40 Years at Prudhoe Bay: Producers weigh many marketing options

Alternatives for getting Prudhoe Bay oil to market narrowed to choice between trans-Alaska and trans-Canada overland pipelines

Petroleum News

After the oil was discovered, the big problem facing the oil companies was how to get the oil to market. Markets within the United States, already dependent on foreign imports because domestic production could not meet demand, were located mainly on the East Coast, the Midwest and the West Coast.

Developers could envision only two possible ways of transporting North Slope oil to market, by sea through the Bering Strait or overland by pipeline. The former would mean opening up the legendary Northwest Passage as a regular shipping route. If it could be done, it would mean tankers, or oil-carrying submarines could supply oil to East Coast markets. An overland pipeline could supply either the Midwest through a 2,900-mile line across Canada or the West Coast through an 800-mile line to an ice-free port in southern Alaska where tankers could be loaded for ocean transport.

Several interesting proposals emerged from the discussion. One was moving the oil by sea to the East Coast via ice-strengthened tanker, notably Esso’s tanker SS Manhattan in the U.S. merchant fleet. The project would cost an estimated $50 million and was sponsored by Humble Oil and supported by BP and Atlantic Richfield.

While other vessels had made the transit earlier, the 150,000 deadweight-ton Manhattan was the first commercial vessel to make the passage. Its partial double-hull construction was designed to break through the Arctic ice packs on its voyage through the Northwest Passage and across the Canadian and Alaska Arctic.

The tanker made a much-publicized 10,000-mile round trip in the fall of 1969 and another the following spring. However, this form of transportation was not adopted because it was concluded that transporting oil via tanker in the Arctic was not commercially viable on a year-round basis due to unpredictable, offshore ice conditions, which made it unreliable for year-round loading.

Other ideas explored

The Canadian Institute of Guided Ground Transport produced a study “Railway to the Arctic,” which concluded that a 1,240-mile, double-track railway from Prudhoe Bay to existing pipeline facilities near the Alberta border would be technically feasible and financially attractive.

Tanker aircraft, dirigibles and other airships also had their supporters, but the most frequently suggested alternative to the Prudhoe-Valdez line was another pipeline from the North Slope into Canada via the Mackenzie River Valley to Alberta. From there it would be linked to the existing pipeline system, allowing Alaska crude to be piped directly to Chicago and the Great Lakes industrial belt. The pipeline would also carry Canadian crude from the Mackenzie delta, where some significant oil discoveries had been made.

Studies, however, indicated that a trans-Alaska pipeline was the most economical option.

The position of Alyeska Pipeline Service Co. on a trans-Canadian line was made clear in March 1972 when it pointed out that the trans-Alaska line would cross fewer permafrost areas than any Canadian alternative, that it would result in less disruption of terrain and require the crossing of fewer streams and rivers, that it would be half as long, and that it would be built sooner at half the cost.

Trans-Alaska pipeline

Alyeska President Edward Patton told a U.S. House of Representatives subcommittee in April 1973: “If the trans-Alaska line is completed in 1977, it will have taken nine years from commencement of planning to completion. A trans-Canada line, which would be twice as long merely for the first leg to Edmonton, is at the same stage in the planning process as was the Alaska line in 1969. Giving consideration to the magnitude of the project, and the potential for delay by opponents, it is most likely that a trans-Canada oil pipeline could not be operational before 1983.”

Patton added that the resulting delay would add hundreds of millions of dollars to the nation’s resource bill and some $3 billion annually to the balance of payment deficit.

Because of the obvious economic benefits to the state and local communities, there was strong support within Alaska for an all-Alaska route. Alaska’s Gov. Keith Miller and other influential Alaskans agreed with the proposal for a terminal to be built at Valdez.

When it came apparent that the trans-Alaska route had won out over other alternatives, the companies focused their energies on developing a viable pipeline system. The proposed 48-inch line, capable of carrying oil at a rate of 2 million barrels per day was initially estimated to cost $900 million. The final cost eventually topped $9 billion.

Various estimates were made of the cost of producing the oil at Prudhoe Bay. Arlon Tussing of the Federal Field Committee for Development Planning in Alaska estimated the wellhead cost, including discovery, development and production, at 24-54 cents a barrel based on 10 billion barrels in recoverable reserves. That compared with about 80 cents to $1.25 per barrel in wellhead cost for Cook Inlet oil.