Summary of responses to joint committee questionnaire of potential problems associated with the delivery of crude oil fr...

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Summary of responses to joint committee questionnaire of potential problems associated with the delivery of crude oil from Alaska's north slope / printed at the request of Henry M. Jackson, chairman, Committee on Interior and Insular Affairs and Warren G. Magnuson, chairman, Committee on Commerce, United States Senate, pursuant to S. Res. 45, a National fuels and energy policy study
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United States -- Congress. -- Senate. -- Committee on Commerce
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Table of Contents
    Front Cover
        Page i
    Senate resolutions 45
        Page ii
        Page iii
        Page iv
    Memorandum
        Page v
        Page vi
        Page vii
        Page viii
    Letter of transmittal
        Page ix
        Page x
    Potential problems associated with the delivery of crude oil from Alaska’s North Slope
        Page xi
        Page xii
    Table of Contents
        Page xiii
        Page xiv
    Question I: West coast petroleum supply
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
    Question II: West coast petroleum demand
        Page 10
        Page 11
        Page 12
        Page 13
    Question III: West coast surplus
        Page 14
        Page 15
    Question IV: Proposed responses
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
    Question V: Costs and prices
        Page 25
        Page 26
        Page 27
        Page 28
    Addendum
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
    Appendix. Responses to questionnaire
        Page 35
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    Back Cover
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        Page 374
Full Text





94th Congress COMMITTEE PRINT ,d Sessions


SUMMARY OF RESPONSES TO JOINT COMMITTEE QUESTIONNAIRE- ON POTENTIAL PROBLEMS ASSOCIATED WITH THE DELIVERY OF CRUDE OIL FROM ALASKA'S, NORTH SLOPE


PRINTED AT =HE REQuEST OF
HEENRY M. JACKSON, Chairman
COMMITTEE ON INTERIOR AND
INSULAR AFFAIRS
AND

WARRING. MAGNUSON, Chairman COMMITTEE ON COMMERCE
UNITED STATES SENATE
PURSUANT TO

S. Res. 45
A NATIONAL FUELS AND ENERGY
POLICY STUDY
Serial No. 94-43 (92-133)








Printed for the use of the
Committee on Interior and Insular Affairs

U.S. GOVERNMENT PRINTING OFFICE 79--745 0 WASHINGTON : 1976












SENATE RESOLUTION 45

NATIONAL FUELS AND ENERGY POLICY STUDY

This publication is printed for the use of Senators participating in the National Fuels and Energy Policy Study, authorized by Senate Resolution 45 of the 92d Congress.
Senate Resolution 45, introduced by Senators Jennings Randolph and Henry M. Jackson, was amended and agreed to by the Senate on May 3, 1971. The resolution authorized the Senate Committee on Interior and Insular Affairs and ex officio members of the Committee on Commerce and Public Works and the Joint Committee on Atomic Energy to make a comprehensive study of programs and policies required to meet national energy needs.
Subsequently, the Senate approved the addition of ex officio, members from the Committees on Aeronautical and Space Sciences, on Finance, on Foreign Relations, on Government Operatioiis, and on Labor and Public Welfare.

COMMITTEE ON INTERIOR AND INSULAR AFFAIRS
HENRY M. JACKSON, Washington, Chairman
FRANK CHURCH, Idaho PAUL J. FANNIN, Arizona
LEE METCALF, Montana CLIFFORD P. HANSEN, Wyoming
J. BENNETT JOHNSTON, Louisiana MARK 0. HATFIELD, Oregon
JAMES ABOUREIZK, South Dakota JAMES A. McCLURE, Idaho
FLOYD K. HASKELL, Colorado DEWEY F. BARTLETT, Oklahoma
JOHN GLENN, Ohio
RICHARD STONE, Florida
DALE BUMPERS, Arkansas
GRENVILLE GARSIDE, Special Counsel andl Staff Director DANIEL A. DREYFUS, Deputy Staff Director for Legislation WILLIAM J. VAN N~ss, Chief Counsel D. MICHAEL HARVEY, Deputy Chief Counsel OWEN J. MALONE, Senior Couflsel HARRISON LoEscH, Minority Counsel



Ex OiFFicIo MEMBERS FOR NATIONAL FUELS AND ENERGY Pouicy STUDY
Committee on Senators
AERONAUTICAL AND SPACE SCIENCES FRANK E. MOSS, 'Utah, Chairman
BARRY GOLDWATER, Arizona COMMERCE WARREN G. MAGNUSON, Washington,
Chairman
JAMES B. PEARSON, Kansas FINANCE RUSSELL B. LONG, Louisiana, Chairman
PAUL J. FANNIN, Arizona
FOREIGN RELATIONS CLAIBORNE PELL, Rhode Island
CLIFFORD P. CASE, New Jersey GOVERNMENT OPERATIONS ABRAHAM RIBICOFF, Connecticut,
Chairman
CHARLES H. PERCY, Illinois LABOR AND PUBLIC WELFARE WILLIAM D. HATHAWAY, Maine
RICHARD S. SCHWEIKER, Pennsylvania PUBLIC WORKS JENNINGS RANDOLPH, West Virgina,
Chairman
PETE V. DOMENICI, New Mexico ATOMIC ENERGY [JOINT] JOSEPH M. MONTOYA, New Mexico
HOWARD H. BAKER, JR., Tennessee


RICHARD D. GRUNDY, Executive Secretary and Prof essional Staff DAVID STANG, Deputy Director for Minority

































COMMITTEE ON COMMERCE

WARREN G. MAGNUSON, Washington, Chairman
JOHN 0. PASTORE, Rhode Island JAMES B. PEARSON, Kansas
VANCE HARTKE, Indiana ROBERT P. GRIFFIN, Michigan
PHILIP A. HART, Michigan HOWARD H. BAKER, JR., Tennessee
HOWARD W. CANNON, Nevada TED STEVENS, Alaska
RUSSELL B. LONG, Louisiana J. GLENN BEALL, JR., Maryland
FRANK E. MOSS, Utah LOWEL~L P. WEICKER, JR., Connecticut
ERNEST F. HOLLINGS, South Carolina JAMES L. BUCKLEY, New York DANIEL K. INOUYE, Hawaii JOHN V. TUNNEY, California ADLAT E. STEVENSON, Illinois WENDELL H. FORD, Kentucky JOHN A. DURKIN, New Hampshire MICHAEL PERTSCHUK, Chief Counsel S. LYNN SUTCLIFFE, Gen-eral Counsel DAVID FREEMAN, Prof essional Staff Member HENRY LiPPEK, Staff Counsel LESLIE GOLDMAN, Staff Counsel MALCOLM M. B. STERRETT, Minority Counsel STEvE McGREGOR, Staff Counsel















MEMORANDUM OF THE CHAIRMAN


To Memb~ers and ex~-officio membders of the National Fuels and Energy
Policy Study (S. Res. 45, 92d Cong.), Committee on Interior
and Insular Affairs:
This study presents an in-depth analysis of the answers to a questionnaire covering "potential problems associated with the delivery of crude oil from Alaska's North Slope." The questionnaire was sent on August 23, 1976 by Senator Magnuson, Senator Stevenson, and myself to 13 Federal agencies and departments; to the Governors of Alaska, California, and Washington; and to 6 private companies. Copies of the questionnaire were sent at later dates to 4 more private companies. This study includes replies received as of November 1, 1976.
The questionnaire was drafted by members of the Commerce Committee and Interior Committee staffs. This study was prepared for the Committees' use by the Congressional Research Service, Library of Congress, Specialist in Public Utility and Natural Resource Economics.
I believe that the factual information presented will be of great assistance to the Congress and the Nation in our deliberations concerning the most desirable policies to govern the disposition of crude oil from Alaska's North Slope. My colleagues and I appreciate the assistance of those who responded to the questionnaire and those who analyzed the results. R M.J C S N Chi n .

(V)



















Digitized by the Internet Archive
in 2013













http://archive.org/detaiIs/suesponsOOunit












U.S. SENATE,
CotMMrrm ON INTERIOR AND INSULAR AFFAIRS,
Washington, D.C., September 9,1976.
Dr. NORM.AN BEc]z AN,
Acting Director, Congressional Re8earch Service, Library of Congres, Washington, D.C.
DE R DR. Bwcm" : The Senate Committee on Interior and Insular
Affairs and the Senate Committee on Commerce recently sent a joint questionnaire concerning potential problems associated with the delivery of crude oil from Alaska's North Slope to various departments ald agencies within the Executive branch, the Governors of Alaska, Washington and California, and to a number of private parties who expect to transport some or all of the crude oil from the West Coast inland. Recipients were requested to reply to the questionnaire by September 13.
We have been concerned for some time now about the effect this crude oil will have on the overall West Coast supply and transportation systems. It is fairly clear that adequate planning and preparation have not been undertaken in order to fully accommodate this new domestic oil supply. It appears there is not sufficient demand for that oil on the West Coast; the necessary arrangements have not been made to transport it to either the Northern Tier refineries which will soon lose their source of supply from Canada or to other refineries in the Midwest.
In order to do a proper job of analyzing the responses to the questionnaire we would like to request the assistance of Dr. Douglas N. Jones, Acting Chief of the Economics Division. Dr. Jones and the members of his staff have been of considerable assistance to us in the past on similar efforts and have provided considerable expertise and insight that otherwise would have been lacking in our analytical efforts. Dr. Jones is an expert on the Alaska pipeline in particular and on regulated industries in general and would be of great assistance in this study. One other member of the Economics Division staff, Mr. Larry Kumins, has already been assisting in preparing an introductory chapter for the eventual Committee publication of this study.
As always, we appreciate your continued assistance in our efforts.
With best wishes,
Sincerely,
WARREN G. MAGNUSON, Chairman. HENRY M. JACKSON, Chairman.
ADLAI E. STEVENSON, U.S.S.
(VII)















LETTER OF TRANSMITTAL


THE LIBRARY OF CONGRESS, CONGRESSIONAL RESEARCH SERVICE, Washington, D.C., November 24,1976.
To: Hon. Adlai E. Stevenson, (Attention of Leslie Goldman), Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce,
(Attention of Henry Lippek), Hon. HENRY M. JACKSON,
Chairman, Committee on Interior a'nd Insular A fairs,
(Attention of Betsy Moler), U.S. Senate Office Building, Washington, D.C.
DEAR SENATORS STEVENSON, MAGNUSON, AND JACKSON: As you reUested we have now completed summarizing the replies you received f your August 1976 joint questionnaire, "Potential Problems Associated with the Delivery of Crude Oil from Alaska's North Slope." Taken together with your recent hearings and a compendium of the full responses, this report should allow the reader a way of readily coming abreast of the issues and information still surrounding the important policy question of the best routing and disposition of this soon-to-beavailable oil from Alaska.
Yours truly,
NORMAN BECKMAN,
Acting Director.
(IX)






























POTENTIAL PROBLEMS ASSOCIATED WITH THE DELIVERY OF CRUDE OIL FROM ALASKAS NORTH SLOPE
Prepared by Dr. Douglas N. Jones, Lawrence Kumins, Kenneth De Jarnette, Economics Division; John Jimison, Environment and Natural Resources Policy Division; Raymond Celada, American Law Division, November 1976





(xI)

















CONTENTS

page
Memorandum of the v
Letter of transmittal ----------------------------------------------- Ix
Question I: West Coast Petroleum
A: Crude Oil
B: Refinery 8
Question 11: West Coast Petroleum 10
Question III: West Coast 14
Question IV: Proposed 16
Question V: Costs and 25
29
APPENDIX
Responses to 35
(XIIII)
















INTRODUCTION

This report summarizes the 10 responses received to the Interior and Commerce Committees' August 1976 questionnaire entitled "Potential Problems Associated With the Delivery of Crude Oil From Alaska's North Slope." The summaries are keyed to the many questions posed in that questionnaire which is reproduced as Appendix 1. An attempt was also made to indicate to the reader what the importance of a particular question was along with the significance of particular answers.
John Jimison of the Environment and Natural Resources Policy Division prepared sections I andl; Larry Kumins, Kenneth De Jarnette, and Dr. Douglas Jones of the Economics Division prepared sections 11, IV, and V, respectively.
Appended to these 5 sections is a memorandum by Raymond Celada of the American Law Division regarding the legal aspects of pipeline rights-of-way and oil exports.

1. 'WEST COAST PETROLEUMNJ SUPPLY
The first set of questions posed by the committees dealt with the supply of crude oil and refined products likely to be available to the West Coast of the United States upon completion of the Alaskan oil pipeline.
A. CRUDE OIL SUPPLY
Three sources of crude oil were examined: Alaska-North Slope, West Coast (PADD V) other than the North Slope, and imports from overseas. The various responses received by the committees which dealt substantively with this topic are summarized for each.
1. Alas/a-North Slope
(a) What is your best current estimate of the date of first deliveries of North Slope crude oil at Valdez through the Trans-Alaska Pipeline?
Without exception, the respondents indicated that crude oil would begin flowing through the pipeline in 1977. Some were willing to be precise, most were nt '
Ashland provided a straightforward answer: "July 1, 1977." Three other companies merely indicated "mid 1977."
All the other responses to this question are subordinate to and probably derived from that of the Alyeska Pipeline Service Company, which is building the pipeline and will operate it. Alvesk.a's "be(st current estimate" is the summer of 1977 for the first oil deliveries to Valdez, certainly prior to September, and quite possibly in Jul1y.
(b) To what extent does this estimate reflect (Ilestion1S, nowV being raised concerning pipeline welds or other potential or anticipated technical delays?






2

This question refers to charges that a number of welds along the Alyeska pipeline are deficient and were falsely reported to have been adequate. Hearings on the question have been held both in the House of Representatives and the Departmentof Transportation.
Alek Pipeline Service Company states that its prediction of first throughput in the summer of 1977 takes into account the weld repair
situtio. Ayeska, states that "of the less than 4.000 welds, sme 3,390 have been resolved by repair and other remedial means to 'this date. 'We, have recently requested exemptions for some 600 relatively inaccessible welds which our fracture mechanics studies have indicated are quite acceptable from the standpoint of strength and inte-rty" .. "we feel confident that they will not delay completion of construction of the Pipeline System and delivery of the first crude 0oil through the system to the terminal at~ Valdez".'
No respondent contradicted Alveska in its confidence -that welding problems would not delay start-up.
Unfortunately, the Department of Transportation which must approve the exceptions, made no substantive response to any portion of the questionnaire, generally deferring to the Federal Energy Administration and its ongoing study of the situation. The FEA study made no reference to the pipeline weld situation.
Despite the optimism of the pipeline company and other respondents, it is not a foregone conclusion that the 600 inaccessible welds will be approved on the basis of a fracture test. Moreover, an investigative report by the staff of the Energy and Power Subcommittee of the House Interstate, and Foreign Commerce Committee has alleged that later welds suffered the same defects as the ones currently in question. Al-yeska has denied these allegations. Alyeska did not speak to the delays involved if the except-ions applied for are not granted, nor to those implicit in any Possible follow-iip on the later allegations. Because of the great environmental sensitivity of the oil pipeline routes, it may perhaps be wisest to note, as Sohio alone did, that the continuing investigation and consideration of the welding situation casts some doubt on the scheduled start-up time.
(c) What are your best current projections of production and deliveries of North'Slope crude oil at Valdez from their commencement for each year through 1985 (taking into account producing capacity in the field, pipeline transport capacity, deliveries within Alaska, and use, for pipeline fuel) ?
The respondent's estimates of Alyeska pipeline throughput to 1985 generally followed a uniform forecast. In general, the respondents all anticipated that the pipeline would begin operations in 1977 carrying about 600,000 barrels per day of crude oil, quickly building that total to the level of 1.2 million barrels per day which can currently be carried. All respondents anticipated that level of throughput in early 1978.
Further on, however. the responses diverged. The current consortium agreement of the pipeline's owners holds throughput at that level. Without an amendment to that agreement among the pipeline owners, and some construction of additional compression,thcurnla1. As of November 19, 1976, 34 welds remain unrepaired.






3

theorized throughput of 1.2 million barrels per day will be the maximum. The consensus of the respondents was, however, that the agreement would be modified when required and the compression additions would be made. Significantly, perhaps, Alyeska Pipeline itself did not hazard a prediction of any authorized change in throughput levels.
Of the respondents, those who predicted the earliest increase above the 1.2 million barrel per day throughput were two oil companies, who predicted 1979 throughput of 1.4 and 1.45 million barrels per day. By 1980, however, all respondents except one-government and companies alike-anticipated that Alyeska throughput will be at or approaching the projected MER (maximum efficient rate) of production for the Sadlerochit formation of the Prudhoe Bay field: 1.6 million barrels per day. The one exception is Sohio, which anticipates throughput of 1.2 million barrels per day until 1982, at which point throughput would rise to 2 million barrels per day, assuming the necessary construction, and some additional reserves being dedicated.
TABLE 1.-ESTIMATES OF THROUGHPUT OF THE ALVESKA OIL PIPELINE [Millions of barrels per day]
Respondents 1977 1978 1979 1980 1981 1982 1983 1984 1985
Department of the Interior --------- 0.6 1.2 1.2 1.6 1.6 1.6 1.6 1.6 1.6
Federal Energy Administration:
Questionnaire ---------------------- 1.2 1.2 1.6 1.6 1.6 1.6 1.6 2.0
Study -----:-------------- -6-1.2 1.3 ---- 1.6 ----------------------------- 2.0
Federal Power Commission ----------.6 1.2 1.2 1.5 1.5 1.7 1.8 1.8 1.9
State of Alaska ---------------- -6-1.2 1.2 1.2 1. 5-1.6 (peaks to 1. 8)
Alveska Pipeline Service --------. -6-1.2 1.2 1.2 (1.2 pending amendment of consortium agreement)
Atlantic Richfield -------------- -6-1.2 1.2 1.4 1.5 1.6 1.6 1.6 1.6 1.6
Exxon------------------------- .6 1.2 1.2 1.5 1.5 1.5 -----------Ashland ----------------------- .6 1.2 1.4 1.7 1.9 2.0 2.0 2.0 2.0
Sohio (assuming agreement to expand capacity) ----------------- .6 1. 2 1.2 1.2 1.2 2.0 2.0 2.0 2.0

The 1.6 million barrel per day throughput is anticipated by the Department of the Interior and the Federal Energy Administration's questionnaire response to remain stable until the end of the projected period in 1985, with FEA suggesting an increase in that year alone to 2 million barrels per dtay.
Two oil companies agreed that the 1.6 million barrels per day level would be maintained, but Ashland (using "publicly -avail-able data") joined Sohio in anticipating throughput of 2 million barrels per dlay in 1982. The Federal Power Commission based its response on a study by DeGolyer and MacNaughton, a well known petroleum consulting firm, performed for Sohio. The FPC's estimates derived from the DeGolyer and MacNaughton study vary from Sohio's own, and anticipate fairly steady increases of production from 1.5 million barrels per day in 1980 to 1.92 in 1985. The State of Alaska suggested that somp throughput fluctuation between 1.5 and 1.8 million barrels per day could be exn~ected after 1980, and also noted that any surplus of crude oil developing in the market for Alaskan crude might be reflected in State production controls an d dimiinished pi pel ine throughput.
No respondent contradicted the general estimation that Aiyeskan throughput would exceed 1.6 million barrels per day only if additional oil were found; the projections of quantities -above that amount thus suggest the respondents' ideas of the likelihood of additional Alaskan discoveries.

