Alaskan North Slope Oil: Limited Effects of Lifting Export Ban on Oil and Shipping Industries and Consumers
Published: 1999-07-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a legislative requirement, GAO reviewed Alaska and California energy production, focusing on the effects of lifting the export ban on: (1) Alaskan North Slope and California crude oil prices and production; and (2) refiners, consumers, and the oil shipping industry on the West Coast.
section_title: What GAO Found
paragraphs: GAO noted that: (1) lifting the export ban raised the relative prices of Alaskan North Slope and comparable California oils between $.98 and $1.30 higher per barrel than they would have been had the ban not been lifted; (2) these price increases have not had an observable effect on Alaskan North Slope and California crude oil production; (3) nevertheless, future oil production should be higher than it would have been because higher crude oil prices have given producers an incentive to produce more oil; (4) according to projections by the Alaska Department of Revenue and to oil industry officials, new oil fields developed in Alaska since the ban was lifted are expected to increase Alaskan North Slope oil production by an average of 115,000 barrels per day for the next two decades; (5) however, it was not possible for GAO to separate the effects of lifting the ban on expected production from the effects of broader oil market changes occurring at the same time; (6) relatively high world oil prices in 1996 and 1997 encouraged oil producers to expand exploration and development activities, while low prices in 1998 caused producers to close wells and reduce development activities; (7) moreover, this expected production increase will not reverse the decade-long decline of Alaska and California oil production, which is expected to continue as aging oil fields become depleted; (8) lifting the export ban increased some refiners' costs but had limited effects on consumers and the oil-shipping industry on the West Coast; (9) while higher prices for Alaskan North Slope and comparable California oil increased the costs of some individual refiners using that oil, it was not possible to determine the extent of cost increases for those refiners or the West Coast market in general; (10) despite higher crude oil prices for some refiners, no observed increases occurred in the prices of three important petroleum products used by consumers on the West Coast--gasoline, diesel, and jet fuel; (11) lifting the ban has also had a minimal effect to date on most oil tanker operators that transport Alaskan North Slope oil, the U.S. shipbuilding industry, and the West Coast ship repair industry; and (12) however, shipbuilding and ship repair industry officials on the West Coast are concerned that Alaskan North Slope oil tanker business may shift in the future to low-cost foreign shipyards.

section_title: Letter
paragraphs: This report responds to the mandate in Public Law 104-58, title II, that GAO review Alaska and  California energy production and the effects of lifting the ban on exporting Alaskan North Slope oil.   As agreed with your offices, this report addresses the effects of lifting the export ban on (1) Alaskan  North Slope and California crude oil prices and production and (2) refiners, consumers, and the oil  shipping industry (including the tanker fleet, the tanker building industry, and the tanker repair  industry) on the U.S. West Coast.  To put the effects of lifting the ban in context, the report covers  changes in Alaska and California production during the past decade (1989 through 1998).  This report  also discusses export-related environmental issues related to lifting the export ban.
We are sending copies of this report to the Honorable William M. Daley, Secretary of Commerce; the  Honorable Bill Richardson, Secretary of Energy; the Honorable Bruce Babbitt, Secretary of Interior;  and the Honorable Rodney E. Slater, Secretary of Transportation.  Copies will also be made available  to others upon request.
If you have any questions about this report, please contact me at (202) 512-3841.  Major contributors  to this report are listed in appendix III.
subsections: section_title: Introduction
paragraphs: In January 1968, oil was discovered in Prudhoe Bay on Alaska’s North  Slope—an 88,000 square-mile frozen landmass extending from the foothills  of the Brooks Mountain Range to the Arctic Ocean, as shown in figure 1.1.   The Prudhoe Bay area, located about 250 miles north of the Arctic Circle  and about 1,200 miles south of the North Pole, had no local road system  and was inaccessible by tanker most of the year because extremely cold  temperatures freeze the nearby Arctic Ocean.  Consequently, oil companies  began planning the construction of the Trans-Alaska Pipeline System—an  800-mile pipeline to transport oil from the frozen Alaskan North Slope to  Valdez, on Alaska’s Prince William Sound, for shipment to distant  refineries.  The Congress approved pipeline construction in November  1973, and construction was completed in July 1977.  The first commercial  tanker carrying Alaskan North Slope oil from Valdez left for the U.S. West  Coast on August 1, 1977.
subsections: section_title: Alaskan North Slope Oil Discovery Was Largest in U.S. History
paragraphs: Alaska contains huge quantities of crude oil.  The Prudhoe Bay discovery  was the largest in North America.  Oil companies estimate that the state  had at least 41 billion barrels of oil in place at the time of the North Slope  discovery.  According to Alaska Department of Natural Resources data,  updated May 1998, an estimated 19.5 billion barrels were extractable using  today’s technology and under prevailing economic conditions (commonly  referred to as proven reserves).
Of the 19.5 billion barrels of proven reserves, about 13.8 billion barrels have  already been produced by 22 fields.  Thirteen Alaskan North Slope fields  that contained an estimated 18.2 billion barrels of proven reserves have  produced about 12.5 billion barrels.  Prudhoe Bay, the oldest and largest  field on the Alaskan North Slope, accounted for about 73 percent of those  reserves and about 80 percent of total production.  The remaining proven  reserves are contained in nine Cook Inlet fields that have already produced  about 1.2 billion barrels.  Since 1978, the first full year of Alaskan North  Slope oil production after the completion of the Trans-Alaska Pipeline,  Alaska has accounted for between 14 and 25 percent of U.S. crude oil  production and has ranked among the largest U.S. crude oil-producing  states every year.
