International Co-operation

MR. JUPP: The attention of the world today is focused upon a perplexing number of happenings which keep our minds spinning somewhat dizzily. We reel back from the excitement of an election in the United States, we bleed inwardly from the news of Russian atrocity in Hungary and we feel ourselves shaken to the core by events in the Middle East where Britain and France gravely have undertaken a police action for which the United Nations organization is not yet prepared. This last episode is far from closed and anxiety for the safety of the Suez Canal as an international waterway remains. It has been called the jugular view of the British Commonwealth but we know that it is oil rather than blood which should flow through it.

No more appropriate moment could be devised for the visit of one of the America's top oil men as guest speaker at a meeting of the Empire Club. We welcome Mr. Sidney A. Swensrud, Chairman of the Board, Gulf Oil Corporation, Pittsburgh, Pennsylvania all the more warmly on this account. Mr. Swensrud started in the oil business in 1928 with The Standard Oil Company of Ohio and left that company only in May 1947 to join Gulf where he was elected President in 1948. Promotion to Chairman of the Board came in 1953. He is a Director and member of the Executive Committee of the American Petroleum Institute. We welcome Mr. Swensrud today with particular interest for yet another reason-the relatively recent news of his company's participation in the British American Oil Company Limited.

In the field of public service our guest speaker is a member of the Executive Committee, U.S. Council of the International Chamber of Commerce. He is a Trustee of the Carnegie Institute of Technology and of the Elizabeth Steel Magee Hospital; he is a Director of the Pittsburgh Symphony Society and Chairman of the Public Auditorium Authority of Pittsburgh and Alleghany County.

We must confess that Mr. Swensrud accepted this date for his speech here some time ago. He gave us the title just two weeks ago and I wondered whether he had Moscow radio broadcasts in mind when he made his choice, such broadcasts as one reported on October 4th and I quote "The American monopolies are striving to use Egypt's decision .... to oust their British and French competitors" unquote. Therefore, the timing, the topic and the great distinction of the speaker ensure the wrapt attention of those present in this room, and of those at their radio sets as I have pleasure in handing over the microphone to Mr. Sidney A. Swensrud, who has chosen to speak on the subject "International Cooperation."

MR. SWENSRUD: I feel very honored to have been invited to appear here today before the members of this distinguished club. It occupies an enviable position in your city and country-dealing as it does in the association of people with each other and the discussion of ideas of national and international concern.

An American addressing Canadians today is faced with a somewhat delicate task. It is human nature to want to be on the best of terms with ones neighbors and friends; at the same time we in the U.S. appreciate that you may sometimes be a little suspicious of our motives when we tell you what a wonderful country we think you have with its treasure house of resources, recreational facilities and fine people. We realize that at times there may be some suspicion as to how much of your resources we are trying to acquire for our own good, rather than for yours. Well, I think I am reasonably safe in saying that no matter how complimentary or flattering we Americans are about your country there is nothing sinister about most of us, and just to make my own position clear if I can, let me begin by paying my respects to Canada for what it has done, not just for what it possesses.

In the last analysis I have no doubt that the greatest resource you have is one which is moving above ground, namely your people. The economic future of Canada, I believe, is bound to be good not simply because of the billions of dollars already expended in great developments (most of which expenditures, incidentally, have been made by your own people) but because Canadians, from their own past record have shown beyond any doubt that they have the vision, ability and determination to go forward to make Canada an even greater nation.

We in the U.S. pride ourselves on our industrial know-how and the advances we have been able to make under our capitalistic system of private enterprise (which some of us are now trying to describe more accurately and understandably as "People's Capitalism"). I can say quite honestly, however, that very few things in our country, or elsewhere, in recent years have impressed us more than the way in which Canadians, operating under the same kind of a system, have addressed themselves to the task of opening up their resources and developing new industries. We are impressed also by the way in which Canada is assuming an increasing share in the responsibility of the free nations of the world in international affairs.

