private operators could be guaranteed a price for their output. The annual cost to the government in either case should be equal to the amount of annual output times the difference between the cost of production (including return on capital) and the market price. Using the first generation plant shown in Table J-4, the annual cost per barrel at current prices would be 75 cents or less. At world price the costs would range between $1.35 and $2.10 per barrel of output ($490–$770 per barrel of capacity)." 10 Comparative costs. Any comparison of costs as between standby and operat ing facilities will be sensitive to assumptions about prices discount rates, economic life, and the rate of technological development. A range of estimates is shown in Table J-5. In general it is apparent that for any price much above the world price an operating facility would be cheaper than standby capacity, and even at the world price an operating facility would be cheaper if improvements in technology are realized. The figures shown in Table J 5 are for shale; estimates of the cost of coal synthetics, while less certain, would be similar in magnitude If development began today, it might be possible to have a million barrels of daily capacity by 1980, some of which would embody a first generation technology and some of which would embody an improved technology. Table J-6 presents estimates of the annual costs in 1980 for two possible programs.1 14 The real cost to the economy of subsidizing an operating plant is the difference be tween the cost of output from the subsidized facility and the real or resource cost of pro duction replaced by that output. Thus, if output from a subsidized shile plant Imports the annual real cost would be the amount of annual output times the difference between the cost of crude from shale and the cost of imports. * See generally Interior Department. "Estimated Cost and Produeing Capacity of a Government Assisted Shale Oil Industry. 1970 1980". Submission #155 A. Taken from a letter of the Office of Science and Technology to the task force (Aug 5, 1969) "The figures that someone, possibly the Government and industry working together, will spend at least $60,000,000 per year for severar years for a demonstration plant the 'st of which may not be entirely economic - All costs include a 12-percent rate of return and a rescurce charge for shale of approximately 28 cents per ton (4 cents per barre) of cl). With no resource charge, the Interior Department estimates that of from a 1st generat un plane adig a 12 percent rate of return $2.69 $3 28 per barre Oil from an improved Ist-generation plant w con* $19. $2 33. Gi from such plants would currently se'l in western Colorado at about $3.08 per barrel (she fixin 3 tabie ] 5. suggesting that if the Inter or figures are correct shale would be marginally profitable at current prices. The Interior estimates were derived in 1967 and should probably be regarded as optimistic. * Assumes a 50 cent reduction in miring cost (Interior Department 25 generation plant with approximately 28 cents per ton resource cost added. The figures are after deduction of 97 cents for byproduct credit. TABLE J-5 --ANNUAL BUDGETARY COST OF SHALE PLANTS PER BARREL OF CAPACITY 1interest and amortization of capital only. 10-percent discount rate 1 Annual cont equa's the cost of production less the value of the output, costs taken from table J-4. > The interior Department est mated in 1968 that the value of shale oil in western Colorado was $3.08 Since then the prices! domestic iniutes has risen, and the value should now be somewhat higher Standard Oil Co. (New Jersey) however continued to use the $3 08 va ue for shale (submission *125 D. p. 39), and for lack of better information we have to umed its practice edures approximate y $140 resource charge for shale Aindicates commercial pinduction without subsidy should be profitable when this technology becomes available Estimated world price equivalent in 1980 for shate o i in western Colorado Assumes the price of 30 Lousiana crude would be $2 19 per barrei in the Midwest From this a quality debit of Șu 29 and a transportation charge of 30:25 hæve ernment sabuły equal to the differences between the market price and the cost of production (including an investment). Basic costs are taken from table J-4 and include a resource charge of $3 38 0 40 per generation technology, 403,000 barrels of improved Ist-generation technology st generating technology, 690,000 barrels of improved ist generation technology are evalent in Western Colorada for shale (see footnote 3, table ) 5) ice equivalent in 1980 for shale oil in western Colorado (see footnote 6, table J. 5). Mr LINCOLN. People have been looking hopefully at oil shale for the, of course. VM CLURE. There have been various predictions in the past conthe technological advances of oil shale, have there not? the State Department experts who provided the input in reFord to actions and reactions of foreign government in regard to oil et the tariff proposal? T M LINCOLN. Well, the answer is yes, because the Secretary of State d to the system, but as you know, stated that he felt that "'d have consultation with our allies. MMCTURE. May I interject here, your answer worries me just hes ause you put a condition on it. He says, my answer is ves