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[Alaskan Oil] Pipeline [Research Materials Collected by Peggy Dooley, Research Assistant] [OA 6900] [1]
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[Alaskan Oil] Pipeline [Research Materials Collected by Peggy Dooley, Research Assistant] [OA 6900] [1]
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Aarhus, Carol, Files
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[Alaskan Oil] Pipeline [Research Materials Collected by Peggy Dooley, Research Assistant] [1]
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2
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7
OIL AND NATURAL GAS PIPELINE RIGHTS-OF-WAY
Part II
HEARINGS
BEFORE THE
SUBCOMMITTEE ON PUBLIC LANDS
OF THE
COMMITTEE ON
INTERIOR AND INSULAR AFFAIRS
HOUSE OF REPRESENTATIVES
NINETY-THIRD CONGRESS
FIRST SESSION
or
H.R. 9130
TO AMEND SECTION 28 OF THE MINERAL LEASING ACT or
1930, AND TO AUTHORIZE A TRANS-ALASKA OIL AND GAS
PIPELINE, AND FOR OTHER PURPOSES
HEARINGS HELD IN WASHINGTON, D.C.
MAY 17, 21. = AND 9; JUNE 7, 1973
Serial No. 93-12
Printed for the use of the
Committee on Interior and Insular Affairs
U.S. GOVERNMENT PRINTING OFFICE
9:-09
WASHINGTON : 2072
For sale by the of Documents U.S. Government Printing Office
Washington, D.C. 20402 - Price $3.45
Stock Number 5278-01932
H441-23
COMMITTEE ON INTERIOR AND INSULAR AFFAIRS
House OF REPRESENTATIVES
JAMES 4. HALEY, Florida, Chairmes
ROY 1 TAYLOR, North Carelina
JOHN P. SAYLOR, Pennsylvania, Renking
HAROLD T. JOHNSON, California
Minerity Member
MORRIS K UDALL, Arisona
CRAIG HOSMER, California
PHILLIP BURTON, California
JOE SKUBITZ, Kansas
THOMAS & POLEY. Washington
SAM STENGER, Arizona
ROBERT W. KASTENMEIER, Wisconsin
DOS H. CLAUSES, California
JAMES G. O'HARA, Michigan
PHILIP F. RUPPE, Michigan
PATSY T MINK, Hawaii
JOHN N. HAPPY CAMP. Oklahoma
LLOYD MEEDS. Washington
MASUEL LUJAN, JR, New Mexico
ABBAHAM KAZEN, JR., Texas
JOHN DELLENBACE, Oregon
ROBERT G STEPHENS. Ja. Georgia
KEITH G. SEBELJUS, Karsas
JOSEPH P. VIGORITO, Pennsylvania
RALPH S. REGULA, Ohio
JOHN MELCHER Montana
ALAN STEELMAN, Teras
TENO RONCALIO, Wyaning
DAVID TOWELL, Nerada,
JONATHAN R BINGHAM. New York
JAMES G. MARTIN, North Carolina
JOHN F. SEIBERLING, Ohio
WILLIAM M. KETCHUM. California
HAROLD RUNNELS, New Mexico
PAUL W. CRONIN, Massachssetts
YVONNE BRATHWAITE BURKE California
DOS YOUNG, Alaska
ANTONIO BORJA WON PAT. Guam
WAYNE OWENS. Utah
BON DE LEGO. Virgin Islands
JAMES R JONES. Oklahoma
SIDNEY L MCFARLAND, Staff Director and Chief Clerk
LEWIS & SELES, Counsel
WILLIAM L SHAFES. Professional Steff Consultent on Mines, Minerals, and Public Lands
CHARLES LATERRY, JR, Miserity Counsel
SUBCOMMITTEE ON PUBLIC LANDS
JOHN MELCHER. Clairman
HAROLD T. JOHNSON
SAM STEIGER
MORRIS E UDALL
JOHN P. SAYLOR
PHILLIP BURTON
DON B. CLAUSES
HAROLD RUNNELS
JOHN DELLENBACK
ANTONIO BORJA WON PAT
RALPH & REGULA
WAYNE OWENS
DAVID TOWELL
DON YOUNG. Alexica
Boa HEST. Consultant as Public Lends
JAMES ROCK, Misority Steg Consultant
NOTE-The chairman of the full committee is 82 ex office voting member of this -
committee. The first listed minerity member is counterpart to the subcemmitttee chairman
(m)
CONTENTS
Hearings held:
Page
May 17, 1973
579
May 21, 1973
731
May 22, 1973
781
May 29, 1973
847
June 7, 1973
916
Text of:
H.R. 7851
579
Statements:
AFL-CIO executive council
845
Alderson, George, legislative director, Friends of the Earth
773
Bagge, Carl E, president, National Cos! Association (plus attach-
ment)
582
"Toward Responsible Energy Policies," a joint energy policy
statement of the American Gas Association; American petro-
leum Institute: Atomic Industrial Forum, Inc.; Edison Electric
Institute; and National Coal Association
584
Brandborg, Stewart M, executive director, the Wilderness Society
933
Ciechetti, Charles, Department of Economics, University of Wisconsin
(plus attachment)
627
Additional statement
655
Appendix A.-Recent Japanese versus New York prices (table)
631
The trans-Alasks pipeline: A benefit cost analysis of alternatives
631
Arctic oil routes, orientation msp
633
Table 1.-Total cost per harrel to Los Angeles from the
North Slope via American flag ships and the trans-Alaska
pipeline
634
Table 2-Total cost per barrel from the North Stope via a
Macizenzie Valley crude oil pipeline to Edmonton and then
to Chicago (MVP)
636
Table 3.-Summary comparison of trans-Alaska pipeline to
Los Angeles and Mackensie Valley pipeline to Chiesgo
using a 10-percent discount rate
639
Table 4.-Benefit-cost ratios (conservative prices) for trans-
Canadian alternatives to Chicago and trans-Alaska pipe-
line to Los Angeles at & 10-percent discount rate
643
Table 5.-Net benefit estimates for the three principal pipe-
line alternatives using a 10-percent discount rate and
average capital costs
644
Table 6-Net revenue effects of an import for export pro-
gram
647
Table 7.-North Slope oil to the east coast by tanker from
Valder
648
Table &-Approximate tanker tariffs
648
Table 9.-Projected production throughput schedule
650
Table 10.-1971 crude oil prices in various markets
650
Action Popping on U.S. 01 Price Front: and U.S. Crude
Prices Move Another 20-24 cents, articles submitted by
Mr. Ciccketti
656
Curry, Robert R, associate professor, environmental geology, Uni-
versity of Montans
617
Dienelt, John F., staff counsel on behalf of the Wilderness Society,
Environmental Defense Fund, Inc., and Friends of the Earth
609
Eich, William, chairman, Wisconsin Public Service Commission
796
Evans, Brock, Washington, respresentative, the Serra Club
847
Fosco, Peter, general president, Laborers' International Union of
North America, AFL-CIO
835
(III)
IV
Statements-Continued
Freeman, A Myrick, III, visiting professor of economies, University of Page
Wisconsin (plus article)
659
An evaluation of the final environmental impact statement on the
proposed trans-Alaska pipeline and an analysis of the economic
and security aspects of the trans-Alasks pipeline
665
Table II-1.-Net benefits of TAPS-as estimated in economic
analysis
667
Table II-2-Net benefits of TAPS-revised data
668
Table II-3-Net benefits of MVPL
669
Table II-L-Time patterns of lost production due to delay
671
Table II-5.-Cost of 1-year delay in TAPS production
671
Table 11-&-Costs of delaying for the MVPL route
673
Table 11-7.-Impact of North Slope oil on U.S. dependence
on non-Cansdian imports
675
Table II-&-Costs and profits of TAPS
677
Table III-1.-Hypothetical projects with noncommensurable
environmental characteristics
680
Table III-?-Environmental hazard indices
681
Table I11-3.-Charaeteristies of alternative transportation
routes
682
Table IIIH-Characteristic of TAP and MVPL
685
Table III-5.-Ordinal ranking of six routes based on impact
statement summary
686
Table III-6-Ordinal comparision of TAPS and MVPL
686
Table IV-1-Tableau of economic and nvironmental consid-
erations
689
Frome, Michael, conservation editor, Field and Stream
973
Haglund, Gordon, St. Cloud, Minn
807
Hall, John F., vice president for forestry affairs, National Forest
Products Association
863
Hillyer, Saunders C., representative of the Cordons District Fisheries
Uni 0
905
Land-trom, Kari s, Esq, attorney at law, Arlington, Va
781
Lin, T. Y, professor of civil engineering, University of California,
Berkeley (plus charts and table)
982
Moore, Dr. Terris, president emeritus, University of Alaska (plus
fig- 2, outlining vegetation)
600
Nyman, Alexander, M. Se., consulting professional engineer, Dover,
Mase (plus exhibits)
784
Aerocab Mass Transit System, general statement
787
Conveyor system, chart
789
Proposed Alaska oil pipe (chart)
790
Aretran and ship or train transport of oil in containers (chart).
791
Railways, pipeline, and Aretran (chart)
792
Phillips, Glenn M, Evergreen State College student, Olympia, Wash
(plus report)
822
U.S. Santa Crus report
823
Quade, Kenneth, of Pembine, Wis
756
Ream, Louis M., Jr., executive vice president, Atlantic Richfield Co
591
Rice, Professor Richard A., Transportation Research Institute,
Camegie-Mellon University, Pittsburgh, Pa
836
Rosan, Richard 1, senior vice president and general counsel, Co-
lumbia Gas System Service Corp., Wilmington, Del (plus sp-
pendix A and B)
741
Appendix A-Data from Federal Power Ceramission study,
December 1972
744
Chart 17-Superimposed 20-year annual deliverability pro-
jections from year-end reserves 1963, 1970, and 1971....
744
Table 21-Deliverability comparisons 1963-71, all com-
panies reporting on form 15
745
Appendix B-Table-Comparison of bills before House Interior
Committee for making gas from Prudhoe Bay available in
lower 48 States
746
Schrimpl, Robert W., chairman, gasoline committee, National Oil
Jobbers Council
834
Seater, Stephen R, Defenders of Wildlife (plus information supplied
for the record)
869
Statements-Continned
Smith, Anthony Wayne, president and general counsel, National Parks
Page
and Conservation Association
760
Stevens, Hon. Ted, 2 U.S. Senstor from Alaska, report to the Senate
on conference with Canadian officials, from Congressional Record
dated June 5, 1973
958
Excerpt from statement of Senstor Stevens before the Joint
Economic Committee, June 22, 1972
960
Excerpt from statement of Senator Stevens
962
Pipeline plan provides little economic benefit, report says pipe-
line unhelpful to economy by Terrance Wills
965
Exhibit 1.-A matter for the House
967
Stool, Thomas B, Jr., National Resources Defense Council, Wash-
ington, D.C
697
Table L-West coast situation during 1-year oil interruption,
1977-82, with Alaska pipeline
700
Table II.-Stuation on west coast during 1-year oil supply
interruption, 1977-82, with no North Slope oil
700
Table III.-Situstion east of the Rockies during 1-year oil
supply interruption, 1977-82, with no North Slope oil
701
Table IV.-Situstion east of the Rockies during 1-year oil inter-
ruption, 1977-S2, with Alaskan pipeline
701
Table V.-Stuation on west coast during 1-year oil supply
interruption, 1983-85, with no North Slope oil
704
Table VI.-Situation east of the Rockies during 1-year oil supply
interruption, 1983-85, with no North Slope oil
704
Tomlinson, Alexander C., Morgan Stanley & Co., New York, N.Y
731
Uban Charles J., Uban Oil Co., Waterloo, Iowa (plus exhibits A-D,
invoices and letters)
805, 816
Vigorito, Hon. Joseph P., & Representative in Congress from the State
of Pennsylvania
597
Waldon, D. G, representing Mackenzie Valley Pipe Line Research
Limited
841
Summary
842
Winger, John G, vice president, The Chase Manhattan Bank, N.A.,
New York, NY
832
Letters:
Brandborg, Stewart M., executive director, The Wildnemess Society,
to Hon. John Melcher, dated June 14, 1973 (plus materials sup-
plementing earlier testimony)
992
Clausen, Non. Don H, to Stewart Beandborg, dated June 15, 1973
(with questions to be answered by Mr. Brandborg and placed in the
record)
969
Clausen, Hon. Don H. to Mr. Mike Frome, conservation editor, Field
and Stream, dated June 15, 1973 (plus questions to be answered
and placed in the record)
980
Doyle, John C., Council of State Governments, Western Office, San
Francisco, Calif., to Hon. James Haley, dated May 21, 1973 (plus
resolution)
846
Friedman, Martin L, Phillips Petroleum Co., to Hon. John Melcher,
dated May 7, 1973
595
Helmig, Pail D. Atlantic Richfield Co, to Hon. John Melcher, dated
May 3, 1973 (plus statement of Louis M. Resm, Jr., executive vice
president)
590
Hers, Leca, Amerada Hess Corp., New York, N.Y., to Hon. John
Melcher, dated May 7, 1973
590
Hepkins, John M, Union Oil Co. of California, to Hon. John Melcher,
dated Mar 9, 1973
596
Kraker, & E, regional manager, Kerr-McGee Corp., Minneapolis,
Minn, to Mr. Charles Uban, Waterioo, Iowa, dated Feb. 23, 1973
821
Kraker, 8 E, general manager, Kerr-McGee Corp., to Mr. Charles
Ubso, Wateriso, Iowa, dated March 30, 1973
822
Kraker, S. E., regional manager, Kerr-McGee Corp., to Mr. Charles
Uban, Waterico, Iows, dated April 27, 1973
822
Maedonald, Hon. Donald S,, Minister of Energy Mines and Re-
sources, Otters, Oatario, to Hon. Rogers C. B. Morton, dated
March 28, 1972 (exhibit 23, submitted by Mr. Seater)
904
VI
Letters-Continued
Melcher, Hon. John, to six owners of Alyesks Pipeline Service Co., Page
dated May 3, 1973
590
Correspondence between Mr. Melcher and State Department:
Melcher, Hon. John, to Hon. William P. Rogers, Secretary of
State, dated June 1, 1973
916
Wright, Marshall, Assistant Secretary for Congressional Re-
lations, Department of State, to Hon. John Melcher, dated
June 22, 1973
917
Wright, Marshall, Assistant Secretary for Congressional Re-
Istions, Department of State, to Hon. John Melcher, dated
June 27, 1973
918
Melcher, Hon. John, chairman, Subcommittee on Public Lands,
to all Members, dated June 29, 1973 (memorandum with letter
of State Department dated June 22, 1973)
919
Wright, Marshall, Assistant Secretary for Congressional Rels-
tions, Department of State, to Hon. John Melcher, dated
June 27, 1973
919
Melcher, Hon. John, chairman, Subcommittee on Public Lands,
to all Members, dated July 9, 1973 (memorandum, plus letter
from State Department dated July 7, 1973)
920
Wright, Marshall, Assistant Secretary for Congressional Rela-
tions, Department of State, to Hon. John Melcher, dated
July 7, 1973 (plus copy of Canadian responses and copy of
speech br Minister Maedonald)
920
Wright, Marshall, Assistant Secretary for Congressional Rela-
tions, to Hon. John Melcher, dated July 16, 1973 (plus question
and revised answer)
923
Melcher, Hon. John, to Hon. William P. Rogers, Secretary of
State, dated July 16, 1973 (plus letter from Friends of the
Earth to Mr. Melcher)
924
Brandborg, Stewart M, executive director, The Wilderness
Society, Roderick A. Cameron, executive director, Environ-
mental Defense Fund, George Alderson, legislative director,
Friends of the Earth, to Hon. John Melcher, plus material deal-
ing with specifies of charge the State Department did not ae-
curately represent the Canadian position on a Mackenzie Valley
pipeline
924
Wright, Marshall, Assistant Secretary for Congressional Rels-
tions, to Hon. John Melcher, dated July 17, 1973
931
Nyman, Alexander, Dover, Mass, to Mr. S. R. Seater, Defenders of
Wildlife, dated June 1, 1973
887
Nyman, Alexander, Dover, Mass, to Hon. John Melcher, dated
June 8, 1973
795
Sester, Stephen R, staff biologist, Defenders of Wildlife, to Con-
gressman John Dellenback, dated June 7, 1973
886
Slack, Carstens, Phillips Petroleum Co., to Hon. John Melcher, dated
Mar 7, 1973
596
Smith, Anthony Wayne, president and general counsel, National
Parks and Conservation Association, to Hon John Helcher, dated
June 7, 1973 (plus an article by James E Hemming)
768
Spahr, Charles E, the Standard Oil Co, Cleveland, Ohio, to Hon
John Melcher, dated May 4, 1973
589
Spshr, Charles E, the Standard Oil Co., Cleveland, Ohio, to Hon.
John Melcher, dated May 16, 1973 (plus chart of estimated trans-
Canadian timetable)
826
Estimated trans-Canadian timetable background and supporting
detail
828
Tucker, Richard F., Mobil Oil Corp., New York, N.Y., to Hon John
Melcher, dated May 10, 1973
590
Wright, M. A, Exxon Co., U.S.A., Houston, Tex, to Hon. John
Melcher, dated May 16, 1973
596
Additional information:
An evaluation of the final environmental impact statement on the
proposed trans-Alaska pipeline and an analysis of the economic and
security aspects of the trans-Alaska pipeline, an article by Dr. A
Myrick Freeman III
665
VII
Additional information-Continued
Conference of Western Attorneys General, Council of State Govern-
Page
ments, Scottsdale, Ariz, resolution, dated May 13, 1973
846
Estimated trans-Canadian timetable, submitted by Charles E. Spahr,
Standard Oil to
823
Figure 22-Cutline ef the typical vegetation of tundra, taiga, and
boreal forest and deciduous forest areas
505
Mackenzie Valley Pipe Line Research Limited: Aretic oil pipeline
fessibility study 1972-summary, submitted by D. G. Waidon
(plus map)
842
"National Resource Growth: By Plan or by Chance?" Oil and gas
pipelme development, excerpts from 3 speech by Hon. J.J. Greene,
Minister of Energy, Mines and Resources, February 12, 1971 (sub-
mitted by Mr. Seater)
897
"Principal Requirements for Northern Pipelines," by Robert D. How-
land chairman, National Energy Board, Canada, February 3, 1972,
supplied by Mr. Seater
898
Question period-A CTV production, submitted by Mr. Seater
888
Stevens, Senator Ted, statement made on his recent trip to Ottawa,
Canada, and reprinted from the Congressional Record, June 5, 1973
958
"The Distribution and Movement Patterns of Caribou in Alaska,' an
article by James E. Hemming, Alaska Department of Fishand Game_
769
OIL AND NATURAL GAS PIPELINE RIGHTS-OF-WAY
PART II
THURSDAY, MAY 17, 1973
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON PUBLIC LANDS
OF THE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 am, in room
1324, Longworth House Office Building, Hon. John Melcher (chair-
man) presiding.
Mr. MELCHER. The committee will come to order. We will continue
with the hearings on H.R. 1893, H.R. 4651, and related bills.
We have a new bill assigned to the committee, H.R. 7851, to provide
for a study of the availability of a route for a trans-Canadian oil
pipeline to transmit petroleum from the North Slope of Alaska to the
continental United States and for other purposes.
Without objection, I will make that bill a part of the record at
this point.
Hearing no objection, SO ordered.
[H.R. 7851 follows:]
[H.R. 7851, 93d Cong., 1st sess]
A BILL To provide for a study of the availability of & route for a trans-Canada oil
pipellue to transmit petrolenm from the North Slope of Alaska to the continental Enited
States, and for other purposes
Be it enacted by the Senate and House of Representatives of the Laited
States of America in Congress assembled,
SECTION 1 This Act may be cited as the "Aretic Oil and Natural Gas Act of
1973."
FINDINGS
SEC. 2 The Congress hereby finds that-
(a) Energy sources are in short supply and the Congress should act to
hasten the recovery of underground petroleum reserves on the North Slope
of Alaska;
(b) the principal alternative reutes for constructing a transmission
system for such recovery are a proposed trans-Alaska pipeline from the
North Slope to Valdes and thence by oceangoing tanker to the West Coast
of the United States, or a pipeline from the North Slope through north-
eastern Alaska and thence through Canada to the midwest area of the
United States;
(c) the proposed trans-Alaska pipeline from the North Slope to Valdez
has already been the subject of thorough and Intensive study;
(d) the trans-Canada route for the pipeline should be thoroughly and
objectively reviewed also, and diplomatic problems arising from the adop-
tion of such a route should be identified and clarified; and
(e) a comparison of the studies of both routes should thoroughly con-
sider and examine the environmental effects, economic costs, and national
security aspects of both routes.
(579)
580
DECLARATION OF POLICY
SEC. 3. Because congressional action will be required before any delivery
system for North Slope oil and natural gas can be constructed, the Congress
hereby seeks to obtain sufficient information about the availability of an all-
land trans-Alaska-Canada utility corridor to to enable it to resolve a matter of
national importance and to approve a delivery system for North Slope oil and
natural gas which would best serve the overall national interest.
ASSESSMENT STUDY
SEC. 4. (a) The Comptroller General of the United States (hereafter in this
Act referred to as the "Comptroller") is authorized and directed to conduct a
thorough study of an overland pipeline route from the North Slope across
northeastern Alaska and through Canada to the midwest section of the United
States for recovering and delivering to the continental United States petroleum
reserves located on the North Slope of Alaska. In addition, the Comptroller
shall make an objective comparison study of the trans-Canada pipeline route
with the trans-Alaska pipeline route, including marine transport to the conti-
nental United States.
(b) The Comptroller shall report his findings and conclusions, based on the
studies authorized by this section, to the Congress, and shall file a final report,
based on such study, with the Congress by January 1, 1974, or by the end of
the one hundred and eighty-day period beginning on the date of enactment of
this Act, whichever is later. In conducting the comparison study authorized by
the last sentence of subsection (a), giving equal consideration to the environ-
mental impact, economic cost, and national security aspects of the two princi-
pal alternative routes, the Comptroller shall-
(1) Identify and define those market areas in the continental United
States that are expected to experience the greatest immediate and long-
range demand for petroleum; and
(2) determine whether an Alaskan oil pipeline-oceangoing tanker system
or an overland Canadian pipeline system is the better system of delivery
for such North Slope petroleum in order to meet the demand for such
petroleum.
(e) In conducting the studies authorized by this section the Comptroller
shall enter into such contracts with the National Academy of Sciences, and
such other persons, institutions, or agencies as may be necessary and appropri-
ate to carry out the purposes of this Act.
(d) The Comptroller is authorized to secure from any department, agency,
or instrumentality of the Federal Government any information he deems neces-
sary to earry out his functions under this Act Upon request of the Comptrol-
ler, the head of any Federal department, agency, or instrumentality is author-
ized (1) to furnish the Comptroller such information 23 may be necessary for
carrying out his functions to the extent it is available to or procurable by
such department, agency, or instrumentality and (2) to detail to temporary
duty with the Comptroller, on a reimbursable basis, sech personnel within his
administrative jurisdiction as the Comptroller requests, each such detail to be
without the loss of seniority, pay, or other employee status.
NEGOTIATIONS WITH CANADA
Sec. 5. The Secretary of the Interior, in conjunction with the Secretary of
State. and such other Federal officials as may be appropriate, are authorized
and directed to enter into negotiations with the Government of Canada to
determine the feasibility and availability of a right-of-way across Canadian
territory for the construction and operation of transmission facilities for the
petroleum reserves on the North Slope of Alaska. The Secretary and such
other Federal officials shall report the results of their negotiations to the Con-
gress and to the Comptroller no later than November 1, 1973, or by the end of
the four-month period beginning on the date of enactment of this Act, which-
ever is later.
FILING or REPORTS
Sec. 6. All reports required by this Act to be filed with the Congress shall be
filed with the Clerk of the House of Representatives and the Secretary of the
Senate.
581
GRANTING OF RIGHTS-OF-WAY
SEC. 7. Notwithstanding any other law, rule of law, or any order or decision
of any court, no order or rule of the Secretary of the Interior, or of any other
Federal agency or officer of the United States, granting a right-of-way, ease-
ment, or special land use permit, respecting any Federal land, for the construc-
tion and operation of 2 pipeline for the transmission of petroleum from the
North Slope in Alaska shall take effect until after January 1, 1974, or until
after the end of the one hundred and eighty-day period beginning on the date
of enactment of this Act, whichever is later. As soon as practicable after the
end of the sixty-day period (excluding Saturdays, Sundays, holidays, and days
on which either House is not in session) beginning on the day the Comptroller
files his final report, the Secretary of the Interior shall, according to applica-
ble provisions of law, upon application grant such rights-of-way or easements,
and issue such special land use permits, with respect to any Federal land, as
may be necessary to construct, operate, and maintain a petroleum transmission
system along the route determined by the Comptroller, as a result of the study
authorized and directed by section 4 of this Act, to be the better of the two
principal alternative routes, unless the Congress, during such period adopts a
concurrent resolution, according to the procedure specified in section 8, disap-
proving such route. If the Congress does adopt such a resolution within such
sixty-day period, then the Secretary shall, according to applicable provisions of
law, upon application, grant such easements or rights-of-way, and issue such
special land use permits, with respect to any Federal land, as may be neces-
sary to construct, operate, and maintain a petroleum transmission system
along the other principal alternative route studied by the Comptroller under
section 4 of this Act. All such rights-of-way, easements, or special land use
Lermits, issued, by the Secretary as provided in this section, may be granted or
issued for such width as the Secretary of the Interior determines necessary
and without regard to the provisions of section 28 of the Mineral Leasing Act
of 1920 (30 U.S.C. 185).
CONGRESSIONAL ACTION ON PETEOLEUM TRANSMISSION
SEC. 8. (a) This section is enacted by Congress-
(1) as an exercise of the rolemaking power of the Senate and the
House of Representatives. respectively, and as such they are deemed a
part of the rules of each House, respectively. but applicable only with
respect to the procedure to be followed in that House in the case of reso-
lutions described by this section; and they supersede other rules only to
the extent that they are inconsistent therewith; and
(2) With full recognition of the constitutional right of either House to
change the rules (so far as relating to the procedure of that House) at
any time, in the same manner, and to the same extent as in the case of
any other rule of that House.
(b) For the purpose of this Act, "resolution" means only a concurrent reso-
lution, the matter after the resolving clause of which is as follows: "That the
Congress disapproves the route for the development of a transmission method
for the delivery of North Slope petroleum described as follows:
the blank space therein being appropriately filled; but does not include a con-
current resolution which specifies more than one plan.
(c) A resolution with respect to a petroleum transmission plan shall be
referred to the Committee on Interior and Insular Affairs of the House of
Representatives, or the Committee on Interior and Insular Affairs of the
Senate, by the President of the Senate or the Speaker of the House of Repre-
sentatives, as the case may be.
(d) If the committee to which a resolution with respect to a petroleum
transmission plan has been referred has not reported it at the end of ten eal-
endar days after its introduction, it is in order to move either to discharge the
committee from further consideration of the resolution or to discharge the
committee from further consideration of any other resolution with respect to
the petroleum transmission plan which has been referred to the committee.
(e) A motion to discharge may be made only by an individual favoring the
resolution. is highly privileged (except that it may not be made after the com-
mittee has reported a resolution with respect to the same plan), and debate
thereon shall be limited to not more than one hour, to be divided equally
582
between those favoring and those opposing the resolution. An amendment to
the motion is not in order, and it is not in order to move to reconsider the
vote by which the motion is agreed to or disagreed to
(f) If the motion to discharge is agreed to or disagreed to, the motion may
not be renewed, nor may another motion to discharge the committee be made
with respect to any other resolution with respect to the same plan.
(g) When the committee has reported, or has discharged from further con-
sideration of, a resolution with respect to a petroleum transmission plan, It is
at any time thereafter in order (even though a previous motion to the same
effect has been disagreed to) to move to proceed to the consideration of the
resolution. The motion is highly privileged and is not debatable. An amend-
ment to the motion is not in order, and It is not in order to move to recon-
sider the vote by when the morion is agreed to or disagreed to.
(h) Debate on the resolution shall be limited to not more than ten hours,
which shall be divided equally between those favoring and those opposing the
resolution. A motion further to limit debate is not debatable. An amendment
to, or motion to recommit, the resolution is not in order, and it is not in order
to move to reconsider the vote by which the resolution is agreed to or disa-
greed to.
(1) Motions to postpone, made with respect to the discharge from committee,
or the consideration of, a resolution with respect to a petroleum transmission
plan, and motions to proceed to the consideration of other business, shall be
decided without debate.
(j) Appeals from the decisions of the Chair relating to the application of
the rules of the Senate or the House of Representatives, as the case may be,
to the procedure relating to a resolution with respect to a petroleum transmis-
sion plan shall be decided without debate.
Mr. MELCHER. We have had a request from Carl E. Bagge, presi-
dent of the National Coal Association, asking that the attached
statement by Mr. Bagge be made a part of the record.
Hearing no objection, SO ordered.
[The documents follow:]
STATEMENT BY CARL E BACGE, PRESIDENT, NATIONAL COAL
ASSOCIATION
My name is Car' E Bagge. I am the president of the National Coal Associa-
tion. which represents the major coal producing and eoal sales companies of
the nation. The coal industry welcomes the opportunity to present its views on
the proposed removal of the 50-foot right-of-way restriction to permit the
timely construction of the Alaskan pipeline.
The National Coal Association supports legislation which will permit the
timely construction of the Alaskan pipeline. For the reasons set forth, we
believe this to be in the national interest and consistent with the long-standing
position of the National Coal Association that the fullest development of
America's indigenous energy resources should be an urgent national priority.
This position might seem at odds with the mandate of the National Coal
Association-to promote coal. However, we believe that careful analysis fully
justifies our decision to support legislation to permit the transporting of
domestic oil and natural gas across public lands. In addition to the indigenous
resource argument cited above, this issue is vital to the coal industry because
eoal is the future feedstock for both oil and pipeline gas.
Our dependence on foreign energy is already growing at an alarming degree.
During 1972 the U.S. imported more than 25% of its total national petroleum
demand. Much of this total was in the form of residual fuel oil, a direct com-
petitor of coal in the utility, Industrial and commercial markets.
The impact of these imports has been devastating upon the coal industry.
Coal has lost major markets along the East Coast to foreign residual oil and
has, for all practical purposes, ceased to be a major competitive factor there.
Now the impact of foreign oil is reaching inland and is threatening the very
existence of large segments of the nation's coal industry.
Environmental standards have been the major cause of the acceleration in
foreign oil imports. Stringent sulfur limitations have excluded coal from many
of its traditional markets. In the absence of adequate pollution control technol-
583
ogy the only viable alternative has been oll-Imported oil. Still more stringent
mitur limitations scheduled to go into effect between now and 1975 will tend
to accelerate the trend toward imported oil Moreover, the uncertainty sur-
rounding surface mining creates an additional impetus for increasing oil
Imports.
The cost of our increasing dependence on imported oil is considerable. From
a balance of payments standpoint alone about $4 billion went into foreign
treasuries during 1972, a major threat to international monetary stability.
More significant, however, was the decline in America's ability to expand its
indigenous fuel capability to meet domestic demands, As domestic capability
atrophied, the nation moved further along the road to foreign fuel dependence.
Our future energy situation will be more critical unless there is a major
shift in national energy policy and a conscious decision to develop indigenous
resources. Predictions by others indicate that imported oil may exceed 50% of
our total oil consumption by 1385. Imported liquid natural gas from both
North Africa and the Soviet Union is a distinct threat to the viability of our
domestic energy base. The shift from Western Hemishere oil sources to the
Mid-East poses significant diplomatic and military questions. Finally, the mag-
nitude of our balance of payments potential problems looms in eatastrophic
proportions. This could amount to more than $30 billion by 1985.
The alternative is indigenous resource development. We must maximize our
coal, ofl, natural gas, and oil shale resources. We must, as 2 nation, commit
ourselves to such development within the context of environmental quality.
Alaskan oil is one such indigenous resource. It is available, and although it
will not, by itself, solve our long-term petroleum supply problem it nonetheless
is a major new domestic reserve. Naturally, it is a competitor of coal and we
must be prepared to meet it in the market place. It is domestic competition,
however, and the alternative-more foreign oil-is 2 circumstance we believe
is clearly not in the public interest.
Our basic concern here is the recent decision by the Circuit Court of
Appeals for the District of Columbia which has blocked the timely develop-
ment of an essential domestic energy resource. The thrust of that action
clearly at odds with the best interests of energy consumers, the nation's fuel
industries, their employees, and we believe, the nation at large.
The action of the court in this case is directly parallel to similar actions
taken against the energy industries in recent years. For example, there is cur-
rently pending before the U.S. Supreme Court a lower court ruling which, if
plants. upheld, would prevent the construction and operation of coal fired power
Combined with other events, such as the non-degradation suit now before the
Supreme Court, the Alaskan oil pipeline decision could severely eripple Ameri-
ca's indigenous energy resource base. As the members of this committee are
well aware, such a series of events would place this country in a subservient
role to foreign fuel suppliers, thereby subjecting the security of our energy
supply to the whims of foreign nations, and the uncertainties of international
polities
In many respects, coal, oil, natural gas, uranium, oil shale, and water power
are inextricably intertwined 28 part of the energy base upon which America
must grow
That is why we are here today in support of legislative efforts to permit the
timely construction of the Alaskan pipeline.
For the record we have attached a statement by the associations represent-
ing America's major fuel interests. This statement sets forth the elements
which we feel should be included in a unified energy program.
This was done because the associations involved recognized a mutual inter-
est in indigenous resource development even though we must and should com-
pete for our individual shares of America's energy market.
We agree with and urge passage of legislation which would allow the use of
sufficient land to permit the construction, operation, and maintenance of new
pipelines across federal lands. Such construction and operation should be
within the context of proper environmental safeguards. We do not profess to
be experts in what those safeguards should be, nor can we suggest to you
what must be done to protect the environment in the instance of the pipeline
under discussion. We do believe. however, that narrowly construed width
restrictions do not justify forestalling the development of needed energy distri-
bution systems.
Coal, like all other forms of energy which have the potential to be trans-
narted be mineline must
584
legislation, mainly that of recognizing that in most instances the 50-foot
"right-or-way" is insufficient to cope with construction equipment and tech-
niques for any pipeline of reasonable size.
The immediate question before this committee today is the construction of
the trans-Alaskan oil pipeline. This is a matter which must be resolved expedi-
tiously 50 that the vast oil reserves of the Prudhoe Bay area can be made
available to American consumers.
The National Coal Association fully supports expeditions action on this par-
ticular problem as part of a national program for indigenous energy resource
development and this committee and others Involved in this all-important
endeavor.
Attachment.
TOWARD RESPONSIBLE ENERGY POLICIES
(A Joint Energy Policy Statement of the American Gas Association; American
Petroleum Institute; Atomic Industrial Forum, Inc.; Edisor Electric Institute;
National Coal Association)
PREFACE
The United States is facing a critical energy problem. The supply of secure
and environmentally-acceptable energy will not be adequate to meet prospec-
tive demand unless there is a change in the economic and political climate
affecting the energy industries.
The few brief local interruptions of energy supplies in the past few years,
and the restrictions on sales of natural gas now in effect in a number of states
throughout the nation, are only a taste of what may lie ahead a few years
from now.
Energy problems must be placed high on the list of our national priorities.
Time is of the essence, since it often takes from five to ten years after a deci-
sion is made to develop new fuel sources or to construct electric generating
facilities before additional energy supplies can be delivered to consumers.
Unless prompt actions are taken, serious energy shortages will spread to all
parts of the nation.
The attached joint energy statement, "Toward Responsible Energy Policies,"
has been prepared to alert the nation to the imminence of a major energy
erisis and to recommend constructive actions to avert it. We present this state-
ment with the hope that it will make a contribution towards these goals.
F. DONALD HART,
President, American Gas Association.
FRANK N. IKARD,
President, American Petroleum Institute.
CHARLES ROBBINS,
President, Atomic Industrial Forum, Inc.
W. DONHAM CRAWFORD,
President, Edison Electric Institute,
CARL E BAGGE,
President, National Coal Association.
The United States is faced with a growing energy problem which has the
potential of developing into a major national crisis. Public awareness of this is
vital to its resolution.
The symptoms of difficulty first appeared in the 1960's, although they were
largely obscured by an economic slowdown. It became increasingly apparent
that we were living on our basic fuel reserves. Fuel additions were not match-
ing fuel consumption, a warning that our energy economy was shifting from
one of abundance to one of searcity. The nation, and particularly the Eastern
Seaboard, became more and more dependent upon imports of foreign oil. Natu-
ral gas service curtailments began to take place in seattered locations around
the conniry.
Today, natural gas curtailments are becoming more widespread Domestic oil
production from presently proved reserves in the lower 48 states is at maxi-
mum levels and excess capacity has disappeared. Demands for low-sulf fuel oil
and low-sulfur eoal cannot be met. The energy problem is continuing to
worsen, to the point that the nation is on a collision course with a major
energy shortage.
585
ENERGY-THE KEY TO PROGRESS
The history of the U.S. is one of unprecedented and unparalleled growth. No
nation yet approaches the industrial strength of the U.S. No society in the his-
tory of the world has reached its level of prosperity.
Energy, readily available at reasonable cost, has been a major factor in this
progress. À worldwide comparison of per capita energy consumption and real
income points out the close correlation between the two. The higher a nation's
per capita use of energy, the higher its per capita real income. Conversely,
nations with low rates of energy consumption have low positions on the per-
capita income scale. The reduction of poverty coupled with progress toward
satisfying rising economic expectations throughout the world will require vast
increases in the supply and utilization of energy.
Because of the long history of abundant energy at low cost in the U.S. the
nation had come to believe that a limitless supply of cheap energy would
always be available. One of the most alarming aspects of the current energy
situation is that many Americans do not yet realize there is a problem. Even
some of those who are aware that a problem exists do not understand its
severity or its dangers. They are unaware of the possible impact of inade-
quate energy supplies upon their day-to-day activities and life styles.
THE EXPLOSIVE GROWTH IN DEMAND
The public demand for energy in the United States is expected to grow rap-
idly through the end of the century. Based on a 3.6 percent annual growth
rate, a recent study by the U.S. Department of the Interior projects almost a
tripling of energy consumption by the year 2000.
Although the share of total energy consumption supplied by each fuel may
change. the actual amounts of each energy source which will be required to
meet these demands will be far in excess of current levels.
THE NEED FOR ENERGY GROWTH
One way to conserve energy supplies would be to restrict the growth rate of
energy use. This would reduce economic progress. We would fail to achieve
our most pressing national goals, including full employment, alleviation of pov-
erty, and protection of our national security. We would have to curtail efforts
to clean up our environment, since additional eneergy will be required to
secure needed environmental improvements to treat sewage, to recycle waste,
and to remove sulfur from fuels. Little support can be given to the assumption
that the nation will choose "no growth" in the energy sector of our economy
during the rest of his century. Although every effort must be made to assure
that our natural resources are used wisely, and for the benefit of all segments
of our society, we must assume a growing energy requirement.
THE WISE USE OF ENERGY
An effective means of helping to meet the growing energy demands of the
American people is to maximize the efficient utilization of energy in our
society and minimize the waste of human and fuel resources. Insofar as prac-
ticable, we must strive toward maximum efficiency in the production, distribu-
tion and utilization of all forms of energy.
NO SHORTAGE OF RESOURCES
The U.S. has sufficient resources to meet its foreseeable energy needs. While
the U.S. has become a "have not" nation in terms of usable commercial sup-
plies of fuel, we are still a "have" nation in terms of available resources.
Declining reserves of crude oil and natural gas reflect a low level of explora-
tion and development relative to demand, not an exhaustion of these resources.
Estimates by government and other informed specialists indicate that potential
domestic resources of oil and gas could support substantially higher rates of
production. Coal reserves are abundant, and represent a supply of at least sev-
eral centuries at existing levels of consumption. Potential uranium supplies for
nuclear power are more than adequate, assuming the timely development of
breeder reactors. Synthetic oil and gas can be produced from coal. Looking to
586
the longer-run future, Equid facls ein be produced from oil shales and tar
sands. There are huge reserves of these minerals in the Western States and
Canada.
THE FORKEUNNES or SHORTAGE
A hist of vehitig problems. some of long standing and others of recent
origin, have led to the current tenuves energy supply situation. High 8 the
list are the delays and costs crested by 2 lack of coordinated government poll-
cies. The many Federal departments and agencies which rule CE esergy mat-
ters have suffered from the lack of collerent policies to follow. Their decisions
have been piecemeal and Inconsistent, based upon BEITOW and shortran inter-
pretations of conditions affecting particular faels at a particular time. The
results have been chaotic, and have discouraged the development of badly-
needed energy resources.
The rapid Introduction of stringent environmental standards has further
constricted the nation's fuel supply. AB existing energy sources have been
affected. on from the huge Prudhoe Bay field in Alaska is still unavailable
due to the long delay in approval of the trans-Alasks pipelise. This, in turn, is
delaying the availability of new gas supplies from that area. Federal offshere
leasing delays are affecting supplies of both oil and gas. In some states, bills
have either been passed or are pending which seek to bar the search for petro-
leum off of their coasts, and make it difficult to find suitable sites for terminal
facilities and refineries. Sulfur restrictions in major cities have curtailed usage
of both domestic coal and fuel oil In some states and in Congress, there are
proposals to bar surface mining. Delays resulting from prolonged Federal regu-
latory procedures and court-ordered environmental evaluations of about 100
nuclear power facilities have slowed development of this important NEW energy
source.
Government efforts to superimpose its direction as a substitute for market
forces have exacerbated energy problems. As an example, regulation of natural
gas prices at the wellhead by the Federal Power Commission. resulting in arti-
ficially low levels. acted to stimulate demand and discourage the search for
new supplies. This imbalance led to a shortage of this clean-burning fuel,
which could assist in reducing air pollution problems in major urian areas.
Such government actions often overlook economic and technologiesi interac-
tions and lead to unexpected and undestrable effects.
Imports are playing and will continue to play a ruie in meeting the nation's
fuel needs. It is inevitable that the U.S. will require larger of and gas
imports in the 19:03 and nearly 1980's However. attention must be given to
the implications of rising energy imports and their impact upon the develop-
ment of domestic supplies as well as upon national security. Mest of the
proved petroleurs reserves of the world are located is the Eastern Hemisphere.
Supplies of oil from some of these sources have been curtailed a sumber of
times Excessive reliance upon imported fuels would pose grave dangers to our
economic health and national defense. In addition, with producing nations now
banding together to demand higher prices and impose higher taxes, foreign oil
is becoming more costly. Imported liqueded natural gas is new more expensive
than domestic gas. The nation should also recognize that growing energy
demand in the rest of the world will result be Increasing competities for fuels
in coccing decades. Thus, looking to the future, foreign energy supplies are
likely to be neither secure nor inexpensive. However, sciee of the risks inber-
ent in fuel importation can be reduced by importing both oil and as from a
variety of sources.
Energy industries are also faced with huge capital requirements, and to an
Increasing extend must obtain these funds from financial markets inther than
from Internal sources. Adequate profitability is needed to attract the capital
required for new facilities.
A long-range commitment to research and development in the energy field is
needed. Government R&D programs should be closely coordinated with
research efforts of the energy Industries.
THE IMPORPANCE 01 TIME
An all-out effort must be made to strengthen our energy economy. The time
to make crueial decisions is now. Continued delay 1 permit minor shortages
and inconveniences to develop into major shortages and serious disruptions.
587
This is because a common characteristic of all significant sources of energy is
the long lead time involved in the planning, production, transportation and uti-
lization. Delays can only add to the magnitude of our energy problems.
THE OBJECTIVES OF ENERGY POLICIES
There appear to be four main objectives of sound energy policies:
(1) The development of as adequate supply of energy at reasonable
prices, to permit our nation to enjoy continued esnomic progress and 1
high living standard.
(2) The achievement of relative self-sufficiency through the marimum
development and utilization of domestic fuel resources to the extent justi-
fied by appropriate economic and national security considerations, supple-
mented by oil and gas imports as needed.
(3) The maintenance of a safe and healthy environment for both pres-
ent and future generations. High energy use has provided a high standard
of living. but has also been partly responsible for adverse effects upon
man's environment. These effects must be squarely faced and met in a bal-
anced and responsible manner.
(4) The attainment of merimum efficiency in the production, distribu-
tion and utilization of all forms of energy.
There is no real conflict among these goals. By reshaping our energy policies
to broaden the energy base. we can provide adequate and secure sources of
reasonably-priced energy in harmony with environmental needs Both nature
and the marketplace can be served.
ELEMENTS OF RESPONSIBLE ENERGY POLICIES
The American Gas Association. the American Petroleum Institute, the
Atomic Industrial Forum, the Edison Electric Institute and the National Coal
Association. recommend the following basic policies in order to assure ade-
quate supplies of secure and clean energy at reasonable prices:
(1) Comprehensive energy policies must be formalated to bring about
greater coordination and harmony between Federal, state, and local govern-
ment agencies whose decisions affect energy industries. Government regulation
of energy industries, to the extent that it is necessary. should be streamlined
In order to adapt more rapidly to the changing needs and requirements of
modern society.
(2) Energy policies should fully recognize the benefits of the free exterprise
system and should be formulated within the context of sound business princi-
pier Energy fuel prices should relate to actual demand and actual market eca-
ditions. Policies which stifie initiative in the development of any form of
energy are contrary to the public interest.
(3) A balance must be struck between the need for entironmental protec-
tion. and the need for economic development (including energy growth).
National environmental policy should give consideration to the availability and
cost of pollution control methods and the resulting impact upon energy prices.
Costs must be balanced against the resulting social and environmental benefits.
(4) Incentives for energy development appropriate to the unique characteris-
time of fucls and minerels should be strengthened. An attractive economic di-
mate must be developed which will elicit the massive amounts of venture capi-
tal needed to develop new supplies of energy fuels.
(5) National land use policies affecting both prieste and public lands.
including the Outer Continental Shelf. should be coordinated with national
energy policies. Energy production requires land use. Land the policies must
recognize the non-renewable nature of fuel resources and the fact that they,
unlike many other products, must be produced where found. Federal leasing
regulations should permit optimum utilization of all energy resources in har-
mony with sound ecological principles. Multiple uses of land should be encour-
aged.
(6) Sound and stable import policies should be maintained in order to pre-
mote the development of indigenous fuel resources and technology to the
extent justified by appropriate economic and national security considerations.
While every effort must be made to meet environmental standards, the nation
must also make every effort to minimize its dependence for energy upon these
foreign sources which could pose problems of possible supply interruptions. In
97-839-73-pt. II-2
588
addition, unlimited fuel imports could represent a serious drain upon our bal-
ance of payments position. Import policies should be designed to allow the
competitive use of overseas supplies of oil and gas in 2 manner that will sup-
plement. but not supplant, domestic sources of supply. Such policies must rec-
ognize the special problems, such as environmental requirements, which may
arise in particular industries or regions.
(7) The long-range governmental commitment to research and development
in the energy field must be strengthened, and existing cooperative
industry/government efforts in research and development must be augmented.
Parallel development of toth fossil and nuclear fuels is essential if our nation
is to meet short- and intermediate-term energy needs as well as longer-run
needs. Balanced federal funding is needed to develop new technology which
will permit the full utilization of our vast domestic fuel reserves. Primary
responsibility for research and development should continue to rest with indus-
try. Government's role should be concentrated mainly in the funding of longer-
range programs which do not have an immediate impact, but which do have
potential benefits for our nation's consumers of energy.
High priority must be given to projects such as the development of breeder
reactors and fusion technology. At the same time, the Federal Government
should continue to share with industry the burden of constructing demonstra-
tion plants designed to remove sulfur oxides from the stack gases of eoal and
oil-fired power plants. In addition, more energetic government programs are
needed to aid in the development of technology to convert coal to the more
environmentally-acceptable gaseous and liquid forms and for utilizing it
directly.
There must also be a more active program for conducting the essential
research and development of pollution control technology- Government should
insure that environmental goals and standards are set with due regard to
existing technology and achievable improvements in the state of the art.
(8) Health and safety regulations should be carefully designed and adminis-
tcred to minimize hazards to workers and the public and marimize operating
efficiency.
(9) Wise and efficient utilization of all forms of energy should be promoted
and encouraged. Economies in energy consumption can be achieved in homes,
transportation, agriculture, business and industry, and government.
(10) Both industry and government must recognize their obligation to
inform the public on energy matters. Public awareness of the energy situation
is a major key to resolving the energy supply situation.
THE CONSEQUENCES OF FAILURE
The responsibility to maintain a supply of energy which is adequate to meet
the needs of our people must be shared by industry and government. It can be
met if all segments of American society join together to formulate new energy
policies which will remove existing roadblocks to progress.
One overriding need is to sweep away preconceived ideas concerning energy
problems. It must be recognized that the era of energy abundance and cheap
fuel has ended. Factors such as environmental eosts, rising labor and equip-
ment costs, and the need to attract venture capital, must be refected in prices.
The nation's fuel bill is going to go up. Recognition of these basie changes in
the energy situation will contribute to a more responsible appraisal of the
energy situation and a more realistic approach to the framing of new policies.
The consequences of failure, either by imprudent actions or inaction, are
likely to be severe. The result could be energy shortages which could imperil
the nation's economic well-being and cause substantial hardships to our citi-
zens. If sound and timely decisions can be reached on energy policies, such a
crisis need never arise.
Mr. MELCHER. We have here a letter from Mr. Spahr of Standard
Oil Company. I had an additional letter from him and I assured
him that this letter will be made a part of the official hearing record.
Without objection, I will make it a part of the record at this
point.
589
[The document follows:]
THE STANDARD OIL Co.,
Cleveland, Ohio, May 1/2 1973.
Hon JOHN MELCHER,
Chairman, Subcommittee on Public Lands, House Committee Interior and
Insular Affairs, House of Representatives, Washington, D.C.
DEAR CHAIRMAN MELCHER: I want to thank you for the courtesy extended to
me by you and your fellow members of the Subcommittee on Public Lands
when I appeared before you on Wednesday, May 2.
Please do not hesitate to call upon me again whenver you feel that I may be
able to be helpful to you as you consider the multitude of important matters
that demand your attention.
It is with the intent to be helpful, or enlightening at least, that I now refer
to a part of your conversation with some other members of your committee
and/or staff that occurred just before you invited me to speak on May 2. I
refer to your comment to the effect that the Secretary of the Interior had
assured you that he intended to obtain reimbursement from the oil companies
having Interests in the Trans-Alaskan Pipeline for all of his department's costs
already incurred and to be incurred as a consequence of developing the TAPS
Environmental Impact Statement, providing design review, inspecting construc-
tion, and monitoring the operation of the pipeline.
I simply could not help overhearing this. I am concerned that silence OR my
part, under the circumstances, might be interpreted as agreement with the Sec-
retary. This is not the case.
I feel very strongly that it is not right to expect the oil companies to accept
such an open ended, unmeasured and unlimited burden. The situation in which
we all find ourselves is a consequence of the recent enactment of a new law,
The National Environmental Protection Act, which has been in an evolutionary
period of interpretation. It seems to me that the oil companies are somewhat
like pawns in a chess game, with no control over the eventual outcome or the
length of the game. Also, it seems that the Interior Department, in carrying
out its obligations under N.E.P.A. has been spending money in the general
public interest as well as that of the oil companies.
In so far as inspection during construction and operation is concerned we
have no way of controlling the conclusions as to manpower to be involved, or
as to what is to be done. Further, it seems to me that such inspection is for
the public interest, and not in all instances for that of the oil companies. The
companies have the obligation of providing inspection of a quality and inten-
sity necessary to assure themselves that they are fulfilling their obligation to
provide a sound operating and safe facility.
We have been discussing these matters with representatives of the Depart-
ment of the Interior in the hope of reaching an agreement as to the definition
of the financial obligation that it would be appropriate for the oil companies
to bear for Environmental Impact Statement preparation, design review and
inspection during construction and operation of the pipeline.
I earnestly hope that you will consider our attitude a reasonable one.
If you would wish to make this letter a part of the record of the hearing I
would have no objection.
Sincerely,
CHARLES E SPARE
Mr. MELCHER. We have written to the various owners of Alyeska
Pipeline Service Co. and we have received a reply from Mobil Oil,
Amerada Hess, Atlantic Richfield, Phillips Petroleum, Union Oil Co.
of California, and Exxon Co.
Without objection, those items will be made a part of the record
at this point.
Hearing no objection, so ordered.
590
[The documents follow:]
COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,
U.S. HOUSE OF REPRESENTATIVES,
Washington, D.C., May 3, 1973.
Mr.
DEAR Mr.
: The House Public Lands Subcommittee, as you know,
is holding hearings on rights-of-way legislation which has centered on the
Alaska pipeline.
When Mr. Charles E. Spahr, Chairman and Chief Executive Officer of Stand-
ard Oil Company of Ohio, testified before the Subcommittee on May 2nd, I told
him:
"The question will be raised repeatedly whether or not there is any assur-
ance that if there is a (Alaska) pipeline built. that the crude will all come to
the United States. We want your assurance that that is the full intention of
your company."
Mr. Spahr told the Subcommittee that was the full intent of his company.
I am now directing this same question to the other six owners of Alyeaka
Pipeline Service Company, which includes your firm.
I would appreciate a prompt reply since the hearing record is being held
open to receive this information.
Sincerely,
JOHN MELCHER,
Chairman, Subcommittee on Public Landa
MORIL OIL Corr.,
New York, N.Y., May 10, 1973.
Hon. JOHN MELCHER,
Chairman, Subcommittee on Public Lands, Committee on Interior and Insular
Affairs, House of Representatives, Washington. D.C.
Mr DEAR MR. MELCHER: In response to your letter of May 3, 1973, it Is the
intention of the Mobil Oil Corporation to utilize all of its anticipated Alaskan
crude oil production in the United States. In this connection. we expect to
refine this oil in our two West Coast refineries located at Ferndale, Washing-
ton. and Terrance, California.
We trust that the above adequately responds to your question.
Sincerely yours,
RICHARD F. TOCKER
AMERADA HESS Corp.,
New York, N.Y., May 7, 1973.
Hon. JOHN MELCHER,
Chairman, Subcommittee on Public Landa, Committee on Interior and Insular
Affairs, House of Representatives, Washington, D.C.
DEAR SIz: This is to acknowledge your letter of May 3. 1973, and we wish
to inform you that, if and when the Alaska pipeline is constructed, " expect
to utilize the crude oil within the United States.
Very truly yours,
LEON Hrss.
WASHINGTON, D.C., Hay S, 1973.
Hon. JOHN MELCHER,
Chairman, Subcommittee ON Public Lands, Interior and Insular Affair:, House
of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: In response to your letter of May 3 concerning Atlan-
tic Richfield's attitude toward the safe of off from the North Slope of Alaska
to Japan, I think it is most appropriate to quote from testimony delivered that
same day before the Senate Interior Committee.
In his testimony on behalf of Atlantic Richfield, Mr. Louis V Ream, Execu-
tive Vice President, said:
591
"As to the assertion that the Alaskan route is being supported by all empa-
nies because they want to sell a portion of their production to Japan, I can
only repeat what my company has said for many years: We have absolutely
no plans to sell North Slope uil abroad so long as there is a need for it in the
United States. Our Cherry Point, Washington refinery represents, I believe, 1
concrete proof of our commitment. It was designed and built to process Alas-
kan crude for American customers."
Further, in an answer to a question from Senator McClure, Mr. Ream added
that it would make absolutely no economic sense for our company to export
North Slope oil to Japan when we can supply Japanese markets from fields in
Indonesia. Alaskan oil will back out the Indonesian crude that would be
needed OR the West Coast, freeing it for sale in Japan without balance of pay-
ments loss to the U.S.
Since Mr. Ream goes into more detail on this subject on Page 5 of his pre-
pared testimony and since Atlantic Richfield was unable to appear before your
subcommittee in these hearings, I thought you might be interested in having a
copy of Mr. Ream's testimony. Included is a map indicating the location of
future synthetic fuel supplies in the mid-continent area as well as the gas and
oil pipeline systems now serving the country.1 An explanation of the potential
future supply in the mid-continent appears on Page 4 of Mr. Ream's testimony.
