to support such pipelines. They are not non-profit organizations, and some economic incentive would be required to bring about this result. Apparently, Mr. Clearwaters assumes a need to move petroleum sufficiently great to force oil companies to commit their credit without an equity interest in the pipeline. Shorn of an equity ownership, prospective pipeline shippers could be expected to find other means to move their petroleum when they are faced with a financial guarantee of a venture from which they will receive none of the profits. This unprecedented and gratuitous type of approach also would be replete with the problems such as whether all shippers (both original and subsequent, and large and small) would be expected to sign a financial commitment, and in what por portions. Lack of proper uniformity between shippers could be discriminatory. To sign such agreements would be a use of its stockholders' credit that a shipper company would likely consider improper. Non-owner shippers now receive all the benefits of joint venture pipelines without the investment or substantial liabilities incurred by the oil company owners. The original pipeline facilities of Buckeye and Williams Brothers pipeline, which Mr. Clearwaters refers to, where built by oil companies before they became independently owned. An experiment of the kind suggested by Mr. Clearwaters would, in our opinion, be a perilous gamble with the public interest.

(10) The alternative of additional regulation suggested by Mr. Clearwaters is offered without any demonstrated need. We repeat that there has been no sig nificant number of complainants against oil pipelines. The Department of Justice, over a long period, and after numerous investigations, has not found any evidence to justify such additional regulation. There is no showing in this record or anywhere else that corrective measures are needed. While occasions requiring the use of present ICC regulatory controls over oil pipelines have been infrequent, extensive controls now exist within the Interstate Commerce Act. This Act requires that interstate oil pipelines operate as common carriers, without unjust discrimination and undue preference, under just and reasonable rates which must be published and filed with the ICC. Pipelines must furnish transportation upon reasonable request by any shipper. They must establish reasonable and equitable through or joint rates. Their operating critería, regulations and practices must be just and reasonable and uniformly applicable to all shippers. Pipelines are expressly prohibited from giving any reasonable preference or discriminating in any way in the furnishing of services to different shippers. They must provide reasonable facilities for the interchange of traffic. In addition, they must comply with elaborate accounting, reporting and valuation regulations. These are only a few of the many existing laws and regulations provided for the protection of the pipeline shipping public. No reasons are given by Mr. Clearwaters as to why these controls are not fully adequate to deal with the evils he seems to suspect but cannot confirm. The ICC has faithfully discharged its duty to enforce these laws since 1906, and Mr. Clearwaters does not make any assertion to the contrary. It would be regressive to disrupt the regulatory relationship which the oil pipeline industry has had with the ICC for over 65 years, and which has produced the most efficient and economic pipeline transportation network known to man. The ICC is the agency of the Federal Government which regulates surface transportation consisting of railroads, motor carriers, water carriers and oil pipelines. Pipelines are common carriers and not public utilities. It would be irrational to fragment this regulatory control by placing oil pipelines under the jurisdiction of the FPC. In conclusion, we must say again we are appalled at the announcement by Mr. Clearwaters that the drastic measure of pipeline divorcement is recommended, or alternatively, that restrictive new and experimental controls are needed. Neither of these alternatives is justified. We respectfully submit that the Nation cannot afford to tamper with its petroleum arteries, especially during this time of a frightening energy crisis that will demand the continued availability and expansion of efficient pipeline transportation.

STATEMENT OF ARTHUR C. KREUTZER, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, NATIONAL LP-GAS ASSOCIATION

My name is Arthur C. Kreutzer, Executive Vice President and General Counsel, of the National LP-Gas Association. The National LP-Gas Association is the

trade association for the LP-gas industry. It has a membership of over 4600 and 41 affiliated states. Included in this membership are approximately 3000 distributors and dealers of LP-gas. Over 90% of these dealers are so-called independent dealers-not part of the retailing arms of a major oil company.

LP-gas more commonly known as butane, propane, or "bottled gas" serves the same purposes as natural gas in those areas of the country that are not piped for natural gas use. In addition to these areas of use, comparable to natural gas, it has many other uses where the mobility of the source of energy, or fuel, recommends its use. There are over 12 million installations within the United States. In 1972, the latest year on which statistics of the Bureau of Mines of the Department of Interior are available, there were nearly 26 billion gallons of LP-gas sold. Of this amount over 11 billion gallons went into the markets served by the LP-gas dealer or distributor. Of this 11 billion gallons, nearly 9 billion gallons went into the high priority usage of residences, farms and small commercial. The industry employs over 75,000 employees in its distribution at the retail or consumer level. In addition to this there are many other employees at the supplier levels who depend upon this industry for their livelihood. When these factors are added to the millions of consumers, LP-gas accordingly represents a significant part of the economy of the United States.

