SUPPLY AND PRICE OF LEADED AND UNLEADED GASOLINE MONDAY, DECEMBER 11, 1978 U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, D.C. The committee met, pursuant to notice, at 9:30 a.m., in room 3110, Dirksen Office Building, Hon. Henry M. Jackson (chairman) presiding. Present: Senators Jackson, Johnston, Durkin, Metzenbaum, cher, McClure, Weicker, and Domenici. Also present: Benjamin S. Cooper, professional staff member; James T. Bruce, counsel; and Danny Boggs, deputy minority counsel. OPENING STATEMENT OF HON. HENRY M. JACKSON, A U.S. SENATOR FROM THE STATE OF WASHINGTON The CHAIRMAN. Today's hearing is to explore the outlook for gasoline supply and prices. We are meeting at a time when the major refiners with the largest gasoline sales-Shell, Amoco, and Texacoare imposing, or preparing to impose, allocation of gasoline supplies on their customers. In August 1978 the Department of Energy, after consultation with 16 major refiners, including Shell, Amoco, and Texaco, concluded that gasoline supplies would be adequate through 1980. Privately and publicly, the adequacy of gasoline supply has been offered by both the oil companies and the Department as evidence that decontrol of gasoline prices will have only a minor impact on consumers. Recent announcements, apparently indicating supply difficulties by the largest gasoline producers, are creating a crisis of credibility for both the industry and the Federal Government. The public is deeply skeptical of the motivation of the oil companies. People do not understand why there should be any shortages of gasoline amid reports of a world oil glut. They do not understand why there should be large price differentials between leaded and unleaded gasoline. There is, it seems to me, ample justification for their skepticism. The oil companies appear to be offering the public a choice between shortages and ever-rising gasoline prices. I can think of no strategy less likely to gain the industry's objective of decontrol. The public is deadly serious about the battle against inflation. In this battle, uncontrolled prices for a commodity as essential as gasoline can only be accepted if the public has confidence in the ability of the systemboth industry and Government-to provide for the reasonable requirements of the economy. Even the appearance of gasoline shortages will be completely counterproductive to the relaxation of the Federal intervention in the petroleum market. On the contrary, the situation we are confronting today only enhances the likelihood of a further expansion of the role of Federal authority in assuring the availability of supplies at equitable prices to the Nation's consumers. These authorities exist. Section 4 of the Emergency Petroleum Allocation Act of 1973 provides basic Federal price and allocation authority. In addition, section 14 permits the President to require adjustments to the operations of any domestic refinery to assure the production of refined petroleum products in the proportions he finds necessary to achieve the purposes of the act. Section 15 provides complementary authority for the President to control crude oil and refined product inventories. This hearing will offer the Department of Energy, the Environmental Protection Agency and Shell Oil Co., the leading producer of gasoline, the opportunity to explain their views of the underlying causes of the present alarm over gasoline supply. I hope these explanations are persuasive. If they are not, I believe that the administration's advocacy in the decontrol of gasoline will encounter serious difficulty in the Congress. The Congress has the right to review and disapprove any such proposal, whether submitted before or after May 31, 1979. In my view, approval is unlikely without real assurance that a decontrolled market will protect consumers from both shortages and price increases. The Chair would like to suggest that in the interest of good orderly procedure, we ask that the three participants be at the table at the same time, and the Chair would further suggest that all three witnesses make their statements before we proceed to ask questions. If there is no objection to that procedure, I think it will save a lot of time and trouble. Would any member wish to comment? STATEMENT OF HON. J. BENNETT JOHNSTON, A U.S. SENATOR FROM THE STATE OF LOUISIANA Senator JOHNSTON. Mr. Chairman, in 1973 the Congress passed the Emergency Petroleum Allocation Act to deal with the emergency of the oil embargo and with the emergency of the shortages at that time. The Congress has left that law in place ever since without substantial change. We are here today to study the effects of that law, and the regulations enacted thereunder, and the other laws and regulations authorized by the Congress and put into effect by the Environmental Protection Agency. Today, 5 years