MANDATORY OIL IMPORT PROGRAM INTRODUCTION The Subcommittee on Mines and Mining of the House Committee on Interior and Insular Affairs held extensive hearings on the mandatory oil import program, as that program relates to the domestic petroleum industry, on May 13, 14, and 16, 1968. Represented at the hearings were all major segments of the petroleum industry, including both independent and major operators and producers, refiners, the coal industry, research groups, consumer and user groups and organizations, the petrochemical industry, Members of Congress, and representatives from States and territories, including the State of Hawaii, the Commonwealth of Puerto Rico, and the Virgin Islands. The Department of the Interior, as the administrator of the program, also testified. The hearings were intended to provide a forum by which the Government's mandatory oil import program and the policies which guide its administration could be reviewed and clarified. As a result of recent developments in the administration of the mandatory oil import program, and the deep concern expressed to the subcommittee by almost all segments of the domestic petroleum industry, it is the feeling of the subcommittee that there is an urgent need for a review of the policies, regulations, procedures and the day-to-day operations of this program. When the mandatory oil import program was initiated in 1959 and shortly thereafter, there was no doubt about the program's major purpose, to insure the national security of this Nation by safeguarding and maintaining a vigorous and healthy domestic petroleum industry. Three Presidents of this Nation, beginning with President Eisenhower and continuing with President Kennedy and President Johnson, together with innumerable special task forces, commissions, and study groups, as well as several congressional committees, have all been of one mind on the objective of the mandatory oil import program. Its one and only reason for being is to insure the national security of this Nation by reducing this country's dependence on foreign imports by assuring a strong and vigorous. domestic petroleum industry. (The specific statutes that provide the basis for this program and which emphasize the national security aspect of the program are cited on pages 8 to 12 inclusive.) Recently, however, and particularly since 1965, the mandatory oil import program has undergone considerable administrative changes. What was once a simple, straightforward program, based upon the need to maintain a strong domestic petroleum industry for national security reasons, has become a complex, administrative wilderness clouded by rules and procedures that few understand and which are constantly undergoing change. Exceptions and deviations from longestablished rules and procedures have become increasingly common. These departures from established policy include such matters as allocations for petrochemicals, allocations because of "tight" supply situations, allocations because of economic hardship, establishment of foreign trade zones, proposals for auctioning off or selling import allocations by competitive bidding, and increased import allocation as a reward or incentive to produce low-sulphur residual fuel oil. All of these actions and proposals, as well as others, were taken under a program which owes its very existence to safeguarding the U.S. national security by the preservation of the domestic petroleum industry. If a meaningful program is to be continued, it is imperative that a clear and definite policy be established under which the domestic petroleum industry and all other interested parties are fully informed as to the future of the program. If national security is of paramount consideration, and this subcommittee firmly believes that it is, together with the preservation of the domestic petroleum industry, then no further exception should be granted. If, on the other hand, the program has outlived its usefulness or if considerations other than national security are to be given equal or greater weight, whether these be situations of hardship, price, or temporary shortage, then the new criteria should also be clearly spelled out and defined in order that all may follow the newly established policy. Before proceeding further it appears appropriate to point out that the subcommittee is not unmindful of the role of the consumer and his desire to obtain products at the lowest possible price. This desire, while temporarily beneficial, is not, however, always consistent with national security nor with long-term benefits. Unquestionably, domestic consumers are utilizing an ever-increasing amount of petroleum products for transportation, fuel, heating, and other uses necessary to maintain a high standard of living. In the event of a national emergency, it is essential that there be adequate supplies at reasonable cost, both now and in the future. The lower cost of imported oil is highly attractive, but clearly an excessive reliance upon imports and a shortrun advantage may not be to this Nation's best long term benefit. Imports could be cut off in an emergency. One has but to look to last year's Middle East crisis for a recent example of the sudden unavailability of foreign oil supplies. If this Nation had been without adequate sources of petroleum, and an industry capable of quickly increasing domestic production, the situation could have been extremely critical for us and for our European neighbors. Additionally, this vulnerability could easily, and quite likely would result in a much higher cost or even to the complete unavailability of oil to consumers. It, therefore, appears that the best interests of domestic consumers, as well as the national security, can be best served by a reasonable balance between domestic and foreign supplies. The interest of this subcommittee in the mandatory oil import program comes about as a result of the House Committee on Interior and Insular Affairs' overall responsibility for the stability and wellbeing of the domestic mining industry generally, of which petroleum, natural gas, coal, and other energy fuels, are a most important part. Consequently, to the extent that the mandatory oil import program has an impact upon the domestic petroleum and coal industries and their ability to produce energy fuels in time of war or peace, the House Committee on Interior and Insular Affairs, and this subcommittee, have an interest in the policies, procedures, and operations of the program. It appears appropriate to point out that the following report deals chiefly with the oil import problems as they relate to the domestic petroleum industry in districts I-IV. This is not to say that the committee is not aware of the very serious problems that exist in district V. However, this district, which consists of Alaska, Arizona, California, Hawaii, Nevada, Oregon, and Washington, has conditions and problems that are unique to this particular geographic. area and are not generally found in the other four districts. These problems, notwithstanding the fact they are not covered as extensively in the report as those in districts I-IV are nevertheless significant and deserve careful consideration. The committee wishes. to emphasize that consideration should be given to the problems and conditions unique to this district. The committee also wishes to take this opportunity to indicate that it is fully aware of the