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Senator BROOKE. Well, don't you think construction of a refinery in New England would be beneficial, as far as the vulnerability of military attack would be concerned, that we would be more protected, say, if you had a refinery in New England and supplied oil across the country?

Mr. O'HARA. I would like very much to see a refinery built in New England. When the Commerce Co. tried to build its refinery on Jamestown Island. I went to the trouble to help them. I appeared at the hearing so they would get a permit from the Corps of Engineers. If there was any way we could have gotten that built, we would have liked to have seen it.

I pointed out that Gulf Oil Co. offered them a processing agreement which made it possible for them to get the financing.

Senator BROOKE. Now is this the position of your company, Mr. O'Hara, your organization, rather?

Mr. O'HARA. We would like to see more refineries built; yes, sir.

Senator BROOKE. Is it the position of your organization that you would like to see a refinery built in New England? That is the question.

Mr. O'HARA. Yes.

Senator BROOKE. Then what is your objection to having a refinery in Maine at the location proposed?

Mr. O'HARA. We would like to see a refinery built at Machiasport, Maine.

Senator BROOKE. Now, is your only objection that it would be built by the Occidental Petroleum Co. ?

Mr. O'HARA. No, our only objection is that it would be built by any company that was not required to process the same amount of domestic crude as other companies are. I gave you this list of small refiners. I would like to point out there are 51 companies classified as small business who are now operating refineries east of the Rockies. Under this Machiasport proposal these companies would not only have to face a new giant competitor who did not have to buy domestic oil, but to add insult to injury, Occidental Petroleum Co. wants them to buy more domestic oil to make up for its subsidy, and we just think that is unconscionable.

But we have no objection to a refinery being built in Machiasport. Senator BROOKE. You have no objection to the foreign trade zone being established in Machiasport?

Mr. O'HARA. We have no objection to the foreign trade zone, itself. That's right.

Senator BROOKE. You have no objection to a refinery being in Machiasport?

Mr. O'HARA. No.

Senator BROOKE. Being built in Machiasport?
Mr. O'HARA. No.

Senator KENNEDY. Will the Senator yield?

Senator BROOKE. Yes.

Senator KENNEDY. You say, as I understand it, that your principal objection is the fact that it would have to be done with imported crude

oil, is that right? Is that your principal objection?

Mr. O'HARA. That's right.

Senator KENNEDY. Where else could they get this crude oil? Where would they get the crude oil for Machiasport domestically produced?

Mr. O'HARA. The way they would get it is the same as the refineries in Delaware and New York get it. They would exchange their import allocation or buy crude-what they would do is buy crude in the interior of the United States.

Senator KENNEDY. All right, now how would that get up to Machiasport? Are there any pipelines that you know of leading up there? Mr. O'HARA. No, it would come by tanker the same as it does to Delaware.

Senator KENNEDY. Have you made any cost analysis as to whether they would be able to transport that oil up there, refine it, and still be able to sell it, and what the price would be with regard to the con

sumers?

Mr. O'HARA. No, sir.

Senator KENNEDY. Aren't you interested in the problem of the consumer?

Mr. O'HARA. We are indeed.

Senator KENNEDY. Aren't you interested in lower prices for the consumer?

Mr. O'HARA. Well, all I meant is we have not made any economic survey. We just don't have the facilities to make them

Senator KENNEDY. Well, is it economically feasible? I mean why respond here that you are all for a refinery up in Machiasport and then set conditions which are impossible as far as economics.

Mr. O'HARA. I will answer you, Senator, by saying that we favored the refinery that was going to be built at Jamestown Island, and that company and Gulf Oil Co. both thought that was economically feasible without any special privileges.

Senator KENNEDY. How far is that from Machiasport? Have you figured out whether it can conceivably be done and be economical and fulfill the conditions which you have suggested here?

Mr. O'HARA. Well, I would make the general observation that I think that it would be more economical to refine the oil further down the coast and ship the finished product up there. But that is just an offhand observation, and I don't know enough about the economics to answer you.

Senator KENNEDY. Well, the only point-and I want to yield back to the Senator-is that I think you are suggesting conditions which, right on the face of it, are completely unrealistic, as far as the economics of refining up in New England, and so I think the record, once again, ought to show that where you suggest you are for a refinery up in New England and supposedly concerned about the consumers in New England, and lowering their price, you are also establishing conditions which are completely unrealistic from an economically feasible point of view.

Mr. O'HARA. Well, Senator, I might point out that when you submitted a statement to this committee several weeks ago, you said in

your statement that the proposed refinery of Occidental would not receive any privileges that other refiners did not get, and I would like to point out that they are asking for privileges other

Senator KENNEDY. I suggest you respond to the question first, and then we can consider your questions.

Mr. O'HARA. Well, my answer would be that we think they should build a refinery on the same terms as all other companies in the United States.

Senator KENNEDY. So far as your question, my statement said that New England, which consumes 20 percent of the Nation's fuel oil, is entitled to its fair share of oil imports and of refining capacity, and thus is not asking for any special privileges or advantages over any other part of the country.

Senator BROOKE. Mr. O'Hara, are you aware of the percentage of the Nation's No. 2 crude oil that is consumed in New England? Those statistics are part of your organization

Mr. O'HARA. Yes. We don't have, but I can get them.

Senator BROOKE. And are you also aware of the high cost of No. 2 fuel oil in New England as compared to the rest of the Nation?

Mr. O'HARA. No, Senator, I don't think it is higher, on the average. Senator BROOKE. You don't think that consumers in New England pay more for No. 2 fuel oil than consumers in other parts of the Nation?

