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if utter dependency on utterly undependable foreign oil sources is not to eventuate.
At this very moment, our imports of crude oil and its products are averaging nearly 6 million barrels per day, according to the latest weekly report of the Federal Energy Administration. Of this total, 877,000 are coming into the west coast.
Thus imports now equal 37 percent of national demand and 38 percent of west coast demand. The only way continuous growth in imports can even be slowed is for us, as a Nation, to develop every single source of indigenous energy we have, and that most certainly includes the oil resource off southern California.
I have read the analysis Sherman H. Clarke, Associates prepared for Western Oil and Gas Association. The most important conclusion, to me, to be drawn from that report is that for the period to 1990 oil is going to be the swing fuel. That is, after giving full consideration to the contributions to energy supply by coal, gas, hydropower, geothermal, nuclear, solar, and other exotic sources, the burden of filling the gap between supply and requirements will be on oil.
Forecasting is an inexact science, as the Clarke people point out, so that no one can tell with pinpoint accuracy what the total demand for energy will be nor what part of it can be met by domestic sources, but every student of the subject agrees that at least until 1990, oil will be the major component of the energy spectrum. That oil must come from somewhere. My sincere belief is that as much of it as we can get should come from domestic sources.
At the moment there is a world-wide oil surplus, estimated at about 1 billion barrels per day by the Federal Government and 3 million by the Saudi Arabian oil minister.
One unusual characteristic of the surplus is that it has had little if any effect on prices. In fact, the governments of the exporting countries have recently announced increases of from 22 to 33 cents per barrel.
I have said that price action in the face of the surplus is unusual, but that is not its most disturbing feature. What concerns me, and what should concern every citizen of the United States, is that the surplus exists only by the grace of the exporting countries, some of whom have already cut their production levels.
I do not pretend to know why the exporting countries as a group have let the surplus develop, nor why they let it continue. I do know that they have demonstrated their power to do exactly as they please with their oil. Thus the surplus could disappear almost literally overnight, and despite recent news reports out of Washington, the United States could do nothing about it unless we want to return to the days of gunboat diplomacy, and I am not so sure that even that would work. In any dispassionate view of the near-term-to 1990 at least-energy scene, oil is in the foreground. In any dispassionate view of the energy scene in light of present world oil conditions, domestic oil should be foremost in the foreground. It may be unfortunate from the point of view of some environmentalists and ecologists that some of that oil is offshore southern California rather than in the middle of the Mojave Desert, say, but oil is where the good Lord put it, not the oil industry. Much time has been wasted, and it is still wasting. For the sake of
the Nation, we had better get on with the job of developing it, no matter where it is.
Senator TUNNEY. Thank you. I appreciate your statement, Mr. Fox. Mr. Anderson, I was interested in your reference to the development of the North Sea. It is my understanding that in Scotland prior to the time there was any development of the North Sea oil and gas resources, there were coastal zone management commissions in place and operating, and as a matter of fact, there was a delay of quite a few months in the drilling until the planning agency requirements had been met by the oil companies.
It is also my understanding that the oil companies have provided many millions of dollars to local governments in Scotland for the purpose of assisting them in their planning activity. As a matter of fact, it is my understanding there is approximately $100. million provided by the oil companies for that planning component.
I wonder why it is the oil companies have not in this country, say in southern California, made the same offer to provide money for a planning component, for instance, to assist us with our State Coastal Commission activities?
Mr. ANDERSON. I am not prepared to comment on that. Perhaps some of the other gentlemen are more adequately informed of such an area. I am unaware of what was done by the American oil companies in the North Sea area.
Senator TUNNEY. You are aware that various counties in Scotland had planning commissions in place before the drilling started? Were you aware of that?
Mr. ANDERSON. No. The role of our company is a functional role and it is drilling for oil. The oil companies are clients of ours.
Senator TUNNEY. Mr. Clark, do you have any information?
Senator TUNNEY. One of the things that is of great concern, I think, to all of us, is not only the question of the safety of the drilling itself and the preventing of spills but also the onshore infrastructure that has to be built in order to service the drilling rigs offshore.
I wonder if you would care to comment, Mr. Fox, if your association has given any consideration to those problems that are so closely associated with any offshore drilling program?
