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Alyeska savings cut transportation costs Tariff down 30 cents a barrel as company chops $100M in operating costs Kristen Nelson Petroleum News Editor-in-Chief
Alyeska Pipeline Service Co. has cut some $100 million a year from its annual operating costs in the last two and a half years, and is looking at cutting an equal amount in the next three to five years.
Those savings have already reduced the tariff on oil moved in the trans-Alaska pipeline by some 30 cents a barrel, David Wight, Alyeska president and chief executive officer, told the Alaska Support Industry Alliance in Anchorage Oct. 23, and the total savings, when the additional reductions are made, could total 60 cents a barrel.
Those reductions, combined with savings as the shippers bring their new double hulled tankers on line, are expected to take more than one-third of the transportation cost out of the system over the next five to eight years, he said.
What do those savings mean? The 30 cent a barrel savings already achieved “could add somewhere between 10 and 15 million dollars per year gross wellhead value to a project” like Point Thomson, Wight said, and “could easily add more than $100 million in gross value to a project over the project’s life, even for some of these smaller fields.”
Costs that come out of transportation make Alaska more competitive, he said, because “the cost challenges are very significant” for the producers on the North Slope. Savings in transportation costs, Wight said, would be “no small and insignificant component in making the additional fields that we need to keep production up more of a reality.” Taking complexity out of the business How has Alyeska removed $100 million a year in operating costs? The company “started by looking at how we run our business,” Wight said.
The business is complex and the company had more than 400 manuals that told it how to run the system. Alyeska wrote most of those manuals, he said, and kept adding to them. When a better way to do something was found, or when there was a difficulty, “we would sit down and write a new procedure.”
Until, for some procedures, you had to look at 20 different manuals to make sure you did the process right.
Alyeska set out to simplify the manuals, and has eliminated or consolidated them, so that “in some places we have 20 or 30 pages where we used to have hundreds.”
It allows Alyeska to understand its business better.
“And it gives the regulators a very clear and significant look into how we’re going to run the business — and a way to check up.
“And it really takes the complexity out of the business and allow us to do the business more efficiently,” he said. That has allowed Alyeska to reduce the workload — and the number of people required to do the work.
The hundred million in savings came from a lot of things, Wight said, some of it from things like consolidating offices, moving its Anchorage staff into leased space at BP and sharing building security costs with BP. Next $100 million from physical changes The next $100 million is going to come from changes in the pipeline itself — and in the Valdez Marine Terminal.
Plans to change how the pipeline operates are under way. By the end of the year Alyeska expects to have preliminary engineering done and be recommending to its owners — the major oil shippers — that it electrify the pump stations and automate them. (See stories in July 6 and July 13 issues of Petroleum News.)
And if the company gets authorization to go ahead early next spring, it expects to have some of the automated pump stations up and running by the end of 2005, with completion of the work in early 2006.
A pump station looks like a small city, Wight said, and because the pump stations are remote and manned, more than two-thirds of the buildings are there to house people and support the operations. Supporting the people also accounts for about 40 percent of the cost at a pump station.
By electrifying pump stations, and automating them, support for the crew is no longer needed. “Quite frankly,” Wight said, “this is very similar to what most of the Lower 48 pipelines look like today.”
Why wasn’t the pipeline built this way? Some of the communication and control technology wasn’t available 30 years ago. A “big, significant upgrade in terms of digital communication and microwave technology allows you to carefully oversee and monitor an operation of this nature, where you couldn’t have done that 30 years ago.”
Living quarters and support facilities would be removed, Wight said, significantly reducing the footprint of a pump station. This reduces air emissions, he said, and removes “a large source of the small spills that we have on the pipeline,” which come, not from the pipeline, but from “fluids associated with operations, with people.” Valdez Marine Terminal next on list The next step is the Valdez Marine Terminal.
Wight said that preliminary engineering work has started at the terminal, which is “a big piece of our operation.” It covers almost 1,000 acres, can store 9 million barrels of oil, treats ballast water, handles vapors coming off tanks and ships, generates power and supports the Ship Escort and Response Vessels System.
All the systems at the terminal are now being reviewed, and Wight said he believes the kind of innovative ideas that came up when the pipeline was evaluated “will allow us to change the operations” and probably also “the footprint of what Valdez will look like in the future.” System designed for present volume of oil The existing system — with pump stations and pumping capacity, operating or idle — can handle more than 1.4 million barrels of oil a day. Alyeska is only shipping about 1 million bpd, but, Wight said, with all the pump stations operating, the system could move “right at 2 million barrels a day.”
The state is forecasting production of right at 1 million barrels a day over the next 10 years, and then a decline.
So the new system that Alyeska is designing is for around 1 million bpd, expandable up to about 1.14 million bpd with drag reducing agent, which reduces friction. “We continuously monitor the cost of generating power … to pump oil through the pipeline versus putting friction reducer in the pipeline that therefore takes less horsepower to move oil,” Wight said.
But what if more oil is found? The planned system could handle as much as 10 to 14 percent above the 1 million, the 1.14 million bpd, and would also be scalable to handle lower volumes, “or we could add additional pumps if necessary, which would be our fondest dream, that it (production) would go up substantially.”
How long would it take to scale up? It took the companies about six and a half years to take Alpine to production, Wight said, and it would take Alyeska only 18 to 24 months to expand to handle additional volumes.
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