RIGHTS-OF-WAY ACROSS FEDERAL LANDS: TRANSPORTATION OF ALASKA'S NORTH SLOPE OIL

WEDNESDAY, MAY 2, 1973

U.S. SENATE,

COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,

Washington, D.C.

The committee met at 10 a.m. in room 3110, Dirksen Senate Office Building, Hon. Henry M. Jackson, presiding. Present: Senators Jackson (presiding), Fannin, Haskell, Bartlett, McClure, Hansen, Johnston, Hatfield, and Buckley.

Also present: Jerry T. Verkler, staff director, and William J. Van Ness, chief counsel.

Chairman JACKSON. The committee will come to order.

OPENING STATEMENT OF THE CHAIRMAN

This is the first of 2 days of hearings on the transportation of oil from Alaska's North Slope to markets in the lower 48 States.

There are two contrasting points of view on this subject. The first is that Prudhoe Bay oil should be moved by pipeline to Valdez and then shipped by tanker to west coast markets. This position has the support of the administration, the State of Alaska and the companies that own the North Slope reserves.

The second point of view is that Prudhoe Bay oil should be moved overland by pipeline through Canada to Midwest markets. This position has the support of a number of conservation organizations and some Members of Congress from Midwestern States.

The major purpose of the hearings is to identify and to review the important issues of public policy presented by these two points of view and to determine their relationship to the national interest and to resolving the critical energy shortages we face.

It is my personal judgment that the trans-Alaska pipeline better serves the national interest for one major reason. That reason is timing.

The main issue presented is whether the Congress is willing to incur a delay in bringing North Slope oil to markets of at least 3 years, and possibly much longer, to work out all of the arrangements necessary to building an overland pipeline across Canada.

There is, in fact, no assurance that the required agreements to build a pipeline across Canadian territory could be worked out within any reasonable timeframe.

The potential for delay in connection with a trans-Canadian oil pipeline is immense.

First, no group has yet formally proposed to build a trans-Canadian oil pipeline.

Second, any proposal to do so will require lengthy negotiations between the applicant and the two Governments as well as negotiations between the United States and Canada leading to formal agreements and perhaps a treaty covering ownership, management, regulatory jurisdiction, the capacity of the pipeline, and other matters.

Third, prior to approval of any proposed trans-Canadian pipeline detailed design and engineering work would have to be initiated, new environmental impact statements would be required; and a number of permits would have to be obtained from both Governments.

There are major uncertainties in connection with all of these requirements. These include the possibility of extended litigation based upon environmental standards and requirements, regulatory questions, and the rights and interests of Canadian natives in the lands to be traversed by any proposed pipeline.

It must also be acknowledged that there are uncertainties and potential for further delay in connection with the trans-Alaska pipeline proposal. Federal rights-of-way legislation must be adopted by the Congress. A legal challenge of the environmental impact statement appears likely. The State of Alaska and the oil companies proposing the trans-Alaska route are currently involved in major litigation that must be settled.

Delay of oil production from northern Alaska has serious consequences that this committee and the Congress must consider in connection with pending proposals to mandate either construction of a Canadian pipeline in place of an Alaska pipeline, or a new study of the Canadian route as an alternative to it. The implications of delay include:

Several years, perhaps many years, of increased dependence upon imported oil;

A serious financial crisis for the State of Alaska;

Deferment of the income promised Alaska Natives under the Settlement Act;

Additional delays in delivery of North Slope natural gas to the lower 48 States; and

A continuing stagnation of oil and gas exploration in northern Alaska.

The last point is very important. Development drilling, even in the Prudhoe Bay Reservoir, will almost certainly increase Alaska's proved reserve figure above the present 10 billion barrels, and may well double this estimate.

Moreover, large accumulations of petroleum like that of Prudhoe Bay are seldom found alone, and several more Prudhoe-type structures are known to exist on the North Slope of Alaska.

There seems to be a growing consensus that North Slope production will probably be sufficient to justify at least two 48-inch pipelines within 10 years, but only:

If exploration continues on State, Native-owned and Federal public domain lands in northern Alaska, and

If exploration is promptly authorized in Naval Petroleum Reserve No. 4, as provided in S. 1586, which I introduced last month.

The very long delays anticipated for a Canadian oil pipeline do, however, argue for a beginning now in planning, organizing, and designing an overland pipeline from northern Alaska to the Midwest.

The continuing uncertainty and delay of the Alyeska pipeline provide additional justification for such a policy, but I believe that it is false to counterpose the two pipelines.

In this context, the likelihood that big oil reserves will be proved in the Canadian Arctic to share the line's capacity is an argument for prompt planning for a Canadian pipeline rather than against it.