I hope this material is of use to you. If we can be of any further assistance,
please do not hesitate to call on US.
Sincerely,
PHIL D. HELMIG.
TESTIMONY OF LOUIS M. REAM, JR, EXECUTIVE VICE PRESIDENT,
ATLANTIC RICHFIELD Co.
Mister Chairman, I appreciate the opportunity to appear before this Commit-
tee today on a matter that becomes more important with the passage of each
day. I trust my testimony will help clarify our Company's position and some
of the misunderstandings and misinformation that have afflicted. the debate
over North Slope oil.
As you know, Atlantic Richfield made the initial discovery of oil in the Prud-
hoe Bay area in January of 1968, more than five years ago. Since that time,
we have been striving to overcome the environmental, engineering and legal
obstacles to delivering this commodity to the Lower 48. We are satisfied that
we have achieved our aims in the first two instances, and by amending the
1920 Mineral Leasing Act to permit construction of the Trans-Alaskan Pipeline
System (TAPS), the Congress can help us clear the last hurdle.
Before I address some of the more politically sensitive issues involved in the
current discussion, I would like to deal briefly with the nature of the legisla-
tive relief required in this matter. First of all, let us recognize that some kind
of right-of-way amendment is necessary, no matter what route is selected.
Whether the line goes south or east from Prudhoe Bay, it must cross U.S.
public lands. In doing SO, it will require a right-of-way permit from the Secre-
tary of the Interior that the courts have ruled he has no authority to grant
under present law. Therefore, if we want the oil, we must amend the law.
The question is, how? I would like to reiterate what Atlantic Richfeld's
President, Mr. Bradshaw, told this Committee some weeks ago: The simplest
remedy, it seems to us, is to confine the amendment to the right-of-way ques-
tion only. While there seems no question that bronder problems are involved
with modernizing the Mineral Leasing Act, they will require time to study and
when enacted will introduce new and as yet unlitigated issues We believe that
a simple bill permitting the Secretary of the Interior to issue special Land Use
Permits, which he has been doing for many years, will solve the immediate
problem raised by the court decision and reduce the possibility of time-cossum-
ing litigation.
Now, we are all aware that advocates of a Trans-Canadian pipeline system
have been trying in the last several months to stop the Alaskan pipeline. They
want to see North Slope oil diverted from the nearest, most accessible market
-the West Coast-to bring it many hundred miles to the east, to supply a
1Map marked Map I has been placed in pocket attached to back core.
592
market in which they have a greater interest. Those of us who have been
involved in the Alaskan oil venture since the beginning are unanimous in feel-
ing that this diversion would run counter to the national interest. In behalf of
our argument we have repeatedly cited the reasons we believe a Trans-Alaskan
pipeline is preferable:
It has been carefully designed and engineered to meet the rigorous chal-
lenges of the Arctic topography.
It is the most expeditious way to bring North Slope oil to market.
It has adequate financing, all from the private sector.
It. will save the United States from $5 billion to $12.5 billion in foreign
exchange over any alternative delivery system.
It puts North Slope oil where it will do the most good in relation to the
total U.S. energy picture.
Nevertheless, the proponents of a Canadian alternative persist in painting
their proposal as an ideal and seemingly flawless one. The arguments, as we
have also repeatedly shown, are deficient in several respects:
The Canadian pipeline, as an engineering entity, does not even exist on
paper.
Its preliminary environmental work is far from complete.
It still has all the regulatory and legal problems to clear, including the com-
plex and lengthy one of native claims settlements.
No one has yet come forward with a financial plan for the pipeline that
takes into account questions of treaty requirements, taxes, equity ownership
and rights to the oil transported.
It will be almost twice as expensive.
The Canadians themselves have shown only minimal interest in the line.
Many of the arguments supporting the trans-Canada route are based on a
sense of regional competition-pitting one part of the country against another.
But the energy crisis now facing us is a national, not a regional phenomenon.
We need every barrel of American oil that we can produce and deliver domes-
tically. Each dollar we save helps our balance of payments and strengthens the
dollar that is spent in Chicago as well as the one spent in Los Angeles.
Tempting though it may be to focus on a regional need, such as that in the
Midwest, and seek an expedient remedy, such as North Slope oil, we should
ask ourselves whether this really serves our long-run interests. On one point
alone-the U.S. Gross National Product-our studies with the What 30 Long
Range Econometric Model indicate a cumulative loss to our economy of around
$19 billion (1973 dollars) through construction of a Canadian pipeline. with all
its attendant costs of delay, flight of capital, etc. And this is predicated on the
trans-Canada option delaying us only two years. The actual additional delay
might run as long as five.
Let me deal for a moment with the very serious matter of a Midwest energy
shortage. I think it is possible to demonstrate that the delays involved in
building a trans-Canadian oil pipeline to answer Midwest needs will be coun-
terproductive-not only to the total T.S. energy picture, but actually to the
long-range requirements of the midcontinent area. There are three potential
domestic energy resources, exclusive of initial North Slope oil, that can be
used to alleviate Midwestern needs.
(1) North Slope natural gas.
(2) "Second-phase" North Slope crude oil-i.e. production that will result
from renewed exploration in the area once oil is on stream to the Lower 16.
(3) Synthetic hydrocarbons (tar sands, crude oil from coal, oil shale)-
The first two of these resources depend entirely on construction of = delir-
ery system for the 10 billion barrels of oil now known to exist under the
North Slope. We cannot produce gas until oil production is started. To do so
would result in a loss in recoverable oil reserves of as much as 20% The gas,
therefore, can be made available for the U.S. market much sooner with -
struction of the Trans-Alaskan pipeline. Atlantic Richfield Company is at pres-
ent a participant with approximately 5 other companies (both U.S. and Cans-
dian) in a study to determine the feasibility of bringing North Slope as
through Canada to the Midwest. This group is known as Gas Arctic Northwest
Study Group.
Likewise. we cannot economically justify further exploration of the North
Slope until we have some assurance we can get out oil we have already dis-
covered and are ready to produce. If our expectations prove correct, NEW dis-
coreries could provide a vast new resource that might then justify 2 trans-
Canadian system to the Midwest,
593
The third element, synthetic hydrocarbons, holds perhaps the greatest
promise for easing energy shortages, in the Midwest and elsewhere. By the
mid-1980's we expect to have crude oil on stream from the Athabasca tar
sands deposits in Alberta, Canada These contain 200 billion to 300 billion bar-
rels of potentially recoverable oil, the recovery of which has already been dem-
onstrated. The Athabasca reserves could supply the petroleum needs of the
Midwest at current rates of consumption for more than 100 years. Wyoming
low-sulfur code will soon be available. In every case, the Midwest is the natu-
ral marketplace. But I should point out that as long as the trans-Canadian
pipeline is a serious subject of debate, plans to move this synthetic crude into
the marketplace of the Midwest are measurably retarded.
Mister Chairman, I would like permission to place in the Record at this
point our analysis of projected West Coast needs in the 1980's. (Appendix A.)
The crude oil deficit on the West Coast in the early 1980's, when TAPS comes
fully on stream, will be in the range of 2 million barrels a day, almost exactly
the capacity of the pipeline. This gap in domestic production-vs.-demand is not
as great as in PAD II, but here again our critics seem caught on a point of
flawed logic. If the West Coast can absorb the entire North Slope production
totally at the expense of foreign crude, and the producing companies can get it
there for the least cost, most quickly, what national interests are served by
delivering it to another market twice as far away five years later? There is no
price benefit to the consumer, and the national energy situation is certainly
not enhanced in the meantime. All interests would be better served by bringing
the energy to market as soon as possible and finding better ways to meet Mid-
western demands.
As to the assertion that the Alaskan route is being supported by oil compa-
nies because they want to sell a portion of their production to Japan, I can
only repeat what my company has said for many years: We have absolutely
no plans to sell North Slope oil abroad S0 long as there is a need for it in the
United States. Our Cherry Point, Washington refinery represents, I believe, a
concrete proof of our commitment. It was designed and built to process Alas-
kan crude for American customers.
Atlantic Richfield has recently undertaken studies to see how the greatest
number of domestic markets can be assured of access to North Slope oil via
the Trans-Alaskan pipeline. This will become increasingly important if further
exploration and development produce substantial additional reserves in Alaska.
Any surplus above PAD V (West Coast) needs must be transported to other
domestic customers. One possibility is a pipeline system directly to Chicago
from the West Coast Another, tanker deliveries through the Panama Canal to
Gulf and East Coast ports. A third proposal is a trans-Mexico pipeline from
the Gulf of California to Texas.
Basically, the key arguments against the Trans-Canadian pipeline are delay
and cost. A U.S. balance-of-payments loss of between $2.5 billion and $12.5 bil-
lion would be brought about through the Canadian option. Most of this would
go to Middle Eastern nations whose dollar reserves are beginning to cause con-
cern in western capitals. In addition, our studies indicate errors in calculation
of pipeline costs have been made by proponents of the trans-Canadian system
that result in gross underestimates. Recent testimony has placed the cost of
the total trans-Canada MacKenzie Valley route at about $3.5 billion, compared
lars.) to about $3.1 billion for the trans-Alaskan route. (Both figures in 1972 dol-
Our analysis indicates that the cost of the trans-Canadian line if built to
the exacting environmental and engineering standards of the TAPS line would
cost approximately $5.6 billion. (Appendix B of my statement, which is
attached, gives the justification for these adjustments) Why this great dispar-
ity? Principally because advocates of the MacKenzie Valley route are quoting
from a preliminary project report, which is not a precise accounting of engi-
neering design, but merely a feasibility study.
The most crucial element in the equation of the trans-Canadian line, how-
ever, is financing. TAPS is a $3.4 billion joint venture in which each of the
seven owners will finance their individually owned undivided interests on their
own credit capacity, which is considerable and adequate to do the job.
In contrast, 1 Canadian line may require twice as much capital, and the
politically Imposed requirement that Canadians own half of the venture pre-
sents a financing problem for which there is no present solution, inasmuch as
Canadian companies do not have the necessary financial capacity to support
594
their share. To solve the many and complex financing problems and form a
combination of participants would require many years, if indeed it could be
accomplished at all.
In summary, Mister Chairman, the Congress should allow construction of the
Trans-Alaskan pipeline to go forward as soon as possible because it provides
the quickest and most effective access to the 10 billion barrels of proven cill
reserves on the North Slope and to the natural gas associated with it
It will, in short, net us on with the task we are in business to undertake:
supplying domestic energy to the U.S. markets.
APPENDIX A- WEST COAST HYDROCARRON LIQUID SUPPLY AND DEMAXE-1980
Demand 3.3 million barrels/day.
Supply: West Coast and So. Alaska production, 14 million B/D.
Other domestic, -0- B/D.
Imports 19 milliom B/D.
Supply/Demand Balance 33 million B/D.
Following the present expansion plan for the Trans-Alaskan Pipeline, its
thru-put would not reach the yearly average rate of 1.9 or 20 million
barrels/day until about the fifth year which would be in the early 1980's at
which time the cumulative effect of demand growth of about 150M
barrels/day/year on the West Coast would be more than sufficient to accommo-
date the North Slope oil.
The 33 million B/D total demand for 1980 is the same as projected by Sec-
retary Morton. Critics of TAPS have rejected it for an earlier estimate of 30
million B/D by the National Petroleum Council and used by the Department
of the Interior. The basis for this rejection is that the 33 million B/D esti-
mate required a 5.4% annual growth rate between 1972 and 1980, higher than
the 4.7% rate of the early and mid-1960's. The NPC estimate which is referred
to was made some time ago as part of their initial appraisal of the U.S.
energy situation. It is now out of date. On a national basis the growth in
petroleum demand between 1970 and 1972 was 50% of the amount that NPC
study jected for the entire period 1970 to 1975. It is evident that the
growth projected by the NPC study was too low.
Specifically, with regard to the West Coast, domestic product demand grew
60% in 1972 and crude runs increased about the required 5.4%.
Further, EPA standards are increasing energy requirements, not decreasing
them as claimed, and a shortage of natural gas is placing a heavier burden on
oil as a substitute. If these recent trends are accounted for the demand could
be as high as 3.6 million B/D in 1980.
APPENDIX B.-ANALYSIS OF McKENZIE VALLEY PROJECT CosT AND READINESS
Recent testimony regarding the cost and state of readiness of the McKenzie
Valley Project contained many serious errors. First, the cost estimate of the
pipeline segment from Prudhoe Bay to Edmouton was greatly understated at
$29 billion if the line is built to the same rigorous specifications being used
for TAPS. The average direct cost Ter line mile in 1972$ for TAPS is esti-
mated to be $2,245M for a 600M B/D capacity.
TAPS
Distance (miles)
789
Basic capacity (barrels per day)
600,000
Cost (1972 dollars)
$2,710,000,000
Less cost other than direct line costs
$940,000,000
Total
1,770,000,000
Average cust per mile (1972 dollars)
$2,245,000
Applying $2,245M/mi. to the 1,738 miles of line from Prudhoe Bay to
Edmonton results in a cost of $3,901MM. Adding costs for pump stations, com-
munication. etc. for a line capacity of 800 B/D would bring the cost to
$4.550MM. Increasing the capacity to 1800M B/D would increase the McKensie
Valley line cost, Prudhoe to Edmonton, to $4,840MM. A TAPS capacity of
2,000M B/D would be $3.1.billion in 1972$
595
Secondly, the Interprovincial/Lakehead mileage to Chicago is 1565 miles, not
1100 miles as stated in recent testimony. The cost for this segment would: be
$483M/mile in 1972$ for 2 total cost of $756MM. Thus, the total cost of the
Canadian route to deliver North Slope oil to the Chicago area would be
$5,596MM in 1972$
Why is there such a difference between the numbers put out by the
McKenzie Valley project and our upgraded number? TAPS is a thoroughly
evaluated engineering estimate, while McKenzie Valley is a feasibility study.
One major difference in concept is the interpretation of soll parameters to
establish a. búrial criteria. TAPS allows differential settlement only within
narrow limits, about one foot. McKenzie Valley equates burial to a total settle-
ment concept of up to 3 feet. The concept difference leads to 20.7% of the line
above ground for McKenzie Valley and 44.7% above the ground for TAPS. A
one foot settlement criteria for McKenzie Valley would lead to 40.4% of the
line above ground. This is significant because of the substantially higher cost
to lay the pipe above ground.
A second major difference is in construction techniques. TAPS provides a
construction work surface for the entire length of the line for ground surface
protection. McKenzie Valley provides a temporary work pad for only 600 miles
of the 1738 mile route. There are no highway systems available in the Yukon
and upper Northwest Territories for logistics purposes. To our knowledge, to
date Canada has issued only a tentative set of environmental guidelines for
northern construction and more specifically directed to gas pipelines. Results
of governmental investigations have not yet. been collected and simulated into
a formal set of environmental and technical stipulations.
Chapter 9 of the 1972 McKenzie Valley feasibility study lists several areas
requiring further study. They indicate that all work has been directed to
determine feasibility and appreciate that further research and development
work remains to be done.
A partial list of furthier-requirements is
1. Terrain classification-Additional field work to verify and establish a sat-
isfactory level of confidence in the air-photo interpretation technique.
2 Soil stability-Further field work to confirm basis of evaluation.
3. Environmental-Field work to fill in gaps in data determined largely by
literature/research:
4. Pipeline design-Field work to establish parameters of design such as soil
coefficients of friction, soil modulus, and creep properties of permafrost.
5. Titermal predictions-Determination of more adequate soil properties and
surface temperatures to increase the reliability of the mathematical model of
heat conduction.
6. Selsmicity-More complete data on seismic occurrences and location of
fault areas.
7. Construction-Further refinement and investigation of summer techniques,
hydrostatic testing, pipe coatings, logistics, and availability of men, equipment
and material.
& Communications-Further investigation of control mede: central auto-
matic VE. conventional local control.
9. Operations and maintenance-Further investigation of pipeline safety
from soil settlement, drainage basins, and oil spill-contingency plans.
10. Economics-Further in-depth studies and factual. data in the areas of
base costs and assumptions, regional and national economic impact, and meth-
ods of financing.1
WASHINGTON, D.C., May 7, 1973.
Hon: Jonn MEDOHER,
Chairman, Subcommittee on Public Lands, Committee on Interior and Insuler
Affairs, House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN This is in reference to your letter. of May 3, 1973, ad-
dressed to me, concerning the intention of Phillips Petroleum Company with
regard to North Slope oil in the event that the Trans-Alaskan pipeline is built.
The Sact is that if the Trans-Alaskan pipeline is built, it is the intention of
Phillips Petroleum Company that its share of the crude oil produced will be
sent to the United States. In view of the fact, however, that my position is
solely one of providing legal counsel. I though it appropriate that you have
1 Identical statement was submitted for the record by Thernten F. Bradshaw. president.
596
this information from a duly authorized officer of the Company. This is to in-
form you that such a letter is in preparation and will be mailed to you within
the next day or two.
With best wishes.
Sincerely,
MARTIN L FRIEDMAN.
PHILLIPS PETROLEUM Co.,
Washington, D.C., May 7, 1973.
Hon. JOHN MELCHER,
Chairman, Subcommittee on Public Lands, Committee on Interior and Insular
Affairs, House of Representatives, Washington, D.C.
DEAR MR. MELCHER: In response to your question regarding the destination
of Alaskan North Slope crude oil if the Trans Alaska pipeline is built from
the North Slope to Valdez, it is the full intent of Phillips Petroleum Company
that its share of the crude oil produced on the North Slope will come to the
United States.
Very truly yours,
CARSTENS SLACK.
UNION OIL Co. OF CALIFORNIA,
Los Angeles, Calif., May 9, 1973.
Hoy. JOHN MELCHER,
Chairman, Subcommittee on Public Lands, Committee on Interior and Insular
Affairs, House of Representatives, Washington, D.C.
DEAR MR. MELCHER: In your letter of May 3, you asked the intention of our
Company with respect to utilization of Alaska North Slope crude oil.
This is to advise that our Company will have refining requirements on the
West Coast of the United States for all of the production we can reasonably
expect to develop on the North Slope and transport through our share of the
Trans Alaska Pipeline.
Yours very truly,
JOHN M. HOPKINS.
Exxon Co., U.S.A.,
Houston, Ter., May 16, 1973.
How. JOHN MELCHER,
Chairman, Subcommittee on Public Lands, House of Representatives, Washing-
ton, D.C.
DEAR MR MELCHER: The following is in response to your letter of May 3,
1973, concerning Exxon Company, U.S.A.'s plans for the future disposition of
North Slope crude.
It has been our intent since planning started for the Trans Alaska Pipeline
System to use this System to move our North Slope oll to U. S. markets. As
we presently see the U.S. energy situation, it appears there will be a ready
market in the U. S. for all the crude that can be produced on the North Slope.
It is certainly our present intent to use the System and our North Slope crude
reserves to supply the U. S. market.
We appreciate the opportunity to make this statement.
Very truly yours,
M. A WRIGHT.
Mr. MELCHER. This morning, the first witness we are going to hear
from is our colleague on the committee, Congressman Vigorito from
Pennsylvania, who is no stranger to any of us, and particularly close
to myself. I am junior to Joe on two committees and have had the
opportunity of working with him, not only here on the Interior
Committee, but also House Agriculture Committee.
Joe, I have warm admiration for your work and I am sure that
your statement today will be a welcome contribution to this hearing
record.
597
STATEMENT OF HON. JOSEPH P. VIGORITO, REPRESENTATIVE IN
CONGRESS FROM THE 24th DISTRICT OF PENNSYLVANIA
Mr. VIGORITO. Thank you, Mr. Chairman.
I wish to thank you and the committee for this opportunity to
speak out OR the Alaskan pipeline. I want to state right from the
beginning that I am very much in favor of immediate construction
of the Alaskan pipeline. We don't have any time to waste. I am not
going into our energy crisis. I think most of us realize the serious-
ríess of the crisis, and actually, it is not a crisis, it is going to be a
disaster, maybe even a catastrophe in the future, at the rate this
country is going. as far as the energy question is concerned.
I believe that I speak with a little bit of authority on this subject
since I spent a whole week up in Alaska in August 1971, from Prud-
hoe Bay in the north shore of Alaska, all the way down to Valdez
on the southern coast of Alaska. I have seen all phases of it and I
think that I have some answers.
I asked a lot of questions up there and I got answers to my ques-
tions. I would like to give that benefit to the committee. I hope we
can get some legislation on this subject.
First, of course, the oil companies are ready to go. If they got the
signal tomorrow, they could have this and in a matter of months the
oil could start flowing. The maximum output of oil, they estimate,
will be 2 million barrels a day, which isn't very much oil, consider-
ing the oil consumption of the country and of the world. But never-
theless. it is 2 million barrels a day, and it will end up on the west
coast, primarily. I think that the pipeline should be constructed as
soon as possible.
The oil companies spent and are spending millions of dollars a
day on this while the project is at a standstill. They are investing in
research in the subject at the University of Alaska. They have at the
University a six or seven hundred foot replica of the pipeline with
several stations on that pipeline to try to simulate exactly what is
going to happen when the oil begins to flow. They are investigating
different types of grass, and as I understand it, some of the grasses
which will be used will be superior to the native grasses in Alaska
on the right-of-way.
I believe that everyone is talking about the Canadian route as if
that is all settled. I found out this morning that no application has
even been submitted to any Canadian authorities. So, the quickest we
could get oil through the Canadian route, assuming many factors in
our favor, which I think would be a wrong assumption, would be
anywhere from 5 to 10 years. We cannot wait 5 or 10 years to get
the Canadian oil. We must act right now.
One of the objections on the Alaskan pipeline from the north to
the south coast of Alaska is that is has to be trans-shipped to the
west coast by tanker. We already bring into the United States 5 or 6
million barrels a day by tanker and how will the hazard be in-
creased by the additional 2 million? I fail to see that.
This is only the United States importing oil at 5 or 6 million bar-
rels a day. But worldwide there are hundreds of tankers at sea all of
the time. You take Japan alone, a tanker has to land in a port in
598
Japan every 2 hours, 21 hours a day, 365 days a year. So an addi-
tional 1 miltion barrels from the southern coast of Alaska to the
western coast of the Continental United States is not going to make
any difference. That should be taken into consideration.
I believe the delay with construction has been to our advantage, be-
cause I mentioned a lot of research has gone into it. The size and
strength of the pipeline, the grasses to be grown, the freezing and
unfreszing of the tundra has been looked into, and every conceivable
question answered.
So it is time, Mr. Chairman. that we act on this bill to get the
Alaskan pipeline constructed. As a member of this committee, the
Full Committee, I can state right now I am going to do everything
I can to see we get the Alaskan pipeline underway as soon as possible.
With that, I would like to end.
Thank you again. Mr. Chairman. I would be willing to answer
any questions.
Mr. MELCHER. Thank you, Joe.
Could I assume from your testimony that you would favor consid-
eration of language by the subcommittee in the proposed bill to
make a finding by Congress that the environmental impact question
had been adequately studied, and that Congress had found it would
not be adversely affected?
Mr. VIGORITO- Yes, I think it, is safe to say that the environmental
questions have been satisfactorily answered. As I see it, since Alaska
is so huge, 500,000 square miles, give or take & few thousand miles,
to me, putting a pipeline down there is lake taking a black thread
and laying it across a huge football field that is all black. You never
notice the difference.
Mr. MELCHER Thank you.
The gentleman from Guam.
Mr. Wox PAT. Thank you, Mr. Chairman.
I certainly want to join the chairman, of course, in welcoming our
distinguished colleague on this committee.
Personally, I agree with your position with respect to the Alaskan
pipeline, but there have been witnesses who have appeared before
this committee earlier supporting, of course, the Canadian pipeline,
with some justifiable reasons. Have you had an opportunity to dis-
cass the Canadian proposal?
Mr. VIGORITO. I have done a little reading on it, and I fail to see,
as of now, that the question is a Canadian route versus an Alaskan
route. It is either the Alaskan route or nothing. The Canadian route,
if it every comes to be, is 5 to 10 years away. The environmental
problems that we have in Alaska will be more than doubled with a
pipeline in Canada. It would be under a foreign jurisdiction. It
would be 2 to 3 times as long, and SO forth.
So from the environmental point of view, I just don't see any ad-
vantage whatsoever to 1 Canadian route.
If I may add to my statement, of course, a lot of Congreeman and
Senators from the Mideast part of the United States are in favor of
the Canadian route because the gas and oil then would come down
through the mid part of the United States where there is a shortage
and will be more of a shortage in the future. However, that isn't
valid either. since the oil from Alaska going to the west coast of the
599
United States will enable the other oil coming from the Middle East
to go to the east coast and the gulf coast and into the midsection of
the United States.
So I fail to see where that will be a problem.
Mr. WON PAT. You feel that the oil could be transported just as
quickly from the west coast to this area?
Mr. VIGORITO. Yes.
Mr. WON PAT. I agree with your view that the reason for the sup-
port of the Canadian pipeline is the service to provide, in other
words, the oil to these areas. But the point is that it would take
so long to get these pipelines constructed.
Mr. VIGORITO. It would be 5 to 10 years away if everything goes ac-
cording to plan for the Canadian route. A minimum of 5 years.
Most testimony I have been able to read or evidence on the subject,
says 10 years.
Mr. WON PAT. Thank you, Mr. Vigorito.
Thank you, Mr. Chairman.
Mr. MELCHER. The gentleman from Alaska.
Mr. YOUNG. Thank you, Mr. Chairman.
I speak in favor of the Trans-Alaskan pipeline like you have. You
bring out some of the points, a restatement of the points made from
the past. And by your statement, again they are correct. I think the
big thing we are facing here is either the Alaskan pipeline now or
none. We need the energy. We won't go into the energy problem. We
need the energy, Alaska can provide the energy, and I hope the
Committee can make the same trip you made and maybe they can
get insight into some of the problems or solving the problems we
view in Alaska concerning the Trans-Alaska pipeline.
I just want to compliment you on your ability to grasp the prob-
lem and see what can be done to help the United States.
Mr. VIGORITO. Thank you, Mr. Young. And if the committee oes
to Alaska and you need a guide, I would be very willing to go back
a second time.
Mr. MELCHER. Thank you very much, Joe. Your testimony was
very much to the point.
Mr. VIGORITO. Thank you, Mr. Chairman.
Mr. MELCHER. There is no question where you stand. We appre-
ciate it very much.
Now, as the committee members know. the staff well knows, we
have held several days of hearings on these bills. We are now get-
ting into a round of 3 davs of hearings, today, and Monday and
Tuesday of next week; 3 days of hearings. Principally, we will be
hearing from witnesses who will represent the viewpoint of environ-
mental groups.
We have allowed plenty of time for Government, Department of
the Interior and Department of the Treasury and Department of
State. We have allowed plenty of time for industry and witnesses
representing oil companies. It will be my intention to allow plenty
of time for environmental groups, environmental witnesses to pres-
ent their viewpoints. We will, however, on individuals, look for some
accommodation of the committee's time. We don't want to limit tes-
timony and we want a very complete record.
We have coming up a number of individuals this morning, and we
do have coming up a little bit later, 2 panel of three I would hope
to complete the five witnesses today. However, if we cannot-you
will notice the last witness to appear today is Stewart Brandborg,
executive director of the Wilderness Society. If it appears he cannot
complete this testimony today, we will take him next week. Each of
these 3 days, the witnesses that are coming from out of town, we
will make-a special point to make sure they are heard on the day
that they come here, so they are not inconvenienced. If we can't
complete the witness list, we will try to hold off the witnesses who
reside here in Washington and even if necessary, pick them up on a
subsequent day we have to set for additional hearing.
So with those remarks, we would be delighted to hear from Dr.
Terris Moore, president emeritus, University of Alaska.
STATEMENT OF DR. TERRIS MOORE, PRESIDENT EMERITUS,
UNIVERSITY OF ALASKA
Dr. MOORE. I appreciate the opportunity to be here and I will
make my remarks as brief as possible, because you do have many
witnesses.
I want to start off by saying that I was very much impressed by
the remarks of the distinguished Congressman from Pennsylvania.
He has given my message for me, except I can add one or two minor
points. I was, of course, very pleased to hear him point out the im-
portant work being done at the University of Alaska in studing the
possible effect, probable effect, of the Alaskan pipeline on the local
environment.
I can add 8 few words to that, and I am not going to read my tes-
timony. Instead, I am going to point out three points. At the end of
my testimony-I mention it first, because the Comgressman men-
tioned it-
Mr. MELCHER. Dr. Moore, I heard your statement there. Without
objection, Mr. Moore's full statement will be made a part of the rec-
ord.
Hearing no objection, so ordered.
[Dr. Moore's statement follows:]
STATEMENT OF TERRIS MOORE, PRESIDENT EMERITUS, UNIVERSITY OF ALASKA
ALASKA
Mr. Chairman, and Members of the Subcommittee, I appreciate this opportu-
nity to come before you and thank you for making it possible. I have come
here entirely as an individual, at my own time and expense from Cambridge,
Massachusetts (and Monson, Maine my permanent legal voting residence). I
am completely retired on several partial pensions from different institutions,
and represent neither the University, nor any gas, oil, or industrial companies,
and SEE not aware of any conflicts of interest or bias which would affect the
testimony I submit here.
I have known most Alaskan environments intimately for forty-three years
and Canadian Arctic and sub-Aretic environments for twenty-seven. I was a
member of exploratory meentaineering Alaska expeditions in 1930, 1931. and
1938; of Army environmental research expeditions and maneurers in Alaska in
1942, 1958, 1959, and 1961. I served as President of the University of Alaska
1949-53; and intermittently since as a University research professor there is
pilot of my own light flostplane and skiplane I have made, over the years,
eleven passages across Canada between northern New England and Alaska,
necessarily (because of the "Cub" nature of my plane) stopping every few
601
hundred miles to refuel and overnight. In 1958 I fiew this same light float-
plane to the northern tip of Canada, Ellesmere Island, in support of the Cana-
dian IGE scientific party there. For the National Geographic Society I made
over 80 take-offs and landings with my skiplane on and around Mt. Kennedy
to assist in the surveying and mapping of that mountain in 1965. At several
different seasons of the year, I have flown myself as pilot. with frequent land-
ings, over most of the proposed route of the Trans-Alaska Pipeline.
I have read the testimony of Governor Egan and Congressman Young of
Alaska before this committee, and the speeches of Senator Stevens, and I con-
cur in their contention (which I understand Senator Gravel also supports)
that Alaska's North Slope oil should be brought into use as soon as possible,
with every reasonable protection for the environment-realizing that some
damage is inevitable-and that the proposed Trans-Alaska Pipeline is the most
effective way to do this.
Mr. Chairman, in the enormously complex situation facing your Committee-
the numerous bills filed and pipeline issues running into many states-I be-
lieve I may serve most usefully if I confine myself to three points only about
Alaska's North Slope oil.
I WHERE DO WE PREFER TO HAVE OUR OIL SPILLS?
Mr. Chairman, if I understand correctly, our domestic production of petro-
leum which in the past has always risen year to year from the drilling of new
oil wells, has levelled off during the past three years, and the drilling of new
wells has sharply declined during the past decade. If I have the figures cor-
rectly our production is now in the area of 12 million barrels per day (91/2
million of crude oil, the balance in petroleum equivalents). But the problem is
that our domestic demand, continuing to rise as in the past-not only from
population increase, but also from the spreading of our affuence to much
wider percentages of our people who formerly were below the poverty line but
now have automobiles, better housing. refrigerators, color TV, air conditioning.
etc-has actually increased until it is now in the area of 16 million barrels
per day. And there is one figure about which I believe there is no disagree-
ment: that we now are having to import the difference, mostly from Middle
East countries, about 3 million barrels a day of crude oil, and the balance in
refined petroleum products. In short, there is no question that during the past
three years we have become a "have-not" nation with regard to petroleum, and
by an amount to which the 2 million barrel per day flow from the Trans-
Alaska Pipeline would now (from its three year construction time) be ready
to make a tremendous difference-bad it not been blocked off.
There seems no question, moreover, but that the prospect is for a doubling
of this petroleum deficiency gap toward the end of this decade. As to its 20
tual size however, much will depend upon what is done, or not done in 1973,
by the Congress in the way of legislation to clear the way for access by our
consuming public to Alaska's North Slope oil.
Mr. Chairman, I should like at this point also to raise the question-what is
the environmental effect. now, of Alaska's North Slope oil having been blocked
off from use by the environmentalist litigation of the past three years. Pursu-
ing this line of investigation. but more to the point because it deals with the
future. what will be the environmental effect of continuing to block it off for
yet another three years (the construction time) plus the additional years of
Court challenges we are told the militant wing environmentalists are planning-
unless the Congress acts in 1973 to give comprehensive clearance to the
Alaska North Slope oil impasse?
If the Congress takes no action-which would now be tantamount to an out-
Heat decision to keep Alaska's North Slope oil locked up in order to prevent
the inevitable minimal spillage along its thin transportation route across the
vast uninhabited tundra to refineries on the West Coast and/or Chicago-then
the deficiency will have to be supplied by tankers bringing over 2 million har-
rels per day more oil from the Middle Easi. And the inevitable suillage accosi-
panying such a flow will. instead, occur in the Atlantic Ocean along our sl-
ready heavily burdened Eastern seaboard. During recent months. because of
the shortage of crude oil. of pipelines, and of refineries to supply the increased
demand, we read that refineries are now both planned and under construction
in Nova Scotia and Newfoundland, their feed stock of crude oil to come by
tankers (often referred to as "rust buckets") from the Middle East and their
output to go to the eastern consuming market
602
Which is truly the more endangered environment. There already are some
28,500 tanker arrivals yearly now, we are told-that's about 78 a day-be-
tween Norfolk, To and Cape .Cod alone. "Government researchers recently
dipped their nets into the Atlantic Ocean hoping to collect marine sample, no
come up with tar and polystyrene instead
T5 per .cent of the time their
-nets were befouled by oil elumps SO thick they extruded through the mesh "like
versity, spaghetti' believes that the oil and tar slicks in this area have/come from erude
Dr. James N. Butler, a professor of chemistry at Harvard Uni-
-oil
studge
Sludge pumped overboard by tankers purging their tanks off Af-
ries was carried by currents to the Bahamas, where the heaviest concentra-
tions were discovered by NOAA last summer."
Mr. Chairman, my quote is from the Sierra Club Bulletin, (March 1973
page 19) And I ask. what sort of an environmental gain would this be. in
numbers of people already burdened by undesired pollution-to say nothing of
the principle of protecting an environment for the environment's sake-to add
yet another 2 million barrel a day rust bucket tanker flest here? Also I would
suggest that the reason the majority of Alaskans, as represented by their duly
elected officials, are not objecting to the proposed pipeline but instead are ask-
ing for it. is not because they are indifferent to pollution-any more than you
or I are indifferent to pollution. The point is that they know perfectly well as
do I because of my 43 years of experience with the environment up there, how
tiny is the percentage of that vast beautiful, clean northern environment
which would in fact have to be sacrificed for the value in petroleum available
there to provide human benefits.
IL THE BILLION THEASURE, $120 BILLION IF YOU'RE AN OPTIMIST!
Environmentalist militants today insist that wilderness values cannot be
measured in dollars. And indeed the pleasures of wilderness living and travel
cannot. Only the most inappreciative would think of trying that approach But
I never hear today's children of affinence talk this way without being reminded
of the-perhaps apocryphal-remark attributed to J.P. Morgan at the turn of
the century. When someone asked him how much it cost to keep a yacht. he is
supposed to have replied: "If you have to ask that question, you can't afford
one!" My point here is simply that somebody has to pay for our pleasures
(wilderness values or whatever) ; somebody has to be able to afford them.
J.P. Morgan was paying for his own pleasures, and affinent enough to be
able airily to ignore the cost. But in the case of Alaska's North Slope oil, if
me are to keep it locked up for a very tiny minority to enjoy pristine wilder-
ness up there (and indeed for the most part only to think about it as pristine
Arma afar), somebods-which means Alaskans, and about 200 million Ameri-
cans elsewhere-will have to be able to afford it for them. And pay for it by
having to buy 2 million barrels a day crude oil from Arab sheiks instead.
Frankly. I suggest that this is altogether too high = price for everyone else to
be asked to pay.
How do I come up with these multi-billion dollar figures? Quite simple arith-
metic-though Tm sture our professional petroleum geologists and economista,
if asked to, can adjust my figures and come up with some along this same ap-
proach which are professionally based. All I've done is read the literature, a
wealth of which I realize is available to this committee. and note the 10 bil-
lion barrel proven reserves in the Prudhoe Bay petroleum district (the profes-
sional figure I believe is 96 billion), and that informed estimates indicate up
to 30 billion may in fact become "proven reserves". when drilling is resumed.
And for simplicity and also to be on the safe side I've ignored the natural gas
there though it too is very large and valuable. To the petroleum figures only.
I've simply applied the most recent price per barrel for crade sil being im-
parted from the Middle East, as reported by trade sources. This figure is $1.36
per barrel for Libyan ernde oil landed at Baton Rouge, Louisiana (published
in the New York Times, March 5, 1973. financial page together with several
columns of discussion in trade sources about the new record high price). And
Fre. also ignored the fact that the O.P.E.C-the Organization of Petroleum
Exporting Countries, which is now being called by some Harvard and M.I.T.
economists "the world's higgest monopoly"-has since that date announced that
they are meeting -SOGN again to formulate Emit jims for raising fheir export
prices yet higher, in order to "compensate" for the second drop of our dollar
in the foreign exchange markets (a drop. incidentally. which some of their
members helped bring about by abruptly dumping billions of dollars they had
recently piled up from our new unprecedented oil imports).
603
Mr. Chairman, we may gain some idea of the vast economic importance of
our subject when we note that this $40 to $120 billion value exceeds-by 4
times over-the $10 to $28 billion value of the nations entire stock of mone-
tary gold at Fort Knox! The value of the latter also is uncertain, depending
upon whether one uses the old official price for gold, or the present European
free market price, recently in the area of $95 per ounce.
I suggest that this comparison is a fair and realistic way to look at Alaska's
North Slope oil, for the reason that the petroleum not only carries within it-
self the potential for all the human uses to which it can be put, but also, for
the foreseeable future, the petroleum automatically gets put to monetary use
when brought out and fed into our refineries. For in our quite new interna-
tional financial situation, its use will plug just that much of our scaring bal-
ance of payments deficit.
I have used the term "foreseeable" future because as a practical matter our
"proven reserves" of petroleum are really all we have to buy time for our sei-
entists and engineers until they can actually bring us into new sources of en-
ergy. I will not repeat the long list of these new, hoped for, sources of energy
with which-I am sure this committee is quite familiar-other than to note the
fact that this Administration and the Congress are heavily committed to the
Liquid Metal Fast Breeder Reactor project. Let us fervently hope that this
and our other new sources of energy can be found and brought to practical
use. My point is that the date for their arrival is probably the "waforseeable"
future, toward which in the meantime we must grope, depending upon petro-
leum.
III. THE SEW COLONIALISTS?
The March, 1973 issue of the Sierra Club Bulletin summarized the Alaska
Pipeline situation as follows: "ALASKA PIPELINE STOPPED BY COURT
DECISION construction now will have to wait for Congressional amend-
ment of existing statutes. because existing right-of-way limits are insufficient
for modern pipeline facilities. The Court ignored environmental arguments in
its decision. So even if Congress extends the right-of-way limitation, opponents
of the pipeline will still be able to return for a ruling based on environmental
issues. Consequently, pipeline construction will probably be delayed for years
-if it happens at all. Speaking for the Sierra Club, Dr. Edgar Wayburn called
the Court's decision "a clear rebuff to the oil companies, which provides us all
with a fresh opportunity to plan wisely for the great lands of Alaska, allowing
for proper development while protecting its fragile environment."
But Mr. Chairman, Alaska's North Slope petroleum and the land beneath
which it lies belongs to the State of Alaska and its people-not to the Federal
Government, much less to the Sierra Club for that Club's tiny California lend-
ership "to plan wisely for the great lands of Alaska allowing for proper devel-
opment
I suggest that the litigation under the National Environmental
Policy Act has gotten out of hand, that when the Congress in its wisdom in
1969 enacted the NEPA legislation, it never had in mind any such extreme use
to be made of the Act as this.
All that the State of Alaska and its people are asking in his House-if I
understand Representative Young and Governor Egan correctly (and my testi-
mony is offered to support their positions more than to advance my personal
views)-is permission to run their petroleum by modern pipelines out to mar-
ket over otherwise unused Federal land. Apparently a lease only, of the mini-
mum width necessary to comply with the Secretary of the Interior's NEPA
stipulations for the protection of the adjacent environment, would suffice. And
I note that the simple legislation they seek would cover the requirements for
both the Trans-Alaska pipeline and the Alaska portions of the various propos-
als for a Trans-Canada pipeline. From the enormous size of the national petro-
leum domestic energy gap opening up-seemingly of the order of five to ten
million barrels per day of petroleum and petroleum equivalents between the
middle nineteen-seventies and the middle eighties-not merely one, but two 48",
pipelines can be deemed necessary. And 15 billion barrels only, of petroleum
and petroleum equivalents, which we know certainly to be up there, can (sim-
ple arithmetic) supply the 4 million barrel per day flow of two such lines si-
multaneously for that ten year period, by which time hopefully new sources of
energy may become available.
Mr. Chairman, for the Congress not to act in 1973 would seem, under the
special circumstances emerging about NEFA in Alaska, to have the effect, in-
deed, of leaving the economic development of Alaska and its people, surpris-
97-839
604
ingly at the mercy of the Sierra Club's California leadership. Probably in com-
promise with the leadership of the other outside militant environmentalist
groups, when they decide between them what, economically crippling "environ-
mental" lawsuits to bring, and which ones to relax.
Mr. Chairman, It seems we must actually take this seriously and ask, just
exactly what sort of "development" does the Sierra Club's leadership have in
mind for Alaska and its people-to replace the economic development which
Alaskans themselves had in mind, but which was stopped cold beginning three
years ago? Having joined the Sierra Club when I was an Instructor at the
University of California at Los Angeles thirty-five years ago (it was an en-
tirely different type small club of trail companions then), I think I can say
with some confidence what in fact they now really have, consciously or uncon-
sciously, in mind: no more economic development in Alaska than already ex-
ists. Do nothing which would increase the population further. Continue to keep
Alaska one vast wilderness park. So when people from outside decide to come
up for a summer vacation, there will be convenient facilities to take care of
them at the jumping-off places for their wilderness outings-and at all costs
no disturbance to the pristine nature of that wilderness, no matter how tiny a
percentage of it might actually be affected. Draw the line; let the war with
industry and local pocketbooks begin here. Make no compromises which can
possibly be averted. I disagree: they forget that Alaska is now a State.
Mr. Chairman, the Sierra Club intentions unconsciously harbor the attitudes
of forty years ago, when for a generation after the gold rush Alaska had in
fact remained one vast little-changed wilderness with a population of but thir-
ty-five thousand people of native stock most living pretty much in their origi-
nal manner, with another thirty-five thousand whites in pleasant villages and
towns. The Sierra Club leadership doesn't seem to realize-especially their
young people who would not for a moment tolerate such an attitude anywhere
else-how colonialist they are in their treatment of Alaska and Alaskans! Bas-
ically they have not accepted statehood for Alaska, and the change in attitude
which this requires.
The reality is that with the coming of the jet air age, Alaska has modern-
ized completely. Today there is 2 population of a third of a million people,
with integration of the races a well-accepted way of life, and-to stress the
point of relevance to this Hearing-Alaska's capacity to deal with its OWN eco-
nomic and social development, pipelines, parks, and the rest, is fully up to the
quality standards of the best of the other states. The University of Alaska for
which our Legislature generously appropriated $23.4 million this past session,
has 10,000 students in all branches, and = highly qualified faculty numbering
587. Alaska has developed its own intellectual community quite capable of
"planning wisely allowing for proper development" while giving fair con-
sideration to dissenting views.
To Sun Up. For three years now the project for bringing Alaska's North
Slope petroleum out where it can be put to use. has been ricocheting around in
legalistic trajectories between the Secretary, the environmentalists, and the
Courts. Now for the first time. suddenly, the Congress has an opportunity to
straighten out this matter. I suggest that its legislative action in 1973, can be
the most important single step forward which can be taken by anyone, to solve
the foresceable future portion of our alarming energy crisis. Thank you, M.
Chairman.
605
TUNDRA, TAIGA, BOREAL FOREST
WET
WELL DRAINED
DRY
Hygrophytic
Mesophytic
Xerophytic
TUNDRA
TAIGA
BOREAL FOREST
DECIDUOUS FOREST
FR. 22. An outline of the typical vegetation of tundra. taiga (as defined in
(hapter 5), boreal forest, and decideous forest areat. The central portion. well
drained uplind. hears clinns mesophytic veretation, whereas the submerged or
wes portion w the L:ft holds agrate 20d marsa negetation, and
the dunes and cliffs to the right support drought-resisting (zerophytic) vegetation.
From: GEOGRAPHY OF THE NORTHLANDS
Edited by G.H.T. Kimble and D. Good
American Geographical Society, New York 1955
Special Publication No. 32 (Page S7)
Library of Congress Catalog No. 55-7439
=
606
Dr. MOORE. The University of Alaska, now in the jet age, is not
what it was 20 years ago when I was president. It is now a 10.000-
student university, a faculty of 587, with branches all over the State
and a distinguished faculty. The particular individual the Congress-
man mentioned. who is studying the pipeline effect, Dr. Peter Morri-
son, for example, has his doctor's degree in zoology from Harrard.
Although the money is given, made available in part by one of the
oil companies-an environmentalist attacked this fact-I don't think
he is the least bit prejudiced by the fact of where the money comes
from. I can state that it seems to me the study is being done as
objectively as possible.
In this connection, as I mentioned in the beginning, I am not rep-
resenting the University of Alaska or any group at all. I'am here at
my own time and expense in a position I believe to be completely
objective. I have had 43 years of experience, on and off, with the
Alaskan environment. In addition to heading the university and
being research professor there at times, I was a member of the Ca-
nadian IGY program back in 1958; flew myself in my own plane to
the top of Canada. I made 11 flights across Canada between New
England and Alaska in a small cub type plane and inevitably be-
came familiar with the environment.
I completely agree with Governor Egan, and Congressman Young,
and Senator Stevens, and Senator Gravel in their views about the
Alaskan pipeline, that the trans-Alaska pipeline should be brought
into use as soon as possible, realizing that some damage is inevitable.
Now, I had two additional points to be made that perhaps have
not been stressed before. I take the position that we need not one but
even two pipelines trans-Alaska pipelines. At the same time that I
say this, I would like to point out that I am a life member of the
Sierra Club. I have my life membersi D card here. I have the high-
est regard for the individuals who run it and for many of their
projects. For example, I favor the eastern wilderness bill, but I disa-
gree with them as to the Alaska pipeline.
The crisis seems to me to have been stated in essence by the com-
ments of the Libyan Government representative. according to the
New York Times, Monday of this past week. He says that oil is
going to be a weapon. I suggest we look to our defense. Oil is our
defense perhaps in this conflict and they apparently have in mind-
we have all read so much about it, and I only make this one particu-
lar point-the magnitude of the weapon.
The Alaska pipeline, 2 million barrels a day potential, this is
about three-quarters of a billion barrels a year, and at the price we
are now having to pay for the oil and may have to pay for it in the
future, let's say in the area of $1 to $5 a barrel, this is something
like three-fourth billion dollars a year in our future balance of
trade- A more important matter even than the matter of balance of
payments. I happen to have my doctor's degree from Harvard Busi-
ness School. Although I have never pursued that aspect profession-
ally. I kept closely in touch.
This is a weapon of defense. A defense weapon of very considera-
ble magnitude, Mr. Chairman, I submit. And the project. I think.
should be viewed in the light of the enormous magnitude of this de-
fense weapon we have up there. If we take that deposit-the profes-
607
sional figure is 9.6 billion barrels. let's call it 10-and if it were to
feed one pipeline, it would last abut 20 years. If it were to feed to
trans-Canada as well, it takes 3 years to build trans-Alaska and 5 to
10 to build the trans-Canada pipeline, if you take the figure of $4 a
barrel, certainly not an unreasonable one in view of the situation,
there is the national treasury there of the order of between $40 and
$120 billion. A defense, the defense.
When they speak of a weapon, the Arab states do not mean a war.
I think they mean financial struggle. And this is the magnitude, it
seems to me, of the subject we are discussing.
I have one other point to make, which, as I have been told, has
not been made before, and that one is where do you prefer to have
your oil spills? I read very briefly from the Sierra Club bulletin:
Government researchers recently dipped their nets into the Atlantic Ocean
hoping to collect marine samples, only to come up with tar and polystyrene in-
stead TO percent of the net time their nets were befouled by oil clamps so
thick they extruded the mesh like spaghetti.
My point is this: If you shut off the Alaska pipeline completely,
the trans-Canada and trans-Alaska completely, Mr. Chairman, you
have the effect then of putting the pollution of 2 million barrels a
day pollution into the Atlantic Ocean, and there is inevitably going
to be some, however you bring the oil out from the Middle East or
Alaska North Slope. There is inevitably bound to be some spillage.
Where do you prefer to have your inevitable, whatever it is, one-
tenth of 1 percent of 2 million barrels, which one of the oceans, the
Atlantic or Pacific, or up in the tundra where it is not going to
bother anybody? I say, "anybody," I say it might bother a very tiny
fraction of 1 percent of the population. But to add more burdens to
the Atlantic or the Pacific unnecessarily, it seems to me is a mistake.
In the Pacific, as a trans-Alaska pipeline, of course, it will be
said. "Well, it is going to go in the Pacific." But I point out. if the
trans-Alaska pipeline is used, Valdez and Los Angeles and San
Francisco. and Seattle, the ports between which the tankers would
apply, are wholly under American control. If you shut off the
Alaska pipeline, the trans-Canada pipeline completely, the rust-
bucket tankers are going to bring the oil, the other end is uncon-
trolled where it comes from, and we will have more pollution than I
submit, if the trans-Alaska pipeline is authorized to go through by
appropriate legislation.
One final point. my third point, is the difference between the fore-
seeable future and the unforeseeable future. I suggest the unforesee-
able future is the point at which our new sources of energy will
hopefully become available to US. The liquid metal fast breeder reac-
tor is one of the many new sources of energy which we are hoping
will be brought in, but scientists tell us it is quite unforeseeable just
when we really can count upon this new source of energy and other
sources of energy coming in.
So I suggest in the foreseeable future is a period in which we are
going to be still dependent upon petroleum. I wind up and say that
for the foreseeable future. it seems to me that for 3 years now the
project for bringing Alaska's North Slope petroleum out where it
can be put to use. has been ricocheting around in legalistic trajecto-
ries between the Secretary, the environmentalists, and the courts.
608
Now for the first time, suddenly, the Congress has an opportunity to
straighten out this matter. I suggest that its legislative action in
1973, can be the most important single step forward which can be
taken by anyone, to solve the foreseeable future portion of our
alarming energy crisis.
Thank you, Mr. Chairman.
Mr. MEICHER Thank you very much, Mr. Moore.
I appreciate the fact that as the president emeritus of the Univer-
sitv of Alaska, you would bring your firsthand knowledge and first-
hand observations to the Committee for our consideration.
The gentleman from Guam.
Mr. Won PAT. I don't have any questions.
Mr. MELCHER. The gentleman from Alaska.
Mr. YOUNG. Doctor, I would like to thank you for your presenta-
tion. Your former University of Alaska has been playing a role in
the development of the economy for the last 20 years and is highly
respected across the United States.
Your testimony I have read is well prepared, and there are some
points in it, Mr. Chairman, I am sure the committee would be quite
interested, especially concerning one of the recent bulletins pub-
lished by the Sierra Club about the results of long delay.
I would just like to thank you for your testimony.
Dr. MOORE. One brief comment. I actually omitted one point here,
in which I compared what seems to me the similarity of the struggle
today over this with the struggle of statehood about 20 years ago.
The "colonialist attitude," I don't think they realize it is, they are
well intentioned people, the Sierra Club. They say, speaking for the
Sierra Club, when they are stopping the pipeline, Dr. Wayburn
called the court's decision
a clear rebuff to the oil companies, which provides us all with a fresh opportu-
nity to plan wisely for the great lands of Alaska, allowing for proper develop-
ment while protecting its fragile environment.
Again, I submit with the University of Alaska and the Alaska
Legislature, the Representatives in Congress, and the two Senators,
and Governor Egan, Alaska is quite capable now as are the other
States of planning their economic development wisely.
Thank you very much, Mr. Chairman.
Mr. MELCHER. Thank you very much, Dr. Moore.
Our next witness this morning is Dr. Robert R. Curry, professor
of Geology, Univeristy of Montana.
Dr. Curry, I am delighted to have you here. We have been asked
by John Dienelt of the Wilderness Society, Environmental Defense
Fund, to have the opportunity to introduce not only you, Dr. Curry,
but the panel we are to hear from, Dr. Cicchetti, Dr. Freeman, and
Mr. Stoel.
If there is no objection on the part of any of you, the committee
will be delighted to accommodate Mr. Dienelt. and we will have all
five of you approach the witness table, if you have no objection, and
we will treat you as a panel of five.
609
STATEMENT OF JOHN F. DIENELT, STAFF COUNSEL ON BEHALF OF
THE WILDERNESS SOCIETY, ENVIRONMENTAL DEFENSE FUND,
INC., AND FRIENDS OF THE EARTH
Mr. DIENELT. My name is John Dienelt. I am staff counsel for the
Environmental Defense Fund, Inc. I am also one of the attorneys
who represent The Wilderness Society, the Environmental Defense
Fund, Inc., and the Friends of the Earth in the litigation challeng-
ing the proposal Trans-Alaska pipeline. Four independent experts
who have investigated various aspects of the TAPS proposal and
the alternative all-land pipeline route through Canada are here
today to testify. The plaintiffs in the TAPS litigation have relied
upon the work and conclusions of these and other experts in formu-
lating their position on development and transport of North Slope
petroleum resources.
I have a prepared statement which deals in addition to describing
the position of the plaintiffs in the litigation, with questions re-
gardng the feasibility of the Canadian route, specifically the attitude
of the Canadian Government, which is favorable, and the availabil-
ity of information on the Canadian route which has not been con-
sulted by the Department of the Interior, which would in our view
expedite the process of consideration of that route.
I would like to submit that statement for the record, and at this
time only summarize and emphasize the position of the three envi-
ronmental groups whom I represent.
Mr. MELCHER. Mr. Dienelt, your testimony is before the committee
members. It will be made a part of the record at this point, if there
is no objection.
Without objection, so ordered.
[Mr. Dienelt's statement follows:]
STATEMENT OF JOHN F. DIENELT ON BEHALF OF THE WILDERNESS SOCIETY,
ENVIRONMENTAL DEFENSE FUND, INC. AND FRIENDS OF THE EARTH
L INTRODUCTION
My name is John Dienelt. I am staff counsel for the Environmental Defense
Fund. Inc. I am also one of the attorneys who represent The Wilderness
Society, the Environmental Defense Fund. Inc. and the Friends of the Earth
in the litigation challenging the proposed Trans-Alaska Pipeline. Four inde-
pendent experts who have investigated various aspects of the TAPS proposal
and the alternative all-land pipeline route through Canada are here today to
testify. The plaintiffs in the TAPS litigation have relied upon the work and
conelusions of these and other experts in formulating their position on devel-
opment and transport of North Slope petroleum resources. The experts are Dr.
Robert Curry. Professor of Environmental Geology at the University of Mon-
tana: Thomas Stoel, who is a former staff member of the President's Oil
Import Quota Task Force in addition to being one of plaintiffs' attorneys in
the litigation: Dr. Charles Cicchetti, Professor of Economics at the University
of Wisconsin; and Dr. Myrick Freeman, Professor of Economics at Bowdoin
College We are pleased to honor the request of members of the Subcommittee
that we present testimony on the several bills under consideration.
