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EIA reviews minimum TAPS throughput Annual Energy Outlook includes discussion of possible low-volume constraints on pipeline, impact on North Slope field shutdown Kristen Nelson Petroleum News
As part of its “Annual Energy Outlook 2012” the U.S. Energy Information Administration looks at the potential impact of minimum pipeline throughput constraints on Alaska North Slope oil production.
That Alaska North Slope production is declining is not news; and problems with lower volumes aren’t a new issue in Alaska.
Output from the North Slope peaked in 1988 at 2.1 million barrels a day and in June production averaged 516,871 barrels per day (see production update story in this issue).
As lower volumes flow through the line, it takes longer for those barrels to cover the 800 miles from the North Slope to Valdez, and the temperature of the oil drops.
Alyeska Pipeline Service Co., operator of the trans-Alaska oil pipeline, has been studying impacts of lower flow rates and a report the company issued in June 2011 said problems may begin at rates below 600,000 bpd, with low-flow mitigation measures required below 550,000 bpd. The company said in the 2011 report that it had not addressed problems that would likely arise at flow rates below 350,000 bpd.
Alyeska began recirculating some oil at Pump Station 7 this past winter to keep the temperature of the crude oil up as it moved down the line.
Problems identified The EIA said problems Alyeska identified in its low flow study included: water dropping out from the crude, which could cause pipeline corrosion; ice formation in the pipe if the oil temperature drops below freezing; wax precipitation and deposition; and soil heaving.
Other issues which could occur at low flow rates include sludge dropout, reduced ability to remove wax, reduction in pipeline leak detection efficiency, pipeline shutdown and restart and difficulties running pipeline pigs for cleaning and integrity checks, EIA said.
The agency noted that while problems could begin at around 550,000 bpd in the absence of mitigation, the severity of problems is expected to increase as throughput drops further.
“As the types and severity of problems multiply, the investment required to mitigate these is expected to increase significantly,” the report said.
Because of problems expected to occur at flow rates of 350,000 bpd and below, “considerable investment could be required to keep the pipeline operational below that threshold.”
The agency said that Alyeska did not provide estimates of the cost of mitigation.
Declining oil flow EIA said the more significant issue is declining oil production and that low-flow issues would be most readily alleviated by discovery and production of large new fields, potentially in the Chukchi and Beaufort seas and onshore in shale and heavy oil deposits.
The Arctic National Wildlife Refuge and conversion of ANS natural gas to methanol or Fischer-Tropsch petroleum products which could be shipped down the pipeline are other possible sources of increased throughput. EIA noted that ANWR production is currently prohibited by Congress.
A new, small-diameter crude oil pipeline is another alternative, or a new terminal offshore the North Slope, EIA said.
The agency did note that each of these alternatives “comes with its own unique set of costs, risks and lead times.”
And there is also the risk that North Slope production might decline much faster than anticipated or the cost of operating the fields might escalate faster than expected.
“Under those circumstances, there is a risk that any solution(s) could be both too little and too late, because the North Slope oil fields would be shut down before a TAPS solution could be implemented,” EIA said.
Cost structure unknown EIA said the cost structure of North Slope fields as production declines is not known, but production can generally be sustained longer at lower rates when prices are higher.
“Similarly, the economic feasibility of mitigating the problems arising from TAPS low flow rates improves when oil prices are higher.”
While in-fill drilling and enhanced oil recovery help keep flow rates up, those are maintenance capital expenditures and provide diminishing returns over time.
EIA noted that ConocoPhillips Alaska said recently that capital expenditures for North Slope maintenance represent 70 percent of capital expenditures vs. 30 percent for development, while 10 years ago those numbers were reversed.
EIA estimated total maintenance capital expenditures for the North Slope at $640 million in 2001 and at $1.6 billion in 2011, an increase of 150 percent “over a period in which total North Slope oil production declined from 931,000 barrels per day to 562,000 barrels per day. If maintenance capital expenditures increased at the same rate (150 percent) over the next 10 years, they could be as high as $4 billion in 2021.”
350,000 bpd threshold EIA said it was adopting throughput of 350,000 bpd as the threshold at which “significant investment would be required to permit lower TAPS throughput,” and adopts that as the alternative for significant investments in the pipeline or alternatives “or shutting down and decommissioning TAPS and the North Slope oil fields.”
The agency said the analysis also looks at the level of oil production revenues, and said while the revenue threshold is uncertain because of a lack of public information on operating and maintenance costs, and costs to maintain the pipeline running at low levels are unknown, the analysis assumes that for North Slope fields to be shut down, plugged and abandoned, throughput would need to fall below 350,000 bpd and total North Slope production revenues would need to fall below $5 billion a year.
EIA said a shutdown of North Slope oil production prior to 2035 is projected only in the low oil price case (see story in July 1 issue on the EIA’s reference case, low oil price case and high oil price case). In both the reference case and the high oil price case, “oil prices are sufficiently high both to stimulate the development of new North Slope oil fields, especially offshore, and to provide sufficient oil production revenues to keep the North Slope producing through 2035,” the agency said.
Uncertainty The agency said the two most important determinants of the long-term viability of North Slope oil production and continued operation of the pipeline through 2035 “are the wellhead oil price that North Slope producers receive and the availability and cost of developing new North Slope oil resources.”
EIA said if its low price case “represents a low-probability outer boundary for future oil prices, then the likely future outcome is that North Slope oil production will continue until at least 2035, if not longer.”
The EIA’s Annual Energy Outlook 2012 is available online at www.eia.gov/forecasts/aeo/.
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