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The test for companies invited to participate in the plan of action was their participation in foreign operations "big and little."
Companies participating in the plan do not produce all the oil needed for export-they buy from other sources.
It is generally the case” that he has no authority to increase production--that is up to the States. He does have authority under the Defense Production Act to direct American oil and American ships to receiver that best suits the Government's program. Prior to adoption of the plan of August 10 thought was given to use of these powers, but it was felt it would be too limited in scope.
It is contemplated the MEEC members will participate in some arrangements with foreign companies.
In the planning stage of this program they had considered no alternative plan of any kind.
Dr. Flemming had testified before the Senate Banking and Currency Committee in spring of 1955 as to the necessity for this type of plan, and was backed up by Interior, Defense, and State Departments. Said then he knew of no feasible alternative.
Inserted portion of a letter to the Attorney General elaborating on this position.
Under the arrangement referred to in the letter the Government could compel companies to take action it thought necessary-within limitations. Present voluntary plan allows for no compulsion.
The hearing in November showed that if there had been no Middle East crisis he would have had "no alternative but to certify to the President that the import situation constituted or threatened to impair our national security.'
In reply to a question as to the success of the August 10 plan of action, Dr. Flemming said "that it is a little bit early to make a complete and fair evaluation of the results of the action taken under the plan of action.” Summarized what MEEC had done.
In the summary he emphasized that MEEC had been reactivated on December 3. Sehedules of action prepared by companies were forwarded to the Secretary of the Interior and schedules were issued by him on December 7—“the members of the Committee immediately began making cooperative arrangements to implement them.”
Mideast supplies to the United States and Canada have decreased because of diversion to Europe.
Movement to Europe could not have been accomplished without the pooled knowledge of MEEC.
Had never figured the 500,000 barrel per day estimate of shipments to Europe would be all crude, but had "assumed that a larger percentage of it would be crude than has proved to be the case.” The lack of crude is really the serious problem confronting Western Europe at the present time.”
One provision in the plan of action is that there shall be no deficiency in United States supplies.
The voluntary plan “has produced certain favorable results," one of which is the effective pooling of tanker facilities. Another is increased shipments to Europe.
They have never established a goal, but rather have tried to estimate what could be done.
Senator O'Mahoney read from a release issued by Assistant Secretary Wormser pointing up severe shortages of distillates
and fuel oils in Europe but ample supplies of gasoline.
Mr. Flemming is not happy about the total results," however.
Senator O'Mahoney read a statement attributed to Secretary Dulles that oil shipments are moving better and no appeal from the President for increased shipments will be necessary.
Mr. Flemming reiterated his agreement with Mr. Wormser's estimate of a shortage of 25 to 30 percent of fuel oils.
In outlining his disappointments, said time sequence and complexity of industry should be kept in mind as well as the fact that the operation had been in effect only a couple of months. About mid-January it became apparent shipments were inadequate.
He is disappointed about the lack of adjustment in refining operations after appeals to the companies to cut back gasoline production.
Indicated they had authority under the Defense Production Act to issue orders to refiners, but believe it unwise to use that authority.
Is also disappointed that shipments from Venezuela to United States have increased, when the run from Venezuela to Europe is shorter than from our gulf coast.
He feels disturbed about the Venezuelan imports as to whether or not we are developing some patterns here that are going to be very difficult to live with when we move into a more normal period.”.
Although he recognizes the States' problems, he had hoped allowables would have been increased to a greater extent. Is confident the States "will reappraise their positions in the light of the facts that are developing.'
Although problems have arisen under this voluntary program, he is not sure but that "results may not be better" than setting up a governmental organization to deal with a short-range emergency. It is hoped it will be short range.
Normal-size tankers should be able to move through Suez shortly after clearance for smaller-draft ships. Understands the repair of the pipeline is more a political problem than opening the canal, which is more an engineering problem.
Thinks the hearings are valuable because they turn the spotlight on facts the country should know.
Dr. Flemming believes if this plan had been attempted as a Government operation instead of a voluntary plan it would have required additional legislation.
Assuming authority existed without additional legislation, he believes the plan could not have been operative in under 6 months.
There is no authority in the price field-no standby laws dealing with price controls on the statute books. Therefore, is not proper for him to comment on the price situation.
Speaking as a "citizen”, he said it is “healthy' to inquire into reasons for the price increase.
Imports have not endangered domestic production so that it is impossible to deal with present crisis. Prior to putting the plan of action into effect, representatives of State commissions were invited to Washington where, it is his recollection, they said they could step up production by 274 million barrels a day, at least for a short time.
The proportionate relationship between domestic production and imports was set up to deal with future problems.
If a point were reached where they felt the price situation was impairing the national defense position, they would then be obliged to present problem to Congress with recommendations. If it were at any time necessary to return to price controls, however, one commodity should not be singled out. At present time, it is their judgment they do not need price control authority.
