mission of this office includes the systematic investigation of all reports of fuel shortages and monitoring assistance in solving any real problems that develop.

Director Lincoln commented that practically all of the approximately 40 supply problems in New England reported thus far to the Regional Board had already been resolved. Last Tuesday, for example, an arrangment was completed with Gulf to provide 500,000 barrels of low sulfur residual oil for the City of Boston, which was very nearly out of oil for some activities. The Federal Power Commission estimates that New England is in better condition this year both with regard to gas supply and the supply of fuel for utilities than last year. A greater supply of No. 2 home heating oil is assured, and inventories on the East Coast for this product are considerably above last year's levels.

Director Lincoln commented that the Joint Board's monitoring and coordinating activities are still not complete. A close check on the tanker situation is being undertaken, and consultations with industry designed to make fuel available to potential short-supply areas before a fuel crisis can occur will continue.

Lincoln also commented that he had written to the governors of every state asking their cooperation with the efforts of the Federal Government, and that the action of Governor Sargent of Massachusetts in moving to set up community energy committees is a helpful measure. He said that as of now he did not believe the current estimates indicated a crisis situation for the winter. However, there are likely to be tight fuel situations in some areas and it is only prudent to take reasonable preparedness actions early.

Mr. LINCOLN. As to the area of the country expressing most concern, our Federal Regional Board in Boston, working with State and local governments and industry, has eliminated a great portion of the alarms, I believe. The Regional Office has investigated 40 or so specific reports of fuel problems, and the Chairman of the Regional Office informs me that all but two of these have been satisfactorily resolved. I told him to go on working on those two. He has hopes of having them resolved by the end of the week.

One action has been, for instance, the arrangement made on the day before yesterday for the provision of 500,000 barrels of low-sulfur residual oil to the city of Boston on terms, so I am informed by the Chairman of the Federal Regional Board, acceptable to the city.

This Board provision may need a footnote. I do not know exactly the arrangements, but I believe it amounts to a guarantee that they can have it if they want it.

Gentlemen, the events in the energy field during the past 6 months have impressed upon me how sensitive our economy is to relatively small, even undramatic, changes in the complex energy supply and demand situation. These changes are sometimes hard to foresee; most persons do not even notice the change in the current disruption of delivery of oil across the Mediterranean-only 3 percent of the world's oil-for it is not so dramatic as a military interruption. But a political or a political-economic interruption can be just as effective in restricting supply and raising prices. The argument for adequate insurance is there.

I have brought with me two members of my staff. Elmer Bennett and Anthony Smith. We will do our best to answer your questions, hoping that you will keep in mind that my position is a policy position more than a detailed analytic position, and that the Department of the Interior, the Federal Power Commission, the Interstate Commerce Commission, and the Department of Commerce people are the operating people. We do seek your counsel in the matter of energy supply, which is a problem which is likely to continue for at least several years, for several reasons, one reason being the unexpected acceleration in energy demand, starting, I think, about 2 years ago.

Mr. EVINS (presiding). Thank you very much, Mr. Lincoln, for a very comprehensive statement giving the committee an overall view of the fuel situation in this period of energy crisis.

This joint statement that you and Dr. McCracken issued on September 29 in which you call upon the petroleum industry, the coal industry, the railroad industry, and all the others, in the light of the national need, to increase the supply of fuel is very encouraging. This is a commendable statement. And perhaps your action in calling upon them to increase the supply and, perhaps, in, a minor way maybe, the work of this committee and others perhaps, has brought about soine results which the country needs and which the public is concerned about, because, in your statement, you said that the major oil producers have already publicly announced a total increase of more than 100,000 barrels a day of additional residual fuel oil. This was in your regular statement.

And then, as you came in, you were handed a telegram from one of the major oil companies in which they said they were going to produce 25,000 barrels per day more. So, it looks like we are getting some results.

And all I want to say in observation is that you are to be commended, your joint board. It may not be enough to satisfy Mr. Conte's need in New England-I have got the figure of 250,000 barrels.

Mr. CONTE. 250,000 barrels capacity of that new refinery.
Mr. LINCOLN. It is still a very significant amount.

Mr. EVINS. Then, you also issued a press release in which you say that the information of the Energy Board shows an improved winter fuel situation. It is also a very promising and very encouraging report.

In other words, General Lincoln, we want to commend you for the encouraging words. But this committee wants to be your right arm and to back you and to support you and to urge that you keep your staff active so that there will be no crisis in fuel developed in New England or in any part of the country.

