facts. One is, right now the Japanese are paying between $1 and $2 less per barrel of oil than the United States is paying on the east coast and in the midwest.

There is very little reason why that should be the case. But it is the case, and I think that is relevant for members of this committee. Because, over a period of years, with different quota policies, different oil policies, oil consumers east of the Rocky Mountains have been forced to pay much higher prices for crude oil, have been forced to deal with problems of uncertainties in supply and in securities of supply, and I think that is the issue involved in the whole

case.

Finally, I should say recently there have been price changes domestically. For the last month, prices east of the Rocky Mountains have been rising between 25 and 50 cents per barrel. It wasn't until last week there was finally a price increase on the West Coast, 25 cents per barrel price increase. The relative prices I talked about and used in my analysis-and if you use relative prices and not foreign costs you clearly come up with a major economic advantage for a Canadian pipeline, even if it is delayed, 5, 6, 7 years. It is still better to go with the Canadian pipeline if you take into account those higher prices east of the Rocky Mountains and the shortage of oil east of the Rocky Mountains.

You find out that the relative prices that I use in my analysis have sustained, but they have changed even more in favor of the Canadian route, because the price increases east of the Rockies have been even greater than the price increase announced last week on the

west coast.

In conclusion, I guess I would say that it is incorrect to assume that foreign oil will be the only factor to consider in whether or not the Canadian pipeline or the Alaska pipeline is economically superior. Because if you think the relative price difference that exists now in the Midwest and the east coast is either going to stay the same or get worse, as recent evidence indicates, you are going to have to deal with midwest Congressmen and east coast Congressmen and their constituents who are going to say they are paying as much as a dollar more for a barrel of oil than oil priced on the west coast. You are going to have to deal with the fact the west coast is going to have excess supply because recent studies of California showed under the President's Emergency Message, California could be producing 2 million barrels a day by 1985. You add in another 2 million barrels from Alaska, you say from southern Alaska, you find there is going to be at least a million barrels of oil more than the west coast needs. Where is it going to go? To Japan, the Virgin Islands? It is going to be transported in some roundabout scheme at higher cost to the east coast and the Midwest ?

It seems to me these are the questions that have to be confronted by this committee and this Congress. I don't think it is right to turn this consideration back to the Interior Department, because I think their own economic analysis was biased from the start and all of their comments have been made on that document, the basis of that bias.

Thank you.

Mr. MELCHER. Thank you, Dr. Cicchetti.

[Following the hearings a further statement was received from Dr. Cicchetti.]

[The statement follows:]

ADDITIONAL STATEMENT OF CHARLES J. CICCHETTI

On June 15, 1973 Secretary Morton filed a statement with this subcommittee entitled: "An Analysis of Alaskan Oil Alternative Routes and Markets." The book referred to is one that I recently authored. I would like to take this opportunity to respond briefly to several of the comments made in Secretary Morton's filing.

1. By using a 3 percent rate of inflation when I used a 10 percent rate of inflation Secretary Morton makes my calculations appear to be heavily biased against the Trans Alaska Pipeline. Actually, by using a rate that exceeds even the present high rate of price inflation (10% versus about 6.5%) I have biased my calculations against the Trans Canadian Pipeline in order to temper my conclusions, which show the Trans Canadian route to be far superior economically.

2. Although Secretary Morton criticizes me for not having updated data he is guilty of the same oversight in his regional oil supply and demand analysis. He estimates that supply in district V, the west coast, will decline by 2 percent per year. This is in marked contrast with a recent study prepared by the state of California that indicates the state of California could be completely self sufficient through 1985 by expanding its offshore oil drilling and more than doubling its production. Since the President has directed Secretary Morton to encourage this offshore development along with offshore oil in the Gulf of Alaska, which would only further add to the west coast over supply of oil, it is surprising that the Secretary actually forecasts a decline in west coast (district V) production. Bringing oil to this oversupplied area of the nation when the midwest and east coast face shortages and rising prices is in my view an extremely callous decision for an administrator, who is supposed to represent the interests of all regions of the nation.

