Arco, Smaller Oil Tankers Near Showdown Over Alaska Shipping

Lobbyists and legislators are bracing for the showdown in a long-running contest for dominance in the seaborne traffic that moves Alaskan crude oil to the lower 48 states.

The struggle, which is approaching a climax in Congress and the executive branch, involves millions of dollars in government and corporate funds, as well as some of the largest ships afloat. In the end, it may well decide whether a few supertankers are to replace smaller vessels as the principal haulers of North Slope oil.

In its current phase, the fight primarily involves Atlantic Richfield, the Los Angeles-based owner of two 262,000-ton tankers. To make the ships eligible for the Alaska trade, Arco has repaid the U.S. Maritime Administration $86.4 million for federal subsidies that helped pay for their construction. The subsidies were granted originally on the condition that the vessels be used only for foreign traffic.

Working in Congress to scotch the deal are the owners of the smaller, less efficient ships that require crews almost as large as the supertankers and must charge higher rates per barrel of crude transported.

They have asked Congress to stand by the original terms of the subsidies and keep the supertankers out of the domestic market, arguing that the competition would seriously harm all smaller operators.

The owners are also trying to force the Transportation Department to drop its approval of such payback arrangements. In accordance with the department’s earlier clearance for two subsidized supertankers owned by other firms to enter domestic traffic, a federal court has ordered that the department issue a rule by July 16 that would allow all subsidized vessels to do the same. Arco is seeking to take advantage of the rule.

On Capitol Hill, the House Appropriations Committee has voted, 18 to 16, for a measure that would effectively bar completion of work on the rule.

The bill will go to the full House after Congress returns on April 21 from its Easter recess. If it becomes law, it may well require eventual return of more than $100 million in subsidy repayments by shipping companies.

The tangled dispute began in the 1970s, when shipping companies first offered subsidy “buybacks” in exchange for permission to operate domestically. The construction of seven supertankers had been subsidized under a 1936 provision of the Maritime Act of 1920, which was designed to make U.S. vessels more competitive in world commerce.

After a court challenge, the Supreme Court ruled that such a reimbursement arrangement would be legal for tankers of at least 100,000 tons, provided that the owners also paid interest that now approximately equals the amount of the subsidies. The battle over the administrative rules for the process has raged since then.

Cost Factor Cited

The Transportation Department has backed the supertankers, noting that it costs 4 1/2 times as much in operating costs to transport oil in a 37,500-ton tanker as it does in a 250,000-ton supertanker.

The Navy, however, has backed the smaller operators, saying that the smaller vessels are easier to clean for carrying gasoline and other refined products after carrying crude oil. They also are less vulnerable as military targets.