COMPETITIVE ASPECTS OF OIL SHALE DEVELOPMENT TUESDAY, APRIL 18, 1967 U.S. SENATE, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY The subcommittee met, pursuant to notice, at 10:07 a.m., in room 4221, New Senate Office Building, Senator Philip A. Hart (chairman) presiding. Present: Senators Hart, Dirksen, and Fong. Also present: Senator Hansen; S. Jerry Cohen, staff director and chief counsel; Charles E. Bangert, assistant counsel; Horace Flurry, general counsel; Peter N. Chumbris, chief counsel for minority; James C. Schultz, assistant minority counsel; Gladys E. Montier, clerk; Patricia Bario, editorial director, and Dave Dominick, legislative assistant to Senator Hansen. Senator HART. The committee will be in order. Several members of the committee have opening statements which, if Senator Dominick would be patient, we will read for the record. Senator Hruska unfortunately is involved in the Appropriations Committee session this morning but has given me a statement which he would ask be read on his behalf and Senator Dirksen's. Senator DOMINICK. Mr. Chairman, some people think it is great to be on the Appropriations Committee, not unfortunate. Senator HART. I know 100 Senators who think it is great to be on the Appropriations Committee. First let me read my opening statement. As we know, we are here to discuss the competitive aspects of oil shale development. In submitting the program of the subcommittee to the chairman of the Judiciary Committee at the beginning of this year, I wrote in part: It is estimated that in the Rocky Mountain area, chiefly in Colorado, are oil shale formations containing an estimated 2 trillion barrels of oil-five times the world's known reserves-worth, at going market prices, close to 5 trillion dollars. Methods of extracting this oil are now close to practicality. Because approximately 80 percent of this oil shale is on Government-owned land, it is essential that the Government evolve policies which will provide for the development of this reserve in a way that will best square with our commitment to a competitive economy. Monopolization of such an important national resource must be guarded against and at the same time orderly development of the reserve is essential. How the public interest can best be served and competition encouraged is a question which needs public exploration. As a result, public hearings are planned in this area. The value of this oil shale at present rates is enough to pay off our national debt and give a check of at least $11,000 to every person in this country. 1 These deposits were described in the report of the Oil Shale Advisory Board to the Secretary of the Interior in February, 1965. I ask that the full report be made a part of the record. (See p. 444 for report.) The interest of this subcommittee in the problem of competition and monopoly in the petroleum industry dates back to March 1957. At that time-within 2 years of the creation of this subcommitteein a floor speech, the then chairman, Senator Estes Kefauver, referred to the closing down of the Government-owned plant to develop oil shale technology at Rifle, Colo., an as example of "oil company domination of Government policy.' I ask that that speech be made a part of the appendix of the record. (The document referred to will be found at p. 463.) Senator HART. In April of 1964 I wrote to the Attorney General of the United States and the Secretary of the Department of the Interior expressing my concern that leasing of these same facilities to a group of major oil companies with Socony Mobil Oil Co. as project manager could result in monopolization of oil shale production. I ask that this exchange of correspondence be made a part of the record. (Correspondence begins on p. 487.) The then Attorney General in charge of antitrust, Mr. Orrick, assured me in reply that the Division would carefully follow operations under this program, and undertake promptly such further action as may be required. We shall hear further about this when Donald Turner, the present Assistant Attorney General in charge of the Antitrust Division appears. In addition, this subcommittee has held five sets of hearings on the general problems of concentration in the American economy and there was testimony at those hearings pertaining to the petroleum industry. Certainly monopolization of this enormous asset-primarily on Government-owned land-would be a national tragedy. Let me emphasize that it is only this aspect of oil shale development with which this subcommittee is concerned. The overall problem rests within the jurisdiction of the experienced and able Interior Committee. However, this subcommittee over the years has developed some competence in the area of competition and monopoly. We would hope that any record we can develop may be of assistance to the Interior Committee in its consideration of overall policy. The Secretary of the Interior announced a five-point oil shale development