ties who can work directly with suppliers and users in ad- Lincoln has advised Governors of federal measures to ease "Energy conservation should be practiced in every home, business, and industry," General Lincoln said. FUEL OIL SITUATION IS URGENT By November 21, 1972, the nation's low fuel supplies constituted a problem of great concern at the Office of Emergency Preparedness. For on the 21st, the Director, General Lincoln, had urgent directives sent out to the government's top oil experts. The experts were ordered to take a fresh look at key aspects of the fuel oil shortages and to come up with some answers "on a crash basis". Acting for General Lincoln, Howard H. Roberts, Jr. signed the directives that announced that "conventional wisdom" was no longer good enough and that: A response which simply reiterates information previously provided will not be satisfactory. We must either tell him [General Lincoln] what he wants to know or explain in detail why the information is not available. In this regard, everyone is urged to take a really hard look at the problem... Questions General Lincoln wanted answered included queries as to what were the factors of fuel oil demand? Which utilities used fuel oil and which used gas? How did residual oil compare to No. 2 fuel in demand and in environmental considerations? What "reasonably possible" conservation alternatives were open to them? What were the effects of environmental standards on fuel oil supply and demand? Why did refiners say they were running at capacity when overall refinery statistics showed low levels of operation? What substances could be substituted for No. 2 oil? How much crude oil is available for import from the Western Hemisphere during the first three months of 1973? Which price for fuel oil would result in the most production? The memorandum, dated November 21, gave the government oil experts until 10:30 a.m., November 22 to reply. ANSWERS FROM INDUSTRY Lincoln also sought answers from industry for his questions relating to low refinery capacity utilization figures in face of the threatened heating oil shortage. In a letter dated December 11, 1972, Frank N. Ikard, president of the American Petroleum Institute, reported the results of a survey of refinery utilization in PAD District I. In that letter, Ikard reported: In October of this year, East Coast refinery operations averaged 82 per cent of reported capacity to process crude oil; in November, operations approached 84 per cent; for the week ended December 1, 1972, East Coast refineries operated at 89.7 per cent. The American Petroleum Institute has completed a special survey of the operational status of seventeen East Coast refineries for the month of October, 1972. For that month, total capacity to run crude oil was 1,431,500 barrels per day as reported by individual companies to the API; crude runs amounted to 1,180,000 barrels per day, or 82 per cent of capacity; the difference amounted to 251,500 barrels per day. The analysis prepared by the API provided reasons for the reduced output. It showed that of the approximately 172% of capacity not used, 13.2% or approximately 34 was a result of a capacity shut down for "turnaround, inspection, routine repairs, and mechanical problems." Replies from individual refineries indicate that most. of the capacity shut down in October should be on stream in December. Even so, East Coast refineries would probably be unable to exceed 94 per cent of their capacity to process crude oil under current conditions. DECISION TO DRAW UP TO 10% OF 1973 ALLOCATIONS In a memorandum for the record dated November 29, 1972, Lincoln pointed out that on the first of September domestic production for the rest of the year was projected at 8,467,000 b/d for the second half of 1972. It was on the basis of this estimate that the decision was made to permit importers to bring on their 1973 allocations up to 10% of their 1972 allocations. The Lincoln memorandum said: According to current reports, about half of this 10% is being brought in in 1972 (Department of Interior survey indicates). Lincoln went on to point out that it appeared that domestic production would be 150,000 b/d less than estimated during the second half of 1972, and it was based upon this projection that the 10% draw against 1973 was decided upon. The Department of Interior proposed that the 10% draw against 1973 during 1972 be permitted through February 1 of 1973, and that it be a one time opportunity that would be lost if not taken advantage of. The Lincoln memo reflected Interior's views: Our objective is to make sure there is enough crude in the system and that ticket holders are not holding back in a way that shorts the system. If not termination of the tickets then what mechanism do we have to encourage importation of more crude. One of our problems appears to be that East Coast refiners are not running at capacity. If the use of tickets is accelerated, then more crude is bound to come into East Coast refineries since that is where East Coast crude is used. Ergo, those refineries are levered toward greater production. WHO USED BORROWING AUTHORITY On September 18, 1972, the President took several steps to increase oil imports. One action was to permit petroleum companies to use up to 10 percent of the crude oil import quotas for 1973 in the final quarter of 1972. However, the companies were not required to import the additional allocation before February, as suggested by Interior. The Office of Oil and Gas of the Interior Department conducted a survey of the petroleum industry to find out which companies were drawing on their 1973 allocation and by what percentage. On November 10, 1972, General Lincoln was advised that of the 20 petroleum companies queried, six said they would use the full 10 percent, one said it would use most of the 10 percent, one said it was doing the best it could to use it all, one said it would use one million barrels and eleven companies said they did not intend to borrow any oil whatsoever on their 1973 import quota. The corporations which said they would not draw on their 1973 quotas were Allied Materials, Atlantic Richfield, duPont, Farmers Union, Husky, Koch Industries, Little America, Shell, Union of California, United Refining and Union Carbide. The firms which said they would borrow the full 10 percent of their allocation were Agway, Inc., Clark, Coastal