largest oilfields o n t h e N o r t h A m e r i c a n cont i n e n t has remained locked up on Alaska's N o r t h Slope f o r more t h a n
three years because environmental groups blocked t h e construction of the
trans Alaskan pipeline. Even i f Congress acts t o free the wTay f o r construction, i t now appears t h a t 1977 is the earliest possible date t h a t product i o n could move f r o m the N o r t h Slope. O r i g i n a l l y , we had anticipated a
1972 s t a r t u p f o r the A l a s k a n Pipeline. W e had estimated t h a t N o r t h Slope
crude production w o u l d increase to 1.4 m i l l i o n barrels per day by 1975 w i t h
this volume coming t o the West Coast, thus reducing substantially the dependence of C a l i f o r n i a and i t s neighboring states on imported o i l f r o m
abroad.
The i n i t i a l N o r t h Slope forecasts also projected substantial amounts of
n a t u r a l gas moving to the lower 48 states by t h e mid-1970's. I n the absence
qf A l a s k a n gas, some 600,000 barrels per day of a d d i t i o n a l foreign o i l i m ports w 7 ill be needed.
O i l development has been constrained also i n offshore C a l i f o r n i a . I n
1968, the oil i n d u s t r y spent some $600 m i l l i o n f o r leases i n the Santa B a r b a r a
Channel. However, the oil s p i l l near Santa B a r b a r a i n 1969 proved to be a
benchmark i n the environmental movement. A l t h o u g h m a j o r discoveries have
been made i n the Channel since t h a t time, state and federal d r i l l i n g morat o r i u m s and the application of the N a t i o n a l E n v i r o n m e n t a l Policy A c t have
prevented realization of the production t h a t was forecast f r o m offshore
California.
B y constraining the use of coal and delaying the development o f nuclear
power, environmental actions have caused a sudden, sharp increase i n demand
f o r l i q u i d petroleum. More and more, o i l has become the f u e l t h a t is called
upon to balance national energy requirements by m a k i n g up shortages i n
other forms of energy. B u t since environmental concerns have also blocked
the development of significant sources of domestic petroleum i n Alaska, Calif o r n i a , and elsewrhere, there is simply not enough domestic o i l to do t h e
tasks expected of i t .
U n t i l recently, the U n i t e d States enjoyed a surplus of crude o i l producing
capacity and a surplus o f refining capacity. B u t today U.S. crude o i l production, which has been r u n n i n g at capacity f o r a f u l l year, is declining. U.S.
refineries are also operating at near capacity. T o make up the significant
gap t h a t exists between domestic production and demand, we can t u r n only
to foreign imports. Moreover, this need f o r i m p o r t s w i l l increase a n d i f
present trends continue, the n a t i o n may have to i m p o r t up to 65 percent
of its o i l by 1985.
I n the months and years j u s t ahead, the U.S. has no a l t e r n a t i v e b u t to
rely increasingly on imported oil. B u t the f a c t is t h a t supplies o f crude
o i l are extremely t i g h t not only i n the U.S. but worldwide. T h i s is n o t w i d e l y
k n o w n outside the petroleum indusrty. Apparently many U.S. citizens s t i l l
hold the belief t h a t the U.S. Simply can go out and get a l l the foreign o i l
i t wants at any time, and a t a very cheap price. T h i s is not true. Because
of the disappearance of w o r l d w i d e spare producing capacity, f o r e i g n crude
prices have risen r a p i d l y and foreign crude now costs more t o use i n U.S.
refineries t h a n price-controlled domestic crude. I n a l l likelihood, foreign crude
w i l l continue t o be as expensive or more so f o r a U.S. refiner t h a n domestic
crude. A n d our outlook indicates t h a t w o r l d w i d e crude supplies w i l l r e m a i n
t i g h t f o r the foreseeable future. F u r t h e r complicating this prospect is the
p r o b a b i l i t y t h a t most of the g r o w t h i n foreign supply w i l l be predominantly
" s o u r " crudes. A n explanation of this t e r m is i n order.
Many may assume t h a t refineries can process any crude oil, b u t i n f a c t
each one is designed to process specific types of oil. One o f the p r i m a r y
characteristics of crude oil is its s u l f u r content. H i g h - s u l f u r crude is k n o w n
as " s o u r " crude, w h i l e low-sulfur crude—highly desirable due to U.S. env i r o n m e n t a l regulations—is k n o w as "swTeet" crude. A large p o r t i o n o f U.S.
refining capacity was b u i l t to use domestic crudes, which are m a i n l y sweet.
These refineries cannot process high-sulfur " s o u r " crudes f o r several reasons.
243
One 'reason is based on m e t a l l u r g y ; the corrosive high-sulfur crudes w i l l
l i t e r a l l y chew holes i n units and p i p i n g b u i l t to handle sweet crudes. Another reason is e n v i r o n m e n t a l ; a sweet-crude refinery cannot produce products
f r o m sour crude w i t h a s u l f u r content low enough to meet U.S. environmental
requirements. Nor can i t meet restrictions on refinery emissions using sour
crudes.
Consequently, sweet crude supply is especially t i g h t , both i n the U.S.
and worldwide. I t s a v a i l a b i l i t y f r o m foreign countries w i l l become increasingly
c r i t i c a l and its price can be expected to rise substantially. The shortage of
sweet crude w i l l probably make i t impossible to maximize the u t i l i z a t i o n of
U.S. refining capacity this year a n d d u r i n g the next few years. T h i s means t h a t
substantial imports of finished gasoline and heating o i l w i l l be required to
meet U.S. demands. This year, at least, there is spare capacity i n overseas
refineries which can be used to manufacture stocks f o r shipment to the U.S.
B u t petroleum products made abroad do not always meet U.S. performance
requirements and, as a rule, do not f u l l y satisfy U.S. environmental specifications. I n addition, the m i x of products manufactured f r o m foreign crudes
i n overseas refineries is usually different f r o m the m i x required i n this
country. F i n a l y , such foreign products as are available now are already
higher-priced t h a n s i m i l a r U.S. materials. We expect this to be the case
f o r a d d i t i o n a l volumes as well.
T h a t is how we stand at this point i n time, w i t h demand exceeding
domestic production and w i t h environmental requirements accelerating our
dependence on foreign oil. Our studies indicate t h a t the need f o r approximately
25 percent of the foreign oil which was imported i n 1972 could be traced
directly to environmental restrictions. A n d we estimate t h a t by 1975, some
40 percent of the o i l we w i l l have to i m p o r t w i l l be needed due to environmental laws, regulations, and other actions which have had the effect of
reducing our available domestic supplies of energy.
D u r i n g the past f o u r to five years, then, environmental actions have had
a great impact on the nation's system of energy supply. U n f o r t u n a t e l y , this
cause-and-effect has gone largely unrecognized, as I have mentioned. U n t i l
recently, the energy system has managed to w i t h s t a n d the stress; but i t can
do so no longer. Today a l l the flexibility we have enjoyed i n past years
is gone f r o m our fuels supply system and i f we continue f o r the next f o u r
years as we have f o r the past four, the effect could be extremely serious. I n i t s
concern f o r the condition of the environment, the n a t i o n has overlooked the
ways i n which environmental actions have affected energy s u p p l y ; now, the
coin must be t u r n e d and more attention must be given to p r o v i d i n g a better
balance l>etween the two.
California, which has "led the way i n many respects i n establishing environmental improvement as a national goal, must help i n this reevaluation process.
L i k e the n a t i o n as a whole, California's demand f o r energy is expected t o
double by 1985, and petroleum must f u r n i s h at least three-fourths of this
energy. C a l i f o r n i a is using up its existing o i l and gas reserves a t a much
faster rate t h a n new reserves are l)eing added. The state's n a t u r a l gas
situation is already becoming c r i t i c a l and a shortage w i l l be felt severely
by i n d u s t r i a l users by 1975. F r o m the standpoint of oil, C a l i f o r n i a today
supplies about, two-thirds of its needs f r o m indigenous sources and gets the
rest f r o m Alaska and f r o m foreign imports. B u t i f present trends continue, by
1985 this situation would be reversed. I n 1985, C a l i f o r n i a could f u r n i s h only
about one-third of its oil needs f r o m sources w i t h i n the state and f r o m
the other "lower 48" states. The remaining two-thirds w o u l d have to come
f r o m outside the state. Much of this, i t is hoped, w o u l d come f r o m Alaska's
N o r t h Slope. B u t i f the trans Alaska pipeline is not buiilt, more t h a n h a l f
of California's o i l i n 1985 w o u l d have to come f r o m foreign sources, the major
source l>eing the nations of the Eastern Hemisphere. Despite the fact t h a t
i t is an oil-deficient state, C a l i f o r n i a has shut down offshore d r i l l i n g i n state
waters and i n most of the state's coastal zone. The passage of Proposition 20
i n late 1972 could result, f o r example, i n extensive delays or prohibitions of
any k i n d of development i n the <x>astal zone, including a l l energy operations.
W i t h both California and the n a t i o n i n a n uncertain condition of energy
supply, we must t u r n to the question of w h a t can be done about it. One
t h i n g is c l e a r : there is need f o r a reevaluation of the timetable f o r environmental improvement.
244
I t can be safely stated t h a t near-term petroleum supplies f r o m a l l soilrces
w i l l not be adequate w i t h n o r m a l demand g r o w t h trends a n d the present
r i g i d environmental standards timetable. Ait least i n the 1974-76 t i m e f r a m e ,
one of t w o things must happen. E i t h e r U.S. petroleum demand w i l l have to
be restrained a r t i f i c i a l l y , or certain environmental q u a l i t y restrictions w i l l have
to be relaxed temporarily. W e simply w i l l not be able to have both ample
supplies of petroleum products and current a i r q u a l i t y regulations.
I w a n t to emphasize t h a t the temporary measures I a m suggesting to
m o d i f y environmental standards are not intended ito change the nation's goals
f o r environmental improvement. Our environmental goals need not be abandoned ; we need only to relax the restrictions to a l l o w more t i m e f o r reaching
the u l t i m a t e a i r quality goals. T h i s w o u l d not mean r e t u r n i n g to the a i r
mission levels experienced i n the late 1960's * i t w o u l d simply mean t h a t
the n a t i o n w o u l d not go quite so f a r quite so fast.
The measures I have i n m i n d would include temporary r e l a x a t i o n o f c e r t a i n
refinery emissions l i m i t a t i o n s and s u l f u r content specifications i n fuels. These
changes would allow use o f higher s u l f u r content crudes i n the refineries
which are capable o f r u n n i n g them, and t h e i m p o r t a t i o n o f c e r t a i n overseas
products wtflch do not meet present U.S. environmental requirements. Tempor a r y variances i n ambienit a i r standards to p e r m i t greater use of coal also
are essential.
These relaxations would be of d r a m a t i c help i n b r i n g i n g petroleum supply
and demand more i n t o balance i n the short term. They w o u l d buy the n a t i o n
t i m e to get i t s energy affairs i n t o better order f o r the long term.
More thought and effort must be given also to conserving energy a n d using
i t wisely. W e support wholeheartedly the emphasis o n this need given i n the
President's recent energy message to Congress A t present only 50 percent
of a l l energy consumed is converted into useful w o r k ; the r e m a i n i n g h a l f
is lost i n t h e f o r m of waste heat .We must accept the technological challenge
to find new methods f o r recovering at least a p o r t i o n o f our wasted energy
f o r useful applications.
I n the short term, v o l u n t a r y consumer efforts to reduce overheating, overcooling and overlighting w i l l be ways i n which we can a l l conserve energy.
Longer-term, energy can be conserved by more organized approaches t o large
energy-consuming sectors of the economy such as transportation. New means
of mass transportation, including mass t r a n s i t , may be needed to supplement
our existing systems.
The petroleum i n d u s t r y has Jong been k n o w n f o r its commitment to h i g h w a y s
as a p r i m a r y means of transportation, and an excellent h i g h w a y system
should continue t o be a m a j o r national goal. B u t my company supports t h e
view t h a t the tame has come f o r changes at both the federal and state
levels i n transportation funding. Specifically, we support the creation of transp o r t a t i o n t r u s t funds raither t h a n the existing h i g h w a y t r u s t funds, w i t h monies
f r o m these funds being used f o r the t r a v e l systems—including mass t r a n s i t —
t h a t state o r local governments choose to i n s t a l l as best meeting t h e i r needs.
We believe t h i s policy would lead eventually t o w a r d a more efficient use of
energy and a better t r a n s p o r t a t i o n balance.
A more measured timetable f o r environmental improvement and more c a r e f u l
and wise use of energy w i l l help the n a t i o n through i t s precarious short-term
energy situation f o r t h e next f e w years. However, i n the long t e r m the nat i o n simply cannot a f f o r d t o rely excessively on imported oil, w i t h i t s n a t i o n a l
security and balance of t r a d e drawbacks. I n the long run, there is no substitute
for the development o f the nation's domestic resource base.
T h e n a t i o n needs the trans Alaskan pipeline. I t needs the o i l i n the Santa
B a r b a r a Channel. I t needs accelerated federal lease sales t o f a c i l i t a t e development of o i l and gas f r o m the country's prospective offshore regions—the
A t l a n t i c Coast, the G u l f of Mexico, the C a l i f o r n i a Coast, and the offshore
areas of Alaska. I t needs new refineries and nuclear power plants. I t needs
deepwater o i l unloading facilities. I t needs development of a synthetic fuels
i n d u s t r y to capitalize on its vast deposits o f coal and o i l shale.
To f u l f i l l these needs, the n a t i o n must get a firmer g r i p on i t s energy
planning. The a v a i l a b i l i t y of adequate supplies of long-term energy w i l l depend,
among other things, upon the timely development of public a n d p r i v a t e lands.
Yet i n recent years, i n areas such as Alaska, Delaware, F l o r i d a , and California, the energy industries have been f r u s t r a t e d repeatedly by environmental
concerns i n efforts to find and develop domestic energy sources and to con-
245
struct f a c i l i t i s f o r the transportation or processing of energy. Our n a t i o n
must find a way to resolve these energy-environmental conflicts i n a more
satisfactory, more expeditious, and less expensive manner. U n t i l now the
a t t i t u d e of some states seems to have been oriented t o w a r d stopping g r o w t h
r a t h e r t h a n regulating i t to achieve balanced objectives. T h i s has been done
i n the name of the environment. B u t the way to protect the environment
is not to stop everything a r b i t r a r i l y , but to provide the r i g h t set of ground
rules to a l l o w f o r "compatible g r o w t h " rather t h a n "no g r o w t h . " T h e nation,
and the i n d i v i d u a l states, should consiider seriously the adoption o f systems
f o r land use planning and management oriented t o w a r d t w o compatible goals:
encouraging disciplined growth, including energy development activities, and
protecting environmental quality. I f we f a i l to do so, a n d continue the present
confrontation methods, overemphasis on environmental objectives w i l l w o r k
at cross purposes w i t h energy needs and the nation may indeed find itself
i n an energy crisis.
The t i m e has come f o r the n a t i o n to face its energy problems squarely.
A national determination is needed to make energy sufficiently as much a
national goal as environmental protection or f u l l employment. We face a
long, h a r d struggle where energy is concerned. A n d we have r u n out of time
f o r debate and delay. We are going to have to move, a n d move fast, on
energy.
STATEMENT OF RANDALL MEYER, PRESIDENT, E X X O N Co., U . S . A .
E X X O N CORP.)
( A D I V I S I O N OF
I. INTRODUCTION
M r . Chairman, I am R a n d a l l Meyer, President of E x x o n Company, U.S.A.
I am pleased to appear before t h i s Committee at its request and present our
Company's ideas on the current energy situation. We, l i k e you, are very
concerned about our nation's energy supply outlook.
You have asked us to discuss the nature and causes of t h e current f u e l
problems and have asked f o r our comments on several key issues. I n order
to be responsive to your request, I feel t h a t I need to address the t o t a l energy
situation. Current problems are a result of a combination of factors affecting
a l l energy industries. The fuel shortages which have occurred i n some locations t h i s w i n t e r are a manifestation of deeper seated problems which need
to be widely recognized i n order t h a t solutions can be developed.
I I . BACKGROUND
I n October, 1971, M r . M. A. W r i g h t , Chairman of E x x o n Company, U.S.A.,
i n addressing this Committee at the outset of its study under Senate Resolution
45, indicated t h a t a consideration of the importance of the role of energy
i n 'the achievement o f national goals leads to the conclusion t h a t , " t h e national
energy policy should be to provide the U n i t e d States w i t h an adequate supply
of energy f o r both present and longer term needs a t a reasonable balance
between cost, dependability, and protection of the e n v i r o n m e n t . " 1 The availa b i l i t y of dependable and secure energy supplies is fundamental to the nation's
economic, political, and m i l i t a r y security. 2 Ideally, this w o u l d i m p l y p r i m a r y
reliance on domestic energy resources.
For many years the domestic energy industries have provided American
consumers w i t h adequate supplies of reasonable priced fuels. P r i v a t e i n d u s t r y
has demonstrated its a b i l i t y to accomplish this task i n an efficient manner,
given the proper business climate i n which to operate. However, over the
past few years, the country has not been developing its resources at as fast
a rate as i t s requirements f o r energy are growing. As a result, the nation's
dependence on foreign sources of energy is now increasing very rapidly.
Delayed development of domestic resources has been caused by trends
i n the economic and p o l i t i c a l climate set i n motion many years ago and substantially aggravated d u r i n g the last t w o to three years.
1
Statement on Energy and National Goals, M. A. W r i g h t , Senate Committee on
Interior
and Insular Affairs, October 21. 1971.
2
U.S. Energy Outlook, A Summary Report of the National Petroleum Council. December, 1972.
246
The cause f o r the delays can best be understood by r e v i e w i n g f o u r prerequisites necessary f o r p r i v a t e i n d u s t r y to develop the nation's energy resources i n a timely manner.
F i r s t , the resource potential
must exist. As reported by the N a t i o n a l
Petroleum Council i n i t s recently published study of t h e U.S. energy outlook,
i t is generally agreed among scientific and technical experts i n the energy
fields t h a t the U n i t e d States has a n adequate energy resource base.
Second, industry
must have access to the resources. Since much o f t h e
nation's energy potential, including offshore o i l and gas reserves, u r a n i u m ,
coal, and oil shale deposits, is located i n the federal domain, the government
plays a key role i n this area. Past practices f o r leasing offshore o i l and gas
acreage have not allowed the development of domestic reserves a t the pace
needed.
T h i r d , industry
must have a reasonable expectation
of economic
reward
f r o m i t s investments i n energy resource development. I n the case o f o i l a n d
gas, the economic climate f o r investments has deteriorated steadily f o r the
past decade. The roots of today's n a t u r a l gas shortages can be traced as
f a r back as the P h i l l i p s Case i n 1954, when the Supreme Court r u l e d t h a t
wellhead prices of gas were subject to federal control. The regulation of gas
prices a t unrealisticaly low levels has had the double-edged effect of a r t i ficially
s t i m u l a t i n g demand and discouraging investments f o r newT reserves.
The threat o f e l i m i n a t i o n of the O i l I m p o r t s Control P r o g r a m has served
to prevent domestic crude prices f r o m increasing as r a p i d l y as needed. The
T a x R e f o r m A c t of 1969 f u r t h e r reduced the inventives f o r o i l a n d gas
exploration and development.
F o u r t h , the achievement of environmental
goals must be balanced
against
the need to achieve energy and economic goals. The protection of the environment is not only desirable but v i t a l f o r society's health a n d well-being.
However, over the past t w o to three years environmental causes have been
pressed to the extreme i n some instances w i t h o u t proper regard f o r costbenefit relationships. The N a t i o n a l E n v i r o n m e n t a l Policy A c t has been
used as a vehicle to delay the development of sorely needed energy supplies
and facilities.
Of the f o u r prerequisites necessary f o r timely development of resources, only
the first, an adequate resource base, has been present over the past decade.
The basic problem has been the lack of a coordinated, coherent approach t o
dealing w i t h energy-related matters. I n the absence of clearly established
long-term energy objectives and goals, short-term problems have been dealt
w i t h by a fragmented, ad hoc approach by a l l elements of society—industry*
the government, and the public. T h i s has produced a climate of such uncert a i n t y t h a t the p r i v a t e energy industries have been contrained f r o m m a k i n g
the needed investments i n energy resources and f a c i l i t i e s i n spite of the
•availability of an adequate energy resource base.
iii. c u r r e n t energy
situation
I w o u l d now l i k e to t u r n to today's energy situation, w r hich is the predictable o u t g r o w t h of the conditions I have been describing. T o t a l energy
demand is closely related over the long t e r m to economic a c t i v i t y and can be,
and i n fact, has been predicted w i t h a reasonable degree of accuracy. However,
the uncertain economic and p o l i t i c a l climate has made i t extremely difficult to
i d e n t i f y the role of i n d i v i d u a l fuels t o meet this demand.
I n the last t w o years, we have lost supply flexibility i n our energy system
as a result of reduced a v a i l a b i l i t y of n a t u r a l gas and the effect of environmental regulations on the use of coal. The g r o w t h i n nuclear powTer plants
has been w e l l behind both government and i n d u s t r y forecasts. These factors
have a l l been reflected lin recent sharp increases i n demand f o r l i q u i d petroleum
products so t h a t oil has become more and more the swing fuel, or the f u e l
t h a t is called upon to balance national energy requirements.
To i l l u s t r a t e , when n a t u r a l gas supplies f e l l short o f meeting the needs of
i n d u s t r i a l consumers, many of these consumers turned to either heating o i l
or low s u l f u r heavy fuel oil as t h e i r alternate fuel supply. F u r t h e r a g g r a v a t i n g
the d i s t i l l a t e fuel situation has been the f a c t t h a t many heavy f u e l o i l suppliers have found i t necessary to u t i l i z e distillates t o blend w i t h heavy o i l
i n order to meet required s u l f u r specifications.
The net result of these factors has been t h a t t h e g r o w t h r a t e f o r both
d i s t i l l a t e and heavy f u e l oil demand i n the past t w o years has doubled over
247
the g r o w t h experienced d u r i n g t h e p r e v i o u s decade. T h e u n c e r t a i n t i e s I have
described, together w i t h f a c i l i t i e s s i t i n g problems, h a v e delayed t h e expansion of domestic r e f i n i n g capacity r e q u i r e d to supply t h e a d d i t i o n a l products.
M r . C h a i r m a n , I have gone i n t o t h i s m u c h d e t a i l a b o u t the past because
I believe i t is essential background f o r a proper u n d e r s t a n d i n g of the immedi a t e s i t u a t i o n a n d f o r seeking i m p r o v e m e n t i n the p e r i o d ahead.
Y o u r C o m m i t t e e is t o d a y p a r t i c u l a r l y i n t e r e s t e d i n the s h o r t - t e r m s i t u a t i o n ,
specificaly as i t affects h e a t i n g oil. E x x o n , U.S.A. has most recently spoken
to i t s o w n s i t u a t i o n i n the t e s t i m o n y of M r . L . G. R a w l , a Senior Vice
P r e s i d e n t of o u r Company, before the Cost o f L i v i n g Council, a n d I w o u l d
l i k e t o s u b m i t a copy of his statement f o r the record. I c a n s u m m a r i z e our
s i t u a t i o n v e r y b r i e f l y . W e have met, a n d expect t o c o n t i n u e meeting t h r o u g h
the w i n t e r , o u r c o n t r a c t u a l c o m m i t m e n t s t o o u r customers i n spite of the f a c t
t h a t we have h a d to take some uneconomic steps t o d o so. T o meet our demand,
E x x o n , U.S.A. has produced 30 percent more d i s t i l l a t e d u r i n g the period
November t h r o u g h J a n u a r y t h a n d u r i n g t h e comparable p e r i o d last year.
H o w e v e r , I w i s h to emphasize t h a t o u r supply system has been extended
to the l i m i t i n order to accomplish this, a n d I suspect t h i s is generally
t r u e i n the i n d u s t r y . W e k n o w , f o r example, t h a t i n d u s t r y has produced 12
percent more d i s t i l l a t e so f a r t h i s w i n t e r t h a n l a s t year. F u r t h e r m o r e , we
cannot believe i n d u s t r y w o u l d be i m p o r t i n g t h e volumes of h i g h cost f o r e i g n
supplies of h e a t i n g o i l w h i c h i t has i f there w e r e adequate domestic r e f i n i n g
capacity available. I t seems u n l i k e l y t h a t i n d u s t r y can p r o v i d e supplies t o
meet a s i m i l a r g r o w t h i n demand n e x t year. W r hile l i t t l e c a n be done about
n e x t year, t h e r e is a n u r g e n t need to p r o v i d e t h e economic a n d r e g u l a t o r y
c l i m a t e r e q u i r e d t o encourage long range expansion of domestic refining
facilities.
IV. LONG-TERM SOLUTIONS
I w o u l d l i k e to t u r n n o w to a discussion of the l o n g - t e r m solutions t o the
nation's energy problems because we l>elieve t h a t any actions t a k e n to solve
short-range problems should be consistent w i t h long-range objectives.
I n o r d e r to develop l a s t i n g solutions, i t is essential t h a t a well-defined
n a t i o n a l energy policy be adopted w i t h specific policies a n d p r o g r a m s designed
to achieve long-range objectives. M u c h w o r k has been done t o define the key
elements w h i c h should comprise a n a t i o n a l energy policy. T h e N a t i o n a l
P e t r o l e u m C o u n c i l recently completed one o f the most e x h a u s t i v e studies ever
conducted on the n a t i o n ' s energy s i t u a t i o n . The r e p o r t d o c u m e n t i n g t h i s study 3
stresses the need f o r a f a v o r a b l e economic c l i m a t e a n d sound n a t i o n a l policies
i f the p o t e n t i a l f o r increasing domestic supplies is to be realized. T h e
report also contains a comprehensive l i s t of recommendations f o r a U n i t e d
States energy policy. O u r Company p a r t i c i p a t e d i n t h i s s t u d y , a n d w e f u l l y
endorse the policies proposed i n the report.
I believe i t is w o r t h w h i l e to comment here o n some of t h e m a j o r policy
issues w h i c h have a d i r e c t b e a r i n g on the l o n g - t e r m solutions t o t h e problems
w e are discussing today.
E c o n o m i c a n d P o l i t i c a l F a c t o r s — A n economic a n d p o l i t i c a l f r a m e w o r k w h i c h
is conducive to domestic energy development is a n obvious prerequisite t o
meeting the nation's goals. A first consideration i n t h i s r e g a r d is t h e maintenance of a competitive, p r i v a t e enterprise system w h i c h is the best w a y
to assure s a t i s f a c t i o n of t h e nation's needs i n t h e m o s t efficient w a y possible.
I n d u s t r y has proven i t has the a b i l i t y , given a reasonable o p p o r t u n i t y , to
provide the supplies needed.
T h e i m p o r t a n c e of p r i c e to o u r economic system c a n n o t be overemphasized.
Recent concern w i t h i n f l a t i o n has led to more r i g i d c o n r t o l o f prices. C o n t r o l
of i n f l a t i o n is i m p o r t a n t to the economic well-being o f o u r n a t i o n a n d should
be g i v e n a h i g h p r i o r i t y . H o w e v e r , we m u s t find w a y s t o p r o v i d e sufficient
incentives to develop the increasingly h i g h e r cost domestic energy resources
w h i l e c o n t r o l l i n g i n f l a t i o n , f o r both a r e essential goals.
Prices have a s u b s t a n t i a l effect on both long-term supply a n d demand a n d
are a n a t u r a l r e g u l a t o r to assure t h e most, efficient a l l o c a t i o n of available
resources i n the economy. U n d u e r e g u l a t i o n or interference w i t h prices w i l l
lead to u n w a n t e d results a n d prevent a t t a i n m e n t of l o n g - t e r m goals. The
i m p a c t of a r t i f i c i a l l y l o w prices f o r n a t u r a l gas on both d e m a n d a n d supply
3
"U.S. Energy
December, 1972.
Outlook, A
Summary
Report
of the National
Petroleum
Council".
248
is a clear-cut example. Prices f o r n a t u r a l gas s h o u l d be deregulated, o r a t
least a l l o w e d to increase t o m a r k e t - c l e a r i n g levels.
C r u d e a n d p r o d u c t prices h a v e also been depressed a n d should be a l l o w e d
to rise w i t h increasing costs. T h e T a x R e f o r m A c t of 1969 f u r t h e r c o n t r i b u t e d
t o i n d u s t r y ' s a l r e a d y r i s i n g costs. U n d e r p r o v i s i o n s o f t h i s A c t , i n d u s t r y ' s
t a x b u r d e n w a s increased m o r e t h a n ,$500 m i l l i o n a n n u a l l y .
A s a r e s u l t of these economic factors, rates of r e t u r n on n e w i n v e s t m e n t
h a v e n o t been sufficient to sustain levels of a c t i v i t y necessary to develop
energy reserves as r a p i d l y as needed. T e s t i m o n y presented to t h i s C o m m i t t e e
by D r . T . D . B a r r o w of o u r C o m p a n y 4 a n d studies by the D e p a r t m e n t of
I n t e r i o r 5 have s h o w n t h a t the r a t e of r e t u r n realized by i n d u s t r y i n recent
years on e x p l o r a t o r y o i l a n d gas investments has been i n t h e 3 t o 7 percent
range. Such r e t u r n s are not adequate i n c e n t i v e t o a t t r a c t the i n v e s t m e n t s
needed f o r the h i g h risk business of e x p l o r i n g f o r new reserves.
Security
of Supply—The
a v a i l a b i l i t y of dependable a n d secure energy supplies is f u n d a m e n t a l to our n a t i o n a l a n d economic s e c u r i t y . Development of
s t r o n g domestic energy i n d u s t r i e s should be encouraged t o a v o i d excessive
dependence on f o r e i g n supplies.
T h e r a p i d g r o w t h i n dependence on offshore o i l i m p o r t s , w h i c h a r e expected
to be a b o u t $5 m i l l i o n barrels per day t h i s year a n d continue g r o w i n g over
t h e n e x t several years, should be a m a t t e r of n a t i o n a l concern a n d s h o u l d
p r o m p t i m m e d i a t e actions t o encourage development of domestic supplies.
T h e O i l I m p o r t s C o n t r o l P r o g r a m has been a n i m p o r t a n t p a r t of U.S.
energy policies i n the past a n d should be retained, w i t h the o v e r a l l level set
as needed to fill the gap between domestic p r o d u c t i o n a n d demand.
I n o r d e r t o p r o v i d e some flexibility i n t h e event of a n i n t e r r u p t i o n i n offshore p e t r o l e u m supplies, the n a t i o n should develop contingency plans w h i c h
account f o r the p r o b a b i l i t y of supply i n t e r r u p t i o n s .
T h e a d m i n i s t r a t i o n of the O i l I m p o r t s P r o g r a m has resulted i n t h e e x p o r t i n g
of r e f i n i n g capacity, thereby r e d u c i n g t h e o v e r a l l s e c u r i t y of U.S. p e t r o l e u m
supplies. U n c e r t a i n t y caused by past a d m i n i s t r a t i o n of t h e p r o g r a m , coupled
w i t h refinery s i t i n g problems, have been among t h e m a j o r f a c t o r s causing
delays i n i n d u s t r y ' s c o n s t r u c t i o n of domestic r e f i n i n g capacity. I t i s i m p o r t a n t ,
t h a t t h i s u n c e r t a i n t y be resolved i n such a m a n n e r t h a t t h e r e w i l l be i n c e n t i v e
f o r i n d u s t r y to proceed r a p i d l y w i t h c o n s t r u c t i o n o f a d d i t i o n a l capacity. T o
o u r knowledge, no new refineries a r e c u r r e n t l y u n d e r c o n s t r u c t i o n despite t h e
need f o r a d d i t i o n a l capacity.
R e s o u r c e A v a i l a b i l i t y a n d D e v e l o p m e n t — M u c h of t h e n a t i o n ' s energy resource p o t e n t i a l is located i n the f e d e r a l domain. P o t e n t i a l l y p r o d u c t i v e f e d e r a l
acreage should be made a v a i l a b l e t o i n d u s t r y f o r e x p l o r a t i o n a n d development
a t a r a t e consistent w i t h needs. Past offerings h a v e n o t been adequate i n size
or frequency. W e are encouraged by the recent accelerated frequency of sales,
b u t t h e acreage offered needs t o be s u b s t a n t i a l l y increased.
L o c a l a n d n a t i o n a l policies w i t h respect to access t o l a n d a n d w a t e r
space should be designed to encourage development of energy7 reesrves consistent w i t h the concept of compatible m u l t i p l e use of t h e area. M r . J o h n L .
L o f t i s recently testified before t h i s C o m m i t t e e on 'the E x x o n Company's
s u p p o r t of l e g i s l a t i o n to encourage a disciplined, m o r e balanced approach t o
land-use p l a n n i n g a n d management.®
E n v i r o n m e n t a l P r o t e c t i o n — T h e operations of i n d u s t r y a n d governments
a n d t h e behavior of i n d i v i d u a l citizens should be such t h a t t h e e n v i r o n m e n t
is p r o p e r l y protected. E n v i r o n m e n t a l considerations s h o u l d p l a y a n i n t e g r a l
role of the U.S. energy f u t u r e , b u t harassment a n d d e l a y i n g tactics by those
t h a t do not objectively consider the r e s p o n s i b i l i t y of b o t h p o i n t s of v i e w
are t o be avoided.
Some balance between the need to protect the e n v i r o n m e n t a n d the need
to develop o u r energy resources should be reached. D e l a y s associated w i t h
e n v i r o n m e n t a l considerations have been l e n g t h y i n m a n y instances a n d a r e
h a v i n g a significant i m p a c t on i n d u s t r y ' s a b i l i t y to develop sources of r a w
m a t e r i a l s a n d f a c i l i t i e s i n a t i m e l y a n d efficient manner.
4
Statement with reference to Senate Resolution 45, Thomas D. Barrow, Senate Committee
on Interior and Insular Affairs, April 11, 1972.
5
The Role of Petroleum and Natural Gas from the Outer Continental Shelf in the
National Supply of Petroleum and Natural Gas, Technical Bulletin 5, Dept. of Interior.
May. 1970.
6
Statement on the L a n d Use Policy and Planning Assistance Act of 1973 (S. 268).
John L. Loftis, Jr., Senate Committee on Interior and Insular Affairs, February 7,
1973.
249
R e s e a r c h a?id D e v e l o p m e n t — T h e i m p o r t a n c e of energy research a n d development is unquestioned. Technology f o r t h e e a r l y development of coal gas a n d
l i q u i d synthetics is very i m p o r t a n t as these supplies are badly needed. P r i v a t e
a n d government research a n d development of new f o r m s of energy should
be pursued a t levels commensurate w i t h the p o t e n t i a l f o r success. P r o f i t m o t i v a t e d p r i v a t e research should be encouraged by government policies w h i c h
create a f a v o r a b l e e n v i r o n m e n t f o r c o m m e r c i a l development of the f r u i t s of
t h i s research. GovernmentHsponsored research should be l i m i t e d t o those areas
w7here a clear p u b l i c need exists a n d where t h e r e is insufficient c o m m e r c i a l
i n c e n t i v e to m o t i v a t e p r i v a t e research.
Efficiency
of Energy Utilization—Energy
policies should encourage i m p r o v e d
efficiency i n a l l aspects of the development a n d u t i l i z a t i o n o f energy resources.
T h e energy i n d u s t r i e s a n d government should exercise p o s i t i v e leadership i n
i n v i t i n g a l l A m e r i c a n users of energy to conserve these v a l u a b l e domestic
resources t h r o u g h wise use, a p p l i c a t i o n of m o r e advanced technology, a n d elimi n a t i o n of waste. Efficient use can best be p r o m o t e d by a l l o w i n g energy prices
to operate as the n a t u r a l allocator of resources. A r b i t r a r y reductions i n the
use of energy w o u l d n o t only be d e t r i m e n t a l t o t h e n a t i o n ' s economy, b u t
w o u l d also impede efforts to i m p r o v e b o t h t h e e n v i r o n m e n t a n d t h e q u a l i t y
of l i f e .
v. CONCLUSION
I n conclusion, i t is i m p e r a t i v e t h a t a firm n a t i o n a l resolve t o deal w i t h
o u r energy problems be adopted a n d embraced by a l l segments of society—
the public, government, a n d i n d u s t r y — i f lasting, long-term solutions a r e t o
J>e achieved. T h i s resolve m u s t be t r a n s l a t e d i n t o comprehensive n a t i o n a l
energy policies w i t h clearly defined long-range objectives. Such policies w i l l
p r o v i d e a basis f o r better c o o r d i n a t i o n of energy r e l a t e d m a t t e r s w i t h i n the
government. T h i s Committee is m a k i n g a v a l u a b l e c o n t r i b u t i o n to a n unders t a n d i n g of policies needed by p u r s u i n g i t s studies u n d e r Senate Resolut i o n 45.
I f t h e n a t i o n adopts a firm resolve to develop i t s domestic energy resources, we are confident the energy i n d u s t r i e s w i l l respond. H o w e v e r , a
considerable p e r i o d of t i m e w i l l be r e q u i r e d t o develop l a r g e volumes o f addit i o n a l supplies or s u b s t a n t i a l l y m o d i f y m a n u f a c t u r i n g a n d d i s t r i b u t i o n f a cilities.
I believe i t is recognized t h a t over the n e x t t w o t o t h r e e years, there
is a reasonable p r o b a b i l i t y t h a t t h e nation's energy s i t u a t i o n w i l l become even
more d i f f i c u l t t h a n i t has been t h i s w i n t e r . Therefore, as I have a t t e m p t e d to
stress, we believe i t is most i m p o r t a n t t h a t any p r o g r a m s designed to meet
short t e r m needs be f u l l y compatible w i t h the nation's l o n g t e r m goals.
