ML20136B352
| ML20136B352 | |
| Person / Time | |
|---|---|
| Site: | 05000471 |
| Issue date: | 06/29/1979 |
| From: | Buckley J MASSACHUSETTS, COMMONWEALTH OF |
| To: | |
| Shared Package | |
| ML20136B351 | List: |
| References | |
| NUDOCS 7909040607 | |
| Download: ML20136B352 (13) | |
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BEFORE TH'E ATOMIC SAFETY AND LICENSTNG BOARD '
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7 In the Matter of 9)
- I BOSTON EDISON COMPANY, et al.
ll Docket No. 50-471 .
(Pilgrim Nuclear Generating Station. l)l>
Unit 2) ,
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i Testimony of John G. Buckley on behalf of the Messachusetts 60vernor's Office of a
Energy Resources on the need for Pilgria 2 T
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- RE2&TED CORMWENCS i
, UNITED STATES OF AMERICA
- IUCLEAR REGULATORY COMMISSION ar20RE THE ATOMIC SAFETir AND LICENSING
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) cc6 * "I g p rAC' l In the Matter of ) s 3
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BOSTON EDISON COMPANY et al. ) ' N
) Docket No. 50-471 (Pilgrim Nuclear Generating Station, )
Unit 2) )
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l CERTIFICATE OF SERVICE
' I hereby certify that the within testimony of Joseph S. Fitzpatrick and John G. Buckley , on behalf of the Massachusetts Governor's Office of Energy Resources, has been served on the following by deposit of copies thereof in the United States Mail, first class mail, postage prepaid this 29th day of June,1979:
Andrew C. Goodhope, Esq. menry merrmann, Esq.
l Chairman Room 1045 Atomic Safety and Licensing Board 50 Congress Street 3320 Estelle hrrace Boston, MA 02109 l Wheaton, le 20906 Mr. and Mrs. Alan R. Claeton Dr. A. Dixon Callihan 22 Mackintosh Street Union Carbide Corporation Franklin, MA 02038 P. O. Box Y Oak Ridge, TN 37830 William S. Abbott, Esq.
Suite 925 Dr. Richard F. Cole 50 Congress Street Atomic Safety and Licensing Board Boston, MA 02109 U. S. Nuclear Regulatory Ccuumission Washington, D. C. 20555 Michael B. Meyer, Esq.
Francis S. tiright, Esq.
Patrick J. Kenny, Esq. Stephen M. imonard, Esq.
Edward L. Selgrade, Esq. Assistant Attorneys General Deputy Director Environmental Protection Division Mass. Office of Energy Resources Public Protection Bureau 73 Tremont Street One Ashburton Place, 19th F1.
Bosten, MA 02108 Boston, MA 02104 l - - _ - . - - . . - . _ - - . . - _ - _ _ - . -
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Atomic Safety and Licensing Office of the Secretary Appeal Board Docketing and Service Section i U. S. Nuclear Regulatory Cosum. U. S. Nuclear Regulatory Come,. .
Washington, D. C. 20555 Washington, D. C. 20555 Atomic Safety and Licensing Barry H. Smith, Esq.
Board Panel Marcia E. Mulkey, Esq.
U. S. Nuclear Regulatory Comm. Of fice of the Executive Legli .
Washington, D. C. 20555 Director U. S. pelear Regulatory Comm.
Laurie Burt, Esq. Washington, D. C. 20555 Assistant Attorney General Environmental Protection Division Chief Librarian One Ashburton Place,19th F1. Plymouth Public Library moston, MA 02108 North Street Plymouth, MA 02360
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1 Q. Mr. Bockley, will you please state your name and place of residence?
2 A. W name is John G. Buckley and I reside in Lynnfield, Massachusetts.
3 Q. By whom are you egloyed and what position do you hold?
4 A. I am employed by Northeast Petroleum Industries Inc.-and serve as 5 Vice President and Director of the conpany. .
6 Q. What is your educational background?
7 A. I received an undergraduate degree in government from Tufts University 8 in 1952. In 1953 I received a Masters degree in International 9 Economics from the Fletcher School of International Law and Olplomacy, 10 also at Tufts University. I then remained at the Fletcher School for 11 two years of doctoral studies.
