piping to a new Gulf coast refinery. It also includes tankers to the East coast and piping to western Pennsylvania.

It is apparent the coal-refinery locations which combine large local markets with large coal reserves are limited, but in those areas the lower steel requirements of the coal route versus petroleum are quite marked.

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?

Answer. We limit our comment to the total steel needs of one coal (FischerTropsch) and one oil-shale plant, each with the arbitrarily selected capacity of 10,000 barrels per day. Our data indicate these two plants together would require 126,000 tons as a maximum.

In the Chicago Journal of Commerce for March 10, data are given for the steel requirements of the petroleum and natural-gas industries as estimated (preliminary) by the National Petroleum Council. After deducting gas requirements and those for marketing petroleum products, a total tonnage of 5,300,000 represents the estimate requirements from the second quarter 1948 to the first quarter 1949, inclusive. It is expected these steel demands will have to be reduced. Therefore, the steel needed for the construction of one coal and one shale synthetic oil plant would be around 2.4 percent of the currently estimated total steel needs of the oil industry during the period indicated.

Question 9. How do you feel, balancing our immediate and long-range problems with respect to energy reserves, about the diversion of a sufficient quantity of steel to build these three plants?

Answer. It appears to me that the diversion of such a relatively small amount of steel would be well rewarded in the practical experience gained by actual operation of synthetic fuel plants. It would be a sound investment in preparing for our country's needs-peace or war-and in the Pittsburgh case less steel is required than by the natural petroleum route based on Texas.

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

Answer. Not at this time, unless a large portion of the financing is done by the Government and on a practical basis. Speaking only for synthesis from coal, I believe that eventually, given time for careful research and development work, basic costs and supply and demand trends for oil will justify investment of private capital. No one can say at this time how soon that will be. Nevertheless, through our company's research plans, we are preparing ourselves for that time. Again, we wish to call attention to the fact that a Fischer-Tropsch plant of the type we visualize will use much less steel per barrel-day of production than a hydrogenation plant.

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

Answer. We believe the bill should be more specific with respect to assistance to private industry from the RFC. I suggest this agency should be authorized to lend the full plant cost as nonrecourse loans to principals or subsidiaries for periods up to 30 years and at interest rates in the range of 1 to 2 percent. I would suggest further that calculation and payment of interest should not begin until the plant has been in full operation for 6 months. Amortization payments should begin after the plant has been in operation for 1 years. The RFC should also be authorized to lend money on exactly the same terms as noted above to mining subsidiaries that open coal (or oil shale) mines to supply the synthetic fuel plants with their raw material feed.

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

Answer. Since the stated objective of H. R. 5475 is to achieve the construction of commercial plants by private industry with all possible speed, one would have an abnormal obsolescence of expensive items of equipment which a much longer research and development period would minimize. For this reason, it would also be necessary to allow rapid depreciation charges for tax purposes. For example, it would probably be necessary to have the whole project (plant and mines) depreciated for tax purposes on a 10-year basis, or perhaps even less, as was allowed under certificates of necessity during the war.

Question 13. Would accelerated amortization be a sufficient incentive? (We had it during the war when amortization over a 5-year period was authorized.) Answer. Accelerated amortization or depreciation for tax purposes as set out in No. 12 above would definitely be helpful, but it would not be a sufficient aid in

itself. Long-term, low-interest financing as explained in No. 11 above and perhaps other features, would also be necessary.

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.)

Answer. I would hope industry could forego purchase and resale of the synthetic oil products by RFC as a protection against losses. However, more study of the over-all economics of the proposed plants in light of current oil markets is required to give a definite answer to this question. Perhaps to expedite matters the RFC should be authorized to make such arrangements if necessary to accomplish the broad objectives of H. R. 5475.

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 oil?

Answer. There may be an opportunity under H. R. 5475 for spreading the burden of development, design, construction, and operation of these plants over the personnel of more than one company. However, if speed is of the essence, the fewer the number of companies cooperating the faster the job could be done. H. R. 5475 should permit two or three (or more, if necessary) companies to get together to form a subsidiary to undertake one of the projects without fear of antitrust prosecution.

Question 16. Can you give us an estimate of the comparative investment required for each barrel per day for liquid fuel derived from crude, coal, shale, and natural gas?

Answer. I feel qualified to answer this question only as it relates to a coal (Fischer-Tropsch) synthesis plant. In this case total investment, including the mine, should run $8,000 to $9,000 per barrel of crude daily. It is understandably important that comparison of this with unit investments for other types of synthesis plants, or with facilities for petroleum should be on a common basis. Thus for petroleum, investment should include exploration, drilling, production, transportation, and distribution, as well as the refinery itself. Geographical relationship of the plant and the market must be taken into consideration.

