The University of Texas Publication No. 4819 October l, 1948 INCREASING THE SEVERANCE TAX ON NATURAL RESOURCES By BRUCE ROACH Bureau of Public School Service Division of Extenaion PUBLISHED BY THE UNIVERSITY OP TEXAS AUSTIN Publications of The University of Texas PUBLICATIONS COMMITTEE E. J. MATHEWS A. MOFFIT C. F. ARROWOOD E. S. REDFORD C. D. LEAKE W. P. WEBB C.H. EADS Administrative Publications E. J. MATHEWS F. L. Cox R. C. ANDERSON J. A. FOCHT L. L. CLICK B. GONZALES The University publishes bulletins twice a month, so numbered that the first two digits of the number show the year of issue and the last two the position in the yearly series. (For example, No. 4801 is the first publication of the year 1948.) These bulletins comprise the official publica­tions of the University, publications on humanistic and scientific subjects, and bulletins issued from time to time by various divisions of the University. The following bureaus and divisions distribute publications issued by them; communications concerning publications in these fields should be addressed to The University of Texas, Austin, Texas, care of the bureau or division issuing the publication: Bureau of Business Research, Bureau of Economic Geology, Bureau of Engineering Research, Bu­reau of Industrial Chemistry, Bureau of Public School Service, and Division of Extension. Communications con­cerning all other publications of the University should be addressed to University Publications, T-he University of Texas, Austin. Additional copies·of this publication may be procured from the Bureau of Public School Service, The University of Texas, Austin 12, Texas at 75 cents per copy. ~ THB UNIVERSITY OF TEXAS PRiii The University of Texas Publication No. 4819: October 1, 1948 INCREASING THE SEVERANCE TAX ON NATURAL RESOURCES By BRUCE ROACH Bureau of Public School Service Division of Extension PUBLISHED BY THE UNIVERSITY TWICE A MONTH. ENTERED AS SECOND• CLASS MATTER ON MARCH 12, 1913, AT THE POST OFFICE AT AUSTIN, TEXAS, UNDER THE ACT OF AUGUST 24, 1912 The benefits of education and of useful knowledge, generally diffused through a community, are essential to the preservation of a free govern­ment. Sam Houston Cubtivated mind is the guardian genius of Democracy, and while guided and controlled by virtue, the noblest attribute of man." It is the only dictator that freemen acknowledge, and the only security which freemen desire. Mirabeau B. Lamar COPYRIGHT, 1946 BY THE BOARD OF REGENTS OF THE UNIVERSltY OF TEXAS TABLE OF CONTENTS PAGE Foreword ----------------------------------------------------------------------------------------------------7 General Advice to Debaters__________________________________________________________________ 9 Interpretation of Terms________________________________________________________ __ ____________ 11 General Analysis of the Question________________________________________________________ _ 13 Brief: I. Introduction ------------------------------------------------------------------------------15 II. Affirmative Brief -----------------------------------------------------------------------17 III. Negative Brief ---------------------------------------------------------------------26 General Reading Material: State Receipts-Fiscal Year Ended August 31, 1947______ __ 35 From State Comptroller's Report State Expenditures-Fiscal Year Ended August 31, 1947______ 36 From State Comptroller's Report History of the Texas General Fund__________________________________________ 37 From State Comptroller's Report Texas Governmental Cost Expenditures____ _ ____________________________ 38 From State Comptroller's Report The 1948 Severance Tax Collection__________________________________________ 38 From State Comptroller's Report Texas Tax System ________________________________________________-------------------------39 From Loose-Leaf State Tax Guide Present Taxes on Natural Resources________________________________________ 42 From Taxation of Natural Resourc.es in Texas Occupation Tax on OiL__________________ ______ __ ____________________________________ 43 From Tax Laws of Texas Natural Gas Production Tax Laws as Amended to June 1, 1945 -------------------------------------------------------------------------------------------46 From Tax Laws of Texas Occupation Tax on Carbon Black________________________________________________ 50 From Tax Laws of Texas Sulphur Producers --------------------------------------------------------------------------52 From Gross Receipts Tax Laws Occupation Tax on Certain Services in Connection with Oil Wells -----------------------------------------------------------------------------------53 From Gross Receipts Tax Laws Cement Distributors -----------------------------------------· --------------------------54 From Gross Receipts Tax Laws . Motor Fuel Tax Law__________"----------------------------------------------------·-----55 From Motor Fuel Tax Law Jester Will Seek Increase in Funds for Rural Roads____________ 56 From Dallas News Governor Explains His Highway Program.__ ----------------------------57 From The State Observer Farm-to-Market Needs -----------------------------------------------------------------57 From Dallas News Texas Leads States in Number of Old-Age Assistance Checks -----------------------------------------------------------------------------------------58 By Richard M. Morehead Gasoline Sales Up as Cars Hit Road __ ______________________ _______ _____ ____ 59 From Dallas News The University of Texas PAGE The Resources of the Continents______________________________________________ 60 By Kirtley F. Mather Petrochemicals ___--------------------------------------------------------------------------61 By Gustav Egloff The Timber Industry in East Texas_______________________________________ 63 By Andrew W. Hunt 20-Year Texas Gas Contract is Signed________________________________ 64 From The Austin American Natural Gas ----------------------------------------------------------------------------------65 By Frederick F. Blachly and Miriam E. Oatman Texas Natural Gas (Three parts) ------------------------------------68 By Stuart McGregorTexas Gas Output Rises to Astronomical Figure___________________ 74 By William M. Thornton Synopsis of Facts and Discussion on Distribution and Price of Natural Gas____________________________________________________________________________ 75 From Progress Report, State Legislative Council of Oklahoma Texas Gas Production Triples in 10 Years_____________________________ 78 From The State Observer Refiners Told Natural Gas Quickest Synthetic Supply__________ __ 78 From Dallas News Mineral Resources-Production ------------------------------------------------79 From Texas Almanac Texas Natural Gas Resources-Production_______________ _________ 82 From Texas Almanac Sulphur ____--------------------------------------------------------------------------------84 From Texas Almanac Texas Timber Growth and Consumption_________________________________ 84 From Texas Almanac Water Resources of Texas-Conservation__________ ___ ________________ 85 From Texas Almanac Texas Soils-Soil Conservation________________________________________________ 85 From Texas Almanac The Severance Tax ---------------------------------------------------------------------86 By A. E. Moody . Taxes Other Than the General Property Tax in Texas_______ 90 By Richard Gonzalez Letters from Other States --------------------------------------------------------90 From State officials of nine states The Severance Tax______________________ ___ -------------------------------------------95 From Willacy's Faets and Fiction Wartime State Tax Legislation and Postwar Schools________ _ _ 97 By Louise B. Sease The West Against Itself_______________________________________________________ 97 By Bernard Devoto Affirmative Reading Material: Severance Taxes -------------------------------------------------------------------------108 From Tax PolicyConservation Policies Demand a Stiff Severance Tax____________ 110 By David Heath Natural Resources and the Severance Tax____________________________ 113 By W. H. Kittrell Out on a Limb?---------------------------------------------------------------------------117 From Senior Scholastic PAGE Half of.Texas School Children Get Inadequate Education____ 119 From The Austin American Slash in Federal Aid Wrecks Blind Program________________________ 120 From The Austin American New School Buildings Needed for Texas' Growing Popu­lation ------------------------------------------------------------------------------------------121 From Christian Science Monitor Texas Should Provide Home for Old Folks___________________________ 122 By Fred Williams Jester Asks People Rule on Pensions_________________________________________ 123 By William M. Thornton U.S. Faces Oil Supply Pinch _________________________________________________ 123 By Richard M. Morehead Let's Encourage Wildcats .-----------------------------------------------------------125 By Merryle Stanley Rukeyser Report on Big Inch Line______________________________________________________ 127 From Dallas News Concerning Texas Gas -----------------------------------------------------------------128 By W. H. Kittrell Stop Looting Our Gas'------------------------------------------------------------131 By W. H. Kittrell Value of Oil and Gas Waste Could Cut National Debt________ 138 By Paul Bolton South west's Oil Men Discuss Gas Embargo_________________________ 140 Bv Howard Blakeslee For Maximum Use of Oil and Gas Resources______________ 141 From San Antonio Express It's a Burning Issue Now, the Way Our Gas is Piped Out___ 141 From San Angelo Standard Certain Fundamental Facts_________________________________________________________ 142 F !'Om FPC Natural Gas Investigation After the Butane Shortage? -------------------------------------------------------147 From Mullin Enterprise Butane Problem Will Continue__ ________:_______________________________________ 148 By Richard M. Morehead Texas Gas Replaces Laughing Gas___________________ _________________________ 149 From The Austin American The Law and Natural Gas _________________________________________________________ 151 By Joseph Ross Negative Reading Material: What Are Natural R,esources?________________________________________ 161 From Natural Resource Taxation in Texas State Won't Tax Property Owner in Coming Year____________ 164 From Austin American-Statesman Texas Governmental Spending_____________________________________________________ 165 Compiled from reports by Comptroller, Auditor and Railroad Commission State Budget ------------------------------------------------------------------------------167 From Dallas News Spending-Taxing Mania -------------------------------------------------------168 From The Houston Post Should Natural Resource Taxes Be Increased?______________________ 169 From Natural Resource Taxation in Texas Gasoline Taxes Refunded 1947________________________________________________ 178 From Texas Tax Journal The University of Texas PAGE Texas School Children Greatly Aided by Oil and Gas Taxes__ 179 From Texas Tax Journal No Gas Shortage This Summer_________________________________________________ 180 From Austin American Raid to be Made upon Texas Taxpayers' Pocketbooks__________ 180 From Texas Tax Journal Per Capita Apportionment_____________________________ ______________________________ 182 From Texas Tax Journal Oil Industry's Contribution to Texas Welfare__________________________ 182 From Texas Tax .Journal The East Texas Oil Field _____________________________________________________________ 183 From East Texas Chamber of Commerce Panola County Gas Field -----------------------------------------------------------185 From East Texas Chamber of Commerce Texas Sulphur _---------------------------------------------------------·------------------1$7 From East Texas Chamber of Commerce Development of Iron Ore in East Texas ----------------------------------188 From East Texas Chamber of Commerce Timber Resources of East Texas________________________________________________ 189 From East Texas Chamber of Commerce Figures That Talk._____ ________________________________________________________________ 190 From Texas Fact Bulletin Louisiana Tax Program ----------·------------··--------------------------------------191 From Texas Tax Journal Industrialization of Texas_ ______ _________________ __ _________________ ______________ 192 From Texas Manufacturers Association Chemicals and Natural Gas_________ _______________________________________ 193 By G. G. Oberfell Amount of Gas and Oil Products Consumed in the Chemical Industry ----------------------------------------------------------------194 From Interstate Oil Compact Commission Growth in Natural Gas Reserves____________________________________________ 194 From FPC Natural Gas Investigation Atomic Energy ----------------------------------------------------------------195 By Dr. Edwin R. Gilliland Synthetic Gas From CoaL______________________________________________ 195 From FPC Natural Gas Investigation _ Improvement--And Taxes --------------------------------------------------------196 ~ro~ The' I?ealy News Caution m Taxmg____________________________________________________ 197 From The Houston Post Throwing Business to Texas_______________________________________ _____________ 197 From The Houston Post • The Consumer Always Pays__________,__________________________________ 189 From The Houston Post A Tax to Close Industries______________________________ _____________________________ 199 From The Houston Post , Expensive Gravy -------------------------------------------------------------------------200 From Texas Tax Journal Bibliography ---------------------------------------------------------------------------------------201 FOREWORD The question for the 39th year of debating in Texas high schools under the sponsorship of the Inter'scholastic League was chosen, as are all League debate questions, on the basis of a ballot sent to all the high schools of the State. A similar question to this was debated in 1940, but a great deal has happened in the meantime to make the severance tax question a live issue in Texas today. Last year the Legislature seriously considered a very stiff increase in the severance tax on natural gas. In the coming Legislature there are many bills being brought up which have to do with taxation, particularly natural resource taxation. Our neighbor state of Louisiana has just passed tax measures which will bring in an additional $70 million a year. A good portion of this additional revenue will be derived from an increase in the severance tax on natural resources. But Texas is in the best financial shape in its history, and many advocates of government economy say that an increase in the tax program, particularly the severance tax on natural resources, is wholly unnecessary. The surplus in the general fund stands today at $75 million. Even with rising ·governmental costs, this surplus has been growing for the last several years. Persons interested in a conservation program say that our resources on gas and oil are limited to about one more generation. After that, what? This great source of wealth in the State will be gone, and an important natural heritage will be forever lost. It is the contention of these people who are looking to the future that Texas should put some money aside in the fat years of today for the lean years that are inevitable when the natural resources play out. They point out that a stiff increase in the severance tax, particularly on gas and oil, would help Texas inherit a part of her natural wealth for future as well as for present use. The Brief and Reading Material in this bulletin cover a number of essential points. But the material is meant merely to be inditative of the vast field of study opened up for the debater in analyzing the severance tax question. The figures in the Brief have been carefully checked for reliability. Figures, however, change, and different authorities arrive at different totals. The debater should be constantly on the alert to get the latest available data. Many of the figures were obtained through personal interviews with the various State officials, Capitol Building, Austin: the Comptroller's Office, the Auditor's Office, the Highway Depart­ment, the State Railroad Commissioner's Office, the State Library, Department of Education, Public Welfare Department, the Governor's Office, and various others. The University of Texas Our appreciation is extended to all of these State offices and to the officials for their co-operation in furnishing pertinent material and figures. We extend our sincere appreciation to those who, through their personal interest and through the facilities of the organizations they represent, have so generously aided us in compiling this bulletin on the study of the severance tax. In particular we would like to thank David Heath of Dallas and Douglas Hicks of Houston. We also extend our appreciation to the following who made this bulletin possible: Ray Lowry, W. H. Kittrell, Glenn Capp, Mrs. Gene Johnson, Mrs. Mae Ashworth, Miss Susie McCoy, and Miss Mahala Young. Our thanks go also to the various authors and publishers who have so graciously consented to have their articles and statements reprinted in this bulletin. 'The proper credit lines will be found at the top of each article. BRUCE ROACH Director of Speech Activities, Bureau of Public School Service. GENERAL ADVICE TO DEBATERS Those of you who are familiar with debate know that a complete argument is made up of a number of small sections. Each of these small sections consists of an assertion and its supporting proof. But argument is not merely assertions alone. Perhaps the weakest part of any debate is made up of unsupported assertions. Dr. Harry Lee Ewbank of the University of Wisconsin states that there are five ways one may get others to accept his assertions: 1. He may present facts, data, statistics, supporting the assertions. 2. He may give examples illustrating his assertions. 3. He may cite opinions of others in support of the assertions. 4. He may list reasons for his assertions and draw conclusions from the facts, opinions and examples he has presented. 5. He may keep r'epeating his assertion in various ways. We tend to accept as true, without much proof, statements that we hear over and over. Keep a card file handy as you go about your reading. When you see an assertion concerning a phase of severance taxes, write it down at the top of one of your cards. As you find facts, opinions, reasons or examples tending to prove the assertions, enter them on the proper card. This little system of note keeping will help you go about organizing your material in an orderly, efficient manner. Do not forget that in searching for material not all the best data will be found in books, magazines, reference shelves, or newspapers. Some of the best material can be secured from your local officials and tax authorities, gas and oil people, or many others who are interested in some angle of this subject. But as you gather material, do not over-burden yourself with a host of facts and figures that you will never use. To quote Dr. Ewbank again: In outlining your case, remember th.at three main points, well supported by proof, are better than a larger number which because of the time limits must necessarily be supported more scantily. Try to choose theme-sentences or captions for your various speeches that will be easily remembered. Attempt to prove only what is necessary to establish your side of the case. Talk to your audience as though they had power to vote on the question. The affirmative is urging the audience to vote Yes on the motion before the house; the negative is asking them to vote No. Consider the judges as members of your audience. Your listeners should be treated as participants in the discussion rather than as spectators. The University of Texas Your hearers probably know as little about the question as you did when you started to study it. Start your explanations and argu­ments with this in mind instead of speaking as though the discussion had been in progress for some weeks with your audience present all the time. Avoid as much as you can the use of big . bookish words that are not familiar to your audience. And remember it is not the amount of evidence that counts: it is the importance your audience attaches to it. You can speak words faster than your hearers can hear and attach meanings to them. Instead of cramming in as much material as you can say by speaking at top speed, use only as much proof as you can explain clearly. Precision of statement will do more to make your hearers feel that you know exactly what you are talking about than quantities of statistics and quotations rapidly uttered. When you ask questions for your opponents to answer, be sure you explain why they are important. Such questions should be few in number and directed at the weakest points in your opponents' argu­ment. Unless you can take time to make your hearers want to know the answers, the questions might as well not be asked. Be fair and courteous to your opponents at all times. Be slow to charge them with willful misinterpretation of your arguments or with ignorance of the question. State their position fairly and as accurately as you can before attempting to refute it. To do this demands careful listening while they are speaking or you will con­fuse what you wanted them to say, or what the other team in your school has been saying with what they actually said. Do not demand the impossible of your opponents. The audience is quick to detect and to resent any infraction of the ruies of courtesy and fair play. INTERPRETA TION OF TERMS The State of Texas: That body of land and water designated by boundary lines which as a part of the United States is known as Texas. In addition to the geographical lines, the term indicates the State governmental body and the activities of that body which is charged with the duty of extending benefits to the citizens of the state as a whole as differentiated from local or county governmental bodies. Though the question is limited to the State of Texas, the same principles are involved as if the question were extended to all forty­eight states. State of Texas also indicates that the revenue derived by an increase in the severance tax should be used for state purposes. Debaters will remember that they are not debating the legality of the question. Should any specific plan violate the Texas Constitution, it is a.ssumed that other forces will be put into play so that the constitution will be amended to take care of any discrepancies. How­ever, it must be remembered that this is a State and not a National question. No plan advocated either by the affirmative or negative should violate the Federal Constitution, particularly the principle which prevents a direct tax on interstate commerce. Should Increase: The proposition by this term takes a definite stand for immediate action on an increase in an already existing tax system. On those natural resources now taxed with a severance tax (or production, or regulatory) the proposition calls for an increase. On those natural resources not now having a severance tax, the proposition clears the way for levying . a severance tax on such resources commensurate with the increased severance tax on othe'r resources. The increase of the severance tax on only one or two of the major natural resources will fulfill the spirit of the proposition; but regardless of the number of natural resources on which there is ar.. advocated tax increase, the increase should be substantial. Pro­posal of a small increase would defeat the purpose of the question and would be a misinterpretation of the terms. Severance Tax: 'The severance tax is usually defined as a levy laid on the privilege of severing natural resources from the land or water. The word sever in our proposition means natural resources cut, mined, dredged, taken or removed for commercial purposes from the soil or water. Texas does not call any particular tax-by the name "severance tax," but the term includes, in the main, the gross production tax and the regulatory tax on natural resources. The taxes, are written into the Texas laws as "occupation taxes." In some states the severance tax is referred to also as a gathering tax, and a privilege tax. The University of Texas Its: This pronoun refers to the State of Texas and the natural resources found in the boundaries of the state. Natural Resources: This term may include all of the natural products of the soil and water found in the State of Texas. Thus, the term in its broadest sense includes ali the natural wealth of the State. Usually, the term when used in connection with taxation refers to the timber and mineral resources. Until recently, timber ha.s not been considered a major natural resource; but because of the enormous increase in value of timber recently, the lumber industry and affiliated activities may very well be considered in a natural resource program. In regard to minerals, it is significant that Texas leads all the states in the production of mineral resources. According to the Texas Almanac for 1947--48 (pp. 252) Texas is first, Pennsylvania is second and California is third. Some eighty-five to ninety percent of the annual mineral value in Texas comes from oil, gas, and sulphur. Since oil, gas, and sulphur are the three major natural resources, the debater may choose to limit the discussion to an increased sever­ance tax on these three resources. The affirmative team has the right to state the major natural resources on which the severance tax i.s to be increased. GENERAL ANALYSIS OF THE QUESTION Taxation is a living issue. Not only is taxation a paramount sub­ject for discussion in state matters, but taxation is also a major national problem. You as a debater will undoubtedly find the study of taxation highly interesting and your audiences will profit from hearing taxation discussed. The problem of taxation will touch nearly every one of your listeners. They all have direct, vivid experiences with one or more of the various ldnds of taxes. When you talk about any section of the tax problem, you will find that you are on familiar ground as far as the understanding of the audience goes. And so, since the problem of taxation is one close to our State and our community, the debater will do well to relate the severance tax question directly to the audience. ·This problem is not merely another school debate; it is a problem of vital importance to all your listeners. In our debate question this year, we are concerned with this particu­lar phase of the tax problem: the severance tax on natural resources, and the results of an increase in this tax. Even though the question is limited to the severance tax on natural resources, we should be interested in the whole tax structure. Every debater who wants to be well informed will avail himself of the opportunity to read a good book on economics and on our current tax systems (for instance, W. P. Webb, Divided We Stand, and Alfred Buehler, Public Finance). As you proceed with your study of the severance tax, you will find yourself asking a number of questions pertaining to the feasibility of an increase in the tax. Among these you will want to know: 1. How much money should be .aised? 2. Is the severance tax ·on natural resources the part of the tax plan that should be increased? 3. How should the extra tax revenue be used? The affirmative will be faced with the job of justifying an increase in the tax revenue in general. Then it must justify the increase in the natural resource severance tax as the means to take care of the needed additional revenue. In order to justify the proposed increase in taxation, the purposes for which the additional money will be used must be clear and sound. Such uses must have a permanency if the arguments are to be effective. The affirmative will doubtless use any or all of the present state needs: 1. Farm-to-Market Roads. 2. Prison System. 3. Eleemosynary Institutions. 4. Education (General, Pre-school, Handicapped, Trades and Technical, Physical Plants, Buildings, County Libraries). 5. Public Welfare (Old-age Assistance, Aid to Dependent Children, Aid to Needy Blind) . 6. Natural Resources Conservation Program (Texas Forest Service, etc.). 7. Permanent Endowment Fund for Future Use. Bills con­cerning many of these are to be brought before the next session of The University of Texas the Texas Legislature. The Legislature is faced with the problem of finding ways for financing the increasing cost of the State Govern­ment. Here are typical years taken from the Texas Comptroller's Report with the cost of the State Government beside the appropriate year: 1920: $ 33,498, 724.83 1930: $103,672,473.30 1939: $164,323,499.81 194 7: $319,998,100.69 1948: (estimate) $416,400,000.00 In addition to the fact that there is added revenue needed as never before, it is almost certain that the State ad valorem tax will be r epealed at the next meeting of the Legislature. And though the amount collected by the State on ad valorem is not tremendous, the tax gathered from this source will have to be substituted by income from some other source. Incidentally, the repeal of the State ad valorem tax might be an asset for the local governments. The need tO increase the available revenue of the local governmental bodies can be met by the State's relinquishing its ad valorem tax to the local districts entirely. We, however, are interested primarily in the State Government in our question this year. Tax levies by the National Government or by the Local Government are not included. Our proposition says that the State shal1 be the agent to assess, collect and spend any revenue which an increased severance tax on natural resources brings in. As has been said, the affirmative must justify an increase in the severance tax on natural resources. The fact that many of the governmentally sponsored systems and institutions require additional revenue is not sufficient proof that the severance tax is the part of the tax system that should be increased. One might just as well say that the real-estate, luxury, or income tax should be increased. The need for additional revenue is but one of the many necessary issues to be proved by the affirmative. The affirmative must also show that this proposal meets the requirements of good taxation: productivity, equity, economy, certainty, elasticity (these fundamentals are dis­cussed by A. E. Buehler in Public Finance, and by Adam Smith in Wealth of the Nations) . A tax increase on severed natural resources should serve two pur­poses: first, the income from such an increase should cover the immediate need; second, such a tax should serve as a step in a permanent long-range plan for assistance to future generations. You as a debater should be conversant with both present and future needs. DEBATE ·BRIEF Resolved, That the State of Texas Should Increase the Severance Tax on Its Natural Resources. (Note: Footnotes and references have in general been omitted in the brief. Authorities, statistics and supporting proof may be found in the Reading Material sections. Be sure to consult Ragsdale, Paul C., Natural Resource Tax, University of Texas Press, Austin, 1940. This bulletin is available from the Bureau of Public School Service for 25 cents a copy.) INTRODUCTION I. It is important that this question be discussed. A. Natural resources are frequently mentioned as the best source for additional revenue measures~ 1. Many _public figures and candidates for public office advocate an increase in the Natural Resource Tax. 2. Many people think that Natural Resources are a common state heritage and should stand special taxation for the common benefit of all, both for present and future generations. B. The State Legislature is faced with the important job of finding additional State Revenue. 1. The cost of the State Government is advancing about one hundred million dollars a year. . 2. Expenses in particular are going up for public welfare, roads, and education. 3. Many state agencies, such as prison system, eleemosynary institutions, conservation bureaus, etc., need additional funds if they are to function effectively. II. Natural Resources have played an important part in the history of Texas. A. The first recorded use of oil in North America by white men was in 1543. 1. Survivors of the DeSoto Expedition caulked their boats with pitch, the residue of oil from a seepage near Sabine Pass. B. Drilling for oil has been a long and continuous activity in Texas. 1. First well was completed in 1866 near Nacogdoches. 2. First field of importance was near Corsicana in 1894. 3. Beaumont, Ranger, Burkburnett, Mexia, and Borger all became centers of large petroleum fields through successive years. The University of Texas 4. Largest oil field in the world was discovered in 1930 in East Texas. C. The Coastal Sulphur fields were discovered in 1870. D. Texas now leads the nation in the production of oil, natural gas, sulphur and helium. E. Texas has over 50 known mineral resources as listed in the 1948 Texas Almanac (page 254). F. The area covered by timber in Texas is 76 million acres, the largest woodland area of any state in the nation. III. The proposition has certain terms that need definition for a clear understanding. A. The State of Texas means that such revenue as derived from an increased severance tax shall be used for State purposes. B. Should Increase means that a substantial amount of added :revenue should be derived from the now existing severance tax system. 1. Both the desirability and the practicality of the severance tax is included. 2. A severance tax may be levied on those natural resources not now bearing such a tax. 3. The term indicates that the Legislature should act on the proposition as soon as possible. C. Severance Tax means the tax levied on the privilege of severing natural resources from the land or water. 1. In Texas the Severance Tax as defined by the State Comptroller includes the gross. production and regulatory taxes. 2. The tax applies to those natural resources removed for commercial purposes. D. Its refers to the State of Texas and the natural resources found within the boundaries of the State. E. Natural Resources are "forests, lands, minerals and water," according to the Encyclopedia Americana. 1. There are some 30 natural resources in Texas produced on a commercial basis. 2. Petroleum, natural gas, sulphur, helium, and timber constitute about 95% of the value of Texas natural resources produced commercially. 3. The affirmative may choose any or all of the natural resources which are to bear an addition to the present severance tax. The affirmative might well choose oil and natural gas to bear the whole increase. IV. Some of the major issues involved in the question are these: A. Is there a genuine and permanent need for additional State revenue? B. Is increasing the severance tax on natural resources the most practical and desirable method of securing the additional revenue? C. Will an increase in the severance tax fulfill the natural heri­tage rights concerning natural resources? Severance Tax on Natural Resources AFFIRMATIVE BRIEF Texas should increase the severance tax on its natural resources, for I. Texas is faced with a genuine and permanent need for additional State revenue. A. The State Government must provide for additional revenue. 1. General governmental costs have gone up as follows (according to State Comptroller's report:) In millions of dollars: 1939-$164.3 1944-$182.2 1940-$165.7 1945-$186.4 1941-$166.0 1946-$238.6 1942-$205.7 1947-$319.9 1943-$181.7 1948-$416.4 (estimated) 2. State expenses are using from 60 to 100 million dollars more a year now than before the war. a. Citizens demand more services of their government, which costs more money. b. High cost of living and higher wages account in part for the increase. c. Greater population demands more expense by the government. B. The State must have additional revenue to meet its public welfare obligations. 1. The constitution limits the total expense for welfare to $35 million a year. 2. The Public Welfare Fund is going in the red since this is not enough to fulfill all the obligations at present. a. .As of Sept. 1, 1948, the following were on the :rolls: (1) Old Age Assistance: 207,143 receiving $31.57 average per month (total of $6,540,482 for Sept 1, 1948). (2) Needy Blind: 5,737 receiving $35.01 average per month (total of $200,861 for Sept. 1, 1948). ( 3) Dependent Children: 15,458 families receiving $40.86 average per month (total of $631,599 for Sept. 1, 1948. This is for 41, 783 children). b. According to the Director of Public Welfare all of the people receiving aid need more money to meet existing conditions. c. The dependent children have been cut 16% in what they receive because of lack of funds. d. A basic obligation of the State is the adequate care of its needy citizens. e. The Department of Public Welfare will disperse $100 million in 1949, according to the Director. C. The State must meet the increasing payments of the teacher in the retirement fund. 1. According to Mrs. B. B. Sapp, the director of the fund, Texas must apportion 7 million a year for this purpose. a. Due to increased salaries, this fund will increase. b. Due to more population the number of teachers will increase. ( 1) Tl).ere are between 40 and 50 thousand teachers in Texas now. (2) Counting clerical help, etc., 65 thousand belong to the retirement plan. 2. A sound retirement system is essential to a sound edu­cational system. D. The farm-to-market roads and all-weather school bus roads are a badly needed improvement for Texas. 1. According to the Highway Department, there are 172,312 miles of unimproved country roads in Texas. 2. The new Federal Government grant is less than the grant now in effect. a. In the last three years the Federal Government has granted $30 million to Texas, which Texas matched. b. The new grant is less and Texas must make up the difference if the road improvement program is to go on. 3. 34,000 miles now taken care of by State. 4. Governor Jester states that a minimum of 25,000 miles need improvement. a. According to Highway Department, roads cost $9,000 a mile. b. Total for 25,000 miles comes to $225 million. E. Improvements are demanded in the Prison System. 1. The head of the Prison System states that a 20 o/o increase in the budget is needed to cover the bare necessities needed in prison improvement. F. Eleemosynary institutions need much additional revenue. 1. The institutions are now filled and need additional space. 2. The aged needy are being placed in mental institutions for lack of a place to send them. Severance Tax on Natural Resources . 3. The added revenue needed here is approximately $50 million. G. The Educational System needs a tremendous amount for furthering the educational advantages of the State. 1. There are needs for General Educational Fund, Pre­school Fund, Handicapped Fund, Trades and Technical Fund. 2~ There are needs for physical plants, buildings, county libraries. 3. There is a need to double present apportionment per school child to take our place among best educational systems of the United States. 4. Back pay owed the rural school teachers which developed in 1947 is $11 million. 5. In general the need amounts to about $45 million, just for aid to teachers' salaries, and necessary expenses, according to the Department of Education. H. More money is needed for soil, water and natural resources conservation. 1. Only two-thirds of State is skimpily covered in this program now. 2. Texas' greatest resource, its soil is being washed away. (Bureau of Cotton Research, University of Texas.) a. 'Texas is 45th in yield per acre in corn. b. Texas is 16th of the 18 cotton producing states in yield per acre. 3. Tremendous need for adequate water supply conservation. a. Flash floods wash away soil, live stock, towns. b. Lack of dams cause shortage of water in hot summer months. I. Permanent endowment fund for future needs should be established. 1. When natural resources are gone a major source of revenue will disappear. 2. Natural heritage of the State will be gone never to return. 3. Future generations should be thought about in an adequV:e revenue system. 4. Existing natural reserves provide only about 30 years remaining to establish such a fund. J. Bonded indebtedness needs to be paid off, which is $4,102,200 plus accrued interest. II. Increasing the severance tax on the natural resources in Texas would be the practical and desirable method of securing additional needed revenue. A. An increase in the severance tax would be productive. The University of Texas 1. The 1947 figures on income and tax are as follows: a. The annual total income of the natural resource industry in 1947 was $1,805,000,000. b. The total tax on natural resources in 1947 was $68,192,000 or about 3.2% of the income. 2. The estimated 1948 figures are as follows: a. Total income, $3,331,000,000. b. Total tax, $103,000,000 or about 3.1%. 3. A just and fair increase of the severance tax would produce the following: (1948 figures from Comptroller's Office.) a. le more per barrel on the (estimated) 9-00,000,000 barrels of oil produced in 1948 would bring in $9 million. b. A tax of 20c per long ton on the 4,800,000 long tons of sulphur produced in 1948 would bring in $960,000. c. A tax of only .5 of one cent per thousand cu. feet on gas would bring in $10,000,000 on the 2 trillion cu. feet actually used in 1948. Gross production 1948: 3 tril­lion cu. feet. d. A tax of 5% on lumber products would bring in $6,700,000. e. A tax of 5% on the 366 million dollars worth of miscellaneous natural resource industries (cement, etc.) would bring in $18,300,000. f. The Legislature recognizes the productivity of the tax. (1) The House passed the McClellan Bill in 1947 to increase gas tax to 1.85c per 1000 cu. feet; this would bring in a total of from $30-$35 million a year it was estimated in 1947 (on two and a half trillion cu. feet). 4. According to the Railroad Commission, gross production figures are as follows: a. Oil: 1946-755,899,971 barrels. 1947-816,188,478 barrels. 1948 (est.)-900,000,QO-O barrels. b. Gas: 1946-2,768,938,762 cu. feet. 1947-2,893,553,714 cu. feet. 1948 (est.)-3,000,000,000 cu. feet. B. Increasing the severance tax would be the most effective way of securing additional revenue. 1. Other sources of taxation cannot bear additional taxation. a. The base property tax is proving a poor source of revenue. (1) Ad valorem tax delinquency is increasing every year. (2) Assessed value of property fluctuates too much for ad valorem tax to have a solid basis. (3) The tax does not tax according to the ability to pay. ( 4) Elaborate assessing and collecting machinery must be maintained to execute thi.s tax properly. (5) The Legislature at the next session is almost certain to repeal the State ad valorem tax and make it an entirely local tax. b. Business and industrial taxes should not be increased. (1) Occupational licenses are heavy at present. (2) The chain store tax is as high as feasible. (3) The Federal Government is exacting heavy busi­ness taxes. ( 4) Texas is just starting to grow industrially and should not increase the tax burden on business. (5) Business industries already pay local, state, and national government taxes which are proving burdensome. c. Special luxuries and excise taxes are already a burden on the general public. (1) Cigarettes, gasoline, alcoholic drinks, automobiles, cosmetics, theatre tickets, etc., the things which make our .standard of living high, are already taxed to the limit both by the State and the Federal Government. (2) Since the sales are widespread and in different categories, the tax i.s hard to collect. Such taxes are known as "nuisance taxes." 