79-745 0 76 2






4

Despite the variations, the harmony among the estimates from the different respondents is great. The consensus projection might best be stated as follows: .6 million barrels per day initially, rising quickly to the currently agreed 1.2 million barrels per day; rising then to a level equal to optimum production of the Prudhoe Bay field (1.6 million barrels per day) at about the end of the decade; and remaining between that leveland the maximum feasible pipeline throughput of 2.0 million barrels per day through the remainder of the period to 1985, depending on the discovery and dedication of additional reserves to the, pipeline.
2. Vest coast prodwtion
(a) What is the current production of crude oil in Petroleum Administration for Defense District V?
There was only marginal disagreement about current production of crude oil in PAD District V, and most of that disagreement apparently derived from the time of the report cited (i.e. year end 1975, etc.) rather than actual disagreement about the quantities of oil involved. The highest estimate w as that of Sohio and the FPC (again from the DeGolyer and MacNaughton report): 1.076 million barrels per day. The low estimate was that of the Department of the Interior: 1.06. All the estimates given round off to 1.1 million barrels perday.
The FEA study, in its tables of projected crude oil production, cites 1.976 production for California and Alaska (Cook Inlet) of 964 and 170, respectively, for a total of 1.134. This -total is higher than the iiext highest estimate by more than 50,000 barrels per day, and more than 60,000 barrels per day higher than the current production reported on the FEA questionnaire response. Whether this figure is based upon actual reports or is a projection in unclear. Whatever the case may be, the current production in the region is roughly 1.1 million barrels per day.
(b) What are your best current projections of production from PAD District V other than from the North Slope for each year through 1985 (taking into account Elk Hills production and the Outer Continental Shelf) ?
No extreme differences in amounts of anticipated crude oil production from PAT) District V excluding the North Slope were revealed among the respondents in answer to this question. Only five of eighteen respondents provided quantitative estimates in response to this question. Such entities as the Department of the Interior, the State of California, and Atlantic Richfield were among those not hazarding a guess.
Until 1980, all five submitted estimates are within 100,000 barrels per day of each other. The predicted trends are a matter of interest, however. Exxon and Sohio present the most conservative projections, essentially flat production for the period covered. Ashland foresees moderate growth to a plateau of about 1.4 million barrels per day. The FPC obtains its data again from the DeGolyer and MacNaugton study for Sohio. Oddly, the FPC states in its response to the questionnaire that, "The report indicates that production of crude oil in PADD V other than from North Slope will continue to decline, through 1985.11 In fact, the DeGolver and AfacNauiThton study shows steady projected increases (after flat production through 1980) and






5

is second only to FEA in predicting production expansion to 1.6 mill ion barrels per day by 1985.
The variations in the estimates are largely due to the very rough guesses of -new production from offshore fields and other new provinces, rather than a difference of opinion about the production outlook for existing onshore California wells.
TABLE 11.-PROJECTED WEST COAST (PADD V) PRODUCTION OTHER THAN NORTH SLOPE [Millions of barrels per day]
1977 1978 .1979 1980 1981 1982 1983 1984 1985
Federal Energy Administration:
Questionnaire------------------------ 1.2 1.3---------------1.7
Stdy------------1.2 1.2 13----1.---------------------------- 1.7
Federal Power Commission-___---. 1.1 1.1 1.1 1.2 1.3 1.4 1.5 1.6
Exxon ------------------------ 1.1 1.1 1.2 1.2 1.2 1.3
Ashland ----------------------- 1.1 1.2 1.2 1.3 1.3 1.4 1.4 1.4 1.4
Soio-----------------1.2-1.4 ---------1.4 ---------1.3
Note: Estimates rounded to nearest 100,000 bbl/day.

None of the respondents foresees a decline in the production of crude oil in PAD District V other than the North Slope. But there is no agreement as to whether or not a significant increase in nonNorth Slope PADD V production can be expected. The Pacific ocean floor apparently holds the answer to this question, as new production from Elk Hills will essentially balance declining production from older working fields onshore.
3. Imports
(a) What is the current level of crude oil and product imports into PADD V by country of origin? (Please indicate whether the crude oil imports have relatively high or low sulfur content.)
All respondents used data concerning imports produced by the Bureau of Mines of the Department of the Interior from raw data reported by the Bureau of the Census of the Department of Commerce. These data show that for the calendar year 1975, PADD V required 851,000 barrels of crude oil imports per day and 120,000 barrels of petroleum products imports per day. In the first quarter of 1976, the crude oil import total had risen 'to 867,000 barrels per .day, but pro-duct imports had dropped 30 pei'cent for a slightly reduced total.
The response of the FEA included information about average sulfur levels. This showed that 600,000 of the 851,000 barrels of crude oil imported dail-y during 1975 were of less than 1 percent sulfur. The imported crude from the two major countries supplying PAD District V in 1975, Indonesia and Canada, averaged 0.08 percent and 0.28 percent sulfur, respectively, and constituted .54 percent of the daily imports. In its responses. Exxon estimated that 65 percent of the crude oil imported was of low sulfur qu-ality; the actual 1975 figure was 70 percent.
The phase down of Canadian crude oil exports is evident in the first quarter of 1976, as Canada sent. more than 50,000 barrels per day less to PAD District~ V than during the calendar year 1975. Saudi Arabian exports rose 50,000 barrels per day, gaining second place to






6

Indonesia, the most prolific exporter to the U.S. West Coast during both periods.
TABLE Ill.-CRUDE OIL IMPORTS INTO PAD DISTRICT V, BY COUNTRY OR ORIGIN AND SULFUR CONTENT (Thousands of barrels per dayl
Ist quarter Average sulfur
Exporting country 1975 quantity 1976 quantity content, 1975
(percent)
Indonesia -------------------------------------------- 295.4 392.7 0.1
Saudi Arabia ----------------------------------------- 95.6 146.0 1.7-2.9
Canada ---------------------------------------------- 163.6 110.2 .3
Iran ------------------------------------------------- 105.2 91.0 1.5
United Arab Emirates ---------------------------------- 49.9 57.7 1.5
Gabon ----------------------------------------------------------------- 18.4 -----------------Ecuador ---------------------------------------------- 52.7 16.2 .8
Qatar ------------------------------------------------ 10.9 8.4 -----------------Malaysia --------------------------------------------- 5.4 6.7 -----------------Nigeria ---------------------------------------------- 13.8 .1 .1
Venezuela -------------------------------------------- 44.1 3.9 1.5

The imports of petroleum products into PAD District V are not as substantial as crude oil im-Dorts. Canada led the 11.9-75 exports of products, sending 21,400 barrels per day into the Pacific Northwest. Venezuela,, Singapore, the Netherlands Antilles, and the Bahamas were the only other regions of origin sending an average of more than 10,000 barrels per day of -products in that year. In the first quarter of 1976, Canada's place as the premier exporter of products to the West Coast was overtaken bV an area referred to as the "Hawaii trade zone", which refers to -product imports from Hawaii where duties had not previously been paid. The actual country of ori m6n of the crude was not traced. 26,956 barrels per day came from the "TTawaii trade zone", and Canada's shipments were up sligbtlv to 25.297 per dav. Again, the Netherlands Antilles, Singapore, and the Bahamas played significant subordinate roles.
(b) What are vour best current projections of crude oil and product imports into PAD District V by country of ori-in for each year through 1985? (State assumptions behind those projections regarding measures identified in Question TV A.)
The only respondent to the questionnaire which fullv answered this question with quantities estimates was Exxon. Estimates for some years were provided bv the FEA's questionnaire response, and by the FPC based on Sohio data. The FEA study projects imported qu'antities of crude oil. As the data in Table TV"sbows, the estimates of imported crude oil vary.
TABLE IV.-PROJECTED IMPORTS OF CRUDE OIL INTO PAD DISTRICT V [Thousands of barrels per day]
1977 1978 1979 1980 1981 1982 1983 1984 1985
1. Federal Energy Administration --- I --------------- 500 --------------- if -------------- 300 to 500 ---------------- I
Questionnaire ---------------------------------------------------------------------------------------Study: High case ------------- 642 532 -------- 500 -------- 500 ---------------- 500
Low case---.--, -------- 642 532 -------- 300 -------- 300 ---------------- 300
2. Federal Power Commission -------------- 550-650 ------------------------ 500 -----------------------3. Exxon ------------------------- 800 600 500 600 500 500 400 300 0

There are two basic patterns anticipated. The Federal Energ)r Administration and Federal Power Commission apparently see an early






7

diminution of imports due to Alaskan crude oil replacing the higher sulfur imports, but a fairly steady need for low surfer imports until the end of the period in 1985. This continuing need is 500,000 barrels per day without substantial refinery conversion and 300,000 barrels per day even if refineries are converted to process higher sulfur crude oils.
Exxon, on the other hand, sees only gradual replacement of current imports, with quantities declining to a plateau of about 500-600,000 barrels per day in 1980, and then again dropping to zero by 1985. Exxon apparently envisions less early substitution of Alaskan crude oil for imports than FEA, but also less problem in the eventual elimination of all imports, suggesting a greater possibility of refinery conversions.
Since Alaskan oil is lower in sulfur content than approximately 30 percent of the current imports, the apparent projection of continued imports of higher sulfur oil begs for an explanation. Exxon notes only that "the majority" of projected imports "will. be low sulfur". In its response, Ashland notes that some minor high-sulfur imports may continue in the face of Alyeska throughout because the North Slope oil is heavy and a light oil may be required, despite sulfur level disadvantages.
Despite the differences in both the early and late years of the period, it should be emphasized that the estimates f or the years 1980-1982 are very close. This probably reflects anticipation by all respondents of a time when most high sulfur imports have been replaced, but when continued low sulfur imports are necessary because of the time required and economic factors involved in conversion of refineries to process the. sour North Slope. crude.
Imports of petroleum products, which showed a 30 percent decline between 1975 and tbe first quarter of 1976, are also viewed differently by the respondents. Exxon, which predicted a relatively steady decline of crude oil imports, anticipates a stable level of products imports at about 100,000 barrels -per day through 1984, and dropping off in 1985. FEA, on the other hand, which predicted fairly stable crude imports, suggests that product imports will continue to decline in the cinestionnaire response, and does not provide a forecast in the study. No respondent indicated that products imports, currently only a small part of the supply picture, will increase in significance. They are anticipated either to remain at a low level or decline.
TABLE V.-ESTIMATES OF CURRENT REFINERY CAPACITY AND THROUGHPUT IN PAD DISTRICT V [Millions of barrels per day]
Percent
Respondent Capacity Throughput of capacity
Department of Interior --------------------------------- 2.5 1.9 76
Federal Energy Administration:
Questionnaire ------------------------------------- 2.357 1.98 84
Study -------------------------------------------- 2.357 12.155,2 1.985 91,84
Federal Power Commission ----------------------------- 2.354 1.90 81
Atlantic Richfield -------------------------------------- 2.7 2.2 81
Exxon ----------------------------------------------- 2.305 2.002 87
Ashland ---------------------------------------------- 2.588 2.329 90
Sohio ------------------------------------------------ 2.4 2.022 84
1 From study p 10 table 11-2.
2 From study p: 50: table 11-16.






8

B. REFINERY CAPACITY
This part of the questionnaire follows up on the first part. Once the supply of crude oil from Alaska, the other regions of PAD V, and foreign countries is determined, one must look fo' the refineries receiving this crude oil and determine the capacity they have to manufacture from it the needed petroleum products. The three questions concerning his topic relate to current refinery capacity and throughput, projections of capacity and throughput, and the capability of the refining capacity to use Alaska crude oil.
1. What is the current refinery capacity and throughput in PADD V? There was minor disagreement on the current capacity to refine crude oil in PAD District V among the respondents. The data sources varied, and the period of measurement (i.e. calendar year 1975, or Jan. 1, 1976, etc.) differed, leading to estimates ranging from a high of 2.7 million barrels per day of capacity (Atlantic Richfield) to a low of 2.305 million barrels per day (Exxon). A difference of 400,000 barrels per day is significant.
The throughput estimates vary similarly, from a low estimate of 1.9 million barrels per day from the Department of the Interior and the FPC to 2.3 from Ashland oil-also a 400,000 barrel per day discrepancy. It is possible that much of the discrepancy is related to input of natural gas liquids and condensates in West Coast refineries which may or may not have been treated as crude oil throughput by respondents. Yet this difference apparently, only accounts for about 170,000 barrels per day, judging from the FEA study, and the high and low estimates of capacity were m.ade by different respondents than the high and low estimates of throughput.
The calculated percent of refinery capacity utilized thus varies from a low of 76 percent in the Department of the Interior estimate, to a high of 90 percent in the judgment of Ashland. Ashland cites FEA as the source of its data, but the FEA's own questionnaire response suggests 84 percent refinery utilization.
The most reasonable conclusion that can be drawn from the responses are that current refinery capacity is probably about 2.4 million barrels per day and current throughput is probably about 2.1 million barrels per dav, selecting the median estimates, but that there is some flexibility in both quantities.
2. What are your best current projections for refinery capacity and throughput in PAD District V for each year through 1985?
The -projections provided of refinery capacity and throughput did not exhibit an- v enormous discreDanei'es. In general, the respondents anticipated that the capacity of PAD District V refineries will rise to about 2.9 million barrels per day and hold that level until 1980-82, and that througbnut will reach a total of about 2.6 million barrels per day during the same period.






9
TABLE VI.-PROJECTION OF REFINING CAPACITY (RC) AND THROUGHPUT (T) IN PAD DISTRICT V [Millions of barrels per day]
1977 1978 1979 1980 1981 1982 1983 1984 1985
Respondents RC T RC T RC T RC T RC T RC T RC T RC T RC T
Department of the
Interior ----- 2.8 ----- 2.9-- 2.9 ----- 2.9 ---------- ------ -- --------
Federal Energy
Administration --- 2.8 2.1 2.9 ----- 2.9 ----- 2.9 2.3--------------------------------------- 2.9
Federal Power
Commission ------------ 2.8 2.5-------------------------- 3.1 2.8--------------Sohio ------------------- 2.8 2.4 --------- 2.8 2.5 ------------------------Exxon -----------2.8 2.5 2.8 2.6 2.9 2.6 2.9 2.6 2.9 2.6 2.9 2.7 3.1 2.9 3.4 3.1 3.5 3.2
Ashland ---------2.8 2.5 2.9 2.6 2.9 2.6 3.0 2.6 3.0 2.7 3.1 2.8 3.1 2.8 3.2 2.9 3.2 2.9

Only Exxon and Ashland provide numerical estimates beyond 1982, which reveal differing interpretations of the capacity and throughput developments during that part of the prediction period. Exxon foresees continued growth; Ashland projects relatively flat capacity and throuLYhput.
3. What part of the current and projected PAD District V refinery capacity is capable of processing Alaskan crude oil or crude oil of simiIar grade ?
The only respondent to provide substantive estimates in response to this question was Ashland oil, citing data obtained "informally" from FEA-, data that appears in neither FEA's own response to the questionnaire nor in the FEA Stud-y. For the FEA study, unsuccessful attempts were made to obtain data from individual companies and refineries, and a computer model wa's then used to simulate the use of Alaskan-type crude oil in 'West coast refineries at various prices. The summary chart from this model plots usage of Alaskan crude at various prices, and indicates that at prices of less than about $11.50 per barrel delivered, about 1.05 million barrels per day would be used of the 1.2 million barrels per day of North Slope production. This suggests complete replacement of all other similar crudes and a total capacity to use such sour crudes of 1.05 million barrels per day.
The Department of the Interior estimated that 65 % of current refinery capacity was capable of processing sour crude. Given Interior's estimate of current refinery capacity at 2.5 million barrels per day, this suggests current sour crude refinery capacity of 1.625 million barrels per day.
In its questionnaire response, FEA includes a 1975 table showing 1.892 million barrels per day of capacity in "refineries likely to utilize North slope crude."
The changes from the current capability to refine sour- crude are likely to depend on the relative cost of Alask~an crude and on the ability to pass refinery modification costs through to customers. Unless Alaskan crude has a price advantage and conversion costs can be recovered, it is unlikely that refineries will be modified to accept the higher sulfur crude.
The Ashland estimates obtained "verbally" from FE-,\ are ,is follows:






10

IMillions of barrels per day]
PADD V
Sour crude
Year Total capacity capacity Percent of total
1976 ------------------------------------------- 2.588 1.692 59.1
1977 -------------------------------------------- 2.835 1.914 65.4
1978 -------------------------------------------- 2.874 1.956 67.5
1979 -------------------------------------------- 2.906 1.984 68.1
1980 -------------------------------------------- 2.938 2.012 68.3
1981 -------------------------------------------- 2.996 2.052 68.5
1982 -------------------------------------------- 3.056 2.093 68.5
1983 -------------------------------------------- 3.118 2.136 68.5
1984 -------------------------------------------- 3.186 2.178 68.5
1985 -------------------------------------------- 3.243 2.221 68.5

The other current estimates noted above can be compared with the 1976 report in this data series to provide some indication of whether Ashland's projected capacities are reasonable. If the percent of capacity that is capable of using sour crude is accurate in the Ashland series (and it does agree with the Department of the Interior's estimate), then the projected refinery capacities (Table VI) can be multiplied by approximately 65% to determine sour crude capacity.
Although most respondents did not respond to this question adequately, estimates can be derived from information provided in response to other questions which are perhaps as reliable as can be expected without 1,aving access to individual refinery plans. The capacity to use sour crude oil in West Coast refineries is a factor highly s1-ensitive to delivered prices and other factors.

TI. WEST COAST PETROLEUM DEMAND
A. What is the current demand for crude oil and refined petroleum products in PADD V ?
B. What are your best current projections f 'or crude oil and refined petroleum product demand in PADD V for each year through 1985?
The a~qgresaate level of PADD V demand for oil products is a variable with widespread impact on the economics of Alaskan oil. Because transport~ facilities to other PADD's are not currently extant or are very exepnsive, a localized surplus will occur if PADID V demand falls far below pre-Embargo expectations. Obviously the extent of a surplus is in part a function of West Coast demand, and the determination of this latter is the point of the question.
The FEA paper submitted in response to the questionnaire cites an Interior Department communication to Congress of April 4, 1973, which characterizes pre-Embargo forecast levels for PADD V producet demand. At that time, Interior predicted West Coast demand would be 3.315 mhd in 1980 and 4.052 mbd in 1985. At these demand levels, a PADD V shortage of nearly one mbd was forecast, leading Interior to state:
Obviously, all Alaskan oil can be consumed on the west coast, taking the place of foreign oil that would have to be imported. There is no indication of any export of Alaskan oil.








FIGURE 1
SUMMARY OF PETROLEUM DEMAND ESTIMATES BY CERTAIN COMPANIES AND AGENCIES RESPONDING TO QUESTION NO. 11
IA-FPC; B-FEA; C-Sohio1, lower bound; D-Sohio2, upper bound; E-Arcol, lower bound; F-Arco2, upper bound; G-I nterior, 1973; K-Ashlandj
Million barrels per day
0.00 1.00 2.00 3.00 4.00 5.00
Date- + + + ++
January 1975 - - - -- --C
January 1976 -- - -- -- ---- BEF - --
January 1977 -- -- --- -- -A
January 1978 ------ -----BH2DF A----January 1979 ----------- ---- ---- -- --- -- --
January 1980 -- - - -- -AG- ---
January 1981 ---------- ---- ---- ---January 1982 ------ ---- -- B 2 C D2
January 1983 ---------- ---January 1984 ---------- ---- ---- ---January 1985 --------- __ _ ----_ ____ __- ---B HAG-Date+++_+++
0.00 1.00 2.00 3.00 4.00 5.00
Source: Responses to question No. 11, and CRS estimates. N.B. the digit 2 indicates 2 data points failing on the same spot.

