ent circumstances it seems to me there is a shortage. Would you other gentlemen disagree with that or agree?

Mr. DARMSTADTER. Mr. Chairman, I believe very strongly that we have a genuine shortage in this country. I don't think it is a contrived one. Which is not to say that the existence of a shortage may not lead companies and industry from trying to exploit the shortage for short-run benefits and profitability. I am not saying they are doing this. But one must distinguish between the question of whether the shortage was artifically induced-willfully, conspiratorially induced, as is sometime alleged, I think, by Mr. Nader amongst others or whether there are rational explanations for it. I submit the latter, though I grant you that the reasons accounting for the dilemma in which we find ourselves are complex and not tidy.

Chairman PROXMIRE. You would simply conclude that there is definitely a genuine economic shortage and you accept those facts. Mr. FREEMAN. Yes.

Chairman PROXMIRE. However arrived at?

Mr. FREEMAN. Yes.

Chairman PROXMIRE. Mr. Allvine.

Mr. ALLVINE. I don't see how there is any way to know unless we have the facts and data supporting it. If we can believe what the Government says, there we are now short two and

Chairman PROXMIRE. That is our dilemma. I am asking you as experts, somebody who has written a book in the area and knows, what your best judgment is. Do you think we have a genuine shortage on the basis of the meager information all of us have, or do you conclude that it is probably contrived?

Mr. ALLVINE. Well, that is two different things. How we got into it, where we are today, Senator

Chairman PROXMIRE. I phrased that improperly. What I meant to say, genuine shortage, or is it something that people talk about. Mr. Nader said this morning if the Government announced there is a shortage of straws, that there would be a shortage of straws, people would go out and buy them and hoard them and you would have a shortage. And he implied that that is the nature of this shortage.

Mr. ALLVINE. Senator, I came to Washington this morning feeling that there is a shortage, believing the information presented by our energy Czar that we are 22 to 3 million barrels a day or somewhere 12 or 15 percent short of what we need. If Mr. Nader is correct, world production of crude oil is up and has been in recent months, in the last month or so and continues 8 percent over a year ago, then I would have serious reservation whether or not something is not happening that doesn't meet the eye. If we are only 2 percent short in the free world there is a lot of it ending up in the United States where we seem to be today. He raised a red herring this morning and I would like to check into his sources and see whether or not that is true.

Chairman PROXMIRE. The nature of the shortage is we are embargoed and if we want to pay an immense price I suppose we can overcome the shortage. Is that your conclusion?

37-143 74 - 14

Mr. ALLVINE. That would be my conclusion.

Chairman PROXMIRE. There is sufficient world production to meet world demand.

Mr. FREEMAN. I happen to have read the same article, it was 8 percent for the entire year, and as I recall the article is suggestedChairman PROXMIRE. What article was this?

Mr. FREEMAN. I have forgotten. I read something this morning that said world production is 8 percent in 1973 over 1972. The point they made is it would have been higher than that if it weren't for the curtailment.

Chairman PROXMIRE. That was specified by Mr. Nader. He said it would have been 10 percent otherwise.

Mr. FREEMAN. I don't see that particular statement would change the basis of your opinion about whether there is a shortage or not.

Mr. ALLVINE. I misunderstood Mr. Nader. I thought he said currently. If it is not current then I still stand, we have a shortage of significant magnitude.

Chairman PROXMIRE. How can we know whether we have a shortage if we don't know the amount of proven reserves in light of new technology and

Mr. FREEMAN. The issue is production, not proven reserves. I think that we all understand in Saudi Arabia there are hundreds of billions of barrels of proven reserves. The question is how much are they producing? And they say that they cut back several million barrels a day and everyone that I speak to that has any personal knowledge swears to me that is true, so I have to believe it.

Chairman PROXMIRE. How do we know if we don't know what the production is, we haven't gotten that, except this article that you can't identify that Mr. Nader referred to. You gentlemen are familiar with it.

Mr. FREEMAN. I don't have the benefit of the CIA at my disposal but I gather that there are ways of checking.