T h a n k you, M r . C h a i r m a n , f o r t h i s o p p o r t u n i t y t o present our views.
STATEMENT OF ROBERT V. SELLERS, CHAIRMAN OF THE BOARD,
CITIES SERVICE CO., NEW YORK CITY
Mr. S E L L E R S . Thank you, Mr. Chairman.
The prepared statement has been submitted for the record.
Senator' M C I N T Y R E . I t will be accepted and it will be printed in its
entirety.
Mr. S E L L E R S . I would like to read in full a few segments of i t and
paraphrase the balance.
My name is Kobert V. Sellers. I am chairman of the board of Cities
Service Co., New York City.
Cities Service Co. is a small oil company engaged in all phases of
the petroleum industry in the United States. We also explore for oil
and gas in other areas of the world and produce oil in Canada and
Columbia.
The company's net production of crude oil in the United States is
approximately 126,000 barrels per day or about i y 2 percent of total
domestic production, or about 2 percent of domestic refinery runs.
250
Our sales of petroleum products are about 380,0000 barrels daily,
or about 2.5 percent of product sales in the United States. Our sales
of products are almost exclusively to independent businessmen who,
in turn, serve the ultimate consumer.
A small percentage of the total volume of petroleum products sold
by Cities Service moves directly to the ultimate consumer through
our facilities and sales. The balance moves down through independent businessmen. Since the main emphasis today is on gasoline, I
would like to point out that only 7 percent of the gasoline we sold
last year moved directly to the ultimate consumer; 30 percent was
sold to independent businessmen who, in turn, resold under their
own brands; about 40 percent was sold to independent businessmen
who operate as "distributors," using the Cities Service brand name,
the remainder or about 23 percent moved directly to independent
retailers who operate service stations flying the CITCO flag. The
causes behind the gasoline shortage are cited in the statement.
I w i l l summarize them here in three groups. A group of circumstances which have led to a very high demand for gasoline at the
current time, these are mainly the very strong U.S. economic activities at this point in time; as well, the increasing use of automobiles
and the increasing use of gasoline per automobile.
Secondly, limitations on abilities of refiners to expand i n recent
years. Economics primarily, environmental, siting, and crude supply
restrictions secondarily have limited the expansion of the U.S. refining capacity for the past several years, resulting in a serious shortage
at the moment.
Thirdly, the lack of flexibility in utilization of available crude oil
and refined products because of environmental restrictions which are
being applied to them at a rate faster than the U.S. and world oil
economy can adjust to them.
W i t h respect to question 2, the extent of the effect the shortage w i l l
have on the Nation.
This summer in total, the gasoline shortage will be of the nuisance
variety rather than a serious problem. I t will have a serious impact
in local situations where the flexibility of the distribution system is
not sufficient to meet a local problem.
Without definitive action by the government to remove the impediments to expansion of petroleum supplies, the situation could become
extremely serious in the following summer and could be a castrophe
for the U.S. economy in the years following.
The impact that the shortages will have on competition within the
petroleum industry:
The petroleum industry has been and is one of the most highly
competitive industries in the U.S. economy. I believe i t will continue
to be so. For approximately 50 years, the industry has existed in a
climate of ample supply. When shortages did occur, they were normally caused by some external factor which was relatively short lived
and clearly visible.
The competition was primarily for markets and secondarily for
supply. We are now in a situation where the petroleum world has
turned around. The competition is for supply and markets are more
plentiful than products to serve them.
251
I make no pretense to being wise enough to anticipate what the
ultimate effect of this change will be, nor even whether the current
situation will, in fact, be that long-lived.
Intelligent policies by the U.S. Government can lead to restoration
of a situation of adequate refining capacity. The question then w i l l
become whether sufficient crude oil will be available to operate that
capacity. There is no certainty that it will be available nor that it
will be at a price we can afford.
Again intelligent actions of the U.S. Government encouraging
exploration for and development of domestic reserves can help.
One of the principal concerns of this committee is the adequacy
of supply for so-called "independent marketers. There has been a
great deal in the press recently about the closing of some independent
service stations. There has been very little in the press about the fact
that many more branded stations are being closed than independents.
These closings reflect the competition in the market-place and they
are merely accelerated by the current supply situation.
From a great many standpoints, particularly distribution efficiency
and land-use economics, I am convinced that the Nation will be well
served by reductions in marketing overcapacity and inefficiencies.
I would like to mention here that in the case of the Cities Service
Co. in 1963 our products were marketed under our brand at 14,000
stations in the United States and into eastern Canada.
A t the end of last year they were being marketed through 8,700
stations. As I will comment more in a moment, that number has been
planned to decrease. I f the current shortage situation does not end
with a substantial strong independent marketing segment, then my
judgment of the flexibility and capability of the independent petroleum marketer is wrong.
The next question is what steps can and should be taken to prevent
such shortages and their recurrence?
Most of the steps necessary to encourage the development of resources and facilities to overcome the current energy shortage in the
United States were covered in the President's rcommendations in his
Energy message. The import program is sufficiently flexible and provides sufficient incentive for actions by the domestic industry to
correct the current imbalances over a period of time.
What is called for is a sustaining program over a period of many
years.
Programs to encourage conservation in the use of energy are
appropriate. I t is my belief that the U.S. economy and society will
not stand for, nor should they suffer from, the need to make substantial reductions in energy use to solve the energy shortage.
The Government must embrace wholeheartedly policies which will
permit and encourage:
—Development of domestic resources—oil, gas, coal, and nuclear energy;
—Development of facilities for processing and transporting
fuels. This includes resolving the siting problems, resolving the
jurisdictional problems over deep water unloading ports, and so
on.
96-183 O - 73 - 17
252
—Adequate economic incentive for the industry to undertake
the necessary expenditures; and
— A sufficiently flexible import program to allow interaction
with the world petroleum market in order to balance domestic
supply.
The next question: Impact that gasoline shortages w i l l have on
other products for the remainder of this year and on home heating
oil supplies next winter.
The current efforts by domestic refiners to produce more gasoline
will result in severe short-falls in kerosene, jet fuel, and distillates.
This shortage will reach through the next heating season. During the
next 10 months, airlines and the Federal Government w i l l have difficulty in obtaining sufficient jet. fuel. We must import very large
quantities of distillates this coming summer and fall, i f we are to
avoid severe shortages during the winter. Our economists anticipate
the need for imported distillates to be in the neighborhood of 400,000
barrels per day for the balance of 1973 and the first quarter of 1974.
There is no assurance that this quantity of distillates will be available to the United States. However, domestic refiners must continue
to maximize yields of gasoline while obtaining as much of the heavier
products as possible from overseas.
The last point, the effect of the recently announced replacement of
the quota system with a tariff license fee program on this year's
supply of petroleum products.
The removal of volumetric limitations on imports of crude oil and
products has given the U.S. industry freedom to reach throughout
the world for supply to meet the domestic demand. Current economics in the industry prohibit the use of these foreign sources.
Crude and product prices in foreign markets are currently above
those in the United States. Consequently, U. S. suppliers are unwilling to commit for the volumes of either gasoline or distillates which
are needed because they face a potential exorbitant loss in handling
such material. Although the current price controls on the petroleum
industry allow a bit of flexibility in product prices, that flexibility
does not approach the level required to absorb the high cost that is
currently involved in the purchase of material from foreign refineries. As far as the current situation is concerned, the tariff license fee
programs an improvement over the quota system, since it allows for
the importation of whatever volume of material is needed in the U.S.
market. W i t h restrictions resulting from the uncertainties of current
price controls and industry economics, the material w i l l not be imported and the United States w i l l run short.
I would like to comment briefly on our particular company's situation sice some actions that we started 1 or 2 years ago before the
current supply situation was foreseen certainly by us, and I think by
very many others, have a distinct impact on our relationship with
some of our customers and also some of the people from whom we
purchase crude and products.
Two years ago, we 'began a series of actions to improve our marketing performance. The key elements behind this were:
1. Our need to concentrate sales of our products in geographical areas which we could supply economically;
253
2. Our need to provide for movement of our petroleum products from refinery to ultimate consumer in the most efficient
manner possible; and
3. Our need* to reduce the amount of capital which we had
committed to marketing operations.
As a result of this study the decision was reached a year ago to
close our East Chicago, Ind., refinery. This decision was based on
the long-term outlook for the refinery. Substantial expenditures
would have been required to allow the refinery to -meet impending
product quality and pollution control standards. Having made these
expenditures, we would have faced even larger expenditures to modernize the refinery within a few years.
This combination of expenditures could not be justified economically.
The closing of this refinery and the completion of incremental
additions to our refinery capacity at Lake Charles, La., were projected to result in a decrease in available product of 6 million barrels
of gasoline and 2 million barrels of distillate fuels annually.
Thus for 2 years we have had underway a series of steps designed
to improve our efficiency.
These steps included the elimination of sales volume to a number
of independent businessmen, some of whom were marketing under
their own brand names, but most of them were selling under the
Citco brand.
I n the same period, we turned a large number of operations which
we had conducted, directly over to independent businessmen.
We also took on new distributor accounts in areas which we can
serve economically from our existing transportation network.
The customers who needed to find a new supplier early in this
period had little difficulty in obtaining supply. W i t h the more recent
product shortages, difficulty at that point has been encountered. Our
actions in these cases will be discussed in a moment.
During the past 5 months our production of gasoline has been
below the volume we had anticipated by about 2 million barrels. Of
this about 55 percent was due to extra production of distillates during
the winter and the balance because of upsets in refinery operations or
inability to transport sufficient crude oil to the refinery. W i t h all
customers wanting larger volumes, we have been forced to allocate
products to our customers. Our current supply problem is aggravated
by the fact that some of our customers, both branded and unbranded
marketers, whose contracts have expired, have been unable to find a
new supply. I n some instances, we have been able to continue supplying some product to these customers so that they can stay in business
until they locate a new source of supply.
We expect to be able to supply 100-percent of last year's gasoline
volume this summer but our ability to accomplish this assumes full
production from our Lake Charles refinery.
I f the proposals made in the President's energy message to allow
and encourage refinery construction in the United States, are embraced i n firm policies and if the economics of the petroleum business
are permitted to provide economic incentive to refinery construction,
Cities Service will expand its domestic refining capacity. Such ex-
254
pensions are essential to improvement in the U.S. petroleum supply
picture.
We are working with a number of independent marketers in an
attempt to aid them in obtaining additional supply. A letter to the
Honorable William Simon, Deputy Secretary of the Treasury, describing these activities is attached, now to our statement and w i l l be
i n the record.
I n summary, a definitive national energy statement was absolutely
essential before major headway could be made toward solving the
U.S. energy shortage. What is called for now is the embracing by
the entire U.S. Government of the principles put forward in the
President's message and the assurance to the petroleum economy of
tihe United States that i t is wanted, that its products are wanted and
that it will be allowed to produce the products that the Nation needs.
Thank you.
[The complete statement of Mr. Sellers follows:]
S T A T E M E N T OF R O B E R T V .
S E L L E R S , C H A I R M A N OF T H E B O A R D , C I T I E S S E R V I C E
Co.
INTRODUCTION
M y name is Robert V. Sellers. I am C h a i r m a n of the B o a r d of Cities
Service Company, New Y o r k City.
Cities Service Company is a small o i l company engaged i n a l l phases of
the petroleum i n d u s t r y i n the U i n t e d States. W e also explore f o r o i l and
gas i n other areas of the w o r l d and produce o i l i n Canada and Colombia.
The Company's net production of crude o i l i n the U n i t e d States is approximately 126,000 barrels per day, or about IV2 percent of t o t a l domestic
production. Our refinery runs are c u r r e n t l y approximately 240,000 barrels per
day, or about 2 percent of domestic refinery runs. Our sales of petoleum
products are about 3S0,000 barrels daily, or about 2 V i percent of product sales
i n the U n i t e d States. Our sales of products are almost exclusively to independent businesmen who. i n t u r n , serve the u l t i m a t e consumer.
A small percentage of the t o t a l volume of petroleum products sold by
Cities Service moves directly to the u l t i m a t e consumer t h r o u g h our f a c i l i t i e s
and sales. The balance moves through independent businessmen. Since the m a i n
emphasis today is on gasoline, I would l i k e to point out t h a t only about 7
I>ercent of the gasoline we sold last year moved d i r e c t l y to the u l t i m a t e
consumer; about 30 percent was sold t o independent businessmen who, i n
t u r n , resold under their owTn b r a n d s ; about 40 percent was sold t o independent
businessmen who operate as " d i s t r i b u t o r s " using the Cities Service b r a n d
n a m e ; the remainder, or about 23 percent, moved d i r e c t l y to independent
retailers who operate service stations flying the C I T G O flag.
I n the letter i n v i t i n g me to present testimony before this Committee, six
items were mentioned t h a t wrere of specific interest to the Committee. M y
statement w i l l cover those six items. The views expressed w i t h respect to
those items are my viewTs and those of my associates i n Cities Service.
W e have no basis to speak f o r anyone else. F o l l o w i n g my general comments
on the s i x items, I w i l l describe briefly Cities Service's position i n the
c u r r e n t petroleum supply situation.
1. The causes behind this gasoline
shortage
The U n i t e d States is c u r r e n t l y faced w i t h a shortage of a l l petroleum
fuels. Since this is the beginning of the h i g h gasoline consuming season,
a t t e n t i o n is presently focused on gasoline supply. How r ever, i t is a serious
mistake t o overlook the fact t h a t l i q u i d fuels o f acceptable q u a l i t y i n every
product classification are i n short supply. The causes f o r these shortages are
numerous, complex and interacting. These can be classed i n t o three categories :
F i r s t , there are a number of factors which have led to substantial increases
i n demand. These include the c u r r e n t very h i g h level of economic a c t i v i t y
i n the U n i t e d States w h i c h has created h i g h demand i n every sector of energy
use; increased consumption of gasoline per vehicle arising f r o m more energy-
255
requiring accessories and decreased efficiency of engines designed to reduce
p o l l u t i o n ; an unusually r a p i d expansion of the U n i t e d States automobile
population, which is related to the high level o f economic a c t i v i t y .
I t is w o r t h p o i n t i n g out here t h a t i n the last f o u r years gasoline required
per mile, w i t h the same a u x i l i a r y equipment, has increased 17 percent f o r
the average automobile on the road. T h i s results f r o m a combination of size
of car and engine, addition of p o l l u t i o n control devices, and less efficient
engine design to accommodate these control devices. New cars are being added
at record rates, w i t h new car registrations going over 10 m i l l i o n units i n 1971
and 1972 and projected at over 11 m i l l i o n i n 1973. Retirements of old cars
have not increased significantly.
Second, a number of factors have combined to result i n l i m i t e d additions
to new product supply. Much has been w r i t t e n about the lack of refinery
construction i n the U n i t e d States. F o r several years, the economics of the
petroleum business have not justified new refinery construction i n this country.
Anyone who could j u s t i f y construction or was w i l l i n g t o gamble on better
economics later was discouraged or prohibited by uncertainty over f u t u r e
product specifications, by i n a b i l i t y to obtain sites where refineries could be
built, by i n a b i l i t y to get permision to b u i l d new transportation facilities, and
by uncertainty over a v a i l a b i l i t y of r a w materials f o r refineries.
Currently, the most serious hindrance on obtaining a d d i t i o n a l supply is
domestic price regulation which serves to isolate the U.S. petroleum economy
f r o m t h a t of the rest of the w o r l d at the precise p o i n t i n time when we
have become more dependent t h a n ever before on a v a i l a b i l i t y of supply f r o m
foreign crude oil production and foreign refining capacity.
Short t e r m the problem is complicated by the shortage of sweet crude
oil, i.e., low-sulfur crude oil, worldwide. N o t only i n the U n i t e d States, but
i n many other countries, the desire f o r lower levels of a i r p o l l u t i o n has led
to increasing demand f o r sweet crude. There simpy is not enough available i n
the w o r l d to supply t h a t demand. As of today refinery facilities are not i n
existence to process adequate volumes of sour crude w h i l e meeting current a i r
quality standards. As a result, w i t h a severe shortage of gasoline and an
impending f u r t h e r shortage of distillate fuels, some refineries i n the U.S., including our own, are operating at less than potential capacity because of unavaila b i l i t y of sufficient sweet crude. The construction of a d d i t i o n a l facilities to
enable refineries to utilize sour crude and meet current a i r q u a l i t y and product
standards w i l l take several years.
Other factors have entered to l i m i t supply. Most U.S. refineries have
used n a t u r a l gas as t h e i r principal fuel, f o r exactly the same reason t h a t
so many electric u t i l i t i e s have used i t — i t has been cheap and clean. W i t h
n a t u r a l gas usage being restricted, refineries have been forced to b u r n
their own l i q u i d fuels, resulting i n a decrease i n product output. T h i s
phenomenon w i l l be an increasingly significant factor over the next few years.
Furthermore, the requirement to manufacture unleaded gasoline w i l l reduce
the amount of gasoline which can be made f r o m a barrel of crude.
T h i r d , several factors have caused unusual demand to be t h r o w n on l i q u i d
fuels and other factors have l i m i t e d the a b i l i t y to use available fuels. The
short-fall of n a t u r a l gas had a significant impact on the l i q u i d f u e l picture
last year f o r the first time. The increased curtailment of n a t u r a l gas resulted
i n increased demand by u t i l i t y and i n d u s t r i a l customers f o r oil—low-sulfur
oil. L o w - s u l f u r f u e l was made by blending available high-sulfur materials w i t h
low-sulfur, lighter fuels. These l i g h t e r fuels, i n t u r n , reduce the amount of
fuel available f o r home heating, d r y i n g crops, r u n n i n g j e t planes or diesel
buses, and m a k i n g gasoline. The l i m i t a t i o n s on s u l f u r i n f u e l oils, incluidng
refinery fuel, restricted the a b i l i t y of U.S. refineries to u t i l i z e the crude t h a t
was available i n the world—mostly high-sulfur material.
A t the s t a r t of this d r i v i n g season, domestic gasoline inventories were at
an exceptionally low level. T h i s was p r i m a r i l y because of the s h i f t of refinery
operations to higher t h a n n o r m a l yield of distillates d u r i n g the past winter.
Cold weather early i n the season, coupled w i t h substitution of distillates f o r
n a t u r a l gas and use of distillates f o r blending w i t h high-sulfur fuels resulted
in a high degree of a l a r m concerning adequacy of d i s t i l l a t e supplies. Fortunately, w a r m e r weather and increased f u e l oil imports later i n the w i n t e r
ameliorated the problem. A t the end of the heating season, d i s t i l l a t e inventories were adequate but not excessive. H a d the first quarter of this year been
as cold as the last quarter of last year, we would have been i n a much more
serious d i s t i l l a t e situation t h a n we actually experienced.
296
I n summary, the causes of the c u r r e n t gasoline shortage a r e :
1. H i g h demand f o r gasoline created by the health of the U.S. economy
and the decreasing efficiency of new automobiles.
2. L i m i t a t i o n s on the a b i l i t y of refiners to expand i n recent years.
3. Lack of flexibility i n u t i l i z a t i o n of available crude o i l and products.
2. The extent of the effect the shortage will have on the nation
T h i s summer our economists estimate t h a t the U n i t e d States w i l l be s h o r t
by approximately 250,000 barrels per day of gasoline. T h i s i s approximately 4
percent of the n o r m a l usage d u r i n g the d r i v i n g season. T h i s level of shortage
is better categorized as a nuisance t h a n a n y t h i n g else. There w i l l be some
inhibitions on the use of gasoline. There w i l l be some isolated instances of
product shortage which may be severe to a p a r t i c u l a r area. W i t h the l o w
level of inventories t h a t presently e x i s t the nation's supply system simply
does not have the flexibility to offset such shortages. Unless significant actions
are taken i n the United States, the situation w i l l become much more serious.
There are severe l i m i t a t i o n s on how r a p i d l y refinery capacity i n t h e U n i t e d
States can be expanded. There are l i m i t e d quantities of gasoline available
f r o m refineries i n the rest of the world. The t y p i c a l foreign refinery is designed
f o r producing fuel oil and can only produce a small volume of gasoline.
W i t h o u t definitive action by government which w o u l d lead to constructive
actions by industry, the shortage next year could represent a very serious
problem f o r the U n i t e d States economy. W e must get started p r o m p t l y unless
our shortage is to be much more severe i n the summer of 1974.
3. The impact shortages will have on competition
within
the oil
industry
The petroleum industry has been and is one of the most h i g h l y competitive
industries i n the U n i t e d States economy. I believe i t w i l l continue t o be so.
F o r approximately 50 years, the i n d u s t r y has existed i n a climate of ample
supply. When shortages d i d occur, they were n o r m a l l y caused by some e x t e r n a l
factor w h i c h was relatively short-lived. The competition was p r i m a r i l y f o r
markets a n d secondarily f o r supply. We are nowT i n a s i t u a t i o n where the
petroleum w o r l d has turned around. The competition is f o r supply and
markets are more p l e n t i f u l t h a n products to serve them. I make no pretense
to being wise enough to anticipate w h a t the u l t i m a t e effect of t h i s change
w i l l be, nor even whether the current situation w i l l , i n fact, be t h a t longlived.
I n t e l l i g e n t policies by the U n i t e d States Government can lead to restoration
of a s i t u a t i o n of adequate refining capacity. The question then w i l l become
whether sufficient crude o i l w i l l be available to operate t h a t capacity. There
is no certainty t h a t i t w i l l be available nor t h a t i t w i l l be at a price we
can afford. Again, intelligent actions of the U n i t e d States Government encouraging exploration f o r and development of domestic reserves can help.
One of the p r i n c i p a l concerns of this Committee is the adequacy of supply
f o r "independent marketers.'* There has been a great deal i n the press recently
about the closing of some independent service stations. There has been very
l i t t l e i n the press about the f a c t t h a t many more branded stations are being
closed. These closings reflect the competition i n the marketplace and they are
merely accelerated by the current supply situation.
F r o m many standpoints, p a r t i c u l a r l y d i s t r i b u t i o n efficiency and l a n d use
economics, I am convinced t h a t the n a t i o n w i l l be w e l l served by reductions
i n m a r k e t i n g overcapacity and inefficiencies.
I f the current short situation does not end w i t h a substantial strong
independent m a r k e t i n g segment, then my j u d g m e n t of the
flexibility
and
capability of the independent petroleum marketer is wrong.
What steps can and should be taken to prevent such shortages and their
reoccurrence
Most of the steps necessary to encourage development of resources and
f a c i l i t i e s to overcome the current energy shortage i n the U n i t e d States
were covered i n the President's recommendations i n his Energy Message.
The i m p o r t p r o g r a m which the President announced is sufficiently flexible and
provides sufficient incentive f o r actions by the domestic i n d u s t r y to correct
the current imbalances over a period of time. However, i t is physically
impossible to correct these imbalances i n a short period of time. W h a t is
called f o r is a sustaining p r o g r a m over a period of many years.
257
Programs to encourage conservation i n the use of energy are appropriate.
I t is my belief t h a t the United States economy and society w i l l not stand f o r ,
nor should they suffer from, the need to make substantial reductions i n energy
use to solve the energy shortage.
The Government must embrace wholeheartedly policies which w i l l p e r m i t
and encourage—
Development of domsetic resources—oil, gas, coal and nuclear energy;
Development of facilities f o r processing and transporting f u e l s ;
Adequate economic incentive f o r industry to undertake the necessary
expenditures; and
A sufficiently flexible i m p o r t program to allow interaction w i t h the
w o r l d petroleum market i n order to balance domestic supply.
6. The impact that gasoline shortages will have on other products for the
remainder of this year and on home heating oil supplies next
winter
The current efforts by domestic refiners to produce more gasoline w i l l result
i n severe short-falls i n kerosene, j e t f u e l and distillates. T h i s shortage w i l l
reach through the n e x t heating season. D u r i n g the next ten months, airlines
and t h e Federal Government w i l l have difficulty i n obtaining sufficient j e t fuel.
We must i m p o r t very large quantities of distillates this coming summer and
fall, i f we are to avoid severe shortages d u r i n g the winter. W e anticipate
t h a t the need f o r imported distillates w i l l be i n the neighborhood of 400,000
barrels per day f o r the balance of 1973 a n d the first quater of 1974. There is
no assurance t h a t this q u a n t i t y of distillates w i l l be available to the U n i t e d
States. However, domestic refiners must continue to maximize yields of gasoline w h i l e obtaining as much of t h e heavier products as possible f r o m overseas.
(i. The effect the 7-ecently announced replacement of the quota system with a
tariff license fee program will have on this year's supply of
petroleum
products
The removal of volumetric l i m i t a t i o n s on imports o f crude o i l and products
nas given the U n i t e d States industry freedom to reach throughout the w o r l d
f o r supply to meet the domestic demand. Current economics i n the i n d u s t r y
p r o h i b i t the use of these foreign sources. Crude and product prices i n foreign
markets are currently above those i n the United States. Consequently, United
States suppliers are u n w i l l i n g to commit f o r the volumes of either gasoline or
distillates which a r e needed because they face a potential exorbitant loss
i n handling such material. Although the current price controls on the petroleum i n d u s t r y allow a b i t of flexibility i n product prices, t h a t flexibility does
not approach the level required to absorb the high cost t h a t is currently involved i n the purchase of m a t e r i a l f r o m foreign refineries. As f a r as the
current situation is concerned, the t a r i f f license fee program is an improvement over the quota system, since i t allows f o r the i m p o r t a t i o n of whatever
volume of m a t e r i a l is needed i n the U n i t e d States market. W i t h restrictions
resulting f r o m the uncertainties of current price controls and industry economics, the m a t e r i a l w i l l not be imported and the U n i t e d States w i l l r u n
short.
CITIES
SERVICE C O M P A N Y ' S
POSITION
T w o years ago, Cities Service Company began a series o f actions to improve
its m a r k e t i n g performance. They key elements behind this program w e r e :
1. Our need to concentrate sales of our products i n geographical areas
which we could supply economically :
2. Our need t o provide f o r movement of our petroleum products f r o m
refinery to u l t i m a t e consumer i n the most efficient manner possible; and
3. Our need t o reduce the amount of capital which we had committed
to m a r k e t i n g operations.
A t the same time we began an intensive study of our refining operations.
A result of this study was the decision reached a year ago to close our East
Chicago, Indiana, refinery. T h i s decision was based on the long-term outlook
f o r the refinery. Substantial expenditures would have been required to allow
the refinery to meet impending product quality and pollution control standards.
H a v i n g made these expenditures, we would have faced even larger expenditures
to modernize the refinery w i t h i n a few years. These expenditures could not be
justified economically.
258
The closing of t h i s refinery a n d the completion of incremental a d d i t i o n s to
our refinery capacity at L a k e Charles, Louisiana, were projected to result i n
a decrease i n available product of 6,000,000 barrels of gasoline and 2,000,000
barrels o f distillate fuels annually.
F o r t w o years we have had underway a series o f steps designed t o improve
the efficiency of our m a r k e t i n g operations. These steps included the e l i m i n a t i o n
of sales to a number of independent businessmen, some of w h o m wtere m a r k e t i n g
under their own brand names, but most o f whom were selling under the C I T G O
brand.
I n t h e same period, we turned a large number of operations which we h a d
conducted d i r e c t l y over to independent businessmen. W e also took on new
d i s t r i b u t o r accounts i n areas w i l i c h wTe can serve economically f r o m o u r existi n g t r a n s p o r t a t i o n network.
The customers who needed to find a new supplier early i n this period h a d
l i t t l e difficulty i n obtaining supply. W i t h the more recent product shortages,
difficulty has been encountered. Our actions i n these cases w i l l be discussed i n
a moment.
D u r i n g the past five months, our production o f gasoline has been below
the volume we had anticipated by about 2,000,000 barrels. Of t h i s about 55
percent was due to extra production of distillates d u r i n g the w i n t e r a n d the
balance because of upsets i n refinery operation or i n a b i l i t y to t r a n s p o r t sufficient crude o i l to the refinery. W i t h a l l customers w a n t i n g larger volumes, we
have been forced t o allocate products t o our customers.
Our current supply problem is aggravated by the f a c t t h a t some of our
customers, both branded and unbranded marketers, wThose contracts have
expired, have been unable to find a new supply. I n some instances, we have
been able t o continue supplying some product to these customers so t h a t they
can stay i n business u n t i l they locate a new source of supply.
W e expect to be able to supply .100 percent of last year's gasoline volume
this summer, but our a b i l i t y to accomplish t h i s assumes f u l l production f r o m
our L a k e Charles refinery.
I f the proposals made i n the President's Energy Message to a l l o w a n d
encourage refinery construction i n the U n i t e d States are embraced i n firm
policies and i f the economics of the petroleum business a r e permitted t o provide
economic incentive to refinery construction, Cities Service w i l l expand i t s
domestic refining capacity. Such expansions are essential t o improvement i n
the U.S. petroleum supply picture.
W e are w o r k i n g w i t h a number o f independent marketers i n a n a t t e m p t to
a i d them i n obtaining a d d i t i o n a l supply. A letter t o The Honorable W i l l i a m
Simon, Deputy Secretary of the Treasury, describing these activities is attached.
SUMMARY
A definitive n a t i o n a l energy statement was absolutely essential before m a j o r
headway could be made tow r ard solving the U n i t e d States energy shortage.
The President's new i m p o r t program and his other actions and recommendations to Congress represent positive steps t o w a r d a l l o w i n g resolution of the
country's energy problems and e l i m i n a t i o n of f u t u r e refined product shortages.
Most of the significant elements of the President's program w i l l require action
by the Congress. Even the establishment by executive order of the new i m p o r t
program a n d the plans f o r accelerated leasing of government lands could be
f r u s t r a t e d by legal challenges or t h r o u g h f u t u r e executive actions. I t is imperative t h a t Congress expeditiously endorse the objectives outlined i n the
President's program. Legislation aimed t o w a r d p r o v i d i n g a basis f o r a d j u d i cating controversies regarding s i t i n g o f plants, terminals, and deep water
p o r t f a c i l i t i e s should receive the highest of priorities. Uncertainties about
f u t u r e gasoline a n d other product specifications, which are the result of s t i l l evolving standards f o r environmental protection, must be resolved.
A f u r t h e r deterrent to new investment has been the o i l i n d u s t r y ' s i n a b i l i t y
to obtain prices f o r refined products which provided a n adequate r e t u r n on
investment. Price controls have aggravated t h i s situation.
The decisions required to b u i l d or expand refinery capacity are dependent
upon h a v i n g a reasonable expectation t h a t the investment w i l l prove economically viable i n the future. A new refinery involves an investment of several
hundred m i l l i o n dollars and i t is b u i l t to operate f o r t w e n t y or more years.
Most of the President's proposals were directed t o w a r d long-term solutions
259
to the energy shortage. The new i m p o r t program should a i d the a b i l i t y to
obtain foreign supplementary supplies and help transcend the difficult period
we are in. I n a d d i t i o n to the i m p o r t program, we believe t h a t there are some
other steps which can be taken over t h e short-term t o help the immediate
situation.
F i r s t , d u r i n g this period when imports of finished products must be utilized,
domestic refineries should concentrate p r i m a r i l y on gasoline production. Since
foreign refineries are designed f o r high yields of distillates and heavy f u e l
oils, the possibilities Jor f u l f i l l i n g shortages of these products f r o m foreign
sources is relatively much greater than i n the case of gasoline. I n order to
assure t h a t the required volumes o f foreign product w i l l be imported into the
.S. market, price control regulations must make i t clear t h a t the importer can
recover his cost a n d earn a reasonable profit.
I n addition, we strongly recommend t h a t variances be permitted under
controls covering the sulfur content of f u e l oils and reasonable short-term
relief be allowed on a i r and water standards. T h i s would a l l o w both domestic
and foreign refineries to substantially increase the amount of products available f o r United States energy markets.
We urge f u r t h e r t h a t the upcoming regulations f o r supplying unleaded
gasoline be deferred i n line w i t h the delayed i n t r o d u c t i o n of the catalytic
muffler recently suggested by the EPA.
As a f u r t h e r aid, consideration should be given to increasing government
purchases of m i l i t a r y j e t fuel f r o m foreign source points, on a short-term
basis, to minimize this d r a i n on domestic motor gasoline and d i s t i l l a t e supplies.
We also believe t h a t the energy conservation suggestions made by Secret a r y M o r t o n were w e l l directed and we urge t h a t t h i s message be given
broader exposure emphasizing the benefits f r o m efficient usage of automobiles;
f r o m m a x i m u m u t i l i z a t i o n of mass t r a n s i t ; and f r o m a modest adjustment to
current t h i n k i n g regarding heating and air-conditioning standards.
C I T I E S S E R V I C E CO.,
New York, N.Y., May 7, 1973.
Hon. WILLIAM
SIMON,
Deputy Secretary of the Treasury,
Washington, D.G.
DEAR SIR : F o r the record I would l i k e to i n f o r m you o f steps Cities Service
has and is t a k i n g to assist independent private brand marketers, who are our
customers, w i t h t h e i r efforts to obtain adequate supplies of gasoline.
Last week we offered our customers i n this category our services i n assembling cargo quantities, a r r a n g i n g f o r transportation, providing t e r m i n a l facilities,
and a r r a n g i n g necessary exchanges. T h i s w i l l provide to them t h e logistics to
allowT f o r purchase of imported product using their o w n i m p o r t licenses or any
p a r t of our recent i m p o r t allocation t h a t they may need.
As you know, th-3 948,000 barrel allocation recently granted to Cities Service
by the O I A B required us to deliver a l l of t h i s product to independent private
brand marketers. I n our judgment, this requirement makes i t impossible f o r us
to use this allocation w i t h o u t d i s c r i m i n a t i n g against our independent C I T G O
brand customers. We are presently, and have been consistently, t r e a t i n g both
groups of customers i n exactly t h e same way d u r i n g this period when we are
forced to allocate products at a lower level t h a n n o r m a l sales requirements.
D u r i n g this period of supply shortage, Cities Service is offering the use of
its d i s t r i b u t i o n facilities as outlined above at no profit t o the Company. We w i l l
only require f o r our services actual transportation and t e r m i n a t i n g charges
which we would customarily charge to another refiner or d i s t r i b u t o r . W e intend
to make this offer available also to independent p r i v a t e brand marketers i n
the Midwest wiio are not necessarily our customers, but who can purchase i n
cargo quantities. H o p e f u l l y this w i l l provide access f o r some supplies i n the
Midwest where there is apparently an acute need f o r both resellers and agric u l t u r a l use.
You should k n o w t h a t i n the past we have been a Significant supplier to
independent p r i v a t e brand marketers. I believe i t w i l l be of interest to you
t h a t our most recent sales projection indicates t h a t f o r the calendar year of
1973 approximately 30% of our total gasoline sales w i l l be made to this class
of customer.
260
I s i m p l y w a n t e d y o u to k n o w t h a t we are a w a r e o f t h e supply p r o b l e m f a c i n g
m a r k e t e r s i n t h i s category a n d t h a t we a r e d o i n g w h a t we can t o be of
assistance to them.
Sincerely yours,
R. V.
SELLERS.
Senator M C I N T Y R E . We will call on Mr. Card, senior vice president
of Texaco.
STATEMENT OF ANNON M. CARD, SENIOR V[CE PRESIDENT,
TEXACO, ACCOMPANIED BY JAMES PIPKIN, EXECUTIVE VICE
PRESIDENT
Mr. CARD. Thank you, Mr. Chairman.
My name is Annon M. Card. I am a senior vice president of
Texaco, Inc.
I am pleased to have this opportunity to present to this subcommittee Texaco's views concerning the shortage of gasoline and other
petroleum product supplies.
I presented testimony on the gasoline shortage last week to the
Joint Economic Committee. I will expand on that testimony today
providing information on other petroleum products as well as gasoline. I w i l l also present Texaco's views as to what can be done to help
overcome the present situation on both a short and long-term basis.
The present shortage of petroleum product supplies in this country
has been caused by factors rooted in the total energy supply dilemma
we are experiencing today. The obvious cause of this shortage is
unprecedented demand and restricted supply. I n Texaco's view, restrictions on free market action, both in the past and present, have
increased supply problems at a time when U.S. crude oil production
has leveled off and is now declining.
The evolution of this present shortage situation is traced as follows :
The imposition of price controls of natural gas was a major reason
for our developing energy shortage.
Environmental restrictions on crude oil exploration became another
step in this evolution process.
A i r quality standards, another environmental restriction, have
severely limited the use of coal and heavy fuel oil as a source of
industrial energy. Industrial users turned to cheap supplies of natural
gas, depleting the availability of that resource.
Then with regard to tax policies, congressional action in 1969
reduced incentives for exploration of crude oil in this country.
Tightening supplies of natural gas, caused by the increased demand
for this cheap source of clean burning energy, forced industry to
turn to low sulfur middle distillate fuel oil to help meet their air
quality standards. The unprecedented demand caused by that move
to distillates was felt on an industry basis this past winter as shortage
in distillate fuel oil supplies forced supply limitations in many areas.
Past import control policies restricting crude oil imports became
untenable as U.S. production of crude oil was leveling off. U.S.
refineries were not able to run at rated capacity.
261
When increases in refining capacity were planned despite the
uncertainty of crude oil supplies, environmental restrictions again
prevented this needed action.
The middle distillate supply problems during last winter's heating
season have contributed to the gasoline shortage today as domestic
refiners concentrated their efforts on middle distillate production
which includes home heating oils and diesel fuels, with f u l l knowledge of governmental authorities. This move to maximize distillate
production necessarily reduced our ability to build up gasoline inventories for the peak motoring season this summer.