To the best of his knowledge, there was no discussion regarding the possible price of crude oil shipped to Western Europe.
Attorney General has announced he is looking into price increase question.
Felt he could not answer question as to whether price increase made it more profitable to refine in this country than to ship crude abroad. Felt this was being examined by the Attorney General in connection with present investigation.
Under voluntary agreement, companies must make proposals to the Government and have them approved. If they are not approved by the Government, "then they have no immunity as far as antitrust prosecution is concerned.” They must, therefore, be careful of their recommendations.
Authority for control of refinery runs is title I, section 101 of Defense Production Act.
Senator O'Mahoney commented on increased prices and inflation, stocks of crude oil above ground and maintenance of refining quotas.
Dr. Flemming said it is their judgment the Government should not make, and has not made, any official contact with the Texas commission.
Felt it would not be within the authority of MEEC to ask companies shipping to the United States from Venezuela to divert to Europe. However, if companies decided to divert“it would be within the purview of the committee to work out a pooling of transportation resources that would make that possible."
If, however, Venezuelan imports were on the increase, it could be called to attention of the companies for discussion.
The Government would “think twice” before making specific proposals to MEEC.
Under the plan of action companies do not have to take any action detrimental to their own economic or financial interests. If the profit motive so dictated, they could take action inconsistent with objectives of the plan. This does not imply that they have.
Discussion prior to plan of action was held with all agencies involved with the exception of the Federal Trade Commission.
Dr. Flemming does not feel Government has no obligation to talk with individual companies about the problem of diverting Venezuelan oil to Europe.
He is sure some MEEC members are in Venezuela; assumes all of them are.
WEDNESDAY, FEBRUARY 6, 1957
Activity in oil crisis has been based on our security interests and the knowledge that "economic and industrial security of our friends in Western Europe is necessary for the preservation of peace.” The interest of the President “is directly attributable to its impact on world peace.
Secretary Wormser said “It was futile to mechanize Western Europe if petroleum could not be made available to it.” European demand for petroleum products is increasing at about double the rate of United States increase.
United States crude oil reserves are estimated at approximately 33 billion barrels; a 1955 estimate of Middle East reserves, made for the Joint Atomic Energy Committee, was 230 billion barrels. Seven percent of the oil located in the Middle East has been taken out of the ground; it has been estimated that oil so far located in the Middle East is no more than half what is there.
Estimates of the oil resources in the Western Hemisphere equals only one-half that of the Middle East. We will find enough reserves to supply our needs indefinitely, but Western Europe must rely on the Middle East.
Cited production figures.
October stoppage of oil flow through canal and in pipelines left no time to make long-range plans to help Europe.
"In the circumstances and guided by the customary United States policy of interfering as little as possible with the operations of our commercial enterprises, we called upon our oil industry engaged in foreign operations as the best equipped immediately to contribute to the solution of this problem. We asked it, in the interest of the security of the free world, to work under Government direction and supervision.”
Major problem of supply was marine transportation.
Mr. Stewart said that under the amendment to voluntary agreement of May 8, Foreign Petroleum Supply Committee could not collect information on foreign problems for the Government–the Government had to do it. Because of the emergency, "we had to set up in the plan of action this method whereby the committee itself could again resume the collection and analysis of information dealing with the foreign petroleum problems.”
At this time, they were dealing with the old Foreign Petroleum Supply Committee. Its activities, however,"were considerably hedged by the amendments of the agreement ***"
In effect, this committee was a committee in name only on August 7,
Members of FPSC were substantially the same as those of MEEC.
Some members of FPSC met with “us” in New York, were requested to prepare the plan and did. Mr. Stewart brought it back that dayAugust 7. “We had the plan of action which had been in effect during the Iran crisis as a framework on which we could start. And we had the best minds of the representatives of the companies working continually on that plan for the 1 entire day."
The following 3 days were spent in discussions with Departments of Justice, State, Defense, and ODM. Also called in oil company attorneys to help refine the plan.
Draft of the plan was prepared by Interior and lawyers of oil companies. On August 8 a draft was presented to the Attorney General and he raised some objections. These were resolved and the Attorney General approved the plan on August 10.
The FPSC was limited to advising the Government how information could be collected-it could not collect it nor examine any materials that went into the Government statement. This was designed to prevent participating companies from exchanging information-it was antitrust safeguard.
In February 1956 the Attorney General said he would have to withdraw approval of the plan unless safeguards were included in foreign petroleum supply agreement. The companies agreed to participate on this basis.
At the time safeguards were included it was agreed that in case of an emergency the restrictions would then be reconsidered. When the emergency arose they went to the Attorney General “to get his approval of a plan that under those conditions would be acceptable to him and which he could approve.”
