but that sooner or later we will reach the point of diminishing returns when it will become difficult to sustain a given level of production, and subsequently the rate will commence to decline as has already occurred in a number of our oil producing states-Illinois, Oklahoma, Arkansas, Pennsylvania, and Michigan among others. There is only so much oil available. The quantity is not being replenished; therefore, the availability at any given time will depend on how much we have already produced and how fast we have explored and developed what remains. (See exhibit 1.)

Fortunately, American oil companies own most of the oil reserves abroad. Augmenting our own domestic resources with these supplies, while they are accessible to us, would seem to constitute a constructive national policy. Surely it would be more advantageous to utilize some of this oil while our domestic ability to produce is adequate to take care of our minimum emergency needs than it would be to reduce imports now and use up our remaining domestic resources so much more rapidly that perhaps in 10 or 15 years they would be no longer able to come anywhere near meeting our emergency requirements at a time when oil from other sources might no longer be available in the volumes required.

INCREASING COST AND DIFFICULTY OF FINDING AND DEVELOPING UNITED STATES OIL RESERVES

It is unquestionably becoming increasingly difficult to find oil in the United States and the costs of doing so and of drilling and equipping the producing wells are continually increasing. General Thompson's paper included a most illuminating chart on this point, a copy of which is reproduced as exhibit 2.

As a result of the above-mentioned factors, proved oil reserves in the United States have not increased as rapidly as consumption has expanded. Such reserves over the last 30 years show a shrinking tendency when expressed in terms of the number of years of United States oil consumption requirements they represent. This may be seen from the following figures:

CRUDE-OIL PRICES HAVE HAD TO INCREASE TO COVER INCREASED COSTS

Since World War II crude-oil prices in the United States have increased substantially; in fact, have more than doubled, as may be seen in the following figures for two typical grades of crude oil:

1952-1963. AVERAGE ESTIMATES OF US. BUREAU OF MINES AND A.L SOLLIDAY.
EXECUTIVE VICE PRESIDENT STANOLIND OIL AND GAS CO

Source: Bureau of Mines, U. S. Dept. of Interior, API Committee on Petroleum Reserves. PMPC Projection

One has only to look at the chart showing the cost of finding and developing crude oil (exhibit 2) to see the reason why such price advances have taken place. If we examine the total increase in price over the period, it will be found that it represents an average annual increase of a little over 16 cents per barrel.

UNITED STATES PRODUCTION AND IMPORTS HAVE BOTH INCREASED TO MEET EXPANDED UNITED STATES REQUIREMENTS

To meet the increasing United States demand, both domestic crude production and imports have displayed an upward trend. Some people may be surprised to know that in the last 6 years, from 1949 through 1954, production of crude oil and natural-gas liquids in the United States increased by 1,540,000 barrels a day, or 28 percent. During the same period, imports of crude oil have grown by approximately 235,000 barrels daily and imports of residual fuel oil by approximately 181,000 barrels daily.

THE UNUSUAL SITUATION DURING 1954

Oil consumption in the United States during 1954 increased by less than 1 percent, or about 67,000 barrels daily, the smallest rate of increase since 1934. Imports were up only 12,000 barrels daily-also about 1 percent. Under these conditions domestic production would ordinarily have been at least 55,000 barrels daily greater, plus the usual buildup of stocks which would be required for an expanding demand-say 50,000 barrels daily. This would have meant a total production increase in 1954 of slightly over 105,000 barrels daily. Unfortunately, however, stocks during 1953 increased by 148,000 barrels daily. In other words, production was abnormally increased in that year by nearly 100,000 barrels daily. The excess inventory accumulation had to be liquidated during 1954 and the actual reduction was approximately 44,000 barrels daily. The result of all these factors was that crude oil production in 1954, instead of being 105,000 barrels daily greater than in 1953, was 127,000 barrels daily less. In other wor is, even though demand increased 67,000 barrels daily and imports only 12,000 barrels daily, domestic production instead of increasing as would be normally expected, actually showed a reduction from the 1953 rate.

It may also be noted that during 1954 production of domestic natural gas liquids, which displace crude oil, increased by 26,000 barrels daily reaching a level of 677,000 barrels daily. This figure now exceeds the total imports of crude oil which for 1954 averaged 657,000 barrels daily.

Clearly, therefore, it was not an increase in crude-oil imports which adversely affected domestic crude-oil production last year. Primarily it was the attempt to liquidate an excessive inventory and secondarily the expansion in output of natural-gas liquids.

1954 SITUATION NOT TYPICAL

It would be unwise to draw any long-range conclusions or endeavor to base long-range policy on the special circumstances existing during 1954. Normally, even with only a 3- to 4-percent annual gain in United States oil consumption the requirements would have been up 250,000 to 300,000 barrels daily, and each year should require some increase, say 50,000 barrels daily, in stock position relative to the previous year rather than the decrease of nearly 44,000 barrels daily which took place during 1954. These factors add up to a total 1954 abnormality of something in the order of 350,000 to 400,000 barrels daily and make it clear how unwise it would be to base conclusions on such an exceptional experience.

ARE IMPORTS HARMING OR HAVE THEY HARMED UNITED STATES OIL EXPLORATION AND DEVELOPMENT?

Oil exploration and development have been extremely active in the United States ever since World War II, and there is no evidence of any change in this situation. For example, in 1954 a total of 53,924 wells were drilled in the United States compared to 49,279 during 1953. More money is undoubtedly being spent on oil exploration and wildcatting in the United States than ever before. This is not surprising considering that since the war United States oil consumption and production have enormously increased (see exhibit 3), and crude-oil prices have risen correspondingly.