Finally, petroleum demand has increased steadily and substantially on a worldwide scale. This has resulted in a tight worldwide
supply for crude oil and products. I t has driven up the worldwide
price of petroleum energy as a whole. Yet, despite this economic fact,
price controls here in the United States have held down the price of
petroleum products such as gasoline and distillate fuels, making it
difficult to bid successfully in the free world market on a sound
economic basis.
The long-term evolution of energy supply restrictions and demand
increases has created a very definite energy supply problem today.
The problem of gasoline supply is upon us now and will remain
through the peak motoring season. Continuing problems of distillate
fuel supply are forecasted for this winter's peak heating season.
Texaco has taken every reasonable action to provide additional
gasoline supplies. Our refineries are operating at available capacity
for gasoline and have been doing so since early spring. Yet gasoline
inventories were not built up sufficiently because of the necessity to
maximize distillate production. I t is expected that Texaco's supply
of gasoline in 1973 will be about the same as we had in 1972. With
an anticipated increase of 5 percent or more expected in gasoline
demand through the rest of the year, it may not be possible to supply
all the gasoline that the customer may desire when he wants it.
As I reported to the Joint Economic Committee last week, we do
not believe this tight supply situation, which is industrywide, can
be overcome completely during the peak driving season. I t is expected
that various companies in various locations will experience gasoline
runouts during this summer season. We anticipate, however, that
such runouts will be primarily local in character and of relatively
short duration.
Based on the assumption that we will be able to switch over to
maximum middle distillate production in early fall again this year
and import supplementary offshore supplies, Texaco anticipates that
it will have approximately the same amount of middle distillate this
coming heating oil season as i t had during the past winter.
Regarding both gasoline and middle distillates, Texaco will endeavor to distribute its available supplies to our various customers on
a basis as fair and equitable as possible, with due regard to contractual commitments, and in the light of all the circumstances that
may exist at that time.
Historically, most of the gasoline and middle distillate fuel consumed in this country has been produced domestically. W i t h today's
supply/demand situation, there is a growing dependence on imports.
262
The removal of import controls by the President last month w i l l
assist i n supplying more gasoline and more distillate fuel i f prices
are adequate to encourage sucih importation.
We are faced with the fact, however, that motor gasoline meeting
specification for American made cars is presently available in only
limited quantities from foreign sources. W i t h regard to these possible imports of gasoline, i t is important to note that the east coast
delivered price is higher than most companies can recover under
price control.
Additionally, middle distillate fuels are in great demand in Europe. As I noted earlier, we cannot isolate the U.S. market today as
has been done i n the past since petroleum energy is i n great demand
worldwide.
As long as the price of distillate fuel is controlled in the United
States, i t will be increasingly difficult to obtain available supplies
from abroad where price levels for distillates are higher in today's
market.
To attract necessary imports of gasoline and distillate fuel supplies,
the industry must be permitted to recover the additional costs of
imported products. I t is an economic fact of life that prices must be
adequate to justify the many costly actions required to help alleviate
the present gasoline shortage and foreseeable distillate shortage.
Under the present system of price control, present pricing of these
products is not adequate.
Relaxation of environmental standards relating to various fuels
and specifications that have resulted in reduced production of gasoline and unprecedented demand for No. 2 oil, would assist in overcoming the shortage situation.
Texaco is not advocating the elimination of air quality controls
that are necessary to the public health. Rather, we are simply restating a position taken repeatedly before governmental authorities on
all levels that proper timing is necessary to bring about the changes
required for environmental protection in order to prevent waste of
our domestic energy supplies.
For example, the removal of lead from gasoline substantially reduces the volume of gasoline produced from a given quantity of
crude oil and moreover produces a lower octane gasoline that gives
the motorist fewer miles per gallon.
Further, we have seen how environmental restrictions have crippled our Nation's coal industry for lack of demand and reduced our
natural gas supplies because of unrealistic pricing. Now we are feeling the pinch in our middle distillate and gasoline supplies.
A national gasoline conservation program and more efficient use
of available supply would assist in overcoming the current problem.
Such a program, which could be implemented this summer, might
include car pools, tuneup programs, reduced highway speed, staggered working hours, and increased use of mass transit.
A conservation program would also benefit the middle distillate
situation. A program aimed at conserving the use of electricity and
heat in public offices, industries, and private homes would do much
to help suppliers meet the demands this coming heating season.
263
The era of cheap and plentiful supplies of energy is over and all
of us must realize that the next 5 years and perhaps longer must be
an era of energy conservation. We must seek a total commitment on
the part of all Americans to conserve energy and to use available
supplies efficiently.
Texaco plans to emphasize in its advertising the necessity for conservation programs and the need to make our available supplies of
energy perform more efficiently and without waste.
I n the long term, new refining capacity in the United States must
be developed in order to provide for additional supplies of petroleum
products.
Because of the inadequacies of the former oil import program,
environmental restrictions, and difficulty in earning a reasonable rate
of return, there are no new refineries under construction in the United
States at this time. Although several refinery expansions have been
announced since the President's message, substantial additional capacity is a necessity. Yet, to build a new refinery normally will take at
least as much as 3 years after plans are completed and siting approval
is granted.
The construction of new U.S. refining capacity will also serve to
improve our Nation's ability to provide low sulfur residual oil which
would be produced in new balanced refinery operations.
Up to now, the petroleum industry has been importing residual
fuel oils because domestic refineries have been producing only minimal quantities of this product. I n Texaco's case, we have been importing our low sulfur residual oils from the Caribbean where Texaco has
recently completed a desulfurizer unit to extract sulfur from high
sulfur crudes.
A long-term solution will also depend heavily on pricing policies
that allow prices to be established in a free market and at adequate
levels for U.S. petroleum companies both to buy gasoline and middle
distillate products in the highly competitive world market, and to
provide the incentive for building new refining capacity in the United
States.
Price controls on petroleum products have done much to create the
present shortage situation, and these controls should be relaxed.
Adequate prices are necessary to encourage additional supplies of
crude oil and products, and to generate sufficient capital resources to
finance a larger portion of the expenditures required to maximize our
energy supply.
Texaco welcomed the President's long-awaited message to Congress
calling for a national energy policy. This policy does not offer the
complete solution for our short-term energy needs. Rather, it is a
strategy to develop needed energy resources as quickly as possible to
insure that the present tightening of energy supplies is checked and
that adquate supplies are available in the future.
The President also called for an investigation of the cost effectiveness of the air quality standards imposed by the Clean A i r Act.
I t has been estimated that substantial quantities of gasoline could
be saved by very modest changes in the targets for air quality
imposed by this act.
264
Availability of middle distillate fuels for the 1973-74 heating
season could be similarly improved by a relaxation of sulfur content
restrictions. Such a relaxation as experienced in portions of this
country this past winter has shown no noticeable degradation of air
quality.
Texaco believes the problems in energy supply we are facing today
can be solved. But a new climate of cooperation between government
and energy suppliers must be molded to make the best use of our
industry's proven enterprising spirit.
For instance, while the President's actions have recognized the
need for additional refining capacity, the evolving national energy
policy must also recognize the need for prompt action to facilitate
the location of new refining capacity in this country. The approval
of proper sites has been slowed down by a variety of overlapping
Government regulations. Coordination of Federal, State and local
authorities responsible for the various types of permits and licenses
involved must be achieved to enable the construction of new projects.
I n summary, on behalf of Texaco, I submit that a petroleum
product shortage exists in the United States today. Continuous unprecedented growth in demand makes i t extremely difficult to forecast the extent of these petroleum product shortages.
Generally speaking, however, availability of supplies for both
gasoline and middle distillates appears to be at approximately the
same levels as last year, therefore creating a lag behind demand
growth. The extent and duration of this shortage will depend directly
upon the increase in demand and actions taken to correct factors
responsible for the shortage.
The short-term solutions are relaxation of price restraints, easing
of environmental regulations and the introduction of conservation
measures. The long-term solution involves prompt and favorable
action on the principal points in the President's energy message.
I t is quite clear that a shortage of petroleum energy exists in the
United States today. A t best, the situation will remain acute because
of the long leadtime involved for increasing these supplies. Immediate and positive action on the part of Federal, State and local governments is necessary. This immediate action, together with f u l l
cooperation on the part of Government and industry will enable this
Nation to take the first step toward regaining energy self sufficiency.
This is the end of my prepared statement, sir.
[The complete statement of Mr. Card follows:]
STATEMENT
or
ANNON
M.
CARD,
SENIOR
VICE
PRESIDENT,
TEXACO
INC.
M y name is A n n o n M. Card. I am a senior vice president of Texaco Inc. i n
charge of strategic planning. I have been w i t h Texaco f o r more t h a n t w e n t y five years, p r i m a r i l y i n m a r k e t i n g a n d p l a n n i n g assignments both i n the U n i t e d
States a n d abroad.
I am pleased to have this opportunity to present to t h i s subcommittee Texaco's views concerning t h e shortage o f gasoline and other petroleum product
supplies. W e w i s h to keep the public a n d governmental a u t h o r i t i e s up to date
on this increasingly complex shortage situation.
As you may know, I presented testimony on the gasoline shortage last week
to the J o i n t Economic Committee. I w i l l expand on t h a t testimony today
p r o v i d i n g i n f o r m a t i o n on other petroleum products as w e l l as gasoline. I w i l l
also present Texaco's views as to w h a t can be done to help overcome the
present situation on both a short and long-term basis.
265
C A U S E S OF T H E S H O R T A G E I N
ENERGY
SUPPLIES
T h e present shortage of p e t r o l e u m p r o d u c t supplies i n t h i s c o u n t r y has
l>een caused by f a c t o r s rooted i n t h e t o t a l energy supply d i l e m m a w e a r e
experiencing today. T h e obvious cause of t h i s shortage i s unprecedented d e m a n d
a n d r e s t r i c t e d supply. I n Texaco's view, r e s t r i c t i o n s on f r e e m a r k e t action, b o t h
i n the past a n d present, h a v e increased supply problems a t a t i m e w h e n U.S.
crude o i l p r o d u c t i o n has levelled off a n d i s n o w declining.
T h e e v o l u t i o n of t h i s present shortage s i t u a t i o n is t r a c e d as f o l l o w s :
T h e i m p o s i t i o n of p r i c e c o n t r o l s of n a t u r a l gas wTas a m a j o r reason f o r our
developing energy shortage. These controls have k e p t -the p r i c e of n a t u r a l
gas a t a n u n r e a l i s t i c a l l y l o w level f o r some 15 years w h i l e cost of e x p l o r a t i o n
a n d development has increased sharply. T h e r e was no incentive f o r t h e development of new7 n a t u r a l gas reserves.
E n v i r o n m e n t a l r e s t r i c t i o n s on crude o i l e x p l o r a t i o n became a n o t h e r step i n
this e v o l u t i o n process. E x p l o r a t i o n i n p o t e n t i a l l y p r o d u c t i v e areas of the U.S.
have been l i m i t e d by such r e s t r i c t i o n , thereby a d d i n g t o the decline of U.S.
crude o i l production.
A i r q u a l i t y s t a n d a r d s , another e n v i r o n m e n t a l r e s t r i c t i o n , have severely
l i m i t e d the use of coal a n d heavy f u e l o i l as a source of i n d u s t r i a l energy.
I n d u s t r i a l users t u r n e d to cheap supplies of n a t u r a l gas, r e d u c i n g the a v a i l a b i l i t y of t i l l s resource.
W i t h r e g a r d to t a x p o l i c i e s , congressional action i n 1969 reduced incentives
f o r e x p l o r a t i o n of crude o i l i n t h i s c o u n t r y . The increased taxes p a i d by the
petroleum i n d u s t r y since t h a t t i m e have served to h a m p e r t h e a b i l i t y of the
i n d u s t r y to generate adequate c a p i t a l resources f o r the necessary investment
needed t o cope w i t h supply difficulties.
T i g h t e n i n g s u p p l i e s of n a t u r a l g a s . caused by the increased demand f o r t h i s
cheap source of clean-burning energy, forced i n d u s t r y t o t u r n t o l o w s u l f u r
m i d d l e d i s t i l l a t e f u e l o i l to help meet t h e i r a i r q u a l i t y s t a n d a r d s . T h e unprecedented demand caused by t h a t move to d i s t i l l a t e s was f e l t on a n i n d u s t r y basis
t h i s past w i n t e r as shortage i n d i s t i l l a t e f u e l o i l supplies forced supply l i m i t a tions i n m a n y areas.
Past i m p o r t c o n t r o l p o l i c i e s r e s t r i c t i n g c r u d e o i l i m p o r t s became untenable
as U.S. p r o d u c t i o n of crude o i l was l e v e l l i n g off. U.S. refineries were not able
to r u n a t r a t e d capacity. N e w r e f i n i n g capacity c o n s t r u c t i o n was h a l t e d f o r the
most p a r t by t h i s i m p o r t s i t u a t i o n because of the u n c e r t a i n long range a v a i l a b i l i t y of c r u d e o i l stocks.
W h e n increases i n r e f i n i n g capacity were planned despite the u n c e r t a i n t y
of crude o i l supplies, e n v i r o n m e n t a l r e s t r i c t i o n s a g a i n prevented t h i s needed
action. F o r example, plans f o r t w o m a j o r newT refineries f o r the n o r t h e r n
A t l a n t i c coast area of t h i s c o u n t r y , one i n N e w E n g l a n d a n d one i n t h e M i d d l e
A t l a n t i c States, w e r e shelved as a result o f these e n v i r o n m e n t a l restrictions.
The m i d d l e d i s t i l l a t e supply problems d u r i n g last w i n t e r ' s h e a t i n g season
have c o n t r i b u t e d to the gasoline shortage today as domestic refiners concent r a t e d t h e i r efforts on m i d d l e d i s t i l l a t e p r o d u c t i o n , wirich includes home h e a t i n g
oils a n d diesel fuels, w i t h f u l l knowiedge of g o v e r n m e n t a l a u t h o r i t i e s . T h i s
move to m a x i m i z e d i s t i l l a t e p r o d u c t i o n necessarily reduced o u r a b i l i t y to
b u i l d u p gasoline i n v e n t o r i e s f o r the peak m o t o r i n g season t h i s summer.
F i n a l l y , p e t r o l e u m demand has increased steadily a n d s u b s t a n t i a l l y on a
w o r l d w i d e scale. T h i s has resulted i n a t i g h t w o r l d w i d e supply f o r c r u d e o i l
a n d products. I t has d r i v e n up the w o r l d w i d e price of p e t r o l e u m energy as a
whole. Yet, despite t h i s economic f a c t , price controls here i n the U n i t e d States
have h e l d d o w n the p r i c e of p e t r o l e u m products such as gasoline a n d d i s t i l l a t e
fuels, m a k i n g i t d i f f i c u l t to b i d successfully i n t h e f r e e w T orld m a r k e t on a sound
economic basis.
PROBLEMS W I T H E N E R G Y S U P P L Y T O D A Y
T h e long-term e v o l u t i o n of energy supply r e s t r i c t i o n s a n d d e m a n d increases
has created a v e r y definite energy supply problem today. T h e p r o b l e m of gasoline supply is upon us n o w , a n d w i l l r e m a i n t h r o u g h t h e peak m o t o r i n g season.
C o n t i n u i n g problems of d i s t i l l a t e f u e l supply a r e forecasted f o r t h i s w i n t e r ' s
peak h e a t i n g season.
Texaco has taken every reasonable a c t i o n to p r o v i d e a d d i t i o n a l gasoline
supplies. O u r refineries are o p e r a t i n g a t a v a i l a b l e capacity f o r gasoline, a n d
have been d o i n g so since e a r l y spring. Yet, gasoline inventories were not b u i l t
266
up sufficiently because of the necessity to maximize d i s t i l l a t e production. I t is
expected t h a t Texaco's supply of gasoline i n 1973 w i l l be about the same as
we h a d i n 1972. W i t h an anticipated increase o f five percent expected i n gasoline demand through the rest of the year, i t may not be possible to supply a l l
the gasoline t h a t the customer may desire when he wants it.
As I reported to the J o i n t Economic Committee last week, we do not believe
this t i g h t supply situation, which is industry-wide, can be overcome completely
d u r i n g the peak d r i v i n g season. I t is exi>ected t h a t various companies i n various
locations w i l l experience gasoline " r u n - o u t s " d u r i n g the summer season. W e
anticipate, however, t h a t such "run-outs" w i l l be p r i m a r i l y local i n character
and o f relatively short duration.
H i s t o r i c a l l y , middle distillates and gasoline production have been maximized
alternately on a seasonal basis. Such seasonable adjustments have amounted
to as much as 3 % JIS refineries alternately b u i l t up inventories of middle d i s t i l lates and gasoline i n a n t i c i p a t i o n of peak seasonal demand. The need f o r
inventory buildup is easily seen i n demand patterns of certain areas of the
country where as much as 80% o f annual middle d i s t i l l a t e f u e l requirement
has been d u r i n g the w i n t e r months. The increased use of d i s t i l l a t e f u e l by
i n d u s t r y and public u t i l i t i e s d u r i n g the past t w o years, however, has created
a greater demand f o r this product d u r i n g off-season periods.
Based on the assumption t h a t we w i l l be able to switch over to m a x i m u m
middle d i s t i l l a t e production i n early f a l l again this year and i m p o r t supplementary offshore supplies, Texaco anticipates t h a t i t w i l l have approximately
the same amount o f middle d i s t i l l a t e this comling heating o i l season as i t h a d
d u r i n g the past w i n t e r .
Regarding both gasoline and middle distillates, Texaco w i l l endeavor to
d i s t r i b u t e i t s available supplies to our various customers on a basis as f a i r
and equitable as possible, w i t h due regard t o contractual commitments, and i n
the l i g h t of a l l the circumstances t h a t may exist a t t h a t time.
SHORT-TERM
IMPROVEMENT
H i s t o r i c a l l y , most of the gasoline and middle d i s t i l l a t e f u e l consumed i n
t h i s country has been produced domestically. W i t h today's supply-demand
situation, there is a g r o w i n g dependence on imports.
The removal of i m p o r t controls by the President last month w i l l assist i n
supplying more gasoline and more d i s t i l l a t e fuel i f prices are adequate to
encourage such importation.
W e are faced w i t h t h e fact, however, t ^ a t motor gasoline meeting specificat i o n f o r American made cars is presently available i n only l i m i t e d quantities
f r o m foreign sources. W i t h regard to these possible imports of gasoline, i t is
i m p o r t a n t t o note t h a t t h e east coast delivered price is higher t h a n most companies can recover under price control.
A d d i t i o n a l l y , middle d i s t i l l a t e fuels are i n great demand i n Europe, As I
noted earlier, we cannot isolate the U.S. m a r k e t today as has been done i n t h e
past since petroleum energy is i n great demand worldwide. As long as the
price of d i s t i l l a t e f u e l is controlled in the U n i t e d States, i t w i l l be increasingly
difficult to o b t a i n available supplies f r o m abroad where price levels f o r distillates are higher i n today's market.
To a t t r a c t necessary imports of gasoline and d i s t i l l a t e f u e l supplies, the
i n d u s t r y must be permitted to recover the a d d i t i o n a l costs of i m p o r t e d products. I t is a n economic fact of l i f e t h a t prices must be adequate to j u s t i f y the
many costly actions required to help alleviate the present gasoline shortage
and foreseeable distillate shortage. Under the present system o f price control,
present p r i c i n g of these products is not adequate.
R e l a x a t i o n of environmental standards r e l a t i n g to various fuels and specifications t h a t have resulted i n reduced production o f gasoline and unprecedented
demand f o r No. 2 o i l would assist i n overcoming the shortage situation.
Texaco is not advocating the e l i m i n a t i o n o f a i r q u a l i t y controls t h a t are
necessary to the public health. Rather, we are simply restating a position taken
repeatedly before governmental authorities on a l l levels t h a t proper t i m i n g is
necessary to b r i n g about the changes required f o r environmental protection i n
order to prevent waste of our domestic energy supplies.
F o r example, the removal of lead f r o m gasoline substantially reduces the
volume of gasoline produced f r o m a given q u a n t i t y of crude oil, and moreover
produces a lower octane gasoline t h a t gives the m o t o r i s t fewer miles per
gallon.
267
F u r t h e r , we have seen how environmental restrictions have crippled our
."Nation's coal industry f o r lack of demand, and reduced our n a t u r a l gas supplies
because of unrealistic pricing. Now we are feeling the pinch i n o u r middle
d i s t i l l a t e and gasoline supplies.
A national gasoline conservation program and more efficient use of available
supply would assist i n overcoming the current problem. Such a program, w h i c h
could be implemented this summer, m i g h t include car pools, tune-up programs,
reduced highway speed, staggered w o r k i n g hours, and increased use of mass
.transit.
A conservation program would also benefit the middle distillate situation.
A program aimed at conserving the use of electricity and heat i n public offices,
industries and p r i v a t e homes would do much to help suppliers meet demands
t h i s corning heating season.
The era of cheap and p l e n t i f u l supplies of energy is over, and a l l of us must
realize t h a t the next live years- and perhaps longer, must be an era of energy
conservation. We must seek a t o t a l commitment on the p a r t of a l l Americans
to conserve energy and to use available supplies efficiently.
Texaco plans to emphasize i n its advertising the necessity f o r conservation
programs and the need to make our available supplies of energy perform more
efficienlty and w i t h o u t waste.
LONG-TERM
SOLUTIONS
I n the long term, new refining capacity i n the U.S. must be developed i n
order to provide f o r a d d i t i o n a l supplies of petroleum products.
Because of the inadequacies of the former oil i m p o r t program, environmental
restrictions, and difficulty i n earning a reasonable rate of return, there are
no new refineries under construction i n the United States at this time. Although
several refinery expansions have been announced since the President's message,
substantial additional capacity is a necessity. Yet, to b u i l d a new refinery
normally w i l l take at least as much as three years a f t e r plans are completed
and siting approval is granted.
The construction of new U.S. refining capacity w i l l also serve to improve
our Nation's a b i l i t y to provide low s u l f u r residual oil w h i c h would be produced i n new balanced refinery operations.
Up to now, the petroleum industry has been imx>orting residual f u e l oils
because domestic refineries have been producing only m i n i m a l quantities of
this product. I n Texaco's case, we have been i m p o r t i n g our lowT s u l f u r residual
oils f r o m the Caribbean where Texaco has recently completed a desulfurizer
u n i t to extract s u l f u r f r o m high s u l f u r crudes.
A long-term solution w i l l also depend heavily on p r i c i n g policies t h a t a l l o w
prices to be established i n a free market and at adequate levels f o r U.S.
petroleum companies both to buy gasoline and middle d i s t i l l a t e products i n
the highly competitive w o r l d market, and to provide the incentive f o r b u i l d i n g
new refining capacity i n the United States. Price controls on petroleum products have done much t o create the present shortage situation, and these controls should be relaxed. Adequate prices are necessary to encourage additional
•supplies of crude oil and products, and to generate sufficient capital resources
to finance a larger p o r t i o n of the expenditures required to maximize our energy
supply.
A N A T I O N A L ENERGY POLICY
Texaco welcomed the President's long-awaited message to Congress calling
f o r a N a t i o n a l Energy Policy. This policy does not offer the complete solution
f o r our short-term energy needs. Bather, i t is a strategy to develop needed
energy resources as quickly as possible to insure t h a t the present tightening of
energy supplies is checked and t h a t adequate supplies are available i n the
future.
The President also called f o r an investigation of the cost effectiveness of the
a i r quality standards imposed by the clear a i r act.
I t has been estimated t h a t substantial quantities of gasoline could be saved
by very modest changes i n the targets f o r a i r quality imposed by this act.
A v a i l a b i l i t y of middle distillate fuels f o r the 1973-1974 heating season could
be s i m i l a r l y improved by a r e l a x a t i o n of s u l f u r content restrictions. Such a
relaxation as experienced i n portions of this country this past w i n t e r has
showTn no noticeable degradation of a i r quality.
96-183—73
18
268
COOPERATIVE C L I M A T E NEEDED
Texaco believes the problems i n energy supply we are f a c i n g today can be
solved. B u t a n e w climate f o cooperation between government and. energy
suppliers must be molded to make t h e best use of our i n d u s t r y ' s p r o v e n enterprising s p i r i t
F o r instance, w h i l e the President's actions have recognized the need f o r
a d d i t i o n a l r e f i n i n g capacity, the evolving n a t i o n a l energy policy m u s t also
recognize t h e need f o r p r o m p t action t o f a c i l i t a t e t h e l o c a t i o n of new r e f i n i n g
capacity i n t h i s country. T h e a p p r o v a l of proper sites has been slowed d o w n
by a v a r i e t y of o v e r l a p p i n g government regulations. C o o r d i n a t i o n of F e d e r a l ,
State a n d local a u t h o r i t i e s responsible f o r the v a r i o u s types of p e r m i t s a n d
licenses i n v o l v e d m u s t be achieved to enable the construction of new projects.
SUMMARY
I n s u m m a r y , on behalf of Texaco, I submit t h a t a p e t r o l e u m p r o d u c t shortage exists i n the U n i t e d States today. Continuous unprecedented g r o w t h i n
demand makes i t extremely d i f f i c u l t to forecast t h e extent of these p e t r o l e u m
p r o d u c t shortages. Generally speaking, however, a v a i l a b i l i t y of supplies f o r
both gasoline a n d m i d d l e d i s t i l l a t e s appears t o be a t a p p r o x i m a t e l y the same
levels as last year, therefore c r e a t i n g a l a g behind demand g r o w t h . T h e e x t e n t
a n d d u r a t i o n of t h i s shortage w i l l depend d i r e c t l y upon the increase i n demand
a n d actions t a k e n t o correct f a c t o r s responsible f o r the shortage.
T h e s h o r t - t e r m solutions are r e l a x a t i o n of price restraints, easing of e n v i r o n m e n t a l regulations, and the i n t r o d u t c i o n of conservation measures. T h e longt e r m solution involves p r o m p t a n d f a v o r a b l e congressional a c t i o n on the p r i n c i p a l points i n t h e President's energy message.
I t is q u i t e clear t h a t a shortage of petroleum energy exists i n the U n i t e d
States today. A t best, t h e s i t u a t i o n w i l l r e m a i n acute because of t h e l o n g
lead t i m e i n v o l v e d f o r increasing these supplies. I m m e d i a t e a n d p o s i t i v e a c t i o n
on the p a r t of Federal, State, a n d local governments is necessary. T h i s i m m e d i ate action, together w i t h f u l l cooperation on the p a r t of government a n d
i n d u s t r y , w i l l enable t h i s n a t i o n to t a k e the first step t o w a r d r e g a i n i n g energy
self-sufficiency.
T h i s is indeed a m a t t e r i n v o l v i n g t h e n a t i o n a l security of t h e U n i t e d
States.
Senator M C I N T Y R E . This is one thing that really bugs me. I have
had a lot of hearings and have had representatives like yourself who
are very knowledgeable i n the oil industry and all of its ramifications
and I have to agree, as I am sure Senator Proxmire agrees, that the
environment and the increasing number of automobiles and travel
have all contributed to this shortage and the demand.
But many, many, many times your representatives and even some
of you have been here, we have asked this question, and you have
repeatedly underestimated the demand that was coming up in the
following year.
Now, perhaps as you just said, Mr. Card, the petroleum shortage
exists, continued and unprecedented growth and demand makes i t
extremely difficult.
Would you not confess that time and time again you gentlemen
and others like you in the oil industry have failed to make an intelligent estimate or even a close estimate of what the demand w7as going
to be in the upcoming year?
Mr. S E L L E R S . I would like to respond to that, Mr. Chairman.
For approximately 47 years, those errors were on the other side,
and wre anticipated greater demand than in fact, existed.
We expanded production, refining and distribution capacity beyond what in fact was called for by the next year's expansion in
demand. We consistently had excessive capacity. The only things
269
that have changed in the last 2 or 3 years have been these: First,
the economics of the industry in the past 2 or 3 years. This is from
Forbes' magazine of January, as they categorize the energy group,
which is predominantly oil companies, a total of 28 oil companies.
I n the then latest 12 months figures available to them, and that
was the 12 months ended September 30, 1972, this group of companies had an average rate of return on capital of 6.5 per cent.
Now, according to the Wall Street Journal yesterday morning,
Government bonds are selling at 6.57 per cent yield. I n the past 3
years, we have not had the economic capability or incentive to provide those additional facilities.
Second, in the past 12 to 18 months, but especially last winter, we
have seen demands thrown on liquid fuels, which we did not anticipate and these were thrown on by a combination of gas delivery
ability caught short sooner than we had anticipated, therefore, utilities and industrial users switching to liquid fuel when they could not
get gas and by the environmental requirements of moving liquid
fuels in substitution for coal and then moving low sulfur materials
in substitution for high sulfur materials, throwing a totally unanticipated load on the distillate fuel segment.
Mr. R A W L . I will pick up and expand briefly on this. I will not
talk of the supply situation. I think Mr. Sellers did a fine job of that.
W i t h regard to the question of the environmental controls, as you
gentlemen know, these principally up to now, have teen brought
about by individual States. As you know, Senator, up in your part
of the country for a number of years now starting probably in New
Jersey, New York—several years ago, we got into increasingly more
restrictive sulfur emission controls on heavy fuel oil and distillates.
Certainly these individual State controls have pretty well put coal
out of the utility business up in that part of the country and have,
as Mr. Sellers suggested, greatly increased the need other fuels which
has fallen into the area of low-sulfur fuel oil and distillate fuels,
which in turn impacts on the other types of things: Diesel, heating
oil, things of that nature.
That has been a very serious thing. I would say i t is going to be
extremely difficult for us to make an intelligent estimate or a guess
as to what demand is going to be as long as we have 50 separate
entities developing on their own within certain broad guidelines put
out by the Clean A i r Act and other things by the Federal Government—it is very difficult to assess the impact on the industry.
I n terms of motor gasoline, I think we are dependent in that
regard on the efficiency of the engines developed by Detroit in
response to their problems in terms of clean engines and so forth.
I will have to agree with you, we have not done a very good job
maybe but I would like to make the point that it should be recognized
that it is extremely difficult to do such a job when you have i t
developing from all points of the compass.
Senator M C T N T T K E . A S a layman contending with the oil industry,
I have been irritated by your underestimation of demand and then
this holding to the mandatory quota system with the consequence
always somebody has to crv " W o l f " in New England or in the Midwest about shortages that finally hit us last winter.
270
I n all the things you want to blame, you never take i t upon yourself to say "mea culpa" a little bit, because I think you are involved
in a lot of the mistakes that we are now contending with.
After all, you gentlemen are tops in the industry, so I just wanted
to tell you how I felt about your continual underestimating of the
demand and the result was that we i n New England and the Middle
West had to take a deepth breath and hope for a warm January,
which thank God, we got this year.
Mr. Card, I want to congratulate you, too. I t would be very nice
to see Texaco's advertising start to talk about the conservation of
energy that I have been guilty, along with other people, of abusing.
I think i t would be great instead of all this promotion of "Buy
More." I do not know what you fellows do when you are marketing,
but I am sure you get a better price i f you buy more than i f you buy
less.
1 am going to stop there, because I want to: Senator Proxmire.
Senator P R O X M I R E . I want to thank you very much for an enlightening presentation. I t has been most helpful to get your viewpoints.
Would you spell out for me, Mr. Sellers, the effect, as you understand it, of phase I I I as i t has been presently promulgated on the
availability of gasoline this summer? As I understand it, there is a
limit on the overall increase in prices. You can make increases i n
individual product prices. What does this mean, as you see it, on
the likelihood of a rise in gasoline prices?
To what extent will the limitation in that rise contribute to the
shortage and necessitate some kind of rationing of the product either
by you or by the Government ?
Mr. S E L L E R S . Senator, I am sure you are aware that the specific
rules have not yet been promulgated by Cost of Living Council.
So, our assessment of the impact at the moment—I will speak first
to our own situation and then give you my judgment of how it applies to some others in the industry.
We have understood that the basic rules for calculation w i l l be
similar to those used in phase 2. This is the type of calculation that
we have been using and operating under.
As you indicate, it gives freedom as far as increases on individual
products but places an overall ceiling on us.
This ceiling within practical limitations as far as we are concerned
puts a maximum limit on sales prices of gasoline—I w i l l use a single
example, in approximate numbers—in the order of 16 cents a gallon
on our sales out of a terminal in Now York Harbor, this works back
through our overall average products but this is approximately
where we come out.
To buy gasoline and import i t today w i l l cost us in the area of 22
to 25 cents a gallon, and we will not get a quality of product that we
would ordinarily be willing to sell.
Senator P R O X M I R E . What is this translated in terms of cost to the
consumer at the pump ?
Mr. S E L L E R S . The pump price of gasoline in that area is now in
the range o f — I am talking of regular gasoline—in the range of 35
to 39 cents a gallon.
271
So, on imported material, i f the terminal cost of one is 16 cents and
the other is 22 cents, you are talking of 6 cents a gallon or roughly
15 percent difference.
Senator P R O X M I R E . S O you would expect 6 cent a gallon or a 1 5
percent increase as possible, recognizing of course that you cannot
project these things precisely.
As you say, you have not gotten the regulations promulgated.
Sir. S E L L E R S . As I mentioned, we are working with a number of
private brand or independent marketers who have imported quotas
to bring gasoline in without the security fee but do not have the
facilities to physically handle imported material, trying to get them
into a position where we will physically handle the material and
deliver it through our terminals and then deliver back to them at the
points where they need it.
Now, if they are faced with the position of having to pay 22 cents
a gallon and they are in a position of having to raise their pump
price while we and others are not able to raise prices to our brand
of dealers, our brand of dealers are going to sell gasoline until they
run out and the end marketers that we are serving with our domestic
product are going to sell gasoline until they run out, and the independent marketer who imports his is going to be left until everybody
else runs out. His price is going to be too far above that.
One fallacy in the current handling of the gasoline imports, i f we
and others like us bring in, I will say, 4 percent of our product and
pay 22 cents a gallon for i t and average that price in, overall price
increase is going to be a half cent a gallon rather than 6 cents a
gallon on this one particular volume.
Senator P R O X M I R E . SO, you see a range of up as much as perhaps
6 cents a gallon this summer. I would like to ask Mr. Card, and Mr.
Card, I may surprise you and maybe disappoint you when I say that
I agree with a great deal of what you said.
I find a lot of wisdom in it and a lot of good sense. I disagree with
some of it. When you look at this kind of a situation, here, the only
answer really is higher price. That is the way our system works, i f
we have a shortage of supply in relationship to demand, the price
goes up. I t is a free system.
We adjust to it. We talk about telling people to get in the car
pools and not to drive as much. You can exhort them in your advertising as much as you want. They will not pay any attention to it.
I f you increase the price of gasoline, they will respond in a hurry.
They will conserve energy i f you charge enough for it. That is the
way a free economic system works to the best of my judgment.
No matter how you ration this, i t is not going to work, especially
when the shortage is not short term; the shortage, as you testified,
will be worse in 1974 than in 1973 and worse in 1975 than in 1974.
So, it is ridiculous to adopt a short-term rationing system.
I t would be fine i f we knew we were going to have an abundance
of supply or at least a correction of the situation in a few months or
in a year or so. We do not have it. So, I think the argument is very
powerful, I might say almost devastating, that the price is the
answer.
There are a couple of problems, of course, in price, very serious
political problems and social problems. One is, i f you let the price
go up—'and going up 6 cents does not bother me, but I have heard
a lot more than that. I have read stories it might be 50 cents a gallon,
75 cents a gallon, a dollar a gallon—very high in Europe, and i t
could be higher. This is discrimination against people with low
incomes and people who rely on their car to get to work.
This is discrimination against the people with low incomes generally. But on the other hand, you have an enrichment of oil companies.
Now, the specific you gave—I have not had a chance to check i t
out, you may be right—I don't know i f you gave it, but one of you
gentlemen suggested 6y2 percent return on invested capital in the
industry and you compared it with bonds and that is disgracefully
low.
You cannot have an operation at 6.5 percent return for very long.
Certainly i f the price were allowed to go up now, I am sure your
return would be enormously increased. So, you see the political problem. I t looks like a reverse Robin Hood situation. Then there is one
other complicating factor. Whether we like i t or not, I think the
environments are going to win, and they should win, and that is
because we just have to find a way of stopping this pollution of our
environment, and the extent to which we project this demand for
gasoline and more automobile traffic and more affluent living on our
part is going to pollute our environment more and more.
Of course, higher prices would help there, too. I t would mean that
there would be less pollution because people would not drive as much
and they would conserve in all kinds of ways.
Can you help me on how we get an appropriate political and
social solution to this problem? The economics are so clear and convincing, where the social effect is preverse and maybe unjust. What
would you suggest? Would you let the free market take over, or
would you suggest that you have to do this a little more drastically?
Mr. C A R D . I would be glad to comment on that, sir. I mentioned
three basic points for the short-term solution.
You have touched on a couple of them. I w i l l take the one you
mentioned first, that is dealing with the environmental restrictions.
We are not in disagreement with the need to improve the environment. We are suggesting that we make some modest relaxations in
the restrictions and in the timetable called upon and this w i l l do
considerable to make available additional supplies practically immediately, both of gasoline and of middle distillates and these are the
two critical parts, the heating oil and gasoline.
Senator P R O X M I R E . I am going to reject that.
Maybe I am wrong in doing it. I t is a gut feeling. I do not want
to degrade the environment any more. I feel very strongly about that.
So, give me the answer on the assumption I cannot back up your
s u r e s t i o n on the environmental matter.
Mr. C A R D . I do not agree, I think there are some practical steps
that have been proven that can be taken—were taken this past winter
that did help.
The next point has to do with the price control. Yes, I think free
market action is the answer to this. And I think this is very essential
273
that the industry be permitted to have adequate prices in order to
justify these actions that they would have to take to make more
supplies available.