Responses to Question II from both the companies and the agencies frame up current thinking. The range of responses is displayed in Figure 1, along with the Department of the Interior's 1973 estimates for comparison. Because the key variable is aggregate end user demand, and this ultimately determines crude demand, we have focused attention on 'product demand in the summary chart, especially 1978 and 1982, which represent milestones at which time TAPS throughput is expected to reach 1.2 mbd and 2.0 mbd respectively.
Figure 1 shows how the respondents' overall oil product demand estimates diverge, or fan out from, present consumption levels over time. It also portrays FEA's forecasts as the lower bound of current thought on PADD V demand, with FPC/Pace at the upper end. Of further note is the 1973 Interior estimates, which fall above highest 1976 vintage forecasts.
The matter of a PAIDD V surplus and West Coast demand also has an impact on the economics of Alaska crude production. If there is inadequate PADD V demand, this oil will have to be sold in more distant markets (or shut in). Transport to them, by whatever means, will be more costly than transport within PADD V, and this will mean lower wellhead net backs for producers and royalty owners in Alaska. This phenomenon will occur as Alaskan crude competes with other crudes at distant locations, given the fact that foreign crude most likely -ill have lower transport costs. In order to be price competitive, given high transport costs, wellhead prices will have to be backed off to 0te, point that the total delivered cost of Alaskan crude (i.e., crude pluis transport) will equal that of competitive imports from elsewhere.
Turninga to the content of particular responses, the FPC reply to Question 11 draws on a Pace Company stud-y done for SOHIO. The Pace stuidy is based on an average 3.6 percent per annum product demand growth rate. Table 1 shows how this plays out over the time frame of interest. Within the 197'2-1995 period of the forecast, this 8.6 nercent average growth rate varies from subperiod to suhperiod. Their projections are not a simple straight line. Rather, the('y are based upon an analysis of demand for fuel in six consuming sectors, under






12

a "most probable" scenario which includes the influence of these important factors on aggregate PADD V energy demand
-Relatively rapid growth of nuclear power.
-Alaskan LNG imports to California savings 653,000 b/d of oil,
in the early 1980's.
-Various gasoline saving trends in the auto sector.
TABLE I.-PACE/FPC ESTIMATE OF PADD V REFINED PRODUCT DEMAND
Growth rate from
Demand (thousand 1975 (percent
Year barrels per day) per year)
1977 ------------------------------------------------------------------- 2,895 14.4
1978 (estimate) --------------------------------------------------------- 3,010 10.8
1980 ------------------------------------------------------------------- 3,251 8.0
1982 (estimate) --------------------------------------------------------- 3,300 5.9
1985 ------------------------------------------------------------------- 3,339 4.2
Source: Pace Study with CRS interpolations.
We have interpolated 1978 and 1982 as milestone year figures to dovetail with anticipated throughput changes.
FEA responded to the request for information with a study of great detail -and substance. Various parts of the report (entitled North Slope Crude-Where To?-How?) address Questions A and B and the relevant material is summarized below. Their response to the inQuiry was not explicitly keyed to the questionnaire, so we have imputed answers to the questions based on material contained in the text.
FEA report is marred, as far as Question 11 is concerned, by an apparent error wherein its 2,287mbd product and 2,383 mbd crude demand estimates are alternately cited as applying to the vear 1978 (page 52 and figure 13 on page 128) and 19,80 (In tables 111-13 and 11-14). It appears that these figures apply to 1978, although this is uncertain. Nevertheless, Table 2 embodies this interpretation of what FEA intended. It appears that product demand figures come from unpublished FEA data in the National Energy Outlook Data Base.
TABLE 2.-FEA'S IMPUTED RESPONSE TO QUESTION 2
Product demand Growth rate from Crude demand
(thousand barrels 1975 (percent (thousand barrels
Year per day) per year) per day)
1976 ------------------------------------------------- 2,311 4.5 2,056
1978 (?) ---------------------------------------------- 2 383 2.5 2,287
1982 (estimate) --------------------------------------- 2:600 2.3 2,530
1985 ------------------------------------------------- 2,966 3.0 2,875
Source: FEA report with CRS interpolations.
We have interpolated data for the milestone vear 1982, based on the 1978-1985 growth rate of 2.2 percent per annum for products and 2.6 percent per annum for crude. The differential between these growth rates indicates an implicit belief that some refined product imports to PADD V will be replaced by material refined within the district itself.
The FEA study (Chapter TI, Section E) contains a rather sophisticated treatment of the components of product demand. This is a note-






13

worthy exercise which includes a refinery-by-refinery capability survey and other considerations. Its orientation is more toward estimating the PADD V surplus and is therefore considered in the Question II response analysis. It does, however, support FEA's crude oil demand estimates.
SOHIO's basic demand projection assumes what may well be a high 5.5 percent per annum growth rate in product demand during the 1975-1978 time frame. Thereafter, SOHIO forecasts growth declining to the 4-5 percent yearly rate, although they note that this is subject to many vicissitudes. Table 3 reproduces SOHIO's demand estimates for the milestone years, as well as the total amount of percentage increase above 1975 level.
TABLE 3.-SUMMARY OF SOHIO RESPONSE TO QUESTION 11
Product demand Growth rate Crude demand (thousand barrels from 1975 (thousand barrels Year per day) (percent per year) per day)
1975----------------------------------------------- 2211 -----------------1978-------------------------------------------- 2,500-2,600 4.2-5.5 2,300-2,400
1982-------------------------------------------- 2,500-3,200 4.0-5.5 2,670-2,940
Source: Sohio response.
Crude demand is estimated by SOHIG at 92 percent of refined
product demand, and tabulated in Table 3.
The upper end 1982 forecast embodies both a rather large aggregate increase from 1975, as well as a substantial 300,000 b/d margin of error relative to the lower end estimate.
Of note in the SOHIG forecast is a much greater growth in the demand for residual fuel than for lighter products. Another consideration is the apparent assumption that refined product imports will continue to grow in absolute terms and continue to constitute 8 percent of oil product consumption.
Arco's response, which is summarized in Table 4 mentions the speculative risks involved in making demand forecasts. A 3-5 percent annual growth rate is indicated for the 1976-85 time frame, although the response itself does not contain specific demand figures.
TABLE 4.-ARCO RESPONSE TO QUESTION I I
Product demand Crude demand
(thousand barrels Growth rate (thousand barrels Year per day) (percent per year) per day)
1976-------------------------------------------- 2, 400-2,500------------------ 2,200
1978--------------------------------------------2, 550-2, 76035 2, 330-2, 425
1982-------------------------------------------- 2,870-3,350 3-5 2, 625-2, 950
Source: Estimated from Arco response.
As with SOHIG, proportional increases in product~ impor-ts (and
refinery gains) ar'e implicit in the Arco forecast.
Ashl'and responded with the product demand figures in Table 5, which embody a 4 percent annual growth rate. By 1978, they forecast PADD V demand to be 11.8 percent over 1975 levels (3.8 percent






14

annual growth). In 1982, it is predicted to be 28.5 percent above (about
3.7 percent annual growth) 1975 levels.
TABLE 5.-Ashland respond to question 11
Barrels
per day
1975 ------------------------------------------------------------ 2,211,000
1976 ------------------------------------------------------------ 2,295,000
1977 ------------------------------------------------------------ 2,382,000
1978 ------------------------------------------------------------ 2t472,000
1979 ------------------------------------------------------------ 2,567tooo
1980 ------------------------------------------------------------ 2,664,000
1981 ------------------- ---------------------------------------- 21752,000
1982 ------------------------------------------------------------ 2,842,000
1983 ------------------------------------------------------------ 2,936,000
1984 ------------------------------------------------------------ 3,033,000
1985 ------------------------------------------------------------ 3,134,000
Source: Ashland response.
III. WEST COAST SURPLUS
This question asks respondents to compare their estimates of crude oil supply in part I with their estimates of demand in part 11 to determine the size and characteristics of any surplus of crude oil that might occur in PAD District V when the Alaskan pipeline is fully operative.
A. What are your best current estimates of the PAD District V net surplus or deficit of crude oil for each year through 1985 (i.e., the difference between total PAD District V production and refinery runs plus addition to stocks) ?
The verdict of the respondents to this questionnaire as well as the judgment reached by all contributors to the FEA study is that a surplus of crude oil will develop on the West Coast shortly after the Alaskan pipeline commences full deliveries. This surplus is foreseen as early as 1977 by Exxon at a level of 200,000 barrels per day, and is predicted to occur by all respondents except, Ashland by 1978. The initial surplus estimates range from 200,000 barrels per day to 600,000 barrels per day, with most of them on the high side of the range. Ashland, which anticipates a 199,000 barrel per day deftit in 1978 foresees a reversal of that situation by 1979.
From its inception into the next decade, most observers expect the surplus to grow, with possible excesses of supply in the range of 1.1 million barrels per day in 1980, and the preponderance, of the estimates at about 700,000 barrels per day. Atlantic Richfield alone envisions a possible supply and demand scenario which may not include a surplus, but Arco also agrees that a surplus is highly probable.
By 1985, the range of possible situations is estimated to be from a deficit of 700,000 barrels to a surplus of 2,000,000, both Atlantic Richfield estimates, with the preponderance of the guesses falling someplace between 600,000 and 1,400,000 barrels per day. The softness in these estimates is illustrated by the almost 800,000 barrel per day dif-








ference between the 1985 estimate submitted by Exxon to FEA and the Exxon estimate for the same year submitted in answer to the questionnaire. Ashland sees the surplus beginning to shrink after 1982, while all other parties anticipate growth except Standard Oil of California which anticipates no change in the level of the surplus.
In light of the various estimates, it seems safe to conclude that a, surplus will emerge shortly after the Alaska pipeline begins operations? that it will grow for several years and reach a level of at least 600,000 barrels per day, and that its actual dimensions depend markedly on a number of factors which cannot be precisely foreseen.
B. What are your best current estimates of the PAD District V net surplus of deficit of North Slope crude oil and crude oil of similar grades for each year through 1985.- (i.e., the difference between PAD District V production and refinery runs plus additions to stocks of such crude oil) 2.
Only three respondents to the questionnaire were willing to venture a prognosis on the characteristics of the surplus crude, and none of the three employed any quantification. Sohio bluntly assumed that all of the surplus would be of the heavier, higher sulfur Alaskan-type crude oil. Exxon believed that "in the near term the surplus will be a crude, with greater than .617o wt. sulfur," a description fitting not only the Alaskan crude but much of California production and imported crude oil as well.
The FEA questionnaire response cited three reasons for believing that the crude oil that will bo surplus to the, PAD District V demand will be Alaskan-type crude:
. 1. The demand for "heavy" products such as residual oil is not great in PAD District V, and refining of the heavy Alaskan crude yields substantial quantities of those products.
2. Alaskan crude will be competing with more local California and Elk Hills crudes which are currently being run, rather than with the bulk of ongoing imports, which are of different characteristics.
3. The lighter, sweeter crude oils required by some refineries will continue to be imported.
The major determinant of whether North Slope crude will be the surplus crude is its selling -price. If the price of Alaskan crude is low enoug ,h. refineries will have the incentive to modify their refineries to handle it and will prefer purchases of it to higher priced crudes that hurt their competitive positions in product sales. It is unlikely that sellers of the Alaskan crude would follow this option if a market price could be obtained elsewhere.
In summary, it is likely that the great quantities of North Slope crude oil piped across -Alaska and tanked to the West Coast would arrive there to find no demand at world market prices. They would be in surplus, if there AN-ere no means or permission for delivery elsewhere, and no curtailment of production to prevent such a surplus.







16

TABLE VII.-ESTIMATED, WEST COAST SURPLUS OR DEFICIT OF CRUDE OIL
[Thousands of barrels per dayj

Respondent 1977 1978 1979 1980 1981 1982 1983 1984 1985

Federal Energy Administration:
Questionnaire -------------------- 600------- 900-1,100 ---------------------------- 700-1, 300
Study:
FEA conclusion------------------ 600------- 900-1,100 ---------------------------- 700-1,300
Exxon submission---------------- 552 ---- 697------------------------------ 1797
AD Little "Best" submission ----------------------------------- 689 ---------------------------- 805-1,395
California Standard submission--- 60------------ -----60 --------------------------- 600
Atlantic Richield sub----------------mission------------------- 300-400 -------- 500-600 ----------------------------- 850
Federal Power Commission
(from Sohio data) --------------- 300-600 ---------------------- 750-900 ------------Atlantic Richfield:
"Best guess"--------- 7------------ 400 400 400 400 550 600 650 700
High case---------------------- 400 400 400 500 700 1,100 1,500 2,000
Low case------------------------ 200 0 0 0 -200 -400 -500 -700
Exxon-------------------- 200 600 500 700 600 600 800 900 1,000
Ashland. ---- ---------- -815 -199 68 359 523 638 553 518 434
Sohio -------------------------- 300-600 ----------------------- 600-800--------------IV. PROPOSED IRESPONSES TO THE, PROJECTED WEST COAST SURPLUS

Question IV attempts to determine the most promising ways to deal with the excess Alaskan North Slope crude expected to arrive on the West Coast in surplus quantities estimated to be between 300,000 and 1 million barrels per day. The question also indirectly addresses the shortfall of crude in the midwest, principally in the Chicago refinery region.
Alternatives considered by the questionnaire and responses thereto include the following options. (The accompanying may illustrate the major alternative transport routes.)
-Construction of a (Transprovincial) pipeline from Kitimat,
British Columbia, to Edmonton, Alberta to connect with exist*ing Canadian and U.S. pipelines to Anacortes, Washington,
Billings, Montana and Clearbrook, Minnesota. Oil would be shipped from Valdez to Kitimat via large tankers. Port of Kitimat would have to be developed and about 800 miles of pipeline
constructed.






17

-Construction of a (Northern Tier) pipeline from Port Angeles, Washington to Clearbrook, Minnesota, totally through U.S. teitory and utilizing existing railroad rights-of-way over about 25 percent of the distance. Oil to be delivered to Port
Angeles from Valdez by tankers.
-,Modification and extension of an existing natural gas pipeline
to permit oil to be piped from Long Beach, California to Midland, Texas. Oil to amve at Long Beach from Valdez via tanker. This is called the SOHIO, Midcontinent or El Paso pipeline proposal.
-Use of large tankers from Valdez to Gulf port refineries via
Cape Horn, and very large tankers to Freeport, Bahamas for
transloading into smaller tankers to Atlantic Coast ports.
-Use of smaller tankers through the Panama Canal.
-Use of large tankers to the western entrance of the Panama
Canal for transloading (lightering) into smaller tankers for
Canal passage.
-Use of large tankers to the Panama Canal for transfer to existing parallel (U.S. Navy) pipelines and reloading into tankers
at the eastern end to Gulf port refineries.
con of a Central American pipeline across Guatemala.
-Use of very large tankers (with icebreakers) via the Northvest
Passage to eastern ports, bypassing TAPS.
-Use of tank car unit trains on a contract basis via various western (U.S.) railroads.
-Trading oil with contiguous (Canada and Mexico) or non-contiguous (Japan) foreign countries or a combination thereof.
-Increasing the refining and storage capacities for high sulphur
crude in California (PADD V).
-Desulphurizing Alaskan crude at Valdez or elsewhere to permit
processing at refineries lacking adquate on line capacity to handle high sulphur crude.
-Cutting back the amount of crude flowing from Alaska to
coincide with West Coast demand (called "shutting in of production" in the questionnaire).












CRS-4
0 aVALDEZ
ALASKA CRUDE SUPPLY SUFI.PLUS DISPOSITION ALTERNATIVES

Rates shown per barrel: For proposed lines, proposed tariff For existing lines, posted tariff For tanker routes, cost developed .31 150 DWTby FEA Transportation Consultant




".&KITMAT

'1..' .66 EDOTON

.391 150 MDWTh)
A"'5
AACOR TES
O R7N
SPORT PORTLANI)
ANGELES e 85 MNRA


0r MINNEAPOLIS 9 .19 ORNT IBFAO




I ,SAN FPANCISCO
.597 (150 MDWT)



LONG BEACH.3 .2

1, 00 CUSHING 646 /US

't, .21 IBEAUMONT

MILAw .21 .22 PORT ARTHUR HOUSTN LOOPZ

0









856Q-233MDWT TO GUATEMALA






TRANS-PANAMA VIA CANAL
2 15 WiTH LIGITE RiNG SAME TANKER CONFIGURATION AS GUATEMAL
2,45 WITHOUT LIGHTERING 66 MDWT






19 1 1

PARTS B AND C OF QUESTION IV ASKS THE FOLLOWING
If you have knowledge of these proposals, evaluate and compare the foregoing responses and any other relevant alternatives with respect to:
1. The current status of each project or proposal
2. The estimated time for approval and implementation including description of :
(a) any required Federal regulatory proceedings, approvals,
leases or permits;
(b) any required state regulatory proceedingsapprovals, leases
or permits;
(c) any required regulatory proceedings, approvals, leases or
permits which must be processed in other countries;
(d) any treaty requirement; and
(e) construedon schedules, including if necessary, tanker construction schedules.
3. Direct capital and operating costs;
4. Financing arrangements;
5. Refiner and consumer costs of crude oil nationally and by region; 6. Wellhead price for North Slope crude oil, cash flow to the operating companies and revenues to the State of Alaska;
7. Net overall national economic costs and/or benefit;
8. Promotion of the capacity for long-term domestic self-sufficiency.
9. Environmental and safety impacts; and
10. Any other relevant factors.
C. IMPLEMENTATION
1. (a) Considering the foregoing factors, which of the alternatives or combination of them currently appears on balance to be best?
(b) Which appear to be workable and acceptable?
(c) Unworkable or unacceptable? (Whv) ?
2. (a) Among those alternatives identified as workable and acceptable which are now under active consideration by producers, refiners or others?
(b) Which have reached the stage of applications for necessary certificates, licenses or permits?
3. For each of those alternatives identified as workable or acceptable what appear to be most significant critical hurdles to implementation (for example, demonstration of technical or economic feasibility -, Federal or State air quality standards; obtaining competent and credible corporate sponsors: tl roughput commitment: legal authority; financing; Federal approval of required certificates, licenses or permits; foreign country, State or Provincial approvals or certificates, licenses or permits .
4. For each of those alte-matives, identified in TV A. 'what is your understanding of the time frame for completion ? At what capacity?
There are two oeneral problems which the final strategy ideally should overcome. First. the U.S. midwest shortfall, created by Canadian policy to shift increasing percentages of its available domestic oil to its eastern provinces (the Maritimes. Quebec and eastern Ontario) instead of to U.S. midwestern refineries and consumers; and


79-745 0 76 3






20

second, the problem of surplus Alaskan crude arriving in California as a result of earlier route selection decisions to bring the Alaskan oil there.
Understandably, a number of respondents have particular interests in one or another of the proposed pipeline solutions, and their replies so indicate. The most useful responses were those of the FEA (which submitted a 460-page study in lieu of a response) and the ICC (which while readily admitting its limited scope and expertise, nevertheless submitted a balanced and useful response), and a partial reply from the FPC.
Not surprisingly, no single, outstanding, "obviously preferable" alternative emerges; each hi's potential advantages and drawbacks and each carries its own set of assumptions-long range and short range. Among these assumptions, two or three are accepted generally in the responses and are particularly noteworthy. First, the West Coast surplus will increase rather than decline over time. Second, the midwest, (Chicago) region shortage will become more critical as Canada shuts off its export entirely in 1980 or 1,981. Compounding this problem, northern tier refineries (except Chicago) are not we1 equipped to process north slope crude. Third, pipelines are seen as the only viable long-term mode for delivery of Alaskan crude.
Taking all of the. responses together, some visible patterns develop. Briefly on the negative side, there was found:
-No support for the Guatemala pipeline. It is seen as much too
vulnerable politically and from a defense posture, and, while potentially less expensive than tankers via the Canal or the Cape, not a long term viable economic alternative. Central American Pipeline Company claims it will build the line
regardless.
-No support for shutting in crude in Alaska. It is seen as upsetting all the bases upon which financing and other calculations were made, and as a self-defeating move in the attempt to become more energy self-sufficient. All calculations appear to be
bottomed upon a 30-year supply.
-No enthusiasm for attempting to develop economically viable
desulphurizing (as a separate process plants at Valdez or elsewhere.
-No enthusiasm for substantially increasing the capacity of
PADD V refineries to run or store high sulphur crude, and no
visible evidence that such a move is under way.
More positively, the several agency and corporate responses revealed the following:
Transporting oil by tankers from Valdez to ports iin the Gulf of Mexico for refining and/o.r forwarding through pipeline in.frastructure already in place is seen as a short run, relatively expensive alternative. Tankers of up to about 65,000 DWT can transit the Panama Canal fully loaded. Larger ships (up to approximately 90,000 DWT) can transit the Canal partially loaded. Still larger tankers (over 90,000 DWT) would have to be routed via Cape Horn or transload oil into smaller tankers at the western entrance to the Canal. Use of existing U.S. (Navy) owned pipelines running parallel to the Canal is not seen as viable largely because of treaty agreements with Panama pre-






