or not this development has been brought to your attention, or to your attention, Mr. Laird, by the Consolidation Coal Co. but in the event it has not, I would be delighted to arrange a little joint conference and let the director of the research department explain exactly what it is they have developed, which the officials feel is the real answer to eliminating sulfur from your stack where you have coal fires.

Has that been brought to your attention?

Mr. DOLE. Mr. Kee, it has been very definitely brought to our attention. We are very interested in it. A lot of the initial work on the elimination of sulfur dioxide from stack emission is done within the Bureau of Mines. We are in constant contact with them.

And I might say to you, Mr. Kee-and you pass it on to the people in your industry-that I would like to see them do more of this so that we would have more control examples, so that we would have better cost data, and better examples of what can be done to reduce the emissions of sulfur dioxide from stack gases. Certainly we are going to have to come to it. Mr. Kec.

Mr. KEE. Then in that case, Mr. Secretary, when the director of the department of research comes up, may we have someone from your side sitting on the conference. And let them tell us-you will have to tell them, because he knows and I do not-exactly what further steps they should follow through.

Mr. DOLE. Thank you, Mr. Kee. We would be delighted to participate in it. And if you will give us the time we will certainly have representatives there. Thank you for the invitation.

Mr. KEE. Thank you.

Mr. EDMONDSON. Are there any further questions at this time? (No response.)

Mr. EDMONDSON. Mr. Secretary, I want to thank you on behalf of the subcommittee for a very fine presentation.

Reference was made this morning, I am sure in a casual way, by one member of the subcommittee to your department as a client agency. Mr. DOLE. I did not catch that last.

Mr. EDMONDSON. You were described by one of our colleagues on the subcommittee as a "client agency," as distinguished from so-called public oriented agencies of the Government. I did not get into any exchange at the time on the subject. But I think a case can be made, and a very good one, for the conviction and the belief that the Department of Interior, by concerning itself continuously, and I think very ener getically, with the natural resources of our country, and the development and the conservation of the natural resources of the country, is about as public oriented as an agency can be. And I personally feel that a nation that neglects its natural resources and neglects the development of its resources and neglects its wide use and conservation of those resources, is a nation that is not going to continue to lead the world. And the Department of Interior's role in this regard is, I think, as significant as any department in our country. And I believe that you are very definitely a public oriented agency, but a public oriented agency that by and large has its feet on the ground, and is realistic about the world in which we live.

And to me that comes through very very clearly in the presentation that you have made. And the same thing can be said about the Department of Commerce. I just wish that we had a little bit more real system about the world in which we Americans are living today on the part of some of the other departments of Government that are sup

posed to be public oriented, because I think you are in tune with the world that we are living in at this time, and very much responsive to it in the presentations you have made here to us today. And I want to thank you for them.

Mr. DOLE, Mr. Chairman, I thank you very much for that very laudatory statement. I can assure you that we are a governmental agency, we are a public agency, and we are doing everything we can to live up to this public trust which you have outlined. And I can assure you that there are many of the companies that utilize and extract the raw materials from the earth both onshore and offshore that do not consider us as their benefactor or client, if you wish, because when we shut down oilfields, when we cause mines to reclaim their land so that it can be used for other land use, when we strengthen our regulations, I do not think the industry would consider themselves as our clients. (Permission was granted on p. 146 for material supplied by Mr. Dole, to be placed in the record at this point. The information follows:)

1. Interior's statements to the Cabinet Task Force on Oil Import Control, relating to costs of the Oil Import Program, are attached.

Interior's initial statement to the Cabinet Task Force regarding the cost of import controls was submitted on July 15, 1969 as a reply to question 28 of the Task Force Questionnaire. This paper estimated that the present program, if continued, would cost U.S. consumers $2.2 billion a year by 1975.

On September 19, 1969, a paper on costs of import controls was submitted to the Task Force as part of a group of technical papers prepared by the Bureau of Mines. The Cost paper derived both consumer costs and costs to the Nation (resource costs) by applying the Charles River Associates technique of analysis to Interior's demand and supply projections. These costs for the year 1975, were estimated to be $7.13 billion and $1.02 billion respectively.

The conceptual difference between Interior's two consumer cost estimates was summarized in the letter which transmitted the Bureau of Mines paper to the Task Force.