Then the third one has to do with conservation and I do think
there is a way—in the short term—that conservation can make available more supplies.
We can use better what we have and therefore slow down the
demand.
I think that those three points
Senator P R O X M I R E . I do not want to impose on the other committee
members but how could conservation work, absent a sharp increase
in price ?
Mr. C A R D . Conservation will not make available more supply; it
will make the supplies we have go further. This is the point. For
example, the statistics are well documented on what speeds on the
highways result in as far as consumption of gasoline.
We know that. The other means, the car pools. Now, this is something that could come about, some emphasis on car pools, the conservation measures that I outlined.
These measures of conservation are very practical.
Senator P R O X M I R E . I think they are practical i f you make them
effective by letting the price go up. But absent that, I think exortation is unlikely to have much effect.
Mr. C A R D . Free market action and adequate prices would certainly
be a step in the right direction.
Senator P R O X M I R E . Thank you, Mr. Chairman.
Senator M C I N T Y R E . I n talking about the prices here, let us let the
record show that U.S. Oil Week of A p r i l 30, 1973, states percent of
gain over net income, the first quarter of last year, Exxon, up 43
percent and in the first quarter of last year their profits were $508
million.
Citco, up 17.4 percent. I do not mind your profits.
Mr. R A W L . Those are relative figures, Senator. A low first quarter,
1972
Senator M C I N T Y R E . Lot me ask you a few questions right down the
line. I want to limit myself to ten minutes.
Each of you—what is your position with regard to whether the
President should immediately implement the authority granted to
him in the Economic Stabilization Act to allocate petroleum products?
Some of you, your statements are directed to that.
Mr. S E L L E R S . I would hope that the shortage this summer will not
be sufficient to necessitate overall rationing.
I think i t wTill get into an impossible situation. I believe that local
shortages that may occur should be dealth with by the lowest governmental level that is in a position to do so. This may often be the
State, There may be some circumstances in which the Federal Government would have to step into the act.
I hope that the situation this year will not be that serious.
Senator M C I N T Y R E . I do not think I meant to infer rationing as
such. I am talking about allocation.
Senator M C I N T Y R E . Y O U do not understand the distinction?
274
I was just checking with my staff to see i f they were the same
thing. He said, no; allocation would mean to be sure that hospitals
or vital industries receive an adequate amount of oil as opposed to,
for instance, the luxury driver.
Mr. SELLERS. That might be allocation to the hospital, but to the
guy you took it away from, it would be rationing.
Senator M O T N T Y R F . The next one.
Mr. C A R D . Responding to your question, sir, we do not believe that
any type of mandatory controlled program or rationing is called for.
We do believe that doing the three things I mentioned, emphasis on
conservation, relaxation of price controls, and relaxation of the
environmental restrictions and timetables would do much to help
overcome the current shortages that exist.
Then as far as dealing with available supplies, we would hope that
the suppliers could be encouraged to supply in proportion to the 1972
requirements.
Senator M C I N T Y R E . Mr. R A W ] .
Mr. R A W L . Yes, sir. as I mentioned in my statement, we feel about
the same way, that the situation will not call for rationing in terms
of setting priorities for essential human needs. We would feel that
the Government should go ahead and get something in place and
get it understood in case it were necessary.
We have taken the position publicly that we w i l l distribute our
products to our existing customers on the basis of recent participation in each one of these customer groups and product lines, and
fairly among those customers.
So, we are saying i t is obvious that there ought to be contingency
plans in place. There probably ought to be hearings on them so
everyone understands exactly how they work.
I t is an extremely complex situation. I f mishandled, i t could result
in worse problems, we think than we might have otherwise.
Senator M C I N T Y R E . Going to Mr. Sellers, then Mr. Card and Mr.
Rawl, is my understanding correct that your impression is that the
new tariff situation implemented on May 1 will not have any appreciable effect on petroleum product shortages over the next few years
and particularly with regard to gasoline and home heating oil?
Mr. SELLERS. I f given the freedom for the material that is available from foreign sources to be brought in without any physical
restrictions, the missing link now is the ability of the marketplace
to adjust to support the prices that are now called for in foreign
markets.
Mr. C A R D . I think that the degree that i t will help w i l l depend on
the relaxation of price controls, because i t is a fact that prices are
higher in Europe and we w i l l have to depend upon supplemental
supplies from Europe for both heating oil and gasoline.
These prices are substantially higher than can be recovered in the
United States. This was experienced in heating oil during the past
heating season and i t will be experienced this coming heating season,
which w i l l retard the flow of those products to the United States.
So the degree that this will help, this new important program, w i l l
depend to a great extent, of course, upon the availability which is
275
limited also of the products in the first place. They are limited from
availability standpoint. But a further limitation, i n my judgment,
will be because of price controls in the United States.
Senator M C I N T Y R E . Mr. Rawl.
Mr. RAWL. I certainly would agree that pricing flexibility would
help a great deal. Obviously, after 2 to 3 years when significant
expansions can be accomplished in this country in refinery capacity
that it will help a great deal.
I n the short term it will probably help modestly the volumetric
control, i f we can determine how to work this in the economy.
Senator M C I N T Y R E . Mr. Sellers, in your statement to the committee, you come down pretty hard on this problem that we were dealing
with yesterday where we were talking—independent people were coming in and saying they were being cut oil. I n the summation, I heard
this before, you say that probably if we do lose some of these independents, these little guys, we are going to have a better marketing
system as a result.
Mr. S E L L E R S . What I said was not that if we lost some of the independents. What I said was that there has been much comment over
a period of many years by many parties that there were too many
service stations without distinction as to whether they are private
brands or major company brands.
My statement was that this is the area where the inefficient service
stations can be eliminated and help every aspect of the Nation, and
more major brand stations will be eliminated, in my judgment, than
private brand stations.
Senator
MCINTYRE.
Yes, sir.
You conclude after discussing the question of the impact of shortages on competition, in your next to the last paragraph by saying
"From many standpoints, particularly distribution efficiency and
land-use economics, I am convinced the Nation w i l l be well served
by reductions in marketing overcapacity and inefficiencies."
So, in some respects this could be considered kind of a shakedown,
and some of the weaker of those in the competitive field are going to
drop by the wayside and the result will be a better marketing situation, is that right ?
M r . SELLERS. Y e s , s i r .
Senator M C I N T Y R E . I am groin CR to take this up here. I do not know
how to answer questions like this that are occurring all across the
country.
Here is a letter from my own State dated May 7. I t is a pretty
sad story now. I do not knowT whether they are poor distributors or
poor marketers or what. But they have been in business 39 years, the
largest independent jobber in New Hampshire, and they are done.
They are done—37 retail service stations. They started out with Phillips Petroleum and I think they are going to have a few words to
say he-fore we close here today.
This letter simply says to this Senator, I do not know what has
happened but I cannot get any more oil and I am bankrupt. I t may
be as you say, it mav be that this is a <?ood one that just got caught.
But it is prettv hard for those of us who represent those people.
Senator Taft,
276
Senator T A F T . Thank you very much. There is an article in the
morning paper this morning that the administration is preparing to
put in emergency fuel allocation plan into effect very shortly.
The plan is apparently expected to be a voluntary one, setting out
guidelines for allocation to meet vital needs.
I would like to have your opinion as to whether you think a voluntary plan of that kind will work.
Mr. R A W L . Senator, I will be glad to talk to that point. I just
read the same article myself. I have not had time to think about it.
Now, I guess I would have to know more details than we know
right now about it to comment very intelligently about it.
However, I do see a problem here when he talks about I guess
essential needs and a voluntary program. I think i t would be very
difficult for any company, large or small, to set its own priorities as
to what are critical needs in the case of short supply, as to whether
we are talking about a farmer in the Midwest or a farmer on the
east coast, you know the kinds of problems you get into, and I think
that regulatory agencies or governments really have to make those
kinds of decisions.
I do not like the idea of a mandatory program but also I see the
problem with the voluntary program in that we have, for example,
in the short-supply situation contract obligations to existing customers.
I f this voluntary guideline would say you should take on some new
customers, it would give me severe risk and difficulty from the legal
standpoint to arbitrarily, let us say, abrogate some contracts with
existing customers. This is the kind of a problem
Senator T A F T . What percentage of your output is on a contract
basis to existing customers ?
Mr. R A W L . The way we are looking at i t right now, is our total
output—because of the tight supply situation—has to go to the existing customers.
Senator T A F T . 1 0 0 percent?
Mr. R A W L . 1 0 0 percent. Even though some of them mav not have
a written document that says we owe i t to him, we feel that obligation as a company and have set such a policy.
Senator T A F T . H O W many do you have written documents with?
Mr. R A W L . Sir, I really do not have that number in mind. I t is a
difficult problem. I n terms of distillates, i t would probably be most
of our customers.
I n terms of gasoline, contracts with service station are different
kinds of contracts, but they are contracts. So, a very small percentage
would not be covered by some contract, very small.
Senator T A F T . Probably from both the legal and the practical
point of view, i f voluntary guidelines are set up and they are truly
voluntary, you are going to have both legal and economic factors
working against your complying with those guidelines i f they require
taking on of new customers or if they require allocation to customers
on some past basis, and there has been some change by contractor
practice recently in your distribution?
M r . RAWL. Yes, sir.
277
I can see the complication. I f this were a voluntary program that
I should treat my existing customers and past customers on a proportionate basis, i f that is what i t says, I w i l l not have any problem with
that.
I f it tells me to put product into some situation where we have not
been supplying, then all of a sudden I run into the kind of problem
you live referred to and what that does to the existing customers.
We have to see the guidelines, I guess but I can see some complications in a voluntary program.
Mr. R A W L . I am not sure of that, either, depending on what that
said, too.
Senator T A F T . I t would give you a legal outlet, you would have
the possibility of defense,
Mr. R A W L . Legally i t would help, yes. Whether or not it was
properly conceived and thought out and whether or not it would
cause more problems than it solved, I guess we would have to see
what the program was before we could comment on that.
Senator T A F T . D O you other gentlemen have anything to comment
on that?
M r . CARD. Y e s .
I see great danger in any mandatory control progrm. I think it,
in fact, could result in a lessening of supply. As far as the comment
on a voluntary program
Senator T A F T . Why would i t lessen supply? I could see how
Mi*. CARD. I t would depend on how it was administered, but the
regulations and the experience that we have had, the industry has
had with mandatory regulation—take natural gas as an example—
we know what has happened, sir, and in the time frame we are talking about here, I would certainly say this, that, i f the program envisioned does deal with providing customers served in 1972 on some
basis, proportionate to the 1973 avails—it seems, as I mentioned
earlier that suppliers should be encouraged voluntarily to supply on
a proportionate basis 1972 customers in relation to their 1973 avails
—if this is what is meant, it seems to me at this stage i t would be
much more practical and certainly all that would be called for under
today's circumstances.
I think, if that is the interpretation, it would be much better to
consider that instead of any kind of mandatory control program.
Senator T A F T . I notice a statement in your testimony, Mr. Card,
with regard to the removal of lead from gasoline cutting down the
supply. Could you elaborate on that? Is the lead already in the gasoline or are you talking about present refining processes?
Mr. C A R D . Yes, sir, I would be glad to comment on it. As you
know, by July 1, 1974, all the service stations in the United States
averaging 200,000 gallons or more for the year must have one grade
of no-lead gasoline, and 60 percent of all stations, regardless of
volume, are required to have one grade of no-lead gasoline.
This is in fact forcing another grade of gasoline into the industry,
into the country.
I t does tie up additional inventories and supplies. Now, that is
from the standpoint of supply. Whereas we have seen a year's delay
as far as automobile fanufacturers are concerned, there has been
278
nothing yet to delay the implementation of this legislation on the
petroleum industry.
This is the kind of relaxation that we have been talking about. We
think this certainly is called for, a relaxation on this.
The other thing, though, is a technical matter. I t is simply the
requirements in refining procedures and the technology that does
require more crude oil, more running of material to make the same
number of gallons when you have no lead gasoline.
Another step further
Senator T A F T . Y O U add lead to gasoline, do you not?
Mr. C A R D . That is a very small amount as far as the lead is concerned, as to the total volume.
Senator T A F T . But there is not any basic lead in crude oil, is there ?
Mr. C A R D . Y O U have to add the lead in the manufacturing process,
this is correct.
Senator T A F T . H O W does that reduce the volume, i f you put i t
in
Mr. C A R D . I t has to do with your total octane pool. We are getting
into a technical discussion here. I will be glad to get the amount per
gallon or per barrel, and this has been documented.
Then the other part of this has to do with the miles per gallon
that this new gasoline will give in the new automobile.
Senator T A F T . I understand. That is something else again.
But you are talking about volume of gasoline produced i n your
statement ?
Mr. C A R D . This is right.
I do not have the complete technical outline of this but I can get
this and furnish it and would be happy to do so.
Mr. S E L L E R S . Senator, I might add one specific example of this. I n
going to unleaded gasoline, the way that we i n our refinery will meet
the octane requirement from the present operations over to an unleaded gasoline operation is to remove from the gasoline pool approximately 10,000 barrels a day of material which is low octane.
We are able to use it in gasoline now because we use the lead to
bring the octane level up. I n cutting out lead, we back out approximately 10.000 barrc-ls a day of material which in turn would go into
some other petroleum product, either petrochemical feed stock or jet
fuel.
Senator T A F T . I get you. Thank you very much.
Senator M C I N T Y R E . Mr. Rawl, why have you refiners been allowed
to import finished products—isn't this in effect an encouragement to
build overseas refineries? On top of that, in September of 1971 you
appeared before the subcommittee on Small Business that I chaired
at that time and you strongly testified against, any program to allocate the importation into this country of any finished product. Here
you are enjoying it, and we were trying to get it for the independent
terminal operators in New England.
Here you are on the other side. Why should you be allowed to
import finished products.
Mr. R A W L . T O satisfy the market.
We are not enjoying it. You know the finished products, gasoline,
for example, is 53 cents a barrel currently. W i t h the fee it goes up to
279
63 cents a barrel. Distillates will increase in the fee up to same level
and so will heavy fuel.
We are not enjoying this. These fees, however, under the new program are such that they will clearly switch the economic from building refineries offshore to expanding refineries on shore i f sites become
available or certain!v. i f you have room to expand refineries.
You will recall that at the hearing you had 2 years ago, 1971, as I
recall, September, we were talking about the heating season 1971-72.
My comments then were that it was our opinion that the industry
clearly had sufficient domestic refining capacity to produce sufficient
heating oil to supply the market during that heating season, which it
did. Along those lines, however, I also cautioned at the time that
importation of products without any other changes in the import
program—and there have been other changes—would result in just,
as we put it. exporting further refining capacity expansions.
Senator M C I N T Y R E . I want to thank you gentlemen for coming here
today. I appreciate your coming, realizing it was difficult for you at
this particular stage in the industry.
We call as our next witnesses Mr. G. J. Morrison, vice president of
marketing, Phillips Petroleum Co., and Mr. Thomas M. Ilennessy,
president of the Getty Oil Co., Eastern Operations, Inc.
W i l l you please come to the witness table, gentlemen. We will proceed with Mr. G. J. Morrison followed bv Mr. Ilennessy.
We have your statement and they will be included in full in the
record.
Anywhere that you can condense your statement, that will be fine
but I want you to feel that you have a full opportunity to testify
and state your case.
STATEMENT OF G. J. MORRISON, VICE PRESIDENT, MARKETING,
PHILLIPS PETROLEUM CO., AND THOMAS M. HENNESSY, PRESIDENT, GETTY OIL CO., EASTERN OPERATIONS, INC.
Mr. M O R R I S O N . Mr. Chairman, my name is G. J. Morrison, vice
president, marketing. Phillips Petroleum Co.
Getting into the text of my statement:
What are the causes behind this gasoline shortage? The gasoline
shortage was caused by four prime factors: Insufficient refining
capacity in the United States. For the past several years new refining
capacity has lagged well below the increase in demand for finished
petroleum products. Not a single major refinery is under construction
at present.
The prime reason for the failure of refining capacity to keep pace
with demand is the low rate of return on employed capital in the
refining, distribution and marketing segments of the petroleum business and the high costs of building new capacity. The rate of return
for our company for these functions combined was only .17 percent
in 1971 and 1.9 percent in 1972 on capital employed of approximately
$1 billion.
Another reason for lack of new refining capacity has been difficulty
of securing permits to build refineries because of environmental
problems.
280
A shortage of crude oil supplies, particularly the light common
low-sulphur crude needed by most U.S. refineries to produce maximum gasoline y ields.
Here, again, the unacceptable rate of return on investment has held
crude oil exploration to levels well below that required to find new
supplies to meet our domestic requirements.
Increased gasoline demands due to more automobiles being on the
road than ever before in our history and being driven more miles.
Also, the less efficient engines in the last-model cars which require
more fuel to travel the same number of miles as the older model cars.
A part of this inefficiency is created by the antipollution devices
with which these cars are equipped. Automotive motor fuel usage
increased 6 percent in 1972 over 1971 and this rate of increase is continuing. The Bureau of Mines predicted that May, 1973 consumption
would be up 6 percent from May, 1972.
Increased demand for light distillate fuels.
The shortage of natural gas in our country has caused many industrial consumers to switch from gas to distillate fuels. Environmental
regulations which prohibit the use of coal and high sulphur residual
fuels in many areas of our country have also caused a switch to the
lighter heating oils.
Along with these added demands, extremely cold weather in much
of the United States from October to December 1972 caused requirements for heating oils to exceed industry expectations.
Therefore, in order for the petroleum industry to supply the heating oil requirements of home, hospitals, schools, and other regular
users of this product last winter, the industry had to produce a
greater volume of distillates than in previous years. To produce this
additional product it was necessary to reduce gasoline production by
a like amount. As a result we were unable to build gasoline stocks to
levels required to meet the heavy summer gasoline demand.
2. The extent of the effect of the shortage will have on the Nation ?
Short-term, we must realize that the first effect is a reduction in
consumption, either voluntary or otherwise. We can easily reach the
position where consumer rationing might be necessary. A shortage of
fuels for the transportation industry would have far-reaching effects
on other industries, the products and commodities of which rely on
transportation. Our defense system could be seriously -imparled. Last
but not least, a shortage of petroleum products could have a devastating effect on agriculture resulting in food shortages, higher food
prices, and because less food would be exported, a more unsatisfactory balance of payments position.
Long term. By 1975 we w i l l be 1.5 million barrels per day short
of crude processing capacity or the equivalent of 10 new 150,000
barrels per day refineries. This is a shortage of approximately 12 to
15 percent. Further, we w i l l need to construct 5 new 150.000 barrels
per day refineries each year for the years 1976 through 1985 to keep
pace with the demand.
We w i l l necessarily have to import much greater amounts of
petroleum and this w i l l have a serious effect on our balance of payment position. The present cost of imported petroleum is $4 billion
annually, this could esoailate to $30 billion by 1985.
281
Senator M C I N T Y R E . I am going to have to interrupt you at this
point in order that I may go to the floor to east a vote.
[Recess.]
Senator M C I N T Y R E . The committee will come to order.
Mr. Morrison, I am sorry for the interruption.
Mr. M O R R I S O N . Thank you.
I will start with question 8: What impact will the shortage have
on competition within the industry ?
We believe that ail segments of the industry are going to continue
their intensive competition. There will be less emphasis on promotions such as trading stamps, games and giveaways, but competition
will increase as the dealers with reduced amounts of gasoline to sell
must compensate by increasing their income from their other sales
of tires, batteries, accessories and services. We believe competition to
secure the best dealers and obtain a viable share of the market w i l l
continue at an increased pace because we, and no doubt all of our
competitors, do not intend to surrender our customers and market
position.
•Competition to discover domestic and foreign production and the
search for foreign supplies of crude and refined products will be at
an increased rate provided the return on capital employed will justify
the enormous expenditures.
Permit me to supplement my written statement at this point with
a comment.
The press lias referred to a letter to the President, President Nixon
from a group of Senators, urging him to start allocating petroleum
products to keep independents from going out of business.
The letter was quoted as saying "Independent stations represent a
significant amount of competition in this industry."
I hope that this well-organized and vocal group of large chain
marketers does not cause us to disregard the interest of the many
more and much smaller independent businessmen who are the individual dealers, consignees and jobbers, selling Phillips and other
major brand products. I trust- that no one is asking the President to
allocate petroleum products to the so-called .independent marketer or
chain operator of nonmajor brand outlets at the expense of the small
independent business handling major products.
Senator M C I N T Y R E . I do not know if we have time for you to
instruct me on how this oil industry is set up. I do not think we
have. What you are saying is, there are people that see—let's take a.
brand that I used to have, a friend who always bought it. He would
go out of gas i f he could not find Cool Motor, predecessor to Cities
Service.
Do you mean that there are dealers who are independent, they own
their own stations, they are not beholden to the company for some
sort of a 100 percent financing or leasing, they arc independent in
every sense of the word except they buy in your case Phillips
Petroleum Gasoline?
S I R . M O R R T S O N . He could be a dealer leasing a station from us, he
could be a dealer leasing a station from another individual, or he
could be a dealer who owns his own station and buying a branded
product, from us or some other major company.
282
He has an investment in that service station. I f he owns it, he has
a substantial investment. I f he owns the inventory and the equipment
in there, then his investment could be $10 to $20,000.
But there are a number of independent branded dealers throughout
the country as well as independent branded jobbers.
Senator M C I N T Y R E . Y O U are calling my attention to the fact that
these independents exist in these various forms oveir and above the
independents that the letter is concerned with, which talks about
the 20 to 25 percent.
The only real competitive factor in the marketplace, as we understand it, as I understand it, is the independents out there that are
not beholden to any particular company such as Phillips or Atlantic
or whatever they were or are.
Mr. M O R R I S O N . I am of the opinion that when you have any one
in the marketplace competing for market penetration, that you have
competition, competitive factors, whether i t be private brand or
whether i t be branded, if he is an individual business man.
Senator M C I N T Y R E . I cannot compete with you on that.
Somebody has told me that the big companies just do not really
compete one with the other, they just sort of get along mutually. I
can understand what you mean, there is an independent that we
should not overlook.
M r . MORRISON. Y e s .
Senator M C I N T Y R E . A l l right.
Go on.
Mr. M O R R I S O N . Question 4 . What steps can and should be taken to
prevent such shortages and their recurrence?
Governmental rules and regulations should be designed to encourage rather than discourage added investment in exploration and production of crude oil and other raw materials as well as new refinery
construction.
A rate of return on this invested capital must be sufficient to generate risk capital in amounts necessary to encourage these endeavors.
The competitive free enterprise system, which fundamentally allocates resources in the marketplace, should be relied upon to provide
the energy requirements of the nation.
I n a free market, the forces of supply and demand insure that the
price of energy reflects its true value, Market forces, then, will direct
our limited energy supplies into their moet efficient use, thereby
eliminating wasteful consumption. And with all forms of energy
competing for a share of the market, the consumer will be best
assured of adequate supplies at a reasonable price.
The Nation's environmental goads should be properly balanced
with its energy needs. Many environmental actions taken bv government and private organizations have limited the current availability
of energy and restricted efforts to provide for further needs. Some
moves have actually led to a waste of both energy and capital
resources.
Speed up the actions of the courts and Congress when cases of
national concern such as the Alaskan pipeline, offshore unloading
facilities, and off short exploration and drilling are challenged.
Research efforts on alternate sources of energy and mass transportation are long-term necessities but decisions regarding these efforts
should be made soon.
283
The price control program as presently structured has a potential
for aggravating shortages of petroleum products. The function of
price in improving the b a l a n c e between supply and demand is thus
restricted i f not nullified by mandatory price controls on the large
producing and refining concerns.
5. What impact will gasoline shortages have on other products for
the remainder of this year and on home heating oils next winter?
Because of the unprecedented motor fuel demand in 1972. the
industry went into the winter season with distillate stocks lower than
normal. I n order to have optimum gasoline supply for the summer
motor fuel season, it will be necessary to produce maximum gasoline
at the refineries which will mean entering the winter season with
lower than desired distill late stacks.
6. What effect will the recently announced replacement of the quota
system have on this year's supply of petroleum products?
Crude Oil: The temporary elimination of tariff duty should encourage full utilization of import allocations this year. The new
system will not eliminate the problems of supplying Midcontinent
refiners.
Gasoline: The 0.5 cent per barrel reduction in fee versus the former
duty is insufficient incentive for companies without fee-free allocations to significantly increase gasoline imports.
The limited supplies of gasoline available for import will lay in at
costs considerably above domestic prices. I n addition, very little of
the foreign gasoline will meet our specifications. Without the flexibility to recover these higher costs through price increases, the incentive
for traditional suppliers to import will be limited.
Heating Oil: Although foreign heating oil is usually more available than gasoline, it also commands a considerably higher price than
domestic oil. Pie re again, ability to recover increased costs would
determine the degree to which projected shortages are satisfied next
winter. The new initial security fee of 15 cents per barrel is 4.5 cents
above the former duty and thus provides no incentive to import.
Propane: The elimination of duty or fee and the Western Hemisphere restriction should encourage propane imports. The problems of
overseas availability, limited receiving facilities, and high cost
remain, however. These higher costs must be offset by increased
selling prices.
Economic stabilization regulations administered by the Cost of
Living Council discourage the use of imported petroleum products
to satisfy the domestic shortage.
Furthermore, it may be almost impossible to make a foreign purchase if it requires a long wait to secure an approved price adjustment from the COLC. Such adjustments should be automatic—not
negotiated individually with price control authorities.
Mr. Chairman, that completes my statement.
[The f u l l statement of Mr. Morrison follows:]
S T A T E M E N T OF G . J . M O R R I S O N , V I C E P R E S I D E N T , M A R K E T I N G OF P H I L L I P S
LEUM Co.
PETRO-
1.0 W h a t are the causes behind this gasoline shortage?
1.1 The gasoliine shortage was caused by f o u r prime factors.
1.1.1 Insufficient refining capacity i n the U n i t e d States. F o r the past several
years new refining capacity has lagged well below the increase i n demand
9G-1S3—73
19
284
f o r finished petroleum products. N o t a single m a j o r refinery is under construct i o n at present.
The prime reason f o r the f a i l u r e of refining capacity to keep pace w i t h
demand is the low rate of r e t u r n 011 employed capital i n the refining, distribut i o n and m a r k e t i n g segments of the petroleum business, and t h e h i g h costs
of b u i l d i n g new capacity. The rate of r e t u r n f o r our company f o r these functions combined was only 0.17% i n 1971 and 1.9% i n 1972 on capital employed
ot approximately one b i l l i o n dollars.
Another reason for lack of new refining capacity has been difficulty of securi n g permits to b u i l d refineries because of environmental problems. According
to published reports, several oil companies i n the past few years have attempted
to secure permits f o r new refining construction at several different locations
i n this country. These plans were apparently abandoned when the companies
were unable to secure such permits.
1.1.2 A shortage of crude o i l supplies, p a r t i c u l a r l y the l i g h t common l o w
sulphur crude needed by most U.S. refineries to produce m a x i m u m gasoliine
yields.
Here, again, the unacceptable rate of r e t u r n on investment has held crude
oil exploration to levels w e l l below t h a t required to find new supplies to meet
our domestic requirements.
Several i n l a n d refineries t h a t are unable to receive foreign crude oils are
operating at less t h a n capacity due to t h e i r i n a b i l i t y to secure adequate
domestic crude oil.
1.1.3 Increased gasoline demands due to more automobiles being on the r o a d
t h a n ever before i n our history, and being d r i v e n more miles. Also, the less
efficient engines i n the late model cars w h i c h require more f u e l to t r a v e l the
same number of miles as the older model cars. A p a r t of this inefficiency is
created by the a n t i p o l l u t i o n devices w i t h which these cars are equipped. Automotive motor f u e l usage increased 6% i n 1972 over 1971 and t h i s rate o f
increase is continuing. The B u r e a u of Mines predicted t h a t May 1973 consumpt i o n w o u l d be up 6 % f r o m May, 1972.
1.1.4 Increased demand f o r l i g h t d i s t i l l a t e fuels.
The shortage of n a t u r a l gas i n our country has caused many i n d u s t r i a l consumers to switch f r o m gas to d i s t i l l a t e fuels. E n v i r o n m e n t a l regulations w h i c h
p r o h i b i t the use of coal and high sulphur residual fuels i n many areas of our
country have also caused a switch to the l i g h t e r heating oils.
Along w i t h these added demands, extremely cold weather i n much of the
U.S. f r o m October to December 1972 caused requirements f o r h e a t i n g oils to
exceed i n d u s t r y expectations. Therefore, i n order f o r the petroleum i n d u s t r y
to supply the heating oil requirements of home, hospitals, schools a n d other
regular users of this product last w i n t e r , the i n d u s t r y h a d to produce a greater
volume of distillates t h a n i n previous years. T o produce this a d d i t i o n a l product
i t was necessary to reduce gasoline production by a l i k e amount. As a result
wTe were unable to b u i l d gasoline stocks to levels required to meet the heavy
summer gasoline demand.
2.0 The extent of the effect the shortage w i l l have on the nation?
2.1 Short T e r m — W e must realize t h a t the first effect is a reduction i n consumption—either v o l u n t a r y or otherwise. We can easily reach the position
where consumer r a t i o n i n g m i g h t be necessary. A shortage of fuels f o r the
t r a n s p o r t a t i o n i n d u s t r y would have f a r reaching effects on other industries,
the products and commodities o f wThich rely on transportation. Our defense
system could be seriously impaired. L a s t but not least, a shortage of petroleum
products could have a devastating effect on agriculture resulting i n food
shortages, higher food prices, and because less food would be exported, a more
unsatisfactory balance of payments position.
2.2 Long T e r m — B y 1975 we w i l l be 1.5 m i l l i o n barrels per day short of crude
processing capacity or the equivalent of 10 new 150,000 barrels per day refineries. T h i s is a shortage of approximately 12 to 15%. F u r t h e r , we w i l l need
to construct 5 new 150,000 barrels per day refineries each year f o r the years
3976 through 1985 to keep pace w T ith the demand.
N a t i o n a l Petroleum Council forecasts the i n d u s t r y w i l l require approximately
,$174 b i l l i o n i n investment capital f o r domestic and foreign expenditures to
provide us w i t h the oil and gas requirements to 1985.
We w i l l necessarily have to i m p o r t much greater amounts of petroleum and
this w i l l have a serious effect on our balance of payment position. The present;
cost of imported petroleum is $4 b i l l i o n annually, t h i s could escalate to $30
b i l l i o n by 1985.
285
3.0 W h a t impact w i l l the shortage have on competition w i t h i n the i n d u s t r y ?
3.1 We believe t h a t a l l segments of the i n d u s t r y are going to continue t h e i r
intensive competition. There w i l l be less emphasis on promotions such as trading stamps, games and giveaways, but competition w i l l increase as the dealers
w i t h reduced amounts of gasoline to sell must compensate by increasing t h e i r
income f r o m their other sales of tires, batteries, accessories and services. W e
believe competition to secure the best dealers and obtain a viable share of the
m a r k e t w i l l continue at an increased pace because we, and no doubt a l l of our
competitors, do not intend to surrender our customers and m a r k e t position.
Competition to discover domestic and foreign production and the search f o r
foreign supplies of crude and refined products w i l l be a t an increased rate
provided the r e t u r n on capital employed w i l l j u s t i f y the enormous expenditures.
4.0 What, steps can and should be taken to prevent such shortages and their
recurrence?
4.1 Governmental rules and regulations should be designed to encourage
r a i h e r than discourage added investment i n exploration and production of
crude oil and other r a w materials as well as new refinery construction. A rate
of r e t u r n on this invested capital must l>e sufficient to generate risk capital i n
amounts necessary to encourage these endeavors. I n p a r t i c u l a r , federal regulations of well head price of n a t u r a l gas going to interstate markets must be
removed. Federal regulation of these prices is the prime cause not only of
the present n a t u r a l gas shortages, but of other shortages, because i t distorted
prices of a l l energy fields. Congress now has before i t a proposal which would
provide a t a x credit of 7 C / C f o r unsuccessful domestic exploratory o i l and gas
wells and a 12 r / c tax credit f o r successful wells. Passage of this proposal would
f u r t h e r encourage domestic oil and gas development.
4.2 The competitive free enterprise system, which fundamentally allocates
resources i n the marketplace, should be relied upon to provide the energy
requirements of the nation. I n a free market, the forces of supply and demand
-ensure t h a t the price of energy reflects its true value. M a r k e t forces, then,
w i l l direct our l i m i t e d energy supplies i n t o their most efficient use, thereby
eliminating w a s t e f u l consumption. A n d w i t h a l l forms of energy competing
f o r a share of the market, the consumer w i l l be best assured of adequate
supplies at a reasonable price.
4.3 The nation's environmental goals should be properly balanced w i t h its
energy needs. Many environmental actions taken by government and private
organizations have l i m i t e d the current a v a i l a b i l i t y of energy and restricted
efforts to provide f o r f u r l her needs. Some moves have actually led to a waste
of both energy and capital resources. Examples a r e : the h a l t i n g of the TransAlaskan pipeline and consequently the postponement or loss of substantial
.supplies of oil when we were beginning to really need t h e m ; a near h a l t
to f u r t h e r Alaskan search for new petroleum reserves; a slowdown i n offshore
oil and gas lease sales and the blocking of exploration i n the A t l a n t i c Ocean
(potentially our greatest f u t u r e petroleum source) ; the foreclosure of new
refinery and t e r m i n a l sites on the East Coast needed to accommodate necessary
imports, the combination of technology and environmental problems t h a t has
disrupted the nuclear power program.
4.4 Speed up the actions of the courts and Congress when cases of national
concern such as the Alaskan pipeline, offshore unloading facilities, and offshore
exploration and d r i l l i n g are challenged.
4.5 Research efforts on alternate sources of energy and mass transportation
are long term necessities, but dceisions regarding these efforts should be made
soon.
4.6 The price control program as presently structured has a potential f o r
aggravating shortages of petroleum products. The f u n c t i o n of price i n improvi n g the balance between supply and demand is restricted i f not nullified by
mandatory price controls on the large producing and refining concerns. I have
already mentioned the exceedingly l o w rate of r e t u r n on capital employed
i n this segment of our business. Though adequate prices are necessary to correct this condition, we are l i m i t e d to 1.5% price increases on petroleum products. W e may not realize additional increases to cover accumulated cost
increases w h i c h we were unable to recover through price increases d u r i n g
Phase I I , but can react only to so-called "new cost increases", that is, cost
increases since March (>. 1073. These UTI recovered accrued costs (amounting to
almost 3c/c i n our case) were completely wiped out. Other industries are not
so restricted. We believe that relaxation of these controls w i l l avoid f u r t h e r
aggravation of existing shortages.
286
5.0 W h a t i m p a c t w i l gasoline shortages h a v e on other products f o r t h e
r e m a i n d e r of t h i s year a n d on home h e a t i n g oils n e x t w i n t e r ?
5.1 Because of the unprecedented m o t o r f u e l demand f o r 1972, the i n d u s t r y
w e n t i n t o t h e w i n t e r season w i t h d i s t i l l a t e stocks l o w e r t h a n n o r m a l . I n order
to have o p t i m u m gasoline supply f o r t h e summer m o t o r f u e l season, i t w i l l b e
necessary to produce m a x i m u m gasoline a t the refineries w h i c h w i l l mean
e n t e r i n g the w i n t e r season w i t h lower t h a n desired d i s t i l l a t e stocks.
6.0 W h a t effect w i l l the recently announced replacement of t h e quota system
have on t h i s year's supply of petroleum products?
6.1 Crude O i l — T h e t e m p o r a r y e l i m i n a t i o n of t a r i f f d u t y should encourage
f u l l u t i l i z a t i o n of i m p o r t allocations t h i s year. T h e new system w i l l n o t
e l i m i n a t e the problems of s u p p l y i n g M i d c o n t i n e n t refiners.
6.2 Gasoline—The 0.5tf per barrel reduction i n fee versus the f o r m e r d u t y
is insufficient incentive f o r companies w i t h o u t fee-free allocations to signific a n t l y increase gasoline imports. T h e l i m i t e d supplies of gasoline a v a i l a b l e f o r
i m p o r t w i l l lay i n a t costs considerably above domestic prices. I n a d d i t i o n ,
v e r y l i t t l e of the f o r e i g n gasoline w i l l meet our specifications. W i t h o u t t h e
flexibility
t o recover these h i g h e r costs t h r o u g h price increases, t h e incentive
f o r t r a d i t i o n a l suppliers to i m p o r t w i l l be l i m i t e d .
6.3 H e a t i n g O i l — A l t h o u g h f o r e i g n h e a t i n g oil is usually more a v a i l a b l e t h a n
gasoline, i t also commands a considerably h i g h e r price t h a n domestic oil. H e r e
again, a b i l i t y to recover increased costs w o u l d determine t h e degree to w h i c h
projected shortages are satisfied next w i n t e r . T h e new i n i t i a l security fee of
per b a r r e l is 4.5$ above the f o r m e r d u t y a n d thus provides no i n c e n t i v e to
import.
6.4 Propane—The e l i m i n a t i o n of d u t y or fee and the W e s t e r n H e m i s p h e r e
r e s t r i c t i o n should encourage propane imports. The problems of overseas a v a i l a b i l i t y , l i m i t e d receiving f a c i l i t i e s , and h i g h cost remain, however. These
h i g h e r costs must be offset by increased selling prices.