21

eluding our generating competition with waterborne trans-Canal traffic, and because it is relatively expensive. -One respondent (Exxon) stated that it will be able to handle its oil surplus in its own tanker fleet. It sees the SOHIG or Midcontinent pipeline proposal as the best long term option, however. It seems far from certain that MARAD or Congress would be willing to relax cabotage laws enough to insure an adequate tanker fleet to handle this volume in total. However, all respondents assume that this will be done, one way or another.
While not one of the options included in the questionnaire, use of unit tank trains,2 primarily to supply northern tier refineries, was offered as a consideration by the ICC and the FEA. Breakthroughs in loading-unloading technique make this a more promising alternative, although still quite expensive. Such trains already are in service elsewhere so the technique is not totally 'new.
While a direct response was not received from DOT, the FEA report notes that DOT recommends the use of VLCC's via the Northwest Passage, by-passing TAPS altogether, as being by far the least expensive method of delivering to refinery region I (northeast) which faces the most critical domestic crude shortage of all regions.
Purely from the standpoint of logistics and logistics expense, a three-way trade of crude between the U.S., Canada and Japan is seen by most respondents as the most sensible solution, especially in the short run. While very complex to the layman, the arrangements are considered by oilmen to be not unusual. Basically, what is proposed is that surplus Alaskan crude would be shipped to Japan to supplant part of its OPEC imports. Part or all of the OPEC oil thus supplanted would be shipped to, say, Portland, Maine -for pipeline delivery to Canadian refineries in and near Montreal. This, in turn, would supplant Canadian oil produced in the province of Alberta and shipped east by pipeline from Edmonton to Sarnia and thence to Montreal. This, in turn, would replace Alberta crude which used to flow to U.S. northern tier states but which was diverted to eastern provinces as a result of Canada's self-sufficiency program precipitated by the Arab embargo and price moves. Presumably this plan, if properly executed, would work to everyone's advantage, economically. WV.hether or not it is sound as a policy matter is unclear, nor is it clear from respondents what Canada or Japan think of the idea. Legislation probably could be required in the U.S., since present law generally (though not absolutely forbids exporting Alaskan crude, at least to non-contiguous foreign countires.3
This leaves for reporting the responses bearing on the three proposed major pipeline projects; The Transprovincial (Canadian), the Northern Tier (Northwestern U.S.), and the SOHIG (also called the Midcontinent or the El Paso line). By far, the most useful and most comprehensive response on this was FEA's. As mentioned elsewhere, the study was not specifically tailored to the questionnaire but did become the. formal FEA reply to it. Much of what follows is based on statements contained in that report.
Throughout the following summaries of the proposed 'Pipeline projects, the reader should keep in mind that the Transprovincial and

2 See the appended GATX response for a further discussion of this.
3 See the appended memo from the American Law Division.






22

the Northern Tier pipelines, by all current reckoning, are mutually exclusive. On the other hand, it is considered possible that the SOHIO line (Long Beach to Midland) could be economically viable in addition to one or the other (but, of course, not both) of the northern lines.
There is identified one other major -pipeline proposal-the CAPIC04 (Central American Pipeline Company) line, proposed to be constructed between Las Lisas and San Francisco del Mar, Guatemala. This ambitious project will be constructed to accommodate worldwide oil shipments, according to CAPICO, regardless of whether or not one or more of the other three lines are built. The developer claims the line will have an initial capacity of 800,000 B/pD and could reach 1.6 million B/pD. It proposes to use 250,000 DWT tankers from Valdez to Las Lisas and 65,000 DWT (average) tankers from San Francisco del Mar to U.S. Gulf and Atlantic ports. It claims it will be able to deliver crude from Valdez to New York, for example, for $1.82 per barrel.
Of the three proposed North American lines, it is argued that the Transprovincial line between Kitimat and Edmonton could be put on line the quickest, since there is reportedly less institutionalized opposition to its construction (environmental groups, provincial or community resistance, etc.) and could transport oil up to about 650,000 B/pD at a lower cost per barrel than either the Northern Tier or the SOIO lines. Above 650,000 B/pD (its maximum under presently proposed configuration) the other two lines appear to have the cost edge.
It should also be remembered that at the present time so-called Northern Tier refineries (excluding Chicago) could be modified to refine only about 300,000 B/pD of high sulphur Alaskan crude. Thus, Transprovincial.'s start-up capacity would appear to satisfy that need.
Briefly, here are the physical and tariff rate particulars of each of the three North American line proposals as reported in the materials submitted for satisfying the questionnaire.
TranwprovincibMal.-125,000 DWT tankers, Valdez to Kitimat (near Prince Rupert) B.C.; thence via new 800-mile, 30-inch pipeline 'to Edmonton, Alberta;~ thence via existing Canadian and U.S. (Interprovincial-Lakehead, Rangeland) pipelines to U.S. destinations, prilncipallv west of Chicago. Estimated ready time, including port construction work at Kitimat is 16 to 22 months (for up to 300,000 B/pD) after construction begins. Estimated transportation (tariff) rate, Valdez to Edmonton, Alberta is said to be 97 cents per barrel. Proposed maximum capacity is 650,000 B/pD. The twelve known consortium sponsors of this line are Amoco, Ashland, Continental, Husky, Murphy (all oil companies) Hudson Bay Oil and Gas, Farmers Union Central Exchange, Koch Industries, Marathon Pipeline Co., Interprovincial Pipe Line Ltd., Total Leonard Inc., and Trans-Mountain Oil Pipe Line Corporation.
There exists the possibility that one or more of the western (Canadian) Provinces might attempt to levy a transit tax on this oil. It is felt that this could be covered by treaty, however.

,1CAPICO requested an opportunity to respond, was sent a questionnaire, but failed to respond.





23

Nort ern tier.-150,000 DWT tankers from Valdez to Port Angeles, Washington, thence via a 36-inch pipeline, 1,500 miles across 5 western/midwestern states to Clearbrook, Minnesota, serving existing lines enroute, thence on to Chicago or other demand points via existing lines. Railroad rights-of-way will be used for about 400 miles of the line. Tanker unloading and oil storage facilities would have to be built at Port Angeles in addition to the 1,500-mile pipeline. Known participants in this consortium (officially called the Northern Tier Pipeline Co.) include Butler Associatees, Curran Oil Co., Glacier Park Co. (subsidiary of Burlington Northern), MAPCO, Inc., Milwuakee Land Co. (subsidiary of Milwaukee Road), Patrick J. McDonough, and Western Crude Oil. None has a major interest in any refineries to be served by Northern Tier nor do any of the members own any North Slope crude. The estimated cost of the line, including port work, is $1 billion. Initial capacity through to Clearbrook is said to be 400,000 to 600,000 B/pD, to be increased to 800,000 B/pD later. Cost to deliver each barrel of oil from Valdez to Clearbrook is claimed to be $1.24, including all port charges. Actual construction time is claimed to be 24 months after all clearances to proceed are finalized. This could take at least two additional years, barring protracted litigation. The line, of course, would be fully under U.S. control and not subject to Canadian federal or provincial taxes or regulations. The line is claimed to be designed to permit an additional 500,000 B/pD to be shipped to refineries in the Puget Sound area, in addition to the 400,000 to 800,000 B/pD to Clearbrook. Northern Tier claims it intends to finance this $1 billion project without resorting to throughput agreementsa highly unusual approach to pipeline financing and potentially quite expensive.
SOHIO.-150,000 DWT tankers from Valdez to Long Beach, California, thence a combination of new and existing pipelines (using the 800-mile El Paso natural gas pipeline already in place as the nucleus of the line) about 1,000 miles to Midland, Texas for further pipeline shipment to the east and midwest. Capital investment is estimated by SOHIO to be $500,000 and the cost of transporting oil from Valdez to Midland is said to be $1.55 per barrel. The line will accommodate 500,000 B/pD at full capacity and additional capacity could be built if needed. It is expected that work could be completed in 12 to 24 months, once clearances are received. The rub is that the California Air Resources Board (CARB) and the (federal) EPA have thus far stalled the project. SOHIO claims that the type of tanker it plans to operate will not create air pollution, but, so far, CARB and EPA are unconvinced. Another consideration is that in order to convert the existing El Paso gas pipeline for oil use, the FPC would have to allow abandonment of the line for natural gas. Once it was converted to crude, it would come under ICC jurisdiction, not FPC. The proposal seems to be on excellent financial footing, however.
Summing up the pros and cons of the three proposals, as derived from replies to the questionnaire, and the FEA draft report, the Transprovincial line appears the least likely to be bogged down in permit and licensing difficulties and promises the lowest rates to expected destinations for quantities up to its claimed 650,000 B/pD limit. It is a






An.
A=

foreign line, however, representing foreign investment and potentially exposed to the actions of a foreign government.
The Northern Tier line may have the potential for providing delivery to the largest number of demand points, represents a totally U.S. investment, is therefore not subject to foreign controls or taxation, and appears -to offer lower rates at very hig throughput levels. It may be quite vulnerable to governmental delays in start up at local, State and Federal levels, however, it requires high initial investment comp red to the other two lines, and it appears that its proposed financing arrangements might be quite expensive. It would seem, also, that the lack of significant financial interest in either on-line refineries or in Alaskan crude output of its owners would be a disadvantage.
The SOHIO line would seem to have the advantage of being owned by a very healthy company which also owns the biggest share of TAPS crude. Aside from its current impasse with CARB/EPA, there do not appear to be other major regulatory delays to whimper its construction, although FPC abandonment proceedings could be a possible snag. The most obvious drawback appears to be that it does little to help the Northern Tier crude shortage even though it does potentially help the region V (Chicago) shortfall, albeit via a rather circuitou's route. However, while the two northern lines presently are considered to be mutually exclusive, the SOHIO line might well be builtregardless of which of the two proposed northern lines is constructed (assuming one of them will be built).
PART D. FEDERAL POLICY ROLE
Question
1. If none of the pipeline systems listed in IV and constructed in item to transport any of the anticipated West Coast surplus in PADD V created by North Slope crude oil production, how would you recommended the surplus be dealt with on an interim basis? On a long-term basis? (Please comment specifically upon each of the proposed responses set forth in IV A 4-9.)
2. What, if any, are the specific policy objections to authorization of temporary crude oil exports pending completion of transportation facilities or other systems for efficient domestic utilization of North Slope crude oil?
3. (a) Is there a need for Federal- legislation to expedite approval and construction of a transportation sy stem or other arrangement to deal with the potential crude oil surplus in PADD V?
(b) What, if any, constraints should such I isolation address? Re8pomm
To the extent that the responses were provided by questionnaire recipients, they generally have been summarized above.
There were very few specific suggestions for Federal legislation. Several responses mentioned the need to consider exchange agreements with noncontiguous nations, but legislation would not be necessary to meet that end if the President could make the appropriate findings as required by the statute.
No one respondent appeared to stress the need for Federal legislation to expedite the approval process for any one of the proposed pipeline







systems. The one possible exception was Sohio, which indicated it "may be necessary for Federal involvement to lend a national perspective", if states take actions which impede Sohio's progress. It is axiomatic that the State of California would disagree.
The ICC stressed the need to continue its jurisdiction over pipeline regulation if such regulation were expanded.

V. COSTS AND PRICES
With the exception of the first one the thrust of the questions in this section is toward eliciting cost and price information on the several alternative measures proposed for relieving that portion of North Slope crude production which is excess to PADDY V. Question B looks to the anticipated tariffs ofor the pipeline segment of the transport system and for the tanker segment to the Trans-Provincial, Northern Tier, and SOHIG pipeline access points.
A. What is the full anticipated cost of constructing and equipping the Trans-Alaska pipeline and terminal facilities to carry up to 1.2 million barrels per day (including interest or funds used during construction) ? To 1.6 and 2.0 million barrels per day?
Alyeska Pipeline responded that the current anticipated cost of constructing and equipping the Trans-Alaska Pipeline System and terminal facilities to transport 1.2 million barrels per day is $7.7 billion. This does not include interest costs, which are incurred by owners in financing conducted independent of Alyeska's construction activity. Exxon and SOHIO use the Alyeska estimate and add that currently capitalized interest expense is estimated at $1.3 billion, bringing the total cost to $9.0 billion. Such expenses are difficult to estimate in this case since during construction each participant carries its own interest costs, and the cost of money to each member varies, depending upon the extent of internally generated funds, credit ratings, and the timing and mix of debt and equity financing.
Expanson of the line to the 1.6 mmb/d level was recently estimated to cost an additional $675 million. Over a year ago, the cost to increase the line from 1.2 mmb/d to 2.0 mmb/d was estimated at $850 million. The Interstate Commerce Commission cites additional costs to attain a pumping capacity of 2.0 mmb/d at $750 million. It sees the total cost of the project to be $9.75 billion to $10.25 billion.
Because the allowed TAPS tariff will be based on a percentage of costs, the higher the pipeline costs the higher the tariff will tend to be. And from the State of Alaska's point of view, as the TAPS tariff increases the wellhead value and thus royalties to Alaska decrease. In this last connection the ICC reply noted that the attorney general of Alaska has already indicated that the State will probably protest initial TAPS tariff charges.
B. What are the anticipated crude oil transportation tariffs per barrel from Prudhoe Bay to Valdez, for each year through 1985. (Specify throughput assumptions.) What are the antic ip ated tanker tariffs from Valdez (a) to Kitimat, (b) to Puget Sound, and (c) tor southern California?
In its reply the Federal Energy Administration points out that the eight companies owning the pipeline treat their percentage share as exclusive property and will separately publish tariffs and receive





26

tenders for shipment through their respective portions of TAPS' capacity. Further, since each member company is not required to participate in any expanded capacity (say from 1.2 million barrels per day to 2.0 million), ownership percentages could change after an expansion, thus requiring a recomputation of costs and presumably a different set of tariffs.
The FEA reply states that ICC limits each owner of -an intersUte pipeline to an annual 8 percent return on its "net replacement" costs under ICC valuation wiffithe distribution dividends limited to a 7 percent rate of return on the carrier's property. ARCO concludes that no definition tariff estimates are possible since ICC valuation guidelines for existing pipelines are largely inapplicable to TAPS and that final construction costs are of course not yet known. For its part, the ICC replied that it would be in appropriate for it. to comment on possible tariffs since it must subsequently rule on the reasonableness of the tariffs proposed and should not prejudice those proceedings. It did, however, mention $4.50 per -barrel for the pipeline tariff and 50 cents to $1.00 per barrel for the taker tariff as numbers which are talked about. The FEA study contains some tariff data cited from various industry analyses. These include a 1978 TAPS pipeline tariff of $4.60 per barrel for 1.2 million b/d throughput and tanker costs of 50 cents per barrel from Valdez to Los Angeles. (Another estimate was 46 cents Valdez to Los Angeles in 1981; 60 cents in 1987; and 75 cents in 1995). They also include transportation costs from Valdez to the Gulf Coast via the Panama Canal of $2.25 perbarrel; to the Gulf Coast via tanker and pipeline of $1.65; and to Japan of $1.00.
Three industry responses to the tariff question were received. Alyeska Service Corporation will operate the pipeline as agent for the owners but will have no role in tariff determination or collection of charges. EXXON says it plans on a tariff of about $5.00 per barrel in the early years of operation and about $4.00 per barrel in the 1985 time frame. 8O'HIO also sees the pipeline tariff as $4.00-$5.00 per barrel, assuming a $7.7 billion total construction cost, a 7 percent return, and a 1.2 million b/d throughput.
With respect to tanker tariffs, EXXON expects rates from 19801985 (on a new 190 MDWT new vessel of today's costs) for shipments from Valdez to the average West Coast port to be about $1.00 to $1.15 per barrel. SOHTO estimated tanker costs from Valdez to Kitimat at 35 cents to 50 cents per barrel; to Puget Sound at 40 cents to 55 cents per barrel; and to Southern California at 60 cents to 80 cents per barrel.
C. To what extent, if at all, would a wellhead price ceiling on North Slope crude oil (a) at the composite domestic average price specified by the Energy Policy and Conservation Act, or (b) 'at the upper tier price established by the FEA, be expected to constrain West Coast refinery prices? Refinery prim East of the Rockies?
EXXON, in citing a series of "unresolved factors7l that bear on the answer to this question, concluded that "speculation on future price under conditions of each vmcertain y would not be fruitful." SOHIO replied that a wellhead ceiling price established at either the composite domestic average price or at the upper tier price would constrain the market price of Alaskan oil, if that ceiling price., vlw the






27

TAPS tariff, Plus the marine cost and other transportation cost, is less than the price for foreign crude in the market when the Alaskan crude oil is to be sold. Using today's ceiling prices, foreign oil prices and cost estimates, SOHIO concluded that neither pricelevel would be a constraint on Alaskan oil, but that this could change in the future.
ARCO responded in some 'detail stating that the landed cost of alternative (foreign) crude oil would determine the landed value, of North Slope crude and that while it was -not possible to definitely predict the transportation tariffs, current comparable costs for foreign crude oil would constrain Prudhoe Bay crude prices to less than the current upper tier prices. Consequently, competition would constrain product prices. ARCO felt, therefore, that imposition of ceiling prices on North Slope crude would not be necessary or desirable. ARCO expects that situation to continue for the foreseeable future.
Because of the uncertainty of transportation expenses from the North Slope, ARCO said it is not possible to assess the effect a limitation to the composite price of the EPCA would have on product .prices. However, current regulations would not impose such a limit, and if that limit were less than the competitive value of North Slope crude, ARCO believes its imposition would be grossly inequitable.
With respect to the effect price limits on North Slope crude would have on East Coast product prices, ARCO stated it is axiomatic that the greater expense of transporting.North Slope crude to the East Coast, and the relatively less expensive cost of transporting foreign crude to those ports, would result in downward competitive pressure on North Slope wellhead prices.
The FEA study points out that the Emergency Petroleum Allocation Act of 1973 as amended expects the Alaskan crude oil production to be factored (as new or up-per tier oil) into the calculation of the composite price and the con omitant lower and upper tier ceiling prices, as soon as such production commences. However, the Act allows, after appropriate findings and determinations by FEA, the exemption of a specified amount of Alaskan crude oil production from this calculation. FEA says the question of the level of future prices for Alaskan crude is unresolved at this time and that a reasonable statement is that, if, for example, Alaskan crude is priced as upper tier oil, the upper tire price ceiling will apply to the wellhead price. The controlling effect of the crude oil market in various areas of the lower 48 states combined with a TAPS tariff in the range of $4.00 could keep the wellhead price of North Slope crude below this ceiling.
FEA remarks that in any event the Energy Policy and Conservation Act merely provides for the exclusion of Alaskan crude oil from the composite 'weighted average price. It offers no further guidance for pricing policy or implementation. FEA has just begun to consider now the policy questions surrounding this issue. It reports that a study of this issue has been commissioned by the Office of Regulatory Programs, to be completed by April of 1977, as required by Congress.
D. If refining prices for North Slope crude oil are determined by prim of alternative supplies (e.g., imports) rather than by FEA price ceilings, will such oil command more than one wellhead price, depending upon its destination or a single wellhead price?






