Please believe me, Harry, the situation is very serious. Champlin Refining Co. is presently shut down, and I am informed that 3 other substantial independents are considering shutting down in the next 2 weeks if there is not a change in the market. I know of no way to correct this situation except by a quota on imports of residual fuel oil if the large importing companies do not start showing a higher level of industrial statesmanship than at present. I recognize the position of jobbing associations such as yours. I understand also that there may be times when the actions of these same large companies have the effect of squeezing you on your supply. To the extent this occurs, in my opinion it is shortsighted industrial statesmanship. There is a happy medium. Our efforts, and I hope those of all concerned, must be directed toward achieving that happy medium. Best regards. Sincerely yours, M. H. ROBINEAU. Mr. M. H. ROBINEAU, The Frontier Refining Co., EMPIRE STATE PETROLEUM ASSOCIATION, INC., Denver, Colo. DEAR BUD: Thanks ever so much for your nice letter of the 17th explaining your position on the imports question. It is not my intention to engage you in a letterwriting campaign because I know what a busy person you are. I feel, however, that your letter required an answer as there are several implications which I do not believe can be factually substantiated, such as is contained in the following statement: "Foreign crude oil can be produced for a fraction of the cost of domestic crude oil. Wells are larger, labor costs lower, etc. A low crude cost results in a low cost for residual fuel oil. As a result, it is to the selfish economic advantage of the importing companies, who own their foreign crude oil and refineries, to supplant their normal purchases of domestic residual. This does not back up the residual made by the east-coast refineries in too great a quantity but it does back up normal tanker shipments of residual from the gulf coast." As you are probably aware, 80 to 90 percent of the tank-wagon sales of residual along the eastern seaboard are made by the jobber-distributor. I am positive that our people who are cargo operators would be happy to make arrangements for their supply of residual fuel oil in the American Gulf. It is, however, impossible to find a stable and economical source of supply sufficient to meet our needs there. In fact, I have a firm commitment and am authorized to inform you, as president of the I. R. A. A., that we will take as many cargos of residual as your people can supply at the present price of $1.50 per barrel, f. o. b. the American Gulf coast, providing we are allowed the time to arrange for bottoms, storage, etc. Further, in connection with the above quote, stock reports clearly indicate that stocks are not backing up in the gulf. Stocks for residual in district No. 3 as of the week ending March 14, 1953, were 8,850,000 barrels as compared to 8,853,000 barrels as of March 15, 1952. These figures seem to be contrary to the statement quoted above. Now as to price, I am sure you are aware that imports of residual are based upon the posted price for the product at the gulf so it would make little difference to us here where the product originated as tanker rates both from the gulf and the Caribbean are approximately the same. Imports are not out of line to any great extent insofar as east-coast consumption is concerned. It should also be borne in mind that any restriction of residual imports will tend to have the effect of not only increasing the residual price but also the price of crude. This certainly would be to the disadvantage of the independent refiner. We have tried to check your statement as to the amount of supply moving up the river to points in district No. 2 to determine the extent to which the statement you make would apply to the refiners in district No. 2. We have assembled the following from B. of M. and OCR figures: The figures on which this information is based are on file in our office and of course are available through the B. of M. and OCR to anyone. A review of these figures fails to show even a minor stress or strain being placed on refiners in districts Nos. 2, 3, and 4 as the result of imports entering the eastern seaboard. The reason I wrote you, Bud, is that we have constantly watched these movements and could not understand as to how you personally would be affected through imports. You gave me the tipoff last year when you and Barney brought this matter before NPC and, as stated above, we have watched the movement figures very carefully. Under the circumstances, as they appear statistically, it is beyond me how your group could be sold a deal that is being promoted by the independent producer and the coal operators. The great increase in consumption of residual along the east coast is mainly the result of the increased use of residual by public utilities, a sale in which my people share very little. Legislation could of course correct this and the residual used by utilities would be replaced by coal, but where would this leave us? How would the hotels, apartments, and commercial and industrial accounts that we sell get their product? As you undoubtedly know many of the above could not use coal even if it were free. They have no way of storing or handling it. Also how would coastwise and international shipping which could not use coal under any circumstances get their supply? This also applies to specific industrial uses. The answer, Bud, is