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nations have placed their prestige on the line in support of the treaties.


I do not mean to imply that the Panama Canal is of no nomic importance. It is now and will continue to be for some time into the future a convenient means for waterborne transport. But in the words of the IRA study, "it cannot in any sense be regarded as either overwhelming or crucial."

Military Value

Much the same may be said of the military value of the canal. While certainly of military significance, the Panama Canal is by no means vital to our national defense. Its primary military value lies in its contribution to strategic and logistical mobility the ability easily to shift military forces and supplies between the Atlantic and Pacific Oceans, and to offset the shortage of U.S. port facilities on the Pacific coast.

The availability of the canal gives us an elasticity for rapid expansion of our maritime capability. Without it we could be delayed months if not years in developing the major thrust for a war effort. The capital investment to build this versatility into existing ports and other elements of our transportation network would run into the billions of dollars, and its use, except in terms of emergency, would be uneconomic. The canal is certainly the preferable alternative.

Military planners point out, however, that any fixed facility such as the canal must be considered quite vulnerable to attack, and its availability therefore discounted. U.S. strategy has, in fact, proceeded on the assumption of the canal's nonavailability, and has maintained two virtually separate navies in the Atlantic and the Pacific. The changed nature of naval vessels over the years has also significantly reduced the strategic value of the canal. Our aircraft carriers are too large to pass through, and submarines must surface to transit it, which makes it totally impractical for them to use in the event of hostilities in this hemisphere.

The vulnerability of the canal arises from the fact that it laces for 50 miles through the jungles of Panama and could be rendered inoperative for as long as 2 years by such simple means as landslides or the destruction of locks or dams. A submarine launched missile with conventional warhead could achieve this purpose in the event of hostilities with a major world power, but it could just as well be accomplished by a single saboteur with a few

sticks of dynamite. In the words of the Department of Defense, "the Panama Canal...can be defended, even in a hostile environment," but"the continuous operation of the canal could not be insured in that environment." This would remain true no matter what force levels were deployed in the Canal Zone.

For this reason, the good will of Panama is crucial to our ability to defend the canal. The security of the canal is most effectively safeguarded in a friendly environment through a cooperative relationship between the United States and Panama.

Sea - Level Canal

Once the emotional aura is stripped away from the Panama Canal, perhaps its most striking feature is how fast it is obsolescing. It is already of only marginal economic value to the United States, and trends in world shipping will rapidly make this true for other nations as well. Militarily the canal is importnat but not vital. Its vulnerability to attack severely limits its reliability, and its strategic sinificance is clearly not what it once was.

The most striking evidence of the dated character of the Panama Canal is its inability to handle economically the transshipment of Alaskan oil. By next spring Alaska's North Slope will be producing oil at the rate of 1.2 million barrels per day. Within a relatively short time this will be increased to. 6 million barrels. Even at the lower 1.2 million barrel level, this will produce a West Coast surplus of 500,000 ba-rels per day.

This surplus oil must be moved to the nation's population and industrial heartland in the East and Midwest. At present the only way to do so is through the Panama Canal or around the tip of South America. The latter, Cape Horn route is prohibitively expensive, so that leaves only the Panama Canal. This alternative in itself is far from desirable, however.

Alaskan oil will be delivered in tankers ranging in size from 70 to 190 thousad deadweight tons (dwt). But since the present canal cannot handle ships larger than 65,000 dwt, the oil must be lightered to smaller vessels for passage through the canal and up to the Gulf Coast. Needless to say, this is a very inefficient, and costly, operation.

When I visited Panama last March, as an Alaskan Senator I was particularly sensitive to these high costs of transporting our oil. When I sat down with the Panama Canal Company's economists I inquired about the feasibility of a new sea level canal. It was

then that I learned that in 1964 President Lyndon B. Johnson appointed the Atlantic-Pacific Interoceanic Canal Study Commission to assess the practicality of building a sea-level canal.

In 1970 the Canal Study Commission completed its exhaustive, $22 million examination of the issues and reported that the construction of a sea-level canal is physically feasible. It estimated the cost of construction to be approximately $2.88 billion at 1970 price levels. In their letter of transmittal to the President, the Commissioners explained that the possibility of amortizing this cost from toll revenues would depend upon (1) growth in traffic, (2) the time when the canal would become operative, (3) interest rate on indebtedness, and (4) payments to the host country.

They further emphasized that the national defense and foreign policy benefits of such a canal would justify a substantial financial risk.

In spite of these generally positive findings, action on a sea-level canal was not taken. The reasons are varied and complex, but undoubtedly the most important was that the Panamanians had no interest in becoming involved in a new canal until the dispute over the present one was resolved. This was especially true since the Commission had envisioned that the new canal would be owned and operated by the United States. It is hardly imaginable that the Panamanians could accept such terms after their years long battle to win control of the existing canal.

