although a Government loan with the plant as collateral would probably be required.

Question (11). What do you have to say with respect to the form of financial assistance provided in the bill—namely, loans by RFC?

This has been covered in the answer to question (10). Unless the shale and coal plants can operate on a basis competitive with crude oil, RFC loans will not be a sufficient incentive to the industry to erect plants to be operated for their own account. If production of synthetic fuels from these two sources can be carried out on a basis that is competitive with production of similar products from crude oil, then loans by RFC may be helpful. It is the writer's opinion that oil products cannot be produced from oil shale at the present time on a basis competitive with their production from crude oil. It is possible that such products can be produced from coal on a competitive basis, although this is at the present time quite questionable.

Question (12). Is the financial assistance provided for adequate to achieve the objectives of the bill, or do you feel other aid is needed?

This has been largely covered in the above comments. The writer doubts that the financial assistance provided by the bill in its present form will achieve the objectives of the bill. In testimony presented before the Interstate and Foreign Commerce Committee on March 5, the writer proposed that if a subsidy is required for operation of the plants then the plants should be built and operated for the Government's account, this to be carried out by contracts between a Government agency (such as RFC) and private parties.

Question (13). Would accelerated amortization be a sufficient incentive? (We had it during the war when amortization over a 5-year period was authorized) Unless the plants can be operated with some profit, accelerated amortization would not be a sufficient incentive. If the plants can be operated at a profit then accelerated amortization would be an added incentive for private industry to invest in such plants.

Question (14). Would purchase and resale of the output of the plants by RFC be necessary in order to protect the operators against losses occasioned by the higher cost of the products in comparison with products made from crude? (This was done with respect to aviation gasoline during the war)

If subsidies are necessary, then one method of procedure would be the purchase and resale of the output of the plants by RFC. Another method, as suggested above, would be for the plants to be constructed and operated by private parties for the account of the RFC or some other Government agency.

Question (15). Might there be occasion with respect to one or more of these plants for a joint undertaking by several companies similar to the Hydrocol development or the Natchez group in the case of synthetic rubber?

There may be occasion for one or more private companies to join together in operation of a synthetic fuels plant. It is not believed that any legislation is necessary for this since the various companies concerned could form a separate corporation.

Questions (16) and (17). Can you give us an estimate of the comparative investment required for each barrel per day for liquid fuels derived from crude, coal, shale, and natural gas? Can you give us an estimate of the comparative cost of the end products derived from crude, coal, oil, and natural gas?

This information is covered by comments and a table in the testimony the writer gave before the Interstate and Foreign Commerce Committee on March 5. The following is an abstract from this testimony concerning these two questions: "Some information on the economic status of the different synthetic fuel processes as they appear to the writer were presented in testimony given before this Oil Subcommittee of the House Armed Services Committee. In this testimony a table was given indicating investments, steel requirements and production cost for gasoline from crude oil, natural gas, coal by the Fischer-Tropsch process based on a location in the eastern United States, and also on oil shale. It was pointed out that the figures given were quite approximate and were based on particular-size plants at particular locations. The figures presented on both investment and operating cost included transportation to main consuming points. In the case of crude oil and natural gas, 15 percent was included for amortization and other capital charges for the manufacturing or refining invest

ment, as well as transportation investments peculiar to the plant. In the case of oil shale, 15 percent for capital charges was allowed on the mining and manufacturing investments as well as transportation investments peculiar to the plant. The costs of gasoline from crude oil and natural gas were based essentially on the going price of these materials. The figures on coal reflect improvements in coal gasification that have not yet been thoroughly demonstrated. An indication was given for investment for housing that may be required.

1 These figures are based on crude oil and natural gas prices and not on costs.

"It will be noted from the table that production of gasoline from natural gas compares favorably with its production from crude oil. Production of gasoline from coal or oil shale, however, is indicated to be more expensive than from crude oil, and for today's conditions it is questionable if manufacture of oil products from coal or shale can be carried out on a competitive basis with production of such products from crude oil. The figures therefore indicate that the production of oil products from coal and oil shale may require a subsidy of some kind. Detailed figures are not presented in the table for coal hydrogenation but figures which have recently become available indicate that both the investment and production cost will be from 25 to 50 percent higher when using the hydrogenation process on coal as compared to a modified Fischer-Tropsch process." Question (18). How many plants for the production of liquid fuel from natural gas do you believe it would be practical to build in the United States bearing in mind the nearby gas reserves required for plant operation over a 25-year period?

It is believed it would be practical to build in the United States plants to process natural gas to yield a total of 300,000 barrels per day of oil products. The actual number of plants would depend on the size: If plants having a capacity of 10,000 barrels per day were involved, this would mean 30 plants. In many cases transportation of natural gas for distances up to 200 miles may be required.

Question (19). How high can the price of natural gas go and still make the production of liquid fuels from natural gas economically feasible in comparison with crude, coal, and shale?