many complex problems and the many varied interests confronting the administrators of the mandatory oil import program. While the following report is sometimes critical of many aspects of the program and its administration, the committee wishes to state that this criticism in no way reflects upon the integrity or ability of those associated with the administration of the program. In particular, the committee wishes to commend those individuals in the Department of the Interior associated with the program and to recognize fully the integrity and ability they have exercised in carrying out their difficult responsibilities. BACKGROUND LEADING TO THE ESTABLIShment of thE MANDATORY OIL IMPORT PROGRAM IN 1959 Few major national policies have received more study and consideration over the past 19 years than has the matter of petroleum imports and their impact on the domestic petroleum-producing industry and national security. During the initial years of this period there emerged, as a direct result of the thorough and exhaustive consideration by the legislative and executive branches of the Federal Government, a firm national policy on petroleum imports. In the interest of national security this policy calls for the maintenance of a proper balance between petroleum imports and domestic petroleum production in order to insure a dynamic and vigorous domestic petroleum-producing industry-an industry which at all times would be capable of producing the petroleum needed to successfully prosecute wars, stave off and deter war threats, help other friendly nations with their petroleum needs in time of crisis, and to supply at reasonable prices the petroleum products so necessary for an ever-expanding national economy. This basic national policy on petroleum imports did not just happen. Rather it evolved as a result of careful consideration by all branches of the Federal Government with the cooperation and assistance of the petroleum industry. As far back as January 13, 1949, the National Petroleum Council, established under the auspices of the Federal Government as the official oil industry advisory body to the Federal Government, outlined a set of fundamental principles as essential to a national oil policy. These principles, which were formulated by the Council at the request of the Secretary of the Interior, were adopted unanimously by the Council. The very first of these fundamental principles was as follows: ***The national security and welfare require a healthy domestic oil industry. Continuing supply to meet our national oil needs depends primarily on availability from domestic sources. Due consideration should be given to the development of foreign oil resources, but the paramount objective should be to maintain conditions best suited to a healthy domestic industry which is essential to national security and welfare. Earlier, during World War II, the Petroleum Industry War Council had recommended to the Government certain policies which were reflective of the oil industry's peacetime and wartime experience with oil imports. This oil industry council was created under the Petroleum Administration for War, to act as an advisory body to the Government on problems affecting the oil industry. This industry Council was requested to submit to the Petroleum Administrator, for the use of the Government, a statement of suggested policies for the Federal Government and the industry. At the conclusion of the war, and at the last session of this agency, on October 24, 1945, the following resolution was adopted by that Council: Whereas during the emergency just ended, in order to meet accelerated war requirements, this Nation found it necessary to import abnormal quantities of crude oil and refined products from foreign sources; and Whereas the future of the domestic petroleum industry in this country depends on the maintenance of sufficient reserves and the productivity of its many fields, thereby enabling the industry to meet all the requirements incident to an expanding domestic economy; and Whereas the continued importation of large quantities of crude oil and products at prices below the cost of production of this country would have a depressing effect on exploration, development and production in the domestic industry; now, therefore, be it Resolved, by the Petroleum Industry War Council, assembled on this the 24th day of October, 1945, in Washington, D.C., That it does declare that in the public interest and that in the interest of maintaining national security it should be the policy of this Nation to so restrict amounts of imported oil so that such quantities will not disturb or depress the producing end of the domestic petroleum industry, and only such amounts of oil should be imported into this country as is absolutely necessary to augment our domestic production when it is produced under conditions consonant with good conservation practices. Thus, it can be seen that at the end of World War II the Petroleum Industry War Council, as a national advisory body to the Petroleum Administrator, concluded that petroleum imports should not be permitted to enter the country in amounts sufficient to weaken the domestic petroleum producing industry and thus threaten our Nation's security. Soon after World War II Congress began to investigate and give extensive consideration to the status of the domestic petroleum industry and how imported foreign oil affected this industry. On January 31, 1947, the Special Committee Investigating Petroleum Resources, set up by the Senate, in Senate Report No. 9, 79th Congress, concluded as follows: In the final analysis, the reserves within our own borders are more likely than not to constitute the citadel of our defense. It follows that nothing should be done to weaken the productive capacity of domestic reserves, and that every possible step should be taken both to increase these reserves and continuously to develop them to such a degree as would occasion no regret in the event of war. * This Nation now faces two alternatives: 1. To await with hope the discovery of sufficient Or 2. To take steps to guarantee a domestic petroleum supply adequate for all eventualities by means of: (a) Incentives to promote the search for new deposits of petroleum within the boundaries of the United States and in the continental shelf; and (b) The continuation of the present program looking to the manufacture of synthetic liquid fuels to supplement our domestic crude supply. All the facts before us impel the choice of the second alternative. In the 1950's Congress continued to concern itself with the domestic petroleum industry and the matter of imports of foreign oil. In developing a national petroleum imports policy, Congress had the benefit of studies and conclusions of the executive branch, such as: The conclusions of the Defense Production Administration, established as a result of the Korean conflict, in January 1953, stated the results of its studies regarding defense matters in a report entitled "Background for Defense, Expanding Our Industrial Might," as follows: The machines of peace and war run on petroleum. A program to expand American industry substantially and keep it operating at top capacity requires constantly increasing quantities for fuel, for lubricants, and for many chemicals made from petroleum-everything from toluene for TNT to wax for packagings. Greater industrial activity and peak |