28
ARCO in reply to this question stated simply that it did not expect the establishment of multiple wellhead prices for North Slope crude. On the other hand, SOHIO responded ihat, for oil which is not used on the West Coast but is transported to other U.S. markets, the wellhead realization for that oil would be reduced to the extent that the additional transportation costs would have to be absorbed by the seller. In this case, there would be more than one wellhead realization for North Slope crude. SOHIO did point out that it expects the largest portion of Alaskan oil to be used on the West Coast and, assuming free market conditions, the wellhead realization for oil so used will be approximately the landed cost of foreign sour crude oil on the West Coast, less the marine cost from Valdez to the discharge port and less than TAPS pipeline tariff.
E. To what extent, if at all, would the alternative measures identified in Question IV-A affect average prices of North Slope and similar grade crude oil produced in PADD V (a) at the wellhead, (b) at West Coast refineries, and (c) at refineries east of the Rockies?
ARCO replied that there. are too many major unknowns to be able to ua tify the extent to which any of the alternatives in Q. IV-B wou d affect West Coast wellhead prices. The company did state that assuming a free market, West Coast crude will compete with alternative source crude on a landed cost basis and that as the capital costs of those respective alternatives increase, the transportation costs would increase with a corresponding downward pressure on the wellhead prices of West Coast crude.
SOHIO responded by saying that if the alternative (s) used to re,lieve the surplus of crude oil on the West Coast iis effective, there should be no impact at West Coast refineries or at refineries East of the Rockies since foreign crude would -be replaced at essentially the same cost to the refiner.
In the event that an alternative is used that is not capable of relieving the surplus, and no additional means are instituted, SOHIO felt the situation could arise where a glut of Alaskan quality oil on the West Coast could drive prices down for that oil (anacom"parable quality domestic California production) on the West Coast while other areas of the country remain crude deficient and reliant on foreign imports for a considerable part of their supply.
The FEA study contains an illustration of potential crude oil acquisition costs for three markets (p. 454) assuming that all refiners would buy North Slope crude when sold for 25 cents/barrel less than the landed price of Arabian light crude. Under this assumption FEA sees Japanese refiners willing to pay $11-43/bbl for North Slope crude, Gulf Coast refiners $12.39/bbl, and West Coast refiners $12.19/bbl. These several figures depend of course on the relations of the F.O.B. Valdez price to Persian Gulf prices plus the relative transport costs and any import fees.








ADDENDUM

THE LIBRARY OF CONGRESS,
CONGRESSIONAL RESEARCH SERVICE, Washington, D.C., November 23,1976.
To: Senate Interior and Insular Affairs, Attn.: Betsy Moler. From: American Law Division.
Subject: Alaskan pipeline rights-of-way and oil exports.
The annexed reports are submitted in response to your inquiry of November 10, 1975a, raising the following questions:
1. What vehicle or form is necessary to bring export provisions
into operations
2. Would shipments to Mlexico and Canada be considered
exports"?2
3. Would any swapping arrangements be under the controlled
price" or world market price? What price basis is set up under
the law ?
For reasons expressed in these reports, a presidential message finding exports, inter cilia, in the national interest together with the absence of a concurrent resolution disapproving same would "trigger" the export waiver; that shipments, outside the U.S. are exports; that exchanges authorized under the Mineral Leasing Act of 1920, as amended, 30 U.S.C. 185 (u) (Supp.) would be at world market prices.
RAYMO-ND CELADA,
Senior Specialis3t in American Public Law.
A-LASKAN PIPELINE RIGHTS-OF-WAY AND OIL EXPORTS

(By Raymond Celada, Senior Specialist in American Public Law, November 23, 1976)
1. What vehicle or form is necessary to bring the export provisions into operation?
Section 28 (u) of the M1ineral Leasing Act of 1920 (41 Stat. 449), as amended (30 U.S.C. 185) provides as follows: Any domestically produced crude oil transported by pipeline over rights-ofway granted pursuant to this section, except such crudes in similar quantity for convenience or increased efficiency of transportation with persons or the government of an adjacent foreign state, or which is temporarily exported for convenience or increased efficiency or transportation across parts of an adjacent foreign state and reenters the United States, shall be subject to all of the limitations and licensing requirements of the Export Administration Act of 1969 and, in addition, before a-ny crude-oil subject to this section may be exported under the limitations and licensing requirements and penalty and enforcement provisions of the Export Administration Act of 1969 the President must make and publish an express finding that such exports will not diminish the total quantity or quality of petroleum available to the United States, and are in the national interest and. are in accord with the provisions of the Export Administration Act of 1969. Provided, That the President shall submit reports to the Congress containing findings made under tbis section, and after the date of receipt of such report Congress shall have a period of sixty calendar days, thirty days of which Congress must have been in session, to consider whether exports under the terms of this section are in the national interest. If the Congress within this time period passes a concurrent resolution of disapproval stating






30
disagreement with the President's findings concerning the national interest, further exports made pursuant to the aforementioned Presidential findings shall cease.
The limitation on exports provided for in section 28 (u), P.L. 93153, 85 Stat. 576, 582 (1973) was intended to allay fears that oil from the North Slope at Prudhoe Bay, for various economic reasons, would be shipped abroad. The immediate need for the legislation of which section 28 (u) was -a part was two-fold: first, to overcome the -decision of the 'United States Court of Appeals for the IDistrict of Columbia Circuit in Wildernegs Soc. v. Morton, 479 F. 2d 842 (D.C. Cir. 1973), cert. denied 411 U.S. 917 (1973), which held that the Interior Secretary's authorit-y to grant rights-of-way in federal lands was confined to widths specified in -then existing l-aw-widths deemed insufficient to develop the North Slope reserve irrespective of the route, ultimately selected for moving the petroleum from the Prudhoe Bay area; second, to -authorize the Trans-Alaska Pipeline (TAP) which would carry the crude thus produced to Port Valdez for conveyance by tanker to the U.S. west coast. S. 1081 and H.R. 9130, 93rd Congress, were designed to accomplish both these purposes.
The legislation divided both Senate and House Chambers between those who wanted to develop in the fastest manner possible the North Slope resource in order to head-off an emerging oil-energy crisis and those, largely from the Mid-west and East. who felt that their energyshort constituencies would literally be left out in the cold by TAP development -and various intervening supply and economic developments. Accordingly, the former sided with TAP while the latter pushed for a Trans-Canada Pipeline (TCP) which would bring oil from Prudhoe Bay closer to their home areas. One of the arguments made by opponents of TAP was that it would eventually lead to a glut of oil on the west coast which together with cost and other factors would induce North Slope developers to sell oil abroad, particularly to Japan. See Senate Report No. 93-207, pp. 25-28.
TAP supporters who emphasized the need for immediate domestic energy sources generally prevailed. Thus in congressional findings,
The Congress finds aind declares 'that: (at) The early development and delivery ,of oil and gas from Alaska's North 9kbpe to domestic markets is in the national interest becawse of growing domestic shortages and increasing d~endence upton insecure foreign sources. 'Sec. =O~.
The bill that became law made a number of concessions to opponents. Title III, for example, authorized the President to enter negotiations with Canada with a view to the latter's receptivity toward "construction of pipelines or other transportation systems across Canadian territory for the transport of natural gas and oil from Alaska's North Slope to markets in the United States." Sec. 301 (a).
Additionally, the Secretary of the Interior was authorized "to investigate the feasibility of one or more oil or gas, pipelines from the North Slope of Alaska to connect with a pipeline through Canada that will deliver oil or gas to United States markets."1 Sec. 302.
Further, section 410 calls for "Equitable Allocation of North Slope Crude Oil"1 as follows:
The Congress declares that the crude 'oil resources and that benefits of such crude oil should be equitably Ishared, directly or ind-irectly, by all regions of






31

the country. The President shall use any authority he miay have to insure an equitable allocation of available North Slope and other crude oil resources and petroleum products among all regions and all of the several States.
Section 28 (u) was intended to express "concern that the companies that control North Slope oil reserves might decide, on the basis of private commercial advantage, to make export sales or exchanges that result in a net reduction 'of crude oil supplies available to the United States, or an increased dependence of the United States upon insecure foreign supplies." Senate Report No. 93-207, at 27.
Briefly, section 28 (u) was intended to provide a statutory check upon exports on oil produced on Alaska's North Slope.
lIt will be observed that that section is not a categorical prohibition of oil exports. An all-out ban was dismissed as being unwise. Mere might well be a situation in which export-for import arrangements would ibe of benefit to both the United states and its trading partners. For example, 'the export to lapan of Alaskan crude oil supplies to west coast nee&s in exchange for Latin American or EBistern Hemisphere crude (which would otherwoise have been transported to JXapan) for the Northeakot could, under some Circumstances, be a better arrangement to bringing the Northeast region additional. crudo oil supplies 'than either transcontinental pipelines or a tanker route around the Horn. A total prohibition might, in 'addition, encourage other countries to restrict exports to the Un'ited States, or cripple efforts 'to provide cooperation or sharing of restricted supplies among consuming countries. Senate Report No. 93-2079 at 28.
At the insistence of the House, section 28 (u) is not limited to the Trans-Alaskan Pipeline; "it applies to all pipelines on rights-of-way granted under section 28 of the Mineral Leasing Act of 1920, either before or after the amendment of that section by" P.L. 93-153. House Report No. 93-414, p. 18. See also Conference Report, House Report No. 93-617, p. 24: "The House amendment applied to oil transported over rights-of-way through Federal lands. The Conferees adopted the House language."
Although section 28 (u) does not flatly prohibit the export of North Slope crude oil (or any LT.S. domestically produced oil that,, at some point, is carried in pipelines over Federal rights-of-way) it establishes, certain mandatory legal requirements which effectively limit such exports to two specified circumstances. The first exceptional circumstance involves an equal exchange of temporary export of crude oil with an adjacent country. Thus, in the case of Canada, for example, the limitation on exports mandated by that section does not apply to oil (1) which is exchanged for a similar quantity as a convenience or to increase efficiency or transportation or (2) which is temporarily exported for convenience or increased efficiency of transportations.
The second exceptional circumstance arises when the President finds that the export of oil "will not diminish the total quantity or quality of petroleum available to the United States and are in the national interest and are in accord with the Export Administration Act of 1967."1 The Export Administration Act lapses on September 30, 1976, 50 U.S.C. 2413 (Supp.), but President Ford, in an Executive Order dated October 1, 1976, has directed the Commerce Department to continue administering the export control program under the emergency provisions of the Trading With the Enemy Act of 1917, as amended, 50 U.S.C. App. 5. E.G. 119409,41 E.R. 43707 (Sept. 30, 1976).






32

That Act, empowers the President to "prohibit or curtail exports of any articles, materials or supplies, including petroleum, when it becomes necessary to protect the domestic economy from excessive drain of scarce materials and to reduce the serious inflationary impact of foreign demand." 50 U.S.C. 2402 (a) (Supp.)
Under terms of section 28 (u), the President "must" not only "make" the requisite finding, but "publish" it as well. Additionally, the Presi-dent is required to report his findings to the Congress -which has sixty days to "consider whether exports under the terms of this section are in the national interest." During the specified period, Congress may disapprove of the President's report by concurrent resolution... Thereafter, "further exports made pursuant to the aforementioned Presidential findings shall cease."~
Neither the express wording of section 28 (u) nor the legislative history of P.L. 93-153 provide' a clue as to the nature of the report which would permit otherwise prohibited exports of domestically produced oil that at some point, is carried in pipelines over federal rights-of-way. Although the form of the required report is thus left to executive discretion, the practice suggests that a presidential message would suffice. "The message of the Presidents include every communication to Congress, -whether made in person or transmitted in writing." Schmeckbier, Government Publications and Their Use 308
(C) 1961. The context of section 28 (u) indicates that a written report was intended. A similar reporting requirement in the War Powers Resolution, 50 U.S.C. 1543 (Supp.), has been complied with by such a message. See, for example, 11 Weekly Comp. of Pres. Docs. 514-515 (May 19,1975).
2. Would shipments to Mexico and Canada be considered to be "cexports"?2
We have found nothing in P.L. 93-153, its legislative history, or other provisions of law suggesting a different conclusion.
***the word "export" as used in the Constitution and laws of the United States, generally means the 'transportation of goods from this to a foreign country. "As the legal notion of emigrating is a going abroad with an intention of not returning, so that of exportation is a severance of goods from the mass of things belonging to this country with an intention of uniting them to the mass of things belonging to some foreign country or other." 17 Op. Attys. Gen. 583 Swan d- Finch Co. v. UnitedZ States, 190 U.S. 143, 145 (1903). To export means to carry or send abroad; to import means to bring into the country. Those acts begin and end at water's edge. Canton R. Co. v. Rogan, 340 U.S. -511, 515 (1951).
A further indication that crude oil shipments to these two countries are to be considered exports is found in section 103 of the Energy Policy and Conservation Act, P.L. 94-163, December 22, 1975, as amended by P.L. 94-385, August 14, 1976. That section authorizes the President to restrict and prohibit exports of specified energy sources when he deems it appropriate. In utilizing this authority, the President is directed to "take into account . The historical trading relations of the United States with Canada and Mexico." Clearly, if shipments of covered materials to these two countries -were not "exports", there would be little need for the described caveat.








3.Would any swapping arrangements be under the "controlled price" or world market price? What price basis is set up under the law?
Although section 28 (u) of P.L. 93-153 was the subject of substantial interest and discussion, the matter of which price applied to permitted exchanges, controlled or world market, seems to have been overlooked. The wording of the exchange provision, however, provides that permitted exchanges are to be "in similar quantity." If the requirement set out in that -prepositional phrase is to be complied with, exchanges would have to be at world market price. It should be noted that under current regulations, exports are exempt from oil price requirements.
1. Federal Energy Guidelines 13,517.
RAYMOND CELADA,
Senior Specialit in American Public Law, American Law Division.


































APPENDIX


RESPONSES TO QUESTIONNAIRE





(35)





















79-745 0 76 4















APPENDIX
The questionnaire was sent on August 23, 1976 to 13 Federal agencies and departments; to the Governors of Alaska, California, and Washington; and to 6 private companim Copies of the questionnaire were sent at later dates to 4 more private companies. This Study includes replies received -as of November 1, 1976. The recipients were: Federal GovernmentDepartment of Commerce.
Department of Defense.
Department of the Interior.
Department of State.'
Department of Transportation.
Environmental Protection Agency.
Federal Energy Administration.
Federal Power Commission.
Interstate Commerce Commission.
Maritime Administration.
U.S. Army Corps of Engineers.
StatesAlaska.
California.
Washington.
Private companies/individualsAlyeska Pipeline Service Co.
Atlantic Richfield.
Central American Pipeline Co.
Exxon.
General American Transportation Corp.
K. M. Associates.
Kitimat Pipeline Co.
Northern Tier Pipeline Co.
Portal Pipe Line Co.
Standard Oil Co. (Ohio).
The Department of the Interior and the Federal Energy Administration submitted responses to parts 1, II,,and IIL The Federal Power Commission responded -to parts I-IV based upon information submitted by Sohio for the record in an abandonment proceeding before the Commission. The Interstate Commerce Commission responded in part to parts IV and V. No other substantive responses were received from the Executive branch. The Federal Energy Administration submitted a draft of it's study for the Energy Resources Council, "North Slope Crude: Where to? How?" in response to a request made at a September 21'hearing on the
Did not reply to questionnaire.
(37)






38

issue held jointly by the Senate Committee on Interior and Insular Affairs and the Senate Commerce Committee. Because FEA did not complete its response to the questionnaire in time to be analyzed for this Study, the information contained in the draft report was used in lieu of a formal FEA response. The FEA was informed by staff of its intention to use this -approach. Analysts were aware of the possible pitfalls in using this approach, but it seemed even less desirable to omit the information made available by the FEA entirely. Many of those agencies which did not respond to the questionnaire -deferred instead to the FEA study in the belief that it would be the definitive study on the issue available from the Executive branch.
Responses from the Governors of Alaska and Washington have been included. The Governor of California asked the Chairman of the California Energy Resources Conservation and Development Commission to respond on his behalf. That response has also been included.
The responses from Alveska., Atlantic Richfield, Exxon, Kitimat, Northern Tier, and Sohio have been included in the -analysis. Central American Pipeline Company did not reply. General American Transportation Corporation, K. M. Associates, and Portal Pipe Line Company chose not to reply to the specific questions asked but did respond for the record. Their replies have been reproduced in this Appendix but have not been included in the analytical portions of the Study.
A copy of the letter accompanying the questionnaire which was signed by Senators Jackson, Magnuson, and Stevenson follows, along with a copy of the questionnaire, -and the replies.

U.S. SENATE
"Washington, D.C., Augmt 23, 1976.
Hon. FRANK G. ZARB,
Administrator, Federal Energy Administration, TVashington, D.C.
DEAR MR. ADMINISTRATOR: As you know, the trans-Alaska pipeline system is scheduled for completion in 1977. Alyeska Pipeline Service Company hopes to begin transportation of 600,000 barrels perday of North Slope crude oil from Prudhoe Bay to Valdez in June, 1977 and then increase throughput to 1.2 million barrels per day in November, 1977. While there may be some question whether that precise schedule w ill be met there is no question that atsome point in the near future there will be a substantial amount of North Slope crude oil available for shipment to the West Coast or elsewhere tinder the terms and conditions of the Trans-Alaska Pipeline Authorization Act. The Senate Committees on Interior and Insular Affairs and Commerce have been concerned for some time now about the effect this crude oil will have on the overall West Coastsupply and transportation system and whether adequate planning and preparation have been undertaken in order to fully accommodate this new domestic source of supply. The general supply situation in Petroleum Administration for Defense District V (PADD V) will also be affected by recently authorized production from the Elk Hills Naval Petroleum Reserve and expected production resulting from the Outer Continental Shelf leas-






39

ing program. There are a number of very critical issues associated with complete on of the trans-Alaska pipeline that merit careful attention. These include:
-The timing for and anticipated levels of North Slope oil production;
-The capability of West Coast refineries to process Alaska crude
oil;
-The plans, if any, of the producing companies to export or
exchange Alaska crude oil and the policy of the Administration toward oil export or exchange agreements with Japan or other
nations;
-Whether Alaska crude oil which is surplus to West Coast needs,
or not capable of being refined on the West Coast, will be transshipped to other areas of the United States;
-The need, if any, for new legislative authority to deal with
potential problems associated with the delivery of crude oil from
Alaska's North Slope; and
-Whether the appropriate units of the Federal government are
fully and properly exercising their responsibility for resolving
these issues in a manner which serves the national interest.
In exercise of our oversight responsibilities and to undertake a structured examination of these issues, the enclosed questionnaire has been prepared. We would appreciate it if you would respond to all of the questions.
We request that you return the completed questionnaire by no later than September 13, 1976. Any questions you or your staff may have in answering the questionnaire should be directed to Betsy Moler of the Interior Committee's professional staff at (202)224-0611 or Steve Flajser of the Commerce Committee's professional staff at (202)2248146.
We appreciate your cooperation in this effort.
With best wishes,
Sincerely,
WARREN G. MAGNUSONJ, U.S.S.
HENRY M. JACKSON, U.S.S.
ADLAI E. STEVENSON, U.S.S.
Enclosure.
QUESTIONNAIRE-POTENTIAL PROBLEmS ASSOCIATED WITH THE
DELiv-Y OF CRUDE OIL FROM ALASKA'S NORTH SLOPE

i. West Coast Petroleum Supply
A. CRUDE OIL
1. Alaeka
(a) What is your best current estimate of the date of first deliveries of North Slope crude oil at Valdez through the Trans-Alaska pipeline?
(b) To what extent does this estimate reflect questions now being raised concerning pipeline welds or other potential or anticipated technical delays?
(c) What are your best current projections of production and deliveries of North Slope crude oil at Valdez from their commencement for each year through 1985 (taking into account producing capacity in






40

the field, pipeline transport capacity, deliveries within Alaska and use for pipeline fuel) ?
2. West Coast Production
(a) What is the current production of crude oil in Petroleum Administration for Defense District V (hereinafter PADD V) ?
(b) W~hat are your best current projections of production of crude oil in PADD V other than from the North Slope for each year through 1985 (taking into account Elk Hills production and the Outer Continental Shelf)?
3. Imports
(a) What is the current level of crude oil and product imports into PADD V by country of origin? (Please indicate whether the crude oil imports have relatively high or low sulphur content).
(b) What are your best current projections of crude oil and product imports into PADD V by country of origin for each year through 1985? (State assumptions behind those projections regarding measures identified in question IV A).

