The Senate Committee on Banking, Housing and Urban Affairs conducted hearings in early May of 1973 on petroleum shortages.

On May 7, Annon Čard of Texaco said Texaco had "taken every reasonable action" to increase additional gasoline supplies.

He said gasoline inventories were not built up sufficiently because of the "necessity to maximize distillate production."

Mr. Card said:

With an anticipated increase of 5 percent or more expected in gasoline demand through the rest of the year, it may not be possible to supply all the gasoline that the customer may desire when he wants it...

He said no type of "mandatory controlled program or rationing" was needed, however, but warned that because the gasoline shortage was tying up the refineries the nation would enter the winter season with "lower than desired distillate stocks."

Darrell M. Trent, Acting Director of the Office of Emergency Preparedness, advised Senators that some refineries were still not operating at capacity because they lacked adequate supplies of both domestic and foreign crude oil.

Criticism of the procedures of the Oil Import Appeals Board was made by Edwin Jason Dryer of the Independent Refiners Association of America.

Mr. Dryer said Board rules required that requests for more imports had to be rejected if the company was making a profit in total oil operations.

This provision, Mr. Dryer said, prevented "every efficient independent refiner" from successfully petitioning the Appeals Board even though the refiner might be forced to operate at 60 percent capacity. Asserting that this "inadvertent interpretation" of the Board's mandate was still being invoked as recently as the previous week, Mr. Dryer said that in the fall of 1972:

A host of refiners went before the Board and I can cite case after case in which these companies said, if you give us the award, we have the arrangements by which we can get the oil, we can trade it with a crude holding major company and get the oil to operate at capacity.

In case after case because the company was not on the verge of bankruptcy, the award was turned down, the company cut back its rate of operations at the very time that this shortage was developing.

Mr. Dryer said that a shortage of fuel oil of 2 to 5 percent could develop in the winter of 1973-1974 if demand continues to increase at a fast pace or if no effort is made to practice fuel conservation or if the weather is abnormally cold or if refiners cannot operate at "anticipated rates."

CHAPTER XI. PETROLEUM PRODUCT

SHORTAGES CONTINUE

The winter wore on and the petroleum shortages continued. In a letter of January 11, 1973 to the Co-op Association in Minnesota, General Lincoln outlined the steps the government had taken and would continue to take to combat the fuel shortage.

I believe we have taken reasonably prudent steps to increase supply and to the extent feasible reduce demand through conservation. On the question of home heating oil, we have a major concern that the refinery industry needs to do more to maximize the production of No. 2 oil. We shall continue to monitor the fuel situation throughout the winter

season.

In a January 17 letter to the New England Fuel Institute, General Lincoln noted his appeals to industry to increase production, and observed that recent figures showed that industry had accelerated production of heating oil.

Two DIFFERENT EVALUATIONS

Not everyone shared Lincoln's satisfaction with the steps taken by the Federal Government to deal with the fuel situation.

In a December 15, 1972 telegram to the President, Senator Thomas J. McIntyre of New Hampshire expressed concern that predictions made by Lincoln and Stephen A. Wakefield of Interior had not come

to pass:

In September 1972 during the hearings both the Director of your Oil Policy Committee, General Lincoln, and Assistant Secretary of Interior, Mr. Wakefield assured the Subcommittee that the national supplies of home heating oil would be at the same level as in 1971 by the end of the calendar year. However, just the opposite has happened.

A January 24, 1973 OEP memorandum by Robert E. Shepherd, Chief, Oil and Energy Division, informed Darrell Trent of the proceedings of the January 23 meeting of the National Oil Jobbers Council (NOJC).

Attached to the memorandum was a copy of a presentation by Mr. Gordon Haglund, Chairman of the NOJC, and Mr. John G. Buckley, Chairman of the NOJC Fuel Committee.

