Rena Delbridge, Alaska Dispatch, March 6, 2010
Less and less oil is flowing through that engineering masterpiece that is the trans-Alaska oil pipeline, built in the 1970s to link the North Slope's liquid gold with insatiable markets.
And at some point in the near future -- maybe as soon as 2014 -- flow is expected to dwindle enough to cause potentially major operational issues.
There's a solution that sounds almost too easy -- feed more oil into the pipeline. But the Slope's legacy fields, Prudhoe Bay and Kuparuk, are running low on easy-to-reach oil, and new, smaller fields aren't expected to top off those declines.
As much as the state would like to boost flow, so would producers. BP Alaska spokesman Steve Rinehart dubbed decline "the common enemy."
The issue is at the heart of the biggest matters before the Legislature this session, with several changes to the ACES [Alaska's Clear & Equitable Share] oil tax on the table. But luring companies to seek out new oil has been at the center of major controversial debates throughout the decade. Battles were fought in 2006 and 2007 over how to structure a state tax system to drive companies into uncharted terrain in pursuit of fresh flow. And the Alaska Gasline Inducement Act, passed in 2008, was designed to link natural gas with markets. Natural gas development isn't seen simply as a replacement for Alaska's cash cow, but more for its potential to spur more investment in oil fields delicately balanced with gas reserves.
Several proposals this year call for Alaska to offer a sweeter tax deal for producers. Republicans backing the breaks say tax cuts will give companies more money to invest in new developments on the Slope.
Rep. Craig Johnson, R-Anchorage, sponsored one of the bills amending oil taxes.
"Sometimes we miss the importance of oil as we get wrapped up in a gas pipeline," he said. "But our future is tomorrow and the next day as well."
He said Alaska must encourage more production out of the legacy fields in order to maintain pipeline flow.
"Anytime we lose sight of the fact oil is king in Alaska, we're doing a disservice," he said. "Those fields are our lifelines."
Democrats opposed to those cuts say the tax is working as intended by drawing smaller producers to outlying fields.
Like many Fairbanks residents, Rep. David Guttenberg was employed on the pipeline, clearing right-of-way in advance of construction in 1974 and continuing to work on the project for a number of years. He is adamant that the way to bring more oil into play is by opening the basins to smaller operators willing to sink the money into riskier outlying fields. He's just as certain that changes to the current tax structure that may favor the Slope's Big Three producers would send the wrong message while blocking those smaller companies.
"Before we change ACES, we're going to need to do a better job of evaluating what it has done," Guttenberg said. "The industry told us many times stability is one of the most important things. And clearly, they already have that."
Guttenberg said lawmakers should ask producers why they didn't turn profits around as new investment in the decades since oil has flowed, when taxes were low.
"The state's major responsibility now to increase flow is not to give them tax breaks or incentives, but to expand the competitive side," he said.
Rinehart, with BP, offered a different take.
"You can't stop (decline), but you can slow it down by continuing to invest in new developments, and especially in the big, mature fields," he said. "Year by year, the big fields is where the largest part of the ‘new' production will come from."
Adding more oil isn't the only solution. Alyeska teams are running through a number of tests and models to gain a better sense of what will happen as flows diminish. Once they know what the likely problems will be and what solutions are technologically available, they'll weigh those against implementation costs and come up with a plan by the end of this year. Costs are important -- as Alyeska's operational expenses go up, so does the tariff producers pay to ship oil. Greater costs bring down the value of a barrel of oil, potentially dragging down producer profits as well as the state's tax take.
Flow, or throughput, peaked in 1988 at 2.1 million barrels per day from the Slope to Valdez. That rate has dropped to about 680,000 barrels per day, and is expected to continue sliding five and half percent per year, based on numbers provided to Alyeska by producers and the state Department of Revenue.
Flow is expected to hit about 500,000 barrels per day in 2014 to 2016, a level that will cause problems.
"We will hit that," Alyeska project manager Pat McDevitt told lawmakers on Tuesday. "There is nothing out there to get us away from that."
Less oil can mean a host of problems for the 48-inch pipeline designed to carry hot volumes. Lower throughput means oil is flowing more slowly and at colder temperatures.
"This is a marvelous pipeline, the way it was designed, but all pipelines ... you have to adjust the infrastructure to make it work better," said Mike Joyner, Alyeska's senior vice president of operations.
McDevitt ran through the anticipated problems. Slower oil is already leaving wax deposits along the line, which hinder attempts to pinpoint corrosion as high-tech pipeline inspection gauges, or pigs, are shot through the line. Less turbulence in the line opens the door for water and solids mixed with the crude oil to separate and settle on the pipe bottom. Temperatures could drop as low as 32 degrees, possibly turning water into ice.
The trick will be zeroing in on solutions that keep the line economically viable.
Additional processing on the Slope could pull more water from the oil. Chemicals could be added to reduce wax or to suppress the freezing point, but that could be costly. Options even range to heating the crude oil at points along the line -- also likely to be an expensive fix.
"Efficiency and engineering upgrades help fit the system for the future," Rinehart said. "Still, fewer barrels means more cost-per-barrel to move oil through the system."
The North Slope's biggest producers own the oil pipeline. BP owns the largest share of at 47 percent. ConocoPhillips owns 28 percent; Exxon Mobil, 20 percent; Unocal 1 percent; and Koch 3 percent. Alyeska was formed to operate the line.