APPENDIX E.

ANALYSIS OF MCKENZIE VALLEY PROJECT COST AND READINESS

Recent testimony regarding the cost and state of readiness of the McKenzie Valley project contained many serious errors. First, the cost estimate of the pipeline segment from Prudhoe Bay to Edmonton was greatly understated at $2.9 billion if the line is built to the same rigorous specifications being used for TAPS. The average direct cost per line mile in 1972 $for TAPS is estimated to be $2,245M for a 600M B/D capacity.

Applying $2,245M/mi. to the 1,738 miles of line from Prudhoe Bay to Edmonton results in a cost of $3,901MM. Adding costs for pump stations, communication, etc. for a line capacity of 800 B/D would bring the cost to $4,550MM.

Increasing the

capacity to 1800M B/D would increase the McKenzie Valley line cost Prudhoe to Edmonton to $4,840MM. A TAPS capacity of

2,000M B/D would be $3.1 billion in 1972 $.

Secondly, the Interprovincial/Lakehead mileage to Chicago is 1565 miles, not 1100 as stated in recent testimony. The cost for this segement would be $483M/mile in 1972 $ for a total cost of $756MM. Thus, the total cost of the Canadian route to deliver North Slope oil to the Chicago area would be $5,596 MM in 1972 $.

Why is there such a difference between the numbers put out by the McKenzie Valley project and our upgraded number? TAPS is a thoroughly evaluated engineering estimate, while McKenzie Valley is a feasibility study. One major difference in concept is the interpretation of soil parameters to establish a burial criteria. TAPS allows differential settlement

A one

only within narrow limits, about one foot. McKenzie Valley equates burial to a total settlement concept up to 3 feet. The concept difference leads to 20.7% of the line above ground for McKenzie Valley and 44.7% above ground for TAPS. foot settlement criteria for McKenzie Valley would lead to 40.4% of the line above ground. This is significant because of the substanially higher cost to lay the pipe above ground.

A second major difference is in construction techniques. TAPS provides a construction work surface for the entire length of the line for ground surface protection. McKenzie Valley provides a temporary work pad for only 600 miles of the 1738 mile There are no highway systems available in the Yukon and upper northwest territories for logistics purposes.

route.

To our knowledge, to date Canada has issued only a tentative set of environmental guidelines for northern construction and more specifically directed to gas pipelines. Results of governmental investigations have not yet been collected and simulated into a formal set of environmental and technical stipulations.

Chapter 9 of the 1972 McKenzie Valley feasibility study lists several areas requiring further study. They indicate that all work has been directed to determine feasibility and appreciate that further research and development work remain to be done. A partial list of further requirements is:

1. Terrain classification - Additional field work to verify and establish a satisfactory level of confidence in the air-photo interpretation technique.

4. Pipeline design Field work to establish parameters of design such as soil coefficients of friction, soil modulus, and creep properties of permafrost.

5. Thermal predictions Determination of more adequate soil properties and surface temperatures to increase the reliability of the mathematical model of heat conduction. More complete data on seismic occurren

6.

Seismicity

ces and location of fault areas.

of summer techniques, hydrostatic testing, pipe coatings, logistics, and availability of men, equipment and material. Communications - Further investigation of control

8.

mode:

9.

central automatic vs. conventional local control. Operations and maintenance

Further investigation

of pipeline safety from soil settlement, drainage basins,

and oil spill contingency plans.

10. Economics

Further in-depth studies and factual

data in the areas of base costs and assumptions, regional and national economic impact, and methods of financing.

RESTORGES TO QUESTIONS RAISED BY S'NATOR JACKSON

RECARDING TRANS-CANADIAN/TRANS-MASKAN PIPELINE ALTERNATIVES

1-A Assuming right of way width limitation removed, what further

1-B

delays can be expected?

1. Completion of the litigation testing compliance with the

2.

3.

4.

5.

National Environmental Policy Act could be sometime between

the Fall of 1973 and mid 1974.

There are no anti-trust issues. The pipeline will be a
common carrier according to standard ICC regulations.

The litigation between the owner companies and the State of
Alaska should be resolved this year.

There are no restrictions on bringing the crude into the
marine terminals in California and Washington.

The engineering, legal and financial considerations do not
appear to offer any obstacles to completion of the project.
These problems are being worked concurrently with the

resolution of the environmentally inspired delays.

The delay in completing the Trans-Canadian vs. the Trans-Alaskan pipeline could reasonably be expected to range from two to

five years.

This estimate is based on the following factors:

1. Ownership and operating agreements must be negotiated and
a Canadian corporate entity must be formed to undertake all

the responsibilities associated with financing, designing
and constructing a project of this magnitude.