Arctic Oil

A year ago Resources noted two events which seemed to bring nearer the day when Alaskan oil would find its way into the continental U.S. market. The first development—viewed as the most immediately plausible—involved the preliminaries for construction of a pipeline to bring oil from the Prudhoe Bay field to the all-weather port of Valdez in south-central Alaska. It was hoped that, with initial capacity set at a flow of 500,000 barrels per day, pipeline expansion could accommodate output of 2 million barrels per day by 1975 or soon thereafter. The second event, more dramatic but less promising was the voyage of the tanker S. S. Manhattan through the Northwest Passage. This was the route which, it was hoped, would ultimately prove feasible as the conduit for Alaskan oil to the U.S. northeast coast and perhaps Western Europe. Progress toward both projects suffered setbacks during 1970.

From the first, the pipeline plans antagonized those who sought assurances that the environmental threat from permafrost subsidence, from a scarred landscape, and from earthquake risks in the southern part of the state would be adequately considered and guarded against. Conservationists succeeded in obtaining a court injunction that temporarily barred the construction of a service road paralleling the proposed pipeline. Further, a group of Indian villages also obtained a court injunction against construction of the pipeline which, they feared, would jeopardize their hunting opportunity—hence, their livelihood. Consequently, the oil companies suspended further work on the pipeline itself until the legal issues are resolved.

On the second score, the S. S. Manhattan's fall 1969 voyage yielded no firm conclusions regarding the economics of tanker transport through the Northwest Passage. Following a second sailing in 1970, Humble Oil (principal financial backer of the venture) has decided to suspend further test runs. One major economic obstacle to the tanker approach is the Jones Act, requiring ships in U.S. domestic trade to be U.S. built and manned. The resulting costs may make such an enterprise uncompetitive. But it is also possible that the environmental dangers, reflected and compounded by Canada's assertions of sovereignty within the Northwest Passage, simply proved too risky to be dealt with at this time.

In the meantime, intensive feasibility studies have begun on still another pipeline route. This would head east from Prudhoe Bay and then southward through the Mackenzie Valley and basin, ultimately linking up with an existing pipeline network at Edmonton in Alberta. Such a line would have the virtue of permitting the parallel laying of a natural gas line to transport Alaskan gas, as well as connecting via trunk lines with potentially prolific oil fields in Canada's own Arctic region. The dual line may require an investment of as much as $4 billion to $5 billion, and though this may still yield a competitive delivered price for oil and gas in the mid-western part of the United States, the magnitude of the capital requirement raises questions about Canadian firms' ability to own a controlling interest in the venture—a matter touching on the raw nerves of economic nationalism, recently grown increasingly tender. Environmental problems would perhaps be less formidable than under alternative schemes, though the line would have to circumnavigate Canada's Arctic Wildlife Refuge. In addition, the shipment of U.S. petroleum across Canadian territory would most probably require a resolution of conflicts over the control and level of Canadian oil exports to the United States. Thus the question of how to bring Alaskan oil to market was no closer to solution at the end of 1970 than at the beginning.