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Page added on June 1, 2014
Big Oil keen to go big in Alaska again
A Big Oil spending spree in Alaska could reverse a half- decade of declining oil production as companies plan the largest energy project in the state’s history and a series of other investments to rejuvenate its biggest oil fields.
Unless, oil companies say, state voters in August dismantle a new oil tax regime that Houston-based ConocoPhillips and others say makes the state far more attractive than it was under higher levies imposed in 2007 by the legislature and former Alaska Gov. Sarah Palin.
Lawmakers killed those levies last year, but voters could reinstate them by referendum in two months.
For now, oil companies are pressing ahead with plans to build a massive liquefied natural gas project that could cost $45 billion to $65 billion – a far higher price tag than the 1977 construction cost of the state’s 800-mile Trans-Alaska Pipeline.
Exxon Mobil, BP, ConocoPhillips, TransCanada and the state of Alaska expect to finish designing the project late next year.
It would include gas treatment facilities at a giant oil field on the North Slope, an export terminal in a southern region of the state near Anchorage and another 800-mile pipeline linking the two. The state, which would be a part owner in the venture, gave the project a green light in April.
“More favorable taxes really do change the pace and the scale of what we’re able to do here, and the state becoming an equity partner enables us to feel this is much more stable,” Janet Weiss, president of BP Alaska, said in a recent interview with the Houston Chronicle.
“We’ve got to make sure we’re capital efficient and we have tax stability,” she said.
Natural gas surplus
Jennifer A. Dlouhy
Insulation around valves and pipes keeps noise and heat at bay inside the central gas facility at the Prudhoe Bay oil field on the North Slope of Alaska. The facility processes natural gas that has already been separated and dehydrated elsewhere.
The LNG project is a bid to send Alaska’s surplus natural gas supplies – 17 million to 18 million metric tons of LNG per year – to Asian buyers eager to use more gas in their power generation.
It’s also part of a larger industry effort to bolster oil production in a state where daily oil production has fallen by 75 percent since its heyday in the 1980s.
Opponents of the oil tax cuts, including the nonprofit group Repeal the Giveaway, say the new laws would drain the state’s $16 billion savings fund and cost state coffers $4.6 billion through the end of the decade.
The state stands to lose $1 billion a year in tax revenue because of the new oil taxes, making the old system’s $5 billion to $9 billion annual revenue impossible, said Bill Wielechowski, a Democratic state senator.
“It’s a great bill for the oil industry, but it’s a bad bill for the people of Alaska,” Wielechowski said.
Alaskans are invested in the oil business because, unlike any other state, Alaska owns all of the subsurface rights, and its constitution requires it to receive “the maximum benefit” from its resources, he said.
But the oil industry is fighting hard against the repeal.
“You can’t turn on a TV without seeing a commercial paid for by BP, ConocoPhillips and Exxon,” he said. “They’re using their financial resources” to sway the electorate.
Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, said the August vote could be close, as was the one in the Legislature but that the damaging effects of the old system were clear.
“Our investment remained stagnant from 2007 to 2013, when prices were rising and oil companies were investing twice as much in the Lower 48 and across the globe,” she said.
On the decline
Alaska’s oil production fell 21 percent to 531,000 barrels per day from 2011 to 2013, and state regulators expect another 41 percent drop by the end of the decade.
During the state’s production peak in the 1980s, Alaskan oil wells pumped 2 million barrels per day. Alaskan regulators do not include planned projects in their calculations of the state’s daily oil production, but oil companies believe the new capital influx could stem the decline.
At least partly because of the old oil income taxes – which were tied to oil prices – the state’s output dropped even as the Lower 48 states experienced a surge in shale play production.
Alaskan lawmakers’ overhaul of the state’s oil taxes last year was a bid to draw more drilling activity.
Before Alaska Gov. Sean Parnell began the push last year to install a lower, flat tax, the region was too expensive for the increasingly tightfisted industry.
The August ballot includes a measure that essentially would undo the new oil tax laws and all the planning that international players have done in the past year, said Scott Jespen, a spokesman for ConocoPhillips in Alaska.
“From our perspective, that puts all the projects in jeopardy and potentially jeopardizes the LNG project,” Jepsen said.
“If the referendum passes, it would have a chilling effect on investment in Alaska. These projects are going to add tens of thousands of barrels of new production, and without them the production would be that much lower.”
Oil companies say Alaskan costs have risen five times above their levels two decades ago, as they build entire islands of gravel, 30-mile ice roads and central oil-well pads to reach deep-seated bounties under remote, bare and often frozen oil land.