B. REFINERY CAPACITY
1. What is the current refinery capacity and throughput in PADD

2. What are your best current projections for refinery capacity and throughput in PADD V for each year through 1985?
3. What part of the current and projected PADD V refinery capacity is capable of processing Alaska crude oil or crude oil of similar grade?
JI. West Coast Petroleum Demasnd
A. What is the current demand for crude oil and refined petroleum products in PADD V?
B. What are your best current projections for crude oil and refined petroleum product demand in PADD V for each year through 1985?

III. 'West Coast Surplus
Assuming that none of the measures identified in question IV A is implemented:
A. What are your best current estimates of the PADD V net surplus or deficit of crude oil for each year through 1985 in PADD V (i.e., the difference between total PADD V production and refinery runs plus addition to stocks) ?
B. What are your best current estimates of the PADD V surplus of North Slope crude oil and crude oil of similar grades for each year through 1985 (i.e., the difference between PADD V production and refinery runs plus additions to socks of such crude oil)?2

IV. Proposed Responses to the Projected West Coast Surplus
A. Proposed responses to deal with the projected surplus of North Slope grades of crude oil on the West Coast have included one or a combiation of the following:






41

1. Construction of the proposed Trans- Provincial pipeline from Kitimat, British Columbia connectinLy with the Inter-Provincial pipeline at Edmonton;
2. Construction of the proposed Northern Tier pipeline from Port Angeles, Washington to Clearbrook, Minnesota;
3. The proposed Sohio project to convert and reverse an existing El Paso Natural Gas pipeline and build necessary connecting pipelines from Long Beach, California to Midland, Texas;
4.. Construction of a pipeline across the Isthmus of Panama or across Guatemala to connect tanker routes from Alaska with tanker routes to the U.S. Gulf Coast;
5. Use of small tankers through the Panama Canal or VLCCs around Cape Horn to the U.S. Gulf Coast;
6. Retrofitting existing District V and/or Northern Tier refineries to run North Slope or comparable grades of crude oil;
7. Construction of one or more facilities (at Valdez, Kitimat. Port Angeles or elsewhere) to desulphurize and raise the gravity of 'North Slope Crude oil, in order to use it in existing West Coast and/or Northern Tier refineries;
8. Shutting in of producing capacity in the field and/or postponement of the creases in pipeline capacity on a short-term basis (pending *increases in PADD V crude oil demand to absorb the surplus); and
9. Exports or exchanges with Canada, Japan or other countries either on a short-term basis (pending implementation of one or more of the foregoing systems) or on a long-term basis (pending increases in PADD V crude oil demand to absorb the surplus).
B. If you have knowledge of these proposals, evaluate and compare the foregoing responses and any other relevant alternatives with respect to:
1. The current status of each project or proposal;
2. The estimated time for approval and implementation including 9, description of : (a) any required federal regulatory proceedings, approvals, leases or permits; (b) any required state regulatory proceedings, approvals, leases or permits; (c) any required regulatory proceedings, approvals, leases or permits which must be processed in other countries; (d) any treaty requirements; and (e) construction schedules, including if necessary, tanker construction schedules.
3. Direct capital and operating costs;
4. Financing arrangements;
5. Refiner and consumer costs of crude oil national1v and bv region; 6. Wellhead price for North Slope crude oil, cash Aow to he oper' ating companies and revenues to the State of Alaska ,
7. Net overall national economic costs and/or benefit;
8. Promotion of the capacity for long-term domestic self-sufficiency;
9. Environmental and safety impacts; and
10. Any other relevant factors.






42

C. IMMEMMNTAMN
1. (a) Considering the foregoing factors which of the alternatives or combination of them currently appears on balance to be best? (b) Which appear to be workable and acceptable? (c) Unworkable or unacceptable? (Why) ?
2. (a) Among those alternatives identified as workable and acceptable which are now under active consideration by producers, refiners or others? (b) Which have reached the stage of applications for necessary certificates, licenses or permits?
3. For each of those alternatives identified as workable or acceptable what appear to be most significant critical hurdles to implementation (for example, demonstration of technical or economic feasibility; Federal or State air quality standards; obtaining competent and credible corporate sponsors; throughout commitment; legal authority; financ.2 do
ing: Federal approval of required certificates, licenses or permits; foreign country, State or Provincial approvals or certificates, licenses or permits).
4. For each of those alternatives identified in IV A, what is your understanding of the time frame for completion? At what capacity?
D. FEDERAL POLICY ROLE
1. If none of the pipeline systems listed in IV A 1-3 (Kitimat, Northern Tier, and Sohio) is approved and constructed in time to transport any of the anticipated West Coast surplus in PADD V created by North Slope crude oil production, how would you recommend the surplus be dealt with on an interim basis? On a long-term basis? (Please comment specifically upon each of the proposed responses set forth in IV A 4-9).
2. What, if any, are the specific policy objections to authorization of temporary crude oil exports pending completion of transportation facilities or other systems for efficient domestic utilization of North Slope crude oil?
3. (a) Is there a need for Federal legislation to expedite approval and construction of a transportation system or other arrangement to deal with the potential crude oil surplus in PADD V? (b) What, if any, constraints should such legislation address?





Ad%
%5

V. Costs and Prices
A. What is the full anticipated cost of constructing and equipping the Trans-Alaska pipeline and terminal facilities to carry up to 1.2 million barrels per day (including interest or funds used during construction) ? To 1.6 and 2.0 million barrels per day?
B. What are the anticipated crude oil transportation tariffs per barrel from Prudhoe Bay to Valdez, for each year through 1985. (Specify throughput assumptions) ? What are the anticipated tanker tariffs from Valdez (a) to Kitimat, (b) to Puget Sound, and (c) to Southern California?
C. To what extent, if at all, would a wellhead price ceiling on North Slope crude oil (a) at the composite domestic average price specified by the Energy Policy and Conservation Act. or
(b) at the upper tier price established by FEA, be expected to strain West Coast refinery prices? Refinery prices East of the Rockies?
D. If refining prices for -Yorth Slope crude oil are determined by prices of alternative supplies (e.g. imports) rather than by FEA price ceilings, will such oil command more than one wellhead price, depending upon its destination or a single wellhead price?
E. To what extent, if at all, would the alternative measures identified in question IV A affect average prices of North Slope and similar grade crude oil produced in PADD V (a) at the wellhead, (b) atINTest Coast refineries, and (c) at refineries East of the Rockies?







44




-01W of C*+'
UNITED STATES DEPARTMENT OF COMMERCE Office of the Secretary Washington, D.C. 20230 I'ves of








August 24, 1976,1





Honorable Henry Jackson United States Senate Washington, D. C. 20510

Dear Senator Jackson:

Secretary Richardson has asked me to acknowledge your letter dated August 23, which was also signed by Senators Magnuson and Stevenson, requesting information on the progress of the trans-Alaska pipeline system.

You may be assured that this matter will receive our closest consideration and that a further response will be forthcoming as soon as possible.

Sincerely,



Mansfield D. Sprague Counsellor to the Secretary for Congressional Affairs







45





.THE SECRETARY OF COMMERCE Washington. D.C. 20230







Honorable Henry M. Jackson. L!~.~ SEP 2 7 1976
Chairman
Committee on Interior and Insular Affairs U.S. Senate
Washington, D.C. 20510

Dear Mr. Chairman:

Thank you for your letter of August 23 with regard to the effects that Alaskan crude oil will-have on the overall West Coast oil supply and transportation systems.

You will by now have received from the Department
of InterLor and the Federal Energy Administration responses to three of the five major question areas which you posed. Responses to the fourth and fifth question areas must await completion of our Energy Resources Council's study.

We quite agree that the supply situation in PADD V
poses a number of critical questions beginning in mid-1977. It is our hope, through the ERC study effort, to develop the kind of analysis upon which rational choices can be made as to the means by which Alaskan crude oil can be absorbed in meeting U.S. energy requirements.
We will, of course, welcome your views and those of your staff in the process.

Kindest regards,

Sincerely,

ciwo21
Elliot L. Richardson




POP



46



40T or
UNITED STATES DEPARTMENT OF COMMERCE Office of the SecretarV
All Washington, D.C. 20230
)Art Of Oot

September 15, 1976


Honorable Henry M. Jack on 7
Chairman
Committee on Interior and Insular Affairs
United States Senate
Washington, D. C. 20510

Dear Mr. Chairman:

Thank you for your letter of September 9 to Secretary
Richardson inviting him to testify before the Senate Committee on Commerce and Committee on Interior and Insular Affairs' joint oversight hearing September 21 concerning
the delivery of crude oil from Alaska's North Slope and its impact on the West Coast crude oil supply situation.

An extensive study of this subject is now under way under
the auspices of the Federal Energy Administration. The study
is not expected to be completed until late this month, and a
comprehensive policy analysis of the study and its conclusions
is not expected before late October. As a consequence, Secretary Richardson does not believe he would be able to offer
the joint committee any new data on this subject at this
particular time.

I understand that Mr. Frank Zarb, Administrator of the Federal
Energy Administration, is scheduled to testify before the
joint hearing. Secretary Richardson believes that Mr. Zarb
will be able to discuss the West Coast crude oil supply study
and answer any questions that you and your colleagues may have.

I have also written Senators Magnuson and Stevenson similar letters as they co-signed the September 9 correspondence to
the Secretary.
L
Sincerely,



Mansfield D. Sprague
Counsellor to-the Secretary for Congressional Affairs







47




ASSISTANT SECRETARY OF DEFENSE
WASHINGTON, D.C. 20301


SEP

INSTALLATIONS AND LOOISTICS


4 SEP 1976

The Honorable Henry M. Jackson Chairman, Committee on Interior
and Insular Affairs
United States Senate
Washington, D. C.

Dear Senator Jackson:

This is in response to your letter of 23 August 1976 to Secretary Rumsfeld concerning the start of delivery of Alaskan North Slope
crude oil to the West Coast about June 1977, and the effect this crude oil will have on the overall West Coast supply and transportation system. You also indicated concern over whether
adequate planning and preparation have been undertaken in order
to fully accommodate this new domestic source of supply.

In order to gather desired information for use in performance of committee oversight responsibilities on these issues, a questionnaire was developed. Your letter of 23 August asked the Department
of Defense to respond to Question IV of the Questionnaire, plus any additional questions on which DoD might have information of use to
the Committees. Question IV lists nine proposed responses for
dealing with the projected West Coast surplus, including delivery
systems, refinery retrofit, reduced crude oil deliveries and exchange
agreements for or exports of Alaskan crude oil.

The method by which delivery of the crude oil is accomplished to
refineries within the United States is a subject considered to be
outside the cognizance of the Department of Defense. Accordingly, the Department of Defense defers to other interested Federal Executive Agencies with respect to the Committee questionnaire.






48



The Office of Management and Budget advises that from the standpoint of the Administration's program, there is no objection to the presentation of these views for the consideration of the Committee.
Sincerely,





FRA.i A ~-7
Assistant Secrta-'Y of Defense '(InstaU.tions and Losts)







49


'A-1 0

United States Department of the Interior
OFFICE OF THE SECRETARY WASHINGTON, D.C. 20240

In Reply Refer To: SEP 14 S76
EM-ES-19474 & 20142


Dear ai

In response to your letter of August 23, 1976, attached are the ,answers.to those questions for which the Department of the Interior has information readily available.

The answer to the remainder of the questions will be provided by other agencies when the necessary information is available.

I also have your letter of September 9,, 1976,, inviting me to appear before a joint oversight hearing on the same general subject by the Senate Committees on Interior and Insular Affairs and Commerce on September 21, 1976. Although I am committed to being out of the city on that day, I have asked Assistant SecretaryEnergy and Minerals William L. Fisher to appear for me at the hearing.

Sino-Arely yours,



Secretary of the Interior

Hon. Henry M. Jackson
Chairman, Committee on Interior and Insular Affairs United States Senate Washington, D. C. 20510

Enclosure







50




United States Department of the Interior OFFICE OF THE SECRETARY WASHINGTON, D.C. 20240


In Reply Refer To: SP117
EM-ES-19474 & 20142 SP117


Bear Mr. Chairman:

In response to your letter of August 23, 1976. attached are the answers to those questions for which the Depatwt, of the Interior has Information readily available.
The answer to the remainder of the questions will be p provided by other agencies when the necessary information is avail able.
I also have your letter of Septeber 9., 1976, inviting me to appear before a joint oversight hearing an the saw general subject by the Senate Comittees on Interior and Insular Affairs and Coummerce on September 21. 1976. Although I am committed to being out of the city on that day, I have asked Assistant Secretary-Energy and Minerals William L. Fisher to appear for me at the hearing.
Sincerely yours.,

(0gd), Jon

Secretary of the Interior

Hon. Henry M. Jackson Chairman, Comittee on Interior
and Insular Affairs Uni ted States Senate Washington, D. C. 20510

Enclosure







51



RESPONSES TO SELECTED QUESTIONS CONTAINED IN OACKSON, MAGNUSON, STEVENSON LETTER OF AUGUST 23, 1976


1. West Coast Petroleum Supply

A. Crude Oil

1. Alaski

a) Q. What is your best current estimate of the date of first deliveries of North Slope crude oil at Valdez through the Trans-Alaska pipeline?

A. The present estimate of completion on the Trans Alaska Pipeline System, projected by the Owners ?f the System, is that first thru-put will occur in the third quarter of calendar 1977.

b) Q. To what extent does this estimate reflect
questions now being raised concerning pipeline welds or other potential or anticipated technical delays?

A. Alyeska Pipeline Service Company, the agent of the Owners of the Trans Alaska Pipeline System, indicates to us that the above date reflects the resolution of pipeline welding problems and any other anticipated technical delays.

0 Q. What are your best current projections of
production and deliveries of North Slope crude oil at Valdez from their commencement for each year through 1985 (taking into account producing capacity in the field, pipeline transport capacity, deliveries within Alaska and use for pipeline fuel)?

A. The best current projections of production and deliveries of North Slope crude oil at Valdez from their commencement for each year through 1985 (taking into account producing capacity in the field, pipeline transport capacity, deliveries within Alaska and use for pipeline fuel) are:

197i 1978 1980 through 1985
tbd 1-.2mmbd I 6mmbd 1. 6m,,bd

2. West Coast Production

a) Q. What is the current production of crude oil in Petroleum Administration for Defense District V (hereinafter PAD V)?

















,9-7 4 5 0 76 5







52


A. Production of crude oil in PAD V averaged 1.06 ntd
during the first 4 months of 1976.

3. Imports

a) Q. What is the current level of crude oil and-product
imports into PAD V by country of origin? (Please
indicate whether the crude oil imports have relatively
high or low sulfur content).
A. Current level of crude oil into PAD Vby country
or origin:

Imports of Crude Oil (barrels per day)

January-March (incl.) 1976
Algeria 670
Bolivia 3$033
Canada 11051-76
Ecuador 16,154
Gabon 189429 .1/
Indonesia 3929692
Iran 91,011 Y/
Libya 451
Malaysia 6,681
Nigeria 945
Oman 11,549
Qatar 8,352 1/
Saudi Arabia 146,011 l/
United Arab Emirates 57,703
Venezuela 3,890 I/
Total 8679747

]j 50% or more of the oil was of high sulfur
content,, 1.01% or greater.







53


3. Importsa) What is the current level of crude oil and
product imports' into PAD V by country of
origin? (Pleas e indicate whether the crude'
oil imports h3ve relatively high or low
sulfur content).

A. Refined petroleum products imports into PAD V
by country.of origin for the first quarter are
as follows:

Imports of Refined Petroleum Products (barrels per day)

January-March (incl.) 1976
Bahamas 31,363
Bahrain
Belgium
Brunei 132
Canada 253,297
Guam
Hawaii Trade Zone 26,956
Indonesia 231
Iran
Japan
Kuwait
Malaysia
Netherlands T,956
Netherland Antilles 10,835
Nigeria
Oman 44
Panama 758
Peru
Saudi Arabia
Singapore 9 s638
Trinidad 2s813
Venezuela 11670
Yemen 11
Total 839715







54


B. Refinery Car5acity

1. Q. What is the current- refinery capacity and throughput in PAD V?

A. The capacity (January 1, 1976) was. 2.5mmbd.
The throughput (March 1976) was l.9niitd.


2. Q. What are your best current projections for refinery capacity and throughput in PAD V for each year through 1985?

A. Refinery capacity projections in PAD V through 1985 (average capacity for year in thousands of barrels per calendar day).

1976 1977 1978 1979 1980
2,588 2,835 2, 8174 2,906 2,938

3. Q. What part of the current and projected PAD V
refinery capacity is capable of processing Alaska crude oil or crude oil of similar grade?

A. Approximately 65% of the current PAD V refinery
capacity is capable of processing Alaska crude oil.


II. West Coast Petroleum Demand

A. Q. What is the current demand for crude oil and refined
petroleum products in PAD V?

A. The current demand for refined petroleum products in
PAD V (April 1976) is 2.4mmbd.







55




THE SECRETARY OF TRANSPORTATION

0 WASHINGTON, D.C. 20590


OCT I 1976


Honorable Henry M. Jackson 1 Chairman, Interior and :L
Insular Affairs Committee c
United States Senate
Washingtonl, D.C. 20510

Dear Mr. Chairman:

This is in response to your letters of August 23, cosigned by Senators Magnuson and Stevenson, to me and Admiral Owen W. Suler, Commandant, USCG, concerning the trans-Alaska pipeline system and potential problems associated with the delivery of crude oil from Alaska's North Slope.

The letters enclosed a questionnaire and requested that Admiral Siler and I respond to Question IV, Proposed Responses to the Projected West Coast Surplus.

The DOT has and continues to participate in the completion of the-ERC-directed FEA Alaskan Oil Study. It is my understanding that a draft of the study will be made available to you shortly.

Because the issues raised by Question IV of your questionnaire will be addressed by the ERC study, I believe that your desire for a structured examination of those issues will be better served by the study than by a separate response by DOT at this time. However, the DOT remains available to respond to any additional inquiries you may have.

I trust that this arrangement is agreeable to you.

Sincerely,





Willif ). Coleman,Jr






56



0 OFFICE OF THE SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
S" August 24, 1976




Li~ J3 _J L_Js
I :IJ






Honorable Henry M. Jackson
United States Senate
Washington, D. C. 20510

Dear Senator Jackson:

Secretary Coleman has asked that I acknowledge receipt of
your letter of August 23, co-signed by Senators Magnuson
and Stevenson, concerning the trans-Alaska pipeline system
and potential problems associated with the delivery of
crude oil from Alaska's North Slope.
This matter is receiving the immediate attention of the appropriate Departmental officials and you will receive
a response as quickly as possible.