Haglund and Buckley condemned OEP and other Executive Branch agencies for failing to utilize their powers to investigate the existing shortage of fuel oil. They criticized ÔEP for telling Senator McIntyre of New Hampshire in September 1972 hearings, based on industry assurances, that there would be sufficient supplies of No. 2 fuel oil for the winter. When shortages developed, ". . . OEP relied on largely

ineffective jawboning based on data supplied by the very industry upon which it was using exhortatory language.

Haglund and Buckley stated:

We do not view the present shortage of fuel oil as proof that the nation's demand for oil has outstripped supply. Indeed, no one can say that because no one seems to know what is indeed the cause. The refiners can each speak only for himself; and in most cases, each says that it has been making as much No. 2 fuel oil as it is possible for it to make, despite an unfavorable price restriction in effect (until recently). On the other hand, General Lincoln, who has surveillance responsibility for the entire industry, maintains that the refiners made less No. 2 than they were able to make because, under the prices set by the Price Commission, it was much more profitable to make gasoline than No. 2 . . .

Who was making less fuel oil than they could? Who was not selling an equitable share to the small business marketer who supplies 70% of the nation's home heating needs-What suppliers were not doing their share to provide diesel fuel for the nation's trucks and other vehicles? How did shipments by each refiner of No. 2 in the pipelines in the Midwest and East Coast this year compare to shipments last year? The Executive Branch had and has full power to obtain the information necessary to answer these and other questions. Unhappily, no one has exercised it. Instead, the government operates in the dark, comes forward with half measures, months or years too late. The only clear and undisputed fact is that a shortage of home heating oil and diesel fuels was first serious in the Midwest and has now spread nationwide. Daily, more areas report growing shortages of crisis proportions.

The statement pointed out the obstacles of the small business marketer who supplies 70% of the nation's home heating needs: a worldwide shortage of No. 2 oil which was more expensive than domestic No. 2, and an abundance of import tickets which did not encourage "... the bigger importers either to import for the account of the small man (unless for payment of a large commission) or to rent him storage capacity they would rather use for their own product.” . . .

INDUSTRY ASSESSMENT OF FUEL OIL SHORTAGE

Early in January some industry leaders felt that serious shortages might be averted. The Oil and Gas Journal of January 8, 1973, reported that "despite fear in political and consumer circles, indications in early January are that the industry still has the supply potential to ride through the test of the winter."

Other news of the industry reported by the Oil and Gas Journal of January 8, was that Petroleum Industry Research Foundation Incorporated (PIRINC) had completed a study that showed that oil supplies would be sufficient for the rest of the winter if refineries operated at 94 percent of capacity. The study did say, however, that additional imports would be needed to prevent local shortages.

The Oil and Gas Journal of January 1, 1973, reported that Shell and Mobil, caught with short supplies of fuel oil and little prospect of

new sources, indicated that they would allocate fuel oil to their cus tomers at some point in the winter.

INDEPENDENT REFINERIES SUFFERING CRUDE OIL SHORTAGES

A February 5, 1973, memorandum for the record, written by Wanda Porterfield of the Oil and Energy Division, recorded the comments of a meeting between United Refining Company representatives and OEP officials.

It was reported that Mr. Harry Logan, president of United, had visited officials of approximately 25 inland independent refiners to discuss their crude supplies. A number of those visited said they expected to run out of crude by April or May as the majors refused to supply them with crude oil. The majors were said to be using their own. crude in their refineries and were not willing to supply or exchange with the independents.

United also pointed out the problems that it has had with the OIAB over the past three years. First, most of the awards given had been extremely modest. Second, when United received its 1972 allocation in December, it discovered that it would be difficult to import that quantity by January 15, 1973, the deadline that was set.":"

MAJOR OIL COMPANIES CRITIQUE CAUSES OF SHORTAGES-
SHELL POSITION

An OEP memorandum of February 13, 1973 written by Howard Roberts summarized the February 1 meeting with Shell Oil Company officials.

