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May 25,1 979

Export Alaskan Oi l?
While struggling with the shortage
of gasoline in the California consumer market, the oil industry and
official Washington have until June
22 to deal with a related problem
- what to do with the "surplus"
Alaskan oil which West Coast refineries cannot utilize because of
their limited capacity to process
that relatively high-sulfur crude.
June 22 marks the expiration date
for a 1977 amendment to the
Export Administration Act which
sharply restricts the marketing of
Alaskan oil outside the United
States. Many Congressmen want
to extend or even tighten the
restrictive amendment; the Administration, on the other hand,
would prefer to live with the more
flexible language of the earlier
Trans-Alaska Pipeline
Authorization Act.
The catalyst in this debate is the
proposed so-called "swap"
arrangement, a transportationcost-saving export exchange under
which Alaskan oil would be
shipped to Japan in exchange for
an equivalent amount of Japanbound foreign-produced oil diverted to the u. S. Gulf or East Coasts.
Mexico in particular has been
mentioned recently as a possible
third party in such an arrangement. Under the Trans-Alaska
pipeline legislation, the President
could permit exports if they were
in the form of exchanges with
adjacent nations on grounds of
transportation efficiency, or, if the
President found that the export in
question was in the national interest and did not "diminish the to-

tal quantity or quality of petroleum available to the United
States." Additional restrictions
were later placed on exports, and
under the proposed legislation
now being debated in Congress to
renew and strengthen that amendment, the President also would
have to certify that any export
scheme would actually help reduce the cost to refiners, marketers and consumers. Both houses
of Congress also would have to
approve the arrangement. In effect, this would eliminate the
export option.

Distribution of oil
The debate raises the key question of whether "swaps" would
help or hinder the key objective
of the nation's energy policy:
namely, to reduce u.s. depen-dence on foreign oil imports and
vulnerability to supply interruption. Alaskan North Slope production, since coming on stream in
July 1977, has contributed to that
goal. Production has risen gradually to a current level of 1.2 million
barrels a day, displacing a roughly
equivalent amount of foreign
crude oil at U.S. refineries on the
West and Gulf Coasts.
West Coast (District V) refineries
now absorb about 850,000 bId of
total Prudhoe Bay production.
That amount represents just about
the maximum volume those refineries presently can handle, given
their product mix, environmental
requirements, and technical capacity for processing high-sulfur
Alaskan crude. The remaining
(continued on page 2)

350,000 bid is shipped by U.S. flag
tankers from the Alaska pipeline
terminus at Valdez to Gulf Coast
refineries through the Panama
Canal.
Advocates of the swap arrangement claim that their proposal
would reduce producers' transportation costs, increase the
return at the wellhead, and thereby provide producers with the
incentive to increase North Slope
and other Alaskan production.
Shipment through the Panama
Canal is more costly than other
alternatives for marketing the
Alaskan oil that is surplus to the
needs of the West Coast, mostly
because the Jones Act, of 1917
vintage, requires the use of costly
U.S. flag vessels between American ports. The present system also
yields Alaskan producers the lowest price at the wellhead. This is
because petroleum's selling price
in any given market is based on
the landed price for Saudi-Arabian
crude, and North Slope producers
must absorb transportation costs
in order to compete against foreign crude in those markets.

Producer revenues
North Slope crude now sells for
an estimated $15.79/barrel on the
U.S. Gulf Coast. However, North
Slope producers receive a wellhead price of only about $6.34/
barrel, after subtracting the
Trans-Alaska pipeline tariff of
$6.20/barrel and the ValdezPanama Canal-Gulf Coast shipping
cost of $3.25/barrel. But under a
swap arrangement, North Slope
oil could be shipped to Japanese
refineries in foreign tankers at a

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and this cost saving would mean
a $2.85/barrel increase in the wellhead price to Alaskan North Slope
producers. If Mexico were the
third party in the exchange, Mexican producers similarly would
benefit from diverting their
Japan-bound crude to U.S. Gulf
Coast refineries at a shipping cost
of only $0.40/barrel.
Proponents of export exchanges
maintain that these transportationcost savings are essential to help
finance the necessary increase in
North Slope production that
would enable the Alaska pipeline
to be expanded and utilized to its
full 2.0 million bid potential. Production from the main Prudhoe
Bay reservoir - the Sadlerochit should reach potential capacity of
1.5 million bid by late next year,
and will probably fall below that
level by the mid-1980's. Some output may become available from
nearby - as yet untapped reserves. But a major expansion
- sufficient to meet the pipeline's fullpotential throughput may require the development of
higher-cost reserves in new areas,
for example, in the Beaufort Sea.

Criticism of swaps
Critics of the swap proposal,
while agreeing that it would boost
producer revenues and thus production incentives, argue that
other alternatives are preferable,
especially when energy security is
considered. Producer transportation costs also could be lowered
by shipping Alaskan crude through
domestic pipelines, such as the
proposed Sohio line from Long
Beach, California to Midland,

SOURCES OF WEST COAST (DISTRICT V) CRUDE OIL SUPPLIES
California

1978
Domestic

1977
1976

g@1

1975

%i%1
Refinery Inputs (thousands of barrels)

Texas, and the proposed North2ir.

