progress of the Alaskan pipeline. The most important factor, however, will be the shape of governmental policy towards the oil industry.

Much has been said in this report about the role played by the giant integrated petroleum firms in creating the current shortage. There also has been a significant contribution made by the United States government. The government has established a climate which encourages cooperative and exclusionary behavior by these firms. The Oil Import Program, the Depletion Allowance, the foreign tax credit, price controls, and prorationing legislation are all creations of the government. Some forms of joint ventures are sanctioned by government agencies. These policies have all contributed to the current gasoline shortage. The major integrated oil companies are, however, taking advantage of the present shortage to drive the only viable long-term source of price competition, the independent marketer, out of market after market.

Conclusions

The survey data lead to certain tentative conclusions about the operation of the various markets of the petroleum industry:

1. The eight largest majors have effectively controlled the output of many of the independent crude producers.

2. A high degree of control over crude is matched by relatively few crude exchanges with independents, an exclusionary practice which denies a high degree of flexibility to the independent sector while reserving it to the majors.

3. Independent refiners are largely dependent on the majors for their crude supply, but independents sell very little of their gasoline output back to major oil companies. Independent refiners sell the largest amount of their output to independent gasoline marketers and to their own stations. Thus, the welfare of the independent marketing sector is largely dependent on the well-being of independent refiners.

4. The continued existence and viability of the independent refiner is necessary for the survival of the independent marketer. This is especially true since the eight largest majors rarely sell gasoline to the independent marketers.

5. The major oil companies in general and the eight largest majors in particular have engaged in conduct which exemplifies their market power and has served to squeeze independents at both the refining and marketing levels. Such conduct and associated market power has its origin in the structural peculiarities of the petroleum industry and has limited the independents' share of the market to approximately onequarter of the total, especially in Districts 1 and 3, resulting in a threat to the continued viability of the independent sector in this market.

APPENDIX A

STRUCTURAL CHARACTERISTICS OF REGIONAL PAD DISTRICTS

The petroleum industry on a national basis has been discussed in the body of this report. The purpose of this appendix is to provide additional structural data presently available in a regional framework. Because much of the data in this industry are published according to PAD (Petroleum Administration for Defense) districts by the Department of Interior, Bureau of Mines, it is according to this geographical definition that these statistics are presented. However, as will become evident upon examining the following data, to a large extent, these geographical designations may be reasonable approximations for regional economic markets.

The Department of Interior, Bureau of Mines, identifies five Petroleum Administration for Defense (PAD) Districts in the United States. District 1 includes the East Coast and the Appalachian area; District 2 includes the midwestern states as well as Oklahoma, Kentucky, Tennessee, and Missouri; District 3 had the largest crude oil production of any of the Districts. Similiarly, the Rocky Mountain states; and District 5 includes the West Coast states including Alaska and Hawaii.1

RELATIVE IMPORTANCE OF FIVE DISTRICTS

The five Districts will be compared in the following three relevant areas of production and consumption: (1) production of domestic crude oil; (2) number and capacity of refineries; and (3) motor gasoline consumption.

PRODUCTION OF CRUDE OIL

Total U.S. production of crude oil was 9.6 million barrels per day in 1970. Because of the large amount of crude oil produced in Texas and Louisiana, District 3 had the largest crude oil production of any of the Districts. Similarly, the large production of California raised District 5 to second place among the Districts. The total for all Districts is shown below in Table 1. In Table 2, the interdistrict and imported shipments of crude oil are set forth.

TABLE 1.-Production of crude oil by district, 1970

NOTE.-Percentages may not add to 100 because of rounding.

Source: U.S. Department of the Interior, Bureau of Mines, Mineral Industry Surveys, "Crude Petroleum, Petroleum Products, and Natural-Gas Liquids: 1970," table 30, p. 36.

1 See Mineral Industry Surveys, "Petroleum Refineries in the United States and Puerto Rico," January 1, 1973, and similar report, Bureau of Mines, U.S. Department of the Interior.

TABLE 2.-Supply of crude oil by district, 1970

Source: U.S. Department of the Interior, Bureau of Mines, Mineral Industry Surveys, "Crude Petroleum " table 30, p. 36.

NUMBER OF CAPACITY OF REFINERIES

Total crude oil throughout capacity for operating refineries in the United States was 12.7 million barrels per day in 1970. Alternatively, gasoline output capacity for operating refineries was six million barrels per day in 1970.' The total number of operating refineries in the United States was 253. District 3 has the greatest number of refineries and amount of crude oil and gasoline capacity. District 2 and District 5 follow in order. The total for all Districts is shown in Table 3.

MOTOR GASOLINE CONSUMPTION

Total U.S. consumption of gasoline was 5.8 million barrels per day in 1970. The large population centers of District 1 and District 2 had the largest consumption. District 5 was in third place with 860,000 barrels a day consumed. The total for all Districts is shown below in Table 4. Interdistrict gasoline shipments and shipments of imported gasoline are provided in Table 5.

TABLE 3.-Number and capacity of petroleum refineries by district,

NOTE.-Figures may not add to totals because of rounding.

Source: U.S. Department of the Interior, Bureau of Mines, Mineral Industry Surveys, "Petroleum Refineries in the United States and Puerto Rico," table 1, p. 3.

2 For 1968, average United States percentage yield of gasoline per barrel of crude oil was approximately 44.7 percent. American Petroleum Institute, Petroleum Facts and Figures, 1971 edition, Post City Press, Incorporated, Baltimore, Maryland, p. 204.

TABLE 4.-Motor gasoline consumption by district, 1970

Source: U.S. Department of the Interior, Bureau of Mines, Mineral Industry Surveys, "Crude Petroleum..." table 30, p. 33.

TABLE 5.-Supply of gasoline by district, 1970

Source: U.8. Department of Interior, Bureau of Mines, Mineral Industry Surveys, "Crude Petroleum table 30, p. 33.

OVERVIEW OF DISTRICTS 1 THROUGH 5

It is apparent from Tables 1 through 5 that no District emerges as most important in all three of the categories. District 3 is most important in the production and refining of crude oil; however it is fourth in motor gasoline consumption. In contrast, District 1 is fifth and fourth in production and refining of crude oil but second in gasoline consumption. It is also apparent that District 1 must heavily import crude and gasoline from District 3 or from foreign sources. Further, District 2 must also import crude from District 3 or from foreign sources. Indeed, if the analysis of the industry is to include a complete examination of vertical integration, (i. e., production, refining, transportation, and distibution), a proper definition of the geographic market should include Districts 1, 2, and 3 in the crude market, and Districts 1 and 3 in the gasoline market. Districts 4 and 5 seem to be unique in that gasoline consumption requirements can be approximately met by internally produced crude oil and refined gasoline. In Table 6, the crude oil and product pipeline mileage by district provides further district distinction in that the largest crude oil pipeline mileage occurs in Districts 3, 2, and 4 respectively, while the largest product pipeline mileage occurs in Districts 2, 3, and 1 respectively.

District 5 does import about 30 percent of its crude oil, however. This precentage may drop considerably upon the use of Alaskan oil in District 5.