The Interior Staff further stated its position concerning cost estimates and their significance to import policy determination in the critiques of Task Force Staff Paper A-1 and B-1.

28. Assuming unrestricted imports have the effect of bringing U.S. oil prices into relative parity with prevailing prices in other markets, what would be the potential annual direct cost saving to domestic oil consumers, and how much of any such savings would in fact be reflected in domestic market prices; Please group the data according to principal market areas and in the following categories: utilities: petrochemical production: other manufacturing; commercial operations: State or local government: households: automobile-driving public: and other transport:

Under the conditions specified, direct cost savings to United States consumers of petroleum products would not exceed $2.2 billion.1

Because a transitional period of severe market readjustments would follow a removal of oil import restrictions, the calculation of direct cost savings is based on supply and demand estimates for a hypothetical year, about 1975, when adjustments to a removal of these restrictions would have been substantially accomplished. While this provides a more reasonable basis, the interim growth in consumption (about 3 percent a year) does lead to an overestimate of the current cost of the import program. Major assumptions in this calculation are: a. Reductions in consumer prices will reflect changes in costs to the major integrated companies.

b. A full $1.40 saving will be realized on all foreign crude oil refined on the East Coast over and above the quotas presently allocated to companies that refine in that area. We further assume that East Coast refineries will operate at capacity and that all new facilities to be added East of the Rockies will be built on the East Coast to maximize the savings available from the use of foreign oil.

1 In a paper entitled "Cost of the Oil Import Program to the American Economy" January 14, 1969, the Department of the Interior estimated this cost saving at $1.5 to $2.0 billion. The estimate offered in response to question 28 is consistent with the earlier figure but reflects U.S. crude oil price increases initiated subsequent to the earlier calculation.

c. Domestic crude oil prices will be reduced $1.10 a barrel to enable domestic crude to meet foreign competition at the Gulf Coast. This will leave domestic crude competitive, or better, in the rest of the District I-IV area. Consequently, refineries in Districts I-IV, other than on the East Coast, will save $1.10 a barrel on their purchase crude oil supplies.

d. On the West Coast domestic crude oil prices will be reduced 95 cents a barrel to be competitive with imported crudes. West Coast refiners will realize savings of 95 cents a barrel on all imports in excess of present allocations and on all purchased domestic crudes.

e. Under uncontrolled imports, integrated companies will produce domestically about half their U.S. refining requirements. Companies that produce crude oil for processing in their own refineries, or for exchange for other crudes which they process, will be affected as follows:

(1) Changes in posted price will have no initial affect on the cost of crude oil which integrated companies produce for their own use.

(2) Integrated companies own most of the production now prorated in efficient fields. They will ultimately benefit from lower unit costs which will result as high-cost fields are abandoned and efficient fields are produced near capacity rates. We estimate that this will reduce average major company producing costs some 40 cents a barrel in Districts I-IV. Cost reduction in District V, where little unused capacity exists, will be nominal, perhaps 5 cents a barrel.

(3) Lower wellhead prices will result in reduced percentage depletion allowances, both because of lower gross realization and, probably of greater significance, lower net incomes. The tax effect will vary from property to property, but the overall tax liabilities may increase some $700 million a year. This higher tax bill is a partial offset to other cost savings.

f. No allowances have been made for changes which would occur in world crude oil prices as a consequence of the removal of U.S. import restrictions. There is considerable difference of opinion concerning such changes. It has been argued that increasing competition among producing countries has been exerted, and will continue to exert, downward pressures on world crude oil prices, and that consequently the cost of the oil import program could be greater than indicated by comparisons based on current prices.

Despite these competitive forces, there has been continuing and successful effort on the part of host producing countries to capture an increasing share of economic rent from crude oil production. Growing dependence of a major consuming nation such as the United States on foreign oil supplies could enhance the bargaining position of producing hosts so that taxes and royalties would rise still further. Consequent increases in costs to U.S. national producing companies would likely be reflected in prices to U.S. consumers. Moreover, tax and royalty increases would be applied not alone to crude oil imported to the United States, but to sales of crude oil throughout the world. Profits of United States national companies would be reduced accordingly, with a consequent adverse impact in the United States balance of payments.

g. Higher imports and lower crude oil prices could be expected to result in lower levels of domestic exploration, development and production. Less natural gas would be found as a by-product result of the exploration for oil and less associated gas would be produced. If levels of gas production and reserves were to be maintained to meet market requirements, higher prices for natural gas, and presumably gas liquids, would be required. The incremental consumer costs of these higher gas prices have not been included in the estimated cost of oil import controls.