Mr. O'HARA. No, sir. I don't. I would be glad to submit a chart Senator BROOKE. Would you submit that chart for the benefit of the committee?

Mr. O'HARA. Yes, sir.

(The following material was submitted to the committee:) NATIONAL PETROLEUM REFINERS ASSOCIATION, Washington, D.C., January 22, 1969.

Hon. KENNETH M. CURTIS,
Governor of Maine, Augusta, Maine.

DEAR GOVERNOR CURTIS: Thank you for your letter of December 31 setting forth your position with respect to the proposed Foreign Trade Zone in Maine and to the Occidental Petroleum project in connection with the Zone.

A common failing of all of us is to hear and repeat until we believe certain assertions that seem timely and appropriate; for example, New England is ". . . burdened with the highest prices in the nation." If this were true, I could understand the tremendous action mounted by the political officials of New England to obtain relief. I was therefore prompted to investigate the matter of heating oil prices in New England, and my findings, with the assistance of several economists, were that you have been somehow misinformed. Our findings indicate that—

It is indeed true that New England retail prices for No. 2 fuel oil over the past ten or twelve years have consistently averaged 2¢ per gallon higher than cities in the middle Atlantic states and up to 1¢ per gallon above the U.S. average.

However, New England wholesale prices have been no higher over the period than those in other areas, and generally have been below the U.S. average price during this same period of time.

As calculated, dealer margins in New England have been consistently higher and apparently responsible for the higher retail prices. If dealer margins are mathematically equated with the average in other areas, New England's detail prices have been about the same as in the cities in the middle Atlantic states and well below the U.S. average over the past ten years. Thus, suppliers are not discriminating against New England consumers.

The changes since 1964 in the price of No. 2 fuel oil in New England which you quote may be correct, but No. 2 fuel oil prices in 1964, not only in New England but throughout the nation, were at their lowest point in many years. Actually, the 1968 New England wholesale price was still below the level reached in 1957. Since 1957, on the other hand, the New England dealer margin has increased by 21⁄2¢ per gallon. The U.S. average wholesale price is also below the 1957 level, but the average national dealer margin has increased by only 2¢ per gallon since 1957.

I am attaching a tabulation of not only No. 2 fuel oil prices in New England but also of gasoline prices. I believe you will find the details in this tabulation of interest, and perhaps it may modify your point of view of the oil industry's pricing policies in New England.

Contrary to the assertions in the middle paragraph on page 2 of your letter, the oil refining industry has not been subsidized by the import control program. Quite the contrary. Had there been no import controls, refiners, particularly those located on the coasts, would have been able to import all the foreign oil that they wished; and since foreign crude sells at much lower prices than U.S. crudes, these refiners would have had much lower raw-material costs. Being compelled under the import control program to utilize domestic crude oil, they have in fact increased their raw-material costs.

If there was any protection for the domestic petroleum industry, it was directed toward support of the producing branch of the industry. It was to maintain a viable domestic producing industry that the program was adopted, a Cabinet committee having found that relative self-sufficiency in domestic petroleum production was essential to national security.

In order to maintain equity within the industry, all refiners in the United States (who are the prime customers of the producing branch of the industry) are assigned quotas based on their throughput requirements. Since transporting overseas crude to the interior of the U.S. is uneconomic, inland refiners are permitted to exchange their quotas with those refiners on the coasts who can more economically utilize overseas crude. To the extent that East Coast refiners exchange domestic crude for foreign crude, they are paying the equivalent of domestic crude oil prices for their raw material. These exchanges have been calculated roughly on a differential of $1.25 per barrel between domestic and overseas crude oil.

Occidental, under the proposed project, would be free to operate entirely on foreign crude, and the differential of $1.25 would present them an advantage which other refiners competing in the New England area could not possibly match. It is for this reason that we pointed out that Occidental, under the proposed project, would be heavily subsidized. The mere fact that Occidental may choose to give a portion of the subsidy back to the Northeast does in no way excuse special treatment.

Under the proposal in point, a redistribution to give Occidental 40 percent of the total permitted overseas crude oil importation east of the Rocky Mountains as a quota to be run in the Foreign Trade Zone would be exorbitant and obviously inequitable. A quota to withdraw from the Trade Zone 100,000 barrels daily of light fuel oil and gasoline would be only slightly less than the quota permitted all other importers of refined products. On its face, this is inequity of the rankest order.

Governor, American consumers enjoy lower prices for petroleum than citizens in other countries, despite the fact that U.S. crude oil is higher priced. The benefits of progress in production, refining, and transportation technology have been passed on to the consumer for years, and since New England has not been paying significantly more nor less than the average in the United States for its petroleum products, I fail to see the validity of the complaint which you express. It must be that you have been misinformed.

Any one of us in the National Petroleum Refiners Association would be glad to sit down and discuss this entire subject with you and your colleagues in New England.

Sincerely yours,

25-604-70- -16

F. C. MORIARTY, President.

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Sources: Gasoline-Platts Price Service, 55 city average; average of following cities: New England (Burlington, Boston, Manchester, Portland, Providence, Hartford); Middle Atlantic (New York, Philadelphia); United States (55 cities). No. 2 fuel-Fuel oil and oil heat; average of following cities:

New England group (Portland, Boston, Providence, Hartford, New Haven); Middle Atlantic group (Syracuse, Albany, New York, Montclair, Philadelphia, Baltimore); U.S. group (all listed cities) Dealer margin-Calculated difference between retail and wholesale prices.

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