very simple. The east coast and gulf coast refiners would have to supply the market. Further, they would be forced to do so by government. If industry had been required to make enough residual fuel oil to have met the average daily domestic demand for 1951 (the last complete figures available) it would have had to run an additional 1,292,000 barrels of crude to stills daily, and if this figure was adjusted for present day demand it would be much higher. If this would be the result of forced legislation, you and I know you cannot make residual fuel oil without making the other principal products. With the stockpiles of other products that would result I am sure your loss would be much greater than the present 15 cents a barrel you indicate in your letter. It would appear to me that the situation as described above is definite proof that residual imports supplement rather than supplant our domestic supply. We have always been for the independent refiner and we would like to see them build refineries on the east coast. We have gone so far as to promote this type of thinking. We would like to help your group in any way we can. However, it would appear to me that the IRAA should give another look to this problem before getting into the matter any further than you are and before any damage is done. I hope you will pardon this long letter, Bud. I did not intend to take up your time to the extent that I have, but I am sure you will understand our sincere interest in the matter and forgive my lengthiness. Sincerely, HARRY B. HILTS, Secretary. Mr. HILTS. I personally obtained bona fide commitments to purchase as many cargoes of residual fuel oil as the independent refiners could supply us at the then published price of $1.50 per barrel f. o. b. the American gulf. Mr. Robineau sent wires to his membership stating our offer. To date we have not received one single offer of oil. The only accomplishment coming out of this offer, so far as we can determine, was to highlight the condition of the supply situation, because within 2 weeks the price of this product increased 10 cents per barrel. This indicated that there was no backing up of oil at the gulf and in fact the supply was slightly overbalanced by demand. We believe that this is indisputable evidence that foreign residual fuel oil imports supplement and do not supplant our domestic supply. Who would gain if the Simpson bill became law insofar as it applies. to restricting imports of petroleum? No one. Certainly not the coal producers. There would be very little conversion from oil to coal because in most instances this would be impossible and too costly. Restrictions of residual fuel oil would leave thousands of schools, hospitals, public utilities, apartment houses, stores, bakeries, laundries, and all kinds of manufacturers without sufficient supplies of fuel they are now using. Natural gas is not in sufficient quantity in the eastern seaboard to supply such additional demand. Therefore, the only thing they could do would be to turn to a lighter fuel oil, such as that used in home heating, at an additional cost to them. With the increased demand for this light fuel oil it would increase the price, thus affecting homeowners, not only on the eastern seaboard but eventually all across the country. The petroleum industry probably would be forced by the Government to adopt a quota system or rationing of supplies. I should like to conclude my testimony by quoting from a statement by Lt. Gen. Ernest O. Thompson, member of the Texas Railroad Commission, before this very committee on March 6, 1951. General Thompson, testifying in support of the 272 percent depletion allowance, made it quite clear that there was no substitute for oil. He said that were it not for the importation of about 1 million barrels of oil per day, "rationing of civilian gasoline would be on us today," and that this presents a real problem in the supply of oil, come war. In fact, he said, it even "presents a real problem to find oil for our rapidly expanding peacetime economy even if war is avoided." General Thompson left no doubt in his listeners' minds that he felt the independent producers were doing themselves great harm by insisting on reduction of imports, at the very time when they were needed to provide the necessary additional reserves. This situation has not changed. To protect consumers and the small-business man from artificial, exorbitantly high fuel prices, we respectfully suggest that the committee give consideration to the views we expressed and that the Reciprocal Trade Agreements Extension Act be renewed in it present form for 1 year. I wish to thank the committtee for the privilege of appearing before them. The CHAIRMAN. We thank you, Mr. Hilts, for your contribution and information to the committee on this subject. Are there any questions? Mr. Utt of California will inquire. Mr. UTT. We have testimony before us to the effect that the Texas Railroad Commission, to whom you referred, has cut production in Texas allowable by 200,00 barrels a day. I presume you were aware of that? Mr. HILTS. Yes, sir. Mr. UTT. And perhaps that his testimony along the lines of some restriction on the importation of petroleum might be different today than before Texas was forced to close down its 200,000-barrel production per day. I do not know whether you had any comment on it or not. Mr. HILTS. Yes, sir, we understand that. It is our feeling that it is easier to cut quickly domestic production than it is