Page images

Page 459 Some of the independent refiners have some production; many of

them have none. His company produces about one-sixteenth of its daily requirements.

The independent is faced with two problems--one the surplus of gasoline which depresses the market prices, and his uncertainty as to how long "he can pass on to the buyers of his products the recent increases

in his costs represented by the hike in the price of crude oil.” 460 Some of the integrated companies might be able to absorb the price

inerease of crude, especially those with foreign production. 461 If, as a result of the Suez crisis, the emphasis were to be on shipments

of crude to Europe with a probable price rise the independent would suffer. They, therefore, asked the Government to consider the independents' situation in any plan that would be devised to meet this crisis. "But, from July until early January, the program design apparently proceeded without regard to the refinery position. We were foreclosed from access to the data which would permit us to help or to make

specific, informed, and constructive suggestions." 462 “On January 4, 1957, the proffered cooperation was for the first time

accepted by the Government.” Senator O'Mahoney said Secretary of the Interior Seaton had told him that efforts would be made to get independent refiners and independent producers to become members of MEEC but that Frontier was the only one to accept. Frontier has

no foreign ties. 463 Correspondence between Secretary Seaton and Mr. Robineau inserted

at this point in the record. 464 The independents had proposed that instead of shipping crude to

Europe that the Government take the lead in having refining yields altered to produce the heavier oils that were needed. The plan of action of MEEC, when put into operation in December, “clearly did not reflect any consideration of the independent refiners' suggestions or concerns. It was instead geared entirely to the rerouting of tanker shipments of crude oil.”

They notified Secretary Seaton, Secretary of State Dulles, and Defense Mobilizer Flemming of their concern and offered suggestions. Docu

ments pertaining to this matter inserted at this point in the record. 467 "On January 3, 1957, the Humble Oil Co. announced an increase in the

price of crude oil and that afternoon the association again telegraphed Secretary Seaton and Mr. Steward of Interior, Secretary Dulles, Assistant Attorney General Hansen, and Mr. Warren of the Office of Defense Mobilization, and Senator O'Mahoney, pointing out that that crude price hike was exactly what the independent refiners had feared and had called to the Government's attention several weeks before.'

Then, for the first time, they received a response from the Government. Although their suggestions are now said to be receiving some Government consideration, there has been little action taken to date to carry them out, and there has been almost complete silence in the Government testimony before this committee as to the possible existence of any solution to this problem other than the increased shipments of crude oil.” Summarized their proposed program, pointing out that shipments of fuel oil instead of crude would save both in tanker space

and money. 468 European refineries are owned by large international oil companies

that are members of MEEC or European governments or corporations. Knows of no independent American refinery in Europe. Whereas in the United States refineries concentrate on gasoline production, European

refineries concentrate on fuel oils, distillates, and burner oils for industry. 470 Letter to Mr. Hugh Stewart outlining their program for meeting the

emergency inserted at this point in the record. 474 Told the committee that “many friends in the oil industry, from both

small and large companies," had either found no basic flaw in the plan or "given affirmative support."

Page 475



Mr. Robineau said, “Basically, what is needed is a clear, unequivocal determination of what the Government wants, and what it is calling upon the industry to do.' Are concerned "about tentative, uncertain approach to the handling of Government responsibilities *' * *"

Feels there are “three major misconceptions which have persisted throughout the past few months and throughout this hearing.' One “is that Europe's problem must be met primarily by the shipment of crude oil.” The second, "one that is held widely by the press and consuming groups—is that since there are adequate supplies of petroleum products such as gasoline, there is no justification for a hike in the price of these petroleum products, whereas an increase in the price of crude oil can be separately justified.”

"The third major misconception in the handling of this oil program is the assumption that the Government can properly abdicate responsibility for leadership and direction. We appreciate and sympathize with the philosophy that is sometimes expressed as the least government being the best government, but that philosophy as here used has made for indecision and anarchy * * * "

It is his belief that “this program can be solved in full protection of the national interest, the consumers of this Nation, and the competitive aspect of the petroleum industry if:

"1. The Government establishes the policy it wants to be followed and announces it in clear and unmistakable terms.

