This magazine started out as an attempt to identify the potential sources of oil that could meet Gov. Sean Parnell’s goal of getting 1 million barrels of North Slope oil per day in the Trans Alaska Pipeline System, or TAPS, within 10 years.
But it soon became more about whether it was possible to stem the decline from an expected average production in 2011 of 605,000 bpd to 530,000 bpd in 2020, as projected in the Alaska Department of Revenue’s spring 2011 forecast.
What I learned in my research was that it might be possible to meet the governor’s goal in a 10-year period, but only if production from Alaska’s source rocks and offshore comes off without any major hitches or delays.
Not wanting to bet on something exciting, but completely untried on the North Slope, and with geologic, technical, economic and political challenges, I decided not to include shale oil in production numbers for the next decade.
Shell, the lead company in northern Alaska’s offshore development, could conceivably have one or two Beaufort Sea fields in production in 2021, but even Shell predicts the start of its outer continental shelf Chukchi oil production is at least 10 years out IF it can drill in the open water season of 2012 and there are no more permitting, lawsuit or other delays.
That’s more than a long shot, so I excluded the OCS.
Explorers such as Repsol and Brooks Range Petroleum will certainly play a part in putting new oil in the pipeline, so they were included — sort of, as it’s not clear they will develop and produce all their discoveries without a change in Alaska’s production tax.
BP and ConocoPhillips, which operate the fields currently producing 98 percent of the oil going into TAPS, could step up production in their legacy fields and increase investment in heavy oil, but the opposite is actually happening — both companies are unwilling to increase their capital investment because they say Alaska’s production tax, commonly known as ACES, is a disincentive. Until it is changed —until the governor’s legislation, House Bill 110, has passed into law — the companies say they will not be stepping up investment.
Worse, BP predicts the decline in North Slope production will be greater than Revenue projected because 52 percent of the oil between 2011 and 2020 in the state’s spring 2011 forecast was from projects not yet sanctioned, and many of those were BP or ConocoPhillips projects that are now on hold. Revenue’s fall forecast was due out after all pages except the On Deadline section of this magazine had gone to press. I expected output of 474,000 bpd in 2020, which was the last year in the spring forecast, but you can find out for sure by checking page 8.
Increase in tariff would hurt investment
Less oil in TAPS means less revenue for the state and possible mechanical problems in the line.
But trying to keep production flat at 605,000 bpd is not just about protecting state revenues or avoiding unexpected flow problems; it’s also about the trans-Alaska pipeline tariff for non-TAPS owners, such as Repsol, Pioneer Natural Resources, Savant, Brooks Range, Eni, Linc, UltraStar, Great Bear, Shell, Statoil, ASRC Exploration and others. The tariff will undoubtedly go up as system costs are shared among fewer and fewer barrels of oil, which is a disincentive for non-TAPS owners to produce oil on the North Slope.
And if TAPS operator Alyeska Pipeline Service Co.’s low flow impact study is correct (see story on page 23), there is a whole list of mitigation measures that Alyeska will have to implement to keep the pipeline operating as throughput drops below 600,000 barrels a day — costly mitigations that could also raise the tariff.
Subsidiaries of the North Slope’s largest producers, BP, ConocoPhillips and ExxonMobil, own large chunks of TAPS, so a higher tariff is not going to necessarily sour them on Alaska. But it has driven off other operators in the past, including Conoco before it was ConocoPhillips and owned ARCO Alaska’s share of TAPS — just as a drop in the tariff due to agency and court decisions helped attract new players to Alaska, starting in 2000.
So, this magazine became more about investigating whether the decline in North Slope oil production can be halted, especially without the cooperation of BP and ConocoPhillips, than it did about achieving the governor’s goal.
The first article, an analysis by me, is titled, “First, can the decline be halted? BP, Conoco operate 98 percent of northern Alaska oil production: can it be done without them?”
The next three articles deal with related subjects — oil prices, drilling rig shortages, and TAPS potential low-flow issues.
The next article is about the governor’s five-point strategy to achieve his goal, followed by articles about the various sources of oil that could help stem the decline and/or reach the 1 million bpd target.
Finally, there is a group of opinion and analysis pieces that cover everything from impediments to filling TAPS by Jim Weeks, to Rep. Les Gara’s position that HB 110 is a giveaway, to Dan Dickinson’s five not-so easy pieces to put 1 million barrels in the pipeline, and more.
In the end, we have a photo layout about TAPS, from construction, to start-up, and snapshots of the last 34 years of operation.
I hope you enjoy this magazine, and find it helpful in understanding the incredible challenge in pumping up TAPS.