your foreignimport production. They all follow eventually along the same pattern. But it is the logistics of imports that take time to get more or less in balance with the domestic supply. Because of the Texas Railroad Commission, which has the power to act quickly in Texas, they can adjust domestic production faster than the importers can adjust imports. But ultimately they both balance out about the same. That has been our feeling and our knowledge of it. Mr. UTT. And also it is the case, is it not, that if production is curtailed too much, that it also curtails the exploration for new development in new oilfields? Mr. HILTS. That has not happened in this country. The discovery of oil and the exploration has gone on even in the face of the imports. Imports have not in any way curtailed the discovery of new oil in this ment in new oilfields? Mr. UTT. Imports had not reached the terrific proportions until just the past year or two. Of course, when there was no curtailment, naturally the exploration was going on. But if this continued on and maybe there were 2 million barrels a day imported, and another million barrels cut down in the United States, it would definitely hinder the exploration business in the United States. Mr. HILTS. That has not been the pattern to date. Mr. UTT. No, I realize that. Mr. HILTS. You must remember that residual fuel oil is supplementing the domestic supply. Therefore, a goodly portion of your total imports was residual fuel. So the amount of residual fuel oil that comes in certainly would not affect the discovery of new oil, because it is supplementing a supply we do not make here. Mr. UTT. But the importation has curtailed production in Texas at the rate of 200,000 barrels a day. Mr. HILTS. I would not say that was true. I would say that a bad winter condition which cut down the demand for light oil forced Texas and other refining areas to cut back. If we have a normal gasoline season and we get into a normal winter demand for light fuel oils, the demand will go far beyond what the reduction was. It is something you just cannot adjust overnight. We have to provide for it because if the cold season comes along and people want oil, you have to have it there. Mr. UTT. That is all, Mr. Chairman. The CHAIRMAN. We thank you for your statement. Mr. HILTS. Thank you, sir. The CHAIRMAN. The next witness is Mr. Charles A. Lockard, assistant secretary of the Empire State Petroleum Association, Inc., of New York City. We are glad to see you here. If you will give your name and the capacity in which you appear for the record, we will be delighted to hear you. STATEMENT OF CHARLES A. LOCKARD, ASSISTANT SECRETARY, EMPIRE STATE PETROLEUM ASSOCIATION, INC., NEW YORK, N. Y. Mr. LOCKARD. My name is Charles A. Lockard. I am assistant secretary of the Empire State Petroleum Association, a trade association of petroleum jobbers and distributors in New York State. Our offices are located at 122 East 42d Street, New York City. Our people serve the consumers of petroleum products throughout the State of New York. Their businesses have been built and maintained on the basis of a free, competitive economy which gives to the consumer the highest quality products at the lowest cost. We ask nothing more than the continuance of this system which has made possible the position the United States holds today as the industrial leader of the world with the highest standard of living that has ever been known. Legislation now being considered by your committee would extend the Reciprocal Trade Agreements Act for 1 year but with it we would acquire a quota restriction of crude oil and residual fuel vitally needed to serve our customers and maintain an efficient economical fuel for our industries. Residual fuel oil is used by many diversified interests, including municipalities, oceangoing vessels, schools, hospitals, hotels, apartment houses, utilities, stores, and many other industrial and commercial installations which provide goods and services to the consumer. Restriction of imports of residual fuel will place in jeopardy the businesses of many of our members and bring higher prices to consumers for the numerous products and services dependent upon the use of this fuel. Any attempt to replace imports of this product with domestic residual would price it out of the market. It would also violently upset the percentage yield of products derived from crude oil which has kept pace over the years with the changes in consumer demand. President Eisenhower has already formally requested Congress to extend the Reciprocal Trade Agreements Act for 1 year without change. Empire State Petroleum Association is in complete accord with this request and strongly opposes any restriction of imports of petroleum and its products. The attempt by the National Coal Association and other coal groups to bolster their position by artificially restricting the use of competitive fuels denies the right of the customer to choose the most economical and efficient fuel to serve his function. In other words, the coal interests are not willing to enter a free competitive market to sell their product but are seeking legislative assistance as a substitute for consumer acceptance. According to the most recent figures of the coal industry itself, residual fuel oil is replacing less than 5 percent of the bituminous coal production. This hardly bears out the claims of the coal people of the impact that the imports of residual fuel have had on the coal |