6.5 Economic s t a b i l i z a t i o n regulations as a d m i n i s t e r e d by t h e Cost of l i v i n g
Council discourage the use of i m p o r t e d p e t r o l e u m products t o s a t i s i y the
domestic shortage. T h e h i g h e r cost of i m p o r t e d p r o d u c t m u s t be recovered by
h i g h e r prices on the p a r t i c u l a r i m p o r t e d volume. T h i s presents a n impossible
s i t u a t i o n to the s e l l e r : H e is selling his domestically produced p r o d u c t a t a
l o w e r price. W h i c h of h i s customers w i l l bear the much h i g h e r cost of the
i m p o r t e d volume? The solution is to p e r m i t t h e f i r m to a d j u s t t h e price on a l l
sales of the product, both domestic and imported, by a small amount, an a m o u n t
sufficient t o recover the h i g h e r cost of t h e i m p o r t e d m a t e r i a l a n d the u s u a l
percentage m a r k u p . F u r t h e r m o r e , i t m a y be almost impossible to m a k e a
f o r e i g n purchase i f i t requires a long w a i t to secure an approved price a d j u s t ment f r o m the COLC. Such adjustments should be a u t o m a t i c — n o t negotiated
i n d i v i d u a l l y w i t h price c o n t r o l a u t h o r i t i e s .
Senator M C I N T Y R E . Mr. Ilennessy, president of Getty Oil Co.—
En stern Operations.
M r . IIENNESSY. Y e s , sir.
Senator M C I N T Y R E . Your full statement will be included in the
record.
Mr. I T E N N E S S Y . I am Thomas Ilennessy, president of Getty Oil Co.
—Eastern Operations, Inc., a wholly-owned subsidiary of Getty Oil
Co. I speak only for my company.
We are an eastern regional refiner and marketer of gasoline and
related petroleum products for Getty Oil.
We have a single refinery in Delaware City, Del., and market
gasoline through some 2.500 retail outlets in 11 northeastern States
from Maine to Maryland. We sell limited quantities of home-heating
fuel and other middle distillates in the same States.
1. The causes of the gasoline shortage.
For Getty Oil—Eastern, there is a shortage because of (a) Operational failures in two key units at our refinery;
(b) The success of our premium-grade-only marketing program
and increased demand for Getty premium gasoline; and (c) the-
287
increase in demand for gasoline caused by the newly installed antipollution devices on late model automobiles and the increasing
numbers of vehicles on the road.
Our first two stated reasons may be different- from those experienced by other companies. I n what we hope is a temporary measure,
Getty Oil—Eastern—last- month started allocating gasoline to all
of its customers which include distributors, dealers and farm and
commercial accounts. They were reduced to 92 percent of their purchases based on their first-quarter 1973 volumes. Municipalities which
render emergency services were not affected.
2. The effect of the gasoline shortage on the Nation.
Reduction of gasoline available to the motoring public, of course,
means less business, less travel, reduced acquisitions of real estate
and less advertising. There will be an adverse impact on hotels,
resorts and recreational business with diminished travel.
3. Effect on competition in the oil industry.
There will continue to be intense competition. However, there will
be a change on where i t takes place. Instead of in the retail market
place, it will be competition throughout the industry to obtain supplies of refined products. Because of phase I I I , a retailer cannot buy
from his supplier at a market dictated price but must pay the frozen
price. This distorts and changes the market forces.
A t such time in the future as refining capacity catches up witlj
demand, we can expect a return to keen competition at the retail level.
4. What steps can and should be taken to prevent gasoline shortages and their recurrence?
A. Gasoline should be allowed to seek its own competitive price
level, free of artificial restraints, so that supply will be induced to
meet demand by providing incentive to build new refineries. The
Federal Power Commission finally recognized the same problem on
natural gas and for the same reasons is permitting price increases.
B. A reasonable price for gasoline will encourage the building of
refineries.
C. Some mutual understaTiding and compromise must be made
with the environmentalists. The Alaska pipeline, super-ports, offshore
drilling and methods to utilize high-sulfur oils, which have value,
have been held up. So, also have nuclear powerplants been greatly
delayed. They would have eased greatly the demand for fuel oils and
natural gas. While environmental considerations are of paramount
importance so also are the personal and industrial needs of our
people.
5. The impact that gasoline shortages will have on other products
for the remainder of this year and on home heating supplies next
winter.
For Getty Oil—Eastern, there wil be no significant impact. We
will make and sell about the ^ame quantity of home-heating fuel as
last year. Our refinery is running at full capacity.
6. The effect the replacement of the quota system with a tariff
license fee program will have on this year's supply of petroleum
products.
Our Delaware refinery is designed and equipped to handle sour—
high-sulfur—foreign crude oils, that is the bulk, of our crude slate
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for this year. Therefore, there w i l l be no immediate effect on Getty
Oil—Eastern.
Also, we do not expect much foreign gasoline will be available. We
do think Mr. Nixon's new program which will permit added fuel oil
to be brought in for use as fuel oil will lessen next winter's fuel
shortage.
I n the longrun, however, we w i l l be forced to depend on foreign
source crude oils unless there are continuing inducements to search
for new domestic sources offshore on our Continental Shelf as well
as onshore in Alaska and the other States.
We believe a central Government office to handle all aspects of
the energy program would be in our mutual best interest.
Thank you, that is my complete statement.
[The full statement of Mr. Hennessy follows:]
STATEMENT
OF T H O M A S
M.
I-IENNESSY, PRESIDENT
OPERATIONS)
OF G E T T Y
OIL
Co.
(EASTERN
INC.
I am Thomas M. Hennessy, President of Getty Oil Company (Eastern Operations), Inc., a wholly-owned subsidiary of Getty O i l Company. I appreciate the
opportunity to appear before this Committee and to express Getty Eastern's
views on the impact of possible shortages of gasoline and other petroleum
products on the nation's economy.
A t the outset I want to emphasize the l i m i t e d scope of Getty Eastern's operations and the consequent l i m i t e d scope of my comments. The Committee has
received the views of several integrated oil companies which have operations
not only i n a l l phases of the petroleum business i n the United States and
abroad, but i n other forms of energy also. They and others have given the
Committee a wide range of suggestions for coping w i t h what is not merely
a shortage of gasoline, but on a broader scale an energy crisis.
Getty Eastern, 011 the other hand, is essentially a regional refiner and
marketer of gasoline and related petroleum products. We have a single refinery,
located i n Delaware City, Delaware, and w7e market gasoline, p r i m a r i l y p r e m i u m
grade, through some 2,500 service stations and other outlets i n only eleven
Northeastern States, f r o m Maine to Maryland. We also market through Dist r i b u t o r s a limited quantity of home heating oil and other middle distillates
i n the same States. By reason of the l i m i t e d scope of our operations, I w i l l
not presume to advance proposals f o r solving a l l of the problems t h a t m i g h t
be thought to have contributed to the energy crisis generally or to the shortage
of gasoline i n particular. Nevertheless, I am hopeful that our views w i l l be
helpful to the Committee.
Senator Mclntyre's i n v i t a t i o n to appear before the Committee outlined six
issues i n which the Committee was interested and to which our testimony
should be directed. I w i l l comment briefly on each of these, i n the order listed
i n Senator Mclntyre's letter.
1. T H E CAUSES OF T H E G A S O L I N E SHORTAGE
I am f r a n k to admit that I do not know the magnitude of w h a t currently
appears to be a real shortage of gasoline, and I do not know generally who is
affected by i t or to what extent. I do know that Getty Eastern is short o f
gasoline to such an extent t h a t wTe cannot meet the demand of our existing
customers and have therefore been compelled to l i m i t our customers to 92
of their purchases during the first three months of 1973. Our customers are
dealers who resell at retail to the motoring public: distributors who sell to
dealers and consumers, and f a r m and commercial accounts such as municipalities, truck fleets, etc. Over 99% of our gasoline is sold under the Getty brand
name or trademark.
There are two broad, interdependent causes of this shortage. F i r s t , demand
f o r gasoline has increased substantially by approximately 6% i n 1972 over
1971 and by approximately 6% i n the first four months of 1973 over the comparable period of 1972. This increase i n demand itself has diverse causes. The
number of cars owned and used by Americans has increased dramatically.
There are more than 86 m i l l i o n cars i n use today, and some 12 m i l l i o n cars
289
fire expected to be purchased i n 1973 alone. This is significant i n terms o f
demand f o r gasoline, f o r because of the addition of exhaust emission control
devices to newer model cars, new cars use considerably more gasoline t h a n
older cars. Despite this increased consumption, compared to other products
listed on the Government's consumer price index, gasoline has not increased
i n price at nearly the same rate. W h i l e the consumer price index rose 25%
f r o m 1967 to 1972, the price of gasoline at the pump rose only 13%. Getty
Eastern has not increased its gasoline T a n k Wagon prices since about November, 1970. Gasoline is s t i l l a great buy, especially compared to steak, and a
Sunday afternoon drive is s t i l l a relatively inexpensive f o r m of recreation f o r
the average American f a m i l y compared w i t h many other forms of recreation,
the costs of which have kept pace w i t h the general i n f l a t i o n a r y trends o f
the past several years.
On top of these general demand pressures, Getty Eastern's own demand f o r
gasoline has risen dramatically i n the past three years because of our successf u l program of m a r k e t i n g only premium gasoline w h i c h is sold at a price less
t h a n the premium gasoline of our competitors.
W h i l e demand f o r gasoline was increasing, however, the capacity to meet
t h a t demand was not keeping pace. I n the East, f o r example, there has not
been a new refinery constructed since Getty Eastern's refinery came on stream
i n 1957, a fact a t t r i b u t a b l e not only to local resistance to refineries but to
uncertainties engendered by the Mandatory O i l I m p o r t Program. I n addition,
some older refineries have closed, p a r t l y because of difficulties i n obtaining
secure sources of domestic, sweet crude oil, while others have deferred possible
expansions f o r the same reason. A t the same time, a n a t u r a l gas shortage,
w h i c h is now recognized to exist by even the Federal Power Commission, led
various u t i l i t i e s and i n d u s t r i a l users to switch f r o m this a r t i f i c i a l l y cheap
source of energy, gas, to f u e l oil. T h i s switch, plus the switch of s t i l l other
i n d u s t r i a l users and u t i l i t i e s f r o m higher s u l f u r coal to f u e l oil because of
environmental considerations, has placed s t i l l another s t r a i n on refineries which
were already producing f u e l oil and gasoline a t near capacity. The supply
base simply has not been able to keep pace w i t h increased demand.
I n Getty Eastern's case, the immediate cause of our gasoline shortage is
easy to pinpoint. On February 29, 1972 we suffered a serious fire at our
Delaware City Refinery, as a result of which the refinery's fluid coker u n i t ,
was out of operation u n t i l August 9, 1972. The coker provides feed stock f o r
the catalytic cracker and this is p a r t i c u l a r l y i m p o r t a n t i n our manufacture
of gasoline. Our gasoline production was seriously restricted at a time when
our demand was increasing. I n order to make up the deficit, we both purchased
and borrowed gasoline f r o m others. We are s t i l l p a y i n g back some of the
gasoline we borrowed w i t h the result t h a t we are not yet able to devote the
f u l l gasoline production of our refinery to the supply of our customers even
though the coker has been back i n service f o r several months.
I n February, 1973 we suffered a breakdown i n the catalytic cracking u n i t
of our refinery, w i t h the result t h a t i t too was out of service f o r several weeks.
I should add t h a t we are not alone i n refinery troubles. The A p r i l 2. 1973
issue of " T h e O i l and Gas J o u r n a l " referred to the f a c t t h a t i n March E x x o n
had to shut down a large cat cracker, several months before its t u r n a r o u n d
was due, and mentioned a lire and explosion which reduced throughput i n a
crude u n i t at a Texaco refinery. These accidents are s t i l l another cause of the
gasoline shortage.
Faced w i t h a shortage of gasoline to supply our existing customers, wTe have
endeavored to find supplies elsewhere. B u t the shortage we face is faced brothers p a r t l y f o r the reasons outlined earlier. Cargoes of gasoline on the
U n i t e d States Gulf Coast are not available at a l l and foreign gasoline, i f
available, does not meet our specifications. Gasoline costs, including duty, 24c
tc 26$ per gallon currently f r o m European refineries.
Moreover, because European refineries have a gasoline yield of only approximately 14%, compared w i t h an average gasoline yield of approximately 43%
f o r United States refineries, and 60% at our Delaware Refinery, there obviously is not much opportunity f o r European refineries to increase their product i o n f o r the U n i t e d States market. F u r t h e r , the demand f o r gasoline i n Europe
is itself increasing. We cannot expect diversion of vast quantities of gasoline
f r o m Europe because either the supply and demand forces of the market place
w i l l drive the price to such a point t h a t i t would be more economic to use such
gasoline i n Europe, or governmental intervention can be expected to prevent
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European consumers f r o m suffering shortages w h i l e European refined gasoline
i s diverted to the United States markets.
I n any event, i t is uneconomic f o r Getty Eastern to purchase gasoline a t the
prices at which i t is now quoted f o r European cargoes. Domestic gasoline is
n o t available f o r purchase. As Getty Eastern is subject to the price l i m i t a t i o n s
imposed by the Price Commission i n its Phase I I I p r o g r a m r e l a t i n g to the
petroleum industry, i f we should purchase foreign gasoline at c u r r e n t l y quoted
prices, we w o u l d be compelled to sell i t f o r substantially less t h a n w h a t we
h a d p a i d f o r it.
W h e n we finally realized the magnitude of our gasoline shortage and realized
t h a t we could not remedy i t by outside purchases, we were compelled to instit u t e a p r o g r a m of allocating gasoline among our various customers, t r e a t i n g
t h e m u n i f o r m l y except to the extent required to accommodate those whose
purchases were on a seasonal basis to such an extent t h a t application of the
base period chosen would have been inappropriate, and those, such as municipalities, who must have gasoline f o r essential public services.
2. T H E EFFECT OF T H E G A S O L I N E SHORTAGE O X T I I E
NATION
I f the shortage of gasoline persists, we foresee many consequences. Consumpt i o n w i l l have to be curtailed. T h i s curtailment could have serious side effects.
Petroleum companies, including Getty Eastern, m i g h t need fewer employees
f o r the marketing, refining and transporting of gasoline, f o r the acquisition of
real estate f o r service station sites, f o r advertising, and f o r other purposes
w h i c h are related to efforts to increase the consumption of gasoline. W e have
already drastically curtailed our advertising expenditures. A substantial curt a i l m e n t of consumption of gasoline by American families could have an
adverse impact on hotels and motels, restaurants and recreational oriented
businesses. I n those areas h a v i n g l i m i t e d mass transportation facilities, a
c u r t a i l m e n t of consumption of gasoline could impede the a b i l i t y of some persons
to t r a v e l to t h e i r places of work, w i t h a consequent adverse effect on economic
productivity.
I f consumption must be curtailed then the immediate question becomes,
who is to decide on the criteria f o r curtailment? I n our view, there is only
one answer. I t must be the free force of the m a r k e t place t h a t determines who
w i l l purchase gasoline and how much and at w h a t price. Adherence to this
principle has kept Americans supplied w i t h adequate sources of gasoline f o r
decades, a n d I am convinced t h a t such adherence can continue to insure ample
supply i n the future. I f so, then i n the long r u n the consequence of the gasoline
shortage should be t h a t more refining capacity w i l l be b u i l t and supplies w i l l
increase.
3. EFFECT O N C O M P E T I T I O N I N T H E O I L I N D U S T R Y ,
I a m sure there is apprehension among some of the member^ of the Committee t h a t a gasoline shortage w i l l lead to less competition. I do not believe
t h a t to be a real danger. Rather, w h a t has happened and should continue to
happen is a change of the emphasis on competition. Thus, as we now have our
customers on allocation, Getty Eastern is not s t r i v i n g to induce new customers
to purchase Getty Eastern gasoline, we are not actively looking f o r new service
station sites, and we have curtailed our advertising. F r a n k l y , I am hopeful
about supplies f o r the future, so I do not expect this condition to persist
indefinitely.
On the other hand, there is now keen competition among suppliers of gasol i n e f o r any extra supplies t h a t m i g h t become available. I n periods of oversupply, the competitive emphasis is on finding new customers or r e t a i n i n g old
ones. I n periods of short supply i t is on securing sources of supply. These are
different forms of competition, but they are the n a t u r a l consequence of the
free enterprise system and the m a r k e t place.
N o r do I believe t h a t competition among resellers, such as service station
operators, w i l l be adversely affected by this shortage. We are i n f o r m e d t h a t
some service station operators have curtailed hours of operation a n d / o r raised
prices at the pump. Even i f these are the consequences of the shortage, I
believe again t h a t they are merely a change of emphasis f r o m competing less
on sales to motorists, to more f o r supplies f r o m refiners and other suppliers of
gasoline. This, again, should be one of the direct consequences of the free
enterprise system dictated by the market place.
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U n f o r t u n a t e l y , because of the Phase I I I P r o g r a m r e l a t i n g t o t h e 23 sellers
of gasoline, i n c l u d i n g Getty Eastern, t h i s l a s t phase of c o m p e t i t i o n s u b s t i t u t i o n
is distorted. A service s t a t i o n operator w h o m i g h t w T ant t o purchase gasoline
a t a h i g h e r p r i c e f r o m a seller a n d m a r k e t i t a t a l o w e r p r i c e t h a n h i s competitors, absorbing some of t h e increase by a r e d u c t i o n of h i s m a r g i n of p r o f i t
i n exchange f o r the h i g h e r volume, m a y w e l l n o t be able to do so because u n d e r
Phase I I I he cannot pay h i s supplier w h a t t h e m a r k e t w T ould dictate. I t is t h i s
d i s t o r t i o n of m a r k e t forces t h a t leads me t o P o i n t 4.
4. W H A T
STEPS C A N A N D S H O U L D BE T A K E N TO P R E V E N T G A S O L I N E SHORTAGES
AND
T H E H I REOCCURRENCE?
As suggested i n m y response to issues 2 a n d 3, I a m convinced t h a t gasoline
m u s t be a l l o w e d to find i t s competitive p r i c e level f r e e of a r t i f i c i a l r e s t r a i n t s
such as imposed by the P r i c e Commission. Given other i n f l a t i o n a r y pressures,,
t h i s may seem a d i s t a s t e f u l choice. B u t i t is n o w generally recognized t h a t i t
was the F e d e r a l P o w e r Commission's efforts to keep t h e price a r t i f i c i a l l y l o w
t h a t led to the acute shortage of n a t u r a l gas we face i n t h e U n i t e d States today.
T h e economic forces t h a t determine w h e t h e r gasoline suppiles w i l l be adeq u a t e i n the f u t u r e are h a r d l y different. I f t h e price of gasoline is kept a r t i f i c i a l l y low, there w i l l be no incentive to b u i l d new r e f i n i n g capacity or t o expand
e x i s t i n g refineries. I t is to securing t h i s c o m p e t i t i v e f r e e d o m t h a t we should
address our a t t e n t i o n .
O f course, the whole s o l u t i o n is n o t t h a t simple. E v e n g i v e n economic
incentives, there are s t u m b l i n g blocks. W e l l - m e a n i n g l o c a l citizens a n d environm e n t a l i s t s m a y w e l l oppose n e w refineries or pipelines, such as the A l a s k a
pipeline or superports w h i c h w o u l d f a c i l i t a t e crude o i l deliveries. A t t h e same
t i m e as they delay c o n s t r u c t i o n of those f a c i l i t i e s v i t a l t o increasing supplies
of gasoline a n d f u e l oil. some of the same people p r o m o t e exhaust emission
controls f o r cars w h i c h i n t u r n cause cars to use even m o r e gasoline. Others
have p o i n t e d to the need f o r a i d i n these areas, a n d I only a d d our voice
to theirs. E n v i r o n m e n t a l improvements a n d controls a r e laudable, b u t t h e r e
m u s t be some compromise i f w e a r e t o a v o i d serious gasoline, f u e l a n d other
shortages.
5. T H E I M P A C T T H A T G A S O L I N E SHORTAGES W I L L H A V E O N O T H E R PRODUCTS FOR T H E
R E M A I N D E R OF T H I S Y E A R A N D O N H O M E H E A T I N G S U P P L I E S N E X T W I N T E R
Getty Eastern's gasoline shortage w i l l have no s i g n i f i c a n t effect on a n y
o t h e r p r o d u c t produced a n d / o r m a r k e t e d by G e t t y E a s t e r n , p a r t i c u l a r l y h o m e
h e a t i n g oil. W h i l e wTe sell only l i m i t e d q u a n t i t i e s of home h e a t i n g oil, we expect
to have about the same q u a n t i t y f o r sale n e x t w i n t e r as w e d i d t h i s p a s t
w i n t e r . I n t h a t regard, o u r refinery is n o w o p e r a t i n g a t i t s m a x i m u m p r a c t i c a l
capacity, a n d is o p t i m i z e d to m a n u f a c t u r e gasoline. E v e n w i t h changes i n o u r
crude slate we could not increase o u r gasoline yields s i g n i f i c a n t l y .
President N i x o n ' s n e w i m p o r t p r o g r a m p e r m i t s the i m p o r t a t i o n of s u b s t a n t i a l
q u a n t i t i e s of f u e l o i l f o r resale only as f u e l o i l i n D i s t r i c t I ( t h e N o r t h e a s t e r n
U n i t e d States) commencing A p r i l 1, 1973. T h i s measure should t e n d t o h e l p
the supply of h e a t i n g o i l t h i s coming w i n t e r .
6. T I I E EFFRCT T N E R E P L A C E M E N T OF T H E QUOTA S Y S T E M W I T H A T A R I F F L I C E N S E
FEE PROGRAM W I L L H A V E O X T H I S Y E A R ' S S U P P L Y OF P E T R O L E U M PRODUCTS
So f a r as Getty E a s t e r n is concerned, the change i n the i m p o r t p r o g r a m has
not affected our plans. As the D e l a w a r e refinery was especially equipped to
h a n d l e l o w cost sour ( h i g h s u l f u r ) f o r e i g n c r u d e oils, u n l i k e m a n y domestic
refineries w h i c h m u s t have greater q u a n t i t i e s of sweet ( l o w s u l f u r ) crude oils,
we h a d a l r e a d y p r o g r a m m e d the refinery f o r s u b s t a n t i a l f o r e i g n crude f o r
1973.
A s i n d i c a t e d i n m y comments on the cause of t h e shortage of gasoline,
I do not believe t h a t t h i s new p r o g r a m w i l l cause s u b s t a n t i a l a d d i t i o n a l i m p o r t s
of f o r e i g n gasoline, either f o r Getty E a s t e r n or f o r t h e rest of the i n d u s t r y .
I n closing I w o u l d l i k e to stress a final p o i n t . W h i l e t h i s Committee is looki n g a t the gasoline shortage a n d i t s causes and cures, another Committee of the
Senate is considering other aspects of the energy crisis, i n c l u d i n g the shortage
of f u e l oil. W e do n o t believe i t f r u i t f u l t o f r a g m e n t t h e study of the f o r m s
of energy supplied by the p e t r o l e u m i n d u s t r y . T h e shortage of gasoline is
292
related to the shortage of n a t u r a l gas and f u e l oil and to the s w i t c h f r o m
coal to f u e l oil, and the causes and cures of any one energy source can only be
understood and implemented as p a r t of a more comprehensive plan. W e believe
t h a t President N i x o n ' s recently announced energy policy recognized the i n t e r r e l a t i o n of these m a t t e r s and wTe urge t h i s Committee to do so also.
Thank you for your thoughtful attention.
Senator M C I N T Y R E . Thank you, Mr. Hennessy. I would like to ask
Mr. Morrison, in discussing the new tariff system, you state this w i l l
not eliminate the problems of supply midcontinent suppliers.
Can you elaborate on this and can you give the committee your
•suggestions ?
Mr. MORRISON. I think there are two problems involved here. The
inability of the refineries to handle the sour crude and the logistics
problem of getting imported crude into the Midwest.
Senator M C I N T Y R E . Mr. Morrison, i t is my understanding your
company has, .and is presently withdrawing your market operations
from various sections of the country, particularly from New England; I know you are familiar with this. This has caused tremendous
economic hardship and supply dislocation in that area.
Of particular concern to me is the Phillips jobber in New Hampshire, the Aranco Oil Co., who supplies 37 stations in my State,
selling over 13 million gallons of gas a year.
Are you familiar with the particular situation at all?
Mr. MORRISON. Yes, Mr. Chairman. I do not believe it is appropriate for me to discuss that particular situation. My counsel is here
and has a court order covering the litigation.
As you know, that is in litigation at present. I f you would like to
have it for the record, it could be made available.
Senator M C I N T Y R E . Is there the litigation against you.
M r . MORRISON. Y e s , s i r .
Senator M C I N T Y R E . A l l I
have i n the letter is they suffered a crushing defeat in the New Hampshire Federal Court. That must be the
case you are referring to. They do not tell me who the defendant is.
They are now appealing that.
Mr. MORRISON. Thank you, sir.
Senator M C I N T Y R E . I do not want to get into it. This is one of the
questions that you fellows are sloughing off. You may be right but
I don't think so.
Mr. MORRISON. Let me comment on the withdrawal. We made an
announcement on June 10, 1972, to withdraw from 10 Eastern States,
except a small portion of east central Pennsylvania. A t the time we
made that decision, we had no knowledge of the gasoline shortage,
now, that we are confronted with.
Senator M C I N T Y R E . I say to you the same thing I said to the three
former gentlemen. There have been a lot of factors that brought this
shortage about, but one of the factors has been stupidity on the part
of the oil companies in not knowing how to estimate the demand that
was occurring in this country.
^ I know you do not want to take any of that blame. Go ahead and
cite all the things that caused it.
Mr. MORRISON. I am sure we are to blame to some degree. As has
been stated by gentlemen before me, over the years we have overestimated and we have had more refining capacity than needed.
There are certain things that took place last fall that we, in the
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industry, were not able to anticipate, that being the tremendous
upsurge in the use or consumption of motor fuel and the early
extreme cold winter that we had. starting in late September through
December, plus the fact in the first quarter of 1978 it appears that
the motor fuel consumption is going to be up something in excess of
(> percent over what it was in 1972, so these are things that we. in the
marketing end of the business, have no control over or we as a company in making our projections, did not have control over. I do not
think we can control the weather. We projected our needs, based on
a normal winter season.
Senator M C I N T Y R E . When did you make vour announcement, in
1972?
Mr. M O R R I S O N . I believe we made that announcement. Senator, on
June If), 1972.
Senator M C I N T Y R E . I have figures here for total U.S. stocks, motor
gasoline, thousands of barrels, year 1971, 1972, and 1973. And I do
note that the figure starts to decline in March 1972 where it goes
from 242,804, to 240,744 and it starts declining until we have the
figure for April, 27, 1973, down to 205,000. So it was a v e r y opportune situation.
Your case is in litigation, but it is this sort of a letter from a
constituent who says look, these fellows came in and sold me a big
bill of goods a number of y e a r s ago, you are a good company, we are
going to give you a hundred percent financing, they took the bait and
they ran with it—they have 37 stations, they are the biggest independent in this State of New Hampshire—the largest jobber, and
now on May 31, the contract expires and they are down to what the
Alabama fellow said yesterday, to zero oil.
I t may be right as Mr. Sellers said, that this shakedown is a good
idea, to get rid of some of these weak members in the marketing field,
but it is pretty hard on them. I assure yon of that. I guess you
realize that.
Now a question for Mr. Hennessy. On page 10 of your statement
you urge the congressional committees not fragment the review of
various forms of energy supplied bv the oil industry.
Probably, because your company does not produce large quantities
of heating oil, you may not be aware of this, but this committee, one
of its subcommittees, lias held fuel oil hearings annually for the last
5 years, and other witnesses who appeared here earlier could tell you
this, sir.
I would like to make it clear that this committee is concerned
during these hearings with the allocation amendment to the Economic Stabilization Act which is clearly within our jurisdiction.
I do note, too, that Mr. Sellers also said on page 10 of his statement :
Our c u r r e n t supply problem is aggravated by the f a c t t h a t some of our
customers both branded and unbranded marketers, whosse contracts have
expired have been unable to find a new supply.
Tn some instances we have been able to continue to supply some product to
these customers so t h a t they can stay i n business u n t i l they locate a new
source of supply.
That is what Oiteo had to say about the problem that T think you
are contending there with respect to Aranco Oil in New Hampshire.
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Senator Tower, do you have any questions?
Senator T O W E R . No questions of this witness.
Senator M C I N T Y R E . Has your company, Phillips Petroleum, attempted to or constructed a new refinery in the United States in the.
last 5 years ?
Mr. M O R R I S O N . NO, we have not.
Senator M C I N T Y R E . H O W about Getty ?
M r . HENNESSY. NO, sir.
Senator M C I N T Y R E . I t is all because of environmental prohibitions?
Mr. H E N N E S S Y . N O , sir, our return on investment last year was 2
percent. I cannot get interested.
Senator M C I N T Y R E . Your return on investment was 2 percent?
Mr. H E N N E S S Y . Yes, sir, it was largely caused by operational problems at our Delaware plant.
Senator M C I N T Y R E . Getty is getting out of marketing?
Mr. H E N N E S S Y . Not to my knowledge.
Senator M C I N T Y R E . That is what they told me yesterday.
I have got one bad tin ear.
Thank you very much, gentlemen, for being here. I appreciate
your coming, particularly at a very difficult time for you, because of
the changing situation out there. Thank you.
We call as our next witness Mr. Frank N. Ikard, president of the
American Petroleum Institute.
Senator T O W E R . Mr. Chairman, I wouild like to welcome Frank
Ikard to this committee. He is a fellow Texan of mine. As a matter
of fact, he was my Congressman for 10 years and is from my hometown. He was a Democratic Congressman, I might add.
Senator M C I N T Y R E . Wonderful, at least he had good sense there.
Senator T O W E R . Since that time we have elected a Republic Congressman from that district.
I n any case, Frank Ikard is a man who knows his subject extremely
well and I think is one of the statesmen of the Petroleum Industry
and I think that the committee will have much to learn from his
testimony here today. I just wanted to express that word of welcome
to him.
STATEMENT OF FRANK IKARD, PRESIDENT, AMERICAN
PETROLEUM INSTITUTE
Mr. I K A R D . Thank you very much, Senator Tower.
Mr. Chairman, I will, as you have indicated, paraphrase or summarize my remarks and file my whole statement for the record, i f I
may.
Senator M C I N T Y R E . I do appreciate your being here today. We
realize i t came at a very difficult time for you. Anything you can
do in the interest of time to condense your statement, we would
appreciate.
Mr. I K A R D . I would be very happy to just submit myself for questioning.
Senator M C I N T Y R E . That is agreed.
[Mr. Ikard's full statement follows:]
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S T A T E M E N T OF F R A N K N . I K A R D , P R E S I D E N T , A M E R I C A N P E T R O L E U M
INSTITUTE
M y name is F r a n k N. I k a r d , and I am president of the American Petroleum
Institute. The I n s t i t u t e is a n a t i o n a l trade association representing a l l branches
of the petroleum i n d u s t r y , i n c l u d i n g refiners and marketers of gasoline a n d
other petroleum products.
I appreciate the opportunity to address some of the aspects of t h i s most
i m p o r t a n t question being considered by t h i s Committee. Before doing so, I
would like to explain t h a t I can speak only to those matters w h i c h come w i t h i n
the scope of the I n s t i t u t e ' s program. I am not i n a position to discuss any matters having to do w i t h the competitive relationships among i n d i v i d u a l companies, nor w i t h the plans and decisions made by the companies relating t o t h e i r
products.
L e t me begin by touching briefly on some of the causes behind the t i g h t gasoline supply situation.
Consumer demand f o r motor gasoline was at an all-time peak in 1972. And
t h e g r o w t h i n demand i n 1972—some 6.3 per cent over 1971—was the highest
annual increase since 1955. The Office of Emergency Preparedness estimates
t h a t the rate of increase i n 1973 w i l l again be w e l l above five per cent. D a t a
available f o r the first t w o months of 1973 indicate t h a t actual demand has
exceeded the OEP estimate.
One reason f o r the sharp increase i n demand f o r motor gasoline has been the
exceptionally brisk sale of new cars. F o r the first quarter of 1973, f o r example,
U.S. automobile manufacturers produced nearly 20 per cent more cars t h a n they
d i d over the same period a year earlier.
A second reason is t h a t many of the newer models are getting fewer miles
per gallon than the older cars they are replacing. General George Lincoln,
shortly before he r e t i r e d as director of the Office of Emergency Preparedness,
stated t h a t auto emission standards f o r new-model automobiles "probably cost
us 300.0(H) barrels a day now, w i t h the consequent impact on an already t i g h t
refinery situation, and may cost us twTo m i l l i o n b / d by 1980."
A t h i r d reason is the public's stepped-up demand f o r a i r conditioning (69
per cent), automatic transmission (90 per cent), and other power-equipment
options (such as brakes, windows, seats) on their new cars. Use of such
options also lowers the miles-per-gallon ratio.
The f o u r t h and final reason is t h a t more Americans are seeking away-fromhome vacations. As a result, i n recent years the sale of t r a v e l trailers, pleasure
boats and snowmobiles has risen substantially—as has other gasoline-consuming vehicles and equipment.
On the supply side, the need f o r refineries to produce m a x i m u m volumes of
distillate fuels ( t h a t is, heating oil and diesel fuel) throughout this past w i n t e r
also had a significant impact on gasoline stocks.
A d m i t t e d l y , refiners have some—though l i m i t e d — f l e x i b i l i t y to adjust t h e i r
operations and thereby to v a r y the percentage yield of products such as gasoline and home heating fuels. I t is obvious, however, t h a t increasing the yield
of one product can only be done by an offsetting decrease i n the yields of other
products f r o m a barrel of crude oil.
As a result, stocks of motor gasoline f o r the week ending A p r i l 27, 1972 were
some 21 m i l l i o n barrels below the level of the comparable week of 1972—or
down about ten per cent. This situation has occurred even though motor gasoline production by U.S. refineries d u r i n g t h a t period increased by some 36
m i l l i o n barrels above the output f o r the same period i n 1972—an all-time
record f o r the first f o u r months of any year.
Domestic refiners are under great pressure to sustain t h e i r production of
gasoline at the m a x i m u m level possible. One of the basic problems, however, is
t h a t there is j u s t not sufficient refining capacity here i n the United States to
meet the t o t a l needs of the American public f o r petroleum products.
I ' l l have more t o say about this problem a l i t t l e later. I am also attaching t o
my statement, data on domestic refining capacity and on stocks of gasoline, distiilates, and j e t fuels f o r every week since the beginning of 1971.
301
T h e p r o b l e m of energy supplies goes w e l l beyond o i l a n d o i l products. S h o r t ages of one energy source place a n increased b u r d e n on o t h e r sources. T h i s
became p a i n f u l l y evident t h i s past w i n t e r , w h e n n a t u r a l gas s h o r t f a l l s i n
some p a r t s of the c o u n t r y caused a s h a r p increase i n d e m a n d f o r d i s t i l l a t e f u e l
oils. O i l , i n effect, has become w h a t m i g h t be called " t h e s w i n g f u e l . " Coat
has been r u l e d out of some m a r k e t s because of e n v i r o n m e n t a l r e s t r i c t i o n s .
N u c l e a r p o w e r p l a n t s are n o t coming on s t r e a m as q u i c k l y as a n t i c i p a t e d o r
hoped, p a r t l y because of e n v i r o n m e n t a l r e s t r a i n t s . M a n y l a r g e users o f energy
have t h e r e f o r e s w u n g over to oil.
N o w h e r e is t h i s s w i n g better i l l u s t r a t e d t h a n i n t h e use of d i s t i l l a t e s b y t h e
electric u t i l i t y m a r k e t . B e t w e e n 1967 a n d 1972, demand f o r d i s t i l l a t e s by u t i l i ties increased d r a m a t i c a l l y . I n 1967, d i s t i l l a t e c o n s u m p t i o n b y u t i l i t i e s wTas a t
a n i n s i g n i f i c a n t level of 8,000 b a r r e l s a day. B y 1970, i t h a d increased t o 68
t h o u s a n d b a r r e l s a day, a n d i n 1971, t o 97 t h o u s a n d b a r r e l s a day. I n 1972,
t h e increase w a s t o a v e r y s i g n i f i c a n t 186 t h o u s a n d b a r r e l s a d a y — w r h i c h i s
a p p r o x i m a t e l y 80 per cent of t o t a l d i s t i l l a t e use by a l l o f A m e r i c a ' s r a i l r o a d s
each day.
C l e a r l y , d i v e r s i o n of d i s t i l l a t e f u e l to generate e l e c t r i c i t y — a n a c t i o n m a d e
necessary by t h e i n a b i l i t y of u t i l i t i e s t o use coal a n d heavier oils, or to o b t a i n
n a t u r a l gas f o r peak s h a v i n g periods—is a n inefficient a n d uneconomical use
of t h i s fuel. D i s t i l l a t e s should l o g i c a l l y be used t o heat homes, s m a l l office
b u i l d i n g s a n d schools, a n d t o r u n diesel engines i n f a r m e q u i p m e n t a n d o t h e r
vehicles.
Refinery emphasis on p r o d u c t i o n of d i s t i l l a t e fuels, a n d c o n s u m p t i o n o f
these f u e l s by electric u t i l i t i e s a n d o t h e r l a r g e f u e l users, h a v e t h u s h a d a
decided i m p a c t on b o t h m o t o r gasoline a n d diesel f u e l supplies.
A r e t h e r e answers t o t h i s a n d other energy supply problems? W e believe so.
T h e a n s w e r s — b o t h i n the n e a r - t e r m a n d over t h e n e x t decade or s o — w i l l n o t b e
easy t o come by, b u t they do exist.
F i r s t , some possible n e a r - t e r m answers.