2. New State taxes are not practical for raising revenue. a. The sales tax has been repeatedly turned down by the Legislature and the people of Texas. . (1) Though there is no general sales tax, Texas already levies a heavy .selective sales tax. (a) The original cost of cigarettes is less than 5c a package; yet taxes bring the retail price up to 17c to 22c a package in Texas. (b) The gasoline tax at the retail pump is the largest single tax collection in the State (1947, $78,721,600; estimated 1948, $86,000,000. De­ductions not included.) ( c) The alcoholic industry pays numerous taxes. The University of Texas (2) The sales tax violates the principles of good tax­ation. (See The University of Texas Bulletin: The Sales Tax, by Rousse and Hester, available from Bureau of Public School Service at 25c.) (a) It is complex and costly to admini.ster. (b) It is detrimental to business. (c) It falls heaviest on the lower income groups. ( d) It does not tax according to ability to pay. (e) It·produces an unstable yield of revenue. (f) It is the worst form of regressive taxation. b. A State income tax is impractical for Texas. (1) The income tax is primarily a tax for the Federal Government; any State income tax would be double taxation. (2) The income tax varies greatly in time of pros­perity and depression. (3) It would drive wealth and industry from the State. ( 4) It would call for a complete new system to administer the tax. 3. Natural resources are capable of bearing an increase in the severance tax. a. Texas is the leading State in the Union in natural resources. (1) Half the total known crude oil reserves of the U. S. are in Texas. b. Texas can produce its oil more cheaply than other competing states. (1) According to an official study by the U.S. Depart­ment of Interior, 1927-34, comparative production costs were as follows: Oklahoma-$1.10 per barrel. Louisiana-$1.13 per barrel. Texas-$ .79 per barrel. c. Texas has both land and water transportation for shipping natural resources to other markets. d. Texas produced 43.7% of the total U. S. supply of oil. e. Texas has a virtual monopoly on sulphur. (1) Texas produced 80% of the U.S. supply and an appreciable amount of the world's supply, accord­ing to Texas Almanac. (2) There is practically no competition in the monop­olistically controlled sulphur industry according to R. H. Montgomery in "The Brimstone Game." f. Total timber cut in Texas in 1947 was 1,750,000,00-0 board feet. (1) Texas has more timber land than any other state, 76 million acres. Timber is being cut 3% faster than it is being grown. (2) New types of pine that mature in 7 years are making timber a major natural resource. g. Natural resources are not overtaxed today. (1) The production tax paid in 1948 is $1 State. Every distributor who makes a first sale or distribution of motor fuel in this State for any purpose whatsoever shall, at the time of such sale or distribution, collect the .said tax from the purchaser or recipient of said motor fuel, in addition to his selling price, and shall report and pay to the State of Texas the tax so collected at the time and in the manner as hereinafter provided. Every such distributor shall also be liable to the State of Texas1for the .said tax of Four (4) cents per gallon on each gallon of motOil" fuel or fractional part thereof used or consumed by him and shall The University of Texas report and pay said tax as hereinafter provided. In each subsequent sale or distribution of motor fuel upon which the tax of Four ( 4) cents per gallon has been collected, the said tax shall be added to the selling price, so that such tax i.s paid ultimately by the person using or consuming said motor fuei for the purpose of generating power for the propulsion of any motor vehicle upon the public high.J ways of this State. H is the intent and purpose of this Article to collect the tax levied herein at the source of said motor fuel in Texas or as soon thereafter as the same may be subject to being taxed. No person, however, shall be required to pay a tax on motor fuel brought into this State in a quantity of thirty (30) gallons or less in a fuel tank, with a capacity of not more than thirty (30) gallons, when said fuel tank is connected with and feeds the carburetor of said motor vehicle and the motor fuel contained therein is used in the operation of said motor vehicle and not otherwise. JESTER WILL SEEK INCREASE IN FUNDS FOR RURAL ROADS By Ray Osborne, Austin Bureau of The News (Reprinted from The Dallas News, June 6, 1948.) Austin, Texas, June 5.-Gov. Beauford Jester Saturday pledged his support in getting Texas more rural roads. He announced he would recommend to the next Legislature an appropriation of twenty million dollars from the surplus in the State's general revenue fund to bolster the farm-to-market program. The Governor indicated he would oppose additional taxes for rural thoroughfares and pointed out the progress made in the last three years and construction planned for the next three. "Two or three years ago a study revealed that if approximately 25,00.0 miles of farm-to-market roads were added to our present system, we would reach the point where the State system would be carrying 85 per cent of the total traffic," the Governor :said. "The remaining 15 per cent of the traffic would be handled on gravel or dirt roads as provided by the county commissioners courts from their revenue. "So we set out to construct those 25,000 miles of rural road.s. A total of 8,600 miles are now built or are in the process of develop• ment. "By the end of the next three years, 16,200 miles will have been\ developed by the State Highway Department with federal and county assistance, without additional taxation." Jester pointed out that Texas is leading the nation in construction of rural roade. Severance Tax on Natural Resources The Governor said that an additional appropriation may be necessary because of a lag in 1949 of federal-aid funds. Only Texas, California and Tennessee have made full use of funds provided by the Federal Government in a 3-year program which ends this year. A new 3-year federal-aid program may be delayed until 1950 to allow the other states to catch up. GOVERNOR EXPLAINS HIS HIGHWAY PROGRAM (Reprinted from The State Observer, June 14, 1948.) Last week Governor Jester explained his proposal that the next Legislature appropriate $20 million for farm-to-market road construc­tion. This is planned as a means of taking full advantage of the expected federal-aid program, he said. "Our goal (3 years ago)," explained the Governor, "was to build 25,000 miles of rural roads, thus practically doubling the mileage of the State highway system. We now have 16,200 miles of rural roads., That leaves another 9,()00 miles of rural roads which .should be put under construction without delay. I pledge the people of Texas to help them get these roads." FARM-TO-MARKET NEEDS (Reprinted from editorial column, The Dallas News, June 6, 1948.) Nothing should be allowed to halt the program of building farm-to­market roads in Texas. These are the side roads that will lift the farmer and his family out of the mud, that will make it possible for school busses to get his kids to and from improved schools. Texas will have built 8,600 miles of paved rural roads by the end of this year. But this is only a little more than a third of the 25,000 miles scheduled for completion by the end of 1952. The Texas Good Roads Association is correct in urging highest priority for this rural highway construction program. Ike Ashburn, executive director, indicates that the next Legislature may be asked to add as much as $20,000,000 toward this end. This money would come out of surplus funds now in sight. The dip into the State Treasury may be all the more necessary since federal funds for farm­to-market may taper off sharply by 1949. Texas is proud of its system of through cardinal highways. These are the magnificent main routes which millions of out•of-state tourists use and enjoy each year. Our State Highway Department has not only planned well but also built well. These federal and state high­ways are well placed for both use and for displaying our countryside. But the time has come to pay more attention than ever to improving the little lanes and by-ways on ;,.,.hich most of the farms and ranches of Texas are located. These, too, are arteries of our economic and social life, no less than the major intercity routes. The University of Texas TEXAS LEADS STATES IN NUMBER OF OLD-AGE ASSISTANCE CHECKS By Richard M. Morehead (Reprinted from Texas Tax Journal, Austin, Texas, December, 1947-January, 1948, p. 8.) Nearly 200,000 Texans drew old-age assistance checks in November, 1947, leading·all other states. There is little prospect for reducing the roll. As a matter of fact, the increasing lifespan of all persons points toward ever-higher needs for this form of charity. The Texas Department of Public Welfare this month paid $30.09 average to 199,002 aged citizens, about half the whole population over sixty-five years old. It paid $42.80 average to 15,731 families with 39,554 needy, dependent children, and $33.55 each to 5,474 blind persons. Counting federal aid, the whole bill totaled $6,792,000 this month. Administering the welfare program costs about $275,000 a month more. Ten years ago, when the program was in its second year, Texas paid 114,881 oldsters $13.70 each. It cost $1,584,344 in November, 1937. The dependent children and blind-aid programs started in 1941. Oklahoma Average High Texas ranks first in the number on its old-age list, but California spends more, $9,945,945 a month compared with Texas' $5,988,716. Oklahoma has 58 per cent of its citizens over 65 on state aid, the highest proportion in the nation. Texas has 47 per cent. Oklahoma distributed $4,085,697 in checks averaging $42.21 each. The average assistance check in the United States was $36.39, and Texa.s' $30 placed it thirty-eighth last August. It is about as easy to get an old-age assistance check in Texas as anywhere in the nation, according to Welfare Director John E. Winters. As a matter of fact, it is easy to get off the rolls, or to get back on. The State Welfare Board passed rules during the war to encourage people to take jobs, assuring them of quick return to state help when they need it. "Of course, we make out checks just once a month; but a person can be reinstated in three minutes upon a declaration of 'apparent need'," Winters said. Old-age rolls dipped 183,000 in 1M3 to 170,000 in 1945, the only notable change in the upward trend which started with issuance of the first checks. People Live Longer Because of this trend toward longer lives, there seems little chance that the State can reduce its old-age assistance spending, unless it alters basic policies. The Legislature bars consideration of a child's ability to support his parents, and even well-to-do Texans occasionally are willing to have their parents put on charity. The law also prohibits consider­ation of a homestead, although income from it does count. A recent case ihvolved an East Texan owning 200 acres of non­productive land, who refused to sell 100 acres for $5,000 because it would remove him from the relief roll. The prospective buyer critized the welfare department, but under the law it could not make the man sell even part of his homestead. In 1900 there were 74,000 persons in Texas aged 65 or more. It was 163,000 in 1920 and 34'7,000 in 1940. Now the group is estimated at 405,000. By 1960, the total will be 656,000 if this trend continues -and there's no reason to believe it will not. Director Winters believes that the list will continue to grow unless the Federal Government expands its Social Security program to cover farm and domestic workers and other low-income groups now excluded. GASOLINE SALES UP AS CARS HIT ROAD (Reprinted from The Dallas News, June 6, 1948.) Austin, Texas, June 5.-Texans are riding the roads at a record rate this year. They are traveling in 1,500,000 automobiles, 500,000 trucks and commercial vehicles, and more than 200,000 motorcycles, trailers and miscellaneous licensed conveyances, according to E. J. Amey of the State Highway Department. Last year 2,200,000 vehicles were registered and Amey estimates the total for 1948 will be 2,350,000. The prewar record was 1,830,000 in 1941. Comptroller George H. Sheppard reports that Texas refiners are making gasoline at a rate of nearly one billion gallons per month. Production for the year ended August 31, 1947, reached a high of 10,0_11,173,000 gallons. Taxes Gain Texans bought about one gallon in every five this State produced. Sales within the State last year totaled 1,974,502,609 gallons. They now are buying gasoline at a rate of 2,140,000,000 gallons annually, which will produce $85,700,00 in taxes. The University of Texas Last year gasoline taxes amounted to $78,721,600, including $14,102,941 refunded to purchasers who did not use it on the highway. Refunds this year are expected to reach $17,000,000, leaving a net income below $70,000,000. One-fourth of this money goes to public schools and three-fourths for roads. Gross revenue from gasoline taxes in 1938-39 was $51,642,725, while refunds deducted only $7,226,156. The refunds have more than doubled, reflecting the heavy wartime mechanization of Texas farms. Shortage Seen Texas A&M College experts reported this week that 180,000 tractors are being used in the State. They urged fuel conservation, in view of a prospective fuel shortage at some places next fall. The only decrease in Texas gasoline consumption since the war ended occurred during February, when travel was difficult because of icy highways, Sheppard's tax records reveal. The magnitude of Texas' refinery output is shown by his annual statement. In 1947, Texas sent 6,936,228,738 gallons of gasoline to other states, 825,899,218 gallons to foreign countries, and sold 274,542,511 gallons tax-free to the Federal Government. While government purchases now are above the prewar rate, they are far below gallonage produced for fighting World War II. The biggest month recently was 58,599,000 gallons in March. THE RESOURCES OF THE CONTINENTS By Kirtley F . Mather, Professor of Geology, Harvard University (Excerpts from the article "The Resources of the Continents" in Science, August 7, 1942, pp. 126-127.) For the overwhelming majority of basically important minerals, each continent may be expected to have domestic sources, adequate when properly developed, to supply most of the needs of its inhabi­tants when the standards of living and the way of life everywhere attain the characteristics of modern industrial civilization. Mother Earth provides equality of opportunity; it is man that differs in responding to opportunity. But this is not to say that nature favors continental isolation or regional self-sufficiency as the pattern for world organization. There are several significant exceptions to this glittering generality of equalized distribution of mineral wealth, continent by continent. Even when we remember that, for many purposes, molybdenum may be substituted for tungsten, coal for petroleum, and magnesium for aluminum, we find that at present and probably for a long time in the future, the inhabitants of no continent and therefore of no one country can "live to themselves alone," without sacrificing many of the benefits of modern civilization. Outstanding among these exceptions is tin. Nature has played a strange trick in making tin ores scarce in the highly industrialized regions where the tin can is an essential item. There are practically no ores of tin in all North America, and the puny deposits of that metal in all Europe are competent to meet only 5 per cent of the needs of Europeans. Much the same can be said about the ores of nickel and of radium. These are found in only a few rare localities in only two or three of the six continents. Even this hasty survey of the resources of the continents therefore leads us unerringly to the conclusion that if man is to make full use of the available mineral wealth, his social, economic and political organization must be on a planetary rather than a continental basis. Each continent has sufficient stores of raw materials to give it a place of equality with every other continent. From the geological point of view there is no basis for rating any continent as inferior to any other. But no continent can provide sufficient amounts of every ingredient of modern civilization to satisfy the needs of man. Only as each contributes freely and without hindrance to the welfare of all mankind can the resources of any be utilized to the best advantage. The geologist can not escape the conclusion that the earth is far better adapted for occupation by men organized on a world-wide scale with maximum opportunity_for free interchange of raw materials and finished products the world around, than for occupation by men who insist upon building barriers between regions even so large as entire continents. PETROCHEMICALS By Gustav Egloff (Excerpts from Oil and Gas Journal, April 1, 1948, pp. 179-252.) The business of "petrochemistry" is advancing daily in its scope. Already it runs the gamut from producing stocks for face creams and lotions-through hundreds of useful synthetic organic compounds for manufacturing purposes-to detergents, special soaps, synthetic rubber, and even nylon. This article has been specially prepared to cover various current phases of this rapidly growing industry.-Editor of Oil and Gas Journal. Petroleum and natural gas furnished 3.5 billion pounds of raw materials for synthetic organic chemicals in 1946. Of particular significance is the increase in proportion of chemicals produced from petroleum compared with other sources. Before 1940, petrochemicals accounted for less than 5 per cent of the total organic chemical pro­ duction whereas 24.5 per cent was based on petroleum and natural gas in 1946. Although the skyrocketing growth came as a result of war emergencies, the petrochemical industry is now permanently estab­ lished. The University of Texas Future Trends In predicting the future for chemicals from petroleum and natural gas, it is necessary to summarize present allocations. Butadiene accounts for about 30 per cent of the present production of raw materials for synthetic organic chemicals. It is being used for the production of synthetic rubber which has been curtailed since the end of the war. The availability of ample supplies of natural rubber, however, probably will not cause a drop in petrochemical consumption for two reasons. Butadiene is made from butylene which is in high demand for othe1· products. Secondly, it is certain that a synthetic rubber industry will be maintained in the interests of national security. Over 1.3 billion pounds of c3 and ct hydrocarbons other than butadiene are being produced annually for chemicals. An increase in production of these compounds can be expected as almost any organic chemical known can be made from them. The present ethylene production is not sufficient to meet requirements. Inasmuch as ethyl alcohol is becoming increasingly dependent on ethylene as raw material, demand may be expected to exceed supply for a number of years. Aromatics represent about 600 million pounds of the petrochemical production with greater demand ahead. Examination of the outlets for these products also indicates a growing industry. The principal products based on petrochemicals are rubber, plastics, resins, detergents, and chemical intermediates. Although 1946 production of synthetic rubber had dropped from 1945, plastics, resins, detergents and the principal chemical intermediates from petroleum had increased. N ew Research for Synthetic Rubber Synthetic rubber is yet in its primary stages from a technical standpoint. Increasing research will doubtless open new markets for special products. Butyl rubber provides an execellent example of the potentialities. As material for tire inner tubes it is far superior to natural rubber because diffusion of air is about one-tenth of that through natural rubber and it has superior age and tear resistance. Research also indicates that butyl rubber is excellent material for tractor tires where deterioration from oxidation and light are impor­tant factors. Bulk of the 1.7 billion pounds of elastomers produced in 1946 for synthetic rubber was derived from petroleum and natural gas, and it is probable that an increasing percentage of total production will come from these sources. Plastic and Resin Industries Growing The plastics and resin industries comprise one of the largest mar­kets for petrochemicals. In 1946, plastics and resins production was 994 million pounds and estimates for 1947 indicated a 13 per cent higher demand. The present shortage of urea and melamine resins can be overcome by increased production of formaldehyde from petroleum. Over 200 million pounds of phenolic resins and plastics were produced in 1947. Over 60 per cent of the total phenol production was required for resins, and phenol demand for all uses is much greater than supplies. Both raw-material sources and plant capacity must be expanded. The present benzene situation indicates that petroleum sources will necessarily become a· growing factor in phenol production. Petroleum also supplied large quantities of the material for the 180 million pounds of vinyl resins produced in 1947, and demand is not yet satisfied in this field. The greatest problem is a shortage of plasticizers, many of which are petroleum products. The 1948 pro­duction of polyethylene is anticipated to be 50 million pounds. Other petroleum-derived plastics and resins will be produced in high tonnage as source material becomes available and plant capacity is increased. The detergent field is in a state of rapid growth. Indications are that this industry will double production in less than a decade. Much of the 240 million pounds of surface-active agents produced in 1946 was based on petroleum and a larger potential market is assured. The production of oxidation products from petroleum and natural gas promises a growing market. Present requirements can be seen from the quantities of some of the more important oxidized chemicals (those in over 100 million pounds per year production) made in 1946 and 1947. THE TIMBER INDUSTRY IN EAST TEXAS By Andrew W. Hunt (Lacy H. Hunt Lumber Co., Inc., Manufacturers, Wholesalers and Exporters, Nacogdoches, Texas.) In many East Texas counties where cotton used to be king, the situation has now changed and the timber crop has taken over the throne. Timber now covers the greater amount of acres in practically all East Texas counties. The annual timber crop has become two or three times as valuable in dollars as the cotton crop. At the present time, timber in East Texas is largely being used by sawmills to make lumber. But other demands are growing: Pulp wood for the paper mills, railroad ties, telephone poles, posts, etc. Automobile tires are being made from pine stumps, and experimen­ tation is underway for making cellulose from pulp. New uses are being discovered every day through new chemical processes. The University of Texas More acreage is devoted to growing trees in East Texas today than there was ten years ago. This has been occasioned by the new develop­ments that have been made in planting pine trees that mature in 7 years. This rapid growth has convinced owners that there is profit in timber, and many thousands of small seedlings are being planted every year by far-sighted farmers, lumbermen and timber-land owners. The City of Nacogdoches has a 70-acre community forest which was planted with 70,000 pine seedlings in January, 1945, on poor sandy land. This project has proved to be a 95% success. These small seedlings have grown to young trees that are five to fifteen feet in height in just three years. In 1948 there are more small saw mills in East Texas than ever before. As a result the drain on the timber indicates that it is being cut at a rate of about 3% more than is being grown. If such con­tinues, some sections may have to cease production for from severi to ten years to permit the forest to catch up with the log-sized timber. Actually, the timber industry is growing more timber than it is cutting, but the lag comes in that a certain growth interim is demanded for the timber to reach saw-stock size. Most of the big mill producers already have their timberlands on a sustaining yield basis, and the small producers are fast getting in line with the conser­vation program. East Texas has a multimillion dollar industry in its forests. Its destiny is certain to be greater from now on, with the various edu­cational campaigns for timber conservation and with the. awakening of the forest and timber-land owners to the real value of growing trees as a long range crop. The worst menace to the forests is the forest fire. The Forest Service is doing a splendid job in protecting the forests from fires, insects and other damaging influences. But the Forest Service is limited in what it can do because.the funds for operation are limited. Since the timber industry has grown to be one of the major industries of Texas, the Legislature should see to it that the Forest Service should grow proportionately. This can be done only through more money apportioned for the Forest Service. 20-YEAR TEXAS GAS CONTRACT IS SIGNED (Reprinted from The Austin American, June 9, 1948.) New York, June 7 (JP).-Contracts have been signed for 235,00-0,000 cubic feet of natural gas to be sent from Texas each day for 20 years. The ·Texas Gas Transmission Corporation announced Sunday it had signed the contracts with subsidiaries of Consolidated Natural Gas Company and the Columbia Gas System, and with Texas Eastern Transmission Corporation. The gas will be used in the Appalachian and other Eastern areas. NATURAL GAS By Frederick F. Blachly and Miriam E. Oatman (Excerpt from Chapter I, "Introductory Analysis," of Natural Gas and the Public Interest. Washington, D.C. Granite Press, 1947, pp. 1-4.) Natural gas, next to atomic energy, is the wonder product of modern times. In the oil fields where it is found, its expandability and flowing nature make it useful in driving petroleum through the porous sands and raising it to the well head. As a fuel, natural gas can be used for practically any purpose: but it is of prime importance for domestic use, because of its cleanli­ness and the ease with which it can be handled and controlled. It is a pre-eminent fuel for supplying heat uniformly, when, where and as needed. Hence it is of great importance in certain metallurgical and ceramic operations. As a raw material, natural gas can be converted into thousands of important every day products, such as fuels for cutting and welding, solvents, insecticides, disinfectants, resins, fire extinguishers and so forth. It can be made to supply carbon black for the manufacture of synthetic rubber, and can be readily converted into gasoline. The cost of natural gas is very low. At present it is the cheapest of all fuels and sources of chemical materials. The two factors, superiority of use for nearly all purposes, and low cost, within the past twenty-five years have created such. a demand for natural gas that today it is consumed in vast areas of the United States. Many regions which enjoy its use are far removed from its sl:>urces of production; and there is constant pressure upon regulatory authorities to extend the areas of use, so that it may furnish heat, light, and power to certain densely populated industrial sections of the United States which have depended hitherto upon coal, oil, artificial gas or water power to provide those facilities. Exhaustion of Natural Gas Possible Although the supply of natural gas in the United States is large, ranking second only to the coal supply, it is by no means inexhaustible. The consensus of expert opinion holds that if physical waste of natural gas is not prevented, if the areas of use are greatly extended, and if the types of use are not controlled, this valuable resource will be entirely exhausted within the next 30 or 40 years, if not sooner. Unless natural gas is produced, distributed and utilized in a scientific and economical fashion, many of the following undesirable conditions are sure to arise: 1. There may be great physical waste. 2. The owners or lessees of lands which produce natural gas may have to sell the gas at a very low price to the company which has a monopoly of gathering, processing and transportation facilities. 3. The state may obtain little revenue from the gas, and within a relatively few years will find the source of even this revenue dried up. 4. Certain producing states, such as Louisiana, may soon find them­selves without the fuel needed for their own industrial development. 5. A state without coal, such as California, may find that its own oil and gas resources have run dry, and that the natural gas from another state (e.g. Texas) upon which it has depended to supplement its own supply, has been diverted to states which possess great resources of coal. 6. States which produce vast quantities of coal, such as West Virginia and Pennsylvania, may be injured, not only in their coal industry but also because of tile unemployment and relief made necessary by the substitution of natural gas for coal. 7. The coal mining industry may be crippled by the substitution of natural gas in regions where coal has been the predominant fuel. It is estimated that if all the certificates of public convenience and 11ecessity now before the Federal Power Commission were granted, natural gas might well displace 50,000,000 tons of coal per year or nearly one twelfth of the annual production. 8. Sin,ce the gas that is substituted for coal is carried by pipe lines, all substitution will likewise decrease the freight tonnage of the railways. It is estimated that the amount of gas which can be carried by the Big and Little Inch pipe lines alone, will take the place of 16,000,000 tons of coal traffic. 9. Of somewhat less effect, but still important, will be the reaction upon other industries, such as the production of artificial gas, coke manufacture and the operation of coal docks, oil tankers, and dealers in fuel oil and coal. 10. Many employees of all these industries will be thrown out of work. These workers cannot be absorbed by the gas industry, for once its wells are drilled and its pipes are laid, it requires a minimum of labor. 11. If this disruption of industry would end in a permanent read­justment, it might well be allowed to .run its course. However, since the supply of natural gas is definitely limited, within a few years it will be necessary to go back to coal and to try to revive the industries ruined by the competition of natural gas. In fact, more than revival may be required. The coal industry will not only have to produce in present quantities, but also expand so that fuel will be available in regions which now use natural gas and oil. A similar task must be faced by the railways and the waterways which now transport coal. 12. The world is far from an era of peace today. From the stand­point of national defense it might be suicidal to shut down many of the facilities producing coke and coal, to injure the transportation system thereby, and to disperse their employees. 13. It is no answer to the problem to say that natural gas is synthetically replaceable. Although this is true as a fact of chemistry, it does not counterbalance the extra cost of the synthetic product, or its lower efficiency. 14. From an economic standpoint it is foolish to pipe natural gas long distances from its source into coal . fields, and later to send synthetic gas back there. It is little comfort to a man from Louisiana to know that after large sales to regions rich in coal ha'7e exhausted the gas produced in his state, he may have the privilege of paying for the synthetic process arl.d for the cost of shipping synthetic gas fro.m the coal fields where it is developed, to his home state. 15. The transportation of natural gas into the manufacturing areas of the East will cause a further concentration of population in this section. If natural gas could be transported only into regions near the area of production, the industries which would spring up in these less densely populated regions would draw workers there. The proper handling of the natural gas situation involves great questions of public policy. The solution of these questions cannot be left to the decisions of companies. engaged in the natural gas business, or merely to the law of supply and demand, since both may run counter to the long range interests of the general public. This has been recognized by the gas producing states, which have established authorities to deal with this resource, and have entered into an Interstate Compact to conserve oil and gas, designed to prevent some of the evils of unrestrained competition in_natural gas. The Federal Government has established the Federal Power Commission, which serves to protect the public interest iri certain respects, when natural gas is transported and sold as an article of interstate com­ merce. ,There are four chief mechanisms of control: (1) The police power of the state; (2) price control by both the State and Federal Govern­ ments; (3) the power of taxation by both the state and Federal Governments; (4) and various types of authority exercised by the Federal Power Commission, especially the granting of certificates of public convenience and necessity. The University of Texas TEXAS NATURAL GAS I By Stuart McGregor (Reprinted from The Dallas Morning News, February 12, 1948.) This is said to be the "Age of Billions," succeeding the "Age of Millions" which had its advent in the Gay nineties and lasted through the first generation of the present century. By this is meant that we now do our own statisticking principally at the level of billions­billions in production, billions in values and, yes, billions in debt. In one statistic Texas has hit the "Age of Trillions." It produced over two trillion cubic feet of natural gas in 1947, according to unofficial estimate. (This axiomatically puts the United States in the same class-old whole-is-sum-of-its-parts axiom.) It was a big gain over the 1,776,148,000,000 cubic feet produced in 1946 and the seventh yea~ the Texas figure has been above the one trillion mark. These figures apply to commercial production. In addition about one ~rillion cubic feet are repressured annually and a half trillion wasted. Known Texas underground reserves are estimated at sixty to seventy trillions, more than half the reserves of the United States. [Ed. Note: 1948 production is 3 trillion cu. ft.] Unit Out of Proportion Admittedly, the principal reason for the trillionous nature of gas statistics is the small unit of measurement. Development of pro­duction has been so rapid that the statisticians have not had time to get togeher on some unit comparable to ton or mile. This peewee­sized unit of measurement for a colossus-sized resource production is very characteristic of the whole development of the natural gas industry. Unlike iron, coal, silver, stone and other major minerals, it had no beaten path-no accumulation of experience-when the great discoveries came. Even its not-very-old kin mineral petroleum was much better fixed empirically. Rapid expansion of the new mineral industry has not been the only problem. Gas is the most different of the major minerals. It is highly fugitive. It can not be hauled around in a rail car or tank like coal, iron ore or oil. It can be stored only by repressuring into its own underground reservoir. It must be kept in iron or steel strait­jacket from production to consumption-and production and consump­tion must be constantly in proportion. If one stops, the other must. No ever-normal granary for gas. Once production is under way, highly fugitive, gravity-defying gas pretty nearly takes care of its own output. Compressors must be kept going along the distribution lines, but there are no John L. Lewis troubles in the gas-mining business. (Reversely, natural gas is said to be about the biggest trouble for John L. Lewis.) Gas Travels Alone Even in financing, the gas industry had to tread a lone path in its early development. Investment capital did not know much about it, and would not venture into it. It grew largely on its own financial accumulation and was a local industry in nature· even after Pennsyl­vania-Ohio interests set up in Texas. Not until the middle twenties did it become a nationally integrated industry with the building of the first long interstate pipelines out of the Monroe, La., and Texas Panhandle fields. The res·ult of all these factors is that some peculiar problems have arisen. Once an investment is made, a producing-distributing concern can afford to sell any excess above normal demand at very low price to get the new market. Hence we find natural gas selling at the wells in Texas at an average of 4 cents a thousand cubic feet which is the equiv11lent of about 65 cents a ton for an average grade bituminous coal. Yet, gas is the world's finest fuel. It is the most convenient of domestic fuels. It creates no smoke nuisance. It is an essential fuel in many of the great new chemical industries and is an essential raw product in some of them. On a BTU basis it should bring the highest price on the entire fuel market. Another peculiar characteristic of gas is the obviously limited supply as compared with demand. There is a 30-year supply of gas in the United States on basis of present consumption, or a 12-year supply on basis of a continuation of the recent increasing consumption. In contrast, there is a 2,000 year supply of coal. Known reserves of most important minerals are sufficient for fifty to a thousand years. Yet the anomaly of the finest fuel bringing the lowest price is producing still another paradoxical situation. It is being argued that the way to cure this sinful situation is to use the gas more rapidly­decrease the known reserves more rapidly-so that prices will rise. This is one of the principal arguments for the building of more big pipelines out of Texas to regions which have a 2,000-year supply of coal. And Then Politics Politics has seeped into this economic problem, of course. Some­thing was said above about gas being the biggest worry of John L. Lewis. Embarrassed government officials are not very hesitant to give John L. the gas treatment-with Texas gas. ' And that's the point for serious consideration by us Texans. This colossal young paradox among the world's resources-this most valuable intrinsically of all the known fuels and probably the most valuable intrinsically of all the world's future raw materials for the chemical manufacturing industries-is very largely the heritage of Texas by geographic distribution. Just how much heritage there The University of Texas will be in actual materialization will possibly be measured by how Texans handle the heritage of the perplexing problems that were left along with the valuable resource. II (Reprinted from The Dallas Morning News, Thursday, February 19, 1948.) Fiction writers are straining our imaginations with pictures of the post-Atom War world. Here's New York, for example: Silent debris­filled streets, twisted steel, a few ghostly houses, the shattered frame­work of Empire State Building leaning like Pisa's tower. Life? A few skulking dogs, singed cats, an occasional rat. But mostly just silence, death and destruction. Terrible, but it could happen unless we use our gray matter. We shouldn't give up hope. In fact, we should be optimistic enough to continue trying to make it a better world in which to live. To this end we might exercise our imaginations on some less dismal contin­gencies than atom destruction, that could happen, but shouldn't. Take, for example, Texas after its natural gas resources may have been exhausted (by piping it to the Pennsylvania-Ohio coal fields, where they have 2,000 years of fuel supply); sooty air and dingy walls in our once crisply clean cities, our once-bright skies veiled with smoke, householders rigging up coal furnaces, and bins in homes built for gas heating, long trains bringing coal from Ohio at twice the cost on BTU basis of present gas. Of course the smoke nuisance would be somewhat less than might be expected because most of our present industries would be closed­as ghostly as atom-hit New York. 