If consumer price changes reflect changes in refiners' costs in each area, composite values, of clean products, might be reduced by $0.57 a barrel in Districts I-IV and $0.22 a barrel in District V. It is reasonable to assume that prices of all light petroleum products would be affected alike within a given refinery area. Residual fuel oil prices, already determined by world market prices, would not be affected.

Sector costs of import controls for Districts I-IV and District V are estimated in the following table. Competitive forces and the structure of the petroleum industry, which includes a number of companies of various degrees of vertical integration and geographic diversification, preclude meaningful estimates of local consumer savings within Districts I-IV. It is likely, however, that refiners' cost savings and consequent price reduction would be greatest on the East Coast, which is most strategically located to use foreign crude oil. Moreover, costs savings in inland areas would be partially offset by losses of values currently derived from exchanges of quota allocations.

Mr. PHILLIP AREEDA,

U.S. DEPARTMENT OF THE INTERIOR,
OFFICE OF OIL AND GAS.
Washington, D.C., September 19, 1969.

Executive Director, Cabinet Task Force on Oil Import Control,
Washington, D.C.

DEAR MR. AREEDA: I am transmitting to you nine papers prepared by Bureau of Mines staff personnel concerning technical problems associated with your curreat program of analysis. These professional papers are to be analyzed for their technical contributions, and are independent of the policy position of the Department of the Interior. A summary of these nine papers has been prepared for your convenience.

You will quickly recognize that estimates of the cost of import control to the consumers included in our original submission to the Task Force differ from those in the paper now being transmitted. The two estimates are based upon different economic models and different assumptions. I will oversimplify the differences in order to make this letter brief. The earlier estimate of cost to the consumer assumes that the pricing practices of the oil industry are influenced at the crucial margin by the integrated firm. This influence is crucial now and would be with the abolition of the Oil Import Control Program. After removal of import limitations, the integrated oil firm would have lower resources costs that could be passed on to the consumer only to the extent to which it would substitute imported oil for oil which it now purchases or imports under quotas obtained by exchange. In sharp contrast, the cost derived from CRA methodology assumes that product pricing in the oil industry would be determined at the crucial margin by the independent refiner whose resource cost to him and the nation may drop from over $3.30 to below $2.00 a barrel.

Despite intensive efforts to do so, we have been unable to develop factual evidence to demonstrate which analysis is more correct. I understand that the famous economist Lord John Maynard Keynes once submitted two different analyses because he could not decide which assumptions were more valid. We give you a similar dilemma.

A serious error could be made if public policy options were based on the cost to the consumer, as this could result in much higher-than-necessary resource costs to accomplish desired objectives. The crucial measure for evaluating public policy is the alternative resource cost to the United States as a Nation.

One final reservation about these papers. Our professional editors are blameless for any lack of clarity in these papers inasmuch as we are submitting them without editorial polishing in order that you can benefit from their analyses while you are still evaluating the program. The staff is available to help you in any way possible.

Sincerely yours,

JOHN RICCA, Deputy Director.

TABLE 1.-COST OF STRATEGIC OIL RESERVE-PRESENT IMPORT CONTROL PROGRAM-POTENTIALLY ATTRACTIVE ALTERNATIVE PROGRAMS

1 Assumes an availability of: 5,000,000 barrels per day for 12 months or 1,825,000,000 barrels for the year in 1975; 6,000,000 barrels per day for 12 months or 2,190,000,000 barrels for the year in 1980.

a 105,000 barrels per day available in 1975; 1,000,000 barrels per day available in 1980.

$ 3,500,000 barrels per day available in 1978; 5,000 barrels per day available in 1981; 6,000,000 barrels per day available in 1983 at $1.02 per barrel for case 1; $1.69 per barrel for case II.

100,000 barrels per day available in 1975; 1,000,000 barrels per day available in 1980.