3. Secretary Morton has criticized my investment cost data as being out of date. He suggests that TAPS would cost about $3.62 billion in 1973 and TCPS would cost about $6.435 billion in 1973. He points out that I used investment costs of $2.5 billion and $3.75 billion in 1971 for TAPS and TCPS respectively. His statement is true. However, as my manuscript points out I did not stop here. First, I added $400 million for possible higher cost Alaska Highway route. Second, I added the higher costs of a two year delay for TCPS increasing my cost estimates by 21%. Finally, I added an additional 20% to the costs of TCPS to reflect greater uncertainty and to make my economic comparison as conservative as possible. When these adjustments are made and all costs are put in 1973 dollars using the 10% inflation that I utilized (not the 3% suggested by Secretary Morton) my investment costs became $3.02 billion for TAPS and $6.03 billion for TCPS. While these are still somewhat lower than Mr. Morton's figures it should be noted that the spread between the two alternative investments is greater in my figures. Accordingly, I have been more heavily biased against TCPS than I would have been if I used Mr. Morton's most recent figures.

4. When my most extreme calculations (in terms of biasedness against TCPS) are presented I conclude that TCPS may cost about 20¢ more per barrel than TAPS. This difference is about equal to that presented by Mr. Morton. The Secretary and all recent critics of my analysis have pointed out that this difference is about equal to the 25¢ per barrel additional transportation costs from the Gulf coast to he midwest. Since the President has ended the oil import quota program each of these critics from industry and government have isolated my world price analysis and conclude that TAPS will not be greater than or at least equal to TCPS economically. For this conclusion freeing up imports must result in a drop in the relative price of oil in the midwest compared to the west coast. If it were to fall from the 65¢ per barrel difference, which was the amount crude oil of comparable quality to Alaskan oil in Chicago exceeded similar oil in Los Angeles, to the 25¢ per barrel trans

port cost difference of foreign crude the two systems would be economically equal. I pointed this out in my analysis and I stick to that conclusion. However, it has been sometime since the President's energy message, which ended the oil import restrictions. Relative prices have changed but not in the direction favoring TAPS. Contrary to economic logic, which says increasing supply of lower cost oil should cause a price decline, prices have increased since foreign oil has been permitted to enter the U.S. market without quantity restrictions. There have been two rounds of such price increases in the midwest, gulf coast and east coast markets. These have resulted in a price increase of about 70¢ to 75¢ per barrel. At the same time west coast prices have risen only 25¢ per barrel.

In other words the relative price difference that I used of 65¢ per barrel is no longer accurate. However, this difference has not been reduced to the 25¢ difference implied by Mr. Morton and other recent critics. Instead it has increased to $1.10 to $1.15 per barrel. The TCPS is now more than ever more economically viable than TAPS. Adding to this the midwest and east coast shortage I cannot even speculate as to the possible motives of the Secretary in sticking to his decision to promote TAPS at the expense of the far superior TCPS.

ACTION POPPING ON U.S. OIL PRICE FRONT

Crude price increases maintained their strong drive across many U.S. producing areas last week.

Although a second round appeared to be faltering in the Permian basin, the Ferriday area of Mississippi and northeastern Louisiana drew its second increase in a move by Ashland Oil Purchasing Co. to match higher levels on the Gulf Coast. Combined effect of the two moves by Ashland is a 53¢/bbl jump. Charter International Oil Co. added another 15¢ to its postings effective Apr. 17 on 25,800 b/d of sour crude and 4,200 of intermediate in West Texas and Southeast New Mexico, boosting prices to $3.85 and $3.96, respectively. The company had posted the prevailing 25¢ increase-to $3.70 for sour and $3.81 for intermediateeffective Apr. 11.