'They were built in Texas primarily because of the great gas supply in a surprisingly large number of instances. They could not operate on the high-priced, imported coal or the still higher priced few remaining cubic feet of Texas gas. This is no exaggeration. Most people will tell you that petroleum is Texas' greatest mineral resource. Assessed in terms of direct economic benefits, this is correct..If we look at the long range, direct and indirect benefits, natural gas is of greater potential benefit. An abundance of natural gas has done more to facilitate Texas industrial development than any other factor. Upon the conservation of Texas natural gas reserves for regional use, in an area that is lacking in a good quality of coal, depends Texas' industrial future. Some Texans do not realize it but the character of Texas industry has been molded largely by the presence of ample gas resources. From the beginning of steam power until a few years ago, it was held by economists that any great industrial region had to be founded upon the "industrial trinity" of coal, iron and limestone. The coming chemical industry has changed all that. The new "industrial trinity" consists of a variety of vegetable and mineral raw materials and, specifically, natural gas. A survey of Texas' recent permanent industrial development is proof. The following are only a few of the. individual industries that have come to Texas wholly or largely because of the great availability of natural gas: The great alkali works at Corpus Christi, the $100,000,000 Dow plant at Freeport which extracts magnesium, bromine and more than a hundred other minerals from sea water; the great Monsanto plant at Texas City which is being rebuilt on a greater scale than before the disastrous explosion of April 16, 1947; the $25,000,000 Du Pont nylon salt plant at Orange, the big Owens­Tilinois glass factory at Waco, the synthetic rubber plants at Borger, Houston and Port Neches which are to be kept in operation as a part of national defense, and such brand-new industries as the big plant at Brownsville which will turn natural gas into gasoline and other products in amazing quantities by an amazing new process. The availability of gas as the fuel essential to their industrial processes is the primary reason for most of these plants being in Texas. The use of gas as a raw material is a newer development in the chemical industries-one of astounding proportions and of great implications for Texas' future economic growth. There is the big Celanese plant which rises from the coastal prairie on the outskirts of the little town of Bishop. It is a bright, clean structure with hardly a sign of smoke. As one approaches, the earth trembles with a manmade earthquake, caused by operation of the powerful compressors. It uses gas as fuel. It uses gas as a raw material-nothing more. It turns out a wide array of chemical prod­ucts. , The type of employment is of the new chemical age also. "Rather high-educational level required to run this plant?" one asks a hand­ some, tousled-haired young fellow, a department head. "Well, yes. We have some new processes here, and we've got to keep abreast of things." · "What're your own educational qualifications?" "Well, Bachelor's and Master's degrees from The University of Texas, and Ph.D. from Chicago." "Interesting work?" "Most interesting in the world." That's the type of new industrial worker, the worker in the new industrial age, the chemical-industrial age in which natural gas is the No. 1 essential. The more one looks into it the more one is impressed with its potentialities for Texas--if the gas supply lasts. Yes, long-suffering, King Cotton-oppressed Texas discovered its greatest economic heritage in natural gas, its greatest opportunity for economic and social progress. The University of Texas "But we'll have enough gas even after we've built the big pipelines to the great coal regions," someone will contend. "The short expect­ancy estimated by the geologists does not take into account the con­stant discovery of new fields." ' The right answer is that the export of gas (to states from California to New York and from Monterrey, Mexico to the cities of Canada) is far outdistancing the new discoveries. It is progressing geometric­ally-by the square and by the cube. And the end is not in sight. Just this hint from a Federal Power Commission bulletin of Feb. 10, 1948: "Authorized and pending gas pipeline projects from July 1, 1945, to Jan. 1, 1948, aggregated 20,893 miles at an estimated cost of $1,500,000,000, calling for 4,944,155 tons of steel." A large portion of this is to pipe gas from Texas. The forthcoming event has already begun to cast its shadow over Texas' industrial prospects. Recently a Texas industry announced postponement of a big building program because of "high costs" and "for other reasons." Other reasons included fear of exhaustion of the gas supply. III (Reprinted from The Dallas Morning News, Thursday, February 19, 1948.) The last article in this series closed with the statement from the Federal Power Commission that ·gas pipeline projects authorized, completed and pending during the eighteen months preceding Jan. 1, 1948, aggregated 20,893 miles at a cost of $1,450,000,000. Even during this brief space the trend was sharply upward. During the last six months of 1947, the FPC authorized facilities to increase the capacity of natural gas pipelines in the United States by over one and a quarter billion cubic feet daily. Of the total cost of $303,218,392 for these authorized projects, more than 80 per cent was for facilities tapping Texas' natural gas reserves. Still greater increases are in prospect during 1948, if one may calculate from FPC bulletins and the national financial journals. · Texas is now sending its natural gas to twenty-seven states, plu.s two foreign countries, Mexico and Canada. These exports doubled from 1941 to 1946. Authorizations since Jan. 1, 1947, indicate a tripling of the 1946 figure. A scarcity of steel for pipeline manfacture is the principal restraining factor. Advocates of this profligate export of Texas' most valuable indus­trial resource contend that discovery of new fields will take care of the situation. The highest estimate of newly discovered resources is far behind the ratio of increa.sed pipeline exports. Furthermore, any estimate on such basis overlooks the over-all aspects of the situ­ation. Natural gas now constitutes less than 1 per cent of the national fuel consumption. Because of its .superior quality, it would displace half the coal consumption if it could be made available at anything Severance Tax on Natural Resources like comparable cost. The market is practically limitless. If unre­stricted pipeline building is to go on, then the only basis for esti­mating the life expectancy of the Texas gas fields i.s to compute the amortization expectancy of pipeline financing. The anomaly of it is that this most precious of all fuels is bringing about 4 cents per thousand cubic feet to the Texas owners. This is equivalent to about 65 cents a ton for bituminou.s coal. And this direct value of gas is the smallest part of it. In the hearing on the appli­cation for the extension of a line from South Texas to Mexico, it was stated by the pipeline builders that the gas would give employment to 15,000 people in Monterrey. Counter inquiry developed that fewer than 100 would be employed in Texas. Ineffectual efforts have been made in Texas, Louisiana and one or two other gas-producing .states, to limit exports. But a peculiarly difficult problem is presented. There is a well-founded principle that the owner of mineral properties has the right to find a market where he can. Again, there is the constitutional injunction against interstate barriers in commerce. There is soundness in both of these contentions, yet it is a fact that both the individual and the states are affected today by multiple inter.state barriers in the form of taxes, motor truck limitations, quarantines and other measures. Evidence of waste of billions of cubic feet of gas. is presented with telling effect at each hearing on an application for a new pipeline. Yet the big pipelines take very little of this "flare" gas. The public does not generally understand the difficulty in conserving the "wet," isolated and intermittently produced gas from oil wells. Opponents of natural gas export have suggested a tax on the out­going product. Previous rulings of the Supreme Court indicate that this would be held unconstitutional as an interstate barrier. A higher state tax on all gas production has been suggested, .since gas is now taxed relatively much less than petroleum. This might have a slight restraining effect on exports, since the tax would be pyramided upon the higher outside distribution cost, but the principal virtue would be getting more revenue for the state while the getting i.s good-and getting it in increasing proportion out of the pockets of taxpayers beyond our border. Members of the FPC have tentatively suggested that, if that body were given greater "end use" control, it would exercise authority with a view to the industrial needs of the regions without coal resources. But state officials have feared that, in the end, the result would be the conservation of Texas gas resources primarily for the use of consumers in the politically powerful pivotal states of the North and East. While FPC authority for complete control to such an end is taken for granted, it is al.so taken for granted that any attempt by the states themselves to prevent export of gas on the same principle would be turned down by the Supreme Court. 74 The University of Texas Any realistic view can comprehend only the stark fact that Texas' gas resources will soon be reduced at least to the point where they will not be practicable as industrial fuel. It will be the greatest blow imaginable to Texas' industrial progress. There is a direful national aspect, too. It would reverse the present healthful tendency toward national industrial decentralization. Industry would recentralize in the .coal region. Decentralization as a national de:(ense measure would be impracticable except as a tax-supported development. What to do? The Railroad Commission, which is handicapped by a personnel divided in opinion on this i.ssue, might be partly effective by stoutly resisting every application before the FPC. The Fifty-first Legislature should give the matter immediate attention upon con­ vening early next year. It can take at least some measures to strengthen resistance. In the meantime, the is.sue would be kept constantly before the people by the press, educational institutions and the state agencies. The force of public understanding, opinion and thought might find a way, even though state officials have not. TEXAS GAS OUTPUT RISES TO ASTRONOMICAL FIGURE By William M. Thornton, Chief of The Dallas Morning News, Austin Bureau. (Reprinted from The Dallas M<>rning· News, March 24, 1948.) Austin, Texas, March 23-Three trillion, six hundred billion cubic feet of natural gas will be released from reservoirs in Texas during the next twelve months. Not all of this gas will be forever lost, as a comfortable percentage is returned underground in cycling operations. A heavy percentage of the casinghead ga,3 produced in Texas will be wasted in flares. The loss is now estimated by engineers at 47.17 per cent. This is an increase and is attributed to the tremendous upping in oil production and consequent casinghead gas outlet. William J. Murray, Railroad Commi.ssion member, is authority for · these figures computed by him and other commission technicians in advance of Wednesday's Fort Worth convention of the Natural Gasoline Association of America. Murray will present a paper on ultimate hydrocarbon recovery. Murray explained that it is difficult, even for the experts, to arrive at total natural gas production, net and gross, becau.se of the variable and flexible factors that enter into it. 1 According to Murray's tables all gas produced in Texas is 9,872,576,000 cubic feet daily with 2,349,132,000 feet returned under­ ground in cycling operations. This leaves net gas produced daily at 7,523,444,000 cubic feet. These figures were for December and they since have increa.sed. Severance Tax on Natural Resources Net gas production for the next twelve months will approximate two trillion, seven hundred fifty billion cubic feet, based on the December figures. ' How long can Texas natural gas last at this rate of withdrawal? Murray said: "The experts tell us about twenty-five years-if the demand does not grow too great." With 73,-059,410 barrel.s of crude oil produced in December, Murray's data reaches an average of 1,325 cubic feet of gas to each barrel of oil brought out. This ratio made a total of 96,803,718,000 cubic feet of casinghead gas produced in December or 3,122,701,000 feet daily average. A total of forty-six new casinghead gas conservation projects have been completed since September, 1945, according to Murray, with approximate volume involved of 571,900,000 feet daily. Cycling plants returned 52,333,333,000 cubic feet to underground reservoirs in December. However, Murray said he was not proud of the 47.17 per cent waste in flaring casinghead gas. SYNOPSIS OF FACTS AND DISCUSSION ON DISTRIBUTION AND PRICE OF NATURAL GAS PRESENTED AT THE SOUTHWESTERN REGIONAL CONFERENCE, FEBRUARY 20-21, 1948. (Excerpt from the "Progress Report" of the State Legislative Council of Oklahoma, March, U48, p. 2. ) Representatives of the several oil and gas producing states in attendance at the conference were interested in learning how their states might benefit more substantially from their natural gas reso~rces, either through a higher price for the product to the pro­ducer and :royalty owner, and/ or through increased taxation on natural gas. From certain paper.s presented (copies of which are available) ,. and as the result of questions from the floor, the following essential facts were brought into the open for discussion and further consider­ation: .The value (price) of natural gas at the mouth of the well in the Southwest, where approximately 75% of .the nation's reserves are located, has consistently averaged less than 5 cents per 1000 cu. ft. for many years, and will probably continue to remain low relative . to its value at the points of consumption, and relative to its intrinsic b.t.u. value as compared to coal and oil, for the following principal reasons: The University of Texas Gas Under Long-Term Contracts · A. Much of the nation's reserves of dry gas (perhaps as much as 50%) are held under long-term purchase contracts by gas-distributing companies, at existing low prices, so that there is little prospect of substantial upward price adjustments in the immediate future. In some instances, gas purchase contracts run for the "life of the lease." Chemical Products f ro·ni Natural Gas B. Technological advances have now made possible the manufacture of synthetic natural gasoline and many other chemical products from natural gas (e.g., the multi-million dollar Stanolind plant recently announced to be built at Garden City, Kansas); but much of this will be carried on by companies which have their own gas reserves and production, hence this new use for natural gas may have only a minor effect, if any, on the price of natural gas. Rates on Gas Controlled C. Gas distribution is a public-regulated industry and, as in the case of other public utilities, is subject to control and regulation of rates by the Federal Power Commission as to interstate carriers, and by the several state utility boards or commissions as to intrastate pipeline carriers. As a consequence, the increasing of prices to con­sumers is a tenuous process and this ten,ds to hold down the price paid at the mouth of the well. The price of gas, unlike the price of oil, is not determined in a free market. Reserves Not Included in Investment Costs D. Another factor tending to hold down the price of natural gas at the point of production is that Federal Power Commission rules do not permit the inclusion in the investment costs of inter·state gas distributors of any value for reserves owned by these companies. Consequently, they are not permitted to include in their gas ·rates any ~lement for the return of cost of such owned reserves. In this connec­tion, it was reported that some members of the FPC are now favor­able to a change in this rule. Reasons Given for Long-Term Contracts E. Members of the natural gas industry made the significant point that the interstate distribution of gas entails the expenditure and investment of many millions of dollars, and that before such invest­ments can be made they must be fully protected and assured of a .supply of gas sufficient to last for many years. This necessity has been mainly responsible for long-term gas purchase contracts. The companies made the further point that their investments in pipeline facilities have been responsible for converting natural gas from a resource lying dormant, without value, into a usable resource, giving it the utility of place. Severance Tax Suggested The tax discussion at the conference served to disclose the impracti­cability of uniform types of taxation among the several gas producing states, because of constitutional and other impediments; but indicated that perhaps a greater uniformity of burden might be possible, if the states so desired, by the use of a .severance tax or other form of tax, in addition to those presently employed, as a means of adjusting or equalizing the burden. However, there was no indication that the several states would do so, and in the last analy.sis the question of taxing natural gas will be, as always, a matter for the legislature of each state to decide based upon the facts and circumstances peculiar thereto. There was limited discu.ssion on certain details of tax legislation, including the necessity for exemptions being allowed for certain economic uses of gas, such as for repressuring or recycling operations, underground storage, and perhaps the proces·sing of casinghead or wet gas (containing liquid hydrocarbons), which too often in the past has been wasted. To the extent that taxation may contribute to con­servation of natural gas, the consensus appeared to be that it should be so oriented. The question was raised also as to the proper point of impact of any tax on natural gas-whether it should be on the act of severance, as in Mississippi, or at some point farther down the line. The answer to this would determine whether the tax would be borne primarily by the producer and land or royalty owner, or passed on to consumers throughout the nation. It wa.s, of course, made clear that any tax imposed on this product must of necessity apply equally to gas con­ sumed within the producing states as to gas exported therefrom. The commerce clause of the Federal Constitution would prevent the laying of any state tax burden solely on gas moving in inter.state commerce. Production Costs Differ An argument advanced by industry representatives present against the feasibility of uniform regional taxation of oil or gas was that other costs of finding and producing these resources are by no means uniform. Production is at much greater depth in some states than in others; in some instances large volumes of water must be handled along with the oil produced, which increases cost; and there are a multitude of factor.s which operate to increase costs in one area over another. In times of great demand and advancing prices cost differen­tials may not be noticed, but when demand slackens and prices fall The University of Texas these cost factors may tend to influence deci.sions as to where explo­ration and production will take place. State taxes might also become a factor. Industrial Uses Advocated A conclusion apparently reached by common consent of those present was that the interests of these producing states will be best served by encouraging the greatest possible industrial utilization and proc­essing of gas and oil within the producing states. It was reported at the meeting that numerous large natural gasoline and gas proc­es.sing plants are in process of construction adjacent to natural gas fields in Oklahoma and other states; that these plants must of necessity be located close to gas fields (unlike oil refineries, which may be con­·Structed close to the centers of population, with the crude delivered to those points by pipeline or tanker) ; and that state tax policy should take account of these industrial possibilities based on natural gas within this region, and encourage, or at least not discourage such new industrial development. TEXAS GAS PRODUCTION TRIPLES IN 10 YEARS (Reprinted from The State Observer, June 14, 1948.) Three times as much natural gas from Texas wells is being con­sumed over the nation as was used during 1939, according to reports to tpe Railroad Commission. There are 17 major pipelines now in operation or planned, carrying gas from this state to various points in the North and East. Another pipeline carries gas to Monterrey, Mexico, and a new line to California ha.s just been completed. Gas production in Texas last year totaled more than two trillion cubic feet, and members of the Railroad Commission believe that the production will be nearly five trillion cubic feet a year by 1950. REFINERS TOLD NATURAL GAS QUICKEST SYNTHETIC SUPPLY (Dallas N ews, April 8, 1948.) Galveston, Texas, April 7 (.IP).-Synthetic gasoline from natural gas is approaching economic competition with crude oil gasoline, an Oklahoma oil company engineer said here Wednesday. R. C. Alden, Phillips Petroleum Company, Bartlesville, .speaking before. the Western Petroleum Refiners Association convention, said indications are that gasoline from natural gas can be made available at only 3 cents per gallon over the cost of crude petroleum gasoline. An investment of $5,200,000,000 would be required for a plant capable of producing 650,000 barrels of synthetic gasoline daily from coal, he said, as compared to $2,600,000,000 for construction of a natural gas synthesis plant of similar capacity. Such expenditures, he estimated, would push gasoline from coal to from 4 cents to 9 cents per gallon over prevailing crude oil gasoline prices. Coal also is less efficient as a raw material in that it would require 160,000,000 tons of coal a year (about 28 per cent of the 1945 United States coal production), to maintain a synthesis plant producing 650,000 barrels of liquid fuels a day, Alden stated. He estimated that natural gas reserves of today would make appro.ximately 25,000,000,000 barrels of gasoline, which, on the basis of current demands, would last approximately thirteen years. Coal reserves suitable for the process were estimated at 3,200,000,­000,000 tons, or the equivalent of approximately 4,7·0.0,000,000,000 barrels of gasoline, a .supply sufficient for several thousand years. "It is therefore obvious that any long-range liquid fuels program must be based on coal," the Oklahoma engineer said. MINERAL RESOURCES-PRODUCTION (Reprinted from the Texas Almanac, 1947--48, pp. 252-253.) The tradition of Texas maintains it in the minds of most people, including Texans themselves, as a predominantly agricultural State. Texas was a cow State and then a cotton State. Today its diversity of crop and livestock production makes it one of the world's greatest and most diversified producers of agricultural materials. But Texas has become predominantly a mineral-producing State, as measured by either the amount of income derived or by the wide economic effect of that production. Since 1935 Texas has been the first ranking State in annual total value of mineral production. Few other areas of comparable size any­.where in the world have a greater mineral production value. Possibly none has a production of more widespread consumption and signifi­cance. World War II demonstrated the vital value of Texas petroleum. Texas' Rank About 66 per cent of the annual mineral value of Texas is from petroleum, and approximately 85 per cent is from oil and gas. Yet Texas has the greatest diversity of mineral production of all of the states, with one possible exception, and, even without the annual value of both oil and gas, Texas' rank among the states would be tenth or eleventh. The University of Texas Following is the rank in mineral production value of the ten leading states, according to figures for 1945, latest available: Rank and State Value 1. Texas --------------------------------------------------------------------------------$1,361,436,346 2. Pennsylvania ------------------------------------------------------------------930,113,000 3. California ------------------------------------------------------------------------627,306,000 4. West Virginia ---------------------------------------------------------------597 ,377,000 5. Illinois ------------------------------------------------------------------------------332,489,000 6. Louisiana -----------------------------------------------------------------------298,842,000 7. Oklahoma --------------------------------------------------------------------------282,859,000 8. Kentucky --------------------------------------------------------------------------273,259,000 9. Kansas ------------------------------------------------------------------------------210,187,000 10. Ohio ------------------------------------------------------------------------------------196,633,000 Diversity of Production During the last five years, Texas has produced about 16 per cent of the total mineral values of the United States, which have averaged approximately $8,000,000,000 annually. Texas produces on an appre­ciable commercial scale more than thirty different kinds of minerals, and an additional thirty or forty minerals have been produced in commercial quantities from time to time. Because of the relatively undeveloped state of Texas ind11stry, many of its minerals are in the marginal field of development. The number fluctuates from year to year but the trend has been upward in recent years. The diversity of Texas minerals comes naturally. Above the varied and intricate geologic structures are found a diversity of soils that have produced a varied native plant and animal life and a varied agricultural industry. Likewise the varied geologic structures with their folds, faults, intrusions and irregularity of formation have brought many valuable minerals together in natural underground reservoirs and in storehouses of gaseous, liquid and solid material. Increase in Production The story of the expansion of the mineral industries of the State is best told by the tabulation of total mineral values at the end of this article. Mineral production value has expanded far more rapidly than crop, livestock or manufacturing values. From a production value of $5,316,222 in 1900, the State's mineral output jumped to a value of $18,383,451 in 1910 and a decade later was $371,250,979, though this latter figure was due in part to the inflated value of petroleum during 1920, when it went to a level more than twice as high as the average of recent years. The figure of $382,676,504 in 1930 represented oil and other mineral values that were consider­ably deflated from 1920 prices, and hence a larger increase in physical production volume than is apparent in the value. The increase to a total value of $714,905,731 in 1940 represented an increase in physical volume that was approximately equal. The jump to $1,361,436,346 in 1945 was in some degree because of price rises but it represented in part an increase in physical volume. The distribution of mineral production within the State is very wide. About 230 of the counties out of the 254 have some mineral production. Practically all of them have minerals of potential value. This wide distribution characterizes Texas' greatest mineral resource, oil, which is produced in approximately 160 counties. Mines, Wells, and Pits Another interesting thing about the development of Texas mineral resources is the fact that Texas has jumped to the first rank among the sitates, yet has very little mining in the older sense of the word. The mineral production of Texas very largely belongs to the modern processes made possible by power and heavy machinery-tapping the earth's mineral reserves via the drilled well and the stripping process. More than 9/ 10 of the minerals, as measured in value, come to the surface through drilled wells. These minerals include petro­leum, natural gas, natural gasoline, sulphur, a portion of the salt, not to mention the great supply of underground waters, which, while seldom mentioned as a mineral, actually constitute the greatest of Texas' underground mineral assets. Grand Total Production Value-Trends The dependable record of Texas mineral production extends through sixty-five years, 1882-1946, inclusive. The grand total of value of minerals produced during this period is $17,074,129,220. Because of the fluctuations in the real value of the dollar, this is only an approximate estimate of the value as measured by present standards. Yet there is accuracy enough in the figure to give signifi­ cance to the fact that 34.4% of the 65-year value was produced in the last five years, 1942-46, inclusive, and that 58% of it was pro­ duced in the last ten years. The principal reason for this rapid acceleration of the annual value of Texas minerals, of course, is found in the rapid increase in oil production as field after field has been discovered, and to less degree in the increasing production of natural gas to go to market through the rapid extension of intrastate and interstate gas p.ipe­ lines. A considerable contribution has been made, however, by the upbuilding of the industries to consume, and transportation systems to carry, a large number of the heavier mineral products. For a long period these heavier minerals were exclusively the kind that went to the construction industry as building materials-stone, cement, brick and tile, gypsum pro~ts-but latterly the expansion 82 The University of Texas of the chemical industries in Texas and elsewhere has greatlY. stimu­ lated the production of other heavy minerals. While the chemical industries as yet do not consume a large pro­ portion of Texas minerals, the promise is more than considerable, according to mining and industrial engineers, the great deposits of salt, clays, limestone, lignite and other minerals will be added to sulphur as raw materials for the chemical industries. Texas Mineral Values-1944-1946 1944 $1,338,060,404 1945 1,361,436,346 1946*----------------------------------------------------------1,425,000,000 TEXAS NATURAL GAS RESOURCES-PRODUCTION (Reprinted from the Texas Almanac, 1947-48, pp. 263-265.) Natural Gas Value Calculations of the value of natural gas production vary according to the basis upon which made. Average Texas value at points of consumption including domestic, commercial, and industrial uses, in 1945, was 14.8c a thousand cubic feet, indicating a total value of about $253,000,000, according the the U.S. Bureau of Mines. How­ever, the value at the well was only 2.6c a, thousand, indicating a total value of only about $64,400,000. Value at points of consump­tion varies widely according to the extensiveness of the pipeline transportation and distribution systems needed. The Texas average was 64c for domestic fuel, 36.8c for commercial (small business con­cerns), 6c at industrial plants, including electric utilities and petro­leum refineries, and approximately 3c when used for pumping, drilling and other power purposes in oil and gas fields. Average price at the well varies greatly among the states. As against the average of 2.6c in Texas in 1945, it was 6.lc in Illinois, 13.2c in Michigan, 24.5c in Pennsylvania and 28.5c in New York. As against the Texas average point-of-consumption price of 14.8c, the corresponding price was 17.3c in Illinois, 67.9c in Michigan, 52.4c in Pennsylvania, and 64.3c in New York. Texas Gas Exports and Imports During 1945, Texas exported by pipeline, 406,444,000,000 (billions) cubic feet of its production of 1,711,401,000,000 (1 and % trillions) cubic feet of natural gas, or about 24%. These exports went to 25 states and one foreign country. Texas' imports of natural gas during 1945 according to the Bureau of Mines totaled 43,183,000,000 cubic feet, which was equivalent to about 4% of the Texas produc­tion. The imports of Texas gas were from Louisiana, Oklahoma and New Mexico. •Estimated. • Natural Gas Waste Estimates of natural gas waste in Texas vary widely. The U.S. Bureau of Mines estimated that, in 1945, the gross production of gas in Texas was 3,060,000 million cubic feet. (The production figure of 1,711,401 millions cubic feet refers to production for all kinds of consumption, i.e., the commercial production.) The gross production estimate of 3,060,000 millions cubic feet was broken down as follows: consumed, 1,711,401 millions cubic feet; repressured, 767,100 millions; wasted and lost in transmission, 572,430 millions. In 1946, it was testified by experts in a hearing on conversion of the Big and Little Inch pipelines to gas transmission that the average waste in Texas was about a billion cubic feet a day or 365,000 millions annually. This was about 64% of the waste estimate made by the Bureau of Mines for the preceding year, 1945. During 1945, the Railroad Commission of Texas, after a survey, issued an estimate much under either of the two mentioned above. Possibly the most definite thing that can be said is that the waste is very large and a considerable percentage of the amount consumed. The estimate of the Bureau of Mines placed waste in the entire United States at 896,208 millions c:ubic feet. At 64%, the Texas percentage of the national waste was considerably higher than its 43.7 percentage of production. There are two primary cau'ses of the waste of gas in Texas, one physical and one economic. The physical factor lies in the fact that 29 % of Texas natural gas is produced from oil wells. In 1945, 900,000 million cubic feet wer'e produced from oil wells and 2,160,000 millions from gas wells. The waste is almost entirely from the gas produced from oil wells. (Petroleum in its native state contains in solution from 25 to 600 cubic feet of gas per barrel of oil.) The marketing of this gas frequently is commercially impracticable. Where marketing is impracticable, "flaring" (burning to ,prevent discharge of inflammable and explosive gas into the atmosphere) or repressuring (forcing back into the underground reservoir) are the alternatives. And sometimes repressuring is not practicable. In 1945 a total of 767,140 million cubic feet were repressured, in­cluding both gas from oil wells and "wet gas" from gas wells, which was processed for natural gasoline. The economic factor is the high ratio of reserves and production to available market which keeps the price of Texas gas at the well, considerably below the heat-unit equivalent of coal and other com­mercial fields. The prevailing price of gas at the well in Texas in 1946 was equivalent to a price of somewhat less than $1.00 a ton for a good grade of bituminous coal at the mine, on basis of equal calorific values. Early conservation laws of Texas prevented waste of natural gas resources, including severe restrictions against the manufacture of The University of Texas carbon black. In 1933, however, the so-called "sour gas law" was passed by the Legislature, opening the way to waste of gas during the following two years. The law was repealed in 1935 but court decisions rendered the new decisions partly ineffective. More re­cently, however, effective enforcement of law combined with scien­tific methods and new industry projects have resulted in the utilization of large quantities of gas which were formerly wasted. A process that has greatly facilitated conservation is the recycling of natural gas by plants producing natural gasoline, butane, and other products. The processed gas is returned under pressure to its underground reservoir. Formerly, where no immediate market was available, the only alternative was to discharge the gas into the air or to burn it in the production of carbon black. N citural Gasoline Natural gasoline is obtained by processing "wet" natural gas by compression or other methods. Production in 1945 amounted to 1,439,069,000 gallons, valued at $66,590,000. It is also called casing­head gasoline and natural gas gasoline. Two-thirds of the Texas gas production is processed, and "wet" gases are found in nearly all parts of the State. Carbon Black Most of the nation's carbon black comes from Texas where it is produced by burning gas, largely by the channel process. Produc­tion in 1945 was 721,438,000 pounds, valued at $30,198,000. This was the highest production on record and about 70 % greater than the prewar production. The wartime and postwar need for tires furnished the principal demand for the expanded production. The burning of gas for the production of carbon black is restricted to sour gas and to some other gases that would be wasted unless burned {or this purpose. Recovery usually amounts to about 1.5 pounds for each thousand cubic feet burned. SULPHUR (Reprinted from the Texas Almanac, 1947-48, p. 270.) Over a period of years Texas produced an average of approxi­mately 80 per cent of the sulphur supply of the United States and an appreciable percentage of the world supply. TEXAS TIMBER GROWTH AND CONSUMPTION (Reprinted from the Texas Almanac, 1947-48, p. 168.) During the past ten years there has been an over-all reduction of only 3 per cent in the pine and hardwood sawtimber volume in East Texas. In other words, the amount of timber cut has only slightly Severance Tax on Natural Resources exceeded the amount grown. However, experts point out that the balance has been dangerously close and that there has been a reduc­tion in the average size and quality of the pine timber. In an average year, the drain of timber cut for all forest products runs almost 1,750,000,000 board feet. Timber Growth, 1946 __________Total 1,649,000,000 board feet. WATER RESOURCES OF TEXAS-CONSERVATION (Reprinted from the Texas Almanac, 1947-48, P-178.) Usually Texans have appraised their mineral resources by the estimated reserves of oil, coal and lignite, iron, sulphur, mercury, stone and other products of mine, well and quarry. Recently there has been an awakening to the fact that Texas has, in an economic sense, more oil than water. A water supply, which was taken for granted by the early Texans, has become an object of search and conservation. This applies to both ground water and surface supplies. Surface Waters Precipitated upon the surface of Texas annually is an average of 30.25 inches of water, varying from less than 10 inches in the extreme west to about 55 inches in the extreme east. Under physio­graphic and climatological conditions in many parts of the world this would be sufficient for even the great demands of modern living standards and industrial consumption. But the warm climate and clear skies of Texas maintain a high rate of evaporation, and the rolling terrain, nature of soils and lack of heavy forests in most areas contribute to rapid runoff. The problem is to conserve these surface waters by impounding along stream channels and by stor­ing moisture in the soil. Considerable progress has been made. There are eighty-five reservoirs in Texas, including Lake Texoma on the Texas-Oklahoma border, having each a storage capacity of more than 1,000 acre-feet, with a total of 12,417,000 acre-feet. Most of this total capacity has been developed during the last fifteen years and the percentage would have been much greater had it not been for the stoppage of work during the war years. TEXAS SOILS-SOIL CONSERVATION (Reprinted from the Texas Almanac, 1947-48, p. 182.) Texas cultivated acreage, including fallow and crop failure land, totaled 30,241,228 acres, according to the census of 1945. There were 108 524 480 acres classed as pasture land, an undetermined percent­age' of' which could be converted to cultivation. The soils of this vast area constitute Texas' grea~st economic resource. Mineral re­sources have produced in greater value in recent years but mineral The University of Texas resources are exhausted by the process of production. Properly handl'ed, agricultural soils are permanently reproductive. On the surface of Texas are 130 soil series with about 500 soil types, according to Dr. W. T. Carter of the Texas Agricultural Experiment Station. This is the greatest variety of soils possessed by any state. It comes naturally from the diversity of geologic strata beneath, and it results logically in the great diversity of crop and livestock production. Several natural and economic factors, however, have contributed to a decline in Texas soil · productivity-one-cropping in the cotton areas, overstocking of livestock ranges and pastures, and water and wind erosion. Surveys by the U.S. Soil Conservation Service indi­cate that about 11,000,000 acres, largely croplands, have been badly damaged and that an additional 50,000,000 acres of crop and live­stock lands have lost approximately 25 per cent of their topsoil. THE SEVERANCE TAX By A. E. Moody (Excerpts from the book A Severance Tax for Ohio, Miller Printing Company, Bedford, Ohio, 1941, pp. 2-5.) Definitions In this discussion local taxing district means any taxing unit smaller than the state. The general property tax is the direct ad valorem,tax laid on real and personal property. The view of authori­ties in economics is that all wealth is the result of the interaction of land, labor and capital. Each of these may be taxed separately or in combination. In theory, at least, the general property tax reaches land and capital. The occupation tax, as in Texas, may be made broad enough to reach every form of productive activity thus taxing all three sources of wealth. It is fundamental in a discussion of the severance tax to keep in mind the distinction between things and actions. The general property tax is a tax on things. The general occupations tax is levied on actions or pursuits. It is the price exacted by sovereignty for the license or privilege of lawful pursuit.1 Occupation tax, license tax, franchise or privilege tax, severance tax-these are synonymous terms differing in diminishing extension or connotation in the order given, and consequently, increasing in logical intention or denotation in the order given. All are taxes on pursuits as distinguished from things. Any of them may be made the ge~us of a logical definition of any of its successors in the order given above. isee Words and Phrases, Legal Dictionary, any edition. Severance Tax on Natural Resources Severance Tax The word .severapce comes from the old French word sevrer, meaning to separate or divide. It, in turn, comes from the Latin separare, meaning to separate. In the English Common Law sever­ance means division of the provisions, rights, liabilities, or the like, arising under or in something; e.g., the destruction of the unity of interest in a joint estate. It is thus seen that the word itself is a familiar one in the vocabulary of the law. Its use as the name of a tax, however, is distinctly recent. Its legal definition is to be found in the statutes of the states where such tax is levied. An Arkansas report has the following paragraph: "The severance tax by that name was first adopted by the state of Louisiana with the principal object of conserving natural re­sources. Later it was developed into a leading revenue measure and has been very productive in that state. It has a counterpart in the gross receipts tax of Texas, the gross production tax of Oklahoma, the occupation iron ore tax of Minnesota and like levies in other states." The Arkansas law of 1923 contains the following paragraph: "There is hereby levied a privilege or license tax to be known as 'The Severance Tax' ... upon each person . . . engaged in the business of mining, cutting, or otherwise severing from the soil or water for commercial purposes natural resources; including minerals and ores, pearls, diamonds, and other precious stones, bauxite, fuller's earth, phosphates, shells, chalk, cement, clay sand, gravel, asphalt, ochre, oil, gas, salt, sulphur, lignite, coal, marble, stones and stone products, timber, turpentine and all other forest products and all other natural products of the soil or water of Arkansas." The Louisiana law levies: "... a tax ·upon all natural resources severed from the soil or water; including all forms of timber, turpentine, and other forest products; minerals, such as oil, gas, sulphur, salt, coal, lignite, and ores; also, marble, stone, gravel, sand, shell, and other natural deposits." The Minnesota law contains the following paragraph: "Every person engaged in the business of mining or producing iron ore or other ores in this state shall pay to the state of Minne­sota an occupation tax equal to six per cent of the valuation of all ores mined or produced, which said tax shall be in addition to all other taxes provided by law...." It is seen from the preceding quotations that the severance tax is a privilege, license or occupation tax levied against those who are engaged in the production of economic goods for commercial pur­poses from natural resources. It applies to all economic goods mined from the earth, severed from the soil, or taken from the water. It may include water and water power. It has never been applied to crops, sowed, cultivated and garnered by agriculturists. The University of Texas History Occupation taxes reach back to the dawn of civilization when rulers dimly perceived that occupation was a source of wealth and accordingly exacted tribute for its safe pursuit. Privilege taxes reach back to the times when monarchs farmed out their kingly prerogatives to court favorites for a portio~ of the usus fructus. But the severance tax in America followed in the wake of the great agitation for conservation of natural resources in the first decade of this century and the name was first used in the law of Louisiana quoted above. The writer has been unable to find a severance tax as such in operation in any European country. The replacement coal tax of France passed in 1925 was called a sales tax and was levied at the mines and on imported coal. It levied a tax of 1.8 per cent on all coal mined in France or imported. This tax took the place of the "turnover tax" levied on the retail coal dealers of the country. 