CONTENTS WITNESSES Conant, Hon. Melvin, Assistant Administrator for International Energy Enders, Hon. Thomas O., Assistant Secretary of State for Economic and Business Affairs, Department of State... -- Goodwin, Robert, Deputy Assistant General Counsel for International West, James, Associate Assistant Administrator for International Energy Letter from James A. West, Associate Assistant Administrator, Federal Energy Administration, dated April 25, 1975, in response to questions concerning the International Energy Program and conservation, prepared jointly by the Federal Energy Administration and the Department of State___. Letter from Hon. Thomas O. Enders, Department of State, to Hon. Donald M. Fraser concerning actions taken by various member nations of the IEA since the oil embargo with respect to conservation____ Excerpt from the Congressional Record by Hon. Donald M. Fraser of Min- LEGISLATION ON THE INTERNATIONAL ENERGY AGENCY WEDNESDAY, MARCH 26, 1975 HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERNATIONAL RELATIONS, AND ON INTERNATIONAL RESOURCES, FOOD, AND ENERGY, Washington, D.C. The subcommittees met at 10:13 a.m. in room 2255, Rayburn House Office Building, Hon. Donald M. Fraser (chairman of the Subcommittee on International Organizations) presiding. Mr. FRASER. This is a joint meeting of the Subcommittee on International Organizations and the Subcommittee on International Resources, Food, and Energy that are meeting today on the International Energy Agency. The specific purpose is to hold oversight hearings on the proposals that have been made in the President's energy package to provide the Executive with the authority to carry out the terms of agreement of the international energy program. Actual consideration of that legislation is before the Committee on Interstate and Foreign Commerce but it is incumbent on the Committee on International Relations to inform itself on the legislation requested and to express its views on the implementation of an international organization of momentous importance. Despite the widesweeping implications of the international energy program, the Congress will not have the opportunity to consider the terms of the agreement and can do so only indirectly through the requested implementing authority. We are pleased to have with us today two persons who have been intimately connected with the creation and development of the international energy program. The Honorable Thomas Enders, Assistant Secretary of State for Economic and Business Affairs, has been one of the main architects of the international energy program and has just returned from last week's meeting of the IEA. The Honorable Melvin Conant, Assistant Administrator for the Federal Energy Administration, who appeared before the committee last December on this same subject, has also worked extensively on the international energy program, particularly the legislative end. We will first hear from Mr. Enders as to the recent developments within the IEA and then from Mr. Conant on the requested implementing legislation. We will then open the meeting to questioning from the members. We are delighted to have you. STATEMENT OF HON. THOMAS O. ENDERS, ASSISTANT SECRETARY FOR ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF STATE Mr. ENDERS. Thank you, Mr. Chairman. I very much appreciate the opportunity to come this morning and to talk about the International Energy Agency. I have a prepared statement which if you permit I would propose that you enter into the record and perhaps I could address myself directly more informally and more briefly to some of the main problems that you raise in giving the setting for the hearings. Mr. FRASER. We will put the full statement in the record. Let me start off, Mr. Chairman, by giving a setting. We have been confronted now since the war in the Middle East in October 1973, with a cartel of unprecedented scope and power. We have never encountered internationally so much economic force arrayed against us. As we have attempted to cope with this phenomena we have tended, I think, to oscillate between considerable hope that it would go away and sometimes undue pessimism that we could never cope with. We have had the opportunity since the crisis began for lots of faults to come forth. You may recall, Mr. Chairman, that last summer when a temporary surplus appeared in the international oil market a lot of people predicted that it was only a question of weeks or months before the cartel would fold. Then almost overnight a few producing countries cut back their production, adjusted supply down to demand, prices firmed and the cartel succeeded actually in raising prices—not only nominal prices but real prices in the course of the winter taking advantage of the seasonal increase in demand. More recently we have seen the same phenomenon. We have had our second soft winter in a row. We are suffering from a very severe worldwide recession which diminishes demand for petroleum products. We are getting price resistance, of course, because of the high prices. We have had in addition to that a large scale disinventory on the part of holders of petroleum stocks who find it to their advantage to run off their stocks now and will pick them up seasonally at the end of the summer. This is in effect probably the best chance that we will have in the next 3 years to get a significant break in the price. But we see that, in spite of some signs earlier this month that the price structure was fraying, Saudi Arabia was willing to take up the slack, to cut back its own production in order to make supply and demand come out right for the cartel as a whole. Even though demand will sink a little bit further this summer it now must be said, Mr. Chairman, that it is highly improbable that we will see any major change in the price structure in the course of this year. Looking a little bit ahead, as the economy gets moving again-our economy, the European and Japanese economy-demand will pick up. If we have, as we should predict, a harder winter next winter or the year after than we have had in the past, that will add new demand. The combination of these two factors plus some very unfortunate changes in the basic energy picture in the United States-particularly the decay in our national gas picture, the increasing shortage of natural gas for which oil substitutes-we will have a picture in which the ability of the OPEC cartel to sustain prices and to protect the gains that it has made over the next 2 to 3 years is unfortunately very substantially assured. Now to meet the threat of this cartel we have two requirements and they are intimately linked. First, we must find a way to reduce our dependence on imported oil and second we must find a way to acquire the market power necessary to get the price of oil down. We must reduce our dependence on imported oil because there are here at stake the fundamental security of American jobs and output. In the course of the last embargo the United States lost $10 to $20 billion in GNP and half a million jobs. FEA now calculates that with the dependence that we expect, if no measures are taken in the conservation field as proposed by the President, possibly 2 million jobs could be lost in 1977 by a new Arab embargo of this same size and the loss in GNP would be proportionately much greater than last time. Mr. FRASER. What was the job loss the last time? Mr. ENDERS. About half a million. Mr. FRASER. It would be four times that? Mr. ENDERS. It would be four times higher but I think the GNP loss may be somewhat greater. Maybe you would like to comment on that, Mr. Conant. I need not add, Mr. Chairman, that the collapse of the U.S. efforts at mediation between Israel and Egypt must inevitably make the possibility of a new war and therefore of a new embargo greater. Now the second thing is price. The price of $11 constitutes an enormous burden for the consumers and for the economic development of the industrial economies. Again referring to FEA's work and Project Independence's blueprint, the difference between the price of $11 a barrel sustained over the next 10 years and the price of $7 a barrel sustained over that same period in economic growth in this country would be on the order of one-half of 1 percent of GNP a year. That is to say, that would have to be foregone if in fact oil prices remain at the higher level of $11. One-half of 1 percent of GNP a year, Mr. Chairman, is the first year $7 or $8 billion worth of GNP rising, of course, as the economy grows. It is over $100 billion for the 10-year period with a corresponding very large number of jobs that go with it. That is a major sacrifice for high prices. A second effect of high prices is perhaps just as serious and that is that there is very real concern and very real question as to whether we can get the economy moving on its optimum growth path as long as these high prices remain. Why? This is partly due to the fact that the high prices cause a fundamental restructuring of the economy moving away from high energy consumption goods toward low energy consumption goods. It is partly due to the fact that countries other than the United States-the European and Japanese economies in particular-will be very concerned about their mounting debts for imports of oil and be inclined to run their economies much more prudently than they otherwise would, thereby resulting in a slower international growth as well as some slower domestic growth. |