It is believed that a price for natural gas as high as 14 cents per thousand cubic feet would allow production of oil products from natural gas to be competitive with their production from crude oil at present-day crude oil prices. The natural gas price could go up to about 20 cents per thousand cubic feet and still permit production of oil products from natural gas to be competitive with their production from coal using the modified Fischer-Tropsch process; and the price of natural gas could go very much higher and still be competitive with production of oil products from coal by the hydrogenation process. The price of natural gas could also go up to about 20 cents per thousand cubic feet and be competitive with production of oil products from oil shale.

Question (20). To what extent do you believe will additional private capital be attracted into construction of plants for the conversion of natural gas into liquid fuel?

It is the writer's feeling that private capital will construct a number of plants for conversion of natural gas into liquid fuel.

Question (21). What loss in thermal value occurs in the conversion of: (a) natural gas into liquid fuel, (b) long-distance transport of natural gas, (c) coal into manufactured gas, and (d) coal into liquid fuels?

(a) In the conversion of natural gas into liquid fuel, about 50 to 55 percent of the heating value of the natural gas is recovered as heating value of the liquid fuel. The loss in heating value is therefore 45 to 50 percent.

(b) The information available to the writer indicates that on the average the transportation of natural gas involves a consumption of natural gas from sixtenths to nine-tenths of 1 percent of the natural gas transported for each 100 miles.

(c) The information available to the writer from development work on conversion of coal into high B. t. u. gas for pipe-line transportation is not sufficient to make a statement in regard to loss of thermal value occurring in the conversion step.

(d) In the conversion of coal into liquid fuels, using the modified FischerTropsch process, about 50 to 55 percent of the heating value of the coal is recovered as heating value in the liquid fuels produced. The loss in heating value is therefore 45 to 50 percent. For coal hydrogenation it is believed that the losses would be roughly the same, or possibly somewhat higher.

The comparison of loss in heating value does not mean much unless the liquid fuels are to be used for heating purposes. Where the liquid fuels are used to develop mechanical energy in internal combustion engines, the over-all efficiency for production of mechanical energy based on the raw material used is probably about the same as if the raw material were burned to produce heat, which in turn would be converted into steam and then into mechanical energy.

Question (22). What additional quantities of gasoline and middle-cut products could be obtained by "cracking" to the maximum extent feasible?

The United States industry average for gasoline and distillates for the year 1947 was 66 percent yield on crude. If crude was processed in modern equipment to yield only gasoline and heavy fuel oil, a gasoline yield of about 74 percent could be obtained. If the crude were processed to yield gasoline and distillates, an over-all yield on crude of these two materials of 79 percent would be entirely feasible and it might be possible to go slightly higher. Both these yield figures are for an operation where residual fuel is still produced. By coking or by hydrogenation the residual fuel the yield of gasoline and distillates could be increased still further.

Question (23). What would be the economics of such additional "cracking"?

It is believed the trend of the industry in the United States in the future will be toward production of minimum heavy fuel oil, and it is further expected that yields such as those indicated above will be obtained.

Question (24). Could coal and natural gas be substituted for the residual fuels which would then be cracked?

Coal or natural gas could be substituted to take the place of some of the residual fuel which would be converted into gasoline and distillate in the opera

tions discussed under question (22). There are certain uses for heavy residual fuel, however, which could not be replaced by coal or natural gas. One such use is as fuel for ship propulsion. As brought out above, it is felt the trend would be to process crude in the United States for minimum production of heavy residual fuel. Additional heavy residual fuel that may be required in the United States, or at United States ports for bunkers, might be obtained through importation of heavy fuel oil produced from South American crudes.

JOSEPH PURSGLOVE, JR'S ANSWERS TO QUESTIONS ASKED BY COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, HOUSE OF REPRESENTATIVES, ON MARCH 5, 1948 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?

Answer. Yes. This conclusion is strongly supported by public experience with oil supply this past winter, and by underlying facts given in testimony before the House Committee on Interstate and Foreign Commerce in the past several months. New and constructive steps taken soon to meet this problem are indicated, such as immediately removing oil from boilers where coal can do the job. This is mentioned in more detail in No. 5 below.

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

Answer. Yes. The near-critical supply problem experienced this winter was during a period when military requirements were but a fraction of that anticipated during another war.

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

Answer. Our reply to this question is essentially, yes; insofar as we believe that the principles involved in H. R. 5475 will expedite the development of new sources of liquid fuels in this country. Replies given to the following three questions serve to clarify our reply to question No. 3.

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

Answer. All three process principles have been applied commercially abroad, at great cost, particularly coal hydrogenation. Direct duplication in this country of these foreign operations would be an uneconomic and wasteful means of augmenting our supply of liquid fuels. Before improved plants can be constructed here on a sound technical basis, much engineering and process development is needed.

