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Vol. 15, No. 7 Week of February 14, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Big Risk, Bigger Rewards: Alaska remains a sure, sound choice for America’s future energy needs

America needs energy, and it needs to become more self reliant

By Gov. Sean Parnell

Alaska, like the rest of our nation, sits at an energy crossroads. In the coming months our country and its largest state will make crucial decisions about how to address their energy needs. The right choices will open up new domestic oil and gas developments to meet increased U.S. energy demands and will reduce our country’s reliance on foreign energy. For Alaskans, making the right choices would mean more energy to meet in-state energy needs, more jobs, and a stronger state economy.

Fifty years ago, when Alaska gained statehood, the right choices were made. At that time, Alaska committed to become self-sustaining and to contribute to our country through the wise and responsible development of Alaska’s abundant natural resources. After statehood, we worked alongside the federal government with some of the best companies in the world to fulfill the promise of responsible resource development.

Alaska’s territorial residents understood our state’s oil and gas potential. After the Mineral Leasing Act was adopted in 1920, the federal government set aside 23 million acres on the north coast of Alaska, called the Petroleum Reserve No. 4. This reserve, renamed the National Petroleum Reserve-Alaska, or NPR-A, in 1980, is believed to hold 12 billion barrels of oil and 73 trillion cubic feet of natural gas.

Oil at Swanson River

At the time of statehood, oil had been discovered at the Swanson River on the Kenai Peninsula by Richfield Oil Co. Within two years, Unocal had discovered a natural gas field in the same area. In 1962, oil and gas were discovered in the Middle Ground Shoal near Port Nikiski, leading to the construction of numerous wells in Cook Inlet and an economic boom for the Kenai Peninsula.

At the same time, the discovery of oil and gas at Prudhoe Bay, the development of our world-class oil fields on Alaska’s North Slope, and the construction of the trans-Alaska oil pipeline system served as a tremendous boost for our nation’s economy. Oil production through TAPS began in 1977, and in 1988, production peaked at 2.1 million barrels of oil per day, representing nearly 24 percent of the nation’s crude production. Although production is down to 700,000 barrels of oil per day, Alaska still produces 14 percent of U.S. oil production.

North Slope oil proved to be economically beneficial for Alaskans, creating good jobs and increasing state revenues. Historically, the royalty, tax, and lease payments from oil and gas production have provided approximately 90 percent of Alaska’s unrestricted state revenue. In recognition of these revenues, the State of Alaska coupled its commitment to responsible resource development with the decision to create a permanent fund to responsibly manage Alaska’s share of its oil and gas resources. The fund is a multibillion-dollar savings account, providing surety for the State of Alaska to weather tough economic times.

Today’s opportunities

Today, we have another opportunity to make good choices for our nation and our state. These choices involve understanding our options and opportunities in areas like the North Slope and Cook Inlet, exploring opportunities in the foothills and Interior basins of the state, and supporting responsible development off the coast of Alaska, within Alaska’s Outer Continental Shelf.

Significant progress has been made to slow the decline in oil production. BP is preparing to drill its Liberty Project, utilizing the longest directional drilling mechanics ever employed by any producer. Other efforts to protect oil production levels include BP’s work targeted to produce North Slope heavy oil, the success of Pioneer with permitting and construction at the Oooguruk offshore field, Eni’s efforts to develop Nikaitchuq and ExxonMobil’s development of two wells at Point Thompson — the first since the 1980s.

In 2007, the Alaska Legislature, in concert with the Executive branch, passed legislation to incentivize a project aimed at commercializing the North Slope’s known gas reserves. Alaska created a framework for moving a gas pipeline forward by creating incentives and requiring performance in return. Specifically, the state would invest in the development costs for designing a line and allow the project sponsor to negotiate a deal with potential gas shipping companies. TransCanada, in a competitive process, won the right to the state’s incentives. Among other things, TransCanada has committed to obtaining a certificate of public convenience and necessity from the Federal Energy Regulatory Commission to sanction construction of the proposed pipeline. This project provides an excellent opportunity to monetize Alaska’s gas resources and to provide for in-state energy needs. My most recent budget proposes authorizing $156.5 million in FY2011 to further that goal.

Infrastructure needed

There are also exciting prospects for developing oil and gas in the foothills and Interior basins of our state. To do so will require an investment in transportation infrastructure to provide access to those resources. To that end, this year’s budget also includes $8 million to the Alaska Department of Transportation and Public Facilities for the “Road to Resources” effort. The “Road to Resources” program includes an aggressive transportation plan to build a road from the Dalton Highway, west to Umiat, in order to access both the known and the prospective oil and gas reserves in this area. Building this road will provide year-round access to the Umiat oil field and Gubik gas complex. It will also allow for the placement of seasonal equipment on the doorstep of the NPR-A. Umiat is believed to contain 250 million barrels of economically recoverable sweet oil.

