to convert coal into a fuel gas suitable for pipe-line transmission. In my testimony on H. R. 5475, I have shown the important role that this type of plant could play in our over-all attack on the problem of augmenting petroleum to keep pace with our expending liquid energy requirements.

6. In my answers (3) and (5), I have expressed myself in favor of building two of the three types of plants proposed in H. R. 5475 and an alternative type of plant to produce pipe-line gas from coal. In the situation under consideration, all the facts indicate that time is of the essence. Accordingly, I further urge that the construction of plants of the three types which I favor be undertaken promptly and simultaneously to assure this country of rapid progess in the development of a synthetic fuels industry on a broad basis.

7. It is difficult to estimate the amount of steel required for each of the three plants proposed in H. R. 5475 because the amount will vary with plant location, type of liquid product to be produced, and several other factors. The Military Petroleum Advisory Committee (appointed by the Joint Chiefs of Staff, Army, and Navy Petroleum Board) has recently completed reports which give the estimated steel requirements for various types of synthetic fuel plants. I would like to suggest these reports to the Committee on Interstate and Foreign Commerce for an answer to this question. If the proposed plants are to be built primarily to test or demonstrate their respective processes on a commercial scale, I have already testified in connection with H. R. 5475 that plants of 5,000 barrels per day size are much more advisable. The smaller plants would obviously require approximately one-half as much steel.

8. The approximate steel consumption of the petroleum industry was 2,000,000 tons in 1946 and 3,000,000 tons in 1947. Using the figures given in the reports of the Military Petroleum Advisory Committee, each plant (10,000 barrels per day) would consume an amount of steel which approximates 4 and 3 percent of the total steel consumption of the petroleum industry for the years 1946 and 1947, respectively. Again, I repeat, if these plants are built primarily for demonstration purposes about one-half as much steel is needed and the steel thus saved can be made available for critical uses in the petroleum industry. For instance, the saved steel can be utilized in the construction of plants for synthesizing liquid fuels from natural gas; each ton of steel so utilized increases our productive capacity of liquid fuels by an increment which is larger than that obtainable by any other known procedure for supplying liquid fuels and I am specifically including in this statement the conventional procedure of oil-well exploration and development and the refining of the recovered crude oil to acceptable liquid fuels.

9. The diversion of sufficient steel to build the three types of synthetic fuels plants which I advocate is in my opinion fully justified and compatible with our immediate and long-range problems of providing all of the required liquid energy. 10. I am fairly certain that the construction of the desired synthetic fuels plants will not come sufficiently fast for our national welfare if we depend on private industry without benefit of financial assistance from the Government. The institution of Government machinery to provide the necessary financial assistance to private industry is the most important aspect of any Government effort to promote the rapid and extensive growth of a synthetic-fuels industry and thus bring our deliverable supplies of liquid fuels more nearly into balance with our demands.

11. I believe that it is in the national interest that the Reconstruction Finance Corporation be given full authority and responsibility to make loans to private industry to foster a vigorous synthetic-fuels industry. The magnitude of our undertaking, as I envision the scope and objectives of H. R. 5475, is such that the Reconstruction Finance Corporation should be empowered to loan up to a total of $1,000,000,000.

12. Every possible incentive should be offered to private industry to attract the very large capital commitments that are needed to build up the desired productive capacity of synthetic fuels. Tax inducements for capital invested in synthetic fuels plants could be powerful accelerators of our synthetic fuels program and their role in achieving the objectives of H. R. 5475 should not be overlooked.

13. Amortization over a 5-year period would be an important incentive but it would have to be supplemented at least by Reconstruction Finance Corporation loans.

14. Reconstruction Finance Corporation purchase and resale of products would probably be required for plants producing liquid fuels from coal and, perhaps in the early stages of the program, for plants recovering shale oil.

15. Joint undertakings by several companies similar to the Carthage Hydrocol are likely to follow if Reconstruction Finance Corporation loans and other incentives are made available.

16. This question relates to a subject which is too complex for treatment in a questionnaire of this type. The reports of the Military Petroleum Advisory Committee contain estimates of the investments required for certain synthetic fuel plants and indicate that these investments vary with plant location, type of products desired, and distance between plant and raw material source and product market. Such estimates to be realistic must include all of the facilities for getting the raw material out of the ground, transporting it to the plant, converting it into desired fuels, and delivering the product fuels to the markets. From this over-all point of view, I believe the investment requirements would fall into the following order of increasing investments: (a) Liquid fuels from natural gas, (b) liquid fuels from crude oil, (c) shale oil from oil shale, (d) pipeline gas from coal, and (e) liquid fuels from coal.