O n e : m a k e m a x i m u m use of the flexibility p r o v i d e d i n t h e Clean A i r A c t f o r
a c h i e v i n g p r i m a r y a i r q u a l i t y standards. U n d e r t h e A c t , the E P A A d m i n i s t r a t o r
m a y g r a n t a t w o - y e a r extension t o a state i f he determines t h a t " t h e necessary
technology or o t h e r a l t e r n a t i v e s are n o t a v a i l a b l e or w i l l not be a v a i l a b l e soon
enough t o p e r m i t compliance." T o some extent, the c u r r e n t energy p r o b l e m has
been a g g r a v a t e d by r e g u l a t i o n s t h a t p r o h i b i t t h e use of h i g h e r - s u l p h u r f u e l s —
such as coal a n d h i g h - s u l p h u r r e s i d u a l oil.
T h e E n v i r o n m e n t a l P r o t e c t i o n Agency announced o n M a y 7 t h a t average
s u l f u r oxides concentrations i n 32 A m e r i c a n cities h a d decreased by about 5 0
per cent betv/een 1964 a n d 1971. O f course, there have been f u r t h e r r e d u c t i o n s
since 1971. I n v i e w of t h i s s u b s t a n t i a l progress, i t m a y w e l l be t h a t some
r e l a x a t i o n of the t i m e t a b l e f o r a c h i e v i n g m u c h l o w e r concentrations is j u s t i f i e d
i f i t can help ease t h e c u r r e n t energy s i t u a t i o n .
T w o : accelerate the g r a n t i n g of p e r m i t s to nuclear p o w e r p l a n t s t o c o m p l e t e
t h e i r f a c i l i t i e s or to begin on-stream operations. I a m c e r t a i n l y no e x p e r t o n
nuclear p o w e r f a c i l i t i e s , b u t i t is m y u n d e r s t a n d i n g t h a t nuclear p o w e r has
also suffered to some e x t e n t f r o m e n v i r o n m e n t a l restrictions. A c c o r d i n g to one
p u b l i c u t i l i t y company, no n u c l e a r c o n s t r u c t i o n or o p e r a t i n g p e r m i t s w e r e
issued i n t h e U n i t e d States between e a r l y 1971 a n d t h e m i d d l e o f 1972. I f a l l o f
t h e nuclear u n i t s experiencing any k i n d of delay wTere i n operation, the i n crease i n t o t a l electric p o w e r g e n e r a t i n g capacity w o u l d be significant.
I t is obvious t h a t increased a v a i l a b i l i t y a n d use of energy f r o m coal a n d
n u c l e a r p o w e r w o u l d s u b s t a n t i a l l y relieve t h e unprecedented pressure o n
p e t r o l e u m demand.
T h r e e : energy conservation. W e m u s t a l l place g r e a t e r emphasis on seeking
more efficient a n d w i s e use o f energy. T h e I n s t i t u t e a n d i t s member companies
endorse a n d s u p p o r t p r o g r a m s t o encourage everyone t o conscientiously look f o r
w a y s to use energy m o r e c a r e f u l l y — i n t h e home, i n t r a n s p o r t a t i o n , i n b u s i ness a n d i n d u s t r y , i n a g r i c u l t u r e , a n d i n government.
297
Specifically w i t h r e g a r d to gasoline, several o i l companies, i n recent p u b l i c
messages, have e s t i m a t e d t h a t m o t o r i s t s w o u l d use 11 per cent less gasoline by
r e d u c i n g h i g h w a y top speeds f r o m 60 to 50 miles per hour. Gasoline savings
could also be achieved by keeping car engines p r o p e r l y tuned, by u s i n g carpools
where possible, a n d by a v o i d i n g unnecessary car t r i p s .
E n e r g y savings c a n be achieved i n m a n y other w a y s as w e l l . T h e A m e r i c a n
P e t r o l e u m I n s t i t u t e a n d i n d i v i d u a l o i l companies are, t h r o u g h w r i t t e n a n d
broadcast messages, seeking to a l e r t consumers t o t h e i m p o r t a n c e of energy
efficiency a n d to w a y s i n w h i c h they can save on energy consumption.
Significant energy savings can also be obtained by i n d u s t r y t h r o u g h t h e
development of technology to more efficiently convert f u e l i n t o e l e c t r i c i t y , a n d
t h r o u g h t i g h t e r controls on c u r r e n t p l a n t practices. These a n d other efforts by
a l l segments of the p u b l i c can help slow t h e g r o w t h i n energy demand, and they
should be v i g o r o u s l y pursued.
These efforts, however, cannot alone bridge the e v e r - w i d e n i n g gap between
consumer requirements a n d available supplies. X o r can they be looked upon as
a s u b s t i t u t e f o r actions designed to e x p a n d e x p l o r a t i o n , p r o d u c t i o n , a n d dist r i b u t i o n t o consumers of a l l energy sources.
L e t me n o w t u r n t o some longer-term steps t h a t m u s t be t a k e n n o w t o m a k e
new a n d expanded energy resources a v a i l a b l e to the nation's consumers.
O n e : deregulate the field price of n a t u r a l gas. T h e p e t r o l e u m i n d u s t r y is
convinced t h a t l e g i s l a t i o n d e r e g u l a t i n g n a t u r a l gas field prices i s the best
means of s t i m u l a t i n g a d d i t i o n a l supplies of t h i s e n v i r o n m e n t a l l y desirable f u e l ,
a n d encouraging the use of gas f o r i t s most a p p r o p r i a t e purposes.
T w o : t a k e p r o m p t a c t i o n to b r i n g the estimated 10 b i l l i o n b a r r e l s of crude
o i l a l r e a d y discovered i n Prudhoe B a y to U.S. consumers. T h i s w o u l d also
encourage the f u r t h e r search on A l a s k a ' s N o r t h Slope to determine w h e t h e r o r
not other large o i l a n d gas fields m a y exist there. A d m i t t e d l y , N o r t h Slope o i l
w i l l n o t be a v a i l a b l e to consumers u n t i l perhaps 1977, a t the earliest, even i f
permission t o b u i l d the t r a n s - A l a s k a pipeline were g r a n t e d tomorrow'. B u t ,
every m o n t h t h a t passes w i t h o u t a c t i o n increases the gap between f u t u r e domestic supply a n d demand, a n d f u r t h e r delays m a k i n g these much-needed
reserves of o i l a v a i l a b l e to consumers.
T h r e e : schedule more f r e q u e n t a n d l a r g e r lease sales on t h e U.S. Outer
C o n t i n e n t a l Shelf, consistent w i t h sound e n v i r o n m e n t a l considerations. T h e
OCS offers the greatest p o t e n t i a l source f o r new7 domestic o i l a n d gas supplies.
A n d development of t h i s source could go a l o n g wTay t o w a r d h o l d i n g down, i n
the f u t u r e , the n a t i o n ' s g r o w i n g dependence on f o r e i g n sources f o r o i l a n d gas.
Q u i t e obviously, i m p o r t s w i l l have t o be increased s u b s t a n t i a l l y over t h e n e x t
decade, i f the n e a r - t e r m energy requirements of the A m e r i c a n people are to be
met. B u t w^e m u s t not a l l o w dependence on f o r e i g n sources to become overdependence—with adverse consequences to the nation's economic, m i l i t a r y a n d
consumer security.
F o u r : develop deepwater p o r t s t o accommodate the increased level of i m p o r t s
a n d t h e v e r y large c a r r i e r s c o m i n g i n t o ocean service t h r o u g h o u t t h e w o r l d .
These l a r g e r vessels—and m a n y of t h e m are i n the 250,000 d w t . class—are
designed t o reduce the p e r - b a r r e l t r a n s p o r t a t i o n cost of oil. A n d they offer, as
w e l l , the o p p o r t u n i t y to lessen the chance of an accidental oil spill, by r e d u c i n g
the n u m b e r of t r i p s by t a n k e r s i n a n d out of h e a v i l y t r a v e l l e d harbors, where
the chance of such a n accident is greater. A t present, however, no i>ort f a c i l i t i e s
i n the U n i t e d States can accommodate these very l a r g e carriers. Several p o r t s
on the West Coast are capable of receiving vessels u p t o 150,000 d w t . B u t o n l y
t w o p o r t s on the E a s t Coast can handle t a n k e r s u p to 80,000 dwt.. and only a
f e w p o r t s on the G u l f Coast can accommodate t a n k e r s up to 70,000 d w t . Comp a r e d to 70,000 d w t . tankers, use of 250,000 d w t . c a r r i e r s w o u l d reduce t h e
number of ship calls by 75 per cent.
F i v e : encourage expansion of domestic r e f i n i n g capacity to m a n u f a c t u r e the
increased volumes of gasoline a n d other products f r o m b o t h f o r e i g n a n d do-
298
m e s t i e crude oil. B y 1985, consumer r e q u i r e m e n t s f o r o i l p r o d u c t s w i l l , i t i s
estimated, reach some 25 m i l l i o n b a r r e l s a day, compared t o the a p p r o x i m a t e l y
17 m i l l i o n b a r r e l s per day expected to be consumed t h i s year. T h e r e are, i n
t h e U n i t e d States today, about 250 refineries, w i t h a t o t a l capacity of j u s t over
13 m i l l i o n b a r r e l s d a i l y . These refineries are o p e r a t i n g a t t h e h i g h e s t l e v e l
possible u n d e r c u r r e n t c i r c u m s t a n c e s ; m a n y of t h e m a r e o p e r a t i n g w e l l above
t h e i r r a t e d capacity.
S u b s t a n t i a l a d d i t i o n a l r e f i n i n g capacity is t h e r e f o r e r e q u i r e d here i n t h e
U n i t e d States. W e w i l l need, by 1985, t h e e q u i v a l e n t of some 55 n e w refineries,
each w i t h an average capacity of 150,000 b a r r e l s a day.
Some of t h i s increased capacity m a y be a t t a i n e d by e x p a n d i n g e x i s t i n g
refineries, and such expansion is, to some degree, c u r r e n t l y t a k i n g place. B u t
t h e o v e r r i d i n g need is f o r n e w refineries. Yet, none i s c u r r e n t l y u n d e r construct i o n i n t h e U n i t e d States.
F o u r m a j o r problems are i n h i b i t i n g the c o n s t r u c t i o n of new U.S. refineries.
O n e : s i t i n g of these f a c i l i t i e s , w h i c h has been complicated by e n v i r o n m e n t a l
opposition. One East Coast state, D e l a w a r e , has banned r e f i n e r y c o n s t r u c t i o n
a n d o t h e r heavy i n d u s t r i a l i n s t a l l a t i o n s a l o n g i t s coastline on e n v i r o n m e n t a l
grounds, a n d several other states are considering s i m i l a r action. Y e t , i d e a l l y
a n d p r a c t i c a l l y , too, refineries s h o u l d be located near areas of l a r g e d e m a n d
a n d close t o p o r t f a c i l i t i e s .
T w o : the sources a n d k i n d s o f c r u d e o i l t o be r u n i n refineries. M a n y people
m a y assume t h a t refineries can process any c r u d e oil. I n f a c t , each refinery i s
designed t o process specific types of oil. A refinery designed t o operate on
" s w e e t " ( t h a t is, r e l a t i v e l y l o w - s u l f u r ) c r u d e o i l cannot process t h e " s o u r "
( t h a t is, h i g h e r - s u l f u r ) crude o i l w h i c h is f o u n d i n c e r t a i n fields a r o u n d t h e
-world. T h e corrosive h i g h - s u l f u r crudes could n o t be processed i n a r e f i n e r y
designed t o h a n d l e " s w e e t " crude w i t h o u t d a m a g i n g the u n i t s a n d p i p i n g i n
t h a t refinery. A company p l a n n i n g a newT r e f i n e r y t h e r e f o r e needs t o know T w i t h
c e r t a i n t y t h e exact I r i n d of o i l i t w i l l be processing. A n d i t m u s t k n o w t h a t such
o i l w i l l be a v a i l a b l e i n sufficient q u a n t i t i e s . U n f o r t u n a t e l y , sweet crude supply
i s presently t i g h t , w o r l d w i d e . A n d even i f a sweet-crude r e f i n e r y c o u l d overcome the mechanical problems of processing " s o u r " crude, such a r e f i n e r y — b y
u s i n g sour c r u d e — c o u l d n o t meet e n v i r o n m e n t a l r e s t r i c t i o n s on r e f i n e r y
emissions.
T h r e e : p e t r o l e u m p r o d u c t specifications. T h i s especially affects r e f i n e r y outp u t of gasoline. T h e r e f i n e r today does not k n o w w i t h c e r t a i n t y j u s t w h a t
q u a n t i t i e s of d i f f e r e n t types of gasoline w i l l be r e q u i r e d f o r 1975 a n d 1976
'cars. P a r t of t h a t u n c e r t a i n t y has t o do w i t h the i n t e r i m a n d l o n g e r - t e r m steps
t h a t w i l l have t o be t a k e n by the a u t o m o t i v e i n d u s t r y t o meet f e d e r a l s t a n d a r d s .
F o u r : t h e economics of refinery construction. A large, new refinery can cost
over $200 m i l l i o n . T o construct a l l of the needed n e w domestic refineries over
t h e n e x t dozen years w i l l r e q u i r e a n i n v e s t m e n t of some $11 b i l l i o n . Obviously,
p r o b l e m s i n v o l v i n g t h e s i t i n g of refineries, sources a n d k i n d s o f c r u d e o i l
available, a n d u n c e r t a i n t i e s as t o p r o d u c t specifications have a n e g a t i v e i n fluence on o i l company decisions r e g a r d i n g the c o n s t r u c t i o n of n e w grassroots
refineries. T h e r e is t h u s an u r g e n t need to resolve these p r o b l e m s a n d uncert a i n t i e s , as w e l l as t o p e r m i t t h e recovery o f r e f i n e r y c o n s t r u c t i o n costs i n t h e
marketplace.
I f r e f i n e r y expansion is n o t p e r m i t t e d a n d encouraged i n t h i s c o u n t r y n e w
refineries w i l l have t o be b u i l t a b r o a d — w i t h a consequent loss o f A m e r i c a n
j o b s a n d a f u r t h e r d r a i n on t h e n a t i o n ' s balance of payments.
299
S u m m a r y of A m e r i c a n P e t r o l e u m I n s t i t u t e s u r v e y of u t i l i z a t i o n a f o p e r a b l e
r e f i n e r y c a p a c i t y i n t h e U . S . d u r i n g w e e k ended, M a r . 3 0 , 1 9 7 3
[Barrels of 42 gallons]
Daily
average
Operable refinery c a p a c i t y r e p o r t e d t o A P I as of Dec. 31, 1972
13, 556, 312
Operable rofinerv c a p a c i t y r e p o r t e d b y respondents t o s u r v e y questionnaire
1
1
12,904,013
Percent of t o t a l operable capacity
95.^2
Crude runs r e p o r t e d
12, 036, 558
Crude runs versus operable c a p a c i t y
—867, 455
Percent u t i l i z a t i o n of operable c a p a c i t y
93. 3
Operable capacity of companies whose crude runs exceeded c a p a c i t y .
5, 982, 957
Crude runs r e p o r t e d
6, 345, 350
Crude runs i n excess of operable capacity
+ 3 6 2 , 393
Percent u t i l i z a t i o n of operable capacity
106. 1
Operable capacity of companies whose crude runs were belowcapacity
6, 921, 056
Crude runs r e p o r t e d
5, 691, 208
Crude r u n s below operable capacity
— 1, 229, 848
P c r c c n t u t i l i z a t i o n of operable capacity
82. 2
Reasons for r u n n i n g below c a p a c i t y :
(a) S h u t d o w n f o r t u r n a r o u n d , mechanical repairs, explosion
a n d fire
(b) L a c k of crude o i l
(c) L a c k of sweet crude o i l
(d) Crude u n i t m e t a l l u r g y
(e) Necessity of r u n n i n g grades of crude heavier t h a n n o r m a l l y
used.:
(f) Processing oils other t h a n crude
(g) D o w n s t r e a m c a p a c i t y l i m i t a t i o n s
(h) E n v i r o n m e n t a l constraints on refinery operations
(i) A s p h a l t p l a n t s h u t d o w n for seasonal reasons
(j) R e p o r t e d c a p a c i t y overstated
(k) U n a v a i l a b i l i t y of other r a w materials
(V*
Other reasons:
(1) F l o o d conditions
(2) Crude receipt l i m i t e d p e n d i n g c o n s t r u c t i o n of new
wharf now awaiting U.S. Government approval
(3) Weather delayed t a n k e r
(4) Other miscellaneous reasons
Total
531, 710
238, 685
139, 847
0
11,168
92, 524
58, 610
15, 000
57, 747
15, 000
1, 491
4,300
41, 279
6, 800
15, 687
68, 066
Grand Total
1, 229, 848
Source: A m e r i c a n P e t r o l e u m I n s t i t u t e , D i v i s i o n of Statistics a n d Economics,
W a s h i n g t o n , D . C . , A p r i l 10, 1973.
90-183—73
20
300
TOTAL U.S. STOCKS—MOTOR GASOLINE
[Thousands of barrels]
API end of week
Week ended
Jan. 5,1973...
Jan. 12,1973..
Jan. 19,1973..
Jan. 26,1973...
Feb. 2,1973...
Feb.9,1973...
Feb. 16,1973..
Feb. 23,1973..
Mar. 2,1973...
Mar. 9,1973...
Mar. 16,1973..
Mar. 23,1973..
Mar. 30,1973..
Apr. 6,1973...
Apr. 13,1973..
Apr. 20,1973._
Apr. 27,1973..
May 4,1973...
May 11,1973..
May 18,1973..
May 25,1973..
June 1,1973...
June 8,1973...
June 15,1973..
June 22,1973..
June 29,1973..
July 6,1973...
July 13,1973..
July 20,1973..
July 27,1973..
Aug. 3,1973...
Aug. 10,1973..
Aug. 17,1973..
Aug. 24,1973..
Aug. 31,1973..
Sept. 7,1973..
Sept. 14,1973.
Sept. 21,1973.
Sept. 28,1973.
Oct. 5,1973...
Oct. 12,1973..
Oct. 19,1973..
Oct. 26,1973..
Nov. 2,1973...
Nov. 9,1973...
Nov. 16,1973..
Ilov. 23,1973..
Nov. 30,1973..
Dec. 7,1973...
Dec. 14,1973..
Dec. 21,1973..
Dec. 28,1973..
Bureau of mines end of month
1971
1972
1973
217,414
222,447
225,824
229,459
230,430
233,188
235,975
238,840
239,988
242,233
243,822
243,095
245,764
243,891
240,102
237,032
234,928
227,888
225, 590
224, 527
220,469
221,719
218,493
217,086
214,132
211,370
213,239
210,600
207,764
205,612
208, 367
204,937
204,097
203,985
204, 376
203,951
206,018
205,865
206,440
206,854
208,376
205,690
208,975
208,062
207,380
204,369
207,245
209,898
210,029
213,816
215,664
221,868
225,472
227,765
229,547
235,800
235,176
237,701
237,043
239,118
242,304
240,744
240,324
236,831
237,636
234,416
232,133
227,381
225,818
221, 571
221,442
222,440
216,473
216,051
214,156
210,027
209,631
207,554
207,220
205,627
203,657
201,371
200,662
201,220
199,714
201,058
197,674
198,943
199,609
199,662
202,246
202, 360
204,624
203,121
204,892
205,324
207,237
205,752
209,428
209,453
209,120
209, 536
208, 836
210, 764
213,849
215,186
217,852
219,675
219,052
219,499
216,825
221, 373
216,672
217,042
215,298
215,851
212, 383
209,467
208,929
204, 373
205,099
1971
1972
1£73
231,836
239,633
221, £23
245,015
249,927
245,351
236, 831
230, 087
225,153
221,439
214,736
209,423
200,143
202, 864
200, 710
204,069
192,706
207,696
199,690
208,332
207,776
208,751
208,930
219,125
212,770
301
TOTAL U.S. STOCKS-DISTILLATE FUEL OIL
[Thousands of barrels)
API end of week
Week ended
Jan. 5, 1973
Jan. 12,1973
Jan. 19,1973
Jan. 26,1973
Feb. 2,1973
Feb. 9,1973.
Feb. 16,1973
Feb. 23,1973
Mar. 2 , 1 9 7 3 . . . .
Mar. 9,1973
Mar. 16,1973
Mar. 23,1973
Mar. 30,1973
Apr. 6,1973
Apr. 13,1973
Apr. 20,1973
Apr. 27,1973
May 4 , 1 9 7 3 .
May 11,1973
May 18,1973
May 25,1973
June 1,1973.
June 8,1973.
June 15,1973.
June 22,1973
June 29,1973
July 6,1973
July 13,1973
July 20,1973.
July 27,1973
Aug. 3,1973
Aug. 10,1973_
Aug. 17,1973
Aug. 24, 1973
Aug. 31, 1973
Sept. 7 , 1 9 7 3 .
Sept. 14,1973.
Sept. 21,1973
Sept. 28,1973
Oct. 5,1973
Oct. 12,1973
Oct. 19,1973.
Oct. 26,1973
Nov. 2,1973
Nov. 9,1973
Nov. 16,1973
Nov. 23,1973
Nov. 30,1973
Dec. 7 , 1 9 7 3 .
Dec. 14,1973
Dec. 2 1 , 1 9 7 3 . .
Dec. 28,1973
Bureau of mines end of month
1971
1972
1973
192,242
179,798
169,838
161,868
151,262
142,459
134, 305
129,149
126,209
121,836
118,991
115,983
112, 543
112,069
112,224
114,478
115,718
116,196
117,163
120,426
122,700
132,242
143,397
136,823
142,445
149,434
155,706
162,301
167,380
173,821
178,556
186,183
191 014
197,073
201,014
203,603
209,681
213,385
213,102
215,861
218,505
220,061
222,777
226,644
224, 896
222,139
223.395
217,406
208,829
202,214
196,400
193, 553
190, 534
179.378
170, 731
162,843
156,854
147,246
134,066
128,917
120,446
114,079
107,857
107,078
104,799
101,615
100,661
99,948
98,712
100,201
102,928
103,140
106,375
110,393
115,213
119.379
122,854
129,335
136,550
141,338
143,454
150,530
154,920
161,398
165,441
171,197
173,097
179,267
183, 523
188, 566
191,316
192,913
197,096
197,608
197,750
196, 502
194, 519
192,628
188,391
186,877
177,334
171,403
165,206
159,168
154,398
149, 541
142,538
136, 991
131,949
128,340
125,234
118,868
116,144
113,707
114,585
113,691
110,628
108,264
108,554
108,472
110,497
_
1971
1972
1973
158,677
160,027
130,958
128.635
122,154
112,812
101,728
113.636
103,558
125,758
112,892
145,744
128,739
172,328
155,557
196,934
174,674
210,095
190,250
222,926
195, 530
214,738
190, 584
190,584
154,284
302
TOTAL U.S. STOCKS—KEROSINE-TYPE JET FUEL
[Thousands of barrels]
API end of week
Week ended
Jan. 5,1973
Jan. 12,1973
Jan. 19,1973
Jan. 2 6 , 1 9 7 3 .
Feb. 2 , 1 9 7 3
Feb. 9 , 1 9 7 3
Feb. 16,1973
Feb. 2 3 , 1 9 7 3 .
Mar. 2 , 1 9 7 3 .
Mar. 9 , 1 9 7 3
Mar. 16,1973
Mar. 23,1973
Mar. 30,1973
Apr. 6 , 1 9 7 3
Apr. 1 3 , 1 9 7 3 .
Apr. 20,1973
Apr. 27,1973
May 4 , 1 9 7 3 .
May 1 1 , 1 9 7 3 .
May 18,1973
May 25,1973
June 1 , 1 9 7 3 .
June 8 , 1 9 7 3
June 1 5 , 1 9 7 3 .
June 22,1973
June 29, 1973..
July 6 , 1 9 7 3
July 13,1973
July 20,1973
Jvi\y 27,1973
Aug. 3, 1973.
Aug. 10,1973
Aug. 1 7 , 1 9 7 3 . . . .
Aug. 24,1973
Aug. 31,1973
cept. 7 , 1 9 7 3 . . .
Sept. 14,1973
Sept. 21, 1 9 7 3 . . . .
Sept. 2 8 , 1 9 7 3
Oct. 5 , 1 9 7 3 . . .
Oct. 1 2 , 1 9 7 3 . . . .
Oct. 1 9 , 1 9 7 3 . . .
Oct. 26,1973
Nov. 2 , 1 9 7 3
Nov. 9 , 1 9 7 3
Nov. 16,1973
Nov. 23,1973
Nov. 3 0 , 1 9 7 3 .
Dec. 7 , 1 9 7 3
Dec. 14,1973
Dec. 21, 1973.
Dec. 28,1973
Bureau of Mines end of month
1971
1972
1973
21,344
20,969
20,972
19,950
20,007
19,313
20,134
19,653
20,660
20,556
20,493
19,630
20,100
20,124
20,623
20,579
21,319
22,168
22,031
21,683
21,359
22,282
22,054
22,251
22,257
22,334
22,542
22,033
21,305
21,399
22,198
21,682
21,539
21,872
21,880
22,118
23,307
22,155
22,327
21,367
21,414
22,053
21,930
20,904
21,758
22,952
21,708
22,598
21,758
22,463
22,189
21,790
21,580
20,800
20,720
20,259
19,195
19,137
19,054
19,060
19,197
19,944
19,563
19,748
19,681
19,634
19,709
20,113
20,178
20,271
20,980
21,636
22,603
22,100
21,585
22,399
23,048
22,552
23,506
23,765
24,185
24,218
24,467
24,385
24,967
24,131
24,079
24,829
24,052
24,671
23,997
23,944
23,825
23,174
22,896
22,855
21,666
21,162
21,548
20,950
21,191
20,272
19,557
20,001
19,876
20,305
19,560
20,042
19,327
20,208
20,283
20,018
19,692
19,961
20,788
20,964
20,794
21,668
23,322
22,238
21,696
1971
1972
1973
20,680
19,199
18,861
19,992
18,891
20,214
20,181
20,658
21,097
21,822
22,792
21,819
22,467
21,645
23,585
21,015
25,132
21,437
24,448
20,364
22,700
20,934
21,003
20,747
19,346
Senator M C I N T Y R E . Could you supply the committee with a list of
all oil companies that have attempted to construct new refineries in
this country within the last 5 years and were denied this because of
environmental opposition ?
Mr. I K A R D . We will attempt to get such a list for you, Senator.
I suspect that it would be difficult to assure you that Ave can get
everyone. But I know of several, offhand, that we can furnish.
We will certainly try to do that to the best of our ability (see p. 308).
Senator M C I N T Y R E . What would be your overall position with regard to whether the President should immediately implement the
authority granted to him in the Economic Stabilization Act to allocate petroleum products?
Mr. I K A R D . I n the first place, we have no position on i t as an organization.
303
I would feel that it would be well not to impose those at this time.
However. I would agree that consideration and study and possibly
hearings should be held to determine what might be a reasonable program if it became necessary to implement one.
Senator M C I N T Y R E . What is your overall impression of the industry today under this sudden switch where suddenly we do not have
enough oil domestically—what is your overall impression as to what
is going to happen in the marketing field?
What is going to happen to these independents, these fellows that
were in here yesterday, testifying? This is a self-serve station, one
that does not promote service to a great extent but tries to come in
with a price on gasoline that is 4, 5. 8 or 6 cents under the brand
names in that town or in that area. What is going to happen to these
people ?
Mr. I K A R D . Senator, as I am sure you understand, in my position,
I am under all kinds of restraints and inhibitions about commenting
on marketing and practices as between companies.
I do think this is a whole new area we are moving into. Short supply—that is new to the industry, it is now new to the Government,
it is new to all the American citizens.
I think one of the very important things that we all have to understand is we are in a period of short supply and it will not be shortrange. I t is going to be long.
There are going to be dislocations. I n fact, it would be just impossible for me to comment about some of these relationships between
companies and jobbers and things.
I n the first place, I do not have the information, and in the second
place, the Department of Justice would not like my commenting on it.
Senator M C I N T Y R E . Does the American Petroleum Institute have
as its members independents who might be buying excess gasoline?
Mr. I K A R D . Yes, sir. We have in our organization every element in
the industry.
Senator M C I X T Y R E . Not everybody in the oil marketing business is
a member of your institute?
Mr. I K A R D . N O ; I did not say that. I say we have every element
represented. Some are in and some are out.
We do have members in every segment of the industry.
Senator M C I N T Y R E . What is your overall impression about this new
tariff system which has been implemented on May 1 ?
Do you believe it will have any appreciable effect on petroleum
product shortages over the next few years, and particularly what is
your feeling on the question of gasoline in that regard and home
heating oil ?
Mr. I K A R D . I think it will have a salutary effect. There are many
other things that are related to it, though, and the fact, as has already been indicated, the inability of some of the refineries to run
sour crude is a very basic and important problem.
The logistics of moving whatever imports that are available into
some of these areas is important. I think it is a move that will be
helpful. But there are many other facets of this problem rather than
just the import side of it.
Senator M C I N T Y R E . Y O U have indicated, of course, that we are in
for some trouble during the interim and the immediate future.
£
304
Could you briefly tell the committee here what your recommendations are on the broad spectrum, the far-reaching spectrum, 10 years
down the pipeline? Are we going to get after that shale? The year I
got here, I had heard the distinguished Senator Paul Douglas hist
talking about the oil up there in the Rockies and the shale. We do
not seem to have any of that. Are we going to get there now—are you
fellows going to stop us?
Mr. I K A R D . We are anxious to get there, Senator, as an industry,
and I think we will get there. This is a matter of developing technology. I t is the same kind of technological development that held up
the development of the breeder reactor. We have not yet developed
the technology that is economically feasible to get this oil out of this
shale. There are environmental problems. There is no question that
all these synthetics will come onstream within the next—I would
hesitate to name a year—but within the near future, as we measure
time, 10 or 15 years.
Senator M C I X T Y R E . D O you think we have been spending enough
as a nation from the research and development angle to develop this
shale question of whether oil is up there that can be marketed or
not? Do you think we have expended over the last years—I got here
in 1962, I started hearing good shale in 1963. Have we as a nation
spent enough money to find out the answer to unlock that oil up there
in the shale of the rockies ?
Mr. I K A R D . Probably within the climates that existed there have
been sufficient sums of money. They are not sufficient now until you
get results. So, now the situation has changed so much that we certainly should accelerate our research in all these synthetics, including
shale.
Just as an individual, and I am not a scientist, I think the area of
gasification of coal is a lot nearer within our reach or working with
some of our coal supplies—this is the evaluation of a layman, Senator.
Let me make that clear, I am not a scientist—I think this is much
more feasible for immediate relief than going after the shale.
Senator T O W E R . I f you would yield to me. Mr. Chairman. I have
seen the briefing given by the Joint Committee on Atomic Energy oil
the energy crisis, and the indicationt here is even i f we realized the
f u l l potential of the production from shale, we would still be able to
meet only a very small percentage of our projected requirements.
I n other words, that would not be one of our major contributors to
the resolution of that problem. Is that not right ?
Mr. I K A R D . Yes. I assume this is implied in what you say, that we
are going to need in this country all the energy sources we can develop—synthetic petroleum, coal, atomic, all of them, i f we have the
kind of growth' now that we have had in the past, we are going to
need every source we can get and we should develop all of them.
Senator M C I X T Y R E . I don't suppose you know offhand, but you
probably can find out and furnish it for the record, I would like to
know what has been expended in the nature of research, evaluation,
and development of the shale problem in the past 10 years.
Mr. I K A R D . Y O U are speaking of what the industry has spent or the
Government ?
Senator M C I X T Y R E . Can you get the whole figure for us?
Mr. I K A R D . I think we can get the whole figure.
305
Senator M C I N T Y R E . I f you can get the whole figure, that would be
good.
If you can't Ave will get the rest (see p. 308).
Senator M C I N T Y R E . The reason I say that, one of the places I spend
a lot of time, I call it down in the cellar, we closed the doors and get
the television boys out of there and we talk about research, development, testing, and evaluation of the military.
We spend money there and goodness knows, I am all for it. I
think this year the request is something in the vicinity of $8,500 million for research and development, testing and evaluation in all of
the various weapons of defense. I t would be nice to know i f we start
putting a little zip into this shale whether we could bring it out of
the Rockies and maybe the consumer would be the wTinner.
Senator T O W E R . Would the chairman yield at that point?
Senator M C I N T Y R E . Yes.
Senator T O W E R . The thing is there is so much in the way of research dollars as far as energy is concerned, I think you have to
address yourselves to priorities. The full potential yield from shale
would now only meet a very, very small percentage of our total
energy requirement.
So, if you think in terms of the research dollar, I think you would
have to think in terms of priorities. I do not know where those priorities are.
They may be in solar energy, nuclear what have you.
Shale is a potential producer of energy and comes down the list in
terms of total contribution to the energy problem.
Senator M C I N T Y R E . Are you talking about or taking into account
what we face, a higher price?
Senator T O W E R . There is no question we are going to face a higher
price.
Senator M C I N T Y R E . W i t h the higher prices, doesn't the shale become much more to be sought after?
Senator T O W E R . The higher the price, the more likely you are able
to get at these expensive fuels.
Mr. I K A R D . The most effective thing wTe could do is to open up the
offshore for development and construct the Alaskan Pipeline. These
are two things that would bring us some immediate relief on this
supply side—the development of our marine resources and the development of the Alaskan resources.
Senator M C I N T Y R E . H O W long have you had this job as the top man
in the American Petroleum Institute?
Mr. I K A R D . About 10 years.
Senator M C I N T Y R E . Have you been a strong proponent of an energy
policy for this country?
M r . IKARD. Yes,
sir.
Senator M C I N T Y R E . Why hasn't your voice been heard on this?
Mr*. I K A R D . I t has been heard in every forum in which we thought
we could express it, Senator. We have been continually talking about
it. I t is important to emphasize that energy policy is something that
means different things to different people.
I opposed an energy policy when it had to do with the allocation or
in-use controls which I now oppose. As to the orderly and proper
development of our national energy resources, i f that is a policy and
I think it is, we have been for that a long time.
306
The organization I have been w i t h has been f o r it. W e have made
speeches—we have appeared before congressional committees. I w o u l d
say the record showed this view point long before I was associated
w i t h them.
Senator MCINTYRE. YOU were born down i n Texas ?
M r . IKARD. Y e s .
Senator MCINTYRE. YOU knew
what oil was f r o m the day you were
probably hopping around on the grass there.
M r . IKARD. Y e s .
I grew up i n one of the great oil parts of this country, n o r t h Texas,
where i t has been a very productive area since the very early days of
this century.
Senator MCINTYRE. I was born up i n Xew England. W e do not
know what o i l is up there, unless we can f i n d i t off the A t l a n t i c coast
some place. I suppose that we have all been to blame f o r this. I heard
about an energy policy when I got here i n 1963 or 1964, under the
Democrats and nothing happened.
M r . IKARD. T h a t is r i g h t .
Senator MCINTYRE. The President's speech at least indicates a n
awareness, but i t is not a l l as embracing as we w o u l d l i k e to see i t ,
like t o have i t , but we are doing so many things w r o n g — b u i l d i n g
buildings you cannot open the windows.
M r . IKARD. T h a t is r i g h t . I agree w i t h that. I t h i n k back to your
o r i g i n a l question here today, I t h i n k a l l o f us are to blame f o r this.
I do not t h i n k we i n the industry have been w i t h o u t some f a u l t i n our
projections, as you have indicated. B u t I also t h i n k the Government
has been very much remiss i n some of the projections they have made.
I must say they were some of the projections I participated i n personally and I though the}' were r i g h t at the time, much as we a l l do.
When you project, p a r t i c u l a r l y economic questions out over a period
of years, m y observation and experience has been t h a t i t is a very
difficult t h i n g to do.
The O E P just a few months ago projected demand f o r their first
quarter of this year and they are way off. They said i t w i l l be around
5 percent. I t is going to be much higher than that. W e a l l have t h a t
problem. I agree w i t h you, i t is a f r u s t r a t i n g t h i n g when we t r y t o
look ahead and see what our requirements are going to be 12 o r 14
months f r o m now.
Senator MCINTYRE. A g a i n I cannot argue w i t h you. One o f the
things I have learned is the Government has to rely on the industry.
General L i n c o l n was r i g h t here i n this room i n September of 1972
and there was no shortages i n sight.
M r . IKARD. S e p t e m b e r o f 1972 ?
Senator MCINTYRE. Yes. T h i s is 1973, is i t not?
M r . IKAKD. There was a great deal of t a l k about shortages at that
time.
Senator MCINTYRE. I suspect you agree w i t h the distinguished gentleman I heard over at the L i b r a r y o f Congress here i n this seminar
we had 2 or 3 weeks ago f r o m the F o r d Foundation. I do not agree
w i t h him. H e says there is no v i l l a i n , no v i l l a i n i n the energy crisis.
I have got my villain.
M r . IKARD. I would hesitate to say there is a v i l l a i n . I t h i n k many
people have made projections that are not correct. Due to many fac-
307
tors that were absolutely impossible t o project. F o r instance, i f I
m i g h t just comment on one. I t h i n k atomic energy fails to move into
the market i n the way that all of us thought i t would 10 years ago,
and that has been one of the real contributing factors to this. There
are many other factors that have come along that have not been able
to be b u i l t into projections.
Senator MCIXTYRE. I do not pretend to know what happened t o
atomic energy and nuclear power but I do know t h a t the environmentalists j u m p up and down because they are sure the place is going
to blow up.
I do not have the answer t o w h y i t is not going t o blow up. I
t h i n k A E C joins the parade of the people who have helped us to get
into this morass.
Senator Tower.
