ity. Although this shut-in capacity has been estimated to be of a substantial amount, efforts to increase production significantly during emergency periods of the past few years indicate this may be much less than originally anticipated both as to daily amounts and duration of production. Undue reliance on this projected shut-in capacity would be unwise without further detailed investigation.

SPECIAL PROBLEMS

There are two problem areas of special significance which this subcommittee feels should be noted. They are:

Coal. The Government's policy on imports of residual fuel oil needs to be reexamined and reevaluated. The pressures which have been building in recent months to open district II-IV to imported residual fuel oil adds a sense of urgency to the policy review.

Experience in district I (the east coast) shows clearly what can be expected to result once imported residual oil gains access to U.S. markets. Imports into district I in 1969 totaled almost 450 million barrels. Almost 85 percent of all residual consumed in the area originates overseas. This is an increase of about 125 million barrels over imports in 1966, the year in which all controls were essentially removed.

This significant increase in imports raises a number of serious questions involving national security. Secretary of Defense, Melvin H. Laird, reflected the misgivings of this subcommittee about current residual oil import policy in his presentation to the Cabinet Task Force on Oil Import Control. The report of the task force, in summarizing Secretary Laird's position, states:

He also considers that the question of residual fuel oil has not been adequately analyzed and believes that the effects of virtually free access to foreign residual oil on U.S. markets and U.S. refining capabilities have been such as to make the continued exemption of residual oil from import controls open to question. He strongly urges that the entire subject of residual oil be studied as quickly as possible.

One development which demands considerably more attention than it has received has been the rapid conversion of the east coast electric generation system to burn imported residual fuel oil. Even if the im ported oil should continue to originate in Venezuela and other Carib bean areas, as it has primarily in recent years, there would still be cause of grave concern over the security of supply in times of emergency. But in recent months there has been an alarming shift in the source of supply from the Caribbean to North Africa and Middle East oil producing areas. Even the most enthusiastic supporters of a liberalized oil import program must admit that these areas are the most insecure source of supply and, therefore, the most readily subject to interruption.

This subcommittee does not believe, nor does it recommend, that residual oil imports into the east coast should be cut off or rolled back. In the first place, it is doubtful that domestic fuels in sufficient quantity would be available to replace them. Secondly, such a move would cause economic chaos until alternate fuel supplies are developed. But the subcommittee believes that a start must be made at checking and

eventually reversing the trend which, if it continues unchecked, will make the entire industrial complex in the vitally important east coast area wholly dependent upon a foreign fuel for its uninterrupted operation. This can be achieved by using present import levels as a base and then permitting imported oil to share in the growth in fuel consumption in the area in future years. In this manner, there will be re-established an incentive for domestic fuels industries, and particularly coal, to develop the productive capacity to serve the area.

The proposed imports of residual oil into the interior of the Nation, via the Mississippi River, are predicated upon the need for more lowsulphur fuel to meet air pollution control requirements. The cost of low-sulphur fuel is high in relation to domestic fuels, as much as 50 percent greater in some cases. The subcommittee fears that if a policy of permitting fuel consumers to meet their low-sulphur fuel requirements through imports is followed, serious problems, aside from national security, will be raised for the Nation. In the first place, much of the incentive to develop technically and economically feasible methods for controlling pollution from burning high-sulphur domestic fuels will be destroyed. This subcommittee feels that a major effort must be made by this Nation to redeem high-sulphur coal for the market and to further develop and use the vast amount of low-sulphur coal in the Western States. But to give assurance to electric utilities and other major users of fuel that they can meet air pollution regulations by importing fuel into an area which heretofore has been immune to imports is not a sound way to approach this national commitment. The subcommittee fully recognizes the need to control pollution but feels that there are acceptable alternatives other than the importation of foreign fuel oil.

Permitting unlimited imports of low-sulphur oil would add significantly to our balance-of-payment problems. In 1969, this Nation had to expend $860 million to pay for the residual oil it imported. Perhaps

Some Government economists are now attempting to downgrade the in this country, payment of dividends and repatriation of profits. But the fact remains imported oil contributes substantially to our continuing balance-of-payments deficit and a policy of unlimited residual oil imports into the Midwestern States would add to the deficit.

