COMPETITIVE ASPECTS OF OIL SHALE DEVELOPMENT TUESDAY, APRIL 25, 1967 U.S. SENATE, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY, Washington, D.C. The subcommittee met, pursuant to recess at 10 a.m., in room 1114 New Senate Office Building, Senator Philip A. Hart (chairman) presiding. Present: Senator Hart. Also present: Senator Hansen. S. Jerry Cohen, staff director and chief counsel; Charles E. Bangert, assistant counsel; Peter N. Chumbris, chief counsel for the minority; James C. Schultz, counsel for the minority; Gladys Montier, clerk; Patricia Bario, editorial director; and David Dominick, legal assistant to Senator Hansen. Senator HART. The committee will be in order. This morning we had anticipated the pleasure of testimony from the able senior Senator from Utah, Wallace F. Bennett. Senator Bennett unfortunately finds that at 10 o'clock he is required to be in attendance at another committee meeting. He has asked me to introduce in the record the statement which he intended to give the committee. If there is no objection, I shall direct the statement be printed as though given by Senator Bennett. I repeat our regret that his understandably busy schedule has required that he offer his testimony in this fashion. We are very grateful that under these circumstances he would find it possible to prepare a statement. I know it will be of benefit to the committee. (The prepared statement of Senator Bennett referred to follows:) STATEMENT BY SENATOR WALLACE F. BENNETT GIVE THE OIL SHALE INDUSTRY A CHANCE Mr. Chairman and members of the subcommittee, I appreciate this opportunity to present my views to this distinguished subcommittee on the competitive aspects of oil shale development. It has also been my privilege to testify before the Interior Committee on February 21, 1967, when it held oil shale fact-finding hearings. After almost 40 years of confusion and delay, the Secretary of the Interior with his Five-Point program took the first step toward unlocking one of the richest oil deposits in the world. I have felt for a long time that the three obstacles to oil shale development are: 1. The lack of clear-cut and workable leasing regulations that would permit and foster development. 2. The clouded titles of many of the mining claims which were filed years ago. 3. Delays and problems confronting the economic development of oil from oil shale deposits. We are all hopefully awaiting Secretary Udall's report on leasing regulations. I am informed that the Department has been giving intensive consideration to them for the past three weeks and they are still hoping to meet the deadline of April 27. Until such time as they are received, it is difficult to relate the proposed program to competition and antitrust. However, during the course of the hearings on May 12, 1965 and again during the hearings of February 21 and 22, 1967 on oil shale held by the Senate Interior Committee, much of the information 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. We are all interested in protecting the public interest. The Secretary of Interior made his decision after many years of study by his Department, aided by the interim report from the Oil Shale Advisory Board. The Senate Interior Committee, which has jurisdiction in this matter, has been properly exercising that jurisdiction and proceeding in the public interest. The Secretary of the Interior has stated: "The public interest requires that in our efforts to develop the technology of extracting oil from shale, we write into every rule, regulation, contract, and permit affecting the public lands those terms and conditions that will : Encourage competition in development and use of oil shale and related minerals resources; Prevent speculation and windfall profits; Promote mining operation and production practices that are consistent with good conservation management of overall resources in the region; Encourage fullest use of all known mineral resources; Provide reasonable revenue to the Federal and State Governments." He goes on further to state: "The public lands in the region, representing the largest untapped source of hydrocarbon energy known to the world, belong to all of the people and must be used for the benefit of all the people." Estimates of oil shale deposits in the United States stretch from 600 billion barrels of oil equivalent for shale yielding 25 gallons per ton to as high as two trillion barrels if low quality shale yielding 10 gallons per ton is included. According to Secretary Udall, approximately 80 per cent of the reserves are federally owned and 20 per cent privately owned. For the most part private holdings are in isolated pockets or thin strips of low yield shale. We have the opportunity to develop this new domestic industry in an orderly way through the cooperation of state and local governments, private industry and the Federal Government. It does us no good to talk of this resource in terms of billions of barrels of oil or trillions of dollars as long as the resource remains in the ground. This now appears more economically feasible than ever before. If the newly discovered aluminum in the form of dawsonite, sodium in the form of nacholite, and oil shale, can be developed together, we may have turned the cost corner. We are aware of course of the many problems that face this new industry— the need for increased research and exploration of our oil shale and associated mineral reserves, the long range water requirements in an already water short area, the regulation of air and water and land pollution, taxation and the planning for anticipated whole new cities. We are confident that in the American way, private