The Alaska Department of Natural Resources’ estimates, however, did not  include all Alaska oil.  The estimates excluded Alaskan North Slope oil  fields in various stages of development that had not produced measurable  quantities of oil by 1998.  They also excluded the Alaska National  Petroleum Reserve, the Arctic National Wildlife Refuge, and undeveloped  Outer Continental Shelf areas.  Oil analysts believe these areas contain  billions of barrels of proven reserves.
British Petroleum-Amoco Corporation (BP-Amoco), Atlantic Richfield  Company (ARCO), and Exxon have controlling interests in most Alaskan  North Slope oil production.  As shown in figure 1.2, in 1998 these three  companies owned production rights for over 90 percent of the Prudhoe Bay  field and accounted for over 90 percent of all the oil removed from the  Alaskan North Slope.  Fourteen other companies also had production  interests in the Alaskan North Slope in 1998, including companies owned  by native Alaskan groups.
section_title: Alaskan North Slope Oil Discovery Changed the West Coast Oil Industry
paragraphs: The addition of Alaskan North Slope oil production to the oil produced in  California and other West Coast states meant that, for the first time,  production on the U.S. West Coast was greater than West Coast refiners’  demand for crude oil.  Consequently, oil producers in Alaska looked to  other markets.  Figure 1.3 shows the historical shipping routes for Alaskan  North Slope oil and the location of potential refining markets.  This figure  illustrates the principal difference between these potential markets— namely, the distance between these markets and the Port of Valdez.
Generally, shorter shipping distances translate into lower transportation  costs and higher profits for oil producers, although other factors, such as  tanker size, also affect costs.  The West Coast is the closest domestic  market for Alaskan North Slope oil, and Asia is closer than most other U.S.  markets, such as the U.S. Gulf Coast and U.S. Virgin Islands.  However, the  Congress had banned the export of Alaskan North Slope oil.  Therefore,  Alaskan North Slope oil producers took oil not sold on the West Coast to  more distant domestic markets.
subsections: section_title: West Coast Refineries Retooled to Process Alaskan North Slope Oil
paragraphs: The proximity to Valdez, along with the ban on exports, made the West  Coast the preferred destination for the sellers of Alaskan North Slope oil.   Because this oil’s characteristics (weight and sulfur content) differed from  those of foreign oil, refiners had to invest in additional refining equipment  to handle the Alaskan North Slope oil.  After West Coast refiners retooled  to efficiently process that oil, Alaskan North Slope oil took the place of  much of the foreign oil that West Coast refiners had imported.  In 1998,  Alaskan North Slope oil constituted about 43 percent of all crude oil refined  on the West Coast.
section_title: New Tankers Were Built to Transport Alaskan North Slope Oil
paragraphs: The discovery of oil on the Alaskan North Slope, along with the export ban,  also had an effect on the U.S. oil-shipping industry.  U.S. shipyards built  over 50 tankers in the 1970s and 1980s to carry crude oil from Valdez to  distant refineries.  Until the Congress lifted the ban on exporting Alaskan  North Slope oil, tankers transported the Alaskan North Slope oil to U.S.  ports.  As a result, the tankers were required to comply with the Jones Act.   The Jones Act, along with several related trade laws, require that any vessel  transporting cargo between U.S. ports must be U.S.-built, U.S.-flagged  (registered), U.S.-owned, and U.S.-crewed.  Under an exception in the  Jones Act, foreign-built tankers were allowed to transport oil from Valdez  to the U.S. Virgin Islands.
section_title: Original Ban Was Debated and Ultimately Removed
paragraphs: The Congress banned exporting Alaskan North Slope oil when it authorized  the construction of the Trans-Alaska Pipeline in 1973.  The legislation,  which was enacted in the midst of the Arab oil embargo, amended the  Mineral Leasing Act of 1920 and restricted the export of U.S. oil transported  over a federal right-of-way.  Exports were allowed only if the President  found that they would not diminish the quantity or quality of oil available to  the United States and were in the national interest.  The Energy Policy and  Conservation Act of 1975, the Export Administration Act of 1979, and  various other laws provided additional restrictions on Alaskan North Slope  oil exports.  These restrictions were intended, in part, to reduce U.S.  dependency on foreign oil, ensure that Alaskan North Slope oil would be  used to benefit U.S. citizens, and protect the U.S. economy from a drain of  scarce resources.
The export ban was controversial from its beginning, and the pros and cons  of lifting it were debated in congressional hearings and in other discussions  for years.  In addition, several studies addressed the likely effects of lifting  the ban.  At issue was who would benefit and who would not benefit from  lifting the ban.
Advocates of lifting the export ban argued that it created a surplus of  Alaskan North Slope oil on the West Coast, in turn depressing price and  production and limiting state governments’ revenues.  For example, the  Department of Energy concluded in 1994 that lifting the ban on exporting  Alaskan North Slope oil would (1) increase the price of the oil by  expanding its markets, (2) increase Alaska and California revenues through  increased royalties and taxes, and (3) generate new economic activity and  employment in Alaska and California.  Moreover, these benefits were  expected to accrue without an increase in gasoline prices.