Charter thus became the third company to pay 40¢ above the level of previous postings in the basin Sun Oil Co. earlier announced a combined increase of 40¢ to a new top of $3.96 for West Texas intermediate to match a price negotiated by Apco Oil Co. in Fisher and Kent counties (OGJ, Apr. 23, p. 32).

Other buyers, including some of the biggest in the Permian basin, were sticking with increases of 25¢ in retroactive price moves announced after the Charter, Sun, and Apco hikes were disclosed.

West Texas-New Mexico sweet crude brings a maximum of $3.93/bbl in all new postings announced so far.

Ashland's second increase boosts 45,000 b/d of line-connected Ferriday crude 25¢ to a new top of $4 effective Apr. 19. Its first increase of 28¢ to $3.75 went into effect last month, also made to match Gulf Coast postings.

Permian basin. Four of the biggest buyers in the Permian basin-Mobil Oil Corp., Exxon Co. U.S.A., Gulf Oil Co. U.S., and Texaco Inc.-joined the round of 25 increases Their action, combined with earlier moves by other major buyers, brings virtually all of the basin's crude output under higher postings.

Mobil moved effective Apr. 1 on 89,000 b/d of sour, 133,000 of intermediate, and 10.000 of sweet.

Exxon posted its increase effective the same date on 105.000 b/d of sour, 2.900 of of intermediate, and 7,300 of sweet. The company's increase on intermediate is 30¢ to match postings by other companies. Its previous price was 5¢ under other postings.

Gulf's price jump, effective Apr. 18. affects 111.500 b/d of sour. 30.000 of intermediate, and 20,500 of sweet crude. Its price for intermediate is $3.86, because it had been paying 56 more than other companies in earlier postings.

Texaco made its increase effective Apr. 19 on 64,000 b/d of sour, 80.500 of intermediate, and 7.000 of sweet.

In other postings for the basin, increases of 25 were announced by Sohio Petroleum Co. effective Apr. 15, Atlantic Richfield Co. effective Apr. 18, and Chevron Oil Co. effective Anr. 19.

Other areas. Elsewhere, buyers posted higher prices in areas ranging from the Gulf Coast to Illinois and the Rocky Mountains. Most lists are up 25é.

Shell Oil Co. and Texaco, among the largest burers on the Gulf Coast, announced 256 increases on more than 765,000 b/d in the region.

Shell's move, effective Apr. 23, made its new top price $4 for 376,400 b/d on the Texas-Louisiana coast, $4.01 for 8,755 b/d on the Louisiana coast and $3.95 for 6,300 b/d in Southwest Texas and the upper Texas Gulf Coast. Texaco posted the increase to $4 effective Apr. 19 on 374,000 b/d in South Louisiana and made similar jumps in Illinois to $3.85 and in North Texas to $3.81 effective Apr. 1.

Sun boosted its prices 25¢ to $3.85 on 15,000 b/d in East Texas field and to $4 on 60,000 b/d on the Texas-Louisiana Gulf Coast effective Apr. 16. The action broached the $4 mark for Texas coastal Grade A crude. The company's new price for this type of crude is $4.16/bbl for 29° gravity and above in West Beaumont, Esperson, Orange, and Spindletop fields.

Gulf moved up 25¢ to $4 on 16,200 b/d of Texas Gulf Coast crude, to $3.80 on 6,500 b/d in Northeast Texas, and to $2.94 on 23,500 b/d in Baxter field, Miss. Exxon posted 254 matching increases on 4,300 b/d in West Central Texas, 28,500 b/d in East Texas field, and 22,300 b/d in other fields of East Texas. Its purchases of 8,600 b/d of heavy crude in Elk Basin field of Wyoming and Montana drew a 30¢ boost to $3.80, while 7,100 b/d in Louden field, Ill., went up 20c to $3.85. All are effective Apr. 1.

Amoco Production Co. went up 25¢ on 32,000 b/d in East Texas field and also moved on 13,000 b/d of other crude in the East Texas area.