program in January of this year. I would ask that the program be printed in the record along with the entire release. (See p. 489 for statement.) Questions have been raised as to whether some points in that program might contribute inadvertently to monopolization of that resource by the same corporations which presently sit astride our petroleum industry. The 1963 Concentration Ratios in Manufacturing Industry" published by this subcommittee and based on Bureau of the Census data reveal that of the 266 companies engaged in petroleum refining, the four largest account for 34 percent of the value of shipments, the eight largest 56 percent, and the 20 largest 82 percent of the value of shipments. Of the eight largest companies, six already hold substantial oil shale reserves. It is interesting to note that the latest compilation in Fortune magazine, of the Nation's 500 largest industrialists lists 12 petroleum companies among the top 50. Certainly the development of oil shale reserves should offer a unique opportunity for new sources of competition to penetrate the petroleum industry. And that opportunity depends substantially on Government policy. It is also clear that we are concerned with much more than competition and monopoly in the petroleum industry. We are talking about and dealing with nothing less than our entire energy industry. The traditional separation of corporate control between competing sources of energy is beginning to dissolve. We know that technology is being developed which can convert coal into petroleum and gas. And only recently Continental, the seventh largest oil company, merged with Consolidated, largest coal company in the world. Gulf Oil Co. recently has acquired control of Pittsburgh & Midway Coal Co. Additionally, there have been several reports that Standard Oil of New Jersey, through Humble, is creating à department of coal and oil shale while at the same time acquiring new coal reserves. We also hear reports of Atlantic-Richfield doing work in the hydrogenation of coal. Many of the major oil companies have been involved with the development of nuclear energy. Indeed, parallels have been drawn between the development of nuclear energy resources and the development of oil shale. In attempting to find answers to the best method of encouraging competition in this development, we will want to study carefully the joint AEC-Department of Justice study, now in progress, of how to encourage competition in the nuclear energy industry. Further, we know that these same oil shale lands contain other valuable minerals such as dawsonite, a source of aluminum. And any overall policy must take into account these important nonpetroleum minerals. The complexity of this subject matter is obvious. That there are no easy or sure answers is also clear. And certainly we are concerned that this resource be developed at the earliest possible time consistent with the public interest. But I am also convinced that the fastest development will come about when a program is developed which encourages maximum competition. Competition here is of vital concern to every consumer in this country. How much competition is injected into oil shale development will be reflected in consumer prices for the next 100 years. Prices of not only the obvious products will be influenced-such as the cost of heat and light for homes and gas for cars-but thousands of items being developed by the rapidly growing petrochemical industry, including clothes and household furnishings. This explains the interest and responsibility of this subcommittee in this subject. We hope that when these hearings are concluded all of us will have a clearer understanding of the problems and more confident answers to them. We are delighted that shortly after I began reading an opening statement we were joined by the able minority leader, Senator Dirksen. Would you like to make a statement, sir? Senator DIRKSEN. Well, Mr. Chairman, I have a statement here in the nature of a joint statement by Senator Hruska and myself. I may say for the benefit of our distinguished colleague, Senator Dominick. this is not long. So we won't detain you too long. Senator DOMINICK. You go right ahead, Senator. STATEMENT OF HON. EVERETT M. DIRKSEN, A U.S. SENATOR FROM Senator DIRKSEN. Mr. Chairman, your press release of April 7, 1967, stated and we quote: How and when to sell a national treasure-worth almost 20 times the annual Federal budget-will be the topic of Senate hearings opening April 18 . . . (with) six days of hearings on the disposition of the Government's oil shale land in the Rocky Mountains. The press release continues The Government owns more than 80 percent of the 10 million acres of this land in Colorado, Wyoming and Utah.. (containing) two trillion barrels of shale oil which conservatively is estimated to be worth $2.5 trillion— We are really getting up into astronomical sums Its market value may be twice that. That is the end of the