sumer. So I think that is one part of the program that we should carefully notice. We don't want to do anything that will result in a drastic increase of the price to the consumer because we anticipate over the 7-year period there would be a moderate installation of cost as it goes

on.

Mr. WAKEFIELD. That is correct.

Mr. VANIK. That old import system cost consumers $5 to $7 billion

a year.

Mr. CAREY. But if we don't look in the historic basis that new fee would be immediately passed to the consumer so we would have more than the anticipated increase in cost and we are trying to avoid that. Mr. VANIK. Since we have both you and the Department of Defense here, has the Department of the Interior, first of all, made any calculations as to the cost to the consumer of the new method of import control?

Mr. WAKEFIELD. In 1973 it will be less than under the old system. Mr. VANIK. You have no idea of the differential?

Mr. WAKEFIELD. No; this question was asked to Bill Simon of the Treasury Department today. He is having a schedule prepared on this. I will be glad to see that it is furnished to this hearing for the record if you wish it.

Mr. VANIK. All right. Has the Department in conjunction with the Department of Defense considered the establishment of a defense petroleum reserve?

Mr. WAKEFIELD. We already have the naval petroleum reserve. Mr. VANIK. I know we have the Navy petroleum reserve. Is that sufficient for the entire Department of Defense?

Mr. MALLOY. I am not qualified to answer that, Mr. Vanik. I will get you an answer, however.

[The following information was supplied for the record:]

RESERVE PETROLEUM SUPPLY FOR DOD

The Department of Defense maintains reserve inventories of refined petroleum fuels for use by combat forces in wartime. These inventories are intended to bridge the gap until augmented supply deliveries can be obtained from the domestic and offshore petroleum industries.

Behind the reserve inventories the Department of Defense has the Naval Petroleum Reserves (NPR), only one of which, NPR No. 1 in California, has any significant existing crude oil productive capacity. The maximum additional amount which could be produced with existing facilities is 95,500 barrels per day, approximately 12% of military peacetime consumption.

NPR No. 1 has an estimated potential production capacity of about 267,000 barrels per day with additional development. NPR No. 4 on the Alaskan north

slope has, speculatively, a potential capability of 3,000,000 barrels per day o more, if potential major oil fields are discovered there. It is not likely that NPR No. 4 oil, even if found, will play any significant role prior to 1980, and it will probably be much later. At today's prices, it is estimated that discovery and development of a 3,000,000 barrel per day deliverable capacity would eas $4 billion or more. Any such development would of course provide capacity well in excess of any foreseeable Department of Defense wartime needs.

Mr. VANIK. We ought to know whether or not the reserve program is adequate and for how long a period it might be needed to sustain us Have we given any thought to establishing a general consumer reserve. just filling up some of the wells, just as we use old gas wells in my com munity to average out the intake of gas through the summer months so that we build up reservoirs for use during the winter?

Have we given any consideration to the development of an inground or in-tank reserve somewhere in a safe place, a reserve that would eliminate or reduce the danger of rationing and fuel shortage! I think what we need in the Department of Interior is the kind of thinking that is going to insure that we have adequate supplies. Mr. WAKEFIELD. Mr. Vanik, I am not sure of anything we can do that will create another barrel of crude oil.

Mr. VANIK. We could buy it. We could make Government purchase and put it away.

Mr. WAKEFIELD. That would be true if there were a tremendous amount of oil available on the world market, but unfortunately there is not today. We are facing worldwide crude oil shortages.

I might add in response to your question of what is being done, the Oil Policy Committee is studying a way to use this new program to encourage the construction of emergency storage facilities. I will again point out that this will cost the consumer more in terms of the product, or the taxpayer more. It is very expensive.

As far as just putting it in the ground in old abandoned oil reservoirs, that is not practicable in any way. Even in new fields, the average oil well only gets about one-third out of the reservoir and the rest stays in.

With any kind of above-ground storage you have additional tremendous costs and siting problems.

But this is a matter we are looking into.

Mr. VANIK. Do you have authority under the law now to establish such reservoirs?