I have had the opportunity and pleasure of being in your good country quite frequently over many years--sometimes on vacation trips, but also as a member of the Gulf Oil organization, I have paid quite a few visits to Western Canada during the period when our company was in the oil business out there--i.e., before we got "taken over," so far as those operations were concerned, by one of your good Canadian companies in which we are so very proud to be one of the shareholders, along with a great many Canadians.

The development of oil production and transportation in Canada since the discovery of Leduc in 1947 is a great economic sage, of significance not only for your country and ours but for the whole world. We are glad to have had the opportunity of playing a modest. part in it.

For many years before Leduc, the pattern of Canadian oil supply was rather well defined and established. Apart from a small quantity of production in the Turner Valley area and in the far north, Canada was entirely dependent upon outside sources for its petroleum requirements. Eastern Canada was supplied mostly by crude imported from South America and refined at Montreal. For the Central Eastern area the predominant source was crude oil from the Mid-Continent area of the U.S. moved into the Sarnia area by pipe line or to Toledo for tanker delivery to Southern Ontario refineries. The prairie provinces were mostly supplied, with crude oil or products, by rail from Wyoming and Montana, while the Pacific Coast area was supplied with crude oil or products from California.

Canada, in that period, refined about 80% of its petroleum requirements and imported the rest as products. Exports of crude oil and products to Canada constituted a very nice piece of business, so to speak, for the U.S. Canada was our largest volume oil customer.

Then, in 1947, with the discovery of the Leduc Field, a new era of oil exploration, production and transportation began in Canada. I will not recite the history which you know well enough, but it is interesting to look at the figures over the intervening years. In 1946 Canada's crude production was 21,000 barrels daily. Today I am told that it is running about 475,000 barrels daily. This would have covered your entire oil consumption of 10 years ago approximately twice over.

In the meantime, however, the consumption of petroleum products in Canada has grown in a most phenomenal way. Ten years ago, in 1946, oil consumption in Canada averaged approximately 223,000 barrels daily. This year it is estimated at about 700,000 barrels daily or more. That represents an increase in 10 years of 214%. In the U.S. we take considerable satisfaction in the rapid rate at which our oil consumption has increased, but we cannot boast of any such figure as that. Since 1946 U.S. oil consumption has increased approximately 80% or only a little more than one-third the percentage rate at which yours has advanced.

In reviewing these figures, I could not help wondering how the relative consumption of oil per capita in the U.S. and Canada compare, and perhaps you will also be interested in the figures. Ten years ago you were using about 6.6 barrels of oil per capita per year against a comparable figure in the U.S. of 12.8 barrels. This year on the basis of a population figure of 16 million for Canada, your per capita oil consumption will average about 16.0 barrels (142% above 1946) as against a comparable figure for the U.S. of 19.5 barrels an increase of 52% since 1946. We are still a little bit ahead but you are gaining fast; it may be that the only way we will be able to keep ahead much longer will be to express your consumption in Imperial gallons and ours in U.S. gallons!

Behind these abstract figures, of course, are the things that really count in the scale of industrial development and better living--the miracles that petroleum and technology make possible in a modern world--2-1/2 times as many cars and trucks in Canada as 10 years ago--a quarter of a million more farm tractors--a four fold increase in the number of oil heated homes!

As for the future, well I've looked over some of the predictions of your oil experts and while I am rather inclined to agree with a friend of mine who once suggested that making economic predictions is the most gratuitous of all follies, nevertheless I am sure your experts have based their conclusions on pretty good reasoning, and they certainly are optimistic. I am reminded somewhat of the story of two southern boys who were on a sightseeing bus in Washington. As they passed the Archives Building one of them saw the inscription on it which reads, "The Past is Prologue." This puzzled him and he said to his companion, "The past is prologue?. What does that mean?" His friend, who was somewhat more sophisticated, or perhaps he had been to Canada, answered, "Why that means you ain't seen nothing yet!"

