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gradual elimination of the domestic industry and eventual monopoly in the petroleum industry.
EFFECT OF TRADE AGREEMENTS ON DOMESTIC CONSERVATION PROGRAM
Conservation of our natural resources is of great importance to every citizen of the United States. Over a period of many years, the petroleum industry and the State and Federal governments have developed a program to insure the greatest recovery from our oil reserves. One of the most important aspects of the program is the orderly control of crude production in accordance with sonnd engineering practices to prevent waste both before and after the crude oil is produced. Supplies in excess of market needs contributes directly to waste by creating unnecessary stocks above ground subject to loss by evaporation and uneconomic use. The most efficient storage is underground in the original reservoirs.
The efficient meeting of requirements depends on effective control of supply. The state regulatory agencies exert control over the domestic production of crude petroleum and allied products. In doing this, these agencies are assisted by the information made available through the Interstate Oil Compact Commission and by the estimates of demand prepared monthly by the U. S. Bureau of Mines. An additional source of supply, however, enters the same markets. This supply consists of imported crude petroleum and refined products. The state agencies have no control over the volume of this foreign oil to be imported.
During the period following the imposition of the excise taxes on petroleum imports, it was possible to anticipate with reasonable accuracy the amount of imports. This was true because the Congress had made clear its intention that definite restrictions on imports should be our national policy. However, the administration of the trade agreements program has reversed this congressional policy and encouraged larger importations of foreign oil. Importing companies therefore were free to bring in whatever quantities they wished. The state regulatory agencies were confronted with an unpredictable quantity of supply from foreign sources pable of offseting any effort these agencies might make to restrict output within the limits of consumer needs.
Within the first six months after the trade agreement with Venezuela became effective, the domestic conservation program felt the effects of the change in import policy. Above-ground stocks mounted as increased quantities of foreign oil entered the market. Production of domestic crude petroleum was curtailed by the various state agencies but total supply continued to exceed demand despite these efforts. This Association presented detailed facts to the Committee for Reciprocity Information showing the harm being done to the conservation program and to the domestic producers. No consideration, apparently, was given to this presentation.
Following the end of the recent war, controls on petroleum production and use were removed and the state regulatory agencies again faced the problem of orderly production to meet civilian needs. Again it became apparent that effective control over domestic output could be nullified by the action of a few large companies who were not only free to import petroleum in uncontrolled quantities but were encouraged to do so by the policy and by the public statements of the State Department. Imports rose to all-time record levels averaging 378,000 barrels per day during the first nine months of 1946. Only four states produce larger volumes than this import rate. With this huge increase in imports, above-ground stocks of petroleum and its products rose sharply, increasing from 464 million barrels on January 1, 1946, to more than 515 million barrels on September 30 of this year. In order to liquidate the unnecessary and wasteful stocks built up during the first nine months of this year, there is the necessity for a drastic cut-back in domestic production of crude petroleum. If imports continue to increase, the reduction in domestic supply would have to be even more severe in order to balance anticipated consumer demands. This is striking evidence of the direct relationship between foreign imports and the domestic conservation program. It is also proof of the real injury being done to the domestic petroleum industry.
UNRESTRICTED IMPORTS A THREAT TO STATE AND REGIONAL EI ONOMY In twenty States of the United States petroleum is produced in substantial quantities. In seven other States there is production of this resource in modest or small amounts, important to the immediate vicinity where it is produced. In numerous other States it is believed by men who are qualified by scientifie training and experience that probabilities are high for adding such States to the list of the petroleum producers.
Should one of these prospective States come into production suddenly and threaten to flood the market with currently unneeded volumes of oil, there would be apprehension as to the effect upon the domestic oil industry generally. Yet, with the encouragement of the State Department, there has been forced upon the industry a volume of imports equivalent to a "producing State," so to speak, on the order of Oklahoma. It so happens that the present rate of imports, about 380,000 barrels per day, closely approximates the daily production of crude oil in Oklahoma.
But, the benefits of Oklahoma oil production to the people of that State are immediate and they are direct. Venezuela's oil is of no benefit to Oklahoma or to any other of our States. In the year 1946, it is now estimated, there has been a total production of oil in Oklahoma whose gross selling price totaled about $192,000,000. The landowner's share averaging the customary one-eighth royalty was $24,000,000.