Three crucial fields
Three of the state’s giant oil fields – BP’s Prudhoe Bay and ConocoPhillips’ Alpine and Kuparuk fields along Alaska’s North Slope – are expected to be at the center of Big Oil’s renewed push to raise oil harvests in the state in coming years.
At Prudhoe Bay, the largest North American oil field, BP already has pumped 12 billion barrels – 25 percent more than the 9.6 billion barrels scientists predicted in 1968.
BP estimates the field is good for 12 billion barrels more, and also could contribute 28 trillion cubic feet of natural gas to the state’s LNG plans.
“I think it would have been all over now, based upon the original plans,” said David Eyton, BP’s head of technology. “The funny thing about these super-giant fields is that they just keep going on and on and on. You can deploy new generations of technology every five years and get yet another tranche out of it.”
Bumping up output
Some of the London oil company’s latest advances in the Prudhoe Bay include adding heavier carbon compounds to beef up the gas injections it uses to bolster oil recovery from its wells – a technique that can add 10 percent in production, said Weiss, the BP Alaska president.
BP is planning to deploy two more rigs to Prudhoe Bay in 2015 and 2016 to drill 30 to 40 new wells a year, bringing its rig count there to nine, its highest level in seven years. It expects to spend more than $1 billion to coax more crude from the field, which covers an area half the size of Houston.
BP is evaluating another $3 billion in Alaskan projects that could position over another 200 million barrels of oil in reserves and boost its daily oil production by 40,000 barrels. BP produces 140,000 barrels of oil per day in Alaska.
$2 billion in spending
Not far west of Prudhoe Bay, ConocoPhillips, the largest oil producer in the state, is planning to spend $2 billion to drill more wells in the Alpine and Kuparuk oil fields.
Two of those projects could yield 17,000 barrels of oil per day, but the company will have to build infrastructure around the area, said Jepsen, the company spokesman.
Decades ago, ConocoPhillips and others could expect to yield 80,000 barrels a day from a $1 billion investment, he said.
“Environmental costs tend to be higher, it takes longer to do things, labor is more expensive,” he said.
11 Comments on "Big Oil keen to go big in Alaska again"
Davy, Hermann, MO on Sun, 1st Jun 2014 7:09 am
My family supplied heavy equipment to the Alaskan pipeline. I was there as a kid. It was a fantastic place and the pipeline exciting like a gold rush. I remember experiencing the long Alaskan summer days. This LNG effort should have been done years ago because I now fear it is too late to complete. I may be wrong but I am afraid we have as little as 3 years before a severe contraction. I feel it is a good idea to export Alaskan gas. I understand there are big reserves there. I also understand ANWR is mostly gas. I am not an expert but that is my understanding. If BAU is going to survive even a few more years we will need these efforts and many others.
Mike2 on Sun, 1st Jun 2014 7:52 am
BAU was a Phrase that was first introduced in WW1 in England(while german submarines where torpedoing the supplys for England -which was always quite poor on natural resources when it comes to a comparison to other countries. So why the hell all this apocalypsenicks are dreaming of the ‘big crash of “BAU” even this crash didn’t occur in the darkest ages of WWs(Times with hundreds of thousand to millions of hunger deaths)?!?
Davy, Hermann, MO on Sun, 1st Jun 2014 8:17 am
Yea Mike, hope you are right but doomers face reality cornucopians and denialist pretend and justify by says “that’s how it always been” or “it didn’t happen then” of course until it happens. Wake up bloke
peterjames on Sun, 1st Jun 2014 8:36 am
It was never too diificult to return to bau after ww1. Before ww1, you walked to work on the farm or the factory, used your steam operated machinery, and returned to your 1 bedroom house that had no cooling or refrigeration, but was heated by a coal fire. And if you were lucky, you may have had some meat for dinner. Today we call that extreme poverty, and we donate money to people who live like that. BAU is slightly different today, and requires alot of fossill fuels. Theres no doubt we could revert back to ww1 bau, but we would have to kill around 5 billion people, and evacuate cities (you could grow crops in the walmart car park, but would probably starve before you dug up enough bitumen). 2014 BAU is slightly different to 1920 BAU.
Plantagenet on Sun, 1st Jun 2014 9:48 am
There is need to cut taxes on existing oil production in Alaska. The tax cuts on big oil are very foolish
meld on Sun, 1st Jun 2014 11:10 am
why would anyone want BAU to continue? sick
Mike2 on Sun, 1st Jun 2014 11:34 am
“why would anyone want BAU to continue? sick”
Who do you gona think makes all the clothing for ~7billion people grows the food for them, produces the fertilizers for sufficient for sufficient harvest, transports all this food, clothing, fuel for home-heating, beaks the bread, repairs the roofs, builds new homes…?