later, we are still there, still with the same kind of regulation, which is not working, and which is producing the shortages of high octane unleaded gasoline that we have today. Shell, Texaco, and Amoco and others have a shortage of high octane unleaded gasoline. There is no shortage of gasoline, and there is not predicted to be one. There is certainly no shortage of crude oil. The supply tightness, if that is the word, is not expected to be serious but it is directly caused by the statutory and regulatory scheme now in place. That statutory and regulatory scheme involved around, first, the lack of any refinery policy in this country. Many of us on this committee have talked for years for the need for a coherent refinery policy. If we do not get one, we will have more shortages, not only in unleaded gasoline but in all oil products. We are now some 2 million barrels a day short in refinery capacity, and we are going to continue to be as long as our policy discourages building of refineries domestically and the configuration of refineries domestically. Second, we have an overly restrictive and outdated energy regulatory scheme. It does not work. It cannot work. It is capricious. The regulatory scheme in this country today is designed around a hope of deregulating gasoline. Consequently, for the last year or over a year nothing has been done to update that regulatory scheme while we waited to decontrol gasoline. Everybody has known gasoline should have been decontrolled a long time ago. It could have been decontrolled, and the supply situation would have been eased without decreasing the price of gasoline. The decisions not to decontrol gasoline was a political decision. It was a political decision for the purpose of avoiding trouble with natural gas decontrol. Everybody knows that. The longer we have kept it in with its capricious nature and its unworkable nature, the more dislocations it has produced. We search for scapegoats-namely, the big oil companies, which are fat, easy targets and they may be guilty of something here, I don't know-but I think our hearing will reveal that. I hope in the search for a scapegoat we in Congress are willing to take our share of the blame. It is our regulatory scheme. We set up the laws. We enacted the laws. We have the right to repeal them. But if we don't take our share of the blame, we should at least realize our responsibility to change those laws and set up a refinery policy that makes some sense. One think that is very clear. If we do continue the present policy, both statutory and regulatory, we will have some very deep shortages. We will have a situation that will require, indeed, rationing, which is not now necessary and can easily be avoided if we will just enact some sensible laws and regulations. The CHAIRMAN. Thank you Senator Johnston. STATEMENT OF HON. JAMES A. McCLURE, A U.S. SENATOR FROM THE STATE OF IDAHO Senator MCCLURE. Mr. Chairman, today's hearings are seen by some as an effort to discover what evil force is responsible for the possibility of a shortage of gasoline under current conditions. The answer is really not very hard to find. The Congress can pass laws, and DOE and EPÅ can attempt to administer them, but there are certain laws that none of us can repeal or alter. One of these is the law of demand, which tells us that people will buy more of almost anything at a lower price than they will at a higher price. Ignorance of this law is almost entirely responsible for the short accepted if the public has confidence in the ability of the system— both industry and Government-to provide for the reasonable requirements of the economy. Even the appearance of gasoline shortages will be completely counterproductive to the relaxation of the Federal intervention in the petroleum market. On the contrary, the situation we are confronting today only enhances the likelihood of a further expansion of the role of Federal authority in assuring the availability of supplies at equitable prices to the Nation's consumers. These authorities exist. Section 4 of the Emergency Petroleum Allocation Act of 1973 provides basic Federal price and allocation authority. In addition, section 14 permits the President to require adjustments to the operations of any domestic refinery to assure the production of refined petroleum products in the proportions he finds necessary to achieve the purposes of the act. Section 15 provides complementary authority for the President to control crude oil and refined product inventories. This hearing will offer the Department of Energy, the Environmental Protection Agency and Shell Oil Co., the leading producer of gasoline, the opportunity to explain their views of the underlying causes of the present alarm over gasoline supply. I hope these explanations are persuasive. If they are not, I believe that the