States, Getty, Midland and Vulcan Materials. Those saying they would use part of their 1973 quotas were American Petrofina, Celanese and Standard of New Jersey. Subsequently, the Office of Oil and Gas prepared a report for the Subcommittee staff indicating the extent to which petroleum companies utilized their borrowing authority. The table below indicates who imported increased quantities of crude oil. The Office of Oil and Gas report indicates that only 35% of the advance allocations were utilized by December 31, 1972. REFINERY 1972 IMPORTS OF CRUDE AND UNFINISHED OILS, DISTRICTS I-IV, AMENDMENT 46-SEC. 10(g) GOVERNMENT ACTION In conjunction with their "jawboning" and conservation appeals, Federal oil policy officials took actions aimed at increasing fuel oil supplies. In mid-December, the Office of Emergency Preparedness suspended the requirement that all fuel oil be made from crude oil from wells in the Western Hemisphere. Next, importers were prohibited from trading foreign crude oil to domestic refiners in return for fuel oil. And increased shipments of No. 2 oil from Puerto Rico were permitted. The effect of these actions was to permit importers to shop for fuel oil anywhere on the world market but they would have to use their licenses for No. 2 oil instead of exchanging crude oil for fuel oil. This action, by forcing importers to use their tickets, prohibited them from trading one scarce commodity for another. As he announced these changes in import policy, Lincoln also asked domestic refiners to increase No. 2 production above existing levels in order to avoid possible shortages. These actions, which were to apply during the first four months of 1973, were described in the December 18, 1972 Oil and Gas Journal. On December 18, 1972, a new Presidential proclamation on oil policy was announced. OEP press release No. 527 informed the media that President Nixon had signed a proclamation authorizing the Interior Department to use 1972 import allocation figures as the basis for 1973 imports. This will assure "a continued flow of imports," the press release reported, adding that this and previous actions opening up the nation to more heating oil imports were to "buttress recent alerts from the OEP and Interior to all refiners on the need to increase, whenever possible, their heating oil production.” LINCOLN REPORTS TO THE PRESIDENT General Lincoln sent a memorandum to President Nixon December 18, 1972. The subject was "Fuel Situation in Upper Midwest." In this memorandum General Lincoln briefed the President on the need to increase the availability of No. 2 heating oil and propane required to offset fuel supply shortages in the Midwest. The President was informed that the low inventories of No. 2 oil could be traced "in large part to the pressures on refinery capacity coupled with the price control situation which has made gasoline production preferable to production of heating oil." Another factor contributing to the lack of fuel oil, General Lincoln said, was new emission standards for cars which increased gasoline consumption by about 300,000 barrels a day. Then General Lincoln went down a check list for the President on actions he, as Director of the Office of Emergency Preparedness and Chairman of the Joint Board on Fuel Supply and Fuel Transport, had taken to combat the No. 2 oil shortage. He explained that he had urged the oil industry to "maximize refinery utilization and production of heating oil," asked the Price Com mission to relax price controls on heating oil, encouraged the Governors of the 50 states to exercise their leadership in energy conservation and worked closely with Federal agencies such as the Interstate Commerce Commission, the Federal Power Commission, the Army Corps of Engineers and Mrs. Knauer's office in improving the availability of energy sources and promoting energy conservation. In addition, General Lincoln went on to cite as actions he had initiated the relaxation of import controls on No. 2 heating oil; the suspension of Western Hemisphere preference and of privilege to import crude oil rather than No. 2 for independent East Coast terminal operators; and permission to import from U.S. flag refineries in Puerto Rico for the first four months of 1973. General Lincoln also noted that it was on his recommendation that President Nixon had moved "to extend now the 1972 import quota allocations for 1973, thereby assuring adequate crude oil immediately to U.S. refineries." General Lincoln concluded his December 18 memorandum this way: Coordination and direction to monitor and help with the situations will continue to be pressed by my Office and the Joint Board throughout the heating season. In my view, the Federal responsibility is definitely limited and a significant role should be assumed by the Governors-which we are indicating to them. FURTHER COMMUNICATION WITH THE PRESIDENT Three days later-on December 21, 1972-General Lincoln sent a second memorandum to President Nixon on how the government was responding to a fuel oil shortage in Omaha, Nebraska. Citing factors which contributed to the situation in Nebraska, several of which were related to the tight fuel oil situation in the Midwest in general, General Lincoln called to the attention of the President for the second time in three days the problem of price controls and their role in holding back supplies of heating oil. General Lincoln explained: When the price freeze was instituted in August of 1971, it may be that the disparity in parts of the Midwest, particularly Nebraska and Iowa, between the ceiling price for heating oil and the ceiling price for gasoline was extraordinary. The result was bound to be that major suppliers preferred to make and stock gasoline rather than heating oil, a situation which was bound to increase problems when the early cold generated a high rate of drawdown on inventories. General Lincoln advised the President that only the day beforeDecember 20-the Nebraska Petroleum Marketers had petitioned the Cost of Living Council for an increase in the wholesale cost of fuel oils "to assure," in the words of the Marketers, "the release of an adequate supply of heating oil to the State of Nebraska." But then, in a disclaimer puzzling in light of all that he had said before, General Lincoln added: I do not, by the way, have any proof that major suppliers are now holding back because of any price situation. |