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High Valdez inventory forces slope cuts Lack of tanker capacity could be one reason for 20% proration ordered by Alyeska Pipeline in mid-May, dropping production 16% Wesley Loy For Petroleum News
North Slope oil production unexpectedly tumbled for a couple of days in mid-May after Alyeska Pipeline Service Co. directed producers to prorate their production by 20 percent.
Spokespersons for Alyeska, which operates the 800-mile trans-Alaska pipeline and the tanker dock at Valdez, said high inventory levels in the mammoth storage tanks at the terminal were approaching capacity. Thus, the flow of oil down the pipeline needed to be cut back.
Alyeska issued the proration order at noon May 17, spokesman Matt Carle said.
The day before, total North Slope oil production was 744,068 barrels, Alaska Department of Revenue figures show. For May 17, production was down by 9.6 percent to 672,986 barrels, and on May 18 production was off by 15.9 percent to 625,548 barrels.
Proration ended by around 5 p.m. on May 18, Carle said. Daily production went back above 700,000 barrels the next day and for most of the remainder of the month.
Alyeska couldn’t say Carle and another Alyeska spokesperson could not say what caused high inventory well in excess of 6 million barrels for several days in mid-May.
Typically, equipment breakdowns, rough weather hampering tanker loading at Valdez, or planned pipeline maintenance events are among the leading reasons why Alyeska prorates North Slope production.
None of those scenarios was to blame this time, however, and no one seemed able to pinpoint the root cause of the high oil inventory and the May 17 proration notice — the third issued this year, Alyeska spokeswoman Katie Pesznecker said.
State officials and oil company representatives offered plenty of potential factors: a shortage of tanker capacity, the Flint Hills refinery at North Pole drawing less state royalty crude out of the pipeline due to a recession-related decline in jet fuel demand, cool temperatures favoring strong North Slope oil production, and weak market demand for Alaska oil at West Coast refineries.
Flint Hills spokesman Jeff Cook acknowledged the refinery had been taking less oil, but he noted: “We’re a relatively small portion of the oil going down the line.”
Alan Dennis, royalty manager for the state Division of Oil and Gas, also doubted lower Flint Hills oil demand caused the proration. In fact, he said, proration events often generate “finger pointing” as to their cause.
Tanker capacity one factor Tanker capacity appeared potentially lower than normal during May. ConocoPhillips spokeswoman Natalie Lowman said one of the company’s tankers was out of service for inspection and maintenance. However, the company chartered a smaller ship, the Seabulk Pride, to work as a backup starting in late April, she said.
Reuters reported one of the large tankers hauling Alaska oil for ExxonMobil, the SeaRiver Long Beach, made an unusual delivery of North Slope crude to a Louisiana oil port in the Gulf of Mexico in late April. Speculation was that the tanker, facing a mandatory retirement date at the end of the year, is heading to scrap. The Long Beach is the last remaining single-hull ship among the 15 tankers in the Alaska trade.
Jennifer Duval, petroleum economist with the Alaska Department of Revenue, said she’s noticed consistently higher inventories at Valdez since last fall — in the high 4 million- to 5 million-barrel range — and she wonders if perhaps market conditions are causing it.
“There’s an underlying trend going on,” she said. “It very well could be market-related. The West Coast isn’t seeing a lot of action. The refineries aren’t taking oil so I guess we’ve got to store it.”
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