I will begin by stating the position of The Wilderness Society, Environmen-
tal Defense Fund, Inc. and Friends of the Earth on development and transpor-
610
tation of North Slope oil and gas and on the bills which are the subject of
this hearing In the course of the pipeline litigation, I have had occasion to
study the public statements of the Canadian government on the acceptability
of a pipeline through Canada and to explore the availability of information on
proposed gas and oll pipelines from Canadian sources. I will, therefore, also
discuss those subjects.
The experts will compare various aspects of the Trans-Alaska Pipeline and
the Canadian alternative. Dr. Curry will focus on environmental considera-
tions; Mr. Stoel will deal with national security issues; Dr. Cicchetti and Dr.
Freeman will deal with economic and consumer questions.
One expert whose testimony we would like to present to the Committee is
unavailable today. He is the distinguished marine biologist Dr. Richard
Warner, Professor at the Memorial University of Newfoundland, who is at the
present engaged in an extensive field research project off the coast of Florida.
I have explained the situation in a letter to the Chairman requestion permis-
sion to submit his expert testimony for the record at a later date. That testi-
mony will deal with the very significant oil pollution issues raised by the
marine transport portion of the Trans-Alaska pipeline proposal.
IL THE POSITION OF THE WILDERNESS SOCIETY, ENVIRONMENTAL DEFENSE FUND,
INC. AND FRIENDS OF THE EARTH
The Wilderness Society, Environmental Defense Fund, Inc, and Friends of
the Earth are not opposed to well-planned development of North Slope oil and
gas. But, we believe there is a better way than the Trans-Alaska Pipeline pro-
posal to transport the petroleum resources of the North. Our examination of
the alternatives, based on the available evidence, has led us to conclude that
an all-land common corridor for oil and gas delivery, from the North Slope
through Canada to the lower 48 states. would be superior to the Trans-Alaska
plan. We draw support for this conclusion from the investigations conducted
by the experts who will testify today, as well as investigations by other
experts who submitted comments. which we collected, on the Department of
the Interior's Impact Statement. We also call the Subcommittee's attention to
the excellent analyses already submitted by Congressman Anderson and Con-
gressman Aspin.
Regrettably, however, the Interior Department has not sought or developed
the information on the Canadian route which is necessary for a fully informed
choice among the alternatives in the national interest. The oil companins
decided, in early 1969, to focus their efforts on an Alaskan pipeline route even
though their own studies indicated that both the Alaskan and the Canadian
routes were feasible. The Department of the Interior accepted this decision
and concentrated its own efforts on study of the Alaskan proposal. Secretary
Morton, in fact, frequently stated that his Department was essentially exclud-
ing the Canadian alternative from consideration because the oil companies did
not want it. Thus, in April 1971, he stated flatly, "The scope of our work here
is to deal with the applications on our desk." Hearings, Senate Committee on
Interior and Insular Affairs, 92d Cong., 1st Sess, 454 (April 29, 1971).
Although this passive approach was pointedly challenged in hearings before
the Senate Interior and Insular Affairs Committee by Senator Gravel, the Sec-
retary returned the next year with the same explanation of the Department's
focus on the Alaskan route. Only 11 days before release of the final impact
statement, the Secretary stated:
"We have no formal discussions going on with any element of the Canadian
Government. The prime discussions have been between the Canadian Govern-
ment and the applicants
The only way [Canadian Government expres-
sions of interest in all all-land route] could change the plans is if a Canadian
alternative was developed, and we had an application which we could consider
of an alternative route through Canada. This could very well change the plans
of the present applicants, but we have to remember that this is not a Govern-
ment project." Hearings, Senate Committees on Public Works and Interior and
Insular Affairs, 92d Cong. 2d Sess. 404-405 (March 9. 1972).
The result of the Department of the Interior's default of duty is that many
pertinent questions regarding the Canadian common corridor alternative have
not been answered adequately. The Administration and other supporters of the
Trans-Alaska Pipeline ironically attempt to rely upon alleged uncertainities
regarding the Canadian government's position and lack of information regard-
611
ing feasibility of oil and gas pipelines through Canada in asserting that TAPS
is the only realistic means of transporting North Slope oil. But, as I discuss
below, the alleged uncertainties can be resolved by discussions and negotia-
tions with the Canadian government. And information to determine the techni-
cal and environmental details of the Canadian common corridor alternative, S0
that a detailed comparison with TAPS can be made, appears to be readily
available. All that is necessary is to ask the Canadian government and the pri-
vate industry consortiums who have investigated possible oil and gas pipelines
for the studies and data they already have develoed.
A proper evaluation of the Canadian route and adequate negotiations with
the Canadian government can, in other words, take place in relatively short
order. We strongly urge that Congress should authorize such a study, by an
independent body. We further submit that Congress, at the end of such a
study, should make the decision on transportation of North Slope oil. Conse-
quently, we will support legislation which provides for a thorough Congression-
ally supervised study of the Canadian common corridor alternative and a com-
parison of that alternative with TAPS and which reserves for Congress the
ultimate decision.
We also wish to emphasize, as strongly as we can, that such legislation is,
in our view, the best and most expeditions means of both satisfying the objec-
tives of the National Environmental Policy Act and bringing North Slope
petroleum resources to the appropriate market as quickly as possible. With
respect to NEPA, our primary purpose in the litigation has always been to
insure that the objectives of that Act are fulfilled. We expect that a Congres-
sionally supervised study would satisfy NEPA's objective of a thorough and
unbiased evaluation of alternatives and would otherwise fulfill the spirit of
the Act. If this expectation is fulfilled, we believe there will be no reason for
further environmental litigation and delay. Moreover, if Congress makes the
final decision, after having itself insured that NEPA's purposes have been met
by a thorough and objective evaluation of the Canadian alternative, we belive
there will be no legal basis for further environmental challenge since Congress
will have expressly acted to vindicate the objectives of NEPA.
We believe that the process of adequate study by an independent body, con-
sideration of that study, and decision by Congress can take place within one
year. By contrast, if the controversy goes back to the courts, as a result of
Congress' amending the width limitation of the Mineral Leasing Act of 1920 to
permit the Interior Department to reach a decision, the litigation process will
last at least a year. A victory by plaintiffs on their claim that NEPA's
requirements have not been met could extend the court process for several
years. In short, action by Congress to insure that the objectives of NEPA are
met and to reach an informed decision on the alternative routes, which is not
possible without an independent evaluation of them, is the quickest way to
guarantee a start of construction of pipelines to deliver oil and gas from the
North Slope.
III. THE ASSERTED LACK OF FEASIBILITY OF THE CANADIAN ALTERNATIVE
In a number of statements, Secretary Morton and other representatives of
the Administration have insisted that the Canadian alternative oil pipeline is
not feasible. They have asserted that it would take several years longer to
develop because it has not been adequately studied and because of delays in
securing Canadian government approval. They have also asserted that the
Canadian alternative would be disadvantageous to the United States in any
event because of onerous conditions which would be placed by the Canadian
government upon approval of it. These assertions are largely undocumented
speculation for, as I have pointed out, the Interior Department has not made a
thorough examination of the alternatives. Statements of the Canadian govern-
ment and the reported progress of study of Canadian oil and gas pipeline
routes, in fact, strongly suggest that these assertions are baseless.
Before diseussing these assertions in detail, however, I would like to stress
one significant fact which bears on these, as well as other issues concerning
the feasibility of the Canadian alternative, such as the possibility of environ-
mental opposition to a Canadian pipeline or difficulty in resolution of Cana-
dian Native Claims issues. That fact is that a gas pipeline will be built
through Canada to the lower 48 states. That is the presumption of the
Trans-Alaska sponsors, including Secretary Morton.
612
The consortium which plans to build the gas pipeline has Indicated that it
will file applications this year. From the U.S. end, we hear nothing but opti-
mism regarding the progress of plans for that pipeline and cooperation
between our government and Canada with respect to it. Let me, for example,
quote Secretary Morton at his press conference of September 13, 1972 He
said:
"[W]e are going to
work and stimulate and motivate a consortium to
get together and put the money up to build a cold gas pipeline, which through
Canada is the logical way for it to go." Interior Department Transcript of
Secretary Morton's Press Conference of September 13, 1972, at 38.
No reason is apparent why the practical problems of implementation of a gas
pipeline through Canada should be SO simple and the practical problems of an
oil pipeline through Canada S0 difficult. In fact, if the feasibility of an oil
pipeline through Canada is evaluated in an objective manner, in an independ-
ent Congressionally-authorized study, we believe the conclusion will be that the
optimistic expectations for a gas pipeline apply equally for the oil pipeline.
I will now turn to a more detailed consideration of the public record with
respect to the feasibility of the Canadian alternative. First. and perhaps most
important, is the question of the attitude of the Canadian government toward
an oil pipeline through Canada. The Canadian government, on this point, has
maintained a clear. consistent, and explicit attitude of encouraging construe
tion of both an oil and a gas pipeline through Canada for the delivery of
North Slope oil and gas to the lower 48 states. This position has been con-
firmed in official guidelines for pipeline development and by frequent statements
of responsible government officials from July 1968 to the present. The under-
standable reasons for this attitude by the Canadian government are: (1) Can-
ada's desire to open up its own Arctic oil and gas resources; and (2) insofar
as an oil pipeline is concerned, Canada's desire, frequently expressed to our
government, to avoid the serious environmental and economic damage to the
coastal waters of British Columbia that would be caused by the marine leg of
the Alaska pipeline proposal.
The Canadians expressed formal interest in a pipeline from the North Slope
as early as a month after the discovery of oil in Prudhoe Bay. Statement by
Minister Greene, House of Commons Debate, March 12, 1971, 4223)
In March 1971, Joe Greene, then Minister of Energy, Mines and Resources,
reiterated their interest.
I think we can assure the United States oil companies and the United States
Government
that there will be no unnecessary roadblocks at the Canadian
end and the Canadian governmental side. (Id. at 4226)
On February 3, 1972, Robert Howland, Chairman of the National Energy
Board which would conduct hearings on approval of permits for a pipeline
(addressing the government-sponsored Northern Pipeline Conference in
Ottawa) confirmed:
The government is on record as being desirous of allowing pipelines under
appropriate conditions to be constructed in the North
The progress of
research, both in the public as well as the private sector has been such that
the government has indicated on several occasions its willingness to examine
and discuss any proposals relating to the transport of Alaskan petroleum
resources through Canada to market in the United States.
In March 1972, Minister of Energy, Mines and Resource MacDonald person-
ally delivered 2 letter to Secretary Morton:
As has been stated publicly on several occasions, we expect to be in a posi-
tion by the end of this year to be able to appraise any applications that might
be received from companies wishing to build pipelines in the North.
The progress being made by industry is such that I would anticipate our
being able to act early in 1973 to process expeditiously one or more applica-
tions to build an oil and/or a gas pipeline originating at Prudhoe Bay and
traversing Canadian territory to southern markets.
On March 1, 1973, Jean Chretien, Minister of Indian Affairs and Northern
Development, which would also pass on a pipeline proposal, stated in the
House of Commons:
We as a government have said to the Americans many times that we oppose
the shipping of oil along the British Columbia coast, and that we would prefer
to have an oil line on the ground because there is much less danger of pollu-
tion with a pipeline than with a ship. (Minutes of Proceedings and Evidence
613
Before the Standing Committee on Indian Affairs and Northern Development,
Issue No. 4, pp. 20-21, March 1, 1973.)
Finally, on March 18, 1973, Minister MacDonald in an interview on national
television in Canada, said:
If the Americans came back and said to us look, we've had second thoughts
on that trans-Alaska pipeline, we would like to take you up on your willing-
ness to enetertain an application about the oil line through the MacKenzie
route, I think the interests of the west coast [of Canada] would dictate that
the government of Canada would enable that kind of application to go ahead.
This is a representative sampling. The only conclusion which can be drawn
is that the Canadian government has done literally everything it can to pro-
mote a pipeline application short of making the firm promise in advance that
it will approve an application regardless of the applicant's willingness to abide
by -conditions respecting the environment or other matters which the govern-
ment considers necessary-a commitment that obviously neither a Canadian
nor a United States government could ever make.
The affirmative attidue of the Canadian government is also reflected in
statements on specific Canadian requirements for the pipeline. These conflict
with assertions by spokesmen for the Administration and others who have
urged that conditions which would be imposed, particularly regarding shares
for Canadian throughput in the pipeline and financial participation in the ven-
ture, make the Canadian alternative impractical or undesirable.
The Administration has insisted, without ever identifying the basis for its
contention, that the Canadian government will eemand that 50% of the oil
pipeline be reserved for shipment of oil from the Canadian Arctic rather than
the North Slope. Quite to the contrary, then Minister of Energy, Mines and
Resources Greene, in February 1971, indicated that Canada would be prepared
to assure the same flow of North Slope oil across Canada that would flow
across Alaska. He stated:
I can't believe that any serious concern would be expressed in the United
States with the reliability of an agreement between our two countries under
which Canda, for its part of the bargain, would undertake to insure the unin-
terruptability of the flow of Alaskan oil down a Canadian "land bridge" line
equivalent in volume to any flow which could be put through the TAPS line.
(Speech to Vancouver (B.C.) Men's Club, officially released by the Department
of Energy, Mines and Resources.)
As the current Minister of Energy, Mines and Resouces MacDonald recently
noted, a willingness to make such a commitment makes sense from the Cana-
dian perspective. (Television Interview. March 18, 1973). He pointed out that
having the pipeline from the North Slope through Canada is in that country's
long-term interest. There have not been sufficient oil reserves discovered in
Canada to warrant a separate pipeline. The existence of a pipeline from the
North Slope, however. would spur development of Canadian oil resources
which could be ultimately transported without diminishing the shipment of
North Slope oil, in a second pipeline or through the existing line if its capac-
ity is expanded by the comparatively inexpensive looping process.
The Secretary of the Interior has also asserted that there would be insuper-
able difficulties in financing an oil pipeline because of conditions the Canadians
would impose. The Canadians have stated. specifically with respect to the gas
pipeline, that 51% Canadian ownership will be required. This does not, how-
ever, mean 51% of the total financing. as Secretary Morton erroneously
claimed last year in testimony to the Joint Economic Committee, but 51% of
the equity.
Traditionally, pipelines (and the proposed Trans-Alaska Pipeline is no excep-
tion) are built on the basis of approximately 20% equity and 80% debt. There-
fore. the Canadians would be in the position of raising a minimum of slightly
more than 10% of the total financing if the ownership condition were imposed
on the oil pipeline as well. This does not appear to be a financial burden
which could not be undertaken by private capital in Canda.
Moreover, Canada has never indicated that if the necessary capital is una-
vailable, it would refuse to approve a pipeline application which was based on
a different financing arrangement. Rather, it seems certain that this, like
shared throughput and many other questions is, at a minimum, a negotiable
matter.
614
The point is, however, that this government and the Candian government
have never engaged in serious discussions of such issues, despite the repeated
expressions of interest by the Canadian government. Indeed, the only meeting
between Secretary Morton and Minister MacDonald was in March of 1972
after the impact statement was issued, when Minister MacDonald came here to
apprise Secretary Morton formally of the progress of Canadian studies and to
reemphasize the Canadian interest in the common corridor route. Long overdue
negotiations, which would be required as part of the Congressionally-sponsored
study, will result in specific answers that preclude the speculation and self-
serving assertions on which the Secretary and others have thus far based their
arguments and decision.
The question of delay in implementation of either alternative is another fac-
tor which obviously is important to a choice. As with other factors, the situa-
tion is uncertain because a careful analysis of the question has not been made.
But, again, the current record strongly suggests that the difference in the time
when the two alternatives could be placed into operation is certainly not three
to five years, as the Administration has asserted. A more likely figure is two
years or less.
Minister MacDonald estimated a two-year difference at a press conference
after his meeting with Secretary Morton in March of last year. Since the Ca-
nadian government's favorable attitude is significant in determining the speed
with which a pipeline can be approved and constructed, Minister MacDonald's
estimate of only two years should not be dismissed lightly. Even that estimate,
made a year ago, may be high today.
The time difference between the two alternatives was premised principally
on the presumption that the construction on the Trans-Alaska Pipeline could
commence immediately but that further study of the Canadian alternative was
needed. Since Minister MacDonald's statement a year ago, the litigation on the
Trans-Alaska Pipeline has prevented the start of construction. Of course, envi-
ronmental issues remaining in the litigation, easily could delay construction
for another year or more. In the meantime, the continuing progress of studies
by Canadian government and industry, many of which are now complete and
published, may narrow the gap further. Necessary information regarding a Ca-
nadian route has, in short, increasingly developed SO that parity in terms of
timing with the Alaskan route appears closer and closer.
On the basis of published reports from the Canadian government and private
industry, in fact, it appears that more studies have been undertaken on the
Candian common corridor alternative than on the Trans-Alaska Pipeline. The
total price tag of recent research efforts by the Canadian government, Cana-
dian Gas Arctic Systems, Inc., which proposes to build the gas pipeline, and
Mackenzie Valley Pipe Line Research, Ltd., which is studying the feasibility of
an oil pipeline, exceeds $50 million.
The Canadian government has conducted a comprehensive program of inves-
tigation of environmental, economic and other aspects of northern pipelines,
commencing with the discovery of oil on the North Slope. Last year Minister
MacDonald submitted to Secretary Morton a list of 30 current studies, the re-
sults and data from which he noted had neither been sought nor considered by
the Interior Department in its discussion of the Canadian alternative in the
Impact Statement. The Secretary later complained that some of the studies
had not at the time been finalized or published.
With a year gone by, however, most of the studies are now complete. The
current status of these efforts by the Canadian government was summarized
by Minister of Indian Affairs and Northern Development, Jean Chretien, in
Minutes of Proceedings and Evidence of the Standing Committee on Indian 3/-
fairs and Northern Development, Issue No. 4, March 1, 1973. According to Min-
ister Chretien's oral remarks, his Department was allocated $15 million for
completion of "social and ecological studies in the north." (Id. 15-16)
At the conclusion of the his remarks, Minister Chretien listed 51 different
reports. all of which appear to be technical and environmental reports and
most of which appear to have been published in 1972. He listed 5S other feeh-
nical. environmental. social. and engineering reports, all but three of which are
scheduled for completion by the end of this summer.
At the time the Impact Statement was released. Canadian Gas Aretic had
recently published a five-volume study of the proposed gas pipeline. Neither
the published study, nor data from it were considered in the Impact State-
615
ment. Since last year. plans for the gas pipeline also have progressed signifi-
cantly. Route selection has been narrowed to two possibilities, a coastal and
an inland route. The consortium, which has spent $30 million in its studies,
plans to submit applications this year.
Although oil and gas pipelines present certain different construction and
other problems, a substantial part of Gas Arctic's studies pertain to common
problems. This is particularly true since Canadian government guidelines for
construction of pipelines require Canadian Arctic to demonstrate that its pro-
posal is consistent with Canada's policy of confining pipelines within a com-
mon corridor and specifically that the route selected for the gas pipeline is
also suitable for an oil pipeline.
Progress has also been made in the past year by Mackenzie Valley Pipe Line
Research Limited, the consoritum planning an oil piepline along the Mackenzie
River. Recentiy the company released a feasibility study which culminated
more than $7 million in research. The consortium's Arctic Oil Pipeline Study
dealt with a specific 1.738-mile route from Prudhoe Bay inland to Edmonton.
From there, the existing Interprovincial-Lakehead pipeline system could be ex-
panded to carry oil to the Midwest and the Trans-Mountain Pipeline could be
expanded to carry oil to the West Coast.
The study concluded that the Canadian route was economically and environ-
mentally feasible. It described the various steps including obtaining approval
from the Canadian government and continued planning, which would be neces-
sary before construction could commence. And, the study projected a timetable
for both completion of the approval and planning process and actual construc-
tion of the pipeline. Its informed estimate is that a total of four years-one
and one-half to obtain approval. complete planning and make ther arrange-
ments for construction and two and one-half years for actual construction-is
necessary before the pipeline could be put into operation. Recently, the Vice-
President of MVPL testified before the Senate Interior and Insular Affairs
Committee. In his testimony, he expressly confirmed the conclusions of that
Report. On the basis of that estimate, if a decision to pursue the Canadian alterna-
tire were not made until June of next year, after a thorough Congressionally-
sponsored investigation. the pipeline could be in operation during 1978. By
comparison, if environmental litigation and other legal delays prevented a con-
struction start on TAPS until June of next year (an estimate of additional
delay which is considerably less than could actually occur) TAPS would be in
operation, according to Alyeska construction timetables, no more than one year
earlier. in the latter half of 1977.
If Congress enacts a law requiring an objective evaluation of the Canadian
common corridor alternative, there is nothing to prevent the oil companies
from taking steps in Canada to insure that the process of approval can be ac-
celerated even further. And there are sound reasons-those costs of delay
which the Administration has stressed in advocating TAPS-for Congress to
urge or require the oil companies to proceed on the Candian front during the
interval.
Finally. in addition to all the information which has become recently avail-
able in Canada. the development of a Canadian oil pipeline route would ob-
viously be speeded by the experience which has been gained and the informa-
tion which has been developed by government and industry in planning the
Alaska route. Canadian Gas Aretic and Mackenzie Valley Pipe Line Research.
it should be noted. have some of the same sponsoring members as Alyeska. It
would not be surprising in light of the strong commitment of the oil industry
to TAPS to hear the industry attempt to minimize the progress of study of a
Candian route. Regardless of what may be said regarding available studies,
however. the stated conclusions of those studies strongly confirm the appropri-
ateness of an independent evaluation of them at Congress' direction.
One further point regarding delay needs to be stressed. There is no apparent
or documented reason why construction of oil and gas pipelines through Can-
ada at approximately the same time, in contrast to relatively simultaneous
construction of an oil pipeline in Alaska and a gas pipeline in Canada, should
delay the progress of the gas pipeline. There appear. indeed, to be economies
in having the-construction-confined to one area and there are obvieus ways of
planning SO that construction crews will not interfere with one another. One
616
certain fact, however, is that Alaskan natural gas will not be available for the
gas pipeline until sometime after Alaskan oil begins to flow. Thus, the delay in
development of the Alaskan route because of the litigation and other legal
matters could ultimately result in even more delay in delivery of North Slope
natural gas than would prompt efforts to develop the Canadian route.
Two points emerge from a consideration of the public record regarding the
attitude of the Canadian government and the level of information in Canada
concerning oil and gas pipelines. First, it appears that the Canadian alterna-
tive Is entitely feasible and does not involve the problems which the Interior
Department and others have ascribed to it, without documented basis. Second,
the willingness of the Canadian government to discuss these matters and the
availability of information developed by the government and private industry
make an independent study, as required by the Mondale bill, both meaningful
and quite manageable within a time-frame that will not create unwarranted
delay.
The same points may be made about confirming the superiority of the Cana-
dian alternative of oil and gas pipelines within a common corridor on national
security, economic and environmental grounds, to which the experts will not
turn. The resolution of the dispute on those issues can and should be reached
in a relatively brief period of study, of less than one year. The information is
at hand to permit prompt completion of the necessary analysis, and the adop-
tion of it as (or incorporation of it in) an Impact Statement At that time,
Congress will be in a position to make a decision, as it should, in the vital
issue of transportation of North Slope petroleum resources.
Mr. MELCHER. Mr. Dienelt, you may proceed with any summary
you wish. If it is agreeable with them, it is certainly agreeable with
us, but I must point out you are testifying out of order. But we
have no objection if they have no objection.
Mr. DIENELT. I will be very brief, Congressman.
Mr. MELCHER. Thank you.
Mr. DIENELT. The Wilderness Society, Environmental Defense.
Fund, Inc., and Friends of the Earth are not opposed to well-
planned development of North Slope oil and gas. But we believe
there is a better way than the Trans-Alaska pipeline proposal to
transport the petroleum resources of the North. Our examination of
the alternatives-and the experts here will discuss that in detail-
based on the available evidence, has led us to conclude than an all-
land common corridor for oil and gas delivery, from the North
Slope through Canada to the lower 48 States would be superior to
the Trans-Alaska plan.
Unfortunately, the Interior Department has not sought or devel-
oped the necessary information on the Canadian route to make the
conclusion which we believe is correct a certainty and to permit a
fully informed choice among the alternative means of delivering
North Slope oil in the national interest.
That is the purpose of the legislation which we would support,
which would provide for and require a thorough independent study
of the Canadian alternative and comparison of that alternative with
the Alaskan plan and would reserve for and require a decision by
Congress at the end of that study.
We believe such a proper evaluation of the Canadian route can
take place in relatively short order. We will support that kind of
legislation.
One final point that we wish to emphasize. as strongly as we can,
is that that kind of legislation is, in our view, the best and most
expeditious means of both satisfying the objectives of the National
Environmental Policy Act and bringing North Slope oil and gas
to the appropriate market as quickly as possible.
617
With respect to NEPA, the primary purpose of the plaintiff in
the litigation has always been to insure that the objectives of that
Act have been fulfilled. In our view, they have not been. We expect
a congressionally supervised study would satisfy NEPA's objective
of a thorough and unbiased evaluation of alternatives and would
otherwise fulfill the spirit of NEPA. If this expectation is fulfilled,
we believe there will be no reason for further environmental litiga-
tion and delay. Moreover, if Congress makes the final decision, after
having itself insured that NEPA's purposes have been met by a
thorough and objective evaluation of the Canadian alternative, we
believe there will be no legal basis for further environmental chal-
lenge since Congress will have expressly acted to vindicate the objec-
tive of NEPA.
We believe that the process of adequate study by an independent
body, consideration of that study, and final decision by Congress can
take place within 1 year. By contrast, if the controversy goes back to
the courts, as the Administration supports, if it goes back to the
courts, as a result of Congress amending the width limitation of the
Mineral Leasing Act of 1920 to permit the Interior Department to
reach a final decision, the litigation process will last at least a year. A
victory by plaintiffs on their claim that NEPA's requirements have
not been met in the litigation could extend the court process for sev-
eral years.
In short, action by Congress to insure that the objectives of
NEPA are met and to reach an informed decision on the alternative
routes, which is not now possible and will not be without an inde-
pendent evaluation of those routes, is the quickest way to guarantee
a start of construction of pipelines to deliver oil and gas from the
North Slope.
If there are no questions. the experts will take over.
Mr. MELCHER. There will be no questions until each of the panel
members has had an opportunity to make their presentation.
Mr. YOUNG. Mr. Chairman, as each witness gives their testimony
we cannot question them when they are finished with their testi-
mony !
Mr. MELCHER. When we are having a panel here for purposes of
utilizing time to better advantage, we will take the questioning of
the panel as a group. We will allow plenty of time for questioning.
I would advise each witness to keep in mind that probably for mem-
bers of the committee, the questioning period is very necessary and
most essential to us.
So keep your remarks brief. We will make sure each of your state-
ments in its entirety will be a part of the record. I just want to re-
mind you that we do want to question you as a group.
Dr. Curry.
STATEMENT OF ROBERT R. CURRY, ASSOCIATE PROFESSOR,
ENVIRONMENTAL GEOLOGY, UNIVERSITY OF MONTANA
Dr. CURRY. Thank you, Mr. Chairman. I am Robert Curry, an as-
sociate professor of environmental geology at the University of
Montana. I hold advanced degrees in plant ecology and geology
with a Ph. D. in geology and geophysics from the University of
618
California at Berkeley. Beginning in February 1969. I have been
deeply involved with the scientific analysis of problems associated
with Arctic Alaskan petroleum development. In the early spring of
1969, while employed as a professor at the University of California,
I was engaged by the Department of the Interior, U.S. Geological
Survey, to conduct a reconnaissance survey of the then-pending
Alaska pipeline proposal and to help to formulate policy guidelines
that might be used by the Department of Interior to assure minimi-
zation of environmental impacts for the Alaskan petroluem develop-
ment. I was then serving as a scientific advisor to the U.S. Senate
Public Works Committee on matters of environmental effects of
off-shore petroleum development prompted by the Santa Barbara oil
spill and was advising the President's science advisory staff on the
same matter. Since I held a research hydrologist position with the
geological survey and was employed part-time by them and since I
had lived in Alaska and studied arctic landscape processes there
while employed by the University of Alaska, I was asked to begin
work for Interior in April of 1969 on route selection criteria for de-
termining environmental impact of the various petroleum transship-
ment and roadway schemes then being proposed and effected by pe-
troleum companies and the pipeline consortium.
I disagree completely with the premise we will either have an
Alaska pipeline or no pipeline. I will present information today
which will outline some of my arguments. I would like to summarize
my prepared statement and ask the full statement be included in the
record.
Mr. MELCHER. Without objection, Dr. Curry's full statement will
be made a part of the record.
Hearing no objection, SO ordered.
[The statement follows:]
STATEMENT OF ROBERT R. CURRY, ASSOCIATE PROFESSOR ENVIRONMENTAL
GEOLOGY, UNIVERSITY OF MONTANA, MISSOULA, MONTANA
I am Robert Curry, an Associate Professor of Environmental Geology at the
University of Montana. I hold advanced degrees in plant ecology and geology
with a Ph.D in geology and geophysics from the University of California at
Berkeley. Beginning in February, 1969, I have been deeply involved with the
scientific analysis of problems associated with Arctic Alaskan petroleum devel-
opment. In the early spring of 1969, while employed as a professor at the Uni-
versity of California, I was engaged by the Department of the Interior, U.S.
Geological Survey, to conduct a reconnaissance survey of the then-pending
Alaska pipeline proposal and to help to forumulate policy guidelines that
might be used by the Department of Interior to assure minimization of envi-
ronmental impacts for the Alaskan petroleum development. I was then serving
as a scientific advisor to the U.S. Senate Public Works Committee on matters
of environmental effects of offshore petroleum development prompted by the
Santa Barbara oil spill and was advising the President's science advisory staff
on the same matter. Since I held a research hydrologist position with the Geo-
logical Survey and was employed part-time by them and since I have lived in
Alaska and studied artetic landscape processes there while employed by the
University of Alaska, I was asked to-begin work for Interior in April of 1969
on route selection criteria for-determining environmental impact of the various
petroleum transshipment and roadway schemes then being proposed and ef-
fected by petroleum companies and the pipeline cosortium. This work included
overflight and ground-visits to the Hickle-Highway and the surveyed Trans-
Alaska pipeline route, and preparation of an advisory report.
619
Following presentation of my findings and conclusions to Interior, I began a
long and intense involvement with other scientists to bring the issues into the
public realm. This contributed to the preliminary injunction and long litigation
in Wilderness Society V8 Morton, Civil No. 925-70. I have served in an advi-
sory capacity in this litigation since the granting of the injunction and have
prepared and digested many thousands of pages of documents on those aspects
of the arctic pipelines within the areas of my expertese; namely arctic geo-
morphology, hydrology, and plant ecology. I have published professional papers
in these fields, specializing particularly in those geologic processes that consti-
tute hazards to human beings and their works such as river flooding, seismic
hazards, permafrost considerations, slope stability, and similar natural events.
Since 1961 I have visited and conducted field work on approximately 95% of
the proposed Trans-Alaska pipeline route from Prudhoe to Valdez and have in-
vestigated representative portions of both the Alaskan and Candian portions of
several alternative MacKenzie Valley pipeline routes as far south as Edmon-
ton, Alberta. I have also traveled extensively within Canada and had frequent
discussions and assistance from Canadians to help me evaluate the basic data
for their routes. At this time I wish to attempt to summarize an extremely
large volume of factual information on the comparative terrestrial environmen-
tal impacts of the Alaskan and Canadian pipeline alternatives. These geologic
and hydrologic data overwhelmingly favor MacKenzie Valley routes. Primary
factors under consideration are seismic risk through pipeline failure associated
with local ground accelerations and offsets, sea waves, slope failures, and gla-
cier accelerations; flood and seour hazard associated with buried river cross-
ings and glacier outburst floodways; foundation failure hazard associated with
high ground-ice permafrost melting; and service and haul-road substrate de-
struction causing increased siltation in waterways and loss of permafrost and
vegetative covers.
BASIC PHYSICAL ROUTE COMPARISONS
Some serious misinformation is still being used as the basis for comments
and decisions regarding the environmental impacts of the two major pipeline
routes (see for instance letter of Rogers C. B. Morton to "Senator", April 4,
1973). Although it is true that the Trans-Canada route is longer, it is not at
all true that there is more unstable permafrost, more chances of slope failure,
equal seismic risk, or equal hydrologic risk. Morton's letter to Congressmen of
April 4 also illustrates some misconceptions about the hazard geology of the
two routes, such as his ideas about design for earthquakes, permafrost, and
river crossings that cause me to seriously doubt that he has the ability to
grasp these technical matters sufficiently to assure his capability to attach ade-
quate environmental and technical stipulations to any arctic pipeline permit,
no matter where constructed. These factual and implied errors are so over-
whelmingly incorrect that they must be thoroughly challanged in open scien-
tific forum. The following analysis will cover some of the major points of ter-
restrial impact.
SEISMIC HAZARD
It is well-known that the Canadian alternatives offer less seismic risk than
the Alaskan route but the degree of this difference is not fully appreciated.
First, the magnitude of expected earthquakes was seriously underestimated for
the longest mid-section of the Alaska Pipeline route (67* N. to Donnelly Dome)
because earthquakes of several times larger energy release have occurred
within 30 miles of the proposed pipeline within recent historical times. The
very high risk seismic zone comprises over two-thirds of the Alaskan route
while the lesser (6.0) highest risk zone for the Canadian route is less than 120
miles in length. About 450 to 500 miles of the Alaskan route are through areas
with a conservatively-determined risk of 8.0 to 8.5 while but one-fourth that
distance in Canada has but 1/30th or less expected ground movement. If we
multiply length by risk factor, the longer Canadian line has but one/one-
hundred-twentieth (1/120) the risk from ground acceleration that the Alaskan
pipeline has over its full length. But ground acceleration is not the most dan-
gerous seismic risk. Secretary Morton assures the Congressmen that "the envi-
ronmental and technical stipulations that I will attach to the Alaska pipeline
permit will assure that this pipeline is designed to withstand the largest earth-
97-839 73 pt2 4
620
quake that has ever been experienced in Alaska". I presume he means that the
pipe will be designed to withstand ground acclerations of on the order of 1 E.
or twice that of gravity. Although It is very doubtful that this can be done for
all modes of operation of a pipeline under all temperatures throughout its life-
time; even if it could be done it would not accommodate the much larger fault
offsets expectable only in southern Alaska. Periodic fault offsets of on the
order of 3 feet are not at all unexpectable along each of the many traces of
the Denali fault system that the pipeline must cross in southern Alaska (J. H.
Stout, et al, 1973, Geol. Soc. American Bull, V. 84, p. 939). This fault is appar-
ently a major circum-Pacific fault bounding-two plates of the earth's crust.
Such faults have many traces and contain fault blocks that are wedged be-
tween large moving masses during offset. This causes local vertical ground dis-
placements much greater than the regional fault displacements, as was ob-
served in Alaska in 1964 when local movement of as much as 45 feet was
observed (National Academy of Science, 1972, The Great Alaskan Earthquake-
Seismology and Geodesy, p. 299). Many of these fault blocks remain undetected
today and will not be discovered until pipeline excavations are conducted. This
will lead to some considerable presently uncounted construction delays due to
stipulated special construction modes to be required for crossing such fault-
lines. Canada does not have this sort of faulting along any of the pipeline
route. Nowhere have the pipeline companies or Department of the Interior
demonstrated an ability to design pipelines operating at full capacity capable
of withstanding 10 to 45 foot offsets and 1 g ground accelerations that are en-
tirely probable along the Alaskan route.
Since the highest seismic area in Alaska coincides with the area of greatest
tectonic (mountain-building) activity, the highest mountains and steepest
slopes are found over the foci of the largest earthquakes. Thus, the highest
ground accelerations are expected in the mountains near the sea leading to
much greater landslide and seismic sea-wave hazard for the Alaskan route. Re-
cent work by U.S. Geological Survey and others (Boore, D. M, 1972, Geologi-
cal Society of America Abstracts with Programs, p. 454) has shown that pre-
vious estimates of ground accelerations to be expected near large-magnitude
earthquakes were too low by factors of 5 to 10. This means that landslides,
particularly landslides into the sea with associated giant sea waves up to
hundreds of feet high as observed in southern Alaska, are virtually certain in
the pipeline vicinity within its lifetime and many parts of the pipeline and as-
sociated structures would be very much more vulnerable to these hazards in
southern Alaska than Canada.
The Alaskan route differs completely from the Canadian in its close associa-
tion with active coastal-zone glaciers. These glaciers are subject to surges that
may or may not be triggered by seismic activity. Some of the glaciers in the
vicinity of the Alaskan pipeline are known to have surged in historic time and
the route passes within the area over which the glaciers traverse.
Seismic sea waves, generated by submarine ground displacements such as
that associated with the 1964 Alaskan earthquake, are a particular hazard to
shore installations such as that at Valdez, the terminus of the pipeline. In nar-
row harbors, such as Valdez, these sea WAVES are particularly disastrous in
that they generate waves that shoal in the confined waters and focus energy
onshore; sending swash hundreds of feet above tidal range. These are associ-
ated with earthquakes, when the partly-full holding tanks and tankers at the
terminus are vulnerable to rupture. No amount of protective berms around
those tanks will prevent the oil from floating off on a sea wave surge.
STREAM HAZARDS
Secretary Morton was again given completely false information upon which
to base his information that the stream-crossing hazards are equal or greater
for the Canadian route. Quite the opposite is true. It is true that a MacKenzie
Pipeline route would cross more water-courses, but those are generally differ-
ent kinds of water courses than are crossed along the Alaskan route. First, the
so-called 12 major rivers that must be crossed in Canada are not at all similar
to those in Alaska. It is true that they are large rivers in terms of flood dis-
charge volumes. but it does not follow that they are large in width or hazard.
These large rivers would, for most preferable construction mode, be treated
just as they are in Alaska-with an elevated suspended pipeline. It is not at
all implausible that a full elevated suspended pipeline would be constructed
621
throughout the Canadian reach of the northern portion of the pipeline since
that may be the least costly in terms of money and environmental damage and
requires the least right-of-way (Barry Donnellan, 1972, An Evaluation of the
Basic Soil Mechanics Decisions on the Trans-Alaska Pipeline Project; paper
presented to the 139th Annual Meeting of the Am. Assoc. for Advan. of Sel-
ence, Wash D.C., Dec., 1972). Should attempts be made to lay pipe beneath
these Canadian rivers, risks would still be less than for the general Alaskan
case because of lesser Canadian bed scour, smaller gravel size, and lower
stream gradients during flooding (R. R. Curry, 1972, Comments to the Hon.
Rogers C. B. Morton on the Environmental Impact Statement for the Trans-
Alaska Pipeline, 109 p. in Technical Comments, V. 1, Compiled by The Wilder-
ness Society, et al, May, 1972). The Alaskan streams of intermediate and small
size are generally wide and gravel-filled and flow on beds that become mobi-
lized for many times the river's mean depths during floods. The critical
Canadian rivers, on the other hand, flow on or near bedrock in narrower chan-
nels or contain mud and silt beds and have lesser scour hazard. Problems 2890-
ciated with burial of pipes in Alaskan streams are extreme and have not been
adequately dealt with in the work of the Department of the Interior (with the
exception of the U.S.G.S. paper not used in preparation of the Impact State-
ment: (Emmett, W. W.. 1972, Hydraulic Geometry of some Alaskan streams
south of the Yukon River. Open File Report. Water Res. Div., Alaska). Data
presented by Emmett suggest that burial depths proposed for the Alaskan
stream crossings are sometimes inadequate to accommodate the mobile river
beds to be expected and that serious problems exist with many Alaskan cross-
ings. In Canada, however. the generally greater distance between the pipeline
route and high mountains means that fewer larger rivers will drain the major-
ity of the regional runoff to the major MacKenzie watercourse. This means
that the bulk of the tributary discharges can be crossed subaerially with
advantage and that hazard is thus considerably reduced. The greater distance
to the mountains, and the very different nature of the glacial history of part
of the Canadian route, also accounts for the lesser depths of gravels encour-
tered in many of the Canadian small streams. Thus, large rivers in Canada
present no more hazard than they do in Alaska (the Yukon), except that in
Alaska the seismic risk to suspended crossings is greater than in Canada. On
the intermediate rivers risks are about comparable if pipe is to be buried, and
on smaller rivers Canada affords safer crossings for the general case. Hazard
to crossings for suspended pipelines for large rivers are very much less than
to intermediate and small rivers with wide fluctuations in flow volumes and
attempted pipe burial.
In Alaska, in addition, there is the compound problem of glacier dam bursts
to be contended with along the sections of the route passing near and through
the Alaskan range. This is not encountered along any of the Canadian route
either in Alaska or Canada. These dam bursts, occasioned when lakes
imponded behind glaciers force their way outward suddenly, add many times
the expected discharges to small drainage channels with much scour and sedi-
ment movement. These occur in the highest seismic and landslide risk parts of
the southern Alaskan route only.
PERMAFROST
While the Secretary is again technically correct when he states in this Con-
gressional letter of April 4th that the Canadian pipeline would cross nearly
twice as great a length of area underlain by permafrost (based on very inade-
quate data from Alaska and Canada), he has been seriously misled if he
believes that the Canadian permafrost will create greater hazard. Proending
upon the actual route chosen from Prudhoe Ray to the MacKenzie Corridor,
permafrost hazard may be equal or less with the Canadian route. This is
because the flanks of the Brooks Range are underlain by 'drier' permafrost
than the Arctic Coastal Plain or interior Alaska permafrost area. These
upland dry permafrost areas pose some hazard to concentrations of runoff but
dc not pose the thaw-instability problems that are by now well understood for
the Alaskan route. The offshore alternative doubtless has some permafrost
formed during the lower glacial-age sea level stands, but this does not proba-
bly extend to depths below 100 to 200 feet and such depths-a found within
several miles of shore along most of the route, particularly toward Canada.
The MacKenzie River valley itself has less permafrost than might be expected
622
by comparison to Alaska since it is the locus of a north-flowing river carrying
huge quantities of heat northward and thawing its near-shore areas. Careful
location of the route along this corridor could minimize total length of high
ground-ice permafrost for the Canadian route to make equal or less hazard
than for the shorter Alaskan route. I estimate total length of the high ground
ice soil for the trans-Canadian route as 360 to 400 miles compared with about
300 miles for the Alaskan route.
Another major permafrost consideration is that associated with haulage and
service reads. All of the Alaskan pipeline must be built and serviced from
roadways, which themselves constitute a serious threat to permafrost stability
and thus to the pipeline. With the MacKenzie valley river corridor available
for shipping pipe and service vehicles along a major portion of the route, new
major roads paralleling the pipe need not be built. With a suspended pipeline,
particularly carrying both gas and oil pipes, no roads need be built at all in
permafrost areas, even to carry pipe from barge to construction sites. Long-
term environmental damage will probably be greater in Alska from roads than
from the pipeline itself. Certainly the effects upon game, vegetation, and per-
mafrost will be greater associated with the roads, and vehicle travel over them
and the thawing, road construction, and greater gravel volumes required in
Alaska, (not Canada as Morton was informed) will do greater damage to
stream habitat and fisheries away from the immediate pipeline and road
rights-of-way due to thermal erosion, stream course changes (particularly in
Alaska where the pipeline route parallels many intermediate rivers rather
than crossing them at right angles as in Canada), and necessity of hydraulic
re-equilibration after gravel removals. Roadways cannot be reclaimed in the
Arctic in lengths of times necessary to protect permafrost thaw effects, as has
been amply demonstrated by Interior investigators (R. Sigafoos, for instances)
and many others.
This analysis has not considered any of the obvious comparative advantages
of the Canadian versus Alaskan routes related to the hazards of the marine leg
of the Alaskan route. Information on the marine hazard will be presented by
my colleague Dr. Richard Warner in written statement. The long persistence
of some toxic fractions in petroleum, particularly that from Prudhoe Bay,
create a risk to the $53 million Prince William Sound fisheries. There are
many unknown factors in the evaluation of the marine hazard. These are par-
ticularly disquieting because the Department of the Interior has provided no
stipulations for the marine route, nor for the numerous trans-continental
routes that may then be used to carry petroleum to markets in the east and
midwest from west coast tanker ports. The Alaskan route is 15 to 3 times as
long between Prudhoe Bay and midwest markets as is the Canadian route, yet
only one-third of the Alaskan route is protected by stipulations. If schemes to
avoid the strictures of the Jones Act are applied as brought out by Congress-
man Les Aspin to this subcommittee on April 19 and refinement of Alaskan oil
is considered for the Virgin Islands via a Central American pipeline, then the
potential marine impact of the Alaskan Pipeline is orders of magnitude
greater than previously stated by Interior.
SUMMARY
The major terrestrial advantages of the Canadian versus the Alaskan route
are lesser Canadian seismic hazard by on the order of 100 times: lesser
hazard associated with most probable-mode stream crossings; and route possi-
bilities requiring less gravel, less stream destruction, less high-ground-ice per-
mafrost crossing, and fewer miles of permanent roads. Coupled with the clear
short-term and long-term economic advantages of the Canadian route assuming
international cooperation, total absence of the marine leg and associated severe
hazards to Canada and to a lesser extent the United States and the security
advantages of the inland route, there seems little reason to continue Alaskan
Pipeline proposals except as a favor to energy company interests who would
stand to make the greatest short-term profit from the Alaskan route.
Dr. CURRY. I wish to attempt to summarize an extremely large
volume of factual information on the comparative terrestrial en-
vironmental impacts of the Alaskan and Canadian pipeline alterna-
tives. These geologic and hydrologic data overwhelmingly favor
Mackenzie Valley routes. Primary factors under consideration are
623
seismic risk through pipeline failure associated with local ground
accelerations and offsets, sea waves, slope failures, and glacier accel-
erations; flood and scour hazard associated with buried river cross-
ings and glacier outburst floodways; foundation failure hazard asso-
ciated with high ground-ice permafrost melting; and service and
haul-road substrate destruction causing increased siltation in water-
ways and loss of permafrost and vegetative covers.
Some serious misinformation is still being used as the basis for
comments and decisions regarding the environmental impacts of the
two major pipeline routes, as for instance in Secretary Morton's let-
ter to Congressmen of April 4 of this year. Although it is true that
the trans-Canada route is longer, it is not at all true that there is
more unstable permafrost, more chances of slope failure, equal
seismic risk, or equal hydrolgic risk. Morton's letter to Congressmen
of April 4 also illustrates some misconceptions about the hazard ge-
ology of the two routes, such as his ideas about design for earth-
quakes, permafrost, and river crossings that cause me to seriously
doubt that he has the ability to grasp these technical matters suffi-
ciently to assure his capability to attach adequate environmental and
technical stipulations to any arctic pipeline permit, no matter where
constructed. These factual and implied errors are so overwhelmingly
incorrect that they must be thoroughtly challenged in open scientific
forum. The following analysis will cover some of the major points
of terrestrial impact. I will not attempt to cover them all.
Let's begin with seismic hazard. It is well known that the Cana-
dian alternatives offer less seismic risk than the Alaskan route but
the degree of this difference is not fully appreciated. First, the mag-
nitude of expected earthquakes was seriously underestimated for the
longest midsection of the Alaska pipeline route-67° N. to Donnelly
Dome-because earthquakes of several times larger energy release
have occurred within 30 miles of the proposed pipeline within recent
historical times. The very high risk seismic zone comprises over
two-thirds of the Alaskan route while the lesser-6.0-highest risk
zone for the Canadian route is less than 120 miles in length. About
450 to 500 miles of the Alaskan route are through areas with a con-
servatively determined risk of 8.0 to 8.5 while but one-fourth that
distance in Canada has but one-thirtieth or less expected ground
movement. If we multiply length by risk factor, the longer Canadian
line has but one-hundred-twentieth the risk from ground acceler-
ation that the Alaskan pipeline has over its full length. But ground
acceleration is not the most dangeous sèismic risk. Secretary Morton
assures the Congressmen that, "The environmental and technical
stipulations that I will attach to the Alaska pipeline permit will as-
sure that this pipeline is designed to withstand the largest earth-
quake that has ever been experienced in Alaska I presume, as a
scientist, he means that the pipe will be designed to withstand
ground accelerations of on the order of 1 g. or twice that of gravity.
Although it is very doubtful that this can be done for all modes of
operation of a pipeline under all temperatures throughout its life-
time; even if it could be done it would not accommodate the much
larger fault offsets expectable only in southern Alaska Periodic
fault offsets of on the order of 3 feet are not at all unexpectable
624
along each of the many traces of the Denali fault system. I give ref-
erences in my prepared statement to the papers.
This fault is apparently a major circumpacific fault bounding two
plates of the earth's crust. Such faults have many traces and contain
fault blocks that are wedged between large moving masses during
offset. This causes local vertical ground displacements much greater
than the regional fault displacements, as was observed in Alaska in
1964 when local movement of as much as 45 feet was observed. Many
of these fault blocks remain undetected today and will not be discov-
ered until pipeline excavations are conducted. This will lead to some
considerable presently uncounted construction delays due to stipu-
lated special construction modes to be required for erossing such
faultlines. Canada does not have this sort of faulting along any of
the pipeline route. Nowhere have the pineline companies or Depart-
ment of the Interior demonstrated an ability to design pipeline oper-
ating at full capacity capable of withstanding 10 to 45 foot offsets
and 1 g ground accelerations that are entirely probable along the
Alaskan route.
We are not talking about possibilities, we are talking about defi-
nite probability within the lifetime of the pipeline.
I go on in my prepared statement to talk about landslides, giant
sea waves, and glaciers which are larger for the Alaska route. I
want to talk now about one of the other major hazards, and that is
the hazard of stream crossings.
Secretary Morton was again given completely false information
upon which to base his information that the stream-crossing hazards
are equal or greater for the Canadian route. Quite the opposite is
true. It is true that a Mackenzie pipeline route would cross more
watercourses, but those are generally different kinds of watercourses
than are crossed along the Alaskan route. First, the so-called 12
major rivers that must be crossed in Canada are not at all similar to
those in Alaska. It is true that they are large rivers in terms of
flood discharge volumes, but it does not follow that they are large in
width or hazard. These large rivers would, for most preferable con-
struction mode, be treated just as they are in Alaska-with an ele-
vated suspended pipeline. It is not at all implausible that a full ele-
vated suspended pipeline would be constructed throughout the
Canadian reach of the northern portion of the pipeline since that
may be the least costly in terms of money and environmental dam-
age and requires the least right-of-way. As a matter of fact, it re-
quires no increase in rights-of-way over existing legislation. Should
attempts be made to lay pipe beneath these Canadian rivers, risks
would still be less than for the general Alaskan case because of
lesser Canadian bed scour, smaller gravel size, and lower stream gra-
dients during flooding. Problems associated with burial of pipes in
Alaskan streams are extreme and have not been adequately dealt
with in the work of the Department of the Interior-with the excep-
tion of the USGS paper not used in preparation of the impact state-
ment. Data presented by Emmett suggest that burial depths pro-
posed for the Alaskan stream crossings are sometimes inadequate to
accommodate the mobile river beds to be expected and that serious
problems exist with many Alaskan crossings. In Canada we do not
find the same kind of hazard.
625
In Alaska, in addition, there is the con:pound problem of glacier
dam bursts to be contended with along the sections of the route
passing near and through the Alaskan range. This is not encoun-
tered along any of the Canadian route either in Alaska or Canada.
These dam bursts, occasioned when lakes impounded behind glaciers
force their way outward suddenly, add many times the expected dis-
charges to small drainage channels with much scour and sediment
movement. These occur in the highest seismic and landslide risk
parts of the southern Alaskan route only.
Lastly, I want to talk about permafrost. While the Secretary is
again technically correct when he states in this congressional letter
of April 4 that the Canadian pipeline would cross nearly twice as
great a length of area underlain by permafrost-based on very inad-
equate data from Alaska and Canada-he has been seriously misled
if he believes that the Canadian permafrost will create greater haz-
ard. Depending upon the actual route chosen from Prudhoe Bay to
the Mackenzie Corridor, permafrost hazard may be equal or less
with the Canadian route. This is because the flanks of the Brooks
Range are underlain by "drier" permafrost than the Arctic Coastal
Plain or interior Alaska permafrost areas. These upland dry per-
mafrost areas pose some hazard to concentrations of runoff but do
not pose the thaw-instability problems that are by now well under-
stood for the Alaskan route. The offshore alternative doubtless has
some permafrost formed during the lower glacial-age sea level
stands, but this does not probably extend to depths below 100 to 200
feet and such depths are found within several miles of shore along
most of the route, particularly toward Canada. The Mackenzie River
Valley itself has less permafrost than might be expected by compari-
son to Alaska since it is the locus of a north-flowing river carrying
huge quantities of heat northward and thawing its near-shore areas.
Careful location of the route along this corridor could minimize
total length of high ground-ice permafrost for the Canadian route
to make equal or less hazard than for the shorter Alaskan route. I
estimate total length of the high ground ice soil for the Trans-Cana-
dian route as 360-400 miles compared with about 300 miles for the
Alaskan route.
Another major permafrost considération is that associated with
haulage and service roads. All of the Alaskan pipeline must be built
and serviced from roadways, which themselves constitute a serious
threat to permafrost stability and thus to the pipeline. With the
Mackenzie Valley river corridor available for shipping pipe and
service vehicles along a major portion of the route, new major roads
paralleling the pipe, need not be built. With a suspended pipeline,
particularly carrying both gas and oil pipes. no roads need be built
at all in permafrost areas, even to carry pipe from barge to con-
struction sites. Long-term environmental damage will probably be
greater in Alaska from roads than from the pipeline itself. Cer-
tainly the effects upon game, vegetation, and permafrost will be
greater associated with roads, and vehicle travel over them and the
thawing. road construction, and greater gravel volumes required in
Alaska-not Canada as Morton was informed-will do greater dam-
age to stream habitat and fisheries away from the immediate pipe-
line and road.rights-of-way due to thermal erosion, stream course
626
changes-particularly in Alaska where the pipeline route parallels
many intermediate rivers rather than crossing them at right angies
as in Canada-and necessity of hydraulic re-equilibration after
gravel removals. Roadways cannot be reclaimed in the Arctic in
lengths of times necessary to protect permafrost thaw effects.
In conclusion. yet me remind you that this environmental analy-
sis-and it will be the only environmental analysis this panel presents
-has not considered any of the obvious comparative advantages of
the Canadian versus Alaskan routes related to the hazards of the
marine leg of the Alaskan route. Information on the marine hazard
will be presented by my colleague Dr. Richard Warner in written
statement. The long persistence of some toxic fractions in petrol "um,
particularly that from Prudhoe Bay, create a risk to the $53 million
Prince William Sound fisheries. There are many unknown factors in
the evaluation of the marine hazard. These are particularly disquiet-
ing because the Department of the Interior has provided no stipula-
tions for the marine route, nor for the numerous transcontinental
routes that may then be used to carry petroleum to markets in the
East and Midwest from west coast tanker ports. The Alaskan route
is 1.5 to 3 times as long between Prudhoe Bay and Midwest markets
as is the Canadian route, yet only one-third of the Alaskan route is
protected by stipulations. If schemes to avoid the strictures of the
Jones Act are applied as brought out by Congressman Lee Aspin to
this subcommittee on April 19, and refinement of Alaskan oil is con-
sidered for the Virgin Islands via a Central American pipeline, then
the potential marine impact of the Alaskan pipeline is orders of
magnitude greater than previously stated by Interior.
In summary, the major terrestrial advantages of the Canadian
versus the Alaskan route are lesser Canadian seismic hazard by on
the order of 100 times; lesser hazard associated with most probable-
mode stream crossings; and route possibilities requiring less gravel,
less stream destruction, less high-ground-ice permafrost crossing,
and fewer miles of permanent roads. Coupled with the clear short-
term and long-term economic advantages of the Canadian route as-
suming international cooperation. total absence of the marine leg
and associated severe hazards to Canada and to a lesser extent the
United States, and the security advantages of the inland route, there
seems little reason to continue Alaskan pipeline proposals except as
a favor to energy company interests who would stand to make the
greatest short-term profit from the Alaskan route.
Mr. MELCHER. Thank you. Next will be Dr. Charles Cicchetti.