Besides royalty interests there are other disbursements in Oklahoma, as in other petroleum-producing States, that go directly into the pockets of the landowners. At this time, it is estimated that the oil operators have under lease in Oklahoma approximaely 9,800,000 acres of undeveloped lands on which they pay an average of one dollar per year rental. In addition, it is estimated that the bonuses paid to landowners as inducements to sign leases totalled $2,500,000 more in 1946.
Thus, the total of these large payments directly to the landowners by operators who develop and produce oil in Oklahoma exceeded $36,000,000 in 1946. There are many other ways of putting a portion of the crude oil dollar directly into the hands of the owner of land on which oil has been found, or where it is someone's hope that it will be found. There are royalties from natural gas and natural gasoline, not included in the foregoing estimates. There is local employment, purchase or rental of land for purposes related to the production of oil, and creation of a larger and more stable market for farm products to supply those employed in the oil industry.
The landowner is not the only beneficiary. The oil producing industry of Oklahoma is this year putting into the State treasury in gross production taxes alone $9,000,000, again not including natural gas and natural gasoline. Some of the money is returned to the governments of the counties of origin, other portions go into school and highway funds. Through corporation and personal income taxes and local property taxes, the State of Oklahoma and its subdivisions collect many millions of dollars in addition to the direct levy on gross value of oil.
Many thousands of American citizens—and Oklahoma is used above as typical of other oil producing States-are happily, steadily and profitably employed in the industry. The service men returned from the wars are found an industry eager to give them jobs. Hundreds of the young men and women who finished college each year go directly to oil company employment. In Texas, about onequarter million persons are employed full time in the industry and throughout the United States the industry gives employment to more than one million men and women. Relative to the volume of production, the benefits are present in every oil producing State. The barrel of imported oil that displaces the barrel of domestic oil destroys such benefits.
Imported oil could not fill the economic and social vacuum which would be left by the erosion of our domestic oil producing industry by huge scale imports. Yet, this is apparently the objective of some in Government. The stripper well reserves of the Nation would be the first to go. Their contribution to the war effort was a steady 400,000 barrels daily-an increment that was essential to the victory. They represent billions of barrels of recoverable oil, to be taken out by what are known as secondard recovery methods. But these methods
will not be applied, nor the billions of barrels of reserves in stripper well territory be recovered, under a national policy that permits the unhampered entry of great quantities of petroleum and its products.
Only Texas and California now produce a volume of petroleum substantially greater than the present rate of imports. The import totals have almost reached the total daily output of Louisiana. They are about equal, as mentioned before, to the current production of all the wells in Oklahoma. They are about alf again larger than the total Kansas production, about twice the production of Illinois, four times as large as either New Mexico or Wyoming, five times the production of Arkansas and eight times the crude oil output of Michigan.
It is obvious that the petroleum industry in this country is one of the most important factors in our State and National economy. Unrestricted imports as encouraged by the State Department threaten the destruction of a sound industry and the economic life of many communities throughout our Nation which hare been built and supported by the wealth derived from the development of our natural oil resources.
LOWER OIL TARIFF THREATENS AMERICAN WAGE SCALE
The oil which enters our markets to compete with domestic oil, is produced in foreign countries by workmen whose wages are only one-fifth to one-half of what is being paid United States petroleum workers.
It is unlikely that American consumers will benefit by lower prices on gasoline or fuel oil as a result of importation of oil produced by low-cost labor. Other cost factors in foreign production of petroleum are high. To the extent that imported oil displaces oil which can be produced in the United States, American labor will be displaced.
Practically all the oil imported into this country is produced in the foreign country from which it comes, by American oil companies, according to testimony presented by a group of importing companies to the Senate Special Committee Investigating Petroleum Resources. Political instability, nationalization or the threat thereof and retroactive legislation adversely affect American oil companies operating in foreign countries. The few American oil companies who have invested in foreign operations have spent a considerable amount of capital in overseas production facilities and refineries. Some of these refineries were economically justified, others were economically unsound investments. Some American-owned oil wells were drilled and foreign refineries constructed under obligation to satisfy policies laid down by foreign governments, based on political, military or national consideration only.
