Oil for Troubled Waters
(See page 1253, this issue)
Rear Admiral H. A. Stuart, U. S. Navy.—During the year 1939, the United States produced approximately 1,255,783,000 barrels (60.68 per cent) and Canada and Mexico 48,700,000 barrels (2.35 per cent) of the total world oil production, 2,069,812,000 barrels; South American production amounted to 284,538,000 barrels (13.74 per cent); European production amounted to 278,147,000 barrels (13.43 per cent); Asia, Africa, and Oceania together produced approximately 202,644,000 barrels (9.80 per cent).
While the United States probably actually possesses less than half of the potential undeveloped oil reserves of the world, it seems unlikely that its position in oil production will ever be seriously challenged. Although Europe, Eastern Asia, and Northern Africa together produced about 18.6 per cent of world oil production in 1939, this is only a fraction of Europe’s consumption and it appears unlikely that future production from the oil regions in these areas will be able to keep pace with the constantly increasing demands of a large population just beginning to realize the petroleum requirements of mechanization in industry, transportation, and armaments.
The petroleum industry is the outgrowth of free enterprise in countries where private capital has felt it had protection commensurate with the risk involved. For this reason it does not appear now that potential oil reserves in foreign lands will ever be as intensely developed as will be the oil resources of the United States. The industry is one peculiarly unresponsive to government control or nationalization as the results in Russia, Mexico, Bolivia, and Argentina will bear out. Even in Venezuela, where the government has given every encouragement to private capital to develop the country’s oil resources, the principal operating companies, the Royal Dutch-Shell interests and Standard Oil Company (New Jersey) interests have chosen not to put all their eggs in one basket and have erected refineries operating on Venezuelan crude on the near-by Dutch West Indies Islands of Curasao and Aruba. For this reason there has been little agitation in Venezuela for the government to take over private foreign owned oil properties, valuable as they are, in the absence of refining facilities and assured markets for both the crude oil and refined petroleum products.
When petroleum production in the United States finally reaches its peak and a sustained decline is evident, it is probable that for an extended period the demands of the United States will be met by constantly greater imports while domestic production will be materially sustained by more extensive use of secondary recovery methods such as repressuring, cycling gas, and water flooding in fields where these methods are practical under the incentive of higher prices. It is not unlikely that shallower sands, depleted by ordinary production methods, may show substantial additional recoveries by sinking shafts below the producing sands, tunneling under them and further drained downward by wells closely spaced driven upward from tunnels by methods similar to those proposed by Ranney.
Although it is probable that for a number of years to come petroleum production in the United States will be sufficient to meet domestic requirements for petroleum products, present indications are that the search for oil at continuously deeper levels will continue and that eventually higher prices for petroleum products will result as the percentage of oil produced from deep- seated sands increases. The days of cheap petroleum products would therefore seem to be numbered.
Methods of recovering hydrocarbon substances similar to petroleum from oil shales and coals by distillation have been worked out for some time but since hydrocarbons produced from these sources require expensive mining operations and more expensive retorting and more complicated treatment of the crude product than is required for petroleum, it is likely that large scale operations to produce useful hydrocarbons from both coals and oil shales will be contingent upon consistently higher price levels for petroleum products from crude oil. Known methods require the treatment of two tons of coal or oil shale, on the average, to produce a barrel of coal oil or shale oil. To supply half of our domestic demand for crude oil, approximately 1,179,000,000 barrels in 1938 from coal or oil shale sources would require the mining and treatment of 1,179,000,000 tons or a quantity equal to three times the total coal tonnage mined in the United States during 1938, 390,729,000 tons.
It is recognized that the petroleum reserves which have been set aside for the exclusive use or benefit of the United States Navy must be considered insufficient in the light of the larger Navy which is coming into being. To add to its petroleum reserves the Navy Department has seriously considered the advisability of recommending the purchase of proved oil fields controlled by private interests but has come to the conclusion that the many objections to such an action make the suggestion impractical at this time. Few oil fields are owned and controlled by only a relatively few operators and royalty owners so that in any area containing the large potential oil production which would make its acquisition justifiable, the government would have to purchase the interests of both the lessees and the lessors and either pay an exorbitant price or go into court to condemn separately the interests involved, a process which would take years to accomplish and be extremely costly as well. Such action would be opposed by members of Congress from the state in which such a field was located because of the fact that valuable property subject to state and county taxation would be removed from the tax rolls with the consequent loss in tax revenues to these political governments.