Mr. SAYLOR. Dr. Curry, I don't want to take anything away from
your statement. I am not going to ask you any questions. I have
news for you. I have read your statement in less than one-third of
the time that it took you to read it. Now, if you expect this commit-
tee and your panel expects this committee to get the benefit of some
questions that are in the minds of the members here, I would advise
you, your statement is already in the record. That goes for all of the
rest of you. I know you have come a long distance and you worked
hard on your paper, but it is there and all you did was reread it.
Mr. MELCHER. Dr. Ciechetti.
627
STATEMENT OF CHARLES CICCHETTI, DEPARTMENT OF
ECONOMICS, UNIVERSITY OF WISCONSIN
Dr. CICCHETTI. With that in mind, let me summarize my statement
very briefly.
Mr. MELCHER. Without objection, Dr. Cicchetti's statement will be
made a part of the record at this point.
Hearing none, so ordered.
[Dr. Cicchetti's statement with attachment follows:]
STATEMENT OF DR. CHARLES J. CICCHETTI, UNIVERSITY OF WISCONSIN
My name is Dr. Charles J. Cicchetti, I reside at 1930 Regent Street, Madi-
son, Wisconsin. I am a Visiting Associate Professor of Economics and Environ-
mental Studies at the University of Wisconsin, Madison.
Prior to my present position I was a Research Associate at Resources for
the Future in the Natural Environments Program. While in that program I
spent nearly two years studying the economic and environmental aspects of
the proposed Trans Alaska Pipeline and several alternative overland pipeline
routes through Canada. I have written a book entitled: Alaskan Oil: Alterna
tire Routes and Markets (Johns Hopkins Press for Resources for the Future,
1973), several articles on these issues and I co-authored public statements with
Dr. John V. Krutilla on both the Draft and Final Environmental Impact
Statements of the U.S. Department of Interior on the proposed Trans Alaska
Pipeline.
In my analysis I concluded that the Trans Alaska Pipeline was environmen-
tally and economically inferior to either a Mackenzie Valley Pipeline or an
Alaskan Highway pipeline. Both routes would avoid the most serious seismic
and avalanche areas of southern Alaska and the marine pollution associated
with tanker traffic and terminal facilities. Both routes would deliver oil to the
midwest and east coast rather than the west cost. These non oil producing
states east of the Rockies are presently in greatest need of oil and the price of
oil is higher there than any other place in the world. Additionally, most con-
cede that a natural gas pipeline will be constructed in the future and that
there are substantial economic and environmental savings, if both a crude oil
pipeline and natural gas pipeline are built in the same corridor. Since natural
gas is most needed in the mid continent markets and an all land system is the
only economically feasible alternative, these advantages only add to the desira-
bility of an all land transportation system across Alaska and Canada. Canada
has not only expressed a strong interest in such a joint oil and natural gas
transportation system, the Honorable Donald MacDonald has even offered to
supply the United States with oil during any planning and construction
periods, thus greatly reducing the often stated early delivery advantage of
TAPS.
While the midwest and east coast of the United States need the entire
throughput of a Trans Alaska-Canada Pipeline now, the west coast of the
United States would be oversupplied with oil for a considerable length of
time. My analysis showed this excess supply would last between 5 and 15
years depending upon the oil import quota system used on the west coast, if
TAPS is built. Excess supply during our present energy crisis is mind bog-
gling. Several intricate plans to deal with this situation were uncovered during
my research. These included: (1) selling the oil to Japan in exchange for
additional imports on the east coast with the exporting company reaping super
normal profits by avoiding the Mandatory Oil Import Quota Restrictions, (2)
shipping oil to the Virgin Islands via new Central American pipeline in non
U.S. built owned and operated tankers, thus avoiding the Jones Act and (3)
backing out present imports to the west coast with the affected company being
compensated by being granted import quota tickets on the east coast.
The conclusion of my analysis was that the environmentally and economi-
cally superior route would cross Alaska and Canada and bring oil to the mid-
west and east coast. On the other hand by taking advantage of the market
628
restrictions imposed by the Mandatory Oil Import Quota Program the decision
was made to develop the Trans Alaska Pipeline thus reaping the greatest pos-
sible profits by sacrificing the interests of all the other concerned parties. The
state of Alaska responded by imposing a minimum well head price of $2.65 per
barrel for the purpose of collecting taxes and to protect itself from the
expected losses that would be generated from the oil companies intricate Inter-
national marketing schemes.
A. SOME RECENT CONFUSION IN THE ECONOMIC COMPARISONS OF TAP AND ALL
LAND SYSTEMS ACROSS CANADA
Recently there has been considerable attention given to my economic analy-
sis and I'd like to review that for this committee. In my analysis of the Trans
Alaska Pipeline I compared its economic value with that of the Trans Cana-
dian Pipeline. I considered two different cases. One in which the price of oil in
each part of the country would be based upon world prices; that is the Middle
East price (including taxes) plus transportation costs would be the price in all
parts of the United States. The second case that I considered was based upon
an assumption that the domestic pattern of prices and costs that presently
exists will continue in the future in the United States.
Proponents of TAP have focused on the first approach. If foreign oil is the
price setter then east coast, gulf coast and west coast prices would be equal
and prices in the midwest would be the highest in the nation about 25¢ to 304
per barrel greater than all other regions.
Most estimates of the cost of TAP and the cost of TCP put the two systems
within about 10¢ to 20¢ of one another even when delays of two years for
TCP are considered. When the lowest estimates of TAP's cost per barrel are
compared with the highest estimates of TCP's cost per barrel the difference
will be approximately equal or less than the higher price of foreign crude oil
in the midwest. TAP proponents, therefore, incorrectly conclude that the two
routes are economically equivalent and if delays for TCP are greater than two
years TAP is superior to TCP. The first thing wrong with such a biased com-
parison is that it assumes all high estimates of the cost of TCP are accurate
at the same time all low estimates of the cost of TAP are accurate. Second, it
ignores any economic savings from constructing a natural gas and perhaps a
second oil pipeline in the same corridor. Third, it ignores the admission of oil
companies, findings of the Department of Interior, my own findings and recent
substantiating information that shows the west coast will not need large quan-
tities of the North Slope oil that would flow through TAP. On the other hand
the midwest and east coast needs that Alaskan oil now. Over time the short-
age in the midwest and on the east coast will become even greater. Since
excess west coast supplies will either increase cost or further increase the
inequity in relative prices in different regions of the country, ignoring these
regional supply and demand imbalances incorrectly biases the comparison
heavily in favor of TAP.
If these qualifying factors are not convincing enough in and of themselves
let me remind you that this is the case that TAP pipeline proponents find most
useful to use to promote their decision to push TAP. If present price patterns
in the United States continue the case in favor of a Canadian route is unbeat-
able. First. it should be pointed out that given the characteristics of North
Slope Crude it is better suited for refineries that produce a greater mix of
light and heavy refinery products as are found in the midwest and on the east
coast. At the time I completed my analysis very light crude oils were priced at
about 30¢ per barrel greater in the midwest and 60¢ per barrel greater on the
east coast than similar crudes on the west coast, North Slope quality oil was
priced at about 64c more per barrel in the midwest and 90¢ more per barrel
on the east coast than similar crude oil on the west coast.
The theory put forward by Mr. Simon of the Treasury Department, the
Standard Oil Company (Ohio) and Governor Egan of the state of Alaska is
that these price differences will disappear in the future given the president's
new oil policy. The first question that should be directed to these gentlemen is
whether they think west coast prices are to rise to east coast levels (a price
increase of about 30%) or should east coast consumers, contrary to all oil
company advertising, expect a price decline to west coast levels (a price
decrease of about 25%). They will probably answer such a question by stating
the period of cheap foreign oil has passed and repeat industry claims that at
629
the present time some foreign oil is being delivered to the United States at
prices higher than domestic oil prices.
If this is their collective response a second question must be asked. At the
present time the Japaneae are paying more than $1.50 less per barrel of oil
with qualities similar to North Slope crude (see Appendix A for a recent com-
parison of lighter crudes). The Japanese are being supplied with low cost
Middle East oil, while the largest oil producing and consuming country, the
United States, has higher domestic prices and many government and industry
spokesmen soon predict we will be paying more for imported crude oil than
these high domestic prices. I suggest we learn a lesson from the Japanese and
start requiring our oil companies to- bargain with producing countries for
lower prices and stop the foolish practice of having our domestic oil companies
serve as tax collectors for producing nations by ending the foreign tax credit
on royalty and severance.
I stated earlier that the prices that existed at the time that I undertook my
analysis were such that the midwest price was about 65¢ (and the east coast
90c) more per barrel than the west coast for oil similar in quality to North
Slope oil. In the few weeks since the President's energy message prices have
been changing in this nation. They are not changing in the direction predicted
by Mr. Simon, Mr. Egan or SOHIO, however. Instead as the recent issues of
the Oil and Gas Journal, week after week (especially the April 30 edition),
point out prices in the east of the Rockies market have been increasing by
between 25c and 50¢ per barrel, while west coast prices did not show any
movements until this past week, when a 25¢ per barrel increase was
announced. This means that relative prices have either not changed or have
increased to the detriment of midwest and east coast conumers, who now may
be paying as much as 90¢ per barrel more in the midwest and $1.15 per barrel
more on the east coast.
West coast oversupply and lower prices make the selection of TAP over TCP
a very poor choice for midwest and east coast consumers. Finally, I would like
to comment on a related aspect that has been raised by my critics, who have
recently questioned my own objectivity for using a 50-50 mix of domestic and
foreign crude oil in the midwest and a 17-83 mix on the west coast. For those
who take the time to read my book, they will realize that it was not my
biases that were behind these different percentages. Instead, the more than 15
years of bias in national policy that resulted in much higher prices for mid-
west and east coast oil was the bias that was being computed. The bias that
these percentages were reflecting was similar to that the New England Gover-
nor's and recently the Governor of my own state, Wisconsin, were opposed to
when they challenged the use of a different import quota system east of the
Rockies than on the West coast. The bias that prevented the development of
Canadian tarsands and which placed a limit on other Canadian oil coming into
the midwest is another type of bias, that these calculations were meant to
reflect.
When the new data are examined it seems that the economic case against
TAP is greater than ever. The final fall back of TAP's proponents may be that
prices don't matter, it is resource costs that are the key. This would only be
true for those who do not think that vastly different prices and security of
supply of oil in different parts of the country do not matter. I do not think
this Congress should be so callous and narrow minded.
B. THE PRESIDENT'S ENERGY MESSAGE
Last month the President issued executive proclamation 3279, which ended
direct quantity controls. This change has an important impact on the selection
of the optimal transportation system for Alaskan oil. By ending direct quan-
tity controls the financial advantage of the import for export sale of oil to
Japan and the Virgin Islands-Central American Pipeline plans are virtually
eliminated. (Note some avoidance of the import license fee may still be possi-
ble.) As a result all three measures of comparison: economic, environmental
and oil company profits now point to the Trans Canadian routes as superior to
the Alaskan-tanker system.
New information on a second factor has recently come to light. It is related
to regional supply-demand imbalance in the future in the United States. The
President proposed a speedy increase in oil leasing in off shore areas. Two of
these areas, the Gulf of Alaska and California, if developed will only com-
630
pound the present regional imbalances in domestic oil supply and demand. In
addition oil production in the areas of Western South America and South East
Asia would benefit the west coast. A recent study prepared by the State
Resource Agency of California indicates that even without any North Slope or
Gulf of Alaska oil, PADV, the west coast, could be "essentially independent
from unstable foreign supplies through 1985."
By following a proposal similar to the president's, the report concluded Cali-
fornia production would exceed two million barreis per day by 1985. The mid-
west and east coast on the other hand have no alternative but to become heav-
ily dependent on these same so-called "unstable foreign supplies" unless
Alaskan and Canadian oil and gas are brought into these regions in increasing
quantitites.
It is important to consider other aspects of the President's energy message.
In it were two major proposals, western coal and oil shale, for domestic
energy self-sufficiency. Both are located in the Rocky Mountain region of the
nation. Technology to convert these resources either to oil or gas has been
given some priority. However, a very important limitation on these develop-
ments is the availability of sufficient quantitites of water. It is simply impossi-
ble to expect a full development of such resources without Canadian-U.S. coop-
eration.
The need for a North American Energy Policy has never been greater. The
economic and environmental benefits to the U.S. and Canada will be maxim-
ized only by cooperating and engaging in long run pianning. Developing tar-
sands in Alberta, locating electric plants on the Great Lakes, developing west-
ern coal and oil shale are very much interrelated to one another as well as to
Arctic oil and gas development. There is probably no better way to scuttle a
North American energy policy before it even begins than to allow a single pri-
vate concern like the cash flow of two U.S. and one British oil company to
dominate such a major international and domestic decision. Quite simply
Canada cannot be expected to be ignored on the initial Arctic oil transporta-
tion system decision and then be expected to cooperate on future energy devel-
opments.
C: SOME PROPOSALS TO PLUG THE LOOPHOLES
Two weeks ago I made a series of proposals to your Senate counterparts. I
repeat them here today. They are aimed at my critics, who will say that pres-
ent conditions have changed oil company plans and that my analysis is based
upon out moded calculations. I think they should be answered by recommend-
ing the following 10 point program, which I think should be amended to any
legislation which makes it possible to build the Trans Alaska Pipeline. If my
previous findings are still correct the reaction to these proposals will be hos-
tile, if I am now wrong most of these proposals will be unimportant.
I. No oil can be exported from Alaska to a foreign country as long as
import restrictions of any type are imposed in other parts of the nation.
II. If any oil is exported royalty and severance taxes must be treated as
expenses and not credited against federal corporate income taxes.
III. If oil imports are increased on the east coast or in the midwest because
TAP backs them out of PADV, then these should either be charged the new
license fee or be sold to the highest bidder with revenues going to the federal
treasury and not used to bring windfalls to oil companies.
IV. In order to control both the safety requirements and mode of operations
of the necessary tankers moving oil out of Alaska only U.S. built owned and
operated tankers should be permitted even if foreign ports are the ultimate
destination.
V. Full agreements concerning routes and operations along Canada's west
coast and Puget Sound should be resolved before TAP is begun.
VI. In order to protect the state of Alaska from various international mar-
keting schemes a minimum posted price for the purposes of calculating royalty
and severance tax should be set, thus ending the oil companies attempt to use
the courts to overturn Alaska's new legislation.
VII. Final marketing destinations for all Alaskan oil should be made avail-
able to Congress and the economic and environmental impact of such flows of
oil should be compared to alternative transportation systems.
VIIL Plans for a natural gas pipeline must be documented before TAP is
built so Congress can guarantee each system is compatible with maximizing
collective welfare and having a minimum impact on the environment.
631
IX. Resale of the pipeline to future oil consortiums for the purpose of
reducing taxes in the future should be declared illegal.
X. A committee of Congress should hold an inquiry to determine the present
position of the Canadian government concerning various natural gas and oil
transportation systems.
This controversy has shown us the great importance of the National Envi-
ronmental Policy Act. By requiring full public disclosure of the decision
making process we have determined that a very narrow private interest has
sought to sacrifice the Alaskan environment, oil consumers, taxpayers of the
state of Alaska and the nation, the U.S. Maritime industry and doubtless
others. The important juncture we find ourselves in today is whether we shall
let this narrow private interest to proceed unfettered by a broader national
concern for the greatest number of eitizens of both Canada and the United
States. I urge this Congress to assert its authority in these matters and to
reject the apparent decision of the executive branch to make its decision
purely on the basis of oil company demands. Thank you.
APPENDIX A.-Recent Japanese versus New York prices
Fob price Abu Dhabi Crude (Mar. 19, 1973, OGJ) equal:
To Japan
$2.38
Less markup over other Japanese imports (it is also typical for discounts on
fob to Japan)
12. 3
Total
2. 26
Tanker rate range 0.27¢ to 43.5c per barrel.
Landed prices:
High
Low
$2. 26
$2.38
$2.26
$2.38
. 43
43
27
27
$2.69
$2.81
$2.53
$2. 65
New York 32° API price
$4. 13
Plus price increase spring 1973
25
New York Price at present
4. 38
Current New York and Tokyo price differences:
$4. 38
$4.38
-2.81
-2 53
(Low) 1. 57
(High) 1. 85
THE TRANS ALASKA PIPELINE: A BENEFIT Cosr ANALYSIS OF ALTERNATIVES
(By Charles J. Cicchetti, Working Paper 10, University of Wisconsin-Madison
Institute for Environmental Studies, January 1973)
This paper is based upon research conducted at Resources for
the Future. Its current form has been supported by the Institute
for Environmental Studies at the University of Wisconsin and the
Public Interest Economics-Center, Washington, D.C. It was pre-
sented at the annual meeting of the American Association for the
Advancement of Science, Washington, D.C., in December 1972.
I. INTRODUCTION AND PROBLEM
From the vantage point of 1972 we can identify two unrelated developments
in the latter part of the previous decade, which are now intertwined into one
of the nation's most significant environmental preservation and energy develop-
ment controversies. In the period of 1968 to 1970, successful exploratory efforts
resulted in the discovery of a major oil field on the North Slope of Alaska. By
the end of 1970. the American Petroleum Institute estimated the proved
reserves in this Prudhoe Bay field to be approximately 9.6 billion barrels. A
field of such size makes this discovery one of the single most important in the
history of the domestic crude oil industry.
632
At about the same time that oil explorations were being undertaken in
Alaska, the Congress of the United States enacted the National Environmental
Policy Act of 1969 (NEPA, PL 91-190). One of the requirements of this Act is
that agencies of the federal government undertaking actions that might have
an impact on the environment, must file an Environmental Impact Statement
(frequently called a 102(C) statement). This requirement includes agencies
issuing permits to private developers as in the Alaskan oil case. In these state-
ments the agencies must analyze and quantify the expected impact of the pro-
posed action on the environment. Furthermore, when irreversible deleterious
impacts on the environment are found, a consideration of alternatives, includ-
ing but not restricted to nondevelopment, must also be undertaken by the
agency. The consideration of alternatives has been interpreted to include both
an environmental and economic comparison of alternative actions. This present
paper will concentrate on the economic comparison of the Trans Alaska Pipe-
line and its principal alternatives. Initially, the Department of Interior did not
file the required Environmental Impact Statement and subsequently the claim
was made that the statement was inadequate, in part because it did not con-
sider the alternatives to the proposed pipeline. Environmentalists used these
facts to delay the construction of the pipeline. The principal but not the only
concerns of environmentalists were and continue to be related to the following
factors:
(1) The impact of production and the proposed pipeline on the ecology
of the North Slope, particularly the caribou herds which inhabit it.
(2) The possibility of pipeline leaks and/or breaks caused either by (a)
melting permafrost, (b) seismic activity or (c) avalanches.
(3) The physical disruption of the nation's largest remaining wilderness
and the impact of construction and operation of the pipeline on this wil-
derness and the many rivers and streams crossed by the pipeline.
(4) The impact of "normal" tanker loading operations in Prince Wil-
liam Sound at the Port City of Valdez and West Coast ports.
(5) The prospects of possible tanker accidents caused either by (a) col-
lisions, (b) earthquakes, or (c) tidal waves.
As stated above this paper will concentrate on an economic comparison of
alternatives. However, a short digression to define the alternatives and to
describe their different environmental impacts will be undertaken first.
II. AN ENVIRONMENTAL COMPARISON
This paper will consider the economic effect of three alternative policy
options. The proposed Trans Alaska Pipeline and tanker system (TAPS) and
two all land Trans Canadian Pipelines (TCP) are the alternatives that will be
considered in this analysis. The environmental effects of each have been ana-
lyzed by various public and private agencies including the Department of Inte-
rior in response to the initial legal action taken by environmentalists.
The route, which is currently proposed by the consortium of oil companies,1
would move in a north-south direction across Alaska crossing two major moun-
tain ranges and in its southern half would cross the most seismically active
region in North America. The pipeline would terminate in the port city of
Valdez where storage and terminal facilities will be constructed to ship the
North Slope oil to final markets. In Figure 1 this route is labeled TAP. A
second alternative would be to construct a pipeline from the North Slope to
the Canadian city of Edmonton following the natural corridor of the Macken-
zie River. This route is labeled MVP in Figure 1. There are two routes which
have been proposed for the Mackenzie Valley. These are labeled I and II in
Figure 1. Finally, a third alternative would follow the TAP route to the Alas-
kan city of Fairbanks and follow the man-made corridor of the Alaska High-
way and, in some portions, previous pipeline routes to the Canadian City of
Edmonton. This route is labeled AHP in Figure 1. The all-land pipeline alter-
natives will not stop in Edmonton. However, pipelines already connect Edmon-
ton with the Pacific Northwest and the U.S. Midwest. Therefore, the new envi-
ronmental impact would be minimal.
Footnotes at end of article.
633
3
Figure -1. Orientation Map
ARCTIC
0
c
E/A
N
ARCTIC OIL ROUTES
ORIENTATION MAP
PRUDHOE, BAY
PROPOSED PIPELINE ROUTES.
ARCTIC OIL PROVINCES.
VALUE
TUROM
SITES OF PROPOSED PORT
FACILITIES TO SERVE
TEANS-ALASKA PIPELINE.
a
C
NUDSON:
DRATISH
Ricer
Y
KATCHENIS VA NOBA
BIGST SCOND
I
of
D
STATE'S
OF
C.R. LEVIS
The Department of Interior undertook an environmental comparison and
concluded that: "No single generalized route appears to be superior in all
(environmental) respects to any other." 2 However, the department concluded
that TAP was superior to the Trans Alaska Canada routes only from the
standpoint of its impact on the abiotic or nonliving environment and it pointed
out this advantage was also lost, if a natural gas pipeline were to be consid-
ered as part of the Arctic development plan. Second, it concluded that from
the standpoint of the impact on the overall biotic environment, MVP-I was
superior. Third. the Department of Interior concluded that from the standpoint
of the unavoidable impact upon "socioeconomic systems, recreation, aes-
thetic, wilderness, communities, and native culture and substance," the MVP-I
route was superior. Fourth. the department concluded that routes MVP-II
and AHP would probably have the least impact on the marine environment.
From the standpoint of risk, or threatened environmental impact, the Depart-
ment of Interior concluded that both of the Trans Alaska Canada routes were
superior to TAP for both the terrestrial and marine environments Since TAP
is environmentally inferior, in the next sections of this paper we will examine
its economic advantages to determine the social tradeoffs that are necessary to
select the optimal route.
Footnotes at end of article.
634
III. ECONOMIC ANALYSIS
The controversy surrounding the Trans Alaska Pipeline (TAP) has not been
restricted to environmental matters. The reason for this is that, as in most
development projects which will have admitted environmental consequences,
the proponents of such projects point to their economic advantages. Implicit in
such arguments is the supposition that various economic benefits, if sufficiently
large, can be used to justify the deleterious effects on the environment.4
The first step in assessing the economic benefit of the Trans Alaska Pipeline
(TAP) is to determine the cost of constructing and operating this oil transpor-
tation system. Capital investments represent opportunities foregone in several
time periods. Therefore, a second determinant of the project's cost is the rate
of time preference. Presently, there is some agreement among economists and
government officials that this rate is currently 10%.5 However, since benefits
and cost comparisons are generally very sensitive to the value of the discount
rate which is selected, I will use rates of 8 and 12 percent to bracket the dis-
count rate and therefore test the sensitivity of the conclusions to this impor-
tant parameter.
The present value of the costs of a pipeline depends on the rate of utiliza-
tion of the system; that is. the time stream or scheduling of throughput. This
means that the analysis also depends on several interdependent factors: (1)
the project's life or time horizon, (2) the total oil which is transported by the
project. and (3) the amount of oil that is produced in any given year. In the
present analysis two production schedules are examined; these are shown in
Table 9 (page 31).
There have been many estimates of the construction costs for the Trans
Alaska Pipeline system. and at the present time there is still no single esti-
mate that is agreed to by industry or government sources, to say nothing of
the estimates one might expect from environmentalists. Therefore, the strategy
which will be adopted is to use various capital costs from $1.75 billion to $2.5
billion in current 1971 U.S. dollars in a simulation model, that will show the
sensitivity of the results to variations in this parameter.⁶
The total transportation costs of the proposed Trans Alaska Pipeline (which
equal average capital costs + operating costs) and the tanker operations to
Los Angeles are shown in Table 1 for each throughput, discount rate and capi-
tal cost case. These estimates are based upon tanker costs of $.35 per barrel
and the pipeline and terminal operating costs of $13 per barrel.
TABLE 1.-TOTAL COST PER BARREL TO LOS ANGELES FROM THE NORTH SLOPE VIA AMERICAN FLAG SHIPS AND
THE TRANS-ALASKA PIPELINE
Capital costs (in billions of 1971 dollars)
$1.75
$2.00
$2.25
$2.50
Alyeska throughput (dollars per harrel)
Discount rates:
8 percent
0.819
0.358
0.916
0.965
10 percer
.913
.975
1.037
1.099
12 percent
1.024
1.102
1.179
1.257
Acceierated throughput
8 percent
0.763
0.803
0.844
0.844
10 percent
.832
isto
.932
.982
12 percent
.903
_971
1.032
1.093
The Cost of the Mackenzie Valley Pipelines (MVP)
Any interested party who attempts to keep track of the various public esti-
mates of the cost of a Trans Canadian pipeline will probably have a difficult
time of it. Estimates of construction costs ranging from one billion to seven
billion may be found by reviewing the public statements and writings of var-
ious oil companies and public officials in both Canada and the United States.
It should be noted that all Trans Canadian pipeline routes avoid most of the
necessary expenditures for terminal and marine facilities that are included in
the TAP estimates above. Using the same costs per mile as TAP the capital
costs of erude oil pipeline from the North Slope to edmonton down the Mack-
enzie Valley range between $2.0 billion and $2.75 billion in 1971 U.S. dollars.
635
Additionally. it is often presumed that a Canadian route may take two addi-
tional years before it would begin operation. This can be accounted for by fur-
ther discounting of the proposed throughputs. It should be noted that for the
discount rates considered, a two-year construction delay followed by an accel-
erated throughput schedule for a Canadian pipeline would just offset (actually
it saves about $.01 per barrel) any gain in the present value of costs per
barrel that the slower production schedule (implicit in the Alyeska rate of
throughput) starting two years earlier would have.
The second component of costs per barrel is the operating cost per barrel of
crude oil, which has been estimated by the three major North Slope companies
for the North Slope-Edmonton-Chicago system operating at 2 million barrels
per day (730 million barrels per year) to be approximately $.30 per barrel 9
($216,900,000 per year). This operating cost may be broken down into costs of
$.174. $.126 and $.065 per barrel for the North Slope to Edmonton, Edmonton
to Chicago, and Edmonton to Puget Sound respectively.
The capital cost estimates per barrel for the Edmonton to Chicago leg
depend upon the assumption that is made about the costs of looping or using
existing excess capacity on the Interprovincial pipeline and may be as small as
$.1 million. 10 On the other hand, frequently cited figures for a Canadian pipe-
line to Chinago are 3.0 to 3.5 billion dol'ars, thus implying estimates nearly ten
times greater or $1 billion for this roure. In order to bracket the above esti-
mates and some earlier industry estimatos,11 Capital cost of $.6 billion, $8 bil-
lion, and $1.0 billion will be analyzed for the Edmonton to Chicago leg.¹²
Finally, one can add the total per barrel operating and capital cost estimates
for the North Slope to Edmonton and Edmonton to Chicago segments, and
determine the total North Slope to Chicago transportation cost cstimates per
barrel. which are shown in Table 2.
It is useful to compare the per barrel transportation cost estimates shown in
Table 2 for the Mackenzie Valley crude oil pipeline (MVP) and similar per
barrel cost estimates for the Trans Alaska pipeline and tankers to the Los
Angeles market (TAP), which are shown in Table 1. A comparison of these
tables indicates that the accelerated throughput schedule without delay for
MVP has lower costs per barrel than TAP estimates using the Alyeska sched-
ules for comparable cases.¹³ Furthermore, it should be noted that the range of
estimates for the Alyeska schedule in both tables begin at about $.80 per
barrel and increase to about $1.26 per barrel for TAP and $1.46 per barrel for
MVP. Accordingly, this cost comparison is inconclusive at best.
Benefit Cost and Financial Analysis of the Trans Alaska and Trans Canadian
Pipelines
Methodology:
Production and transportation costs. as described above. are not the only
variables which must be considered in order to evaluate the economic merits
of the proposed pipeline systems. For example, by analyzing the price at which
the oil is sold. as well as the system's costs, several additional "decision-mak-
ing" parameters can be determined. These are:
Tide Water Price per barrel-Market Price per barrel-Tanker Costs per
barrel.
Wellhead Price per barrel-Tidewater Price per barrel-Pipeline Costs per
barrel.
Wellhead Value or net revenue per barrel-Wellhead Price per barrel-Pro-
duction and gathering costs.
The last two factors are especially important for determining the "financial"
desirability of the proposed system. First, the State of Alaska will collect reve-
nues of approximately 20% of the "wellhead price." Second. the net revenue
per barrel represents the return on the initial investment of more than a bil-
Hon dollars for the oil companies in exploration and lease purchases before
corporate income taxes are imposed.¹⁴
While returns to the State of Alaska and the oil companies are important
economic considerations. they are excluded from the benefit-cost calculus. since
they represent monetary transfers between two sets of individuals in the same
society. That is, the profits or taxes that are received from producing and sell-
ing oil from the North Slope of Alaska represent monetary exchanges between
Footnotes at end of article.
97-S39-73-pt. II-3
TABLE 2.-TOTAL COST PER BARREL FROM THE NORTH SLOPE VIA A MACKENZIE VALLEY CRUDE OIL PIPELINE TO EDMONTON AND THEN TO CHICAGO (MVP)
[Production schedule In dollars per barrell
Capital costs to Edmonton In 1971 US$
$2.00 (billion)
$2.25 (billion)
$2.50 (billion)
$2.75 (billion)
Capital costs Edmonton to Chicago
(billions)
$0.6
$0.8
$1.0
$0.6
$0.8
$1.0
$0.6
$0.8
$1.0
$0.6
$0.8
$1.0
Alyeska throughput (percent):
8
0.804
0.843
0.882
0,852
0.891
0,930
0.901
0.940
0.979
0.950
0.988
10
1.027
.943
.993
1,042
1,005
1.055
1,104
1.067
1.117
1.170
1.129
12
1,179
1.228
636
1.103
1.170
1,232
1.185
1,248
1,310
1,263
1.326
1.388
1.341
Accelerated throughput (percent):
1,403
1.455
8
.720
.753
.785
,761
.793
.825
.801
.833
.866
.841
.874
10
.906
.822
.862
.903
.872
.913
.953
.923
.963
1,003
.973
12
1.013
1.053
.938
.987
1,036
.999
1.050
1.097
1.061
1.116
1.159
1.122
1.171
Accelerated throughput with 2-year delay
1,220
(percent):
8
.790
.823
.867
.837
.875
.913
.885
.922
.960
.932
.969
10
1.007
.932
.981
1.029
.993
1.041
1,090
1.053
1.102
1.151
1.114
12
1.163
1.211
1,100
1.162
1.223
1.177
1,240
1,300
1.254
1,316
1,377
1,331
1,393
1.454
637
the consumers of oil and its producers, and unless a society values a dollar
received by an oil company stockholder or the state treasury differently from a
dollar kept by an oil consumer, or vice versa, then real economic benefits and
costs are generally not created by such transfer payments. Instead, economists
utilize the criteria of economic efficiency. One method of calculating the eco-
nomic efficiency benefits of producing and transporting oil on the North Slope
of Alaska is to determine the costs of an alternative means of supplying oil to
the same market To clarify this approach, net benefits can be defined by equa-
tion (1) : 15
(1)
where:
b = Net benefits of the proposed production and transportation of oil from
the North Slope
Bysi= Gross benefits of oil which Is produced on the North Slope, when it is
utilized by consumers in market i.
CAS Real cost of producing and transporting North Slope oil to consumers
in market i.
B₄i = Gross benefits of an alternative source of oil in market i.
C₄ᵢ = Real cost of producing and transporting an alternative source or oil to
market i.
X = A row vector of other considerations, including environmental costs
whether quantifiable or not in dollar terms, as well as other real economic
benefits and costs, such as national security considerations, etc.
If both alternatives serve the same market (i) and the quality of substitute crude
oils are similar, then consumers would be indifferent between the two alternative
sources of oil. That is, the gross benefits of either source of supply are identical,
BNS ≡ BAi. Furthermore, if we assume:
(1) that there are no economically superior (i.e., lower costs) North Slope (NS)
to i transportation alternatives, (2) that market 1 is the highest valued final des-
tination for North Slope erude, and (3) X' is assumed to be zero, then the net
benefits of the North Slope oil would reduce to equation (2):
(2)
b'=CA-CNS
Equivalently, the ratio of the costs of the best alternative to the costs of the
proposed development project can be used to determine the conventional benefit-
cost ratio of the development project, when the three assumptions stated above
hold. This is shown by equation (3). A further test must be performed before
development is approved, namely, the gross benefit of the oil (or value in consump-
tion) must also exceed the costs. This is shown in equation (4):
(3)
Cost of alternative oil
B|C=
Cost of North Slope oil
(4)
Subject to: BN₈=B₄≥ CNS
The most probable alternative foreign source of supply to the West Coast
markets of the United States if the Trans Alaska pipeline is not built is the
Persian Gulf. Further. it is not likely that domestic oil from presently devei-
oped West Coast sources of supply will meet all the growing West Coast
demand in the future. 16 This conclusion is subject to the following assump-
tions: (1) the Trans Mountain pipeline from edmonton to Puget Sound is not
expanded. (2) District V (West Coast) prices remain at their current levels,
and (3) there is no appreciable change in inter-district flows of oil in the
United States.
Using the above framework a computational benefit-cost model can be devel-
oped. Presently. the following additional assumptions will be made, the first
two of which will be relaxed below.
(1) The quantity of oil demanded at the present price in year t will
equal the present supply plus the proposed throughput of the Trans
Alaska pipeline in year t.
(2) Foreign oil. rather than higher cost domestic oil. would be the
source of supply for the West Coast if TAP is not built, as is presently
the case.
Footnotes at end of article.
638
(3) The average cost of producing and transporting a barrel of oil is
equal to the marginal cost of a barrel of oil in each producing area; that
is, supply functions for crude oil are perfectly elastic in certain ranges.
The calculation of the real cust of a foreign alternative to TAP on the West
Coast, using a specific reference crude, Iranian Light 34°API, has been
explained at great length elsewhere.¹ Two costs can be used for the year 1975
in Los Angeles. They are $2.01 per barrel based upon improved tanker metho-
dology and presently contracted price agreements and $2.49 per barrel based
upon a more "conservativ" set of assumptions. Due to its inland location the
costs of this foreign oil delivered to Chicago are about 25¢ per barrel higher.
In order to calculate the state tax revenue and the net revenues of the oil
companies, some additiona- information is necessary. Table 10 (page 32) shows
the prices of crude oil in various world :kets. When available the prices
are shown for oil similar in quality to the oil that has reportedly been found
on the North Slope. 18 Moreover, in some instances the sulfur content of the
crude oil is given. Sulfur content is important in determining price because of
current anti-air-pollution laws, and the fact that additional costs are borne by
refiners when sulfur is present.
The wellhead price can be determined by subtracting from the price of on in
each domestic market, the transportation costs of TAP in each throughput, dis-
count rate, and capital cost case. Tax (royalty plus severance) receipts in
Alaska are equal to approximately 20% of this wellhead price. Furthermore, if
the average production and gathering cost of $245 per barrel plus the tax paid
to the State of Alaska are subtracted from the wellhead price, the net revenue
before corporate income tax can be determined.
TAP is clearly inferior to MVP from the standpoint of wellhead prices and
therefore state taxes and corporate profits. If identical production schedules
are compared. the system cost differences are relatively small. Since the costs
of transporting foreign crude inland to the Midwest exceed these differences,
the Midwest market represented by Chicago is an economically more efficient
alternative than selecting a coastal market for Alaskan crude, which can be
supplied by foreign overseas imports more cheaply. Given the either/or situa-
tion, the benefit-cost ratios shown in Table 3 mean that MVP is economically
superior to TAP. Therefore, under these circumstances, selecting TAP over
MVP generates negative net social benefits, since it is an economically inferior
alternative. If environmental advantages of MVP are also considered, this con-
clusion is strengthened. Before making such conclusions, several additional
benefit-cost adjustments must be made and the apparent irrationality of the
decision to forego greater profits made by the oil companies must be examined
further. These will now be considered in turn below.
Domestic and Foreign Oil as a Source of Supply
Up to this point it was assumed that the most likely alternative source of
supply for North Slope crude oil in District V. the West Coast of the United
States, was the importation of overseas foreign oil In the states east of the
Rockies it may be less likely to expect that this will be case at least in the
short run for the following reasons. First, domestic production in these regions
is more than six times the total consumption on the West Coast. Second. some
production in the districts I to IV is restricted by state demand prorationing
laws, which hold back production from some of the more efficient wells and
fields in order to maximize oil production over time and maintain a price suf-
ficiently high to encourage and reward exploratory drilling. Third, a larger
proportion of domestic production on the West Coast is based upon secondary
recovery techniques. Therefore. the probability of increased production from
secondary recovery is relatively greater in the eastern regions of the United
States. Fourth. both the West Coast and East Coast have the prospect of addi-
tional offshore discoveries and expansion of domestic sources. Fifth. the pres-
ent import restrictions on the West Coast protect domestic producers at an
Footnotes at end of article.
639
TABLE 3.-SUMMARY COMPARISON OF TRANS-ALASKA PIPELINES TO LOS ANGELES AND MACKENZIE VALLEY
PIPELINE TO CHICAGO USING A 10-PERCENT DISCOUNT RATE
Present value of
profits 2 before
Total system
Wellhead price
corporate
costs per barrel
per barrel
Present value of
income tax
Conservative
(dollars per
(dollars per
taxes' (billions
(hillions of
case benefit
barrel)
barrel)
of 1971 dollars)
1971 dollars)
cost ratio
Low
High
Low
High
Low
High
Low
High
Low
High
Throughput schedule
Trans-Alaska pipelines:
Alyeska
$0.91
$1.10
$2.07
$2.26
$1.7
$1.8
$5.7
$6.3
2.05
2.46
Accelerated
.83
.98
2.19
2.34
2.2
23
7.5
8.1
2.29
2.71
Mackenzie Valley pipeline:
2.58
2.87
21
2.3
7.4
8.3
2.03
2.64
Alyeska
.94
1.23
Accelerated
.82
1.05
2.76
2.99
2.8
3.0
9.8
10.7
2.36
3.03
Accelerated after a 2-
year delay
.93
1.21
2.60
2.88
21
2.4
7.6
8.4
2.05
2.67
1 Present value of taxes are calculated by multiplying the wellheed price by 20 percent and the resultant per barrel
tax by the appropriate present value of throughput.
2 Present value of profits are determined by subtracting royalty severance taxes, and production costs from the well-
head price and thes multiplying by the appropriate present value of throughpat.
historical price and then permit foreign oil to be imported to meet the differ-
ence between the quantity of domestic plus Canadian oil supplied and domestic
quantity demanded at this price.
On the other hand imports in Districts I to IV are based upon a percentage
of domestic production. Accordingly, if present import quota regulations are
maintained, the probability of cheaper foreign oil increasing in the west as a
percentage of domestic supply is far greater than in the east, if North Slope
oil is not produced. That is, present institutional rigidities will create a
greater incentive for domestic producers east of the Rockies to produce any
shortage in supply than their West Coast counterparts. The relative quantities
produced in each section of the country are particularly important, since pro-
duction east of the Rockies is more than six times greater than West Coast
production. Therefore. small percentage increases in supply from various incen-
tires such as increasing prices, new technology, more favorable tax treatment
will have a far greater absolute increase in oil supplied for markets east of
the Rockies.
Two conclusions should be drawn from the above discussion. First, foreign
oil tends to be far less costly in both real and monetary terms than the mar-
ginal barrel of oil produced in the eastern part of the United States. There-
fore, if the alternative to North Slope oil is more likely (Pd) to be a domestic
source than a foreign source (PF) then the average cost of the alternative to
North Slope will be greater in both monetary and real terms in the Midwest
and East Coast when compared to the West Coast. Second, the market is far
greater in terms of its actual size and its growth in demand; therefore, both
markets will probably find their dependence on foreign oil increasing over
time. Therefore, from a national security standpoint, the full throughput of
either crude oil pipeline will displace foreign crude. The difference between
alternatives is that in the eastern part of the United States, due to different
Institutional rigidities, North Slope crude is more likely to back out higher
cost domestic crude as well. Therefore, the assumption of relatively low cost
foreign sources of supply being used as a substitute for North Slope crude oil
in Chicago may not be as appropriate as making that same assumption in the
case of Los Angeles. One way to account for this distinction is to estimate the
probability of using domestic or foreign sources of supply in each market. The
Footnotes at end of article.
640
average costs of domestic and foreign sources of supply can then be combined
to form a weighted average alternative cost, as follows:
(5)
where:
=Weighted average cost of alternative source of supply in market
j from domestic (D) and foreign (F) sources of supply.
probability of domestic sources being used as a substitute
in market
Pⱼ=The probability of for ign sources being used as a substitute in
market j.
C₂i=Average cost of dome tic crude in market j.
C,i=Average cost of foreign erude in market j.
2 billion barrels per day
1
(10 billion barrels per day + 2 billion barrels per day
Pj=1-P,=5
An additional adjustment that might be made is to relax the assumption of
equal benefits to consumers of crude oil from different sources of supply. The
viability of domestic and foreign production restrictions east of the Rockies
will certainly be affected differently if North Slope crude rather than foreign
crude is used as a source of supplying Midwest demand in the future. An
additional measure of benefits is the fact that oil consumers in different mar-
kets value products made from crude oil differnetly. For example, gasoline is a
major product of refineries on the West Coast. Gasoline is light and the
lighter the crudes the easier (that is, least costly) it is to derive gasoline from
crude oil. In the Midwest a greater mix of products is demanded by consum-
ers. One of the main reasons for this is that home heating fuels (which are
relatively heavy products) are highly valued in the Midwest, but not on the
West Coast Since North Slope crude is a relatively heavy crude, its value to
refiners and consumers is greater in the Midwest due to greater product mix
than on the West Coast. Since lighter crudes can be substituted more readily
on the West Coast and since the entire world market is potentially available
for import, this relative advantage of a Midwest final market for crude is
important. One method of measuring this relative importance is to note that
most crudes east of the Rockies are adjusted $.02 per degree of API specific
gravity difference, while on the West Coast the penalty for heavy crudes is
about $.06 or $.07, or about three times greater. In this section the importance
of these exceptions will be analyzed to determine their effect on the benefit-
cost ratios, state taxes and the profitability of each Aretic transportation
system.
The first step is to estimate the probabilities of using foreign or domestic
sources of supply in each market. The greater the domestic production in a
region of the United States, the probability of foreign oil as an alternative
source of supply is less likely. Therefore, I will assume for simplicity that
weights (Pd and PF) may be assigned on the percent that the full North Slope
throughput would be to the approximate present domestic production plus that
full throughput level of production. Therefore, in Districts I to IV, I will use
the following weights: 18
Since such an adjustment for any possible savings over possible domestic
alternatives was not made on the calculations performed above for the West
Coast, if a Trans Alaskan pipeline is selected a similar set of weights
(Pδ and Pp')
can be determined. Using the same formula as the east of the Rockies, these
probabilities will be approximately equal. since the expected TAP throughput
approximately equals present "domestic" production in District V, threefore:
2 billion barrels per day
1
(2 billion barrels per day + 2 billion barrels per day)
P¿=1=P,=1
2
Footnotes at end of article.
641
To calculate relative domestic costs there is insufficient information avail-
able. One simple method to approximate relative cost differences is to use rela-
tive price difference as a proxy. Prices of domestic crude oil are available at
the producing source. Specific adjustments to account for qualitiative differ-
ences in domestic crudes such as specific gravity and sulfur content are also
available. The prices at the wellhead of these domestic crudes are net of
transportation costs to specific markets. Since such transportation costs are
real economic costs, it is appropriate to calculate the cost of these reference
crudes in specific consuming markets, such as Los Angeles, Chicago and New
York. Prices in the latter two markets are determined by adding the transpor-
tation costs of crude oil from the East Texas-Southern Louisiana Gulf region
to the price of crude oil in this Gulf region. Producing areas which sell crude
on the Gulf Coast are priced at a lower amount of their wellhead to reflect
the cost of transporting this crude to the Gulf." Relative price differences
between the west coast and east of the Rockies market will also reflect the
relative cost of refining crudes for different product mixes. Since these differ-
ences are also important to consider in assessing real economic benefits, this is
an additional reason to use relative price difference. Finally, domestic market
restrictions for crude oil make it likely that domestic producers will, in the
absence of a large low-cost domestic source of supply, produce crude oil at a
high marginal cost. If prices are expected to increase if North Slope oil is not
supplied to a particular U.S. market, then higher marginal cost oil will be pro-
duced than is presently the case. Therefore, it is appropriate to use the pres-
ent price as a measure of the average cost of additional domestic sources of
supply (and also assume in this rauge that the average domestic cost equals
the present marginal cost).
Using the above weights and present prices and assuming a system of
"swaps" is developed SO that effectively half-the crude from the North Slope
displaces higher cost domestic and foreign crudes in Chicago and New York, a
weighted average cost of alternative similar to that shown in equation (5)
above can be determined as follows:
Per barrel
Midwest
East coast
Present marginal domestic cost (assume marginal =average)
$3.81
$4.06
Persian Gulf (conservative)
2.75
2.50
Weighted average (5/6 and 1/6)
3.63
3.80
Average cost of alternative source of supply east of the Rockies
$3.715
A similar adjustment for the Los Angeles market using a mixed domestic
and foreign alternative source of supply can be calculated as follows:
1/2 ($3.17) + 12 ($2.50) = $2.835
These estimates of $3.715 and $2.835 per barrel can be compared with the per
barrel benefit estimates of $2.74 and $2.49 for the east of the Rockies and
West Coast markets respectively. These later values were used in Table 3
above and are based upon a long-run view that foreign crude was the only
alternative source of supply.
In the computations presented below, several additional parameters are
reviewd. First. it has been pointed out the North Slope oil is medium in sulfur
content. However, the domestic crudes that supply the Midwest market are
generally lower in sulfur content than domestic crudes on the West Coast."
To adjust for this difference, crude prices might be reduced east of the Rock-
ies. An $.11 per barrel difference exists between the posted wellhead of West
Texas sour and West Texas Intermediate Sweet." This difference is used
below to account for sulfur content differences. A second possible adjustment
is that North Slope oil may be lighter than 26.9° API. in which case the pen-
alty ellarged against it may be too severe for the West Coast relative to the
Midwest This adjustment may reduce relative prices by an additional $.05 to
$.10 per barrel. To account for both factors. the various benefit estimates will
be reduced by $.18 per barrel. This combined adjustment is identified below as
the "Alyeska Price Adjustment Factor."
Footnotes at end of article.
642
It should be noted that the adjustment for sulfur content and specific grav-
ity penalties reduces the reference price in the Midwest to $3.63 per barrel
However, it is important to note that this adjustment may be in the wrong
direction, since early analysis of North Slope erude indicated it scored partica-
larly high using a Hydrocraking refining technique, which is now being
installed in the Midwest." Usuing that finding, a reference price of $3.93 per
barrel would be in order. As a final point on prices (in the opposite direction)
the Department of Interior used a maximum price of $3.50 per barrel for ref-
erence purposes in the Midwest.23 However, this has recently been increased to
$3.60 per barrel 24 and the East Coast price has always been consistent with
those higher prices used in the analysis above. Therefore, the case labeled
"Alyeska Adjustment" can also be interpreted as the new Department of Inte-
rior maximum Midwest price case,25 and the Midwest price without adjust-
ment is high or low depending upon future conditions but it certainly falls in
the most likely range of $3.63 to $3.93 per barrel for the Chicago market.
Much discussion in this controversy has dealt with the environmental advan-
tages of the Alaskan Highway Route (AHP). Thus far we have not considered
its economic benefits and costs. This route is longer than the Mackenzie Valley
route (MVP). Walter Parker 26 therefore estimated It would cost about $400
million more in 1971 $. This difference needs to be taken into account. In
doing so below, the operating costs of this longer route have also been
increased proportionately.
The last factor, which will be considered in the analysis below, tests the
sensitivity of the results of an assumption that the real costs of the Canadian
alternatives have been underestimated. This could be due to uncertain and inac-
curate cost data or to possible new taxes or other real costs imposed by
Canada. Guaranteed capacity for Canadian oil is sometimes mentioned as a
possibility. Such decisions might result in U.S. consumers of oil paying higher
costs or taxes to the Canadian government and thus represent a real cost. All
such adjustments would be in the same direction, that is, cost would increase;
therefore, the sensitivity of the results to an appreciation in all costs of 10
percent and 20 percent will be examined below.27
In Table 4 the benefit-cost ratios are shown adjusted for the above factors.
Only at the highest capital cost per barrel, as are found in the ANP case
(Alaska Highway with capital costs of about $4 billion), with a two-year
delay and 20% cost appreciation (making capital cost equal to about $5 bil-
lion) do the benefit-cost ratios that are calculated using a mixed domestic and
foreign alternative fall to levels as low as the results for TAP at the lower
end of the spectrum of capital cost and the Alyeska production schedule. If
costs have not been understated, the Trans Canadian pipeline alternatives
always have greater or equal benefit-cost ratios than the Trans Alaska pipeline
alternative in all but one case.
Footnotes at end of article.
643
TABLE 4.-BENEFIT-COST RATIOS (CONSERVATIVE PRICES) FOR TRANS CANADIAN ALTERNATIVES TO CHICAGO
AND TRANS ALASKA PIPELINE TO LOS ANGELES AT A 10 PERCENT DISCOUNT RATE
Mackenzie Valley Route MVP
Alaska Highway Route AHP
Capital costs to Chicago in
billions of 1971 dollars
21
155
28
3.55
3.2
3.95
3.95
Appreciation in
Accelerated
Accelerated after
Accelerated
Accepterated after
estimated cost
throughput
2-year delay
throughput
a 2-year delay
Foreign alternative source of
supply (percent):
0
2.89
2:46
2.54
214
2.59
2.24
2.27
1.95
10
2.62
2.23
2.31
1.95
2.36
2.04
2.07
1.77
20
2.41
2.05
2.12
1.78
2.16
1.87
1.89
1.62
Domestic and foreign source
of supply (percent): 1
0
4.18
3.56
3.68
3.11
3.75
3.24
3.29
2.82
10
3.83
3.26
3.37
2.85
3.44
2.98
3:02
2.59
20
3.54
3.01
3.12
2.62
3.18
2.75
2.78
2.39
Domestic and foreign with
Alyeska price adjustment
factor (percent):
0
3.94
3.35
3.46
2.92
3.53
3.05
3.11
2.66
10
3.61
3.08
3.18
2.68
3.24
2.80
2.84
2.44
20
3.34
2.84
3.94
2:48
3.00
2.59
2:62
2.25
Trans Alaska Route TAP
Capital cost to Valdez in billions of 1971 dollars
20
2.5
2.0
2.5
Accelerated throughput
Alyeska throughput
Foreign alternative source of supply
2.55
2.29
2.31
2.05
Domestic and foreign source of supply
1 Similar benefit-cost ratios for New York can also be calculated. For without the cost appreciation case. the following
ratios would result: 3.55, 3.02 3.11, 2.62, 3.18. 274. 2.78, and 2.38. Note that the 3.55 for New York is based upon the same
assumptions as the 4.18 for Chicago. If the benefit-cost ratios for an Alyeska schedule are importan', they are approximately
equal to the accelerated after a 2-year delay ratios shown in this table.
That one exception occurs when the lowest of TAP's capital cost estimates is
compared with the highest capital cost estimate for AHP.
In Table 5 an index is presented which is easier to use for comparison pur-
poses. It is the net benefit estimate based on average capital cost for the three
main routes: the Mackenzie Valley (MVP), Alaska Highway (AHP), and
Trans Alaska (TAP). The first conclusion that one must draw from this com-
parison is that in all cases, including AHP, with a two-year delay and 20%
increase in costs, the net benefits exceed, and in some cases by a factor of
about two-thirds, similar estimates for the average TAP computations which
are presented. A second significant difference revealed by this table is the
greater net benefits of about one-half a billion dollars in present value in 1971
of a Mackenzie Valley Route (MVP) compared to the more southerly Alaska
Highway route (AHP). The difference is the amount that any environmental
advantages attributed to AHP would have to equal or exceed (in the sense of
2 discounted time stream of environmental cost differences), in order for AHP
to be preferred over MVP.
While the previous two tables show that the social value or net benefits of
each Canadian alternative exced comparable TAP estimates, it is important to
note the fact that the state's revenue and oil company profits will generally
not be affected by the adjustments to real costs and benefits which were made
when domestic alternative sources of supply were included in the analysis.
Therefore, whether or not "real" benefits are adjusted to reflect these differ-
ences will not affect the "financial" desirability of each alternative.²⁸
The conclusions to be drawn are quite clearcut. First, the present value of
benefits to the nation if TAP is buil are considerable. They equal about $3 to
$6 billion. Accordingly, foregoing production due to environmental damage
must equal or exceed this amount However, since an environmental compari-
son led us to conclude that two all-land routes through Canada were superior
Footnotes at end of article.
644
environmentally, we undertook an economic evaluation of them as well. That
economic analysis revealed the fact that these Canadian alternatives are very
likely to be far superior from the standpoint of net benefits (B/C ratios), tax
revenue for Alaska and oil producers' profits. The question that must, there-
fore, be asked is: Why was the TAP alternative chosen over the TCP alterna-
tive? I will now attempt to address that question in the final section by ana-
lyzing the various U.S. and world markets for petroleum.
TABLE 5.-NET BENEFIT ESTIMATES FOR THE THREE PRINCIPAL PIPELINE ALTERNATIVES USING A 10 PERCENT
DISCOUNT RATE AND AVERAGE CAPITAL COSTS
Mackenzie Valley MVP
Alaska Highway AHP
Trans-Alaska TAP
Accelerated
Accelerated
after 2-year
after 2-year
Accelerated
delay
Accelerated
delay
Accelerated
Alyeska
Case I:
Average capital costs in 1971
dollars and prices
$3.2 billion
$3.6 billion
$2.25 bittion
Per barrel net social benefits in
dollars per barrel
$2.53
$2.40
$2.43
$2.29
$1.66
$1.55
Present value of net social benefits
in billions of 1971 dollars
12.6
9.9
12.1
9.5
8.3
6.3
Undiscounted net social benefits
(assuming 15 billion barrels are
produced) in billions of 1971
dollars
38.0
36.0
36.5
34.2
24.9
23.3
Case II.-Operating and capatial costs
of Trans-Canadian alternatives
increase by 20 percent:
Average capital costs in 1971
dollars and prices
$3.9 billion
$4.3 billion
$2.25 billion
Per barrel net social benefits in
dollars per barrel
2.34
2.18
2.23
2.05
1.66
1.55
Present value of net social benefits
in 1971 dollars
II.5
9.0
ILI
8.5
8.3
5.3
Undiscounted net social benefits
(assuming 15 billion barrels are
produced) in billions of 1971
dollars
35.1
32.7
33.5
30.8
24.9
23.3
IV. SUPPLY AND DEMAND IMBALANCES SOME INSTITUTIONAL AND ECONOMIC
CONSIDERATIONS
One assumption maintained up to this point was that the quantity of oil
supplied to any of the U.S. markets would be matched by the demand at the
present price level. An important part of this analysis will be the determina-
tion of the benefits and costs, profitability and tax generating effect of several
plans that have been discussed to deal with any supply and demand imbal-
ances. Finally, throughout this section the analysis will be directed at the
question raised above concerning the decision on the part of the oil companies
and State of Alaska to build an inferior transportation route from the stand-
point of profits and tax revenues.
For the quantity of oil demanded and supplied to be in equilibrium at the
present prices in each domestic market, changes in demand and supply must
be offsetting. Accordingly. implicit in the discussion thus far has been a
assumption that the increased supply of North Slope oil to District V would be
just offset by some combination of factors such as (1) growth in demand. (2)
decline in domestic production in Distriet F, and (3) changing institutional
arrangements for foreign imports.