17. This question involves complex factors similar to those indicated in answer (16). Qualitatively, I would say that the costs of the end products derived from crude, coal, oil shale, and natural gas would follow the increasing order presented in answer (16). These comparative costs of end products again include all costs from obtaining the raw material to delivering the end products to the market.

18. In my testimony on H. R. 5475 I stated that in the next 25 years the oil industry could safely utilize 62.5 trillion cubic feet of natural gas for synthetic fuels production. This use of gas would not jeopardize nor hinder the continued operation and expansion of interstate gas lines and would add to our present known reserves of oil about 6,000,000,000 barrels or roughly 25 percent. Further, synthetic liquid fuels could be produced from natural gas economically and profitably at the rate of 650,000 barrels per day which rate would increase our present gasoline production by about 25 percent. My figure of 62.5 trillion cubic feet of natural gas available for synthetic fuels would support about 100 plants like the Carthage Hydrocol plant now under construction at Brownsville, Tex. The Military Petroleum Advisory Committee report by the Subcommittee on Natural Gas sets forth that natural gas could be made available for 54 plants producing synthetic fuels. At this stage it matters little whether the ultimate number of such plants can be 50 or 100 but it is sound to conclude that we can and, I firmly believe, we should build 20 to 30 plants in the next 10 years for converting natural gas into liquid fuels.

19. The answer to this question depends on such factors as amortization rate and interest charges, but it can be generally stated that the price of natural gas could rise to the range of 10 to 15 cents per 1,000 cubic feet and the process of converting natural gas into liquid fuels would still carry the usual capital charges and be competitive with liquid fuels produced from crude. Liquid fuels derived from oil shale and coal are considerably more expensive than those from crude. Accordingly, natural gas has a wide economic advantage over coal or oil shale as raw material for producing liquid fuels.

20. I believe that considerable private capital can be attracted into the construction of additional plants for the conversion of natural gas into liquid fuels provided there is the assistance of Reconstruction Finance Corporation loans. I strongly recommend that specific provisions be made in H. R. 5475 authorizing Reconstruction Finance Corporation loans to private industry for the construction of plants to convert natural gas into liquid fuels since this type of synthetic fuels plant which is technically farthest advanced and requires least steel offers us the best opportunity of quickly building a large productive capacity of synthetic fuels to supplement our present inadequate deliverable supplies of petroleum. 21. The approximate thermal losses for the various processes are:

(a) Natural gas into liquid fuel_-_.

(b) Long-distance transport of natural gas-.

(c) Coal into manufactured gas..

(d) Coal into liquid fuel__

1 Per 1,000 miles.

Percent

30

115

25

55

22. Assuming that all "cracking" were carried out to the limit of producing gasoline, middle-cut products and coke (no residual oil) the volume of gasoline and middle-cut products would be raised about 15 to 20 percent. However, this maximum increase would not be feasible since it would eliminate fuel oils from

the market. In this connection it is well to remember that our Navy and merchant marine are very large consumers of fuel oils. It is thus apparent that additional ""cracking" can result only in relatively small increases of gasoline and middle-cut products.

23. In most cases, additional "cracking" would be uneconomical. The thermal losses are fairly high and, furthermore, additional "cracking" must be effected at the cost of producing a substantial proportion of coke. With our present short supply of liquid fuels, the disadvantage of forming coke from petroleum is quite clear.

24. Fuel substitutions in order to conserve liquid fuels for the more essential uses as in planes and automobiles rather than in heating systems is highly desirable but such substitutions alone cannot be expected to yield all of the increased supplies of liquid fuels which must be developed in the immediate future to protect both our civilian economy and our national security. Moreover, the substitution of coal or natural gas for residual oils is limited because of the high cost of transporting coal and natural gas to many areas where these fuels would otherwsie be acceptable. It is for such situations that I have advocated the construction of coal gasification plants at mines within reasonable distances from large fuel-consuming areas.