I believe that new attention to a sea-level canal is warranted by the following five facts:

1. Present and projected discoveries of oil and gas in Alaska have the potential of vastly improving the economic viability of a sea-level canal.

2. A new sea-level canal, fully owned by the Panamanians, has the potential of defusing the controversy over the present canal.

3. Construction of a sea-level canal will give the
United States needed flexibility to avoid increasing
dependence on foreign energy sources.

4. The availability of a sea-level canal will give
the United States billions of dollars of investment in
new energy transmission infrastructures.

5. At relatively marginal costs, a sea-level canal
would greatly enhance U.S. defense capabilities.

Each of these reasons alone probably constitutes justification of

further examination of the sea-level canal possibility. Together Vhey certainly do.

Any final decision to construct a sea-level canal will be arrived at only after balancing a number of factors. The temptation is always to assume that the only matter to be evaluated is the strict financial feasibility of such an undertaking: Namely, will a sea-level canal pay for itself in a reasonable number of years? But as the Canal Study Commission pointed out, other factors, such as defense and foreign policy considerations, must enter into the equation. A sea-level canal might, all things considered, be a good buy even it we were certain it could never pay for itself in conventional economic terms. Nonetheless, its financial feasibility will be central in the decision to build a sea-level canal, if for no other reason than to determine what portion of costs might have to be written off for other purposes.

According to the Canal Study Commission's report, a reasonable basis for assessing financial feasibility is to determine if construction costs can be amortized over a 60-year period. To make this determination is necessary to fin those combinations of operating costs, payments to the host country, interest rates, anal opening dates, traffic levels, and toll rates which would permit recovery of capital costs from toll revenues.

The Commission found that the preferred canal route (Route 10) is financially feasible at reasonable toll rates, assuming a construction cost of $2.88 billion and a high potential traffic growth rate. While this would seem to suggest that a sea-level canal is financially feasible in its own right, certain caveats are in order.

First, inflation in this type of construction has been approximately 80 per cent since the Commission issued its report in 1970. According to the Army Corps of Engineers, the original $2.88 billion estimate must be raised to $5.29 billion. This means that toll revenues must be increased substantially to amortize costs. Of course, inflation will also have affected the level of sustainable tolls. Presumptively inflation rates will be comparable and construction costs will not seriously have outstripped the ability of tolls to amortize these costs.

Second, there is some question whether we may reasonably exect traffic growth rates at the higher level projected by the 1970 study. Traffic levels in the past six years have not, in fact, borne out this high projection. This shortfall is arguably due to the worldwide recession of the early 1970s, from which we are only now beginning to emerge. This is strongly suggested by


A more

the upward turn of canal traffic in the past year.
thorough analysis is needed to establish that this will be a
long-term pattern.

An important factor in any reassessment of a sea-level canal's feasibility will be potential traffic growth deriving from new discoveries of oil and gas in Alaska. As I have already mentioned, by next spring Alaska will be producing 1.2 million barrels of oil a day, creating a surplus of 500,000 barrels a day on the West Coast.

There is every likelihood that these figures, as high as they are, will at least double in the next several years. The probability that large quantities of oil will be recovered from the Alaskan Gulf, National Petroleum Reserve No. 4, and other areas of Alaska, both on and off shore, is very high. According to conservative projections by the U.S. Geological Survey (USGS), recoverable reserves in Alaska may be five times as large as already demonstrated reserves.

I believe it is a conservative estimate that Alaska will be producing an additional two million barrels of oil per day within 2 to 5 years, and yet another two million barrels per day within 5 to 10 years. (See Map No. 1.) Figures of this magnitude are confirmed by an Atlantic Richfield Company estimate that the West Coast oil surplus could be as high as 2.4 million barrels per day in 1990.

As these Alaskan oil reserves are brought to production, a sea-level canal becomes increasingly attractive. It would require 120 million tons of canal traffic per year to move a surplus of 2.4 million barrels per day through the canal. This represents almost exactly one-half of the Commission's entire potential tonnage forecast for 1990. They included in their 239 million tons per year estimate only 41 million tons of petroleum, or about one-third the volume that now appears likely to materialize.

If this oil and the accompanying gas is to reach U.S. markets where it is needed, it must be transported by tanker to the Gulf of Mexico and the East Coast, or else it must be moved inland by pipeline from the West Coast.

The pipeline alternative has considerable drawbacks. The nation's pipeline infrastructure for the delivery of oil and gas runs south to north, fanning out from the Gulf Coast States to serve the Midwest and Northeast. (See Map No. 2.) The explanation for this pattern is simple. Historically, oil and gas was discovered in the Gulf region and was moved to the nation's population and industrial center.

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