1.65 per cent of the tax goes to the state and .15 per cent goes to the "local-finances fund." The advantages seem to be chiefly administra­tive as the new law dealt with only 330 taxpayers while the old sales tax dealt with 12,000 taxpayers. There was no appreciable increase in income for the government over the old "turnover" sales tax which existed before 1925. Shoup states that there has been no concerted opposition to the tax in business circles. There was much legal evasion {)n the part of the large commission men of the old retail sales or "turnover" tax but none of the present "replacement" sales tax. In this connection it might be said that a sales tax, which taxes the right to sell, comes nearer a severance tax on the right to pro­duce than any other type of tax. As a mere revenue producer un­concerned with conservation, the sales tax could be made to supplant the severance tax. Need of Such a Study The depletion of the wonderful natural resources of this country calls for information that will set the present status clearly before the people, and the great need of increased revenue by state and local taxing units calls for an earnest investigation of all possible sources of revenue. Both conservation and taxation are live issues today. If it is argued that the tax is too high the answer is found in the fact that less revenue cannot supply present needs and build up a reserve that compensates for surrendering the natural resources of a community. The future as well as the present must be provided for. Ten or twenty years of exploitation may completely remove resources which required millions of years for nature to develop and which can never be restored to the thousands of generations yet unborn . . . . Does the severance tax tend to conserve natural resources? What is meant by conservation? Surely it must mean to restrain the use of. Wastefulness should be avoided. Radical or intemperate use is inconsistent with conservation. Indeed, radical has been the antonym of conservation for time immemorial. It might almost be taken for granted that sane people would refrain from wasting goods on which they were required to pay a tax in proportion to the quantity wasted. Accordingly, the writer views it almost as a commonplace to say that the proposed rates would tend to conserve natural resources. These rates would indeed cause people to stop and ponder before committing waste. But the problem is not so simple as that. The reward for devastating a country for some particular product may be so great as to induce that devastation unless a restraining hand is laid. Frankly, the.severance tax must )artially justify itself by being the restraining hand. The indi­vidual who happens temporarily to have the right of possession and use of land which for a million years might produce goods for the satisfaction of man's wants should pay dear indeed for devastating that land so that it could no longer provide for the wants of man. Immediate good is indeed worth considering but ultimate good must also be considered in a scale of values. There would not be a great decline in production at the rates proposed but producers would check carefully against waste, if the tax were also assessed on waste. The great good that may be hoped for this measure is that it definitely sets up the principle of conservation and makes the rates as high as they could probably be made by a legislature exposed to the pressure of strong business interests. The set-up is a compro­mise. We must consider not merely what is right but what is expedient. The tax is large enough at the start to make.the pro­ducing counties free from being the wards of the state in the matter of schools. It i.s also thought by the writer to be large enough to create a permanent endowment fund to guarantee to the future citizens of the producing counties independence in the support of their common schools. That is enough to hope for at present. Besides it must not be forgotten that there are other ways of compelling some sort of restitution than the severance tax. Its virtue is not so much in putting its beneficiaries "in statu quo" as in supplying a "quid pro quo." The University of Texas · TAXES OTHER THAN THE GENERAL PROPERTY TAX IN TEXAS By Richard Gonzalez (Reprinted from the investigation made by members of the TSTA Committee on Financing Public Education in Texas, October 12, 1932.) The gross receipts taxes on the production of petroleum, sulphur and natural gas are in effect severance taxes. The basis of these charges is the privilege of severing natural resources. The basis of this tax is the privilege of doing business in the State. The list of products specially taxed in other states includes coal, iron ore, marble, stone, sand, shells, gold, silver, copper, lead, zinc, turpentine, timber, and water power derived from public streams. The severance taxes in Texas are in addition to the general property tax, so there still remains the difficult problem of the valuation of mineral prop­erties. The difficulty of assessing mineral property is illustrated by the experience of one county in valuing a new sulphur property. The sulphur company made a rendition of $11,000,000, a committee of citizens urged that the value be fixed at $50,000,000, and the board of equalization placed the assessment at $32,000,000. The valuation finally determined was practically an average between the other figures. The prob.lem of valuing property producing natural resources has been eliminated in some .states by making the severance tax a lieu tax. LETTERS FROM OTHER STATES EDITOR'S NOTE : A questionnaire was sent to the governors and commissioners of taxation in some 20 states; a total of 16 states answered, and of this group only 9 expressed an opinion on the severance tax. These replies are reprinted here. The questions asked in the questionnaire were: 1. Does intelligent public opinion support your severance tax on natural resources (if you state has such a tax)? 2. Is there agitation to increase, decrease or repeal these taxes?· 3. What do you personally think about such a tax? ~ A.labama Dear Sir: In answer to your Question No. 1, there has been no expressed desire on the part of the taxpayers to take off any of the taxes from mineral and oil sources. As to Question No. 2, there is certainly no agitation to increase these taxes (and I might say any other taxes) but no attempt was made to repeal it at the 1947 session of the Legislature. In addition to the duties as Legal Adviser to the Governor, I am also a Member of the Legislature and I do not think there will be any lobby to decrease or repeal this tax. In answer to your Question No. 3, the Governor fully agrees with me that a severance tax is a fair and just tax and those who pay this tax to the State are making no particular complaint, and it is believed that such a tax will be continued in our State. Ira B. Thompson Legal Adviser to the Governor Montgomery, Alabama Arkansas Dear Sir: In response to your questions relating to the collection of a sever­ance tax, please be advised that (1) It is my opinion that intelligent public opinion does support the collection of a severance tax; (2) At the present time there is no agitation to change the exist­ing severance tax law; and (3) I am personally in favor of the collection of a severance tax in Arkansas. Governor Laney's 1947 legislative program called for the abolition of the ad valorem tax as a source of income for state purposes; and an upward revision in the rates of certain other taxes, including the severance tax, to absorb the loss of ad valorem taxes. For your information, during the revenue year ended May 31, 1948, severance tax collections totaled $3,135,000, or only about 4% of the total revenues of the state. Of the severance taxes collected, one-fourth is returned to the county in which the natural resources were severed, and the other three-fourths is retained by the state. · F. A. Storey, Jr., Secretary State Board of Fiscal Control Little Rock, Arkansas Idaho Dear Sir: Idaho does not have a severance tax on mineral resources. As it never has had a severance tax, there does not appear to be a great deal of opinion either for or against it. However, I do believe that a severance tax on our timber and timber products would bring greater revenue to the State than does our ad valorem tax. Louise Shadduck Executive Secretary Office of the Governor Boise, Idaho The University of Texas Illinois Dear Sir: The State of Illinois has no production or severance tax upon minerals. A law imposing a tax upon persons engaged in the busi­ness of producing petroleum was enacted in 1941 but was declared unconstitutional by the Illinois Supreme Court in 1944. During the 1945 session of the General Assembly two bills were introduced seeking to restore this tax, but neither made any progress. No further effort was made to enact this tax at the 1947 session. Dwight H. Green Governor Springfield, Illinois Kentucky Dear Sir: Kentucky has a production tax on oil. To my knowledge there has been no recent agitation against this tax. Due to the competitive nature of the coal mining industry, there is a fear that a severance tax on coal might give producers in other states an advantage over Kentucky producers and opinion is probably divided on this tax. There has been some talk of a severance tax on coal, but no real drive or support for it. The state administration or the Department of Revenue has not taken a definite stand on these taxes. D. M. Magill Acting Director Division of Research Department of Revenue Frankfolt, Kentucky New Jersey Dear Sir: The State of New Jersey does not include a severance tax on min­eral resources, and I doubt whether our experience would be par­ticularly pertinent to the debate topic chosen by the Texas High Schools. For what it may be worth, howe':'er, I might answer your questions as follows: 1. We have no production tax on minerals or other natural re­sources in New Jersey, and I believe that public opinion would not support such a tax here. · 2. There is no agitation to impose such a tax. 3. In those states having very substantial natural resources of a depleteable character, it is my personal opinion that a severance Severance Tax on Natural Resources 93 tax of a reasonable amount is justified. Such a tax not only produces revenue for the support of government on a current ·basis but may well aid the state to foster a continuing exploration and develop­ment of its natural resources. Where the extractive industries repre­sent a key factor in the economy of a state, this kind of revenue­and the programs that might be supported with it-seem very much in the public interest as well as in the interest of the extractive industries themselves. While the severance tax may be paid by users of minerals and petroleum all over the country, it must be recognized that the prob­lems of providing governmental services for the industry is a local one and that the tax is a fair charge upon those using a l:Jlineral or petroleum output of any one locality. I hope that the debates will produce a worthwhile exchange of opinion and an understanding of the whole subject. Alfred E . Driscoll Governor Oklahoma Dear Sir: 1. In our opinion, there is no doubt that intelligent public op1mon in Oklahoma supports our gross production tax on oil, gas and other minerals. The tax in Oklahoma is levied in lieu of ad valorem taxes from the production of such resources, unlike the situation in your state where you have both a production tax and a property tax thereon. 2. There is some agitation to increase the tax on natural gas at this time but this agitation com_es principally from the Parent­Teacher Association and other groups interested in increased sup­port for the common schools of the state. It is questionable, however, whether this demand will be sufficient to bring about the increase in tax rate on natural gas. The question involves a consideration of many factors touching not only the need of schools for additional revenues but also its effect on industrial and domestic consumers of natural gas within the State of Oklahoma. Any tax increase imposed on gas exported from the state into northern and eastern industrial areas must be borne also by consumers within the state. It is a question of balancing the possible benefits and injury to the state, which will be for the legislature to determine. Demand for an in­creased tax on natural gas arises largely because of the arbitrarily low price of this product at the point of production, and the better solution would be, if possible, to bring about an increase in the price of natural gas at the mouth of the well, commensurate with its actual thermal value as compared with competitive fuels. The average price of natural gas both in Oklahoma and Texas is prob­ably less than 5c per cubic foot. If it were valued in proportion to The University of Texas coal and other fuels, based on its B.T.U. content, its price should be between 15c and 20c per 1000. This would, of course, increase state gross production taxes thereon, as the gross production tax is 5% of the value, and would benefit not only the state tax-wise but also the producers of such gas and land and royalty owners. 3. It is our view that mineral resources should certainly be taxed in one form or another. A number of states impose severance taxes on such resources. It is a question for the legislature of each state to determine the form of tax that should be employed therein with respect to this last problem. L. D. Melton, Director State Legislative Council Oklahoma City, Oklahoma West Virginia Dear Sir: The State of West Virginia does have a privilege tax which places a tax upon those engaging within this state in the business of pro­ducing for sale, profit or commercial use any natural resource product, and the basis of the tax is the value of the natural resource produced as shown by the gross proceeds derived from the sale thereof, or the measure of this tax is the value of the entire product in this state. This tax is accepted by the public generally as an equitable tax, but a production tax or a severance tax would no doubt meet with considerable resistance. C. H. Koontz State Tax Commissioner Charleston, West Virginia Wyoming Dear Sir: 1. Wyoming does not consider that it has a production tax on minerals, oil, etc. The statutes of Wyoming set forth the manner in which mineral lands shall be assessed in lieu of a tax upon the land. In other words, the value of the production is the basis for the value of the land from which the production is taken. In Wyoming we assess mineral production, particularly oil and gas, on a 100% value at the mouth of the well or mine as the case may be. In the case of oil, we assess the production at the value per barrel or posted field price and in turn exempt from tax the 40 acres of land from which the production is taken. This value is then certi­fied to the various county assessors and they in turn place it upon the tax rolls, the same as any other property and the rate of tax is dependent upon the mill Jevy in the particular school district from which the production is taken. 2. So far a·s this office has learned there is no agitation to increase, decrease or repeal this particular method of taxation. 3. ';I'his office feels that Wyoming is in fact taxing mineral pro­duction on a severance tax basis. :Most states have a fixed rate of production tax, while in Wyoming, as before explained, the rate of tax is dependent upon the value of the oil and the mill levy in the district in which it is taken. Wyoming is particularly proud of its taxing statute in this regard, in that in the lean or depression years the production is usually down and the price is usually lower, thus, making the o¥er-all taxes to the producing companies less, while in the better years, such as the present time, the production is up, the value is lik€wise up and the taxes, therefore, increased. Thus, in good times Wyoming re­ceives a large portion of its tax moneys from mineral production and the companies do not find it difficult to pay these taxes, while in depression times, the tax burden is likewise light. Ray T. Emery, Secretary Board of Equalization and Public Service Commission Cheyenne, Wyoming THE SEVERANCE TAX (Taken from Willacy's Facts and Fiction, October, 1930.) It has been but a matter of a few years, comparatively speaking, since conservation of natural sources of wealth first began to appeal to the minds of political economists, legislators and others in authority. Since then what was at first but a growing sentiment has ripened into conviction. The theory that a grant of land carried with it ~n exclu­sive title extending from the center of the earth to the dome of the .sky has been superseded by a more modern doctrine to the effect that minerals and other elements of natural wealth are properly to be considered as a common heritage. So far as concerns the sovereignty, the old-fashioned doctrine of "finders keepers" no longer obtains. The doctrine itself is gradually but surely widening. Once persuaded that a generous Providence never intended these .stores of natural wealth for the benefit of the few, it is but a short step to the convic­tion that they were destined for the benefit of all. And so firmly has this conviction become rooted that in most American states minerals may not be severed from the soil except upon conditions prescribed by the sovereignty itself. Nor will the sovereignty permit waste of natural wealth, mineral or non-mineral. The owner of a forest for example will not be permitted wantonly to destroy standing timber. Under Cons~rvation laws the state steps in and declares, "Thou Shalt Not!" Ownership of a tract of land, even though inclosed, does not The University of Texas clothe the owner with authority to hunt, trap or kill the wild game found thereon, except upon conditions prescribed by the state. Neither may the owner of the land abutting on a stream take.of its waters except upon authority of,the State. It appears to be generally accepted, that irrespective of the verbiage, or terms, of a grant of land from the sovereignty, the grantee acquires no rights as against paramount needs of civilization. And particularly i.s this true of minerals fugitive in character which although severed upon one tract of land may, due to its fugitive state, be drawn from under adjacent or distant tracts. Nevertheless, the principle extends to all sources of mineral wealth. The courts, both State and Federal, while differing at times upon methods are agreed upon the principle involved. In Pennsylvania a per ton charge is imposed upon the priviliege of severing anthracite coal. In Minnesota, in addition to an ad valorem tax imposed on ore in place, a severance charge is made against production. In Louisiana the severance tax is imposed against all natural resources including oil, gas, sulphur, salt, coal, lignite. In Texas against oil, gas, sulphur, and cement d'nly. At first blush it might appear that a levy of a severance tax in addition to ad valorem taxes means double taxation. As a matter of fact there is no relation between the two. One is a tax upon the value of property acquired and held under the protection of the sovereignty. The other is a charge for the privilege of taking and thus depleting the state's economic wealth. This charge we impose in the form of a tax although precisely stated, it is not in fact a tax but rather a transaction; the state conveying whatever claim it may have, or contend to have, against the mineral in place. Manifestly, unless imposed at the point and at the time of severance, there would be no way of determining either the value or the volume of the sub­stance involved. With no thought of criticising the State's public policy, yet, never­theless it would but be the part of wi.sdom for those in authority to reflect upon the vast stores of natural gas and other minerals, other than oil and sulphur, underlaying the surface of the soil. Neither of them endowed one whit less with the character of common heritage. Severed from the soil they partake of a distinct and separate being both commercially and as a taxable entity. That they possess value is an established fact. They are here today yet they may be gone tomorrow. Certainly the more we draw upon them in the present the less remains for the future. In fixing the charge for severance, the State should, of course, be governed by the rule of reason, keeping in mind fluctuating elements usually attendant upon hazardous enterprises. A given rate today may be the equivalent of five per cent of net earnings. Tomorrow the same rate may be the equivalent of ten or twenty 1per cent. If means could be derived whereby differences in co.st of production Severance Tax on Natural Resources could be taken into account, tje charge might be made to tear more uniformly. WARTIME STATE TAX LEGISLATION AND POSTWAR SCHOOLS (Reprinted from The Journal of the National Education Association, November, 1944, p. 197.) Experts agree the peak of war production was reached late in 1943. This will mean a decline in state tax yields in 1945 or 1946. Opposed to this is the outlook for increased state expenditures in postwar years. In education both the physical plant and the instruc­tional staff of the schools must be built up. A recent estimate by the National Education Association places the cost of an acceptable nationwide postwar school program at $4,592,000,000. For the states to provide their share of this sum would require important readjust­ments in state tax systems, particularly if the yield of existing taxes in state general funds fails to hold to present levels. On the whole, however, state revenues have never failed to respond to the need for increased governmental .services. Considering the healthy condition of state treasuries today; prospects are good that the necessary adjustments can be made. THE WEST AGAINST ITSELF By Bernard Devoto (Reprinted from Harper's Magazine, January, 1947, pp. 1-13.) I Economically the West has always been a province of the East and it has always been plundered. The development of the mineral West began in 1849. Mining is the type-example of Wes.tern exploitation. Almost invariably the first phase was a "rush"; those who participated were practically all Easterners whose sole de<;ire was to wash out of Western soil as much wealth as they could and take it home. Few made a stake. Of those 'who did practically everyone carried out his original intention and transferred Western wealth to the East. The next and permanent phase was hard-rock mining or mining by placer or dredge on so large a scale that the same necessity held: large outlays of capital were required and the only capital that existed was Eastern. So the mines came into Eastern absentee ownership and control. They have always channeled Western wealth out of the West; the West's minerals have made the East richer. (The occa.sional Westerner who fought his way into the system-called a "nabob" in his era-became a part of the system, which is to say an enemy of the West.) The University of Texas Mining js liquidation. You clean out the deposit, exhaust the lode, and move on. Hundreds of ghost tow'fis in the West, and hundred,3 of more pathetic towns where a little human life lingers on after economic death, signalize this inexorable fact. You clean up and get outr--and you don't give a damn, especiaIIy if you are a stockholder in the East. All mining exhausts the deposit. But if it is placer mining, hydraulic mining, or dredging, it also kills the land. Nothing will come of that land again till this geological epoch has run out. Oil and Gas Oil and natural gas follow the pattern of the mines. Because their development is comparatively recent the national government is able to exercise some control over them in the common good, by using the lease system instead of the patents which it mu.st issue to miners. But just because that development is recent, Eastern capital has been able to monopolize oil and gas even more completely than ever it monopolized mining. The wells, pipelines and refineries belong to Eastern corporations. They pump Western wealth into E.astern treasuries. It is possible for a Western independent to make a mineral discovery, finance it, and maintain his local control in defiance of the absentee system; it has happened occasionally in the past and it happens occasionally now. But the Wildcatter in oil, the independent, ha.s no chance at all except to submit to the system. He may find oil without its assistance; in fact the system hopes he will. But he cannot refine or transport or sell oil except to the system, on the system's terms. Western p.sychology prevents. him from desiring to do anything else. Last summer I talked with the manager of a smaII locally owned refinery which, with much good luck but mostly because the necessities of war had set up exactly the right conditions, had cleared its debts, secured contracts which .seemed to guarantee it permanent independence and built up an impres.sive surpluii! and reserve. It was a minute item of fulfillment of the West's great dream, the dream of economic liberation, of local ownership and control. And what has been done with that surplus and that reserve? They had invested in Standard Oil of New Jersey. The West does not want to be liberated from the system of exploitation that it has always violently resented. It only wants to buy ,into it, cumulative preference stock if possible. The Cattle Business So we come to the business which created the West's most powerful illusion about itself, and though this is not immediately apparent, has done more damage to the West than any other. The cattle business. Two facts about the cattle business have priority over all the rest. First, the Cattle Kingdom never did own more than a minute fraction of one per cent of the range it grazed: it was national domain, it belonged to the people of the United States. They do not own the range now: mostly it belongs to you and me, and since the fees they pay for using public land are much smaller than those they pay for using private land, those fees are in effect one of a number of subsidies we pay them. But they always acted as if they owned the public range and act so now; they convinced themselves that it belonged to them and now believe it does; and they are trying to take title to it. , Second, the cattle business does not have to be conducted as liquidation but throughout history its management has always tended to conduct it on that basis. You have seen the Missouri River at Kansas City, an opaque stream half saturated with .silt.... These plains rivers are depressing and rather sinister to look at, and they always have been helping to carry the mountains to the sea. The Cattle Kingdom overgrazed the range so drastically-fed so many more cattle than the range could support without damage-that the processes of nature were disrupted. Since those high and far-off days the range ha.s never been capable of supporting anything like the number of cattle it could have supported if the cattle barons had not maimed it. It never will be capable of supporting a proper number again during the geological epoch in which civilization exists. Lumbe,r There remains lumbering. It perpetrated greater frauds against the people of the United States than any other Western business­and that is a superlative of co.smic size. It was a business of total liquidation: when a tree is cut, a century or two centuries may be required to grow another one and perhaps another one cannot be grown at all. Also it killed the land. A logged-out forest does not take so much geological time to come back as a place where a gold dredge has worked but during the generations of men it is even more evil. The effects of denuding a forest extend as far as fire may go and beyond that as far as any of the streams on the watershed it belongs to may be used for human purposes or are capable of affecting life, property, or society. Lumbering, however, shows several deviations from the Western pattern. First, though the greater part of the timber came into Eastern ownership, with the consequent disregard of Western interests and the usual transfer of wealth out of the West, nevertheless, an important fraction of it came into the hands of Westerners. Second, the national government got on the job in time to protect vast areas of forest from liquidation-and to protect the heart of the West from geological extinction. Third, a good many of the big operators got the idea in time and it is mainly they who are now trying to maintain privately owned Western forests as a permanent source of wealth, whereas the drive to liquidate all forests comes most vociferou.sly • The University of Texas from small operators, who have neither the capital nor the timber reserves for long-term operation. But with lumbering as with the cattle business we see revealed the psychic split that impels the West to join its enemies against itself. These then, with power and irrigation which we may skip for the moment, are the businesses founded on the West's natural resources. While these businesses were developing, the rest of the West's economic structure, the i:al'ts which are like .similar businesses every­where, was also developing. There came to be in the West agriculture, transportation, wholesale and retail di.stribution, all the multifarious activities necessary to society. As I have already said, they are in sum much more important to the East than the basic businesses it owns-so long as it can control them in its own interest. II We lack space to describe the system by which the East maintains the West as an economic fief. It has been described many times and several recent books discuss it in relation to the current Western hope of breaking it up. Mr. A. G. Mezerik's The Revolt of the South and W est is sound but is in some contexts emotional rather than fact­ual and commits the fallacy of assuming that the modern Far West can have the same relation to the South that the Midwest had before the Civil War. Mr. Wendel Berge'.s Economic Freedom for the West is more analytical and much more realistic. Mr. Ladd Haystead's If the Prospect Pleases is. less comprehensive than either but Mr. Hay­stead deals with the Western psychology that imperils the W e·stern hope, as Mr. Mezerik and Mr. Berge do not. The bases of the system are simple. In a startling analogy to eighteenth century mercantilism, the East has imposed economic colonialism on the vVest. The West is, for the Ea.st, a source of raw materials for manufacture and a market for manufactured goods. Like the colonies before the Revolution the West is denied industry. Natural evolution concentrated industry and fianancial power in the East but the same evolution gave all other sections but the West a sizable amount of both. By the time the development of the West began it was. possible to control the evolutionary process-to finance , the West in such a way that the growth of locally owned industry became all but impossible. Control of Capital the Basic Process The control of capital is, of course, the basic process. There is an amazing spread of interest rates between the East and the West. For such purely individual financing as real estate loans the West pays from two to three times as high a rate as the East. For the ordinary conduct of business it pay.s exactly what the East cares to charge and always enough to constitute a handicap in competition. But also Severance Tax on Natural Resources 101 as Western business becomes large enough to compete the Eastern financial network can either dictate to it absolutely or destroy it. Thi.s at the simplest level. Above it is the interconnected structure of finance; the monopolies, cartels, inter-industry agreements, control of transportation, the many other instruments of power. Take freight rates. They are devised so that the East pays lightly for the transport of Western raw materials but the West pays heavily for the transport of Eastern manufactured goods-and it is prevented from manufacturing its own goods. The cowpoke on a ranch fifty miles from Sheridan, Wyoming, does not wear boots made at Sheridan. He wears boots made of leather from hides shipped from Sheridan to Massachusetts, processed and manufactured there, and then .shipped back to Sheridan. The business man of an Oregon town does not buy a desk made where the lumber is made, but in Grand Rapids whither the lumber is shipped and whence the desk is returned to his home town, paying two freight charges where he should pay none at all. The wheat rancher in Washington or Montana has to buy agri­cultural machinery made not in rational proximity either to his ranch or to Western deposits of iron and coal but in Illinois, Ohio, or Pennsylvania-and is mentioned here because he pays not only that tax to Eastern control of business but another one, the tariff that protects the manufacturer but builds no wall around the wheatgrower. Finally, the business man who erects an office building in Denver or the county commissioners who build a bridge in northern Utah may indeed use steel produced within a hundred miles of the operation.­ but they pay on it, for the maintenance of the system, a tax assessed by the "basing point" principle that makes a satisfactory substitute for the outlawed "Pittsburgh plus." The West is permitted to engage in preliminary operations that reduce the bulk of raw material .so that the East can save freight costs in transporting them to the mills where the finishing operations are performed. It is not permitted to perform those finishing oper­ ations, to manufacture finished materials into consumers' goods, or to engage in the basic heavy industries which would give it the power to blow the whole system wide open. So far as the West is industrial­ ized, it has a low-level industry. But there are necessarily loopholes in the system: kinds of industry which cannot be prevented from developing in the West. Such loopholes do not disturb the Eastern masters. Control of credit enables them to buy them out or dictate the terms on which they may be operated. Or they mimipulate patent rights or trade agreements to the same end. Or they establish a branch plant of their own which cuts the throat of the Western­ owned plant. Or they merely mention these possibilities and the Western industrialist, a fiery secessionist in his oratory, joins the system. The University of Texas Economy Bound to the East The result is an economy altogether bound to the industrial .system of the East even where it is not in fact owned and managed by that system. That is to say, the West i.s systematically looted and has always been bankrupt. There has never been a time when the West did not furiously resent all this nor a time when some elements in the West were not trying to do something about it. All the furious agitations that have boiled out of the West and terrified Eastern rentiers (but have seldom caused the actl,lal engineers of plunder to turn a hair) have had the sole purpose of securing for the West some factional control over its economic future. None of them have ever succeeded except when they could perform an ancillary service to the absentee system-like the permanently inflated price of silver, as outrageous a robbery of the American people as any ever devised by the steering committee of a patent pool. At most they have got the West an occasional tip amounting to a nickel or a dime, tossed back out of the millions drained eastward. There was never a chance that they could accom­pU.sh more. That is, there was never a chance till recent years. But ­now there is. New Deal Brings Changes The New Deal began it. New Deal measures slowed the liquidation of resources and substituted measures of permanent yield. They operated to rehabilitate depleted resources, halt and repair erosion, rebuild soil and restore areas of social decay. They ea.sed credit, opened small gaps in the master system, and created much local pros­perity. Such things improved the economic system and more important measures widened its base. Rural electrification dented the power monopoly which I have not touched on here but which is a basic tool of the .system. A great expansion of reclamation projects increased agricultural wealth and, what is more important, made a start toward the production of surplus electric power. Finally, with such enterprises as the Central Valley Project and the stupendous, integrated plans for the development of the Columbia River basin and the Missouri Valley, the New Deal laid the groundwork for a fundamental attack on the system. The West greeted these measures characteristically; demanding more and more of them, demanding further government help in taking advantage of them, furiously denouncing the government for paternal­ism, and trying to avoid all regulations. But the measures began to make possible what had not been possible before. They would provide electric power ·S.o cheaply and in such quantity that great industrial development must follow in the West. The Western economic structure Severance Tax on Natural Resources 103 must be revolutionized and reintegrated-which would imply tremen­dous changes in the national economic structure. And for the first time the West had a chance to seize control over its own economic destiny. War Accelerates Process The war came and the process begun by the New Deal was tele­scoped and accelerated. Factories of many kinds sprang up every­where. (Except in Montana, the private fief of Anaconda Copper and Montana Power, which succeeded in preventing any serious threat to their control of labor and production.) Mr. Berge has shown how, even in the stress of war, the absentee Eastern masters were able to direct much of this development in the old pattern, to restrain it to plants that performed only preliminary or intermediate processes. But not altogether. The West got airplane plants, .shipyards, plants that manufactured such complex things as tanks and landing craft, heavy machinery, packing plants, innumerable processing plants. At Fontana in California and Geneva in Utah it got basic and partly integrated steel production. The war also produced something else the West had never had, a large body of skilled industrial labor. Also, by building landing and modern airports everywhere it made at least a fissure in the monopoly of transport and took out of transport much of the handicap of time which the West has always had to carry. Finally it exhausted the new surplus of electric power and so hastened the already contemplated production of more power. In short, the West now has an industrial plant and the conditions for its use are favorable--and .certain to become more favorable. That i.s the fact on which the reinvigorated dream of economic liber­ ation rests. The plant is too heavily concentrated along the Columbia, Puget Sound, the Willamette Valley, and the Pacific Coast-more so than it would have been if the development has been more gradual­ but it does extend through most of the West. And with the production of, for instance, ingots and rolled steel and aluminum, heavy industrial goods, and many kinds of finished consumers' goods, and with the certainty that the production of power will increase, the terms are changed forever. The West can at last develop a high-level economy with 'lll that that implies: stability~ prosperity, rising standard of. living, successful competition with other sections, a full participating share in an expanding national economy. Realization that the dream can be fulfilled has made the West all but drunk. It is looking forward to the future with hope and confi­ dence. I cannot list here the sectional and interstate associations and committees engaged in implementing the dream, the plans they are working out, the measures they are preparing, or any other specific details that have been born of a strange wedlock-the dynamics of boom which ~my trigger whatever has always been able to release in the West and the unique opportunity which the last few years have The University of Texas brought about. Enough that the West understands the opportunity, understands the possibilities of success and of failure that are inherent in it, and is taking every conceivable measure to avert failure and insure succes~. III Some doubts will occur to anyone. Thus if the upheaval should merely transfer financial power from Wall Street to Wall Street's California branch office, the basic system would be changed no more than it was years ago by the entrance of Chicago finance into the Western exploitation that had previously been monopolized by New York and Boston. A coastal dictatorship would merely be sub~tituted for a trans-Mississippi one. The oil refinery that invested its .surplus in Standard Oil was hardly warring on absentee control and the same thing is to be seen throughout the West. The W olfville Chamber of Commerce which is campaigning almost rabidly for local investment, local manufactures locally owned, integration of the local commercial system-all sur­charged with violence about Wall Street, "foreign" corporations, the freight rates, and the East as such-that Chamber of Commerce i.