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Secretary HODEL. Closely.
Senator ABDNOR. I suppose you are. How much oil heading for the United States passes through that area? Quite a substantial amount?
Secretary HODEL. To the United States?
Secretary HODEL. Less than 500,000 barrels a day passes through the Strait to the United States.
Senator ABDNOR. How much goes to Europe and Japan?
Secretary HODEL. The remainder of the shipments out of the gulf total around 10 million barrels today, and those 10 million barrels are spread all around the world. Japan is nearly 55-percent dependent; Western Europe, our allies, ranges from 20 to 40 percent, on average about 25-percent dependent; and, of course, many less-developed countries are heavily dependent upon it. There are about 44 million barrels of oil being consumed in the world today, so I usually say about 20 percent. It is actually more than that.
Senator ABDNOR. We get only 500,000?
Senator ABDNOR. What would happen if we got a restriction? Suppose Europe and Japan would come to us, would we help fill their needs? Would that situation probably arise?
Secretary HODEL. We have spent a considerable amount of time since late July when the first word came out that the French were going to supply the Iraqis with Super Etendard aircraft. With the utilization of Exocet missiles they had the ability to cover virtually all the Persian Gulf, and they said when they got those aircraft they were going to use them on Iranian shipping. The first date that I recall was August 17, the delivery date, and they have used them since that time. Since then, we have pursued the matter closely and have attempted to upgrade our response capabilities.
What we would do is determined by our International Energy Agency (IEA) obligations. If there is an interruption of, say, 12 percent or more, the IEA can trigger the responsibility of each of the member nations to reduce its consumption and imports by proportionate shares of the interruption in supplies. If each of the nations does that, obviously there is no shortage. If the nations fail to do that, then there is an obligation to share from those nations which have not reduced their consumption and imports to the acceptable level.
Senator ABDNOR. We bring in the 12 percent of our share, I mean we would be expected to reduce our consumption at 12 percent, we are bringing that in already from outside of the United States.
Secretary HODEL. Our net imports are close to 28 percent of consump
Senator ABDNOR. So, we could hardly be expected to give up some of our domestic oil then, could we?
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INTERRUPTION OF OIL SUPPLY Secretary HODEL. We would not be expected to give up our domestic oil which is about 10 million barrels a day, including natural gas liquids. The issue would be how much of our imports could we reduce. And other nations also have reserves—some strategic reserves, some nonstrategic reserves, some commercial reserves—and the application of those reserves, plus our reserves, plus the reduced consumption commitments of the countries would be the base from which we then say, “Where do we go from here?” We have played out several scenarios.
Interestingly, if the interruption of supply was for a short time, or if the interruption of supply was under 4 million barrels a day, there is a pretty good chance that the 4 million barrels a day can be supplied from outside the gulf. There is excess production capacity outside the gulf. Over 4 million barrels a day will get into that gray area, and if it goes above 5 million, there is very little chance of replacing anything above that which is lost. There would be 1 million or 2 million barrels a day lost. The strategic reserves of the world are sufficient to buy us some time.
Then we get into the question of how long can you keep the Strait of Hormuz blocked. When I was visiting the Gulf States they did not think it possible to block the strait for an extended period of time. Whether that is right or not is a matter of opinion, and I have picked up different views from other people.
Senator ABDNOR. I suppose with the policy that we have, we can go for several months.
Secretary HODEL. Yes, and the sustainable drawdown capability of the U.S. Strategic Reserve at the present time is a maximum of 1.7 million barrels per day, which is nearly 40 percent of net oil imports to the United States in 1983. Less than 40 percent of our imports come through the gulf. All of this sounds, I think, very calming on the one hand. The thing that I would have to say to counterbalance the calm is that this is a world oil market, and if we were not importing any oil at all and if Japan and Western Europe found themselves cut off from oil supply, considering their relationship to us both as allies and trading partners, it would have a very serious impact on us even if we were not importing any oil. I must have a balance there. In fact, I think we are fairly well equipped to deal with short-term, not too large, interruptions. At the same time, we cannot turn our backs on our allies.
OIL PIPELINES Senator ABDNOR. Is there any way to get oil out of Iraq? Do they have a pipeline that is running down to Turkey?
Secretary HODEL. They have a couple of pipelines that run north, one through Turkey and one through Lebanon. And they have been proposing building a pipeline down into Saudi Arabia connecting with the cross-Saudi Arabian pipeline, which would give them access to the port on the west side of Saudi Arabia. That is a 1. to 19-year project, and apparently there is some real thought of going forward with it. The pipeline through Turkey has suffered some operational problems recently which has reduced its exports and this has put severe economic pressure on Iraq.
Senator ABDNOR. Well, it is a volatile area of the world.
Senator ABDNOR. This is going to involve the United States and other countries. I can't imagine this country sitting idly by with Japan and Europe getting as much as they get, particularly Japan. I don't think we are going to sit by and let it happen, I don't know. I hope it is something you are paying close attention to.
Secretary HODEL. Mr. Chairman, if I could just comment on the Senator's question just one further point. I think it is important that we try to continue to alert the American citizens to the fact that we are heavily dependent on imported oil. Whether we import or not, we are heavily dependent upon other nations, and it is highly desirable for this nation to continue to find ways to reduce its dependence on imported oil. Therefore it is one of the reasons we have continued to try to improve our emphasis on this dependency by admitting that it is not as high as some would like. We need to keep the pressure on and the emphasis on so that our citizens do not become complacent over current prices and supplies, which, in the long run, is not in the best interest of this country and causes our increasing dependence upon imported oil.
