AN ANALYSIS OF THE COST TO THE UNITED STATES OF A ONE YEAR DELAY IN THE DELIVERY OF ALASKAN NORTH SLOPE OIL

The major purpose of this study was to examine the validity of the claim that delay in the exploitation of Prudhoe Bay oil reserves would be very costly to the United States. The analysis upon which this claim was based was examined in depth. Since the assumptions underlying the model proved unrealistic, a model allowing for escalating costs and prices and the risk implicit in continuing dependence on Middle-East oil supplies was developed. The results obtained were carefully analyzed for a wide range of possibilities. A one year's delay in the exploitation of Prudhoe Bay oil will result in a net benefit to the United States in the order of one-half billion dollars. This figure is in sharp contrast to the suggestion that a one year's delay will cost the nation one billion dollars. Although the methodology used by the Department of the Interior is sound, the unrealistic "simplifying" assumptions that costs and prices will remain constant and the magnitude of the discount rate selected render it useless. The combined effect of these oversimplifications is the inference that oil conserved until 1989 is worthless to the nation. The $500 million net benefit figure is derived from the same methodology, without the simplifying assumptions. It is also concluded that, in view of the ever increasing dependence of the United States on offshore supplies of crude oil and the present shortage of continental crude reserves (including Canada and Alaska), the Alaskan reserves should not be exploited until the United States has carefully examined its policy concerning the level of strategic petroleum reserves that should be conserved for future contingencies.

• Corporate Authors:

  Railway Systems and Management Association

  181 East Lake Shore Drive
  Chicago, IL  United States  60611
• Authors:
  • O'Leary, B G
  • Lake, R W
  • LAW, C E
• Publication Date: 1973

Media Info

• Features: Appendices; References; Tables;
• Pagination: p. 24-50
• Serial:
  • Railway Management Review
  • Volume: 73
  • Issue Number: 1
  • Publisher: Railway Systems and Management Association

Subject/Index Terms

• TRT Terms: Costs; Economic analysis
• Identifier Terms: Alaska Gas Pipeline; Alaska North Slope oil; Trans Alaska Pipeline
• Subject Areas: Economics; Finance; Railroads;

Filing Info

• Accession Number: 00050394
• Record Type: Publication
• Files: TRIS
• Created Date: Jan 24 1974 12:00AM