“2. That policy starts to solve a product shortage problem by dealing first with those things which assure product supply-namely, refinery runs and yields.

“3. The policy is carried out vigorously through the industry in an atmosphere of full and frank discussion with prompt, immediate and consistent data provided by the Government on the basis of which all can operate.”

Senator O'Mahoney announced that a bill had been introduced by Congressman Heselton of Massachusetts “based upon the concept that the petroleum industry is clothed with the public interest and should be regulated by a Federal commission." Commented that he had in the past warned the major companies “that they cannot safely continue on the line in which they have been operating.' If they do, they “invite Government regulation, which they will not like." The companies should now act in the public interest.

Mr. Robineau said: "it alarms me that such a bill has been proposed.”' Does not think it impossible for prices of petroleum products to be rolled back, but the rollback must include the price of crude oil.

Believes the petroleum industry is a very competitive one, although some companies do have advantages others do not have. There would have been a price rise under any conditions, but believes it to be "unfortunate that if, either through the bad judgment or lack of judgment of some particular large company heads or of their department heads, who are probably just running their departments to make a profit for their department, without a consideration of the effect on the national picture, that this situation has arisen."

Senator O'Mahoney also announced that Congressman Heselton had introduced a bill to cut the depletion allowance for oil and gas wells from 2774 percent to 15 percent. Construed this as another warning to the industry.

Senator Kefauver said he and most other members of the Senate "have been hearing from a lot of people who have somewhat the same idea that Mr. Heselton has put down in legislation.

Mr. Robineau had attended no meetings of MEEC nor had he received any notice of the emergency meeting of MEEC to be held the next day.

The independent refiners buy most of their oil from the major oil companies.

Believes that if the plan he proposed had been accpeted the crude price rise might have "at least" been delayed. “It might not have avoided it because I think the price of crude would eventually have to go up because of increased refining costs.'

Believes that if the Government had asked the industry to cooperate in the emergency most of them would have done so, as they had in the past.





[ocr errors]


Statement of Hon. Fred A. Seaton, Secretary of the Interior. Also present:

Arthur S. Flemming, Director, Office of Defense Mobilization; Hugh
A. Stewart, Director of the Office of Oil and Gas, Department of the
Interior; Edwin G. Moline, Officer in Charge, Economic Organization
Section, Office of European Regional Affairs, Department of State;
J. Reul Armstrong, Solicitor, Department of the Interior; Charles H.

Kendall, General Counsel, Office of Defense Mobilization, and Ralph Page

S. Fowler, Office of Oil and Gas, Department of the Interior 185 Introductory statement. 486 The Department of the Interior has, under Executive Order_10480,

responsibility for making recommendations to the Office of Defense Mobilization regarding petroleum. “With respect to oil agreements, these assignments of responsibility by statute and by Executive order are, in order of execution, as follows:

"1. The Secretary of the Interior to consult with industry to encourage the development of voluntary agreements for purposes of national defense and to recommend that such agreements be approved.

"2. The Director of the Office of Defense Mobilization to review the recommendations of the Department of the Interior, consult with other interested defense agencies and if appropriate, make the defense finding.

"3. The Attorney General to review the proposed agreement and, if he determines that the advantages to the national defense outweigh the adverse effects on the competitive free enterprise system, to approve the

agreement. 487

"4. The Director of the Office of Defense Mobilization to request the individuals to participate in the agreement and to extend immunity from the antitrust laws and the Federal Trade Commission Act with respect to those actions authorized by the approved agreement.

*5. The Secretary of the Interior to supervise the conduct of operations under the agreement.

On May 8, 1956, the amended voluntary agreement came into being.
The Middle East plan of action was approved August 10.

