But the simple answer is that that will be worked out in the negotiation with Congress, and Congress will make the ultimate determination subject to Presidential approval.

Mr. SYNAR. We sure do hope so.

Mr. Clinger.

Mr. CLINGER. Thank you, Mr. Chairman.

Mr. Boggs, as a matter of energy policy, is the Department of Energy satisfied with the current levels of domestic drilling and reserve conditions?

Mr. BOGGS. Well, satisfaction in that question implies that you have a very specific target, and I think that is one of the things that we have tried to move away from, from an energy master plan of the type that we had attempted in the seventies.

It is certainly the case that drilling levels over the past, let us say, year or 2 years have remained well above any previous time before 1980 in terms of number of wells drilled. I think one of the things that has to be noted is that the number of wells being drilled by each rig has increased substantially as we have gotten into essentially a lean and mean market; the efficiency of rig utilization has gone up.

Therefore, through 1980, in no year did we drill more than 60,000 wells. Last year, we drilled something on the order of 80,000 wells, the second best year in history. This year, the data is just starting to come in. It is clear the rig count is down about 10 to 15 percent. It is not clear yet what is happening to the well count.

Other things being equal, we would always like to see more drilling. I would say that at this point the fact that the drilling rate seems to continue well above the period of the seventies indicates that it is a matter to be noted, but it is not a matter for considering it to some type of crisis in our energy supply system.

Mr. CLINGER. Are you saying that we do not really have sufficient data at this time to determine whether there will be a decline this year?

Mr. BOGGS. Well, there are two points. First, we have data on the number of rigs drilling, and through the first 10 or 12 weeks of 1985 it is down, I would say, on the order of 10 to 12 percent against last year. Obviously, you have a number of predictions of what is going to happen thereafter.

The data on how many wells are being completed tends to lag somewhat behind. I would say it is certainly a fair estimate, that would be in line with, I think, the consensus, that the number of wells drilled this year will be somewhat less than last year, but will still be considerably above 1980 or any previous year.

Mr. CLINGER. Is there a relationship between refinery margins and prices paid to U.S. producers for U.S. crude oil?

Mr. BOGGS. I would certainly say there is some relation. The relationship and exactly the way it works tends to vary very sharply. I noted, in my preparation for coming here and discussing product imports, one of the things that had happened for a long time was that gasoline was getting down to where it was just about as cheap as fuel oil. Yet in the last 8 weeks that spread has gone from less than $2 to more than $7. So that is simply an example of how quickly any particular situation might change.

But it is clear that a refinery which continually has a negative margin, particularly a negative margin on variable costs, is not going to be able to pay as much for crude oil. So that it is true that as product prices decline, refiners are going to have to pay less. That is what we had happen toward the end of 1984 and first month of 1985, and of course that has turned around pretty strongly in the last 6 to 8 weeks or so.

Mr. CLINGER. Moving to the SPR for a moment, can you give us an estimate of the amount of excess refining capacity that would be required in the United States to obtain optimum benefits from the $4 billion-plus investment that we have made in the SPR?

Mr. BOGGS. Well, I would note our total investment is more on the order of $17 billion, and that is exclusive of carrying costs. But the key measure

Mr. CLINGER. $4 billion is just in the oil fill, though?

Mr. BOGGS. No. It is about $17 billion.

Mr. CLINGER. For just the oil fill?

Mr. BOGGS. Yes.

Well, that includes a little of building. But when you consider we are almost at 500 million barrels, at nearly $30 a barrel, that gets you up into that range pretty quickly.

But the basic question would be, what are we expecting consumption to be in some future scenario? Since SPR is basically designed to offset a loss of supply from other areas, it would certainly be unlikely that U.S. consumption would increase, so that a comparison of existing refining capacity against U.S. consumption gives you some measure of what your ability to use that oil is.

There obviously are many technical factors, and that is one of the things that the National Petroleum Council study is going to be looking at.

Mr. CLINGER. Thank you.

Mr. SYNAR. The gentleman's time has expired.

The gentleman from Texas, Mr. Bustamante.

Mr. BUSTAMANTE. Thank you, Mr. Chairman.

Mr. Secretary, it is my understanding that there is a tendency among foreign exporting countries to get around U.S. import restrictions by transshipping products to other countries and disguising the country of origin.

Is this correct?

Mr. BOGGS. I think somebody from the Special Trade Representative could tell you better.

I think we don't have very many import restrictions that are keyed to the country of origin. But I think somebody from the Special Trade Representative or Customs could tell you better.

Mr. BUSTAMANTE. I wanted to know if some of the OPEC nations were engaging in this practice, and more particularly-if Libya was following this practice?

Mr. BOGGS. I would not have an opinion on that.

Mr. BUSTAMANTE. OK.

Let me ask you, in reference to refining of oil, how does the U.S. refining technology compare with that developed by other countries, say, Japan and the Netherlands, for instance?

Mr. BOGGS. It is my general impression-though I wouldn't have technical details to back it up-it is my general impression that

U.S. refineries, at least the better and newer ones, are the equal or superior of any in the world.