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Tier pipeline from Port Angeles,
Washington to Clearbrook, Minnesota. Moreover, North Slope
producers already benefit from
every increase in the, OPEC price;
since last December alone, the
wellhead price for North Slope oil
sold on the Gulf Coast has risen
about 20 percent, simply on the
basis of the sharp run-up in the
Saudi landed price. Again, producer revenues could be increased, on an after-tax basis, by
a reduction in Alaskan state taxes
and/or Federal income taxes.

that such arrangements would
result in somewhat higher wellhead prices and higher profits for
Alaskan producers than domestic
pipelines, but they would still
reject that solution on energyindependence grounds. Most
such critics would opt instead for
the Long Beach, California/Midland, Texas pipeline that would
bring Alaskan oil to the Midwest
and/or the Northern Tier pipeline
that would serve the states bordering on Canada (such as Montana, North Dakota and Minnesota). Those pipelines also would
result in higher wellhead prices
for producers than would the
Panama Canal route - although
not as high as with export exchanges. But they would have the
added advantage of minimizing
the threat of outside supply interruption. Moreover, without the
Northern Tier pipeline, that region of the U.S. is likely to face
the prospect of a.crude oil shortage by 1982, when the Canadian
government - in its own interests
of self-sufficiency - stops exporting its crude oil as planned.

Both sides agree that increased
domestic production, with or
without swap arrangements, will
tend to reduce net imports of
petroleum for any given level of.
consumption. Thus, as long as
domestic production expands, the
U.S. oil trade balance will improve relative to what it otherwise
would have been. In other words,
export exchanges have a neutral
effect on net imports. But critics
of such arrangements argue that
swaps increase grossimports, and
so expose the U.S. to a higher
degree of potential supply interruption than would a more restrictive policy. Further, they argue
that even if exported Alaskan oil
were redirected back to this nation
in a supply curtailment directed
against the United States,that action would simply transfer the dislocation to Japan and would thus
undermine Japan-U.S. relationships. But in response, advocates
of swap arrangements argue that a
restrictive policy would undermine the efficiencies that should
accrue to the domestic econoJllY
from unhampered world trade.
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By acting next month to exclude
the export option, Congress
would create an incentive for'
producers to invest in domestic
pipelines, and also to retrofit their
refineries to handle larger volumes of high sulfur North Slope
oil. Thus, Congress might choose
the weaker economic alternative
in favor of what appears to be a
stronger approach from the autarkic standpoint of energy independence and supply security.
Yvonne levy

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BANKING DATA-TWELFTHfEDERAL
RESERVE
DISTRICT
(Dollar amountsin millions)
Selected
Assets liabilities
and
large Commercial
Banks

Amount
Outstanding

Change
from

5/9/79

5/2/79

Change
from
yearago@
Dollar
Percent
+ 17,724
16.42
+ 16,848
19.62
14.03
+ 3,723
27.06
+ 7,794
NA
NA
NA
NA

Loans(gross,adjusted)
and investments*
125,686
711
Loans(gross,adjusted) total#
102,737
532
Commercialand industrial
30,259
87
Realestate
36,594
128
Loans individuals
to
21,330
83
Securities
loans
1,736
92
;U.S.Treasury
securities*
7,790
83
164
2.06
Other securities*
15,159
H- 7.37
96
+ 1,040
Demanddeposits- total#
ItI- 1,947
40,650
6.90
+ 2,624
Demanddeposits- adjusted
I30,182
H- 5.52
352
+ 1,578
ISavings
deposits- total
29,596
763
36
2.51
Time deposits- total#
49,918
238
+ 6,300
II- 14.44
Individuals,part. & corp.
40,624
237
II- 20.60
+ 6,939
(Large
negotiableCD's)
17,157
96
+ 1,146
It- 7.16
Averages
Weekended
Weekended
Comparable
of Daily figures
5/9/79
5/2/79
year-ago
period
MemberBankReserve
Position
Excess
Reserves )/Deficiency(-)
(+
14
9
57
Borrowings
90
224
148
Net free reserves )/Net borrowed(
(+
-)
76
214
92
federalfunds- Seven
large Banks
Net interbanktransactions
+ 2,304
+ 967
+ 903
[Purchases )/Sales
(+
(-)]
Net, U.S.Securities
dealertransactions
+ 365
+ 220
+ 427
[Loans(+ )/Borrowings
(-)]
* Excludes
tradingaccount
securities.
# Includes
itemsnotshown
separately.
@ Historical
dataarenotstrictlycomparable to changes the reporting
due
in
panel;however,
adjustments
havebeen
appliedto 1978datato.remove muchaspossible effects thechanges coverage.
as
the
of
in
In
addition,for some
items,
historical
dataarenotavailable to definitional
due
changes.
Editorialcomments be addressed theeditor(WilliamBurke) to theauthor.... Free
may
to
or
copies this
of
andotherFederal
Reserve
publications beobtained calling writingthePublic
can
by
or
Information
Section,
federalReserve
Bank Sanfrancisco,
of
P.O.Box7702,SanFrancisco
94120.
Phone
(415)
544-2184.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102