The results of the Trans Alaska Pipeline analysis are particularly sensitive
to such assumptions. since District V is given separate treatment under the
present Mandatory Oil Import Quota Program. Additionally, the growth in
demand in District V has been below the national average in recent years;
although depressed economic conditions on the West Coast may be the cause.
Furthermore. West Coast oil consumption is much lower than east of the
Rockies. Therefore, any excess in the quantity of oil supplied is likely to have
an important effect on profits, tax revenues, and economic efficiency.
Footnotes at end of article.
645
In recent years the growth in demand for oil in Districts I to IV has been
about five (5) percent per year. If such a rate of growth in demand continues,
by 1975 the increase in demand would be 3.4 million barrels per day (MMb/d),
which is far in excess of even the greatest production schedule (2.0 MMb/d)
now contemplated for Arctic oil. Even if domestic production east of the Rock-
ies were to grow by as much as 2% per year, then by 1975 (at present prices)
excess demand would be 2 million barrels per day. This increased demand east
of the Rockies could be met by North Slope oil, if the accelerated throughput,
no delay Trans Canadian pipeline were to be constructed immediately. There-
fore, it does not appear likely that an excess supply problem in the case of
Trans Canadian alternatives would occur. Indeed, the Midwest and East Coast
of the U.S. are likely to face severe shortages and, therefore, an increasing
pressure on price is likely.
Several important conclusions can be drawn from these facts. Using recent
rates of growth in demand (2.5%) and supply (13%) in District V, if the
entire throughput of TAP were, brought to the West Coast of the United
States, it is likely that there will be an excess quantity of oil supplied into the
1990s. On the other hand, the oil deficit Midwest and East Coast would be con-
fronted with an immediate shortage of oil by 1975. Since this is the earliest
possible time that the full throughput could conceivably be made available to
the markets east of the Rockies, this relative importance of a Trans Canadian
Pipeline is significant.
First, consider the effect of oversupply for the West Coast on the benefit
estimates. which were described above using a static economic analysis. Since
District V may be oversupplied with oil for perhaps 15 or more years, the cor-
responding estimates of benefits, taxes and profits, which were based upon an
ssumption of no excess supply, have been consistently overstated. The appro-
priate adjustment for these calculations depends upon: (1) the rates of
growth in demand and supply of oil on the West Coast, and (2) the type of
restrictions that might be placed on foreign oil in the future. The present
value of benefit estimates, which were based upon demand being sufficient to
absorb the full TAP throughput, might be overestimated by as much as 75%.23
Accordingly, when dynamic conditions are taken into account the estimate of
the social value of a barrel of North Slope oil would increase significantly for
the Canadian alternatives relative to the TAP alternative. This adjustment
further minimizes the margin of error that might exist in the benefit-cost cal-
culations made above.
Additionally the net profit and tax revenue estimates, which were discussed
above for TAPS are very significantly overstated. Furthermore, since the esti-
mates of comparable parameters for the Canadian alternatives are not likely
to be sensitive to dynamic supply and demand conditions (at least not in the
downward direction), the conclusions reached previously concerning the superi-
ority of the Canadian alternatives relative to TAP from the standpoint of
profits and tax revenues are greatly reinforced.
Nonprice Methods for Dealing with Excess Supply
In the preceding section the likelihood of sizable amounts of excess supply
of oil in District V was discussed. We will now analyze two proposals which
deal with this excess supply by transporting the oil to markets other than the
West Coast of the United States. Such decision parameters as oil company
profits, state tax receipts, and economic efficiency will be examined. It should
be emphasized that there isn't any need to develop such secondary markets for
North Slope oil, if a TCP alternative is selected, since the Midwest and East
Coast will need all the additional oil by 1975.
The President of Alyeska has estimated that oversupply in the 500,000
barrel per day range is likely into 1980. He called this oversupply "Panama"
oil, and suggested that either it might be shipped eastward through Central
America or westward for sale to Japan.³ In this section both alternatives will
be considered. Special emphasis will be given to (1) an Import for Export pro-
posal, (2) the implications of the Jones Act, and (3) the special treatment
afforded the Virgin Islands as a refining center.
Prior to considering these alternatives, it must be pointed out that at the
present time, all oil transported between two U.S. ports must be carried in
U.S. flagships. Furthermore, an explicit prohibition against a foreign port serv-
Footnotes at end of article.
646
ing as a break in the chain exists.3 In selecting alternative marine transporta-
tion systems for dealing with the excess supply of oil on the West Coast, these
restrictions of the so-called "Jones Act" are a major consideration.
The Sale of North Slope Oil to Japan
The sale of North Slope oil to Japan has been discussed by several oil com-
pany executives. Each has suggested a different basis for such an
arrangement. Rollin Eckis has suggested that Japan may be willing to pay
a premium for a relatively secure non-Middle East alternative, since he points
out that Japan has a very rapidly growing demand for oil and at the same
time more than 80% of its supply comes from the Middle East A very differ-
ent proposal for marketing North Slope oil in Japan came from John M.
Houchin, President of Phillips Petroleum, who proposed 1 two-tier pricing
system. 38 This alternative was labeled an "Import for Export" program, since
it urged the approval of a plan by the President in which every barrel of oil
that was exported should be replaced by an additional right to Import oll by
the exporting company. Since the U.S. would be producing an amount of oil
equivalent to the increase in imports it was averred that national security and
balance of payment effects would be mutually offsetting and therefore negligible.
Another oil company executive who discussed the Japanese market for North
Slope oil was Mr. EL Patton, President of Alyeska, who indicated that as
much as 100,000 barrels per day may be sold to Japan in 1980.34 If Cook Inlet
production. which is both closer and presently being used to supply natural
gas to Tokyo, is displaced (backed out) in District v markets by North Slope
oil, the total Alaskan oil going to Japan in 1980 may well exceed 300,000 bar-
rels per day.
Estimates of the tanker costs for a Valdez to Japan marine transportation
system in non-U.S. fiagships are shown to be approximately $20 to $.34 per
barrel. In 1970 the average price of crude oil in Japan was about $1.83 per
barrel. This price might be expected to increase to slightly more than $2.00 by
1975.35 Therefore, North Slope oil transported via a Trans Alaska Pipeline to
Japan is worth approximately $1.15 per barrel less at the wellhead than if it
were sold in Los Angeles in 1975 at the current domestic price of $3.17 per
barrel.
Marketing oil in Japan would yield a before-tax profit of approximately $.95
per barrel³ If the same barrel of oil were sold in Los Angeles, the profit
before taxes is approximately $2.00 per barrel, if oversupply does not cause
prices to fall. However, a combination of: (1) falling West Coast prices, (2)
appreciating world prices, and (3) possible Japanese willingness to pay a
national security premium, might make up these differences.
From a United States social benefit standpoint, this alternative would be
inferior to both the MVP and AHP. Furthermore, if the environmental dam-
ages in the Arctic and the real costs in the oil deficit Midwest and East Coast
areas from an increased foreign dependence are taken into account, the size of
the net social costs of this Japanese alternative increases significantly.
These conclusions apply more or less equally to-society, the treasury of the
State of Alaska and the oil companies, when oil is sold to Japan, without any
offsetting compensation. However, such a conclusion would not hold for all
parties concerned about the optimal pipeline route selection, if an "import for
export" plan as described above was approved. Under such a plan foreign oil
would be imported to the East Coast outside the Mandatory Oil Import Quota
Program to compensate the company which exported the Alaskan oil. This
would mean a windfall profit of approximately $1.75 per barrel (using a price
of oil of approximately $4.06 per barrel (26 to 26.9° API) and the cost of an
imported barrel of about $2.30 per barrel).
In Table 6 these results are used to estimate the effect on profitability. If
the net proxits before taxes from selling North Slope oil in Japan (about $.95
per barrel), the savings in taxes paid to the State of Alaska (about $23 per
barrel, based upon 20% of the wellhead price difference between-selling oil in
Japan at $2.00 or Los Angeles at $3.17 per barrel), and the economic profit
($1.75) from using foreign oil on the East Coast are summed, the net revenue
or value to the oil companies amounts to nearly $3.00 per barrel ($2.93 = .95
+ 23 + $1.75) for each barrel of North Slope oil, which is marketed in this
manner. Accordingly, while the oil companies would find these profits approxi-
mately $1 per barrel higher under this arrangement, the State of Alaska
Footnotes at end of article.
647
would receive less than one-half as much per barrel in royalty and severance
taxes. Furthermore, the social costs of producing a single barrel of oil for U.S.
consumers would equal the sum of: (1) the cost of imported foreign oil
(approximately $2.30), and (2) the cost of supplying Japan (approximately
$1.05). While national security and benefits from trade may also be present,
this est. sate of the costs of a barrel of oil exceeds all previous North Slope
estimates by approximately $2.00 per barrel."
TABLE G-NET REVENUE EFFECTS OF AN IMPORT FOR EXPORT PROGRAM
Per barrel
Los Angales
Japen
Posted prices
$3.17
$2.00
Approximate production cests for North Slope oil
.25
.25
Approximate pipetine cests
.60
.60
Approximate tanker costs
.35
.20
1.97
.95
Before tax net revenue
Excess of domestic price over foreign costs on the East coast of the United States
175
Savings in taxes to the State of Alaska from a wellkesd price difference of $1.17 per barret
23
Per barrel equivalent net revenue
1.97
2.93
Difference
.56
The importance of this "import for export" program in the analysis is due
to the fact that this is the first case that was considered in which all three
measures of value: social benefits, tax revenues, and oil company pr.fits did
not result in the same ranking of alternatives. I will return to this point
below, but first the other part of the "Panama" oil case will be analyzed.
Sale of North Slope Oil on the East Coast of the United States
While the movement of Alaskan oil to Japan would presently be permitted
in non-U.S. flagships, oil transported to the U.S. East Coast from Alaska Is not
permitted in foreign tankers. There are two methods that might circumvent
this restriction. First, oil shipped to Central America, piped across to a Carib-
bean port, and shipped to the eastern part of the United States, may fall out-
side the restrictions of the Jones Act, since two foreign ports and a foreign
pipeline would be involved.
A second exception to the Jones Act is more likely. It would occur if North
Slope oil was transported via a Central American pipeline or around Cape
Horn to the Virgin Islands. It could then be refined and sent to markets in the
eastern part of the United States. Lending additional credence to this alterna-
tive is the fact that Amerada Hess Corporation is reported to have expanded
its refinery complex in the Virgin Islands to 450,000 barrels per day in order
to process an expected large quantity of North Slope oil for marketing in the
U.S.³⁸
The Virgin Islands represent something of an anomaly in the manner in
which oil restrictions are applied. First, the Virgin Islands are exempt from
the restrictions of the Jones Act. Second, foreign oil may be imported into the
Virgin Islands for refining. However, the amount of oil that is permitted into
the U.S. is restricted under the present Mandatory On Import Quota Program.
Presently, no appreciable amount of domestic oil has been sent to the Virgin
Islands to be refined and then sent back to the U.S. mainland for consumption.
Therefore, there are no precedents for an alternative which would ship Alaskan
oil to the Virgin Islands and simultaneously circumvent the Jones Act and the
Mandatory Oil Import Quota Program. However, unlike the "import for
export" program which was discussed above, the proponents of this alternative
would probably have to be enjoined to stop their plans, rather than to have to
seek executive approval as in the case of the former alternative.
From both an economic and a financial standpoint, several calculations can
be made to analyze these "Virgin Island-Panama" alternatives. These calcula-
tions are shown in Table T. The following general conclusions can be made.
First, a Central American pipeline would probably be a more efficient expendi-
ture of resources, both social and private, than a similar Cape Horn alterna-
tive, which would cost about $.44 (foreign flag) to $.92 (U.S. fiag) more per
barrel. Second. abstracting from any benefits to the nation from having goods
shipped in domestic bottoms, the cost differentials between foreign and domes-
Footnotes at end of article.
648
tic tankers indicate that foreign flagships are more efficient. However, 2 con-
clusion based solely on cost differences must be carefully interpreted. since the
Congress of the United States as the elected representatives of society, has
judged the encouragement of the domestic merchant marine to be very impor-
tant as indicated by the enactment of the Jones Act.
Putting such questions aside. the average costs for North Shope oil shipped
directly to New York in U.S. flagships are estimated to be approximately $1.95
qer barrel) and $2.62 (per barrel) for the Central American pipeline and
Cape Horn alternatives, respectively. These cost estimates are well in-excess of
the range of total cost estimates for a direct Trans Canadian pipeline
extended to New York of $1.32 to $1.71 per barrel as estimated above at a
10% discount rate. Therefore, these extra costs in transportation represent
real losses of resources for the nation, if this roundabout method of supplying
the East Coast of the U.S. is selected to deal with the excess supply of oil on the
West Coast. Furthermore. the difference between the eosts of supplying the
Midwest through New York (an even more roundabout plan) and 2 direct
TCP. are approximately $.94 to $1.61 per barrel, when the average east of the
10% discount rate cost cases of a direct pipeline to the Midwest of $1.26 per
barrel is used as a basis for comparison.
TABLE 7.-NORTH SLOPE OIL TO THE EAST COAST BY TANKER FROM VALDEZ
[Dollars per barrel]
Valdez-
Central
Valdez-
Valdez-
America-
Cape Horn-
Central
Valdes-
Virgin
Virgin
America-
Cape Hom-
Islands
Islands
New York
New York
Approximate costs:
(1) Production
$0.25
$0.25
$0.25
$0.25
(2) Pipeline (TAP)
.60
.60
.60
.60
(3) Tanker costs
(a) Foreign flag
.54
.98
1.14
1.88
(b) U.S. flag
1.95
11.87
.85
1.77
(4) Central American Pipeline
.25
.25
Total cost:
(a) Foreign flaz
1.64
1.53
7.54
11.73
(b) U.S. flag
12.05
1272
1.95
262
Approximate Present Prices
(26-26 3° APD:
New York price
4.06
4.06
4.06
4.06
World price.
2.01
201
201
2.01
Net revenue before taxes:
(a) New York price:
(1) Foreign flag
2.42
23
12.52
1233
(2) U.S. fing
12.01
11.34
1.21
1.44
(b) World price:
(1) Foreign flag
.37
.18
1.47
1.28
1.04
1.71
-06
-61
(2) U.S. fiag
1 This estimate is the least likely transportation costs for this case given the most probable interpretation
of the Jones Act.
: Tanker costs are based upon a straight averaging of the range shown in table S for esch-case. An educated
guestimate is used for an additional 10 rents for handling in the Virgin Island scenarios.
TABLE 8-APPROXIMATE TANKER TARIFFS
Foreign flag
Long run
Short run
U.S.flag
Persian Gulf to Los Angeles
$0.14
$1.74
Valdez to Japan
.30
.34
Valdez to Los Angeles
.11
-19 $0.35
Valdez to Panama to New York' (pipeline across Panama)
132
1.53-$0.65 to $1.06.2
Valdez to New York around Cape Horn3
.66
LIL 132 to 2.22
Seattle to Los Angeles
15.
1 Terminal and pipeline costs must be added. Assume 25 cents for construction and operating costs;
therefore. estimates of 5. and 78 cents will be used.
: Assume U.S. Flags would cost twice as much per harrel for operating and construction costs.
1 Perhaps 10 cents per barrel should be added to these estimates, if the oil is first brought to-the-Virgin
Islands.
SOURCE.-Ba-ed upon rates utilized by the Cabinet Task Force and a simplified linear approximation,
"The Oil Import Question."
649
If the crude oil is shipped to the Virgin Islands for refining, additional
transportation costs would be expected. However, by diverting oil to the Virgin
Islands, the prospects of lower cost foreign tankers are greater in this case.
Additionally, the expected savings in resources from using foreign tankers
would more than compensate for the additional distance and handling costs
required. Using the estimates shown in Table 7, this savings would range from $.41 to
$.89 per barrel for the Central American and Cape Horn routes respectively.
Therefore. the socially uneconomic decision of diverting oil to the Virgin
Islands would probably be selected, if the restrictions of the Jones Act could
only be circumvented by this action.
All of the se plans will only be acceptable to the oil companies if the domes-
tic price rather than the world price is expected on the East Coast. At the
same time, in the Virgin Island examples, if the world price was used to
determine wellhead prices in Alaska, the higher costs (even in the foreign flag-
ship case) would result in royalty and severance taxes to the State of Alaska
of only about $.10 per barrel. This is about $.35 per barrel less than the
expected royalty and severance tax, if that same oil were sold in California at
the current price. Should the oil after refining then be permitted to enter the
East Coast market outside the import quota system, this saving in taxes would
represent additional profits to the oil companies with no accompanying loss in
revenue. The State of Alaska could protect itself from both of the preceding
marketing plans by passing a law similar to those used by Middle East coun-
tries. which use a posted price for calculating taxes regardless of where the
oil is marketed and therefore it is net back. Such decisions are transfers
between oil companies and the state and indicate an equity issue but will not
affect economic efficiency.
One case Is particularly interesting to consider. In that case oil is trans-
ported: (1) to the Virgin Islands, (2) in foreign tankers (outside the Jones
Act), (3) through Central America, (4) sold at the world price, and (5) then
refined and sent to the East Coast in addition to the import quota levels.
Under such a scenario, the profits before taxes are $2.42 per barrel, with the
additional tax savings of about $.35 per barrel: equivalent oil company profits
are about $2.77 per barrel. At the same time, state taxes would be their lowest
per barrel and the additional social costs of this plan are about $.13 to $32
per barrel greater than the average direct Canadian pipeline transportation
systems.40
In summary. marketing North Slope oil in either Japan or on the East
Coast of the United States is likely. to be profitable. However. in most cases
Alaska's taxes and net benefits will be lower than the estimates calculated
above, when it was assumed that North Slope oil would be sold on the West
Coast of the United States at the current price. Accordingly, the values used
for these parameters when they were compared for the TAP, MVP and AHP
alternatives should be adjusted downward in the case of TAP, thus increasing
further the relative advantages of a direct North Slope to Midwest transporta-
tion system even if it was furher delayed.
Finally, without quantifying the environmental savings expected for a Cana-
dian route, and possible economic savings if a joint gas pipeline is built in
Canada, it can be concluded that national and state interests require the-devel-
opment of the economically superior and more urgently needed Trans Cana-
dian pipeline even with delays up to 5 years when such factors are considered
as: (1) West Coast oversupply and the various plans for dealing with it. and
(2) higher economic benefits per barrel in the Midwest and East Coast com-
pared to the West Coast. Contrary to this conclusion is the position of the oil
companies. who it seems intend to do business as usual and to utilize existing,
often irrational industry regulations to increase profits at the expense of oil
consumers, taxpayers, the State of Alaska, the U.S. Maritime Industry and
doubtless others. Accordingly, the issue represented in this current controversy
and discussed above is more than a question of relative economic or environ-
mental superiority. It is in compact form: which Interest. oil profits or
national well-being, will dominate major decisions of this nature?
650
TABLE 9.-PROJECTED PRODUCTION THROUGHPUT SCHEDULE
Accelerated
Year
Alyests
berreis/day
1975
350,000
2,000,000
1976
$00,000
2,000,000
1977
1,200,000
2,000,000
1978
1,400,000
2,800,889
1968-2000
2,000,000
2,008,008
2001
$ See Table IV-1, Alaska Pipeline Report prepared for the USDI by Tussing, A.R., Rogers, G.W., Fischer, V., Morgand
R. and Erickson, E, of the Institute of Secial, Economic and Government Research, University of Alaska, 1971, a. 72. Note:
R. Nehring, "Future Developments of Arctic Oil and Gas: An Analysis of the Economic Implications of the Possibilities
and Alternatives,' U.S. Dept. of the Interior, Office of Economic Analysis, May 10, 1972, reports a more rapid 3-year builder
has been described by Alyaska. Under this schedule the first three years would average 0.6, 1.2, and 15 billion barrets
per day respectively. This schedule falls between the two used in the remainder of this monograph and will therefore net
be referred to below, since it is bracketed by the schedules utilized.
Notes.-Implied total over 25 years times 365 days per year equals approximately 16.7 and 18.3 billion berrets respec-
tively for the Alyeska and accelerated cases.
TABLE 10-1971 CRUDE OIL PRICES IN VARIOUS MARKETS
Price per
Market
Quality
barrel Source
New York
26-26.9° API
$4.06 Leuisiana South plus gethering costs
of 14 cents and transportation of 45
cents.
Los Angeles
26-26.9* API California sulfur range 1
3.17 Signal Hill plus gathering and trans-
to 2 percent.
portation costs of 5 cents.
Chicago
26-26.9° API
3.81 Louisiana South plus gathering costs
of 9 cents and transportation of 25
cents.
South Leuisiana (well-
25-26.9° API (less than 0.5 percent
3.47 Platt's crude oil summary, Aug. 25,
head).
sulfur).
1971.
Tokyo
Average of all crudes imported
1.83 Platt's Aug. 19, 1971.
Canada (eastern)
Average of all crudes imported
L93 Platt's for Apr. 1, 1571, listings.
Venezuela
2.08
Do.
West Gerrany
Average of all imports
3.03 Platt's as of May 1971.
United Kingdom
8
274 Piztt's as of June 1971.
Australia
do
1.53
Do.
All pricas are based upon data published in recont editions of Platt's Oligram Price Service, with U.S. prices based
upon Crude Oil Supplement of Aug 25. 1971. vol. 49, No. 164-B. Costs are based upon the Cabinet Task Force, op. cit,
for Chicago and New York and the State of Alaska, ep.cit., and Tussing et al., op. cit, for Los Angeles.
FOOTNOTES
1 This consortium is named the Alyeska Pipeline Service Company and is owned by
Amerada Hess Corporation. ARCO Pipeline Company, BP Pipe Line Corporation, Humble
Pipe Line Company. Mobil Pipe Line Company. Phillips Petroleum Company and Union
on Company of California. The acknowledged major ownership is in the control of three
parent companies which have found the most North Slope all: Atlantic Richfield Com-
pany (ARCO), British Petroleum Company Limited (BP) (its U.S.-owned subsidiary is
BP On Corporation. which was merged with the Standard Oil Company (Ohio) on
January 1. 1970), and the Standard Oil Company of New Jersey (Humble).
1 U.S. Department of Interior. Final Environmental Statement vol. 1, p. 320.
3 U.S. Department of Interior. Final Environmental Impact Statement vol.
1,
Washington: National Technical Information Service, 1972, pp. 320-2
Testimony of J. V. Krutilla and C. J. Clecketti, In the Metter of: Pacific Northwest
Power Company and Washington Public Power Supply System, Projects Nos. 2243/2273,
before the Federal Power Commission. See also Krutilla. J. V., and Cicchetti, C. J.
"Evaluating Benefits of Environmental Resources with Special Application to the Hells
Canyon," Natural Resources Journal, VoL 12. No. 1. January 1972.
$ Eckste'n, O. and Harberger. 1 "Economic Analysis of Public Investment Decisions:
Interest Rate Policy and Discount Analysis," Joint Economic Committee (Washington:
USGPO. 1963). Seagraves, J. A. "More on the Social Rate of Discount." Quarterly
Journal of Economics, vol. LXXXIV. No. 3. Aug. 1970. Water Resources Council, Proposed
Principles and Schedules for Planning Water and Related Land Resources, Federal
Register, Dec. 21, 1971. Vol. 36, No. 245. Part II. pp. 24144-94. and Office of Management
and Budget. Circular A-94, Discount Rates to be Used in Evaluating Time Distributed
Costs and Benefits."
The most recent estimate utilized by the Department of Interior placed the 1973
construction costs at $2.8 billion. converting this back to 1971 for comparability using
a 10% discount rate implies a 1971 capital cost estimate of $23 billion. which is within
the range utilized in this analysis. See Nehing, R. "Future Developments of Aretic on
651
FOOTNOTES-Continned
and Gas: Analysis of the Implications of the Possibilities and Alternatives," U.S. Depart-
ment of Interior, Office of Economic Analysis, May 10, 1972.
For a more detailed discussion of the reasons for this confusion. see Clechetti, C. J.,
Alaskan ou: An Economic and Environmental Analysis of Alternative Routes and
Markets, Baltimore: Johns Hopkins Press. fortheoming December 1972.
Note that in a recent Department of Interior Analysis, Nehring uses a total system
cost of $5.3 billion in 1974 $, converting this to 1971 $ at a 10% discount rate makes
his total cost estimate to Chicago $4.0 billion, and splitting this at 66% for the North
Slope to Edmonton segment results in his comparable estimate being equal to $2.63
billion in 1971 $. Further, each capital cost case for TCP I and TCP IV is increased
below by 10% and 20% for additional sensitivity.
Source: Atlantic-Richfield Company, memorandum re Trans Canada Alternative Route
submission to U.S. Department of Interior, Sept. 10. 1971, Appendix B, entitled: "Trans-
continental Pipeline Project, Transportation of Alaskan Crude OII, Atlantic, BP, Humble,
December 31, 1968. Prudhoe Bay to Chicago Pipeline."
20 See the on and Gas Journal, Oct. 18, 1971, "Interprovincial Adds á Quarter Million
Horsepower."
11 See the Atlantic-Richfield memorandum re Trans Canada Alternate Route submitted
to the Secretary of the Interior, Sept. 1971.
" Note converting the estimate made by Nehring into 1971 $ in the manner described
in footnote 15 shows his estimate to be slightly higher for this segment, namely $1.35
billion. Note. however, that while his total capital costs in 1971 $ are about $25 billion
greater ($3.98 billion minus $3.75 billion) than the high case shown in Table 3. it is
well below the capital cost case of $4.5 billion, which is used below when the results in
Table 5 are further texted for sensitivity and adjusted upward by 10% and 20%. See
Nehring, R., "Future Developments of Arctic Oil and Gas: An Analysis of the Economic
Implications of the Possibilities and Alternatives," Office of Economic Analysis, Depart-
ment of Interior, May 10. 1972. He estimates the costs in 1974 to be $5.3 billion which
equal $3.98 billion in 1971 dollars at a 10% discount rate.
= Comparable is meant to mean, in this discussion and elsewhere in the text, high-cost
cases are considered with each other, medium with medium and low with low. Note in
Table 5 below, some of these cost comparisons are presented jointly.
28 In the analysis below the before corporate income tax calculations will be utilized,
since the special tax provisions of the crude oil industry make it nearly impossible to
estimate the after tax return. Furthermore, as recently as 1968, when the oil depletion
analysis was set at 27.5 percent rather than the present 22 percent, the major oil-
producing companies in the U.S. paid an average corporate income tax of only 7.1 percent.
15 For a more detailed discussion of approach. see: Steiner, Peter O., "The Role of
Alternative Cost in Project Design and Selection," Quarterly Journal of Economics,
79 :421-2. 1965.
10 In a recent paper by Richard Nehring of the Office of Economic Analysis, U.S. De-
partment of Interior. the possibility of increased imports from Ecundor. Peru and Indo-
nesia, as well as from domestic sources is discussed. If locational savings from these
foreign sources are used to increase the taxes collected by such countries, such alterna-
tives would not affect the benefit-cost calculations. which I base upon a erslan Gulf
alternative. However. 1f some real savings are possible then I have systemat.cally blased
my calculations in favor of the proposed pipeline development. See: Nehring, R., "Future
Developments of Arctic Oil and Gas." op.cit.
I: See Cicchetti, C. J.. Alaskan Oil op.cit.
is These weights slightly exceed the present regulatory limit of 1/8 of domestic crude
production utilized to determine the amount of foreign crude imports in Districts I to IV.
The 1/6 therefore blases the benefit estimate downwards slightly, given present institu-
tional constraints.
is For a discussion of the Gulf Coast basis of pricing east of the Rockies, see page C-14
of the U.S. Department of Interior, Economic and Security Analysis of the Trans Alaska
Pipeline. vol. I (Washington, D.C., National Technical Information Service. December
1971). For an interpretation of this basis as it relates to the present controversy, see
public "Comments by Charles J. Clechetti and John V. Krutilla on the Final Environ-
mental Impact Statement for the Proposed Trans Alaska Pipeline" and the "Comple-
mentary Analysis of the Economic and Security Aspects of the Trans Alaska Pipeline,"
submitted to the Department of Interior May 5. 1972.
20 I owe a consideration of these differences to personal correspondence dated September
30. 1971. with Mr. E. L. Patton, President of Alyeska Service Company.
" Platt's Oilgram Price Service, Crude Oil Supplement of August 25, 1971, vol. 49,
No. 164-B.
= Rosellus. R. R. and Steffens. J. H., "North Slope Oils Score High with Hydroprocess-
Ing." Oil and Gas Journal, May 17, 1971.
= Timenes. N.. Appendix C. vol. I. "An Analysis of Transportation Alternatives," An
Analysis of the Economic and Security
op.cit.
34 Vogeley. W., "Comments on Trans Alaska Pipeline and Alternatives" submitted by
the Environmental Defense Fund, and Cicchetti-Krutilla "memo to the Undersecretary."
U.S. Department of Interior. May &. 1972.
= For a complete discussion of the prices used for reference purposes in each market
by various analysts, see "Comments by Charles J. Clechetti and John V. Krutilla on the
Final Environmental Impact Statement for the Proposed Trans Alaska Pipeline
",
submitted to the Department of Interior. May 5. 1972
x Parker, W., 4 Comparison of Prudhoe Oil Cests Via Valdes or Via a Mid-Canada
Pipeline. op.cit.
= These adjustments would amount to higher costs or taxes paid to the Canadian
government of approximately $.10 to $.25 per barrel.
= The $.18 per barrel adjustment for possible lighter North Slope crudes and sulfur
content differences would have a small percentage effect on the wellhead prices and
therefore the taxes and profits. However. since this adjustment is both uncertain and
perhaps an overestimate of any adjustment of this kind, It will not be used.
97-S39-73-pt. II-6
652
FOOTNOTES-Continued
This assumes that the full throughput of the TAP is oversupplied for 15 years and
the discount rate is 10%. thus reducing the present value of benefits to approximately
24% of those which were utilized above. While this might be an outside estimate many
of the cases considered in Table VII-1 would imply that the benefits which were used
for TAP would fall to between 24% and 50% of those values, which were used previously
for TAP.
In See Corrigan. R., "Resources Report/Japan May Get Some Alaskan Oil; Foreign
Flag Shipping of Exports is Likely." The National Journal, July 31, 1971.
=1 See United States Code 861 et seq. (1964). Common Name, "The Jones Act."
= Mr. Eckis is an executive with Atiantic-Richfield Company and a former president
of Richfield Oil before its merger with Atlantic Refining Company. He discussed the
Japanese market in his paper. Alaska on In Domestic and World Markets. which appeared
in Change in Alaska, ed. by George W. Rodgers. College, Alaska, University of Alaska
Press. 1970.
33 Oil Import Controls. Hearings before the Subcommittee on Mines and Minerals. House
Interior and Insular Affairs Committee. March-April 1970. It should be noted that, at
the present time. Phillips is not a holder of major proved-up reserves on the North
Slope. However. it does have reserves in Cook Inlet which is both closer to Japan and
more likely to be backed out of District v by North Slope oil.
This interview. as well as others with U.S. and Japanese government officials is
reported by Richard Corrigan. "Resources/Japan May Get Some Alaskan OII; Foreign
Flag Shipping of Exports is Likely," National Journal, July 31. 1971.
1: The $1.83 per barrel is based upon averages for the first quarter of 1970 found in
the May 10, 1971. Issue of Platt's Oilgram Price Service.
38 This is calculated by subtracting production costs ($.25). transportation costs for
a pipellne ($.60) and tanker ($.20) from a price of $2.00 per barrel.
3: It should be noted further that. If the imported oil is produced by the same company
that exports Alaskan oil. (the royalties paid to the producing country may be credited
against U.S. corporate income taxes. Such a tax advantage has not been included in the
analysis of benefits and costs. since it 18 a transfer payment. However, it will affect
profitability and must therefore be included when private decisions are analyzed. This is
especially true when the company producing North Slope oil will also be the producer
of foreign oil that will enter under an "import for export" program.
SR See Corrigan. R., "Resources Report op.cit.
30 Note the values shown above for transporting oil to Chicago must be increased by
two factors to determine these costs: $.25 per barrel production costs and $.25 per
barrel for transportation between Chicago and New York.
40 This is based upon an average total cost on the East Coast of a TCP alternative of
$1.51 per barrel compared to $1.64 per barrel for a Central American system and $1.83
per barrel for a Cape Horn system. If the Midwest is the principal North Slope market.
these extra costs would be approximately $.63 and $.82 respectively.
Dr. CICCHETTI. I am a visiting Associate Professor of Economics
and Environmental Studies at the University of Wisconsin.
I would like to speak about four things.
First. I would like to review some of my previous findings.
Second, I would like to review some of the recent comments and
uses of my testimony. my previous testimony and my analysis, by
various spokesmen for government and oil company officials.
Third. I would like to say a little bit about the President's energy
message and what it says about the pipeline development issues. Fi-
nallv. I proposed in my testimony some proposals to plug some of
the loopholes I think will still exist if this committee makes it possi-
ble' to go ahead with the Alaskan pipeline, and I would like the
committee to consider those loopholes, although I won't go into them
todav.
I started my analysis pretty much based upon the notion that en-
vironmentally the Trans-Canadian pipeline, whether the Mackenzie
Valley pipeline or Alaska Highway pipeline, would be environmen-
tally superior, was environmentally superior to the Trans-Alaska
pipeline. That was based upon testimony of public witnesses and I
think confirmed quite clearly by the Interior Department's own envi-
ronmental impact statement. which could only find the Alaska pipe-
line superior because it was shorter.
And when you add it in, as the Interior Department mentioned in
one section. the fact a gas pipeline would also have to be built, the
environmental savings of shortness of length, by having an oil and
gas pipeline in the same corridor, tilted every factor that Interior
653
Department considered environmentally in favor of the Canadian
pipeline. whether it be Mackenzie Valley or the Alaska Highway.
So that is where I began.
I did an economic analysis, and in the analysis I compared several
factors. When I looked at the cost of the two, I found using com-
pany estimates that when they were put on the same basis in terms
of interest rate. group schedules, and what have you, that the differ-
ence in the cost of winding a pipeline through Canada and the cost
of bringing that same oil to Los Angeles, was no more than 10 or 20
cents. When one added delays and looked at some of the cost esti-
mates that were made, again the difference was around 25 cents to 30
cents per barrel difference in cost of transporting the system. True,
the Canadian route would be longer and therefore more costly to
construct. There wouldn't be any need to construct tankers, terminal
and storage facilities in Valdez. When these costs are added in, that
brings the two routes almost in line with one another, from a cost
standpoint.
The next thing I did in my analysis, where would Los Angeles get
its oil if it didn't get it from Alaska, and where would Chicago get
its oil if not from Alaska? I looked at two cases. The first case I
looked at. let's suppose if Alaskan oil wasn't delivered to either of
those two markets. they would use foreign oil. The second case I
said, let's look at the prices in these different markets and let's as-
sume prices reflect domestic cost. Let's see what the difference would
be if we assume the present system of domestic prices keeps hold in
the Midwest and on the west coast, and let's see what that says
about the two routes.
I found out if we looked at the price of foreign oil that the dif-
ference in the cost of foreign oil either in the Midwest or on the
west coast was between 25 and 30 cents a barrel. That is about what
the difference is in the cost of the two systems. So one would say
economically there is little difference between the two, if in fact
there was a 2-year delay for a Canadian route, and if you had that
foreign oil as the alternative source of supply and price setter and
price-determining factor in all of U.S. markets.
Mr. Simon. who is with the Treasury Department, Governor Egan
of Alaska. and Standard Oil Co. of Ohio have taken that case in my
analysis and based most of their recent testimony on that assump-
tion. They have assumed that because of the President changing the
quota system. prices in all parts of the country are going to be based
upon prices delivered from the Middle East.
That doesn't bear up with the fact, when you look right now at
the price for oil. The quality that is found in Alaska is 65 cents a
barrel higher in the Midwest, and 90 cents a barrel higher on the
east coast than it is on the west coast.
I think the question of anybody who says the Middle East is
going to be the price determining factor that has to be asked those
witnesses is what do they think is going to happen. Do they think
the west coast prices are going to rise to the east coast prices. or do
they think east coast prices are going to fall? I think most of them
are going to say they don't know, they expect the historic pattern to
keep hold. Do they think foreign oil is going to get SO expensive
that all prices have to go up?
I think if you look at some of the information available, and I
have included in my testimony, you find, a couple of surprising
654
facts. One is, right now the Japanese are paying between $1 and $2
less per barrel of oil than the United States is paying on the east
coast and in the midwest.
There is very little reason why that should be the case. But it is
the case, and I think that is relevant for members of this committee.
Because, over a period of years, with different quota policies, differ-
ent oil policies, oil consumers east of the Rocky Mountains have
been forced to pay much higher prices for crude oil, have been
forced to deal with problems of uncertainties in supply and in secu-
rities of supply, and I think that is the issue involved in the whole
case.
Finally, I should say recently there have been price changes do-
mestically. For the last month, prices east of the Rocky Mountains
have been rising between 25 and 50 cents per barrel. It wasn't until
last week there was finally a price increase on the West Coast, 25
cents per barrel price increase. The relative prices I talked about
and used in my analysis-and if you use relative prices and not for-
eign costs-you clearly come up with a major economic advantage
for a Canadian pipeline, even if it is delayed, 5, 6, 7 years. It is still
better to go with the Canadian pipeline if you take into account
those higher prices east of the Rocky Mountains and the shortage of
oil east of the Rocky Mountains.
You find out that the relative prices that I use in my analysis
have sustained, but they have changed even more in favor of the Ca-
nadian route, because the price increases east of the Rockies have
been even greater than the price increase announced last week on the
west coast.
In conclusion, I guess I would say that it is incorrect to assume
that foreign oil will be the only factor to consider in whether or not
the Canadian pipeline or the Alaska pipeline is economically supe-
rior. Because if you think the relative price difference that exists
now in the Midwest and the east coast is either going to stay the
same or get worse, as recent evidence indicates, you are going to
have to deal with midwest Congressmen and east coast Congressmen
and their constituents who are going to say they are paying as much
as a dollar more for a barrel of oil than oil priced on the west coast.
You are going to have to deal with the fact the west coast is going
to have excess supply because recent studies of California showed
under the President's Emergency Message, California could be pro-
ducing 2 million barrels a day by 1985. You add in another 2 mil-
lion barrels from Alaska, you say from southern Alaska, you find
there is going to be at least a million barrels of oil more than the
west coast needs. Where is it going to go? To Japan, the Virgin Is-
lands? It is going to be transported in some roundabout scheme at
higher cost to the east coast and the Midwest?
It seems to me these are the questions that have to be confronted
by this committee and this Congress. I don't think it is right to turn
this consideration back to the Interior Department, because I think
their own economic analysis was biased from the start and all of
their comments have been made on that document, the basis of that
bias.
Thank you.
655
Mr. MELCHER. Thank you, Dr. Cicchetti.
[Following the hearings a further statement was received from
Dr. Cicchetti.]
[The statement follows:]
ADDITIONAL STATEMENT OF CHARLES J. CICCHETTI
On June 15, 1973 Secretary Morton filed a statement with this subcommittee
entitled: "An Analysis of Alaskan Oil Alternative Routes and Markets." The
book referred to is one that I recently authored. I would like to take this
opportunity to respond briefly to several of the comments made in Secretary
Morton's filing.
1. By using a 3 percent rate of inflation when I used a 10 percent rate of
inflation Secretary Morton makes my calculations appear to be heavily biased
against the Trans Alaska Pipeline. Actually. by using a rate that exceeds even
the present high rate of price inflation (10% versus about 6.5%) I have blased
my calculations against the Trans Canadian Pipeline in order to temper my
conclusions, which show the Trans Canadian route to be far superior economi-
cally.
2. Although Secretary Morton criticizes me for not having updated data he
is guilty of the same oversight in his regional off supply and demand analysis.
He estimates that supply in district V, the west coast, will decline by 2 per-
cent per year. This is in marked contrast with a recent study prepared by the
state of California that indicates the state of California could be completely
self sufficient through 1985 by expanding its offshore oil drilling and more
than doubling its production. Since the President has directed Secretary
Morton to encourage this offshore development along with offshore oil in the
Gulf of Alaska, which would only further add to the west coast over supply of
oil, it is surprising that the Secretary actually forecasts a decline in west
coast (district V) production. Bringing oil to this oversupplied area of the
nation when the midwest and east c =t face shortages and rising prices is in
my view an extremely callous decision for an administrator, who is supposed
to represent the interests of all regions of the nation.
3. Secretary Morton has criticized my investment cost data as being out of
date. He suggests that TAPS would cost about $3.62 billion in 1973 and TCPS
would cost about $6.435 billion in 1973. He points out that I used investment
costs of $2.5 billion and $3.75 billion in 1971 for TAPS and TCPS respectively.
His statement is true. However, as my manuscript points out I did not stop
here. First. I added $400 million for possible higher cost Alaska Highway
route. Second. I added the higher costs of a two year delay for TCPS increas-
ing my cost estimates by 21%. Finally, I added an additional 20% to the costs
of TCPS to reflect greater uncertainty and to make my economic comparison
as conservative as possible. When these adjustments are made and all costs
are put in 1973 dollars using the 10% inflation that I utilized (not the 3%
suggested by Secretary Morton) my investment costs became $3.02 billion for
TAPS and $6.03 billion for TCPS. While these are still somewhat lower than
Mr. Morton's figures it should be noted that the spread between the two alter-
native investments is greater in my figures. Accordingly, I have been more
heavily biased against TCPS than I would have been if I used Mr. Morton's
most recent figures.
4. When my most extreme calculations (in terms of biasedness against
TCPS) are presented I conclude that TCPS may cost about 20d more per
barrel than TAPS. This difference is about equal to that presented by Mr.
Morton. The Secretary and all recent erities of my analysis have pointed out
that this difference is about equal to the 25c per barrel additional transporta-
tion costs from the Gulf coast to he midwest. Since the President has ended
the oil Import quota program each of these critics from industry and govern-
ment have isolated my world price analysis and conclude that TAPS will not
be greater than or at least equal to TCPS economically. For this conclusion
freeing up imports must result in a drop in the relative price of oil in the
midwest compared to the west coast. If It were to fall from the 65d per barrel
difference. which was the amount crude oil of comparable quality to Alaskan
oil in Chicago exceeded similar off in Los Angeles, to the 25¢ per barrel trans-
656
port cost difference of foreign crude the two systems would be economically
equal. I pointed this out in my analysis and I stick to that conclusion. How-
ever, it has been sometime since the President's energy message, which ended
the oil import restrictions. Relative prices have changed but not in the direc-
tion favoring TAPS. Contrary to economic logic, which says increasing supply
of lower cost oil should cause a price decline, prices have increased since for-
eign oil has been permitted to enter the U.S. market without quantity restric-
tions. There have been two rounds of such price increases in the midwest, gulf
coast and east coast markets. These have resulted in a price increase of about
70c to 75¢ per barrel. At the same time west coast prices have risen only 25c
per barrel.
In other words the relative price difference that I used of 65¢ per barrel is
no longer accurate. However, this difference has not been reduced to the 25,5
difference implied. by Mr. Morton and other recent critics. Instead it has
increased to $1.10 to $1.15 per barrel. The TCPS is now more than ever more
economically viable than TAPS. Adding to this the midwest and east coast
shortage I cannot even speculate as to the possible motives of the Secretary in
sticking to his decision to promote TAPS at the expense of the far superior
TCPS.
ACTION POPPING on U.S. OIL PRICE FRONT
Crude price increases maintained their strong drive across many U.S. produc-
ing areas last week.
Although a second round appeared to be faltering in the Permian basin, the
Ferriday area of Mississippi and northeastern Louisiana drew its second in-
crease in a move by Ashland Oil Purchasing Co. to match higher leveis on the
Gulf Coast. Combined effect of the two moves by Ashland is a 53c/bbl jump.
Charter International Oil Co. added another 15¢ to its postings effective Apr. 17
on 25,800 b/d of sour crude and 4.200 of intermediate in West Texas and South-
east New Mexico, boosting prices to $3.85 and $3.96, respectively. The company had
posted the prevailing 25c increasa-to $3.70 for sour and $3.81 for intermediate—
effective Apr. 11.
Charter thus became the third company to pay 40c above the level of previous
postings in the basin Sun Oil Co. earlier announced a combined increase of 40c
to a new top of $3.96 for West Texas intermediate to match a price negotiated by
Apco Oil Co. in Fisher and Kent counties (OGJ, Apr. 23, p. 32).
Other buyers, including some of the biggest in the Permian basin. were sticking
with increases of 25c in retroactive price moves announced after the Charter,
Sun, and Apco hikes were disclosed.
West Texas-New Mexico sweet crude brings a maximum of $3.93/bbl in all new
postings announced SO far.
Ashland's second increase boosts 45,000 b/d of line-connected Ferriday crude
25¢ to a new top of $4 effective Apr. 19. Its first increase of 2Se to $3.75 went
into effect last month, also made to match Gulf Coast postings.
Permian basin. Four of the biggest buyers in the Permian basin-Mobil Oil
Corn., Exxon Co. U.S.A. Gulf Oil Co. U.S., and Texaco Inc-Joined the round of
25c increases Their action. combined with earlier moves by other major buyers,
brings virtually all of the basin's crude output under higher postings.
Mobil moved effective Apr. 1 on 89,000 b/d of sour, 133,000 of intermediate, and
10.000 of sweet.
Exxon posted its increase effective the same date on 105.000 b/d of sour,
2.900 of of intermediate. and 7.300 of sweet. The commany's increase on inter-
mediate is 30c to match postings by other companies. Its previous price was 5c
under other postings.
Gulf's price jump. effective Apr. 18. affects 111.500 h/d of sour. 30.000 of inter-
mediate. and 20,500 of sweet crude. Its price for intermediate is $3.86, because
it had been paying 5d more than other companies in earlier postings.
Texaco made its increase effective Apr. 19 on 64.000 b/d of sour, 80,500 of inter-
mediate. and 7,000 of sweet
In other postings for the Lasin. increases of 25¢ were announced by Sohio
Petroleum Co. effective Apr. 15, Atlantic Richfield Co. effective Apr. 18. and
Chevron Oil Co. effective Apr. 19.
Other areas. Elsewhere. buyers posted higher prices in areas ranging from the
Gulf Coast to Illinois and the Rocky Mountains. Most lists are пр 25é.
Shell Oil Co. and Texaco. among the largest buyers on the Gulf Coast, an-
nounced 254 increases on more than 765.000 o/d in the region.
657
Shell's move, effective Apr. 23, made its new top price a for 376,400 b/d on the
Texas-Louisiana coast, $4.01 for 8,755 b/d on the Louisiana coast and $3.95 for
6,300 b/d in Southwest Texas and the upper Texas Gulf Coast. Texaco posted
the increase to $4 effective Apr. 19 on 374,000 b/d in South Louisiana and made
similar jumps in Illinois to $3.85 and in North Texas to $3.81 effective Apr. 1.
Sun boosted its prices 25c to $3.85 on 15,000 b/d in East Texas field and to $1
on 60,000 b/d on the Texas-Louisiana Gulf Coast effective Apr. 16. The action
broached the $1 mark for Texas coastal Grade A erade. The company's new price
for this type of crude is $4.16/bbl for 29° gravity and above in West Beaumont,
Esperson, Orange. and Spindletop fields.
Gulf moved up 25c to $4 on 16,200 b/d of Texas Gulf Coast crude. to $3.80
on 6,500 b/d in Northeast Texas, and to $2.94 on 23,500 b/d in Baxter field, Miss.
Exxon posted 25¢ matching increases on 4.300 b/d in West Central Texas,
28,500 b/d in East Texas field. and 22,300 b/d in other fields of East Texas. Its
purchases of 8,600 b/d of heavy crude in Elk Basin field of Wyoming and Montana
drew a 30c boost to $3.80, while 7,100 b/d in Louden field, IIL, went up 20c to
$3.85. All are effective Apr. 1.
Amoco Production Co. went up 25¢ on 32,000 b/d in East Texas field and also
moved on 13,000 b/d of other crude in the East Texas area.
Other 25c increases in East Texas field include General American Pipe Line
Co., 17,800 b/d; La Gloria Oil & Gas Co., 15.000; Seurlock Oil Co., 12,000; and
Permian Corp. Permian also boosted its postings 25e in the upper Texas Gulf
Coast, on 20,000 b/d in West Central Texas, and on 22.000 b/d in North Texas.
American Petrofina Co. of Texas jumped its postings 25e in Northeast Texas.
Marathon Oil Co. went up 30c in the Rockies effective Apr. 17, making its new
top prices $3.41 for 45,000 b/d of Wyoming heavy crude and $3.80 for 5,200 b/d
of Elk Basin heavy. The company also added 25¢ to its East Texas field posting,
affecting 2.300 b/d.
Sohio announced an increase in its postings effective Apr. 1 on a total of 11,850
b/d in three states. About 10,000 b/d of crude in Tinsley field, Miss. got a 25c
boost to $3.63. while 400 b/d of Magnolia-Smackover crude jumped 42e to $3.67
and 1,100 b/d of Stephens and North Stephens crude moved 37¢ to $3.57 in
Arkansas.
Sobio also increased its flat posting for 350 b/d of Ohio crude 25¢ to $3.67.
U.S. CRUDE PRICES MOVE ANOTHER 20 TO 45 CENTS
A second round of crude-price increases took a firm grip on producing areas in
the Four Corners. Knasas, Oklahoma, Texas, and Louisiana last week in a flurry
of moves by buyers to protect supply sources.
The latest second-round bonuses and postings added 25-15¢/bbi to about
1.284.600 b/d of production in the regions. Most jumps were in the 30-35¢ range.
There were no changes in gravity differentials.
Combined with earlier second-round price hikes and contract purchases (OGJ,
May 28, p. 35), the latest action brings about 1.317,600 b/d under prices higher
than prevailing first-round postings. Independents and majors alike joined the
second-round action that pushed top prices to $3.91 on the Four Corners, $4.20 in
Kansas, $1.30 in Oklahoma, $4.28 in the Permian basin, and $4.51 on the Gulf
Coast.
A breakout of the latest price moves shows that 1,036,900 b/d is being bought
through new postings and at least 247,700 b/d through bonuses.
Majors. Six major companies announced second-round price moves on a total
of 931,700 b/d last week. Other big firms were studying similar action.
Price hikes of -20-15c were unveiled by Shell Oil Co., Sun Oil Co., Phillips
Petroleum Co., Continental Oil Co., Skelly Oil Co., and Cities Service Oil Co.
Shell's new posting, effective June 6, covers 395,200 b/d in the Four Corners,
Oklahoma, and Texas.
Oklahoma crude jumped 45c to a new top of $4.30 for 1.500 b/d of sweet and
$4.13 for 10.000 b/d of sour. Price hikes of 35é pushed the company's top price
in the Four Corners to $3.91 for 16.500 b/d; in East Texas field, $4.20. 14.500
b/d; Bryans Mill (Tex.) debutanized condensate, $1.09, 8.100 b/d; Frost Carbon-
dale North Carbondale (Tex.), $3.90. 2.600 b/d: West Texas-New Mexico sour,
$1.05. 272,000 b/d: intermediate, $4.16. 47,000 b/d; and sweet, $4.28, 23,000 b/d.
Sun's action. involving a total of 335.000 b/d. boosted its postings effective
June 1. Top prices moved up 35c to $4.35 on the Texas-Louisiana Gulf Coast. to
$4.51 for coastal Grade A crude, to $4.22 for South Texas heavy. to $120 in East
658
Texas and Conroe fields, and to $3.95 in Clay Creek field, Tex. South Texas light
rose 30¢ to $4.24, and West Texas intermediate jumped 20d to $4.16.
Sun also moved up 454/bbl to $4.30 for Oklahoma sweet and to $4.25 for Delhi,
La, crude.
The company also is offering contracts with several price options to its sup-
pliers in Oklahoma and certain parts of Texas.
Phillips began paying a 30¢ bonus for 8,300 b/d in Kansas and 9,000 b/d in
Burbank field, Osage County, Okla, making its top price in both areas $4.15.
A 354 bonus brought 37,600 b/d of West Texas intermediate to a new top of
$4.16.
Continental added a 35¢ bonus to its prices on 42,600 b/d of Oklahoma sweet
and a 304 bonus on 8,000 of Kansas crude, making its top prices in both states
$4.20/bbl.
Skelly's price hit a similar top with a 354 bonus effective June 1 on 30,000 b/d
in Kansas and 20,000 b/d in Oklahoma. Cities matched this move on 16,500 b/d
in Kansas and 29,500 b/d in Oklahoma.
Independents. Along with the majors, 10 independents announced price boosts
on 352,900 b/d in Kansas, Oklahoma, and West Texas. Other independents were
reported to be paying prices above prevailing second-round postings, but these
reports couldn't be pinned down immediately.
Higher prices were announced by Koch Oil. Co., Permian Corp., National
Cooperative Refinery Association (NCRA), CRA Inc., American Petrofina Co.
of Texas, Clark Oil & Refining Co., OKC Corp., Bigheart Pipe Line Corp., Vickers
Petroleum Co., and Osage on Transportation Inc.
Koch jumped its postings 35e to new highs of $4.20 for sweet crude and $4.08
for sour. The company buys 120,000 b/d in Oklahoma and 35,000 b/d in Kansas.
Permian posted a 36c increase to $4.16 for West Texas-New Mexico inter-
mediate and a 35c boost to $4.28 for West Texas-New Mexico sweet in a move
effective June 1. The company buys about 120,000 b/d in the Permian basin. Its
posting for West Texas-New Mexico sour remains unchanged at $3.70.
Permian also is paying a 304 bonus on about 10,000 b/d it buys in Kansas,
making its top price there $4.15.
NCRA added a similar bonus on 19,000 h/d in Kansas, and CRA followed suit
on 10,200 b/d in Kansas and 5,000 b/d in Oklahoma. These prices jumped to
$4.15.
American Petrofina issued a new posting calling for a 30d hike effective June 1
on 1,500 b/d in Kansas. Its top price hit $4.15.
Clark is paying a 30¢ bonus in Kansas, basing Its price at this amount above
the arithmetic average of three postings by other companies.
OKC's 25c bonus in Oklahoma is based on a flat 10¢ bonus plus payment of
trucking charges which, in some cases, range up to 15e/bbl. The company doesn't
post in the area.
Bigheart posted a 45c boost to a new top of $4.30 effective June 1 for 20,000
h/d of Oklahoma sweet. and Vickers moved up 35e in postings that call for a
top price of $1.20 for 1,200 of Kansas crude and $4.08 for 9,000 b/d of Oklahoma
sour.
Osage started paying a 45¢ bonus on 2,000 b/d of Oklahoma sweet, making its
new top $4.30.
Erroneous report. Meanwhile. a Journal check disclosed that 2 reported deal
for sale of Louisiana crude at $5.50/bbl is highly questionable.
Reports in the daily press credited the sale to John Mecom, Sr., Houston, in a
deal with American Grain & Cattle Corp.. San Antonio. Under the reported trade,
Mecom was to sell the output from holdings in Lake Washington field to the farm
cooperative at a field price that could accumulate to $350 million.
Mecom also was credited with plans to repurchase the 51% interest in the field,
which he earlier had sold to Signal On & Gas Co.
Signal. however. says it owns controlling interest in the properties and is
negotiating for sale of its 80% interest to Crown Central Petroleum Corp. The
sale would be made through a Signal limited partnership whose production
amounts to about 18,000 b/d of oil and 109 MMefd of gas (OGJ, Apr. 30, p. 106).
Negotiations with Crown Central. Signal told the Journal, are continuing.
Mecom was unavailable for comment-as was Harold Nelson, named in daily
press as president of American Grain & Cattle. The latter firm has no telephone
listing in San Antonio.
659
Mr. MELCHER. Dr. Freeman.
STATEMENT OF A. MYRICK FREEMAN, III, VISITING PROFESSOR
OF ECONOMICS, UNIVERSITY OF WISCONSIN
Dr. FREEMAN. My name is Myrick Freeman. I have a doctorate in
economics and am presently a visiting associate professor of econom-
ics at the University of Wisconsin. My areas of specialty include re-
source and environmental economics, benefit-cost analysis, and inter-
national economic theory.