Mr. BUSTAMANTE. To what extent is the U.S. refining industry responsible for developing advanced refinery capabilities in foreign countries?

Mr. BOGGS. I couldn't give you an answer on that one.

Mr. BUSTAMANTE. Since the dollar is so strong, is U.S. source capital investment forming at a greater rate in overseas refining development than in the United States? Are some of our big conglomerates investing a lot of money in overseas refineries?

Mr. BOGGS. I am not aware that many U.S. companies are building refineries abroad. I could be mistaken on that, but I think that the substantial places where you are getting increases in refinery capacity are in refineries that are built by countries themselves, because frankly the refining business has not been a very lucrative one in recent years and I don't think there are many profit-oriented companies that are building them.

But I could perhaps get you a detailed breakout for the record of the ownership of new refineries, but I don't have that information here.

[The information follows:]

With the exception of Saudi Arabia, countries that have expanded significantly their petroleum refining capacity in recent years have done so without any equity participation from international oil companies. In most of these cases, the new plant is exclusively owned by a national oil company. In Saudi Arabia, three large new plants are in various stages of initial operation. Each of these has an outstanding partner: Mobil at Yanbu, Shell at Jubail, and Petrola (Greece) at Rabigh.

Mr. BUSTAMANTE. My concern is that I know of one refinery which was just completely shut down, and we are having a difficult time.

I was wondering if some of the big companies are shifting their base overseas because they don't have to meet some requirements that our refineries must meet in this country?

Mr. BOGGS. I really don't believe that new construction by companies is causing that. There certainly are cost differences in meeting environmental regulations, but I would not be able to tell you how big a factor that would play.

Mr. BUSTAMANTE. Would you try to give me some information in both of those areas?

Mr. BOGGS. I could try and do that, yes.

[The information follows:]

Many of

U.S. refineries must meet federal and local standards which regulate plant air, water, and solid waste emissions. the costs of meeting these standards are not applicable to competitive plants operating abroad. These costs will vary from plant-to-plant and may average roughly fifty cents per barrel of crude oil processed in the U.S., including a capital charge on equipment employed to meet environmental regulations. The capital recovery component represents a large fraction of total cost, and once installed, these facilities have little alternate use. For existing U.S. plants, the competitive disadvantage in terms of marginal operating costs to comply with U.S. stationary source emission standards is roughly ten to twenty cents per barrel of crude oil processed.

U.S. refineries also experience costs to supply certain products which are subject to environmental regulations. Examples of this are the need to reduce lead content of motor gasoline, and sulfur content of fuel oils. If foreign plants choose to supply these products to U.S. markets, they incur similar, but not identical costs. In some cases, U.S. plants may benefit from refinery processing economies of scale because a typical U.S. plant may make large quantities of products meeting U.S. environmental specifications, while a typical foreign refinery may make much smaller quantities.

In other cases, particularly in supplying low lead gasoline, the U.S. plant may suffer because finished gasoline is

comprised of a variety of blending components which have widely different responses to lead addition. Some foreign refiners

will have available a local market which can absorb highly leaded gasoline production. This allows them to reserve the

high clear octane components for shipment to the U.S. In such circumstances, some foreign refineries might be able to make limited quantities of low-lead gasoline for roughly one cent per gallon less than U.S. plants.

Mr. BUSTAMANTE. Thank you, Mr. Chairman.

Mr. SYNAR. Thank you, Mr. Bustamante.

The Chair recognizes the other gentleman from Texas, Mr. DeLay, for 5 minutes.

Mr. DELAY. I am glad to see there are two gentlemen from Texas.

Mr. SYNAR. All in one room.

Mr. DELAY. Thank you, Mr. Chairman.

Mr. Boggs, your statement pretty well reflects my considerations, but I wanted to clear up a couple things you said about what I think I hear you saying-that we should continue to monitor this situation and not take any immediate short-term action at this time; that we are not in a crisis.

Mr. BOGGS. Well, I think-

Mr. DELAY. When it comes to imports, that is.

Mr. BOGGS. I would certainly say that is correct. I would say that we should try never to take nonproductive action, whether it is in a crisis or not. Many of our problems were created in the past by people saying that they were in a crisis and that was driving them to take actions that were in fact counterproductive.

Mr. DELAY. So the Department of Energy is not ready at this time to make a statement as to what the effect of the imports of refined products would have on American industry?

Mr. BOGGS. Well, we have some studies underway that might lead to some type of a forecast on that. We can certainly see that the world oil situation and the reduction in consumption around the world has led to a reduction in refining capacity, not only in the United States but even more so in fact in other countries in the world.

I think it is our opinion at this time, subject to further studies, that it is that worldwide oil situation rather than specific imports of product that are impacting the U.S. refining industry.

Mr. DELAY. Could it be said that some of the refineries that have been shut down might have been shut down even if we were not into this situation?

Mr. BOGGS. Well, I think that is true certainly of some of them, probably many of them. Certainly, when we are talking about gaso