STATEMENT OF DR. BRUCE NETSCHERT, REPRESENTING NATIONAL ECONOMIC RESEARCH ASSOCIATES, INC.

BRUCE C. NETSCHERT-BIOGRAPHICAL DATA

Born: Newark, New Jersey, 1920.

Education: Cornell University, B.A. 1941 (Geology), Ph.D. 1949 (Economics). Taught both geology and economics at Cornell and the University of Minnesota. Government Experience 1951-55: Commodity-Industry Analyst, U.S. Bureau of Mines; Commodity Analyst, President's Materials Policy Commission; Consultant, Materials Area, National Security Resources Board and Office of Defense Mobilization; Central Intelligence Agency.

Research:

1955-61: Senior Research Associate, Energy and Mineral Resources Program, Resources For the Future, Inc. Subject: Future Energy and Mineral Resource Availability.

1961 to present: Director, Washington office, National Economic Research Associates, Inc. Research on wide range of topics involving energy and mineral resources, their processing and use.

Honorary and professional societies: Member Phi Beta Kappa, Phi Kappa Phi, American Economic Association, American Institute of Mining, Metallurical and Petroleum Engineers (Past Chairman, Council on Economics); Fellow, Geological Society of America.

Dr. NETSCHERT. Thank you, Senator.

Senator HART, Did you have any comment that you would like to make before we ask you some questions? Would you care to make some general comments?

Dr. NETSCHERT. You mean on what has been said before?

Senator HART. And what you think might be useful to us, yes.

Dr. NETSCHERT. Well, I would say that with respect to the subject that has been discussed so far this morning; namely, the great value of this as yet untapped mineral wealth, that this wealth remains hypothetical until and when it actually becomes a commercial venture. Not until there is a proved commercial value for the product, that can be made of this, and sold, can you really say that the values we are talking about are anything but hypothetical.

Senator HART. It is true. What we are attempting to do is respond to the obligation of planning ahead.

Dr. NETSCHERT. Oh, yes, I understand that, sir.

Senator HART. Even though we have to deal with hypotheticalsbecause the hypotheticals one day will be realities, and history's judg ment of us will be harsh if we have not made adequate preparation. And it will be gentle with us if we have guessed right.

Dr. NETSCHERT, That certainly is correct.

Senator HART. I think you were told that we would like to ask you a series of questions. Let me open by addressing some to you.

Considering the energy needs of this country for the balance of this 20th century, how adequate are our existing resources likely to be? Please describe that in such detail as you can with attention both to the demand and the supply projection.

Dr. NETSCHERT. Well, let me start with a look at this matter of demand in the future.

Within the past 10 years or so there have been so many projections and forecasts of this energy demand made that at times it looked as if this might become a national pastime. There are a great many to choose from. They range from forecasts within the next 5 years and

10 years, to forecasts to 1990, 2000, and some of them go to the next century or so.

As you look at these forecasts further into the future you find there is a greater and greater disparity among them. There is a greater range of opinion that they show. This is only natural because we are looking at a period in which more and more imponderables must be taken into account.

However, I think it would be a pretty fair assessment to say that a consensus would seem to reign among the projectors that energy demand in this country for the next century will increase at a rate of something like 3 to 32 percent a year. This is a very healthy increase indeed, I might say. And it is more or less in line with what the increase has been in the long term over the past. Now these forecasts that I am speaking about treat the matter of energy in toto, but, of course, the actual demand for energy is not for energy in the abstract but is for actual energy commodities such as gasoline, kerosene, and so on.

These, in turn, lead to the demand for the actual resources-coal, natural gas, and oil.

With these forecasts, then, you find varying opinions as to how much of the varying energy resources will be needed. Some say, for example, that there will be a very great demand for coal relative to the present. Others say that, no, this is likely to be a demand for uranium rather than coal. Still others say we are going to become more and more dependent on oil.

So we have, then, the problem within this business of future energy demand of seeing what the energy mix is likely to be, and then this gets us to the matter of the adequacy of the various energy resources,

Now, with respect to coal, there is no difference of opinion on the fact that we have enough coal resources to satisfy all foreseeable needs for the indefinite future and indeed to satisfy all our energy needs, if need be, from coal alone.