Some Government economists are now attempting to downgrade the economic importance of the balance-of-payments deficits. This subcommittee cannot accept this approach to a difficult problem and we urge that every feasible measure be taken to reduce or eliminate the payments deficits. A changed policy on residual oil imports should be a major factor in achieving this end.

The subcommittee urges that imports of residual oil into Districts II-IV continue to be subject to controls, with special allocations granted only in the most unusual of cases and with a clear understanding that development of the pollution control technology must take precedence over imported fuel as a means of meeting the Nation's goal of clearing up the air.

Petrochemicals.-The cost of domestic crude is higher in the United States than imported foreign supplies. Consequently, the petroleum raw materials (feedstocks) employed by the domestic petrochemical industry in the production of chemicals and plastics are more costly here than in Europe or Japan. This cost difference places domestic

petrochemical producers at a disadvantage with some overseas producers using the cheaper feedstocks and may threaten to impair the $1.3 billion a year contribution which petrochemical exports make to the balance of trade. The cost differential also provides an unfortunate incentive to locate petrochemical plants abroad rather than in the United States.

These contentions were spelled out in some detail in the submissions filed with this subcommittee.

Both the task force majority report and the separate report of Secretaries Hickel and Stans agreed that the supply of feedstocks to the petrochemical industry should be improved. The separate report specifically recommends that petrochemical producers be provided with a growing volume of imported oil.

The subcommittee is aware of the problems of this industry and recognizes that for it to remain fully competitive in world trade some improvement in supply of feedstocks and their cost may be required. The subcommittee, while recognizing these industry problems is even more aware of the dangers of dependence of this industry upon distant foreign sources and emphasizes the need to work out a solution to the industry's problems that takes into account the need for a healthy domestic petroleum industry.

THE PRESENT MANDATORY OIL IMPORT PROGRAM

During its deliberations in connection with the 1968 hearings this subcommittee found that the present mandatory oil import program had been successful except for certain administrative weaknesses and inequities. Our more recent hearings reinforce this conclusion. Almost all witnesses appearing before the subcommittee testified as to the necessity for a continuation of the import program for the national security of this Nation. There was also widespread agreement that the present import program has been successful in its basic objective and needs only to eliminate certain special benefits built into the program after its inception. The subcommittee feels that it is highly significant that, on the basis of testimony received, it must be concluded that from the 1957-59 period up to 1969 crude petroleum prices increased only 2.1 percent compared to a 12.7 percent increase for all wholesale prices. During the same period consumer prices increased 27.7 percent but retail gasoline prices were up only 10.5 percent and heating oil higher by only 15.2 percent.

It appears to the subcommittee that few, if any, other major industries have done as well in holding the line on price increases as has the petroleum and natural gas industry.

COMMITTEE FINDINGS

The following points summarize the findings of the Subcommittee on Mines and Mining with regard to the hearings held on the matter of oil imports and the proposals of the Cabinet Task Force on Oil Imports:

1. The national security of the United States, is, and must remain the overriding objective of any oil import program. Both the task force majority, the separate views by Secretaries Hickel and Stans, and Chairman John N. Nassikas of the Federal Power

Commission, as well as witnesses appearing before the subcommittee, agreed on this as the basic objective. There was also basic agreement that some form of import restriction, whether it is a tariff or a quota, is necessary to prevent undue reliance upon insecure foreign oil.

This subcommittee reaffirms its position that it is necessary to control the inflow of foreign crude and unfinished oils in order to maintain a strong and healthy domestic petroleum industry for the protection of this Nation in time of emergency.

2. Imports of crude oil and refined products now make up a very substantial portion of this Nation's petroleum requirements. Imports now average approximately one-third of domestic production and one-fifth of domestic demand. In the opinion of this subcommittee any significant increase in the import must be avoided as they have already reached dangerous proportions.