12 Q. Please describe your work experience and current responsibilities.
13 A. From 1955 to 1961. I worked in the financial department of Exxon 14 International Corporation, eventually concentrating in oil cargo sales.
15 In 1961 I co-founded, and became executive editor of, the Petroleum 16- Intelligence Weekly, which has published continuously since then.
17 I remained in this position until 1968 when I became a petroleum 18 consultant to Occidental Petroleum, Northeast Petroleum and a Swedish 19 refining and marketing firm. In 1970 I joined Northeast Petroleum 2J for the purpose of starting the company in the refining business. In 21 1972 I was made Vice President and in 1973 I was named to the Board of I
- 22 Directors. From 1973 to 1976 I was responsible for the conpany's 23 participation in a new 200,000 barrel a day refinery project in 24 Louisiana. I served as Vice President and Director of the corporation (M/ 7 79%MM
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i I forined for this purpose. My responsibility in this project was to 2 survey the foreign crude market and entir into contracts to supply ue 3 refinery. % efforts culminated in the executitc4 of four long-ters 4 contracts valued at that time at 3.5 billiG irt.h J, ar:d providing the S full requirements of the refinery. i 6 % responsibilities now include new przjects, refinery ventures.
7 government and public affairs and trade associations. In addition, 8 Northeast maintains a crude oil trading operation in Houston w'ich 9 buys and sells millions of barrels annually and by monitoring these 10 activities. I keep abreast of world oil prices.
- 11 Q. In addition to your employment with Northeast, do you have any other 12 responsibilities in the petroleum area?
i 13 A. I currently serve as Chairman of the Fuel Oil Marketing Advisory l 14, Committee to the Department of Energy. In this capacity I advise DOE ;
15 on the supply and price situation in the world distillate market. The 16 Committee also advises 00E on marketing problems connected with [
1 17 government regulatory practices and the social impacts on consumers 18 caused by market and governmental changes. Although this is not 19 limited to petroleum-rilated matters. I serve as Vice Chairman of the t
i 20' New England Council and Chairman of its couaittee on enterprise develop-21 ment. I also as a member of the Board of Directors of the Associated 22 Industries of Massachusetts.
23 Q. Mr. Buckley, have you previously testified before legislative or 24 regulatory bodies?
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Page 3 1 A. Yes. In 1969. I first testified on the availability of crude oil .
2 suppifes for a proposed 300,000 barrel a day ref.inery in Maine before 3 the Senate Banking Comittee, the International Trade 'Connission, the
. l 4 5 enate Finance Comittee, and the Anti-Trust Subcomittee of the Senat.
5 Judiciary Committee. Since that" time I have testified on the oil supp 6 and price situation dozens of times before House and Senate Comittees 7 in Washington, New York and Boston. In the last four or five years. I 8 estimate that I have testified ten times on this subject Before either 9 the Senate Energy Coasnittee or its predecessor, the Senate Interior 10 Comerittee. Since the 1973 embargo I have also testified many 11 times before DOE or its predecessors, the Federal Energy 12 Administration and the Federal Energy Office. Most recently.
13 in the week of June 18th. I testified on the distillate supply 14 situation this winter before the Senate Energy Subcommittee on 15, Government Regulations and Conservation and also, on the same topic.
16 before the Office of Emergency Preparedness.
17 Q. Mr. Buckley, what is the purpose of your testimony?
! 18 A. I will testify on the crude oil supply and price situation today and 19 projected into'the future, with particu!ar attention to the import of l
20 recent Middle Eastern events. I will also offer my consents on the 21 testimony presented by the Applicants' panel in this regard.
l 22 Q. Could you address the latter topic first?
23 A. Yes. I've reviewed the testimony of Panel 2 in Applicants' Supple-24 mental Testimony on Need for Pilgrim 2. I find that this testimony l
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Pago 4 1 already requires updating. Also, I believe that the testimony does -
2 not fully reflect the drama, tic changes in the world crude oil 3 situation that have occurred since December,1978. At a consequence, 4 it is g opinion that the price projections set forth are conservative.