The political angle also makes it inadvisable for the government to lease and explore private lands in order to add to the Navy’s petroleum reserves. Were the Navy Department authorized to proceed in such a manner, political pressure would be enormous in an effort to load up the government with worthless oil leases now held by oil interests and to get the government to lease and test lands owned by the millions of constituents of the Senators and Congressman from the oil producing states.
The proposition of the government reserving and exploring public lands in search of additional oil reserves would of course be the most feasible method of securing additional oil lands for the Navy and the only objection to it is in the fact that the U. S. Geological Survey has assured the Navy that it has been unable to locate any tracts of potential oil lands on the public domain sufficiently compact and extensive to be of any great value. All of the most valuable areas have long ago been explored by geologists of the oil companies and the lands which have not been patented have been pre-empted under the land laws.
The difficulty the Navy faces in seeking additional oil reserves is clearly demonstrated in the opposition legislation to secure a judicial determination on the question of whether minerals in the submerged lands comprising our marginal seas are the property of the national government, or of the littoral state, has met in both houses of Congress. Although the Navy Department has given its full support to all efforts which might enable it to secure as additional oil reserves any oil pools which might be found in the submerged lands below the line of low tide and within the 3- mile limit, so far political and private oil interests have successfully opposed such action.
At the present time the Navy Department is negotiating with the Standard Oil Company of California in an effort to find a solution to the problem faced in naval petroleum reserve No. 1 where 4,662 acres of company owned lands are interspersed among the reserved lands of the United States. The acquisition of the company’s lands by purchase or condemnation as authorized by law will add many millions of barrels of recoverable oil to that already owned by the government in this reserve. However, should negotiations involving an exchange of lands consolidating both government owned lands and the company’s lands in solid wholly-owned adjoining tracts be successful, the company then will be in a position to develop its holdings in the reserve at its option without seriously depleting the oil content of the reserved lands and at the same time the government will be saved the many millions of dollars which would need to be appropriated to buy these private holdings or to pay for them if they are condemned.
Ships for Commerce and National Defense
(See page 321, March, 1940, Proceedings)
Alfred H. Haag, Director, Division of Research, U. S. Maritime Commission.—The article by Mr. Harlan Trott in the March issue of the Naval Institute Proceedings has been examined with interest. This article, entitled “Ships for What?” is an attack on our merchant marine policy as ineffective for defense purposes, harmful to our foreign trade, unfair, needless and un-American.
“Ships for What?” contains errors of fact and omits certain important data while the conclusions arrived at by the author will not be concurred in by all acquainted with the subject. A few of the errors, omissions, and contradictions are pointed out below.
The article opens with a statement of the experience of the United States and Brazil Mail Steamship Company, which obtained a mail contract in 1864 for service between the United States and South America. Mr. Trott says that this contract was “the first under a policy of Federal aid for American shipping,” that “in ten years the subsidy expired, and with it the United States and Brazil Mail Steamship Company,” and that “given a million and a half dollars, private enterprise had failed to develop sufficient trade with South America to continue under its own steam.” This alleged result is used thereafter as typical of all private operation under subsidy contract.
Unfortunately for the argument, this was not the first mail contract, there having been several before this, that to the Collins line for transatlantic service having been the most notable. Also, the line does not seem to have expired when the subsidy was withdrawn. There was interruption of service, and the line evidently changed hands, but the annual reports of the Postmaster General show small payments to the United States and Brazil Mail Steamship Company for carriage of mail to Brazil under poundage rates in a number of years in the period up to 1893, when the line was finally discontinued.