In his testimony before the Senate Special Committee Investigating Petroleum Resources, Walter F. Faust, Vice President of the Socony Vacuum Oil Co., on June 28, 1945, said, with regard to these American-owned uneconomic foreign refineries, “The operation of such units often results in higher costs to the consumer, consequent restriction in demand and unbalanced output that is out of line with internal consumption."
It is logical that the owners of the petroleum products produced in these economically unsound refineries and crude produced from unneeded oil wells, which production is "out of line with internal consumption" in the foreign countries in which these oil wells and refineries are located, are searching for a market in which to sell their excess oil. Once these companies control our domestic markets they may be tempted to make up these losses at the expense of the American consumer.
As herein pointed out, American-owned foreign oil is coming into the American market at an alarmingly increasing rate. Eighteen to twenty thousand independent oil producers and about four hundred refiners operating wholly within this country must compete with a few oil companies which, in addition to producing and refining their own domestic and foreign oil, purchase, refine, and market the major part of the crude oil produced in this country. As the volume of foreign oil, which the few importing companies bring into this country increases, the relative volume of oil which these companies will require from independent oil producers to supply their domestic refineries will decrease.
Eleven American oil companies with petroleum interests in foreign countries produced in this country 33 percent of the United States total in 1941. These same companies produced 40 percent of the United States total in 1945.
Crude petroleum production increased substantially during the war. However, excluding 25 large companies producing crude petroleum in the United States, the thousands of domestic producers, in the aggregate, produced less oil annually during the war than in 1941. The aggregate percentage of production in the United States by all but 25 large companies dropped from 45 percent in 1941 to 35 percent of the United States total in 1945.
In the first four years of World War II (1940-43) the number of crude oil and natural gas producing corporations that filed income tax returns with the United States Treasury Department declined 32 percent from the 1939 figure.
Petroleum workers are among the highest paid employees in the United States and far above world levels. A comparative list, shown in the following table, indicates that wage scales in the United States in the petroleum industry exceed those in bituminous and other soft coal mining and are twenty percent and more above the average annual earnings for all industries :
United States Average Annual Earnings Per Full-time Employee in 1945
Amount Crude petroleum and natural gas production.-
$2,698 Manufacturing Products of Petroleum and Coal.
3, 088 Pipe Line Transportation -
3, 126 Bituminous and other soft coal mining
2, 662 All private industries-
2, 242 Pay rolls in United States production of crude petroleum and natural gas have nearly doubled in the past ten years. Employee earnings in 1945 were 70 percent higher than in 1936 and the upward trend in employment prevailed until 1942. The setback during the war had been overcome by the end of 1945 and currently it is estimated that some 225,000 are employed in the production of crude petroleum and natural gas, which number surpasses all former records. Had the volume of oil represented by imports been explored for, developed and produced in this country by American labor, this number of employees would have been correspondingly increased. Employment, wages and salaries paid in the United States in crude petroleum
and natural gas production
$1, 594 1, 734 1, 734 1,684 1,714 1, 779 1,934 2.299 2,588 2698
Employment and wages paid by American oil companies in foreign oil-producing countries reported to the Senate Special Committee Investigating Petroleum Resources are shown in the Committee's published hearings under the title "American Petroleum Interest in Foreign Countries."
The following table presents data on employment and wages paid by American oil companies in foreign oil-producing countries 1935-44.
Employment and wages paid by American oil companies in foreign oil-producing
In 1944 the average pay per employee by American oil companies in foreign producing countries exclusive of Europe and Russia was $1,338, about one-half the average paid in the United States. In Asia and Oceania, which includes Near and Middle East, and Netherlands East Indies, the average wages paid by American companies in 1944 per employee was $500, which is less than one-fifth the average earnings per petroleum production employee in the United States.
These averages for foreign employees include nationals of those countries and "others." It is assumed that U. S. citizens are included under the caption "others." American citizens engaged in foreign countries are believed to receive wages and salaries substantially above the United States scale. If this is true, then the average wages paid natives in foreign countries is lower than the the amount shown in the foregoing table.
Average annual wages paid per employee calculated from data supplied in the Senate Committee Investigation discloses 1944 wages per oil employee in