the East Coast "only after 1980." They see Gulf imports of crude oil rising accordingly from 76,000 barrels per day in 1971 to 4,640,000 barrels per day in 1980 and refining capacity increasing substantially in that area. If these forecasts prove correct. about half of U.S. crude oil imports would flow to the Gulf area in 1980. The percentage to be transported by American-flag, Americanbuilt VLCC's to offshore deepwater ports, wherever located, will in all probability be determined by the legislation mentioned earlier, and we earnestly hope approval will be forthcoming in the present session of the Congress. Depending on the type of offshore port employed, the related issue of transshipment to shoreside facilities by smaller tankers or tug-barge systems is also of keen interest to U.S. shipbuilders who stand ready to provide theee "feeder" vessels. There would, in addition, appear to be a market for similar vessels to transport petroleum products from refineries now under construction or planned in the Grand Bahama Islands and Newfoundland.

In light of the potentials for tanker requirements inherent in the availability of offshore deepwater ports, in light of the prospects for a reservation of a certain percentage of increasing oil imports for American bottoms, and in light of a general improvement in the posture of the American merchant marine resulting from enactment of the Merchant Marine Act of 1970, U.S. shipyards are continuing to create and expand production capacity to reduce labor intensiveness and to increase output. During the 1967–1972 period, nearly $500 million have been expended for capital improvements. It is believed that more than $300 million have already been authorized or committed for new shipyard facilities in the next few years.

As of June 1, there were 83 merchant vessels totaling 4,136,171 dwt on order or under construction in American yards. Included are 34 tankers totaling 2,881,900 dwt in seven shipyards. Orders for another eight tankers, totaling 1,113.800 dwt, were placed at the end of last month. Two yards have contracts for VLCC's of 225,000 dwt and 265,000 dwt, and nearly 70 percent of the tanker tonnage now on order involves vcssels of 120,000 dwt and over-vessels whose capability can be fully utilized in no usual U.S. ports.

Tanker building capacity in the United States is anticipated to expand further from the present annual level of approximately 1,500,000 dwt to considerably more than 3,000,000 dwt in 1978 and later. Some of this capacity will be devoted to the construction of VLCC's and a maximum eventual output of six or seven VLCC's annually would not seem unrealistic.

The capacity of U.S. private ship repair yards to dry dock VLCC's in most regions of the country, on the other hand, is presently limited. No facilities are normally available on the East Coast, though a drydock capable of lifting 120,000 dwt tankers is contemplated at Baltimore, Maryland. None are available on the Gulf Coast, though a repair dock, designed to handle VLCC's up to a maximum of 380,000 dwt is planned at Galveston, Texas. On the West Coast, most tankers up to 150,000 dwt and some as large as 230,000 dwt can now be drydocked at San Francisco, California. Drydock dimensions and lifting capacity, rather than channel depths, are controlling in these respects. For example, VLCC's of over 200,000 dwt have an approximate mean light draft of 10 to 15 feet, and on that basis, VLCC's without load could enter most U.S. ports for repair, assuming drydock availability.

With the increasing size of tankers and the development of offshore ports, it does not seem illogical to anticipate that repair facilities in the United States will keep abreast of these trends. Shipyard managements, you can be sure, are following this situation with a view toward future probabilities.

In summary, we draw three conclusions: (1) more oil will be brought to the United States in larger tankers, (2) compatible offshore deepwater ports will be necessary, and (3) changing conditions of oil transportation present an opportunity for U.S. flag tankers and for U.S. shipbuilding and shiprepairing opportunities which appear to be enhanced by the provisions of the Merchant Marine Act of 1970, and devaluation of the dollar-opportunities which can help in minimizing the persistent imbalance of international payments.

STATEMENT OF THE AMERICAN PETROLEUM INSTITUTE

THE ENERGY CHALLENGE

The energy challenge which the United States faces is a direct result of an increased demand coupled with dwindling oil and gas reserves. Demand has

sharply increased, spurred in part by steps taken to conform to the new clean air standards. Proved U.S. crude oil reserves have declined in five of the last six years. Thus, we are using more oil reserves faster than they can be replaced while at the same time energy consumption continues to grow. Accordingly, we must rely increasingly on importation of foreign crude to make up the difference between what we can produce domestically and what we consume. Ultimately, our dependence on foreign sources of supply can be lessened by accelerating the development of crude oil deposits believed to exist in coastal waters off the United States, by greater reliance on nuclear power and by tehnological advances in the conversion of coal to more usable forms of energy. However, none of these actions is expected to provide more than partial answers in the next few decades although al must be pursued vigorously for the contributions they can make. Concurrently with efforts to expand our domestic energy sources, programs for conserving energy should be actively promoted. We must still recognize, however, that this country is faced with an increasing dependence on foreign sources of supply for the foreseeable future. In 1972 petroleum imports from abroad were 4.7 million barrels per day. By 1985 this is expected to increase by 2 to 4 times and, at that time, it is anticipated that more than one half of the nation's total oil requirements will have to be imported.