This is coal that is actually known to exist. It is not coal that has to be found.

So we can dismiss the problem of adequacy of coal reserves right off.

On the subject of gas and oil, however, there is a difference of opinion. There are those who say that within the next decade we will see the peak of our ability to produce gas and oil and that by the end of this century we will find ourselves falling far short of domestic demand in terms of our capabilities of meeting it from domestic supplies.

On the other hand, there is a recent authoritative study by the U.S. Geological Survey which has estimated that the remaining resources of crude oil and natural gas are so large that they should be able to satisfy our needs for the remainder of this century, if not beyond.

So when you ask me how adequate are our existing resources likely to be, my answer is that taken together they are indeed adequate, more than adequate, they are ample. Taken individually in terms of the type of energy resource, they are certainly adequate for coal, and they may or may not be adequate for oil and gas, depending on whose opinion you take.

In my opinion, it is likely that they will be adequate for the remainder of the century.

Senator HART. When you mentioned oil, you are talking about crude oil.

Dr. NETSCHERT. Yes, sir.

Senator HART. You are not discussing or inventorying the oil from the shale.

Dr. NETSCHERT. That is correct. I should have said crude oil all the way through.

Senator HART. I am sure you did, but I just wanted to be sure.

Mr. CHUMBRIS. Could I clarify one point? Did you say it is now your opinion that we have enough for the rest of the century, or is that the opinion of the U.S. Geological Survey? Are you adopting the opinion of the U.S. Geological Survey that there is abundant oil and gas for the rest of the century?

Dr. NETSCHERT. Yes, that is correct.

Mr. CHUMBRIS. Instead of the next decade.

You pointed out there is competent authority which said there is only enough for the next decade or the next 10 years we are going to reach the peak of the production of oil and gas. I thought you started out with that premise.

Dr. NETSCHERT. Yes, there are those who have that opinion. I wanted to make clear-it is not clear that it is an absolutely certaintybecause we are talking about resources that are to be discovered, so these are estimates of as yet undiscovered resources when we are talking about crude oil and gas, so there is room for a difference of opinion.

In my opinion, however, I think the assessment made by the Geological Survey which was published in the fall of 1965 is a correct assessment.

Mr. CHUMBRIS. Mr. Chairman, may we put that survey in the record, that 1965 survey?

Dr. NETSCHERT. The title of that is Circular 522 of the U.S. Geological Survey, and the exact title escapes me, but it is something like this, it is "Resources of Crude Oil, Natural Gas, and Natural Gas Liquids in the United States and the World."

Senator HART. We will have it.

(The survey referred to may be found in the subcommittee files.) Mr. CHUMBRIS. Also, to get the other viewpoint, could we get the reference to those people who-within 10 years-feel we will reach the peak? Can you give us that reference?

Dr. NETSCHERT. I cannot give you that specific reference here.

Senator HART. You can furnish it to the staff, and we will add both the documents-which I doubt will be found on a best seller list, but I am sure are very informative-and the sources of the other conjectures that you gave to us.

(The material referred to is as follows:)

Milton F. Searls, "Fossil-Fuels in the Future," Atomic Energy Commission, Office of Technical Information, October 1960.

Ralph E. Davis, "The Story of Natural Gas," August 1962.

M. King Hubbert, “Energy Resources." National Academy of Sciences, National Research Council, Publication 1000-D, 1962.

Future Gas Supply Committee. "Future Natural Gas Supply of the United States," volume No. 1, October 1964.

Walter K. Link, "An Expert Gives a Geological Approach to Reserve Ultimate of the U.S.," Oil and Gas Journal, August 22, 1966, page 150.

H. K. Hudson, "Our Future Domestic Natural Gas Supply," Public Utilities Fortnightly, January 5, 1967, pages 29-38.

Senator FONG. You feel amply safe so far as the next 35 years are concerned.

Dr. NETSCHERT. If the estimates of these survys are correct, yes. Senator FONG. Yes.

Dr. NETSCHERT. I cannot deny, however, that the possibility must remain that they might be in error and sufficiently in error so that we would have found a problem of adequacy before the end of the century. However, well before the end of the century I think we would be in a better position than we are today to see whether or not that assessment is in error.

