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comes immediately available to the military services to replenish their oil supply.
Mr. SHORT. Yes, but you can't burn money in motor cars and Diesel engines. If we have such an acutely short supply I should think we would hold onto it, preferring the oil to the money. It is just like a man facing hunger or starvation. He can't eat his dollars, or wear them.
Colonel VOGEL. On the urgent request of the Greek mission to the Department of State, a request was acceded to to supply the oil as a matter in furtherance of State Department policy. It amounts to about one-third of all the oil now going into Greece.
Mr. SHORT. Well, on that same type of subject, do you think that the petroleum requirements of the Marshall plan, under the Marshall plan, will come from military stocks, or Navy drafts now being taken from Saudi Arabia or out of United States civilian consumption?
Colonel VOGEL. The State Department officials who have testified on this subject indicate that the military services would not be requested to supply through military channels those quantities of petroleum. Mr. SHORT. So it will have to come out of domestic consumption, of people here at home?
Colonel VOGEL. The means of effecting the purchase I do not know. The State Department has that.
Secretary FORRESTAL. I think the source is the Middle East for that oil, Mr. Chairman.
Mr. SHORT. Provided that supply isn't cut off by the serious political upheaval in the Moslem world.
Secretary FORRESTAL. That is always a question.
Mr. DURHAM. When they make a request for release of this oil, Mr. Secretary, you have the right to say "yes" or "no" as far as the armed services are concerned?
Secretary FORRESTAL. Subject to the President, yes.
Mr. SHORT. In the event this supply in the Middle East is cut off, isn't it reasonable to assume that we will have to go to work, and we better go fast, on the production of synthetic fuel, expensive as that process is at the present time?
Secretary FORRESTAL. I certainly believe that we should pursue that field and that work should be done on the pilot plants in whatever field of synthetics a possibility of practical result is indicated.
Mr. SHORT. We should do that regardless of the world situation. Secretary FORRESTAL. Yes.
Mr. SHORT. We are very happy to hear you say that, Mr. Secretary, because I think most of the members of this committee have the distinct feeling that we are very tardy and far too late already in the development of synthetic fuel. I don't care what the oil companies or anyone else say about it, we had better play safe. We were confronted, as you know, at the beginning of this last conflict with the rubber situation in quite a mess, until Bill Jeffries brought out some semblance of order from all the chaos.
Secretary FORRESTAL. I think it is fair to say that there are industrial projects now which are being pushed, I think, with considerable vigor.
Mr. SHORT. Are they receiving aid or assistance from the Government?
Secretary FORRESTAL. I think the Department of the Interior is informed of them. I think Mr. Krug feels that they should proceed with somewhat greater speed.
Mr. SHORT. Of course, synthetic fuel being a new product, it is just like the first automobile made, or the first plow, or anything else. The cost is enormous. But when you get the machinery going and you have mass production, the price automatically drops.
Mr. KILDAY. Right on that, how cheaply did the Germans get to producing it, do you know?
Secretary FORRESTAL. We have figures on the per-barrel cost once the capital installation was completed, which unfortunately we do not have available.
Colonel VOGEL. Various estimates run from $2 to $8 per barrel depending on the economic factors used in computing price.
Mr. KILDAY. You are paying $2.12 on the Gulf coast now for crude. Secretary FORRESTAL. But, mind you, I want to register the fact that that is the cost after you have got your plant built, and the plant, as I say, is eight billion dollars or ten billion dollars.
Mr. KILDAY. That is right.
Mr. SHORT. And since steel is in short supply we will have to decide whether or not we will give a steel priority to these plants.
Mr. KILDAY. Of course, you will handicap exploration at the same time, if you take steel from the wildcatter.
Mr. SHORT. Of course.
Secretary FORRESTAL. Everything dovetails with everything else, it is unfortunate.
Mr. SHORT. Absolutely.
Secretary FORRESTAL. I think, Mr. Chairman, the important thing is to have the practical and commercial usability of synthetics fully demonstrated. That is the advantage of a pilot plant now.
Take our experience in synthetic rubber. We knew from contacts that Standard of New Jersey had with the Germans, for example, that it was quite possible, but the gap between the scientific knowledge and commercial production for tires was quite a long gap and all of the element of chemical and physical considerations that came into the usability of synthetic rubber took, as you know, a substantial time. Mr. SHORT. Which makes it all the more important that we get to work on this job, before the next war.
