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STATEMENTS OF RICHARD L. COUNTS, PRESIDENT, ROBERT SMITH, GENERAL COUNSEL, AND LOUIS VIA, STEUART PETROLEUM COMPANY

Mr. Counts. On behalf of Steuart Petroleum Company, of which I am President, and on behalf of the Oil Heat Institute of the District of Columbia, of which our company is a member, as representing the local Oil Industry in the Washington Metropolitan Area, I welcome this opportunity to appear before your Committee and to present to you the problems of the local Oil Industry as related to the matter of air pollution in the Washington Metropolitan Area.

The local Oil Industry naturally is not opposed to air pollution controls and in fact favors them. The local Oil Industry recognizes, of course, that the burning of fuel contributes to air pollution, but at the same time we maintain that it does not play the dominant role that some would lead you to believe.

However, since attention has been focused on the air pollution problem in the Washington area, our company and our suppliers have been diligently engaged in plans and activities toward developing methods and means of producing and making available residual fuel oil of a sulphur content within limits acceptable to the health authorities. Though this presents difficult problems, good progress is being made. The Oil Industry, by the blending of products and the use of improved technology in the reduction of sulphur content residual fuel oil, has been able to reduce the sulphur content from 3 per cent to 2 per cent without any particular increase by reason thereof in cost to consumer, and for the current heating year of July 1, 1967 to June 30, 1968, 2 per cent sulphur content residual is being supplied, at least to those companies receiving products through our company's terminals, which represent approximately 75 per cent of the consumption in the area. We have been assured by our suppliers that within one year, this can be further reduced to 1.5 per cent to be available for the July 1, 1968 to June 30, 1969 heating year, and further reduced to 1 per cent by the heating year commencing July 1, 1969. We hope that this gradual reduction may be effected without disruption of the normal marketing operations and at limited increase in cost to consumers.

One per cent sulphur content residual fuel oil, reduced from 3 percent, 2 per cent, or even 1.5 per cent, cannot be obtained merely by turning on a faucet, or by any simple process. We doubt if it is possible to achieve sufficient quantities of 1 per cent residual fuel oil to supply the entire Washington Metropolitan Area, or any major metropolitan area on the East Coast of the United States where residual fuel oil is principally consumed, prior to July, 1969. New York City, which consumes more residual fuel oil than any other city, recognized Industry's problem in this regard by adopting a program of gradual reduction of sulphur content residual fuel, when, in connection with its Air Pollution Control Act, adopted in 1964, it provided for 1 per cent sulphur content residual fuel oil after May, 1971.

The local Oil Industry, therefore, strongly urges that any legislation for air pollution control considered by this Committee, provide for gradual reduction of sulphur content in residual fuel oil so as to result in 1 per cent sulphur content residual fuel oil no earlier than July 1, 1969.

Large scale conversions from residual oil to other fuels is not feasible. There is already heavy demand on the East Coast for grade No. 2 heating oil. By next winter this product will probably be in short supply even if no conversions from other fuel to this oil occur, and there simply will not be enough No. 2 oil available to meet the growing needs if substantial conversions from higher sulphur fuels should take place. Neither are sufficient quantities of gas or coal available and even if there were, extensive changes in residual oil burning equipment would have to be made before these other fuels could be burned in existing furnaces. These changes would be extremely costly and could not be made overnight.

In order that you may understand the problems facing the local Oil Industry in this regard and the reason for our recommendation for a graduated sulphur reduction program, I would like to elaborate on the operations of the residual fuel oil industry in relation to 1 per cent sulphur content residual fuel oil.

In the first place, what is residual fuel oil? Residual fuel oil is a heavy liquid substance, which remains after certain of lighter fuels, that is, gasoline, kerosene, distillate fuel oil, lubricating oils, solvents, etc., are extracted from crude petroleum.

It is known as heavy fuel or No. 6 fuel oil. No. 5 fuel oil, which is a blend of No. 6 and the lighter No. 2 oil is also used as "residual fuel oil,” to a small degree that is. In the marine application, it is known as bunker fuel oil or Bunker C.

Secondly, what are the uses of residual fuel oil? Due to its unusual properties, heavy fuel oil is the Oil Industry's best heat-energy bargain, that is, the most heat units at the lowest cost. The significant properties of this heavy fuel are: gravity, viscosity, or resistance to How at a certain temperature, sulphur content, carbon residue, water content, asphaltine content, sediment content, pour point-or congealing at certain temperatures—flash point, and ash content.