administration's advocacy in the decontrol of gasoline will encounter serious difficulty in the Congress. The Congress has the right to review and disapprove any such proposal, whether submitted before or after May 31, 1979. In my view, approval is unlikely without real assurance that a decontrolled market will protect consumers from both shortages and price increases. The Chair would like to suggest that in the interest of good orderly procedure, we ask that the three participants be at the table at the same time, and the Chair would further suggest that all three witnesses make their statements before we proceed to ask questions. If there is no objection to that procedure, I think it will save a lot of time and trouble. Would any member wish to comment? STATEMENT OF HON. J. BENNETT JOHNSTON, A U.S. SENATOR FROM THE STATE OF LOUISIANA Senator JOHNSTON. Mr. Chairman, in 1973 the Congress passed the Emergency Petroleum Allocation Act to deal with the emergency of the oil embargo and with the emergency of the shortages at that time. The Congress has left that law in place ever since without substantial change. We are here today to study the effects of that law, and the regulations enacted thereunder, and the other laws and regulations authorized by the Congress and put into effect by the Environmental Protection Agency. Today, 5 years later, we are still there, still with the same kind of regulation, which is not working, and which is producing the shortages of high octane unleaded gasoline that we have today. Shell, Texaco, and Amoco and others have a shortage of high octane unleaded gasoline. There is no shortage of gasoline, and there is not predicted to be one. There is certainly no shortage of crude oil. The supply tightness, if that is the word, is not expected to be serious but it is directly caused by the statutory and regulatory scheme now in place. That statutory and regulatory scheme involved around, first, the lack of any refinery policy in this country. Many of us on this committee have talked for years for the need for a coherent refinery policy. If we do not get one, we will have more shortages, not only in unleaded gasoline but in all oil products. We are now some 2 million barrels a day short in refinery capacity, and we are going to continue to be as long as our policy discourages building of refineries domestically and the configuration of refineries domestically. Second, we have an overly restrictive and outdated energy regulatory scheme. It does not work. It cannot work. It is capricious. The regulatory scheme in this country today is designed around a hope of deregulating gasoline. Consequently, for the last year or over a year nothing has been done to update that regulatory scheme while we waited to decontrol gasoline. Everybody has known gasoline should have been decontrolled a long time ago. It could have been decontrolled, and the supply situation would have been eased without decreasing the price of gasoline. The decisions not to decontrol gasoline was a political decision. It was a political decision for the purpose of avoiding trouble with natural gas decontrol. Everybody knows that. The longer we have kept it in with its capricious nature and its unworkable nature, the more dislocations it has produced. We search for scapegoats—namely, the big oil companies, which are fat, easy targets and they may be guilty of something here, I don't know-but I think our hearing will reveal that. I hope in the search for a scapegoat we in Congress are willing to take our share of the blame. It is our regulatory scheme. We set up the laws. We enacted the laws. We have the right to repeal them. But if we don't take our share of the blame, we should at least realize our responsibility to change those laws and set up a refinery policy that makes some sense. One think that is very clear. If we do continue the present policy, both statutory and regulatory, we will have some very deep shortages. We will have a situation that will require, indeed, rationing, which is not now necessary and can easily be avoided if we will just enact some sensible laws and regulations. The CHAIRMAN. Thank you Senator Johnston. STATEMENT OF HON. JAMES A. McCLURE, A U.S. SENATOR FROM THE STATE OF IDAHO Senator MCCLURE. Mr. Chairman, today's hearings are seen by some as an effort to discover what evil force is responsible for the possibility of a shortage of gasoline under current conditions. The answer is really not very hard to find. The Congress can pass laws, and DOE and EPA can attempt to administer them, but there are certain laws that none of us can repeal or alter. One of these is the law of demand, which tells us that people will buy more of almost anything at a lower price than they will at a higher price. Ignorance of this law is almost entirely responsible for the short |