Source: An analytical paper has been prepared for each of the programs (present and alternatives). 3 additional papers were prepared, the results of which have not been summarized in the above table because the analysis demonstrated that they would not be feasible alternatives to the present import program. These 3 papers not reported in the table are: Shut-in Production; Leasing Policy; Elimination of Tax Advantages for Foreign Exploration and Production.

All analytical papers are included as attachments to this summary statement.

TABLE 2-DECADE COST OF THE PROGRAM TO THE FEDERAL TREASURY, 1971-80

$3,491,900,000 Salt dome storage 6 month supply. 5,000,000 bbls. per day in 1975. 6,000,000 bbls. per day in 1980.

$6,982,800.000 Salt dome storage 12 month supply, 8,000,000 bbls. per day in 1975. 6,000,000 bbls. per day in 1980.

$6,035,000,000 Steel Tank storage 6 month supply. 5,000,000 bbls. per day in 1975. 6,000,000 bbls. per day in 1980.

$12,070,000,000 Steel tank storage 12 month supply. 8,000,000 bbls. per day in 1975. 6,000,000 bbls. per day in 1980.

$1,112,200,000 Oil Shale Case I (Improved Tech, in 1979). 105,000 bbls, per day in 1975. 1,000,000 bbls. per day in 1980.

$923,800,000 Oil Shale Case II (Improved Tech. in 1978). 105,000 bbls. per day in 1975. 1,000,0000 bbls, per day in 1980.

$19,844,470,000 Exploration Subsidy Case I. 5,500,000 bbls. per day in 1982. $33,398,240,000 Exploration Subsidy Case II. 5,500,000 bbls. per day in 1982. $1,084,050,000 Oil from coal. 100,000 bbls. per day in 1974 working up to 1,000,000 bbls. per day in 1980.

PROGRAM MIX TO EQUATE MARGINAL COST OF IMPORT PROGRAM AND
ALTERNATIVE PROGRAM

The dollar per barrel cost shown for the "Present Program" is the average cost in excess of $2.00 per barrel, for the entire amount of domestic production attributable to import controls. The marginal costs of this extra production will vary from 0 to $1.30 per barrel.

An alternative to the Present Program would be employed to the extent that the marginal cost of the last barrel of domestic production displacement would just equal the per barrel cost of the alternative.

COST OF THE PRESENT IMPORT CONTROL PROGRAM

The additional oil produced domestically under the protection of the import quota programs, but which would not otherwise be produced domestically is a measure of the security provided by the program. The cost of this program may be thought of in two ways: 1) The cost to the nation in the form of resources consumed to attain the added quantity of domestically produced oil, and 2) the cost to the consumer, which includes the cost to the nation plus transfer payments from consumers to domestic producers and refiners of oil. It is the cost to the nation which provides a measure of the additional labor. capital, and natural resources which are used for the domestic production of oil and which would be freed for other purposes if the import quota program were eliminated. Thus, it is this cost which must be compared to the resource cost to the government (nation) of alternative government established programs which would provide the same amount of security.

If we assume that the inefficiencies due to prorationing would no longer exist by 1975, then the total cost to the nation in 1975 would be $1.02 billion for 1.51 billion barrels of additional domestic production. The resource cost per additional barrel, then, is $0.67. Likewise, by 1980, the total resource cost would be $1.4 billion, or $0.68 for each of the additional 2.07 billion barrels of domestic production. Under the assumption that prorationing would have the same effect in 1975 and 1980 as it does today, if the quota program is continued, and that domestic oil production would only proceed at minimum estimated levels if the quota program were eliminated in 1969, the additional quantity of oil produced domestically by 1975, because of the program, would be 2.17 billion barrels. The total cost to the nation of attaining this additional quantity via the quota is $2.26 billion, or $1.04 per barrel of additional oil. By 1980, the cost to the nation would be $3.14 billion for 3.03 billion additional barrels for a per barrel cost of $1.04.

OIL FROM SHALE

By 1980 the Nation could have an oil-from-shale industry which would be capable of producing at least 1,000,000 barrels of oil per day. To attain this goal it is believed that the Government would have to build three prototype plants that would demonstrate to private industry the viability of present technology. These plants would be designed and built over a 6-year period from 1970 to 1975, at a cost of $415,200,000. Production from the three plants would be 105,000 barrels per day in 1975. The plants would be amortized over a 20-year life