It is used extensively to fire power plant boilers in public utility and industrial installations; as a fuel in heating plants of apartment houses, office buildings, hotels, schools and hospitals; as fuel in large diesel engines, especially in the marine field; and as fuel for diesel railroad locomotives.

It is not to be confused with the lighter No. 2 heating oil, which is used in the ordinary residence, and which is considerably more expensive than No. 6 oil.

Then, how is residual fuel oil made? Crude oil consists of a mixture of hydrocarbons, ranging from light volatile gases to heavy asphaltlike residues. Proper refining is required to produce the many finished products which Industry demands. The first basic step in refining is the separation of the crude into selected parts or fractions by distillation at atmospheric pressure. Each part or fraction has different properties, particularly as to the boiling point. The thick heavy fractions, such as fuel oil, have high boiling points, whereas the thin, light fractions, such as gasoline and kerosene, have low boiling points. As these fractions boil, they change to vapors which, when cooled, condense and thereby the different parts of crude petroleum are separated.

Heavy residual fuel oil is made by three different methods.

There is a Straight-Run Residual which is the remainder of the crude oil that does not vaporize in the distillation process.

There is the Cracked Residual which is still the residue of the crude remaining after further processing of the Straight-Run Residual by the thermal cracking process. In the thermal cracking process, the heavy Straight Run residue from distillation is subjected to high pressure and high temperature so that a modification of the hydrocarbon structure and molecular rearrangement produces a high yield of gasoline of higher octane number, a substantial quantity of distillate or gas oil, and consequently a decreased amount of residue, that is, residual fuel oil. During World War II, as the result of this demand for higher octane aviation gas, a catalytic cracking process was developed which leaves no residue. Thus, through the development of the thermal and catalytic cracking processes, crude oil can be refined 100 per cent so that no residue or residual fuel oil remains, which permits the refiner to convert crude oil to products which yield the highest dollar return, for example, gasoline, kerosene, distillate, lubricating oils and solvents.

Residual fuel oil is also made by blending the residue from the distillation process or the residue from the cracking process with a distillate or cutter stock” to reduce viscosity to a level that permits these residuals to be handled in and out of tankers, barges, transports and terminals.

What are the sources of supply of residual fuel oil? During the year 1966, on the East Coast of the United States where residual fuel is mostly used, approximately 1,170,000 barrels per day were consumed. This amounts to 49,140,000 gallons per day-42 gallons to a barrel. Of this amount, approximately 15 per cent was produced by domestic refiners, with the balance being imported from foreign based refineries.

The relatively small supply from the domestic refineries is substantially all committed and delivered to certain captive markets such as the metal industry, because of the relatively low sulphur content of the domestic production. The balance of the consumers on the East Coast are thus required to use foreign produced residual fuel oil.

The reason for the relatively small supply of domestic residual fuel oil is simple. Due to the advanced technology of catalytic cracking, and the higher prices obtainable from the lighter fuels, such as gasoline and jet fuels most in demand, as compared to the lower price of residual fuel oil and also due to domestic conservation policies, the domestic refiners naturally prefer to crack the crude 100 per cent, which leaves no residual fuel oil.

Thus, approximately 85 per cent of the residual fuel oil consumed on the East Coast of the United States is imported. Of this imported amount, some 90 per cent comes from Caribbean refineries whose residual yields average some 57 per cent—that is, 57 per cent of the crude barrel as residual compared to 7.5 per cent yield of the U.S. refineries or 0 per cent on catalytic cracking. Venezuela crudes supply approximately 95 per cent of the Caribbean residual fuel oil. The balance of the imported residual fuel oil comes from Africa and Argentina.

The Caribbean crude oils have a high sulphur content and are known as "sour" crude. The low sulphur content crudes, or otherwise known as “sweet” crudes, are found in the Middle East, Africa and Argentina.

The importation of crude oil is closely tied to our foreign policy and particularly concerning Venezuela and other Caribbean areas. Due to the current Middle East crisis, African crude is not readily available.

How is residual fuel oil transported, stored, and delivered ? Residual fuel oil, regardless of how made, being a heavy substance, in order to be transported, stored and delivered, must be handled under heat, approximately 120 degrees—150 degrees F., at all times to permit mobility.

Residual fuel oil used on the East Coast is delivered by large ocean going tankers to deep water terminals located at various points on the East Coast. These tankers are specially designed to carry the residual fuel oil under heat and the average tanker load is about 10,000,000 gallons.

The deep water terminal must be equipped to receive these large ocean going tankers by having docking facilities of sufficient size to receive an 800-foot long tanker which draws approximately 40 feet of water. The terminal must have heated pipelines leading from the dock to the heated storage tanks and should be capable of receiving residual fuel oil at the rate of 200,000 gallons or more per hour.