You did not refer to Dr. Stein's statement in which he said that a shortage of any one fuel such as residual fuel oil results in an increased demand on other fuel sources such as coal.

What is the OEP doing, if anything, regarding the current coal shortage?

Mr. LINCOLN. Before addressing myself to your question, sir, may I refer to the press release, which I have submitted for the record, of Humble Oil Co. in which they announced their increase of 60,000 barrels a day. This press release is an interesting discussion of the problem.

Mr. EVINS. There is no objection to Humble Oil, Shell Oil, or Standard Oil, or any one of them putting in their press releases.

Mr. LINCOLN. These people I happened to meet when I came through the door, and I asked them what they had in their pockets.

Mr. EVINS. You are all in pretty close confederation now, aren't you, General?

Mr. LINCOLN. Well, these are the fellows who have the oil, so, it is just as well to stay in communication. This does not mean that we are always in agreement, by the way.

As to coal, our analysis is that in general the bottleneck in the coal situation is not the actual production at the mine but is transportation.

And, so, we are putting our efforts for the time being on persuasion on the production industry and on actual actions of transportation. The transportation, of course, boils down to availability of hopper cars, which boils down to how the railroads, the people who are loading them, and the people who are unloading them handle them.

Mr. EVINS. There is an ample supply of coal in reserve; it is a question of distribution and transportation and shortages of coal cars?

Mr. LINCOLN. Or a tightness in coal cars.

Now, there has been mentioned to you by other witnesses, I am sure, one single action that has been taken by the C. & O. and N. & W. on coal exports which will free the equivalent of 8,000 additional cars, which will be equivalent to moving another 7 million tons of coal. And that 7 million is a rather interesting figure, because Chairman Nassikas estimates that with another 7 million tons of coal one can raise all utility inventories to at least a 45-day supply, which would take pressure off the utilities.

Mr. EVINS. Thank you, General.

Mr. SMITH (presiding). General, you mentioned transportation. Other witnesses have said that whenever we have a shortage of one fuel it affects other fuels. I notice you stress the heating consumption. But if we are diverting No. 2 over to take the place of "resid," what happens to the diesel fuel for diesel engines on the railroads and the farmer's tractor that has to go to the field to produce the food? What are we doing there?

Mr. LINCOLN. Well, first, there is a technical point on which I have to turn to Mr. Bennett for assistance. Diesel fuel is, as I recalldistillate is different from No. 2 oil; is it not?

Mr. BENNETT. That is true.

Mr. SMITH. Isn't this being diverted in one way or another and then shipped?

Mr. BENNETT. What we actually are experiencing is the effect of the antipollution regulations in many, many areas. And this has caused some diversion already from residual fuel oil to the use of No. 2 fuel oil, which is a different product from the diesel fuel.

Mr. SMITH. Nevertheless, it is out of the whole ball of wax.
Mr. BENNETT. Yes.

Mr. LINCOLN. It is out of the whole ball of wax-in the barrel. Going further, we have hopes that people will become quickly accustomed to and knowledgeable about this transitional system that we are going through. The situation includes not only this disruption of movements across the Mediterranean and the high tanker prices but also includes the effect of the environment program. The outcome of this appraisal will be, hopefully, that there will not be too much shift. After all, in normal times-if we ever get back to normal times— No. 2 oil costs more than residual oil. It also has a lower B.t.u. production per barrel.

And, so, anybody, even with a dull pencil, can figure that you can get more heat for less money using residual oil than using No. 2 oil.

Mr. SMITH. I am kind of leary when I hear all of these witnessesand there have been several-who seem to indicate that we are going to help solve our problems by shifting from one type fuel to another, and I am beginning to wonder who else we are going to affect.

Mr. LINCOLN. This is part of the uncertainty in the situation. And I can say to you that the producers and the people who are delivering oil have this in their mind. One company was in to see us yesterday to say that they are putting all the No. 2 oil into the New York area that they think they will need from the standpoint of their business. Then they have gotten another million barrels of tankage and are putting that in just in case people start shifting from residual oil to No. 2 oil. They are going to be prepared for it.

Mr. SMITH. They did not say where they got the No. 2 oil from, though, did they?

Mr. LINCOLN. Well, this particular company makes a lot for itself in this country, and it has just shipped in one tankerload; a million barrels from Venzuela. They said that the tanks all around the coast were so full that they had difficulty in selling it.