Question 17. Can you give us an estimate of the comparative cost of the end products derived from crude, coal, oil, and natural gas?

Answer. Limiting myself to gasoline made by the synthesis route from coal, I would estimate cost, including rather low capital charges on the entire investment, to be 16 to 17 cents per gallon.

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?

Answer. No comment.

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?

Answer. No comment.

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

Answer. No comment.

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?

Answer. I submit qualitative answers to these questions: (a) 50 percent thermal loss; (b) no information; (c) 35 percent thermal loss (present standard installations); (d) 50 percent thermal loss. It is to be noted, however, that recovery of fuel tar (a substitute for heavy petroleum fuel oil) from coal by lowtemperature carbonization can be done with only 20 percent thermal loss.

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

Answer. No comment.

Question 23. What would be the economics of such additional "cracking"?
Answer. No comment.

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

A. Please refer to the extensive comment under our answer to question No. 5, in which we stressed the savings to be made by substitution of coal for residual fuel oil burned under boilers.

Mr. ELTON J. LAYTON,

UNION OIL Co. OF CALIFORNIA,

Los Angeles 14, Calif., March 22, 1948.

Clerk, Committee on Interstate and Foreign Commerce,

House Office Building, Washington, D. C. DEAR MR. LAYTON: Following are answers to certain of the questions submitted to the witnesses testifying on H. R. 5475:

(1) The United States is in need of additional liquid energy resources in addition to those now available within our borders. This need is critical as it relates to national security and will become increasingly critical as it relates to civilian uses in the predictable future. It is all very well to be optomistic about future oil discoveries, and doubtless many will be made, but airplanes and battleships do not run on what may be found but only on what is in hand. It is for this reason that the synthetic fuel program is essential to our national security.

(2) The need does not yet exist in our civilian economy, but will very probably exist within a short time-at least in certain parts of the country. If additional supplies of petroleum products are not forthcoming from synthetic sources, they must be secured by import.

(3) There is much merit in H. R. 5475 by providing aid and incentive for plant construction. It is the writer's opinion, however, that the provisions of the bill should be enlarged to provide the means to arrange and negotiate with industry to carry on the major portion of this work, and that it should not be the object of the bill, except in the last emergency, to put the Government into the synthetic oil business. Aid to industry may be accomplished through the medium of loans, subsidies, or advances on contracts. All of these methods were used for a similar purpose during the war. It is suggested that provision be made for RFC, with the best technical advice available both from within and without the Government departments, to work out contracts for the various types of operation with those companies best qualified to conduct the work.

(4) I am not qualified to speak on the subject of coal, but it is my belief that we are sufficiently well along with the problems of oil-shale recovery to start design and preliminary work on a 25,000-barrel-per-day plant. The 120-day provision of the bill, however, should be extended to at least 1 year in order to permit reasonable engineering studies in advance of negotiations.

(5) In my opinion there is no satisfactory alternative than to have the plants built and operated by qualified companies within the industry.

(6) In my opinion the quality of merit in the various processes proposed is largely a geographic consideration. Coal synthesis seems best adapted by reasons of the tremendous water requirements and other considerations to the eastern portion of the country, and oil shale to the Rocky Mountain area and the Pacific coast.

(7) Steel requirements for a 25,000-barrel-per-day plant would be almost infinitesimal as compared to the demands of the industry, and would probably not exceed 3,000 tons.

(8) I do not have accurate figures on total steel requirements of the industry for the coming year but, as indicated in the foregoing, the tonnage here required would be a relatively insignificant proposition.

(9) I believe the diversion of this amount of steel tonnage would be highly desirable.

(10) I believe that all of the plants should be constructed and operated by industry, assisted by some form of Government underwriting, to the extent necessary to demonstrate commercial feasibility.

(11) and (12) Financial assistance in the form of loans, subsidies, or advances are the principal forms of help required. A clarification of the tax regulations which would permit the application of statutory depletion as it now applies to the oil industry would also be very helpful.

(13) Accelerated amortization would be necessary and helpful in the first plants constructed, but it would not be sufficient alone to permit operation on the scal suggested.

(14) For oil-shale operation, purchase, and resale would seem the most satisfactory and simple form of applying a subsidy.

(15) I do not feel that I am qualified to discuss the following questions which have to do with the synthesis of coal and gas.