<1 also campaigning by advertisement and paid agents to bring Eastern corporations to Wolfville. At the moment when its rhapsody of insurrection is loudest, its agents are spreading out their charts on the desk.s .of Eastern industrial managers. Look, we've got this cheap power at Wolfville and a labor surplus, too. The unions are feeble in Wolfville and in fact throughout the state-it's not Patter­son, it's not Akron, it's a setup. We'll give you a site free and build your spur. Now as for tax abatement, just what do you need? Just what additional advantages do you need, that is, over the locally owned business of W olfville we are trying to build up in order to break the stranglehold of the East? West Wants Federal Aid One image of the West that the East accepts is that of the West not as economic peon but as pensioner of the East, as beggar. The West with its hat held out beseeching the expenditure on its behalf of federal money which must be raised from Eastern corporation and income taxes. Considering how much of that income is plundered from the West, the image is both comic and profundly ironical. But, there are ways in which it is also true. You can hardly find an editorial page in the West that is not demanding as Western right, as compensation for the West, and as assistance toward Western liberation, the expenditure of more federal funds. More government money for public health, hospitals, inspection, treatment; for schools; for service by the Bureau of Mines to the mining industry; for the improvement of Western agriculture, the replenishment of soil.s, the Severance Tax on Natural Resources 105 instruction of farmers; for the instruction and protection of cattle and sheep growers, the improvement of stock and range, quarantine, research; for fire protection in the logging business; for drainage; for reseeding and reforestation of private lands; for roads; for weather service; and always for dams, canals, and the whole pro­gram of reclamation. But at the same time: hands off. The West has been corrupted, its press believes all but unanimously, by a system of paternalism which is collectivist at base and hardly bothers to disgui.se its intention of delivering the United States over to communism. The second column of the editorial page is sure to be a ringing demand for the govern­ment to get out of business, to stop impeding initiative, to break the shackles .of regulation with which it has fettered enterprise, to abjure its philosophy of suppressing liberty, and to stop giving money to people who will only fill the bathtub with coal. The editorial is certain to have a few lines about bureaucrats in desk chairs, impractical theorists, probably professors and certainly long-haired, who are destroying the West by interfering with the men who know how. Also, it is certain to be horrified by the schools, which the bureaucrats are using to corrupt our young people with Russian propaganda. It shakes down to a platform: get out and give us more money. Much of the dream of economic liberation is dependent upon continu­ous, continually increasing federal subsidies-subsidies which it also insists shall be made without safeguard or regulation. This is interest­ing as economic fantasy but it is more interesting because it reveals that the Western mind is interfusing its dream of freedom with the economic cannibalism of the post-Civil-War Stone Age. It is still more intere-sting as it reveals the West's attitude toward the federal inter­vention which alone was powerful eno{igh to save Western natural resources from total control and quick liquidation by the absentee Eastern ownership. West l s Its Own Worst Enemy For that preservation the West is grateful to the government. But there was and still is a fundamental defect : federal intervention ha·3 also preserved those resources from locally owned liquidation by the West itself. So, at the very moment when the W est is blueprinting an economy which must be based on the sustained, permanent use of its natural resources, it is also conducting an assault on those resources with the simple objective of liquidating them. The dissociation of intelligence could go no further but there it is-and there is the West yesterday, today, and forever. It is the Western mind stripped to the basic split. The West as its own worst enemy. The West com­mitting .suicide. Everyone knows that the timber of the United States is being cut faster than replacements are being grown, that the best efforts of the The University of Texas government and of those private operators who realize that other generations will follow ours have not so far sufficed to balance the growth of saw timber with logging. Everyone knows that regulation of grazing is the only hope of preserving the range. Open the public reserves of timber, the national forests, to priv;ate operation without government restriction and not only the Western but the national resources would rapidly disintegrate. (And presently the govern­ment, on behalf of our society as a whole, would have to wipe out private property in forests altogether.) Turn the public range over to private ownership or even private management, and within a generation the range would be exhausted beyond hope of repair. Stripping the Land Causes Damage But that is, by a good deal, the least of it. Most of the fundamental watersheds of the West lie within the boundarie.s of the Taylor Act lands, the National Forests, and the National Parks. And overgrazing the range and liquidating the forests destroy the watersheds. In many places in the West today property in land, irrigating systems, and crops is steadily deteriorating because the best efforts of the government to repair damage to watersheds-damage caused by over­grazing the ranges and overcutting the forests-had not been enough. Stream beds choke with silt and floods spread over the rich fields on the slopes and in the bottoms, always impairing and sometimes destroying them. Dams and canals and reservoirs silt up, decline in efficiency, have to be repaired at great expense, cannot be fully restored. Fields gully, soil blows away. Flash floods kill productive land, kill livestock, kill human beings, .sometimes kill communities. Less than a month before the joint committees met in Salt Lake City this summer, a hundred and twenty-five miles away in the little town of Mt. Pleasant, Utah, the annual parade was forming for the celebration of July 24, the greatest Mormon feast day. That parade never got started. A heavy summer storm struck in the hills and gulches above town and what marched down Mt. Pleasant's main .street was not a series of decorated floats but a mud flow that, in a town of twenty-five hundred people, did half a million dollars' worth of damage in ten minutes. The range above town had been over­grazed and the storm waters which would have been retained by healthy land could not be retained by the sick, exhausted land. They rushed down over Mt. Pleasant, bringing gravel, stones, and boulders with them, depositing several feet of mud, damaging manv buildings and much of the town's real estate, leaving much of th~ grazing land above town ruined and much more damaged and dangerous. This destruction had been predictable-and predicted; in a small way it had happened before. The government had been working for many years to restore that range but had not been able to begin the infinitely slow process soon enough. It knew and had repeatedly said that such a catastrophe might happen just as and where it did. Groups Work to Destroy West A few groups of Western interests, so small numerically a,3 to constitute a minute fraction of the West, are hellbent on destroying the West. They are stronger than they would otherwise be because they are skillfully manipulating in their support sentiments that have always been powerful in the West--the home rule which mean.;; basically that we want federal help without federal regulation, the "individualism" that has always made the small Western operator a handy tool of the big one, and the wild myth that stockgrowing constitutes an aristocracy in which all Westerners somehow share. They have managed to line up behind them many Western interests that would peri.sh by their success. And they count on the inevitable postwar reaction against government regulation to put their pr,ogram over. To a historian it has the beauty of any historical continuity. It is the Western psychology working within the pattern which its own nature has set. It is the forever-recurrent lust to liquidate the West that is so large a part of Western history. The West has always been a society living under threat of destruction by natural cataclysm and here it is, bright against the sky, inviting such a cataclysm. But if it has this mad beauty it also has an almost cosmic irony, in that the great dream of the West, adult economic development and local ownership and control, has been made possible by. the develop­ments of our age at exactly the same time. That dream envisions the establishment of an economy on the natural resources of the West, developed and integrated to produce a steady sustained, permanent yield. While West moves to build that kind of economy, a part of the West i.s simultaneously moving to destroy the natural resources forever. That paradox is absolutely true to the Western mind and spirit. But the future of the West hinges on whether it can defend itself against itself. AFFIRMATIVE READING MATERIAL SEVERANCE TAXES (Reprinted from pamphlet, 1'ax Policy, published by the Tax Policy League, New York, N .Y., February, 1940, pp. 1-3.) Despite the fact that over one-third of the states levy severance taxes and that some states raise 15% or 20% of the state tax revenues in this way, the layman frequently appears puzzled at their mention. The term does not convey any immediate meaning to his mind as is the case in connection with property, sales, chain store, gasoline and other taxes in general use. Had such levies been labeled natural resources taxes they would have been more easily recog­nizable. For the severance tax is levied upon natural resources at the time of production, or severance from the earth. Severance taxes are relative newcomers in the tax field, their de­velopment and spread having taken place largely within the last two decades. Some of the earlier experiments were in Michigan (1846), Pennsylvania (1874), Minnesota (1881), West Virginia (1907), Texas (1907), Oklahoma (1908), Louisiana (1910), Kentucky (1917), and Alabama (1919). Reasons for Severance Taxes Severance taxes have proved to be productive sources of revenue in several states, but their main justification is to be found on other grounds. The waste of our natural resources is now generally recognized and sober-minded persons are seeking ways whereby the remaining resources may be conserved as wisely as possible. Until recently mineral reserves, active mineral properties, grow­ing timber and other resources were subject to the general property tax and they still are in a number of states. The difficulties of accurately assessing such property are in some instances almost insuperable. Moreover, the necessity for current funds out of which to pay annual taxes tended to speed up resources production in a manner that is frequently highly wasteful. In its 1934 report, the National Resources Board stated: "Of all taxes on minerals, the one which is most likely to be anti-conserva­tional is the ad valorem tax. The effects of this tax are cumulative, and some of them are only beginning to be recognized. . .. "Owners of mineral resources are driven to open mines in order to provide income enough to meet their taxes, and the ad valorem tax has been one of the causes of overdevelopment of mine capacity, especially of coal mines. It has a tendency to force selective mining with attendant loss of low-grade material. It handicaps the develop­ ment and extraction of the miscellaneous grades to be found in most mineral districts. It puts a premium on the use of methods of extrac­ tion which cost the least, regardless of the fact that these methods often involve the permanent destruction or locking up of important reserves costing more to extract." With respect to the effect of the general property tax as applied to timber, a special Senate Committee investigating reforestation in 1924 declared: "A tax paid annually on growing forests which yield no income for 30 or 40 years is equivalent to the taxation of farm land with its growing crops 30 or 40 times between seeding and harvest. Such taxes not only consume a large part of the possible returns but compel the grower of timber to advance them long before they are realized. Unless extremely moderate, the yearly taxation of growing forests may debar the investment of funds in such enterprises." Specia,lists Say Severance Tax Superior It is felt by tax specialists that the method of taxing natural resources at the time of production, or severance, and in proportion to the amount or value of the product, is highly superior to the method of levying annual property taxes on the estimated value of the total resources. In a study of Taxation in Minnesota, Roy G. Blakey declares: "The figures seem to indicate that some mine own­ ers, or the lessees, have paid taxes for rather long periods on iron ore that never existed. We cannot be sure of this, however, until the mines in question have been exhausted. It seems also that some mine owners or lessees have escaped paying taxes on large tonnages as a result of an underestimate of tonnage." A tax on resources levied at the time of yield obviates the diffi­ culties and inaccuracies involved in assessing the property. More­ over, it has no tendency to force uneconomic and socially wasteful utilization of resources, as is the case for example when the burden of paying annual taxes forces the cutting of timber prematurely or the unneeded developmen. of other resources. A further argument has been advanced for severance taxes. .The natural resources are the heritage of the state. When this patrimony is used up the state would share in the profits therefrom and should utilize them for developing other economic resources to the end that the state's economic position may not be impaired. Future Generations Should Share Wealth The Assessment and Taxation Commission to the Constitutional ·Convention in Louisiana declared in its 1931 report: "The Com­ mission has endeavored to confine itself to recommendations which are calculated to bring about a more equal distribution of the bur­ The University of Texas den of taxation, and has not undertaken to suggest, to any con­siderable degree, the manner of apportionment of the state's revenue among its several institutions and activities; but owing to the public nature of the severance or production tax, and in view of the fact that this tax can be collected only but once from the same source or commodity, and considering that the production from which the tax is derived necessarily depletes the natural wealth and capital assets of the State, we think it would be well for the Legislature to adopt the policy of reinvesting the revenue, thus derived, in some­thing of a substantial and permanent character; thereby giving back to the public for the enjoyment of future generations, as well as the present one, in so far as possible, compensation for that which has been destroyed and consumed, and which in no other wise can be replaced." In a .study of Severance Taxation in Louisiana,1 by T. N. Farris, the following conclusion is reached in this respect: "It seems to be clearly demonstrated that the state's natural resources are being depleted and that no comprehensive, definite and continuing plan or policy has been adopted to assure a permanent and satisfactory patrimony from the severance revenues.... "The conservationists might recommend the marginal and sub­marginal lands of Louisiana as eligible claimants for a considerable portion of severance revenues. These lands, properly administered, would be expected to prevent soil erosion, serve for recreational advantages, assume some importance as revenue producers, and enable the state of Louisiana to remove the stranded and ill-pro­visioned population to more advantageous localities and occupations." Another reason for severance taxation, according to the National Resources Board,2 is that "so many of the large mineral properties are in absentee ownership. The taxation trend reflects in some cases an indirect effort to reacquire natural wealth which has passed into private ownership." CONSERVATION POLICIES DEMAND A STIFF SEVERANCE TAX By David Heath, Dallas Attorney at Law " In the Petroleum Data Book for 1947, the special source of infor­mation for the world's oil and gas industry, are found basic statistics on the oil and gas industry. Even a casual perusal of its pages will reveal an excellent reason for the levying of a severance tax on oil and gas in Texas. Ac­cording to Texas Oil and Gas '47, an industry publication, the petro­leum industry is the source of half of our tax revenues and of a very 'Louisiana State University Press. 1938. 2Report in 1934. large proportion of the income of its citizens. When the oil and gas are gone, Texas will be more seriously affected than any of the other states that have depleted their oil resources. The oil of Texas is vital to the State's economy, but conversely the oil of Texas means much to the nation's and world's economy. Since the beginning of the commercial production of oil in 1859, Texas has produced 20 % of all the oil the world has used. Texas alone, in that length of time, has produced more than half as much oil as all the other nations of the world combined. Texas' reserves are given in this year book as eleven billion six hundred forty-six million (11,646,000,000) barrels, while the rest of the world, excluding the United States, has reserves of forty-seven billion, five hundred fifty-one million (47,551,000,000) barrels. Texas is using up her reserves five times as fast as the re0 t of the world. Texas produces more oil than all of South America, Saudi-Arabia, Irak and Iran, Russia, Rumania and the Far East, yet these nations have five times the known reserves of Texas. Texas has been the most intensively explored area on earth, while the surface has only been scratched in the middle East. In February of this year, Terry Duce, Vice-President of the Arabian-American Oil Company said proven reserves in the middle East has reached thirty billion (30,000,000,000) barrels, or 50% more than the reserves of the entire United States, including Texas. This State has passed the half-way mark in the production of her oil. We should take stock of our situation and intelligently and realistically appraise our future. Pennsylvania has produced over 90% of her original oil reserves, but Pennsylvania has two thousand years' supply of coal to fuel her industries and can look forward to a healthy and prosperous future, with a high standard of living for her citizens if she never produces any more oil. Ohio has produced 95 % of her oil, but Ohio too has tremendous industries. With the coal of Pennsylvania and West Virginia avail­ able at the low rates afforded by water transportation, Ohio like­ wise can look with assurance at her future. Oklahoma, our sister state, .has produced 85% of the vast amount of oil that nature placed beneath her soil, and the remaining 15% will be produced in gradually diminishing quantities, so Oklahoma must face a bleak future unless her remaining reserves of natural gas are conserved for the use of Oklahoma industry. Income from oil found on lands belonging to The University of Texas and on our public school land has built our State University's plant and endowed it with what will soon be a hundred million dollar endowment, and our public school system will net even more from its land holdings, but these great sums did not come ~rom taxes. The University of Texas Our gasoline taxes, paid by Texans on the gasoline they pur­chased, have built most of our billion dollar, 27,000-mile State High­way system, but there remain 171,000 miles of rural and county roads that should be built while we have a source for funds with which to build them. Our school system has recently progressed from among the poorest in the Union to the upper one-third of the states on the increased yield of our taxes on oil and gasoline, but the proceeds of oil tax monies go to current expenditures instead of going into permanent improvements or permanent funds. A decade from now, allowing for a gradually declining yield, Texas will have produced 80% of her original reserves of crude oil, and the rest will mostly be produced from wells already drilled by that date, and processed through facilities already built. Em­ployment in oil production will have declined greatly, and explora­tion expenditures will have practically vanished, and the income from lease payments, rentals, bonuses and royalties will be much smaller than it is today: When these eventualities shall have occurred, Texas will have to turn to industry and agriculture for a livelihood for its citizens and profits for its capital. Unless, in the meanwhile, we have managed somehow to limit the flow of gas from beneath our feet to the industries of the North and East, and to have stopped the criminal waste of gas that is now being vented at a rate of a billion and a half feet a day (gas that the coal rich East would pay $150,000,000 a year for, and that we will eventually pay many times that to replace) unless we have saved for our next few decades some of this gas, there can be no industry in Texas worthy of the name. We have no other fuel for industry's use. We have no nearby source of coal, our waterpower potentialities are very limited indeed, and industry cannot survive without power at competitive prices. We will then be dependent on agriculture. Our soil is wasting or washing away at a dreadful rate, and the mechanized farming opera­tions tend to reduce rather than increase the number of agricultural workers. When this day arrives, unless we have been foresighted enough to save for our future use some of the proceeds from our diminish­ing reserves of oil and gas, our future will be ghastly indeed. We had better build the roads, schools and hospitals our people will need, and lay up capital to maintain them, or future genera­tions will label our generation the most wasteful, prodigal and gullible in history. It is too late to do anything about the billions of dollars worth of gas we have wasted or burnt into carbon black, or to recapture the oil that has been forever lost through wasteful production practices, but we can do something about the remaining oil and gas. In my opinion, a stiff severance tax, the proceeds of which should be devoted to improvements and facilities of a permanent type, such as an adequate rural road system, schools for our hard-pressed cities, as well as for our common schools, hospitals for all people, and physical plants for our eleemosynary and penal institutions, should be built and provision made for maintenance, and equal amount should also be placed in permanent funds for the benefit of our schools for if we do not educate and train our youth, they are going to have a hard time making a living in an industryless and fuel!ess State. NATURAL RESOURCES AND THE SEVERANCE TAX By W. H. Kittrell (Editor's note: The following special articles were written by W. H. Kittrell in July, 1948. Mr. Kittrell is a public relations consultant with offices in Dallas, Texas. He has served with The Department of State, and with the Organizaticm Committee for the United Nations.) Has Texas Oil Been Profitable to Its Producers? The statement is frequently made that the cost of the oil wells drilled in Texas nearly equals their yield. Therefore, say the oil producers, oil has been a poor investment and should not be further taxed. According to the Petroleum Data Book for 1947, since the discovery of oil in Texas through 1946, 235,103 wells had been drilled in Texas; 67,717 of these wells have been dry holes; 8,000 or so were gas wells; and 158,769 producing oil wells had been drilled. Of the producing wells, HJ3,309, or about two-thirds, were still producing at the beginning of 1947, and they were yielding over 750 million barrels of oil annually. The wells now drilled and producing have paid for themselve.3 and a small profit. The average operating costs per barrel are given in the Petroleum Data Book for 1947 (E-104) as about 30c per barrel, which leaves over $2.50 per barrel operating profit. These 100,000 wells now producing at the rate of 750 million barrels per year have a life expectancy of several years. If they continue to produce for an average of 5 years, a conservative estimate, their owners wi!I net out of $2.85 oil over 9 billion dollars from these wells, and will still have salvageable equipment left worth a billion dollars, making a total of 10 billion, a very splendid additional return on their invest­ ment. When the oil producing industry closes its books on its Texas adventure, it will have had a very profitable experience. 114 The University of Texas Can Oil and Gas Stand More Taxes? Spokesmen for the oil industry say that it cannot and .should not pay any more taxes, as present taxes are excessive, duplicated, and out of proportion, and are higher than those of other states. It is natural that the taxes on oil and gas should yield Texas more than other states, as nearly half the nation's fast depleting reserves of oil and gas are found in Texas. The exhaustion of these reserve" which, according to industry sources, borne out by the State Comp­troller's statement, account for 35% of the total amount of taxes paid in Texas and provide employment for % of the State's workers, is going to create economic havoc in Texas if we do not take .steps to cushion the blow. The question arises as to how long they will last, and on what date Texas will have to face a fuelless future, with her tax income reduced, unemployment far greater than the % of her working-men engaged in the petroleum industry, as with the vanish­ing of gas all other industry will likewi-se decline and finally vanish. According to the petroleum industry's accepted sources, reserves presently discovered amount to 11 billion, 777 million barrels at the end of 1947, according to the American Petroleum Institute. The production of the preceding year exceeded 750 million barrels. New discoveries and extensions were only a little more, leaving the known reserves only 1.13% more than at the beginning. Should these reserves be produced evenly at this rate, they would last about 15 years. Our gas will last a little longer at the present rate of pro­duction, but pipelines planned or approved will add 2 billion, 800 million cubic feet daily to the present drain, and it is reasonable to expect that our production will begin to decline during this decade, and within 20 years it will have shrunk to a fraction of our pre1'ent production. Texas, then can expect before the high-school students now study­ing this question have reached their mid-thirties, to be stripped bare of the source of her present wealth and be faced with a future bleak indeed. It will be .scarcely less than criminal if this generation permits its sons and daughters to face this calamity without taking some steps to avert or soften it. It would seem that our responsible officials and institutions should begin at once to take ·~uch action as is possible to lengthen our enjoy­ment of the priceless advantage of our deposits of oil and gas, nnd to establish a tax policy that will permit us to make in the next deca,Je the improvements we can't make in the succeeding one, and to build up for the future a great permanent fund that will contribute its yield to the maintenance of public services such as education and road construction. ARE ANY NEW TAXES NEEDED? With a 75,000,000 dollar surplus in the State Treasury the state­ment that no new taxes are needed is a very persuasive one, particu­larly in view of the unpopularity of taxes. The trouble with this concept is that this 75 million dollars has not been taken out of earnings or income, but from the liquidation of our greatest non-renewable capital assets. Texas has produced about 12 billion barrels of oil and 25 trillion cubic feet of gas since the discovery of Spindletop. A considerable portion of this has been produced on State lands, the royalties from which are required by the Constitution to be placed in permanent funds, but the taxes on this production have been spent for current needs. While they have contributed greatly to maintenance of public services on a scale more generous than those of other southern states, they leave nothing permanent to offset the terrific loss we suffer in the depletion of capital values. I would not urge additional taxes on oil or gas to be expended as quickly as they come in. In fact, I think a diversion of some of the current receipts to permanent funds or permanent improvements would be in order, and I think taxes on oil and ga.s should be equalized as oil is paying far more than gas on its hydrocarbon content or fuel value. The grievous error in our tax policy is the expenditure of all the production tax receipts as fast as they come in on our current needs. In another decade, when most of the natural gas and three-fourths of the oil we originally had have been produced, and as we face a decline in industry, in employment, and in tax revenues, we are going to be up against a very ugly situation. It is too late to do anything about the oil that is gone forever, or the gas we have produced, given away or wasted, but there is still time to build a large permanent fund from the remaining reserves of these two invaluable commodities. If we had had in effect a 5% severance tax on oil and a 5% tax on gas for permanent funds or uses, we should have built up by now almost a billion dollars, on which we would be drawing 30 million or so per year in interest, or if we had used half of it on capital expendi­tures such as roads and schools and have retained the other in reserve, we should have had a school and road .system of great value that would pay dividends in usefulness to the people of the State. With the present high prices of oil and natural gas, which can be confidently expected to remain high and eventually go much higher, such a program would build for our State an inheritance that will insure high educational standards and reasonable living standard.s ajter the natural resources have been entirely exhausted. The University of Texas Wouldn't it be a good idea if those who support the affirmative in this case would urge that the proceeds of additional severance taxes be placed in permanent funds or expended on permanent improve­ments? yYHAT WILL OIL AND GAS TAXES AMOUNT TO TEN YEARS FROM NOW? The developers of our natural resources, naturally reluctant to paying, in taxes, a great proportion of the proceeds of their production, have long answered those who ask for more taxes for permanent or current funds by saying that for a quarter of a century it has teen claimed that we were running out of oil, but despite the claim our known reserves are always increa.sing. Twenty-five years from now, they say, we will still have more cil in sight than we have today. This argument has been effective, too, for the increasingly large sums spent in the diligent search for 0il has uncovered reserves year by year which have kept our known supplies at an increasingly high level. But in the meanwhile, at an enormous cost, using the skills and equipment of the most techno­logically advanced science in the modern world, geophysics, our potentially productive areas have been searched almost microscopically for favorable structures, and it is not reasonable to believe that our shrinking deposits are going to continue to make prospecting as profitable in the next decade as it has been in the past one. In a detailed article, dismal indeed to Texans, in the May 18th issue of Mining and Metallurgy, the eminently dependable publication of the American Institute of Mining and Metallurgical Engineers, Kirtley F. Mather, Professor of Geology at Harvard University, gives his forecast of our petroleum future, basing his conclusions on trends illustrated by a series of graphs depicting exploratory drilling (wild­catting is a better word) and its results. Dr. Mather says (page 320, col. 3) that the tendency of the known petroleum reserves in the oil producing states to increase each year has begun to level off. There is little doubt, he .says, that the peak will be reached in 1950, and thereafter it will begin to decline to zero. These words, written by a scientist of great eminence, are particu­larly ominous to Texans who want to see their State continue to prosper. When we weigh and understand their meaning, all the com­plaints of the oil producers, who are feverishly searching the last remaining deposits of our once unparalleled natural wealth, become less important. As the realization grows on us that already our doom as a producer of oil and gas is right around the corner, as it were, the petty calcu­lations of the school district taxes, the county taxes, and the license taxes become paltry indeed. We are letting our heritage get away Severance Tax on Natural Resources from us as we barter and haggle over the pocket change on the person of a dying man. · The oil industry has been saying for a long time (a) that taxes are constantly increasing (an accurate statement) and (b) that the industry can bear no more of this unjust and ruinous burden. That has been its theme alway.s, but for the past decade it has been incess­ant and increasing. In that same decade, crude prices have, except for the period of enforced price controls, risen gradually until they are now at a quarter of a century peak, and the oil companies profits are at an all-time high. At the last session of the Legislature, spokemen for oil and gas interests were insistent that any increase at all in the price of oil would be disastrous to the industry, and therefore it would be unjust and unwise to increase production taxes. Not too long after the Legislature adjourned, the price of oil began to climb to its present high level without any let-up in demand. Indeed, premiums are being paid for much of the present production, indicating that yet another price increase is more than likely in the offing. It seems logical to deduce that an additional levy of 5% or so would not have discouraged the consumption of oil. If the State were to levy a tax equalling that now levied in Louisiana, which reaches 26c per barrel, and retain the additional proceeds in our permanent funds, or spend it on improvements. of a permanent type, by the time our now leveled off production begins to decline we will have begun a policy that will enable us to establish and subsequently maintain institutions for public use that we will find hard to build or to keep up, once our natural resources and the revenues from them have declined to where they no longer play an important part in our tax policies. OUT ON A LIMB? An Editorial (Reprinted from S enior Scholastic, March 11, 1946, Vol. 48, No. 6, pp. 3.) A man was sawing a limb off a tree. He was so happy about the speed with which he was sawing the limb that he forgot he was sitting on it. Former Secretary of the Interior Harold L. Ickes tells this .story to describe the way our country handles its valuable deposits of minerals and metals. We speak proudly of the millions of guns, tanks, bullets, and other war essentials we produced. We brag about our giant factories-the speed with which everything from bobby pins to automobiles rushes off the assembly lines. Yet we forget that the more we produce, the more we must dip into our natural resources. We forget that Mother Nature did not supply us with enough of these essential materials to last forever. 118 The University of Texas We forget that like the man in Mr. Ickes' story, we are sawing off the limb on which we are sitting. According to a recent report of the Interior Department, the United States has supplies of only nine major minerals that will last 100 years or more. There are 22 other materials of which we have supplies for 35 years or less. What does this mean in terms of American influence on the rest of the world? Will our country become less important in international life as our cupboard of natural resources grows barer? Coal, iron ore, petroleum, lumber and other resources are re;:tlly a measure of our military and industrial strength. These materials have enabled us to become the most powerful nation on earth. They are also the basis of our high standard of living. Without them, we would be a "have not" rather than a "have" nation. "Have not" nations are too puny to be world powers. By using up our resources at .such an extravagant rate, we are not being considerate of our grandchildren and great-grandchildren. The peppery-tongued Mr. Ickes has pointed out that the United States they will live in, can "become a pushover for other countries ... our st~ndard of living will be greatly reduced ... and we shall all become farmers." In view of such a dire warning, it is important that we take stock of our natural resources. On the shelf of minerals plentiful enough to last 100 years, we can list iron ore, nitrates, magnesium, salt, bituminous coal and lignite, phosphate rock, molybdenum, anthracite coal, and potash. It is reassuring to see coal on this list, .since it is the nation's chief asset. Coal is essential in making steel. Without coal and steel, we could not have our industrial life. The Upited States has the world's largest coal reserve. Our known supply 9f bituminous coal and lignite is huge enough to last until the year 6246 ! . . . Our Dwindling Oil Supply Of the 22 essential minerals of which we have less than 35 years' supply, the case of petroleum is perhaps the .most alarming. Oil, often called black gold, ranks third in importance among the nation's resources. Its value in warfare can be judged from Lord Curzon's remark at the end of World War I. "The Allies floated to victory on a sea of oil," he said. In World War II, the United, States furnished approximately 00 per cent of the petroleum used by the Allies. Compare this figure with the fact that the United States contains 36 per cent of the world's known oil reserves. Our known or proved reserves now equal 20 billion barrels, according to the American Petroleum Institute. When you divide this amount by our prewar rate of consumption, your answer is a petroleum supply for only 18 years. The Mead Senate Committee had these figures in mind when it .said in a recent report "we cannot oil another war." In peacetime years, however, discoveries of new oil fields have balanced our consumption. There is no guarantee, of course, that this will continue to be the case. But one source that may prove to be a rich reservoir of oil is the Continental Shelf. Last September (1945), President Truman issued a proclamation claiming for the United States all food and mineral resources on this underwater plateu which slopes from our shores. Some experts estimate that in the Gulf of Mexico alone, our share of the Continental Shelf may contain as.much as twenty-two billion barrels of petroleum. This is more than the total of our present proved reserves. Engineers are already drilling for this underwater oil off . the California coast. There is now a controversy over whether the Federal ·Government or the State of California should control these submarginal lands. Part of the Answer is Substitutes Substitute materials ·might prove to be the answer in time. During the last 100 year.s, 70 per cent of our production was based on minerals that could not be replaced. Plastics (made from coal, air, and water) and synthetic rubber (made from grain alcohol) are examples of substitutes. It will be many years, however, before scientists provide adequate substitutes for all of our scarce minerals. In the same way, atomic energy may some day replace coal and oil as a source of fuel. But it would be foolhardy to stake our country's future on that possibility. If we are going to remain a "have" nation for many more years, we must be more thrifty with the resources we now have. HALF OF TEXAS SCHOOL CHILDREN GET INADEQUATE EDUCATION (Reprinted from The Austin American, June 16, 1948.) Conditions in Texas public schools improved slightly this year, but nearly half the State's children are still getting inadequate education. A survey released Tuesday by the Texas State Teachers Associa­ tion indicated 46.7 per cent of the children are being taught in badly overcrowded classrooms due to a shortage of teachers and buildings. Texas needs a minimum of 2,500 additional teachers and thousands of additional classrooms to relieve the heavy congestion, according to Joe Humphrey of Abilene, vice-president of the teachers' asso­ ciation. The increase in teacher pay granted by the last Legislature was not sufficient inducement for young people tb prepare for a teaching career, he said. Colleges are not training enough teachers to take The University of Texas care of the usual replacement needs, let alone add to staffs, Humphrey stated. As for the building problem, he said, many schools do not have enough money to construct additions or new buildings. Others have voted bonds but are reluctant to build with the current high costs. Classes with as many as 65 pupils were found in a survey con­ducted by Miss Willie Mae Floyd of Abilene, representative of the National Education Association. Thirty pupils per class is the maxi­mum for efficient teaching, according to the NEA. Some 58 per cent of grade school pupils were found to be in classes of more than 30 pupils. Fifty per cent of junior high pupils are overcrowded and 32.9 per cent of senior high students. "All educators recognize the fact that it is impossible for pupils to get the attention they need and adequate instruction in classes of more 1;han 30 students," Humphrey stated. SLASH IN FEDERAL AID WRECKS BLIND PROGRAM (Reprinted from The Austin American, June 17, 1948.) Rehabilitation of blind Texans, acclaimed the most outstanding program in the nation, was "wrecked in its entirety" this week· by a reduction in federal funds of $42,000. Director Lon Alsup of the State Commission for the Blind told newsmen here late Wednesday that, although the total federal grants for this work remains the same for the coming fiscal year, Texas' share has been severely crippled by a "malappropriation." "V/ork for the blind in Texas has been set back ten years," he said. "There is no basis for this cut in funds for Texas, as all states recognize that the work of rehabilitation of the blind here is the most outstanding in the nation." Alsup left Austin shortly after the interview for Washington to make a personal appeal for help to officials there. He said that this slash in federal funds means that the number of State districts under the commission will be reduced by half. "Four will attempt to do the work of the present eight districts," he asserted. "As a result, the 12,QOO blind in this State will receive inadequate service." Alsup said the man with the visual limitation who is capable and willing to work will not be given the opportunity to rehabilitate himself. "That is simply because the agency created to help him will not have adequate personnel to insure the necessary training and supervision to place these deserving and qualified blind indi­vidua~s in remunerative employment." The director added, ';The visually handicapped man who needs help will not find it." "Despite the fact that the national appropriation for rehabilita­tion remains the same for the coming fiscal year," Alsup said, "the Texas State Commission for the Blind has received this drastic cut which will wreck in its entirety the blind rehabilitation program in Texas." During the past four years, over 700 blind Texans have been re­habilitated into wage-earning and tax-paying citizens. Already this year, 229 blind persons have been trained and put in useful employ­ment, but the funds run out July 1. This rehabilitation record exceeds that of any other year, and far outstrips the efforts of any other state. NEW SCHOOL BUILDINGS NEEDED FOR TEXAS' GROWING POPULATION (Reprinted from The Christian Science Monitor, June 11, 1948.) Texas educators, embarking on a comprehensive survey of the State's school needs, estimate th1at in six years the number of stu­dents will be too great to handle in present school buildings. The growing birth rate and an influx of population from other states is responsible for the portending crisis, say members of the Gilmer-Aiken Legislative Committee, authorized by the last Legisla­ture to probe into the entire school problem and bring back Tecom­mendations for action to the Legislature that will convene in 1949. In 1954, as a direct result of the increased birth rate, the first grade class throughout the State will be double that of the current year, says Dean L. D. Haskew of the School of Education at The University of Texas. Dean Haskew, a member of the committee, cites as an example the 1,000-per day increase in the population in the South Texas Gulf area centered around Houston. The committee estimates Texas will need from $500,000,000 to $1,000,000,000 in new school buildings in the next decade. One pos­sible solution that is being studied by the group is a State contribu­tion toward building expenses incurred by county school districts. Another is raising the school district tax ceiling to permit the floating of additional bond issues by districts that have already reached the bond limit but face even greater school populations. Another problem under study by the committee is the failure of many children to attend school. One-fifth to one-third of the eligible children do not attend school in Texas, the committee estimates. Another 40 per cent drop out at about the 10th grade. A subcommittee has been appointed in every Texas county to survey the local situation and forward recommendations to the Gilmer-Aiken group, which then will report to the Legislature. The University of Texas TEXAS SHOULD PROVIDE HOME FOR OLD F,OLKS By Fred Williams, The Austin American Staff Texas provides no old folks home. But through its various mental institutions, such as the Austin State Hospital, old people are sent in for a so-called 90-day "observation" period. After that time, they are brought into County Court, judged "insane and in need of further treatment" and then committed. There they live and die.' Texas is now paying millions, along with federal assistance for old folks. But when it boils down to individuals, they are receiving only from $5 to $45 a month. Thus arises the point-why not pro­vide just an old folks home which could be operated on a basis of $45 per month per individual? But there the federal statutes come into conflict. They require no federal aid shall be given any "inmate of a state institution." That outlaws old folks' home, according to John Winters, State wel­fare director. One answer, however, is for the State to buy the surplus areas of Camp Swift which could handle hundreds and hundreds of old folks. The 2,500 acre hospital area, including 124 fireproof constructed buildings, can be bought for something like $196,000, where it cost the government $1,960,000. The boiler house and hospital equip­ment, costing $162,044 can be thrown in for $16,200. But these are War Asset Administration "market values." If these facilities are used for an old folks home, there'll be an 80 per cent discount, or just something like $40,000. State officials admit that the mental institutions are overcrowded already, with the situation worsening year by year. Old folks are growing older and since only 10 per cent of them are ever dis­charged as "cured," the mental institution population eontinues to grow heavier. It appears the State would not only provide ample space for those really mentally ill, but could provide a home for old folks merely by spending a few thousand dollars. Temporary measures are be­ing taken at various places in the State in the form of private homes, but it is up to the Legislature to provide suitable facilities for old people. No one involved in the commitment of the old people-from the judge to the star witnesses, the doctors, believe that over 10 per cent of these inmates are mentally ill. They're just old and that's the only place they have to go. So everyone is caught in the system-a system which can be corrected fairly easily by the Legislature; a situation now that is practically a public scandal. 123 JESTER ASKS PEOPLE RULE ON PENSIONS By William M. Thornton, Chief of The News Austin Bureau (Reprinted from The Dallas N ews, June 9, 1948.) Austin, Texas, June 8.