April 30, 1973
Page 13514
SENATOR MUSKIE, ON A NEW OIL POLICY FOR THE NATION
Mr. McINTYRE. Mr. President, tomorrow is May Day. It is also Loyalty Day and a number of other observance “days”.
For many of us, May 1 of this year has a new significance. It will mark the day that quotas are finally lifted from imported oil.
Because this occasion signals, as it does, the start of a new oil policy for the Nation, I would like to call my colleagues' attention to an analysis by the distinguished senior Senator from Maine, the Honorable EDMUND S. MUSKIE.
Speaking before the Maine Oil and Heating Equipment Dealers Association in Portland, Maine, Senator MUSKIE examined some of the broader implications of the new program for our Northeast region and then focused closer attention on some of the elements which will bear close attention by New Englanders in the months ahead.
I ask unanimous consent to have the text of Senator MUSKIE's remarks printed in the RECORD, because, in my judgment, his cautionary analysis couples fairness and restraint with sharp insight into exactly what we can expect from this new policy in short- and long-range terms.
There being no objection, the address was ordered to be printed in the RECORD, as follows:
A NEW OIL POLICY FOR THE NATION
It is a pleasure to be here today to discuss a question which is of vital importance to the people of Maine – the question of whether they will have sufficient oil to heat their homes, their factories, and their schools next winter, and in future winters.
This is not a new concern. Indeed, it is a matter which has occupied my attention since the year I entered the United States Senate in 1959 – the year that the Mandatory Oil Import Quota Program was put into effect.
But it is a concern which has taken on new dimensions in the last year – partly because of rapidly changing circumstances in the world oil market, but primarily because of acute shortages which were experienced this winter in Maine.
To many of you in this room, the President's energy message last Wednesday must have had a curious ring when he said "in the years ahead, we must face up to the possibility of occasional energy shortages and some increase in prices."
That future "possibility" of which the President spoke seemed strangely real to MOHEDA's officers and me when we met in Washington last February to seek ways of securing fuel oil for dealers who had been rationed or cut off by their suppliers.
The plain truth of the matter is that oil distributors in Maine did encounter shortages this winter. And, despite the President's initiatives, there will be continued supply problems with gasoline this summer and heating oil next winter because his actions came too late.
The story of how we arrived at this situation is familiar to you, I am sure. it came about through a combination of a continued rapid growth of demand for oil, declining fuel reserves, insufficient refinery capacity, inadequate planning by both government and industry, and dramatic political changes in the Middle East which raised the price of crude oil.
The President's response, outlined in a 20-page document of analyses and proposals, urges four basic approaches to a solution–
(1) sharply increased petroleum imports;
(2) greater utilization of domestic energy sources;
(3) the development of alternate energy sources; and
(4) energy conservation measures.
Many of his proposals are controversial. Many do not go far enough. Some, particularly those dealing with the environment, go too far. The President's message is, nonetheless, the first significant effort by this Administration to articulate a comprehensive national policy for the use and development of energy.
What I find disturbing, however, is the fact that the current fuel shortages might very well have been avoided if the President had taken steps to abolish the import quota program sooner.
It was just over 3 years ago that the President's Cabinet Task Force on oil import controls recommended replacing the import quota program with a flexible tariff system not unlike the one proposed a week ago. But the President turned down this recommendation at the time.
And last fall, on the basis of assurances from the major oil companies that there would be adequate stocks of heating oil for the 1972-73 heating season, as well as grossly inaccurate projections by the Office of Emergency Preparedness, the President specifically rejected our urgent requests to increase the #2 allocations for the Northeastern Region.
Finally, when it became plain that his failure to act was leading to a crisis of serious proportions, the President announced a temporary lifting of import restrictions. But even this proved inadequate and it was only a mild winter that saved New England from severe problems.
During this period, the major domestic refiners who had persistently opposed imports found themselves caught in a dilemma. In order to fulfill the assurances they had given the Administration, they had to maintain a high output of heating oil at the very time they should have been producing gasoline in greater quantity. What this seems to indicate is that we are now caught in a circular game of "catch-up" with gasoline shortages this summer and further fuel oil shortages this winter, and on and on until we can import and produce a sufficient supply of refined products to meet our needs.
In retrospect, it seems incredible that the decisions of a relatively small number of individuals – both in and out of government – could have placed us in these circumstances. Our neighbor, Senator Tom McIntyre of New Hampshire, made perhaps the most accurate assessment of the situation in his testimony to the Cost of Living Council in February.
"In my opinion," he said "it is apparent that either two things happened. Either the Federal officials responsible for oil policy in this country displayed an unbelievable level of incompetency, or the petroleum industry itself misrepresented the facts. I personally believe that a combination of both factors was at work."