Opponents argued that lifting the ban would have adverse consequences.   For example, in a 1995 report prepared for the Coalition to Keep Alaska Oil,  consultants agreed with the Department of Energy’s 1994 conclusions that  the price and production of Alaskan North Slope oil would increase.  But  they also predicted that oil companies’ export-related revenue and  production gains would be small and of short duration because the West  Coast would become dependent on foreign imports.  The consultants also  predicted that refiners that only refine crude oil and do not produce oil  (commonly referred to as independent refiners) would become dependent  on Alaskan North Slope oil because they would have no practical access to  cheaper foreign oil and their profit margins would decrease.  Furthermore,  the report stated, consumers’ prices would increase because crude oil  prices would be higher.  Finally, allowing companies to export oil on  foreign-built tankers instead of more costly U.S.-built tankers was expected  to hurt the U.S. shipping industry.
In 1990, we reported that lifting the ban would likely increase the price of  Alaskan North Slope oil.  We reported that some oil would likely be  exported to Asia instead of being shipped to the U.S. East and Gulf Coasts,  the U.S. Virgin Islands, Puerto Rico, and possibly some U.S. West Coast  ports because transportation costs to Asia were lower.  We also reported  that lifting the ban would promote economic efficiency by increasing  domestic oil production and allowing better use of refinery resources.   Finally, we stated that lifting the ban would increase the decline in demand  for U.S. tankers because Alaskan North Slope oil would be exported on  foreign-flagged instead of U.S.-flagged tankers.
In 1995, the Congress lifted the ban on exporting Alaskan North Slope oil  (P.L. 104-58, title II).  The 1995 act eliminated the export restrictions in the  Mineral Leasing Act of 1920 and various other statutes and regulations.   The act also requires that oil tankers transporting Alaskan North Slope oil  to foreign destinations be U.S. documented (including U.S.-registered and  U.S.-crewed) but not necessarily U.S.-built.  According to the conference  report accompanying the 1995 legislation, the purpose of lifting the export  ban was to allow Alaskan North Slope crude oil to compete with other  crude oil in the world market under normal market conditions.  The first  commercial tanker exporting Alaskan North Slope oil left Valdez for Asia  on May 31, 1996, about 6 months after the ban was lifted.
section_title: Objectives, Scope, and Methodology
paragraphs: The 1995 law required us to review Alaska and California energy  production and the effects of lifting the ban on independent oil refiners,  consumers, and shipbuilding and ship repair yards on the West Coast and  Hawaii.  As agreed with the Senate Committee on Energy and Natural  Resources and the House Committees on Resources and on Commerce,  this report responds to that mandate and addresses the effects of lifting the  export ban on (1) Alaskan North Slope and California crude oil prices and  production and (2) refiners, consumers, and the oil-shipping industry  (including the tanker fleet, the tanker building industry, and the tanker  repair industry) on the U.S. West Coast.  To put the effects of lifting the ban  in context, this report discusses changes in Alaska and California  production during the past decade (1989 through 1998).  This report also  discusses export-related environmental issues resulting from lifting the ban  (see app. I).
To assess the effect of lifting the export ban on Alaskan North Slope and  California crude oil prices and production, we collected and analyzed  crude oil price and production data from the Department of Energy, the  Alaska Departments of Natural Resources and of Revenue, the California  Departments of Conservation and of Revenue, selected oil producers and  refiners, the Alyeska Pipeline Service Company—the organization that  operates the Trans-Alaska Pipeline System—and Platts Oil Prices Data  Base as reported by Standard & Poor’s DRI.  We also reviewed previous  GAO reports, studies, and other available literature.  In addition, we  interviewed federal, state, and oil industry officials to obtain their views on  the effects of lifting the ban.  Furthermore, we conducted statistical  analyses using oil-price data before and after the ban was lifted to  determine how lifting the export ban had affected the prices of Alaskan  North Slope and California oil.  A complete discussion of our statistical and  economic analyses for determining the effects of lifting the export ban on  Alaskan North Slope and California crude oil prices is in appendix II.
To assess the effects of lifting the export ban on refiners, consumers, and  the oil-shipping industry on the West Coast, we interviewed West Coast  crude oil-refining officials, consumer groups, and oil-shipping industry  officials to obtain their views on the effects of lifting the ban.  We also  conducted statistical analyses of the effects of lifting the export ban on the  prices of key petroleum products used by West Coast consumers.  These  analyses were similar to those used to determine the effects of lifting the  ban on oil prices.  Furthermore, to review the effects of oil exports on the  U.S. oil-shipping industry, we talked to Alaskan North Slope oil industry  officials, tanker fleet operators, shipbuilding and ship repair industry  officials, maritime union representatives, state environmental groups, and  state and federal officials.  We contacted federal agencies, including the  U.S. Maritime Administration and U.S. Coast Guard within the Department  of Transportation and the U.S. Customs Service.  We also interviewed state  officials in Alaska, California, Oregon, and Washington State, and industry  officials in these states (including officials with oil companies that refine  oil in Hawaii) and in Washington, D.C.  From these officials, we obtained  and analyzed selected data and records to understand trends in the Alaskan  North Slope shipping, shipbuilding, and ship repair industries and to  identify the impact of oil exports on these industries.