Since this was neither the first American subsidy contract, nor the most notable, it should not be cited to the exclusion of all others. It is typical to the extent that it shows why subsidies granted under the crude early laws were generally ineffective, in that like other early subsidies it lacked supervision or continuity, called for excessive size and speed of the vessels used, and was smaller in amount than subsidies granted to competing foreign lines by their governments. It is no fault of private operation to be unable to survive against the subsidized competition of foreign governments, and we should rather commend the enterprise and ingenuity of these early American steamship companies, which in several cases kept operating for years after the government had withdrawn support. So much for the only example used to support the conclusions of the article.
Mr. Trott states that the merchant marine policy under the 1936 Act is basically unsound because the Act is directed simultaneously to the matter of providing naval auxiliaries for national defense and to developing a fleet capable of carrying a reasonable share of our foreign trade. He asks, “Should not the relation of the merchant marine to national defense, then, be the main objective of our shipping policy?” and implies that we are permitting “the essentially slow evolution of a peace-time trade fleet to impede the possibly faster development of whatever merchant ships are needed to strengthen the naval arm.” He says “we should insist that the conflict between defense uses and trade needs be clearly recognized.”
Mr. Trott is apparently not familiar with the work of the Maritime Commission. All lines receiving operating subsidies are required to modernize their fleets, under plans approved by the Navy, and subsidies are not given unless the vessels to be built are fully acceptable for national defense and are laid down according to prearranged schedule. Furthermore, the vessels built and building under the program do not represent any “essentially slow evolution of a peace-time fleet.” Instead, they are vessels which are superior to almost all comparable existing tonnage in speed, safety, and adaptability for defense needs. A revolution rather than an evolution has been effected. In this connection it may be well to point out that the replacement program is far ahead of schedule.
National defense has always been one of our twin objectives, and the Commission has been criticized by shipowners in the past for requiring what they considered to be excessive speed, excessive compartmentation, unnecessary hull strength, and commercially unproductive “gadgets.” The shipowners, however, have found that ships of what they thought would be ruinously excessive speed and size are paying good dividends, and there is now little difficulty in reconciling the trade and defense policies of the law. Special construction subsidies have also been given to induce the building of tankers of speeds hitherto considered uneconomical, and experience with these fast tankers has induced American firms to increase speeds in new tankers laid down even when no subsidies have been paid therefor. In other words, the Maritime Commission has shown that construction which is best for defense needs is also better than previous practice for ordinary commerce. As a matter of fact, the higher speed of new ships has actually increased our trade on certain routes.
Nor does the assertion of Mr. Trottthat our ships are parasitic on our trade and reduce it in volume have any validity. The reverse is the case. American lines provide dependable service with ships specially built for our commerce, at rates kept within reasonable levels, and thus promote our trade. The folly of depending upon foreign tonnage was made evident from 1914 through 1918, when cargo piled up on the wharves for lack of ships. Foreign vessels were withdrawn from our routes to South America and elsewhere to serve the ends of foreign governments, and we paid the price, both in reduced commerce and in fantastic rates. The present war has seen a similar withdrawal of foreign ships, but our maligned subsidies have in the meantime built up American tonnage which has taken its place, and service has been maintained.
Spurred by the urgent need of rapidly expanding our tonnage for war purposes, we spent in our war construction program $3,000,000,000for ships of types and speeds unsuitable to meet our later peace-time competitive requirements. At least $2,000,000,000 could have been saved if we had aided our shipping and shipbuilding adequately in time of peace, and we could likewise have had more suitable types of ships for both peace and war-time needs than were built during the emergency, as well as trained men to run them.
Mr. Trott complains that under our subsidy system Americans have to pay both the ordinary freight charge and also the tax to make up the subsidy, and that money received by an American line means less money available abroad to buy American goods. He also accuses the American people of having “failed to see that more cargoes, not more subsidies, are essential to the development of foreign trade.” He also denounces our subsidy payments as tending to produce an oversupply of tonnage in the world.