-Gov. Beauford H. Jester asked again Tues­day that the next session of the Legislature give the people a chance to lift the $35,000,000 annual ceiling on Texas social· security expenditures. Submission of such an amendment to the State Constitution is a part of Jester's program for continuing down the "People's Path." The Governor pointed out that living costs are far higher now than when the ceiling .was adopted. The proposition of submitting a ceiling-removal amendment to the people failed at the last session to receive the necessary two-thirds vote. Coincident with Jester's statement, the Welfare Department Tues­day revealed that June payments will go to 204,221 old age pen­sioners. That is a net increase of 943 over May. The average amount will be $31.40, a raise of 9 cents. Assistance will go to 5,623 needy blind, an increase of thirty-seven, and the amount will be $34.82 each, an increase of 11 cents. A total of 17,909 families will receive $35.89 each as aid for 45,680 dependent children. As in May, this payment is only 84 per cent of the established grants. These grants did not meet the maxi-· mum need uncovered, Jester said. The present $35,000,000 annual ceiling is apportioned as follows: Old age assistance, $31,000,000; needy blind, $1,000,000; and de­pendent children, $3,000,-000. The Federal Government matches these amounts. UNITED STATES FACES OIL SUPPLY PINCH By Richard M. Morehead, Austin Bureau of The News (Reprinted from The Dallas N ews, June 6, 1948.) Austin, Texas, June 5.-Get ready for a shortage of gasoline and/ or heating oil in the United States, Railroad Commissioner William Murray, Jr., warned Saturday. "It's time for· the public to face the facts," Murray said. "There will be local shortages of gasoline this summer, and insufficient heat­ing oil next winter." Texas will feel the pinch less than other sections, he predicted. "It is natural to assume those closest to the source of supply will get along best, although the oil companies try to distribute supplies over the whole country," Murray explained. "We could drown Texas in gasoline made in this State." The University of Texas Comptroller George H. Sheppard's figures show Texas refineries are making gasoline at the rate of nearly one billion gallons a month. About one-fifth of this gallonage stays in Texas. "Before next winter, somebody ought to dispel the myth that we have plenty of oil," Murray continued. "They're still installing oil burners up East." The commissioner was amazed that some Congressmen on the Wherry committee think Texas and the Southwest could produce more crude, if needed. If supposedly well-informed officials have . such a false impression, Murray said, the public must have it too. Murray urged the Wherry committee studying the allocation of steel to investigate claims that states are withholding oil production. "We can't produce any more, without waste, until we drill more wells," said Murray. "Oil is vital to the economy of Texas and the security of the nation, and I don't think we ought to produce fields wastefully to get a temporary slight increase in supply. "I believe the Wherry committee would find we are following a wise conservation policy in Texas." Secretary of Interior J. A. Krug this week estimated supply will exceed demand by 312,000 barrels daily during July, August and September; but would drop 145,000 to 170,000 barrels daily below demand during the next six months. Demand for the third quarter of 1948 was estimated at 6,130,000 barrels daily and supply at 6,442,000 barrels. Supply includes 415,000 barrels of natural gas liquids and 500,000 barrels of imported crude daily. Demand for the first quarter of 1949 is estimated at 6,735,000 barrels daily, compared with a supply of 6,565,000. Ernest 0. Thompson, chairman of the Railroad Commission, ex­pressed pleasure that Krug reported it will be unnecessary to ration gasoline this summer. Government controls might hamper, rather than help, efforts to balance supply and demand, the report added. To meet next winter's anticipated demand for fuel oil, Murray said, 57,000,000 to 60,000,000 barrels must be added to storage this summer. Meanwhile, gasoline consumption is expected to be 6 per cent above last summer, without a comparable increase in supplies. Some filling stations in the Chicago area and Western states were temporarily without gasoline last summer. "The oil required to meet this demand is greater than the estimated supply," Murray continued. "A mild winter would help, but a severe winter might make it rough. "Maintaining gasoline consumption this summer and heating oil consumption next winter, at the present rate of increase, will bring shortages." Murray said there is no bottleneck in refining or transportation. The Texas Railroad Commission is revising its maximum produc­tion rates for all fields. Murray does not believe the revised figures­state-wide-will permit any increase in production although some fields may gain. A tug-of-war between gasoline and fuel oil customers will face refiners this summer. Shortages of gasoline would bring demands for greater production, which could be met only by diverting it from heating oil channels, Murray said. "It will be hard not to hold gasoline production high," he declared. "Nevertheless, the industry will need to run heating oil into storage all summer if it meets requirements for next winter." Murray noted that petroleum economists, basing their predic­tions on past performances, have underestimated demand 'consistently since the war ended. Besides heavy domestic usage, military require­ments remain large, he said. LET'S ENCOURAGE WILDCATS By Merryle Stanley Rukeyser (Reprinted from Nation's Business, June, 1943, pp. 96-100.) America has always lived on the fat of the land and has had reason to believe that it could always live that way. But war speeds up consumption. Anyone who hopes to make workable economic plans for the postwar period should keep that in mind. He should keep in mind, too, the late Ogden Mills' admonition: "In dealing with the paradox of want amidst plenty, let's make sure not to abolish the plenty." With the whole nation engaged in total warfare, the American people have turned their energies and their facilities toward vic­ tory. Determined to spend what it takes to lick the enemy in the shortest possible time, the American people have given Mars for the duration a first mortgage on the nation's productive power. Last year Donald M. Nelson, WPB chairman, estimated that the Govern­ ment in 1943 would take 60 per cent of all the goods and services produced. If the Federal Government fully expends its authoriza­ tions, it may take even a larger ratio. But this is a short-term trend. A more fundamental question relates to our national capacity to get back to the main highway after the war. American material well-being year by year is based on using up natural resources (depletion), using and wearing out of tools and machinery (depreciation) and expenditure of energy (human labor). In spite of battle casualties, it is to be expected that we will emerge from the war with a satisfactory and compe­ tent labor supply. In addition, the "know-how" will be available for replacing worn and obsolete tools wit.ti new and better labor-aiding machinery. The University of Texas Assuming that we adopt economic and political policies which will assure the survival of the American system of free enterprise, we can then set about restoring our depleted national assets and im­proving our standards of living. That is, we can expect to do so, provided our basic resources are not exhausted. Today we are using up basic natural resources at a much greater than customary rate. Some of these resources are irreplaceable, at least, in short periods. The resources of mine, quarry and forest are God-given and, in many instances, replace­ment proceeds at a snail-like pace over eons of time. My survey of current war-time depletion of our principal basic resources shows that, unless present known geological resources can be supplemented by new discoveries, new substitutes, and more effective technology in using what is available, including lower grade raw materials, the future may portend backsliding in living stand­ards, rather than universal advancement. In the circumstances, it is futile for politicians to make long-term plans for dividing the spoils without more accurate knowledge of the raw material supply, which must constitute the base of any economic pyramid of prosperity. The threat of eventual shortages of basic metals and other fundamental resources belies the assump­tion that the national economy, having matured, can now readily be administered by routine bureaucrats, instead of by pioneering, venturesome and resourceful individuals. Encourage Wildcats Since a new age of discovery is needed, it is essential to keep alive the incentives which will encourage new wildcatting, new pioneering and new exertion of the inventive talents of scientists and engineers. In these circumstances, the tax laws, the aspersions on the profit motive, and the whole overweighting of the enterprise system through excessive ante-ing up for the ever-rising cost of government need to be re-examined. Unless we compensate for the tremendous cost of the war with prudent and constructive collaboration between government and business, dire necessity may force us away from natural economic independence and relative self-containment. Four Horses -Per Worker Of course, such "freedom from want" as we have thus far attained in the United States has been facilitated by rising productivity made possible by supplementing human work with mechanical energy. In 1880 we reinforced the average worker with six-tenths of a horse­power; by 1940 this was raised to 4.5 horsepower. Meantime, per capita output rose from five tons of product in 1880 to some 20 tons in 1940. In war and in peace, gasoline is of growing importance. The present usage of 4,000,000 barrels a day represents about the pre­war consumption. Civilian usage has been drastically curtailed to make petroleum products available for military requirements. Even so, experts in the oil industry indicate that present known reserves in the United States would support the current rate of consumption for only between 18 and 48 months. In the past, the industry has always met the ever-normal crisis of expanding demand through discoveries of new wells on the one hand, and through better utilization of crude oil, on the other. Present war-time restrictions on manpower and materials have noticeably reduced wildcatting, and experienced men in the industry tell me that discoveries result only through the drilling of many explora­tory wells. At this time, there is interest in new wells in West Texas. Though this field has not yet been proven, it could potentially add ten to fifteen per cent to our oil reserves. Practical geologists in the industry believe that price and general economic policies can result in a revival of oil discovery within the United States. They point out that American supplies can also be supplemented by imports and, eventually, in case of a general short­age, they foresee that oil can be extracted from shale, or manu­factured through hydrogenation of coal, which is abundant, through a process known in this country and already in use in Germany. As offsets to the current prodigious depletion of raw material assets, we should remember that not all of the products are gravi­tating to destructive uses. Some are being detoured into stockpiles, and a large amount will eventually return to the nation's inventory in the form of scrap. Nevertheless, in dreaming about the future, we should recognize that, if we begin to approach exhaustion of any of our basic mineral resources, an important ingredient for national prosperity will have been removed. REPORT ON BIG INCH LINE (Reprinted from an editorial of The Dall.as News, December 17, 1946.) It may well be that the House surplus property committee is right in scouting the idea that sale of the Big Inch and. Little Inch pipe­lines for transmission of gas would perpetuate a monopoly. It may well be that the report made to W. Stuart Symington, advising against transmission of gas in these lines, was from an inexperienced source. The people of Texas and the Southwest are not interested in these issues. The thing that they are really interested in is best illustrated by relating a conversation between a Texan and an up-North advocate of export of natural gas a year or two ago. Said the Texan: "But we have only thirty or more years' supply of natural gas and you The University of Texas have 2,000 years' supply of fuel in your coal. What will we do when our gas runs out?" "Easy," said the gentleman from the coal region, "we'll use our coal to produce artificial gas and pipe it to you by reversing the flow through the pipelines." The people of Texas have no legaT right to restrict the flow of natural gas into interstate commerce. Yet there is a broad moral issue involved. For many years the economy of Texas has been' tributary to the economy of the older and better organized indus­trialized regions. The tariff levied a tax on the cotton grower for the benefit of the northern industrialist and the northern indus­trial laborer. The freight rate structure encouraged the inertia of industrial development in the North and discouraged development in the South, and more especially in the Southwest. The greatest "break" that Texas has had in its economic development has been the discovery of its great resources in oil and gas. While oil has meant more as measured in dollars, yet gas is the more significant of_the two and intrinsically more valuable to the economy of Texas, if the proper and logical development takes place. Few, even among Texans, realize the truly great opportunity presented in the parl'j.Ilel development of its. own gas resources and the great new chemical industries that are revolutionizing world industry. For many of these new industries, natural gas as fuel and/or raw material is indispensable. The utilization of this gas to these ends constitutes the "tide in the affairs of men,'' in so far as the economic development of Texas is concerned. So, while there can be no legal restrictions on the export of this gas even to the extent that the Texas supply for industrial pur­poses will be exhausted in a few years, yet there is a moral issue involved; and sufficient protest by Texas people would be effective in restraining the prospective rapid exploitation of this great and highly fugitive resource primarily for the development of the indus­trial and civic interests of that part of the n_ation which already has one of the world's greatest heritages in fuel resources. Our Texas representatives should fight any congressional approval of converting the Big Inch and Little Inch pipelines to natural gas transportation. CONCERNING TEXAS GAS By W. H. Kittrell (The following are quoted from The State Observer, Feb. 9 and Feb. 16, 1948.) Texas Gas Aids East's Industry The demand for Texas' diminishing supply of natural gas grows almost daily. Nelson Lee Smith, Chairman of the Federal Power Com­mission, whose duty it is to pass on applications for the transport of Texas gas to other states, told the American Gas Association's annual convention in Cleveland that the Commission had granted during the previous year 132 certificates to transport natural gas amounting to nearl'y two billion cubic feet of gas each day, and that the Commission had before it on October 1, 1947, applications that would add four billion cubic feet daily capacity. Forty-three per cent of the nation's gas comes from Texas and more than half of the new applications involve Texas gas. These applications, granted and pending, will draw more than eleven hundred billion cubic feet of gas each year from Texas' limited supply and will shorten the already limited life of our gas supply by several years. If 'Texas' gas supply continues to be dedicated to pipe lines serv­ing other states, industry will no longer come to Texas. They had rather have the gas brought to them. Texas Gas Now Used in One-Tirne Greatest Ga,s Field Twenty years ago the gas field at Monroe, Louisiana, was believed to be the largest in the world, with reserves o{ 22 trillion cubic feet. Since then larger fields have been discovered, including the Panhandle and Hugoton fields and the reserves in the Rio Grande field, but recently it was learned that Monroe's gas needs are now being met by gas coming from the Carthage field in Texas. In the meanwhile the consumption of gas from the Panhandle and from Hugoton has increased so rapidly that a representative of the Natural Gas Pipeline Company of America, appearing before the Federal Power Commission, stated that in his opinion the re­maining reserves of those vast gas fields would not support another large diameter pipe line. The Hugoton gas fields of Oklahoma and Kansas are related or connected with the Texas Panhandle field, so that it is possible for the Federal Power Commission to authorize withdrawals in Kansas and Oklahoma that will deplete the Texas supply. The area covered by these fields was once the home of the vast and inexhaustible herds of buffalo that became extili.ct in a few years. There should be a lesson to be drawn from this experience. Atomic Bomb Not Best Kept Secret The best kept secret since the atomic bomb is the rapid exhaustion of the natural gas reserves of Texas. The State's declining supply of gas is being rapidly irrevocably committed to the interstate pipe line companies. Before long the State will wake up to the tragic realization that the world's richest industrial treasure has vanished, leaving abandoned industries and stranded population after paying a pitta,nce to a few landowners and an insulting small amount in production taxes. The University of Texas From Cow Ch.ips to Cow Chips A western Oklahoman, commenting on the statement that 90 per cent of Oklahoma's remaining natural gas reserves had been dedi­cated to interstate pipe lines, .said, "If I were asked to deliver the graduation address to my old high school, out there in the treeless plains of western Oklahoma, I would choose as my subject, 'From Cow Chips to Cow Chips in One Generation.' " Texas Gas Refills Empty Fields of Michigan An interesting development affecting Texas' diminishing supply of natural gas is found ir{ the growing practice of pumping natural gas transported from Texas by pipe lines into exhausted oil fields in states that have used up their supply of natural gas. One of these large projects is that of the Michigan Gas Storage Company which early in 1947 secured ownership of declining or abandoned gas fields in three Michigan counties for the purpose of refilling these empty natural reservoirs with gas transported from Texas by the Pa.nhandle Eastern Gas Company. The gas will be pumped into these fields by the use of compressors of tremendous size. The gas for this purpose is obtained from the pipe line company in the summer, when the need of gas for heating is low. It is pumped back into the old gas reservoirs to be stored until winter when the pipe lines' capacity is overtaxed. The consumers company says when the field is completely repressured, a matter requiring several years, there will be sufficient gas to supply its customers for 25 years, after allowing for doubling the demand during that time. It can easily be foreseen that Michigan houeswives will be burn­ing Texas gas after Texas reserves have been diminished to a point that Texas' needs can no longer be met. Texa;; Makes Ga.saline From Natural Gas Defense Secretary Forrestal's proposal that the U.S. support a synthetic oil. industry to supplement America's inadequate oil re­serves lends additional significance to such industries as the Carthage Hydrocol plant near Brownsville, which is to make an entirely new and tremendously valuable use of natural gas. Situated on the edge of the great gas fields of the Rio Grande Valley,. this plan using a process invented by a brilliant young Texan, P. C. Keith, converts natural gas into high grade gasoline, and in the process extracts many valuable byproducts bearing such strange names as formalde­hyde, ethylene, formalin, and aromatics. These products are used in the chemical and plastic industries. Not far away, these same rich products, a part of the heritage of Texas, are being utterly wasted in the Seeligson field, where the operators are restraining the Railroad Commission from interfering Severance Tax on Natural Resources 131 with this waste by an injunction that ties their hands. A recent decision by the Supreme Court of Texas gives a basis for hope that the Commission will be able to stop this waste of 250 million cubic feet each day. STOP LOOTING OUR GAS! By W. H. Kittrell (Reprinted from Scene Magazine, October, 1947.) All Texans know that at the beginning of this century millions of tons of sulphur, billions of barrels of oil and trillions of cubic feet of natural gas lay beneath the surface of the soil of Texas, and that billions of feet of virgin timber stood along our Eastern borders. In commencement addresses, at civic luncheons and in political speeches we have all heard time and again the legend of the Vast and Inexhaustible Natural Resources. It's an old story-folklore with a Chamber of Commerce accent. Like most folklore, it is more interesting than accurate. Vast as these resources were, and rich as they remain, they are not inexhaustible. The pine forests are no longer virgin. They have been ravished and removed, leaving in their place stumps and scrawny stands of slash pine and a stranded population. In a century or less, much of our agricultural land has passed from new ground to marginal land and finally to abandoned farms, deserted by the sharecroppers who attended them in their dying years. Much of our richest soil has already passed the peak of productivity and is on the down grade. . Two wars have driven the owners of the gras.5 lands of the plains to break the turf and plant grains for a hungry world. The dust bowls of the thirties followed the first world war and greater dust bowls will follow this one. The underground rivers and lakes have been hunted down and appropriated. From the Panhandle to the Winter Garden, the story is the same-the water table is falling. In the underground water supplies along the coast, the story is different but no more encourag­ ing. There the salt content is rising. What of the oil and gas and sulphur? Let's pass lightly over the sulphur. It.is owned by shrewd people. They aren't going to waste any of it. With great ingenuity they bring it to the surface, where ships are laden with it for all the industries that may require it, and mighty few of them are in Texas. Sulphur pays taxes, too; not enough to suit folks like me, but it runs into lots of money and every service a state government renders its people is enriched by it. The University of Texas For the last sixteen years oil has been produced under laws and rules that tend more and more to insure the greatest practical recovery. The days of production practices that wasted the oil are numbered. We are on the second half of our supply of oil. In two or three decades we have used half of our oil reserves that took hundreds of millions of years to create. Thanks to a lately en­lightened industry, and to Col. Ernest 0. Thompson's labors on the Railroad Commission, we are going to get a lot more out of the last half of our oil than we did out cf the first half. Technical advances in the methods of searching for oil may bring us a pleasant surprise in the years ahead. But it won't last forever. Many of us may see in our lifetime the effective end of oil discovery in Texas. And two generations will see the end of worthwhile production. The oil industry pays a lot of government bills, too. They pay reluctantly, fighting taxes every step of the way, but they do pay. Our schools and roads are beneficiaries of it. If I had my way, the schools of the future would be helped, too, by the yield of a severance tax on oil divided between the permanent school funds of the county where it is produced and the permanent school funds of the State. The oil companies are not worried about that sort of tax, though the users of tax monies want theirs now. This brings us to natural gas, which is what all the shooting is about. How much gas do we have? How much have we used, and how much of that was wasted? What did we get for it? These are important questions, and mostly questions that are difficult to answer. We had in Texas 60 trillion cubic feet of gas in 1944 according to the F ederal Petroleum Administration. In 1947 the American Gas Association said we had 82 trillion. I want to stress here the necessity for being on the safe side in accepting figures, anybody's figures, in this all-important resource of ours. To most of us the methods of measuring gas reserves are so mysterious as to border on the occult. Natural gas has a ghost­like quality. An invisible substance hidden in the deep recesses of the earth, it has ever evolved mystery and confusion. It made its first impress on history 2,500 years ago, when the Delphic Oracle used it to get mildly asphyxiated and give out with double talk. There is a Delphian quality to talk about natural gas today, and I think all of us are a little asphyxiated or pixilated by it. Anyway, we have let a lot of natural gas with its priceless charge of hydro­carbons get away from us without getting more than a smell of it, and the rest of it seems headed away from us on the same terms. Let's take stock of ourselves. I'm speaking now of Southwesterners, the folks who were born here, or who cast their lot among us and expect to remain here till our automobiles are powered by gasoline from Saudi Arabia and our houses are heated by atomic energy. Severance Tax on Natural Resources 133 Folks like us ought to check up on the situation. It doesn't look too bright. Our timber vanished, our soils depleted, our water sup­plies, seen and unseen, badly overdrawn, half of our oil already gone-how are we and our children and grandchildren going to make a living? Don't give me the old saw that "something will turn up." I was raised in Eastland County. I remember the booms at Ranger, Hogtown and Sipe Springs bringing in millions of dollars, and I remember when Eastland County, forty-one years ago, raised sixty thousand bales of cotton. Cotton production in Eastland County t.oday is in the hundreds instead of the tens of thousands. May the Chamber of Commerce at Cisco forgive me, but Eastland County will never see those days again. Our oil production policy was simple: "Let'er go, Gallagher, there's lots more where that came from." We peddled a little gas, but we didn't get much for it. We are still peddling a little. We get more per cubic foot than we used to, but there's a lot fewer cubic feet of it. The next result was that in the decade between 1920, right after Ranger came in, and 1930, about the time the depression came in, Eastland County had the distinction of losing more population and increasing taxes more outrageously than any county in the entire United States. Our oil was about gone, our farm lands were sterile, and our gas production had declined to a fizzle. The developers went to to greener fields, while the natives stayed at home to wrestle with taxes, debts, and poverty. ~ don't want to see that happen to the State as a whole, and for one I'm willing to try to do something about it. What have we got to do it with? We can't slow down the oil production. It looks as if we won't do much about saving the soil. The Democrats spoiled us by providing federal funds to encourage us to conserve our soil and water. Now the Republicans have cut that down and made such planned economy illegal as well as labelling it communistic, we will have to do things like that for ourselves with our own money. A lot more soil will go down to the sea before we do that. What have we got left? Natural gas. We have in our natural gas reserves a treasure beyond compare. It's worth more than the oil we've sold and the gas we've wasted. In it is the raw material of a new and enormous industrial empire where our sons can find gainful employment. Cities can be built around its uses. Commerce can thrive, and a prosperous citizenry can pay the taxes that will educate our children and provide the conveniences of good living. That is, we can do all of these things if we don't run out of gas. 1 Gas used to be the ugly duckling of the oil industry. Lack of markets and lack of pipe lines often made it a liability. When there was a market for it, it didn't amount to much-two cents a thousand cubic feet was a good price. And all anybody got out of it was the 134 The University of Texas BTU's it would yield. Some of it was chargemic structure of the Southwest. Lack of regulation affords unequal protection to the southwestern manufacturer, who ha.s no other competitive fuel available, and so unequal protection to the masses of laboring people, who would have no potentially additional somcE.s of employment. "The chief use of natural gas piped out of this area is for heat and fuel. But these other regions have one thousand times the fuel value in their coal reserves that the Southwest ha.s in its natural gas." Natural gas resources, he says, are limited. The benefits to other regions, he adds, may be short-lived because of exhaustion of the gas. "When the choice," he says, "is between giving one region the opportunity of solving its economic problems or permitting those problems to become a burden upon the rest of the country, then it seems to be that the broad national interest requires that we adopt a policy of conservation." He cites a Federal Power Commission ruling in 1945 in the case of the Northern Natural Gas Co., that gas may not be piped into an area for boiler fuel, where ample supplies of coal are available for the same purpose. FOR MAXIMUM USE OF OIL AND GAS RESOURCES (Reprinted from The San Antonio Express, February 5, 1948.) The newest and youngest member of Texas Railroad Commission, William J. Murray of Houston, has posed a question which challenges the thinking of farsighted Texans: How can the people get maximum use out of the State's oil and natural gas resources? Commissioner Murray is disturbed-as every intelligent citizen should be-over the present waste of those irreplaceable assets. As he writes in South Texan (magazine), even when those 75 great recycling plants, under construction or blue-printed for completion within the next five years, shall be in full operation, they can process only 800 million of the 1,325 million cubic feet of casinghead gas now being burned in oil fields each day, just to get it out of the way. Texas must do better than that. The day will come when the people will rue this generation's wastefulnes.s. Abundant as it undoubtedly is, the State's natural gas supply ultimately will run out. Then the public will find that artificial gas made from coal or lignite will come higher. Too late the people will realize the folly of burning more than a billion cubic feet a day in useless fl.ares. Texas Railroad Commission now is leaving no stone unturned to stop that wa.ste. Next to gas-conservation, Texas' most urgent related need is for more efficient crude oil production. As Mr. M'urray points out, for every barrel pumped from the typical Texas well, two barrels are left in the ground, virtually abandoned. However, petroleum engineers have devised ways to recover much of that "lost oil." A present difficulty i.s that producing companies show little interest in reworking the abandoned oil fields. The reason is not far to seek: at existing price-levels, recovery does not pay. What the Texas oil industry needs, therefore, is research that could discover or devise more economical processes for bringing all that residue oil to the surface. Pennsylvania has done well in that regard: By reworking oil fields, that State has managed to remain in the oil business. It has recovered about as much oil as had been drawn from the wells in the first place. Why cannot Texas match that showing? IT'S A BURNING ISSUE NOW, THE WAY OUR GAS IS PIPED OUT (Reprinted from the San Angelo Standard, February 27, 1948.) If they .stick a few more natural gas pipelines into Texas' vitals for siphoning off this irreplaceable fuel to coal-rich Ohio, Pennsyl­vania, West Virginia, and way point, and to oil-rich California, natural gas users in Texas can begin to count the years when their favorite fuel will be no more. The University of Texas The Texas Eastern Transmission Corporation, which bought the Little and Big Inch pipelines from the government, has asked the Federal Power Commission for permi.ssion to step up delivery capacity of those lines by 75 million cubic feet a day to relieve the fuel short­age in Ohio, Pennsylvania and New York. These lines run from Texas to the Northeast, costing more than either the Big Inch or the Little Inch, which the corporation took over for $144 million. This third line would run parallel to the Big Inch, 1,500 miles from Long­view to Philadelphia, but would also extend 400 miles to the Corpus Christi area. Meantime, the Texas Legislature .sleeps. It has several courses of procedure open to it. It might try to block the construction of any more pipelines on Texas soil for connection with interstate lines. Georgia took that method some years ago, and Pennsylvania has tried the device of denying pipelines right-of-way across the State's streams. There is also open a more realistic tax on a severance basis, to make Texas gas less attractive to the hungry industries of the East, always in search of cheap fuel. The alarming draining away of one of Texas' most vital resources calls for action all along the way-action to at least slow down or stop any further dissipation of our natural gas without first exacting an adequate tax for the benefit of our educational system. The next session of the Legislature should give an accounting to the people for its previous failures to do anything about this quite literally "burning" question. CERTAIN FUNDAMENTAL FACTS (Reprinted from the record in the Natural Gas Investigation before the FPC, Oct. 15, 1946.) (Issued by Louisiana State Committee.) 1. The known recoverable natural gas reserves of the nation, as of January 1, 1946, were approximately 144 trillions of cubic feet. 2. The gross annual production of such reserves, as of 1945, was in excess of five and one-quarter trillions of cubic feet, indicating a 1·emaining life of between twenty-five and thirty years. 3. Louisiana's recoverable natural gas reserves, as of January 1, 1946, were approximately fourteen trillion cubic feet. 4. Louisiana's net production for the year 1945, was approximately seven hundred and thirty billions of cubic feet, indicating a remaining life of approximately nineteen years. 5. While these estimates do not take into account future discoveries, neither do they ·take into account increased usuage, which is ri.sing at the rate of about eight per cent per year. 6. The latest trend of deeper drillings in the coastal sections of Louisiana do not indicate a preponderance of gas discoveries to that of oi1. Severance Tax on Natural Resources 14:3 7. The coal reserves of the nation, including lignite, are sufficient at the present rate of production and use to last in excess of five thousand years. 8. Because of superior qualities and cheaper prices, natural gas as a fuel is gaining in popularity, and its rate of withdrawal and consumption is increa.sing faster than any other .mineral fuel; that pending applications for new pipelines from gas producing areas, if granted, would result in practically doubling natural gas with­drawals and consumption, and a corresponding reduction in life of the reserves. 9. The price of natural gas at the wellhead is a small fraction of the price of coal at the mine mouth, when measured in thermal units of heating power, which fact is conducive to increased displacement of coal by natural gas as a fuel. 10. Approximately fifty per cent of Louisiana's present marketed production of natural gas is now leaving the State through interstate pipelines, much of which is going into the heart of the largest coal fields in the world. 11. The replaceability of natural gas, through the gasification of coal, would prove expensive and impractical from the standpoint of present gas producing areas. 12. The supplanting to any extent of natural gas as a fuel by atomic or nuclear energy is at best in the laboratory stages and a long time off. 13. A dependable,.long-term supply of natural gas, or some other native fuel, is a vital factor in the location of industry. 14. While the Interstate Oil Compact Commission is a vital force in the conservation of oil and natural gas, it can only act in an advisory way and is without authority to enforce its views and recommendations. 15. This Commission, under the Natural Gas Act as now written, has authority to consider matters of conservation and the end uses proposed to be made of the gas in certificate application.s, and should, in the broad public interest, consistently invoke and exercise such authority. (See Decision of the U. S. Supreme Court in the case of Federal Power Commission vs. Hope Natural Gas Company, 320 u. s. 591.) 16. State authority standing alone is powerless to protect properly and completely and to conserve its natural gas resources without the aid and assistance of this Commission, where interstate commerce is involved. 17. Most of the natural gas is produced in the Southwest and the Midwest, which areas have a short supply of other fuels and are under­developed industrially with top-heavy ,agricultural economies. 18. Most of the coal for industrial uses is produced in the Appa­lachian or Northeastern area of the nation where the greatest degree of industrialization has taken place. 144 The University of Texas 19. Considerations of natural welfare, including national defense, betterment of social conditions, labor supply, conservation and develop­ment of backward regions, all suggest that the underdeveloped region.3 of the nation be industrialized. 20. Industrialization of substantial portions of the South and Midwest cannot be accomplished without assuring adequate supplies of the natural gas produced in such regions, and the provision therefor is in the public interest. 21. Continued granting of natural gas pipeline certificates will result in ultimate loss, inconvenience and confusion to both the trans­porter an.d the consumer, because: (a) The indiscriminate granting of certificates will jeopardize both the reserves and the markets of competing pipelines. (b) The indiscriminate granting of certificates will bring about wholesale conver.sion of industrial and domestic equipment from other fuels to natural gas to be followed later by another con­version away from natural gas in a relatively short period of time. 22. Continued granting of natural gas pipeline certificates will result in economic upsets and deprivations both in the producing and consuming areas, because: (a) The producing areas of the Southwest and Midwest will be denied the right of developing industrially and balancing their economies so as to absorb the vast multitude of farmers and farm workers that are being and will be displaced by farm mechanization, which program will displace one-half of the South's farmers and farm workers in the next ten years. (b) The consuming areas will lose thousands of workers in the process of conversion from other fuels to natural gas, including mine workers who produce the coal, railroad workers who trans­port the coal, and other industrial workers. 23. The free and unhampered utilization of natural gas, both as to regions and functions, could at best last but a few years, would be of doubtful economic wisdom, and would ultimately re.suit in social, economic and financial woes to producers, consumers and the general public. 24. Louisiana's known natural gas reserves do not exceed 14 trillion cubic feet, which provides a 19 years' supply based on the present rate of withdrawals. Of this 14 trillion cubic feet, a total of 5 trillion cubic feet is, or will be, earmarked for cycling, which will keep this portion out of commerce for period.s ranging from 15 to 25 years. Subtracting this 5 trillion cubic feet from the total reserves of 14 trillion, there remains but 9 trillion cubic feet for current use. And since better than half this is destined for export, the State of Louisiana 145 has for current use, within the State itself, only slightly more than 4 trillion cubic feet for its own citizens. 25. The failure to save an ample supply of natural gas for use in the State of Louisiana will not only deprive her citizens of a fuel for domestic purposes, but will result in the permanent waste of vast supplies of baser raw materials such as sands, clay,s and shells, which abound in the State and which" otherwise would be developed industri­ally with means of natural gas as a fuel, as generator of electrical energy, and as a raw material. 26. The national economy suggests, and the national interest requires and demands, that the interest of the greatest number be served. Louisiana's gas can serve the national interest to its greatest possible extent by combined and inter-related use with its other resources and raw materials in developing a great chemical industry in conjunction with such resources as salt, sulphur, petroleum cellulose from cotton, ramie, pulpwood, rice hulls and sugarcane begasse, as well as sands, clays, limestone and shell. 27. The failure to preserve a sufficient supply of natural gas in Louisiana for home-ba.sed industries will not only constitute a flagrant injustice to the State, but will deprive the national market of the greatest services and the most abundant products in the chemical field produced at the lowest possible cost. 28. The regulation of scarce resources is a well-established govern­mental policy and is not in contravention of free enterprise, a·<> is shown by the action in regulating helium, gold, silver, etc., and the certain future restriction of uranium. Natural gas does not fall in the category of abundant replaceable resources such as timber, wheat, etr. 29. The transportation of natural gas is in its nature monopolistic, and the public interest must be protected by state and federal regula­tory bodies in their respective spheres of jurisdiction. 30. The nation's supply of natural gas for gasoline manufacture is equivalent to 20 billion barrels of crude oil, the amount now in recoverable reserves in the United States. Since this is sufficient to· double the supply of gasoline, due regard should be given to conserv­ing at least a sizeable portion for utilization as a ha.sic material for the manufacture of gasoline. 31. The record in case shows that the wellhead price of natural gas is far below its intrinsic value and that a better wellhead price would promote its conservation. RECOMMENDATIONS It is urged that' the exhau.stive record in this proceeding abundantly justifies and requires that this Commission find: 1. That natural gas, as a fuel or energy resource, is limited in quantity and is irreplaceable. 146 The University of Texas 2. That it is ideally suited as a raw material for the manufacture of hundreds of basic chemicals, plastics and synthetics. 3. That wise use constitutes its true conservation. 4. That it constitutes an indispensable factor in the industrial development of its parent areas in the absence of other local fuels. 5. That it is not only to the interest of said areas but to the welfare of the nation as a whole that conservation and wise use be made of this limited and irreplaceable national resource. 