In addition, where applicable, we applied established economic concepts  and theories to predict the likely effects on Alaskan North Slope and  California crude oil production in the future.  When important price,  production, refining, and shipping data were unavailable because they were  proprietary, we attempted, to the extent possible, to obtain such  information from alternative sources.  However, because of proprietary  data limitations, we were unable to determine the full effects of lifting the  export ban on cost increases for refiners using Alaskan North Slope or  comparable California oil or on the U.S. West Coast market in general.
We provided a draft of this report to the Department of Energy, including its  Energy Information Administration and Office of Policy, for review and  comment.  We discussed the report with Energy Information  Administration officials, including the Director, Petroleum Division, and  Office of Policy staff.  While the Department did not take a position on the  findings presented in the report, it provided clarifying comments that we  incorporated, where appropriate.
We conducted our work from July 1998 through June 1999 in accordance  with generally accepted government auditing standards.
section_title: Lifting the Export Ban Increased Oil Prices and Should Increase Future Oil Production
paragraphs: Lifting the export ban raised the prices of Alaskan North Slope and some  California oils between $.98 and $1.30 higher per barrel than they would  have been had the ban not been lifted.  To date, these price increases have  not had an observable effect on Alaskan North Slope and California crude  oil production.  Nevertheless, future oil production should be higher than it  would have been had the ban not been lifted because higher crude oil  prices have given producers an incentive to produce more oil.  According  to oil industry officials, new oil fields developed in Alaska since the ban  was lifted are expected to increase Alaskan North Slope oil production by  an average of 115,000 barrels per day for the next two decades.  However,  we could not separate the effects of lifting the ban on expected production  from the effects of broader oil market changes occurring at the same time.   For example, relatively high world oil prices in 1996 and 1997 encouraged  oil producers to expand exploration and development, while low prices in  1998 caused producers to close wells and reduce development.  Moreover,  this expected production increase will not reverse the decade-long decline  of Alaska and California oil production, which is expected to continue as  aging oil fields become depleted.
subsections: section_title: Prices of Some West Coast Oil Rose as a Result of Lifting the Ban
paragraphs: While world oil prices have been volatile since the export ban was lifted,  the price of Alaskan North Slope and some California oil sold in the West  Coast market is higher than it would have been had the export ban not  been removed.  Allowing exports to Asia meant increased demand for  Alaskan North Slope oil and higher prices.  To determine the effect of lifting  the ban on oil prices, we developed a time-series model.  Because oil prices  are influenced by many factors other than removing the ban, we had to  control for these other factors.  We did this by modeling the differences  between the prices of West Coast oils and the prices of similar oils in other  markets.  Our analysis indicates that the market price of Alaskan North  Slope oil rose compared with the prices of three oils--Brent Blend, Nigerian  Forcados, and West Texas Intermediate.  The price increase for Alaskan  North Slope oil relative to these three oils ranged from $0.98 to $1.30 per  barrel.
The effect of lifting the ban on California oil prices depends on the type of  oil examined.  Light-weight oil with a low sulfur content is higher quality  and more valuable than heavy oil with high sulfur content because  high-quality oil costs less to refine into gasoline and other light petroleum  products.  Alaskan North Slope oil is lighter weight and has a lower sulfur  content than most California oils.  Our analysis indicates that the price of  “Line 63” oil in California, which is similar in quality to Alaskan North Slope  oil, rose by $1.28 per barrel compared with the price of West Texas  Intermediate oil as a result of lifting the ban.  However, the effect of lifting  the ban on the prices of two other Californian oils we examined (Kern  River and THUMS) was insignificant.  These two oils are heavy in contrast  with Alaskan North Slope and Line 63 oil, which may explain why their  prices did not respond to the removal of the export ban in the same way.   Appendix II explains the methodology we used to estimate these price  increases as well as the economics explanation for why oil prices were  expected to increase when the ban was lifted.
section_title: Shipping Costs Are Lower for Exported Oil
paragraphs: Lifting the export ban also resulted in lower shipping costs for oil exported  to Asia.  For example, total transportation cost in 1996 for oil sold in Asia  was about $4.51 less per barrel than for oil sold on the U.S. Gulf Coast.   Overall, shipping costs fell by at least $15 million in 1996, $28 million in  1997, and $22 million in 1998 from what they would have been had oil not  sold in the West Coast market continued to go to other domestic markets.   Like higher oil prices, lower shipping costs improve oil companies’  incentives to produce more oil.
Table 2.1 shows the differences in length of tanker voyages, pipeline tariffs,  and total transportation costs per barrel for oil shipped from Valdez,  Alaska, to Asia and the U.S. Gulf Coast, the U.S. Virgin Islands, and the  Mid-Continent in 1996.  As the table shows, an average tanker trip to Asia  took 30 days, while the average trip to the Gulf Coast took 41 days.  In the  case of oil sold in the Gulf Coast and the Mid-Continent, shippers paid  pipeline tariffs in addition to tanker costs. The additional pipeline tariff  was approximately $0.82 per barrel for Gulf Coast shipments and $2.17 per  barrel for Mid-Continent shipments.  U.S. Virgin Islands shipments went by  tanker from Valdez around Cape Horn.  This route took an average of 84  days, or about twice as long as the next shorter route.  However, the  shipping costs to the U.S. Virgin Islands were slightly lower than for the  much shorter journey to Asia because the oil companies used larger foreign  tankers with foreign crews to transport the oil to the U.S. Virgin Islands.   Foreign tankers are much less costly to build, and operating costs for  foreign-crewed vessels are lower than for U.S.-crewed vessels.  Although  the 1995 law does not prohibit exports on foreign-built tankers, all  shipments of Alaskan North Slope oil other than to the U.S. Virgin Islands  have gone on U.S.-crewed tankers.  Table 2.1 also shows the average costs  for West Coast shipments in 1996.  As the table shows, the West Coast is the  lowest cost destination for Alaskan North Slope oil.