This is a problem of national scope. Failure to meet the growing energy demands by increasing petroleum imports could have an adverse impact on every home and industry in the United States. Interior states would feel this impact as directly as coastal states. Although petroleum imports will necessarily enter the country through coastal installations, the entire nation will realize the benefits of these imports through the highly efficient transportation network of the petroleum industry. In the absence of such imports, the economy of the nation must inevitably suffer.

THE NEED FOR DEEPWATER TERMINALS

About 85% of the free world's known crude oil reserves are located in the Middle East, Africa and South East Asia. It is these reserves upon which the United States, along with other crude deficient nations, must depend to supply their growing energy requirements. In shifting to, and increasing our dependence upon distant foreign countries, it is essential that foreign crude be imported in the most efficient and economical manner possible consistent with national security and environmental factors. Large tankers employed in conjunction with deepwater terminals off our shores will help accomplish these ends.

Typically, a tanker voyage from the Middle East to the U.S. East Coast involves a 24,000 mile round trip. In moving substantial volumes of petroleum over such great distances, the economics of tanker transportation clearly favor using large vessels. The cost of shipping petroleum from the Middle East to the United States can be reduced by as much as 30% if 250,000 deadweight tons (DWT) vessels are used rather than 70,000 DWT vessels. This cost difference could represent an annual savings of over one-half billion dollars in 1980, increasing to $1.5 billion in 1985. However, there are at present no port facilities in the United States which can accommdate very large crude carriers (VLCCs)—that is vessels larger than 200,000 DWT which normally require over 65 feet of water.

Over 80% of the world tanker tonnage on order today is in the VLCC category. By 1980 VLCCs will make up more than two-thirds of the free world fleet capacity. This capacity would not be available for U.S. trade unless deepwater terminals are developed.

ENVIRONMENTAL CONSIDERATIONS

In view of the urgent national need for deepwater terminal facilities, it is reassuring to know that the technology required to construct such facilities and operate them safely is already well established.

There are over 60 ports and terminals in the worl dconstructed to accommodate VICCs. These represent several basically different concepts.

1. Traditional fixed berths or terminals which are directly connected to the shoreline. There are about 20 ports in the world today with such facilities which are capable of accommodating VLCCs.

2. Ocean platforms and sea islands which are in many ways similar to traditional berthing facilities except that they are located offshore. There are 9 such installations in operation today which can terminal VLCCS.

3. Single point moorings about which a vessel can swing while transferring cargo. There are over 100 of these installations now in operation, about 30 of which can accommodate VLCCS.

4. Multiple buoy moorings where vessels are secured offshore with a fixed orientation during the cargo handling operation. There are a number of these around the world including two capable of accommodating VLCCs.

The United States is fortunatley in a position to capitalize on this worldwide reservoir of knowledge and operating experience. However, despite this relatively advanced "state of the art" and the transportation savings which can be effected there remains opposition by some to the construction and operation of VLCC terminals.

This opposition rests partly on the fear of possible large spills which could cause heavy pollution of coastal areas. Unfortunately, some of those who raise this objection may not be considering the practical alternatives for handling petroleum imports. If they are realistic and relate the hazards of a deepwater terminal to the hazards of importing substantially larger quantities of petroleum by traditional methods using small tankers, a truer picture can be

seen.

In testimony before the Senate Commerce Committee on March 6 the Honorable Russell E. Train concluded that the anticipated spillage would be more than 10 times greater using 50,000 DWT tankers compared to the spillage using the 250,000 DWT size. This general conclusion has been analytically confirmed by several independent groups and stems from at least four factors: 1. Dependence on small tankers for handling increasing volumes of petroleum will significantly increase harbor traffic. Using the tanker sizes cited by Mr. Train, the 250,000 DWT tanker would reduce the number of ship calls necessary to supply the nation's import requirements by 80% compared to those required if 50,000 DWT tankers were used. An increase in congestion in restricted waterways will result in increased risk of marine accidents, such as vessel collisions and groundings.

