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ALASKA'S OIL & GAS INDUSTRY
BACKGROUND • HISTORY • THE FUTURE • FACTS • PRODUCTION SB21 • PRODUCERS & EXPLORERS • ALYESKA PIPELINE SERVICE COMPANY REFINERS • LINKS • SOURCES • COMMENTS  Alaska still runs on oil. Alaska’s North Slope has responsibly produced more than 18 billion barrels of oil since the discovery of the Prudhoe Bay oil field. Oil production has been the engine of economic growth in Alaska. It has funded up to 90 percent of the state’s unrestricted General Fund revenues in most years and has accounted for over $180 billion in total revenue since statehood. The oil and gas industry paid over $3.1 billion in state and local taxes and royalties in FY 2019, including $2.7 billion to state government and $449 million to local governments. North Slope production averaged 496,106 barrels per day in FY2019. The April 2020 forecast assumes that production will decline to 486,400 bpd in FY2020 and 486,500 bpd in FY2021. New fields offer tremendous potential to increase production in the 2020s but these developments are still contingent on final investment decisions and commitments of billions of dollars of new investments on the part of oil and gas producers. The oil industry accounts for one-quarter of Alaska jobs and about one-half of the overall economy when the spending of state revenues from oil production is considered. In other words, without oil, Alaska’s economy would be half its size. In 2018, the industry accounted for more than 77,600 direct and indirect jobs and $4.8 billion in Alaska wages. Alaska residents represent 84 percent of primary company total employment in Alaska. For every primary company job, another eight are supported by primary company activity in Alaska and seven more jobs supported by oil-related taxes and royalties payments to the State of Alaska. Cleary, when the industry prospers, so does Alaska's economy. While the economic impact of oil and gas activity and production in Alaska is profound, it is important to note that Alaska production has been in a long-term decline trend since peaking in 1988 when the state accounted for 25 percent of U.S. domestic production. In fact, the Trans-Alaska Pipeline System (TAPS) is now running at a quarter of its capacity. In recent years, Alaska has fallen from second to sixth in U.S. oil production. With an estimated 40 to 50 billion barrels of conventional oil remaining to be developed on the North Slope and offshore areas of the Alaska Arctic, it’s not for a lack of resource that production has declined. The majority of the remaining resource is located on federal lands and offshore areas where access has been hindered or blocked either by federal policy, environmental litigation, or a complex and ever-changing regulatory regime. On state lands, the government tax bite under the previous tax system (ACES) was so high that Alaska was unable to compete with other oil provinces for production-adding investment. The good news is that a North Slope renaissance is now underway. The More Alaska Production Act, commonly referred to as SB 21, has drawn billions of dollars in new investment to Alaska over the past several years. The oil tax reform in 2013 made Alaska more competitive and a more attractive place to invest. As a result, Alaska saw no production decline in 2014, a slight dip in 2015, followed by the first production increase in 14 years in 2016. Moreover, new promising oil discoveries in the Nanushuk formation have led geologists to label the western North Slope as a new global energy "super basin" with the potential to add hundreds of thousands of barrels per day into TAPS. Once a large oil province where daily production reached 230,000 barrels per day in 1970, Cook Inlet output slowed to a trickle over the decades but has risen in recent years to over 15,000 barrels per day, well above its FY 2008 level. The substantial increase in production occurred after oil tax policy reforms were enacted, resulting in a sharp increase in industry investment. The first major discovery of oil in Alaska was on the Kenai Peninsula at Swanson River in 1957. The U.S. Congress viewed that discovery as the foundation for a secure economic base in Alaska, and Statehood was granted two years later. However, it was the discovery of the giant Prudhoe Bay oil field on Alaska’s North Slope in 1967 that established Alaska as a world-class oil and gas province. Two years later, the discovery of the nearby Kuparuk field, the second-largest in North America after Prudhoe Bay, confirmed Alaska’s position. Four of the ten largest oilfields to date are located on the North Slope. Since these discoveries, a series of major oil and gas fields have been developed along the central North Slope. The original estimate of conventional oil in place at Prudhoe Bay was 24 billion barrels of which 9.6 billion was considered recoverable. With advancements in drilling technology and the use of enhanced oil recovery through gas injection, more than 12 billion barrels of oil have been produced at Prudhoe Bay alone with significant resource still remaining in the field. The 2013 More Alaska Production Act is working and doing what it’s supposed to do – spur new investment to increase oil production and generate more revenues, especially in a low oil-price environment. In recent years, Alaska has seen increased activity across the North Slope and in Cook Inlet thanks to a much-improved business climate created by oil production tax reform. The tax system has allowed