for an additional 2 BCF/D, approximately 10% of present

consumption, in this market. In addition, the West Coast

is interested in the line bifurcated to move part of the

capacity to gas hungry West Coast markets.

Senator FANNIN. Thank you, gentlemen. We have been answering questions that have come up in the last couple of days.

One thing we heard about is the size of the reserves and you have elaborated on that. I am wondering, Mr. Ream, if you are still doing exploration work in Alaska, or is your exploration work continuing or has it been discontinued until you know that you are going to have a way of getting it out of Alaska?

Mr. REAM. I assume you are speaking of the North Slope? Yes, basically, as far as the industry is concerned it has virtually ceased. There are a few exploratory holes that have been drilled. Basically, in our case, under agreements with gas companies to explore modest gas resources. Basically, for all practical purposes, it has ceased on the North Slope.

Mr. SPAHR. Mr. Chairman, I can only echo that.

Senator FANNIN. Another question is considerable discussion in the last couple of days is the matter of the sale of production to Japan, Alaskan production to Japan.

Mr. Ream you elaborated on that on page 5 of your statement, made it very clear as to what would happen. Of course, I assume that if you had some exchange or some beneficial exchange logistically or some reason to do it, that would not apply. But you at all times would have as much or more oil than would be coming-in other words, from Alaska, you would not divert any of that oil to Japan or other countries, so long as there was a need for it in the United States, and it would only be offset by some logistical benefit that might be involved. Mr. REAM. We have no plans to ship any such oil to Japan. Under present economic circumstances I don't believe we can justify it. It is the belief of our company that domestic crude prices are going to be increased for foreign crude prices. Therefore, we would seek the closest consumption point for foreign oil, the farthest away from the Persian Gulf.

Senator FANNIN. From the standpoint of economics and also from the standpoint of need of our country, you do not feel you would export oil other than to the 48 States and Hawaii?

Mr. REAM. Yes, this is true, particularly when one considers the sulfur content of fuel that comes from North Slope oil. One of the reasons for the high growth rate on the west coast in the future is the drying up of gas supplies to district 5, and, thereby the necessity of substituting low sulfur residual fuel which can be made from North Slope crude.

Early this morning reference was made to the department of water and power, which is an early example of the extreme shortage of low sulfur fuel in district 5, and we have many other plans for its production.

Senator FANNIN. Mr. Spahr, would you want to comment on that question?

Mr. SPAHR. I certainly would. We never had any intention of shipping offshore to Japan. I think it is interesting to remind all of you in the room that the provisions of the agreement we entered into with the British Petroleum Co. on January 1, 1970, includes a sliding scale that results in BP being able to have an increasing interest in our company, if North Slope oil increases, provided that production stays in America or Canada. Commensurate with BP's increasing

95-903 73 - pt. 4 - 17

ownership in Sohio as production increases, we will be entitled to all of the crude oil produced up to 600,000 barrels per day and 25 percent of production over that amount, again provided that production stays in the United States or Canada. Obviously, exportation of North Slope crude to Japan would negate the basic intent of our merger with BP. That is one stimulus which we don't need.

Early on in 1969 we made commitments for four U.S.-flag tankers. There is no business purpose for them other than to bring oil from the North Slope to the west coast. Unfortunately those tankers are built and in commission now and losing us money every day which is another reason we are anxious to move North Slope oil to the west

coast.

I think it is worthwhile reminding ourselves again that, back in 1969, when it was anticipated by some that the North Slope oil could be marketed by 1972, the projection of supply and demand on the west coast indicated in that year and several years following that North Slope crude would be more than the west coast would need to satisfy its deficit. However, we have been delayed. As a consequence of that delay, by the time we have crude ready to bring to market the west coast will be able to absorb all of Alaskan oil that can be produced at that time. It was back in those earlier days that discussions developed among producers and potential markets as to where the crude might go, offshore or otherwise.

Senator FANNIN. Thank you, Mr. Spahr, and I am very pleased to have that information, because it has been continuously brought out by some of the proponents of the Canadian route that oil would be exported to Japan, that some of the oil would be. Do you know if any of the other companies that contemplate exporting oil to Japan, any other companies that are operating in Alaska or will be operating in Alaska, that contemplate exporting oil to foreign countries.

Mr. SPAHR. I don't know what their intentions are. I feel sure the heads of those companies would be responsive to the question if you were to pose that to them.

Senator FANNIN. You do not know of any?

Mr. SPAHR. No.

Senator FANNIN. Mr. Ream, do you know of any? You gentlemen represent considerable potential production from the North Slope and so that is why I pose the question to you.

Mr. REAM. I would answer the same as Mr. Spahr. We operate first in a competitive industry, and I cannot know what my competition is doing in this area. I know of no general plan which might appear from the construction of ships or other issues of that sort. I would be extremely surprised, from an economic point of view.