Sincerely,


A. B. Virkler legate Executive Secretary







57





UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON. D.C. 20460

~ ~W~r EP 14V16


iiOFICE OF THE I E~l4~ADMINISTRATOR




Dear Senator Jackson:

I am writing in response to your August 23, 1976, letter and questionnaire regarding plan's to accommodate new domestic crude oil supplies from the North Slope fields. At this time, the Environmental Protection Agency is unable to provide a substantive response to the questions raised in your inquiry as we have not received formal notice of (and have therefore not studied) any of the alternative plans described in your questionnaire. However, as you know, the Federal Energy Administration has in preparation a detailed study'examining many of the issues and questions raised in your letter and questionnaire. EPA has provided financial assistance and technical data to PEA in their development of this study and we understand that a draft will be available for technical review shortly. EPA will be reviewing and commenting on the draft study as soon as it is made available. I would therefore like to defer for the time being any specific responses to your questionnaire in anticipation of FEA's study and our formal response to its content.

The Office of Management a Budget advises that there is no objection to the presentation of this report from the standpoint of the President's program.

If I can be of further assistance, please let me know.

Sincerely yours,



Russell E. Train
Administrator

Honorable Henry M. Jackson United States Senate
Washington, D.C. 20510







58




FEDERAL ENERGY ADMINISTRATION WASHINGTON, D.C. 20461

DEPUTY ADMINISTRATOR
SEP 2 1976

Honorable Henry M. Jackson
United States Senate
Washington, D.C. 20510

Dear Senator Jackson:

We are now in the final stages of concluding the Ener y Resources Council (ERC) study on the transportation and distribution of Alaskan oil. This report has involved a substantial effort by a number of Federal agencies and has included extensive interaction with the States in Petroleum Administration for Defense District (PADD) V and with the major private interests associated with the Alaskan oil. Our current schedule calls for the completion of a first draft of the study by the end of September. This draft would be available to the participating Federal agencies, states and key Congressional Committees for review and comment before a final draft is prepared for transmission to the
ERC.

The preparation of a response to the information request submitted by the Senate Interior and Commerce Committee by September 13, will require that the answers be provided without the benefit of a completed first draft of the study. Furthermore, to prepare such a response will require that work on the study be suspended for a week or two while the material required by the questionnaire is being gathered-and coordinated. Finally, some of the work on issues, such as air quality impact, has not been completed and will definitely be unavailable prior to the completion of this stVdy.

For these reasons we would like to request that we concentrate our efforts in the near term on completing a first draft of the study which will address most of the'questions raised by your committee. This draft will then be transmitted to you and other interested members of the Congress for review and comment along with our response to those questions which the study may not have addressed. Hearings on the issues could then be held once the study is finalized and numerous parties have had an adequate opportunity to review the findings and conclusions.







59


We will answer by September 13, 1976, the limited number of questions which can be addressed based upon-existing information. I hope that you will find this approach satisfactory. Thank you for your attention and consideration regarding this matter.

Sincerely,


*ohn A. Hill Deputy Administrator







60




-r--. F
FEDERAL ENERGY AMNSRn* aUG 2 o l qg WASHINGTON, D.C. 2046 1"

AUG 2 c sV . JI
'E U





Honorable Henry M. Jackson
Chairman, Committee on Interior
and Insular Affairs United States Senate
Washington, D. C. 20510

Dear Mr. Chairman:

This is an interim response to your committee's letter
of August 23 in reference to your questionnaire concerning
potential problems associated with the delivery of crude
oil from Alaska's North Slope.

Information is being obtained to fully respond
to your inquiry by September 8.






Director fo
Congressio l Affairs







61


FEDERAL ENERGY ADMINISTRATION WASHINGTON, D.C. 20461


V SEP 14 1976



HonorableHenry M. Jackson United States Senate Washington, D.C. 20510 Dear Senator Jackson: Enclosed is a partial response to the questions you sent us concerning the disposition of Alaskan oil. We expect a first draft of our study to be completed within the next few weeks and will complete our responses to your Committee's inquiries at that time.

Sincerely,


'4A Hill Deputy Administrator Enclosure







62


I. West Coast Petroleum Supply

A. Crude Oil

1. Alaska

a) and b) (Questions to a) and b) will be supplied by the
Department of Interior.)

c) What are your best current projections of production and
deliveries of North Slope crude oil at Valdez from their
conmencenent for each year through 1985 (taking into account producing capacity in the field, pipeline transport capacity,
deliveries within Alaska and use for pipeline fuel)?

FEA forecasts of production from the North Slope are illustrated below:
(4M BID)
1978 1980 1985
Prudhoe Bay 1.2 1.6 1.6
Other North Slope --- --- .4 1/

TAPS Capacity
int-_ mLi~ial u -, 7pUL ca t L T -F
Svst~n (TAPS) is expected to begin at 600 M3/D in mid -1977, increasing to 1200 B/D by the beginning of 178. The rata
of flow is projected to advance to 1600 MB/D by 1980, and to 2000 MB/D by 1985 if additional reserves are discovered and
market conditions are favorable for transporting the oil.

According to Alyeska officials, to increase capacity of TAPS
beyond 1600 t4B/D .will require three additional pumping stations,
cooling equipment, additional tank storage facilities and one
additional berth at Valdez. Beyond 2000 MB/D looping will be
required.

North Slope Production

The maxLumn efficient rate of recovery from the Sadlerochit
Formation is currently estimated to be approximately 1600
NB/D. 2/ Production beyond this level will, in all liklihood, con& from the development of additional. reserves from other sources such as Kuparuk River or Lisburne Formations.
The Beaufort Sea is also considered a potential source of
production in the 1.985 timefrme.







63


An increase in production from the North Slope beyond 1600 NB/D
and expansion of pipeline capacity from 1600-2000 MB/D in 1985
is contingent upon a number of highly uncertain factors, including:

Geological factors pertaining to the discovery of new reserves.
Market danand for North Slope crude and product yields in PADD V.
Transportation systans available to move North Slope crude to other regions.
Comparative crude oil prices.
The degree of reliance on foreign imports.


1/ FEA forecasts are based on "Developing Production and
Price Estimates for Northern Alaska Oil and Gas Supplies"
prepared by Research Planning Associates for the Federal
Energy Administration October 28, 1975.

2/ FEA forecast for 1980 is based on discussions with State
f Alaska officials and industry sources.



2. West Coast Production

a) What is the current production of crude oil in Petroleum
Administration for Defense District V (hereinafter PADD V)?
Production of crude oil for 1975 in PADD V totaled 1.1 1B/D. A breakdown of production from specific regions is illustrated in the following table.

South Alaska (Cook Inlet) 191
San Joaquin 349
Los Angeles 337
California Coastal Region 196
Kern River 29
Total 1073 MB/D

b) What are your bcst current projections of production of crude oil in PADD V other than from the North Slope for each year through 1985 (taking into account Elk Hills production and the Outer Continental Shelf)?
FORECASTS OF AILASKAN CRUDE GIL PRODUCTION
(/D)

1978 1980 1985
TOTAL 13 4 1708 1928--2328

AN Alas :d Nerth "lope (_0 1600 1600-2000
AS Alaska So. Brooks Range 134 108 328







64


FOREGA OF CALIFORNIA CRUDE OIL PRODUCTION (MB/D)

TOTAL 1094 1211 1393

Onshore 759 733(4) 977 (4)
Offshore (existing state and Federal Leases) 180 (3) -(5)
Elk Hills 155 260 175
OCS (Federal leasing program) --- 218(3) 241(3)
(3) Includes production from existing Federal leases.
(4) Includes off-shore production fran state lands.
(5) Assumes continuation of authority to produce Elk Hills.
3. Imports

a) Ihat is the current level of crude oil and product
imports into PADD V by country of origin? (Please indicate whether the crude oil imports have relatively high or low
sulphur content.)

1975 Product Imports into PADD V (6)

Country MB/D

Canada 21.4
Bahamas 10.8
Netherlands Antilles 12.8
Virgin Islands' 1.1
Brazil 1.2
Peru 2.1
Trinidad 3.0
Venezuela 16..8
Bahrain 8.2
Oman 1.7
Indonesia 6.7
Malaysia 2.3
Singapore 13.6
Australia 4.6
Hawaiian Trade Zone 7.4
Other 6.6
120.3


1975 Crude Oil Imports Into PADD V ()

Country of Origin MB/D Average Sulphur Content

Algeria 1.0 0.13
Bolivia 5.3 1.55
Canada 163.6 0.28
Ecuador 52.7 0.76
Indonesia 295.4 0.08







65


Country of Origin B/D Average Sulphur Content

Iran 105.2 1.48
Libya 7.4
Malaysia 5.4
Nigeria 13.8 0.11
Oman 1.4
Qatar 10.9
Saudi Arabia 95.6 Light 1.70
Heavy 2.95
UAE 49.9
Venezuela 44.1 1.51
Total 851.7

(5) Bureau of Mines, January December 1975

b) What are your best current projections of crude oil
and product imports into PADD V by country or origin for
each year through 1985? (State assumptions behind those
projections regarding measures identified in question IV A)

In the 1978-1980 period it is assumed that approximately 500 MB/D of crude oil imports will continue into PADD V. Aproxfxately 350450 MB/D of imports will be of a light low suphur type comparable
........a=%k.. .L. o L idonesia and uanaCta.
This "sweet" crude oil is required due to refinery configuration
and product demand slate requirn.crts of several PADD V refineries,
notably in Hawaii and the Puget Sound area. Another 50-150 MB/D
o2 imports are expected from Persian Gulf and South American
sources due to specialty product requirements and refinery constraints. By 1985 crude oil imports are expected to be in the 300500 MB/D range with the bulk being Indonesian type crude. Actual
imports will be influenced by relative crude oil prices and refinery investment (new capacity and modification) which occurs over
the next several years. Product imports should decline to below
100 MB/D from 1978-1980 period and continue at a low level beyond
-1980.





B. Refinery Capacity

1. What is the current refinery capacity and throughput in PADD V?

Total PADD V refinery capacity for 1975 totaled 2357 IB/D.
Crude runs for the year 1975 were approximately T90 I4B/D, or
84 percent of capacity. (6)







66


2. What are your best current projections for refinery capacity
and throughput in PADD V for each year through 1985?

PADD V PRWECTED REFINERY CAPACITY AND CDE OIL TMRGHPLUT (MB/D)

AVERAGE ANNUAL CAPACITY (7) CRUDE OIL THRC GUT (8)
1976 2,588 2,056
1977 2,835
1978 2,874
1979 2,906
1980 2,938 2,287
1985 2,875
(7) "Trends in Refinery Capacity and Utilization," Federal Energy Administration June 1976.
(8) Total Refinery throughput would also include natural gas liquids and
refinery gains.

3. What part of the current and projected PADD V refinery capacity
is capable of processing Alaska crude oil or crude oil of
similar grade?

The present capability of refineries in PADD V to process Alaskan crude is limited, particularly in the Puget Sound refining center, and in Hawaii, where refineries have been
dezigricd to process "zt, light crudes. Or.ly the ARCO refin_-y
in Cherry Point, Washington, (cap 96 MB/D) was built to
process crude grades similar to Norffi Slope.

California refineries appear to have greater capability to
process North Slope crudes, and crudes of similar grades, particularly as a feedstock mix with lighter, low sulphur
crudes. The similarity in refinery yields between composite
California crudes and Alaska North Slope crudes in illustrated
in the following table:

PADD V
TYPICALLY AVAILABLE CRUDE OILS

CCMPOSITE
CALIFORNIA ALASKA
CRUDES NORM SLOPE

Crude Oil, Gravity API 19 27
Crude Oil, Sulphur % weight 1.5 1.0
Straight Run
Refinery Yields
% volume
Gasoline 12 18
Midbarrel 26 29
Resid 62 53'
Straight Run
Sulphur Content
% weight
Gasoline .04 .01
Mlidbarrel .7 .35
Resid 1.9 1.75








67



Based on a survey of refineries in PALD V region by FEA and information received from industry sources the following preliminary estimates have
been developed regarding utilization of North Slope crude oil.

1978 POTENTIAL DISTRIBUTION OF NORTH SLOPE AND FOREIGN IMPORTS IN PADD V
MB/D

1975 1978 1978 1975
(CAP) ALASKA FOREIGN 19751 S.'
Refinery MB/D North Slope Imports Inports Imports Comnents

Los Angeles
UNION 108 0-50 10-20 45 8
* AROO 182 70-100 30-50 65 32
SOCAL 230 130-190 50-90 150 141 Adds 170 M3/D CAP
SHELL 96 20-35 5-10 21 3
MDBIL 124 25-30 8-10 14 8
GULF 52 10-25 10-15 20 5
DOUGLASS 47 5-25 5-10 11 6
TEXAS 75 15-20 15-20 15 16
POWERINE 44 0-5 10-15 20 10

SUB TOTAL 958 275-480 143-240 361 229

EXXON 88 70-74 0-5 45 3
...AL 190 120-176 30-42 50 2/: Addc 150 M'/D CAP
LL 100 30-40 0-5 21 2
I SCOPETRO 110 0-30 15-20 33 1 Formerly Phillips
UNION 111 0-19 15 ? ? Imports unavailable

SUB TOTAL 599 220-339 45-87 149 30

Puget Sound
*ARCO 96 96-98 -- 94 43 Designed to run AN
MOBIL 71 10-35 70 48 48 1977/650MB tark
1978 Fuel gas
sulfer rc-oval
SHELL 91 0-15 70 71 63 600 B tanker cos:
$800-100 A-ilX
TEXACO 78 0-2 70 76 59 Cost 100 AN=$150

SUB Tf.AL 336 106-150 210 298 213

GRAND TOTAL 1893 601-969 298-537 799 472

Notes:

Includes only those refineries likely to utilize North Slope crude

1. Port of Entry only. These are incopl-ete crude quality reports but very close to
total for.J-gn iTports reports ich are proprietary.
Large North Slope producers

























79-745 0 76 6







68


10he continuing need to imilx)rt lowx sulplhur crude(1; into S:in Francisco
and Los Angeles refineries will be contingent UlX)n Cuatliforniu air
quality standards and new desulphurization capacity. The likely behavior of California refineries in their decisions to invest in desulphurization capacity will be determined by comparative costs of alternative crudes to
refiners and product slate requirements.

Estimates of the costs associated with converting refineries originally designed to process sweet, light crudes vary from refinery to refinery.
It is assumed that these conversions would require a 2-3 year lead time,
and would be considered only if Alaskan North Slope crude were priced
comparatively lower than foreign imports, and if conversion costs could
be recovered through product prices.
II. West Coast Petroleum Demand

A. What is the current demand for crude oil and refined petroleum
products in.PADD V?
Current (through 1975) demand for crude oil in PADD V total ed 2155MB/D. Demand for products is illustrated in the following
table:

1975 PADD V Refinery.Production/Product Demand
*Balance

PRODUCT PRODUCTr1 DEMA2
MB/D lB/D

Gasoline 987 986
Distillates 231 262
Jet Fuel 234 290
Residual 374 386
Asphalt 59 56
Petrochanical Feedstocks 22 12
Coke 88 32
LPG 33 53
Still Gas -85 79
Other 42 43
2155 .2199

1Bureau of Mines, Refinery Report, Form FEA-P320-M-0
21.rA National Eiiergy Otlook data base.







69


b) What are your best current projections for crude oil and refined petroleum product demand in PADD V for each
year through 1985?

PAID V DE!MD FOR PETROLEUM
MB/D)
1976 1980 1985

PRODUCE CRUDE PRODUCT CRUDE PROUCT CRUDE

FPA 2,311 2,056 2,383 2,287 2,966 2,875
Source: 1980, 1985 FEA $13 Reference Case, National Energy
Outlook (NEO) data base. III. West Coast Surplus
Assuming that none of the measures identified in question IV A is
inplemented:

a) What are your best current estimates of the FADD V
net surplus or deficit of crude oil for each year through 1985 in PADD V (i.e., the difference between total PADD V
production and refinery runs plus addition to stocks)?

Assuming that none of the transportation systems identified
in IV A is inilemented by the time Alaskan North Slope
oil begins to flow, FEA's best estimates of the developing
surplus are as follows:

MB/D)
1978 1979 1985

600- 900-1100 700-1300
The supply and demand assumptions from which these estimates
-were developed are shown in the following table. FEA's
high and low surplus projections for 1980 and 1985 are
calculated from high and low Alaskan production estimates.
These include a foreign import assumption of 500 MB/D.
'low import" surpluses for 1980 and 1985 are calculated
by assuming all refiners except the "sweet" refiners
primarily located in Puget Sound will make conversions to maximize use of domestic production (including North
Slope crude) and that the ndnimum foreign import requirements
will be approximately 300 NB/D (equal to the 1975 capacity
of West Coast "sweet refineries.")







70



The actual surplus realized appears to be heavily dependent on the following market
factors:

(1) The relative selling price of North
Slope crude vis-a-vis foreign imports and other domestic crude oils;
(2) The cost and availability of crude
transportation to alternative markets;
(3) Government pricing and regulatory decisions.
(4) Investment decisions by PADD V refineries.

POTENTIAL WEST COAST CRUDE OIL SURPLUS FEA FORECASTS PADDYD V)

1970 1980 1985

PADD V Production 2,400 2,900 3,300-3,700
Foreign Imports 500 300-500 300-500
TOTAL SUPPLY 2,900 3,200-31400 3r600-41200

Demand '2',300 2,300 2,900
PR0.TFCTPT) EXCESS 600 goo-1,100 700Klr300


These forecasts for 1980 and 1985 are based upon
the 1976 National Energy Outlook (NEO) which
assumes an immediate deregulation of oil and gas
and a $13 per barrel price in real dollars. This
assumption has the effect of reducing residual
fuel oil consumption by utilities and increasing
production from California fields by use of
enhanced recovery projects. The NEO model does not
reflect the fact that the California production
would be "heavy" oil for which prices would be
lower and markets more limited. Therefore, under
current pricing conditions, the NEO demand could be understated and the PADD V supply overstated. This would reduce, but not eliminate, the excess supply
shown here.

(b) What are your best current estimates of the
net surplus of North Slope crude oil and crude oil
of similar grades for each year through 1985 in
PADD V (i.e. the difference between PADD V
production and refinery runs plus additions to
stocks of such crude oil)?







71


It is expected that most of the estimated surplus of crude oil in PADD V will be crude of similar grades to the North Slope crude. Use of this low gravity, medium sulfur crude in PADD V will be limited for the following reasons:

(1). Limited PADD V demand for "heavy"
products, such as residual fuel oil.
North Slope oil yields proportionately
greater amounts of heavy products in
first run distillations;
(2) Additional California crude oil from
Elk Hills and offshore regions with
,sulfur contents equal to or less than North Slope crudes will compete with
North Slope crudes;
(3) Refineries designed to run on light,
sweet crude will continue to import
foreign crudes of similar quality.








72








Office of t4f ellairman

september 14, 1976

Honorable Henry M. Jackson
United States Senate
Washington, D. C. 20510
4 EP 141976
Dear Senator Jackson:

I am writing in response to the August 23 letter s igned jointly by you and
Senators Magnuson and Stevenson, enclosing a questionnaire regarding certain problems relating to the Tran -Alaska Pipeline Authorization Art.
You particularly requested our response to Question IV.

The Federal Maritime Commission has no jurisdictional responsibility over
the operational and policy matters raised by Question IV or any other
portions of the questionnaire. Our regulatory jurisdiction is limited
solely to the requirements of Section 311(p) of the Federal Water Pollution
Control Act (Public Law 92-500), which requires that any vessel over 300
gross tons operating in United States waters must furnish acceptable evidence of financial responsibility, up to $14,000,000, to cover the
cost to the United States for any oil spill removal. 'When such vessels
comply with the foregoing financial responsibility requirements, they are
issued Certificates of Financial Responsibility (Oil Pollution) by the
Commission as proof of such compliance.