According to the memo, Shell's September position was that increases of the crude oil import level and the distillate price ceiling were required if industry was to meet winter heating oil demand. As of the February 1 meeting, there had been no change on the pricing issue. Additionally, a temporary worldwide crude oil shortage was causing Shell to operate its refineries at 35,000 B/D below capacity.

Attached to the Roberts memorandum was Shell's update of its November 14, 1972 evaluation of the industry. The document said: Performance to Date

Phase III of the Economic Stabilization Act (effective
January 11), with very severe constraints, removed the price

17 Government officials also had similar estimates of the Oil Import Appeals Board, established in 1959 by Presidential Proclamation to receive petitions from oil importers who felt they could justify increased petroleum quotas from overseas. A section of a document entitled "Comments on OIAB Restructuring Guidelines Paper" referred by W. C. Truppner, Assistant Director for Resource Analysis of OEP, to Howard Roberts stated: The OIAB has performed very poorly over the past three years for reasons related both to organizational structure and personnel. While administratively attached to Interior it has been treated as totally independent although lacking staff resources to meet its increasing work load. Throughout its history it has been operating without guidance from Interior or the OPC. In fact, it has been widely considered that direct guidance would be improper. The Board has been discouraged from requesting additional allocations thus placing an assumed arbitrary limit on its capacity to grant relief. Under this modus operandi it has afforded no information to the Oil Policy Committee as to what it was doing or what its difficulties were, nor has the Oil Policy Committee provided the OIAB with any guidelines under which to perform its duties. Decisions have been characterized by lengthy delays while under consideration and lack of demonstrated relationship between the award and the verifiable need of the petitioner in many cases.

freeze on No. 2 heating oil that had prevailed since midAugust 1971. This action, coupled with the elimination of the Western Hemisphere preference on No. 2 heating oil and the suspension of quota controls on No. 2 heating oil, were steps in the right direction and undoubtedly has made some additional material available. Unfortunately, these programs were implemented too late to provide a remedy for the 19721973 winter fuel shortage which has been compounded by a worldwide crude shortage...

This short-fall versus forecast is primarily attributable to: (1) crude runs at an 89.7% rate versus a forecast of 91.4% (13 MBD); and (2) imports at the 351,000 B/D level for the above three light products as opposed to an anticipated 446,000 B/D import rate, a difference of 8 million barrels all of which is attributable to distillate. ...

Shell went on to indicate that its projection for the period January 20 through April 30, 1973 was refineries operating at about 90% of crude distillate capacity, or some 3% under effective maximum utilization. The reason for the short fall in refining capacity utilization was indicated to be a temporary shortage in world crude oil from which there was no anticipated easing until mid 1973. Shell went on to point out how the increase in price for tankers and product in the free world was making it particularly difficult to import additional products into the United States because of price controls.

TEXACO POSITION

OEP officials also met with Texaco spokesmen on February 1. A February 13 memorandum by Howard H. Roberts, Jr. provided the record of the meeting.

Roberts reported that Texaco representatives said their company ". . . had made every effort to operate its refineries at capacity and that the refineries were being operated at capacity now and would continue to be so operated if adequate crude was available to maximize middle distillate."

However, Texaco had experienced difficulty in obtaining crude oil. On January 16". . . Texaco had tried to buy product from 65 companies in the industry and 'could not get a drop." The crude shortage was an important reason why Texaco did not run its refineries at maximum capacity throughout the 4th quarter of 1972.

Concerning the distillate situation, Texaco said it had purchased significant quantities of No. 2 fuel oil, but that the market had dried up by September 15, 1972. At that time Texaco converted its refinery operations to maximize distillate yield.

In response to a question, Texaco indicated it had utilized its September supplemental allocations to the maximum extent possible. Texaco representatives stated that the company's failure to obtain the full quantity of crude needed was due to shortages of available crude rather than Texaco's unwillingness to pay the existing crude prices.

IMPACT OF PHASE III IS UNCERTAIN

Phase III of the President's economic plan went into effect in January of 1973.