gas exploration and development" would necessarily follow the actions recommended in the majority report. More seriously, they conclude that "at a price of $2.50 a barrel the United States would be at the mercy of distant supplying countries within 10 years." The separate report takes issue with majority conclusions on other points of significance. For example, the minority concluded, on page 353 of the report, that: (3) The cost to the consumer of present oil import controls is grossly overstated in the task force report. Two arguments are advanced at this point: (a) If oil import controls were removed, it can be estimated that consumers of natural gas, by reason of decreased exploration and lessened production could pay a large part, if not all, of this amount in increased prices for natural gas. (b) The statement implies that the prices paid for oil products as a result of controls are a total loss to the economy. The fact is that this entire $5 billion, assuming the amount to be correct, goes to the States in production taxes, to royalty holders, to employees, and for equipment and other operating costs that benefit other individuals. The Secretary of the Interior and the Secretary of Commerce, along with the Federal Power Commission Chairman strongly emphasized the adverse effects on the U.S. economy of the majority proposal and "increasingly adverse" results on our balance of payments from increased imports. Pointing to 1.2 million employees in the oil industry, the minority predicts a substantial reduction in employment in oil exploration and production, pipeline construction, tanker construction and operation. oil well servicing, pipe production by the steel industry, and allied industries, in the event task force majority recommendations were implemented. The testimony of a vice president of the Chase Manhattan Bank is also cited in the separate report: One of the Nation's leading banks has estimated that between now and 1980 the petroleum industry, under normal conditions, would spend about $70 billion in the United States in search of additional reserves of oil and gas. However, it further concludes that if import controls were relaxed enough to cause the domestic price of crude oil to fall by some 30 cents a barrel, these expenditures would not be more than $20 billion. A reduction of $50 billion in the oil industry's capital spending in the next 11 years would have an adverse effect which would be broadly felt in the national economy. The conclusion of the Chairman of the Federal Power Commission regarding impact of the majority recommendations on the natural gas and electric utility industries is strongly stated: The impact of the proposed tariff-based Oil Import Control program on the domestic petroleum industry will so weaken our national economy as to impair the national security as defined in section 232 of the Trade Expansion Act of 1962. Oil supplies 44 percent of our energy requirements, natural gas 31 percent, coal 21 percent, and water power, nuclear energy The task force report has virtually ignored the natural Basically, while conceding the need for revision and some changes to correct problems and inequities resulting from some past policy decisions, the minority of the task force have firmly concluded that the oil import control program is meeting its fundamental objectives. It has enabled the Nation to draw on foreign oil to supplement domestic supply without becoming dangerously dependent on imports from uncertain sources in time of crises. The much discussed "gas shortage" would be far more critical today but for the operation of the current oil import program. The separate report contains an alternative plan which provides for an increase in the present import quota formula in four of the geographic districts of the United States by the equivalent of one percentage point in each year for the period of 1970 through 1974. Other major recommendations include consideration of extension of the unrestricted entry of residual fuel oil to other districts besides district I, negotiation with Canada of a common energy policy, negotiation with Mexico to seek discontinuation of its 30-000-barrel daily quota, phaseout of the refiners crude oil allocations based on historical imports, retention of the sliding scale preference for smaller refineries, increases of imports for petrochemical producers, and a series of other proposals outlined on page 359 of the report. MAJOR POINTS MADE IN TESTIMONY BEFORE THE SUBCOMMITTEE 'Nearly every witness testified to the necessity of controls on oil imports as being essential to the national security. Petroleum industry witnesses were in unanimous agreement that the recommendations of the task force majority on oil import controls would not provide 48-467-70-2 the necessary national security, that their estimates of the supply of oil from domestic and other North American and South American sources were too high, that their estimate of the cost of the program was too high, and that they had made other serious mistakes. A few witnesses made special pleas for specific industries-petrochemicals, coal, and independent fuel oil terminal operators. Following is a summary of the major points made: NATIONAL SECURITY Because oil and gas supply three-fourths of U.S. energy, they are essential to the economic health of the country. Everyone including the task force majority on oil import controls recognizes that if the United States becomes dependent on foreign sources for the majority of its petroleum supply, our economy could be brought to a standstill. if that supply were denied for an extended period. Because such a large share of the world's petroleum reserve is in the Middle East, which has cut off oil supplies for short periods before and which appears headed for Russian domination, the possibility that oil supplies from foreign sources could be cut off for an extended period of time is a distinct possibility. Therefore, it is essential that the United States adopt the measures necessary to provide as large a portion of its petroleum supplies as possible from within its own boundaries. The domestic petroleum industry with the right incentives can provide the necessary reserves. However, if imports rise to such an extent that a significant decline in the price of crude oil occurs in the