The pipeline from Alaska is now stymied by what seems to be a technicality-the right-of-way width limitation in the Mineral Leasing Act. This committee hopes to report a bill this week which would remove this obstacle to building any pipeline across public lands in

the United States.

During congressional consideration of this measure amendments will probably be offered to deal with a trans-Canadian oil pipeline and with United States and Canadian relationships on energy policy.

I am submitting a list of questions regarding pipelines for Arctic oil and gas for the witnesses testifying at the hearings.

[The list of questions submitted follows:]

(The following list suggests several questions regarding pipelines for Arctic oil and gas that have not yet been adequately dealt with in Senate testimony; however, the list is not intended to cover the full range of issues to be addressed at the present hearings.)

1. What are the most reasonable expectations regarding onstream operation of either proposed pipeline to bring North Slope petroleum to lower 48 markets? Specifically,

(a) Assuming that Congress removes the width limitation in the Mineral Leasing Act as an obstacle to granting a right-of-way for the Alyeska pipeline, what further delays can reasonably be expected in authorization, construction or operation of that pipeline? Consideration should be given to the time required for full resolution of issues under the National Environmental Policy Act; antitrust issues; current litigation between the owner companies and the State of Alaska over the right-of-way, regulation and taxation; current or emerging restrictions upon the use of marine terminals in California and Washington State by tankers from Alaska; and any other foreseeable engineering, legal, or financial difficulties.

(b) Assuming that the North Slope owner companies eventually determine to ship all or part of their crude oil by an overland pipeline through Canada, what delays can reasonably be expected in authorization, construction or operation of such a pipeline, in addition to the period required for normal planning, engineering and construction? Consideration should be given to political uncertainties, including environmentalist opposition and Indian claims in Canada, as well as to the kinds of delays anticipated for the Alyeska pipeline.

Responses to the foregoing should be addressed to probabilities and not solely to the most optimistic or pessimistic scenarios.

(c) In which of the issues enumerated above does the Congress have significant influence? What specific actions by Congress could significantly expedite construction of either pipeline?

2. Are the Alyeska and MacKenzie pipelines necessarily alternatives to each other? Specifically,

(a) What is the likelhood that sufficient reserves will be proved on the North Slope of Alaska either to justify two pipelines, or to utilize the full capacity of the Alyeska pipeline plus a substantial part of a MacKenzie Valley pipeline that would also carry Canadian crude oil?

(b) Assuming that an application to build either pipeline is approved in the near future, how rapidly can additional drilling be expected to increase proved reserves to levels that would justify two pipelines?

(c) Assuming that more than one pipeline from the North Slope will be economically warranted, what are the serious economic, environmental or security grounds, if any, for building one or the other first?

(d) In light of the continuing delay in authorization of the Alyeska pipeline and the continuing widespread advocacy of a Canadian route, what explains the past (and continuing) reluctance of the owner companies to plan and organize— short of actual construction-for both alternatives?

3. In light of the apparent uncertainty about the Canadian government's response to an actual application to build an overland oil pipeline, is there any reason why the U.S. government should not encourage or require the companies to prepare and submit such an application or, if the companies are not interested, why the government should not itself prepare and submit such an application? 4. Industry and government projections indicate that North Slope production can be fully absorbed by (and will be required by) markets in P.A.D. District V (the West Coast). To what extent do these projections take into account the likelihood of large additions to reserves either in the offshore near Santa Barbara, California, or in the Gulf of Alaska?

(a) What is the best current information regarding the probable or indicated reserves and oil in place in offshore California?

(b) On what assumptions regarding North Slope production and West Coast oil consumption are the Interior Department's leasing plans for the Gulf of Alaska conditioned?

(c) If large discoveries (2 million or more b/d) in southern Alaska and/or offshore California should occur within the next 3-5 years, where and how would this oil, together with North Slope oil, be marketed?

5. What is the current status of plans to build natural gas pipelines from the North Slope and from Northern Canada to the lower 48? How are these plans related to progress of oil pipeline construction?

(a) To what extent or at what time will the ability to ship gas place a limit on crude oil production from the Prudhoe Bay field?

(b) Which of the objections and obstacles that have been raised with respect to an overland oil pipeline across Canada are also relevant to plans for a gas pipeline (and to what extent)?

(c) What studies and analyses have been done to indicate whether there is in fact a market in the United States for base load gas at the volumes and city gate prices (one dollar and more per Mcf) required to justify pipelines for Arctic natural gas? Would the response to this question be different if the Federal Power Commission required pipelines to price such gas incrementally rather than rolling it together with lower cost domestic supplies?

This set of hearings will provide this committee and the Congress an opportunity to review the policy implications of these amendments. Without objection, the texts of S. 970, S. 993 and S. 1565 be placed at this point of the record.

[The material referred to follows:]