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Coming down Alaska forecasts 4% less oil production through 2010 than a year ago Larry Persily Petroleum News Juneau Correspondent
The state’s oil production forecast through the end of the decade is down from a year ago. The Alaska Department of Revenue’s price forecast, however, is up.
North Slope oil is expected to average $27.70 per barrel for the fiscal year ending June 30, 2004, then slip to $24.65 in fiscal 2005 before settling in at a long-term average of $22 a barrel for the rest of the decade, the department said in its December forecast.
Those high prices, coupled with cuts in state spending, will extend the life of the state’s budget-balancing savings account to May 2007, the department said in its biannual revenue forecast released Friday, Dec. 12. Oil taxes and royalties provide about 85 percent of the state’s unrestricted revenue each year.
The near-record high oil prices and budget cuts since the department’s forecast of a year ago have added 23 months to the estimated life of Alaska’s Constitutional Budget Reserve Fund, which the state has used since 1991 to cover the gap between declining oil revenues and the cost of public services.
The reserve held $1.898 billion as of Dec. 12, with about $5.5 billion spent over the past 12 years. Production decline continues Alaska’s profitable news of high oil prices does not extend to production, however. The Revenue Department projects North Slope oil production is not likely to ever climb back above 1 million barrels a day unless there are large discoveries and new production from federal leases in the Beaufort Sea, National Petroleum Reserve-Alaska or the Arctic National Wildlife Refuge — if Congress ever agrees to open ANWR to drilling.
Production is expected to average 972,000 barrels a day through 2010, the department said, down from just over 990,000 barrels this fiscal year.
The forecast of average daily production through 2010 is down 2 percent from the department’s April report, and down 4 percent from its forecast of a year ago when the estimate was 1.013 million barrels a day through 2010. The department said the slippage is “due to the re-examination of field reservoir performance and potential.”
Even staying just under 1 million barrels by the end of the decade assumes the start of production from NPR-A, Nanuk, Point Thomson and Liberty, the department said, with combined flow from those fields estimated at more than 120,000 barrels a day by 2010. None of the fields are currently in production. Reasons for lower production forecast The report provided some specifics for its reduced expectations from 2008 through 2013:
“Enhanced oil recovery from the Milne Point Unit was eliminated because of costs associated with procuring off-lease solvent.”
“The production from prospective, undiscovered satellite fields in the Greater Kuparuk Area has also been eliminated in this forecast.”
“The Liberty and Sandpiper fields have been delayed one year to allow operators to determine the best development scope and to secure the associated permitting. Likewise, satellite fields in the vicinity of the Point Thomson Unit have been delayed two years.”
“The near-term outlook for the Kuparuk River field has been reduced due to greater than expected back-out impacts from satellite fields sharing the limited capacity in the production facilities there.”
The department also trimmed its production expectations at Polaris but raised its forecast for Prudhoe Bay satellites Aurora and Borealis, Kuparuk River satellites Meltwater and Tabasco, and from the Water Wheel project at Point McIntyre. Flow could drop to 844,000 barrels in 2015 But without large, new discoveries somewhere on the slope, the department forecasts average daily production will drop further by 2015, to 844,000 barrels.
North Slope production reached its peak in 1988, at 2.005 million barrels per day.
The department’s projections are based on existing, producing fields and discovered fields not yet placed into production.
Without any new discoveries in the Beaufort or NPR-A, the department estimates that almost 17 percent of North Slope production in 2010 will come from discovered fields not currently under production. The amount of that “new oil” in the forecast climbs to 27.6 percent in 2015, or 232,000 barrels a day of new production out of the total estimated flow of 844,000 barrels. Prices remain high Production concerns aside, the state and other oil-producing regions in the world have enjoyed a sustained period of high prices. North Slope crude averaged $23.81 between October 1998 and September 2003, with the price averaging $28.97 for the first half of this fiscal year. Even with some fallback in prices projected for the spring, the Department of Revenue expects the fiscal-year-end average will come in at $27.70 — the third highest price in almost 20 years.
The reasons for today’s high prices are production restraint by the Organization of Petroleum Exporting Countries, continued problems restoring production in Iraq, and low global oil inventories, the report said. The department bases its long-term forecast of $22 a barrel on market expectations of an eventual price drop of several dollars and the inevitability that some OPEC nations will cheat on their production quotas.
“Experience has shown that the OPEC cartel is not perfect,” the department said.
Assuming the department’s oil price and production forecasts are exact, and assuming state spending holds flat at this year’s $2.3 billion general fund budget, the department expects the Fiscal Year 2004 draw on the state’s budget reserve fund would be just under $300 million but would grow to about $575 million next year unless new revenues or further budget cuts are found.
The gap would expand to $800 million in Fiscal 2006 and the state budget reserve would hit empty before the end of Fiscal 2007, the report said.
Gov. Frank Murkowski is scheduled to announce his budget plan for Fiscal 2005 on Monday, Dec. 15. The Legislature returns to work Jan. 12.
A key element of the governor’s fiscal plan is to encourage exploration and new production, reversing the state’s long-term decline in oil revenues. The Legislature last year passed a tax credit bill to boost exploration spending, though supporters acknowledged any benefits are several years away.
The forecast also states that Alaska could expect to earn perhaps $600 million a year in state taxes and royalties from a pipeline carrying North Slope natural gas to market, assuming market prices at $4 per thousand cubic feet. But the report said substantial gas line revenues are at least eight years away, dependent on when North Slope producers or others decide to build the multibillion-dollar project.
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