section_title: Improved Economic Conditions Have Had No Observable Effect on Oil Production to Date
paragraphs: Higher market prices for Alaskan North Slope oil and lower shipping costs  for exported oil have given oil producers incentive to produce more crude  oil.  To date, however, this incentive has not had an observable effect on  Alaskan North Slope or California crude oil production.  Oil industry  officials told us that any effects on production would not occur  immediately.  There is a lag between the time producers begin to receive  higher prices for Alaskan North Slope oil and the time it takes for  additional development activities to produce more oil.
section_title: Future Oil Production Should Be Higher as a Result of Lifting the Ban
paragraphs: Oil companies began developing several new fields after the export ban  was lifted, and production from these fields is projected to add significantly  to future Alaskan North Slope production.  Figure 2.1 shows the expected  impact—starting in 1999—of the development of new fields since the  export ban was lifted on production levels.  The bottom line in the figure  shows the current projected production of fields that existed prior to the  lifting of the export ban.  The top line shows the current projected  production of all fields--including those that were developed and those for  which development has been planned and approved–-since the export ban  was lifted.  The additional projected production between 1999 and 2020  from these new fields is about 115,000 barrels per day, on average.  Some  oil industry officials told us that some of these new developments were in  response to the removal of the export ban, while others said it was difficult  to point to one factor to explain the change.
We found no evidence of a similar increase in oil production in California.   Overall oil production in California has continued to decline in the years  since the ban was lifted, and we did not observe an expansion of  development activity.  While an increase in the market price of some  California oils would be expected to lead to increased levels of production,  none of the oil producers contacted said they had increased their  production as a result of lifting the ban.
We could not separate the effects of lifting the export ban on expected  production increases from the effects of broader oil market changes  occurring at the same time.  Among the other factors positively affecting  production decisions were generally high oil prices in 1996 and 1997 and  improvements in oil exploration and recovery technology.  Higher oil prices  encourage greater investment in production and exploration.  Average  market prices for Alaskan North Slope oil in 1996 and 1997 were $17.74 and  $20.90 per barrel, respectively, compared with $15.86 in 1998.  Similarly,  improved production and exploration technology has lowered production  costs, providing greater incentive to produce more oil.  More recently, low  oil prices in 1998 caused California oil producers to close some oil wells to  avoid maintenance costs.  The low prices also caused Alaska oil producers  to delay planned investments and development.  Oil company officials,  government analysts, and industry experts told us that separating the  effects of lifting the export ban from such other factors is difficult if not  impossible.
section_title: Despite Increases in Future Oil Production, the Long-Term Production Decline Will Continue
paragraphs: The expected increase in Alaskan North Slope oil production from lifting  the ban will not reverse the long-term decline in oil production in Alaska  and California as aging oil fields in these states become depleted.  As  shown in figure 2.2, crude oil production in both Alaska and California  decreased almost every year from 1989 through 1998.  During that period,  Alaska production decreased by about 35 percent, or about 696,000 barrels  per day, primarily because increased production in new, relatively small oil  fields did not offset decreased production in large aging fields.  New fields  and fields that had been closed but were reopened during that period added  about 236,000 barrels per day in 1998, which was less than the production  decrease in the Prudhoe Bay field, the oldest and largest oil field on the  Alaskan North Slope.  By 1998, the Prudhoe Bay field was about 74-percent  depleted, and production was about half the 1989 level—about 713,000  barrels per day versus about 1.43 million barrels per day.  California  production also decreased by about 9 percent during that period, or about  94,000 barrels per day, because production in new fields did not offset  decreased production from aging fields.  Low oil prices in 1998 also  discouraged California production.
section_title: State Oil Revenues Were Affected
paragraphs: Alaska revenue rose because of the higher market prices and lower  shipping costs that resulted from lifting the export ban.  Alaska’s petroleum  revenue comes from severance taxes, royalties, corporate income tax,  property tax, and petroleum rent and lease bonuses.  Royalty, severance  tax, and income tax revenue are based on the value of oil after excluding  pipeline tariff and transportation costs.  In April 1998, the Alaska  Department of Revenue estimated that the annual increase in revenue  resulting from higher West Coast market prices for Alaskan North Slope oil  was $40 million.  The officials also estimated that the annual increase in  revenue from lower shipping costs to Asia was $10 million.  These effects  were the direct result of lifting the export ban.