I have always emphasized the importance to the oil industry of the growth factor in creating new opportunities and in solving what sometimes appear to be problems of over-supply or over-capacity. I think there is no doubt that in your Canadian oil picture the factor of growth will continue to be an extremely important one.

One of the most startling facts about the gain in oil use in Canada since Leduc was discovered, is that although your production of crude oil is now more than double what your total consumption was then, nevertheless the increase in production has not been quite as great as the advance in oil consumption during the ensuing years. This is but another way of emphasizing the factor of growth, but it illustrates also what a tremendous job it is to find and develop enough oil to keep up with the petroleum needs of a modern world.

As one looks at oil facts for the U.S. and Canada he may well be impressed with the similarities that now exist. In both countries we have a densely populated eastern area with most of the oil production located 1,000 to 2,000 miles westward. In the U.S. we now produce about 85% of our domestic consumption requirements. In Canada your production is now equal to about 65 to 70% of your consumption requirements and it appears probable that this ratio will increase somewhat further. In your case, as in ours, however, the rapid increase in demand makes it appear probable that you will remain a net oil importing nation for at least a considerable time ahead, if not indefinitely. For this reason, among many others, our countries have a vital interest in oil matters elsewhere in the world.

Canada is also by way of becoming a large producer, transporter, consumer and exporter of natural gas. Although for various reasons these developments were later in getting under way than in the case of oil, there now appears every reason to believe that from here on this branch of the industry, along with oil, will show a powerful growth trend.

One aspect of your oil and gas development which I know has caused much discussion in Canada is the extensive participation on the part of U.S. oil men. This was, of course, natural because oil production has been a peculiarly American business. It's early development was chiefly in the U.S. (though I appreciate that oil production in Ontario is said to have antedated the famous Drake well in Pennsylvania by a year or so). Most of the oil production in the world to date has come from the U.S.; and there are probably several dozen times as many oil men in the U.S. as in all the rest of the world put together, and they have always tended to go wherever it appeared that oil was likely to be found. So when it was discovered just across our northern border, it was inevitable that unless they were stopped American oil men would soon be there in great numbers.

From Canada's standpoint was this extensive participation on the part of Americans desirable? If we assume that there was an advantage to Canada, as I believe there was, in getting this vast effort under way more rapidly, then I believe it was in your interest to have a large number of U.S. oil men assist in this development with their experience, trained personnel and equipment, together with those indispensable factors of capital and the willingness to risk it in an uncertain enterprise. A friend of mine once characterized resources in the ground, undiscovered and undeveloped, as "neuter stuff." It takes a vast amount of effort, knowledge and venture capital to turn such neutral stuff into positive and useful assets. I have no doubt that Canadians could have done this job by themselves, but it would have taken much longer and I feel certain that the acceleration of oil development in Canada has played an important part in the great contemporary strides that have been made in all phases of your development.

Another reason for welcoming assistance is the fact that today many of the tasks in the oil and gas industry are so huge that no single company, no matter how large it may be, is inclined to undertake them by itself. Most of the great oil concessions in the Middle East, for example, are owned not by one company but by two or more. Many of the recent pipe line projects in the U.S. are undertaken jointly by several companies. The same is true of various developments in Venezuela and in the off-shore areas of the Gulf of Mexico. In the case of Canada, it was not alone the great tasks of oil and gas development, per se, that were important; the building of pipe lines was equally so, and this required the joint efforts of various U.S. and Canadian concerns. One cannot exaggerate the importance in our industry of efficient transportation in making it possible for the remote producer and royalty owner to obtain the highest possible price at the source while at the same time keeping down the delivered cost of petroleum products to the consumer. Through the joint efforts of our two countries, Canada now has petroleum transportation facilities which are among the most modern and efficient in the world.

But regardless of how much Canada may have benefitted by U.S. participation, it is understandable that Canadians should want the maximum opportunity, both personnel-wise and investment-wise, participation in the new developments which their own resources of manpower, experience and capital make possible.