The source of LP-gas is in the natural gas well, or in the refinery processing of crude oil. Nearly 70% of the product comes from natural gas wells. We are accordingly concerned with any legislation affecting natural gas and with the price regulations exercised at the natural gas well head as they may affect the production of natural gas. Our concern is accented by the existing shortage in this nation's energy supplies. The figures on domestic production of LP-gas indicate that production is not currently meeting demand. Demand is being satisfied by a draw down on inventories and such relief as can be obtained from imports. The distribution or sale of LP-gas is now subject to a federal mandatory propane allocation program in government recognition of, and in dealing with the problem of short supply. However, such an allocation program obviously does not contribute to total supply, but only seeks the temporary relief of spreading out what is available, with priorities in use.

For the longer term, we consider it necessary to obtain the additional LP-gas needed through stepped up activity in the exploration and development of natural gas. This essentiality should be recognized when it is realized as earlier mentioned that approximately 70% of the LP-gas is extracted from natural gas wells. It is our opinion that the existing well head ceiling price controls on natural gas have contributed to the failure of exploration and development of new natural gas sources. At a minimum they present a substantial handicap. The capital requirements are such that these controls present an economic barrier to the exploration and development of natural resources that are vitally needed to meet the energy crisis. In the face of present circumstances the future outlook in obtaining needed supplies of LP-gas from the natural gas wells appears bleak. In addition to this adverse picture created by lack of exploration and development of natural gas, the existing natural gas shortage develops added impact on available LP-gas supplies. Lessening of natural gas production and the shortage of natural gas supply has caused many utilities and users of natural gas to look to propane as an alternate, or substitute for natural gas. This occurs either in situations where natural gas provision is subject to interruption during peak periods, or in the case of new customers, that would ordinarily use natural gas but are now unable to secure it. These two factors present LP-gas dealers and their millions of users with a serious curtailment and diversion of available propane. In some instances it presents to the LP-gas users the possibility of complete shut off.

We believe that it is incumbent upon government to remove the barriers that are preventing or handicapping increased production of natural gas. We recommend that the existing well head price controls on natural gas be phased out and that ultimately deregulation take place.

STATEMENT OF JOHN R. DORR, PRESIDENT, ED THOMPSON, EXECUTIVE VICE PRESIDENT, THE PERMIAN BASIN PETROLEUM ASSOCIATION

The Permian Basin Petroleum Association thanks the Chairman and members of the Committee for allowing us to submit this written testimony to be made a part of the record of this hearing.

The PBPA is made up of some 600 small independent oil operators, and other non-oil business entities, scattered across some 100,000 square miles of West Texas and Southeastern New Mexico. This area is the single most prolific oil and gas producing area in the United States with over 110,000 oil and gas wells operating today. Obviously, our economy is based on a healthy, growing domestic petroleum industry. But, for that matter, so is the economy of the whole country. Since 1961, the PBPA has been coming to Washington with the word that governmental control of natural gas at the wellhead would lead to a natural gas shortage. We have appeared, or filed testimony, before the Federal Power Commission, Interior Department, House Ways and Means Committee and several sub-committees of both the House and Senate, pointing up the fallacy of wellhead controls being good for the consumer.

There has been much ado about why no one told the news media or the government about the possibility of an energy crunch. Both the media and government were told, time and time again, but they had ears and would not hear-eyes and they would not see. Testimony was presented from 1961 through 1973 pointing out the continuing drop in: exploration crews, drilling-both wildcat and development; rigs runnnig; available drilling crews; production of both oil and natural gas and in total reserves.

But, petroleum experts, such as Joseph C. Schwidler, William Proxmire, Lee C. White and Ted Kennedy, either denied any problems, said it was all industry hogwash or only a myth. Those operating in the oil and gas business were put down as con artists, consumer gouging s.o.b.'s, or cry babies with no real knowledge or expertise in producing oil and gas.

We are attaching herewith statistics (submitted in previous hearings and brought up to date) portraying the drastic drop in all phases of the domestic petroleum industry activity in the Permian Basin, since the 1954 Supreme Court decision to put natural-gas producers under FPC jurisdiction, in spite of the Natural Gas Act exemption passed by Congress in 1938. Not until 1972 is there any reversal of the trend in all areas presented. Even here, wells drilled are only two-thirds of 1954, rigs about one-half the 1954 total, footage some two-thirds of 1954, while production is up but only because it is from an additional 775,000 wells drilled and something over 200,000 new producers. The cry was that prices for natural gas were getting completely out of hand. No mention was made of the thousands of contracts calling for 3, 4, 5, cents per thousand cubic feet or those bringing less than 10 cents, only the few new contracts set at 20 cents brought any notice.

With the institution of FPC cost-of-service controls, which it soon became obvious were unworkable (but took six years to move away from), to the Area Rate concept, another unsuccessful approach, all energy sources have been prevented from growing to meet demand. Too low natural gas prices have kept the development of oil shales, tar sands, coal gasification, thermal and nuclear energy off the market because they could not compete economically. At the same time, crude oil production was also hampered, because no reasonably intelligent operator wanted to spend more to find new reserves than he could get for selling his old reserves.