Mr. SMITH. If they are having difficulty selling it, I can't imagine why they do not get it out where the price is so high. The price has skyrocketed.

Mr. LINCOLN. May I ask Mr. Bennett to make a further comment on the point you are raising, Mr. Chairman?

Mr. BENNETT. Of course, the origin of the No. 2 and the “resid” is always crude oil. So, the supply of crude oil is a critical factor.

Now, I think that these figures have already been given by previous witnesses, but, if not, I will mention again that we have an import flow of residual fuel oil into this country right now that is running 300,000 barrels a day approximately above what it was a year ago.

On the other hand, we have about a quarter of a million barrels a day less crude oil being imported into the United States. However, this has more than made up at the present time by the fact that our domestic production of crude oil has beeen increased by something like 700,000 barrels a day. In other words, we have more crude oil production headed for these refineries to meet these adjustment requirements.

Now, the additional residual crude oil that General Lincoln mentioned is coming from spare refining capacity for the most part. In fact, practically all of it, and it is due to the fact that refineries in the United States, as reported by the National Petroleum Council, had roughly a 5 percent leeway of unused refining capacity. So, that additional residual production is actually incremental production, requiring the use of additional amounts of crude oil. And this is being supplied primarily in the Louisiana-Texas area as a result of increased production there to offset the reduction in imports of crude oil.

Mr. SMITH. You mentioned-as has been mentioned before, I think that only 3 percent of the world oil is coming from the Mediterranean area?

Mr. LINCOLN. Let me explain this point. The disruption consistedmeasured in oil of about 3 percent. This includes about 475,000 barrels per day no longer flowing across Syria from Saudi Arabia. The figure includes as high as 700,000 barrels per day for the Libyan

cutback in production. So the amount of oil that was no longer available to Europe across the Mediterranean was roughly a million barrels per day. The total world oil consumption runs somewhere between 36 and 40 million barrels. So, you had a million barrels here that were disrupted, as far as transportation was concerned, or about 3 percent roughly-my mental arithmetic is not an exact science at the moment-21⁄2 or 3 percent.

Now, that million barrels could be made up by sending the tankers around Africa and picking it up in the Persian Gulf, which is being done. But it takes somewhere between five and eight tankers on the run around Africa to move the same amount of oil into Europe as one tanker will move just in the short run across the Mediterranean. So, this puts terrific pressure on the supply of tankers, with a consequent rise in the spot rate of tankers. This explanation gets pretty technical, more technical perhaps than I should attempt to undertake. Certainly, only a proportion, perhaps a small proportion, ofoil moves by spot tankers. So, the first day, or the first week, or the first month you have this problem, only a small proportion of oil is affected. But, then, again, all of us who have had Economics 1 know that prices tend to move to the cost at the margin. As time goes on, the short-term charters terminate and have to be renewed. The price of short-term charters, one to two or three voyages, or 1 to 2 years, tends to move toward the spot rate, and the transportation costs continue to go up.

The fellows who own the tankers, by the way, are the ones who are really making the money in this business.

Mr. CONTE. Which are the oil companies.

Mr. LINCOLN. The spot tankers?

Mr. CONTE. We had a witness here yesterday, Assistant Secretary Dole, who said that 90 percent of the tankers are owned by oil companies.

Mr. LINCOLN. I would want to check that figure. I do not know. Mr. CONTE. That is the first time I ever heard you fellows disagree with each other.

Mr. LINCOLN. Look, I disagree with him often.

Mr. CONTE. Well, that is interesting.

Mr. LINCOLN. But we are on a warm, speaking acquaintance.
Mr. SMITH. Just a last question.

We have had testimony here, I think by the Chairman of the Federal Power Commission and others, which, if I could summarize it, indicated that there is no hope during the next 5 years of being sure that we will not have blackouts or brownouts or shortages of electric energy, and what we have to start working for is to-starting to work for 5 years from now-to be sure we have enough energy for these peak demands.

Does that meet with your judgment of the situation?

Mr. LINCOLN. Let me first talk about generating capacity, which is Chairman Nassikas' business. And I am sure that he must have gone over the aspects of this, that people used to bet pretty heavily up until at least a couple of years ago, on nuclear power coming on line. The National Petroleum Council estimated that the slippage in nuclear power that was supposed to have come on line in the last 3