There are various ways, of course, by which these objectives can be achieved. The experience of our company, we believe, affords one pertinent example. Our company, The Gulf Oil Corporation, through a subsidiary, the Canadian Gulf Oil Company, had commenced its exploratory efforts in Alberta many years ago--in fact long before Leduc was discovered. In the course of the years Canadian Gulf had become a thriving exploration and producing organization, headquartering in Calgary, with operations throughout the prairie provinces and into the Northwest Territories. It had been our policy to get Canadians into our organization wherever we could. Under this policy the percentage of Canadian employees had grown steadily until early this year it had reached 95%, with Americans down to not more than 5%. Thus, personnel-wise, Canadian Gulf was already primarily a Canadian organization and it had, we felt, contributed materially to the development of Canada's crude oil and natural gas resources. Nevertheless, it was still a whollyowned subsidiary of a U.S. company, and no Canadian investor could share directly in its ownership or in whatever success it might achieve as the years went on.

Meanwhile, the British American Oil Company, in which we owned approximately a 25% interest, was anxious to acquire additional producing properties in Canada to strengthen its reserves in relation to its well established manufacturing and marketing position. It presented us with a proposal by which Canadians, whenever they chose, could share in our already profitable development of oil resources in Western Canada, in exchange for our receiving an additional 34% interest in B-A. The arrangement was considered beneficial to both sides. But, in a larger sense, we are pleased that it has greatly facilitated the participation by Canadians in important ventures in your own country, which would not otherwise have been possible. What we did, in effect, was to help make a 50 year old Canadian company with a fine record, even stronger (and our own interest correspondingly so) by accenting the Canadian framework for the integration of production with refining and marketing facilities in a way which not only benefits both companies but makes it possible for Canadians to-invest further in what, I know you will agree with me, is one of the finest of the many good Canadian oil companies. We believe that, considering the basic like-mindedness of Canadian and American oil people and investors, and the common philosophy of economic freedom which guides us both, this was a good pattern in the particular case.

But what about the idea of American oil men, independents included, helping to develop oil in Canada in a way which not only tends to reduce our oil exports to Canada but actually has resulted in Canadian oil being imported into the U.S.? Some people might ask if that were not poor business on our part. From this point of view perhaps we should have passed a law forbidding Americans to look for oil in Canada! But the answer is that it has not worked to our disadvantage. In the first place, of course, American oil men hope to make a profit out of their ventures and on the whole, they probably will. As for the loss of export trade, well it so happened that the U.S. was becoming a net oil importer anyway, so the loss of an export market was not too serious, even to the oil industry. But more than this, the relief which Canada obtained in its dollar position from having oil production of its own, was a tremendous boon to its whole economy with advantages to us as well.

In the course of its advance Canada's foreign trade has also greatly increased. It is now one of the largest trading nations in the world. No country, I think, has bene fitted more from this than the U.S. In the past ten years your imports from our country have increased almost 300%; your purchases from the U.S. are greater than from any other area or, in fact, from all other areas combined. On the other side of the ledger Canada also, of course, has a large export business to the U.S. Not only are you our best customer but we are by far your best customer. Just as you buy more things from us than from all other areas combined, so too your exports to the U.S. exceed those to all other countries combined.

I have long been a staunch believer in the benefits to the free world of liberal trade policies, and I believe the increasing trade between our countries is an excellent example of such benefits. One of the difficult things for people to understand about foreign trade is that it must be looked at from an overall standpoint and not just on the basis of one particular situation. To the extent, for example, that Canada saved and gained dollars from having oil production of its own and also from exporting some oil to the U.S. it has had relatively more dollars to spend on other items, and the U.S. as a whole has greatly benefitted therefrom, as indicated by the figures I have already quoted as to your increased purchases from us.