industry, working together with all levels of government, can overcome these problems and develop this tremendous resource for the benefit of all our people. I am not as worried about any private "anti-trust" problems developing in private industry as I am, perhaps, with overly protective "anti-trust" problems developing in the Federal Government. If by our action these lands and this industry remain locked up forever because of government meddling I think that we, as representatives of the public, are making a great mistake. I say give industry a chance; give private enterprise a chance; let the government assist where it can; I am becoming increasingly alarmed over restraints and government competition in more and more areas. To raise the "Teapot Dome" syndrome in virtually every land matter before the Federal Government, to me, is almost as irresponsible as the original scandal must have been. Let us allow this industry to get started before we wake up some day and discover that we probably should have done so years ago. Thank you Mr. Chairman. Senator HART. Our next witness, speaking for the Citizens Committee on National Resources, is Mr. Spencer Smith, secretary of that widely recognized conservation organization. Dr. Smith. I think in view of the fact that your statement has been received late, it would be advisable if you would read it in full. STATEMENT OF SPENCER M. SMITH, JR., SECRETARY OF THE CITIZENS COMMITTEE ON NATURAL RESOURCES, WASHINGTON, D.C. Dr. SMITH. Thank you very much, Mr. Chairman. I am Spencer M. Smith, Jr., secretary of the Citizens Committee on Natural Resources, a national conservation organization with offices. in Washington, D.C. The Citizens Committee on Natural Resources has been concerned primarily with the renewable resources and appropriate policies dealing with their management. The relationship of our organization to the oil industry in the past has involved some conflict of certain renewal resources and the explanation and/or production of oil. We have urged a necessary evaluation of the rewards to society as a result of oil exploration and production relative to other resource values that would be destroyed in the process. Our concern here, however, is threefold. The first, to protect a most important resource owned, in the largest extent, by the public; second, to urge consideration for a reinvestment in other resources as evidenced by the land and water conservation fund; and third, to urge that other resources receive the maximum protection in the process. Oil shale was made a leasable mineral by the Mineral Leasing Act of 1920. Prior to that time it was locatable under the general mining laws. On April 15, 1930, Executive Order No. 5327 withdrew designated lands containing deposits of oil and shale from mineral leasing and reserved these lands until an investigation and classification could be made. At the time of that order, however, a number of claims had been filed and, to the best of our knowledge, there were somewhere between 125,000 and 175,000 unpatented oil shale placer mining claims prior to the enactment of the Mineral Leasing Act of 1920. The main concentration of oil shale is in the Green River formation of southwest Wyoming, northeast Utah, and northwest Colorado. The bulk of these lands that are most likely to be developed first are located in the Piceance Creek Basin of Garfield and Rio Blanco Counties in Colorado. Although the area ownership are estimated from one source to another varied slightly, according to the Bureau of Mines the ownership of the oil shale lands is as follows: Privately owned including mineral rights__. Acres 380,000 338,000 582,000 There is estimated to be about 100 billion barrels of oil in both the privately owned lands and the disputed claims lands leaving approximately 1.1 trillion barrels of oil in the public domain. Our present use of oil is at the rate of 32 billion barrels a year or slightly over 4 billion barrels if the recovery and use of gas conden sate material is included, though the latter does not place a drain on known inventory. It is estimated that we have approximately a 50year supply of oil reserves exclusive of that deposited in oil shale. The issue now is whether to withdraw the Executive Order of 1930. On May 12, 1965 in the published hearings of the Senate Committee on Interior and Insular Affairs, the following colloquy took place relative to the status of the Mineral Leasing Act. Mr. CARVER. Of the Mineral Leasing Act. Section 241 relates just to oil shale, and this, however-of course at the moment he has no authority to lease because the lands which would be subject to lease are, by the Executive Order, withdrawn. In other words, that withdrawal must be lifted before leasing can legally go forward. Senator NELSON. So that the record may give some idea of the significance of this authority in the Secretary, I want to read one sentence here. An area in the heart of the basin of about 350 square miles contains some 600 billion barrels of oil equivalent, and in parts of this area a single 5,120 acre plot, the size of the lease presently provided by the leasing laws, contains as much as 18 billion barrels, an amount equal to nearly 60 per cent of the Nation's proved reserves of petroleum. So under this leasing authority the Secretary in his discretion may lease to one lessee the equivalent of what would amount to 18 billion barrels of oil equivalent from the shale on a 5,120-acre plot? Mr. CARVER. If the withdrawal order were to be lifted, and I think the Secretary has authority also to do that. Senator JACKSON. Was this a Presidential or Secretarial order? Mr. CARVER. It