Senator TOWER. M r . Chairman, I would like to note at the outset
that probably what we should be doing is not looking f o r a scapegoat
buy t r y i n g to arrive at some solutions t o a very pressing problem.
I t h i n k probably the g u i l t can be equally spread around among several sources.
I would like to ask M r . I k a r d i f he does not concur w i t h the statement made by the President i n his energy message, that we are going
to have to make some tradeoffs w i t h the environmental standards i f
we are to arrive at a solution to this problem?
M r . IKARD. NO questions about it. One very dramatic figure is the
use of distillate i n the generation of electricity. I n a 5-year period i t
has gone f r o m 8,000 barrels a day to 105,000 barrels a day. This increase represents about 80 percent of the distillates t h a t are used by
all the railroad engines i n this country or about 41 percent of all the
diesel trucks, and this is purely on account o f environment requirements. I t is really very wasteful to use distillate at t h a t — i n that way.
I t ought to go into home heating, i t ought to go into transportation, or
into these areas where is is tailored to be.
B u t i t is not.
Senator TOWER. Could not the same t h i n g be said of natural gas ?
M r . IKARD. Y e s .
W e all have great concern about the distillates at the moment i n
transportation and i n the f a r m machinery and a l l that. I t is certainly
very efficient i n the natural gas situation.
T h i s does not mean that there w i l l be any violation of the principles
of the environmental acts that have been passed. I t does not mean
that there w i l l be any jeopardy t o health. I t simply means largely
that the secondary standards w i l l be probably delayed a matter of a
year or two, u n t i l they can get in, u n t i l technology can pick up and
catch up and you can get the practical side of construction of some of
these plants that can extract s u l f u r and do the other things that are
necessary to make these energy sources available.
Senator TOWER. SO, i n effect, we are just going to have to confront
the environmentalists directly and insist that economic g r o w t h and
the energy needs of the country may, i n some instances have to take
procedence over certain environmental standards that we would like
to have but are not absolutely necessary f o r human survival?
Mr.
IKARD. Y e s .
308
Senator TOWER. W h a t is our refining capacity now compared to 10
years ago ?
M r . IKARD. I really cannot give you that comparison.
Senator TOWER. There has not been an increase to keep pace w i t h
the increased demand ?
M r . IKARD. R i g h t . I can f u r n i s h the exact numbers.
Senator TOWER. That would be interesting to have.
[ M r . I k a r d subsequently submitted the f o l l o w i n g material f o r the
record:]
American Petroleum
Washington,
Institute,
B.C., May 21, 1973.
The Hon. Thomas J. M c I n t y r e ,
U.S. Sen,ate,
Senate Committee on BankingHousing
Washington,
D.C.
and Urban
Affairs,
D e a r S e n a t o r M c I n t y r e : W h e n I testified before your Committee on M a y 9,
y o u requested t h a t I p r o v i d e some a d d i t i o n a l i n f o r m a t i o n on several m a t t e r s
related to the energy s i t u a t i o n .
I n the ease o f t w o questions—one related t o trends i n r e f i n i n g capacity and
the other t o expenditures f o r research and development o n o i l s h a l e — I a m
enclosing separate statements w h i c h address these topics.
A n o t h e r question related to the i m p a c t of e n v i r o n m e n t a l opposition upon n e w
refinery construction. As I i n d i c a t e d i n m y f o r m a l statement, there have been
a n u m b e r o f reasons f o r the slow pace o f new7 refinery construction. These
included, i n a d d i t i o n t o e n v i r o n m e n t a l opposition, the l a c k o f assurance t h a t
the heavy cost of new p l a n t s could be recovered i n t h e m a r k e t p l a c e a n d uncert a i n t i e s over f u t u r e product specifications a n d government i m p o r t policies.
I n a paper e n t i t l e d " T r e n d s i n Capacity a n d U t i l i z a t i o n , " issued by t h e Office
of O i l a n d Gas o f t h e D e p a r t m e n t o f I n t e r i o r i n December 1972, ten refinery
proposals w i t h u n c e r t a i n completion dates were listed. I t was noted t h a t some
of them were "blocked by or h a v i n g difficulties w i t h e n v i r o n m e n t a l i s t s actions."
(See T a b l e I I o f attached excerpt f r o m OOG S t u d y ) . T h i s subject i s d i f f i c u l t
because companies frequently do not make p u b l i c t h e i r plans f o r such projects,
p a r t i c u l a r l y w h e n they have n o t received permission t o proceed w i t h them. I t i s
q u i t e possible t h a t other projects t h a n those l i s t e d i n the OOG paper have
either been abandoned or not proposed a t a l l because o f e n v i r o n m e n t a l opposit i o n encountered a t some stage. W e are unable, however, t o document any such
cases a t t h i s time.
A s y o u have undoubtedly noted, t h e r e have been reports i n t h e press i n t h e
past week o r so w h i c h indicate t h a t a n u m b e r o f companies are f o r m u l a t i n g
plans t o a d d to t h e i r refinery capacity.
I f w e o b t a i n a d d i t i o n a l i n f o r m a t i o n r e g a r d i n g y o u r question, w e w i l l be
pleased t o share i t w i t h you.
D u r i n g our colloquy we discussed t h e extent to w h i c h the A m e r i c a n P e t r o l e u m
I n s t i t u t e has advocated the development o f coordinated and cohesive n a t i o n a l
energy policies. I asked my staff t o search t h r o u g h o u r files f o r the l a s t f o u r
or five years. Since November 1969, spokesmen f o r the I n s t i t u t e have testified
i n f a v o r o f such policies before Congressional Committees on 11 separate occasions. On 36 other occasions, I n s t i t u t e representatives have spoken before
public groups i n f a v o r o f t h i s position. Six recent publications released by our
o r g a n i z a t i o n have also called f o r coordinated n a t i o n a l energy policies.
I appreciated h a v i n g the o p p o r t u n i t y t o present my views to y o u r Committee.
I f e i t h e r I o r any member o f m y s t a f f can be o f f u r t h e r assistance t o you, I
hope y o u w i l l feel free to c a l l upon us.
Sincerely,
Frank
N. Ikard.
309
U.S. R e f i n i n g C a p a c i t y 1962 a n d
1972
D u r i n g the past ten years a gap has widened between U.S. refinery capacity
and domestic demand f o r refined products. Refinery capacity has increased only
83.1% w h i l e demand has grown by 57.3%. Environmental opposition to proposed refinery sites, lack of assurance t h a t heavy capital investment costs
could be recovered i n the marketplace, and uncertainties over f u t u r e product
specifications and government i m p o r t policies have tended to discourage new
plant construction. A t present, some refineries are experiencing difficulty i n
operating at peak capacity because of a lack of low-sulfur crude oil. Government policies should take account of the need to develop adequate domestic
sweet crude supplies.
Year
Operable refinery
capacity (barrels
per day)
Domestic demand
(barrels per day)
Refinery capacity
as a percentage of
domestic demand
10.012.734
13,324,734
10,400,079
16, 354,134
96.3
81.5
1962...
1972
NOTE.—Refinery capacities are the average of beginning and end of year capacities, including operating and operableshutdown capacity. Shutdown capacity which is not operable without extensive repair is not included. All figures are in
barrels (42 gallons) per day.
Source: U.S. Bureau of Mines; American Petroleum Institute.
Oil Shale Research and
Delelopment
O i l shale research and development have been underway both i n this country
and abroad f o r more t h a n a century. A Scottish firm produced oil f r o m oil
shale as long ago as the 1860's. The problems associated w i t h oil ishale
development, coupled w i t h the abundance of cheap energy sources, retarded indepth research efforts u n t i l a f t e r the end of the Second W o r l d W a r .
Accelerated R & D efforts were begun i n the 1960's. T h e Oil Shale Corporation
(TOSCO) was formed i n 1960 by oil companies f o r the purpose of bringing oil
shale research to the p i l o t p l a n t stage. F o u r years later, TOSCO joined w i t h
the Standard O i l Company (Ohio) and the Cleveland Cliffs I r o n Company to
f o r m a consortium know7n as The Colony Group. The t w o Ohio firms w i t h d r e w
f r o m active p a r t i c i p a t i o n i n 1966-67 and TOSCO operated alone u n t i l 1969
when the A t l a n t i c Richfield Company entered the Colony Group as manager of
the Colony Semi-works P l a n t at Parachute Creek, Colorado.
Besides the TOSCO and Colony Group efforts, the U.S. Government t h r o u g h
the Bureau of Mines, has pursued an active research program.
T o t a l estimated industry investintent i n oil shale research and development
since the end of W o r l d W a r I I ranges f r o m $75 m i l l i o n to $100 million. Government investment d u r i n g t h a t same period is estimated at $20 to $40 million.
A t present, i n d u s t r y is spending around $6 to $7 m i l l i o n a year on oil shale
development, and the Bureau of Mines about $2*/t> m i l l i o n a year.
Oil shale development has been slow f o r three m a j o r reasons :
(1) I t s development does not yet appear attractive i n economic terms. The
N a t i o n a l Petroleum Council estimates t h a t the price of a barrel of shale o i l
would be $4 to $5. H i g h e r crude o i l prices are l i k e l y to stimulate increased
research and development efforts.
(2) O i l shale technology faces several environmental problems which must
be resolved. The process of oil shale extraction requires the processing of t w o
tons of rock f o r each barrel of oil produced using present methods, creating a
huge shale disposal problem.
(3) The Federal Government has maintained an inconsistent position regardi n g leasing of federal lands f o r oil shale development. W h i l e the official govern-
310
ment policy is to encourage development of new energy technology, i t has been
slow to offer federal l a n d leases f o r oil shale development because of unresolved environmental questions.
[ F r o m the U.S. Department of the I n t e r i o r , Office of Oil and Gas—Washington, D . C . ]
T r e n d s i n C a p a c i t y a n d U t i l i z a t i o n , D e c e m b e r 1972
As the Nation's p r i n c i p a l conservation agency, the Department of
the I n t e r i o r has basic responsibilities f o r wTater, fish, w i l d l i f e , mineral, land, park, and recreational resources. I n d i a n and T e r r i t o r i a l
affairs are other m a j o r concerns of America's " D e p a r t m e n t of
N a t u r a l Resources."
The Department works to assure the wisest choice i n managing
a l l our resources so each w i l l make its f u l l c o n t r i b u t i o n to a better
United States—now and i n the f u t u r e .
foreword
There has been a v i r t u a l stagnation i n the g r o w t h of U n i t e d States petroleum
refinery capacity i n relation to the country's demand f o r petroleum products.
Concurrently there has been a r a p i d g r o w t h i n offshore refineries designed to
produce selected petroleum products f o r the U n i t e d States market. T h i s report
h i g h l i g h t s the extent to w h i c h i m p o r t a n t w o r l d refining exporting centers are
p a r t i c i p a t i n g i n t h i s geographical s h i f t , both c u r r e n t l y and i n the near f u t u r e .
November 1972.
G e n e P.
Director,
Morrell,
Office of Oil and Gas.
introduction
I n August 1971, t h i s office issued a report entitled " U n i t e d States Petroleum
Refinery Capacity and U t i l i z a t i o n . " P a r t of our objective w i t h t h i s w r i t i n g is
to refine and update some of the more i m p o r t a n t i n f o r m a t i o n included i n t h a t
report. I n this case the u p d a t i n g has been l i m i t e d t o the overall summary by
d i s t r i c t s of crude capacity and crude runs w i t h projections t h r o u g h 1975 based
on know r n projects f o r increased refining capacity.
As a complement to this, past performances and trends are presented f o r
those w o r l d refining centers w i t h the capacity to export petroleum products to
other countries and i n p a r t i c u l a r to the U n i t e d States. I n dealing w i t h certain
of the exporting centers w h i c h are composed of several countries, all countries
i n the area were included i n the balances f o r the sake of completeness even
though some may have no prospects t o become an exporter. I n this manner the
t r u e net exportable capacity of the area can be determined a f t e r allowance f o r
the area's own consumption. Consumption consists of local demand, internat i o n a l bunkers and refinery f u e l and loss. F o r this reason, some small countries
w i t h large refining operations show oil requirements w h i c h otherwise m i g h t
have been considered out of line.
Some comment is also made on factors w T hich may affect trends i n cert a i n of these exporting centers.
u.s. r e f i n i n g c a p a c i t y
trends
The outlook f o r expansion i n the U n i t e d States petroleum refining i n d u s t r y
has not undergone any significant change over the past year or so. There is s t i l l
a lack of any firm significant projects i n prospect f r o m 1973 onward. The last
large project is the new M o b i l refinery a t Joliet, I l l i n o i s and this is expected to
be onstream t o w a r d year-end or i n early 1973.
Capacities and crude runs are summarized i n Table I f o r the past several
years. Capacities f r o m 1972 t h r o u g h 1975 were obtained by adding k n o w n
planned newT capacity (Table I I ) to current capacity. No allowance has been
311
made f o r shutdowns or retirements, or minor debottlenecking. Table I shows
the rates of refinery operation required to maintained product i m p o r t s at t h e i r
1971 level. I n Table I I I , crude runs are shown on various bases i n c l u d i n g potent i a l runs as l i m i t e d by equipment and required runs f o r three different levels of
product imports.
A l t h o u g h capacity of downstream equipment is important, i t controls the
pattern of the product yields obtained. However, regardless of changes i n downstream equipment, crude runs roughly equate to the product volumes obtained
and therefore is the moist i m p o r t a n t measure of the overall a b i l i t y to produce
petroleum products.
Examinations of data r e l a t i n g to processing intensity i n the United States
and i n w T orld refining exporting centers reveals some interesting comparisons.
Percent capacity based on crude capacity
United States!
Bahamas/Caribbean
Middle East
Cat
cracking
Cat
Ref
Hydrogen
processes
Alkylation
Therm
ref
Therm
processing
Hydrocracking
35.0
7.0
3.0
8.9
5.1
3.6
37.3
17.2
9.1
6.3
.8
.4
0.3
2.9
(2)
11.7
15.3
1.9
6.4
0
1.8
» U.S. data from Oil and Gas Journal, Mar. 27,1972.
* Included in thermal processes.
The differences reflect the well-known p a t t e r n over the past years wherein
United States refiners have concentrated on destruction of residual and maximizing h i g h octane gasoline production. The refinery exporting centers produce
large volumes of f u e l o i l i n simpler units. More detail is available i n Table I V .
Based on the rate of increase i n product imports i n the past ten years, i t is
evident t h a t about 1,720,000 barrels per day of refining capacity has been
"exported" to foreign locations over t h a t period. Aside f r o m the adverse effects
this contributes to the U n i t e d States balance of payments, t h i s t r e n d has
eliminated employment opportunity i n the U n i t e d States not only i n refining
itself but i n allied and supporting industries as well.
D u r i n g the past decade the average number of employees required i n refineries averaged about 14 men per thousand bbls per day processed. T h i s works
out to be equivalent to 24,000 jobs eliminated as a result of the "exportation"
of capacity. G u l f Canada recently made a survey w h i c h revealed t h a t each
refinery job creates 3.5 jobs i n closely allied service and m a n u f a c t u r i n g sectors.
I n their opinion t h i s same factor applies to the U n i t e d States. T h i s alone is
equal to 84,000 jobs or a t o t a l of 108.000 jobs. Considering the average U.S.
household has 3.2 persons, some 346,000 persons are affected. S t i l l f u r t h e r t h i s
does not take i n t o account the employment i n other service areas i n housing,
food, entertainment, education, roads, c i v i l needs and other "downstream"
activities.
A n average refinery project requires about two to t w o and one-half years to
complete, f r o m the day the contract is let to start-up. I t includes some appreciable time f o r office w r ork before ground is broken on the project site. A l l of this
must be preceded by a feasibility study by the refining company, location of an
acceptable site, clearance f r o m local and state authorities, environmental impact statements, approval by the refining company's board, preparation of job
specifications, i n v i t a t i o n s f o r bids, study by the constructing companies and
preparation of t h e i r bids and finally the oil company's study of bids p t i o r to
contract award. These steps take several months p r i o r to the t w o to t w o and
one-half year period mentioned above. I n summary, the i m p l i c a t i o n is t h a t
nothing significant i n terms of new capacity could be realized before 1976.
Statements have been made by responsible persons i n the i n d u s t r y t h a t a concerted effort w o u l d have to begin immediately by a l l of the companies to
restore refining capacity to its proper position by 1980.
TABLE I.—PETROLEUM REFINING CAPACITY AND ACTUAL CRUDE RUNS
[In thousands of barrels per calendar dayl
Year
Capacity
1
Runs
2
Capacity
1
Runs 2
Capacity!
1955..
1956..
1957..
1958..
1959..
1,286
1,351
1,423
1,484
1,546
1,163
1,231
1,296
1,199
1,215
2,316
2,436
2,532
2,643
2,727
2,136
2,284
2,279
2,318
2,424
3,038
3,189
3,265
3.346
3,447
I960..
1961..
1962..
1963..
1964..
1965..
1966..
1967..
1968..
1969..
1,537
1,558
1,543
1,493
1,464
1,420
1,400
1,416
1,452
1,477
1,220
1,223
1,214
1,246
1,216
1,200
1,259
1,267
1,307
1,309
2, 766
2,784
2,809
2,847
2,870
2,896
2,951
3,049
3,161
3,220
2,422
2,433
2,463
2,541
2,578
2,645
2,790
2,849
2,967
3,013
3,464
3,520
3, 584
3,671
3,805
3,864
3,906
4,228
4,581
4, 737
1970..
1971..
1972..
1973..
1974..
1975..
1,487
1,515
1,541
1,553
1,553
1,553
1,290
1,330
3,360
3,482
3,478
3,560
3,642
3,642
3,154
3,230
5,027
5,345
5,481
5,499
5,517
5,517
Runs'
"
Capacity
1
Total United States
District V
District IV
District I
District II
District I
Runs
2
Capacity
1
Runs 2
Capacity 1
Runs 2
Percent
2,863
3,051
2,922
2, 779
2,925
289
296
304
321
330
255
269
273
266
291
1,297
1,325
1,352
1,403
1,448
1,063
1,124
1,149
1,080
1,139
8,226
8,597
8,876
9,257
9,498
7,480
7,959
7,919
7,642
7,994
90.9
92.6
89.2
82.6
84.2
989
3,026
3,178
3,325
3,419
3,506
3,665
3,903
4,129
4,264
330
345
360
375
385
386
386
394
413
422
286
284
304
307
320
330
338
344
367
385
1,488
1,515
1,519
1,555
1,589
1,600
1,649
1,707
1,770
1,875
1,170
1,219
1,252
1,268
1,299
1,362
1,392
1,452
1,571
1,658
9,585
9,722
9,815
9,941
10,113
10,166
10,292
10,794
11,377
11,731
8,067
8,184
8,410
8,687
8,807
9,043
9,444
9,815
10,312
10,629
84.2
84.2
85.7
87.4
87.1
89.0
91.8
90.9
90.6
90.6
4,357
4,492
424
424
425
428
428
428
393
405
1,974
2,081
2,179
2,208
2,208
2,215
1,676
1,742
12,272
12,847
13,104
13,248
13,348
13,355
10,870
11,199
11,989
12,779
13,570
14,360
88.6
87.2
91.5
96.5
+100.0
+100.0
1
Capacity of operating refineries—average of January 1 in given year and January 1 in following year—U.S. Bureau of Mines 1972 and later obtained by adding known projects,
a U.S. Bureau of Mines crude runs in year indicated. Projections 1972 and later represent volumes needed to be run to hold product imports to current levels. Demand based on interior Alyeska Study
with minor updating revisions for the year 1975.
Source: Hydrocarbon Processing, Oil & Gas Journal and miscellaneous sources.
OJ
i—*
to
313
TABLE II.—NEW REFINERIES OR EXPANSIONS SCHEDULED IN THE UNITED STATES BY PAD DISTRICTS—MILLION
BARRELS, DAY OF CRUDE DISTILLATION
Company/Location
1972:
Witco Chemical Corp. (Bradford, Pa.)...
Mobil (Paulsboro, N.J.)
Quaker State (Hancock Co., W. Va.) (new)
Ashland Oil Co. (St. Paul, Minn.).
Total Leonard (Alma, Mich.)
Alabama Refining Co. (Mobile, Ala.)
Murphy Oil Corp. (Meraux, La.).
Southland Oil (Lumberton, Miss.)
Sage Creek Refinery (Cowley, Wyo.)..
Refinery Corp. (Commerce City, Colo.)
Chevron Asphalt (Portland, Oreg.)
Hawaiian Independent Refinery (Barbers Point,
Oahu)( new)
Mobil (Ferndale, Wash.)
San Joaquin Oil Co. (Oildale, Calif.)
Douglas Oil Co. (Santa Maria, Calif.)
Total
1973: Mobil (Joliet, 111.1) (new)
1974: None
1975: Energy Co. (North Pole, Alaska)
Projects which are uncertain or have unknown
completion dates:2
Supermarine (Hoboken)
Shell (Delaware)
Occidental (Machiasport)
Atlantic Refining Association (Norfolk)
Fuels Desulfurization (Maine).
Guardian Oil Refining Co
Northeast Petroleum (Tiverton, R.l.)
Georgia Florida Oil & Refining (Brunswick, Ga.).
Crown Central Petroleum (Baltimore)
Dillingham (Barber's Point, Oahu).
Total
,
I
II
III
IV
V
Total
7. 5
6.9
10.0
10. 0
5.0
4.0
31.0
1.0
1.0
4.0
6.0
24.4
15.0
164.0
36.0
5.0
35.0
8.1
6.0
2.0
57.1
137.5
164.0
15.0
15.0
50.0
50.0
1,120.0
100.0
150.0
300.0
30.0
130.0
125. 0
65.0
70.0
100.0
1,070.0
1
Expected to be on stream about Jan. 1,1973.
2
These include some projects blocked by or having difficulties with environmentalist actions. Others have been included
because they are still in the early planning stages.
Senator TOWERS. I l a s i v t a great cleal of the problem been i n siting
the refineries?
M r . IKARD. Yes, we estimate that there needs to be between now and
1985, 55 new refineries of at least 150,000 barrel capacity and at t h
present time there is not one refinery being constructed in the U n i t e d
States, and there has not been since one was completed roughly 6 or
8 months ago i n the Midwest.
Senator TOWER. YOU spoke of long term incentives, and I t h i n k that
while we want to take whatever measures we can to meet our short
term needs, i n the final analysis, we have got to pay attention to our
projected needs over the next decade or the next 25 years and t h i n k
i n terms of long term incentives. Those are long lead time items. I f
we started the Alaskan pipeline now, i t would be 3 years m i n i m a l
before we could realize any benefit f r o m that. The same is true of any
k i n d of incentive programs we could engage i n w i t h the possible
exception of deregulating the price of natural gas at the wellhead.
T h a t would probably generate a more immediate result than any
other incentive program, would i t not?
M r . IKARD. Y e s , s i r .
Senator Tower. Y o u mentioned deregulation of gas at the wellhead. I would like to ask you about some of these other incentives,
such as has been suggested by the administration and some of us who
have introduced legislation on the subject. The extension of the tax
investment credit to new explorations and new secondary recovery.
314
M r . IKARD. I t h i n k i t w o u l d be a very h e l p f u l t h i n g i n accelerating
exploratory efforts and t h a t is what we should be doing.
Senator TOWER. A n d we should certainly, as the President recommended, retain our present incentives such as intangible d r i l l i n g costs
and depletion allowances.
M r . IKARD. Y e s .
Senator TOWER. T h a n k you very much, M r . I k a r d .
Senator MCINTYRE. YOU are knowledgeable on the o i l industry. D o
you t h i n k the incentives t h a t are i n the President's energy p r o g r a m
are going to be sufficient to help us i n New E n g l a n d ?
M r . IKARD. Yes, sir, they w i l l develop new sources of supply and I
t h i n k t h a t w i l l be h e l p f u l t o New E n g l a n d and every p a r t o f the
country.
Senator MCINTYRE. I t h i n k that New E n g l a n d needs a refinery,
about 250,000 barrels a day.
M r . IKARD. I t h i n k t h a t is probably true.
Senator MCINTYRE. A r e the incentives i n the President's program,
as you know them, sufficient to get us off the ground i n New E n g l a n d ?
M r . IKARD. I cannot speak f o r any company but m y guess is there
w i l l be refinery capacity developed i n New England.
Senator MCINTYRE. I wTent out t o Bellingham, Wash, on Puget
Sound, the Canadian border, to see Arco's clean refinery, i n c l u d i n g
technology about 10 years ago. I s i t possible f o r me to say i n New
E n g l a n d that this is a clean refinery, t h a t this is ecologically satisfactory ?
M r . IKARD. I would t h i n k t h a t any modern refinery—any refinery
b u i l t today w7ould meet a l l the environmental requirements and there
would be no problem f r o m the environmental standpoint.
Senator MCINTYRE. The b u r n i n g of s u l f u r and so f o r t h ?
M r . IKARD. Y e s .
Senator MCINTYRE. T h a n k you very much, M r . I k a r d . W e w i l l
recess our hearings u n t i l 10 tomorrow morning.
[ A t 12:50 p.m. the hearings wTere recessed u n t i l 10 a.m., M a y 10,
1973.]
PETROLEUM PRODUCT SHORTAGES
THURSDAY, M A Y 10, 1973
U.S. SENATE,
COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS,
Washington,
B.C.
The committee was convened at 10 a.m., i n room 530*2, New Senate
Office B u i l d i n g , Senator Thomas J. M c I n t y r e , presiding.
Present: Senators M c I n t y r e , Johnston, Tower, Bennett, and Brooke.
Senator MCINTYRE. The committee w i l l come to order.
Senator TOWER. W o u l d you yield, M r . Chairman?
S e n a t o r MCINTYRE. Y e s .
Senator TOWTER. I had prepared some remarks at the beginning of
the hearings and I w7as not able to be here. I ask unanimous consent
that they be put i n the record.
Senator MCINTYRE. W i t h o u t objection, t h a t w 7 ill be done (see p.
3). Also we have a statement t h a t Senator Packwood requested we
put i n the record of today's hearing.
[ T h e statement f o l l o w s : ]
S t a t e m e n t o f B o b P a c k w o o d , U.S. S e n a t o r f r o m t h e S t a t e o f
Oregon
M r . C h a i r m a n . I should l i k e to take t h i s o p p o r t u n i t y t o e x t e n d m y regrets t o
the Senator f r o m N e w H a m p s h i r e f o r n o t h a v i n g been able t o a t t e n d e a r l i e r
sessions of these hearings i n t o the problems associated w i t h petroleum p r o d u c t
shortages. I have h a d a n o p p o r t u n i t y t o r e v i e w t h e t e s t i m o n y t h a t has been
presented t o date a n d w o u l d l i k e to commend the Senator f r o m N e w H a m p s h i r e
f o r h i s leadership i n b r i n g i n g t h i s e n t i r e m a t t e r t o t h e a t t e n t i o n o f t h e
Committee.
T h e i n f o r m a t i o n w e have received a n d w 7 ill c o n t i n u e t o receive i n the f o r m
of statements a n d supplementary evidence f o r the record w T ill p r o v e t o be
immensely v a l u a b l e as t h e Senate a n d the Congress seek t o come to g r i p s w T ith
the problems t h i s n a t i o n i s f a c i n g today a n d w i l l face w i t h increasing severity
i n the f u t u r e as o u r demand f o r energy grows.
Senator MCINTYRE. W e begin today our f o u r t h day of hearings on
the impact of petroleum product shortages oil the national economy.
On Monday we heard f r o m what I would term the large users. They
were able to testify as to the railroads and the waterways and the
aviation and the truckers, the air people. On the second day, on Tuesday we heard f r o m those small businessmen and users who are feeli n g the bite of the shortage.
Then yesterday we had the pleasure of hearing f r o m the large companies, the majors, and today I am happy to welcome people representing the Government of the U n i t e d States.
W e have here this m o r n i n g as our first witness the Honorable
W i l l i a m E . Simon, who is the Deputy Secretary of the Treasury and
Chairman of the President's O i l Committee. Also at the table w i t h
(315)
96-183—73
21
316
h i m at the same time is M r . D a r r e l l M . Trent, Director of the Office
of Emergency Preparedness.
I am glad to welcome you here, M r . Secretary, and M r . T r e n t . A t
this time, before proceeding, I hope you w i l l introduce to the committee those members who are at the table w i t h you f o r the record.
Let me say that we have your f u l l statement. I t w i l l be included
i n the record i n its entirely. A n y time, d u r i n g the process of reading
it, t h a t you can digest i t or make a l i t t l e b i t shorter, we w i l l appreciate that.
I am delighted to welcome you here.
STATEMENT OF WILLIAM E. SIMON, DEPUTY SECRETARY OF THE
TREASURY, AND CHAIRMAN, PRESIDENT'S OIL POLICY COMMISSION AND DARRELL M. TRENT, ACTING DIRECTOR, OFFICE
OF EMERGENCY PREPAREDNESS, ACCOMPANIED BY DAVID R.
OLIVER, FROM THE OFFICE OF OIL AND GAS, DEPARTMENT OF
THE INTERIOR, AND WILLIAM A. JOHNSON, SENIOR ENERGY
ADVISER, TREASURY DEPARTMENT
M r . SIMON. I am delighted to appear before you today. W i t h me is
D a r r e l l M . Trent, A c t i n g Director of the Office of Emergency Preparedness ; Dave Oliver f r o m the Office of O i l and Gas, Department
of the I n t e r i o r , and B i l l Johnson, Senior Energy Adviser, Treasury
Department.
I want to discuss the possible shortages of gasoline and other
petroleum products. As such, I would like to focus on the f o l l o w i n g :
(1) The causes behind these shortages;
(2) The effect of these shortages;
(3) The impact that gasoline shortages w i l l have on other products f o r the remainder of this year and on home heating o i l supplies
next w i n t e r ;
(4) The effect of the new mandatory o i l i m p o r t p r o g r a m ; and
(5) W h a t steps are being taken to prevent such shortages and
their reoccurrence.
The first t h i n g to understand is t h a t the demand f o r energy has
been increasing continually while our supply has not. W i t h 6 percent
of the world's population, we are consuming one-third of the world's
energy. Furthermore, the demand f o r energy i n this country is growi n g at an annual rate of about 4 percent and by 1990, our energy
needs w i l l be double that of 1970.
F u r t h e r , demand f o r gasoline i n the U n i t e d States has been growi n g faster i n the past several years t h a n at any other time i n recent
histoiy. Since 1968, gasoline demand has risen at an annual rate of
about 5 percent. D u r i n g the past 2 years the rate of increase has been
about 6 percent per year. P a r t of this rise i n demand can be explained
by g r o w t h i n the population, g r o w t h i n the economy, and the increasi n g number of cars on the road.
B u t demand has also risen significantly because of the many powerusing devices added to cars. These include automatic transmissions,
air-conditioning, various safety features and the changes made i n
automobiles since 1970 i n compliance w i t h E P A regulations issued
under the mandate of the Clean A i r A c t . Producers' compliance w i t h
317
these regulations has led to substantially reduced engine efficiency.
As more vehicles come on the road equipped w i t h safety emission control, and physical comfort devices, average mileage per gallon w i l l
decrease f u r t h e r . A n automobile that once got 14 miles per gallon,
now gets 8 or 9 miles, and i t may get only 6 or 7 miles per gallon i f
present trends continue.
Because new automobiles are not getting the gasoline mileage obtained by their counterparts 5 and 10 years ago. and because we are
d r i v i n g more, gasoline consumption has risen. W e are using 300,000
barrels per day more of gasoline this year that we d i d last year.
W h i l e gasoline demand has been g r o w i n g at about 6 percent per
year, the volume of crude oil processed by refiners has risen only 3
percent per year. W e are now extremely short of refinery capacity
and, at the time of the President's energy message, which announced
the new oil-import program, no new refineries were under construction. Furthermore, expansion of existing refineries had ceased.
G r o w t h i n the capacity of the industry had come to an end because
the industry found that it was more profitable to invest abroad than
i n the U n i t e d States.
One reason f o r this is that environmental restrictions have made i t
increasingly difficult to find acceptable sites f o r new refineries i n
this ocuntry. Because of resistance to refinery siting, i t may take 3
years to obtain site approvals today, i n addition to the 3 years required f o r construction. Yet, modern refineries can be designed so
that they do not significantly pollute the environment. I n this regard,
I would mention a recent t r i p which you. Chairman M c I n t y r e , made
to inspect a new refinery i n the State of Washington. I understand
that you were impressed by the cleanliness of this refinery and have
urged your fellow Senators f r o m New E n g l a n d to support such a
refinery i n their area.
Senator MCINTYRE. One of the things that has bothered me, I asked
the question yesterday, I believe, of M r . I k a r d , we saw what was
known as a clean refinery, the Arco Clean Refinery, but i n the brochure they said they were u t i l i z i n g technology that was 10 years old.
W h a t I want to ask you is, is that the sort of refinery that we could
promote or we could be t r y i n g to get underway i n New E n g l a n d that
would answer many of the questions that the ecologists raise or have
they got other questions? Does this satisfy them at all?
M r . S o i o x . I t h i n k there is a fundamental misunderstanding about
a refinery. They conjure i n their minds the smoke pouring out of the
stacks and the t r a d i t i o n a l way i t does i n the industrial areas of this
country.
As you saw firsthand, i t just is not that way any longer. W e would
hope that that would answer their questions. Whether i t w i l l or not,
sir only time w i l l tell.
Senator MCINTYRE. T h a t is certainly true, because you recall we
accused the A r c o people of having nothing happening at the refinery
that day and they t o l d us they put t h r o u g h something like 85,000
barrels w i t h a 5 percent sulfur content crude.
M r . SIMON. T h i s is p a r t of the education process t h a t must take
place to prove to them that this is indeed a clean refinery and what
a clean refinery is. T h a t was a major step i n that direction. I was
delighted that you took that t r i p .
318
Senator MCINTYRE. I t was a good t r i p . I t was a l i t t l e too fast.
M r . SIMON. O n e d a y ; y e s , s i r .
Another reason why the industry lias located new refineries
abroad is that U.S. oil import restrictions, i n the past, created uncertainty as to whether new domestic refineries could obtain sufficient
imported supplies of crude oil. As long as the Government set improper quotas on a year-to-year and, i n some cases on a month-tomonth basis, no company was assured of the stability of supply necessary to encourage domestic refinery construction. This impediment
ended on A p r i l 18 when we terminated volumetric quotas on oil imports.
F i n a l l y , the tax and other economic benefits available to refiners i n
the Caribbean and i n Canada have been more lucrative than similar
provisions available i n the U n i t e d States. F o r all these reasons, U.S.
refinery construction has been standing still while U.S. demand f o r
refinery products has been growing.
T o meet the growing demand f o r gasoline, refiners have been
changing their mix of products to increase their yield of gasoline.
The average yield of gasoline per barrel of crude oil rose f r o m 43.8
i n 1968 to 46.9 percent i n 1972. This means, of course, that the yield
of other products, such as fuel oil, has been reduced. I t is also a
short-term expedient at best. Whatever the product m i x , i t w i l l be
necessary to increase substantially our overall imports or refinery
products to avert both a gasoline shortage this summer and a fuel
oil shortage next winter.
Our growing lack of refinery products was driven home to the
public late i n 1972 w i t h shortages of distillates and other heating
fuels i n various parts of the country. Kefineries had to increase their
percentage of distillate production and, correspondingly, reduce gasoline production. As a result, we are now coming into the summer season w i t h low gasoline stocks. As of A p r i l 20, we had only 240 m i l l i o n
barrels of gasoline i n storage. This is down 12 percent f r o m last y
e
a
r
,
while demand is up 6 percent. Furthermore, domestic production,
even today, is not keeping pace consistently w i t h demand. W e are
using an average, 47 m i l l i o n barrels of gasoline weekly and producing
only 43 m i l l i o n barrels. F o r this reason^ we are faced w i t h the prospect
of serious limitations on gasoline supply.
A n important aspect of the supply problem is the distribution system i n this country. Some areas of the country are close to pipelines
and refineries. Some areas are served by the retail outlets of the
major oil companies. These areas w i l l not feel a shortage as much as
otner areas which are relatively distant f r o m pipelines and not well
served by the major oil companies.
Recognizing the serious nature of the gasoline and fuel o i l shortage, and that there are regional differences i n the intensity of the
problem, we have established regional subcommittees of the O i l
Policy Committee, of which I am chairman. These groups consist of
representatives of the independent segment of the industry serving
particular areas of the country. I n addition, we have contacted the
Governor's office of each State and explained to them the need to
reach some compatibility between our energy needs and State environmetal requirements.
319
A s a result, representatives of the Governor's offices are attending
these subcommittee meetings, and we are able to i d e n t i f y regional
problems and hopefully deal expeditiously w i t h them. W o r k i n g i n
this way, we arc able to maintain flexibility i n the administration
of the new oil i m p o r t program and to be responsive to the special
problems of particular areas of the country.
We are greatly concerned about the independent companies. The
independent segment of the o i l industry—the indpendent refiners and
the independent marketers—are faced w i t h related but distinct problems. The refiners face crude o i l shortages; the marketers, gasoline
shortages.
To understand howr these problems developed, i t is important to
realize that u n t i l the early seventies, we had surplus crude oil production capacity i n the U n i t e d States. This enabled independent refiners
to buy crude o i l and b u i l d refineries to supply, among others, independent jobbers, marketers, and other wholesale customers. There
was also a surplus of gasoline and other products being produced by
the major oil companies. Independent marketers took advantage of
this surplus and opened thousands of gasoline stations to sell gasoline purchased i n the spot market. B y efficient servicing of consumers,
these marketers were able to sell gasoline for a few cents a gallon
less than the major oil companies. I believe that these independents
had a healthy influence 011 the petroleum industry by g i v i n g consumers
a greater choice between price and service. They made it possible for
consumers to buy gasoline at lower prices.