Mr. WAKEFIELD. Do you mean in connection with Federal lands? Mr. VANIK. No. I am talking about the authority to put aside, acquire and set aside reservoirs of oil to be available for release in the event of shortage.

Mr. WAKEFIELD. Do you mean for the Federal Government? Mr. VANIK. I am talking about for people generally. I am talking about over and beyond defense needs, for civilian needs.

Mr. WAKEFIELD. Yes. What we are looking at is not for the Federal Government to do this but for encouragement to industry to build up inventories.

Mr. VANIK. Senator Jackson has a bill that I generally like which would provide for such a storage facility, primarily to avoid shortage and rationing and also to help stabilize price. If we have some supplies on hand we have some leverage, we have a little opportunity to bar

gain. We would not be as desperate as we would be if we were running

out.

Now, this is a New York problem, but in your city what is the gasoline running?

Mr. CASEY. Would the Chairman yield?

Mr. VANIK. Yes.

Mr. CAREY. Before you leave that point on encouragement and incentive for storage, I hope we can advise the Department of Interior and I think the Department of Defense would be well advised to look at this also from the point of view of their future needs, that here is a case where aside from encouragement and incentive we might consider the requirement by the refiners of the country and those who market and who are integrated with refineries that in return for getting the bonus or the benefit of import licenses and the tax incentives which will be there available for creating new refining capacity, that depending on the size of their production and distribution and anticipated marketing, that they be required to construct sufficient storage facilities at appropriate places along the pipelines or near the metropolitan centers or at refineries to constitute a given supply of, say, 6 months

or even a year.

Historically, the industry, and I don't mind putting it on the record. that I am a former member of this industry, has operated on a handto-mouth basis, or catalyst to tank farm to pipeline to consumer, because the refined product represents an asset they want to turn into cash just as quickly as possible. It is a good way to operate.

Now I think that there is another interest to be served, and that is what the Chairman has pointed to, namely maintaining a reserve against spot shortage, against catastrophe, and against sudden fluctuations in price due to spot shortages.

I think that is a requirement that we should definitely explore with regard to utilizing the value of and the weaponry of the import licensing, the incentives for new refinery production.

I think that if they begin to seen irritated or annoyed by this, we shouldn't listen with too great compassion to such annoyance and irritation because they have ample ways in which they can compensate for the cost of this requirement if you place it upon them, namely, the 7-percent investment credit, accelerated depreciation range, for the cost of constructing the steel tankage, and this steel tankage is very modest in terms of construction compared with the value of the product and the ease and convenience of the consumer.

So I think in this case instead of talking about encouragement or incentive you ought to recognize that the encouragement and incentive is there in terms of the present tax system, and the convenience of the consumer and the defense security needs of our country are such that these companies should look to serve the country and the consumer by creating such facilities.

It is a requirement that we should place upon them because it is well within their capacity to do so. They could get away from the seasonal operations of their present business. We know what happens. They begin cutting down the supply of fuel oil and building up gasoline stocks according to the calendar. They can change that calendar. They can change their runs. They can change their crude runs to build up stores, providing the storage is there to incorporate those refinery runs.

Then we could get away from the seasonal fluctuations and we will control reserves to a better extent than we are doing right now.

But the job is to make sure they are refined reserves and not crude. Once they are refined into gasoline or heating oil they are operational in terms of our supply system. That is what we have to get the refiners to do.

I think we ought to make them do it and not just encourage them or implore them to do it. It is the only way we are going to get our private enterprise system to respond, because if you ask them to do it or seek that they do it, we will be exactly where we were after the Korean war or World War II where we set up objectives in terms of them to recommend for defense mobilization. We didn't get them until we required them to construct the capacity in terms of priority and license.

So I think we ought to look carefully at a system of mandated storage facilties because if a fellow wants to be in the energy business then he should be required as a responsible supplier to have sufficient supplies on hand for the demand he anticipates, and it is his job to make sure that storage is there.