the Secretary supported it. My question is related to whether xperts supported it. Irly trying to distinguish between the unnamed experts had identified earlier as distinct from the Secretary of State. FrNoor N. I was groping a little bit as to who constitutes experts Ipartment of State, because I suppose any foreign service •d be called an expert. He certainly would like to be called exert in foreign service matters. I am frank to say that I do not feel I can give you a very reen-wer on that. Certainly, the Assistant Secretary of State, resented Secretary Rogers most of the time during the cabinet nafore deliberations, believed this, and their staff people made ffat and analysis. They might well tell you, if you question at they did not formulate the conclusions. T Id, if I may, like to read into the record the Secretary of - LINCOLN. The Secretary of State considers that changes in the ty-tem are required and that the proposed new system rep ove in the desirable direction. He emphasizes, however, anges in an oil import program of long standing might serious adverse reactions which could have an important on national security. fore final decisions are made, therefore, this consideration d be taken into account. Consultations with other governments t to the proposed changes can take place only after this - been submitted to the President. He therefore joins in the force report, subject to the reservation that full consultations operators could be guaranteed a price for their output. The annual cost ernment in either case shon d be equal to the amount of annual output Le diference between the cost of production (including return on capital) The Darket price. Using the first generation plant shown in Table J-4, the stan, cost per barrel at current prices would be 75 cents or less. At world price the comta mol, 4 range between $1.35 and $2.10 per barrel of output ($490–$770 per barrel of capacity).“ ju koruarat se costs. Ary comparison of costs as between standby and operat ing farities will be sensitive to assumptions about prices discount rates, ecotome life and the rate of technological development. A range of estimates 1× shown in Table J 5. In general it is apparent that for any price much above the work | Taman orating facility would be cheaper than standby capacity, and en at the world price an operating facility would be cheaper if improvements in techil, nogy are realized. The figures shown in Table J. 5 are for shale; estimates of the cost of coal synthetics, while less certain, would be similar in magnitude If development began today, it might be possible to have a million barrels of dalis capacity by 19×0, some of which would embody a first generation technology intel mate of which would embody an improved technology. Table J-6 presents extiluates of the annual costs in 1980 for two possible programs. • The real cost to the economy of subs.dizing an onerating plant is the difference be et of ontput from the wibsidized facil* and the rest or resocirce cost of it spot, and by that output Thas if ostpit from a subsidized side part mrtav d a' real cost would be the amount of annual outpat tins the differe bet meer, the cost of crude from shoe and the cost of imports 1 Interior Department. "Estimated Cost and Prodneing Capacity of Government A--isted Shale Oil Industry, 1970 1980”, Submission #155 A. 1 Taken from a letter of the Office of Science and Technology to the task force (Aug. 5, 1969). The figures that see By the Government and industry working together w spend at least $60 000 999 per year for severa year at the "st of which may not be entirely economic ** A „ude a 15 percent rate of return and a resource charge for shale of approximately 28 cents per tcm (4" ช่ i) Withing resource charge, the Interior Department estimates that oil from a 1st gerent de pa 25 ga 12 percent rate of return $2.69 $3.28 per barre! Oil from an improved 1st-generation plant w from_nach plants would currently se'l in western Colorado at about $3.68 per barre (she figh keit g that the interior figures are correct shale would be marginally profitable at current prices. The were derived in 1967 and should probably be regarded as optimistic et refaction in mining cost {,*°a! ! ¥ge a¥ pant with approximately 28 cents per ton resource cost added The figures are after fe fuct of 97 certs for byproduct credit. TABLE J 5 ANNUAL BUDGETARY COST OF SHALE PLANTS PER BARREL OF CAPACITY A The se the i citurfyon less the value of the output, cests taken from table J-4 Dæk that the value of share out in western Co crate was $3.08 Since then ma whe somewhat higher Standard @ Co (New Jersey) howeve d value for shale (submission *1.5 0 p 39) and for lack of better information we have fo dx mate v $14) rescurce charge for shale without suhe ty should be proftat'e when this technology becomes avalable western Coral Assumes the price of 300 Lounana crude the Midwest From this a qua ty debit of $129 and a transportation charge of S TABLE 3-6 -SUBSIDY COST PER BARREL OF SHALE OIL IN 1983 1 Case 1 1 Case II $0.00 $0.27 $0.00 $0 07 55 115 90-1.40 ruernment subsidy equal to the differences between the market price and the cost of production (including investment). Basic costs are taken from table J 4 and include a resource charge of $3 38 0 40 per of 1st generation technology, 