5 Q. In what areas does the testimony require updating? l 6 A. There are two notable instances. The market premia that OPEC recently 7 decided to allow at the discretion of the individual member countries 8 have now exceeded the $2.50 a barrel cited in the testimony. Iraq has 9 applied a premium as high as $6 and Libya, $5.50. The spot market 10 information given is accurate up to April, but prices in May and June 11 have risen an additional $10 over the $24-28 range mentioned in the 12 testimony. The price in some cases has been as high as $40 a barrel 13 for crude oil. The spot market for products has also risen to un-14 precedented levels. In Rotterdam and in the Caribbean, the spot market.
15 price for heating oil has been as high as $1.20 a gallon or about 16 $50 a barrel. The United States spot markets for product in New 17 York and on the Gulf Coast have also recently exceeded $1.00 a gallon fi 18 No. 2 oil.
19 Q. Is this continuing escalation attributable to the recent Middle 20 Easterr events you've referred to?
21 A. Yes, but the specific event most often mentioned, the fall of the 22 Shah of Iran, is not as significant as the reason why the Shah fell 23 and the reaction of the other Middle Eastern countries, most notably 24 Saudi Arabia, to this event. The fall of the Suah is perceived by r
. Page 5 1 these countries to be a result of oter-development, the erosion of -
2 traditional mores ard the f,ailure of the United
- States to support its 3 purported ally, the Shah. As a result of this perception, there has be 4 a fundamental change in attitude. In g opinion, it is clear that the 5 OPEC countries as a group will not manage their production in such a wi 6 that world supply will be at or below world demand. It is unlikely thi.
7 spare OPEC capacity will exist in the-future and I believe the Applicar 8 testimony does not adequately make this point. The cartel has dis-9 covered a route to a new high-priced unity - limited production.
10 There is a general recognition of the benefits this route entails. Not 11 only do the Middle Eastern countries no*s recognize that they are con-12 serving a depleting resource but they also see this as a means of con-13 trolling their internal development.
14 Saudi Arabia is the critical country in this regard.
- 15. In the past, Saudi Arabia has been willing to meet a larger share of th 16 world demand in order to retard upward price movements. The Saudis in 17 recent months have come under increasing pressure from the Arab / Moslem ,
18 block to slow their development, to retain their traditional mores and I i
19 to depend more on their neighbors, rather than the United States, i 20 for their security. They have responded to these pressures and 21 now find it more in their interest to cooperate with their neighbors.
22 The Saudis were deeply concerned that the United States offermi l 23 little support to the Shah and has perinitted a growing Soviet influence 24 in Ethiopia and the Horn of Africa to go unchallenged. They have l
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Pag 2 6 1 become outspoken critics of the Israeli-Egyptian peace accord and feg1 2 that stability in the Middle East has been lesse,ned rather than t
3 strenghened by this U.S. effort. In short, our largest supplier of 4 foreign oil has undergone a fundamental shift in philosophy. Saudi 5 Arabia now is primarily concerne~ d with its own national and regional 6 objectives and only secondarily concerned how its A11cies affect 7 the U.S. and the value of the dollar.
l 8 Q. l#iat are the short tern effects of these changes?
i 9 A. The world oil market has never been so unstable and prices have es-10 calated rapidly. The weighted average price of U.S. crude imports 11 has risen $6 a barrel to $20.50 since January 1st. Most of this in-12 crease, which roughly translates into 154 a gallon for product, has 13 not yet been reflected in domestic prices. Due to a persistent 14 tightness in supply, the normal decline in world demand in the second 15 and third ca%ndar quarters has not occurred this year. In addition, 16 the third party suppliers who are in general the major international oil 17 companies buying for resale have announced that they are withdrawing from 18 this supply practice and will be able in the future only to supply their
- 19 own affiliates. Those Japanese and Europeans who previously relied 20 upon third party suppliers are being forced into the spot 21 market. This has created additional pressure on prices and greater 22 confusion since some of these new buyers are unfamiliar with the spot l 23 market. These conditions, combined with the official and discretionary l
24 OPEC increases noted in the Applicants' testimony, as well as the )
Page 7 1 excected OPEC increase in the week of June 25th, will produce in my, 2 opinion a weighted U.S. average cost for OPEC,ic;, orts of about $22.