The gasoline shortage has h i t these independents hardest. I n the
first place, independent refineries can no longer get adequate supplies
of crude oil. They used to obtain domestic crude oil by exchanging
their i m p o r t licenses w i t h the major oil companies. The major companies used the i m p o r t licenses to i m p o r t cheaper foreign crude f o r
their own use, while p r o v i d i n g the independent refiners w i t h domestic
crude oil. I n addition, the so-called sliding scale method of allocating
import licenses under the old system gave smaller refineries more than
proportionate share of the licenses.
A l l this has changed d u r i n g the last 2 years. Quoted prices of
foreign crude oil are now equal to or higher than prices of American
crude sold i n the same markets. There is a worldwide shortage of
low-sulfur or sweet crude. A s a result, major oil companies have had
no economic incentive to trade their domestic sweet crude production
f o r imported crude obtained by means of independents' i m p o r t tickets.
F u r t h e r , because of local air quality standards, companies are compelled to use low-sulfur crude even though their plants are designed
f o r refining high-sulfur crude. The result is that the independent
refineries cannot get the crude oil they need and are operating at less
than f u l l capacity.
Independent gasoline marketers are also i n a difficult position. The
wholesale market f o r gasoline is d r y i n g up. Many of the independents
find it impossible to purchase gasoline wholesale. Hundreds of independent gasoline stations across the country are closing down. Those
that can obtain gasoline abroad, find i t available only at much higher
prices. This hurts them competitively, since their m a i n selling point
w i t h the public is that they can underprice the major o i l companies.
320
The problems of the independent segment of the industry were
given considerable attention i n designing the new o i l i m p o r t program. Indeed, had i t not been f o r the independents, the changes i n
the program m i g h t have been announced much sooner than they were.
O u r basic objective was to balance the need to preserve the independent segment of the petroleum industry w i t h the desire to create
a vigorous domestic industry t h r o u g h incentives f o r construction of
new refineries i n the U n i t e d States and f o r exploration f o r new reserves of crude oil. W e also wanted to eliminate the many exceptions
b u i l t into the oil i m p o r t program and to assure a reasonable stability
of prices.
Perhaps the major benefit of the new program is the f l e x i b i l i t y t h a t
i t provides to importers. Marketers w i l l be able to shop f o r supplies
of oil anywhere i n the world. They w i l l no longer be dependent ent i r e l y on their t r a d i t i o n a l sources of supply. Moreover, t h r o u g h the
availability of free-exempt licenses issued by the O i l I m p o r t Appeals
Board, independent marketers should have access to products at
lower cost than their major competitors f o r the remainder of this
decade. T h i s should provide the time required by the independent
marketers to make the changes necessary to protect their market
position.
Another benefit of the new program is the incentive i t creates f o r
additional output. The independent marketers have depended f o r
their economic well-being on the excess refinery capacity of the major
o i l companies. Excess definery capacity no longer exists, largely because we, as a Nation, have discouraged refinery expansion and construction. The greatest hope f o r the independent marketers, i n the
longrun, w i l l be the incentives provided both independent and major
refiners to produce additional supplies of crude o i l and products.
This, i n the end, is the only real solution to the problems the independent marketers now face.
L e t me discuss at greater length some of the steps we have taken
to protect the independents. I n the past, the O i l I m p o r t Appeals
B o a r d — O I A B — w o u l d not distribute import licenses i n cases of hardships u n t i l September.
They had a small " k i t t y " t h a t they would allocate after all the
hardship reports came in, and there was an obvious lag and i n our
opinion they were closing the barn door after the horses were let out.
W e change dthat i n January o f this year and they went ahead and
they issued their entire year's supply i n January of this year, recogn i z i n g that this was not going to be enough we got a Presidential
proclamation which gave the O i l I m p o r t Appeals Board the a b i l i t y
to pass out an unlimited supply to fee-exempt tickets to the independent segment of this market.
T h a t does not mean that the majors can not also go to the O I A B
and request a hardship, because we can define hardship not only f r o m
the industry but also f r o m the people i n this country.
B u t , unless the major o i l company, who has used up his i m p o r t
tickets, which I am t o l d lots of them are i n the process of using up,
has cleared the market of the i m p o r t ticket of the independent and
enabled h i m to continue to function as viably as possible d u r i n g this
period of shortage, then they w i l l be denied their request by the O i l
I m p o r t Appeals Board.
321
Outstanding i m p o r t licenses w i l l be honored license fee. Since the
independents hold a large share of those licenses because of the slidi n g scale and past O I A B allocations, this provides some value t o
their tickets where none existed previously. The independents w i l l be
able t o i m p o r t o i l at lower cost than the majors. A s a result, the
majors should now have greater incentive t o trade w i t h the independents.
T o provide greater value t o the independents' tickets, we have
suspended existing tariffs. H a d we not done this, the independents'
ticket value would have been lower. I do not know how much lower
i t can get than zero, but i t would have been lower. The O i l I m p o r t
Appeals Board has been given specific responsibility f o r helping the
independent refiners and marketers by issuing fee-exempt tickets.
The Government has begun t o allocate its " r o y a l t y o i l " t o independent refineries i n need. Under the term o f relatively recent lease
sales, the Government can collect some of its royalties in cash or i n a
share of the oil produced on lease lands. I n choosing the latter course,
i t is, i n effect, d i v e r t i n g crude oil f r o m the major to the independent
refineries.
Senator MCINTYRE. IS that being done ?
M r . SIMON. Yes, sir. I t is. T o date, my testimony says 60.000
barrels, and they are moving this royalty oil, rechanneling it, I should
say. We are researching all the various contracts that are out now on
royalty oil, we hope to have upwards of 200,000 barrels a day redistributed to the independent, segment o f the country that deals w i t h
the needy areas.
Senator MCINTYRE. T h a t was one o f the suggestions on Monday
last.
I am happy to see that that is being done. T h a t was one o f the
questions I wanted to ask. I realize that is not going to be the b i g
answer but at least i t is a help.
M r . SIMON. M r . Chairman, as f a r as the b i g answer is concerned,
we are h i t t i n g a lot of singles. We do not have a homerun ball. This
power that everybody talks about, g i v i n g me to ration or allocate, the
only power that I could have to solve this problem, that would solve
it, would be i f I had the ability to create a barrel o f oil or create a
barrel of gasoline.
Senator MCINTYRE. YOU gather all the singles i n you can.
M r . SIMON. That is what we are t r y i n g to do.
A l l o f these actions are probably not sufficient t o assure distribution o f adequate supplies o f refinery products t o independent marketers and, especially, adequate supplies of crude oil to independent
refiners.
I t is f o r this reason that the Government has decided to utilize the
authority given i t under the recently-enacted Economic Stabilization
Act to allocate both crude oil and products to independents, municipalities and other purchasers who have been cut off f r o m their
traditional sources of supply.
The O i l Policy Committee has been given general responsibility
f o r d r a f t i n g an allocation p r o g r a m ; the Office of O i l and Gas i n the
Department o f the I n t e r i o r , responsibility f o r administering the
program. The program adopted by the administration relies on voluntary compliance w i t h guidelines, set by the Government, calling
322
f o r the supply of no less than the p r o p o r t i o n of 1971 and 1972 sales
to independents and other customers at prices not to exceed posted
and rack prices charged by refiners, marketers, distributors and
jobbers. O u r purpose is to apportion as evenly as possible, any curtailment i n consumption that w i l l result f r o m gasoline and distillate
shortages. P r i o r i t y w i l l be given to meeting the needs of f a r m i n g ,
other essential industries and State and local governments. A descript i o n of the allocation p l a n is attached to m y statement as exhibit A
(see p. 346).
The program w i l l apply to a l l segments of the industry. The o i l
companies' adherence to these guidelnes w i l l be monitored and, i f
voluntary compliance fails, more stringent measures w i l l be taken
by the administration. W e hope and I believe t h a t this w i l l be unnecessary. Our p r e l i m i n a r y soundings suggest that the companies are
aware of the problems created by curtailments and are w i l l i n g to continue to provide a f a i r share of petroleum products to their established customers.
I have talked to three major companies who basically have programs like this already i n effect. Perhaps the most c r i t i c a l problem,
however, is the supply of sweet crude o i l to independent refiners.
There is, at present, a general shortage of low-sulfur crude oil brought
on, i n part, by the requirements of several Eastern States and municipalities that refiners use sweet crude o i l to meet air quality standards,
even though these refineries are designed to take sour or h i g h - s u l f u r
crude oil. This has diverted sweet crude to the east coast refineries of
major oil companies and way f r o m i n l a n d independent refineries,
many of whom are unable to handle high-sulfur crude oil.
A t the same time, the major o i l companies have had l i t t l e incentive
to exchange crude oil because the price of domestic o i l is now equal
to or lower than the landed price of foreign oil. Under Cost of L i v i n g
Council rules, the majors cannot charge the replacement value—so i t
is no surprise that the majors have been reluctant to swap U n i t e d
States f o r foreign crude oil.
The administration is t r y i n g to r e c t i f y these problems. W e are
w o r k i n g w i t h the Cost of L i v i n g Council to find a compatibility between maintaining stable prices and p r o v i d i n g adequate compensat i o n to the major oil companies that do exchange domesticallyproduced o i l f o r imported oil.
These measures should help to b r i n g about a more equitable dist r i b u t i o n of crude oil and products i n the short run.
W h a t about the long run? W h a t is being done to solve the basic
gasoline and distillate shortages that have created the d i s t r i b u t i o n
problems w i t h which we are now concerned?
W e have established a license-fee program f o r crude o i l and
product imports. This program removes all volumetric quotas on
imports and allows free i m p o r t a t i o n of crude and product subject to
a fee of 21 cents and 63 cents a barrel, or one h a l f and one and oneh a l f cents per gallon, respectively, after %y2 years.
T h i s is a longrun system which is designed to spur the construction
of refineries i n the U n i t e d States. I t does this by removing obstacles
to acquiring an assured supply of crude oil and by i n s t i t u t i n g a price
differential between crude and products sufficient to guarantee an
adequate profit f r o m domestic refining. I am happy to report that,
323
since the President's energy message on A p r i l 18, a number of companies including Shell, Ashland, the Pittston Corp., and Standard O i l
of California have announced that they now plan to build or expand
refineries i n the United States as long as sites are available.
We intend to help them i n this siting problem.
Others have indicated to us that they are seriously considering
building refineries here but have not yet made their plans public. I n
addition, several independent marketers have stated their intention to
develop their own U.S. refinery capability, a necessary step i f the
independent marketers are to become a full}' viable entity i n the
industry.
I n each case, however, the decision to build a new refinery is contingent upon a satisfactory solution to the "siting problem," the
seemingly chronic inability of the industry to obtain approval to
build new refineries i n many parts of the country.
Senator MCINTYRE. DO .you feel that that is a chronic inability. I
have been sort of suspecting that t h e y — I know they have been turned
down i n several areas. I know some States have moved to bar them.
M r . SIMON. We have laws i n several States.
Senator MCINTYRE. I wonder i f this has not been sort of a shadow,
that the oil industry itself has been p u t t i n g out, not really, not a
substantial thing. Do you know that they have been time and time
again abandoning plans for refineries?
M r . SIMON. I know companies and i f given some time I could get
you the definitive facts on this. They have purchased land. They have
paid substantial prices for options on land and they continue to pay
these option fees, but just one obstacle after another conies up oil the
environment issue.
Yes, I do.
Senator JOHNSON. W o u l d the chairman yield?
S e n a t o r MCINTYRE. Yes.
Senator JOHNSTON. I t h i n k that Pittston Refinery that you just
referred to is having some difficulties, are they not, not only the
United States but the Canadians as well ?
M r . STMON. I was not aware of the Canadian problem.
Senator JOHNSTON. Isn't i t r i g h t close to Canada there and the
Canadians are saying i t is going to r u i n their fishing?
M r . SIMON. Oh, I have been t r y i n g to focus on the American
problem.
Senator TOWER. They arc confronted w i t h lawsuits i n some instances, are they not'(
M r . SIMON. Yes, sir, most of them are lawsuits. Just the ones that
we know of since tie A p r i l 18 e
n
e
r
g
y message are upward o f a million and a half barrels a day of production. 1 am 80 percent positive
the others I talk to would surely add at least that much.
We have got the desire here. Now, we have to help them i n every
way we can to get the siting, the proper places, and educate the
public that a refinery is not what i t was 25 years ago or even 10 years
ago.
We are also taking actions to solve the domestic crude oil shortage
by a proposal we are making t o the Congress f o r an exploratory
d r i l l i n g investment credit. This gives a 7 percent tax credit for new
d r i l l i n g , plus a supplementary credit o f 5 percent f o r successful
324
wells. We are confident that this program, i f enacted by the Congress,
w i l l stimulate crude o i l production and have a significant impact on
gasoline and fuel oil supplies.
Energy conservation can play an important role i n stretching gasoline supplies and thus reducing the shortage.
T o this end, we w i l l need the cooperation of the Government, indust r y and the public. F o r example, the public is being encouraged to
minimize its use of automobiles this summer.
A c c o r d i n g to the Automobile Manufacturers Association, about 56
percent of the cars on the road contain only the driver. T h i s underutilization of cars can be reduced i n many cases, especially i n metrop o l i t a n areas. Carpools and public transportation should be substituted. where possible, f o r single-occupant cars. Use of smaller cars,
w i t h better gasoline mileage performance is another measure the
public m i g h t take to conserve gasoline.
A d d i t i o n a l measures include reducing the use of the automobile
air conditioner, keeping tires properly inflated, c u t t i n g off motors
wrhen stalled i n traffic, and avoiding excessive speeds on the highway.
I am attaching as exhibit B a list of conservation measures t h a t can
be taken to help reduce the demand f o r petroleum products.
I am sure you gentlemen could t r i p l e that list w i t h ease.
Some have expressed concern that the price of gasoline w i l l rise to
astronomical levels. T h i s concern is unfounded. There has been a substantial rise i n foreign crude o i l prices i n the last 3 years and we w i l l
probably experience additional price increases i n the future. B u t
crude o i l accounts f o r only a small fraction of the costs of producing
gasoline. F o r instance, i f the crude o i l price were doubled, this w o u l d
increase the price of gasoline by only 8 cents a gallon.
One of the largest components of the price of gasoline is represented by Federal and State taxes. I break the components dowrn i n
that paragraph.
I t is interesting to note that i n England, the retail price of regular
gas is 64.5 cents a gallon. Basically i n Europe a l l the prices are much
higher because 75 percent of i t is i n taxes and not i n the stream of
producing, refining, and distribution.
Gasoline and other prices w i l l probably increase over time. T h i s
would provide benefits to the N a t i o n :
I t w i l l help to save some independent gasoline dealers and refiners
who are otherwise going to go out of business.
I t w i l l encourage Americans to conserve on gasoline.
I t would also help to provide the economic incentives needed to
speed up the construction and expansion of badly needed domestic
refinery capacity.
A major effort is being made now, and f o r the rest of the summer,
to produce more gasoline. T h i s w i l l have the eifect of reducing the
yield of fuel oil below that which was being produced a fewr months
ago. The question is whether, as a result, we w i l l have adequate stocks
of fuel oil f o r next winter.
I n January, the President removed all restrictions on the importation of No. 2 fuel oil. P a r t l y f o r this reason, stocks of distillate f u e l
oil are now higher t h a n at this time last year. I m p o r t s of f u e l o i l
continue at h i g h levels. We are now i m p o r t i n g over 200,000 barrels
per day. This, combined w i t h domestic production, gives us a t o t a l
325
projected supply that is adequate to meet our needs this summer and,
b a r r i n g extremely cold weather, to make i t through next winter.
I n addition to this, we are confident that the recent changes i n the
oil i m p o r t program w i l l help us to attain needed levels of imports of
fuel oil. M a j o r o i l companies can now b r i n g i n any amount of fuel
oil they wish by p a y i n g a license fee of 15 cents a barrel. The independents can, effectivclv, b r i n g i n fuel o i l without paving any fee at
all.
F u r t h e r , I believe there is adequate refinery capacity overseas to
produce the fuel o i l required by the U n i t d Stats, p a r t i c u l a r l y i f U.S.
refineries maximize their yields of gasoline.
I n conclusion, let me say that I am basically opposed, as I am sure
are most of the members of this committee, to the needless injection
of Government regulation and control into any industry, particularly
where there is every evidence of intense and healthy competition. I do
not want to take any step which would discourage private initiative.
I believe the new oil i m p o r t program provides the proper incentives
f o r such initiative.
O f course, I realize t h a t the new program has not solved all of the
problems. We d i d not expect that i t would or could because there is
just no way that any program can create a barrel of oil. I n the longrun, however, I feel this program w i l l help create a vigorous domestic
petroleum industry.
A t the same time, i n the shortrun, I t h i n k we are i n a situation i n
which we need to make decisions on priorities. We cannot afford to
let crops go implanted or unharvested f o r lack of diesel fuel f o r our
tractors. We cannot let our v i t a l industries close down. We cannot
endanger public health or safety. A n d , finally, we should not let the
independent segment of the oil industry, which provides competition
i n the marketplace, be forced to shut down.
A l l of us here would be delighted to respond to any questions that
you have.
Senator MCIXTYRE. Let me say, M r . Secretary, that is a good, allinclusive statement, I t h i n k . I t looks to me like you gentlemen have
been doing your homework, looking f o r all those singles you are t r y i n g to find.
I would like to ask a few questions. I)o you have any f i r m estimate
or any good estimate of when you t h i n k this voluntary program w i l l
become effective, M r . Secretary?
M r . SIMOX. W e w i l l publish this today. Y o u w i l l have testimony tomorrow f r o m M r . L i g o n , who is the head of the Office of O i l and Gas
i n the I n t e r i o r Department who w i l l be i n charge of the implementation of this program. H e is prepared to send out the telegrams and
wires to the various segments of the industry w i t h our government
guidelines.
Senator MCIXTYRE. W h y do you t h i n k a voluntary program w i l l be
effective? Shouldn't the program also contain some mandatory enforcement features to insure that the oil industry w i l l comply?
M r . SIMOX. I t h i n k the economic stabilization program gives the
mandatory flavor to this. I f the voluntary program does not work,
then more stringent measures could be taken. I would not like to
move to the stringent measures r i g h t at the outset because you know
the distortions that creates i n the industry. I t h i n k we can get the
326
job done w i t h this policy that we have here. T h a t does not mean we
are going to solve a l l our problems, because i t does not solve the supp l y problem. I do not want to be moving shortages f r o m one area of
the country to the other. I do want to i d e n t i f y p r i o r i t y areas. Food is
certainly a very important t h i n g and our farmers need their distillate.
Senator MCINTYRE. I n order to quiz you pretty thoroughly 011 this
question, i t would have been h e l p f u l i f we could have gotten this
statement a l i t t l e earlier than 5 minutes before this hearing started.
I understand there were some changes and some last-minute
decisions.
M r . SIMON. Not only that, I was only put i n charge on Saturday,
and I made one of my few t r i p s last weekend.
I came back Sunday to work on this. I t looks very simple, just three
pages, but I want to tell you the agonies that went into d r a w i n g up
this.
Senator MCINTYRE. M r . Secretary, what about the average citizen
who needs gas f o r his car, w i l l he be able to get a sufficient supply this
summer i n your opinion?
M r . SIMON. There are going to be spot shortages i n the country as
I explained.
O u r inventories of gasoline are presently 12 percent below a year
ago. Twelve percent is about 1 m i l l i o n barrels of gasoline, w h i c h is
approximately 3 days' supply.
I f the American people w i l l respond to just some simple conservat i o n measures over the next few months as refineries are producing the
gasoline that is so desperately needed, I believe most Americans w i l l
be able to get the gasoline t h a t they need.
I am not suggsting a drive f r o m the east coast to the west coast.
T h i s w i l l not alleviate the problems we have due to the d i s t r i b u t i o n
systems i n some areas of the Midwest and the Southeast.
Senator MCINTYRE. I t is obvious you do not, but do you feel t h a t
detailed rationing w i l l be necessary ?
M r . SIMON. I d o n o t .
Senator MCINTYRE. A l l of the evidence that we have had so f a r
indicates that we have got this immediate problem t h a t you have been
dealing w i t h and that is this summer, what you have said about Xo. 2
o i l was hopeful, but I have heard that song before, you know.
I w o r r y about that. E i g h t now, what do you t h i n k of the summer of
1974?
M r . SIMON. L e t me address the first question you asked on the dist i l l a t e f o r next winter.
O u r present inventories are 12 percent above a year ago. I have to
w a i t one more month, because our inventories r i g h t now on distillate
are 110 m i l l i o n barrels versus 113 i n 1971.
Then there was a b i g j u m p i n 1971 which brought i t up to 125
million. W e feel that imports and production f o r this next m o n t h are
going to b r i n g i t close to that figure, and 1971 is the year t h a t we
must use i n our compasion because 1971 we got through going i n w i t h
125 m i l l i o n at this time of the year.
So, I am optimistic on next winter.
A s f a r as next summer is concerned, I really could not answer that.
I t wTould be guesswork on my part, M r . Chairman.
Senator MCINTYRE. W h a t is the order of allocation ?
327
Y o u have talked about the farmer.
M r . SIMON. W e d i d not attempt to i d e n t i f y an order—if I could
have thought of a better way than 1 through 8, I would leave i t off
completely.
I t h i n k all of these priorities are important and we are asking the
refiners and the major integrated companies as well as the marketers
to focus their attention on these areas of p r i o r i t y f o r our country.
Senator MCINTYRE. SO they are a l l of equal p r i o r i t y ?
M r . SIMON. I would say certainly—very definitely, because you arc
going to find that farmers i n some areas do not have a problem but
State and local governments do i n that area.
Senator MCINTYRE. I notice you are going to recommend some f u r ther benefits to the industry to get them going on more exploration
and all that.
But I also notice—and, thank goodness you are t a l k i n g about the
independent, that business businessman that we have heard so much
from—is this going to represent any saving to h i m ? L e t us take the
case of Arango Oil. T h i s is up i n New Hampshire. Under P h i l l i p s as
a supplier, 37 stations were put i n over a number o f years and this
became one o f his b i g independents—you know, the small type o f
station.
Suddenly P h i l l i p s Petroleum is cutting h i m off at the end of this
month.
H e has desperately w i t h i n the last 2 or 3 months been t r y i n g to find
another supplier. B u t there have been no takers.
I s there any help i n this allocation f o r this fellowT, or is he caught?
H e has already been to court and has gotten nowhere.
M r . SIMON. W e have established a base period and that base period
is the last quarter of 1971 and the first 9 months of 1972. Where the
barrel of crude starts i n our economy, whether i t is imported or refined, i t must go t h r o u g h the same channels and honor the contracts
that were in existence at that time on a percentage basis, o f course,
not on a volume basis because of the supply problem today.
Senator MCINTYRE. I n effect, he is given a lease on life.
M r . SIMON. Not to the extent that he was, but a percentage of the
extent that he was; yes, sir.
Also we deal w i t h the spot market i n this, because we had so many
independents that were i n the spot market entirely and depended f o r
their supplies on this economic m a r g i n of the industry. People who
were dealing i n the spot market w i l l be p u t t i n g the same percentage
into that market w h i c h they d i d i n the base period.
Senator MCINTYRE. IS this allocation t a k i n g place today, going
into effect today ?
M r . SIMON. The Office of O i l and Gas w i l l be sending the wires out
today. This, as I say, is voluntary. I would expect the news o f this
w i l l travel very quickly.
Senator MCINTYRE. Senator Tower?
Senator TOWER. M r . Secretary, on page 4 o f your testimony you
note t h a t the tax and other economic benefits available to refiners i n
the Caribbean and i n Canada have been more lucrative than similar
provisions available i n the U n i t e d States.
Can you tell me a l i t t l e something about those provisions that make
i t more attractive to b u i l d refineries i n those areas?
328
M r . SIMON. W e l l , what w7e have done to offset this, of course, is
Senator TOWER. The investment credit ?
M r . SIMON. NO. W e are g r a n t i n g 75 percent of the t h r o u g h - p u t of a
new or expanded refinery license fee tickets f o r 5 years.
T h i s is what we believe, and the companies have t o l d us, has precipitated decisions to b u i l d here i n this country. I t h i n k probably the
major reason that we have been exporting our refinery capacity is the
s i t i n g problem and the delays and the expense involved, as I explained before.
There are also tax considerations where, i n the Caribbean you pay
lower taxes f o r a period of time or just lower taxes, period.
Some have expressed to us that that is offset by h a v i n g t o have
maybe more laborers i n their refinery than the people who w o u l d w o r k
here i n this country on a productive-type basis.
Senator TOWER. The administration's new tax proposals includes a
provision t o prevent the offset o f intangible d r i l l i n g cost against
income f r o m other sources.
The explicit purpose of this provision is to prevent passive investors
f r o m investing i n these types of enterprises purely f o r tax purposes.
These investors have been the basic source of d r i l l i n g funds i n the
past and the result of c u r t a i l n g this investment wTould seem to be the
f u r t h e r aggravating of the domestic f u e l shortage.
W h a t is the Administration's program f o r s t i m u l a t i n g investment
i n exploration as an alternative to the present method ?
M r . SIMON. I have not had an o p p o r t u n i t y to t a l k to that many
independent producers since we announced the p r o g r a m but I have
talked to several. I do not believe that this has destroyed the incentive
f o r investors who seek a h i g h rate of r e t u r n i f indeed they are f o r t u nate enough to h i t on an exploratory well.
I n 1971 and 1972, 83 percent o f a l l well d r i l l e d i n the U n i t e d
States were d r y holes. Therefore, an investor would i n those years be
able to w r i t e off the whole investment.
I f you p u t a $100,000 i n a well and i t was d r y , w h i c h the chances
are 5 to 1 that they are, he would write i t off.
I f he hits i t is more a postponement of the total intangible d r i l l i n g
than a negation of it.
I t is postponing i t u n t i l the income comes in. H e s t i l l gets t h a t
intangible d r i l l i n g credit but i t is applied f o r equity reasons, as Secret a r y Schultz explained at great length, f o r equity reasons against the
oil income.
Senator TOWER. I get reports f r o m m y State t h a t the effect of the
A p r i l 30 cutoff date f o r allowable use of the intangible d r i l l i n g cost
offset against other sources o f income is that no one can raise any
f u r t h e r money f r o m passive investors, and d r i l l i n g i n Texas is, i n
effect, coming to a halt.
W o u l d the Treasury be w i l l i n g to consider moving the effective date
of their proposal f o r w a r d to a later time u n t i l Congress has studied
these proposals ?
I t is h a v i n g a very deadening effect on o i l and gas exploration w i t h
the A p r i l 30 date i n the proposal.
M r . SIMON. I would like to assess t h a t situation and t a l k w i t h the
Secretary, Senator.
Senator TOWER. YOU may supply the answer f o r the record, i f you
would.
329
M r . SIMON. Y e s , s i r .
Senator TOWER. I note that you have made reference to the investment credit, but w i l l this really b r i n g t o bear on the exploration
process these private funds f o r smaller d r i l l i n g and exploration
companies ?
I can see the investment credit helping the large company which
can raise funds i n the capital market, but what about the independent
segment of the industry ?
M r . SIMON. I definitely believe i t w i l l .
I met w i t h an independent producer yesterday. H e t o l d me that the
investment credit was the biggest incentive he had seen. H e has been
i n the oil business all his life, and i n your State, Senator Tower. Also
he pointed out another area that would be good as f a r as our energy
problem today is concerned. T h a t is wells that m i g h t have been
capped. They w i l l now go after w i t h that extra 5 percent f o r a successful well. They w i l l be producing more o i l and gas as a result of
this 5 percent because they w i l l be going to secondary recoveries.
Senator TOWER. I was not asking you about secondary recovery.
Does your proposal cover new secondary recovery i n the investment
credit ?
M r . SIMON. T h i s is only f o r exploration 2 miles away f r o m an existi n g well.
Senator TOWER. W h y couldn't i t apply also to secondary recovery
to make t h a t more profitable ?
M r . SIMON. W e l l , that was discussed and not taken into consideration i n the final analysis.
Senator TOWER. W o u l d you oppose such a proposal ?
M r . SIMON. I would be glad to respond to that i n the same manner
as your other question, because that is a fundamental policy decision.
Senator TOWER. W o u l d you supply that for the record ?
M r . SIMON. Y e s , s i r , I
will.
[The i n f o r m a t i o n f o l l o w s : ]
Questions
o n T a xL a w
Changes A f f e c t i n g O i lD r i l l i n g
Simon b y Senator Tower
t o William
E.
1. It is my understanding
that many independent drillers in Texas have suspended their operations
because of the proposal by the President
to dismantle
the intangible
drilling
allowance. and, particularly,
the fact that the suspension
would be retroactive
to April SO. Would it not make sense to change the suspension to a later date, notably the date at which the tax reform
legislation,
if passed, is enacted?
2. Does the 7% tax credit on drilling,
with the additional
recovery?
successf ul wells, not apply to secondary
5% tax credit for
Response t o Q u e s t i o n A b o u t W h e t h e r E x p l o r a t o r y D r i l l i n g
Credit Applies t o "Secondary Recovery"
Investment
I t i s i m p o r t a n t t o d i s t i n g u i s h between a "second e f f o r t " and "secondary recovery." The a d d i t i o n a l 5 percent credit f o r a successful w e l l is a n e x t r a incentive
f o r d r i l l e r s t o u n d e r t a k e a "second e f f o r t " t o make a w e l l productive, whether
t h r o u g h a d d i t i o n a l d r i l l i n g or other techniques. T h i s i s consistent w i t h the purpose of the credit, w T hich is t o promote t h e discovery of a d d i t i o n a l reserves.
"Secondary recovery" is a t e r m w i t h v a r i e d meanings. One generally accepted
definition i s the use o f techniques, such as t h e i n j e c t i o n of l i q u i d s or gases i n t o
the o i l reservoir, i n order to move the o i l w i t h i n the reservoir to the producing
i n t e r v a l f r o m w T hich the o i l is being pumped. These techniques can be used early
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i n the l i f e of the w e l l to m a i n t a i n pressure i n the reservoir and thus to enhance
the rate of production. B u t such pressure maintenance is usually distinguished
f r o m t r u e secondary recovery, which involves the application of secondary recovery techniques at the t i m e when a w e l l is approaching, or has reached, the end
of production under regular production methods.
The proposed d r i l l i n g credit is l i m i t e d to exploratory wells and w o u l d n o t
apply to secondary recovery operations on an existing well. We have l i m i t e d the
credit to exploratory wells because the most urgent long-term need is to encourage the discovery of new domestic o i l and gas reserves and because e x i s t i n g
tax incentives and sources of financing are already adequate f o r the less r i s k y
production w e l l t h a t simply extends production f r o m a k n o w n reservoir. Seconda r y recovery operations, w h i l e not entirely r i s k free, are more analogous to
production w e l l d r i l l i n g t h a n to exploratory w e l l d r i l l i n g . Moreover, difficult
a d m i n i s t r a t i v e problems m i g h t arise i n distinguishing pressure maintenance
f r o m secondary recovery efforts. We would thus oppose extension of the credit
to secondary recovery operations.
Response t o
Question
Respecting Effective
Date
of
Tax
Shelter
Proposal
As presented on A p r i l 30 to the House Ways and Means Committee, the
Treasury Department's t a x shelter proposal f o r l i m i t i n g to some extent the
deduction of certain expenses, including intangible d r i l l i n g costs, provided t h a t
i t w o u l d be effective w i t h respect to transactions entered i n t o a f t e r A p r i l 30,
1973. Our purpose i n proposing t h a t effective date, of course, was to prevent
investors f r o m rushing i n t o transactions before the proposal w o u l d become
effective. Such hastily made investments are often uneconomical. Moreover, we
were concerned t h a t i f the volume of such investments were substantial, they
m i g h t effectively undermine the purpose of the proposal.
Nonetheless, the proposed effective date was the cause of considerable concern and uncertainty among investors i n the affected sectors of the economy.
On June 1, 1073, Representatives M i l l s and Schneebeli announced t h a t , i n general, they d i d not expect any legislation dealing w i t h t a x shelters to apply to
the period p r i o r to the announcement by the House Committee on W a y s and
Means of i t s decision on such legislation. Subsequently, the T r e a s u r y stated
t h a t i t supported t h a t announcement. These announcements are attached f o r
insertion i n the record.
D e p a r t m e n t o f t i i e T r e a s u r y N e w s R e l e a s e , J u n e 4, 1073
The T r e a s u r y Department today issued the f o l l o w i n g statement:
Treasury is pleased w i t h the statement issued June i , 1973. by W i b u r D. M i l l s ,
C h a i r m a n of the House Ways and Means Committee, and the Committee's ranking m i n o r i t y member, H e r m a n T. Schneebeli, i n d i c a t i n g t h e i r expectation t h a t
the Committee w i l l report a b i l l on t a x shelters this year.
The Treasury Department had proposed an A p r i l 30 effective date i n i t s o r i g i n a l
t a x proposal f o r certain l i m i t a t i o n s on a r t i f i c i a l accounting losses. However, M r .
M i l l s and M r . Schneebeli indicate their expectation t h a t the effective date f o r any
new provisions would not apply before the date of announcement of the Committee
decisions, and w o u l d not affect deductions occurring i n 1973, subject to possible
exceptions i f there should be abnormal transactions. T h a t general approach to
effective dates w o u l d be acceptable to the Treasury. The Treasury proposal w i t h
respect to a r t i f i c i a l accounting losses is accordingly amended to conform to the
approach outlined by M r . M i l l s and M r . Schneebeli and to delete the reference
to an A p r i l 30, 1973 effective date.
J o i n t S t a t e m e n t of Congressman W i l b u r D. M i l l s , C h a i r m a n , and Cong r e s s m a n H e r m a n T. Schneebeli, R a n k i n g M i n o r i t y M e m b e r o f t h e Committee on W a y s and Means, Regarding t h e Effective Dates of Proposals
Dealing W i t h Tax
Shelters
The Honorable W i l b u r D. M i l l s , Congressman f r o m the 2nd D i s t r i c t of A r kansas, and The Honorable H e r m a n T. Schneebeli, Congressman f r o m the 17th
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D i s t r i c t of P e n n s y l v a n i a , C h a i r m a n and R a n k i n g M i n o r i t y Member, respectively,
of the C o m m i t t e e on W a y s a n d Meaiis, U.S. House o f Representatives, t o d a y
issued the f o l o w i n g j o i n t s t a t e m e n t :
W e have been i n f o r m e d t h a t the ffective dates proposed by t h e T r e a s u r y f o r
t h e i r proposals d e a l i n g w i t h the problem o f t a x shelters have been a m a t t e r of
concern t o the i n d u s t r i e s involved. W e t h o u g h t t h a t to some e x t e n t we m i g h t be
able to c l a r i f y the s i t u a t i o n .
T h e W a y s a n d Means Commitee is considering a v a r i e t y o f proposals d e a l i n g
w i t h t h e p r o b l e m of t a x shelters, i n c l u d i n g the proposals presented by the Treasu r y D e p a r t m e n t . W e expect t h a t a b i l l w i l l be reported on t h i s subject t h i s year.
Because t h e r e are a n u m b e r of a l t e r n a t i v e w a y s of d e a l i n g w T ith these problems,
however, a n y effective date provisions w i l l have to be w o r k e d o u t i n connection
w i t h the specific provisions reflecting t h e Commitee's decisions i n these areas.
Based upon the past practices of t h e W a y s a n d Means Committee, we w o u l d expect t h a t t h e effective dates f o r t h e new provisions generally w o u l d not apply
before t h e date o f t h e announcement o f the C o m m i t t e e decisions a n d i n a n y
event ( i n the absence o f year-end a b n o r m a l t r a n s a c t i o n s ) probably not i n the
case o f deductions o c c u r r i n g i n 1073. H o w e v e r , i f there should be an u n u s u a l l y
large volume of t r a n s a c t i o n s i n t h e p e r i o d i m m e d i a t e l y ahead, i t m i g h t be necess a r y f o r t h e Commitee t o a p p l y the new provisions t o some e x t e n t d u r i n g t h i s
period.
Senator TOWTER. I t seems to me t h a t is a good source of additional
energy. There should be some incentive to go back and recover some
of this crude that heretofore has not been economical to recover.
T h a n k you, M r . Chairman.
Senator MCINTYRE. Senator Johnston.
Senator JOHNSTON. The tax credit t h a t is outlined here, does that
apply to foreign d r i l l i n g as well as to domestic d r i l l i n g ?
M r . SIMON. NO, s i r .
Senator JOHNSTON. T h a t is only f o r domestic d r i l l i n g ?
M r . SIMON. Y e s , s i r .
Senator JOHNSTON. M r . Secretary, the I n t e r i o r Committee passed
out a fuels allocation b i l l today, and i t may, as I understand i t , be
tagged on to some b i l l this m o r n i n g or this afternoon f o r considerat i o n by the Senate today.
Now the chief difference that I can ascertain on an economic basis
between that b i l l and the voluntary program that you are t a l k i n g
about, i n addition to the fact that one is voluntary and one is mandatory, is the fact that under your program you make the refiner, the
distributor, and so on, sell to his customers as they existed d u r i n g the
base period, the same percentage t h a t he sold to them, whereas under
the program passed out this morning, i t would require each dist r i b u t o r to sell to independents i n general the same percentage and
would give h i m some leeway i n choosing which ones to sell to.
Do you understand the difference?
M r . SIMON. I t h i n k so. W h a t we are attempting to do is not only
i d e n t i f y classes of trade w h i c h are your independent segment, but also
your classes o f customers. Because i n just dealing w i t h t
@FedFRASER