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September 1, 1978

Export ,L\Jaskan il?
O
A long parade of witnesses, including
California's governor, testified before
a Congressional subcommittee last
week in SanFrancisco,regarding possible means of overcoming the West
Coast's
of Alaskan oil. (That socalled
refers to a surplus of Alaskan crude-oil production relative to the
current requirements of West Coast
refineries.) A number of witnesses argued for lifting the legal ban against
exporting Alaskan North Slope oil, so
that it could earn precious foreign exchange in Japan.They also claimed that
the present export ban frustrates the
goal of energy self-sufficiency - and
national security - by retarding the
further development of Alaska's oil resources. But the case is more complex
than would appear from that argument.
Energy self-sufficiency implies that domestic sources should supply as much
of a given level of domestic consumption as possible. But shipping Alaskan
oil that is surplus to West Coast needs
overseas, rather than to other areas of
the U.s. where it is needed, reduces
the amount of domestically-produced
supplies available to meet U.s. consumption. This proposal consequently
should be seen, not as a means of reducing the nation's dependence on
foreign oil, but rather as an expedient
method of dealing with the transportation problems and higher costs involved in shipping Alaskan oil by
tanker around the Panama Canal to
Eastern U.s. markets. Exporting this oil
to Japan under a swap arrangement
would have one favorable result - a
reduction in transportation costs to the

Eastand Gulf Coasts - as Japan-bound
OPEC oil is diverted there in exchange
for the Alaskan oil shipped to Japan.It
would thus provide for a more efficient allocation of oil worldwide by reducing the transportation costs
involved in supplying U.s. and Japanese refineries.
The export of Alaskan oil does not imply a threat to the OPEC price structure, as some proponents have
argued. The recent increase in production from Alaskan and North Seafields
has boosted non-OPEC world oil production, and to that extent has temporarily reduced the demand for OPEC
oil and thereby undermined the cartel's posted prices. But we should not
expect any net impact on world oil
prices if Alaskan exports were merely
to be exchanged for a corresponding
amount of OPEC oil diverted to the
East and Gulf Coasts.

Import problem
In terms of the national goal of increased energy self-sufficiency, Alaskan oil should be analyzed within the
context of the nation's overall oi Hmport situation, which had worsened
considerably in the period before
North Slope oil finally began to flow.
Despite the nearly five-fold increase in
world oil prices over the 1972-77 period, the U.s. by late 1977 had made no
real progress in slowing the import
flow. On the contrary, imports of
crude and refined products almost
doubled over that period, to a record
high of 8.7 million barrels a day. Over
the five-year period, imported oil rose
from 29 to 47 percent of the nation's
(continued on page 2)

total petroleum requirements, and
OPEC oil jumped from 20 to 42
percent of total consumption. Between 1972 and 1977, oil imports in
value terms jumped from $5 billion to
$45 billion, and thus accounted for a
major share of the nation's deteriorating foreign-trade balance.
The rise in import volurne reflected the
growing disparity between domestic
consumption and production. Between 1972 and 1977, U.s.
consumption of refined petroleum products
rose by 12 percent, while domestic
crude production dropped by 13
percent. The declining production
trend was nOEhalted until Prudhoe Baysupplies came on stream late last year.

Ai.aska's
North Slope oil at that point began to
displace some foreign crude of comparable sulfur content and gravity, not
only in the West but in other areas of
the nation. Imports of crude and refined products fell 13 percent, both in
volume and value terms, between the
first half of 1977 and the first half of
1978. This displacement has occurred
because I\lorth Slope producers have
priced their crude competitively with
comparable-quality foreign oil on a delivered-cost basis, and because refineries purchasing North Slope crude
have been granted the same entitlement benefits for Alaskan as for
foreign oil.
Nonetheless, the entire North Slope
production - 1.1 million barrels/
day - offsets only a modest amount of
the total U.s. import flow, which
oil
had reached an annual high of 8.7 mil-

2

lion barrels/day last year. Moreover,
North Slope oil will curb the import
trend only temporarily. As domestic
consumption continues to grow,
dependence on foreign oil will again
increase, in the absence of an
unlooked-for upsurge in total domestic production, emanating from
Prudhoe Bay or other u.s.ields.
f

Why the ghJli?
But if all this is true, why is there a
today? The answer is that there
is no glut in terms of the nation's total
oil requirements, but only in terms of
\Nestern refinery consumption. At
present consumption rates, West
Coast (District 5) refineries are able to
absorb only about 550,000
barrels/ day of North Slope crude,
after allowing for supplies from other
Western fields, the refineries' product
mix, and their technical capability for
processing high-sulphur Alaskan
crude. Thus, roughly half of the
Prudhoe Bay output is surplus to the
\/Vest Coast's needs. But the important
point is that this is not a nationwide
surplus - otherwise the u.s. ould not
w
be so heavily dependent on foreign
imports. Rather, the so-called
is a
localized problem arising from the
technical and output characteristics of
VVest Coast refineries - and from the
lack of
necessary pipelines to transport the West Coast surplus most efficiently (i.e., at lowest cost) to deficit
areas of the nation.
While Alaskan oil is surplus to the
needs of Western refineries, refineries
in the Northern Tier states bordering
Canada (such as Montana, North Dakota and Minnesota) face the prospect
of a serious crude-oil shortage. Some