I have a longer statement which I would like to have submitted to
the record and will only briefly outline a couple of my major points
Mr. MELCHER. Without objection, so ordered.
[Dr. Freeman's statement follows:]
STATEMENT OF A. MYRICK FREEMAN III, PH. D., ASSOCIATE PROFESSOR OF Eco-
NOMICS, Bowdorn COLLEGE, BRUNSWICK, MAINE, AND VISITING ASSOCIATE Peo-
FESSOR OF ECONOMICS, UNIVERSITY OF WISCONSIN-MADISON
My name is Myrick Freeman. I am on the faculty in economics at Bowdoin
College in Maine, and hold a visiting appointment in economics at the Univer-
sity of Wisconsin-Madison. My training and research work have been in the
fields of benefit-cost analysis, the economic analysis of public investments,
resource and environmental economics, and international economic theory.
A year ago I reviewed the final Environmental Impact Statement and the
Economic and Security Analysis of the Trans-Alaska Pipeline, and prepared
extensive comments for submission to the Department of Interior. Since most
of the points I want to make today are discussed in greater detail in those
comments, I am submitting this Evaluation for inclusion in the record.
NEPA AND THE PIPELINE IMPACT STATEMENT
I would first like to emphasize the important and valuable role that the
National Environmental Policy Act has played in the Alaskan Pipeline issue.
NEPA requires that all agencies develop procedures "which will insure that
presently unquantified environmental amenities and values be given appropri-
ate consideration in decision-making along with economic and technical consid-
erations." To that end, the Act requires that agencies prepare detailed state-
ments on the environmental impacts of major actions, that they use "a
systematic Interdisciplinary approach which will insure the integrated use of
the natural and social sciences," and that all relevant alternatives to the pro-
posed action be considered and evaluated.
NEPA has been invaluable in the TAPS case because it has required the
Secretary of Interior to make public the data and analyses supporting his
decision to issue the pipeline permits, and has allowed scientists, environmen-
tallsts, economists, and others to scrutinize the data and the decision. The
data and information contained in the Impact Statement have made a subtsan-
tial contribution to public debate on this issue. The Impact Statement is the
most important single source of information on the proposed pipeline and its
likely environmental and economic effects. Yet serious questions have been
raised about the Impact Statement, and there has been sharp criticism of the
Secretary's decision. Why is this go? Why can different people read the same
record, look at the same data, yet arrive at quite differenct conclusions? There
are two basic reasons for this The first has to do with the adequacy and accu-
racy of the data presented, and in particular the consideration of alternatives;
the second concerns the analyses and evaluation of the data-particularly the
weighing of non-commensurables.
In both the the record of public commentary on the Impact Statement and
in testimony before this Committee, serious questions have been raised about
the accuracy of the data used by the Department of Interior in the analysis of
the TAPS alternative. Examples include Professor Curry's testimony concern-
ing seismie factors, and Professor Clechetti's and Mr. Stoel's analyses of the
660
-supply-demand data for PAD V. I will not dwell on this point because there is
a more important inadequacy in the Impact Statement. The Impact Statement
is inadequate in its consideration of alternatives to TAPS. Specifically the
most glaring weakness is the absence of data and analysis concerning
-common corridor through Canada for both oil and natural gas pipelines. It is
now clear that the real choice we face is between TAPS plus a separate gas
pipeline through Canada on the one hand and a joint oil and gas pipeline
through a common corridor in Canada on the other. Yet the Impact Statement
is of no help in comparing these alternatives. We can not accept the Secretary
of Interior's choice of TAPS if the document on which the choice is suppos-
edly based is silent concerning the major alternative.
Concerning the second reason for disagreeing on conclusions, that is analysis
and evaluation. there are several instances where the Department of Interior
has departed from accepted economic and scientific reasoning and analytical
procedures and reached conclusions which simply can not be supported by the
-data they use. This is the case with respect to the Department's analyses of
the costs of delaying North Slope development, national security, balance of
payments impacts, and job creation. These points are detailed and documented
in my Evaluation which is appended for the record, and I will return to them
shortly.
In addition to instances where faulty reasoning is used, people may reach
-different conclusions due to honest and reasonable differences in the subjective
weights or valuations they use in comparing various kinds of noncommensu-
rable environmental and economic benefits and costs. It is essential for good
decision making on major issues such as North Slope oil that study and data
gathering continue until there is agreement on the facts and logical and ana-
lytical conclusions. There may still be disagreement on the subjective valua-
tions: but even here proper analysis can help by focusing attention on the crit-
ical issues. NEPA requires that an integrated analytical framework be
developed and utilized for just this purpose. The Impact Statement does not
provide such a framework. In my Evaluation, I devoted considerable attention
to developing such a framework and applying it to both environmental and
economic factors.
My analysis was based primarily on data from the Impact Statement. yet I
reached quite different conclusions, namely: that a weighing of all environmen-
tal factors together favored development of a Canadian corridor over TAPS
and that a weighing of economic and security factors also tended to favor the
Canadian corridor.
ENVIRONMENTAL FACTORS
One step in the application of an integrated analytical framework is the
summerization of data on environmental damages and risks. Ideally one would
want to single index or measure of environmental harm for each alternative.
But in reality there are many forms of non-commensurable environmental
damages. The principal environmental hazards of an aretic pipeline are related
to the wilderness character of the territory to be traversed, the fragile nature
of the ecological systems. and the uncertainties and risks associated with con-
structing and operating a pipeline carrying hot oil across permafrost and
through earthquake zones. Of curther concern has been the threat of oil pollu-
tion associated with tanker and terminal operations and possible disasters of
the Torrey Canyon variety.
The Alaskan and Canadian routes are quite different in the kinds of envi-
ronmental dariages and risk associated with them. In attempting to rank the
two routes on the basis of environmental harm, one must weight the greater
overland distance of the Canadian route and the disruption associated with it
against the hazards of marine transportation and the risks of earthquake
damage accompanying TAPS. The Department of Interior's own analysis
reflects these difficulties. The Impact Statement concluded that, "No single gen-
eralized route appears to be superior in all (environmental) respects to any
other." However in all but one of six categories of environmental harm, the
Impact Statement ranked the Canadian alternative above Taps. The issue
reduces to how important is the one category favoring TAPS relative to the
five categories favoing the Canadian route?
In my Evaluation I developed indexes of environmental damage based on
data in the Impact Statement. Although these indexes were not definitive. they
clearly showed that the effects of marine oil pollution from tanker operations
661
and the threat of earthquake damage to the pipeline were the critical factors
affecting the relative ranking of TAPS and the Canadian route on the basis of
environmental risk. Since the Canadian route had no tanker phase and did not
traverse a seismic zone, It was strongly preferred on these two factors. And as
elements of environmental damage in order to justify a judgment that TAP
ing to say that marine oil pollution and earthquake hazards were unimportant
a consequence, one had to place 2 very low weight on these factors or be will-
was preferred to the Canadian route on environmental grounds.
It should be pointed out that this conclusion did not take into account the
possibility of gas pipeline along the Canadian route. When that possibility is
considered environmental factors even more strongly favor the Canadian route
for a common corridor.
ECONOMIC FACTORS
My economic analysis of the two alternatives focused on five elements: the
net economic benefits or resource savings, differences in national security, the
economic costs of delay, impacts on the balance of international payments, and
job creation.
Economic Benefits
The net economic benefit or resource cost saving is the difference between
the resource cost of delivering Mid-East oil to a particular market and the
cost of delivering an equal amount of Alaskan oil to the same point. For both
routes, the cost of delivering Alaskan oil is substantially below the cost of
the imported oil it would replace indicating substantial economic benefits
from development. The relevant question is which alternative has the higher
net economic benefit for society. Although the cost of delivering Alaskan oil
to the Mid-West is greater than the cost to the West Coast, the cost of the
Imported alternative is higher in the Mid-West. too. And although there is great
uncertainty in the data, on the basis of the figures provided in the Impact
Statement, the net economic benefits of the alternatives are approximately
equal. with a possible slight preference going to the Canadian route. I might
add that my colleague, Professor Charles Cicchetti has made a long and care-
ful study of this issue. And on the basis of independent data and a more care-
ful analysis than is possible with the data in the Impact Statement, he has
concluded that the Canadian route is definitely superior to TAPS on economic
grounds. There are two points to be made concerning this conclusion. The first is that
there has been no adequate analysis of the economics of a common corridor
for oil and gas. It seems likely that the cost of the oil pipeline would be
reduced if the oil and gas lines could be built through the same corridor. If
this is SO, the economic superiority of the Canadian route would be well estab-
lished. As I said before a major shortcoming of the Impact Statement is that
it did not provide either an economic or environmental analysis of this alter-
native.
The second point concerns the possibility that the Canadians would require
that part of the capacity of the line be reserved for Canadian oil. This would
in no way alter the economic benefits per barrel of oil delivered to the U.S. If
the full capacity of the pipeline cannot be used for Alaskan oil, the relevant
question becomes: should additional capacity be planned and built along the
same corridor? The answer is probably "yes". It seems likely that further
exploration on both the Candian and Alaskan North Slope will justify a
second oil pipeline eventually. But the present plan for TAPS dees not call for
full use of pipeline capacity until the 8th year of operation. Thus in the years
before 1982-83 there would be room in the pipeline for Candian production.
And if Candian production and throughput turned out to be substantial. a
second parallel line could be installed to handle the full production of both
Alaskan and Canadian fields with no serious diminution of planned deliveries
to the U.S. If it is true as I believe that both economic and environmental fac-
tors favor placing the gas and first oil pipelines in a common Canadian corri-
dor, they will probably favor placing the second oil line through the same cor-
ridor. This routing would avoid the greater environmental risks of TAPS.
There are likely to be further cost economies in construction. The Mid West
market would be able to absorb the throughput of the second line. And there
is the possibility of routing some of the throughput to the Pacific Northwest if
necessary-via the Intermountain Pipeline.
662
National Security
Turning to the national security arguments, there are two aspects of
national security relevant to the pipeline issue, the timing of delivery, and the
region receiving the additional supply. Here I will only comment on the latter.
For any given marketing region, the danger and cost attributable to a disrup-
tion of foreign supply is directly related to that region's dependence on
imports, in other words to imports as a percentage of total consumption. The
relative dependence of the East Coast and Mid-West on non-Canadian imports
is far higher than for the West Coast. Thus regional considerations of national
security suggest higher national security benefits for the Canadian alternative.
Costs of Delay
One thing which has become clear from recent public comments is that E
major concern of members of Congress is the possible economic costs to the
nation of delaying the delivery of North Slope oil to the lower 48. At least
some members of Congress appear to be disposed to accept an argument that
the delivery of oil would be substantially delayed if a decision were made now
to build a Canadian route, and that the costs of such a delay would be sub-
stantial and would outweight any possible economic and environmental advan-
tages the Canadian route might have. In evaluating such an argument, we
must consider three separate sets of factors: the cost of delay, the length of
delay, and the benefits of delay.
1. How big are the costs of delay in economic terms? This is a matter of
Interest rates, discounting of future values, and what economists call time
preference. Both the magnitude and significance of these costs have been
greatly exaggerated in the Impact Statement and by pipeline advocates, and
there are compensating benefits which must be weighted against these costs.
As is disenseed in my Evaluation, the Impact Statement uses an Mogical tech-
nique and indefensible assumptions in calculating the costs of delaying of oil:
The true costs of delay depend on the net economic benefits of North Slope
oil now and in the future. The cost of delay is the cost of postponing the
receipt or realisation of the net economic benefit of a barrel of North Slope
oil. The net economic benefit at any point in time equals the cost of the for-
eign alternative less the cost of North Slope oil delivered to the same point.
Other things equal, if the price of Mid East oil increases by 50c, the net eco-
nomie benefit of North Shope oil increases by 504. If we postpone the extrac-
tion of one barrel of oil for one year, for whatever reason, and during that
Interval the price of Mid East oil rises by 50¢, say from $3.00 to $3.50, the net
economic benefit of producing that oil also increases by 50#, for example from
$1.00 to $1.50. In that hypothetical example, we will have experienced a 50%
appreciation in the value of our oil asset by postponing its extraction.
Other things equal the more rapidly the price of foreign oil increases, the
lower the cost of delay, and the more likely that delay will be actually eco-
nomically advantageous. Another way of putting this is to say that if the price
of foreign oil is expected to rise rapidly in the future, ft is economical to use
relatively more of it now and in the near term future while its price is still
low relative to the more distance future, and to use our own North Slope oil
later. The significant conclusion is that those who predict rapidly rising world
oil prices, and use this to argue for the most rapid possible development of the
North Slope have their logic backwards. Oil in the ground is an asset, and it
should be treated as such. Decisions about when to utilize that asset should
take that into account.
2 How long would the delay be? Here there is great uncertainty. Until good
faith discussions are entered into with the Canadian Government, we can only
speculate on the possible time span for reaching an agreement. Litigation of
the NEPA issues could substantially delay, if not block the TAPS route. And
Congress: itself could take steps which would substantially reduce the likeli-
hood of lengthy delay by initiating studies of the Canadian alternative DOW.
3 What are the economic and environmental advantages. if ady of the
Canadian alternative, and how big are these advantages? We have offered a
substantial body of testimony and background information which support our
contention that the advantages of the Canadian alternative are substantial. If
the Canadian route is advantageous economically, this benefit must be weighed
against the costs of a possible delay associated with it. When we consider the
663
apparent advantage a joint oil-gas corridor in Canada, it seems likely that the
costs of delay will be outweighted by the benefits. Despite the recent short
term energy problems and crisis atmosphere, the real danger is in making a
hasty and unwise decision to push ahend with TAPS now.
It should also be borne in mind that just as the benefits of exploiting
Alaska oil will largely accrue to oil companies in the form of profits, the costs
of delay are largely the costs of deferred receipt of those profits. Let me add,
however, that I am sympathetic to the plights of the State of Alaska and the
Alaskan natives, for they share in these costs through delayed receipt of royal-
ties. I suggest that if the State and the native groups are likely to experience
serious fiscal problems due to a delay. it is both equitable and to our advan-
tage to work out some form of fiscal relief.
Balance of Payments
The impact of the development of Alaskan oil on the U.S. balance of inter-
national payments is an important but often misunderstood point. Public dis-
cussion of the issues has often been confused by the failure to make an
important distinction. There are two quite different questions: first, what is
the balance of payments impact of the substitution of low cost Alaskan oil for
higher cost imported oil?; and second, what difference does it make to the bal-
ance of payments whether Alaskan oil is shipped through TAPS or through
Canada? The first, question bears on the issue of whether or not Alaskan off
should be developed at all. But it is not directly relevant to the real question
before Congress-namely which route?
Both TAPS and the Canadian route would reduce imports of foreign oil by
two million barrels per day. Either route would have the same gross and net
effect on expenditures to foreign oil producers-and therefore on our balance
of payments. There are some difficult problems in estimating what this impact
would be. But since the impacts are the same as between the two routes, that
information plays no role in the choice of which route.
The dominant consideration in comparing the two routes is the nature of the
arrangement for financing the construction of the Canadian route. To illustrate
what is involved let us consider two extreme hypothetical alternatives.
Suppose the Canadian pipelines were entirely financed by U.S. capital. This
would show up as a long term capital outflow during the construction period
followed by a return flow of recouped investment, interest, and profits over the
life of the project. Over the lifetime of the pipeline, the return flow would sub-
stantially exceed the original investment and the net effect on the U.S. balance
or payments would be positive.
Alternatively if the pipeline were financed entirely by Canadian or other for-
eign capital, then the pipeline costs for the Canadian portion of the line would
represent a direct dollar outflow. But if the Canadian line were financed as a
joint venture. for example with a majority of the equity capital coming from
Canada but a majority of the debt capital being U.S., the balance of payments
outflow would be reduced as the U.S. share in the investment increased.
How big are these outflows likely to be? It is possible to provide some very
crude estimates of the likely first round outflows. The Impact Statement esti-
mates that shipment by a Canadian route would cost approximately $1.20 per
barrel. If the line is built entirely with Canadian capital, the first round out-
flow would be $876 million per year. If the line were built with 50% U.S. cap-
ital. the direct outflow would be $438 million per year. Furthermore, to put
these figures in perspective the total dollar outflow for imports of goods and
services is likely to be over $100 billion per year by 19S0, and may be over
$150 billion per year by 1985. Thus the net dollar outflow attributable to build-
ing the Canadian route rather than TAPS will be a small fraction of 1% of
the total volume of U.S. expemditures abroad. It should not be a major factor
in the choice of routes.
It also must be pointed out that whenever dollar payments to another coun-
try are increased, the transaction triggers other economic forces which lead to
offsetting increases in dollar receipts from these countries. Thus the first
round dollar outflows. whether large or small, will be partially offset by
induced dollar return flows. And furthermore, to the extent that the payments
are not fully offset. a smoothly functioning international payments system can
accommodate whatever adjustments are necessary, for example by a change in
the value of the floating Canadian dollar.
664
Job Creation
Finally I want to speak out strongly against the notion that we need TAPS
to provide jobs, or that jobs can be considered a benefit of TAPS. It has been
suggested in the Impact Statement and elsewhere that the jobs created in con-
structing TAPS or in building and operating the ships for the marine leg of
the TAPS route are in some sense a benefit to the nation. To argue this posi-
tion is to turn economic logic on its head. Any reference to job creation as a
justification for building TAPS has the whole problem backwards.
The real economic problem facing the U.S. is finding sufficient resources,
that is labor and capital. to do all of the things that society wants and needs
to have done. The real problem is searcity. Any demand for labor, for example
to build TAPS. takes resources which could be used elsewhere. Labor use is a
cost, not a benefit.
CONCLUSION
Congress faces an important decision reflecting conflicts between environmen-
tal and economic values and between narrow short run private and broad long
run public interests. Congress has an historic opportunity to utilize the best
available scientific. technical. and economic information in making this deci-
sion. Much important work has already been done in compiling. organizing,
and analyzing this information. But there are still major gaps and serious
uncertainties. On both environmental and economic grounds. the scales are already tipped
toward the Canadian route. Despite this the Department of Interior persists in
advocating TAPS. in distorting and misrepresenting the results of its own
analysis. and in refusing to enter into good faith discussions with the Cana-
dian government. It would be desirable. particularly in the face of this rigidity
on the part of Interior. and what must be a massive private lobbying effort on
behalf of the oil industry. to obtain more information. the bulk of which
already appears to have been amassed by Canadian sources. on the economic
and environmental aspects of the joint oil-gas corridor in Canada. There
should also be serious discussions with the Canadian government concerning
environmental conditions. financing arrangements, and their own likely needs
for oil delivery capacity during the next 10-12 years.
Now that the pipeline issue appears to have come to Congress for its ulti-
mate resolution. Congress has a unique opportunity to complete the important
work begun in the Impact Statement. It can assure that no final decision is
made until the most relevant alternatives, especially the common corridor
through Canada. are given thorough. searching and unbiased analysis. In the
spirit of NEPA. congress can require that it be presented with adequate infor-
mation on the relevant alternatives, and that this information be presented in
a framework which facilitates comparison. and identifies the crucial tradeoffs.
The striking thing about the recent discussion is how little factual informa-
tion is available on the real issues which have emerged-the common corridor
oil-gas system and the possibility of two oil pipelines. and how much of the
discussion is based on speculation about outcomes and consequences. The need
for information and study is clear. And it appears that the responsibility lies
with Congress to see that these studies are carried out.
Dr. FREEMAN. Mr. Chairman. last year I conducted a lengthy
analysis of the environmental impact statement and the economic
and security analysis that was issued by the Department of the Inte-
rior. Most of the points I make in my testimony are based on that
more lengthy analysis. and I would ask that that be included in the
record as a supplementary part of my testimony.
Mr. MELCHER. Without objection. Dr. Freeman's analysis will be
made a part of the record at this point.
Hearing no objection, so ordered.
665
[Dr. Freeman's analysis referred to above follows:]
As EVALUATION OF THE FINAL ENVIRONMENTAL IMPACT STATEMENT ON THE
PROPOSED TRANS-ALASKA PIPELINE AND As ANALYSIS OF THE ECONOMIC AND
SECURITY ASPECTS OF THE TRANS-ALASKA PIPELINE
(By A. Myrick Freeman, III. Department of Economics, Bowdoin College,
Brunswick, Maine)
BIOGRAPHICAL INFORMATION
I am Associate Professor of Economics and Chairman of the Department of
Economics at Bowdoin College. I was awarded an A.B. degree by Cornell Uni-
versity. and M.A. and Ph.D. degrees by the University of Washington, all in
economics. My areas of research and publication are the economics of resource-
utilization; environmental quality and management; and international econom-
les. I have published a book and more than twenty articles in these areas in
such journals as Science, American Economic Review, Quarterly Journal of
Economics. Natural Resources Journal. and Water Resources Research. I have
also prepared study papers for the Joint Economic Committee of the Congress;
testified on environmental policy before committees of the Congress and the-
legislature of the State of Maine: and served as a consultant to the Depart-
ment of Health. Education, and Welfare and the New England Economic
Research Foundation.
I. INTRODUCTION
The National Environmental Policy Act requires that all agencies of the fed-
eral government develop methods and procedures "which will insure that pres-
ently unquantified environmental amenities and values may be given appropri-
ate consideration in decision-making along with economic and technical
considerations."¹ and that they shall "utilize a systematic interdisciplinary
approach which will insure the integrated use of the natural and social sci-
ences
in decision-making which may have an impact on man's.
environment." The Act further requires that agencies prepare detailed state-
ments on the environmental impacts of major federal actions.
If the purpose of the law is to be achieved. environmental impact statements
and their supporting economic analyses must has designed to facilitate a "SYS-
tematic. interdisciplinary approach" and "the integrated use of the natural and
social sciences and the environmental design arts." The documents under
review do not meet this requirement.3 They fail in four crucial respects.
1. The environmental impact data are not presented in a manner so as to-
facilitate the systematic analysis of various alternatives. including alternative
routes. alternative dates for the development of a particular route, and the
alternative of nondevelopment.
2 The documents do not integrate environmental. technical. and economic
information as required by the law. There are virtually no references to the-
economic findings in the six volumes of Enrironmental Analysis; nor is there
any discussion or reference to the environmental findings in the three volumes
of Economic Analysis.
3. The Economic Analysis, itself. is inadequate, incomplete. and in some
places. just plain wrong. The findings summarized in Volume I of Eeconomic-
Analysis raise assumptions to the status of conclusions, and in at least one-
crucial instance present findings which are quite inconsistent with the support-
ing data.
4. The discussion of relevant alternatives is incomplete because the implica-
tions of development of a gas pipeline which will be built through Canada to
transport North Slope gas are not incorporated into comparison of the alterna-
tive Alaskan and Canadian oil transport systems.
1 National Environmental Policy Act of 1969, Title I. Section 102(B).
Thid. Section 102(A).
*These documents are: Department of Interior. The Final Environmental Impact
Statement on the Proposed Trans Alaska Pipeline, Washington. March 1972. hereafter
referred to as Enrironmental Analysis; and Department of Interior. An Analysis of the
Economic and Security Aspects of the Trans Alaska Pipeline, Washington, March 1972,
hereafter referred to as Economic Analysis.
666
In this evaluation, I will first present a critical review of the three volumes
of Economic Analysis. I will then turn to the question of how environmental
impact data on alternatives can be presented in a systematic way and how
this information can be integrated with economic data in a manner which
makes clear to the decision maker the implications of his choice from among
the alternatives.
For the most part, in the sections that follow, I rely on data used by the
Department of the Interior in its analysis. This is both a strength and a weak-
ness of my evaluation. It is a strength in that it permits me to demonstrate
that the authors of the documents have not made adequate use of their own
information. But it is a weakness in that I have foregone the opportunity
(with one or two exceptions where the data deficiencies were most glaring) to
examine critically their data and methods. This evaluation, then, is primarily
a two-pronged effort to determine, first, whether the conclusions and findings
contained in these documents are adequately supported by the data employed
and. second. to determine what can be learned by combining existing analytical
techniques and conceptual frameworks with that data.
II. THE ECONOMIC ANALYSIS
This section deals with four major issues: the resource savings or net eco-
nomic benefits stemming from development of North Slope oil; the economic
costs of delaying or postponing development either to obtain more information
or to arrange for an alternative route; the national security implications of a
decision not to develop North Slope oil; and the analysis of the balance of
payments effects of development. In each of these areas the Department of
Interior's analysis as reported in the Economic Analysis is either shallow and
incomplete. conceptually faulty, or erroneous. Hence, conclusions based on that
analysis could result in serious mistakes and harm to the economy and/or the
environment.
A. Resource Saving
The concept of resource saving or benefit is fundamental to any analysis of
policy alternatives with respect to the development of North Slope oil. The
issue posed by the application for a permit for the pipeline is: are the eco-
nomic benefits associated with development of the oil field sufficiently large to
justify incurring the environmental risks and unavoidable damages which are
identified in Encironmental Analysis? In other words, are the economic bene-
fits that would be foregone by not developing the North Slope oil too big a
price to pay for preserving the Alaskan environment? Either way the question
is asked, we must attempt to measure net economic benefits of development.
Not only is the concept of economic benefits fundamental to the quest of
development vs. preservation, but it enters into any consideration of alterna-
tive transportation modes and alternative routes for bringing North Slope oil
to its point of use, as well. Just as the environmental damages may be differ-
ent for different routes, SO may the net economic benefits depend on the route
chosen. The question of whether to develop the oil, thus, cannot be separated
from the question of what route should be used.
Equation 1 defines net benefits. (1) N = B-C where N is net benefits, B is
the benefit or the value of the oil produced, and C is the resource cost of pro-
ducing the oil, all in dollars. Net benefits must be calculated for each of the
possible alternative routes. If N is negative for all routes, then it is clear that
the North Slope oil should not be developed. If net benefits are negative for all
but one of the routes. then we must attempt, for the route with positive bene-
fits. to compare the benefits with the environmental dam yes associated with
that route. If the net benefits are positive for several of the alternatives evalu-
ated. the analysis will be more complex.4 If there are two routes with positive
net benefits. one of which has higher benefits but also higher environmental
damages, then the decision must involve an assessment of environmental dam-
ages rs. economic benefits. But if one route has the same or higher net benefits
and lower environmental damages, it is clearly preferable.
Let us now review the analysis of net benefits as reported in Appendix H
and Appendix K-3 of Economic Analysis. That analysis assumes that, if
North Slope oil is delivered to the West Coast, it will displace equal quantities
These issues are discussed more fully in Section IV below.
667
of imports from the Middle East to that market, and that the oll will be sold
without-changing the market price. Hence the gross benefit (B) of North Slope
oil is the savings in resources otherwise spent for imported oil. This resource
savings is the resource cost of obtaining an equal quantity of oil from the
next cheapest alternative, i.e. Middle East imports.5 Call this CA. Then the net
benefit or real resource savings of delivering North Slope oil via TAP is given
by equation (2) :
(2) NTAP = CA - CTAP
where Crap is the resource cost of developing North Slope oil and delivering it
via TAP to the West Coast.
The impact statement provides three different estimates of the net benefits
of developing TAP. These are summarized, in Table II-1. All the estimates are
based on the same cost of alternative. i.e., the $2.80 figure provided by the
Council of Economic Advisors (See Appendix K-3). The differences in esti-
mates of net benefits are attributable to different assumptions with respect to
costs of production and transportation. The range of estimates of net benefits
is from $1.45 per barrel to $1.70 per barrel.
TABLE H-I.-NET BENEFITS OF TAPS-AS ESTIMATED IN ECONOMIC ANALYSIS
Cost of alternative supply (CA)
-12.80
1280
1280
Cost of Taps oil (CTAP):
Production
10.23-0.26
30
$.30
Gathering
$.30
$.30
Pipeline
10.66-0.80
$.05
$.05
Tanker
10.21-0.24
$.30
$.30
Total costs
1.10-1.30
1.25
1.35
Net benefits (N)
1.50-1.70
1.55
1.45
1 Economic Analysis, p. K-3-4.
3 Economic Analysis, app. K-2
Economic Analysis, p. H-2.
Since these estimates are a basic part of the economic analysis of TAP, they
deserve serious scrutiny. But such scrutiny is made difficult by lack of refer-
ences in Economic Analysis to the sources of key pieces of data. There are
three questions to be raised about these estimates.
(1) Tanker costs.-The Council of Economic Advisors uses a range of
$0.21-0.24 per barrel, but does not provide a source (Appendix K-3, p. 4).
Appendix K-2 provies a review of a number of independent estimates of
tanker transportation costs. and presents a best estimate of $0.30 per barrel
(Appendix K-2, p. 7). This would reduce the upper end of the range of possi-
ble benefits from $1.70 per barrel to something closer to $1.60 per barrel.
If the Council's estimate of $0.21-0.24 per barrel is based on foreign flag
costs, this is invalid, since the Jones Act will require shipment in higher-cost
U.S. flag vessels. These higher tanker rates represent a real resource cost to
the U.S. and must be included in any economic analysis attempting to measure
real resource savings.
(2) The cost of alternaticcs.-Appendix K-3 estimates the resource cost of
Middle East oil delivered to Los Angeles in 1975 to be $2.80 per barrel. This
figure is contained in a letter from Chairman McCracken of the Council of
Economic Advisors dated August 6. 1971. The source for this figure is not
reported. Cicchetti provides a carefully documented estimate of the resource
cost which, at $2.01 per barrel in 1975, is considerably lower than Dr.
McCracken's. His estimate is based on the most recent agreements with OPEC
countries regarding increases in taxes or royalties between now and 1975. Fur-
thermore Cicchetti takes account of the fact that posted prices for foreign
5 The alternative cost concept of benefits is described in Otto Eckstein, Water Resource
Development, Harvard University Press. 195S, pp. 52-53; in Water Resources Council.
Proposed Standards for Planning Water and Land Resources, Section III-B, and Peter
O. Steiner "The Role of Alternative Cost in Project Design and Selection,"
Quarterly Journal of Economics, pp. 417-430.
Charles J. Clechotti. Arctic Oil: Economic and Environmental Analysis of Alternative
Transportation Systems, Review Draft, dated December 15, 1971. See Pages III-21 to
III-23.
668
erudes are used to determine taxes (which he indicates have been about 50
percent of the posted price historically) but that posted and actual prices dif-
fer substantially. Cicchetti's how estimate also reflects projected decreases in
tanker costs over this period. His figure probably should be interpreted as a
lower-bound estimate of the true value. On the other hand the Council's figure
of $2.80 is almost certainly too high. since it appears to be based incorrectly
upon the higher posted prices rather than actual prices.
Since the analysis of net benefits is very sensitive to the projected cost of
imported oil, and since there is uncertainty on this point, I will present calcu-
lations based on Cicchetti's estimated of $2.01 per barrels (labelled as Lower
Estimate) as well as upon a figure of $2.40 per barrel. The latter figure "splits
the difference between Cicchetti and the Council of Economic Advisors, and
can be used to determine the sensitivity of any conclusions to changes in this
controversial parameter.⁷
(3) Production and Gathering Costa-The Council of Economic Advisors has
used a figure of $0.23-0.26 per barrel for production costs, again without indi-
eating its source (Appendix K-3. p. 4). The Department of Interior does not
attempt an independent estimate of these costs but reviews existing studies
and picks out a middle or "best estimate value of $0.30 from the range of
estimates (Appendix K-1, p. 10). To this the Department adds $0.05 per
barrel for a gathering charge. for a total of $0.35 (Appendix H. P. 2). The
effect of using the Councils figure is to increase the calculated net benefits of
TAP. I will use Department of Interiors estimate of $0.35 below. The sensitiv-
ity of our conclusions to this assumption can be tested by reference to the
alternative calculations of benefits based on a cost of alternative of $2.40 since
this figure raises calculated net benefits about four times as much as would
using the lower production cost figure.
Table II-2 shows the effects of taking these adjustments into account. In
the first column, the cost of alternative supply (CA) is Cicchettis lower esti-
mate of $2.01 per barrel. The $2.40 per barrel is used in the second column.
The eosts of TAP oil are based on figures which lie within the range of esti-
mates shown in Table II-1 and discussed above. In addition. pipeline cost has
been set at $0.70 per barrel since the Department of Interior, itself, has sug-
gested the lower $0.60 figure is out-of date (Appendix H. p. 1).
As the first column of Table II-2 shows, the effect of these adjustments
(and principally the adjustment to costs of alternative supplies) is to reduce
the net benefits by 50-60 percent. The estimate of benefits in the first column
TABLE 11-2-NET BENEFITS OF TAPS-REVISED DATA
Low estimate
Middle estimate
Cost of alternative supply (CA)
2.01
2.42
Cost of TAPS oil (CTAPS):
.35
.35
Production and gathering
.70
.70
Pipeline
.30
.30
Tanker
to
1.35
1.35
Total
Net benefits (N)
.66
1.05
is thus reduced to $0.66 per barrel. In the second column the estimated bene-
fits are $1.05 per barrel, a figure 25-30 percent below the figures presented by
the Council of Economic Advisors. Estimates of the total savings and the pres-
ent value of resource savings must be reduced correspondingly. (See Appendix
H. p. 3 and Finding IV-1). At an annual production rate of 2 million barrels
per day (BPD), then the net economic benefits are between $180-$770 million
per year.
It was suggested above that a complete economic analysis would require
making comparable evaluations of alternative routes and transportation modes.
: As will be noted later. calculations of real resource cost savings, the cost of delay.
and balance of payments impact are sensitive to the assumed cost of imported oil. But
the economic comparison of TAP and the Canadian alternative Mackenzie Valley Pipe-
line (MVPL) is not affected by our assumptions.
669
No such comparable evaluation is presented in the impact statement.8 Net eco-
nomic benefits for alternative routes can be calculated and compared using the
framework described above. Table II-3 provides estimates of the net benefits
of the Mackenzie Valley Pipeline calculated in this manner. The cost estimates
for this alternative come from the impact statement (See Appendix H, p. 2).
Since the MVPL would deliver oil to the Chicago market, the relevant alterna-
tive for calculating C₄ is the cost of delivering Middle East oil to the same
market. Although the routes are different, the costs of delivering this oil to
New York are the same as for Los Angeles délivery. To this figure must be
added a $0.25 per barrel pipeline charge to Chicago (see Appendix K-2, p. 7).
As above, we use a resource cost of the alternative supply to Chicago of $2.26
per barrel as a lower estimate with an alternative middle estimate of $2.65 per
barrel.
As Table II-3 shows, net benefits are $0.71 per barrel, or $1.10 per barrel
under the alternative assumptions. This compares with $0.66 per barrel or
$1.05 per barrel for TAP. This difference is net benefits, although not signifi-
cant given the range of possible error in the pipeline cost estimates, is inde-
pendent of the assumptions about the cost of imported oil. It demonstrates by
appropriate economic analysis that the TAP route and the MVPL alternative
stand on roughly equal footing in purely economic terms.
TABLE 11-3.-NET BENEFITS OF MVPL1
Lower estimate
Middle estimate
Cost of alternative supply (CA)
2.01
2.4
Delivered to New York
2.01
2.40
Pipeline to Chicago
.25
.25
Total
2.26
2.65
Cost of MVPL (CMVPL):
Production and gathering
.35
.35
Pipeline
1.20
1.20
Total
1.55
1.55
Net benefits (N)
.71
1.10
1 Economic Analysis, app. C, P. 19; app. H. p. 2.
There is, however, one serious qualification that must be entered here.
Throughout the impact statement, there appear statements to the effect that in
the early years of the TAP life, TAP would create an excess supply of oil on
the West Coast.9 The existence of such an excess supply means that additional
resource costs must be incurred to transport the excess oil to alternative mar-
kets. The effect will be to reduce the net benefits per barrel of TAP. This
problem needs more careful and explicit treatment than it has been given in
Economic Analysis.
Two further points should be made. First, the medium value supply and
demand forecasts for District V t' are provided in Appendix L-3 (p. 17),
when combined with the TAP production schedule shown in Appendix E (p.
16) do not show any excess supply arising with the addition of TAP. This is
inconsistent with the repeated mention of the likelihood of excess supply and
the need to export TAP oil during the early years of the pipeline life. In this
respect Economic Analysis is internally inconsistent and contradictory. Incon-
sistencies such as this point out the need for further and more careful analysis.
Second, Finding III (which states that delivery of on to the West Coast is
the objective of public policy) is unwarranted. This statement simply assumes
*Appendix C provides a comparison of TAP with a Mackenzie Valley Pipeline (MVPL)
which unlizes the "net back" concept. Since net back is based on market prices at the
point of delivery. it is a better indicator of profitability to the companies than it is of
net economic benefits. The costs of alternatives do not enter into the calculation of net
back. Rather. differences in net back arise because of differences in market price; and
these price differentials are the result of historical accident and market imperfection.
Finding VI-4; see also Appendix C, pp- 14; 23-24; Appendix D, p. 4; Appendix F.
pp 20-22; Appendix M-J. P- 5.
670
that objective thereby raising an assumption to the status of a conclusion.
Analysis to show that public policy should establish the objective of delivery
of North Slope all to the Trest Coast is never provided. In fact the likelihood
of excess supply on the West Coast with TAP is somewhat inconsistent with
this finding. All told, the proper use of the data provided by the Department
of Interior suggests that 62 economic terms we should be indifferent as
between delivering oil to the Thes Coast or the Midwest, or should actually
prefer the latter alternative.
To summarize the failings of this section:
(1) The Economic Analysis statement has used the proper conceptual frame-
work for estimating the resource savings or net benefits of TAP.
(2) Three undocumented pieces of data were used in these estimates. The
net effect appears to be to blas upwards the estimate of set benefits by at
least 50 percent (from $2.05 to $1.69) and perhaps by more than 100 percent
(from $0.05 to $1.60).
2. Production is gathering casts used by the Council of Economic Advis-
ors is its calculations of net benefits are $1.00 to 0.12 per barrel lower
than those provided chewhere in Economic Analysis.
b. Tanker costs spour to be overstated.
e. The couts of alternative supplies is $0.79 per barrel higher than a
well-documented estimate from another source.
(3) The statement does not calculate the net benefits of the Mackeasie
Valley pipeline alternative for comperative purposes. When this is done in an
appropriate manner. the data reveals a slight preference for the Canadan
alternative. about $0.00 per barrel. But this is well within the likely margin of
error of estimates.
(4) The economic analysis statement is inconsistent in its treatment of the
possibility of excess supply of oil in District V. Furthermore, there is no and-
sis of the effect of excess supply en the estimates of the net benefits of TAP.
Although this problem is But analyzed here. the effect would be to reduce the
set benefits of TAP and tend to increase the relative net benefits for MIPL
B. The Costs of Deley
The economic comparison of TAP and MTPL presented above abstracted
from one relevant factor: possible differences in the timing of production. Any
benefit received today is more valuable indey than a benefit to be received =
year from now. In other words. one is willing to pay more today to receive a
benefit immediates than to receive a guaranteed right to an equal sized benefit
our year from now. The present value of a stream of benefits is smaller, other
things equal the farther in the future the starting date for receiving the
streem of benefits. And if circumstances cause a delay in the commencement of
this stream of benefits. the cost of that delay is the reduction in the present
value of the stream of benefits.
The east of delay Eactor can enter into the economic analysis in two ways.
First. if TAP were approved DOIC. R is estimated that of delivery would begin
in ISS: but If it is decided to use the MTPL ruste. delivery of oil may be de
layed by two to three years." because of such factors as the need for 2dd-
tional design and planning of the ronte and negotiation with the Canadian
Covernment This difference in time patterns can affect the economic compari-
see of TAP and MIPL Alternatively. if it were decided to defer approval of
TAP for one or more park for example - gather more information. this pest-
parement would entail a reduction in the present value of the streem of bene-
fits from TAP. Hence, in either case. it is important that we analyze carefaily
the costs of delay.
The Statement of Findings is Economic Analysis includes the following
statement: "A year's delay of delivery of north slope oil forfeits the possible
resource cost saving of $150 8th $L70 per barrel or $1.1-1.35 billion in -
source easts" (Finding IV. 2). This statement is family in three respects. First,
the Department of Interior has used an erromeous technique for calculating
the total cost of one year's delar. 30d the effect of this error is to overstate
the cost of the delay by almost a factor of two Second. the estimate is based
on 3 premirce costs savings per barret which I have shown to be too hish by
letween 50 and 100 percent. And third the statement ignores certain impor-
tast benefits associated with delar which, although not easily measured in dol-
# is the Economic Analysis, General Lincoln extimates = three-year delay (Appendix
YS D. 31-
631
lar terms, are nevertheless real and relevant to devision-makers. I will discuss
each of these points in turn.
Table II-4 & useful in considering the method of calculating the cost of one
year's delay. The first line of Table II-4 shows the time pattern of production
for esch year. assuming that TAP is shortly approved and the first oil
throughput is in 1975. See Economic Analysis Appendix E. It 16. The second
and third lines show the same pattern with a one-year delay and the amount
by which the total annual supply of oil is reduced in each year because of this
delay. Note that although the TAP espacity is two million barreis per day, the
highest shortfall in any one year is only 0.4 million barrels per day. in 1976
TASLE N-R-TIME PATTERNS OF LOST PRODUCTION DUE TO DELAY
1975 1976 1977 1578 1573 1953 1991 1992 1383 1984 1305
& TAPS protection: Amail average:
=03 8.7 LO 12 13 25 L7 15 28 20 20
in TAPS production:
I
.3 .3 .4 .3 .2 .1 .2 .2 .2 .1 @
I
L3
12
L3
25
LT
11
20
20
1 ye duty
0
Production last
BL TAPS production:
0 0 I .3 .7 LO II L3 L5 27 19
3 * day
Production last
.3 .7 L8 ., .5 .5 5 .6 .5 .3 .1
IV. TAPS production:
.3
.7
LI
14
17
40
28
20
3 F datay accelerated sutput?
c
.3 0 .7 LO .9 .6 .& .3 .2 @ @ 0
8
Preduction last
2 From "Economic Analysis." 5. E-M.
= Million harmle per -
a Calculated to "tate" 00th will ariginal TAPS by 1983
The method of calculating the total cont of a one-year delay consists of
three steps: first. calculating the short-fall for each year by multiplying the
per-day rate given in the table by 355: second calculating the dollar value of
the resource cust associated with that year by multiplying by the resource cost
savings per barrel: and third. culculating the present value as of 1973 (the
start of production) of that look Equation & summarizes this
($)
(0.3X363X$1.50) (0.4X363X$1.30)
(0.1)(365X$1.5)
Cost=
(1+1)
(1+i)²
(1÷)*
where cost is in billions of dollars as of the beginning of 1973 This equation
makes - of the Conneil of Economic Adrisors figure of $1.50 per barrel re-
shorev cust savings One further adjustment must be taken into account. The
loss of throughput at the beginning of the pipeline's life is not lost forever. it
is made up at the end of the project life. which the Economic Analysis at
sumes to be = years. The cust given by equation 151 should be reduced 65 a
factor representing the present value of an additional = million barrels of oil
delivered after the year 3000. At a discount rate of 10 pereent. this factor 85
dures the custs of delay by about 9 percent.
Table II-5 shows the results of enteulations based on equation (i). assum-
leg first = resultte saving of $1.50 [] barrel then $66 and $1.00 per barred as
culculated in the previous section 1 discount rate of 10 percent was used. but
other calculations showed that the results are BUR sensitive Do the civoice of
discount rates Between ; and 10 percent.
TABLE D-5-COST OF 1-YEAR DELAY is TAPS PRODUCTION
lin billions of dollars)
E REQUIRED gring of-
$1.50 per have $0.66 per Barral $1.05 per terred
Present walse at E procent.
$2.627
$2.302
$2.31
672
As Table II-4 shows, by using a proper methodology for the Department's
OUR data. the cost of delay is only 50 to 60 percent of the figure given in Ern-
nomic Analysis. And using = more appropriate resource costs savings figure,
the true east is between 25 and to percent of that stated in Emaomic Analy-
sis.
This raised the question of how the Department of Interior arrived at its
figure on cost of delay. The only way to arrive at this figure is by performing
the calculations according to equation (4) with a discount rate of 0 and by is-
noting the adjustment for regained production at the end of the project life.
In other words, the $1.1-1.25 billion figure is an undiscounted sum of a
stream of future costs. But if the stream is summed without discounting it is
contrailietory to apply a discount factor to the regained production at the end
of project life. If the costs and later gains are both calculated at a 0 discount
rate. the net cost of delay is zero. In sum. the Department of Interior appears
to have used = zero discount rate for the costs of dealy. and in infinite dis-
count rate for the later benefits of delay. This is very bad economics.
One of the alternatives to developing TAP now or at some later date is to
develop the MVPL alternative. Since such 2 decision would result in a delay
in the flow of North Stope oil to the American market. it is important to know
the magnitude of the cust associated with that delay. Table II-6 presents the
results of calculations. based on equation (f) and Table II-4. under alterna-
tive assumptions for four different variables. They are as follows:
(I) Resourer savings per Barrel-All calculations are presented for the al-
ternatives of $0.68 per barrel and $1.05 per barrel resource savings for TAP.
The effect of the higher figure is to raise the costs of delay proportionately.
(2) Three-yer 52. fico-year delag.-Calculations are presented on the alter-
native assumptions that MVPL comes on line in 1978 with a three-year delay
compared to TAP. and with only a two-year delay. The longer the delay. the
highter the costs of delay.
(3) Accelerated production.-Calenlations are presented under the alterna-
tive assumptions of no change in the shape of the production schedule and
where it is assumed that the production schedule for MVPL although delayed
in starting. is accelerated.
($) Set edruntage of MVPL-The evests of delay are sensitive to the rela-
tire economic advantages of MVPL 12 TAP. The calculations presented in see-
tion II-A. based on Department of Interier data. suggest that MVPL may
have greater net economic benefits per barrel. perhaps $0.05 per barrel. If this
is the ease. the costs of delay are reduced since. although we wait longer to
at the benefits of oil. se wind EIGL getting greater benefits. I have shown caleu-
lations based on a zero advantage and with the alternative $0.05 and $0.10 per
barrel not advantage for MVPL reflecting. perhaps, the effect of excess supply
on the West Coast. The figure with the minus sign in the right-hand column
demonstrates that under same plausible conditions. delay costs nothing and in
fact leads to a net grain.
Under the least favorable assumptions, Table II-6 shows that the costs of
delaying in order to take advantage of an MVPL route may be as high 25 $13
billion in present value terms. Of course. these costs must be weighed against
whatever possible benefits might be associated with an MVPL route over the
TAP reute. But considering the likelihood that accelerated production will be
pussible reduces the estimated custs by 25-30 percent. If the delay is only two
years. the cost is further reduced. And under the more favorable combinations
of resource COFT saving and economic advantage of MVPL costs drop to under
$300 million. Finally. it should be noted that if TAP created exeess supply on
the West Coast between 1975 and 1985 the costs of delay would be reduced
still further. This is because the adjustments necessary to accomodate the ex-
(PAS supply reduce the net benefits of TAP and increase the relative economic
advantage of MVPL
673
TABLE II-E-COSTS OF DELAYING FOR THE MVPL ROUTE
E= billions of dollars]
Cost saving for
MIPL. $0.05
Advantage, SILIC
Net resource, 0
per tamel
per barrel
L Based an resource saving of $2.65 zer barrel be TAPS:"
A. 3-yr delay:
$3.827
$0.6"
$2.48
No acceleration
_671
.475
.281
Accelerated production
B. 2-yr delay:
.577
375
-175
No acceleration
.416
_202
2-012
Accelerated production
II. Based on resource saving of $105 per barrel for TAPS:1
A. 3-yr delay:
1.325
1.133
_950
No acceleration
1.068
.873
.629
Accelerated production
a 2-yr delay:
.9:8
.717
_516
No acceleration.
.662
.43
I3:
Accelerated production
3 See table H-2
1 As economic gam.
The wide range of estimates provided in this Table suggest that if the possi-
ble custs of delay are to be an important factor in the ultimate decision (and
the Summary of Findings in Economic Analysis supports this possibility). then
far more research and analysis is required to narrow this range of uncertainty
and provide a more accurate estimate of these costs. The analysis provided by
the Department of Interior obviously does not provide this necessary data
A final point to be considered is the positive benefits of delay per se. The
Entironmental Analysis contains numerous admissions that present knowledge
is inadequate in many areas to fully predict or evaluate possible environmen-
tal damages." One benefit of delay is the opportunity to earry out research
and conduct studies designed to fill the more crucial information gaps. As
information is collected. we should find that our greater knowledge enables us
to make wiser decisions about whether to develop North Slope oil, and if SO.
how. The second benefit is the preservation of options or alternatives. A deci-
sion to develop is for all intents and purposes, irreversible. But a decision to
forego development or postpose development can be reversed at a later date.
For example. delaying a devlopment decision preserves the option to decide
mental damages would be unacceptable, or to leave the field undereloped until
permanently against development if new information shows that the environ-
a later date when the value of the oil might be much higher. Thus, if the real
resource cust of imported oil is rising rapidly, economic calculations may favor
using as much imported oil now while it is relatively cheap. and substituting
North Slope oil later. This option is preferred whenever the expected percent-
any rate of price increase of imported oil exceeds the social rate of discount
(opportunity cost of eapital). used in project analysis.
C. National Security
The Department of the Interior's analysis of the national security aspects of
North Slope oil development is inadequate in at least three respects: its treat-
ment of the security implications of delivery of oil to different regions: its
analysis of the timing of development and delivery of new supplies; and its
investigation of alternative ways of achieving equivalent improcements in
national security.
(1) General Lineeln of the Office of Emergency Preparedness writes, -Tnless
500,000 B/D can be provided from the north slope, imports from eastern hemi-
sphere sources will increase to about one-third of demand in District r by
1975 and 46 percent by 1980. This is unacceptable in terms of actional
security." = No justification is offered for the underlined assertion. Common
sense tells as that if two million barrels per day of North Slope oil are deliv-
end to District V to reduce its dependence on foreign oil that oil cannot be
delivered somewhere else. for example, to Chicago. The Department of Interior
data show that unless 11 milliva barrels per day can be provided to Chiengo
*1 See especially Tol 5. pp. S-10-
= Economic Analysis, Appendix M-2. P. 1. emphasis added.
674
from the North Slope. the east coast (District D will find its dependence on
non-Canadian foreign oil increased from 15 percent to 92 percent." If 46 per-
cent is unacceptable for District V. 93 percent surely must be unacceptable for
District L This reduction ad absurdam should make the point that the implica-
tions of delivery of oil to different geographic regions requires more analysis
than has been given it by General Lincoln.
The Department of Interior has attempted to provide a national security
rationale for deliverying North Slope oil to the West Coast. Appendix D of the
Economic Analysis states that because District v (West Coast) has the small-
est of the three deficits (compared with Districts I and II). North Slope oil
would have the greatest relative impact on that district.14 But this line of rea-
soning also will not stand close serutiny.
The objective of introducing national security considerations is to minimize
the disruption to industry and to the economy which would accompany the
loss of all or a substantial portion of the supply of imported oil. Consider two
hypothetical situations. In the first. three regions of a country have the same
relative dependence on foreign sources of oil, let us say for example. 30 per-
cent. If foreign supplies are cut off. the three regions must each adjust to the
same degree by some combination of increased domestic supply and reduced
consumption. In the alternative case, suppose two of the regions were self-suf-
ficient while the third was totally dependent on foreign oil. If foreign supplies
are lost. in addition to the adjustments described above. arrangements must be
made to transfer oil from the other two regions to the third region. This adds
to the cost of adjustment to a less of foreign supply. and may take 2 consider-
able period of time to accomplish (for example. if pipelines must be con-
structed). This, in fact. is the situation which the Department of Interior and
the Office of Emergency Preparedness advocate placing us in
According to Table C-1 15 the delivery of North Slope oil to District v will
result in the following pattern of relative dependency on non-Canadian foreign
oil in 1980: District I-93 percent; District II-1 percent; District TO per-
cent.
The alternative pattern of relative dependency with North Slope oil going to
Chicago is as follows: District I-75 percent: District II-1 percent; District
T-51 percent.
If other things were equal it would appear preferable, on national security
grounds. to we the North Slope oil to ease the relative dependence of the East
Coast on non-Canadian imported oil That is. unless one were prepared to
argue that the economy and industry of the East Coast is significantly less
essential for the national security than the industry and economy of the West
Coast.
(2) The second national security question is the matter of the timing of
additional supplies of oil The Economic Analyxis argues that. from a national
security point of riew. it is important to get North Slope oil to the lower 48
states as soon as possible: the Alaskan pipeline will deliver oil three rears
sooner than the MVPL alternative: hence. early completion of the Alaskan pipe-
line must be considered an important national security objective. This question
is very closely related to the economic costs of delay. discussed above. since
the results are sensitive to the expected time-pattern of production. Recall that
it is not expected that TAP will be operative until 1975. And as Table II-1
shows, production would start at a low level (about 3 million barrels per day)
in 1975. reaching full capacity e million barrels per day) in 1983
The relevant question is. by how much will TAP actually reduce our depend-
ence on non-Canadian imports when we take into consideration the phased pro-
duction schedule described above? This question is answered in Table II-7.
This table is based on data from Economic Analysis (Appendix C. P. 121. The
first column of the table shows the projected dependence of the U.S. on non-
Canadian imports for each year from 1974 to 1985 This is based on the middle
projection of Table C-1. The second column shows the percentage of that
dependence which would Le supplied by TAP beginning in 1975 The third
column shows the differential impact of the two alternatives on foreign
dependence.
23 Economic Analysis, Appendix C. F- 12.
28 Economic Analysis. Appendix D. P. 4.
= Economic Analysis, Appendix C. P- 12.
610
The major impact of delay would be felt in an increased dependence during
the three years 1976-7S. In these years TAP would supply 12-15 percentage
a later date. In all other years the difference between the two alternatives
points more of the total U.S. dependence than would MVPL coming on line at is
minor-six percentage points or less.
TABLE II-7.-IMPACT OF NORTH SLOPE OIL ON U.S. DEPENDENCE ON NON-CANADIAN IMPORTS
Dependence
without North
Percentage
Percentage
Slape I (million
supplied by
supplied by
Difference
barrels per day)
TAPS (percent)
MVPL = (percent)
(percent)
Year
4,290
0
0
0
197:
4,000
6
0
6
1975
4,790
12
0
12
1975
6.730
15
0
15
1577
7,810
15
4
n
1978
9.070 9.
14
8
6
1979
10.5:0
18
9
5
1980
12.24C
14
10
&
1931
14,223
13
9
4
1982
15.510
12
9
3
1983
19,180
10
9
1
1981
22,270
9
9
0
1985
1 "Economic Analysis." p. C-12. and interpolated with assumed constant growth rate-middle projection.
2 Production schedule taken from table II-4 above.
How serious is this difference? Since the Department of Interior has not
taken the trouble to determine the size of this differential in dependence, it is
in no position to assess its significance. The significance of this differential
dei ends on two sets of factors-whether or not the time of highest differential
coincides with the period of highest risk (i.e. highest probability of major
stoppage of Middle East imports), and the costs of adjusting to.or compensat-
ing for a major disruption during this period, if it should occur. There is no
analysis presented in Economic Analysis of the first factor; hence, no evaina-
tion is possible. This second factor is discussed below.
(3) The third national security question is concerned with means of supply-
ing additional oil to compensate for any short-term threat to security because
of delayed delivery of North Slope oil The Economic Analysis again does not
properly address this problem. To compare TAP and MVPL adequately in
terms of their national security Implications, the relevant question is "what
steps can be taken to provide the additional security equiralent to that which
would be provided by TAP?" In other words, one must identify the marginal
or incremental benefits that TAP provides for national security. and compare
this with the incremental or marginal easts of providing equivalent protection
by other means. These are manageable and answerable questions. But they are
not answered by the Economic Analysis.