Secretary FORRESTAL. So it seems to me, sir.
Mr. SHORT. Or emergency.
Mr. DURHAM. Operation of the synthetic rubber plants now is somewhat slowed down because of the shortage of the feed material, which is oil.
Secretary FORRESTAL. Which is what, sir?
Mr. DURHAM. Because of the oil shortage.
Secretary FORRESTAL. Yes. There is a relation between them, of
Mr. SHORT. You have to have oil to make rubber, and you have to have steel to produce oil. It hits you in the face at every turn. Mr. COLE. Mr. Chairman
Mr. SHORT. Mr. Cole.
Mr. COLE. I am curious to know, if it is projected that the production of Arabian oil will double in the next 2 or 3 years, presumably
largely with American capital in view of our present sharing of that production on approximately a 50-50 basis, why it is that it is not projected that we should share in that increased production? I understand that the present production is roughly 750,000 barrels. We are getting roughly 400,000 barrels. During the next 2 or 3 years it is expected that production will increase to 1,500,000. Yet we do not anticipate sharing in that increased production. Why is that?
Secretary FORRESTAL. Well, it will be proportionate to our investment and to our effort, taking into account the availability of pipe lines, tankers, and so on. I don't think there is any restraint except that which would be imposed by our own decisions, and those decisions, of course, are made by the companies that are engaged in that development.
Mr. COLE. Well, do I understand correctly that our people who are interested in Arabian oil have decided to expand productive facilities there to the extent of doubling the capacity and yet they don't anticipate bringing any of that increased production back here?
Secretary FORRESTAL. I think it is simply the projection of world needs, of world transportation, and other factors. You take oil from the source where it is most economical to get it. I think that projection is simply a general economic statement of the future. I don't think it is a denial. As I said earlier, every time you talk oil in one part of the globe it bulges out somewhere else. The success of the European recovery plan, for example, will be dependent upon availability of oil among other energy fuels. To the extent you can get the German coal mines back and maintain increased production of coal in Great Britain, and other parts of Europe, that tension may be somewhat relaxed, but it will not be relaxed enough to modify the need for oil.
Mr. COLE. I recognize, of course, that the needs of other countries must be considered at the same time we consider our own, but if it is our policy in peacetime to buy all the oil from foreign sources that we possibly can it does seem to me that we should have in mind sharing this increased production from foreign sources which is a direct result of our own capital investment.
Colonel VOGEL. If oil is made available from the mideast to Europe, it may make more oil available to the United States from the Caribbean area.
Mr. COLE. Well, is that the reason why we don't expect to share' in the increased production of Arabian oil, because through that increased production the demand on domestic and Caribbean oil will be relaxed, and we will increase
Colonel VOGEL. From the standpoint of transportation, it is almost axiomatic that that will be the case.
Secretary FORRESTAL. In 1938, Mr. Cole, our offshore shipments were at the rate of 193,000 barrels a day. If we don't have to make offshore shipments, for whatever reasons may develop, obviously we benefit by the supply of that European need from some other source. Mr. COLE. What do you mean "offshore shipments"?
Secretary FORRESTAL. I mean shipments outside the country.
Secretary FORRESTAL. No; shipments from this country abroad.
Mr. SHORT. Do you have any way of knowing, Mr. Secretary, or would you be free to give us even a rough estimate as to the total output of oil by Soviet Russia at the present time?
Secretary FORRESTAL. There are estimates of their reserves, which are in the order of seven billion barrels. I do not think there are any solid figures. The guess on Soviet crude production in 1947 is 457.000 barrels per day or about 52 percent of the world production. Mr. COLE. Is that territorial reserves?
Secretary FORRESTAL. No.
Mr. COLE. Or sphere of influence reserves?
Secretary FORRESTAL. You mean Russia and satellites?
Mr. COLE. Yes.
Secretary FORRESTAL. It is Russia alone.
Mr. COLE. Do you have a comparable figure for the Balkan area? Secretary FORRESTAL. In the Balkan area, Rumania is the only country with oil production and reserves of noteworthy volume. Her one-half billion barrels of proved reserves are about 34 percent of the proved reserves of the world and her production in 1947 of 28.5 million barrels accounted for slightly less than 1 percent of the world's production for that year.
