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Providing coverage of Alaska and northern Canada's oil and gas industry
December 2017

Vol. 22, No. 49 Week of December 03, 2017

Bilbao: Alaska needs to complete; resources exceed potential demand

Some 40 years after the start of oil production from Alaska’s North Slope, Alaska oil needs to be able to compete in global oil markets if the industry is going to continue to thrive in the coming decades, Damian Bilbao, BP Exploration (Alaska) vice president, commercial ventures, told the Resource Development Council’s annual conference on Nov. 15. Moreover, continuing efficient operations in the North Slope oil fields can help the economics of exporting natural gas from the Slope, by reducing the unit cost of supply of the gas, Bilbao said.

Currently, Alaska accounts for less than 1 percent of worldwide oil production, a figure that represents a substantial drop from the 5 percent of world production that came from the state in the mid-1980s, Bilbao cautioned.

Resources exceed demand

Bilbao said that currently there are about 2.5 trillion barrels of known worldwide oil resources that could be produced using existing technologies. But the projected worldwide oil demand between 2010 and 2050 only amounts to about half of that volume. So, to be sold in the future oil market, oil will need to be competitive on price.

“You’d better be sure that the price of your oil, delivered to market, is less than everybody else’s,” Bilbao said. “That’s why we continue to focus on how do we make Alaska’s oil as competitive as possible.”

He said that BP sees global oil demand rising but then flattening out around 2030 to 2035. Despite a continuing debate about the possible impact of electric car use on that demand, BP does not envisage market penetration by these vehicles having a substantial impact on oil usage. Even a 100-fold increase in electric car adoption beyond the current worldwide level of about 1.2 million vehicles would only reduce oil demand by about 1 million barrels per day from a projected demand of about 102 million barrels per day in 2035, Bilbao said.

SB 21 impact

In terms of Alaska’s competitiveness in the global oil market, the state took a major step forward with the passage of the Senate Bill 21 production tax legislation in 2014, Bilbao said. Following the tax change a steady oil production decline of 6 to 8 percent per year has flattened out over the last two or three years, and production has even grown somewhat, Bilbao said.

While continuing vibrant levels of investment in Alaska oil can hold the production decline rate to perhaps 1 percent, reverting to uncompetitive tax policies would cause a reversion to a decline rate of around 6 percent. At the same time, there is a threshold of some 300,000 barrels per day in trans-Alaska oil pipeline throughput - go below that threshold and the oil becomes significantly more expensive to ship. Hence, holding the decline rate at 1 percent could result in 6.5 billion barrels of competitive oil being exported through the pipeline, compared with just 1.5 billion barrels at a 6 percent decline rate. That extra 5 billion barrels represents $66 billion for the state in terms of taxes and royalties, Bilbao said.

However, flattening the North Slope production, as envisaged by the Alaska Department of Revenue, will require a combination of exploration, field development and improved efficiency in operational fields, he said.

New development, improved efficiency

On the exploration front, Armstrong Energy, ConocoPhillips, Caelus Energy and others have been discovering more North Slope oil - the state has forecast that these new discoveries can add 40,000 bpd of oil throughput to the trans-Alaska pipeline by 2025. There are also new developments in existing fields and discoveries: Point Thomson expansion, 1H NEWS in the Kuparuk River field and the planned Moose Pad development at Milne Point. There are also the potential Nuna development in the Oooguruk field and the development of the Liberty field.

In the Prudhoe Bay field BP has been focusing on operational efficiency, with efficiency improvements achieved over the past three years being equivalent to about another 10,000 to 12,000 bpd flowing down TAPS without any addition to the field facilities. That is equivalent to bringing a whole new oil field on line every year, Bilbao said.

In fact, Bilbao said, more than 90 percent of the oil remaining to be produced from the Prudhoe Bay field will come from existing well bores through existing field facilities. Production of that oil will depend on continuing to operate the field responsibly and efficiently, ensuring that the oil can continue to compete in the world market.

AKLNG

Bilbao also congratulated Gov. Bill Walker and others involved in the Alaska liquefied natural gas project on the recent agreements signed with the Chinese.

“The agreements last week are an important marker in confidence in a 40-year future for oil and gas flowing from Alaska,” he said.

To compete in Japan with gas coming from the U.S. Gulf Coast, for example, it will be necessary to deliver gas to Tokyo Bay at around $8 per thousand cubic feet. Continuing operating efficiency in the North Slope oil fields can help achieve that price target by reducing the cost of the gas supply by around 50 cents per thousand cubic feet. Then, by making North Slope gas more competitive, Alaska can benefit from production from the state’s large gas resource, as well as from the production of oil, Bilbao said.

“In BP we believe in that 40-year future,” he said, adding that Alaska has the people and resources to realize that future potential.

- ALAN BAILEY






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