As regards the first argument, there is no doubt of its truth if we disregard the corollaries. But Mr. Trott has not considered that if, as he says, our subsidies produce an oversupply of tonnage, then they must tend to keep down freight rates, both those charged by American lines, and those charged by their much more numerous competitors. This in turn subsidizes foreign trade. Is it not probable that the result of abolishing our Merchant Marine and decreasing the tonnage supply would be the raising of freight rates to the point where the subsidy saving would be wiped out? After all, foreign lines carry over two-thirds of our foreign commerce, and it would therefore take but a moderate freight-rate increase to wipe out any saving from subsidy abolition. Also, as regards taxes, who is paying the $3,000,000,000 we spent in the last war for lack of an adequate merchant marine, and who is paying for the millions lost in re-establishing the shipping business which we had shortsightedly abandoned? It would have been far cheaper to maintain than to improvise a merchant marine.
Furthermore, how does Mr. Trott reconcile his assertion regarding the need for more attention to the defense features of the merchant marine program with his “help American trade by boycotting American shipping” argument? Is it the plan to build ships and train crews for emergency use, then to lay up the vessels and pension the crew members? If this is regarded as impractical (as obviously it is), then the American ships must compete for cargo no matter whether it hurts foreign shipping or not.
If an essential part of the national defense program is to be sacrificed to provide foreigners with more money to buy our goods, then we might as well go all the way, have both our naval and merchant vessels constructed abroad at lower costs, man the vessels with foreigners to save wages and hence taxes, and thus even more effectively increase the purchasing power of foreign countries.
The sensible thing is not to curtail an essential of national existence in the hope of adding to foreign purchasing power, but to increase our purchases of foreign goods which we can use, and thus give to foreign nations increased purchasing power for our products. This would benefit our Merchant Marine by providing the increased cargoes which Mr. Trott sees are needed and simultaneously would reduce the subsidies through governmental recapture of excess profits. The fundamental conflict is not between our shipping and the reciprocal trade program, but between our shipping and trade on the one side and excessive tariffs, restrictions, preferences, and foreign subsidized shipping on the other.
While the foregoing may be considered as disposing of Mr. Trott’s main argument, it also becomes necessary to challenge certain other of his assertions. For example, he confuses peace-time use with war-time use, in holding that the Neutrality Act makes it likely that a merchant marine would be of little value in emergency. This Act affects American ships only when there is a conflict in which we are not involved. In case of our involvement, our national requirements would take precedence over any hindering restrictions of the Neutrality Act and our merchant fleet would be operated in whatever way would be necessary to meet those requirements.
In the present war we have found use for almost all our ships which have been withdrawn from regular runs, employing them on other routes from which foreign vessels have been diverted to serve their own countries. Had we been depending solely on foreign-flag ships, there would now be a serious shortage of tonnage for the movement of our foreign commerce, and in the matter of service and rates we would be altogether at the mercy of foreign shipowners.
Mr. Trott’s view that our Navy was adequate for our needs before the World War in spite of our small Merchant Marine, is not the view taken by our naval authorities. We were embarrassed in 1898 for lack of auxiliary ships, and further embarrassed when our fleet toured the world in 1907, by having to charter foreign tonnage to service it. The World War experience is still familiar to all of us and needs no elaboration. Lack of ships was very expensive indeed and dangerous as well.
The demand for ships may be purely emotional to some (even Mr. Trott advocates subsidizing North Atlantic passenger liners for “national prestige”) but it is not correct to imply that the Navy and Maritime Commission are moved by such considerations and have not calculated just how many and what kinds of ships the nation needs for both peace and war.
Mr. Trott might remember also that there is propaganda put out by those interested in foreign merchant marines, as well as by those interested in our own.
Mr. Trott says that “those who insist that we need a merchant marine equal to emergencies such as the World War brought about are really arguing for a standing merchant marine.” For once Mr. Trott is right. But he asks what is to keep the ships operating—more subsidies or more cargoes. He states: “In view of the steady increase in laid-up tonnage everywhere during these last few years, can we not rightly ask: Ships for what?”