quote. This is indeed a spectacular figure-2 trillion barrels. There is also gold in sea water. What must not be forgotten are the many slips between the cup and the lip. In order to put these hearings in perspective, we quote from the Oil Shale Advisory Board's interim report to the Secretary of Interior, February 1965, where it states: Shale yielding 25 gallons or more of oil per ton contains about 600 billion barrels of oil equivalent, and shale yielding 10 gallons or more per ton contains about 2,000 billion barrels of oil equivalent. We have been reliably informed that the 1,400 billion barrels of oil equivalent coming from shale yielding 10 gallons to less than 25 gallons per ton is marginal in character. Processing is not now economically feasible and may not be for perhaps many, many years in the future. Also, it might be educational during these hearings to compare oil shale to other mineral ores. For example, it has been reported that copper has a gross worth of $5 per ton, iron $9 per ton, phosphate $7 to $8 per ton, whereas the oil in 30-gallon-per-ton oil shale is worth less than $2 per ton, assuming full recovery. This, of course, does not take into account other factors that affect the value of oil shale, such as: (1) The water problem (previously discussed during the Senate Interior Committee hearings). (2) The economics of processing oil shale which could be broken down into such costs as: mining, 50 percent; crushing, 5 percent: retorting, 15 percent; and hydrotreating, 30 percent; plus a capital investment of more than $100 million, and operating costs of approximately $25 million per year. Depending of course on the price received for the oil, rough estimates would indicate that return on investment would be just about one-half of what it should be for an industry like this. Again, we need some facts and figures. (3) Such other factors as actions to clear title, the blocking up program, procedures to consider applications, the shale in situ, and funds for research and investigation, all set forth by the Secretary of the Interior, Stewart L. Udall, in his five-point oil shale development program announced on January 27, 1967, restated before the members of the Senate Interior Committee on February 21, 1967, at public hearings. (4) Competing industries: During the course of the hearings on May 12, 1965, and again during the hearings of February 21 and 22, 1967, conducted by the Senate Interior Committee, much of the information developed pertained to the protection of the public interest in the disposal of the Government-owned lands and mineral leases and the establishment of proper procedures to make the application for leases as competitive as possible. Thus, the Senate committee which has jurisdiction in this matter has been properly exercising that jurisdiction and proceeding in the public interest. The Secretary of Interior delivered his decision after many yars of study by his Department. He had the benefit of the interim report from the Oil Shale Advisory Board. In view of the responsible and careful approach to this matter by those having jurisdiction, it can properly be asked why this Antitrust Subcommittee is becoming involved. We see no reason for it, there are simply too many other things to do. But, perhaps the Senate Interior Committee itself should be the ones to press the question of jurisdiction in this instance. It would be wonderful if the oil shale turns out to be the "national treasure" some have stated it to be. Whether it is or is not, let this subcommittee do no act that will deter the Senate and House Interior Committees, who have the appropriate jurisdiction, from making their determination as to what is in the public interest. It will do much harm to substitute wishful thinking for hardnosed economics. As long as the subcommittee is proceeding in this matter, let it be the latter which receives the emphasis and attention. That is the statement, Mr. Chairman, prepared for myself and Senator Hruska. Senator HART. Thank you, Senator, and we will see if we can't stay with the hard economics. Senator DIRKSEN. Yes, sir. Senator HART. Senator Fong? Senator FONG. Mr. Chairman, I have no statement to be made at this time. This subject is very novel to me and I look forward to hearing the testimony before this committee. I am especially interested in seeing how this tremendous national resource may be developed. I am especially also interested in how this development may relate to our antitrust philosophy. I look forward toSenator DIRKSEN. Haven't you any shale in Hawaii? Senator FONG. No, we haven't any shale. We have coconut oil and banana oil. Senator DIRKSEN. You have everything else. Senator HART. There is-and we are very fortunate-a very knowledgeable person sitting with the committee this morning that we certainly welcome, and I invited him to stay just as long as his busy schedule permits. Senator Hansen, did you care to make any comment? |