This, then, is part of the story of how we arrived at our present circumstances. There is no need to dwell on this history, except that it helps explain some of the forces which are at work in Washington and why we New Englanders have reason to view Federal oil policies – new and old – with Yankee skepticism. It is also important because it points out that the long-range factors which are generally cited as the cause of the "energy crisis" are not sufficient to explain our current predicament.
Now, we are to have a new oil policy. In six days, on May 1st, the current quota program will be scrapped and in its place will be a system of unlimited imports and a system of license fees.
I do not presume to know precisely what impact this new system will have for the consumer and marketer. To do this requires a knowledge of marketing forces and competitive factors about which I am not expert. For this reason, I am looking forward to hearing the remarks of the other gentlemen on this panel.
I would, however, like to make some general observations.
First, the Chairman of the President's Oil Policy Committee has defined the objectives of the new program in these words: "To import oil to satisfy the short-term needs of U.S. refiners and consumers, while providing longer-term stability and additional incentives for increased domestic production and new refinery construction."
These goals are clearly desirable. But they also establish the standard by which the new program should be judged. For the citizens of Maine, the President's intentions would assure an adequate supply, at a reasonable price, without major disruption of our marketing system. However, because the New England Region depends on imports far more than any other region of the country, it may be difficult indeed to achieve these objectives.
Secondly, the elimination of quantitative import restrictions, with a gradual transition to a system of import fees, is conceptually sound. The uncertainties and human miscalculations associated with the quota program are largely absent. It also provides the opportunity for the long-range commitments necessary to obtain both supply and favorable prices.
Third, the exemptions from import fees granted to independent deepwater terminal operators are intended to provide a sufficient measure of protection for them to compete effectively with the major oil companies. Historically, the presence of the independents in the New England market has been a positive and healthy competitive factor. This influence should be preserved.
However, the President's proclamation gives the terminal operators a fee-exempt allocation of only 50,000 barrels-per-day of No. 2 oil. This is no more than last year and clearly would seem to be inadequate for the coming year.
Additional fee-exempt imports will have to be obtained from the oil import appeals board on a case-by-case basis. This would be cumbersome and adds an unnecessary element of uncertainty. Therefore, the role of the Oil Imports Appeals Board is of critical importance in the new system, particularly for New England. It remains to be seen whether in practice, the Board will be responsive to the needs of those who serve New England.
Fourth, despite some complaints that the initial fee structure is set too low to protect the independents' competitive position, it was probably necessary if the President is to minimize the impact of higher prices for the consumer. Nevertheless, the price of heating oil will inevitably climb this year and in the future, and Maine consumers should be aware of this.
Fifth, I am greatly concerned with the absence of any provision in the new program to assure that independent refiners, marketers and retail dealers will not be cut off from products previously supplied by the major oil companies. We are already seeing this happen in New England and the situation is aggravated by the withdrawal of several major companies from the Northern New England market.
Administration officials are apparently intending to rely upon "jawboning" if such dislocations persist under the license fee system.
I am not convinced that this is sufficient. I am therefore supporting legislation to give the President authority to allocate national supplies among dealers where necessary to cope with shortages. The Congress has a responsibility to assure that the major oil companies do not use a national shortage as an opportunity to drive independent marketers out of business by favoring their own distribution outlets.
Finally I would like to say a word about William Simon, Chairman of the President's Oil Policy Committee. Over the past fourteen years, the New England Congressional Delegation has had to deal with Federal officials responsible for oil policy on an adversary basis.
Since Mr. Simon has assumed the Chairmanship of the Oil Policy Committee, he has opened a clear line of communication with New England officials. He has displayed a genuine interest in the problems and needs of our region. The new policy he has helped shape and which he will administer holds promise – if it is administered flexibly and wisely, with a willingness to make appropriate adjustments where necessary. While our earlier experience was not favorable, the initiatives taken by Mr. Simon are encouraging.
I know we would both be pleased if I could conclude my remarks by assuring you that the uncertainties and difficulties which MOHEDA faced last winter, can be avoided next winter. Unfortunately, neither I nor anyone else can give such assurances.
The world energy picture has changed dramatically in the last 3 years. We shall continue to suffer from this, and from the misguided policies of the past. Now, we have a new oil import policy – and have begun seriously to debate a new national energy policy. If we are successful in devising a coherent and comprehensive policy, we can overcome our current difficulties and satisfy our energy requirements for the future.
In the meantime, we might reflect on an observation made recently by the Director of the Petroleum Industry Research Foundation. He said, "what we are doing is shifting from the age of oil to another energy age. Historically speaking, transition period are very interesting ... but living through them may not be so much fun."