Mr. Fox. Mr. Manning can answer that better than I can. However, I will take a shot at it. My understanding of the proposed offshore development here is that the resulting production will in all probability go to a large extent to present refining centers. In other words, it will not be necessary to build and construct or erect, or whatever, a great number of additional refineries to be specific. Much of that oil, if not most of it, will be transported to refining centers now in existence in the State. So, the infrastructure, as you characterize it-sure, there will be some addition, no doubt about that. But to envision such a thing as a shoreline with a refinery every 50 feet because of this new production is quite exaggerated.
Mr. MANNING. I would like to comment briefly. California, of course, is a production State and has facilities in existence, a great many of which are on the shoreline for various reasons. Those facilities would function within the offshore area. Also, additional facilities to produce products are not really a function of the offshore devel
opment as much as they are results of consumer demand or increased demand.
Let's assume the offshore is not developed but we still need 4 million barrels a day in demand, then increased facilities would exist with or without offshore development.
Except for the fact the Coastal Commission will have a responsibility in the future for establishing a plan for the management of the coastal area that is going to encompass any additional refineries or infrastructure whether the source of the oil supply comes from the Midwest, Alaska, or offshore management. We, of course, work with the Coastal Commission on a daily basis because there are many facilities that come within their jurisdiction. Refining, modification of member companies, terminal facilities, Lave been permitted, explored, denied by the Coastal Commission. We are working closely with the Commission in reviewing and discussing with the staff, in appearing before the various boards, and State commissions, relative to oil matters.
I don't think it is the intent of the Coastal Commission Act to stop activity in California. I think it is to manage it properly. We are working with the Commission on that basis.
Senator TUNNEY. Has your association indicated any willingness to put up money such as the oil companies did in Scotland to help with the Coastal Management Plan?
Mr. Manning. I presume the companies were complying with a national law. policy or requirement. I don't know if it wasSenator TUNNEY. Are you inviting such a regulation? Mr. MANNING. I am afraid not.
Senator TUNNEY. Senator Stevens, comments or questions? Senator STEVENS. I will have to look it up. My memory is that the arrangement in Scotland is similar to the one in Cook Inlet. The oil industry prepaid the taxes that would be due our local government for 10 years, to enable them to have the money to take care of the coastal zone management concept there. That was after the discovery. It wasn't preleasing. It was the developmental period we were involved in. I am interested in your analysis. Conflicts a little with some of the projections I have seen. It is a little less optimistic in terms of the demand structure here. It indicates there wouldn't be a displacement of some of the imports that could be reassigned to some of the other places in the country and is more pessimistic as to your demand supply picture here. Is that a recent study you have done?
Mr. CLARKE. Yes, sir. Just completed a few months ago. We tried to incorporate in our evaluation, conservation, to the extent we think it is going to be realized. We tried to take the practical economics into account, time lags in getting new legislation in terms of insulation or anything like that. These things are desirable but they take time. However, recognizing these, we have reduced the growth rate in demand from 4-plus percent a year down to about 3 percent in total energy, Our oil and gas combined in southern California, we have a growth rate of only 2.5 percent.
I don't think we have an exceptional supply/demand forecast. Our supply is perhaps pessimistic. I have the benefit of working all over the country and world. in foreign countries, with geologists and so on
and the view of the resource base in the United States and Canada and literally throughout the world, is in a trend of decline.
We are anticipating there is less there than we thought 10 years ago or 5 years ago. Perhaps we reflect the pessimism as to how much can be found. We think it is true that it will take a long time to develop the resources, and the response will be far lower than many people stated.
I have done a study in Canada. Price elasticity of supply for the first 5 years is less than 0.1 with their production peaking by 1976, and if their prices don't rise dramatically soon, they will be on a decline within 2 or 3 years.
Costs are going up rapidly. I notice you said the price was just about right. I am afraid the costs are going up twice as rapidly with inflation, and we will have to have a real increase in price if we are to get all the oil that is available.
Senator STEVENS. You are looking at that in terms of actual costrelated increase and not a price increase to retard demand?
Mr. CLARKE. Yes, sir; absolutely. I don't agree with putting an exceptional tax on energy use. You have to think of the economic activity when you are doing these things and we have already experienced real problems this year.