Senator FANNIN. It is your opinion it would not be economically sound to begin with, and because of the need in this country it would be sound politically or otherwise? You realize what can be done from the standpoint of Federal regulations?

Mr. REAM. Yes.

Senator FANNIN. One thing you brought out when you said some of these ships that have been built are not being utilized for the purposes for which they have been constructed, although you have them in other services, evidently I understand not to the full extent. Can ships be built in time to move Alaskan oil or will we be faced with foreign shipbuilding?

Mr. REAM. Mr. Spahr has indicated that his company has built four ships, and our company has built five ships, in exactly the same situation. We have two 70,000-tonners and three 120's. There are four and five, which are fine ships already available to move the oil. I believe the number quoted by Mr. Simon, that 35 to 40 would be necessary at the 2-million-barrel-a-day level. With nine already between us, Mr. Chairman, my answer would be a resounding yes, it will be possible to have the ships available by the anticipated earlier start of the Alaska pipeline, which would be 1977, 1978.

Senator FANNIN. Thank you very much, Mr. Ream. We have had discussions about the summary and the questions that you gentleman answered, I think you both referred to the questions asked of you, and you both stated you answered the questions from the chairman, and have given your conclusions with regard to what is contemplated.

I think, Mr. Spahr, you gave the answers or conclusions that I referred to earlier. Were you here when I was referring to some of your conclusions that had been given to us?

Mr. SPAHR. Yes.

Senator FANNIN. On the first page do you have a copy of them, I don't want to read that complete conclusion, but I am wondering if you could elaborate on that further. You have a good argument, but I am wondering if you can give a little more affirmation to your conclusion.

It reads: the decision to build the trans-Canada pipeline might severely aggravate Midwest supply. You gave some of that in your statement, and I was impressed with it, and for the best interest of the country and for your industry, you feel it is more beneficial to have the Alaskan pipeline and go down to the west coast.

Mr. SPAHR. Senator Fannin, to expand, we don't expect to run North Slope crude in our Ohio refineries. We expect we can work out reasonable exchange agreements with west coast refiners, and receive from them oil that may come from the midcontinent or sources offshore into the gulf coast and from there by pipeline into our Ohio refineries. So the fact that we have production in Alaska will assure us of support for our Midwest refineries. If we are forced to abandon th idea of a trans-Alaskan line, quite an interval of time will go by before a Canadian line can be constructed and put into operation. In the meantime it appears, unless something extraordinary is done in our country, demand in the United States will increase. At the moment no refineries are being added to our refinery complex in this country, there are none scheduled to be completed within the next few years, and it takes about 4 years from time of decision to time of completion of construction and commencement of operations. If refineries are to be added in the Midwest, those refiners are going to need a crude oil supply source. The pipeline system in the Midwest is running rather full, some small additions are contemplated, but not many, and if there is expansion of refinery capacity, crude oil pipeline facilities are going to have to be built. Such facilities would be of questionable value when North Slope crude begins to flow into the Midwest.

Presumably, we are going to import products. The pipelines that will provide those products will have to be built into the Midwest

because none exist for that purpose now. Again, such facilities would be of questionable value after the trans-Canada pipeline would become operational.

Now, I suppose I think it is a reasonable guess to make that with all of the refiners who will be plagued with this kind of problem some may decide to build or invest in pipelines, and others will decide not to build but to wait and avoid risking there investment. The consequences, in any view, will be that Midwest supply will go shorter than its needs in the interim because of a decision to push the Canadian line. On the other hand, if the trans-Alaskan line is freed so it can be built people will proceed with confidence to do the things that need to be done.

Senator FANNIN. You mentioned just now about the time element. We are really confused with so many answers on the timing, and I think you said 9 or 10 year delay, or some figure like that, and here we have had testimony that it would take 1 year longer. I am wondering if you had any investigation made by your company as to that particular question? Are you judging it from what others said or have you delved into it from the standpoint of your own company?

Mr. SPAHR. I am not judging from what others have said and we have delved into it carefully. I tend to be careful about my statement and perhaps lean slightly on the conservative side compared to some. I never was optimistic that we could complete the Alaskan line by 1972; 1973 was my best guess.

In our report, on pages 4, 5, and 6, we outline in considerable detail our reasons as to why the delay will be 9 to 10 years, and I have with me a detailed listing, 4 pages long, that goes into the things that will have to be done either sequentially or simultaneously, once it is decided we will be forced to go through Canada.

Senator FANNIN. Is there something that is different than what has been furnished us to date?

Mr. SPAHR. The detail has not been furnished to you to date, Mr. Chairman. It is not in very handsome form and I would like to have the opportunity to go home and reproduce it and submit the contents for the record.

Senator FANNIN. Certainly, the hearing record will stay open and I am sure the staff will get it within a couple of weeks.

[Subsequent to the hearing the information referred to was received.]