6. That the Natural Gas Act, as now written and construed by the courts, places upon the Commission the duty to consider matters of conservation and the uses to be made of the gas, in certificate cases; that if this Commission .should construe the Act otherwise, then the Natural Gas Act should be amended so as to require the Federal Power Commission to take into consideration the use to which the gas is going to be put in the consuming area before deter­mining that public convenience and necessity requires issuance of a permit to construct the line. 7. That common equity requires, in certificate cases, that the social and economic effects on the origin as well as the destination territories to be served by Iiew lines be considered in the granting of certificates of convenience and necessity to build and operate new inter.state natural gas pipelines; therefore, the Natural Gas Act should be amended so as to reqµire the Federal Power Commission to consider the adequacy of the fuel $Upply of a consuming area before determin­ing that public convenience and necessity requires the issuance of a permit to build a line to such territory, and to prohibit the issuance of a certificate of public convenience and necessity to construct an interstate natural gas pipeline, where the construction of such a line would jeopardize the natural gas fuel supply of the producing state, based on its known resources. 8. That the production, gathering and local distribution of natural gas be left entirely to the control of the respective states, and that the Federal Power Commission be given no authority whatever to control, regulate or supervise, directly or indirectly, the production, gathering or local distribution of natural gas. ' 9. That the Commission shoula immediately seek from the Congress appropriate amendment to the Natural Gas Act, giving it jurisdiction over direct industrial sales made in interstate commerce by natural gas pipelines to prevent possible discrimination from the standpoint of both rates and service, and for the purposes of conservation and end use considerations, where necessary in the public interest. 10. That the Commission should, in certificate cases, continue to exercise, in the broad public interest, authority now given it in section seven of the Natural Gas Act, as amended, to attach, where necessary, reasonable terms and conditions of service. 147 11. That if, and when, service areas are prescribed for existing pipelines under the authority of section seven of the Act, as amended, that such areas be strictly construed and confined to markets to which they are now attached, and subject to redetermination from time to time. 12. That the indiscriminate right to transport and sell dump gas for inferior purposes, to create a high load factor, be limited and curtailed, for to do otherwise ignores conservation. 13. That the Commis.sion should continue to allow, for rate-making purposes, the amount paid for natural gas by pipeline companies under arms-length contracts; that any regulation of the wellhead or field price of natural gas should be reserved to the state where the natural gas is produced; that in the event the legislature of any gas producing state should deem it necessary to regulate or fix the well­head or field price of natural ga.s, the price fixed by state authority, or the actual price paid, wHichever is greater, should be allowed and recognized by the Commission as the cost of the natural gas to the pipelines. 14. ·That to the extent that the Commission might feel that it does not now have, under the Natural Gas Act, comprehensive powers to regulate and control matters hereinbefore outlined, that it immedi­ately seek from the Congress clarifying amendments to the Act to provide it with .such authority. I AFTER THE BUTANE SHORTAGE? (Reprinted from the Mullin Enterprise, February 6, 1948.) The butane shortage now plaguing its three-hundred thousand users in Texas is a foretaste of what will be happening to the millions of Texans who use natural gas when the gas reserves are not f'Ufficient for both the out-of-State users and the Texans served by the gas pipelines. There is plenty of butane being made in Texas now, but so much of the supply is being shipped out of the State, much of it to enrich artificial gas used in the East and to improve the octane rating of low grade gasoline that there isn't enough left to supply the Texans whose State produces these convenient fuels. At the rate at which Texas' gas reserves are being dedicated to interstate pipelines, in a few short years coalless Texas will shiver while the gas lines under their feet transport its only practical fuel to the eastern states with a coal supply ample for two thousand years. The University of Texas BUTANE PROBLEM WILL CONTINUE By Richard M. Morehead Austin Bureau of The Dallas Morning News. (Reprinted from The Dallas Morning News, February 11, 1948.) Austin, Texas, Feb. 10.-Amid warnings of future butane short­ages, the State's principal distributor's voted unanimously Tuesday for continuing Gov. Beauford H. Jester's emergency fuel commission. For three weeks, the commission has been working to increase deliveries of butane to fuel-short homes. The industry experts warned dealers they must find supplies before taking on more customers. Two spokesmen, Clint Small of Austin and Warren J. Collins of Lone Star Gas Company, Dallas, predicted that butane is becoming so valuable for chemicals and other uses that it may become too expensive for household use within a few: years. Joe La Fortune of Tulsa, representing Warren Petroleum Cor­poration, insisted that it is unfair for producers and jobbers to take the blame when appliance dealers fail to get gas. "Something should be done about the large number of new installa­tions which dealers make without guaranteeing a supply," La Fortune said. "Perhaps the nation is outgrowing some of its resources, in­cluding motor fuel, gas and oil." Another Warren spokesman, Howard Felt, told how; millions of gallons of butane-propane had been made available to East Texas and the Dallas-Fort Worth area as a result of Humble Oil & Refining Company temporarily releasing his company from a contract to fur­nish butane for gasoline blending. The contract was made twelve years ago when East Texas gas was being wasted, Felt added. The release made 2,250,000 gallons of extra fuel available in the East Texas area recently plus a 35,000-gallon daily diversion still going to dealers. Felt reported that seventeen dealers, mostly from Dallas and Fort Worth, are getting extra butane from Warren's Gladewater plant. Even Sen. Fred Harris of Dallas agreed nobody can be held re­sponsible for this winter's butane shortage. Harris demanded that the public be protected, and said some way must be found to get gas to homes, even if it might entail technical violation of anti­trust laws. He commended Lone Star Gas Company as the only dealer which contracts to supply its customer's needs. Many of the State's 300,000 users depend upon their dealers' ability to find extra gas for them when cold weather descends. Severance Tax on Natural Resources 149 H. C. Pittman, who serves 10,000 customers in Tyler and nearby towns, defended his company's system of distributing its emergency allocation, including some to a potato-drying plant. He claimed some dealers sold scarce supplies for premiums to "honky-tonks." TEXAS GAS REPLACES LAUGHING GAS By Charles E. Green (Reprinted from The Austin American, June 24, 1948.) In the lush days of New Deal spending, a late ·Texas official suggested a work project. It was simply a canal to connect the Colorado River of the West with the Colorado River of Texas. Not over 593 miles long, the canal would have had some way to get through the Rocky Mountains, and would have run into some rather deep trenching at places. Digging it would, he opined confidently, create a lot of work. At any rate, it was an idea of a one-way undertaking--one that would benefit rather than harm any section of the country it affected. This fellow's imagination stayed in the minor league, as com­pared with a dream of present-day Federal Power Commission, it appears from recent reports. The newest dream, and perhaps the bulkiest, unless somebody has figured a way to drain the Pacific Ocean, is to make the used-up Pennsylvania or Appalachian oil fields a gigantic storage bin for natural gas. Where would the gas come from? From the present natural storage in the gas fields of Texas. Why store it in Pennsylvania? Because they need it up there for industries, and so on. And because, since the Texas gas won't last always, they ought to get it while it is available-and cheap-and hoard it in a second Fort Knox. What would happen to Texas? Well who cares? Along with the coldly callous idea of taking the Texas gas for the benefit of an industrial area, even if it impoverishes Texas and destroys any chance of future Texas industrial development, there are cited some sideline advantages. For one thing, when gas pressure is restored to a depleted field, then as the gas is released, it will swab up and bring to the surface some of the remaining petroleum, otherwise unrecoverable. The repressuring procedure is used widely in Texas-both with gas and with water. Then the question of national defense is invoked. It seems national defense would be furthered somehow by the gas supply being in Pennsylvania rather than in Texas, even though existing The University of Texas pipelines can transport around a hundred million cubic feet of gas out of Texas quicker than a bureaucrat can execute 17 carbon copies. Further, the bushy brows of John L. Lewis are brought in as a shadow. With this gas in the underground storage tank, the indus­trial East wouldn't be dependent on his monthly whims. But the proponents of the idea gave Texas the cruelest slur of all in seeking to plant the idea of this independence from coal without really offending the coal interests, who have something to say about industry as well as politics in the East. This gas won't last long enough to do any real harm to coal mining, they confided. The steel shortage has been pinching the nation ever since the war. If there is to be stockpiling, if the big armament program is to continue, if equipment is to be made up to give away for recovery abroad, steel will remain so scarce for a long ·time that ordinary consumer needs can't be met. But the New York Times explained the proposed pipeline to take gas out of the ground in Texas and put it back in the ground in Pennsylvania would cost only an initial $140,000,000. The Times invoked that famous word from the oil men's tug of war-integrated. "The Appalachian and Mid-Continent fields must be integrated for economic and military reasons," it pontificated. "This means that the depleted areas of the Appalachian field must become storage reservoirs for gas piped from the Mid-Continent field. The Federal Power Commission is clearly right in insisting on the provision of storage at a time when national security is uppermost in the country's mind." The Dallas News has inquired how such a program, using up the whole natural gas supply in 15 years instead of the 30 or more now estimated without this scheme, would contribute to national defense. The San Angelo Evening Standard commented: "Nobody in Texas, and particularly the Legislature, seems excited about the ruthless draining off of the Texas natural gas supply to compete with coal elsewhere. When it's gone, every Texas industry and every Texas household using natural gas will be left holding the sack. This irreplaceable natural resource is going away from Texas without even the comfort of knowing that it has first been made to yield an adequate tax return. "Using Texas gas to repressure dead oil to compete with Texas petroleum is adding insult to injury." A fitting epitaph for Texas natural gas would be the bitter com­ment of the Alldredge report of the Economic Committee for the South: "·The only return that the South gets for its unparalleled natural resources is the wages of common labor." Severance Tax ~ on Natural Resources THE LAW AND NATURAL GAS By Joseph Ross (Excerpts from an address delivered before the Dallas Bar Association, March 15, 1947.) Much has been written about the great future that lies ahead of us and about the threshold of opportunity upon which the South­west stands. Too little has been written about the barriers we must transcend before we attain this era of plenty. It is not something which can be plucked from a tree. As a matter of fact, disaster in the Southwest walks hand in hand with opportunity, and the choice of who shall be our companion in the years to come rests with us. For the South and the Southwest face their gravest moments since the Civil War. We are going through a period of agricultural mechanization which could potentially produce profound problems of unemployment, displacement, racial discord, and political insta­bility. The cotton farms, with their flame cultivators, mechanical pickers and airplane dusters are displacing scores of families at a time. Mechanical equipment on a sugarcane plantation can now eliminate nine men out of every ten. New combines are now being worked on the rice farms with two men instead of twenty-five. Everywhere the story is the same. This impact of technological progress upon the farm worker is of such scope, that the United States Department of Agriculture predicts that the South will have to find non-agricultural jobs for five million additional men by the year 1956. In terms of the legal aspects of the specific subject we are discussing today, I want to emphasize that the solution to this problem is a matter of national interest. If the South is unable to absorb these workers in indus­tries of its own, the mass migration of tenant farmers, sharecroppers, and negroes which will result is bound to have serious social and economic consequences to the rest of the nation. Nor is it to the national interest to dismiss this problem as a purely local one; for the prosperity of the rest of the country depends upon a prosperous South. The economy of no part of this country can withstand the depressing influence of five million unemployed people in any other single section of the country. Declining Demand for Cotton Nor is the picture .any brighter when we analyze the future of cotton, which is the basic backbone agricultural commodity of the Southwest as well as the South; particularly in the states of Texas, Louisiana, Arkansas and Oklahoma. The normal export market for cotton is declining. Consumption of American cotton outside the United States between 1932 and 1939 dropped precipitously 46 % . 152 The University "of Texas On the other hand, our own consumption of foreign growths dur­ing the same period increased 69 %. The peacetime cotton production of foreign countries is on the march and will absorb an increasing share of our former export business. These foreign cotton produc­ing countries can be paid for their cotton in manufactured goods which we cannot use in payment for our cotton. Their international balance of payments position gives them a competitive edge with which we, as a creditor nation, cannot successfully compete. These international trends were under way before World War II and will become increasingly evident as the international trade situation becomes normalized. Coupled with this export factor are domestic conditions where the competitive position of cotton is increasingly threatened by the steady rise in importance of synthetic fibers and paper products. In Hl20, the United States' production of rayon totalled about 10 million pounds. In 1944, domestic rayon production came to 724 million pounds. World production of rayon increased even more. rapidly during the same period of time. A steadily increasing pro­portion both in this country and abroad is in the form of staple fiber which can be used on cotton spinning machinery. During the war, the successful development of one denier, high-tenacity yarn has created a product which competes directly and exclusively with cotton. In a number of products, paper also is competing more and more importantly with cotton. This is notably true of towels, tissues, napkins, window shades, plastics, twines, bags and similar products. While the wartime demand for both cotton and paper increased, this pre-war trend will certainly re-establish itself. Moreover, it appears likely that any artificial efforts to maintain the position of cotton will not meet with the success we would have hoped for it. If the price of cotton is pegged above cofiipetitive levels, its consumption will be further restricted in relation to the lower prices of competitive synthetic commodities made of rayon and paper, and in time by the purely synthetic fibers in which we are soon to witness tremendous developments. If our export cotton is subsidized, the effectiveness of these subsidies will be ultimately lost by the retaliation of other countries. The artificial propping of cotton in any form will only serve to perpetuate the very condi­tions that make propping necessary. When you bear in mind that, according to the United States De­partment of Agriculture, more than half the farm families of the South depend upon cotton for their cash income, the potential plight of masses of the·people in the South becomes readily apparent. And these economic factors in the field of cotton to the mechaniza­tion factors previously mentioned in the field of agriculture as a whole, and the true scope of the South's economic problem will become clear. While these conditions will be partially alleviated by the program for more diversified farming, upon which many sections of the Southwest have embarked, it is questionable whether this solution in itself is sufficient to cope with the forceful trends now under way. Time to Plan For Future Is Now I do not wish to be unduly pessimistic about the future; but I do mean to suggest that we cannot afford to take it for granted. We cannot afford to stand by and wait for these so-called blessings to descend upon us, like a visitation from above. That bright future is not a birthright to which we are entitled by virtue of our geographic location. If we are to earn our just economic desserts, we have a tough road to hew. We have got to examine our economy and its future development very carefully. Our present trend of development has grave pitfalls that we must recognize now, before it is too late. The basic problem of the Southwest is that a large portion of its industrial operations does not support the people. Its industry creates wealth but not a balanced economy. It is an economy con­centrated upon primary industries of raw material production; industries that produce basic commodities such as oil, and natural gas, but industries that do not require large numbers of people for their operation. Over 70 % of the industrial income of the State of 'Texas, for instance, is associated with the value of products refined from petroleum, where the relationship of payrolls to the value of wealth produced is very low. As a result, in per capita income, Texas ranks 38th in the nation. The Southwest needs to develop fabricating industries, process­ing industries, manufacturing industries; industries that will re­quire large payrolls; industries that will be able to absorb the masses of the people who face the specter of unemployment because of the conditions previously outlined; industries that will convert these raw materials into finished goods. The Southwest has never truly enjoyed the fullest benefits of its own resources. It has merely produced them and left for others the final profits and the high level of employment accruing from processing and manu­facture. What are the opportunities for this type of employment creating industrialization in the Southwest? In the Southeast, there are enormous supplies of coal and potential hydro-electric power for industrialization. The rainfall is sufficient to permit the utilization of vast areas for reforestation, with its attendant pulp and paper industries. The University of Texas Natural Gas-Hope of the Southwest But in the Southwest, the situation is different. There, upon its broad spaces and its level plains, where extensive rather than intensive farming is practiced, the impact of mechanization will be the greatest. There, the effect of a declining demand for cotton will hit the hardest. But unlike the Southeast, the climate of the Southwest, with the exception of East Texas, is generally too dry to permit the development of extensive. forests. It has no adequate sources of coal and water supply. It has one hope and only one for an economy in which the people can participate. That hope is natural gas. With natural gas, the Southwest faces a bright and shining future. Without natural gas, most of its other resources are worthless, for without natural gas these resources cannot be used. How we use our natural gas then, becomes a problem which affects the whole economic structure of the Southwest; a problem which, in my opinion, has far-reaching soCial and economic ramifi­cations upon the whole country, and a problem, therefore, which is charged with a national as well as a regional public interest. The reason for the strategic character of natural gas, far beyond the significance of its actual dollar value, is not difficult to find when an analysis of its various usages is made. Natural gas is, first of all, the Southwest's only commercially important low cost industrial fuel. If we are to have manufacturing industries which will create large scale industrial employment in this part of the country, we must guarantee a supply of natural gas for a sufficient number of years to make the necessary risk of capital an attrac­tive one. Furthermore, natural gas is at once the domestic fuel of the Southwest and the source of power for the generating of most of our electricity. Second, natural gas is vital to the present con.servation measures already being taken in the field of oil and gas because it is a primary' source of power for repressuring and recycling operations. in the field. Third, natural gas furnishes the basic raw materials for natural gasoline, and our supply of helium comes from natural gas reser­voirs also. Four, it furnishes the basic raw material for carbon black, which is vital to our new domestic rubber manufacturing industry. Fifth, natural gas is necessary to heating processes in which it is important to maintain the temperature within narrow limits, or to expose the metal for sharply limited periods of time. Thus, it is vital to the entire metal industry, whic'h many people predict will be the symbol of our postwar world. This is particularly true in connection with the gigantic magnesium industry established on the Gulf Coast. It is also true for aluminum, glass and clayware. Sixth, natural gas is one of the fundamental foundations of the new chemical industry of the hydrocarbons, which reached its peak developments during World War II. The momentous importance of the chemical industry cannot be underestimated. It is as signifi­cant to the economic history of the Twentieth Century as the steam engine was to the Eighteenth, and the discovery of the Bessemer steelmaking process was to the' Nineteenth Century. It is significant because it provides for a large portion of modern industry new, cheaper, and in many cases, qualitatively superior raw materials than these industries previously enjoyed. It is significant because it will revolutionize the foundations of modern industry. Where formerly it rested upon our coal and iron resources, it will cluster in the future around our natural gas and petroleum resources. Chemical Industry Depends on Gas Some of the raw materials supplied by the chemical industry are rayon, cellophane, cellulose, acetate, nylon, plastic leather, as well as synthetic rubber previously mentioned. Other raw materials are solvents, fertilizers, dyes, synthetic protective floor coverings and finishes. Mr. Elmer Johnson, the industrial geographer of The University of Texas, has stated: "One of the features of this industry is the simple but ast~nding fact that it has already risen to be one of the big three or four of the great industries of the world." It is the kind of industry that can affect every phase of the econ­omy: agriculture, through scientific farming achieved through the proper chemical fertilizers; light and heavy industries, through, chemical processes in conjunction with the production of lightweight alloys and steels; fuel, through new cracking and refining processes; manufactured goods, through the use of a host of plastic products and synthetic materials, previously mentioned. All these remarkable vertical and horizontal penetrations into every facet of our American economic life are possible because of the hydrocarbons found in natural gas as well as petroleum. Dur­ing the war, natural gas was proven superior to every other base material for chemical development. Other base materials such as coal tar are limited as to their chemical derivatives. This is not true of natural gas. A distinguished chemist has estimated that over a million new organic compounds, capable of being constructed into an innumerable number of raw. materials, will be produced from natural gas. Southwest Must Control Gas Usage It will thus be seen that for the Southwest, natural gas occupies a uniquely diversified and strategic function in the development of manufacturing industries, in the production of modern fuels, in the The University of Texas conservation of oil and gas itself, in the production of lightweight metals, and in the chemical creation of a host of raw materials which can be used in the manufacture of an extraordinarily diversi­fied number of products. It is no exaggeration to. say, therefore, that the industrial future of the entire Southwest hinges upon our control of this resource and the usage to which it will be put. I repeat, with natural gas, the Southwest faces a bright and shining future. Without it, the Southwest will ultimately have to cope with economic problems of the most critical character. Up to now, I. have merely attempted to develop the broad eco­nomic reasons for the strategic relationship of natural gas to the economy of the Southwest. Most people will agree with the general truth of what I have said. The disagreement, however, will begin at this point; for there are many intelligent and informed people who are against the further control of this resource. Their argu­ment is economic on the one hand and legal on the other. They say it is economically unnecessary to control natural gas. They say further that it is unconstitutional to institute any form of control which will not affect equally all the citizens of the United States; that there can be no control directed primarily at geographic areas. I want to complete the economic aspects of this problem before discussing its legal phases, so I will postpone a . di~ussion of this latter argument to a subsequent portion of this paper. The argument that it is unnecessary, however, rests upon several points. Estimates of Future Production First of all, the claim is made that our resources, proven and potential, are sufficient to take care of our requirements in both producing and consuming areas. Most of the industry would agree with the estimate of the American Petroleum Institute that we have about 140 trillion cubic feet in known reserves and that this would probably increase to 200 trillion cubic feet with new discoveries. The latest records on natural gas production, which is also con­sumption, furnished by the United States Bureau of Mines puts the natural marketed production of natural gas for 1946 at 4 tril­lion 40 billion cubic feet. On the basis of the maximum figure of 200 trillion cubic feet of reserves, including future discoveries, this gives us a national supply of about 50 years. But even this estimate is in error, for it is generally conceded that the majority of future discoveries will come from the deeper levels. Gas from the de~per levels tends toward condensate, re­quiring cycling processes. These processes take from 15 to 25 years for completion, during which time the gas is off the market, so that our potential supply is reduced by this factor. This estimate is further in error because of pending applica~ions for new pipelines, including the possibility that either one or both of the Big and Little Inch pipelines may be used for natural gas. These additional withdrawals through additional pipelines would also substantially reduce the life span of our natural gas. Finally, this estimate is further in error by virtue of the fact that it does not take into consideration the expanding rate of consump­tion of the chemical industry itself. As I have attempted to show, the impact of this industry upon our economic life is so tremendous, that no one is in a position to say that our natural gas reserves are adequate, because no one can now accurately gauge the degree of natural gas consumption which the chemical industry will absorb in its full maturity. There are some who say that only small quan­tities of natural gas will ever be used as raw materials in the chemical manufacture of plastics and synthetics. There is absolutely no basis for this argument. The natural gas industry in the chemical field is only in the embryonic stages of its development. The present consumption of natural gas by the chemical industry provides no basis for estimates for future consumption. When we bear in mind these three factors: (1) new discoveries, requiring cycling processes, (2) additional pipelines, increasing with­drawals from our reserves, and (3) the expanding rate of consump­tion of the chemical industry, the critical character of our natural gas supply can be appreciated. It certainly cannot be stated that our supplies are adequate for the free and promiscuous consumption of this resource. There may be some who say that despite early and continuously pessimistic predictions of imminent exhaustion, the proved reserves of natural gas have expanded steadily with increased production; that there is no reason to assume that this trend will continue. This is wishful thinking for it is axiomatic that areas available for discovery are not as extensive as they were twenty-five years ago. There are many less fields to discover. There is much less ground. to explore geologically. It is always characteristic of the develop­ ment of a new resource, that, for the initial period, discoveries exceed consumption. At some inevitable and inexorable point, however, this trend must become reversed. This is true not merely because of diminishing areas available for discovery but because of the expand­ ing uses and facilities created for the consumption of the resource itself. Here in Texas, we are suffering from a sick agricultural economy through just such a false conception of abundance as we now enter­ tain towards natural gas. For a century, we paid no attention to soil erosion and loss of fertility through wasteful land use practice. As the land in one locality became exhausted, our farmers moved westward. Today, they can no longer move west and the day of The University of Texas reckoning has finally come. In cotton, Texas ranks very low among the states in yield per acre. (EDITOR'S NOTE: According to the Bureau of Cotton Research, The University of Texas, Texas ranked 16th among the 18 cotton­producing states in yield per acre in 1947, Texas yielded over a ten­year average 168 pounds per acre. Only Oklahoma and Florida showed smaller production.) In corn, we rank 45th. In hay, we rank 43d. In milk and butter production per cow, we rank 45th. In terms of people, this has meant that 48 S< of our farmers are tenants, 19% of our farms have no milk, 62 % have no fruit. It has meant that in Texas 65% of the people over 65 are on the pension rolls, the highest percentage in any state; that 70 % of Texans have annual incomes below the mini­mum set for health. This is the reckoning which has come from the type of thinking which says: "We can afford to be wasteful. There is plenty more from whence this comes." We cannot afford to be wasteful! We cannot afford to build our industrial future upon the guess that there is plenty more natural gas from whence this comes. The second major argument against the control of the usages of natural gas is embodied in the statement of the distinguished Ameri­can geologist, Mr. DeGolyer, who says: "As long as approximately a billion to billion and a half cubic feet of gas is being flared daily in Texas, the attempt to conserve through restrictions against the so­called inferior uses fails miserably as an attempt at conservation. No use of gas can be inferior to its burning in an oil field flare." Mr. DeGolyer is quite right. In 1945, in Texas alone, 469 billion cubic feet of natural gas was vented or dissipated into the air, and it is certainly true that any purpose to which natural gas is put is more useful than this wasteful dissipation. But two wrongs do not make a right. We are concerned with that phase of natural gas production and consumption which is controllable. The gas dissipated in oil field flares will not be adequately controllable as long as natural gas prices are at their present levels. I believe the price of natural gas will rise as an increasing proportion of it is used for more specialized purposes than heat and fuel, and that when the price does rise, it will become economically feasible to construct the facilities that will conserve the gas now burning away in the fields; but the fact that it is not feasible should not constitute an argument against those other measures of conservation now in our power to achieve. No Substitute for Gas in Sight Finally, there is the argument that we, who fear our supplies of natural gas will be exhausted, are ignoring the factor of techno­logical progress. They say the future development of atomic power Severance Ta x on Natural Resou,rces 15~ and cosmic rays will harness a degree of energy hitherto undreamed of and that when these forces are harnessed, the use of natural gas will be rendered obsolete. I have implicit faith in the steady march of the physical sciences from one achievement to the next; but I believe that the great problem in connection with the commercial and cosmic rays and atomic power will not be physical but social. Man has finally reached a point in his development where his future progress is limited not by the scope of his mind, but by the nature of his soul. Einstein himself has said, in connection with the ordi­nary uses of atomic power, that it is not feasible until the people are educated to "a new type of thinking ... if mankind is to survive and mov~ towards a higher level." Dr. Vannever Bush, in his brilliant report to the President on "Science, the Endless Frontier," expressed it differently when he said, "Science by itself provides no panacea for economic ills. It can be effective for economic ills. It can be effective in the natural welfare only as a member of a team." Ignor­ing; the question of natural defense, this atomic power need QJlly be put into the hands of one or two perverted minds to create a situa­tion of awesome destruction in this country. The barriers in the way of the commercial use of atomic power and cosmic rays are formidable, because man has not developed sufficiently as a social animal to be entrusted with its ordinary use. In calculating the scope of our natural gas supply, we can hope for this new source of energy to replenish a dwindling resource in the nick of time. We cannot expend our natural gas promiscuously for this reason. Here in the Southwest when we go through a dry season, we do not wastefully consume our water on the strength of a prayer and a hope that the rains will fall; and sound policy dictates that we evaluate the scope of our natural supply only in terms of our known and certain avenues of replenishment. I have attempted to indicate the nature of the broad economic problem of the Southwest and the vitally strategic and unique posi­ tion which natural gas occupies with respect to its solution. I have attempted to indicate the definitely limited character of our supply. The sum of all this adds up to a need; a need not only of quantitative control of natural gas consumption, but a need as well for con­ trolling the economic uses to which natural gas should be put. If we use this gas in ways for which there are other substitutes or in areas which can depend upon other resources, we will have little or no supply left for those irreplaceable functions upon which the future growth of this entire region will rest. We will be depriving natural gas of its broadest economic purpose. The issue is from what perspective shall we look at our supply of natural gas; as individuals, or as an economic organism? Thirty to fiftl years' supply, while looming large in the eyes of an indi­ vidual, is but a brief episode of time to an economic region. The The University of Texas whole meaning of this resource is affected by the viewpoint we choose to take, by the life expectancy of the individual as contrasted with the life expectancy of the region. The issue is whether we intend to mortgage our future for the sake of the present! Whether we are going to make natural gas a . temporary intoxicant to our economy or a fundamental corner­stone of it! Whether we are willing to permit our present lush pros­perity to become an Indian summer, or whether we stand ready to preserve this resource against the assaults of economic opportunism and the expediencies of the passing hour! NEGATIVE READING MATERIAL WHAT ARE NATURAL RESOURCES? (Reprinted from Natural Resource Taxation in Texas. Dallas, Texas, Tax Research llureau of Texas, 1V40, pp. 1-7.) What is meant by the term "natural resources"? Any worthwhile discussion of the taxation of natural resources must be based, from the first, on a clear and definite understanding of the nature of such resources. What are natural resources? The simplest definition, given by Webster's Unabridged Dictionary, is: "Capacities ... supplied by nature." That definition may be expanded somewhat. Natural resources are useful products of nature as contrasted with products produced artificially or with the help of man in applying nature's processes. A few illustrations will help to make thi.s distinction, clear. Oxygen in the air, for example, is a natural resource; oxygen produced in the laboratory is an artificial or manufactured product. Salt is a natural resource as mined from the earth; but salt evapo­rated from brine is a manufactured product. Fruit is a natural food resource in its wild state; when it is cultivated in orchards, fruit becomes a product of agriculture. Virgin soil, with its elements of plant life, is a natural resource utilized in the growing of crops; the crops themselves are artificial products. Coal is a .natural resource; heating and illuminating gas produced from coal is an artificial product-but the kind of gas used in Texas, which is found in underground sand-s, is "natural gas," a natural resource. Sulphur found in an elemental form in underground deposits (brimstone) is a natural resource, but sulphur precipitated from smelter or flue gases or produced from the natural resource of pyrites is an artificial product. The native asphalt found in many parts of the world is a natural resource, but a.sphalt manufactured from petroleum residues is an artificial product. Many more such examples might be given, but these are sufficient to show the difference between natural resources and artificially produced products. Broadly speaking, it may be said that everything found in its natural or native state is a natural resource: the air, the water.s of our ri>:ential to the efficient operation of both. The sulphur industry, it is readily apparent, is a valuable Texas asset. It contributes to the State every year in payrolls, taxes, pur­chases of supplies, and so on, considerably more than it returns to its owners in dividends. It gives employment to Texas workers, pro­vides business for Texas transportation companies, buys Texas-made supplies. It is the basis for hopes of industrialization in certain important lines. Penalizing the producers of sulphur by increasing their taxes would give other sulphur-producing areas a competitive advantage over Texas. Can Texas afford to take such a step? Equal and Uniform Taxation? Revenue· to the State Government from taxation of natural re­sources has increased enormously in recent years. Practically all taxes have increased, of course, but the records show that the jump in natural resource taxes has been much greater, both actually and proportionately, than the rise in other taxes. The oil industry alone The University of Texas paid 44.5 per cent of all business and property taxes collected by the State Government in 1939. We have seen, moreover, that the occupation taxes on the produc­tion of natural resources are levied in addition to ad valorem taxes. In some cases they are many times greater than the ad valorem taxes, although the ad valorem tax was conceived by the framers of the Texas Constitution to be the primary source of State revenue. These production taxes on natural resources tend to retard indus­trial development because they are punitive and unequal, and lack uniformity. They are indicative to the prospective investor of a scrambled, unstable tax policy on the part of the State Government. Any increase in them is certain to hamper the industrialization of Texas. Besides, many competent students of government are convinced that no new or increased State taxes at all are needed in Texas at this time. That includes natural resource taxes and all other pos­sible levies. The facts on which these authorities base their belief that new State taxes are not necessary are set forth in the succeed­ing section. GASOLINE TAXES REFUNDED 1947 (Reprinted from Texas Tax Journal.) Statistical report for the period September 1, 1946, to August 31, 1947 Total Gasoline Tax Refund Claims Paid___________ $ 298,605.()0 Total Amount Tax Refunded ____________________________ _$14,102,941.69 o/o by Classifi­ % by Classifi-Total Am't cation to Total No. cation to No. of Tax TotalAm't By Classification Claims Paid of Claims Refunded Refunded Farmers ----------------277,032 92.78 $ 9,564,931.33 67.82 Counties ----------------790 .26 121,112.81 .86 Contractors ----------3,791 1.27 543,702.79 .86 Aircraft ________________ 3,994 1.34 1,394,629.80 9.89 Export ------------------406 .14 1,214,363.89 8.60 Cities ______________________ 194 .06 29,142.22 .21 Oil Operators ------3,370 1.11 408,150.23 3.40 Railroads ··-------------218 .07 135,311.48 .96 Miscellaneous 8,552 2.86 562,237.71 3.99 Federal Gov't ______ 721 .11 57,459.43 .41 Total _____________ 298,605 100.00% $14,102,941.69 100.