Obviously the first question is a bit disingenuous—somewhat reminiscent of the classic query, “Have you stopped beating your wife?” It will be enough to say that if Americans give a substantial portion of their business to American lines, then the amount of excess profits recaptured by the Government may completely wipe out the operating subsidies paid. Mr. Trott forgets that it would not be necessary to increase the volume of our commerce to increase the amount moving in our ships. Some measure of preference would suffice. Many firms patronize foreign-flag tonnage in time of peace, then frantically demand American tonnage when foreign shipping is not available during war.
Patronage of foreign ships by American shippers and travelers has usually been due to the fact that the foreign ships were, as a rule, faster and more modern than the competing American vessels. In other words, failure of American ships to acquire a substantial and more remunerative portion of our commerce is directly attributable to our not having maintained a merchant marine of vessels comparable in types, sizes, and speed with those of our foreign competitors. This statement is borne out by the fact that when we built a relatively few modern vessels under the Merchant Marine Act of 1928, these ships were liberally patronized by American as well as foreign travelers and shippers.
As regards the specter of vast laid-up fleets, due to our alleged inordinate ambitions, it may be stated that there has not been “a steady increase” in world laid-up tonnage. There was a great increase during the early depression years (just as there were surplus freight cars and surplus factories), but by 1937 there was for some months a moderate shortage, and, of course, a greater one upon the outbreak of war in 1939. There was excessive building in the decade after the end of the World War, but Mr. Trott should know that the United States program was not responsible for it. Our war-built fleet, “constructed,” in the language of Mr. C. Fayle, the noted English shipping authority and historian, ‘in response to the agonized appeals of the Allies for assistance,” steadily decreased through scrapping and sales, from its World War peak, while foreign merchant marines greatly increased under the stimulation of subsidies. It would seem that if there is to be any laid-up tonnage due to national defense building programs, the onus is on foreign lines. Our companies do not carry half our trade, and until we reach that point we cannot be accused of overexpansion.
Certain other points require discussion. Mr. Trott several times speaks of his desire that we should dispense with American subsidized shipping beyond what is needed to serve essential, noncompetitive routes, and beyond what the Navy requires for national defense. What is an essential, noncompetitive route, except one in the coasting trade? Competition is found in some degree on every route elsewhere. Presumably, if there is foreign competition, then by this definition we must withdraw our tonnage. But in this case, we would be forced back on the ships in the coasting trade for national-defense requirements in case of war, unless we are to build new ships and lay them up pending an emergency. There is not nearly enough tonnage in the coasting trade for national-defense needs, however, and no means under the law to subsidize the construction of the tonnage required. Furthermore, there would be no place in this trade for the required number of suitable vessels. We thus notice a fatal contradiction between Mr. Trott’s two criteria, reducing one or the other to futility. Either we must subsidize tonnage in competition with the subsidized and unsubsidized tonnage of others, build and lay up the new ships at much greater expense, or submit to having a merchant fleet inadequate for our defense needs.
Mr. Trott obviously is not logical. He thinks that it would have been un-American if we had maintained our shipping supremacy after 1860 by means of subsidies, but that it was very laudable that shipping capital was diverted to railway development and cotton manufacture. Yet the railways of that time received substantial subsidies in land and cash (reaching up to half the area of some states passed through), and the cloth trade received protection by means of tariffs, which were a tax on every purchaser in this country. Why is protection good in one case and bad in the other?
As regards private operation versus government operation, Mr. Trott displays an obvious bias against the former. With all its faults, it is believed that supervised private operation is on the whole the more efficient. The assertion that the Government makes up (to private operators) losses due to inefficient service or high costs is a misstatement of fact.
Many other statements could be objected to as mistaken in fact, or erroneous in conclusion. Those cited above are only typical. Mr. Trott’s fundamental objection to a subsidized American Merchant Marine is that it damages American foreign trade and lays a tax burden upon the American people.
Why does Mr. Trott single out this country to prove that it is uneconomical for us to participate in the international carrying trade? If this theory is sound, it would obviously mean that the country which can carry the trade cheapest should carry it all. Furthermore, if the theory advanced by Mr. Trott is sound regarding the shipping industry, why not apply it to other industries in which foreigners can operate at lower costs? If we did so, what would happen to American labor and our standard of living?
