placing the U.S. residual fuel oil production at parity with foreign imports. Interior held hearings, proposed rules have been published, but no affirmative action has been forthcoming from the administration. Instead, the one set of regulations that on desulfurization of imported residual fuel oil-has been suspended. Regulations alone can yield dramatic improvement in this sector with no Presidential action required.

Canadian Oil

Restrictions on crude oil imports from Canada into districts I-IV should be lifted. With the exception of residual fuel, the importation of products has been severly restricted since the outset of the program. Yet, refinery capacity has hardly kept pace with requirements-marking a severe shortcoming of the program. But, the OEP Report does not have any suggestions on this account and does not even attempt to measure national security requirements with respect to refining, much less with regard to competition. During 1971, these crude oil imports have been averaging 200,000 b/d below pipeline capacity. Paradoxically, U.S. controls on Canadian imports were imposed in 1970–71 when the closing of Tapline and reduced production in Libya disturbed world markets. The "Rube Goldberg in oil" regulations have effectively sabotaged 200,000 b/d of oil from a secure source.

On December 4, 1970, the President announced that companies importing Canadian oil would be permitted to use their overseas allocations for the purchase of more crude oil from Canada. That was. designed, according to the President, to "increase the supply of oil***" General Lincoln stated in his White House press conference on December 22, 1970, that “* * * making overseas tickets eligible against Canadian oil*** may well result in the import of Canadian oil up to the capacity of the pipeline from Canada.” The Cabinet-level Joint United States-Canadian Committee on Trade and Economic Affairs communique announced on November 25, 1970: "For 1971, it is expected that pipeline capacity would need to be fully used ***." Finally, on January 21, 1971, General Lincoln wrote the Chairman of this Committee:

Since pipeline movement in the United States *** has been close to or at capacity in recent weeks, I have no present reason to believe our regulations will impede use of any Canadian oil for which there is an economic demand.

To date, not one barrel of 1971 overseas crude oil allocations has been used for Canadian oil imports. All the assurances were illusory.

The Chairman also questioned why holders of overseas tickets were only permitted to exchange up to two-thirds of their overseas tickets for Canadian oil. General Lincoln's response was that this was necessary to avoid the attempts by importers to bring in more oil than the line could carry. Therefore, the rule would avoid "pre-emption of these facilities by a few at the expense of others ***." In other words, OEP regards the prorationing of the line as a justification for controlling imports. But this is far removed from national security and has in actuality operated to the detriment of national security.

The OEP steadfastly adheres to the Task Force concept that the United States might have to replace some of Canada's eastern im

ports in an emergency and that consequently, there should be spare capacity from Canada to the north-central United States to offset the resultant movement from the Gulf Coast to Canada. Without going into the long-term merits of this position, it is obviously a consideration for the long-term, not applicable to the actual conditions of 197071. Specifically, the failure to use Canadian imports to capacity did nothing to augment U.S. or Canadian security in the interval. These are precisely the circumstances in which Canadian oil should have been used to capacity. In fact, despite the tanker shortage, eastern Canada did not look to the U.S. Gulf Coast for crude oil.

Carryover

A partial solution is to permit a full carryover of unused crude-oil allocations. Such a provision will dampen and reverse crude oil price increases which are not required for national security. In the 1967 Middle East conflict companies were permitted to carry over their unused allocations to 1968 and 1969. Half of the carryover was within the formula overall import level and half was above it. This was one of the contributing factors in keeping prices from rising. But, now it is necessary to roll prices back. Consequently, all of the carryover should be above the formula level.

Allocate

As a final step all of the imports provided for 1971 should be allocated. At the White House press conference of December 22, 1970, General Lincoln placed great emphasis on the 100,000 b/d increase of imports into districts I-IV. The acting Oil Import Administrator said that the supply-demand gap had increased 152,000 b/d in district V. In both areas substantial portions of the increases have not been allocated. Holding them back bolsters prices. The remedy is to allocate. the entire authorized import level and provide for a full carryover to be extended for a 2-year period above formula levels as was pointed out by Chairman Proxmire in a speech on the Senate floor on September 20, 1971.

Such a provision would make for more efficient use of transportation and petroleum resources. So far as national security is concerned, it is difficult to understand why such a carryover would not be consistent with national security. Accordingly, this study concludes with a request that the OEP Director provide for a full carryover of unused 1970 and 1971 allocations to 1972 and that the entire proclamation authorized 1971 imports be allocated. If the OEP is not ready to recommend those actions, it at least should undertake an investigation to determine whether such action would be consistent with national security.

TABLE 1.-CRUDE OIL OUTPUT AND PROVED RESERVES: THE UNITED STATES, NORTH-SLOPE ALASKA, AND

Note: Proved reserves at end of year minus reserves at beginning of year equals net additions to reserves. Net additions plus production during year equals gross additions to reserves.

Sources: Joint Association Survey of Industry Drilling Costs (sec. 1), American Petroleum Institute, the Independent Petroleum Association of America, and the Mid-Continental Oil and Gas Association.