It might make for a few jobs in the construction and steel industries. We can use those jobs. I think that is a point we ought to explore and see if we can't impose this on the industry. Since we have price and wage controls, why not inventory controls? I think it is a good idea. Mr. VANIK. The thing that shocks me about our oil policy is you wonder who is running the house. You should be able to anticipate what the needs are. I know that more gasoline is probably used for the automobile, the new emission systems and the control systems probably have increased gasoline needs by 6 or 8 percent, but that was all known. There were no surprises.

Someone in charge of oil policy is letting us run out of oil. Perhaps we have to fix it in the law and determine who is going to determine an adequacy of supply.

Is the energy crisis as serious as they say it is? You talked about those oil wells that still had oil in them. Now that is the secondary oil. I have wondered, frankly, about the estimates that we get. Does your Department make its own independent estimates of oil supplies? Mr. WAKEFIELD. The Geological Survey does, yes.

Mr. VANIK. The Geological Survey told us in 1922, that we would be out of oil in a few years. I just want you to know how uncertain these thing are. Now, whose figures do you take to determine the supplies of oil?

Mr. WAKEFIELD. The Geological Survey's.

Mr. VANIK. Just the Government agency?

Mr. WAKEFIELD. Yes.

Mr. VANIK. You do that independently. Well, I have a feeling that the energy supplies of this country are grossly underestimated. I want you to know that I have great doubt about the estimates that are made. I have a feeling that they are calculated on the basis of primary recovery and that they completely exclude the potential of secondary recovery. It is that secondary recovery, that oil that still remains in the well that takes something special or extra to do to remove it, it is that oil that is still in the ground and still there. I would like to have some calculation or some estimate made as to the secondary oil reserve, so that we can match that and make a comparison on the

figures that are currently being distributed with respect to oil resource supplies on hand or estimated on hand.

Mr. WAKEFIELD. I am afraid I would have to have some pretty definite parameters to get that, the major factors being what the economies are. If you are talking about $4-a-barrel oil, your secondary recovery will be different than if it is $6 or $8 a barrel.

Mr. VANIK. You can have those added calculations. You can have those parameters, as you say, in your calculation. If you can supply that for the record, that would be helpful because that oil is here. It is in our Earth, in our country. If it is going to cost more money to get it out, we ought to have some idea as to how much there is at the higher price.

Mr. WAKEFIELD. Mr. Vanik, I don't think that it is the problem. According to the Geological Survey, we have 100 years' supply at today's consumption rates. The problem is that you don't get it out of the ground until the wells are drilled and until it is discovered.

Now one of the major things that we have done is to open up the outer continental shelf. I think that will help a great deal.

Mr. VANIK. Has any of that come into substantial production as yet? The greater part of those sales have just been completed.

Mr. WAKEFIELD. That is correct. We were delayed in the courts for about a year by environmental litigation.

Mr. VANIK. I have some information from the Senate Subcommittee on Antitrust and Monopolies that the major oil companies are gettting into the discount oil business at the same time the independents are being forced out.

The Office of Emergency Preparedness said that 562 gas stations have already closed and 1,376 are in the process of being closed. Mr. Trent of OEP said that there is no area of the country where the driver will be unable to obtain gasoline. The shortages are not expected to be as severe as to warrant rationing by the Federal Government.

We have Exxon now marketing discount gas under the name of Alert in 16 stations in 4 States. Gulf discounts gas under two labels, Economy and Mulco. Shell markets under Reed, Mobile under the name Blue Goose and Red Dot.

I wonder if there is not a calculated plan to force out the independents, get their distribution system, and then as the companies start their offshore drilling they can raise their prices and eliminate some of the service that the gasoline discounters have been providing to the American people.

What do you have to say about that, is that a possible picture?

Mr. WAKEFIELD. In the first place, I certainly hope not, because I don't think there is anybody more concerned about the independent segment of the market than I am. Second, it was announced today that we are starting an allocation system to assure that every retailer in every State of the Union is able to get at least the same proportionate amount that he was able to get last year, including the people that purchased in the spot market without contracts.

Mr. VANIK. Do you have some more questions?

Mr. CAREY. I think there is another oil policy survey or study due by this September from the Oil Policy Committee of the National Petroleum Council on the question of available supplies, et cetera. Some of my advice from that study indicates to me that we have not