United States, it will discourage domestic explorations and consequently, after a period of years, will make us dependent on foreign sources for the majority of our petroleum supply. The task force majority analyzed the effects of its proposal only to 1980, but the real impact will not be felt until later. Today the United States has about a 10-year supply of oil reserves at current rates of consumption. Conclusions drawn from study of a period when we are liquidating our inventory cannot be extrapolated to a period when our inventory is gone. Under the task force majority program, imports by 1985 would supply over 60 percent of U.S. demand, and much manpower and capital previously engaged in exploration and production would be diverted to other purposes. Long before it became evident that the price reduction proposal of the task force majority had created a serious threat to national security irreparable damage to the domestic oil industry would have occurred and at that point little could be done to forestall serious impairment to the Nation's security in an emergency situation. Pointed disagreement arose concerning the task force majority projections of the 1980 supply and demand situation, particularly those based on the chairman's recommendation. Serious doubt was also expressed regarding existence of the large additional volumes of Western Hemisphere oil to be available to the United States in 1980. Also, the task force majority report anticipates that only 10 percent of domestic demand would be supplied from the Eastern Hemisphere in 1980; other projections indicate approximately 30 percent, and by 1985 nearly 50 percent. As U.S. dependence on Eastern Hemisphere oil grows, the price of that oil will increase. The task force majority has included no assessment of the risk of extension of Soviet influence in the Middle East, which would enable them to control and shut off oil to the West at will. While the task force majority emphasized that national security is of prime consideration, the recommendation of the majority by reducing the price of crude oil by as much as 20 to 25 percent, would drastically reduce the domestic exploratory effort. The subcommittee received a substantial body of testimony from both independent and major producers that if this should happen, their resources would no longer be employed in exploring for oil in the United States. ESTIMATE OF U.S. SUPPLY AND DEMAND BY THE TASK FORCE ON OIL IMPORT CONTROLS The Task Force Majority on Oil Import Controls recommended a considerable relaxation of import controls to the extent that the price of crude would decline initially by 30 cents and later by 80 cents. They contend that even with a decline in price of 80 cents, the United States, in the event of a 1-year cutoff of Eastern Hemisphere supplies in 1980 still would be able to meet demand from domestic and other Western Hemisphere sources. They did not, however, look beyond 1980 to the period when the decline in exploration caused by the reduced price would most likely become effective. Therefore, their confidence that these recommendations would not affect national security is incorrect. Their forecast for 1980 moreover is a very questionable one on which to take action, as it could seriously affect our national security, in that they have used the highest probable production figures for each supply source and also assumed the availability of supplies in an emergency such as drawing down inventories which are very unlikely to be available. Any estimate of petroleum supplies for a period 10 years into the future is subject to a significant probable error, but their forecast is even more likely to be in error because they consistently based it on the most optimistic assumptions. Their forecast for 1980 based on a price reduction of 80 cents per barrel compares with two other forecasts as follows: All of these estimates are subject to forecasting uncertainties bu the possibility of the forecasts made by the two petroleum companie being closer to reality is too great not to recognize the serious possi bility that the recommendation of the task force majority would make the United States dependent on imports for up to 55 percent o petroleum supplies and on Eastern Hemisphere sources for up to 3 percent. The report of the Cabinet Task Force on Oil Import Control recog nizes the dangers of becoming overly dependent on Eastern Hemi sphere imports and recommends that such imports be limited to 5 per cent of U.S. demand. For example, in paragraph 343d the report state as follows: Some fluctuations in imports by sources should, of course, be expected as refiners adjust to the new environment, but if state regulators fail to release prorationing or if for any other reason Eastern Hemisphere imports begin to rise significantly, the restrictions on Western Hemisphere imports should be relaxed or abandoned. If estimated Eastern Hemisphere imports for any six months of the transition period would otherwise exceed 5 percent of U.S. demand, these volumetric limits should be expanded so as to keep Eastern Hemisphere imports for the period at 5 percent of U.S. demand. Again, in paragraph 433b the report states as follows: If during the transition period projected imports from the Eastern Hemisphere exceed 5 percent of domestic demand, the volumetric limits on imports from the Western Hemisphere should be expanded proportionately to forestall such excess imports. In 1969, imports from the Eastern Hemisphere totaled 768,000, bar rels daily, as shown on the table below. These imports were equal t 5.4 percent of domestic demand based upon the 1969 average o 14,148,000 barrels per day. In view of the long history and repeated experiences of interrup tions of Eastern Hemisphere imports and the existing internationa tensions in that part of the world, particularly in the major oil pro ducing countries, the subcommittee recommends that the Congress con sider the imposition of a legislative quota on Eastern Hemispher imports, limiting such imports to approximately the ratio that suc imports bore to domestic demand in 1969. In the interim, the subcommittee urges the Oil Policy Committee t give immediate consideration to the establishment of an administrativ limitation on Eastern Hemisphere imports at approximately 5 percen of domestic demand. |