3. Any future estimates of petroleum supply or demand are subject to the uncertainties of forecasting. However, the task force majority report appears to be unrealistically optimistic on the development of as yet undiscovered reserves in the Western Hemisphere and, accordingly, that available from these sources. At the same time it has underestimated the probable need for Eastern Hemisphere oil and the degree of dependency on this insecure source under the majority's recommended program.

4. Supplies of natural gas are already critical and unless immediate relief is provided the shortage will undoubtedly increase. Any decrease in the price of domestic crude, brought about by increased imports, will further discourage the search for both petroleum and natural gas.

5. The estimated cost of the present control program, as compared to no controls, has been greatly overstated. Rather than the $5 billion annual cost suggested by the task force, a more realistic figure probably is less than $1 billion. When full consideration is given to intangibles and to the very real probability of higher foreign crude prices once this Nation's dependency on foreign sources is well established, there actually may be a net benefit to the economy from the present import program.

6. The immediate effect of the proposed tariff proposal would fall hardest on the small operator. The small producer, the small refiner, and the stripper well operator would be forced out of business.

7. The 5.5 billion barrels of oil now estimated as reserves in stripper wells would be immediately lost. Such a loss cannot be recovered later. This is not proper conservation of a valuable and nonrenewable natural resource. Costly secondary recovery of oil from marginal and partially depleted fields would also be discouraged.

8. Adoption of the task force majority proposal would have an immediate adverse effect on this Nation's balance of payments. This has been estimated at not less than $2.2 billion per year.

9. The subcommittee recognizes imperfection and inequities in the existing mandatory oil import program. It believes, however, that these are faults of administration rather than deficiencies in the program as conceived.

10. During the past 15 years the petroleum industry has spent about $68 billion searching for oil and gas. Much larger amounts of capital will be needed in the future. Any decline in the price of domestic crude will not provide the necessary incentive for increased exploration. Less exploration will result in less oil found. However, if proper incentives for exploration and development are provided this Nation has the potential of remaining substantially self-sufficient in the energy field. The vast potential energy reserves in coal and oil shale have not been developed. Our oil shale reserves (estimated at 2 trillion barrels) exceed the petroleum reserves of the Middle East and coal reserves are estimated to exceed 1,000 years supply. Estimated undiscovered oil in the United States is placed at 2 trillion barrels and natural gas at 1,200 trillion cubic feet.

While some small percentage increase in imports may be expected in the normal course of events, this subcommittee must conclude that this is not a nation lacking in energy supplies. The real question is our desire and ability to develop and use the resources available.

11. Prorationing, as practiced by the several States, is a neces sary conservation practice to assure maximum economic recovery from a field. Elimination of prorationing as suggested by the tash force majority may result in a temporary increase, but would result in an overall loss of production.

12. The task force majority places more confidence and reliance on the estimated shut-in capacity than is justified. Although ther is undoubtedly some shut-in capacity in the United States, the subcommittee believes it to be substantially less than that esti mated by the majority report. Undue reliance on this source fo future supplies may prove unwise.

13. The displacement of coal by oil is of special concern to th subcommittee. The east coast now relies largely upon imported residual fuel oil. The subcommittee does not believe that the amount of residual oil imported is likely to be cut back but it doe believe that immediate attention must be given to working out formula under which imports would be permitted to increase at rate which would be consistent with the increase in the overal demand for competitive fuels on the east coast. In this way in ported residual fuel oil would be permitted to share in, but no dominate, the east coast growth market for industrial fuels.

In reaching this conclusion, the committee took note of the pub lished concern of the Secretary of Defense over the effects of eas coast dependence on foreign fuel, as well as the fact that a shif toward North Africa, an unstable area of the world, as a soure for imported residual is now beginning to develop.

14. The subcommittee recognizes the problems of the pet ro chemical industry and its need for adequate low-cost feedstock This was also recognized by both the majority and the separat reports of the task force. If this industry is to retain a competitiv position in the world market it will require an improvement i the present feedstock situation, which should be accomplished without increased reliance on distant sources and without pena izing domestic industry, if possible. An in-depth study of thi matter is urgently needed.