Other 25¢ increases in East Texas field include General American Pipe Line Co., 17,800 b/d; La Gloria Oil & Gas Co., 15.000; Scurlock Oil Co., 12,000; and Permian Corp. Permian also boosted its postings 256 in the upper Texas Gulf Coast, on 20,000 b/d in West Central Texas, and on 22,000 b/d in North Texas. American Petrofina Co. of Texas jumped its postings 25¢ in Northeast Texas. Marathon Oil Co. went up 30¢ in the Rockies effective Apr. 17, making its new top prices $3.44 for 45,000 b/d of Wyoming heavy crude and $3.80 for 5,200 b/d of Elk Basin heavy. The company also added 25¢ to its East Texas field posting, affecting 2,300 b/d.

Sohio announced an increase in its postings effective Apr. 1 on a total of 11,850 b/d in three states. About 10,000 b/d of crude in Tinsley field, Miss., got a 25¢ boost to $3.63, while 400 b/d of Magnolia-Smackover crude jumped 42¢ to $3.67 and 1,100 b/d of Stephens and North Stephens crude moved 37¢ to $3.57 in Arkansas.

Sohio also increased its flat posting for 350 b/d of Ohio crude 25¢ to $3.67.

U.S. CRUDE PRICES MOVE ANOTHER 20 TO 45 CENTS

A second round of crude-price increases took a firm grip on producing areas in the Four Corners, Knasas, Oklahoma, Texas, and Louisiana last week in a flurry of moves by buyers to protect supply sources.

The latest second-round bonuses and postings added 25-45¢/bbl to about 1,284,600 b/d of production in the regions. Most jumps were in the 30-35¢ range. There were no changes in gravity differentials.

Combined with earlier second-round price hikes and contract purchases (OGJ, May 28, p. 35), the latest action brings about 1,317,600 b/d under prices higher than prevailing first-round postings. Independents and majors alike joined the second-round action that pushed top prices to $3.91 on the Four Corners, $4.20 in Kansas, $4.30 in Oklahoma, $4.28 in the Permian basin, and $4.51 on the Gulf Coast.

A breakout of the latest price moves shows that 1,036,900 b/d is being bought through new postings and at least 247,700 b/d through bonuses.

Majors. Six major companies announced second-round price moves on a total of 931,700 b/d last week. Other big firms were studying similar action.

Price hikes of 20-45¢ were unveiled by Shell Oil Co., Sun Oil Co., Phillips Petroleum Co., Continental Oil Co., Skelly Oil Co., and Cities Service Oil Co. Shell's new posting, effective June 6, covers 395,200 b/d in the Four Corners, Oklahoma, and Texas.

Oklahoma crude jumped 45¢ to a new top of $4.30 for 1,500 b/d of sweet and $4.13 for 10,000 b/d of sour. Price hikes of 35¢ pushed the company's top price in the Four Corners to $3.91 for 16.500 b/d; in East Texas field, $4.20, 14,500 b/d; Bryans Mill (Tex.) debutanized condensate, $4.09, 8,100 b/d; Frost Carbondale North Carbondale (Tex.), $3.90, 2,600 b/d; West Texas-New Mexico sour, $4.05, 272,000 b/d; intermediate. $4.16, 47.000 b/d; and sweet, $4.28, 23,000 b/d. Sun's action, involving a total of 335.000 b/d, boosted its postings effective June 1. Top prices moved up 35¢ to $4.35 on the Texas-Louisiana Gulf Coast, to $4.51 for coastal Grade A crude, to $4.22 for South Texas heavy, to $4.20 in East

Texas and Conroe fields, and to $3.95 in Clay Creek field, Tex. South Texas light rose 30 to $4.24, and West Texas intermediate jumped 20¢ to $4.16.

Sun also moved up 45¢/bbl to $4.30 for Oklahoma sweet and to $4.25 for Delhi, La., crude.

The company also is offering contracts with several price options to its suppliers in Oklahoma and certain parts of Texas.