California revenue comes from a share of federal royalties, income taxes,  and property taxes.  California officials told us that they receive relatively  little revenue from these sources.  Consequently, there was no significant  change in revenue as a result of lifting the export ban.
section_title: Effects of Lifting Oil Export Ban on Refiners, Consumers, and Oil Shipping Industry on the West Coast Have Generally Been Limited
paragraphs: Lifting the oil export ban has had limited effects on refiners, consumers,  and the oil-shipping industry—including Alaskan North Slope fleet  operators, shipbuilders, and tanker repair yards.  Higher market prices for  Alaskan North Slope and some California oil increased some refiners’ costs  but had no or an unclear effect on other refiners’ costs.  Despite higher  crude oil costs for some refiners, West Coast consumers appear to have  been unaffected by lifting the ban because the prices of important  petroleum products they use have not increased.  There have also been  minimal effects on the shipping industry to date, although shipbuilding and  repair industry officials are concerned that business may shift in the future  to low-cost foreign shipyards.
subsections: section_title: Some Refiners’ Crude Oil Acquisition Costs Rose, but the Extent Is Uncertain
paragraphs: While higher prices for Alaskan North Slope and comparable California oil  increased the costs of some individual refiners, we could not determine the  extent of the cost increase for these refiners or for the West Coast market  in general.  Proprietary data needed to make the determination were not  available.  The impact of rising costs on refiners depends on their ability to  pass these costs on to consumers by raising the prices of the petroleum  products they sell.
Higher market prices for Alaskan North Slope and comparable California  oil translate directly into higher costs for refiners buying this  oil on the  market.  However, not all refiners are affected equally.  We looked at three  hypothetical cases.  First, a refiner buying large volumes of Alaskan North  Slope and comparable California oil would experience cost increases when  the prices of such oil rise.  In the case in which a refiner buys nothing but  this oil and always at the market price, costs would rise by exactly the  amount the price increased as a result of lifting the ban—about $.98 to  $1.30 per barrel on the basis of our analysis.  Second, the costs for a refiner  buying little or no Alaskan North Slope or comparable California oil would  be largely unaffected by increases in the market prices of this oil.  Finally,  for some refiners that refine mostly oil that comes from their own  companies’ wells, the effect of the increase in the market price of the oil  they produce and refine is unclear because their oil is not sold in the  market.
Data on refiners’ crude oil purchases and the prices paid are unavailable  because they are proprietary.  Therefore, we could not determine the  increase in refiners’ costs because of higher Alaskan North Slope and  California oil prices that resulted from lifting the ban.  Some refiners we  contacted said they pay higher prices for this oil, some said they were  unaffected, and others said it was analytically impossible to determine the  effect.  However, none of the refiners shared specific cost data with us.
The extent to which refiners can pass higher costs on to consumers  determines how their profits are affected by increased crude oil prices.   The ability of West Coast refiners to pass rising crude oil costs on to  consumers may be constrained by competitive oil market conditions.  All  refiners were not affected equally by increasing oil costs.  Therefore, those  refiners whose costs increased the most may not be able to increase their  product prices to fully recoup the costs without losing sales to those  refiners whose costs did not rise by as much.  Increases in crude oil costs  not passed on to consumers in the form of higher prices will reduce profit  margins for refiners.  West Coast refiners we contacted did not reveal the  extent to which they passed on increased acquisition costs for crude oil to  consumers.
section_title: Consumers Were Not Significantly Affected by Lifting the Export Ban
paragraphs: We analyzed the differences between the prices of West Coast petroleum  products and the prices of the same products in other U.S. markets.  Our  analysis indicates no significant changes in the prices of regular unleaded  gasoline, diesel, and jet fuel as a result of lifting the export ban.  In 1998,  these three products accounted for more than 80 percent of the total output  of West Coast refineries, as well as the bulk of consumers’ expenditures on  petroleum products.  These products were chosen because they are good  indicators of any potential change.
section_title: Exports Have Had a Limited Effect on Alaskan North Slope Oil Shipping
paragraphs: Lifting the oil export ban has had a limited effect on the Alaskan North  Slope oil tanker fleet, the U.S. shipbuilding industry, and the West Coast  tanker repair industry.  Overall, most tankers carrying Alaskan North Slope  oil continue to take the oil to the U.S. West Coast, and the demand for U.S.  tankers to transport Alaskan North Slope oil has continued to decline,  although exports have slightly offset the decline.  Foreign-built tankers  have not been used to export Alaskan North Slope oil, and U.S.  shipbuilders have not lost orders for new tankers to foreign shipyards.   Furthermore, there has not been a trend toward more foreign repairs of  Alaskan North Slope tankers since exports began.  Nevertheless, U.S.  shipbuilding and West Coast repair yard officials are concerned that they  may lose future business to foreign shipyards in part because of oil exports.
subsections: section_title: Effects on Tankers Transporting Alaskan North Slope Oil Have Been Limited
paragraphs: Lifting the oil export ban has not greatly altered the number and routes of  tankers used to transport Alaskan North Slope oil to date.  While the 1995  law that lifted the ban does not require companies to use U.S.-built tankers  for export shipments, the fleet serving the Alaskan North Slope remains  basically domestic, both in vessel registration and shipment destinations.   Moreover, this fleet is almost entirely owned by, or under long-term-charter  to, the major Alaskan North Slope oil producers.  The number of tankers  used to transport Alaskan North Slope oil from Valdez has been decreasing  steadily in the 1990s, as a result of the downward trend in Alaska oil  production.  In 1998, the Valdez fleet had 30 tankers, compared with over 50  in 1990.