Generally, in order to transport the residual fuel inland from the deep water terminal facilities, residual fuel is then barged or trucked to an inland terminal. These barges, which are likewise specially designed to carry residual fuel oil under heat, carry 500,000 to 1,000,000 gallons in a barge load.

The inland terminal, like the deep water terminal, must have heated pipes to discharge the product from the barge into storage tanks which likewise must be equipped with heating facilities to maintain the product at a constant temperature. The inland terminal, like the deep water terminal, must have heated pipes to discharge the product from the barge into storage tanks which likewise must be equipped with heating facilities to maintain the product at a constant temperature. The inland terminal must also be of sufficient size to store several days' supply and is ordinarily located centrally to a metropolitan area to ensure delivery to consumers at all times, particularly during adverse weather conditions in the winter months when the consumption is at the highest point, and to fully utilize transportation equipment and labor.

Delivery to the consumer is made in specially designed heavy duty tractor trailer units capable of carrying 4,000 to 6,000 gallons per load to a customer, compared to 1500-2500 gallon trucks used for delivery of No. 2 heating oil to private residences.

In order for the consumer to handle the residual fuel oil, he must have large storage tanks and specially designed and engineered boilers and burning equipment with complicated controls.

The contract heating year is generally considered to be July 1 to June 30, although some annual consumer purchase contracts are entered into as early as April and May 1 of each year.

The consumer purchase contracts for fuel oils are generally on an annual basis. Supply contracts between the distributor or marketer and the refinery are generally long term contracts usually negotiated to coincide with the heating year, and designate the type of products and quantities to be delivered by the refinery during the heating year, with heavy deliveries contemplated in the winter months.

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The refineries usually require a minimum of six months lead time to schedule their refinery output of the various products.

What are the residual fuel oil facilities in the Washington Metropolitan Area ? The nearest deep water terminal facility to serve the Washington Metropolitan Area by water is located at the mouth of the Potomac at Piney Point, Maryland, and was completed in 1950. This deep water terminal is owned and operated by Steuart Petroleum Company and represents an investment of many millions of dollars. This deep water terminal facility handles various types of petroleum products, including aviation gas and residual fuel oil. The facilities for the residual fuel oil, including the pipelines of more than one mile from the dock to the storage tanks, the storage tanks and the piping from the storage tanks, are specially designed for residaul fuel oil, due to the necessity of handling residual fuel oil at high temperatures, and are separate and distinct from the facilities for the other petroleum products also handled at this facility. This Piney Point deep water terminal has twenty-five million gallons of storage solely for residual fuel oil.

The only inland residual fuel oil barge terminal located in the Washington Metropolitan Area is located on the Anacostia River near the East Capital Street Bridge, which was constructed in 1942. This likewise is owned and operated by Steuart Petroleum Company and represents an investment of millions of dollars. This barge terminal likewise handles other petroleum products, but has facilities to store five million gallons of residual fuel oil. The only other residual fuel oil storage facilities in the Washington Metropolitan Area consist of a combined storage capacity of only 410,000 gallons supplied by truck from Baltimore.

Prior to the construction of the deep water terminal at Piney Point, Maryland, in 1950, the Washington Metropolitan Area was dependent upon Norfolk and Baltimore residual fuel oil storage.

Thus, the total storage facilities for residual fuel oil to serve the Washington Metropolitan Area is 30,410,000 gallons. Twenty-five million gallons at Piney Point and 5,410,000 at Washington, D.C.

The distance by barge from the deep water terminal at Piney Point to the barge terminal on the Anacostia River at Washington, D.C. is 80 miles, and the average round trip of the tug and barge take approximately 36 hours, including loading and unloading.

The distance by barge from deep water terminals at Baltimore and at Norfolk to the Anacostia River barge terminal is approximately 200 miles.

By having 5,000,000 gallons residual fuel oil storage available at the Washington, D.C. barge terminal from which truck deliveries are affected, consumers in the Washington Metropolitan Area, including the Federal Government which purchases residual fuel oil to heat Federal and D.C. Government installations in the Washington Metropolitan Area, are fully protected because of this centrally located terminal from which truck deliveries can readily be effected. Truck deliveries from Baltimore to the Washington Metropolitan Area during the severe weather presents hazardous problems. There have been occasions during heavy snow fall when reseidual fuel oil could not be trucked to the Washington Metropolitan Area from Baltimore and the Anacostia barge terminal had to be used for the

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