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. 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. 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. 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. 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. 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.