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Vol. 17, No. 2 Week of January 08, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Pumping Up TAPS: Pumping up TAPS to 1M barrels

Alaska governor challenges, assists ANS producers, explorers to meet goal in 10 years

Kay Cashman

Petroleum News

On March 30, 2011, Alaska Gov. Sean Parnell announced his administration’s goal to increase the flow of oil through the Trans-Alaska Pipeline System, or TAPS, to 1 million barrels per day in a 10-year period.

According to his plan, “Secure Alaska’s Future - Oil,” reaching this northern Alaska oil production goal would require billions of dollars in private investment, strategic planning by the State of Alaska and coordination with key stakeholders, including the federal government, landowners and energy companies.

Nearly the entire Parnell administration would play a part in implementing the plan, but the leader of the effort would be Dan Sullivan, commissioner of the Alaska Department of Natural Resources, who was key in drafting the five-point plan.

The challenge

Alaska’s North Slope is a world-class hydrocarbon basin that boasts massive quantities of untapped oil and gas, but the governor’s comprehensive strategy to reverse the declining flow of oil through the trans-Alaska pipeline was not a small undertaking.

Average daily production in the line was expected to be 605,000 barrels a day in 2011, declining at a rate of about 6 percent per year.

In other words, despite these vast resources, production from existing North Slope fields was declining at a much faster rate than it was being replaced.

According to the state’s website for the plan, http://1.usa.gov/uAYcxU, the declining flow of oil posed a direct threat to the pipeline: it was becoming more expensive to maintain and the risk of damage from corrosion was increasing. The best way to avoid a premature shutdown of the line was to boost the flow of oil by tapping those vast North Slope resources.

What’s at stake

A premature TAPS shutdown would cut off the major source of state revenue that funds education, roads and other vital public services in Alaska, the website said. In addition, it would eliminate one of the nation’s top domestic energy assets and increase the nation’s reliance on foreign oil.

In January 2011 Sullivan “saw firsthand the perils of the pipeline operating at low throughput.”

In a June 4 guest editorial in the Anchorage Daily News, he wrote, “Due to a small leak, the 800-mile line was shut down in the dead of winter. After five long days of around-the-clock activity, it was uncertain if we would get the line up and running again. New to DNR, I had many questions: What if the line is down for another month, four months, or frozen until the summer? Could we shut in all North Slope production and restart it months later? We were staring into an abyss with no easy answers,” he wrote.

“We run an increased risk of seeing more episodes like the January shutdown. While maintenance and engineering fixes will help reduce risks, the best way to avoid a premature shutdown of TAPS is to increase oil production. Given the lag of several years between investment and new production, the time to act is now,” Sullivan said in the editorial.

Five-point strategy

The Parnell administration’s Secure Alaska’s Future - Oil strategy had five parts, which Sullivan told Petroleum News in November, had been, and continued to be, “relentlessly” implemented.

“We didn’t put this plan together and sit. It’s ambitious, but laying out an ambitious plan challenges people,” he said.

The goal of 1 million barrels in 10 years is “achievable,” he said, given the billions of barrels of oil that remain on the North Slope.

The five parts of the governor’s comprehensive plan are:

1. Enhancing Alaska’s global competitiveness and investment climate.

2. Ensuring that the permitting process is structured and efficient to accelerate resource development.

3. Facilitating and incentivizing the next phases of North Slope development.

4. Unlocking Alaska’s full resource development potential by promoting constructive partnerships between the state and key stakeholders.

5. Promoting Alaska’s resources and positive investment climate to world markets.

Cornerstone: Tax reform

A cornerstone of the strategy was the governor’s “tax reform” plan to increase industry investment by enacting fiscal modifications to increase Alaska’s global competitiveness.

The specifics of that reform included restructuring the state’s tax regime for existing units to reduce marginal tax rates at higher prices by capping overall production taxes at 50 percent, and further incentivizing exploration and development in areas outside of existing units by capping overall production taxes at 40 percent for the new units.

The governor’s tax reform was embodied in House Bill 110 and passed the state House during its first regular session of the current two-year legislative term. Its companion bill in the Senate, SB 49, did not pass during the first session, but is expected to be the major focus of that body in January 2012, when the Legislature convenes for its second session.

The Parnell administration continued to advocate for passage of the legislation between sessions.

Part one of the plan, enhancing Alaska’s global competitiveness and investment climate, also included reviewing and considering royalty modification applications for marginal fields, as well as improving infrastructure access and lower cost structure for resource development to more rapidly bring new production to the market.

The Roads to Resources program was part of improving access and lowering costs for development, and included building a year-round gravel road to Umiat.

More efficient permitting

In part two of the plan — ensuring that the permitting process is structured and efficient to accelerate resource development — the administration, with Sullivan in the lead, set about making immediate improvements to the review and process for incoming land and water use applications, eliminating much of the permitting backlog in far less time than the three years allotted in the plan.

Additional employees were added to DNR’s Division of Mining, Land and Water to expedite permitting review and processing.

Another key element of part two of the plan was to reduce permitting costs for industry by streamlining the permitting process on all levels — local, state and federal.

Recommending a comprehensive suite of regulatory and statutory reforms designed to provide regulatory certainty, timeliness, and clarity was also part of the strategy.

A high-level permitting task force has begun work on those recommendations.

Push for new oil

Part three of the plan called for facilitating and incentivizing the next phase of North Slope oil development, with “North Slope” meaning everything north of the Brooks Range including:

• Federal OCS resources.

• Federal onshore resources: NPR-A and ANWR 1002 area.

• Unconventional resources: heavy, viscous and shale oil.

• Smaller pools of conventional oil.

The effort to unlock more unconventional resources included forming a Shale Oil Task Force, which is looking at infrastructure, permitting reform, water use and gravel needs.

Promoting partnerships

Part four of the plan, promoting constructive partnerships, had four components.

First, establish “Secure Alaska’s Future” council to ensure continued partnership and coordination among stakeholders.

Two, increase congressional and national support for Alaska oil development.

Three, seek detailed planning and coordination with the federal government to increase energy development and enhance U.S. national and energy security.

Four, where federal partnership with Alaska is rejected, continue to vigorously advocate the state’s interests to ensure responsible resource development.

“To increase oil production, we need all stakeholders on board,” Sullivan wrote in the June 4 editorial. “We are establishing the Secure Alaska’s Future council of senior leaders from industry, state government and other entities. The council will meet on a regular basis to generate ideas, pre-empt problems and deepen cooperation. Additionally, despite the Obama administration’s focus on shutting down resource development in Alaska over the past two years, we are redoubling our efforts to work with the feds.”

Promoting Alaska investment

The fifth and last part of the governor’s plan to increase North Slope production and TAPS flow to 1 million barrels a day by 2021 was to promote Alaska resources and positive investment climate to world markets. Its three key components were:

• Make the case on the strategic importance of domestic production and Alaska’s role.

• Promote Alaska to increase investment.

• Boost public knowledge about our resource base, favorable political and investment climate, strong commitment to environmental protection, and desire to welcome the investment needed to increase production of oil, gas, and other resources.

“We compete on a global stage for capital investment. We need to boost public knowledge,” Sullivan wrote in his June 4 editorial.

“Alaska faces many challenges. But they are outweighed by the opportunities we have, particularly as they relate to our natural resource wealth — the envy not only of other states but of most countries. All Alaskans have a role to play in responsibly developing our resources to ensure a bright future for our fellow citizens,” Sullivan wrote.

“It’s time we get to work.”



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