If Government financial assistance, of a practical type, is in prospect for construction of commercial-size plants, we believe this prospect will encourage the broadening and speeding by industry of these technical developments. As a result, completion of the first commercial plant should come about earlier than would otherwise be the case.

The Bureau of Mines hopes to have $10,000,000 hydrogenation plant in operation late this year or sometime in 1949. As all estimates indicate that hydrogenation is the most expensive route to follow, all thoughts of building an even larger hydrogenation plant should be shelved until data are collected on the operation of this $10,000,000 experimental plant.

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

Answer. No. We assume that every effort will be made to increase production of natural petroleum and within practical limits, to import additional oil. As far as outright synthesis of liquid hydrocarbons is concerned no other basic routes have been given sufficient study to warrant serious consideration at this time.

We have made our position clear regarding hydrogenation in No. 4 above. Regardless of plans for construction of commercial synthesis plants, we recommend strongly that steps be taken to restrict industrial consumption of heavy residual petroleum oils in uses for which the more abundant coal is equally suitable. By our estimates, as much as 100,000,000 to 150,000,000 barrels of this oil, easily replaced by coal, is consumed annually in power stations and other heavy industrial steam-generating and heating equipment in Northeastern United States alone. Facilities are still on hand from previous use of coal at many locations.

Conversion of the heavy oils, so recovered, to lighter fuels requires far less effort, cost, and investment than the production of an equivalent amount of such valuable fuels by synthesis routes.

Low-temperature carbonization or distillation of coal can appreciably increase the supply of heavy liquid fuels. For example, about 30 gallons (4 barrel) of fuel tar can be recovered from each ton of raw bituminous coal. This fuel tar is suitable as a replacement for heavy residual petroleum oil in many industrial uses. As on open-hearth fuel in the steel industry, this tar is preferred to residual fuel oil now used. As the steel industry uses approximately 30 gallons of heavy fuel oil for every ton of finished steel produced, its present consumption of heavy fuel oil is tremendous.

Other products from the low-temperature carbonization are devolatilized coal (char) and high-heating value gas. The char is a satisfactory fuel for electric generating stations or industrial steam plants. Alternatively, the char is an ideal feed material for synthetic oil manufacture. The gas is particularly valuable around industrial establishments.

New and efficient methods for low temperature carbonization of coal are being, developed and are now going through the pilot-plant stages. They deserve careful consideration in any over-all synthetic liquid-fuel program, and H. R. 5475 should include provisions for the construction of synthetic fuel plants using such processes.

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

Answer. No. Our comments will be limited to a comparison of methods for conversion of coal since we are not in a position to comment on recovery of oil from shale. With respect to the processing of coal, we have two principal reasons for preferring a modified Fischer-Tropsch process to hydrogenation.

First as testified recently before your committee by Dr. E. V. Murphree, both the investment and operating costs for hydrogenation are from 25 to 50 percent higher than for Fischer-Tropsch. In addition a coal hydrogenation plant will require 25 to 50 percent more steel to build.

Second, much lower ash coal is required for hydrogenation than for the FischerTropsch route. Whereas the latter method can employ any kind of coal in the gasification step with as much as 30 percent of inert ash material, hydrogenation requires an ash content well below 10 percent. Raw coals mineable by mechanical, modern means, in this quality range, are very scarce. Cleaning plants are required to reduce the more common coals to this ash content (if it can be done at all). These plants are costly to build and to operate.

As pointed out in my testimony, our review of coal reserves suitable for sites for synthesis plants carefully excludes reserves of metallurgical quality vitally needed for the steel and chemical industries.

As stated under No. 4 above, the Bureau of Mines now has a $10,000,000 experimental hydrogenation plant under construction and further plant construction using the hydrogenation process should await the outcome of these operations. Question 7. What would be the amount of steel required for each of the three plants?

Answer. Steel requirements per barrel of daily capacity for a Fischer-Tropsch synthesis plant in the East, based on coal, range from 4.6 to 5.2 tons, including the needs of the coal mines supplying the plant. For example, the mine and synthesis plant producing 10,000 barrels per day would require 46,000 to 52,000 tons of steel depending upon the preference given to the various products from a process viewpoint.

These steel requirements are complete in that they represent all the steel needed to bring the oil products to a bulk distributing point from which the products a removed to retail points or directly to consumers.

For the typical case we have in mind, we visualize a coal refinery located on the large steam-coal reserves of southwestern Pennsylvania. Products of this plant would be sold to the large markets in that area, already served by extensive river, truck, and rail transportation. The steel requirements given above apply to such an example.

A contrast with the corresponding needs for steel to do the same job starting with natural petroleum is pertinent. Again assuming new facilities throughout it would require 25 to 50 percent more steel to supply these oil products to western Pennsylvania, when new production in Texas is the source of the oil. This case involves new field drilling and producing equipment, gathering lines and