Phillips began paying a 30¢ bonus for 8,300 b/d in Kansas and 9,000 b/d in Burbank field, Osage County, Okla., making its top price in both areas $4.15. A 35¢ bonus brought 37,600 b/d of West Texas intermediate to a new top of $4.16.

Continental added a 35¢ bonus to its prices on 42,600 b/d of Oklahoma sweet and a 30¢ bonus on 8,000 of Kansas crude, making its top prices in both states $4.20/bbl.

Skelly's price hit a similar top with a 35¢ bonus effective June 1 on 30,000 b/d in Kansas and 20,000 b/d in Oklahoma. Cities matched this move on 16,500 b/d in Kansas and 29,500 b/d in Oklahoma.

Independents. Along with the majors, 10 independents announced price boosts on 352,900 b/d in Kansas, Oklahoma, and West Texas. Other independents were reported to be paying prices above prevailing second-round postings, but these reports couldn't be pinned down immediately.

Higher prices were announced by Koch Oil Co., Permian Corp., National Cooperative Refinery Association (NCRA), CRA Inc., American Petrofina Co. of Texas, Clark Oil & Refining Co., OKC Corp., Bigheart Pipe Line Corp., Vickers Petroleum Co., and Osage Oil Transportation Inc.

Koch jumped its postings 35¢ to new highs of $4.20 for sweet crude and $4.08 for sour. The company buys 120,000 b/d in Oklahoma and 35,000 b/d in Kansas. Permian posted a 36¢ increase to $4.16 for West Texas-New Mexico intermediate and a 35¢ boost to $4.28 for West Texas-New Mexico sweet in a move effective June 1. The company buys about 120,000 b/d in the Permian basin. Its posting for West Texas-New Mexico sour remains unchanged at $3.70.

Permian also is paying a 30¢ bonus on about 10,000 b/d it buys in Kansas, making its top price there $4.15.

NCRA added a similar bonus on 19,000 b/d in Kansas, and CRA followed suit on 10,200 b/d in Kansas and 5,000 b/d in Oklahoma. These prices jumped to $4.15.

American Petrofina issued a new posting calling for a 30¢ hike effective June 1 on 1,500 b/d in Kansas. Its top price hit $4.15.

Clark is paying a 30¢ bonus in Kansas, basing its price at this amount above the arithmetic average of three postings by other companies.

OKC's 25¢ bonus in Oklahoma is based on a flat 10 bonus plus payment of trucking charges which, in some cases, range up to 15¢/bbl. The company doesn't post in the area.

Bigheart posted a 45¢ boost to a new top of $4.30 effective June 1 for 20.000 b/d of Oklahoma sweet, and Vickers moved up 35¢ in postings that call for a top price of $4.20 for 1,200 of Kansas crude and $4.08 for 9,000 b/d of Oklahoma

sour.

Osage started paying a 45¢ bonus on 2,000 b/d of Oklahoma sweet, making its new top $4.30.

Erroneous report. Meanwhile, a Journal check disclosed that a reported deal for sale of Louisiana crude at $5.50/bbl is highly questionable.

Reports in the daily press credited the sale to John Mecom, Sr., Houston, in a deal with American Grain & Cattle Corp., San Antonio. Under the reported trade, Mecom was to sell the output from holdings in Lake Washington field to the farm cooperative at a field price that could accumulate to $350 million.

Mecom also was credited with plans to repurchase the 51% interest in the field, which he earlier had sold to Signal Oil & Gas Co.

Signal, however, says it owns controlling interest in the properties and is negotiating for sale of its 80% interest to Crown Central Petroleum Corp. The sale would be made through a Signal limited partnership whose production amounts to about 18,000 b/d of oil and 109 MMcfd of gas (OGJ, Apr. 30, p. 106). Negotiations with Crown Central, Signal told the Journal, are continuing. Mecom was unavailable for comment-as was Harold Nelson, named in daily press as president of American Grain & Cattle. The latter firm has no telephone listing in San Antonio.