The Cabinet Task Force on Oil Import Control has, by contrast, studied
alternative means for meeting the national security objectives of obtaining
secure oil. with specific reference to the costs.¹⁶ More significantly, it appears
that the national security aspects of the timing of North Slope oil, delivery
may be an unimportant question. The Canadian Government has offered to
supply the U.S. with additional Canadian (secure) oil during the time when
North Slope oil deliveries are delayed because of study and development of
MVPL" As shown in Table II-1. this would require additional Canadian
imports of 0.3 million barrels per day in 1975, 0.7 million barreis per day in
1976. 1.0 million barreis per day in 1957. and decreasing amounts thereafter.
The cost of obtaining an increment to national security equivalent to that pro-
vided by TAP would be the added resource cost, if any, of Canadian imports
relative to importing equivalent quantities of Mideasi oil.
IS Cabinet Task Force on Oil Import Control The Oil Import Question, Washington,
1970. = Statement of The Honorable Donald S. Maedonald Minister of Energy. Mines.
and Resources. in the Canadian House of Commons, April 9, 1972.
676
D. Balance of Payments
There are two questions regarding the analysis of the balance of payments
in Economic Analysis. The first is: "What has really been measured?" The
second is: "Has this been measured accurately or reasonably?"
The Economic Analysis prediets that, after taking into account the effects of
reduced foreign exchange earnings on our exports to oil exporting countries,
there will be a net reduction in foreign spending of the U.S. of between $470
to $680 million dollars per year as of 1980 because of development of TAP.
This is repeatedly referred to as a balance of payments benefit.¹ After divid-
ing these figures by the annual throughout of 730 million barrels per year. a
balance of payments benefit per barrel of $0.65 to $0.94 is calculated. But this
is not a benefit which can be added to or compared with other benefits and
ensts (such as the resource cost savings) of TAP, but only an estimate of the
impact of the pipeline on the U.S. balance of payments accounts under certain
assumptions. What has been measured is a change in the net inernational mon-
etary flows associated with the reduction in the flows of international currency
to foreigners to pay for our imports of oil. In contrast. economic benefits are
the savings in the expenditure of real resources associated with obtaining a
given supply of oil. To the extent that changes in monetary flows reflect
changes in the real resource cost of obtaining oil, this has already been meas-
ured and counted as a benefit in the real resource cost savings counted above.
To add this $0.64 to $0.93 per barrel figure calculated above to these real
resource cost savings would. thus. involve counting the same benefit twice.
Two qualifications must. however, be made. First. a measurement of the bal-
ance payment impact of the development of North Slope oil is or could be very
useful in its own right. Such an impact measure could be used to predict the
possible need for corrective balance of payments policies-for example,
exchange rate changes. In more general terms, such an impact measure might
be used to predict the direction and size of a possible change in the terms of
trade needed to keep a balance of payments in equilibrium, other things being
equal. Second. the above discussion should not be construed as claiming that
balance of payment benefits do not exist. They do; but they cannot be identi-
fied and measured by the technique used in Economic Analysis.
Models of the relationship between international trade and economic growth
show that any economic change which augments the supply of resources for a
country can have effects on trade patterns, the balance of payments. the terms
of trade, and welfare. These welfare effects, if positive, would be benefits. The
development of North Slope oil can be construed as an example of anti-trade
biased growth in factor supplies.¹ Other things equal, when anti-trade biased
growth occurs. the equilibrium net barter terms of trade shift in favor of the
country experiencing the growth When the terms of trade improve, a nation
finds that it needs to expend less of its own resources in the production of
export goods in order to maintain a given level of imports. This reduction in
the relative cost of imported goods raises real incomes in that country and can
be counted as a benefit separate from the direct benefits associated with real
resource cost savings. However, defining and measuring these indirect terms of
trade benefits pases some very difficult conceptual and empirical problems
which have not set been satisfactorily solved
Granted that Economic Analysis has measured a balance of payment impact
rather than a benefit, there remains the question of whether it has measured
this impact correctly. Models of international trade show that the impact of a
given change in purchases of foreign oil will depend on the marginal propensi-
ties to import with respect to income levels in the two countries. People in the
oil exporting country experience a decrease in their income levels as exports
decline. and respond in part by decreasing their imports. Similarly. in the oil
importing country. substitution of low-cost domestic oil raises real income
levels. People respond by spending part of the increase in their real incomes
on imported goods The empirical models used in the impact study bear no
relationship to the theoretical models described here. Lacking data on mar-
ginal propensities to import out of income. Economic Analysis falls back on
18 Economic Analysis. Appendix F. pp. e = H. at
ID For further explanation. see mr International Trade: An Introduction to Method
and Theory. New York: Harper & Row. 1971. Chapter 12.
= The balance of payments Impact measured br the Department of Interior could
be used to predict the magnitude of the change in net barter terms of trade.
677
the assumption that average propensities and marginal propensities are equal
the average propensities to import out of income. Rather, it uses an import
(Appendix F, p. 3). But the Economic Analysis also fails to produce data on
ratio which is simply the proportion of each country's imports which came
from the United States. One is left with the feeling that this technique is
better than drawing numbers out of a hat, but with no idea of whether this
feeling is justified in fact.
The Economic Analysis has, in addition, ignored the dollar outflow associ-
ated with profits earned by British Petroleum, one of the participating compa-
nies. These profits will be substantial
E. Allocating the "Unallocated Balance"
Appendix H of the Economic Analysis, in discussing the "size and distribu-
tion of costs and returns," appears to ignore or dendeavor to obfuscate a
simple economic reality. For here, the authors of the analysis have forgotten
or rejected one of the more important words in the economist's vocabulary-
"profits." Instead, the phrase "ungllocated balance" is euphemistically
employed. The data from Appendix H. Table VIII-1 of Economic Analysis are repro-
duced here in slightly rearranged form.
TABLE II-S.-Costs and profits of TAPS
Revenues to oil companies: Delivered price-Los Angeles
$3.31
Expenses of oil companies:
30
Production
33
Lease bonus
46
Royalty
05
Gathering charge
70
Pipeline charge
30
Tanker charge
2.14
Total
1.17
Profit
This Table shows the per barrel revenues and expenses of the oil companies
which are associated with delivering North Slope oil to the West Coast
market. To quote Economic Analysis, "The "unallocated" balance is the differ-
ence between the price and the total of all other itemized charges." (Appendix
H, p. 3). To put the proper name on it, this is profit. Now there is nothing
wrong with profits, per se; but any analysis which goes on for seven pages
discussing the size and distribution of costs and returns, and only once men-
tions profits, is seriously distorting the reality of the situation.
It is a widely held value in this country that when the government commits
resources to a particular action, by spending money. by permitting publicly-
owned land to be used, or permitting the environment to be placed at risk, the
objective should be to gain benefits for the populace as a whole, rather than
for any small special interest group. To put it differently, we, as a society, are
not indifferent as to the way the easts and benefits of government actions are
distributed among ourselves. As a society, we articulate a preference for public
projects and programs which distribute benefits widely rather than narrowly.
and which tend to favor middle- and low-income groups rather than the more
affiuent in the society. The question of the distribution of benefits and costs of
public programs has thus been a legitimate concern of economists for a long
time.-1 It is, accordingly. appropriate, if not obligatory, that the distribution of
costs and benefits associated with building TAP be considered as part of the
economic analysis of the project. The analysis carried out in Appendix H of
Economic Analysis is not adequate in this regard
The one thing that can be said for this analysis is that it correctly identifies
who will not benefit from TAP: "However,
analysis
suggests that the
mechanisms of the oil import quota system would keep supply and demand in
= For recent writings on this subject, see my "Project Design and Evaluation with
Multiple Objectives" in U.S. Congress. Joint Economic Committee, Subcommittee -
Economy in Government. The Analysis and Exaluation of Public Expenditures: The
PPB System, 1 Compendium of Papers, Washington, 1969, pp- 565-578. and references
therein.
678
balance at current price, S0 that prices would not fall and there would be no
consumer saving" (Appendix H, p. 3). Rather, the benefit accrues as an "unal-
located balance" or profit to the oil companies. Furthermore, this discussion
fails to point out that favorable tax treatment of oil earnings reduces the fed-
eral income tax liability of most oil companies to well under 10 percent of net
income. So it appears that companies will get to keep a very large portion of
the "unallocated balance." But in a most curious paragraph, the authors of
this analysis attempt to soften the blow to the consumer.
Thus. the consumer would benefit not from lower prices. but rather from
indirect effects. Principal among these will be the security of supply, as
reflected in reduced dependence on imports from the western [sic] hemisphere.
Also important would be the secondary effect of the resource cost saving, as
that money rediffuses through the economy rather than being lost to foreign
interests. Other indirect effects could be a deferral of upward pressure on
crude oil prices. due to the substantial influence of the relatively low-cost
Alaskan oil. Some benefit might possibly be derived from increased domestic
exploration activity which could result from the improved eash-flow and eapi-
tal situation of the oil companies. (Appendix H. P. 4).
The r al security argument has been discussed above. The incremental
benefit , to security of supply is likely to be quite small. And the price tag
" consumers is very high. The Cabinet Task Force estimated the costs to con-
sumers for the national security purchased by the Import Quota Program was
about $5 billion per year.** The statement about money rediffusing through the
economy is really the archaic and offensive notion of "trickle-down" benefits in
disguise. To put it more baldly. the document suggests that. when the stock-
holders spend their dividends, this may provide some useful employment for
members of the lower classes. But in an economy at or elose to full employ-
ment. expenditures by any one group do not create benefits. but simply divert
resources from one use to another. If consumers were provided the benefits in
the form of lower prices. or the government captured the benefits through
taxes, spending would similarly diffuse through the economy. We can no more
identify benefits associated with that process than we can when stockholders
spend their dividends. But we can judge which ef these distributions of the
benefits of TAP is to be preferred on grounds of equity or fairness.
F. "Benefits" From Construction of Tankers
Finding VI, 3 of = Economic Analysis asserts that "[c]onstruction of 33
new tankers required in the United States shipyards will generate substantial
employment and income to those shipyards". This statement is reminiscent of
Frederick Bastiat's "Petition of the Candle Makers". To imply that the
employment of substantial amounts of labor in constructing new ships to earry
oil is in some sense beneficial is to turn the economic world on its head. That
Labor has already been counted as a eost. and rightly so, in calculating the
costs of transporting North Slope oil via TAP and the tanker route. And that
calculation recognized the economic reality that, were it not for the construc-
tion of the tankers, the labor involved could be put to use producing something
else of value.
III. SYSTEMATIC ANALYSIS OF ENVIRONMENTAL FACTORS
In this section. I will present a framework for bringing together information
on a number of diverse and non-commensurable environmental effects in order
to compare alternatives on environmental grounds. I will argue that this
framework can assist the decisionmaker in comparing alternatives and will, in
fact. compel him to gather and present data in an appropriate form and to
think systematically about his choices. The Excironmental Analysis does not
make adequate use of such a framework.
= Cabinet Task Force on on Import Control, The Oil Import Question, Wash-
inston. 1970.
= Reprinted in Paul A Samuelson ed. Readings in Economics. 6th ed. Bastiat was
a nineteenth century French journalist who effectively satirized the protectionist
sentiments of the day in a fictional petition to require that all windows in Paris be
boarded up or curtained to block out that cheap. foreign source of illumination. the
sun. Increased employment of candle makers. and thus, prosperity for the nation.
would result.
679
A. 1 Framework
Environmental policy presents an excellent example of the difficulties of
decision making and choice where non-commensurable effects are present. The
two primary alternative pipeline routes (TAP and MVPL) can be compared in
terms of a number of different environmental impacts and characteristics; but
because these impacts or characteristics are as unlike as apples and oranges,
they cannot simply be added together to obtain a single measure of the overall
environmental impact of the project. Problems of non-commensurability arise,
at least potentially, whenever two things that we might want to compare are
measured in different dimensions or different units.
Non-commensurability is an almost universal characteristic. It is instructive
to reflect on the ways by which non-commensurability problems are solved
when they arise. Consider the problem posed by two piles, one of apples and
one of oranges. We have measures of the magnitudes of these unlike objects
but these measures are in non-commensurate units, i.e., numbers representing
the counts of the different objects in the two piles. Commensurability can be
achieved only by defining a common measurement dimension, and then estab-
lishing some rule or system of weights for converting the non-commensurable
units into the common dimension of measurement. For example, if weight in
pounds is the common dimension. the method of converting counts of apples
and oranges into the common dimension involves measuring the weights of the
two piles. In the broadest sense, this the establishment of values. This is made
more clear by considering another common dimension, i.e., money value, where
the method of converting to the common measure involves prices or values.
Apples and oranges are made commensurate by adding their money values, as
represented by their prices.
The important thing to note in this discussion is the distinction between
measurement, which can take place in non-commensurate units, and valuation,
which involves use of weights, prices, and the like, in converting non-commen-
surable measures into commensurable ones.
One of the difficulties faced by the authors of Enrironmental Analysis is
that there is no set of weights or values which can be used to convert non-
commensurate measures of different kinds of environmental impacts (for
example, to the marine or terrestrial environment) into a single measure of
environmental hazard. Thus, for example, Enrironmental Analysis concludes
that. "no single generalized route appears to be superior in all respects to any
other." (Vol. I. p. 320). Without a system of weights for making commensur-
ate the different aspects of alternative routes. no definitive statement can be
made about the choice among alternatives. But the lack of a readily accepted
system of valuation or weighing should not cause the end of systematic
inquiry and comparison of alternatives, as it apparently did in the Enciron-
mental Analysis.
There are two ways in which a more systematic analysis may be able to
sharpen our understanding of the problem of commensurability. Both these
approaches can be illustrated through the use of the example outlined in Table
III-1 which presents a list of five alternative projects. Assume that our task
is to choose the project with the least environmental damage. Further. assume.
for simplicity, that there are only two identifiable adverse environmental
effects of these projects. To make the example more concrete. we will assume
that adverse characteristic A is the unavoidable disruption of the Arctic ter-
rain. and that it can be measured by the number of miles of the route travers-
ing permafrost zones. We will further assume that adverse characteristic B is
the threatened damage to the environment associated with pipeline ruptures
caused by earthquakes, and that the characteristic can be measured by the
probability that an earthquake of given magnitude will occur during some
specified time period. No way is provided for combining the measures of these
two characteristics into a single measure of overall environmental impact for
34 These approaches are described and evaluated in the context of the analysis of
public Investment projects with multiple objectives in my. "Project Design and Evalua-
tion With Multiple Objectives." in the U.S. Congress. Joint Economic Committee.
Subcommittee on Economy in Government. The Analysis and Evaluation of Public
Expenditures: The PPB System, 1 Compendium of Papers, Washington 1969, pp- 565-
578.
680
each project. However. presentation of the available information in this
tableau can help us think more systematically about the choice problems
involved. A study of the table shows that we do not need a compret ensive measure of
environmental impact to rule out one of the five projects as definitely inferior.
Project (2) should always be chosen over Project (1) since it involves less of
both characteristic A and characteristic B. In technical terms, Project (1) is
dominated by Project (2) in any rational ranking of the five projects. Never-
theless. a difficult choice problem still remains among the other four projects.
In moving from Project (2) to Project (5), a reduction in the amount of char-
acteristic B (seismic risk) can only be achieved at the cost of more of adverse
characteristic A (unavoidable terrain disruption).
TABLE III-1.-HYPOTHETICAL PROJECTS WITH NONCOMMENSURABLE ENVIRONMENTAL CHARACTERISTICS
Adverse
Adverse
characteristic 1
characteristic B
Project No.
550A
.58
1
500A
4B
2
600A
_3B
3
750A
.2B
4
1000A
.1B
5
The two approaches to the problem of commensurability can now be dis-
cussed in detail in this context. For the first, we will assume that the above
information has been presented to the responsible decision-maker. We further
assume that. on the basis of this information, he chooses Project (3). His
choice reveals something about his relative assessment of or valuation of char-
acteristics A and B. To put it differently, his choice reveals the implied
weights attached to these two characteristics in an implicit judgment of over-
all environmental hazard. If Project (3) is chosen, we must conclude that, in
the decision-maker's judgment, Project (3) has the lowest overall environmen-
tal hazard.
We can approach the problem of identifying the implicit weights in two
ways. First. assume that the decision maker started by comparing Projects (2)
and (3). He would note that if he chose (3), he could achieve a reduction of
0.1 in characteristic B by permitting a 100 unit increase in characteristic A. In
choosing (3), he showed his willingness to accept this price. In comparing
Projects (3) and (4). he would see that the price of another 0.1 reduction in
B is an increase of 150 units in A. The decision-maker revealed that he was
not willing to pay a price this high. Therefore, the implied weight, relative
value. or tradeoff (W) between characteristic A and B lies somewhere
between:
100
150
0. 1 and 0. 1 or 1, 000 500
Alternatively, if the decision-maker first looked at Project (4). he would see
that he could gain a reduction in adverse characteristic A of 150 be accepting
or paying a 0.1 increase in adverse characteristic B. By choosing Project (3)
he revealed his willingness to pay this price. But he was not willing to accept
another increase in B in order to get only a 100 unit further reduction in A.
(i.e., he preferred project (3) over Project (2)). The calculation of implied
weight between A and B is the same as above.
In this example we have been interpreting the implications of a decision
which has already been made. In the Alaskan pipeline case, the decision has
not yet been made. How does our example help the decison maker? It helps
him by showing him a way to check the implications of alternative choices for
reasonableness. In other words, the decsion maker can always ask the follow-
ing question: "If I choose Project X, what does this imply about the relative
weight I place on environmental risk A, and is this implied weight really rea-
sonable?" I will present an example of the application of this approach to the
pipeline case below.
681
Now, let us turn to the second approach to the problem of commensurability.
If the values or weights to be attached to different characteristics are known
or can be approximated, an index of overall environmental impact can be cal-
culated. The project with the lowest index should then be chosen. In this
approach we ask the decision maker to calculate hypothetical or trial environ-
mental impact indices. using different sets of weights. Some of these weights
may appear to be reasonable, while other weights may be acknowledged as
extreme values. By looking at the ranking of alternative projects, calculated
with different weighting functions, the analyst can determine which of the rel-
ative weights or values seem to be most critical in calculating the environmen-
tal impact. He may find, for example, that the ranking of projects does not
change (i.e., the same project always comes out on top) over wide ranges of
weights for certain of the characteristics. This may lead him to focus atten-
tion upon characteristics in the environmental index which show the greatest
sensitivity to different weights and to gather more information on them to
determine the weight he should give them.
Suppose that a weight or price of 1250 were placed on characteristic B in
Table III-1. Note that this lies within the range that we assume was revealed
by the decision maker's preference for Project (3). We can calculate an over-
all environmental hazard index for each project by multiplying characteristic
B times its weight (1250) and adding this to characteristic A. The results are
shown in Table III-2 Project (3) has the lowest index of environmental
hazard, and would be preferred. given this weight.
Examination of the table and some additional calculations can also give the
analyst a better feel for the dimensions of his choice problem. For example,
the ranking of Projects (2) through (5) is sensitive to a relative weight given
to characteristic B. If B is given a weight of 2000 rather than 1250, Project
(4) is indicated as the preferred project. It takes a weight of more than 2500
to reductions in characteristic B in order to make Project (5) (which is most
favorable in terms of that characteristic) the preferred project. But in every
calculation. Project (1) stands at the bottom of the list. In other words, its
bottom ranking is insensitive to the weight chosen. Hence. we do not need to
know the precise value of these weights in order to have the common sense to
reject Project (1) from further consideration.
TABLE III-2-ENVIRONMENTAL HAZARD INDICES
[Weight for B is 1,250]
Project No.
A
B
Total
1
550
625
1.175
2
500
500
1,000
3
600
375
975
4
750
250
1,000
5
1,000
125
1,125
B. Analysis by Miles of Route.
The approach discussed above may be applied to alternative transportation
and route combinations for North Slope oil. In Volumes I and V of Environ-
mental Analysis, six alternative routes are selected for comparison and evalua-
tion. Three, including the TAP to Valdez, move south or southwestward aeross
Alaska to ports where the oil is transferred to tankers for transshipment to
the West Coast. The other three take various corridors through parts of
Alaska and Canada to Edmonton, Alberta to connect with existing pipelines to
Chicago and Seattle. Summary information on these six routes is displayed in
Environmental Analysis," and is reproduced in slightly different form in Table
III-3. The Table shows, for each route, the number of miles in continuous
permafrost, miles in discontinuous permafrost zones, and miles outside of any
permafrost zone. The sum of these figures is the total pipeline length. In addi-
tion, if the pipeline passes through the seismic zone, the length in this zone is
indicated in the fourth column. The length of the tanker route also is-indi-
cated. Finally, the last two columns indicate the number of stream crossings
and mountain crossings along the route.
= See Vol. V, Table 1a, pp. 234-235.
682
TABLE I11-3.-CHARACTERISTICS OF ALTERNATIVE TRANSPORTATION ROUTES
Miles in
Miles in
seismic
Miles
Miles in
discon-
zone
Miles of
Number of
Number
outside of
continuous
tinuous
(Richter
tanker
stream
mountain
permafrost
permafrost
permafrost
>6)
route
crassings
crossings
Route
M
CO
CO
Q
T
S
X
Prudhoe Bay to Bering
Sea plus tanker
0
499
350
0
3,400
9
1
Prudhoe Bay to Redoubt
Bay plus tanker
60
230
500
260
2,400
50
2
Prudhoe Bay to Valdez
plus tanker
20
230
540
260
2,250
60
3
Prudhoe Bay to Edmon-
ton (coastal)
460
305
890
0
0
22
0
Prudhoe Bay to Edmon-
ton (inland)
500
315
890
0
0
IS
2
Prudhoe Bay- Big Delta-
Edmonton
325
230
1,310
120
0
20
2
Source: "Environmental Analysis," vol. V, table 1A, pp. 234-235.
It is assumed that the number of miles travelled through a seismic zone can
be used as a measure of this adverse environmental characteristic. It is simi-
larly assumed. for the other characteristics, that the environmental hazard is
proportional to the number of miles traversed under these conditions. This
assumption is obviously reasonable for some kinds of environmental damage.
Unavoidable disruption of terrain. for example, will depend upon the nature of
the terrain traversed. and. other things equal. is proportional to the miles of
pipeline in that terrain zone. The probability of an oil spill resulting from col-
lision or storm damage at sea appears directly proportional to the miles of
tanker route. On the other hand, the extent of water pollution resulting from
oil handling in port and the dangers of accidental spillage due to collision in
close waters are independent of the distance between ports. In short, although
miles are not a perfect measure of environmental hazard, they may be a
useful simplification to demonstrate the technique.
For each of the six routes, an index of environmental hazard which is the
sum of the number of miles in each class for that route. weighted by that
class' or zone's relative degree of bazardousness. is calculated. Equation (5)
shows the calculation.
(5)
where E is the environmental risk of a project. Taking a mile of pipeline out-
side a permafrost zone as our standard of reference, a weight of 1 may be
applied to this figure (M). In other words ai is equal to 1. Miles of pipeline
through continuous or discontinuous permafrost are more hazardous to the
environment, and hence the weights attached to them (as. as) should be
greater than 1. And the weight attached to continuous permafrost should not
be smaller than the weight attached to discontinuous permafrost miles. Pipe-
line miles through a seismic zone are already counted in Mi. Ci. or Di as
appropriate. But seismie risk adds to the environmental damages associated
with Mi. Ci, or Dᵢ. Hence. QI should take values equal to or greater than zero
depending upon the relative seriousness with which seismic risks are taken.
Finally, tanker miles are substituted for overland miles. If marine transport of
oil is deemed more hazardous per mile than regular overland miles. then as
should have a weight greater than 1. But if the hazards associated with
marine transport are less than transporting oil over an equivalent distance by
land pipeline, then as should have values less than 1. The information on rea-
sonable values for the five weights is summarized here:
a₁=1-establishes a scale; set arbitrarily at 1 for simplicity.
a,
as>1
a₁>0
4>0
683
It should be noted that this calculation does not take advantage of the infor-
mation on number of stream crossings or mountain crossings. If instead of
mountain erossings, data on miles of mountainous zones were presented. this
would be treated in the same way as miles in seismic zones. Similarly. rather
than numbers of stream crossings, miles of pipeline parallel to or within a
certain distance of streams could he used for comparisons. Lacking data on these
alternative forms, the information on mountain and stream crossings is not
used below.26
I first calculated E for the six alternative routes, assuming that all over-
land and tanker transit miles had equal weights and with no additional weight
given to seismic hazards. In other words, all weights were assumed equal to 1
except a, which was set to zero. The relative rankings and scores were as fol-
lows: Prudhoe Bay-Edmonton (coastal) 1.655: Prudhoe Bay-Edmonton
(inland) 1.705: Prudhoe Bay-Big Delta-Edmonton. 1.865: Prudhoe Bay-
Valdez-Tunker. 3.040: Prudhoe Bay-Redonbt Bay-Tanker, 3.190; Prudhoe
Bay-Bering Sea-Tanker, 4.150.
This shows that with these weights, the three Canadian routes were all are-
ferred to any of the Alaskan routes. Furthermore. différences between the
Canadian alternatives were small relative to the difference between all Cam-
dian alternatives compared with all Alaskan alternatives.
Inspection of Table III-3 and additional calculations show that the relative
ranking of the three Canadian alternatives is quite insensitive to the weight:
chosen. A similar finding is true when the three Alaskan routes are compared
among themselves. Therefore, all further comparisons will be limited to those
between one Alaskan route, i.e., to Valdez, and one Canadian route, the
Edmonton inland route.=
The next step is to explore the sensitivity of the relative standing of these
two routes to changes in the weights given to the two permafrost zones and
seismic zone, in all cases holding the weight for tanker miles constant at 1.
The results are insensitive to increases in the weights given to permafrost
zones up to the level where continuous permafrost is rated 5 and discontinuous
permafrost is rated 3. For example. where:
a₂=3
a₃=3
a=0
TAP-5,040
MVPL-4,745
If the weight for discontinuous permafi st zone is increased to 5, the balance
shifts, and TAP is preferred:
TAP-6,120
MVPL-6,525
However, when weight is given to the seismic risks associated with TAP. the
ranking reverses. and MVPL is still preferred. even at these extremely high
rates placed on permafrost. Thus, a first tentative conclusion would be-differ-
ences between the two routes in their permafrost distances do not affect the
relative standings of the two projects significantly except at the extreme; and
any advantage given to TAP is offset by placing non-zero weights on the
seismic risk associated with TAP.2S
= One of the virtues of this framework is that It can help to show some kinds of
data which can be readily obtained and which can assist the decision-miker in ranking
alternatives.
= The inland route was chosen over the coastal route because the Entironmental
Analysis suggests that It is preferable. See Vol. I. p. 251.
a The discussion of the relative effects of discontinuous CS. continuous permafrost
may be somewhat beside the point in view of the following comment in Environmental
Analysis: "there is a difference of about 2x in land length between the trans-Alaska
routes and the trans-Alaska-Canada routes In this case the greater length of the
Canadian route is offset by the greater terrain disruption that would be involved in
crossing at least 1 more mountain range in any trans-Alaska route and the occurrence
along the routes of known areas of high ice content permafrost" (See Note 1d to
Table 1b. p. 239. Vol. V). While this is probably a subjective assessment with only an
implicit weighting lying behind it. it shows other ways in which project characteristics
can be identified and defined (e.g. miles in ice rich permafrost) for purposes of com-
parison. The point is that this should be an explicit and open process rather than being
implicitly stated and buried in footnotes.
97-839-73-
684
Inspection of Table III-3 and sample calculations show that the relative
standings of the two projects are most sensitive to the weight given to tanker
transport miles. since this variable is the largest one in the TAP score. If
tanker miles are deemed more hazardous to the environment than ordinary
land pipeline miles (and this is the informed opinion of many experts), the
balance is shifted so far toward the Canadian route that further calculations
are not necessary. But if tanker miles are deemed less hazardous than ordi-
nary land miles-perhaps in part to compensate for the fact that part of the
real hazard with marine transportation involves unavcidable and threatesed
spills in and around harbors and transfer points and is not proportional to
length of sea route, then, under some conditions, TAP appears to be preferred
to the Canadian route In order to reach this conclusion. the weight placed on
tanker miles must be reduced to about 0.5, seismie effects must be given near
zero weight. and higher weights must be placed on continuous and discontin-
usus permatrost zones. For example, one calculation showed the following:
c:=2
6ⱼ=2
4=0
aⱼ=0.5
TAP-2,683
However, MVPL-2.910 when the seismie risk is acknowledged, the result is:
c₂=2
a=2
a=1
as=0.5
TAP-2,945
MVPL-2.910
To summarize. this experimentation with different weights for exiculating an
index of environmental hazard has shown that the crucial variable is the rela-
tire degree of hazard of tanker miles in comparison with overland miles. and
that in order to support a choice of TAP over MVPL, tanker transport must
be riewed as considerably less damaging (actually or potentially) to the eari-
runinent. More importantly. it has shown the feasibility of assigning weights
on a trial basis to learn more about the sensitivity to different weighting
assumptions. Although the necessary data are not readily available in Enciron-
mental Anelysis, weights could be assigned on different bases and alternative
indices calculated. For example, each overland route could be divided into
short (e= fire-mile) segments and scored in terms of the relative harard
exused by $ pipeline. The environmental Index would be the total scores
summed over all segments.
C. Display of Ordinal Rankings
Environmental Analysis ranks the six proposed routes on an ordinal basis
for each of 5 different environmental impact categories With so many char-
acteristies and SD many projects explained. it is difficult to perceive any pat-
terms from this table. However. when two of the three Alaskan routes are dis-
regarded. along with the Canadian route via Big Delts, and it is recognized
that INC of the Caradian routes are so similar that presentations of data in
this form are not likely to enable valid distinctions to be made. more succinet
presentation of the data are possible. Specifically if the comparison is limited
to the TAP reute to Valdez and the inland MYPL route, a clearer picture of
their relative standing emerges.
In the following table. 1 hare replaced the letter 1 B. C. D. etc., with a
plus sign to indicate that the alternative poses less harard in that category, a
minus sign to indicate greater hazard and zero to indicate a tie. An rankings
are taken directly from Entironmental Analysis. Table III-1 shows that of
the = characteristics rated ordinally. the two routes tie on seven, MVPL is
preferred OH 13, and TAP is preferred on 5. This does not. itself, establish a
case for choosing one route over the other. It is possible that those character-
isties OR which the Alaskan route is preferred are highly important and signif-
ieant characteristics, while those characteristics on which the MVPL is pre-
= See Velume V. Table 1b. PP- 238-240.
= This
685
ferred may be relatively insignificant. But this is a possibility which can be
explored and analyzed: it need not remain a matter of speculation.
TABLE III-4
TAP
MVPL
Depact
Terrestrial:
0
6
1. Terrain disraption-pipelice
-
+
2 Terrain disruption-terminal
+
-
3 Construction materials
I
e
& Induced terrain disraption
0
0
5. Serface and groundwater
+
-
& Air quality
+
-
7. Vegetation tubitat disraption
-
a. Fisheries
0
&
5. Wildlife. including hirds
+
-
II Physical space commitment
-
-
IL Recreation aesthetics
1
-
12 Wildersess
-
1
11 Communities
I
-
14. Native culture and subsistence
-
-
15 Seister nsk-pipeline
-
-
IS Seismic risk-terminal
0
@
17. Permatrest degradation
0
9
18. Slope facure
0
0
19 Flooding risk
Marine:
-
+
20. Terminal port waters
-
-
2L Destination part waters
-
f
22 Fisherias
-
-
23. Wildlife, including birds
-
1
2a. Tanker cassalties
-
+
25. Oil transfer operations
13
5
Total (-)
5
13
Total (+)
7
8
Total (0)
For example. six of the thirteen items in which MVPL is preferred refer to
marine threats. If the Alaskan route actually is chosen, this means that
marine environmental hazards. while recognized. are not considered to be
important or serious in comparison with the five characteristics on which the
Alaskan route is preferred-for example. construction materials. air quality
and vegetation and habitat disruption. Similarly, MVPL is preferred in terms
of impact on communities. native culture and subsistence, and seismic risk. To
choose the Alaskan route in the face of these ordinal preferences again implies
a low weight being given to these impact
This is not to argue that these low weights may be invalid. Rather. it is
meant only to show that a systematic presentation of the data can reveal what
kinds of weighting patterns are necessary to justify particular choices.
The Environmental Analysis similarly provides a verbal comparison of the
six rentes in terms of six classes of environmental damages (ToL I, pp.
350-321). Table IH-5 sumrearizes this ordinal ranking information. Because of
the large number of alternatives, a pattern may not be immediately apparent.
However, if the comparison is limited to only one Alaskan and one Canadian
corridor, a rather strong picture emerges As is shown in Table III-6. the
MTPL is preferred in terms of five of the six environmental characteristics. In
the face of this information. if TAP is chosen, this will imply some combins-
tion of the following: an extremely large relative advantage in terms of the
one characteristic favoring TAP-terrestrial abiotic unavoidable impacts-
and/or a very high importance attached to this characteristic in comparison
with threatened terrestrial and marine effects, and unavoidable marine and
socio-economie effects. Once again. systematic presentation of available infor-
mation can be useful in revealing the kinds of assumptions necessary to jus-
tify a particular course of action.
D. The Relevant Choice
The analysis so far has accepted the framework established in the Enriron-
mental Analysis, namely that the choice is between the following two
alternatives:
6S6
TABLE III-5-OROINAL RANKING OF 6 ROUTES BASED ON IMPACT STATEMENT SUMMARY
Prudhoe Bay to-
Bering
Redoctt
Edmonton
Edmonton
Education
Seaport
Bay
Valder
(mast)
(inland)
a Delta)
Unavoidable impacts:
A. Terrestrial abiotic
1
3
2
4
4
4
1
6
14
2
13
14
3. Terrestrial biotic overall
C. Socioeconomic
1
3
5
2
3
6
D. Marine
4
4
6
2
1
1
Threatened impacts:
A. Terrestrial
3
5
6
1
1
2
5
4
5
1
1
1
B. Marine
I The verbal description is ant sufficient to establish 22 unaratiguous ranking
Source: "Impact Statement." vol. L BR 320-322.
TABLE III-E-ORDINAL COMPARISON OF TAPS AND MVPL
TAPS
KVPL
Unavoidable impacts:
1
2
A. Terrestrial abiotic
2
1
B. Terrestrial biotic overall
2
1
C Socioeconomic
2
1
D. Marine
Threatened impacts:
2
1
a Terrestrial
2
1
B. Marine
Source: See table 111-5
An oil line from Prudhoe Bay to Valdez with tanker transport; or An oil
line from Prudhoe Bay to Edmonton
In fact. however, Environmental Analysis repeatedly acknowledges that if
North Slope oil is developed. there will be a pipeline built slong one of the
Canadian corridors to transport natural gas to the Midwest market. Iet this
acknowledged fact is not systematically brought into the analysis. It should be
because it has a significant effect on our perception of the alternatives, as well
as our relative ranking of alternatives. Once it is acknowledged that a gas line
through Canada is a virtual certainty, the choice we face becomes:
An Alaskan corridor for oil plus a separate Canadian corridor for ges, or A
single corridor through Canada for both oil and pas.
Since the Encironmental Analysis does not contain relevant environmental
information for this alternative, I have not attempted to analyze it in terms of
either of the models for choice presented in this Section However, I will
introduce these alternatives in the following section
E. Summary
In this section I have proposed and illustrated a framework for analyzing
environmental data in a systematic way. Since I am not an ecologist or natu-
ral scientist, I have not felt qualified to evaluate the accuracy of the data pro-
vided in Enrironmental Analysis. A natural scientist could evaluate and refine
that data and discuss plausible ranges for some of the parameters that are
involved in these models. He might be able to provide better parameters and
better information as inputs. But as an economist I am qualified to discuss
problems of ehoice and to describe the present state of the art in presenting
information and evaluating alternative allocations of resources.
The strongest point that I can make is that there are frameworks for more
systematic analysis of non-commensurate environmental data. These methodolo-
gies can often be surprisingly revealing in the sense that a systematic presen-
tation of the information may reveal patterns which are confused or obscured
by verial presentations. Although these techniques are available, the Depart-
ment of Interior has not adequately employed them.
687
IV. INTEGRATING ESTIROSMENTAL 13D ECONOMIC CONSIDERATIONS
In the last section I discussed the problem of evaluating the total environ-
mental impact of projects when the different kinds of impacts associated with
the projects were non-commensurable. I showed how decisions or choices
among alternatives implied the values or weights which could be used to make
the different impacts commen-arable. I also showed how trial weights could be
used to test the sensitivity of the rankings of alternatives to different weight-
ing forms. and how the systematic presentation of data on different types of
impacts could reveal what kinds of weights had to be assumed in order to jus-
tify a particular decision or ranking of alternatives.
That section. of course. focused only upon environmental factors. Other fac-
tors involved in the decision might justify selection of an alternative, even
though it was not the most desirable from the environmental perspective. The
conceptual framework outlined and utilized. however can also be applied to the
problem of integrating non-commensurate environmental and economic consid-
erations. Some of the possible impacts of the alternatives can be measured in
dollar terms, while others can only be measured in some non-commensurate
dimensions. In this section I will bring together the identifiable economic and
environmental aspects of the several alternatives which are being or should be
considered. It must be counted as 11 serious shortcoming of Entironmental
Analysis and Economic Analysis that they make no attempt to "utilize a Sys-
tematic interdisciplinary approach which will insure the integrated use of the
natural and social sciences." NEPA. Sec.102(A) I do not claim that what fol-
lows represents the kind of comprehensive analysis that I believe should be
used. Such an analysis would require the time and talents of experts from a
number of fields. What follows does. however. represent a demonstration that
such systematic interdisciplinary analysis is possible. as well as essential if
wise decisions are to be made about our use of the Alaskan environment.
1. The Alternatives
The first step in such a systematic analysis is to identify the relevant alter-
natives. This has not been done adequately in either Entironmental Analysis
or Economic Analysis Although the former reviewed a number of alternative
transportation and route alternatives. it did not correctly identify the full
range of alternative choices.
In what follows I assume that two basic corridor alternatives dominate all
others, both in terms of economics and environmental considerations. These are
the Prudhoe Bay-Valdez-Tanker route and the inland Mackenzie Valley to
Edmonton route. Concentration on these two appears to be justified after
examining the results of Section III.
Although the Entironmental Analysis devotes considerable space to the eval-
nation of alternative routes its analysis of the implications of a possible as
pipeline is inadequate. When it is recognized that there will be strong eco-
nomic pressures to permit 1 gas pipeline from the North Slope through the
Markenzie Valley corridor. it becomes apparent that decision makers face 2
choice from among five alternatives. These are:
(1) Do nothing This is the preservation alternative. It is 2 reversible deci-
sion in that it can be reviewed in the light of new information or future
developments. It is virtually indistinguishable from a decision to defer a
choice for one. two three years. while attempting to develop more information
to better evaluate the possible consequences of development.
(2) TAP but no gas pipeline. B5 including virtually no environmental or
economic analysis of the possible gas pipeline, the Department of Interior has
implicitiy analyzed this alternative.
(3) MVPL but no gas. Again by failing to present environmental and eco-
nomie information on the as pipeline. the Department of Interior has basically
concentrated upon this alternative.
(4) TAP for oil plus MVPL for as The Department of Interior has admit-
ted. in effect. that adoption of alternative (2) is. in fact, a decision for alter-
native (4). although it has Dut included this alternative explicitly in its analy-
sis.
688
(5) MVPL for oil and gas. Similarly, choice of alternative (3) actually
results in this alternative. For this reason, it must also be explicitly consid-
ered. For logical completeness, two other alternatives can be identified. Both
would have a gas pipeline along the Prudhoe Bay-Valdez corridor, with an oil
pipeline either to Valdez or along the Mackenzie Valley corridor to Edmonton.
These are not included because it seems likely that either would be dominated
by one or more of the five alternatives explicitly considered."
B. The Framework
Ideally, we would like to be able to calculate, for each alternative, an over-
all welfare index in which the known measures of the different and non-com-
mensurate economic and environmental impacts would be made commensurate
by some appropriate set of weights or values. In addition to requiring us to
define and measure accurately such things as national security, and various
environmental impacts, this approach would require us to be able essentially to
attach price tags to each of these so that they could be made commensurate
with other dollar values, such as true balance of payment benefits and real
resource savings. Such a prescription is beyond the present state of the art.
But the inability to combine the disparate impacts into a single welfare meas-
ure does not and should not prevent efforts to come close to that goal by ana-
lyzing all the available measures of environmental and economic impacts
together. In this section we will fill in a tableau of economic and environmental
impacts. The tableau is Table IV-1 below. In it, each alternative has one
column. and each environmental and economic factor for which we have infor-
mation is allotted one row. The cells of the table will be filled with the avail-
able information Where possible, we shall then determine ordinal rankings of
the five alternatives in terms of each of the impacts or rows. The next seven
sections describe each of the rows of the tableau. In the final section, we use
the tableau to make comparisons among alternatives.
C. Real Resource Cost Sarings
The real resource costs savings are as defined in Section II-A. The results
of these calculations are shown the first row of Table IV-1. If there is no
development, there are no economic benefits: the resource savings are zero.
With TAP alone being developed. our calculations for Table II-2 showed a
low estimate of net benefits of $.66 per barrel and a middle estimate of $1.05
per barrel. Assuming production begins in 1975 and rises to the capacity of two
million barrels per day by 1983. and that the pipeline life is 25 years, the pres-
ent value of this stream of benefits is $3.21 billion for the low estimate and
$5.10 billion for the middle estimate. The low estimate is shown in Table
IV-1). Alternatively. if MVPL is developed Table II-3 shows a low estimate
of net benefits of $71 per barrel and a middle estimate of $1.10/bbl. Taking
into account a possible three-year delay. but recognizing $.05 per barrel addi-
tional benefits, the present value as of 1975 for this benefit stream is $2.57 bil-
lion for the low estimate and 53.51 billion for the middle estimate. (See Table
II-6 for the cust of delay.)
= See. for example, the Economic Analysis assertion that a gas pipeline to Tablez.
which would require liquified natural as tran-port is unlikely. (Appendix C. p. =
TABLE IV-1.-TABLEAU OF ECONOMIC AND ENVIRONMENTAL CONSIDERATIONS
Alternatives
Do nothing
TAP, no gas
MVPL, no gas
TAP plus MVPL "
MVPL gas and oils
(1)
(2)
(3)
(4)
(5)
Economics:
1. Real resource cost savings (economic 0(5)'
$3.21 billion (37)
$2.57 billion (47)
More than $3.21 billion (27)
More than $2.59 billion and
benefits)
possibly more than No. 4 (17),
2. National security:
(a) Place of delivery of oil
0(6)
West Coast (4)
Midwest (2)
West Coast (3)
Midwest (1).
(b) Time of delivery of oil
0(b)
Begin 1976 (2)
Begin 1978 (4)
Begin 1076 (1)
Begin 1978 (3),
3. Balance of payments
0(5)
+ (27+)
+(4)
(11)
(27°),
4. Royalty to Alaska
0(5)
$2.24 billion (37)
$1.88 billion (47)8
More than $2.24 billion (17)
More than $1.80 and possibly
more than No. 4 (21).
5, Option value
+(1)
(2')
(2+)
(20)
-(2').
6. By miles (100 Table III 3)
M 0(1)
20(2)
460(3)
480(47)
600(57).
C O (1)
230(2)
305(3)
535(57)
457(47)
0 0(1)
640(2)
800(3)
530(67)
1,335(47),
689
00(1)
260(4)
0(1)
260(4*)
0(1°)
10(1')
2,250(4*)
(.1)0
2,250(4*)
0(1)
7. Ordinal tankings:*
(a) Univoidable:
Terrestrial abiotic
0(1)
-(?)
(5)
Terrestrial biotic
0(1)
--(1)
-(?)
=={3):
Nocinaconomic
0(1)
--(4)
-(2')
(5)
-(2')
Marine
0(1)
-(+)
0(1)
-(4°)
0(1).
(b) Threatened:
Terrestrial
0(1)
--(4)
-(2')
Marine
0(1)
"-(4")
0(1)
-(4.)(5)
--(2").
0(1°).
I Present value of stream until year 2000, at 10 percent benefit of $0.66/bbl based on cost of alter.
I Present value of stream until year 2000, at 10 percent. Royalty of $0.46/bhl. See "Economic Analy-
native of $2.01/hbl. See table II 7. " the cost of alternative is $2.40/bbl, benefit is $1.05/hbt and the
sin, p. H 2,
present value of resource cost savings is 85.10 billion,
0 Adjusted for 3.year delay, $0.08/hbl greator royalty due to higher well head pilce for Midwest
I Ordinal renking of the b alternatives on the basis of this characteristic. A 11011 signities 0 tie,
delivery (spproximately 20 percent) X$0.40).
A "P" signifiles uncertainty.
See vol. 1, pp. 320-322.
I Adjusted for 3-year delay and $0.05/bbl greater benefit. See table Il 6. If the cost of alterna.
live $2.40/bbl, the present value of resource cost savings is $3.84 billion.
690
At this point the relative ranking of alternative (2) above (3) seems to be
established. But this is by no means certain, and if factors which are inade-
quately treated in the Economic Analysis are given due consideration, it is
quite possible that this ranking would be reversed. The two most important
considerations are the extent and nature of delay associated with MVPL, and
the disposition of the excess supply on the West Coast if TAP is built. The
most conservative assumptions regarding MVPL has been employed for the
former. Any lessening of the delay or accelerated production after 1978 would
reduce the disadvantage of MVPL (See Table II-6). More important. the
potential excess supply in PAD District T will be disposed of in one of two
ways, either of which will substantially reduce the calculated resource cost
savings for TAP. Either throughput will be slower leaving excess capacity in
the pipeline. an unlikely circumstance. or the oil will be sold in other places
incurring either a higher resource cost for shipping, a lower gross benefit
where it is sold. or both. This is a erucial area in the comparative analysis of
the alternatives. and it requires far more study.
Since the Impact Statement did not include an economic analysis of the gas
pipe line. either alone or in combination with oil, the last two columns eannot
be filled in with certainty. However. if it is assumed that the Mackenzie
Valley = pipeline is economically feasible. i.e., has positive net benefits per
barrel. then a range of the possible values for columns 4 and 5 can be estab-
lished For TAP plus MVPL-gas. the total benefit would be the TAP benefit
(53.21 billion to $5.10 billion) plus MVPLgas benefits. Similar logie applies to
column 5 in comparison with column 3. And further. if there are costs savings
associated with building the oil and gas lines together, and if these savings
more than outweigh the ensts of delaying MVPL oil (about $.64 billion for
three rears), then the benefit for column 5 may exceed that of column 4. This
ranking is possible but not established.
We can now see how the ordinal rankings of the five alternatives have been
arrived at. Preservation is lowest in terms of economic benefits; the MVPL
without gas may be second lowest because of delay in receiving the benefits.
But this is only established under assumptions which are very unfavorable to
MVPL and possibly unrealistic. The relative ranking of the two combined oil-
gas alternatives is also uncertain as indicated by the question marks.
D. National Security
There are two non-commensurate dimensions to the national security analy-
sis. These were both discussed in Section II-C above. The first concerns the
place of delivery of oil. the second the implications of delayed delivery. It was
argued above that national security is better served by delivering oil to the
Midwest rather than the West Coast. Hence the Two Mackenzie Valley alter-
natives are ranked highest. Further. it is assumed that the addition of a gas
supply from the North Slope will result in some marginal fuel substitution and
slight reduction in dependence on imported oil. The two TAP alternatives are
ranked 3 and 4. because if is assumed that the regional factor is more signifi-
cant than the incremental gas supply.
Careful analysis may make it possible to attach dollar price tags to this
dimension of national security. Conceptually. the benefit of delivering oil to the
Midwest rather than the West Coast is equal to the additional cost of adjusting
to a loss of two million barrels per day of imported oil when TAP oil is being
delivered to the West Coast and as a consequence. the East Coast dependency
ratio is raised.
A TAP project. with or without gas would begin deliveries to the West
Coast in 1975. thus decreasing our dependence on foreign oil (at the margin)
two or three years earlier than would be the case with the Canadian alterna-
tire. For this reason. the two TAP alternatives rank higher than the MVPL
routes And similarly. TAP plus MTPL as route rates higher than TAP with
no gas, because it is assumed that the gas supply has a marginal positive
impact on national security. It should be noted bowerer that this potential
benefit is overstated unless the projected excess supply to PAD District v is
taken into account.
Again. it is conceptually possible to place dollar price tags on this dimension
of national security benefits. Following the framework outlined in Table II-T.
we would calculate the difference that delay in delivery of North Slope oil
makes in our dependence 03 Non-Canadian imports. We could then identify
691
alternative schemes for making up that difference, and calculate their cost.
Avoiding that cost is the national security benefit of having North Slope oil
available three years earlier. As was discussed in Section II these costs may
not be substantial. considering the Canadian offer to provide additional
imports during any period of delay associated with choosing MVPL
E. The Balance of Payments
As discussed in Section II, if an economic change, such as the substitution
of domestic oil for imported oil. has a favorable impact on the balance of par-
ments, the equilibrium net barter terms of trade will shift in favor of the
country in which the change occurs and the resulting increase in real incomes
and welfare ean be counted as a balance of payments benefit. The benefit is
proportional to (but not equal to) the balance of payments impact. Since the
state of the art does not permit measuring these benefits presently, estimates
of the balance of payments impact can serve only as an indicator of the rela-
tire ranking of the five alternatives in terms of balance of payments benefits.
The no-gas version of TAP and MVPL can be compared first. In both cases,
domestic is substituted for foreign oil, but in the latter, there is a negative
component in the balance of payments impact associated with building and
operating the Canadian portion of the pipeline. Hence, MVPL with no gas
ranks below TAP with no gas. Comparing TAP with no gas and TAP plus
MVPL gas, the latter alternative will have a more favorable balance of pay-
ments impact if the additional gas supply further reduces our spending on for-
eign oil and/or gas by an amount greater than the balance of payments costs
of handling and operating the gas pipeline in Canada. Whether this would be
the case is problematical. The tableau reflects that assumption, and the ques-
tion marks indicate the uncertainty. There is similarly great uncertainty
recarding the net effect of the MVPL gas and oil alternative. Lacking further
information, the tableau indicates that this ties with the TAP no-gas alterna-
tire.
F. Royalty Payments to the State of Alaska
Royalty payment calculations are similar to nature to the real resource cost
savings calculations. Although the royalty payments are a benefit to the state of
Alaska directly and to Alaskan residents ultimately, they constitute. from the
national point of view. a transfer payment. Hence they should not be added to
the real resource cost savings in calculating a total benefit figure. However. if
the value judgment is made that the state of Alaska deserves funds more than
the stockholders of the oil companies. then these transfers do have a benefit of
unknown magnitude attached to them. Furthermore, the larger the transfer
payment. certeris paribus, the larger the benefit. Hence the alternatives can be
ranked in terms of the size of the royalty payments to the state.
The Economic Analysis reports royalty of $.46 per barrel for TAP. Taking
into account the phased in production schedule, and discounting at 10 per cent
over 25-year project life. the present value as of 1975 of that stream of pay-
ments to the state is $224 billion.
However. this does not take into account the excess supply in PAD Dis-
trict T. Excess supply will result in a lower present value of the royalty
stream from some combination of the following:
(1) Price reduction in PAD District T:
(2) Shifting part of the throughput to a lower priced market where the
lower price is not completely offset by lower transport costs:
(3) Shifting part of the throughput to a higher priced market where the
increase in transport costs is greater than the price differential.
All of these alternatives reduce the wellhead price on which royalties are lased.
If MVPL is employed. two things happen. First. the wellhead price on
which the royalty is based will be higher. reflecting the higher market price
of oil in the midwest. This tends to increase roralties. But there is an off-
setting force decreasing the present value as of 1975 of this royalty stream.
This is the fact that the Canadian alternative will be delayed in produc-
tion by up to three years. Assuming a $0.40 per barrel increase in the well-
head price at Chicago and a three-year delar. the present value of the
royalty stream for MVPL is $1.88 billion. lower than for TAP.
If the delay is only two years and there is some reduction in potential
TAP revalties as described above, the relative ranking of the two alterna-
tires is reversed.
692
The assumptions used here are most conservative. Under different assump-
tions, the State will receive a higher present value of royalties from MVPL
A major shorteoming of the Economic Analysis is that it does not provide
any analysis of the different possible royalty benefit streams under varying
assumptions. In comparing TAP with no gas and TAP plus MVPL gas. the latter is
preferred if some royalties are collected on the gas as well. Similarly. com-
paring alternatives (3) and (5). (5) is to be preferred on the basis of the
additional as royalties. And alternative (4) will be preferred over alter-
native (4) under quite conservative assumptions, although the rankings
can be changed under other assumptions which increase MVPL oil royalties
relative to TAP oil royalties.
The question marks indicate our uncertainty as to the outcome.
G. Option Value
This is the one economic benefit on which the nondevelopment alterna-
tive ranks favorably. The other four alternatives may differ in the extent
to which their implementation forecloses future alternatives. But these
differences. if they exist, do not permit a more precise definition and
comparison.
H. Miles of Route
This section makes use of the data on the miles traversed through dif-
ferent conditions that was developed in Section III. (See Table II-3). The
first four columns of the tableau under Item #6 "by Miles," are straight-
forward. Consider only the first three rows, M, C, and D. Alternative (4)
ranks below the first three alternatives because it involves all of the miles
and all of the hazards of alternative (2) plus all of the miles and bazards
of alternative (3). How to treat the combined oil and gas corridor is 2
more perplexing question. Obviously the combined gas and oil pipeline poses
more environmental hazards per mile than the oil line alone. This is in
part because more space is required; partly because more excavation and
gravel fill will be required to support two lines; and perhaps because the
two lines will diverge in places. Yet. clearly the environmental disruption
is less than double that associated with the oil line only.
I have resolved this point by arbitrarily assuming that a mile of combined
gas and oil line has one and one-half times the environmental impact of one
mile of oil line only. One factor that makes this assumption defensible is
that the ordinal rankings of the alternatives for each of the three classes of
miles is relatively insensitive to weights in the range of between 1.0 and 20.
The rankings by seismic zone and tanker route are straightforward. All
the alternatives which avoid the Alaskan corridor and marine transport are
preferred.
I. The Ordinal Rankings by Class of Impact
I have made use of the Environmental Analysis's ordinal rankings of TAP
and MTPL according to class of environmental impact. The six classes of
impact make up the bottom six lines of the tableau. The cells in the tableau
are filled out with reference to Table III-6. The entries for the first three
alternatives are directly from Table III-6. In the tablesu, a zero indicates
no impact; one minus sign indicates the smallest negative impact; while
two minns signs indicates a larger negative impact.
The fourth alternative, TAP plus MVPL-gas combines all of the terres-
trial and socio-economic impacts of both alternatives (2) and (3). Hence
these cells are scored with three minus signs and are given the bottom
ordinal ranking. With respect to the fifth alternative (the combined MVPL
oil and gas pipeline), the terrestrial biotic effects will be worse than the
MVPL oil only, but better than the MVPL plus TAP combination. The ter-
restrial abiotic effects relate primarily to the route chosen hence the com-
bined MVPL route scores close to the MVPL-oll only alternative. Alter-
natives (3) and (5) rated equal on socio-economie factors and on the
threatened terrestrial impact. largely because the latter threat is primarily
associated with the oil line and possible ruptures and spillages. The re-
mainder of the tableau is self-explanatory.
693
J. Conclusion
The tableau has provided a means of arranging the available information
in a systematic way. The purpose of this arrangement is to facilitate a
systematic and comprehensive comparison of relevant alternatives by de-
cision makers, and to highlight critical cells where more information and
analysis is required to refine the rankings of alternatives. An arrangement
of information such 23 this sometimes reveals that one alternative is
dominated or is nearly dominated by another one. Thus, one alternative
may rank higher or be preferred in terms of every virtually relevant and
measurable characteristic. Inspection of the tablesu suggests that this is not
the case here. But it does indicate some interesting and relevant comparisons.
(1) Doing Nothing.-This alternative poses the real issues in an extreme
fashion. It ranks number one in all of the environmental characteristics,
while ranking at the bottom in all of the economic characteristics, save
option value. Choosing to do nothing yields the environmental benefits; but
it also has attached to it an opportunity cost of foregoing the economic
benefits that would have been produced by the relevant developmental
alternative. Stated another way, each of the developmental alternatives
produces economic benefits, but only at the expense of environmental costs.