We have declining real disposable income. Our problems are partially energy related. We will kill the economy if you try to do things in too extreme a manner.
We don't have alternative things to do with our people. You have seen the analysis of Hudson-Jorgenson where they talk about much lower rates in energy use if you turn them to services. What services? This is a basic question we are faced with. It takes time to make basic changes in the economy. As far as we can see through 1980 and 1990, we will need a growing energy use and we will have a tough time providing the adequate supply from domestic sources.
Senator STEVENS. Mr. Manning, I meant no disrespect to your industry when I said they don't have the ability to go offshore, and I appreciate your stating it categorically. I think we should realize the impact of drilling offshore. It is no longer $150,000 a well. It cost $3 million for drilling a dry hole in my state last month, and it is not something you can do as easily as the old wildcat days.
Mr. MANNING. In line with the comments about the voluntary contributions in the North Sea, in a sense the development of this environmental assessment is a planning function we are conducting to deal with the environmental problems and to be able to state clearly what we anticipate, and also we have committed ourselves voluntarily to spend substantial funds in terms of oil co-ops which would be greatly expanded in southern California.
Mr. Fox. Senator Stevens, I don't want to misquote you so I will try to get you, and you correct me if I am wrong, but I think earlier you commented to the effect that you thought the price of oil was too high. Am I correct?
Senator STEVENS. I think the world price of oil is too high.
Mr. Fox. World price of oil is too high. A couple of minutes ago you said it cost $3 million to drill a dry hole in Alaska. Where is that $3 million coming from, multiplied by however many times you want to multiply? Where is it coming from if the price of oil is not high?
Senator STEVENS. If it is cost related, we will have to pay it, but if it is based on a potentate over in the Middle East, that is what I am talking about. If we use their prices in setting our own, we are wrong. If the industry demonstrated increases are needed because of cost and inflation, that is a different matter.
When I went to Congress, foreign oil was $1.67 a barrel. The increase has nothing to do with economics. It is due to foreign government fiat, and we can't afford to let our pricing mechanism be based on their decisions. There were some that said let it flow to the world price. Well, it is temporary now, not cost related.
Mr. Fox. Do you think in view of the fact that it cost $3 million to drill the dry hole, do you think the price of domestic oil, U.S. crude, is exorbitant?
Senator STEVENS. At the current level of $7 a barrel, no. Keep in mind that the people drilling a $3 million hole thought they would be hitting a $6 million barrel well; that would be a cheap investment.
If we could keep out the foreign oil today, we would still have gasoline at 40 cents a gallon.
Mr. Fox. We are selling it at 40 cents a gallon and paying 14 cents in taxes.
Mr. MANNING. Senator, we appreciate appearing and the courtesy of your staff in Washington and here in California.
Senator TUNNEY. Thank you very much. I appreciate your being here. There is one witness that has indicated that she would like to testify and that is Mrs. Johanna Hofer, who lives in Los Angeles and is a member of the Sierra Club. Mrs. Hofer, you have 5 minutes.
STATEMENT OF JOHANNA HOFER, ARCADIA, CALIF.
Mrs. HOFER. I do live in Arcadia, California. I would like to mention something to you, gentlemen, first. There was someone sitting to my left, a gentleman, and Senator Stevens said, "I am going back to God's country," and I said, "Where does he mean, Alaska? He couldn't mean Washington. That is the devil's country."
Senator STEVENS. We get out once in a while. I am going to Alaska tomorrow morning.
Mrs. HOFER. I live at 875 Monte Verde Drive, Arcadia, Calif. I am a member of the Sierra Club, but I appear today as a very concerned mother, wife, and citizen.
I believe ecology and humanity are synonymous, there is a lifeline between the two.
Man has progressed through the ages from caveman to controller of the giant computer, and he has reached the Moon with the help of solar energy. We also know that solar energy is limitless and that when the Sun becomes extinct we close the book of time and mankind. Why is it that we have been so reluctant and slow to pursue this most natural form of energy?
Although I am neither scientist nor engineer, I know in my heart, and so do most of you men and women in this audience, that man does not live by bread alone. Let us add to this cliche, industry and transportation do not and need not function by oil alone.
You gentlemen from Washington and in industry know that in the U.S. Patent Office many marvelous and miraculous patents lie buried