2. Use of smaller vessels means the unloading cycle must be repeated much more frequently than when using large vessels. Operating experience shows that spill hazards are generally the greatest while connecting and starting to pump cargo, and while disconnecting. To the extent that these operations are performed less frequently with large vessels, there will be a corresponding dcrease in the risk of pollution.

3. In the absence of deepwater facilities, spills would occur at established ports in confined, sometimes protected waters, where the effects would likely be more ecologically damaging than if they occurred in open waters at a deepwater terminal.

4. The new generation of deepwater terminal facilities and ships will incorporate the latest technological advances in equipment design and operating devices.

Based on these factors, early construction and operation of deepwater port facilities is sound from the standpoint of minimizing oil pollution of the marine environment.

FINANCIAL RESPONSIBILITIES

API has long supported ratification of both the International Convention on Civil Liability for Oil Pollution Damage and the Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage. As recently as April 17, 1973, our representative appeared before the Subcommittee on Oceans and International Environment of the Senate Foreign Relations Committee in support of ratification. These conventions set forth the liability which will obtain in event of a spill and provide for coverage of such liability. It is recognized, however, that additional time will be required for these conventions to be ratified by the requisite number of nations and become effective internationally.

In the meantime, two segments of private industry-the tanker owners and the cargo owners-have themselves voluntarily established two international compensation programs covering tanker spills. The first program is the Tanker Owners Voluntary Agreement Concerning Liability for Oil Pollution (TOVALOP), which provides that, irrespective of liability, participating tanker owners may claim reimbursement for costs incurred in voluntarily cleaning up oil spills. In addition, it provides for reimbursement to a government of a country for costs incurred to prevent or cleanup pollution of coastlines resulting from negligent discharge of oil fro ma participating tanker. Under TOVALOP, a

tanker owner has a liability up to $100 per gross registered ton of the tanker up to a maximum of $10 million per vessel per incident. At this time more than 99.5% of the world's non-governmental tankers which might possibly use deepwater terminaling facilities are covered under TOVALOP.

The second program is the Contract Regarding an Interim Supplement to Tanker Liability (CRISTAL), which was developed by oil cargo owners to provide additional protection-for private citizens as well as for governments -by extending the limit for each incident up to as much as $30 million. CRISTAL is, literally, a legal contract that now binds more than 90% of the international petroleum industry, as measured by the volume of crude and fuel oils that participants transport by tanker. Under CRISTAL, participants have a contractual obligation to provide their pro rata share of funds needed to pay compensation for pollution damage up to a maximum of $30 million per incident.

In addition to these voluntary plans, the groups which underwrite TOVALOP make available to the shipowner third party legal liability insurance for negligent oil pollution damage for up to $15 million. This provides shipowners with the coverage which is required under provisions of the Water Quality Improvement Act of 1970, as amended.

Both TOVALOP and CRISTAL are designed as interim measures pending the time when the Liability and Fund Conventions come into effect. The broad industry coverage under these programs provides sound protection in the event of a spill and encourages shipowners to take prompt remedial action.

VLCC OPERATIONS

Vessel safety is a prime consideration in building and operating tankers. The very nature of the cargo dictates this priority. VLCCs represent a new generation of vessels-the first was placed in operation in 1967. They are equipped with the most modern navigational and other safety equipment and operating features. Such vessels often have centralized cargo handling systems which permit close control of operations as well as constant monitoring of all cargo valves, pumps and tanks during loading and discharge.

Many companies have training programs to assure that senior officers maintain their vessel operating proficiency. Programs are also conducted to instill among crew members a continuing awareness of the importance of safe, pollution-free operations.

The U.S. Coast Guard has for years been active in the establishment of sea lanes for vessels in areas of heavy marine congestion along U.S. coasts. Under the Ports and Waterways Safety Act of 1972 the Coast Guard is charged with the responsibility for the establishment, operation and maintenance of vessel traffic control systems in congested port areas. This experience will be valuable in developing procedures for regulating vessel traffic in the vicinity of deepwater port installations.

The operating characteristics of the new generation of VLCCs are widely misunderstood. Like their similar counterparts these vessels may be readily controlled. The fundamental point is that with increased ship size, greater time is required to perform maneuvers and must be anticipated and initiated earlier than with smaller vessels.