is a Presidential authority-it is a withdrawal order and authority of lift it has been delegated Senator JACKSON. By the President to the Secretary? Mr. CARVER (Continuing). To the Secretary of the Interior. It is impossible to place an accurate value on the amount of oil contained in the shale deposits. This would depend in part upon the projected state of the mineral, upon the total amount recoverable and upon the cost of recovery. As a result the stated values have ranged widely from $300 billion to $2.5 trillion. No estimate has suggested, however, that the value is not significant. The technology is a matter of considerable concern to us. The two methods are mining and retorting and in place (in situ). The first of these involves mining, crushing and retorting. This procedure appears to us to create significant environmental problems. The removal of the overburden with the subsequent adverse effect upon water and air pollution, and specifically upon fish and wildlife, is a significant social cost. The second method is the application of heat to the shale rock, which has the effect of fracturing the shale formation. As a result the shale is left in place and the hydrocarbon vapors are recovered at the surface. The emphasis at the present time appears to be on the in situ process, since the cost may be less and the revenue to the Government larger. Such a comparison has not been proven to a point certain, however, and considerable effort must be undertaken to ascertain the comparative costs and efficiencies. The Bureau of Mines pilot effort appeared to have great promise between 1944 and 1956 and as a result of operating a mine and several processing plants they proved that shale oil production was technically feasible. In 1956 the program was abandoned and it has been only recently revived on a very small scale. By the same token the Colony Development Company is constructing a demonstration shale oil plant in Colorado with the capacity of 1,000 tons of shale per day and if this operation proves successful a commercial plant producing 55,000 barrels of shale oil per day will be constructed at a cost of $100 million. The private lands are ideally suited to the only technically proven method which is mining, retorting and dispersing of spent shale because the shale lies near the surface in most of the private holdings. In 1965, Secretary Udall appointed an Oil Shale Advisory Board, which in their report to the Secretary did not agree upon the public policy governing oil shale development. In 1965 the Congress established the Public Land Law Review Commission to evaluate the laws and policies dealing with the public domain, including oil shale, and to submit reports of recommendation to the Congress and the President in 1968. Secretary Udall, on January 27, 1967, indicated a possible development program, which he further detailed on February 21 before the Senate Interior Committee. Quite candidly, Mr. Chairman, we are concerned as to the protection of the interests of the people of the United States in these resources. If I may be pardoned a personal reference, sometime ago I completed a study though very limited as to physical location which did reveal some problems facing small businesses in their research and development activities. I made a significant effort, as have many others including this subcommittee, to reveal the sig nificant technological discoveries made by individuals and small businesses, though they seldom reaped the rewards either financially or in public accolade. I shall not relate anew the material I made available to this committee as a result of that study, on the peculiarity of the Government of giving away patentable discoveries and research developments, which were accomplished on Government money, except to suggest that it is germane to the problem confronting us here. This policy in the main continues, not with the Government insisting upon a spirit of free enterprise made viable by effective competition but rather by fostering and supporting monopoly positions within the existing economic structure. Then, on behalf of my organization, in an effort to understand the technical, legal, and economic posture of the oil shale situation, I have a decided sinking feeling as to the end result. Thus far in my analysis, which is far from definitive as to the problem, I have the feeling that I have been down this road before-down the road of the patent controversies and the contract procedures of the Department of Defense, down this road of the specific patent cases of drugs, down this road of the tidelands oil depositsand the roads appear to get more and more numerous but they all appear to lead to the same place. In the instant case one factor stands out, the insistence by many that whatever leasing arrangement is made the company must retain some sort of depletion allowance. Though on merit Senator Douglas in his appearance before this committee on April 19, should have killed this dragon a thousand times over, I have the feeling that despite the accuracy and vigor of his thrust they may only be flesh wounds. Senator Douglas quite properly makes the point that the property should be retained by the Government of the United States and its exploitation should be paid for by the exploiter without the Government losing title to the surface and subsurface rights. If this is done there could be no way to claim a depletion allowance unless its allowance is rationalized on completely different criteria. The stated reason for the depletion allowance is on the basis that the property, oil, being sold is non-replaceable. It is relative to the iden 80-344-67-pt. 1—15 |