()0% In addition there was rejected in entirety, a total of 1,146 claims. Payment declined for the reason that claims were not filed to meet the requirements of the law providing for the refund of the tax. Severance Tax on Natural Resources Total Gasoline Tax Collected September 1, 1946, to August 31, 1947________________________________________ _ _ $78,721,600.76 Total Gasoline Tax Refunded All Classes of Claimants -------------·--------·-------------------------------$14,102,941.69 Net revenue is prorated 11z to Highway Fund, 14 to Avail­able School Fund, and 14 to County and Road District Road Bond Indebtedness. Percentage of Total Amount Tax Refund to Total Amount Collected·---------···----------------------· -----·--17.91 % Some states are considering doing away with this refunding principle and it might be a good idea for Texas to do likewise, or at least tighten up the law covering these refunds. It is possible that the 239,123,283 gallons of gasoline as represented in the $9,564,931.33 refunds to farmers, was all used for non-highway purposes, but that is a debatable question. We wonder if the farmers of Texas would be in accord with giving up this refund, if it was to be applied to building farm-to-market roads? We think that the counties and the farmers therein would have a much better case before the Texas motorists and the Legislature if they first put their own house in order, and adopted business-like methods in handling their county road money and programs. The last Legislature passed the "Optional Road Law" and in the opinion of many who should know, it seems to be a good one (Texas Tax Journal, page 23, February i.ssue), but only a few counties have availed themselves of this provision, and there seems to be a general reluctance on the part of the county officials to do so. The motorists who live in urban communities are not philanthro­pists to the point where they want to be taxed to build these farm-to­market roads, for the high cost of living has hit them far harder than it has their rural neighbors. · TEXAS SCHOOL CHILDREN GREATLY AIDED BY OIL AND GAS TAXES (Reprinted from Texas '/'ax Journal, October, 1946, pp. 15. ) Nearly half a million Texas school children had the entire cost of their schooling paid last year by taxes from the oil and gas industry, a survey by the Texas Mid-Continent Oil and Gas Association shows. Virtually one out of every three Texas school children wa-s educated in 1945 by oil and gas taxes, the survey reveals. In addition, the petroleum industry paid more than $8,500,000 last year in lease anrl royalty payments to the State Permanent School and Permanent University Funds, such payments having totaled $100,()0•0,000 to date. "Texas school children have an important stake in the State's petroleum industry, since over 30 per cent of them have their schooling The University of Texas paid for by oil and gas taxes," Fred W. Shield, Texa.s Mid-Continent president said. "Last year taxes collected from the petroleum industry which went directly to the support of Texas public schools aggregated $34,205,291, against $78,478,814 from all other sources combined. The petroleum industry total does not include the schools' one-fourth, or $10,000,000, of the gasoline tax paid by Texa.s motorists on our industry's principal product. "Using the average per capita schooling cost of $75.62, petroleum industry taxes alone paid for the education of 452,331 Texas boys and girls. They represent 30.4 per cent, or almost one-third, of the 1,490,059 scholastics last year. In many independent school districts of the State, taxes collected from the petroleum industry and its properties make up most of the revenue from all sources." Besides taxes, Texas oil and gas operators pay large sums annually in lease bonuses and rentals and royalties to the Permanent School and Permanent University Funds. Figures from the State Comp­troller of Public Accounts show that from 1932 through July, 1946, petroleum payments to the Permanent School Fund totalled $42,278,123, while from 1925 on, such payments to the Permanent University Fund aggregated $57,539,362. Petroleum payments to both funds totalled $99,817,485. NO GAS SHORTAGE THIS SUMMER (Reprinted from The Austin American, June 20, 1948.) Ernest O. Thompson, chairman of the Texas Railroad Commission, said Friday that there will be no summer gasoline rationing. "It now appears certain that there will be no government rationing of gasoline this summer," Thompson said, adding that there may be a shortage in some localities. He said Secretary of Interior Krug is reported to have made recommendations to the White House to the effect that while there may be "spot" shortages of gasoline and heating oil in the next 12 months, they will not be serious enough to warrant the imposition of government controls. He said most recent oil supply-demand estimates show that the supply will exceed the demand. The supply for the fiscal year beginning July 1, 1948, is estimated at 6,523,000 barrels.daily, includ­ ing domestic production of 5,589,0-00 barrels daily, and imports, 515,.000 barrels daily. Demand is estimated at a total of 6,453,000 barrel.s daily. RAID TO BE MADE UPON TEXAS TAXPAYERS' POCKETBOOKS (Reprinted from Texas Tax Journal, March, 1948, pp. 3-4.) If the old and trite saying of "Coming Events Cast Their Shadows Before" is true, there is shaping up in Texas a pattern of the raids 181 to be made upon the taxpayers before the session of the 51st Legis­lature, come January, 1949. Powerful minorities are quietly and forcefully at work at present .seeking to crystallize public opinion and sentiment for their patticular causes. Unfortunately for the taxpayers, these minorities are being aided and abetted in their work by many public officials, and this year they will receive additional help from a host of candidates, who seek to become public officials. The taxpayers should ponder long and well upon the promises that will be made to them by the candidates, in all levels of government. Among the many benefits to be dangled before the voters will be "Farm-to-Market Road.s" (worked overtime last year), "Increased Appropriations for Schools," "Additional Social Security," "Additional Pensions," "Federal Aid to Education," "State Bonus to Veterans" and many others. It is well known that all of these programs will cost money, but it will also be told the voters that it will not cost them anything-the money to pay for it will come from the "goverrvment" that mythical Santa Claus, and the Government will get its funds from a small additional. tax upon natural resourc6s. They will not be told that no matter where a tax is levied, that all or nearly all of it is finally paid by the consumer. A tax upon oil or gasoline is paid at the gaso­ line pump. A tax upon natural gas shows up and is paid for in your gas bill, and this applies to all other commodities and services. Take the proposal of the County Judges and the County Com­ mis.sioners Association advocating additional taxes upon gasoline, to build farm-to-market roads. This Journal does not contend that more farm-to-market roads are not desirable, nor that in some localities necessary. At the present time remarkable headway and progress is being made on farm-to-market roads by the counties in co-operation with the State Highway Department and the Federal Government. In confirmation of this Congressman Lyndon B. Johnson has recently advised the County Commissioners of Travis County, that Texas will receive around $30,000,<>00 out of an appropriation bill that has already passed the Lower House in Congress, amounting to $452,288,584 for the Nation, covering highway construction for the coming fiscal year of 1948-49. Thirty per cent of this $30,-000,00 is earmarked for farm­ to-market roads. We feel that the farmers themselves and the officials of the counties should do more locally in this matter, before they ask the Legislature to penalize further the motorists of Texas and its large tourist trade by additional taxation to build a hard surfaced road to every farm front gate. In this connection we want to call our readers' attention to the refunds received by farmers on gasoline tax paid by them, and on The University of Texas which it was claimed was used for non-highway purposes, for the last fiscal year ending August 31, 1947. PER CAPITA APPORTIONMENT (Reprinted from Texas Tax Journal, June, 1947, p. 18.) Gov. Beauford Jester, frankly in disagreement with the two enacted legislative bills which raise the per capita school apportionment to $55 and fix the $2,000 minimum teacher pay, let both become law without his signature. Thi.s is as good a way as any to express dis­approval and save time. The vote in each house indicated that a veto would be overridden. In any event, a veto would not solve the prob­lem of teacher pay and the governor is not at outs with a fairer scale for the calling. No satisfactory reply can be made to the governor'.s just criticism of the apportionment system. In all good conscience, the school fund should be allocated on the basis of actual attendance and not on the potential school population of each district. If this were done, the practical result would be to compel local measures for the support of schools in the amount of the difference between costs and the I"eceipts from the State School Fund. As it is, it is possible to visual­ize a school district that might have 10,000 children of school age and none at all in actual attendance. From time to time, measures are urged to permit certain sectarian schools to participate in free textbook distribution or in school trans­port. Their registration is subtracted from the daily public school attendance and accounts for a large part of the difference between technical and actual public school population. It is sound theory that the State is not concerned in furnishing facilities to private education, however good and useful. It would be entirely just, on the other hand, to relieve the parents of private school pupils and other taxpayers from contributing to the support of a mythical public school attendance through an apportionment based on an imaginary child sitting at an imaginary desk. OIL INDUSTRY'S CONTRIBUTION TO TEXAS WELFARE (Reprinted from Texas Tax Journal, October, 1946, p. 6.) Nearly 900,000 Texans get their living directly from the petroleum industry, figures just compiled by the Texas Mid-Continent Oil and Gas Association show. This huge Texas petroleum family scattered throughout the State, is made up of 211,225 workers who with their dependents total 887,145 Texans. The wage-earners of this group last year received $560,000,000 in wages and salaries, or virtually 39c of every dollar spent by the Texas petroleum industry. The figures are included in the 1946 edition of "Important Facts About Texas Oil and Gas," just published by the association, the research and service organization of Texas oil and gas operators. Texas farmers, ranchers and other land-owners received $215,000,000 last year in oil and gas lease royalty payments, the booklet shows. State and local tax collectors took $95,502,000, much of which went for salaries of teachers, public officials and their employees while $65,~00,-000 was paid the Federal Government, for a total 1945 tax bill of $160,502,000. This did not include gasoline taxes paid by the motoring public on the industry's principal product. The Texas petroleum industry paid out a total of $946,536,000 last year for wages and salaries, lease and royalty payments, State and local taxes, contract drilling and geophysical prospecting, most of which went directly to Texans. These expenditures represent 65c of every dollar spent by the industry. "This is by no means all the money expended by the Texas petroleum industry which benefits the State and all its people," Fred W. Shield, association president, pointed out. "Just as those who work for the railroads and .shipping concerns and the banks receive a substantial share of their incomes from expenditures of the petroleum industry, so many thousands of men and women in other lines of business also attribute part of their incomes to petroleum. When the purchases of this industry's employees in their own communities are considered, it is readily seen that there is hardly any business in Texas which does not one way or another receive income from oil and gas. The huge payroll and other expenditures create a tremendous buying power for the necessities of life which benefits practically every line of business in almost every community in the State. "All told, the State and its people are the direct beneficiaries of a major share of the $1,449,719,000 expended in 1945 by Texas' largest industry. A relatively small share of the money which it spends for goods and services goes out of our State." THE EAST TEXAS OIL FIELD (The following infor mation was furnished by the Research Department of the East Texas Chamber of Commerce, June, 1948.) The East Texas Oil Field, the colossu.s of oil fields, the largest of all known reservoirs of oil on earth, has come to be almost a symbol of magnitude-the biggest in size, considered to be almost sixty miles in length, with its width ranging from one to seven miles, spread over part of Ru.sk, Gregg, Upshur, Smith and Cherokee counties, biggest in production, with a record of producing, the first five years of its life, under restriction, more than one-half billion barrels. This ' was over half of all production in the United States for 1934. It has the biggest in reserves-4,000,000,000 barrels being a conservative The University of Texas estimate of its reserve potential production; it is .the biggest in refining, with 20 per cent of the nation's refining capacity and 75 per cent of Texas' refining capacity located in the boundaries of this one field. Almost all Texas realizes that the world's largest oil field is located in its boundaries, but probably very few ·people in Texas realize that the very first recorded use of oil in North America by the white man was in East Texas in 1543. Survivors of the DeSoto Expedition, making their way along the Gulf Coast, were forced ashore by a storm. They took advantage of the delay to caulk their boats with pitch, the residue of oil from a seepage near Sabine Pass. Long before the coming of the Spaniards, however, the Indians knew of this and other seepages, and the red man bathed in the oil and used it as medicine. In 1859, the year of the Drake discovery well in Pennsylvania, plans were made to drill for oil near Nacogdoches but the Civil War halted these activities. At the close of the war, plans were resumed, and in 1866 the first oil well in Texas was com­pleted as a small pumper. This led to Texas' first "boom," and firsts which were to follow: first refinery in the State, first pipeline, and first steel storage-and soon after 1890 activity in this part of Ea.st Texas ceased. The first field of importance to be discovered in the State came in 1894-again in East Texas. The City of Corsicana needed an additional water supply, and the first well put down hit a strong showing of oil at 1,027 feet. The nuisance was cased off, and drilling continued, but the unwanted, greasy fluid made its way up outside the casing, and three derricks were burned down on account of careless spectators. A company was formed, finally, and the first well made 2% barrels a day. By the end of 1896, the Corsicana field comprised five wells, and the years' output was 1,450 barrels. Next year, the production was 66,-00(} barrels. There followed, through the years, the Lucas Gusher, which changed Beaumont' from a population of 9,000 to 50,-000 overnight; Ranger, perhaps the most colorful field in the world until the East Texas discovery; Burkburnett; Mexia; Borger and all the time the demands for oil and gas increased and increased. The wildcats continued to go down, and then, with an impact which really rocked the oil world of Texas, America and the World-East T exas! C. M. (Dad) Joiner had drilled two dry holes-real dusters, they called them, on the Daisy Bradford farm, seven miles from Henderson, Texas. But No. 3 blew over the crown block and was completed on October 5, 193-0, for 225 barrels at 3,590 feet, to become the "discovery well" of the greatest oil field in the world. There had not been much encouragement about the oil prospects in East Texas. The leading geologists had assured everyone who wanted to listen that there wa;; no oil there, and it was not until bigger and bigger wells were dis­covered miles from the "discovery well" that there came the realization Severance Tax on Natural Resources of what East Texas was destined to be: 27,000 wells in an area 50 miles by 10 miles roughly-the greatest field, by any yardstick that the world has ever seen. By the middle of August, 1931, East Texas was making over 1,000,000 barrels a day. Over-production was inevitable, and 10 cents · a barrel oil, with 6 cents and even 5 cents to follow, was also bound to result. It came, and the industry nearly went down under the impact of all this oil. Martial law was declared, proration was enforced, but it was to be nearly two years before the last troops would leave the field, with proration working smoothly. By 1934, the price was relatively stable at 95 cents, and has remained relatively stable ever since, due mostly to proration. Today, eighteen years after the discovery, the East Texas field remains the coios.sus of oil fields, and no forecast of the remaining life of the field falls below twenty years. The January, 1948, report of the Railroad Commission shows 22,841 wells still in the field, with 22,725 of them producing now, 13;024 of them still flowing, and 9,701 on the pump. These latter weUs are located around the outside fringes of the field. An estimated gross production for the year just closed is 418,271,784 barrels. One has only to ride through the counties benefited by the East Texas field to realize fully what the field has meant in the lives of the people. Contrast the large, beautiful modern school plants, for instance, with the little one and two room frame building.s which housed the schools in the same districts eighteen years ago. There is an adequate system of excellent highways connecting all parts of this section. There are thriving towns where once existed only villages and crossroads. This all began during the years when the rest of Texas was fighti~g for its existence in the depth of the depression. Most inspiring of all, possibly, is the realization that the money from the oil field is being used and has been for years to establi.sh research for new industries and to improve agricultural methods, so that when the oil is gone, there will be other projects, other means of livelihood for the residents of East Texas. PANOLA COUNTY GAS FIELD (The following information was furnished by the Research Department of the East Texas Chamber of Commerce, June, 1948. ) The Panola County Gas Field, Carthage, Texas, has expanded to such a great degree in the past two years that it is now second among the prorated gas fields in the State. Only the West Sour Panhandle field surpasses Carthage in the number of producing wells and daily withdrawals. From a standpoint of total potentials, total producing acreage, and condensate production, the Panola County field comes to the front. The University of Texas Carthage, a little agricultural town a few miles west of the huge East Texas oil field, came to life in 1941 when the first big gas well came in. Now, after the first rush of activity following the di.scovery of the State's.largest gas field has died down, it is interesting to note some of the results that have come. Four years ago, Panola County had an assessed valuation of $6,000,000. Last year the assessed valuation had, by reason of oil and gas developments, risen to $37 ,000,000. There was a total collection by the· tax assessor of $771,328 of which sum the oil interests paid into the Treasury $617,062 which represents 80 per cent. The oil companies also paid 75 per cent of 1947 Independent School Tax, amounting to $189,465.09. The Chicago Corporation, only one of many operating companies, in 1947 paid an ad valorem tax of $315,160, and a production tax of $88,263, making a grand total of taxes paid in the amount of $223,423. The total labor cost of this corporation during 1947 was $220,799, and they paid to their royalty owners during that ~ame period $237,470. Based on Chicago Corporation royalty payments, it is estimated that the total royalty paid in this county during the 1947 period amounts to $1,500,000. The oil companies have completed, up to January 1, 1948, a total of 287 wells, with a dual completion of 457 sands, representing a drilling cost of $22,960. The 287 producing units cover an area of 183,680 acres. The foremost geologists calculate, on a basis of scien­tific laboratory tests, that the area under discussion has a reserve gas supply of five trillion cubic feet. This means, in the terms of the royalty owner, as over-all income in the next twenty-five years, the grand total of $93,750,000 or the equivalent of $327 for each acre comprising the 287 producing units. Hundreds of land and royalty owners in the area mentioned have an income which makes them independent for life. For the year 1948, there will be many additional wells drilled, and the United Gas Company has appropriated $3,500,000 for additional refinery facilities. The Chicago Corporation has appropriated $2,000,000 for plant expansion, and the Hudson Construction Com­pany $4,000,000 for a new refinery. Next year should show an esti­mated $50,000,00 tax valuation, and the residents of this community can look forward· with confidence to an annual tax collection of at least $1,000,000 per year for the next twenty-five years. As to the gasoline recovery program in the county, there are at present four gasoline plants in operation ,in this field, and a fifth nearing completion. These plants processed a total of 294,831 mil­lions of cubic feet of gas daily during February of last year, and recovered a total of 9,802 , barrels of liquid hydrocarbons daily. It appears that the production from the Panola field is now limited by the total capacity of the gasoline plants and outlet gas lines, and with the new markets coming into the natural gas picture, there Severance Tax on Natural Resources 187 should be a further expansion of recovery facilities in this field. New markets which will utilize gas in distant cities in the East and Mid-West will look with favor upon the prolific Carthage field as a logical source of this supply. With its enormous reserves, high pres­sures and strategic location, this field will be called upon to furnish a large portion of this increase in production, and the Panola field, now in its infancy of production, should enjoy a long effective life. TEXAS SULPHUR (The following information was furnished by the Research Department of the Ea.st Texas Chamber of Commerce, June, 1948.) Texas Gulf Sulphur, the largest producer of elemental sulphur (brimstone) in the world, accounts for about 58% of the domestic production. Together with Freeport Sulphur, the tw~ companies account for over one-half of the world production of native sulphur. With many other sources of sulphur recovery (pyrite ores, smelter gases, and by-products of industry) however, domestic sulphur pro­duction normally represents around 30% of the world's total. Under normal conditions the company sells 75% of its output in the United States and Canada, and the balance is sold in the world markets through the Sulphur Export Company, in which Texas Gulf has a 50% stock interest. The entire mining operations are concentrated at Boling Dome, Newgulf, Texas, one of the largest and richest known deposits of elemental sulphur in the world. During 1946 the company· started construction of a sulphur producing plant at Moss Bluff Dome in Liberty County, Texas, where the company has sulphur rights. Mining operations at this site are expected to begin sometime in 1948. More than three out of every four tons of Gulf Sulphur comes from Texas, the rest from Louisiana. The Freeport Sulphur Com­pany, which operates Hopkins Mound, turns out around 1,000 tons of commercial sulphur per day. Texas Sulphur Company's Boling Dome Mine at Newgulf, Texas, is reported to be turning out about 6,000 tons per day. Smaller operations in Texas, such as the Duval Texas Sulphur ·Company at Orchard, and Jefferson Lake Sulphur Company at Clemens Dome probably account for around 1,500 tons per day. In an average pre-war year the sulphur from Texas and Louisiana hot-water mines was 28 % of global output, but it is generally accepted to be much higher today. Sulphur productions costs along the Texas coastal area are kept to a minimum by nearby natural gas fields. A sulphur "mine" is really a well, and huge quantities of hot water, heated by natural gas easily piped in, are used to bring the sulphur to the surface. Last year the six Gulf Coast Mines, five in Texas and one in Louisiana, went down into hard rock and brought up. 3.8 million long tons of pure native sulphur-the "must-have" for industry. Sulphur The University of Texas goes into the making of more than 32,000 every-day items, from sugar, paint and sheer rayon underwear to giant truck tires and heavy steel rails. DEVELOPMENT OF IRON ORE IN EAST TEXAS (The following information was furnished by the Research Department of the East Texas Chamber of Commerce, June, 1948.) Existence of iron ore in East Texas has been known for many decades. Now, for the first time, this resource is being processed on a large commercial scale. East Texas has dreamed of having its own iron and steel industry since before the Civil War. Several small plants sprang up then, and turned out iron for the manufac­ture of simple household articles and agricultural implements, but this limited production came to an end in 1909. Extensive surveys of the proven iron ore reserves of East Texas have been made by the Lone Star Steel Company. Although the amount of ore is known to be great, no definite estimate of tonnage has been made public, but the metallic content of the ore ranges from 25% to 65%. Oper­tion of the Lone Star Steel Company's blast furnace at Daingerfield has come at a time when statisticians are saying that this country's supply of the basic metal of the industrial world is showing signs of exhaustion. Utilization of this ore is made possible by t'wo other resources of the Southwest: Oklahoma coal, and West Texas limestone. The plant at Daingerfield is operated at the present time by Lone Star Steel Company on a lease with option to buy, the option including the Daingerfield plant, and the Oklahoma coal mines. More than 32,000 acres of ore lands, for t.he most part within 12 miles of the Daingerfield plant, are available for the plant use. Of this area, 2,476 acres have been test pitted and the reserves blocked out. This proven acreage contains the equivalent of 8,531,208 tons of washed limonite, and 9,997,468 tons of washed siderite. The iron ore deposits in the immediate vicinity of Rusk, in Cherokee County, Texas, have received more attention than any of the South Basin deposits. This was probably due in part to the fact that Rusk was for many years the site of the State penitentiary, where an ore mine, blast furnace and pipe foundry were operated by convict labor, rather than to any great difference in the quantity or quality of the iron ores. The deposits occur near the top of a ridge which forms part of the divide between the Neches and Angelina drainage systems. There was fairly consistent production of pig iron from this, as well as the other East Texas mines, from 1882 to 1908, after which it died down, not to be renewed again until the exi­gencies of World War II made it expedient to go into the old mines once more. Severance Tax on Natural Resources TIMBER RESOURCES OF EAST TEXAS (The following information was furnished by the Research Department of the East Texas Chamber of Commerce, June, 1948.) About one-fifth of the land area of Texas is covered by forest growth. This forest region, larger than the State of Florida, oc­cupying eastern and central Texas, is the western extension of the great southern forest region which lies across the southeast and south Atlantic States. Only slightly over one-third the Texas timber area, about 12,500,000 acres, produces forest products in commercial quantities. This area occupies the extreme eastern portion of the State, and is' largely confined to about 36 counties. The remaining two-thirds of the forested area of Texas is classed as "protection forest," since its principal use is as protection for the soil and vegetation and pre­vention of rapid runoff. Some commercial products, such as fence posts, fuel wood, and ties, are derived from the protection forest regions, but their relative commercial value is small. Industrially, lumbering has been of prime importance to Texas since its beginning in the late fifties. Except for three food-produc­ing industries, flour and gristmill products, cottonseed products and meat packing, lumbering has led the State in value of products manufactured until the advent of the petroleum refining industry in 1921. From 1921 to 1929 forest products were valued between forty and fifty million dollars yearly. To contrast this yearly value of forest products with that of 1946, which reached the astounding total of $135,000,000 is to realize the great strides taken by the industry through the years of first depression, then recovery, then war, then finally the peak of production following the resumption of peacetime needs of the lumbering industry. Growing now in the heavily forested counties of East Texas is an inventory of saw-timber valued at $275,250,000. These timber lands embrace an area of 10,775,000 acres. These and many other interesting figures were revealed in the survey of timber resource:; which the East Texas Chamber of Commerce completed in January, 1947, after nearly a year of intensive research. East Texas now, as a whole, is more interested in agriculture than forestry, but it i.s interesting to note that of the privately owned timber land totaling 10,090,000 acres, 56% % is in small ownerships belonging to 53,618 farmers and other small holders. This makes it evident that the farmer is a substantial factor in the future of more than half of the heavily timbered area in East Texas, and that education in better forestry practices through avenues and agencies open to the farmer will be a prime factor in the future of the timber industry in East Texas. The University of Texas In considering the importance of the future of timber and related industries to East Texas, the fact that 46,880 people are employed directly in the area by lumbering and wood production, coupled with the 53,618 owners of small holdings of timberlands, reduces the consideration of the industry from dollars and cents to ~he human element, which is after all, the most important phase of any industry. In addition to the direct returns to the timber industry on wood products and remanufactured wood products, there are other indus­trial considerations., For instance, freight paid on the forest products alone exceeded $8,000,000 for 1946; 10,000 trucks were required to handle the annual timber crop; 47,000 employees of the industry in the woods and in the factories earned $62,500,000 annual wages; and it can readily be seen what the timber and woodworking indus­tries mean to the schpol districts in increased tax money. Another need only recently beipg exploited in the area is that for scientific research to determine new and wider uses for the timber, and an opportunity for many new wood-using industries to develop m this area of almost unlimited raw materials. FIGURES THAT TALK (Reprinted from "Ten Years of Old-Age Pensions in Texas," Texas Fact Bulletin No. 1, 1946 Series, Texas Research Institute, Dallas, Texas, p. 16.) Original estimate of old people in Te'xas eligible for old-age assistance-A maximum of.________________________________________ 62,933 Estima:te of annual cost to State of providing its share of assistance to all eligible old persons in Texas, as made by the National Social Security Commission in approv­ing the Texas law in 1936.-----------------------------------------·-----··--$ 9,000,000 Number of grants authorized in first month of operation 59,999 Number of recipients of old-age assistance at end of first fvll year of operation__________________________________________________________ 108,793 Increase in cost of Texas State Government between 1920 and 1939 -------------------------------------------------------------------------------371% Increase in expenditures for public welfare in ·Texas between 1920 and 1939 -----------------------------------------------------­1900% Number of recipients of old-age assistance in July, 1942, six years after inauguration of the program__ __ ____________ 176,413 Cost to State of old-age assistance in 1944-45, most re­cent full fiscal year__ ___________________________________________________________ $ 22,963,762 Number of persons on old-age assistance rolls January 1, 1946 ------------------------------------------------------------------------------------175,836 Amount of money allocated by the Texas Legislature for expenditures for public welfare during the two-year period beginning September 1, 1945_______________ __________________ $ 56,800,000 Severance Tax on Natural Resources LOUISIANA TAX PROGRAM (Compiled from Texas Tax Journal, 1948.) Six new Louisiana tax bills became law June 8, 1948, with collec­tions from them estimated at $190,000 per day or $70,000,000 per year. This is a 50 per cent increase in state taxes. They were: 1. New 2 per cent sales tax. This is on retail sales over 24 cents. The old sales tax was 1 per cent, so this doubles it. In addition, it applies to many items previously tax-free. It brought the New Orleans sales tax fotal to 4 per cent, 2 per cent state and 2 per cent city. (Editor's Note: City sales tax has recently been reduced to 1 per cent in New Orleans.) 2. Gasoline tax, raised from 7 to 9 cents per gallon, the highest in the nation. Added costs to motorists estimated at $7,000,000. 3. Beer tax, raised from $1.50 to $10 per barrel, or about 21h cents per bottle. 4. Tax on coin-operated gaming machines, $100 per year. 5. Natural gas gathering tax, doubled from one-half cent to one cent per thousand cubic feet. Estimated increase, $2,()00,000 per year. 6. Crude oil production tax, raised from about 11 cents a barrel to between 18 and 26 cents a barrel, depending on gravity. Estimated increase, $30,000,000 per year. Before the new taxes, Louisiana citizens were paying the state $150,000,000 per year in taxes. Taxes Retard Industry To get the right perspective as to how severe Louisiana's tax burden now is, it should be remembered that before the new taxes were added, Louisiana officials had been. severely critical of the state tax structure. "The unwieldy and complicated tax structure of Louisiana has always acted as a deterrent to industrial expansion," Jimmie H. Davis, then Governor, said in his report on the 1946 Legislature. And on May 1, 1946, Governor Davis said in a report to the State Department of Commerce and Industry: "There are certain barriers, tax and otherwise, in Louisiana that tend to retard fu.rther development within this state." Following are excerpts from the March 26, 1946, report of the Louisiana Department of Commerce and Industry: "We think -it an established fact that the present tax structure of the State of Louisiana is unfavorable when compared to that of the surrounding competing states. We hope the present study under­way of the Revenue Code Commission will recognize the existing conditions in the state and recommend to the Legislature specific corrective measures. "We also are convinced, from our contacts with executives, engi­neers and other leaders of industry, that Louisiana government and particularly her tax structure is looked upon with suspicion if not with downright antagonism by many of those whom we seek to attract here. "While we know that industry as a whole wants to pay its fair share of the cost of operating state and local government, we are faced with the recurring fact that we have a so-called 'black eye,' earned during the previous decade. "We have very few sources of raw materials in Louisiana that are not also in Texas and other southern states and with the recent developments in the petroleum field in Arkansas and Mississippi we can expect serious competition from those two border states in the next few years in our bid for that portion of industry that wants to migrate south. "If we are, therefore, to be successful in attracting this industry to the state we must offer them an equable tax .structure and at the same time guarantee them freedom from tax increases by local and state government for a reasonable time." If that was the gloomy tax picture painted two years ago by Louisiana's own officials, what must the situation be now, with the annual state tax bill half again as large as it was then? INDUSTRIALIZATION OF TEXAS (From Texas Manufacturers Association.) The industrialization of Texas is going forward with a great surge, providing high wages for many thousands of persons, and thus sup­porting a much higher standard of living for all than would be possible under a purely agricultural economy. It brings wealth to the State to stimulate business, adds value to Texas' rich natural resources. Below is a table showing the trend of industrial construction in Texas by years from 1941 through 1947, as reported by Manufac­turers Record : 1941______________________________________________________________ $233,437,000 1942___________________________________________ ________________ 437,823,0001943__________________________________________________ ________ 117,779,0001944________________________________ _____________________________ 61,674,000 1945__________ ________________________ __________________________ 166,180,0001946______________________________________________________________ 128,905,0001947____ _________________________________________________________ 151,407,000 Total _______--------------------------------------------------$1,297,205,000 193 Another authoritative publication, Engineering News Record, com­piled figures on projected industrial construction at the beginning of 1948. Here the picture is even more startling. With $842,594,000 in industrial construction scheduled, Texas had nearly one-fourth or 23.7 per cent of the projected total for the entire United States. Engineering News Record's statistics on all projected private building as of January, 1948, are of interest also. Since they do. not include government projects, they furnish an accurate picture of general economic conditions. In the beginning of 1948, proJected private building in Texas amounted to the staggering total of $2,282,864,000. Private build­ing, as classified by Engineering News R ecord, refers to major pri­vate industrial and commercial building, as differentiated from such public construction as highways, etc. It does not include small projects, or residential housing. This projected Texas private construction was 20.5 per cent of the projected total for the entire United States of $11,238,905,000. In other words, 20 cents of every dollar projected for the entire nation in 1948 was planned for Texas. CHEMICALS AND NATURAL GAS (Excerpt from . a paper by G. G .. Oberfell, Vice-President in charge of research and development, Phillips Pet.roleum Company, December 5, 1945.) Chemists feel that the surface has barely been scratched, and that further researches will bring quick results in the preparation of new and useful chemical derivatives from petroleum mater~als. Synthetic plastics alone promise to make all the other petroleum chemical developments to date appear small by comparison. Lest the impression be left that the chemical field is an unlimited one so far as market outlets for large volumes of raw materials are concerned, it is well to point out how relatively small such outlets generally are for these raw materials. The entire 1944 production of wood alcohol could have been pro­ duced from a single gas well of 15 million cubic feet daily capacity if near perfection conversion efficiencies were obtained. Similarly, if all the ethane and ethylene present in the gases at the refineries and in the raw natural gases during 1944 had been converted to ethyl alcohol (generally called grain alcohol), its pro­ duction would have amounted to eight times the total requirements for 1944 and 40 times the amount produced in 1940. If the entire potential supply of normal butane in 1944 had been used to produce butadiene for the manufacture of synthetic rubber, the amount would have been four times the demand. Chemical uses today represent considerably less than one per cent of the total natural gas consumed. This volume being of about the The University of Texas same order of magnitude as the unavoida.ble losses occurring under the most efficient operations in the best engineering and safety practices of the industry, using the most advanced technology. Thus the manufacture of chemicals does not promise to create any large volume of sales for natural gas. AMOUNT OF GAS AND OIL PRODUCTS CONSUMED IN THE CHEMICAL INDUSTRY (Excerpt from a report of the Regulatory Practices Committee to the Interstate Oil Compact Commission, December 15, 1944.) The petroleum tonnage consumed by the chemical industry in 1940 would represent but 7/ 10 of 1 per cent of our 1941 crude oil production, or only 1h of 1 per cent by weight of our total petroleum and natural gas production. Our oil and gas constituents used in 1944 for synthetic rubber manufacture represent but 2/10 of 1 per cent of our petroleum production. Even with our expanded use for chemical production from petro­leum and natural gas, it may be seen that our total production for 1944 will consume less than 1 per cent by weight of our petroleum and natural gas produced for this year. It may be inferred from this that even the expected expanded use of gas as a raw material for chemical products will not consume, in the immediate future, an appreciable portion of our natural gas production. GROWTH IN NATURAL GAS RESERVES (Reprinted from "Natural Gas Reserves of the United States," a staff report by the Federal Power Commission, March, 1947, in its Natural Gas Investigation, Docket G-580.) As noted previously, the proved gas reserves of the United States during the past 27 years have consistently increased despite a con­tinued upward trend in production. The gross additions to reserves compared with production for 5-year periods from 1921 to 1945, inclusive, are shown below: Additions to Reserves Corn.pared with Net Production (In trillions of cubic feet) Ratio of Gross Additions Net Added Reserves Fiv1'-Year Period to Reserves Production to Production 1921-1925 15.7 5.8 2.7 1926-1930 33.0 10.-0 3.3 1931-1935 24.0 10.4 2.3 1936-1940 40.3 14.9 2.7 1941-194f 79.8 20.5 3.9 Total 25-Year Period 192.8 61.6 3.1 Severance Tax on Natural Resources 195 ATOMIC ENERGY (Summary of Testimony of Dr. Edwin R. Gilliland, Deputy Dean of Engineering, Massachusetts Institute of Technology, taken from Federal Power Commissi<>n, Digest of Daily Record, Volume 1, Natural Gas Investigation, Docket No. G-580, pp. W35-36.) Dr. Gilliland said that MIT had an operating budget of more than $1,000,000 per year for research in nuclear science and engineering and that he represented the Chemical Engineering Department on the committee to steer the program. Atomic reactions assure for the future an almost inexhaustible store of energy which can eventually make unimportant both geo­graphically and quantitatively the availability of common fuels, he said. One pound of uranium when decomposed gives approximately three million times as much heat as would be produced from one pound of coal. The reaction to produce this heat ha.s been carried out at Hanford, Washington; Oak Ridge, Tennessee; and Argone, Illinois, as part of the Manhattan District project. One pound of uranium produces heat equivalent to three million pounds of coal or 36,000,0-00 cubic feet of natural gas. The heat from the decomposition of uranium can be used for the production of steam which can be utilized in steam turbines or steam engines, or the heat can be used to heat air or other gase.s to be used in a gas turbine. Reiative costs with coal at $5.00 per ton or gas at 21 cents per MCF indicate roughly that a pound of uranium decom­posed would be worth $8,000. Dr. Gilliland believed that atomic power units suitable for the propulsion of naval vessels would be available in less than ten years. The steps from these units to large industrial plants should be simple, and the timing would be largely a matter of relative costs of atomic energy as compared to conventional fuels. The trend will be first to making oil and gas out of the coal reserves, as brought out by Dr. Lewis, another witness, but within 50 years the chemical industry will be supplying the materials for an atomic power plant at costs which today would .seem surprisingly low. SYNTHETIC GAS FROM COAL (Summary of testimony of Dr. W. K. Lewis, Professor of Chemical Engineering, Massachusetts Institute of Technology, Federal Power Commission, Digest of Daily Record, Volume 1, Natural Gas Investigation, Docket No. G-580, p. W-36.) Dr. Lewis emphasized that natural gas was not an irreplaceable resource. Both natural gas and oil are completely replaceable by synthesis fro;m coal. Synthetic natural gas can be produced from coal by distillation and by the Bergius and Fischer-Tr