term possibility of shortages in certain grades or brands of gasoline. Without price controls, a sudden demand for certain products would have led to a price increase and would have caused some customers to shift to other products. This happens in every other product in the marketplace every day. It is remarkable that the only places where true shortages occur, where customers with money in hand, willing to pay the asking price, cannot get served, is in products under Government controls.

When Government rules require that a popular product be sold at a relatively low price, there is little to wonder at when lots of people want to buy that product.

The repeal of price controls, however, would not totally solve some of the longer range problems associated with gasoline production. A series of environmental regulations have attempted to ignore certain laws of chemistry and physics that tell us how much of what kind of product we can get from a barrel of crude oil. The necessity for unleaded gasoline in new cars has reduced the total output from a barrel. The continuing reduction in the amount of lead in leaded gasoline has had the same effect. And, neither one of those effects was neither unpredictable nor unstated at the time they were placed into effect.

EPA's continuing refusal to allow the use of other additives, such as MMT, in an effort to meet both customer demands and Government regulations, has still further diminished the industry's ability to obtain a given amount of gasoline from a barrel.

In the absence of price controls, the effect of all these Government regulations could be seen directly. The regulations would result in price increases because of the increased costs of the new processes and new investments required to meet Government standards. In that event, the citizens and their representatives could judge directly whether the higher prices were justified by the alleged good.

Because of controls, however, the effect is masked, at least for a short time. It shows up later, in spot shortages, because of rigidities imposed on the marketplace and in foregone investment. Again, it is hardly surprising that investors don't want to spend money to make expensive products when they are forbidden to sell those products at a market price.

A final source of difficulty is still another set of Government regulations, and public response to those regulations, concerning automobile performance and equipment standards. Now just without going into any detail, first of all the rigidity of the pollution control which was imposed by Congress in the regulations, in the Clean Air regulations, and the response which accompanied it in the shift in marketplace preference by customers who buy vans and light trucks and campers and recreation vehicles that are less subject to those regulations and also consume a great deal more gasoline, have something to do with the problem we are confronted with today.

Across the board these Government plans might have some hope of succeeding, if only Americans would just stay put and quit trying to change and improve things and better their lot in life. Bureaucratic planning will work only if everyone will stay in a straitjacket so the bureaucrats try to put us all there.

We have always been able to meet changing conditions in America by the freedom of individual choices and individual initiatives.

The sooner we can get back to that, the sooner we will do away with the need for hearings like today where we try to discover just which regulation created exactly which problem.

Let me say, Mr. Chairman, I agree with my friend from Louisiana who says the Congress also shares in this responsibility. Because the regulations we are all talking about have either been directly required or have been very often reviewed by various committees of the Congress and the laws that are enacted by the Congress.

The CHAIRMAN. Senator Durkin.

STATEMENT OF HON. JOHN A. DURKIN, A U.S. SENATOR FROM THE STATE OF NEW HAMPSHIRE

Senator DURKIN. Mr. Chairman, thank you for calling these hearings. I would like to ask unanimous consent my full statement be printed in the record, and I would just paraphrase.

I am one who was involved in the fight against decontrol of homeheating oil, a fight that we lost, and now we see homeheating oil prices jumping upward, especially in New Hampshire and New England and the Northeast. It is a rare day that I thank the oil industry, but I would like to publicly thank the oil industry for its efforts in support of our fight against the decontrol of gasoline.

The situation is this: Create a shortage, artificially; increase pressure to decontrol and literally charge what the traffic will bear. When we started to count votes on a possible motion to decontrol a month or so ago, it looked very bleak. But the actions of several of the oil companies in allocating the unleaded gas and creating the artificial shortage, I think, has made it quite likely that if the administration is foolish enough to send up a decontrol proposal which violates its inflation guidelines, that we have the votes in the Senate to defeat the effort to decontrol.

I find it ironic that the British press has charged Shell Oil with illegally supplying oil to Rhodesia but it cannot supply its own dealers in this country. I find that quite disturbing.

Thank you, Mr. Chairman.