After the Suez Canal was nationalized on July 26, Dr. Flemming and Secretary, Seaton agreed upon the necessity for preparation to have ready a plan of action to cope with possible emergencies. Hugh Steward, Director of the Office of Oil and Gas and Chairman of the Foreign Petroleum Supply Committee, was requested to prepare plan or plans and submit them in writing.

Plan received final approval on August 10, and American oil companies engaged in foreign operations were invited to participate in the emergency action im mediately thereafter. “On October 31, the Suez Canal was blocked; on November 3, the pipelines through Syria were put out of

operation. On November 30, the plan was put into action.” 488 The problem had to be met; but knows of no existing law by which

the Government could seize the oil industry. The Government had to rely on the existing voluntary agreement and on the provisions of the Defense Production Act of 1950, as amended.

MEEC action under plan of action is only 10 weeks old. Some weaknesses have developed; steps have been taken to correct them. Undoubtedly other weaknesses will turn up. If so, steps will be taken to correct them.

Report from Ralph Fowler, Director of the plan of action and Assistant Director of the Office of Oil and Gas of Interior Department, shows

high proportion of Europe's normal demands will be met. 489 MEEC has nothing to do with pricing. "The voluntary agreement

deals with supply and requirements and does not authorize any sort of voluntary joint action on prices.

"I am advised that voluntary agreement on oil prices generally could not now be entered into by reason of the 1955 amendments to the Defense Production Act which forbid new agreements except among defense contractors with respect to their military production."

One of the guiding principles is: “Let the industry handle this problem to the maximum extent possible with the least Government interference consistent with the national interest and Federal law.”


Page 489







[ocr errors]




A second principle is that increased flow of oil to Europe must not result in shortages in the United States.

"The third principle is: Efforts will be made to keep to a minimum the adverse effects on the various segments of the petroleum industry.

A fourth principle: “To meet the objective without burdensome controls over the petroleum industry,"

The fifth principle: “The Federal Government will not encroach upon States' rights.”

List of independent producers and refiners who perform consultative
services inserted at this point in the record.

Urgent problem was to get oil to Europe as quickly as possible.
Believes if it had been attempted as a Government program with
Government organization, might have been “considerable delay.” Is
his understanding the Government participates in all MEEC proceedings.

Have been reports that we were falling short in our attempts to meet
Europe's petroleum needs, although Secretary Seaton's figures show we
are doing very well. Thinks basis of most complaints is lack of crude.

Mr. Moline knows of no American holdings in the British, French and Dutch companies having representatives on OPEG. There are, however, "joint interests throughout the world in other fields."

OPEG advises OEEC as to availability of oil. MEEC advises the Government and also carries out plans, "working under Government direction and responsible to Government authority.”

Secretary Seaton supplied figures on meeting European oil needs given him by Mr. Fowler.

Regarding the supply of European needs, Dr. Flemming said they were “never given any assurances or any basis for hope that that figure would be higher than 75 percent of its normal requirements.” These estimates were supplied by MEEC.

OEEC statement on their prospective situation, as evaluated 30 days after Suez Canal was closed, inserted at this point in the record.

OPEG thought it unlikely if not impossible to increase production enough to meet Europe's needs 100 percent before the crisis was over.

As early as August 1956, the interested agencies of Government were considering what action to take in event of Suez closure.

This group, Mr. Moline said, “came to the conclusion that in what was likely to be a short-term crisis, that the voluntary agreement type of mechanism for dealing with it, which had served so well in the Iranian situation, would be the best and most effective means of dealing with a short-term crisis, essentially of a transportation nature.”

On July 31, 1956, Dr. Flemming personally recommended to Secretary Seaton that he find that a state of emergency existed, following conversations with other interested officials.

Discussion on the voluntary agreement relating to foreign petroleum supply and the Foreign Petroleum Supply Committee set up under it.

Just prior to the emergency the OEEC had compiled a comprehensive report on oil in Europe so the needs of member countries were easily ascertained.

The supply picture is much brighter now than a couple of weeks ago.