All of these options have great potential to create jobs for Alaskans, provide a steady and affordable source of energy for Alaska homes and businesses, attract new business and exploration in Alaska, and create new sources of revenue for the state.

Alaska’s OCS

Looking beyond our border, making the right choices will allow Alaska to continue its contribution to our country’s resource needs through production of our abundant North Slope natural gas, and through the development of the vast reserves of oil and gas located off Alaska’s OCS. We live in a time of both economic promise, and peril — something all of us endure as our nation works to recover from a severe recession and a mounting federal deficit.

America needs energy, and it needs to become more self-reliant. These two needs can be addressed by the promise of Alaska oil and gas. Tremendous resources still underlie state lands in Alaska, but as a state, we also encourage development of the vast resources on federal lands, and offshore. We applaud the U.S. Department of Interior’s decision to hold a lease sale in the National Petroleum Reserve-Alaska in 2010, and strongly support development of the OCS off the coast of Alaska.

Consider that over TAPS’ 30-year lifespan, 15.5 billion barrels of oil have flowed through it. By some estimates, at least that amount of oil can still be recovered on the Slope, thanks to improvements in technology that will allow production of heavier crude. Prudhoe Bay has at least 24 trillion cubic feet of natural gas, which has largely been injected back into the ground for storage, and to increase oil production from the field. Point Thomson, located between Prudhoe Bay and the Arctic National Wildlife Refuge, is Alaska’s largest undeveloped oil field with the potential to contribute hundreds of millions of barrels to TAPS throughput. It is also thought to contain trillions of cubic feet of natural gas. The prospect of building a natural gas pipeline to develop Prudhoe Bay gas — and potentially Point Thompson gas — represents a significant source of natural gas for domestic energy consumption in coming years.

Tremendous potential exists for responsible oil and gas development of the Outer Continental Shelf. According to a 2009 assessment by the Minerals Management Service the OCS has 27 billion barrels of oil and 132 trillion cubic feet of natural gas. Combine OCS reserves with the rest of the state’s oil and gas reserves, and Alaska has 30 percent of the nation’s recoverable oil and gas. OCS oil could nearly double the amount of oil transported through the TAPS and provide more needed energy for our nation.

USGS assessment

The world-class potential of Arctic Alaska was also evidenced in the 2008 Circum-Arctic Oil and Gas Assessment from the United States Geological Survey, which highlighted that Arctic Alaska is second only to the West Siberian Basin in total Arctic hydrocarbon potential, and has the highest Arctic potential for oil. The USGS study estimates that Arctic Alaska (state and federal lands, and offshore) holds technically recoverable resources amounting to 30 billion barrels of oil, 6 billion barrels of natural gas liquids and 221 trillion cubic feet of conventional natural gas.

My administration supports opening the OCS to development because it makes economic sense, and is in the best interests of our country. Developing the Alaska OCS will create well-paying jobs for Alaskans and other U.S. citizens, reduce energy prices, and lessen the kind of price volatility that contributed to our recent economic downturn. At a time when Americans are concerned about a growing federal deficit, it is important to note that Alaska’s OCS leases have generated over $9 billion in revenue for the federal government since 1976, and promise much more if development is allowed to proceed.

Increasing domestic production would also reduce our massive trade deficit, since it would reduce the import of foreign oil. Opening the OCS is an important part of a national energy policy. Developing our own resources means royalties from production will benefit our government rather than foreign governments. It would also advance national security and foreign policy interests, limiting our dependence on imports from regions and countries hostile to the United States and its interests.

Alaskans support a credible national energy policy that includes wise, responsible use of conventional fuels, in addition to development of renewable energy sources, to meet our growing demands. I believe that Alaska’s oil and gas resources can, and must, be a major part of the implementation of any of our nation’s energy policies.

Challenges

There will be challenges. Some groups will continue to challenge development of Alaska’s offshore reserves, claiming that exploration and development in the Beaufort and Chukchi Seas will harm the environment. However, Alaska has a strong record of responsible offshore oil and gas development. In over three decades, since 1973, 84 oil and gas wells have been drilled in Alaska’s OCS without incident. During this time period the federal government has spent $300 million studying Alaska’s waters to ensure that oil and gas development occurs responsibly.

Alaska has always been a land of promise for the people who live and work here, and for the people of our country who benefit from Alaska’s bounty. Alaska wants to contribute more of our natural resources to our nation’s security and to meet America’s energy needs. We also want to continue the path set at statehood to sustainably provide jobs and resources for our people. Fifty years from now, when Alaskans celebrate our 100-year anniversary of statehood, I want it said that Alaska remained true to that promise.



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