Mr. SHORT. SO, Mr. Secretary, it is true that although our petroleum situation may leave a good bit to be desired, and is not all that it should be, neverthless in comparison with other countries our situation is quite favorable, is it not?
Secretary FORRESTAL. Yes.
Mr. SHORT. On the other hand, will we be able to maintain this favorable condition or will it steadily decline in the light, perhaps, of new discoveries in other parts of the world?
Secretary FORRESTAL. I don't think one can say with any confidence. that it can be maintained. The factors of the speed of development by other countries-for example, how fast Russia acquires the technique of drilling for oil—
Mr. SHORT. In other words, time is on her side rather than on
Secretary FORRESTAL. I would say so.
Mr. SHORT. And we should act with great caution, bearing that in mind all the time?
Secretary FORRESTAL. The answer is yes.
Now, I don't want to leave the implication that I want to see Russia denied. I think that to the extent they can get oil in her territory it will relieve world tension and world shortages. I do not want to make any ideological inferences, but whether you can get oil under a system where somebody tries to run the exploration and drilling from one center of government, I doubt.
Mr. SHORT. Just one or two brief questions, on the new administrative organization to handle service petroleum needs. You are creating an Armed Services Petroleum Board, as I understand, and then an Armed Services Petroleum Purchasing Agency?
Secretary FORRESTAL. Yes, sir.
Mr. SHORT. Would you elaborate on that just a little, or clarify at least for my own benefit the difference between the two. Is there overlapping or duplication?
Secretary FORRESTAL. NO.
Mr. SHORT. Or will there be a single head who will have final authority?
Secretary FORRESTAL. I think the thing you are mainly interested in is whether or not there is some central purchasing source.
Mr. SHORT. That is right; which was one of the great arguments for unification of the services.
Secretary FORRESTAL. That is right. That is the Armed Services Petroleum Purchasing Agency. That is an active and functioning business agency for buying oil for all the services. The Petroleum Board handles broader matters of general policy.
Mr. SHORT. It is the purchasing agency that will allocate the different amounts to the different branches of the armed services: so much to the Army, so much to the Navy, and so much to the Air Force?
Secretary FORRESTAL. Well
Mr. SHORT. Who is going to allocate it? The Army will come along here and say, "You are not giving us enough for our tanks." The Air Force will say, "We need more for our bombers."
Secretary FORRESTAL. Those questions of broad policy will be mainly dealt with by the top board, which is the policy board. The purchasing agency will execute the decisions.
Mr. SHORT. Of the Board?
Secretary FORRESTAL. Of the Board.
Mr. SHORT. I see.
Secretary FORRESTAL. Is that a fair statement?
Mr. SHORT. Mr. Secretary, we have kept you much longer than we had intended, but we appreciate very much your presence here this morning, and the fine presentation that you have given us. It is a pretty clear picture of the over-all problem. We had hoped to hear Mr. Max Ball today, of the Department of the Interior, but it is impossible. He is a man with a fund of information and knows this problem from A to Z, so since we have no hearing of the full committtee tomorrow, Tuesday, the regular day for the full committee, we are going to have a meeting of this committee at 10 o'clock in this room tomorrow morning to hear Mr. Max Ball. I am sure that he will contribute a lot for our benefit.
The committee stands adjourned until 10 o'clock tomorrow morning. Secretary FORRESTAL. Thank you, Mr. Chairman.
Mr. SHORT. Thank you very much, Mr. Secretary.
(Whereupon, at 11:53 a. m., the subcommittee adjourned to Tuesday, January 20, 1948, at 10 a. m.)
[ Office of the Secretary of Defense. Immediate release, press and radio, February 19, 1948. No. 25-48]
SINGLE AGENCY TO PURCHASE PETROLEUM FOR ARMED FORCES
Secretary of Defense Forrestal announced today the establishment of the Armed Service Petroleum Purchasing Agency to buy all petroleum and petroleum products for the armed forces, and the reconstitution of the Army-Navy Petroleum Board as the Armed Services Petroleum Board with planning and coordinating responsibilities.
With the establishment of the Armed Services Petroleum Purchasing Agency, the buying of petroleum products for the Army, the Navy, and the Air Force is concentrated for the first time in a single operating agency. Prevously, a Joint