TESTIMONY BY THE HONORABLE WILLIAM E. SIMON Mr. Chairman and Members of the Committee: It is a privilege to appear before this Committee to present my views on a topic of intense national concern. The United States urgently needs Alaska's North Slope oil if we are to deal effectively with our emerging energy crisis. Further, it is critical that legislation be passed quickly to allow construction to commence on a trans-Alaska pipeline. There is no question that this country critically needs its North Slope oil. Every barrel of that oil we can produce will reduce imports by a like amount. This Committee undoubtedly has heard many estimates of the rapidly increasing import levels we face if we don't reverse current trends. Estimates of oil imports in 1980 range between 10 and 15 million barrels per day. Imports of this magnitude could endanger our security and economic well-being. These projections, however, assume that we do nothing and that present trends continue. Actually, we can take several steps to increase domestic supplies and decrease imports. The President has already moved decisively to increase energy supplies. The Congress can contribute substantially by passing legislation enabling us to initiate needed programs, such as the Alaska pipeline. The Alaska pipeline alone will not solve our energy problem. It will, however, materially ease our monetary and energy security problems. So let us begin with its construction now. The United States faces serious economic and monetary problems today because of our rapidly deteriorating balance of payments. We cannot afford to permit these deficits to go on mounting unnecessarily by delaying the development of already proven domestic resources. In the past this country has enjoyed energy security because of our shut-in production potential. This potential has now disappeared. Imports are soaring. And several countries upon which we may have to depend for future energy supplies have declared that they intend to use their oil as a political weapon. Can we afford to become increasingly dependent upon such countries by deliberately delaying the development of the largest find of oil in U. S. history? The significance of our North Slope energy potential is not just the 2 million barrels per day that could someday be delivered through an Alaska pipeline. Nor is it the 10 billion barrel proven reserves in the Prudhoe Bay field. Alaska has far greater potential reserves. Projections indicate that the North Slope has potential reserves of as much as 80 billion barrels. Thus, we might someday achieve an Alaska production of 5 to 8 million barrels per day. This, in turn, could possibly reduce our first round balance of trade outflows by $7 billion to $12 billion per year. Production at maximum rates would also materially strengthen our bargaining position with producing countries and increase our ability to meet any supply disruptions with minimum adverse economic consequences. It could, in short, go a long way toward solving our energy problems. But to obtain the North Slope's full potential during the critical period of the 1980's, we must begin development now. The question at this point is not whether we should develop our North Slope reserves. We should. We must. The question now being debated is how best to develop these reserves. Some have contended that a pipeline route through Canada would be superior to an Alaska pipeline. Deliberations concerning the best pipeline route are necessary to make the right decision. All alternatives must be analyzed in terms of our overall national interest, not in terms of regional or private interests. Our analysis must consider economic and security interests as well as environmental interests. Timing is a crucial component of each of these factors. Given sufficient research and development, we can reasonably expect to develop our vast coal, oil shale, and nuclear resources so as to provide rapidly increasing portions of our energy needs by the late 1980's. Before this, however, we will face a critical period during the late 1970's and the 1980's. The long lead times for exploration and development, for constructing a transportation system, and for administrative approvals must be weighed against our rapidly increasing energy needs during this period, when our needs will be greatest. There are many reasons why I believe that an Alaska pipeline is clearly superior to a pipeline through Canada. I will briefly mention several of these reasons and will then amplify my remarks concerning economics, security, and the balance of payments areas in which I have the greatest interest because of my responsibilities as Deputy Secretary of the Treasury and Chairman of the Oil Policy Committee. - 1. Building a Canadian pipeline instead of the Alaska pipeline would delay receipt of vitally needed Alaska crude oil by from three to five years and could significantly delay full development of our vital Alaska North Slope oil and gas reserves by as much as 10 years. Both pipelines, as presently planned, could transport the same volume of oil. But they would not transport the same volume of Alaska oil. Canada would control the portion of any pipeline transversing Canada and would insist on reserving 50 percent of the throughput volume for Canadian oil. The delayed starting date of a Canadian pipeline would defer further exploration and development of our North Slope resources at a time when security and international economic considerations dictate that we should be increasing exploration and development. delays would reduce this country's energy security and could have serious economic consequences in the event of a disruption of foreign supplies after 1978. Such 2. Our analysis indicates that the Alaska pipeline would provide substantially greater economic benefits to this country than a pipeline route through Canada. Assuming a delivery of 2 million barrels per day, the Alaska pipeline would result in increased benefits of up to $2.4 billion per year in 1980. By 1988, cumulative net benefits of the Alaska pipeline, over and above the Canadian pipeline, would approach $15 billion. This estimate will be elaborated later. |