This hearing is offering the industry, and its opponents, a chance to tell their respective stories. The PBPA is for total de-regulation as the final solution, but supports the positions and testimony of the Gas Supply Committee, the Independent Petroleum Association of America, the Regional Petroleum Associations of Texas and other groups presenting testimony seeking some solution to the worsening gap between supply and demand.

With de-regulation, either total or in part, the domestic independent will use any increased income to look for additional domestic hydrocarbon reserves. He must. Reserves are the only thing he has to sell and, as he sells them, he is putting himself out of business. To continue in business he must have more reserves to sell, and the only way he can restock his shelves is by drilling more domestic wells. Up to this point, neither the price of old gas (his only source of cash flow) nor the price of new gas (a future source of income) have proved sufficient incentive for the independent to take the risk, and the consumer has suffered along with the oil man.

In the past year there has been a small loosening of FPC controls on natural gas prices. This has allowed prices to be a bit more competitive with the intrastate buyers and we have seen a commensurate increase in natural gas explora

tion. Operators started looking at, and drilling, prospects previously uneconomical. Unfortunately, for the gas consumer, the increases were held tool low, and recent sizeable crude oil price increases have again relegated natural gas activity to the shelf. Operators, like any other business, must make a profit to continue operating. To make a profit they must get more for their products than it costs to produce them. Crude oil prices are offering a better margin, so the operator is drilling more oil wells, rather than gas wells.

Of course, there are other factors than strictly price. With crude oil: there is little governmental red tape; there are more areas in which to look for oil; generally, costs are less because depths are less and, even though the risk is high it is not so high as that encountered in the search for gas.

Even with the limited increases in interstate, FPC controlled prices, followed by the market clearing prices on crude oil, we have seen a definite response in both oil and gas drilling by domestic independent operators. In other words, a reasonable price for his products (arrived at in the market place), will still bring forth additional supplies of those products. With this in mind, perhaps we should support Lee White's call for a government oil company. It shouldn't take them too long to get the price up to $25.00 per barrel on crude and $2.50 per mcf on natural gas.

Give the man who has found over 75% of all the oil and gas reserves in the United States (the small, domestic independent operator), a chance to compete in the market place, and he will do what he does best, find new domestic reserves of both natural gas and crude oil. He may not be able to find enough to make us self-sufficient, as we once were, but he will find enough to keep us from growing ever more dependent on foreign sources which, while not our outright enemies, can certainly cut off additional supplies, just as Canada did only last month, and as has been threatened by several of the OPEC countries in the past, with the definite possibility of it happening today.

Again, we thank the Chairman and the Committee for the opportunity to submit this testimony and trust that it may in some way help bring a better understanding of the position and plight of the small, independent domestic oil and gas operator, which directly effects the consumer and the economy. Respectfully submitted.

STATEMENT OF EDWIN M. WHEELER, PRESIDENT, THE FERTILIZER INSTITUTE

It is generally conceded that the nation lacks an overall energy plan. Lack of a plan per se should not be the "fall guy" for the current energy crisis or cause delay in getting on to a resolution thereof. Further breast-beating about why and how we got into the present mess only delays our coming to grips on the truly basic issue before the Congress and the Executive today. As we view these current hearings, this is an ideal time to think through the range of problems that not only beset us as a nation now, but need little clairvoyance to see into the future.

The Fertilizer Institute's membership is comprised of producers, manufacturers, and retailers of plant nutrients. Our industry is currently using 450 billion cubic feet of gas annually with a forecasted demand of 600 billion cubic feet by 1980. This latter figure is premised on gas availability. We shall go into the details of how this gas is used and, equally important, what it means in the production of our nation's food and fiber later in this testimony. Our biggest use of gas is for feedstock in the making of anyhydrous ammonia, a product whose use constitutes the source of United States nitrogen.

The current proposal to de-regulate the well-head price of newly discovered gas is bottomed on the basis that the financial incentives will be so great as to cause an all-out drilling effort. Our industry unqualifiedly supports this proposal. Our concern, however, is two fold.

First. Are we going to embark on a program of this magnitude without first determining what we are going to do with the fruits of the quest? Or, do we let this precious resource find its way to consumers on a helter-skelter basis? Let us assume, therefore, that if there were de-regulation and that if great new deposits of natural gas were located, that under the present ruling of the Federal Power Commission this newly discovered gas would be allocated as it is at the present moment. Under current Federal Power Commission regulations, gas which is on a firm contract has a priority on its so-called end use. For example, an anhydrous ammonia plant that is on a firm contract now has second priority use because it is a chemical feedstock. A plant located next door to it who makes the same identical vital product who is on an interruptible contract, however, is relegated to the role of priority 6 to 9. Already, it is clear that a priority of below No. 2 is going to be no prority at all. Now, suppose, the newly discovered gas is introduced into the pipelines. Without a predetermination of how this gas is going to be used, there will be something akin to the California Gold Rush to get to this new supply. Consider, for example, that if present Federal Power Commission priorities are used an electric utility could sign a firm contract for tremendous quantities of this gas to be used as boiler fuel which even under a firm contract is also a low priority user. This would be of no relief to any industry but