[The prepared statement of Senator Durkin follows:]

STATEMENT OF HON. JOHN A. DURKIN, A U.S. SENATOR FROM THE STATE OF NEW HAMPSHIRE

Mr. Chairman, the events which require this hearing have created one of the most paradoxical situations I have encountered since I began serving on the Energy Committee when it was created nearly two years ago. For months, high officials of the Department of Energy have been threatening to ask Congress to lift all controls on gasoline prices. Their major justification for this assault on New Hampshire and New England gasoline consumers was that the price would not rise more than about one cent per gallon and that in return the oil companies would invest in additional domestic refining capacity. Yet the decontrol proposal was never made.

Now, without any advance warning, the price of gasoline and of home heating oil which is essential to heat Northeastern homes has begun to skyrocket at the same time that shortgages of certain types of gasoline are being announced. The same Administration, which recently announced an anti-inflation policy, declared that gasoline price controls will be lifted the day before the Department of Labor revealed that gasoline and home heating oil price hikes were in large part responsible for the latest dose of double-digit inflation in the wholesale price index. Thus, it appears that Congress is being asked to decontrol gasoline at exactly the time when the need for continued controls is greatest.

And this improbable chain of events is not the final irony. The oil companies have tried for years to rid themselves of even the slightest scrutiny or involvement by the public in their multinational wheeling and dealing on the theory that an unregulated market would enable them to produce oil in the most efficient possible manner. Those of us who oppose delegating to an international cartel a business so fundamental to our constituents have increasingly been pressured to go along with the giant oil companies because it is the easy way out of what is admittedly a very complicated set of problems.

But now the oil companies have again shown their true colors. Faced with a shortage of unleaded gasoline, Shell Oil Co., best known for its role as one of the largest single suppliers of illegal oil to Rhodesia in violation of United Nations sanctions, announced that it would begin rationing its retail outlets. Asked by The Washington Post why this was necessary, the company responded by admitting that it had underestimated this year's gasoline demand and had been unable to meet the need in part because two of its refineries had broken down unexpectedly. It followed these statements with the assertion that the problem resulted from Federal regulations. How gasoline controls tould have been responsible for these short-sighted corporate predictions and how gasoline controls could have permitted two refineries to be in such poor mechanical condition that they broke down unexpectedly is beyond me.

I hope this hearing will shed light on the subject.

The CHAIRMAN. Senator Metzenbaum.

STATEMENT OF HON. HOWARD M. METZENBAUM, A U.S. SENATOR FROM THE STATE OF OHIO

Senator METZENBAUM. Mr. Chairman, first of all let me thank you for scheduling this hearing. It is obvious from the number of inquiries that have been received regarding these hearings and the number of people here today there was considerable interest on the part of the American people about these alleged gasoline shortages.

When these hearings were requested some 10 days ago, Shell Oil Co. had just announced a plan to ration gasoline to its dealers. I had the feeling then, similar to that of many other Americans, that another familiar scenario was about to be played out. It was deja vu.

Within a short period of time after the Shell announcement, Amoco announced it was on the verge of rationing gasoline, and soon the whole team got in on the act; Mobil, Texaco, and Conoco, while not announcing rationing, were saying their supplies were "tight."

All of this was happening against the backdrop of an expected announcement by the administration that the President would soon ask Congress to approve the end of price controls on gasoline.

Over the 2 years of the debate on natural gas pricing, how often had we heard the stories about the impending dire shortages of natural gas? How often were we told that we would "freeze in the dark"? And so began the push to deregulate the price of natural gas. We all know how well it worked.

And as the administration's lobbying efforts peaked, with the American Gas Association standing at its side, we were bombarded with threats of gas shortages, dollar crises, and reports of rising oil imports which would somehow be lowered if we deregulated the price of natural gas. But they overlooked sharing with Congress and the American people the facts about the amount of available gas in the country. Even before the ink was dry on the natural gas bill, we suddenly found ourselves with a glut of natural gas.

It took some of the best public relations men in the business to come up with the explanation. It seems it is not a "glut." It is now a

"bubble." The one I liked even better should be nominated for some sort of award. It wasn't a glut. It wasn't a bubble. It was only an "overdeliverability problem."

And then there was the Arab oil embargo in 1973. We are only now starting to find out about some of the overcharges made by the giant oil companies. We may never know everything that happened. But we do know that service stations were out of gas throughout the country. And we do know that all of us had to wait in long lines to obtain gasoline even when there was no shortage.

Suddenly, when there no longer was a shortage, we found ourselves faced with prices that had nearly doubled and there was little that could be done about it. The answer we got then-the same one we are getting now-was "either gasoline prices are going to go up or there won't be enough gasoline around."