the state to better compete for the capital needed to advance Alaska projects and stem the decline in North Slope production. New oil plays in the Nanushuk formation by ConocoPhillips Alaska, Inc., Oil Search Alaska, Repsol, and Armstrong could trigger a major reversal in TAPS throughput by adding hundreds of thousands of barrels per day of new oil into the pipeline with commensurate economic benefits across the state. Maintaining a stable tax policy with incentives to invest is key to seeing these projects come into production. Moreover, there is a high potential for new discoveries in the Arctic, both onshore and offshore. In the near term, oil will come mostly from producing fields from state lands onshore, which may hold five billion barrels of conventional oil remaining. There are other known but not yet producing fields on state land that could hold billions of barrels. Federal areas onshore and offshore may contain up to 40 billion barrels of oil. A U.S. Department of Energy report estimates the recoverable oil reserves on the North Slope to be 22 billion barrels, including reserves from existing fields, as well as undiscovered resources. Natural gas estimates reach as high as 124 trillion cubic feet (tcf). A revised U.S. Geological Survey assessment of the National Petroleum Reserve-Alaska (NPR-A) resulted in an estimate of 8.8 billion barrels of oil, up from 900 million barrels of oil in a 2011 study. An assessment of the 1002 Area of the Arctic National Wildlife Refuge (ANWR) gave a mean estimate of 7.8 billion barrels of technically recoverable oil. The Alaska Outer Continental Shelf (OCS) constitutes one of the world’s largest untapped resources potentially reaching as high as 26 billion barrels of oil and 132 tcf of natural gas, with the majority being in the Chukchi Sea. In February 2008, the second most successful oil and gas lease sale in the history of the United States took place, covering millions of acres in the Chukchi Sea. The sale raised a record $2.7 billion in federal revenue. After 40 years of production across the North Slope, the industry is actively pursuing new ways to develop remaining reserves, especially the more challenging resources, including heavy and viscous oil, light oil from small, more remote fields, and natural gas, including gas hydrates. If the technical and economic hurdles can be overcome, heavy oil development will be important to sustaining Alaska’s oil production long into the future. The size of the resource is significant, but so are the challenges as the oil is thick and sticky, and will require new kinds of wells and processing. The Ugnu heavy oil deposit beneath Prudhoe Bay is estimated to hold 20 billion barrels of oil in place. Conservative estimates suggest recovery rates of about 10 percent, with considerable upside as technology advances. The North Slope also holds large known deposits of viscous oil, which is a type of heavy oil but not as thick. With evolving technology, increasing levels of production will come from this resource. In addition, the North Slope is rich in source rocks that have the potential to deliver a successful unconventional shale-based oil and natural gas resource play. New drilling technology has led to major advances in reducing industry’s footprint on the North Slope. In 1970, a typical drill site utilized 20 acres, reaching a subsurface area of 502 acres or a surrounding area of .08 square miles, or 1 mile out from the drill pad. Modern drill sites can now be limited to six acres, with a subsurface drillable area of 32,170 acres or a surrounding area of 50.3 square miles, or eight miles out from the pad. Alaska’s offshore waters and onshore prospects hold the potential to fuel the state’s economy for decades and to play a key role in ensuring America has the energy it needs until alternative sources become economically feasible on a large scale.
The More Alaska Production Act (SB21) is working
AIX: Cook Inlet ALYESKA PIPELINE SERVICE COMPANY Alyeska Pipeline Service Company is responsible for operating and maintaining TAPS. The company acts as an agent for five companies which own the pipeline: BP Pipelines (Alaska), Inc. 48.44%, ConocoPhillips Transportation Alaska, Inc. 29.20%, ExxonMobil Pipeline Company, 20.99%, and Unocal Pipeline Company, 1.35%. Alyeska directly employs about 800 people with a total of 1,600 direct and indirect employment associated with the pipeline. The 800-mile, 48-inch pipeline is one of the largest pipeline systems in the world. The company has upgraded the pipeline’s pump stations and control systems to enhance overall pipeline safety and reliability. Alyeska has successfully transported more than 18 billion barrels of oil to market. The American Petroleum Institute awarded Alyeska its 2008 Distinguished Operator Award, which is among the oil industry’s top honors and is reserved for pipeline operators that demonstrate excellence in safety, environment and integrity. In 2017, Alyeska celebrated the 40th anniversary of TAPS, which began operations on June 20, 1977. Petro Star, Inc.: Valdez, North Pole • Alaska Department of Natural Resources, Division of Oil & Gas • Alaska Department of Revenue • Alaska Department of Labor • Alaska Journal of Commerce • Alaska Oil & Gas Association • Alyeska Pipeline Service Company • Institute of Social and Economic Research, University of Alaska Anchorage • McDowell Group • Petroleum News • U.S. Department of the Interior • U.S. Department of Energy |
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