Senator FONG. Has any assessment been made for after the century? Dr. NETSCHERT. Pardon?

Senator FONG. Has any assessment been made for after the century? Dr. NETSCHERT. Well, the assessment has not been made in terms of a time period, but in terms of total quantities of the crude oil and the natural gas that are left in the ground, so the time period would depend both on that size and on the size of the demand we should expect.

So the survey itself has not addressed the question of the time period that might be involved. They have looked only at the quantities. Senator HART. As you have before you, Doctor, we had prepared a second question to which I think you have responded but if there is anything additional that you would like to give us, you are free to do it.

The question was, What are the probabilities that the domestic supply of energy resources will fall short of domestic demand over the course of the next three decades, and what effect would this have on price?

Dr. NETSCHERT. Well, my answer would be, to begin with, that we already have an instance of a domestic resource falling short of domestic demand, and that is crude oil. We are not today producing sufficient crude oil to satisfy our total crude oil needs. This is not necessarily because we could not. It is a matter of costs and prices.

The fact is, of course, that the cost of crude oil in this country is higher than it is abroad, and we have, therefore, importation of cheaper foreign oil. This importation is limited by an import quota system. But because we have a sizable percentage of our demand being met by foreign oil, we are not satisfying our needs entirely from domestic sources.

Now, having said that, I think that it is a matter of semantics as to whether or not you really talk about falling short of demand, because as is taught in the basic economic courses, given an existing market and normal courses of events, demand and supply will be in equilibrium at a given price, so you have to bring price in, and the fact is that at the present price of oil today, the crude oil industry in this country is not satisfying total oil demand.

As far as the future is concerned, I would have to say again, as I think I said in answer to Senator Fong, that I cannot deny that the possibility remains that for crude oil and natural gas there could

be a shortfall, if you like, in the available domestic supply at present price levels.

Whether or not there could be a satisfaction of domestic needs from domestic resources of crude oil and natural gas at a higher price is something that cannot be dealt with in any concrete fashion. That depends on what the economist likes to call the long-run elasticity of supply, the degree to which the long-run supply responds to price changes.

My own opinion is that for the next decade or two, at least, we will not see an increase in the cost of natural gas and crude oil in this country other than that which might be increased by inflation.

Senator HART. Then we propose to ask you as a third question, Do you feel that new sources of energy are likely to come into use in the next 30 years, and, if so, what are the likely sources?

Dr. NETSCHERT. If by new sources you mean new resources, I would say that the only new resources I would see at this time would be the tar sands that are presently being developed in Canada.

This initial tar sand development which is scheduled to go into commercial operation in the fall of this year should, if successful, and I believe it will be, show the way for the use of the tar sand resources of the United States.

Now, these resources are relatively limited. They have been estimated to range between 1 billion and 10 billion barrels, which, of course, is very small indeed compared to the figures we have heard earlier.

Nevertheless, I think that this is the only resource I would see at this time.

Senator HART. For the record and for me, what are tar sands?

Dr. NETSCHERT. Well, tar sands-in contrast to oil shale, which is neither shale nor includes oil-tar sands is what they say they are, is the sands, relatively unconsolidated sands, containing a heavy tarry substance which is thought to be the heavy remnants of a crude oil reservoir from which the lighter portion has evaporated. This occurs at the surface along the Athabaska River in Canada in large quantities. I believe the reserve estimates are something like 300 billion barrels initially, at least, and they are now being, or propose to be, worked by big bucket excavators and the sand and the tar are separated and the tar processed into a high-grade synthetic crude oil. The initial operation is for a 45,000-barrel-a-day output.

Senator FONG. What is the viscosity of the tar?

Dr. NETSCHERT. I do not know it in terms of numbers, but it is tar in the full sticky sense of the word. It will not flow at all, and it is recovered by being heated.

Senator FONG. It is still called oil?
Dr. NETSCHERT. Pardon?

Senator FONG. It is still called oil?

Dr. NETSCHERT. It is not crude oil in the technical sense. It is only a portion of the constituents that are present in crude oil. It is lacking the lighter fractions, and tar is the best descriptive term, but what is produced from it is, like the product from oil shale, is a direct and complete substitute for crude oil and can be processed in a conventional refinery, made into conventional products.

Senator HART. Turning to