The stopping distance of vessels from full speed is frequently mentioned in discussing vessel maneuverability. This is a misleading yardstick, however, as the master of a vessel will gradually reduce speed when approaching or entering a harbor or other areas where traffic is congested. As would be expected, substantially less distance is required to stop at low speeds. In any event, a master of a vessel operating at normal speed in the open sea will avoid close quarter situations with other vessels by changing course rather than by bringing the vessel to a stop.

Thus, while the new large vessels may appear ponderous, their basic handling characteristics are, in reality, not greatly different from much smaller vessels. As a matter if fact, some ship masters have pointed out that under certain wind and sea conditions they would much prefer to handle a VLCC as it is easier to control than a smaller, lighter vessel.

THL IMPACT OF DEELWATER TERMINALS

It should be noted that construction of new deepwater petroleum facilities will not undermine the economic viability of existing ports. Existing ports would continue to handle smaller tankers such as those used in coastal trades, as well, of course, as all dry cargo and liner traffic. However, this new genera

tion of special purpose terminaling facilities is essential for handling crude imports largely in excess of present crude imports.

Studies indicate that there is little incentive to develop petroleum terminal facilities as multi-purpose facilities where ores, grain, coal and other cargoes could be handled. Vessels handling such cargoes generally do not require the water depths necessary for VLCCs and such multi-purpose terminals would be extremely costly. In short, deepwater facilities for the importation of petroleum should be single-purpose installations designed solely for that purpose. There is, along certain coastal area, considerable opposition to the installation of deepwater terminals on the basis that they would encourage industrialization and change the character of the adjacent shoreline. A deepwater terminal need have little effect on the adjacent area except as desired by state and local governments. The governments can, through the application of land use regulations, continue to maintain strict control over industrial development even after the installation of a deepwater facility. Onshore facilities can consist of a minimal tank farm and pump station which could be landscaped and unobtrusive. The terminal itself may be located well offshore and be equally unobjectionable.

Evidence that deepwater terminals can be built and operated without changing the character of the shoreline can be seen in several parts of the world. VLCC terminals have been operating in Ireland's Bantry Bay and southern Japan's Kagoshima Bay for years without causing industrialization of adjacent land areas or otherwise disturbing the character of the shoreline.

The establishment of land use plans and zoning restrictions by individual states and local jurisdictions is becoming increasingly common-normally with the objective of prohibiting development incompatible with long range plans. The exercise of these rights, however, must stand the test of reasonableness and should not be applied in such a way as to prohibit arbitrarily the free flow of interstate and foreign commerce.

With particular reference to approving the construction and operation of deepwater port facilities, coastal states may properly seek to preserve the scenic beauty and recreational value of the national shoreline. However, in exercising this prerogative, those states also have the responsibility for assuring that the restrictions placed on shoreline developments do not unreasonably stifle the well-being of interior states which will also be critically dependent on imported crude. An ideal situation would be one in which individual states cooperate with the Federal Government and with industry in assuring that all appropriate environmental precautions are taken and that there is a minimum effect on the character of the coastal areas.

LEGISLATIVE ASPECTS

Private industry has indicated a willingness to finance the construction and operation of deepwater facilities. Testimony before this Committee by representatives of the proposed LOOP and SEADOCK projects in the Gulf of Mexico provide evidence of their capabilities to handle all aspects of the projects.

Firstly, however, legislation is required to confirm the right of the Federal Government to authorize the location and regulate the operation of terminals beyond the limits of the territorial sea as a "reasonable use" of the contiguous zone and high seas. Once legislation is enacted it will be possible for the nation to begin to take steps to realize the benefits of the lower marine transportation costs and environmental advantages which will result from the use of deepwater terminals.

Secondly, there is a compelling need for Congress to authorize a single agency to issue licenses for the construction and operation of deepwater oil receiving terminals and appurtenant facilities and to promulgate such regulations and guidelines as may be necessary for the operation of such facilities. The licensing agency should be directed to seek the advice and counsel of other federal and state agencies on matters relevant to their areas of responsibility insofar as they are affected by the location and operation of deepwater facilities. The licensing procedures of the agency should have nationwide application. Moreover, they should be sufficiently flexible to cover various terminal designs each of which may have its special advantage at particular locations.

Legislation which is enacted should also encourage expeditious processing of all applications. Actual construction of deepwater facilities may require two or more years. If an additional two to three years were required to secure necessary administrative authorizations prior to proceeding with construction,