So, if I appear somewhat skeptical, it is because I am. I have been there before. So has the American public.

I might feel somewhat better if I thought the Department of Energy was protecting the American consumer. But unfortunately this does not appear to be the case. The industry says it wants gasoline price decontrol. The Department of Energy says "you'll get it.'

But the ones who really "get it" are the American consumers who must pay the price; maybe $40 billion in the next 6 years for natural gas increases and who knows how much more for gasoline if the oil industry has its way.

On the issue before us today, I think the American public is owed an answer to a basic question: "What is really going on here?"

To get that answer, I feel we must ask several questions: Only 3 months before Shell asked for permission to ration its supplies, it and other companies met with the Department of Energy and told them there was no supply problem. Why wasn't there the slightest hint that these alleged shortages could develop?

It is really true, as the oil industry appears to be telling the public, that a few weeks of good weather can create shortages requiring rationing?

Since the oil industry has known for nearly 4 years that every new car purchased would be using lead-free gasoline, what has it been doing to meet the very predictable increase in demand?

If there are problems with Federal regulations, why hasn't the Department of Energy addressed these problems and suggested changes instead of just calling for decontrol?

Mr. Chairman, I certainly look forward to getting some answers to these questions today.

However, there is one more question that I would like to pose and that simply is: "Why should the oil industry get such special treatment in the war against inflation?"

In spite of our headlong rush toward double-digit inflation, Alfred Kahn, the President's chief inflation fighter, just last Wednesday told the Joint Economic Committee that he believes the Government has to let the price of energy go up.

This in spite of the fact that the November 1 Consumer Price Index shows that double-digit inflation could be around the corner, and gasoline price increases led the way.

Believe it or not, these gasoline increases have come with price controls. What will happen to the American consumer if we have no controls? This administration appears hell-bent to break the sound barrier of gasoline pricing; the dollar a gallon price. I can assure you that price decontrol is a sure way of getting there.

Mr. Chairman, I want to commend you for moving with dispatch to schedule this hearing. You have been a strong voice for consumer concerns about oil industry practices over a period of many years. I am proud to be a member of your committee. I look forward to working with you in the 96th Congress.

The CHAIRMAN. Thank you, Senator Metzenbaum.

Senator Melcher.

Senator MELCHER. No statement.

The CHAIRMAN. The Chair would point out our witnesses today, John F. O'Leary, the Deputy Secretary of Energy, accompanied by Lynn Coleman, counsel, and representing the Environmental Protection Agency is Mr. Marvin Durning, Assistant Administrator for Enforcement, and accompanying him is Mr. David Hawkins, Assistant Administrator for Air, Noise and Radiation of the Environmental Protection Agency. Mr. Ron E. Hall, general manager, oil products, and Mr. James H. DeNike, vice president, Shell Oil Co., Houston, Tex. Mr. Hall and Mr. DeNike should be up here.

As I indicated earlier, it is the Chair's intention to hear from each of the three witnesses. When we have heard from the three, we will go to the questioning. I think that is the fairest way. A question will be put to one witness and that question will apply to all three witnesses in most instances unless it is a question obviously directed to the individual on an individual basis.

But the Chair will give an opportunity for all to be heard. Our purpose here is to put them all at one table and find out what the problem is, if we can. This is a preliminary hearing, and we are trying to get facts. We will go from there after we have completed this round of hearings.

Mr. O'Leary, you are first. We are delighted to welcome all of you

to the committee.

STATEMENT OF JOHN F. O'LEARY, DEPUTY SECRETARY, DEPARTMENT OF ENERGY; ACCOMPANIED BY LYNN COLEMAN, GENERAL COUNSEL

Mr. O'LEARY. Mr. Chairman, it is a pleasure to be with you this morning. I would like to present to the committee for inclusion in the record the formal statement that I have prepared and I would like to brief that.

The CHAIRMAN. Your entire statement will go in the record.

Mr. O'LEARY. It probably will be useful if I brief for the committee what I regard as the principal elements contained in the statement. The CHAIRMAN. That would be very good.

Mr. O'LEARY. First of all, let me summarize the present and future gasoline supply situation. At the present time, supplies of motor gasoline appear to be adequate to meet national needs. There are some problems being experienced by individual refiners; which I will discuss in