Peak Oil is You
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Page added on April 12, 2014
Alaska’s Peak Oil Crisis
Competition often breeds excellence.
Nowhere else does this cliché hold more true than in the shale boom that’s currently underway. In North Dakota, we see drillers are consistently improving their operational efficiencies with practically every new well drilled.
Independent companies like Continental Resources have lowered their average well costs in the Bakken by almost 20%.
Their success is far from an anomaly, and it has become a standard for every other operator. What’s more is that this isn’t restricted to just North Dakota.
Today, competition has helped the oil bonanza spread like wildfire across the lower 48 states as new drilling technology unfolds.
Unfortunately, that simply isn’t the case for everyone.
Boom to Bust for Big Oil
Take a look at the other side of the spectrum.
Alaska has arguably been the most sensational disappointment in the U.S. oil industry since the 1980s, and the blame rests squarely on the greed of Big Oil.
Just three major oil companies — ExxonMobil, ConocoPhillips, and BP — have monopolized Alaska’s North Slope, where 97% of the state’s production is pumped.
In other words, these three oil behemoths have a virtual stranglehold on the state’s oil industry. And if there’s one thing the supermajors fear more than anything else, it’s competition.
That, in turn, has led to a devastatingly steep 74% decline in production since 1988.
Not only has Alaska slipped down the ladder to become the fourth-largest oil-producing state, but things could get even worse over the next few years.
The reason is due to the fact that oil from the North Slope is transported south via the Trans-Alaska Pipeline System (TAPS). This 800-mile pipeline system is the only way for Big Oil to ship its crude from Prudhoe Bay to Valdez.
The problem is that the TAPS will be shut down if production drops below 350,000 barrels per day.
Over the last four years, the North Slope’s annual oil production declined at an average rate of 5.85%. At this pace, the state will reach that 350,000 bbl/d breaking point by 2020.
Sometimes, however, bad news is good news…
ExxonMobil and its two friends in Alaska can expect production in the North Slope to only decline by 1.9% for the fiscal year ending June 30th rather than the projected 3%. At least, this is according to the spring report released by Alaska’s Department of Revenue.
The “good” news doesn’t last long. The report also projects that North Slope production will decline by nearly 5% in 2015.
All this does, however, is only slightly push back the closure date for the TAPS. Below, notice that production in the North Slope is expected to average 342,000 barrels per day in 2022.
Click Table to Enlarge
As it is now, petroleum accounts for almost half of the state’s total revenue. Over the next two years, that source of revenue is expected to decline by nearly 40%.
The peak oil clock may be ticking… but not everywhere.
9 Comments on "Alaska’s Peak Oil Crisis"
Plantagenet on Sat, 12th Apr 2014 2:56 am
Blaming the oilcos for the oil production fall in Alaska is dumb. The oilcos have spent billions on maintaining production on the North Slope. The fact of the matter is that the Prudhoe Bay reservoir has peaked. Oil production is going to continue to fall unless new oilfields are found, and that problem isn’t with the oilcos—the problem is the federal government blocking access to ANWR and other prospective areas where more oil could be obtained.
eugene on Sat, 12th Apr 2014 1:51 pm
If it’s not the oil companies, it must be government. I just know there are limitless amounts of oil out there and somebody won’t let me have it! Last I heard ANWR was mostly gas.
Trent on Sat, 12th Apr 2014 2:38 pm
It is Obama’s fault..and the greenies!!!
Dave Thompson on Sat, 12th Apr 2014 3:08 pm
The cheap easy stuff is running out, not that any of it is easy or cheap. But in relative terms we use up the most excess able first.
rockman on Sat, 12th Apr 2014 4:11 pm
Lack of competition? I was taking leases in offshore Alaska when I was with Amerada Hess 36 years ago. In fact we were the biggest winners in the auction which scared the hell out of management and we immediately sold down our interest in those blocks. Which was fortunate since we didn’t find sh*t. LOL. My little company can take whatever leases might be available on the North Slope today and drill some wells. Exactly how would XOM et al stop us?
Nony on Sat, 12th Apr 2014 4:43 pm
A lot of promising areas in Alaska are off limits to drilling because of the Feds (either explicitly like ANWAR) or implicitly (obstruction of permitting).
We’ve almost doubled the US production of oil on non-Federal lands in the past 6 years. (3.5 million bpd to 7 million bpd) Over the same period, production on Federal lands has actually declined (1.5 million bpd to 1.2 million bpd).
Davy, Hermann, MO on Sat, 12th Apr 2014 5:20 pm
NOO, what part of “Hostile Nature” do you not understand????? Shell got their ass kicked in Alaska. It is not a place to go and make easy money. It is a place to go and loose your shorts
Bob Owens on Sun, 13th Apr 2014 6:47 pm
This is good news for Alaska and America. Just not the driving public. Alaska can slowly return to the natural state it has been. Tourism can help ease the shock to the new/old world. Instead of driving through Alaska in your RVs and snowmobiles you will take tour buses and do some hiking. I don’t see a down side.
InformationForager on Mon, 14th Apr 2014 9:16 pm
Why will the TAPS be shut down if production drops below 350,000 barrels per day?