After the various developmental alternatives have been compared by a
decision maker, and the "best" one is selected, we must still make the final
comparison with the preservation alternative. That is to say, we must find
out what price we are paying before we commit environmental and other
resources irretrievably.
(2) Alternative (2) vs Alternative (3).-This is the choice that the
Department of Interior appears to be analyzing. In the economic dimensions
of the problem, the ease seems to go against MVPL However, with the
exception of the balance of payments, the lower ranking of MVPL is largely
a matter of timing and ignoring the implications of excess supply on the
West Coast. The difference in resource cost savings, national security,
timing benefits, and royalty payments all depend on the assumptions about
the length of the delay, whether or not accelerated throughput is possible
with MVPL after 1978, and the assumption of no excess supply. These
figures are based on the assumptions which are least favorable to the
BIVPL alternative and. in the case of excess supply, most unrealistic.
Turning to environmental factors, as we have seen in Section III, the
choice hinges basically on the relative weights attached to marine VS. ter-
restrial hazards. The relatively small margin by which TAP is preferred
in the land based miles (M, C, and D) is more than offset by giving due
weight to the seismie hazards associated with TAP, and can be swung by
the hazards associated with tanker routes unless these are given very low
weight.
In summary. a choice of TAP over MVPL would imply a relatively low
weight given to marire and seismic hazards and/or relatively high weight
given to economic benefits relative to environmental costs. Converse'y, if
marine hazards are considered serious, giving up the relatively small 28-
parent economic superiority of TAP may be a small price to pay for pro-
tecting important environmental resources. Certainly, the most significant
point is that the analysis of the most crucial economic variables (timing and
excess supply) is inadequate.
(3) Alternative (1) to Alternative (5).-The previous paragraph has an
unreal quality to it, since the Environmental Analysis itself admits the near
certainty of construction of a gas line through the MVPL corridor. Whether
to build the gas pipeline should be a conscious and thoroughly examined
choice, itself. rather than an assumption. Nevertheless, we will examine
the implications of the presumed gas pipeline on our choice of route for
the oil line. Considering first the environmental features, the joint gas and
oil corridor appears to be strongly preferred on environmental grounds.
Only the higher score attached to the joint pipeline for miles through other
than permafrost (in effect. counting each mile of a single corridor twice,
and multiplying it by a high value), M, prevents the joint venture from
dominating alternative (4) in all environmental characteristics. To prefer
alternative (4) on environmental grounds would imply giving an extremely
high weight to this one factor in comparison with all others including
marine transport.
Turning to the economic comparison, the first observation must be that
more analysis is needed to refine our rankings. We do not know the real
694
resource cost savings associated with the gas pipeline will be. but they
may well be sufficient to make the joint corridor preferable in terms of
real resource cost savings. And, under different-and I believe more real-
istic-assumptions regarding oil royalties to the state of Alaska than those
employed in the Economic Analysis, the joint MVPL oil-gas corridor also
is preferred on this ground. The only relatively certain grounds for pre-
ferring the TAP plus MVPL-gas alternative are balance of payments con-
siderations and the national security timing benefit. Even the latter benefit,
however, is rendered uncertain by the possibility of excess, secure Cana-
dian oil during the short-term prior to oil deliveries through MVPL
(4) Alternative (5) D8 Alternative (3).-This comparison can be inter-
preted as asking whether, assuming an MVPL oil line will be build, a parallel
gas pipeline should also be constructed. On economic grounds the joint gas-
oil alternative dominates the MVPL-oil only alternative. On environmental
grounds, the picture is reversed with the oil-only line standing higher in
five of eleven characteristics and tying in the remaining six. This is a
weak dominance by the oil-only line. This comparison has been made in
order to raise the question on whether the analysis should presume that a
gas pipeline will be built. Economic factors favor it, while environmental
factors work in the opposite direction. The strongest conclusion is that
more information on this choice is required.
The survey of four kinds of choices is designed to show the inter-depend-
ent nature of several decisions which are going to be made about North
Slope Oil, North Slope gas, and the Arctic environment. The Department of
Interior's impact analysis is inadequate in that it fails to take this inter-
relatedness into account. The Impact Statement reduces what is in fact
a complex choice among five interrelated alternatives to an overly-simpli-
fied choice among two inaccurately specified alternatives. Furthermore, it
fails to marshall the available information in a way which focuses the
attention of decision makers on the real issues, the relevant comparisons,
and the most significant gaps in our knowledge. I believe that the tableau
presented here shown the usefulness of a more systematic gathering to-
gether of information. Collection of and display of such information does
not in itself make choices, but it greatly assists the process of rational
choice.
Dr. FREEMAN. Thank you.
My first concern todav is with the environmental impact statement
and the economic analysis itself. Right now. that statement comprises
the most comprehensive body of data that is now available on the
economic and environmental aspects of the Alaskan pipeline route.
Some of the legislation that you are considering would ask Congress
to make a decision as to which route to develop right now and based
on primarily this date included in that statement and the conclusions
that the Secretary of Interior has drawn on the basis of the impact
statement.
But I think there are at least three reasons why this would be
unwise. First. the data included in the impact statement, although
the most comprehensive such data available. are inadequate. par-
ticularly in respect to the consideration of alternatives to the Alaska
route. The impact statement does not include adequate environmental
and economic analysis of the joint or common gas and oil pipelines
corridor through Canada. as what appears to be the primary alter-
native.
The second point is: In many respects the analysis of the data con-
ducted br the Department of the Interior are faulty, in the sense the
conclusions that are reached are not supported by the basic under-
lying data. This includes considerations of the economic cost of delay,
the considerations of net economic benefit and balance-of-payments
considerations. These points are outlined in greater detail in my for-
mal statement.
695
The third reason why reliance on the impact statement and its con-
clusion would be unwise at this point is: Even where the data and
analysis are adequate. man can disagree on the weights or tradeoffs
to be given to essentially noncommensurable environmental and eco-
nomic aspects of the decision.
I think Congress must look very carefully at the implied weights
and tradeoffs. especially in comparing marine and seismic hazards of
the Alaskan route versus the different kinds of environmental hazards
associated with the Canadian route, and in weighing environmental
hazards against economic benefits.
My own analysis of the Department of the Interior's impact state-
ment suggests that the Department of the Interior used the weights
which are probably quite different from those that reasonable men
would apply in making such comparisons. My own analysis suggests
when reasonable weights are applied to marine hazards and seismic
rifts. the environmental decision is strongly toward the Canadian
alternative.
The second major point of my analysis concerns the economic
features of the two alternatives. My formal statement considers five
areas: The net economic benefits, the national security analysis, the
question of job creation. the economic cost of delay. and balance-of-
payments considerations. Since I think the latter two are the ones
in which there is most confusion at this point. I -ant to devote the
rest of my verbal statement to a more careful consideration of these
two things.
First, the cost of delaying decision or delaving development of
Alaska oil. I think at least some Members of Congress seem to be
disposed to accept the following kind of argument: That the de-
livery of oil would be substantially delayed if a decision were made
now to build a Canadian route and the cost of such delay would be
substantial and outweigh any possible economic and environmental
advantages the Canadian route might have.
But there are three factors which must be taken into account in
evaluating an argument such as that. We must consider and properly
identify, weigh. and measure this real economic cost of the delay.
We must consider the length of delay under different kinds of
scenarios, but we must also include the possible benefits or advantages
that delay would bring in terms of wiser decision.
A major point concerning the cost of delay is the likely trend in
the price of foreign crude oil. because this determines what the net
economic benefits of development of Alaska crude oil would be. As the
price of foreign crude oil rises. the net benefits of Alaskan develop-
ment rise. This is true whether the oil is brought out through the
Canadian corridor or through an Alaskan corridor.
But to the extent that the price of foreign crude oil is rising, this
makes that oil in the ground relatively more valuable because the oil
is an asset which at a later time can be used to substitute for foreign
oil. which has now become available only at a higher price.
The principal point is that, other things equal, the more rapidly
the price of foreign oil increases, the lower is the cost of delay, be-
cause the economic benefits of that oil when developed are higher.
The significant conclusion, I think, is those that predict rapidly
rising world oil prices and use this to argue for the most rapid pos-
696
sible development of North Slope oil have their logic backward. Oil
in the ground is an asset and it should be treated as such and the
analysis of decisions about managing it should take that considera-
tion into account.
The second point concerning delay is how long would that delay
be. Mr. Dienelt has spoken to this point, concerning possible delays
with litigation and the NEPA issues that Congress simply resolves
the right-of-way question and turns the NEPA issues back in the
court, so I won't elaborate on that.
Also, our analysis suggests there are substantial environmental and
economic advantages to the Canadian route and these are then ad-
vantages that must be counted as benefits or delaying a decision or
accepting the time delay that might, but would not necessarily, cer-
tainly be part of the package of deciding on the Canadian alter-
native.
Concerning the balance-of-payments question, the impact of de-
vélopment of Alaskan oil on the U.S. balance of payments is an im-
portant but often, again, misunderstood point. The main question is
what difference does it make to the balance of payments whether
Alaskan oil is shipped through TAPS or Canada. Both TAPS and
the Canadian route would reduce our imports of foreign oil and re-
duce foreign expenditures accordingly and since the impacts are the
same, in that sense. between the two routes, that information shouldn't
play a rcle in the choice of the selection of alternatives. The domi-
nant consideration in comparing the two routes in terms of balance
of payments effect is what kind of arrangements will be worked out
for financing the construction of a Canadian alternative. Let me illu-
strate this by considering two polar hypothetical cases.
If the Canadian pipeline were entirely financed by U.S. capital,
that would show up during the period of construction as a dollar out-
flow on our long-term foreign investment in the U.S. balance of
payments accounts, but it would be followed thereafter by a return
flow of recouped investment interest and profits over the life of the
project and the net effect would be positive for the U.S. balance of
payments.
At the other extreme-and this is a very unlikely alternative-but
if the pipeline were financed entirely by Canadian capital, then it
is true the pipeline cost itself, or at least the Canadian portion of
the route, would represent a direct dollar drain on the balance of
payments. If some combination of American and Canadian financing
were worked out. then the balance of payments drain would be pro-
portional to the Canadian share of financing.
How big are these outflows likelv to be? It is possible to provide
some very crude estimates of the likely first round outflows based on
the information in the impact statement. They calculate the cost per
barrel would be $1.20 before the Canadian alternative. If the line is
built entirelv with Canadian capital, the first round outflow would
be $876 million per year. On the other hand, if the line were built
with 50 percent U.S. capital, the direct outflow would be over $100
million per year. But it is important to put these figures in perspec-
tive. The total dollar outflow for imports of goods and services to the
697
United States is likely to be over $100 billion per year in 1980, and
likely to be over $150 billion per year by 1985. Thu the net dollar
outflow attributable to building the Canadian route rather than
TAPS is likely to be only a small fraction of 1 percent of our total
overall balance of payments, total volume of U.S. expenditures
abroad.
So this argues to me this should not be a major consideration. There
is no reason for it to be a major consideration in comparing the two
routes.
Finally, in summary, the most striking thing to me about the
recent discussion of the two alternatives is how little factual infor-
mation is available on the real issues which have emerged since the
impact statement was released last March of 1972. The real issues are
the common corridor oil and gas system and also the possibility of
building naturally two oil pipelines rather than one. Also, how much
of the discussion is based on mere speculation about outcomes and
consequences? So, to me, the need for further study of the issue is
clear. It appears now the responsibility lies with Congress to see
these studies are carried out and are independent and objective. I
strongly support legislation which would require independent study
and analysis of the real alternatives and report on these studies to
Congress. I would also suggest that if Congress directs a study, that the
study group not be ordered to limit its consideration to one alterna-
tive, but it should present appraisals of the environmental and eco-
nomic aspects of all of the relative alternatives to Congress, so the
Congress can then make the ultimate tradeoff and evaluations that
are required.
Thank you, sir.
Mr. MELCHER. Thank you very much, Dr. Freeman.
Mr. Stoel, you are the last member of the panel.
STATEMENT OF THOMAS B. STOEL, JR., NATIONAL RESOURCES
DEFENSE COUNCIL, WASHINGTON, D.C.
Mr. STOEL. Mr. Chairman, my name is Thomas Stoel. I am an at-
torney in Washington, D.C.. with the National Resources Defense
Council, an environmental public interest law firm.
During 1969-1970, I was a staff member of the Cabinet Task Force
On Oil Import Control, where my duties included analysis of the
relationship between oil imports and national security. I am one of
the council for environmental groups challenging the legality of the
Alaska pipeline. The views expressed today are my own.
My purpose today is to compare the national security benefits to
the proposed Trans-Alaskan pipeline with those of an alternative
oil pipeline across Canada to the U.S. Midwest. In my oral testimony,
I will briefly summarize the prepared statement which I have already
submitted. Mr. MELCHER. Without objection. Mr. Stoel's entire statement will
be made a part of the record at this point.
Hearing no objection: so ordered.
69S
[Mr. Stoels statement follows:]
STATEMENT OF THOMAS B. STOEL JR, NATIONAL RESOURCES DEFENSE COUSCIL
L INTRODUCTION
Mr. Chairman, I appreciate the opportunity to appear before this Com-
mittee with regard to its consideration of measures relating to the transpor-
tation of oil and = resources from the North Slope of Alaska The two
chief alternative means which have been suggested for transporting Alaskan
North Slope oil are the proposed Trans-Alaskan Pipeline and an oil pipeline
through Canada to the U.S. Midwest. My purpose today is to compare the
national security impacts of these two alternatives. My conclusion is that
2 Canadian oil pipeline clearly would be of greater benefit to our national
security than the proposed Trans-Alaskan Pipeline.
For the Committee's information. I am an attorney in Washington, D.C.,
with the Natural Resources Defense Council, an environmental public
interest law firm. During 1969-70, I was a staff member of the Calinet
Task Force on Oil Import Control, where my duties included analysis of
the relationship between oil imports and national security. I am one of the
counsel for environmental groups challenging the legality of the propased
Alaska line. However, the views expressed today are my OWD.
SUMMARY
The proposed trans-Alaskan pipeline might provide some extra security
against foreign supply interruptions during a two- to five-year period,
beginning about 1974, when a Canadian pipeline could not yet be in op-
eration. However, the Alaskan line would deliver oil to an area of the
country-the West Coast-which could almost certainly develop sufficient
domestic or secure foreign supplies to deal with any emergency during
that period even in the absence of North Slope oil. In return for this largely
unneeded extra security in the late 1970's and perhaps the early 1950's the
trans-Alaskan pipeline would substantially diminish the Nation's security
during the more hazardous period which will follow. By satisfying West
Coast needs, the Alaskan line would reduce incentive to develop for dames-
tic use such promising areas as offshore California, the Gulf of Alaska, and
Western South America. The magnitude of estimated recoverable reserves
in these areas gives them great potential for enhancing our security. In
addition, oil delivered via a trans-Alaskan pipeline would be vulnerable to
physical interruption by enemy attacks or earthquskes.
A trans-Canadian pipeline, on the other hand, would assure a West Coast
market for oil from the domestic and secure foreign areas mentioned above.
By trailblazing the Canadian pipeline route, it would accelerate develop-
ment of oil reserves in the U.S. and Canadian Arctic, the areas with the
greatest secure oil potential. Most important, a Canadian line would de-
liver Prudhoe Bay oil and the extra supply flowing from accelerated Aretic
development to the met = The United States east of the Rockies. This area
will account for more than SOCO of the Nation's oil consumption in 1950-85
and will be more dependent on non-Canadian imports than the West Coast
even if North Slope oil is excluded from the calculation. In addition, this
area has fewer domestic and foreign sources of emergency all surclies
than the West Coast. The Canadian line would thus deliver oil supplies
to the area of the country where the threat to security is by far the great-
est. It would also be more physically secure than an Alaskan line.
III. BACKSBOUND
In 1968 the largest oil field in North America was discovered near Produce
Bay on Alaska's North Slope. Oil companies proposed in 1969 the construction
of a 789-mile pipeline to transport oil from the field to southern Alaska for
shipment by marine tankers to the United States West Coast. In May 1972,
the Secretary of the Interior indicated his willingness to grant the wees-
sary rights-of-way aeross public lands. Construction of the trans-Aleskan
line still depends upon Congressional amendment of the Mineral Lessing
Act and perhaps the outcome of environmental litigation. If construction
699
were to begin in the spring of 1971, the Alaskan line might be completed
sometime in 1977. Deliveries of oil would begin at a rate of about 600,000
barrels per day (b/d), and the pipeline would reach its full 2 million b/d
capacity about 1982
Both environmentalists and persons concerned about national security
have pressed the alternative of a trans-Canadian pipeline to the United
States Midwest.' A trans-Canadian pipeline would be economically competi-
tive with a trans-Alaskan line, and many believe it would be environmentally
superior, but it would take two to five years longer to construct. With the
notable exception of the Secretary of Defense, federal officials have claimed
this delay makes a trans-Canadian pipeline less beneficial to national secur-
ity than a trans-Alaskan line; the Secretary of Defense found each line
equally advantageous from a security viewpoint. The Secretary of the In-
terior cited national security as one of the grounds for his decision to reject
the Canadian alternative and approve the Alaskan line.
The national security importance of Alaskan North Slope oil is that it
will relieve the United States of the necessity to import an equal amount
of foreign oil." By the time any pipeline can be completed, much of the for-
eign oil thus "backed out" is expected to be Eastern Hemisphere oil. which
is considered relatively insecure." In its 1970 report, the Cabinet Task Force
on Oil Import Control found the chief danger of dependence on foreign oil
to be a politically inspired interruption of oil supplies from the Middle East
and North Africa, but noted that Eastern Hemisphere oil might also be
interdieted in a "shooting war" with another superpower.
IV. THE CASE FOR THE TRASS-ALASKAN PIPELINE
The national security argument in favor of the proposed trans-Alaskan
pipeline, as opposed to the Canadian alternative, is based on the anticipated
two- to five-year delay in construction. As noted above, an Alaskan pipeline
might be able to start delivering oil in 1977, in amounts beginning at 600,000
b/d and rising to the 2 million b/d pipeline capacity by about 1982. A
Canadian line would not begin delivering oil until 1979 to 1982
In order to assess the marimum contribution of the trans-Alaskan pipe-
line to national security. it will be assumed that sometime during the delay
period a national security emergency reduces the supply of foreign oil. It
will be assumed for the sake of analysis that the emergency is not a
shooting war but a one-year boyeott by some foreign suppliers other than
Canada. It will additionally be assumed that no major earthquakes occur
on the Alaskan pipeline route during that year, and that by extraordinary
measures shipments through the pipeline can be increased by an average of
25% during the one-year emergency (up to the maximum capacity of 2
million b/d).
Under these assumptions, oil would be delivered to the southern coast of
Alaska in the amounts shown in Column 1 of Table I." If the Elk Hills
Naval Petroleum Reserve in California were utilized at 350,000 b/d, and
inventories and spare capacity were drawn upon as postulated by the Cabinet
= See U.S. Department of the Interior. An Analysis of the Economic and Security
Aspects of the Trans-Alaska Pipeline. rol 1. p. E-16 (March 1972) Shereinafter "Ecu-
nomic and Security Analysis").
= For a national security perspective. see Letter of S. D. Freeman to Interior Secretary
Morton, May 4, 1972
1 An estimate of two years' delay was made by Canadian Energy Minister MaeDonald
at a press conference following his meeting with Secretary of the Interior Morton on
March 30. 1972. This agrees with the estimate of Mackenzie Valley Pipeline Research.
Ltd., in a January 29. 1973. press release. A five-year estimate recently was offered by
Secretary Morton. See Harper's Magazine, Dec. 1972. p. S.
See Economic and Security Analysis, vol. = pp. M-5-2 to M-5-3.
The Prudhoe Bay field also contains natural gas. The gas cannot be produced until
oil begins flowing. The gas too will enhance national security by reducing U.S. reliance
on oil imports. This paper nevertheless focuses on alternative oil delivery systems be
cause: (1) Prudhoe Bay gas almust certainly will be delivered by pipeline through
Canada to the U.S. Midwest: and (2) the problems of constructing a Canadian oil
line are essentially similar to those of a gas line. so choice of a Canadian rither than
an Alaskan route for oil should net, substantially delay gas deliveries.
. See Economic and Security Analysis rel. 1. App. D.
= Report of the Cabinet Task Force on Oil Import Control 413, 415 (hereinafter
"Task Force Report").
See Economic and Security Analysis, vol 1. p. E-16.
97-S39-73-9
700
Task Force on Oil Import Control," the West Coast supply-demand gap
would not absorb all the North Slope oil available, as shown in Tables I
and II." If it were vitally necessary, a large proportion of that oil could
be made available to the part of the country east of the Rocky Mountains,
either directly or by diverting Canadian oil previously consumed on the
ITes: Coast. Let us assume that all the excess North Slope oil could thus
be made available. The results for the area east of tre Rockies are shown
in Tables III and IV." They indicate that during 1977-82 the proposed
trans-Alaskan pipeline. in addition to satisfying all the West Coast oil de-
mand that would otherwise have to be met from non-Canadian sources
during the postulated emergency, could reduce the proportion of demand
east of the Rockies which must be met from these sources by from 2% to
it. depending on the year.
TABLE i-WEST COAST SITUATION DURING I-YEAR CIL INTERRUPTION, 1977-82, WITH ALASKAN PIPELINE
Quantities is thousands of barrels per day]
1
2
3
4
Crude cit
Daily deficit
Amount of crude
available from
without North
oil available for
North Slope via
Slace ail (from
Daily deficit with
shipment east
Year
Alaska pipeline
table II, col. 4)
Alaska pipeline
of Rackies
0
283
1977
750
467
1378
1.000
581
0
419
1979
1,000
702
0
298
1983
1,200
887
0
373
L750
958
0
792
1981
1932
2,000
1,096
0
304
TABLE 11. -SITUATION ON WEST COAST DURING 1-YEAR OIL SUPPLY INTERRUPTION, 1977-82. WITH NO NORTH
SLOPE OIL
[Quantities in thousands of barrels per day]
1
2
3
4
5
Daily deficit
if production
1,158,000 nbt d.
net inflow from
Canada and Rocky
Percentage total
Mountain area
Daily deficits if
Daily deficit if
demand that must
437,000 nct and
Elk Hills N.P.R.
spare capacity
be met by crude
Estimated daily
no non-Canadian
produces
and inventories
oil from other
Year
crude oil damand
imports
350,000 bbl.d
are utilized
sources
1977
2.842
1,247
897
467
16
1978
2.973
1,378
1,028
581
20
23
1979
3.110
1,515
1,165
702
1530
3,253
1,658
1,308
827
25
1531
3,403
1,808
1,458
958
28
1982
3,550
1,965
1,615
1,096
31
The Interior Department estimates Elk Hills could attain 350,000 b/d of production
with an investment of $100,000,000. Economic and Security Analysis, rul. 3. P. VI-39.
The Cabinet Task Force found 5% excess expacity and inventories equal to 45 days
of normal consumption available for emergency use in the U.S. and Canada See Tast
Force Report " 239-40. Tables F-K and accompanying notes.
ID In addition to the inventory and spare espacity assumptions stated above. Tables I
and II assume that demand will grow at the 46% annual rate postulated by the In-
terior Department in its Economic and Security Analysis Domestic production and
Canadian and Rocky Mountain shipments are Interior estimates for 19S0. See id., p- C-7
(Fig. C-).
11 Tables III and IV assume the same conditions as Tables I and II. They describe the
situation east of the Rockies: the Rocky Mountain region itself is not included in any
of the tables because its production is expected approximately to equal Its demand. See
Economic and Security Analysis. App. C.
701
TABLE III.-SITUATION EAST OF THE ROCKIES DURING I-YEAR OIL SUPPLY INTERRUPTION, 1977-22 WITH NO
NORTH SLOPE OIL
[Quantities is thousands of barrels per day]
1
2
3
4
5
Daily deficit
if production
9,532,000 bbl/d.
net inflaw from
Same IS col. 2
Daily deficit if
Percentage total
Canada and
because no
spare capacity
demand that must
Rocky Mountain
reserves anal-
and inventories
be met by crude
Estimated daily
area 1,013,000
ogous to Elk
are utilized
oil from other
crude oil demand
bbl/d and 53 non-
Hills
sources
Year
Canadiza imports
1977
16.975
430
6,430
3.810
22
17,756
7,211
7,211
4,495
25
1978
1979
18,573
8,028
8.028
5,211
28
19,423
883
8.883
5.591
31
1S83
20,322
9.777
9.777
6.745
33
1981
21,2%7
10,712
10,712
7,554
36
1982
TABLE IV.-SITUATION EAST OF ROCKIES DURING 1-YEAR OIL INTERRUPTION, 1377-82. WITH ALASKAN PIPE-
LINE
Quantities in thousands of harrels per day!
1
2
4
Amount of North
Percentage of total
Slace crude
Daily deficit
demand that must
available (from
with Alaska
be met by crude
table 1, COL 4)
pipeline
from other sources
Year
283
3,527
21
1977
419
4,076
23
1378
298
4,913
26
1973
373
5,588
29
1980
792
5,953
29
1991
904
6,660
31
1982
v. THE CASE FOR THE CANADIAN ALTERNATIVE
The national security argument for an alternative Canadian pipeline has
two parts. The first details the ways in which the Nation could cope with
an overseas oil interruption during the two- to fire-year period when an
Alaskan pipeline could be delivering oil but a Canadian line could not. The
second describes the very substantial advantages of a Canadian line after
its completion.
1. National Security During Delay Period
It has been assumed that construction of an alternative Canadian pipe-
line would delay delivery of North Slope oil from 1977 to sometime between
1979 and 1982. Column 5 of Table II shows the dependence of the West
Crast on non-Canadian sources during a one-year interruption of the type
postulated previously. It ranges from 16% of consumption in 1977 to 31% in
1952 East of the Rockies, the degree of dependence-shown in Column 5
of Table III-ranges from 2% of demand in 1977 to 36% in 1952.
There are a number of wars of coping with this situation. First. the
Nation could in the near future adopt a system which assures security by
storing oil for use in emergencies. The Cabinet Task Force recommended
that such methods be the subject of "intensive study." = Professors Walter
Mead and Philip Sorenson assert that one such method-"storage" in shut-in
oil fields-would be cheaper than the present quota system and more re-
sponsive to security needs." In his recent Energy Message, the President
at last directed the Oil Policy Committee to study these ways of assuring
security.
13 W. Mead & P. Surenson. "A National Defense Petroleum Reserve Alternative to on
= Task Force Report : 436.
Import Quotas," Land Economics, vol. 47. P. 211
702
Even in the absence of a nationwide storage system, West Coast security
could be substantially enhanced 15 standby production from domestic oil
fields presently shut in. Mead and Sorenson state that the Elk Hills Naval
Petroleum Reserve could. at a relatively modest cost, be made capable of
producing an average of more than 12 million b/d in a one-year emergency."
This production alone would reduce the West Coast's maximum dependence
on non-Canadian foreign oil during the postulated one-year emergency in
the period 1977-S2 from 31% of demand to only 6%- In addition, the Oil
and Gas Journal has estimated reserves in the shut-in Santa Ynez field off
Southern California at 3 billion barrels; 15 an Interior Department working
group has identified another area off Southern California with an esti-
mated 1 billion barrels of reserves." If these estimates are correct, devel-
opment 902 these offshore reserves could make available another 1,000,000
b/d of secure, easily delivered oil during the period 1977-82." This supply-
entirely apart from increased Elk Hills production-would reduce maximum
West Coast dependence on non-Canadian foreign oil to less than 3% of de-
mand should the postulated emergency occur during that period. Taken
together, the Elk Hills and offshore supplies just described would make
the West Coast more than self-sufficient during the postulated emergency.
Third. imports could be increased from Canada or from other countries
not involved in a boycott. The possibility of increased imports from Canada-
the most secure foreign source-is especially noteworthy. It appears that
Canada currently could produce considerable additional oil from known
reserves in Southern Canada." Canada apparently would be willing to boost
production and exports to the U.S. West Coast specifically in order to meet
U.S. needs resulting from delay in completing a trans-Canadian pipeline.
The Canadian Minister of Energy. Mines, and Resources in April 1972
was asked in the House of Commons:
In light of American concern over their supply of oil during the two-
year period required to evaluate alternative transportation routes to
the trans-Alaska pipeline system. may I ask the minister whether be
has made clear to his United States counterpart Canada's willingness
to make oil available to the United States during this period SO that
a proper evaluation of a route can be undertaken free of short-term
security considerations.
He replied:
Both in my discussions with Secretary Morton and other officials of
the United States administration in Washington and recently with
Secretary Rogers last week, I made it perfectly clear that Canada
was prepared to supply additional quantities of oil to the United States
not only for a two-year period but a longer period.
ID
In a March 18, 1973. interview televised in Canada, the Minister was
asked:
Does your
statement still stand that said (1) we are willing
to entertain applications for a Mackenzie line and (2) supply them
with oil in the interim if they choose a Canadian line?
He replied:
One, yes, and I think we can meet two, the second objective, as
well.
We are now supplying the Puget Sound refineries on the
American West Coast through the Canadian Trans-Mountain system.
They are starting to get some tanker shipments from overseas. But I
IS Op. cit. supre note 13. at 219. The annual cost would be $0.32 per barrel. Id, at
219-20.
L Oil and Gas Journal, May 1. 1972. p. 198.
16 Unpublished Preliminary Report. Geological and Technical Working Group of Inter-
for Department Outer Continental Shelf Task Force. May 1972.
1: This estimate assumes a reserve-to-production ratio of 19 to 1, a common ratio for
domestic fields.
15 At the end of 1970. Canada's proved off reserves totalled 10.4 billion barrels. Pro-
duction in 1970 was only 1.4 million b/d. a reserve-to-production ratio of more then
20 to 1. At a feasible reserve-to-production ratio of 10 to 1. production would have been
over 28 million b/d.
IN Commons Debates, April 19. 1972. P. 1440.
703
think that we would make every effort to try and meet the increased
demand of the Puget Sound system in that period of years before the
whole system, the whole Alaskan system. could come into operation."
Increased imports from other nations are also a possibility. especially for
the West Coast. For example, exploration is accelerating in Western South
America." Deliveries from new fields in Eeuador have already begun.= and
the Interior Department believes Ecuador has a potential of "one or two
million barrels per day."=
B. National Security After Completion of Canadian Line
After completion, a trans-Canadian pipeline would have very substantial
national security advantages over a trans-Maskan line. One of the main
reasons is that a Canadian line would deliver oil to the part of the country
where the threat to security is greatest. Since the inception of the oil import
program in 1959. the West Coast has been treated separately from the rest
of the country because of the difficulty of shipping oil across the Rockies.
The rest of the country has generally been treated as a single unit because
oil can be transported throughout. By 1985, overall demand on the West
Coast is expected to be less than 15% of the total in the Nation. It makes
sense from a security point of view to channel the entire 2 million b/d of a
security point of view to channel the entire 2 million b/d of North Slope
production to this small, isolated market-as an Alaskan pipeline would-
only if its potential supply deficit without North Slope oil is proportion-
ally greater than that east of the Rockies and the prospect for supplying
it from other domestic or secure foreign areas is very dim. Precisely the
opposite is true. Tables II. III, V, and VI show the situation on the West
Coast and east of the Rockies, respectively, during the period 1980-S5.
assuming a one-year emergency of the type postulated previously and no
oil from the North Slope.* In each year the dependence of the area east
of the Rockies on non-Canadian imports not only is much greater in ab-
solute amount that that on the West Coast but also constitutes a larger
proportion of demand.
The West Coast would be much easier to supply from secure domestic
sources than the part of the country east of the Rockies. As noted earlier.
Mead and Sorenson estimate the Elk Hills Naval Petroleum Reserve could
produce 1.2 million b/d in an emergency with a modest investment. Even in
1985, this would reduce West Coast maximum dependence on non-Canadian
imports during the postulated emergency from 40% of demand to 17%. By
the 1980's, known oil fields off Southern California could be producing
more than 1,000.000 b/d if estimates of their potential are accurate. This
offshore production, together with expanded Elk Hills capacity, would make
the West Coast completely independent of non-Canadian foreign oil should
the postulated emergency occur in 1985 and no North Slope oil be delivered.
Meanwhile, the much larger area east of the Rockies would be 41% depend-
ent on non-Canadian foreign oil.
y Transcript. Question Period Canadian Television production). March IS. 1972 p. 4.
= Nee Oil and Gas Journal, Dre. 20. 1971. p. 19: id., Feb. 2S. 1972 P. 95: id., April
17. 1972 P. 35.
= Id. Aug. 28. 1972 P. 31.
= Economic and Security Analysis, rul. 1. p. C-14.
= Domestic production estimates in Tables r and "I are aterages of Interior's 1980
and 1983 estimates. see Economic and Security Analysis rol. 2 pp. L-C-1: to L-13-17
(Tables :-B to 3-F). Not inflows from Canada and the Rockr Mountain region are
assumed the same as in Tables II and III. and the assumptions about Elk Hills pro-
duction. inventory drawdown. and use of spare capacity are also the same. Demand
estimates are by interpolation from Interior's estimates for 1980 and 195, See id.
Very recently. estimates of future U.S. oil demand have been revised upward. based
primarily on the necessity of substituting all for roal if clean air goals are a be met.
See, e.g. Oil and Ga Journal. Nor. 12 1972 P. 93 These revisions not redected in
the tables However. the increases are expected to be heavily concentrated in a few
states. all east of the Rockies. IN.. p. 95. This the tables probably understate the
relative dependence on imported oil of the area east of the Rockies.
704
TABLE V.-SITUATION ON WEST COAST DURING 1-YEAR OIL SUPPLY INTERRUPTION, 1983-85, WITH NO NORTH
SLOPE OIL
[Quantities in thousands of barrels per day]
1
2
3
4
5
Daily deficit if
production
1,059 bbl/d.
net inflow from
Canada and Rocky
Mountain area
Daily deficit if
Daily deficit if
Percentage total
437, bbi/d. and
Elk Hills N.P.R.
spare capacity
demand that must
Estimated daily
no non-Canadias
produces 350,000
and inventories
be met by crede oil
Year
crude oil demand
imports
bbl/d
are atilized
from other sources
1983
3.52
2.185
1,836
1,311
36
1984
3.818
2.334
1.984
1,440
38
1985
3,563
2,487
2,137
1,574
40
TABLE VI.-SITESTION EAST OF THE ROCKIES DURING I-YEAR OIL SUPPLY INTERRUPTION, 1583-85. WITH NO
MORTH SLOPE OIL
[Quantities in thousands of barrels per day]
1
2
3
4
5
Daily deficit if
production
9,121,000 bbl/d.
net inflow from
Canada and Rocky
Percentage total
Mountain area
Same 23 coL
Daily deficit if
demand that must
1. 013, 000 bbl.d.
2 because ce
spare capacity and
be met by crude oil
Year
Estimated daily
and no non-Canad-
reserves anal-
inventories are
from atter sources
crude oil demand
ian imports
ogus to Elk Hills
utilized
1983
21.384
11,250
11,250
8.107
33
1981
22 079
11,945
11,945
8,716
3
12.663
12,663
9,345
e
1985
22,797
Another promising domestic source of oil for the West Coast in the 1980's
is the Gulf of Alaska Former Undersecretary of the Interier Pecora. him-
self a geolegist, estimated the crude oil potential of the Gulf of Alaska at
40 billion barrels." This compares with the 9.6 billion barrels of known
reserves at Prudhoe Bay, which are expected to yield 2 million b/d. In
his recent Energy Message, the President directed federal agencies to study
the environmental impact of oil and gas production in the Gulf of Alaska,
a step toward a federal leasing program.
The West Coast is the obvious domestic market for Gulf of Alaska oil,
since shipment to other domestic markets would be expensive and environ-
mentally hazardous. If a trans-Alaskan pipeline were constructed, it would
shut off this market by supplying virtually all West Coast oil demand until
well into the 1980's. The Interior Department's own analysis of economic
and security aspects of the trans-Alaskan line concludes that "substantial
Gulf of Alaska production could produce 2 substantial and inconvenient
surplus [on the West Coast] if North Slope oil were to go there." 1 strong
national security advantage of a Canadian line is that it would leave a
West Coast market for Gulf of Alaska oil and thereby stimulate explora-
tion and production in the Gulf.
1 foreign source which offers both substantial security and considerable
oil potential is the West Coast of South America. is mentioned previously,
exploration is accelerating, shipments from Ecuador have already begun.
and the Interior Department estimates potential production in Ecuador
alone at one to two million barrels per day. The natural U.S. market for
this oil is the West Coast. Shipment to other parts of the country through
the Panama Canal or around Cape Horn would be expensive, environment-
ally hazandous, and in the case of Cape Horn shipments less physically
= Oil and Gas Journal Jan. 17. 1972. p. 62.
- Economic and Security Analysis, voL 1. p. C-14.
705
secure. Construction of a Canadian line would assure a West Coast market
for this oil, increasing incentives for its development and enhancing our
security.
Another major reason for the substantial security advantage which
would be enjoyed by a Canadian line after completion is that it would
stimulate production of the enormous oil and gas reserves thought to exist
in the Arctic regions of the United States and Canada apart from the
Prudhoe Bay field. Rapid discovery and development of large amounts of
oil from these areas would obviously make us more secure.
The most promising unexploited domestic source of oil is the Alaskan
North Slope outside the Prudhoe Bay field. Former Undersecretary of the
Interior Pecora estimated the total crude oil potential of the North Slope
at 140 billion barrels, compared with 9.6 billion barrels known at Prudhoe
Bay." The Oil and Gas Journal recently estimated recoverable reserves on
the North Slope at 75 billion barrels.* Part of these reserves are thought
to lie within Naval Petroleum Reserve No. 4, located near the Prudhoe Bay
field. Estimates of recoverable reserves in NPR No. 4 range from 4.19 to
24 billion barrels. which would make possible an emergency standby capa-
city of 1.52 to 8.7 million b/d."
The only U.S. markets with demand sufficient to absorb the large quan-
tities of oil which could be produced from these North Slope reserves are
the Midwest and East Coast. The only ways of delivering North Slope
oil to these markets are by trans-Canadian pipeline or ice-breaking tankers.
The environmental and technical problems of ice-breaking tankers remain
to be solved." and tankers would be less physically secure than a pipeline.
Hence. if this North Slope oil is to be delivered east of the Rockies by the
mid-1980's, it must be by trans-Canadian pipeline. Construction of that
line would have to begin by the early 1980's.
The problems and costs of pipeline construction would be much diminished
if such a pipeline were the second rather than the first on the Canadian
route. The Interior Department's current justification the proposed
Alaskan line as no more envrionmentally harmful than a Canadian line
depends on the assumption that no Canadian oil line will be build for
many, many years. Hence, environmentalists would oppose strenuously any
proposal by the Department to authorize a Canadian line in addition to
the Alaskan line. thereby unnecessarily multiplying environmental harm.
Building a Canadian rather than an Alaskan line now to carry Prudhoe
Bay oil would eliminate these obstacles and increase the incentives to de-
velop the Tast amounts of secure oil-estimated at more than twice the
total of presently known reserves in the entire U.S.-thought to exist else-
where on the North Slope.
Perhaps the most promising source of secure oil imports is the Canadian
Arctic. Oil and gas have been discovered there. Although oil discoveries
have thus far lagged below expectations, potential reserves were conserva-
tirely estimated in 1969 at 44 billion barrels;" the Oil and Gas Journal
recently estimated them at 105 billion barrels." As with the North Slope.
the only U.S. markets able to absorb these quantities of oil are the Mid-
west and East Coast, and a Canadian pipeline is the only feasible means
of delivery by the mid-1970's. Again. construction problems would be dimin-
ished if the pipeline were the second on the route. Hence. construction of
a trans-Canadian rather than a trans-Alaskan pipeline from Prudhoe Bay
would provide incentives for early development of Canadian Arctic oil
resources.
The final major advantage of a trans-Canadian pipeline is its greater
physical security. In a shooting war, the marine tanker leg of a trans-
Alaskan system would be more vulnerable to enemy attack than a pipeline.
Moreover. the Interior Department predicts at least one major earthquake
on the trans-Alaskan pipeline route during the life of the pipeline." If it
= on and Gas Journal. Jan. 17. 1972. p. 62
= Oil and Ges Journal, Oct. 28. 1972. P. 70.
= See Task Force Report. App. J. " 11-21.
= See Economic and Security Analysis. vol. 1. PP. C-20 to C-21.
= DeGolyer & McNaughton. Report on Estimates of Additional Recoverable Reserves
of Oil and Gas for the United States and Canada. pp. 17. 27 (June 1969).
= Oil and Gas Journal, Oct. 23. 1972. p. TO.
= Department of the Interior. Final Impact Statement on Proposed Trans-Ala-kan
Pipeline, vol. 1. P 97 (1972).
706
should occur when foreign supplies were interrupted. North Slope on de-
liveries could be delayed and national security jeopardized. There is IIP
significant risk of a major earthquake on the trans-Canadian route.
VI. CONCLUSION
Despite the national security advantages of a trans-Canadian pineline
which have just been described. the Secretary of the Interior citel national
security as a reason for approving the proposed trans-Maskan Time Perhaps
major federal actions with significant impacts on national security should be
required to be accompanied by "national security impact statements." For
it is sobering to realize that if our Government's national security analysis
of the trans-Maskan pipeline were subjected to the same standard of com-
pleteness and candor as its environmental analysis. it would surely be
found deficient.
Mr. STOEL. Thank you.
I believe the Canadian pipeline would be superior on national
security grounds to the proposed trans-Alaska pipeline. for three
reasons. which I will summarize very brieflv.
First. a Canadian pipeline would deliver oil to a part of the country
where it will be desperately needed in ease of severe interruptions of
foreign oil supply. while the Alaska line would not. The only security
advantage of -an Alaska pipeline. which has been cited. is that it
would be completed before a Canadian line. Informed estimates of
delay of completing the Canadian compared with the Alaskan range
from 2 to 5 years. The shorter estimates appear to be more credible.
A year ago. Canadian Energy Minister MacDonald estimated the
delar period at 2 years. Even more recently. an industry group.
Mackenzie Valley Pipeline Research. Ltd.. estimated delay at even
less than 2 years.
The security benefit of the Alaska pipeline even during this delay
period would be very meager because the Alaska line would deliver
their oil to the west coast. which is likely to be secure in any event.
The analyses in my prepared statements show that during the antici-
pated period. emergency production from the Elk Hills Naval Petro-
leum Reserve in California and production from known but unde-
veloped fields offshore in California. could make the west coast com-
pletely self-sufficient during the 1-vear eutoff of all non-Canadian.
foreign oil. The west coast is also likely to receive added foreign oil
supplies during the delay. Some of these sources could be Canada.
which has promised increased supplies to the Puget Sound area and
Equador. A Canadian line be contrast would deliver oil to a part of
the country where it would be very badlv needed.
Without North Slope oil. my analysis indicates the area east of
the Rockies. which in 1985 will account for more than four-fifths of
the Nation's oil consumption. will be over 40 percent dependent on
non-Canadian oil. much from the Middle East even after emergency
measures have been taken.
It seems wrong from the point of view of security to direct 2
million barrels of fuel from the North Slope production to a small
isolated en market which will not even need it and leave a much
larger area east of the Rockies sadly short of oil in an emergency.
Second. a trans-Canadian pipeline would provide incentives for
production of large quantities of oil estimated to exist in domestic
and secure foreign areas. The Alaska line would reduce these in-
707
centives. The area to which I refer includes the Gulf of Alaska,
Alaska North Slope outside Prudhoe Bay, and Canadian Aretic.
Each of these areas has been estimated to control oil reserves much
larger than those already known to exist at Prudhoe Bay. The oil
potential of these areas represents perhaps our best chance of achiev-
ing real oil security during the period of the 1980's.
Third. and finally. a trans-Canadian pipeline would be more phys-
ically secure than a trans-Alaska pipeline. In a shooting war a marine
tanker laying off the trans-Alaska would be more vulnerable a system
to an enemy attack. Moreover. the Interior Department prediction of
one major earthquake on the trans-Alaska route during the life of
the pipeline. If it should occur when foreign supplies were inter-
rupted. the North Slope oil deliveries could be delayed and the na-
tional security jeopardized. There is no significant risk of major
earthquake on the trans-Canadian route.
For these reasons. I believe the national security advantages of a
trans-Canadian oil pipeline clearly outweigh those of the proposed
trans-Alaska one.
Mr. MEICHER. Thank you very much. Mr. Stoel.
We thank all of the members of the Panel. They have presented
expert testimony for us. I will start questioning now.
Mr. Dienelt. you indicated. and others on the Panel indicated that
the Canadian Government is favorable to a trans-Canadian pipeline.
We had the impression from our government witnesses that they
really hadn't indicated all that much interest. I think perhaps the
committee will want to consider requesting some Canadian official to
appear before the committee to factually state the case for the Ca-
nadian Government. Your testimony flies in the face of what we
have been told by our government officials.
Now. Mr. Dienelt. it seems to me you are recommending that Con-
gress study the findings of the Secretary of the Interior concerning
the environment impact statement. also study a comparative route,
or comparative routes across Alaska and across Canada. You think
then. on the basis of that. Congress should make a finding. as I
interpret your statement. and legislate according to their finding?
Mr. DIENELT. That is the position of the three groups I am speak-
ing for.
Mr. MELCHER. Now. just so we clearly- understand each other. then
you are recommending this subcommittee make this study and com-
parison? Mr. DIENELT. No. sir: I am recommending that it be a congres-
sionally sponsored study. that it be conducted by an independent
body. I believe on the Senate side. Senator Mondale introduced a bill.
cosponsored br a number of other Senators. indicating the study
would be conducted by the National Science Foundation. It is mv
understanding bills have been introduced in this subcommittee which
would provide for a study by the National Academy of Sciences. It
would be a study which is sponsored br and authorized by the Con-
gress. directed by them. on which the Congress ultimately would act.
But the subcommittee itself would not conduct the investigation.
Mr. MELCHER. The subcommittee would make the findings; is that
correct? Is that what you are suggesting?
708
Mr. DIENELT. I have not gotten a copy of the bill which I under-
stand was introduced yesterday-
Mr. MELCHER. My point is, let's get beyond this broad language
that Congress make a finding and who in Congress is to make this
finding? We know, if we are going to embark on that, we might want
to take the advice of independent groups or at least consider their
advice, but they are not part of the Congress. Whatever group you
are talking about, or any number of groups, they are not a part of
the Congress, they can't make a finding. So what you are suggesting
is this subcommittee, having jurisdiction in this matter, should dis-
cuss and look at information supplied by groups—
Mr. DIENELT. No, what to be
Mr. MELCHER. Stop me when I am wrong, because I want to find
out what you are talking about.
Mr. DIENELT. What we understand to be the essence of legislation
introduced in this subcommittee yesterday, which we don't have a
copy of, and what has been introduced on the Senate side, would
provide for a 6 to 9-month study by a group such as the National
Science Foundation and the National Academy of Sciences, which
would put together the information and present a study with recom-
mendations, presumably through the respective committees of the
Senate and House, which would then make its legislative recommen-
dation with respect to the Alaska or Canadian line, based upon that
study.
I presume that the committee would also, and I hope and expect
it would satisfy itself during the process of the study and at the end
of the study, the study was complete and adequate to permit an in-
formed judgment. And that is what we u derstood the legislation to
be in its broadest view.
Mr. MELCHER. The point, in summary, Mr. Dienelt, is that you are
dissatisfied with the findings of the Secretary of the Interior. You are
recommending that the subcommittee or some body of Congress ask
for a study by another group. Then having that-and I would as-
sume comparing it with Secretary Morton's findings-a decision
would be made.
Now, we already have the environmental impact study by Secre-
tary Morton so it would be a comparison with that. Is that correct?
Mr. DIENELT. It would be an additional study which for the first
time would provide an adequate analysis of the Canadian route. Let
me give you one example which relates back to the comment you
made with respect to the attitude of the Canadian Government.
In my testimony. I indicated public statements by the Government.
You have stated the administration has argued that the Canadian
Government is unfavorable. The plain fact is, and the adminis-
tration can't deny this, there have never been negotiations or dis-
cussions with the Canadians. I think your suggestion of having the
Canadian Government officials down here is an excellent one. But the
alternative is to have a study by an independent group, such as NSF
or NAS, which is authorized to go to Canada and find out the facts
with respect to feasibility of a Canadian alternative.
That is one example, and that would allow for an informed de-
cision which can't be made now. The Interior Department's analysis
is inadequate under NEPA and our point is the Interior Department
709
hasn't and won't make that kind of analysis that needs to be done
for Congress by an independent, unbiased, objective group, after
which Congress can make a decision.
Mr. YOUNG. Mr. Chairman.
Mr. MELCHER. I will yield in a minute. I want to complete my line
of thought.
Your recommendation is to have this done, and then the finding is
to be made by Congress. My line of questioning goes to whether you
are suggesting that this subcommittee make that finding.
Mr. DIENELT. I am suggesting that Congress make the decision.
So I suppose necessarily I am suggesting that this subcommittee get
the study that has been done, assure itself it is adequate, and make a
recommended finding, which I assume ultimately would be argued out
on the floor of the House and in the Senate, and a bill would be
passed authorizing-we fully expect the study would indicate the
superiority of the Canadian alternative. But, in any event. the bill
would pass.
Mr. MELCHER. I appreciate your opinion, but you would want this
committee to be objective, would you not?
Mr. DIENELT. For the first time we would like an objective evalua-
tion.
Mr. MELCHER. I think if we are going to be objective, we should
not have the results told to us prior to looking at it.
Mr. DIENELT. That is only my expectation. But the point is, the
bill-would be passed, findings would be made, a bill would be passed,
and Congress would act and it would be an informed and u iblased
judgment. Mr. MELCHER. You would also recommend those on the basis of
autonomy; is that right?
Mr. DIENELT. That is right.
Mr. MELCHER. Thank you, Mr. Dienelt. Those are my questions.
The gentleman from Guam.
Mr. Won PAT. I would like to make a short comment.
Generally, I would like to commend the panel of witnesses for their
very illuminating comments, or rather, testimony. I do not intend to
question the witnesses individually with respect to various aspects
of their testimony. I am sure that hearing your testimony, your
valid testimony warrants, I believe, reconsideration of the other as-
pect of this matter.
This is the first time I heard such arguments, of course, before
this committee. In the past I have heard, of course, mostly the argu-
ment for the trans-Alaska pipeline. There are bills, of course, intro-
duced supporting the Canadian pipeline. Now, whether the Canadian
pipeline is more efficient and economic, or the trans-Alaska, has yet
to be resolved. That, I believe, will be the responsibility of this com-
mittee before it reports to the Congress.
Mr. Chairman, that is all I have to say. I am very much enlightened
from the testimony of these gentlemen.
Mr. MELCHER. Thank you.
I apologize to the gentleman from Alaska. I said I would yield, and
I forgot to.
Mr. YOUNG. Mr. Chairman, you followed through on my line of
thought and I am okay.
710
Mr. MELCHER. The gentleman from Pennsylvania.
Mr. SAYLOR. First. Mr. Chairman. I would like to commend the
witnesses. As I commented before. they have taken up most of the
time in making their presentation. which I think could have been
used to better advantage by questioning from the members of the
committee.
Now. let's start with Mr. Dienelt. On page 6. top of the page. you
say. "A proper evaluation of the Canadian route and adequate ne-
gotiations with the Canadian Government can, in other words, take
place in relative short order."
Every Member of Congress the other day got a letter from the
gentleman who is a member of this committee. Mr. Meeds. pointing
out that after consultation by him with members of the Canadian
Government who are dealing with the native claims. that until the
native claims of the people of Canada are taken care which will be
a matter of 5 to 10 years. there will be absolutely no negotiations
taking place at all.
What do you have to say about that?
Mr. DIENELT. Mr. Savlor. I am very disturbed by that prospect
and T should think this Nation would be. If there are no negotiations
for 5 or 10 years because of no Canadian claims. there will be no gas-
lines in Canada. It is expected the gas companies will make an ap-
plication. for gas pipeline this year. With respect to that, there is
optimism as to the expeditionsness with which it can be achieved.
It is clear that if the gas pipeline is going to go through. there is
going to have to be a resolution of such issues as native claims. That
pipeline is expected. as I say. for application br the end of this year.
The estimate is by the company that it could be on line in 1978. So
I am quite surprised at the statement that you indicate was made in
the letter br. Congressman Meeds. I haven't seen the letter. I don't
know what Canadian official made that statement. but to me the con-
trast between that and between the statements with respect to the
urgent need for the gas pipeline and the fact it is expected to be
built within. approved and built within 5 years. is only another
illustration such as the one as I discussed with Congressman Melcher,
of the need for discussions by officials. some official discussions be-
tween this Government and the Canadian Government to iron out
those problems.
Because if we aren't going to get a gas pipeline for 5 to 10 years,
we are not going to be able to get gas out of Prudhoe Bay, and, as
I understand it. after the oil is flowing for awhile. they have to get
the grass growing. The State of Alaska won't let them flare it, and
that will be irresponsible in any event. They can only be injected in
the ground for a certain period of time.
What you are saying and Congressman Meeds is saving, if true,
means we are going to stop the gas pipeline and we are going to stop
the delivery of oil even after the Alaska pipeline is built. after it
has been on line for awhile. because gas is going to have to prevent
the oil from coming out of the ground.
Mr. SAYLOR. No: that is not correct. In other words. there will be
an application probably for a gas pipeline. which has been one of
the things that has been kept under the table for a long period of
time. Some of us have known about it but it isn't going to go through
711
Canada. It is going to go through Alaska. The application will come
through Alaska. not Canada. If Canada wants to build one from the
fields that are there, it will be for Canadian gas and not the gas that
comes out of Prudhoe Bay.
Mr. DIENELT. My only comment with respect to that is, it certainly
has been kept under the table, because the Department of the In-
terior and everyone else has widely assumed the only feasible way to
bring the gas out is through Canada. Naturally, the gas is going to
come out through Alaska as well. we are going to have quite a dif-
ferent situation and a different environmental situation and a dif-
ferent situation in the court under the National Environmental
Policy Act, and we will have a great deal of litigation with respect
to it.
Mr. SAYLOR. I can tell you that there is going to be a gas pipeline.
They are going to apply for their permit to build a gas pipeline
through Alaska and not through Canada. Everyone I have talked to
tells me that they don't intend to apply for the gas pipeline down
through Canada.
Now. you say there have been no negotiations, or no consultations,
except the Interior Department.
Mr. DIENELT. I'd say there has been none by the Interior Depart-
ment.
Mr. SAYLOR. There may be none by the Interior Department. It
just so happens that Congress has had a group called the Inter-
parliamentary Conference Between the Canadians and the United
States Congress. and they meet in Canada and they meet in the
United States. This had been one of the subjects of their conference
every time they have met. The next meeting is coming up fairly
shortly, and I have been asked by the chairman of the Foreign
Affairs Committee, who is chairman of the conference, to meet with
them again on the energy situation.
So I would recommend that you don't make such blanket state-
ments. as much as I approve of what you are trying to do. Just be a
little surer of your facts when you do it.
Mr. DIENELT. Congressman Savlor, if I can comment on that, I
think it would be a real service to the American people if reports
with respect to the parliamentary discussions that have taken place
regarding joint energy policy or pipelines from Alaska and from
Canada. if such a report would be made to the American people. I
think the American people are not aware of it. My statements are
based on the public record. which I believe I have examined care-
fully. and if this kind of information is made public, I certainly
would be willing to reconsider my statements.
Mr. SAYLOR. All right. And when you sav. on page 15. at the
bottom. "Long overdue negotiations. which would be required as
part of the congressionally-sponsored study." of course, a portion of
this has been going on with leading members of the Canadian Par-
liament and with members of the U.S. Congress. It will continue to
go on because there are a number of joint problems, many of which
are environmentally oriented. For example. the height of the water
on the Great Lakes. which vitally affects not only this country, but
Canada. And particularly with regard to changes that are occuring