Yours very truly,

(The following was submitted for the record :)

A. C. RUBEL.

QUESTIONS FOR EACH OF THE WITNESSES TESTIFYING OF H. R. 5475

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. It is now apparent that the domestic petroleum production will not be sufficient for our needs, and if this country is to avoid undue dependence on foreign sources additional liquid fuels such as those produced by synthetic processes must be provided.

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

Answer. Continuance of the present peacetime rate of increase in consumption if liquid fuels will require large supplementary supplies of oil within the next few years. Even though all progress were halted and oil consumption frozen at present levels, it is doubtful whether the domestic petroleum industry can maintain indefinitely present production rates.

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

Answer: To provide for our essential civilian and military needs in the future, it is imperative that a synthetic-fuels industry be started immediately. The construction of three commercial plants is a logical first step in establishing this industry.

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

Answer: Sufficient information is available from the Bureau of Mines program and other sources to begin the design and construction of three commercial plants using three different processes. It is believed that the additional information necessary will be secured during the period of the design work on the commercial plants.

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

Answer: To help meet the expected shortage of oil for essential uses, all other feasible methods of increasing oil supplies should be employed in addition to the construction of synthetic-fuel plants. Some of these methods are the substitution of coal for oil now burned at steam plants, secondary recovery of oil from old wells, improved methods for increasing oil production from existing wells, and increased imports.

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

Answer: As the three processes are complementary, rather than competitive, it appears now that all three plants should be started.

7. What would be the amount of steel required for each of the three plants? Answer: Preliminary estimates indicate the following steel requirements for 10,000-barrel-a-day plants:

Coal hydrogenation_

Gas synthesis_

Oil shale_‒‒

Total_

Net tons

60,000

50,000

10, 000

120,000

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?

Answer: No satisfactory figures are available for total steel consumption by the oil industry, but steel for the three proposed plants is not a significant percentage.

9. How do you feel, balancing our immediate and long-range problems with respect to energy reserves, about the diversion of a sufficient quantity of steel to build these three plants?

Answer: Steel requirements for these three plants are not an important factor in the petroleum production picture and in view of the increasingly apparent

need for a synthetic fuels industry, diversion of this amount of steel certainly is justified.

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

Answer: It is doubtful whether private industry will see fit to erect these pioneer plants in a new industry at this time without financial assistance from the Government. Many important industries have needed and obtained Government assistance for their early large-scale development. These include the railroads, the air lines, and the synthetic-rubber industry.

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

Answer: Loans by RFC would be an ideal way to bring about the construction of these first plants, but it is doubtful whether this will be sufficient inducement since such loans must be repaid and, therefore, owners of the plants would have the usual depreciation rates, and, in addition, they would have to pay taxes on the properties.

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

Answer: The important thing is to insure construction of the plants with the least possible delay. Therefore, RFC should be authorized to negotiate contracts with private firms for the design, construction, and operation of these plants, providing whatever inducements are necessary. If loans will not suffice, then RFC should be authorized to provide funds for the erection of the plants for the Government as was done in the case of the synthetic-rubber program.

13. Would accelerated amortization be a sufficient incentive? (We had it during the war when amortization over a 5-year period was authorized.)

Answer: It is doubtful whether accelerated amortization would be sufficient incentive unless the Government were to undertake to purchase all products at a price that would allow operators reasonable profits.

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.)

Answer: The purchase and resale of the output of the plants at a price that would return a profit to the operators is one way to protect the operators from losses. I do not recommend this procedure. In my opinion, it would be better to have the Government own the plants and enter into a lease arrangement that would permit the operators to sell the products on the open market. In this way the Government would receive some return from its investment and the products would be sold and used in competition with petroleum products.

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?

Answer: It appears likely that groups of companies might be formed to undertake the construction and operation of each of these plants. Since synthetic fuels from coal and oil shale involve mining, preparation of the solid material, processing, and refining, as well as disposal of chemical byproducts, a combination of firms experienced in each of these fields would be desirable.

16. 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?

Answer: Following are preliminary estimates for the capital investments required for the production of 1 barrel per day by each of the following five processes. It should be pointed out that while the capital investment is higher for the synthetic fuel processes, this investment includes proving and development of reserves for 25 or 50 years. In the case of crude petroleum additional investments must be made each year in exploration and development of new oil to maintain the production rate. Furthermore, it should be noted that in the case of synthetic fuel processes the products are not equivalent. The coal hydrogenation process with the investment shown can produce aviation gasoline. The gas synthesis process with coal or natural gas can produce a good motor gasoline or an inferior motor gasoline with an excellent Diesel oil. The oil shale plant will produce crude shale oil readily processed to heavy fuel oil, but more difficulty processed to the full range of motor fuels and oil.