Tonnage requirement growth in demand catches up with supply. This is not likely to happen and hence an oversupply situation is projected for both the tanker building and the tanker operating segments of the foreign maritime industry. In the light of this environment, further expansion of U.S. shipyard capacities could inflict serious economic difficulties on many of the established foreign shipyards' operations. If this situation resulted from the imposition of cargo preference legislation without regard to economic viability, then, foreign nations most directly affected would almost certainly reciprocate by imposing restrictive mandates of their own. Reasonable expansion via an improved Maritime Administration subsidy program would not be objectionable, in that virtually all of the potentially concerned nations carry on some form of Maritime subsidy program of their own. It can be anticipated that if the foreign newbuilding market becomes "slack" as the result of this potential surplus situation, the shipbuilding industry will devote more effort and attention in designing and constructing the ultra large crude carriers. With less than "full" order books, greater emphasis will be placed on developing technological advances for competitive purposes. Such a development could well put U.S. shipyards under added competitive pressures from foreign yards and further emphasis on encouraging and promoting efficiencies in shipyard and shipbuilding would appear to be warranted. Cargo preference legislation would frustrate this need by creating a captive market for U.S. shipbuilders. The impact of this projected foreign tanker outlook on our domestic maritime expansion objectives should not be underestimated in assessing the merits of cargo preference legislation. U. S. TONNAGE OUTLOOK AND CARGO PREFERENCE The U.S. oil demand statistics are essentially based on the National Petroleum Council Energy Supply Study. The NPC study contained a grid of four cases. In this report demand statistics are referenced to a median of NPC Cases III and IV, since this is judged to be the most probable outlook. Domestic refining capacity for the year 1975 is based on the NPC study, but 1980 and 1985 have modified by assuming that refining capacity would be expanded to cover growth in product demand. Product imports therefore have been set at a relatively constant level throughout the time period. These modifications are consistent with the current administration's import fee program and its energy objectives. The NPC data was further modified slightly to show negligible growth in Canadian overland imports after 1975. Based on these assumptions, projected waterborne imports of petroleum will grow from a level of 3.4 million barrels per day in 1972 to 7.8 million barrels per day in 1975, rising to 12.2 million barrels per day by 1980, and then reaching a total of 14.6 million barrels per day by 1985. The specific sources for oil imports as well as the detailed tonnage requirements associated with oil import flows are shown in Appendix Tables I, II and III. The projected U. S. flag tonnage requirements associated with projected oil imports have intentionally been based on the assumption that the provisions specified in the cargo preference proposal were actually in effect. They include not only the tonnage required for direct importation of crude and products from foreign sources but also the tonnage required to move crude from loading source to offshore refineries and transshipping terminals and the tonnage required for the onward movement of crude and products to the U.S. from these locations. The tonnage requirements for projected U. S. imports are shown in Figure 3. The data are referenced to millions of deadweight tons of tanker carrying capacity. The import tonnage requirements for 1975 amount to 57 million deadweight tons. Requirements grow to a level of 98 million deadweight tons and reach a level of 117 million deadweight tons of carrying capacity by 1985. The average annual growth in tonnage requirements amounts to 17 percent for the time period 1970 through 1985. This compares to a 7 percent growth rate in projected free world tonnage requirements for the same time period. The higher growth rate in U.S. tonnage requirements is merely a manifestation of our nation's increasing dependence on foreign oil supplies as a source of energy. Figure 3 also shows that the tonnage require- Not included in Figure 3 is the pro- 1985. Most of this increase in tonnage requirements is due to the movement of North Slope crude from Valdez to the West Coast, expected to begin about 1978. The size of the projected total available U.S. tanker fleet is shown in Figure 4. The figures in the "Existing" column include new ships for which firm orders were placed by July 1, 1973. An allowance has been made for the scrapping of old ships after 25 years of age and after 15 years from expansions have been included. Since a segment of the U.S. shipbuilding capability is used for the construction of vessels other than tankers, total shipyard capacity was discounted to arrive at tanker construction capability. It was assumed that 50 percent of all small shipyard capacity would be used for the construction of tankers. This is consistent with historical use patterns. It was further assumed that 75 percent of all VLCC shipyard capacity would be used for tanker construction. A projection of total annual shipyard capacity and utilization through 1985 is shown in Figure 5. The data are referenced to millions of deadweight tons which will utilize the capacity earmarked for tankers. In fact, if all of these subsidy applications were to be approved, tanker construction capacity at U. S. shipyards would be fully utilized through the early years of the next decade. Currently proposed bills for cargo preference legislation require that initially 20 percent of the tonnage requirements related to imports be covered with U. S. flag tankers. The required coverage level is increased to 25 percent by mid-1975 and escalates further to 30 percent by mid-1977. These proposed levels absolutely cannot be met as shown in Figure 6. The top dotted line shows the proposed mandate for U. S. flag coverage of imports. The solid line shows the potential U.S. flag coverage when including new tanker deliveries consistent with the shipyard capacity utilization factors just discussed. The shaded area deepwater port development), will draw heavily on a labor force of the skilled workers who are employed in the shipbuilding industry. If the manpower pool of such workers is limited, the allocation of this resource to competing projects clearly must be keyed to our national priorities. As previously mentioned the oil source and flow information and related tonnage requirements are shown on Attached Tables I, II and III. These data also provide a projected size breakdown of tonnage requirements related to imports by three vessel size categories- the small or handy size vessels, the medium size tankers and the very large crude carriers. A summary of the projected ship size distribution patterns for U. S. imports is shown in Figure 7. It shows the coverage percentages for each of the vessel classes in the years 1975, 1980 and 1985. The projected mix of ships takes into consideration the specific oil flows from various foreign supply sources as well as the specific port and vessel draft limitations attendant with them. For example, coverage with small vessels has been projected where a particular loading port is not physically capable of accommodating a larger one. In some instances, the volume of oil to be moved is not large enough to warrant the use of anything other than a small vessel. It has also been assumed that U. S. deepwater ports will be developed later in the decade and that there will be no vessel size restrictions on oil imports in 1980 and 1985. It must be appreciated this is a fairly critical assumption especially as regard the laid down cost of imported oil supplies and the bal- Figure 7 shows handy size vessel Figure 8 shows a further breakdown ports by size category. It also shows the required coverage of both U. S. flag and foreign flag vessels based on the percentages stipulated in the proposed cargo preference bills which the House Merchant Marine and Fisheries Committee is currently examining. The data are referenced to number of vessels. The U. S. flag fleet sizes |