3 a barrel by the sunner's end. If this price is projected to the end 4 of 1981 at 8 to 10% annually, which is the weighted average inflati 5 rate of the industrial importi~ng nations over the last several yearsq 6 U.S. imports will then be priced in the neighborhood of $27 a barrel 7 It can be assumed, under current law, that domestic production will 8 then match this import price.
- 9. Q. Wiat do you anticipate after 19817 10 A. i believe it is realistic that prices will continue to escalate at 11 least in this same 8 to 10% friflation range of the industrial 12 importing countries. If so, the world price in 1985 or 1986 can 13 easily be in the range of $37 to $40 a barrel. After 1981, oli 14 prices ilone will probably cause 2 to 3% of the inflation rate for 15 industrial countries. This price range for the mid-1980's assumes Tb no drastic real increases like those experienced in this year and 17 no supply interruptions, as might be the case if there were a 18 counter-revolution, perhaps led by leftist oil workers, in Iran.
19 Q. Are there any new sources of oil that might be expected ca 20 retard this trend?
21 A. Mexico and Iraq have new conventional capacity but give no 22 indication that they intend to accelerate production signi-23 ficantly. As well, anticipated demand increases will I
, 24 absorb new production from these l -
Page 8 1 sources. .
2 Q. With prices approaching $40 in the mid-1980's, will alternative 3 sources be developed? ,
4 A. Yes. Based upon the expectation that prices will, be at least $35 5 in 1985, investments in tar sands development are being made this 6 year. Venezuela will invest approximately $2 billion in 1979.
7 Shell Oil Corpany in a joint venture will invest $2.2 billion in 8 the Western Canada tar fields, where three projects are now going 9 on. In this price range, oil shale will also become cospetitive.
10 These two sources should replace the depleting conventional 11 reserves and assure supplies for at least 100 years. However, 12 this development will occur only because of the high prices 13 that will then prevail. The availability of these alternative 14 sources will dampen the trend that otherwise could exist. However, 15 the world price can still be expected to increase with general 16 inflation rates which may drop to 6%.
17 Q. Can you sumnarize your views and explain why you think the 18 Applicants' testimony is conservative?
19 A. A fundamental change in attitude among the producing countries has 20 occurred. A concerted effort to conserve resources and limit 21 production can be expected from the OPEC countries in the next 10 22 to 20 years. Excess or spare production, which is mentioned in 23 Applicants' prior testimony, has effectively been eliminated this 24 year. Although the supplemental testimony suggests that an
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. i 1 acceleration of the price trends given is likely to occur I believe 2 that full recognition of th'is change in attitude, which is effectiveD 3 confirmed by the 50% increase in foreign crude costs thts year alone v 41 must lead to the conclusion that a large, unanticipated acceleration 5 has already occurred. Applicants' reference case does not even 6 predict this year's likely price until 1984. In my opinion the 7 Applicants' reference case is clearly conservative and must be advahc 8 at least four years. In fact, Applicants' 70% confidence envelope, 9 with adjustments for this year's dramatic increases, probably presenh 10 a more accurate picture into the mid- to late 1980's. Again,'Ishoulh 11 point out that I have not anticipated another supply disruption. I'm 12 afraid, however, that there is some possibility of such a disruption 13 in light of the recent past history of the Middle Ease and the yet 14 unresolved peace question.
15 Q. Do you have an opinion how the business and economic communities 16 will react to this cil supply / price situation?
17 A. Yes, my involvement with the New England Council's Enterprise 18 Development Comittee and g frequent contact with petroleum users 19 lead me to conclude that oil use in the future will became 20 increasingly enfined to those activities for which no realistic 21 alternative energy source exists. The combination of escalating l
l 22 oil costs and uncertain supply is already convincing developers 23 to seek these alternative energy sources. Where alternatives do 24 not exist, investors can be ev.pected to avoid the inherent risks
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1 of An oil-fired project or require high, and perhaps un'available, 2 premia for their investments.
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