COMPARISON OF TRANSPORTATION ECONOMICS AND IMPLICATION ON NORTH SLOPE CRUDE OIL MARKETS Appendix B TRANSPORTATION UNIT COSTS BY SOURCE AND DESTINATION Notes: (1) Transportation costs calculated by this methodology are not indicative of actual (2) Present value of total throughput would be 3,787 million barrels at a 10% discount rate. Appendix B COMPARISON OF TRANSPORTATION ECONOMICS AND IMPLICATIONS ON NORTH SLOPE CRUDE OIL MARKETS THE ADVANTAGE OF TAPS RELATIVE TO THE TRANS-CANADIAN PIPELINE Alaskan North Slope crude oil will displace Persian Gulf crude oil in either market. Persian Gulf crude oil delivers to either the U. S. Gulf Coast or to Los Angeles at approximately the same cost. Its cost at Chicago equals the U. S. Gulf Coast (or Los Angeles) cost plus transportation cost U. S. Gulf Coast to Chicago. From the unit costs developed on B-1, the advantage of TAPS relative to the Trans-Canadian alternative is as follows: RELATIVE PER BARREL TRANSPORTATION COSTS Volume (Millions Barrels Daily) 1.2 2.0 North Slope to Chicago Via Trans-Canadian (1) $2.135 $1.507 1.435 1.134 (1) Notes: $0.365 $0.092 Does not reflect any compensation to Canada for (2) Also added value of oil at Chicago vs. Los Angeles. Additional copies of this report may be obtained by writing to: The Standard Oil Company (Ohio) Corporate and Financial Planning 1626 Midland Building Cleveland, Ohio 44115 Mr. REAM. Mr. Chairman, I have submitted a copy of my testimony, and in view of the late hour, I would like your permission to speak informally. Senator FANNIN. Your complete statement will be made a part of the record and you may proceed as you would like. Mr. REAM. We have provided answers to the questions submitted by Senator Jackson, and we would like to submit those. Senator FANNIN. Without objection, they will be made a part of the · record. STATEMENT OF L. M. REAM, JR., EXECUTIVE VICE PRESIDENT OF ATLANTIC RICHFIELD CO. Mr. REAM. Atlantic Richfield appreciates the opportunity to appear here and to speak on the matter that becomes more urgent with every passing day. Before I go further, I might identify that Atlantic Richfield is an integrated oil refining company, that has five refineries located in district 5 on the west coast, in the Midwest, in the Southwest, as well as on the east coast, so that we participate, in terms of production and refining and marketing, in the major markets in the United States. It seems to us that we have in the United States roughly entered a period of energy shortage, and what is more troublesome, my company believes that we have entered or are entering a period of world energy shortage, so that we are not talking only about possibly the substitution of Alaskan oil, we may in some respects be talking about oil that might not otherwise be available to run in the U.S. refineries. While these severe early symptoms of a shortage appear in our country, most large countries are considering actions to protect their own energy supplies, which speaks in our mind quite seriously to a trans-Canadian line. It is against this background of a possible world competition for energy, we would like to discuss how we bring large Alaskan reserves to market, how we appropriately and safely provide this energy, reduce balance of payments and provide political security. Atlantic Richfield was in 1968 the discoverer of the Prudhoe Bay Field. My company alone has spent almost $280 million on this total project to date, including both our production expenditures and all our expenditures associated with the pipeline. We, along with other companies, have spent this to overcome environmental, engineering, and legal issues. We believe we have satisfied the first two, the environmental and engineering. We believe that Congress can help us in the third issue, the legal issue. So, before I address some of the more political sensitive issues involved in the current discussion, I would like to deal briefly with the nature of the legislation I believe is required in this matter. First of all, let us recognize that some kind of right-of-way amendment is necessary no matter what kind of route is recommended. Whether the line goes south or east of Prudhoe Bay it must cross U.S. public land. In doing so, it would require a permit from the Secretary of Interior, that the courts have ruled he has no authority to do under law. I would like to reiterate what Atlantic Richfield's president told this committee some weeks ago. The simplest remedy, it seems to us, is to confine the amendment to the right-of-way question only. While there seems no question that broader problems are involved with modernizing the Mineral Leasing Act, they will require time to study and when enacted will produce an as yet unfitigated issue. We believe that a simple bill permitting the Secretary of Interior to issue special land use permits, which he has been doing for many years, will solve the immediate problem raised by the court decision and reduce the possibility of time-consuming litigation. Given this legislative relief, we might be able to start on our task. We are engaged in another view, the Canadian alternative. Atlantic Richfield has seriously considered the Canadian alternative since the very beginning. We understood a joint study in late 1968 which was the firm formal task force study of a trans-Canadian alternative. Atlantic Richfield is a part owner in the Trans-Mountain Pipeline, we have board membership. In early 1969 Atlantic Richfield, through its representative on the board, which happened to be myself, at that time voted along with other members for initial studies by the Bechtel Company, funded by Trans-Mountain Pipeline. We likewise participated with Trans-Mountain Pipeline, in 1969, with the studies that led to formation of the Mackenzie Valley Research Limited. We participated in this joint venture up until the time we became convinced that the conclusions that were being prepared with relationship to the Mackenzie Valley pipeline were so understated as to be misleading. We expressed these views within the Mackenzie group, and when we were not satisfied with the results, we had to withdraw from the Mackenzie Valley pipeline group. I would like to now very briefly explore why after the most lengthy and considered judgments in my company, we believe that the Alyeska pipeline is the one we should invest in and which represents the best choice for the company. Most of these points have been touched upon, so I will go through them briefly. I believe the engineering, legal and political issues have been dealt with. The pipeline is fully engineered. It is likewise true that the trans-Canadian pipeline is not fully engineered in any sense. Similar facts are true with regard to the environment. In the legal-political area I can only confirm the statements by Senator Jackson with regard to the need for a treaty. It is our belief that if we were ever to invest in a pipeline a treaty between the United States and the Dominion of Canada would be an absolute requirement. The question might be asked, why did we invest in Trans-Mountain since it likewise comes into the United States. The issues are very simply met. Trans-Mountain was a much smaller investment, and the investment was made in an environment when there was no energy shortage. In terms of the issue of project size, we speak here of an investment in the pipeline of something in the order of $3 billion for the Alyeska line. and on a comparable basis, without working capital and capitalized interest in 1972 dollars, something in the order of $5.6 billion for the Canadian alternative. Three billion dollars versus $5.6 billion. Even though we are a very large company, this difference of $2.6 billion, based on our percentage ownership share, represents a very, very substantial burden and even under the best of conditions would raise questions as to our ability to finance such a large amount. When one adds on top of this the dif |