40):9000 barrels of improved Ist-generation technology ie afst generation technology, 690.000 barrels of improved 1st-generation technology e equivalent in 1980 for shale oil in western Colorado (see footnote 6, table J 5). Mr. LINCOLN. People have been looking hopefully at oil shale for me, of course. Mr M&CLARE, There have been various predictions in the past conthe technological advances of oil shale, have there not? in the State Department experts who provided the input in reziti to vetions and reactions of foreign government in regard to oil the tariff proposals? M: LINCOLN. Well, the answer is yes, because the Secretary of State -red to the system, but as you know, stated that he felt that x-son,'d have consultation with our allies. Ve McClure. May I interject here, your answer worries me just because you put a condition on it. He says, my answer is ves the Secretary supported it. My question is related to whether xperts supported it. I really trying to distinguish between the unnamed expertve had identified earlier as distinct from the Secretary of State. FINcory, I was groping a little bit as to who constitutes experts the Ipartment of State, because I suppose any foreign service 1 be called an expert. He certainly would like to be called xert in foreign service matters. I am frank to say that I do not feel I can give you a very re- answer on that. Certainly, the Assistant Secretary of State, rs: re-ented Secretary Rogers most of the time during the cabinet fre deliberations, believed this, and their staff people made of fut and analysis. They might well tell you, if you question .• ́at they did not formulate the conclusions. 'd, if I may, like to read into the record the Secretary of M LINCOLN. The Secretary of State considers that changes in the rt system are required and that the proposed new system repove in the desirable direction. He emphasizes, however, test changes in an oil import program of long standing might e serious adverse reactions which could have an important gon national security. tfore final decisions are made, therefore, this consideration I be taken into account. Consultations with other governments respect to the proposed changes can take place only after this as been submitted to the President. He therefore joins in the force report, subject to the reservation that full consultations State fully to assess the national security and foreign policy ramifications of the proposed changes, and the Department may submit to the President further suggestions for an amendment to the program in the light of those security considerations. Now, that is his statement. May I make two points in connection with that statement. If you read the press statement on the President's views, you will have, of course, noted that he directed the Secretary of State very explicitly to get forward with these consultations, and also the Secretary of Defense in connection with our military allies. I will note that in my own prepared statement this morning, I did mention that I and the Oil Policy Committee, in going forward with our work have to be very close to the Secretary of State and pay close attention to the consultations he is undertaking as he goes forward. Mr. McCLURE. It seems to me if this is a policy statement that is shared widely within the Department of State, that it represents a significant reversal of the policies within the State Department that supported the Kennedy Round tariff negotiations, in which tariffs now will figure in U.S. policy. If this is true, then it has some implications for other commodities which are imported into the United States, and also has some security implications I should think. That is the reason I asked the questions, because I think those of us who are interested in this problem are looking for some guidance as to directions which this administration might be headed in this field. Mr. LINCOLN. I know to what you refer. I am not an expert on the Kennedy Round or GATT, but know something about them. But I will say that I believe there is an exception in these agreements, an exception for restrictions for national security objectives, and we are here talking about a policy and a program that is based on security. Mr. McCLURE. There are other commodities which have similar considerations? Mr. LINCOLN. There are other commodities that ask for similar considerations. Mr. McCLURE. There is one further question that I would like to ask, and that is whether or not the task force in determining the levels of import of foreign oil considered the demand for natural gas within this country. Mr. LINCOLN. You make a comment on that, but may I go back to your previous question and just make the comment that, from the standpoint of Kennedy Round and GATT, I think most people agree the quota system is more restrictive than a tariff system Mr. McCLURE. And most foreign countries use several other devices, including quotas, and we have not. Mr. LINCOLN. Yes, most foreign countries are at least as sophisticated as we are in this business. Now, on gas, there is a considerable discussion in the task force report of the relationship of oil and gas, particularly from a standpoint of exploration. In fact, there is considerable discussion as to how much gas is discovered incident to exploration for oil. Also, we had a con |