Mr. DARMSTADTER. It turns on the integrity of the kind of data we have on trade.

Chairman PROXMIRE. That is our dilemma. Mr. Simon himself admitted over and over again, he has done it consistently, that the data we have is very unsatisfacory, inadequate, you can't count on it. And, as you say, whether or not there is a shortage depends upon the integrity of data, whether we can believe it.

Mr. DARMSTADTER. I have enough faith in the integrity of the data to permit the general observation that there is a shortage. Unfortunately, some users, some critics of the industry, and some of skeptics of governmental pronouncements, would like to use unexplained aberrations and transitory movements in these statistical series as basis for an indictment. We should note that this is really the first time, Mr. Chairman, in which we find ourselves having to rely on weekly-not seasonally adjusted quarterly, not monthly, but unadjusted weekly figures statistics on oil imports, production and inventory change in order to evaluate major national policy issues. The data were never designed to permit that kind of fine tuned utilization. Data were designed to permit broad guaged interpretation

Chairman PROXMIRE. The data we have.

Mr. DARMSTADTER. In the past no one has ever inveighed against the integrity of those statistics because they were being used for the purpose for which they were intended. We are trying to put them to a use they were not intended to be used for.

Chairman PROXMIRE. Let me ask Mr. Freeman. In view of the fact we are putting them to a new use, we want to know what the situation is, do you feel we can rely on the present system of gathering the data? After all the poeple who issue it have a clear conflict of interest. They have an interest in giving us the feel there is a shortage and they have had enormous success. In December they had a cost-price increase permitted, another price increase coming down the pike in March that will enrich them, even more fabulous profits, they are going to make. Should we rely on them telling us what the data is or should we have government derived statistics secured by the Governernment independently and objectively the way we do in agriculture, the way we do in banking and other areas.

Mr. FREEMAN. There is no question that the latter is the only alternative. The very fact we are having this colloquy and that the question is raised proves the fact that we need a system that has credibility.

Chairman PROXMIRE. Were you satisfied, did you hear Mr. Simon's testimony this morning?

Mr. FREEMAN. No, I didn't. I wasn't in the audience this morning. Chairman PROXMIRE. Were you gentlemen satisfied, Mr. Allvine and Mr. Darmstadter, were you satisfied with, I think both of you heard part of his testimony.

Mr. DARMSTADTER. I did not hear it.

Mr. ALLVINE. I did. I thought the data he was suggesting be sought would be useful and go a long way to answering many questions.

Chairman PROXMIRE. He seems to be making a very substantial effort in that effort. He didn't satisfy Mr. Nader. You feel it would be adequate if he gets all of that?

Mr. ALLVINE. Plus the information I said about return on investment for different functional activities.

Chairman PROXMIRE. I would like to ask Mr. Freeman and Mr. Darmstadter for the record if you would take a look at this, and you can see it when you review your remarks, the assurance that Mr. Simon gave us and tell us whether you think that is adequate to get accurate information.

[The following information was subsequently supplied for the record:]

RESPONSE OF JOEL DARMSTADTER TO CHAIRMAN PROXMIRE'S REQUEST TO COMMENT UPON HON. WILLIAM E. SIMON'S TESTIMONY BEFORE THE SUBCOMMITTEE

The following brief remarks respond to Senator Proxmire's request that the witnesses read, and comment upon, Mr. Simon's testimony before the Subcommittee:

1. Mr. Simon states: "A comprehensive domestic and international data system is clearly needed and the FEO is now analyzing the best ways to structure and implement such a system. Such a system is of little use now in this time of petroleum shortage. there has never been in existence an adequate

energy data system. One was never needed or even desired until recently." It may today seem gratuitous to ask why, in the face of recurrent Arab threats to use oil as a political weapon and in the face of an awareness-over a period of years—that domestic producibility was peaking, an adequate informational system was not being constructed. What, if not this type of undertaking, was the purpose of the Office of Emergency Preparedness or of other groups within the Executive Branch? Better contingency planning, served by a systematic data base, represents a minimal safeguard for future developments. Periodic updating and modifcations (as new events dictate) of such a system is called for. Domestic and conceivably-foreign economic impact analysis might also be appropriate. The desirability of extending such an emergency planning framework to other potentially critical resources besides energy should also be considered.