There are some other things which I think our participation in your oil development illustrate. One is the importance of confidence in business dealings and in the ability to rely on the carrying out of business agreements. From the time one starts looking for oil until he begins ringing up profits in the cash register, is a long period indeed. I have been told that Americans have put more than a billion dollars into Canadian oil production. This could only be done where there is a strong element of confidence. Particularly is this a factor when one is dealing with governments, as anyone engaging in oil exploration and production in Canada must do to a considerable extent, since the Provinces own so much of the mineral rights.

This brings up special questions for, although our whole economic system depends upon the ability to rely upon business agreements being kept, the sovereign governments of some countries have taken the position that they have the right to cancel or repudiate business agreements previously entered into with private parties. The most recent example of this is the Suez dispute in which the Government of Egypt broke a business contract it had made with the old Suez Canal Company without warning and with force-a contract which still had 12 years to run.

I am not here raising the question of what international law on this subject is, or was, although I think it is clear that international law, like other law, must evolve and develop out of the needs of the people. And certainly, if international cooperation is to advance, particularly if the capital needs of underdeveloped areas are to be met, then business agreements entered into by sovereign governments with private parties must be lived up to just as faithfully as if they were between private parties and there will have to be a change in the concept which holds that sovereign governments, like minors, cannot make binding agreements. Under English Law I have heard it is said that so far as his strictly legal right is concerned the sovereign can arbitrarily cut off your head if he wants to, but that, in fact, he never does. In other words, regardless of what the law technically may be said to be, it is the force of custom and the willingness of sovereigns along with private parties to act responsibly in their dealings that determine the course of progress and define what the law really is in practice. Obviously it was in the confidence that their heads would not be cut off (or their property taken over) that American oil men felt safe in entering into business agreements and risking their capital in Canada.

I mention this not so much as tribute to your system, for that is what we would expect in your country just as we would in our own. I mention it, rather, because I believe both the U.S. and Canada have a deep interest in this matter as it relates to other parts of the world. We are joined together in a common effort to promote peace and economic development throughout the free world and this can occur only where there is a climate of respect for obligations and confidence in the integrity of governments. This is of particular significance in relation to oil, because oil has become one of the great sinews of both war and peace; and we cannot ignore the importance of an adequate supply of it, not only for ourselves but for the whole of the free world-particularly our allies in Western Europe whose economic future and defense are so intimately linked to oil from the Middle East. Your distinguished Secretary of State for external affairs, The Honourable L. B. Pearson, speaking last May in Montreal said:

"Any matter which affects substantially the well being of the United Kingdom and Western Europe is a matter of direct importance to the U.S. and Canada. That well being is largely dependent upon oil from the Middle East. Europe now gets 70% and may soon get 90% of its oil requirements from the Middle East. The blunt fact is that the United Kingdom and Western Europe are largely dependent on oil from the Middle East for their industrial life and for any advances in their standards of living ... nor is this a temporary condition, for since coal production cannot apparently be greatly increased, oil from the Middle East must continue to fill the energy gap."

In a similar vein President Eisenhower recently said:

"As you know, all of Western Europe has gradually gone to oil instead of coal for its energy and that oil comes from the Mid-East. The region is of great--as a matter of fact, it is of extraordinary--importance to all the free world. . . ."

We are in the midst of great difficulties in certain parts of the Middle East at the present time and yet I am optimistic that much good can ultimately emerge from the situation. In the first place, I believe the events have deepened our understanding of the importance of the Middle East to the Free World and the urgent need of finding solutions to some of its disturbing problems. In the second place, perhaps we can hope that out of the Suez crisis will emerge some further advance in the concepts of international law, and the minimum acceptable standards of international conduct on the part of governments in economic as well as political affairs, which in the long run will not only fortify the- legitimate interests of the Free World but help to establish conditions which will permit further economic advances in underdeveloped areas.

In encouraging such results, and in furnishing evidence of the benefits that can come from international cooperation, good will and responsible governments, I can think of no better example than the relations which have existed between Canada and the U.S.-in the fruitful development of your great oil resources, and in every other way.

THANKS OF THE MEETING were expressed by Lt.-Col. W. 11. Montague, First Vice-President of the Club.