Lifting the ban has not significantly altered Alaskan North Slope shipping  operations.  Most of the oil produced continues to be shipped to West Coast  refineries.  A small percentage—about 5 percent—of the oil has been  exported since the export ban was lifted.  The major oil producers in  Alaska ship most of their oil to West Coast states, particularly Washington  and California—to refineries around Puget Sound, San Francisco, and Los  Angeles.  In 1998, the average volume shipped to West Coast refineries was  a little over one million barrels per day, carried by 30 tankers in 465  shipments.  In comparison, only one major producer—BP-Amoco—has  been a significant exporter.  Since exports began in May 1996, it has  exported an average of about 60,000 barrels per day.  For example, in 1998,  five different tankers chartered to BP-Amoco took a total of 20 shipments  to Korea, China, Japan, and Taiwan.  An Exxon tanker also took one  shipment to Japan in 1997 and one in 1998.  Recent trends in major  destinations and volumes shipped are shown in table 3.1. (continued)
As shown in table 3.1, the volume of oil shipped to Washington/California  and Hawaii has decreased gradually in recent years, while the volume  shipped to Alaska increased from 1994 through 1997, then decreased in  1998.  At the same time, the volume shipped to the U.S. Gulf Coast via  Panama and to the U.S. Virgin Islands around Cape Horn fell to zero after  the export ban was lifted.  According to federal maritime and industry  officials, both the U.S. Gulf Coast and U.S. Virgin Islands destinations were  declining even without the influence of exports because, compared with  U.S. West Coast destinations, they involve high shipping costs, especially  the shipments to the U.S. Gulf Coast.  Some officials said that export  shipments in effect replaced the trade with the U.S. Virgin Islands and  accelerated its end.
Exports have affected some tanker operators more than others.  Officials  of ARCO and Exxon, which have subsidiaries that own and operate tankers  in the Alaskan North Slope trade, said that because they have made few, if  any, export shipments, lifting the export ban has had little or no effect on  their Alaskan North Slope tanker fleets.  However, officials of BP-Amoco  (which is not a U.S.-owned corporation and therefore is not permitted to  own tankers engaged in the U.S. domestic trade) said that exports to Asia  allow the company to lower its transportation costs and thus provide an  important new market.  In addition, officials of the charter shipping  companies that carried exports for BP-Amoco said that the export  legislation benefited their business.  These officials said that exports have  slightly increased the demand for U.S. tankers to carry Alaskan North Slope  oil.  According to officials of two companies, because of exports, a few of  their tankers that might otherwise have been unused were active in the  Alaskan North Slope fleet.  Our analysis confirmed that while overall fleet  size continues to decrease, exports may have slightly increased the demand  for U.S. tankers in the Alaskan North Slope trade in 1996 and 1997.
Exports have led to the disappearance of foreign-registered tankers from  the Alaskan North Slope fleet and may therefore have caused an increase in  jobs for U.S.-tanker crews.  Foreign tankers with foreign crews carried  Alaskan North Slope oil from Valdez to the U.S. Virgin Islands under a  long-standing exception in the Jones Act.  As shown in table 3.1, before the  ban was lifted, oil was shipped from Valdez around Cape Horn to refineries  in the U.S. Virgin Islands.  Several foreign-registered, foreign-crewed  tankers made these trips.  According to our analysis, lifting the ban caused  these foreign tankers and crews to be replaced by U.S.-crewed tankers  going to Asia.  Tankers carrying Alaskan North Slope oil from Valdez to  Asia to date have been U.S.-documented (including U.S.-registered and  U.S.-crewed) and U.S.-owned, as required by the 1995 legislation that lifted  the export ban.  As a result of this change in destinations, the equivalent of  one or two additional U.S. tankers were used to carry Alaskan North Slope  oil in 1996 and 1997, creating an estimated 58 to 115 U.S. tanker crew jobs.   These jobs partially offset the overall decrease in U.S. tanker crew jobs in  the Alaskan North Slope trade during the past decade caused by declining  crude oil production and fleet size.
section_title: Effects on U.S. Shipbuilding Have Been Limited
paragraphs: To date, lifting the oil export ban has also had a limited effect on the U.S.  shipbuilding industry.  Demand for new tankers for the Alaskan North  Slope trade—either U.S. or foreign-built—appears to be minimal at present  and driven primarily by factors other than exports.  Since the export ban  was lifted, Alaskan North Slope tanker operators have had the option of  exporting oil in foreign-built tankers, but to date they have not done so.   Likewise, U.S. shipyards have not lost orders for new Alaskan North Slope  export tankers to foreign shipyards.  Although several U.S. shipyards are  equipped to build Alaskan North Slope tankers, no U.S. shipyard has  delivered one since 1987.  According to industry officials, U.S. shipbuilders  have been at a price disadvantage in the world commercial shipbuilding  market because of, among other reasons, higher costs and less-modern  production methods.
U.S. shipbuilders and other industry officials expected 10 or more new  orders in the 1990s for tankers to serve the Alaskan North Slope.  These  expectations resulted in part from the enactment of the Oil Pollution Act of  1990, in response to the Exxon Valdez accident.  The act mandated, among  other things, the phaseout of single-hulled tankers and the transition to  double-hulled tankers by 2015, in order to reduce the effects of oil spills in  the event of accidents.  However, only three orders have materialized so  far.  All three orders were from ARCO for tankers to be built by Avondale,  Inc., of Louisiana, and to be delivered between 2000 and 2002.  Additionally,  a proposed order from BP-Amoco for three tankers to be built by the  National Steel and Shipbuilding Company, of San Diego, was deferred  indefinitely in October 1998.  According to industry officials, factors in the  lack of orders to date include falling oil prices in 1998 and their effect on  Alaskan North Slope planning and development, as well as the price of new  tankers—in some cases up to three times as much in U.S. shipyards  compared with overseas yards.