2. Mr. Simon should be commended for the proposed improvements in data collection and analysis, particularly as regards (a) the integrated mandatory reporting system for petroleum products; (b) the reconciliation of Bureau of Mines monthly data with API weekly reports; (c) inventory change; (d) seasonality; and (e) regional coverage.

3. Mr. Simon alludes to future plans which would, among other things, embrace the assembling of energy reserve estimates. No doubt such an effort would draw upon the specialized geological and other capabilities of what today extends across a number of governmental agencies. This objective-far more basic than merely an administrative reform-might provide the opportunity to fill a long-existing gap in the conceptual underpinnings of reserve-resource estimation, both with respect to petroleum alone and with respect to the intercomparability of multiple energy sources. Problems of reserve-resource base concepts and measurements are discussed in two Resources for the Future staff reports:

(i) U.S. Energy Policies: An Agenda for Research (Baltimore: Johns Hopkins University Press, 1968); see, for example, pp. 50-51 and 132-35.

(ii) Energy Research Needs, A Report to the Nationals Science Foundation, prepared jointly with the MIT Environmental Laboratory (Washington: U.S. Government Printing Office, 1972); see especially Chapters II and X.

4. Mr. Simon's testimony did not touch upon the FEO's current practices in reporting the oil situation to the public. I feel that these releases could do a more skillful job of relating (ex-ante) projected oil demand with realized (expost) consumption, the latter being necessarily constrained by available supply. Failure to distinguish between these two estimates leads to public confusion over the basis for predicting anticipated shortfalls and, after the fact, can lead people to doubt their very existence an unfortuante consequence of a well-intentioned effort.

Mr. FREEMAN. I don't know whether he has in his game plan the program for the Government to find out what it owns. The first on his list perhaps should be for the Federal Government to get data about its own resources so that we

Chairman PROX MIRE. He agreed to that. He agreed on that.

Representative CONABLE. Do you favor the opening of Elk Hills, for instance?

Chairman PROXMIRE. Opening of Elk Hills.

Representative CONABLE. This has been controversial lately. We had a naval officer apparently resign over it, or something of the sort, and there has been a great deal of news about this particular naval officer, and I dare say it relates to his concern that that is no longer going to be a permanent naval reserve of splendid dimension. Mr. FREEMAN. My opinion would be that we should spend the money that is needed to upgrade Elk Hills and increase the productive capacity, I would produce it at least until the Alaska pipeline comes on stream. I would do a whole lot more than that. I think we ought to enlarge the petroleum reserve. That is the more important

Chairman PROXMIRE. Do you believe in view of the depletion allowance, in view of the intangible drilling benefit which the oil industry has, and in view of the 14-point western hemisphere and the golden gimmick foreign tax credit, in view of that, does the oil industry need further incentive for production at an additional price? Mr. FREEMAN. No, sir; specially in light of the price increases they have received.

Chairman PROXMIRE. When you put all of these together they are mighty potent incentives for exploration and producing, is it not?

Mr. FREEMAN. Yes, sir; it is the thrust of my personal testimony that prices ought to be rolled back.

Chairman PROX MIRE. Gentlemen, thank you very, very much. You have been most helpful. This has been an excellent panel. I deeply appreciate it.

The subcommittee will stand in recess until next week, Monday, January 21, when we meet in S-407, the Joint Committee on Atomic Energy hearing room, to hear Deputy Assistant Secretary of the Interior, John Rigg; Chief Statistician of the Office of Management and Budget, Julius Shiskin; and John Hodges of the American Petroleum Institute. I should say Julius Shiskin is the Commissioner of the Bureau of Labor Statistics.

[Whereupon, at 4 p.m., the subcommittee recessed, to reconvene at 10 a.m., Monday, January 21, 1974.]