Mr. McHugh asked if it weren't true "that the Attorney General stated that this disclosure of individual company information to the other members of the committee had the possibility of permitting the companies to continue the illegal agreements to divide the world market, as charged in the Department of Justice oil cartel suit?”
Mr. Stewart said he felt he was not "a competent witness as to what the Attorney General may have had in mind, or what he was seeking to accomplish. Pointed out this had been said in February 1956, long before the Suez crisis arose.
Recalling from memory, Mr. Stewart said Superior Oil Co. had been a member of the FPSC but not of MEEC; that Tidewater Associated and American Independent Oil Co. had been added.
Chronological sequence leading to endorsement of plan of action.
The plan, as set up on August 10, 1956, did not contain the amendments originally insisted upon by the Attorney General and contained in basic agreement of May 8. Mr. Stewart said: “The specific restrictions that were built into the amendments of May 8 were in turn built into the plan of action, but under certain provisos that would permit under special approval certain actions to be taken that could not have been taken under the amendment of May 8.”
Mr. Wormser said they have found it very difficult to find suitable individuals to represent independent domestic refiners and producers on MEEC, but one has been added and another has said he will serve.
Had hoped to get representatives of independent associations to serve.
August 22 MEEC was asked to start obtaining necessary data to estimate supplies needed and available. Was also asked to make recommendations regarding petroleum stocks and to prepare schedules for foreign operations.
No schedules were actually prepared until after Suez closure, but planning data were assembled and analyzed.
“* * * The plan also authorizes cooperative action in foreign petroleum operations by the participants and other persons designated by the Administrator in schedules issued under the plan."
As Acting Secretary and, thus, plan administrator, he found that "a substantial Middle East petroleum stoppage existed" on November 30, and the schedule phase became operative. This action was taken after the President had consulted proper officials and asked the Secretary of the Interior to let the United States petroleum industry coordinate their efforts to handle the oil supply problem.
Page 74 Principal purposes of amendments Mr. Wormser submitted to Director of ODM on November 29 were:
(1) To give greater flexibility and efficiency in operations under the plan while retaining full control by the Government;
(2) To include within terms of the plan actions necessary for domestic activities, and;
(3) "To the extent desired by the Government, to enable participants under the plan of action to take part in programs or actions requested by the foreign governments or agencies of foreign governments." Mr. Wormser approved and issued schedules 1 and 2 on December 7.
Set forth the criteria adopted for passing upon proposed schedules. 75 Gave program provided for under schedules 1 and 2.
Amendments to these schedules were approved on February 4. Schedules 3 and 4 were approved and issued January 24.
Listed their provisions. 76 Participants in the plan report individual actions taken to further
programs contained in schedules. These reports are gone over by a review committee. This committee “is chaired by the director of the voluntary agreement, an employee of the Office of Oil and Gas, and is comprised of representatives of ODM, Justice, State and Defense.
The problem of European distribution has been taken over by the Office for European Economic Cooperation, which in turn has an advisory group known as the petroleum emergency group. State has guided the Government in relations with OEEC.
Schedule 4 provides for rearrangement of pipelines in the United States. Those able to use these facilities "felt that they ought to have antitrust immunity if they were even to discuss that with their competitors.”
On February 5 he instructed the Vice Chairman of MEEC not to take action under schedule No. 4 without at least 72 hours' notice, so that plans might be disapproved. Also reviewing schedule No. 4 to assure it does not damage domestic interests.
Those who would participate in these domestic pipeline arrangements are primarily MEEC members. Mr. Stewart said other companies that might be brought into the arrangement could be designated as par
If independents were designated as essential to this transaction they, too, would get antitrust immunity. If this pipeline arrangement had an adverse effect on domestic industry, "the Administrator would have no choice except to disapprove such a transaction.” Is the responsi
bility of the Administrator to determine if there are adverse effects. 78 Schedules 2 and 4 have resulted in specific action within the United
States pursuant to August 10 plan of action.
Mr. Wormser said, although tankers were a problem, if there were more oil in the United States they could get it to Europe.
Crude has been drawn from stockpiles until the stockpiles are precariously low. The Department has suggested that less crude be refined
so that more may be available for shipment. 79 Has become more optimistic in last 48 hours about diversion of
Caribbean oil to Europe.
If imports were reduced, perhaps the Gulf States would increase their
Allowable could be increased to provide for day-to-day needs. Mr. Stewart said a "substantial amount" of increased production would come from small producers.
Mr. Wormser said the Committee had not discussed the possible plight of small producers at the end of the emergency if they stepped up production now. Believes “It has no part in this present Middle
East emergency." 81 Solution of import problem is in Dr. Flemming's lap--not Mr.
Mr. Wormser's. 82 Oil and Gas Division, center of this operation, has a staff of only 33,
which necessitates help from industry. 83 Was necessary to have industry people even though some were from
firms involved in the cartel suit. If those were eliminated, they would have almost no foreign experts to draw upon.