The Foreign Petroleum Supply Committee, also composed of oil companies having foreign operations, was authorized to collect information pertaining to the supply of oil that might be diverted to Europe.

The Attorney General, when examining the voluntary agreement of May 8, made certain suggestions for procedure to be followed before exemption from the antitrust laws could be granted the committee.

These recommendations were dropped when MEEC was created, but
some safeguards were provided, as required by the Defense Production
Act as amended, 1955.

Dr. Flemming took responsibility for the plan submitted to the
Attorney General for approval, although had been counseled by others.

In his opinion, basic safeguards were not abandoned when the plan
for action was drawn up. In his judgment, "it was necessary to substi-
tute a company chairman and company staff in order to get expeditious
and effective action in dealing with this emergency.'

Ralph S. Fowler, director of the voluntary agreement, gave statement of background.


[ocr errors][merged small]








Page 518 The "normal demand” for gasoline, distillates and fuel oil "in the

OEEC countries, including Spain, are the figures which were submitted by the OEEC oil committee. The net availability figures are based upon arrivals which have already reached this area, plus estimated arrivals expected from all sources. The "normal demand" is only an estimate, but a good one.

The OEEC and MEEC each made its own estimates; "the two are

quite close together." 519 OEEC estimates for the first quarter of 1957 show 87 percent of normal

demand for gasoline was available, 76 percent of distillates and 79 percent

of fuel oil. OEEC would like to have 100 percent. 520 MEEC objective is to get Europe 100 percent of normal demand,

"Not necessarily from United States, but * * * by using all available sources of supply, bearing in mind the limitation that we have of tanker

transportation.' Mr. Fowler doubts that this is obtainable. 521 Dr. Flemming said they are concerned about the imports from

Venezuela to the United States because they “recognize that the run from Venezuela to Western Europe is shorter than the run from our gulf coast to Western Europe *** therefore, an increase in movement from Venezuela to Western Europe and a decrease in movements to the United States east coast would make more tanker space available.

“An increase in the volume of imports from Venezuela during this emergency period could also very well result in the development of patterns that would complicate the handling of the oil import problem from a long-term point of view. * * *”

Also pointed out that some oil companies are reducing their refinery 522 "In the light of the reductions that are taking place in refinery runs and

the consequent reduction in the requirements of crude for United States refineries, I have requested the Secretary of the Interior to direct the Middle East Emergency Committee to present to him a plan for rerouting some of the Venezuelan oil to Western Europe that is now being shipped to the United States."

One of the reasons advanced for increased imports from Venezuela was that MEEC had responsibility of seeing there was no reduction in available supplies in this country. However, now that refinery runs are being cut thus cutting back crude requirements, wants to know why "we cannot cut back the amount of crude coming from Venezuela and reroute it to Europe."

Suspended the hearings being conducted as a result of petition filed under section 7 of the Trade Agreements Act because "as soon as the Suez Canal was closed and as soon as we were denied access to the Iraq pipeline, that the factual picture that had been presented at that hearing

was completely out of date * * *.' 524 Feels section 7 of the Trade Agreements Act is not "an appropriate

authority to use to deal with a temporary emergency situation of this kind.”

Has announced that hearings would resume when new patterns of distribution were made clear.

If the import situation existing prior to closure of Suez has not improved when that pattern becomes available, Dr. Flemming thinks the Government should take action, as imports were threatening to impair

national security. 525 Senator O'Mahoney commented that the same emergency caused Dr.

Flemming “to recommend the waiver of an antitrust provision of law, and at the same time persuaded you to abandon section 7 and its power to order that change. Also precluded an order for diversion of Venezuelan oil to Europe.

If MEEC draws up a plan for diversion of Venezuelan oil it will be done on a voluntary basis. Dr. Flemming assumes that if they present it on a voluntary basis, and if it is approved by the Government, that they will then proceed in accordance with that plan and the Govern ent has the right, and will exercise the right, to audit their actions to determine whether or not they are proceeding in accordance with that plan.”

90507-57-pt. 1-3

« PreviousContinue »