ANSWERS BY E. V. MURPHREE, PRESIDENT, STANDARD CIL DEVELOPMENT CO., To WRITTEN QUESTIONS ON SYNTHETIC FUELS, REQUESTED BY THE INTERSTATE AND FOREIGN COMMERCE COMMITTEE, HOUSE OF REPRESENTATIVES

Question (1). Do you believe that the United States is in need of liquid energy resources in addition to those now available within our borders and imported from abroad?

It is believed this question is phrased to deal with liquid energy resources for the future, perhaps 10 to 20 years from now. So far as the immediate situation is concerned, steel supply is the limitation on production of petroleum products. If the world supply sources continue to be available for our use, petroleum supplies would be more than adequate to fill any foreseeable needs. Therefore, it is presumed that this question is based on an assumption that, for national security reasons, any supplies of petroleum products for the United States should come from Western Hemisphere sources.

At present the supplies of Western Hemisphere petroleum are considerably greater than the present needs of the Western Hemisphere. With increasing demands there is some question as to whether or not this condition will exist 10 or 20 years from now. It is possible that the demand needs can be met from crude petroluem alone and it is equally possible that they cannot. It may therefore develop that in this future period the Western Hemisphere will have to look to production of synthetic fuels from materials such as natural gas, coal, and oil shale to supplement the supplies of products that can be produced from crude petroleum.

As brought out in the testimony the writer gave before the House Armed Services Committee on February 25, it was pointed out that the creation of additional oil supplies that flow into civilian channels is not the entire answer to the military problem of oil supplies in case of war. Oil that flows through civilian channels can be reclaimed through rationing only to small extent once a level of consumption is established. Even if the country undertook now to develop a synthetic fuels industry to increase supplies of oil products, if this supply went into civilian uses the military situation would probably be about as difficult as if the synthetic fuel capacity had not been created. The writer feels that the best way that has so far been suggested for meeting the military situation for oil supplies in case of war is through a stock-piling program.

In the testimony referred to before, which was given before the House Armed Services Committee, a stock-piling program was outlined. Experience in the last war indicated that through wartime rationing, with some small amount of conversion to coal, it was possible to eliminate the normal increase in consumption of oil products for civilian purposes and actually to make a substantial reduction in this consumption for the war period. If, for purposes of illustration, it is assumed that the military program will require more oil during a 5-year period than can be provided by rationing, conversion to coal where possible, South American export capacity, normal growth of the industry's productive capacity during the emergency period, and other sources it is felt that the additional requirements can best be met by a program of product stock piling.

The establishment of a program of product stock piling prior to an emergency has three distinct advantages. In the first place adequate supplies of essential products are immediately available for emergency use. Secondly, since the capacity created for the stock-piling program can continue to operate during the emergency, the actual size of the stock pile required is correspondingly reduced. For example, each 50,000 barrels per day of stock piling operating for 5 years prior to an emergency and continued for the 5-year emergency period would be sufficient to supply 100,000 barrels per day of excess emergency requirement. In the third place, stock piling offers a relatively low-cost means of providing the necessary military protection. The stock-piling program required for each 100,000 barrels per day emergency need would result in an accumulation of 91,500,000 barrels of products prior to the emergency. It is proposed that this material be stored in strategically located steel tanks above ground. Disregarding the cost of the oil products themselves, which are to be used, and would have to be provided by any program, the Government investment required would be the cost of tankage. It should be possible to provide tankage at a cost of $1.30 per barrel for a total cost of less than $120,000,000. In comparison, the construction of standby synthetic oil capacity to be used only during the emergency would cost about $7,500 per daily barrel of capacity. To meet each 100,000 barrels per day of emergency need the total investment would be $750,000,000. This investment is more than six times that for the tankage needed for stock piling.

Finally a stock-piling program offers a clear segregation between military and civilian needs. The oil industry could create the capacity for the stock-piling program in any way it felt best. This might or might not involve the erection of synthetic fuel capacity.

Question (2). Does the need exist for our civilian economy as well as our national security?

This question is interpreted to mean that if we had no fear of war would there be sufficient oil supplies, on a world basis, from crude petroleum to meet world needs at some period in the future, say, 10 to 20 years from now. The information available to the writer indicates that it is probable that the world as a whole can produce sufficient oil products from crude petroleum to supply the world's needs, assuming the availabiilty of adequate steel supplies. This would be for a period up to 20 years from now.

Question (3) If such need exists, in your opinion, is there merit to the construction of the three plants proposed by H. R. 5475?