It has been pointed out that maintenance of a merchant marine by subsidies is very much less expensive than its improvisation under threat of war, and that subsidized American services cannot rightly be considered harmful to our foreign commerce. As a matter of fact, continuation of that commerce over certain routes is possible only because of the continued availability of American ships. However, the “free trade” views of Mr. Trott can be answered in another manner, by appeal to Adam Smith, founder of the doctrine, and no friend of subsidies. In his Wealth of Nations, pages 463-65, he discusses the English Navigation Acts, which were far more burdensome on commerce than anything now existing in the world. He brings out every disadvantage and inequity, showing how the Acts raised costs, reduced commerce, increased taxes, and often promoted inefficiency, and yet he gave the Act one credit which outweighed all. He showed that the Act increased the Merchant Marine and with it the strength of the English Navy, and concluded with these words: “As defense, however, is of much more importance than opulence, the Act of Navigation is, perhaps, the wisest of all the commercial regulations of England.”
The C.M.B.’s and the Attack on Kronstadt
Louis H. Bolander.—On August 19, 1919, the British Admiralty made the following announcement: “A report was received from the British senior naval officer in the Baltic that a naval engagement took place in the Gulf of Finland early on August 18. Two Russian battleships, the Petropavlovsk and the Andrei Pervoswannyi, and one destroyer were sunk. A cruiser was also seriously damaged. The British losses were three coastal motor-boats.” On the same day the Bolsheviks made this report of the same affair: “High speed enemy boats entered Kronstadt harbor. Red guardships sank three enemy boats. At the same time a large number of enemy aeroplanes attacked Kronstadt.” The Russian report made no mention of the loss of any Russian warships.
The story behind these two reports is intriguing. With the first World War just closed and the Bolshevik Reds fighting it out with the Whites under Admiral Kolchak and General Denekin, the British Government naturally gave all possible support to the Whites. At this time the former Tsar’s Baltic Fleet was concentrated at the naval base of Kronstadt behind its own mine fields. To prevent the fleet from raiding British and Scandinavian shipping in the Baltic a British squadron was maintained in the Baltic under Read Admiral Sir Walter Cowan. To end the Russian force’s capacity for harm, Admiral Cowan decided to destroy it under the very guns of Kronstadt.
The position of the Red fleet seemed to render it immune from danger. To attack the ships behind their own mine fields and under the guns of Kronstadt was a hazardous enterprise that could be performed only by the smallest and swiftest craft in Admiral Cowan’s command. It was decided to send six motor torpedo boats accompanied by three airplanes. The airplanes subjected the Russian vessels to so heavy a bombardment that they weighed anchor and steamed out to sea. Here they were met by the British flotilla of C.M.B.’s which dashed in at a speed of 45 knots and launched their torpedoes with deadly effect. The 23,000-ton battleship Petropavlovsk was struck by two torpedoes and went to the bottom in a few minutes. Her fate was shared by the 17,400-ton battleship Andrei Pervoswannyi. This latter ship had the distinction of being the most heavily armed and armored ship of her size in the world. One destroyer and the submarine depot ship Viatka were also sunk and the cruiser Rurik appears to have been badly damaged. This great victory was secured with the trivial cost of three of the motorboats, the lives of four officers and five enlisted men. Three officers and five enlisted men were taken prisoners by the Russians and were held at Kronstadt.
These coastal motorboats, constructed by Thornycroft, were 55 feet long and each carried a torpedo and four depth charges. The first of the type had been built early in 1916 under the greatest secrecy. They had given good accounts of themselves in the attacks on Zeebrugge and Ostend. One of their early successes was the destruction of the German destroyer G 88 on a bright moonlight night off Zeebrugge, April 7, 1917. A few nights before this attack Lieutenant A. W. S. Agar, R.N., had penetrated the Russian destroyer screen with a C.M.B. and sunk the Russian warship Oleg. Though his engine broke down in the subsequent escape the lieutenant was able to extricate his boat and crew after a thrilling exhibition of great skill, coolness, and daring.