If you want to life like in the dark ages, you “just” have to reduce world population to the size it was in the dark ages(~1,5-2billion). But also this don’t prevent the survivors from poverty and a short life(like also in the dark ages,..)
But why should BAU collapse immediately? Oil production will not sink by more than ~5% per year even not a single oil-well will be drilled from now on.
But ~2/3s of our energy(world) are even not by oil but coal, NG, Hydro.
When oil prices rises more companies will by LNG-trucks and people would by more CNG-cars. A depression? probable! Fuel and food rationing for several months (like in times of big wars)? Possible! But collapse of minimum of “BAU” what was even maintained in the worst times of WWs? This guys are gone bullshitting us, not more!
diemos on Sun, 1st Jun 2014 1:59 pm
Existing hydroelectric plants could provide a north american standard of energy consumption (50,000 kW/hrs per person per year) for 70 million people.
Add in solar and biofuels and you could easily accommodate several hundred million at a north american standard of living indefinitely.
7 billion not so much.
Davey on Sun, 1st Jun 2014 2:03 pm
Diemos, you can’t maintain complexity at those numbers. Complexity is required to maintain all the systems mentioned
MKohnen on Mon, 2nd Jun 2014 2:04 am
Mike2,
Very definitely, the definition of BAU has changed drastically. If you are talking BAU from the perspective of raw resources, that becomes quite problematic. I think few doubt that, if order could be maintained and equitable resource allocation could be arranged, then a post-WWI style of BAU could also be maintained. But there are vastly more players vying for the scarce resources (the implied cause of the collapse of BAU.) And let recent events clear up any doubt as to whether the large players intend on playing nicely! As such, a continuous drop of ~5% would create a continuous struggle for access to the dwindling resources, ensuring that a state of warfare exists through the long collapse. The big difference this time is that, unlike at any other point in history, everyone knows that the planet itself is tapped out. Even after great wars, people could believe that growth would return and things would go back to their plentiful, cornucopian ways. But the very cause of the disruption of BAU this time shatters that dream. Thus, when the resources start to collapse, no matter the speed, so does BAU.
Davy, Hermann, MO on Mon, 2nd Jun 2014 6:06 am
Yeap, MK, the “POTENTIAL” for growth is not there. Just like the potential energy of a rock in a hole is nil. I will again pipe in my systematic thinking. There is a significant difference between a growth cycle and decent cycle. Decent includes chaos with its random nature. There is a significant difference between a system that has been forced far beyond its equilibrium point and one that has a natural cycle to relieve disequilibrium in a gentle adjustment. There is a significant difference in a system that has reach peak complexity in a state of limits to its growth with diminishing returns on problem solving and a population in overshoot to carrying capacity. A system with its vital ecosystem itself ready to bifurcate from habitat loss and species extinction. A system with the primary life supporting environment of the climate itself being forced and ready for an abrupt climate shift. At all other points in human history these above mentioned systematic states were not present “GLOBALLY”. Some of these conditions may have been present regionally or locally. This means there are no greener pastures to move on to. There is no longer substitution of energy sources through technology, economic activity, and human organization because there is no longer growth potential resources available or naturally functioning habitat. Our evolutionary tract of knowledge, technology, and homocentric development has reached a dead end. We are an extinction event species. We may evolve back into a more tribal and spiritual species like we saw with the Native Americans pre-European but that will require a magnitude 10 reduction in population or more. Technology, economy, and human structures at a high complexity level quickly suffer entropic decay. It is a crap shoot how much of this can be retained by the modern equivalent of monasteries and enlightened fiefdoms that may appear post collapse. I am not saying a softer landing is not in the cards I just feel it is unlikely considering the hyper complexity and hyper volatility present today. We have a human system with so much energy built up into a mixture that is ready to explode. It is hyper volatile mixture of technology, products, peoples, and machines with the potential energy of a small sun ready for one short final burst. This final burst will ensure little infrastructure is left if that be the play humans end up in. If the attitude of TPTB were different and if we did not see the “Peak Absurdity” present today in our global system of parasitic wealth transfer, manipulation, corruption, disregard for law, and an outright mechanization of evil I would be more optimistic. I firmly believe the higher spiritual nature of humans is only possible at the bottom in the tribal or small communities. Man lived most of his history in this spiritual state. His evolution is not made for global hyper complexity. His organizational instincts are not for global hyper complexity, a situation of overshoot, and hyper volatility near a bottleneck.