Section 204(c)(3) of the Trans-Alaska Pipeline Authorization Act (P. L.
93-153) recognizes and incorporates the foregoing financial responsibility
requirements of the Federal Water Pollution Control Act, and further
provides that all vessels must comply with the requirements of that Act
before any oil delivered from the Alaska Pipeline is loaded.

Since this agency's regulatory jurisdiction in no way covers the subject
matter referred to in Question IV of the questionnaire, we defer to other
agencies more directly involved.

The Office of Management and Budget advises that, from the standpoint of the Administration's program, there is no objection to the presentation
of these views for the consideration of the Congress.

Sincerely yours,



Karl E. Bakke
Chairman








73




FEDERAL POWER COMMISSION WASHINGTON, D.C. 20426


September 14, 1976
Honorable Henry M. Jackson United States Senate Washington, D.C. 20510

Dear Senator Jackson:

In response to your request of August 23, 1976 we
have made an effort to provide all available data on the Sohio Crude oil Project to which we have access as a result of the El Paso Natural Gas Company proceeding, Docket No. CP75-362. The Standard Oil Company, Ohio (Sohio) commissioned studies evaluating crude oil supply and demand 'in order to determine the feasibility of its project. Due to the scope and purpose of the hearings to be held by the Senate Committee of Interior and Insular Affairs and Commerce, we are submitting these documents in conjunction with all other data we believe may be helpful to your inquiry.


I. West Coast Petroleum Supply

A. Crude Oil

2. West Coast Production

b) Q. What are your best current projections
of production of oil in PADD V other
than from the North Slope each year
through 1985?

A. DeGolyer and MacNaughton, a consulting firm, prepared a report for Sohio dated January 15, 1975, entitled "Prediction of Oil Production Rates from
Petroleum Administration for Defense
District V." This report, which is enclosed as Attachment A, is an estimate of oil production from PADD V from 1975
through 1994. The report indicates
that production of crude oil in PADD V
other than from North Slope will continue to decline through 1985.

Furthermore, as part of the El Paso proceeding, an Environmental Impact Statement
~O~~~iO4was prepared by Sohio Transportation CoinQ pany in March 1976. Estimates of the
-4
Mi
A -A








74



crude oil supply are set forth in Table
lB. 2-3, which is enclosed as Attachment
B.


I.West Coast Petroleum Supply

B. Refinery Capacity

2. Q. What are your best current projections
for refinery capacity and throughput in PADD V for each year through 1985?

A. To meet demand, Sohio anticipates refinery
capacity will increase and refinery utilization will improve from 81 percent in
1974 to 90 percent. Refinery capacity additions in 1978 include 350 MBPD, Standard
Oil (California), plus 50-150 MBPD for
other possible additions, expansion, and
debottlenecking. In Table lB. 2-2, enclosed as Attachment C, the projections
are set forth. The 1974 refinery capacity
has been carried over to 1978 and 1982,
despite the fact that a 30-MBPD plant
which operated in '74 has been closed. Refinery capacity additions for 1982 were
selected to preserve the historical relationship between total demand and refinery.
Sohio admits its assumptions are "quite aggressive."


I.West Coast Petroleum Demand

B. Q. What are your best current projections
for crude oil and refined petroleum
product demand in PADD V for each year
through 1985?

A. In March, 1975, the Pace Company Consultants and Engineers, Inc. prepared a report for Sohio entitled "Petroleum Demand
in PADD V Through 1995," which is enclosed as Attachment D. It indicates that energy
consumption in PADD V is projected to increase at a higher rate than for the United
States as a whole. Specifically, it forecasts an average annual increase of 3.6 percent for PADD V for the 1972-1995 period







75


versus a 2.8 percent rate for the total
United States. In its environmental study, Sohio estimates PADD V demand for petroleum
to increase from approximately 2.2 MBPD in
1974 to 2.8 MBPD in 1978 and 3.2 MBPD in 1977,
1982. The PACE Company estimates the demand
to reach 2.895 MBPD in 1977, 3.251 MBPD in
1980, and 3.339 MBPD in 1985. For the period
1981-1985, the Pace Study anticipates that the
importance of LNG from Alaska North Slope,
coupled with increasing nuclear power capabilities, will tend to retard petroleum growth,
even though North Slope oil will be readily
available. PADD V demand growth has historically
exceeded growth in the rest of the nation. In
this projection, although lower than historic rates, the growth is slightly more than that
projected, for the entire country.


III. West Coast Surplus

B. Q. What are your best current estimates of
the PADD V net surplus or deficit of
crude oil for each year through 1985 in
PADD V?

A. Sohio's estimates of the PADD V surplus
is 300-600 MBPD in 1978 and 750-900 MBPD
in 1982, as set forth in Attachment B.

According to Sohio's estimate, 600,000
barrels per day of oil will be imported
by mid-1977. Mr. Fred Garibaldi, President
of Sohio Transportation Company, estimates
that 300 to 600 barrels a day of surplus
oil will be available by 1978 based on the
assumption that 1,200,000 MBPD will be
reaching California.


IV. Proposed Responses to the Projected West Coast Surplus

A. 3. The Sohio Crude Oil Project

A. On June 11, 1975, El Paso filed in Docket
No. CP75-362 an application, pursuant to
Section 7(b) of the Natural Gas Act for







76



4


permission to abandon and .retire from natural gas service (a) 669.4 miles of existing high pressure gas transmission pipe line, (b) a total of 66,150 compressor horsepower at seven existing compressor stations, and (c) five rightof-way taps, all comprising a part of El Paso's interstate system located in the states of Texas, New Mexico and Arizona. Upon abandonment, the mainline transmission facilities will be converted to the transportation of crude oil as an integral component of the proposed Sohio project.

In order to abandon the gas facilities and thereby convert the gas pipeline to an oil pipeline, El Paso is required to obtain the Commission's authorization under Section 7(b) of the Natural Gas Act. After hearings, the Commission must make a finding that the available supply of natural gas is depleted to the extent that the continuance of service is unwarranted or that the present or future public convenience or necessity make such abandonment necessary.

On June 10, 1976, a rehearing conference was held in order to expedite the proceedings. The need for*expedition was based on El Paso's allegation that there must be a transportation network established by 1978 to deliver 400 MBPD east of California. On July 7-16, 1976, hearings were held on El Paso's application. On September 8, 1976, the intervenors and Commission Staff filed evidence in this proceeding, and the hearings will reconvene on September 20 to provide for cross-examination. Upon completion of this phase of the hearing, there will be another recess pending the issuance of the final Environmental Impact Statement by the Department of the Interior.

Our information is that the final statement will not be released until March, 1977, at which time the hearings will reconvene to allow the parties to examine the environmental aspects of







77


5


the proposed abandonment. The administrative hearings will then be concluded. The parties, Commission counsel, and Presiding Administrative Law Judge are making every effort to act in an expeditious manner so as to render an initial decision on the proposed abandonment by early summer, 1977.

The Sohio Project will involve the leasing of both El Paso's and Southern California Gas Company's (SoCalls) transmission facilities. A portion of the project will consist of certain existing pipeline facilities of SoCalls Texas pipeline system, which are currently being utilized in conjunction with El Paso's pipeline system in the transportation of natural gas from Texas and New Mexico within Southern California. Sohio is currently attempting to obtain the necessary approvals and permits from California.

it is estimated that construction for the Sohio project will take approximately 12-14 months after all necessary permits are obtained. Sohio must not only convert SoCal's and'El Paso's existing gas pipeline transmission system to an oil pipeline, it must construct approximately 70 miles of new pipeline from Jal, New Mexico to Midland, Texas. Mr. Travis Petty, President of El Paso Natural Gas Company, estimates that the conversion of the El Paso pipeline will take approximately 6 months.

Sohio does not expect to finance the construction of this project alone. Upon receipt of all Federal approvals, it anticipates that other companies will be partners in the construction of this common carrier pipe line. Sohiols initial studies estimate that the total cost of construction of the crude oil project will be approximately $500,000,000. The cost for converting the El Paso gas pipeline system to an oil pipeline will be about $137.4 million dollars.




PXW_



78



6


Although your questionnaire listed several other "Proposed Responses to the Projected West Coast Surplus," we are unable to provide any relevant information. Northern Tier Pipeline Company intervened in the El Paso proceeding, but they have not introduced any evidence concerning the project.

Due to our lack of direct evidence on the other alternative projects, we are unable to express an opinion on which alternative appears to be the most workable or acceptable. We can state however that the most significant hurdle in our effort to expedite a final decision in the abandonment proceeding is the necessity for awaiting the preparation of a Final Environmental Impact Statement as dictated by the National Environmental Policy Act of 1969. As this environmental review is critical of our evaluation of the project as a whole, the Department of the Interior has made every effort in conjunction with our staff to expedite its preparation. I therefore believe that there is no need for federal legislation to expedite approval of the Sohio Crude Oil Project.

I trust this information will be of some assistance in your inquiry. If I can be of any further help, please do
not hesitate to contact me.

Sincerely,



Richard L. Dunham
Chairman






79

Attachment A.

DEGOLYER AND MACNAUGHTON
ONE ENERGY SQUARE
DALLAS,TEXAS 75206



















Prediction of Oil Production Rates from
Petroleum Administration for Defense
District V







80


DEGOLYER AND MACNAUGHTON ONE ENERGY SOUARC
DALLASTEXAS 75206



Prediction of Oil Production Rates from
Petroleum Administration for Defense District V




FO-R1-WO R D



Scope of Investigation This report is an estimate of the oil
production rates that we think can reasonably be expected from Petroleum Administration for Defense District V (PAD V) from 1975 )through 1994.' This estimate is based on the extrapolation of historical data from PAD V, data from other oil-producing areas throughout the world, and our best estimate of future exploration and development in PAD V.



Authority This report was authorized by Mr. George J.
Abraham, Assistant to Vice President, Oil and Gas Division, The Standard Oil Company (Ohio), hereinafter referred to as the "Company."'



Source of Information The information used in this study was
obtained from the public information in our files and from our general knowledge of PAD V. We consulted freely with the employees of the Company during the course of this study.







81


DEGOLE.VR AND MACNAUGHTON



L RESERVI:S

Oil resenres may be classified as proved. probable. possible. or potential. The reliability of the reserve estimate is greatest when the reserves are classified as "'proved." and reliability decreases for probable, possible, and potential reserves. The two classifications of reserves used in this report are at opposite ends of the reliability spectrum and are defined as follows:

Proved reserves are those which have been proved to a high degree of certainty by reason of actual completion, successful testing, or in certain cases by adequate core analyses, and which are defined areally by reasonable geological interpretation of structure and known continuity of oil- or gas-saturated reservoir material. The annual reserves reported by the American Petroleum Institute (API) arc in the proved classi fication.

Poten-tial reserves are those which may be discovered, developed, and produced in the future. There is no assurance that these reserves will be found and produced, and they are generally omitted in discussions with regulatory
()Icies and financing institutions because of inherent risk in finding and producing them. However, in relatively unexplored basins such as exist in Alaska, these potential reserves are thought to be larger than the proved ultimate recovery actually found to date: therefore, the potential reserves are of great importance in planning the exploration and development of Alaska's natural resources.

Conversely. we think that the cunent proved ultimate recovery for the state of California is much larger than the potential reserves. Exploration over the past 37 years has contributed only 23 percent of the current proved ultimate recovery For California, but essentially all of the proved ultimate recovery for Alaska has been discovered since 1956.

Because of thedifferent techniques required
to forecast proved and potential reserves and the producing rates to be derived therefrom. "s" have included a separate discussion for each classification.







82


DEGOLYER AND MACNAUGHT01N



PROVED RESERVES

Alaska Based on the API's reserve estimate, as of
December 3 1, 1973, the estimated proved
gross ultimate recovery for the fields in the Cook Inlet area was 1 .05) billion brcso crude oil. Tile cumulative production, as of January 1. 1975, is approximately 609 million barrels, leaving remaining proved reserves of 443 million barrels. This amounts to a, producing-life index of approximately 6 years at the current producing rate. Over one-half of the current production is obtained from the McArthur River field. The remainder of the productions is obtained from the Swanson River. Middle Ground Shoal, Trading Bay, Granite Point. and Beaver Creek fields. The history of Alaskan oil production, including the North Slope, is shown in Figure 1.

Producing rates from these Cook Inlet area
)fields have been higher and have been maintained longer than those from fields of similar size in the lower 48 states because the producing rates are not prorated and because of the early injection of water and gas into the reservoirs. As a consequence of the U ~,essurc-maintenance schemes and the absence of proration, the fields will exhibit high rates of production followed by rapid declines as the injected water and/or gas moves into the producing wells. Active redrilling programs are in progress in the Swanson River andi thle McArthur River fields where more than one-half of the ultimate recovery has been produced. We anticipate that the producing rates from 'the Cook Inlet area will decline at a comparatively low annual rate for the next few years and then will decline at a faster rate as
producing wells are -abandoned.

Other proved reserves in Alaska are in thie
Prudhoe Bay field on the North Slope where the current producing rate is less than 8 thousand barrels of oil per day (BOPI)). Upon expected compl-letion of thle Alyeska Pipeline in mid-1977. the Prudhoe Buy field should produce at a rate of 1.2 million BOPD. We estimate that the peak rate from this field will be approximately 1 .5 million BOPI) and will be achieved by 1980. The length of time that the rate will remain at peak level is contingent
upon reservoir response and1 operating practices in thle Prudhoe Bay field.

The majority of the reserves in Alaska belong
in tile potential category ant] are discussed 'under 1Potential Reserves"' in this report. These potential reserves %ubstaritially increase the predicted production rate ror the state of







83


DOGOLYER AND MACNAUGHTON



i-
California Based on the APIl's reserve estimate. as of
December 31, 1973, the estimated proved
gross ultimate recovery for California was 19.919 billion barrels of crude oil. The cumulative production, as of Janaury 1. 1975, is approximately 16.754 billion barrels, leaving remaining proved reserves of 3.165 billion barrels. This aminounts to a producing-life index of almost 10 years at the current producing rate. In contrast to Alaska, where over one-half of the production is obtained from one field, the major producing field in California .Wilmington provides only 20 percent of the state's production, and the combined production of the top five fields yields approximately one-half of California's production. Two of the top five fields are over 50 years old.

Because of the more mature stage of A'vclopment of 'the oil and gas reserves in California, the evaluation of the anticipated producing rate from the proved reserves is necessarily more complicated. The California producing rate reached average peaks of approximately 800 thousand BOPD in 1929, 1 ,-lion BOP) in 1953, and I million BOPD in 1969. Each of these peak producing years ws followed by a decline and subsequent increase in producing rate to the next peak. As shown in Figure 2. the peak rate in 1969 was caused by two factors: an increase in oil production from existing fields due to an increase in thermal recovery activity: and attainment of the peak oil rate by the Long Beach Unit which was discovered in 1936 but was not developed and placed on production until 1966. Without the production from these two sources the California production curve would have been on decline in 1969.

The influence of the production from thermal operations and other fields which produce low-gravity crude oil can readily be seen because approximately 54 percent of the 1973 California production has a gravity of 20 degrees API or lower. In contrast. the crude oil with a gravity of 20 degrees API or lower accounted for only 32 percent ot thie California production in 1961.

The Elk Hills field. commonly referred to as
Naval Petroleum Reserve No. I (NPR-I). has an estimated ultimate recovery of 1.3 billion arrels of oil. The reserve of the Elk Hills field is included in API's estimate of proved reservs for California. The field is owned by the United Sta:es acting thlrou'h the Na; \ Department and 1y Standard Oil ('ompany of California pursuant to a Unit Agreemcent.
















79-745 0 76 7







84


DEGOLYER AND MAcNAUGHTON



( OVED RESERVES (Contd.)

During World War !1. the Elk ilills field ws partially developed and produced at a peak rate of 70 thousand BOPI) for a short period of time. Current production is restricted by the government to just over 2 thousand BOPD. Cumulative oil production to January 1. 1975, is approximately 284 million barrels.

A joint resolution of the Congress of the United States is required to place the Elk Hills field on production. It has been a firm policy of the Armed Services Committee to restrict production from the field to the current low rate except in times of actual conflict. It is our opinion that this policy will continue in the foreseeable future; therefore, we have projected Elk Hills at the current producing rate. Should the field be placed on production. we think it would be capable of delivering an additional 200 to 250 thousand BOPD to PAD V.

The Tile Elk field on the northern edge of the NPR-I was discovered by Standard Oil Company of California in 1974 and is now shut in by order of the Federal Ceurt. This field is capable of producing 15 thousand BOPD and echuded in our projected producing rate for California.








85


DEGOLYER AND MACNAUGHTON



POTENTIA-L RE-S1-RVPS


-lsk There appeaIrs to be little disagreement that
the remaining potential reserves for the state
of Alaska should be much greater than the reserves that have been found to date. Some of the published estimates of the ultimate resources, in thc form of crude oil and natural gas liquids, that will be found in Alaska (onshore and offshore) are as follows:

41 billion barrels -- Mobil Oil Corporation
48 billion barrels Dr. M. K. 1-ubbert
86.6 billion barrels -- Division of Geological and
Geophysical Survey. Alaska
55-1 10 billion barrels --U. S. Geological Survey

E ven the lowest estimate of 41 billion barrels is approximately four times greater than the Proved reserves currently estimated by the API.


0 We anticipate that the majority of the
potential reserves that will be discovered and placed on production during thle 20-year period of our projection will be from the Cook Inlet and North Slope areas of Alaska. It is almost Certain that other areas will also contribute to the overall producing rate, but because of the current status of engineering and geological knowledge, the leasing situation. and the existing production. we think that production will be mainly from thle Cook Inlet and North
*Slope areas. It is also possible that production will be discovered and developed in thle Gulf of Alaska as well. However, the severe problems encountered in the exploration and development of reserves in the hostile climate of the Gulf of Alaska will probably delay any substantial production from that area, at least during the early years of our projection.

The historical data from thle Cook Inlet area indicate a high degree of success in finding oil and in establishing a substantial production rate from thle reserves. When compared to other areas in the United States, it is apparent that cxploratimi in the C'ook Inlet has been quite successful. The drilling of 194 exploratory tests discovered 1.052 billion barrels of crude oil reserves in the Cook Inlet area. This afl1ouft%~ to approximately 554 barrels of oil per foot of exploratory drilling, or 5.4 million
barrels of oil per exploratory well.








86


OEGOLYER AND MACNAUGHTON



POTEiN'IAL RESERVY.S (Contd.)

The historical data from the North Slope of Alaska are even more impressive with the discovery of 9.6 billion barrels of oil from thc drilling of 70 exploratory wells outside Naval Petroleumn Reserve No. 4 (NPR-4). This amounts to 14.333 barrels of oil per foot of exploratory drilling, or 137.1 million barrels.. per exploratory well.

As a consequence of the successful ventures in
the Cook lInlet and on thle North Slope, it is apparent that average statistical data for the United States would probably lead to conservative conclusions. However, early exploration in major basins generally discovers the larger amounts of oil; as exploration prospects become poorer, the reserves per foot of' exploratory drilling and per exploratory well decrease.

There are other considerations which must be
made in evaluating a development schedule of an area such as Alaska. Thle major Consideration is that thle hydrocarbons arc critically needed by the lower 48 states. Approval of the permit to build the Alyeska Pipeline and increases in the price of oil have already provided increases in exploratory drilling in Alaska. Both the State of Alaska and thle United States Federal Government indicate a willingness to lease more land than they have leased in the past.

Our projection of future production rates as shown in Figure 1 will require that these positive factors remain in force. The cumulative oil production from Alaska is estimated to reach 16.5 billion barrels by 1995.


California There are three sources from which potential
reserves might be developed in California.
These sources are additional onshore drilling, additional offshore drilling, and increased recovery from currently known fields.

During the past 20 years, a total of 8.3 1 5
exploratory wells were (drilled in California. Most of the fields discovered during this timespan have been deveCloped sufficiently to place the reserves in thle proved category, and