Senator ABDNOR. Sometimes that happens.
I better not monopolize all the time. Maybe I can ask one more question.
Chairman HATFIELD. Yes, take your time.
SYNTHETIC FUELS CORPORATION Senator ABDNOR. It makes me think of the Synfuel Corporation and I think this is an extremely important thing if it is properly operated, that we ought to be continuing some degree in the event we have to go to this. We know we have plenty of renewable resources to make energy. It is expensive, but it could be done under extreme emergencies. How do you think this whole thing is operated? You must take a look at it even though you are not directly involved. Are we getting our money out of what we are doing or are we doing enough with the whole Synfuel picture?
Secretary HODEL. In fairness to the Synfuel Corporation I think it is imperative to take a look at the assumption that exists. When the Synthetic Fuels Corporation was created, the assumption was that we were running out of natural gas and oil very rapidly and that the world oil price was going to increase on a straight line. At that time, we were looking at $50 and $100 a barrel oil down the road. This would make synthetic fuels from oil, shale, or coal a very desirable project, and the large sums of money we are talking about at the Synthetic Fuels Corporation could generate increased activity.
Obviously, that situation has turned around at least in the short term. We have now nearly 8 million barrels excess oil production capacity in
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the world. We think we have larger supplies of natural gas in this country and adjacent countries than we had, and so we find ourselves in a situation where the price of oil has not only come down from $34 to $29 per barrel, but a number of companies are anticipating there will be softening in that price still because of the excess production capacity.
In that circumstance, a system which calls for the construction of plants which will produce synthetic oil at $50 or $60 or $70 a barrel or more does not look very competitive and it is not. Price guarantees which we thought would be subsumed by price rises suddenly become payable by the Government, and although we expected millions of barrels of oil to be produced from synthetic fuels we will, in fact, have a few tens of thousands of barrels a day.
GREAT PLAINS Coal GASIFICATION PROJECT My belief is having gone this far into some of these projects we ought to complete them. I hate not to see the Great Plains coal gasification project completed, for example. The first line comes on in June, and it is on schedule. It seems a shame to me to let that project falter and not learn what we can from the completion of it. Hopefully, the Synthetic Fuels Corporation and Great Plains Gasification Association can work this out. With so many other synthetic fuels processes, even with the guarantees that have been provided it does not look like they are economically feasible. In the end the economics will dictate.
Senator ABDNOR. I do not believe that we ought to completely overlook this whole area because the day is going to come, I don't know when, when it may be very necessary that we have this investment. So far it would seem foolhardy to walk away from it without following through until we are satisfied in our minds that in the event a situation arises, that we could do something about it. I just hope we at least make that position before we get carried away. Thank you.
ARAB OIL EMBARGO Chairman HaTFIELD. Mr. Secretary, let's go back to the program a moment, but let me get before us here for the context of my question some review of trend lines. First of all, the trend line on Middle Eastern oil since the Arab embargo has been generally dominant.
Secretary HODEL. The boycott in 1973 was followed by continued increases in imports of oil to repeat the 1977 or 1978 experience, at which time it was about or just over 8 million barrels a day. This time it has come down to last year, when it was about 4 million barrels a day.
Chairman HATFIELD. So it dropped to about what, from 33 percent down to about 28?
Secretary HODEL. If I recall the percentages, it was like 42 percent. Chairman HATFIELD. So the trend line has been down? retary HODEL. Net is down to 27. I say “net" because the trend
rning. lan HATFIELD. Now we are seeing that trend line level off and me up. I believe the figure I saw was with respect to increase umption some 3 to 5 percent; is that correct?
Secretary HODEL. That would be probably our overall oil consumption, and the biggest share of that will be from imports. We are projecting that net imports will range from 5.0 to 5.5 million barrels this year, which would be about a 20- to 30- percent increase, excluding the Strategic Petroleum Reserve.
SOLAR AND RENEWABLE ENERGY PROGRAM Chairman HATFIELD. All right. Another trend line, as I indicated earlier, was the doubling of the budget for military weapon systems in the last 3 years. Now tell me in the solar and renewable area of the budget, what has been that trend line in the last 3 years?
Secretary HODEL. The trend line of appropriations has been down. The trend line of our requests compared to appropriations has been even lower. The trend line I like to look at, Mr. Chairman, is the trend line of our requests. Our requests have risen sharply.
Chairman HATFIELD. In 1985?
Chairman HATFIELD. And I want to congratulate you on that. You have at least got a tourniquet on the hemorrhaging that we have experienced, have you not?
Secretary HODEL. Mr. Chairman, I may be slow, but I do learn.
Chairman HATFIELD. In fact, I believe that if we want to put it in terms of dollars, the solar and other renewable programs have dropped from about $600 million down to approximately $200 million in this 3year period. Secretary HODEL. That sounds correct, Mr. Chairman.
CONSERVATION PROGRAMS Chairman HATFIELD. I think that is fairly accurate. I believe that when you extrapolate from the budget trend line on conservation activities that that figure is around a 70-percent drop in the last 3 years.
Secretary HODEL. From what?
Now, what I am really driving at is simply this. If we found ourselves in a crisis—a greater crisis, we are already in a crisis—but if it should escalate and threaten the oil supply one way or another, would it not be true that it would be something far beyond just the United States? As you indicated in your response to Senator Abdnor, don't we have commitments to share a reduction of oil supply with our friends in Western Europe and Japan? So whatever we have done in terms of minimizing the impact of that for ourselves at least from a temporary holding basis, it might not necessarily apply to our Western European friends and Japan.
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