Barrels/Day
(Millions)

20
16
12
8
4

1970
'Crude oil and refined petroleum products

of these refineries are almost wholly
dependent upon Canadian crude,
which the Canadian government plans
to stop exporting by 1982 in order to
meet that nation's own requirements.
North Slope crude could help make
up for that shortfall if the pipeline proposed to carry Alaskan oil to that region were in place.
Wihere to sihop?
At the present time, however, the only
real alternative is for producers to ship
the surplus Alaskan oil by tanker to the
Gulf and East Coasts via the Panama
Canal- the approach that is currently
being followed. Shipping the oil to Japan or other markets overseasis forbidden under terms of the legislation
authorizing the construction of the
Alaskan Pipeline, but that alternatiVe
remains attractive to North Slope producers. If the ban were lifted, exchange agreements could be made by
Alaskan producers and Japaneserefineries, with North Slope oil being exported to Japan and Japan-bound
crude from the f\J\iddleEast being diverted to the Gulf and East Coasts.
This type of swap arrangement would
help reduce our large trade deficit
with Japan, and also result in some
transportation cost savingson the part
of producers, which might be passed
on to refiners and ultimately to consumers in the Eastern United States.
However, it would not improve our
overall trade position, nor would it reduce the nation's dependence on foreign oil. For every barrel of Alaskan oil
shipped to Japan instead of around
the Panama Canal, an equivalent
amount of Middle Eastern oil would
have to be imported. In fact, it would

3

conflict with the Administration's goai
of supply security, which would call for
the greatest possible substitution of
Alaskan for imported oil in domestic
markets. Partly for that reason, and
partly to encourage the construction
of domestic pipelines for carrying
Alaskan oil, the Administration has opposed the removal of the legal ban on
Alaskan crude exports as well as any
moves to shut-in capacity at Western
fields.
Indeed, a number of proposed pipelines that would link West Coast ports
with refineries further East are now
under consideration by various Federal
and state regulatory agencies.The
most likely possibilities include a Northern Tier pipeline extending from Port
Angeles, Washington to Clearbrook,
Minnesota, and a SOHIO pipeline extending from Long Beach, California to
Midland, Texas. Completion of one or
both of those pipelines would provide
a lower cost transportation alternative
than shipments by tanker around the
Panama Canal. Also, by providing a
higher return at the wellhead, their
completion might also encourage
North Slope producers to make the investments required to raise production at the existing Prudhoe Bay
reserve to its full potential of 1.6 mi!lion barrels/day - and perhaps even
spur further exploratory drilling. But in
the absence of some Federal or state
decision - either to approve the construction of proposed pipelines or to
permit Alaskan oil exports to JapanNorth Slope producers will continue to
be faced with the highest cost transportation alternative, thus reducing
their net return at the wellhead.
Yvonne levy

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BANKINGDATA- TWElfTH fEDERAl RESERVE ISTR!
D
CT
(Dollar amounts in millions)
Selected Assets and liabilities
large Commercial Banks
Loans (gross, adjusted) and investments*
Loans (gross, adjusted)- total
Security loans
Commercial and industrial
Real estate
Consumer instalment
U.s. Treasury securities
Other securities
Deposits (less cash items) - total*
Demand deposits (adjusted)
U.s. Government deposits
Time deposits- total*
States and political subdivisions
Savingsdeposits
Other time depositst
Large negotiable CD's
Wee!dy Averages
of Daily Figures

Member Bank Reserve Position
ExcessReserves(+}/Deficiency (-)
Borrowings
Net free(+)/Net borrowed (-)
Federal Funds-Seven large Banks
Interbank Federal fund transactions
Net purchases(+)/Net sales(-)
Transactionswith U.S. security dealers
Net loans (+)/Net borrowings (-)

Amount
Outstanding
8/16178
115,214
93,011
1,836
27,757
32,107
16,910
8,565
13,638
110,573
30,616
310
77,713
6,633
31,613
36,759
17,146
Week ended
8/16/78

Change
from
8/9178

-

-

+
+

+
+

-

+

-

+

-

Change from
year ago
Dollars
Percent

248
361
540
99
225
'122
500
387
60
284
94
92
20
97
147
225

+ 14,845
+ 15,616
299
+ 4,089 .
+ 6,781
+ 3,669
261
510
+ 13,514
+ 3,285
23
+
+ 10,103
+ 1,376
251
+ 8,287
+ 6,254

Week ended
8/9178

+
+

-

+
+
+

-

+
+
+
+
+

-

+
+

14.79
20.18
14.00
- 17.28
26.77
27.71
2.96
3.60
13.92
12.02
8.01
14.94
26.17
0.79
29.11
57.42

Comparable
year-ago period

91
153
62

43
15
58

+
+

77
46
31

+ 1,110

+ 1,381

+

798

231

+

563

+

+

47

+

*Includes items not shown separately. :j:lndividuals,partnerships and corporations.
!Editorial comments may be addressed to the editor (William Burke) or to the author . . . .
free copies of this and other Federal Reserve publications can be obtained by cailing or writing ihe Public
Information Section, Federal Reserve Bank of San Francisco, P. O. Box 7702, San Francisco 94120. Phone
(415) 544-2184.