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Alaska: Uncertainty looms downstream BP vows to help prevent crude shortages at in-state refineries that could result from shutdown at Prudhoe Bay field By Rose Ragsdale For Petroleum News
When BP Exploration (Alaska) Inc. decided Aug. 6 to shut down crude production at Prudhoe Bay indefinitely, Alaska refineries joined West Coast plants and others in scrambling to prevent possible shortages of petroleum products.
BP said it would ramp down Prudhoe Bay petroleum production, which has averaged 400,000 barrels per day during the past year, to clear pipelines that carry sales-quality crude and natural gas liquids within the huge, aging field. The move followed discovery of considerable corrosion and at least one small oil spill in the field’s 22-mile transit line system.
BP said it would replace about 16 miles of the transit lines, an operation that could take weeks or even months to complete.
The U.S. Department of Energy made it clear that oil supplies in the nation’s Strategic Petroleum Reserve would be tapped to meet any crude shortfall that arises in the Lower 48. Concern in Alaska But Alaska refineries and state officials expressed more concern.
“Everybody is going to be looking at a bit of a squeeze if the refineries have to reduce their throughput,” said Kevin Banks, a commercial analyst for the Alaska Division of Oil and Gas.
ANS production was projected to average 750,000 bpd in August, down about 50,000 bpd from normal levels, because gathering lines shut down for maintenance in July will not return to full operation until September, according to Mike Heatwole, a spokesman for Alyeska Pipeline Service Co., which operates the trans-Alaska pipeline.
Typically, about 60 percent of Alaska North Slope crude goes to Washington State, 36.5 percent to California and roughly 3.4 percent to Hawaii, with a fraction of 1 percent, or some 45,000 to 48,000 bpd, retained in Alaska in the form of refined petroleum products.
Mostly jet fuel, gasoline and diesel are refined in-state from the crude stream. In May, Alaska refiners sold an average of 3.08 million gallons per day of jet fuel, 782,000 gallons per day of gasoline and 347,800 gallons per day of diesel, according to U.S. Energy Information Administration figures. The refineries also produced gas oil, naphtha and asphalt in smaller quantities. All six refineries will be affected All six Alaska refineries likely will be affected by the Prudhoe Bay shutdown to some degree, but some more severely than others.
A refinery operated by Tesoro Alaska Petroleum in Nikiski may be an exception to the rule. With a rated oil throughput volume of 72,000 bpd at peak capacity, it averages 65,000 bpd in crude throughput annually. Though it processes about 19,000 bpd of oil produced in Cook Inlet fields and up to 25,000 bpd from the Alpine field on the North Slope, it does not use crude from Prudhoe Bay.
Tesoro, which draws 10 percent of its crude supply for refineries in California and Washington from Prudhoe Bay, said Aug. 8 the field’s shutdown would have no effect on its Alaska refinery and no immediate effect on its other operations. Flint Hills vulnerable But Alaska’s largest refinery, a plant owned by Flint Hills Resources Alaska in North Pole, is more vulnerable. It is rated with a crude throughput volume of 220,000 bpd and is an important source of heating oil and aviation and motor fuels for the entire state. Located adjacent to the trans-Alaska oil pipeline, the Flint Hills refinery draws its oil directly from TAPS under a royalty-in-kind contract with the State of Alaska.
Two smaller refineries in Fairbanks and Valdez, owned by Petro Star Inc., also depend on ANS crude taken from TAPS, but their oil supplies come from contracts with the producers.
Petro Star manufactures jet fuel, diesel and fuel oil annually under a contract with the U.S. military to supply fuel requirements at military installations across Alaska.
Gov. Frank H. Murkowski expressed concern Aug. 7 about the Flint Hills refinery’s ability to continue operating when BP announced Prudhoe Bay’s shutdown.
“The North Pole refinery relies heavily on royalty oil it purchases in varying amounts from the State of Alaska,” Murkowski said. “While the volume for August was originally expected to be 56,000 barrels per day, the loss of Prudhoe Bay production will cut the amount available to 28,000-30,000 barrels per day.
“The Tesoro refinery at Nikiski and the Petro Star refinery at Valdez do not use royalty oil, but could be impacted by the shutdown as well,” Murkowski added.
Flint Hills issued a statement Aug. 8 saying it was actively researching the situation but declined to comment on its plans. BP waives 90-day-notice rule Meanwhile, BP, in response to a request from Alaska officials, agreed to waive a 90-day-notice rule and allow the state to take more royalty oil in kind from ANS production at other fields to ensure continued crude supplies for the North Pole refinery.
“We knew we could not meet the letter of our contract, but we took the initiative to try to figure out a solution for Flint Hills,” Banks said Aug. 8. “Now it looks like BP is going to sell them oil to make up the shortfall as needed.”
“We are talking with our partners and we have told the state and Flint Resources that we support the request,” BP America Chairman and President Bob Malone said Aug. 8. “We have also told Flint Hills that if there is a problem we will be there to help with any shortfall. We will make sure this and other landlocked Alaska refineries are supplied with crude oil.”
ConocoPhillips, however, refused the state’s request for more royalty oil.
“We will work with the State of Alaska to address this issue as we move forward. As of now, ConocoPhillips has binding contracts in place committing itself to the sale and delivery of North Slope oil to refineries in Alaska and on the U.S. West Coast. ConocoPhillips cannot release the crude production that it has already committed to sell to these customers without breaching their contracts,” the company said in a statement Aug. 8.
“ConocoPhillips is working to support BP with manpower and other resources to avoid shutting down the entire Prudhoe Bay field, which is the best way to provide more crude in-state,” spokeswoman Dawn Patience added Aug. 9. BP’s topping plant shutting down Alaska has two other refineries, small topping plants at Prudhoe Bay and Kuparuk that produce about 3,300 bpd of refined products for vehicles, equipment and freeze protection in the arctic oil fields.
BP’s plant at Prudhoe Bay is shutting down, and the company is said to be ordering methanol for freeze protection and diesel from other sources. And sources say a potential short supply of up to 3 million gallons on the slope could hurt truckers, who typically refuel before the backhaul to Fairbanks.
“Obviously, if you don’t have fuel, you can’t go anywhere,” said Aves Thompson, executive vice president of the Alaska Trucking Association. “It’s my understanding that diesel is being trucked up to the slope from North Pole. To the best of our knowledge there will be an adequate supply.” Asphalt could be shipped in The prospect of a crude shortage also sparked speculation that the Alaska Department of Transportation and Public Facilities might encounter problems with contractors obtaining adequate quantities of asphalt to complete various highway paving jobs already scheduled this season.
“It may be that we will run into problems,” said Michael San Angelo, statewide materials engineer for DOT&PF. “But last year, we were at the same spot even without a shutdown at Prudhoe Bay.”
San Angelo said Aug. 8 that DOT&PF generally waits until contractors run into trouble getting supplies of “hot oil” before reacting.
“There is always a source of crude. If we can’t get it from Flint Hills, there’s Husky Oil or U.S. Oil in Washington. We may have it shipped up here on barges. We do that right now for highway projects in Southeast,” San Angelo said.
“Obviously, the contractors are hot on this, trying to get what they need, but if they can’t get it, then we will just roll the projects over to a second season of paving,” he added.
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