In the testimony the writer gave before the Interstate and Foreign Commerce Committee on March 5, it was indicated that there was some merit to the construction of a plant to produce oil products from oil shale and of a plant to produce oil products from coal. It was pointed out that it was felt the Government should sponsor the erection of only two plants, one to work on each of these raw materials: That in the case of the plant to produce oil from coal the process should be used that appears soundest at the present time; and that it would be unwise to erect a second oil-from-coal plant to utilize a less favorable process. It was further pointed out that a large-scale commercial plant is a very poor instrument for making basic improvements in a process for producing oil from coal. The main advantage to be gained through erection of a commercial plant is to demonstrate thoroughly the operation and to determine the actual capacity of the equipment.

It is believed that considerable would be gained by not expediting the construction of the two plants. Considerable development work is now under way and within a couple of years considerably better information should be available for design purposes. It is therefore felt that it would be desirable for the bill to contain provision for a 2-year period for presentation of propositions after enactment of the bill in place of the 120 days provided in the bill in its present form. The erection of the plants could be considered as a precautionary measure in case it does turn out that the world situation does not become more favorable, or that the Western Hemisphere cannot produce from crude petroleum the needs of the Western Hemisphere for oil products.

Question (4). Are the three processes developed sufficiently to make the construction of these three commercial-size plants desirable?

This has largely been covered in the comments on question (3). It is believed that further experimental work will be required for both production of oil products from shale and from coal. Some of this experimental work can be done

during the design period of the plant. As brought out above, however, it is felt it would be wise to provide a 2-year period from the time of enactment of the bill for presentation of proposals. This would give a reasonable period for completion of much of the development work now in progress.

Question (5). Are there alternatives to the construction of these plants which you would prefer to see adopted?

The only alternative suggested is to provide time between enactment of the bill and submission of proposals to allow for certain development work now being carried out to reach a more nearly completed stage.

Question (6). Is there equal merit in the construction of the three plants, or would you give one preference over the others?

As brought out above, it is proposed that only two plants be constructed, one to work on oil shale and one to work on coal.

Question (7). What would be the amount of steel required for each of the three plants?

Steel requirements depend to a certain extent on what types of products the synthetic plants would make. The writer believes that the most useful products would be gasoline and distillate and that heavy fuel oil is not in general a desirable product to produce in a synthetic plant. In the case where coal is converted to oil through use of the modified Fischer-Tropsch process, about 90 percent of the product is gasoline, the remaining being a cracked gas oil. In the case of production of oil from coal by hydrogenation, the products can be entirely gasoline or a mixture of gasoline and distillate, and the same applies to the processing of oil shale. Assuming production of maximum yield of gasoline plus distillate, plants of 10,000 barrels per day capacity have been estimated to require the following amount of steel:

Question (8). Do you know what percentage the amount of steel required for the three plants constitutes of the total amount of steel consumed in 1946 and 1947 by the petroleum industry?

A

Difficulty has been experienced in getting figures on the steel consumed by the petroleum industry for the years 1946 and 1947. Figures obtained from the American Iron and Steel Institute indicate that for 1946 the total steel consumption by the petroleum industry was 2,010,000 tons. To this should be added some steel for tankers, which should bring the figure up to 2,155,000 tons. corresponding figure for the year 1947 is 3,157,000 tons. It is believed these figures may be on the low side as there may be considerable steel consumption by the petroleum industry that cannot be directly traced to this use. The above figures include a considerable quantity of steel for oil and gas jobbers. Taking the figures as they are, however, and considering the three synthetic plants will use a total of 170,000 tons of steel, then this figure would represent 6.7 percent of the 1946 steel consumption and 5.4 percent of the 1947 steel consumption. Question (9). How do you feel, balancing our immediate and long-range problems with respect to energy resources, about the diversion of a sufficient quantity of steel to build these three plants?

The steel requirements estimated for production of oil products from coal and oil shale are not greatly different than for production of products from crude oil. It is therefore felt that the steel put into these plants would create approximately the same amount of capacity as if the steel were put into operations for production and processing of crude oil, at least where the crude oil is produced in the United States.

Question (10). Do you feel that one or more of these plants would be constructed by private industry without financial assistance from the Government?

The writer is doubtful that a plant to process oil shale will be constructed by private industry without financial assistance from the Government, this financial assistance to include a subsidy. It is possible that private industry would be willing to erect an oil-from-coal plant in a selected location without a subsidy,