Despite the lack of tanker demand to date, there could be some demand for  new Alaskan North Slope tankers in the next decade, according to  shipbuilding and oil company officials.  As shown in figure 3.1, under Oil  Pollution Act of 1990 requirements, 26 Alaskan North Slope tankers are due  to be phased out of the fleet by 2015.
As shown in figure 3.1, 19 tankers serving the Alaskan North Slope are to be  phased out by the end of 2006.  Some of these tankers, but not all, would  need to be replaced, assuming that Alaskan North Slope production  continues to decline.  Oil companies would have replacement alternatives  to new U.S.-built tankers, including (1) extending the life of existing  tankers by converting the hulls and (2) using existing or new foreign-built  tankers for exports.  Oil company officials told us that their needs for  future U.S. tankers will depend on various oil industry and market factors.   Although introducing foreign-built tankers into the Alaskan North Slope  trade to carry exports is an option, oil company officials told us they have  no plans to do so in the foreseeable future.
Nevertheless, officials in the U.S. shipbuilding industry said they are  concerned about losing future Alaskan North Slope tanker orders to  overseas shipyards, in part because of exports.  They contend that the  export option gives oil companies an added incentive to further postpone  orders for new U.S.-built tankers.  According to these shipbuilding officials,  foreign-built tankers to export Alaskan North Slope oil are a possibility  within a few years, if not immediately.  If so, jobs in U.S. shipyards could be  affected.  According to company officials, each tanker order postponed or  lost to a foreign competitor costs about 1,000 U.S. shipyard jobs for the 18  months it takes to construct a tanker.
In addition, postponed tanker orders contribute to the aging of the Alaskan  North Slope fleet, with a potential impact on fleet safety.  Because no new  tankers have entered the fleet since 1987, half of the fleet consists of  single-hulled tankers built in the 1970s or before.  Even though the oldest  tankers have been phased out of service, the phaseout has been so gradual  that, on average, the remaining fleet has gotten older.  The average age of  the fleet has increased since the Oil Pollution Act of 1990 was passed— from about 16 years old in 1990 to 21 years old in 1998.
section_title: Effects on West Coast Tanker Repair Yards Have Been Limited
paragraphs: The ability to export Alaskan North Slope oil has given tanker operators an  added incentive to repair tankers overseas rather than on the West Coast  because they can reduce costs by combining oil shipments to Asia with less  expensive Asian repairs.  However, since the export ban was lifted, there  has not been a trend toward more overseas repairs.  Tankers serving the  Alaskan North Slope undergo major, scheduled “drydock” repairs about  twice every 5 years at a cost of $1 million to over $10 million each.  A  drydock repair can take a tanker out of service for several weeks.  Exact  information on the number of Alaskan North Slope tanker repairs for  recent years was unavailable.  However, according to data supplied by  industry officials, and on the basis of recent fleet size, we estimate that  about 10 to 15 such repairs have occurred annually for tankers serving the  Alaskan North Slope in recent years.
On average, repairs have been decreasing in the 1990s at a rate that is  commensurate with the decline in Alaskan North Slope production and  fleet size.  Three West Coast repair yards, in California, Oregon, and  Washington State, compete with several Asian yards for the Alaskan North  Slope tanker repair business.  These West Coast yards are situated near  Alaskan North Slope shipping lanes and destinations.  However, according  to industry officials, the U.S. repair yards are at a competitive disadvantage  because Asian yards may charge less than half of what a U.S. yard would  charge for a comparable tanker repair.
Combining an oil shipment to Asia with a less expensive Asian repair  allows tanker operators to avoid the extra cost of going without oil cargo to  Asia for a repair.  Overseas repairs of U.S. ships are subject to U.S. Customs  duties of 50 percent of certain repair costs levied on the vessel operator.   According to U.S. Customs and shipping industry data, overseas repairs of  Alaskan North Slope tankers have not increased significantly since the ban  was lifted, as shown in figure 3.2.
As shown in figure 3.2, overseas repairs of Alaskan North Slope tankers  have averaged between three and four a year.  No significant trend toward  more overseas repairs has developed since exports began.  Of the nine total  overseas repairs since 1996, seven involved the tankers of one oil company  that has historically repaired its tankers overseas and has not been an  exporter of Alaskan North Slope oil.
Officials of the West Coast tanker repair industry said that their recent  experience raised concerns that a trend toward more foreign repairs of  Alaskan North Slope tankers could be beginning to develop, with exports  as a contributing factor.  They cited two foreign repairs of Alaskan North  Slope tankers in Asia in 1998.  In one of these cases, a tanker that  transported crude oil to Korea underwent a scheduled drydock repair in a  Korean shipyard before returning to the United States.  According to West  Coast repair industry officials, this case illustrates how exports may be  starting to harm the West Coast ship repair industry.   In the other case, the  tanker went without cargo to Singapore for a scheduled drydock repair.   According to operators involved in the two cases, a major factor in having  repairs done overseas was the significantly lower cost in Asian repair yards  compared with U.S. West Coast yards, even when U.S. Customs duties are  added and even without carrying cargo, as in the latter case.  According to  West Coast repair industry officials, the two lost repairs represented  several million dollars in business and potential lack of employment for  over 500 workers a day for each repair.